UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-K
ANNUAL REPORT
ANNUAL REPORT PURSUANT TO REGULATION A OF THE SECURITIES
ACT OF 1933
For the year ended December 31, 2020
Waverly Labs Inc.
(Exact name of registrant as specified in its charter)
Commission File Number: 024-11323
Delaware | 47-2321350 | |
(State or other jurisdiction of
| (Employer Identification Number)
| |
19 Morris Avenue Brooklyn , NY. 11205 |
646-480-2644 | |
(Address of principal executive offices) | (Registrant’s telephone number, including area code) |
Series C Common Stock
(Title of each class of securities issued pursuant to Regulation A)
In this report, the term “the company” or “us” or “we” refers to Waverly Labs Inc.
Forward-Looking Statements
This Annual Report on Form 1-K may contain forward-looking statements relating to, among other things, the company, its business plan and strategy, and its industry. The words “believe,” “estimate,” “expect,” “anticipate,” “intend,” “plan,” “seek,” “may,” “will,” , “draft”, “initial”, “future”, or the negative of these terms or other variations and similar expressions or statements regarding future periods are intended to identify forward-looking statements. Any such statements reflect management’s current views with respect to future events based on information currently available and are subject to risks and uncertainties that could cause actual results to differ materially. Any forward-looking statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.
These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any predictions of future results, performance or achievements that we express or imply in this Annual Report or in the information incorporated by reference into this Annual Report. Certain important risk factors that could cause actual results to differ materially from those in any forward-looking statements are described in the section labeled “Risk Factors” within the Company’s Offering Circular filed with the Securities & Exchange Commission on January 19, 2021, as modified by any Supplements and Amendments thereto.
We have been materially and adversely affected by the COVID-19 outbreak. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report, and we are actively monitoring the global situation and its effects on our business, financial condition, liquidity, and operations. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 outbreak on our results of operations, financial condition, or liquidity. However, if the pandemic continues, it may have a material adverse effect on our results of future operations, financial position, and liquidity.
ITEM 1. BUSINESS
This discussion should be read in conjunction with (1) the other sections of this Report, including, but not limited to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the attached Financial Statements and related exhibits, and (2) our Offering Circular for our Regulation A+ offering, including, but not limited to, the sections titled "Risk Factors." The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Report and the Offering Circular.
Summary
We are an innovative consumer products company founded in the state of Delaware in September of 2014. Our mission is to develop a global brand of voice and language products that combine innovation in hardware and software into cutting edge wearable speech translation technology. We strive to improve the user experience by creating not only translation capabilities but intuitive designs, features and robust user experiences. We have a passion for technology and a passion for expanding the means of communication and connection with speech translation systems.
Our Products
In 2016, we launched our first smart earpiece, “Pilot Smart Earbuds”, that provides music streaming, voice assisted capabilities and automatic translation of 15 spoken languages. We also launched the “Pilot Speech Translator”, a mobile application which facilitates mobile translation on smart phones and serves as the interface to toggle between languages on our Pilot Smart Earbuds. Our Pilot Smart Earbuds were the first consumer product to offer language translation in an earbud format, and we sold over $8,000,000 in products to over 30,000 customers between 2016 and 2019.
In 2019, as a result of our evaluation of market trends, competition, gross margins and the potential for broader market opportunities, we discontinued our Pilot Smart Earbuds and focused our efforts on launching our second product, the “Ambassador Interpreter”, an over the ear translation product engineered to accommodate more varied user experiences, such as classrooms and lectures, group meetings and international conferences. The Ambassador Interpreter is designed to target professional interpreters, bilingual businesses, foreign students and travelers.
The Ambassador Interpreter, combined with the accompanying App, is extremely user-friendly and has innovative translation features which makes it well positioned to disrupt the global interpretation and translation market. The Pro version of the App, if released, will allow users to customize our innovative features to their professional, commercial or personal needs.
Our Ambassador Interpreter has the following characteristics:
● | Patented Bluetooth architecture that allows 4 units to sync with one smartphone | |
● | Interprets 20 languages and 42 dialects | |
● | Over-the-ear feature for hygienic sharing | |
● | Superior translation and signal strength | |
● | Capable of capturing speech up to a distance of 8 feet | |
● | Battery life of up to 6 hours | |
● | Three modes: Listen, Lecture, Converse |
Sales and Distribution
Despite strong economic, political and trade anxieties, the global voice and language sector has continued to grow, and the specific demand for professional interpreters and foreign language employees is continuing to experience rapid growth. We generate revenue through both direct product sales and optional subscription services to the “Pro” version of our application, which we expect to release in late 2021. A significant portion of our Pilot Smart Earbuds sales were to professional organizations, which often purchased bulk orders (2-15 units per customer), and we expect this trend to continue with our Ambassador Interpreter.
The current sales price of the Ambassador Interpreter is $199, and we expect to receive recurring revenues through subscriptions to the “Pro” version of our app.
In January 2019, we discontinued manufacturing the Pilot Smart Earbuds so we could focus our efforts on completing the development of, and marketing the Ambassador Interpreter. We, however continued sales of our remaining inventory of the Pilot Smart Earbuds, which inventory was fully depleted in November 2019. We began pre-sales of the Ambassador Interpreter in May 2019, and began shipping in September 2020, with remaining pre-sales being fulfilled throughout 2021.
Manufacturing and Production
We source materials for our products from all over the world, and manufacture our products in China. Source materials we purchase, include chipsets, microphones, speakers, micro-electronic sensors and other materials, fabrics, tools and molds. Our software is developed in collaboration with third party software development teams located in the United States, Europe, the Middle East and China. Certain components of our software, including, our automatic speech recognition systems, machine translation engines, speech synthesis and multi-layered algorithms are licensed from third parties, which we believe makes our products uniquely superior in both our quality of translation capability and user experience.
Government Regulation
Our operations are subject to complex and changing laws and regulations on subjects including, but not limited to: privacy, data security and data localization; consumer protection; advertising, sales, billing and e-commerce; product liability; intellectual property ownership and infringement; Internet, telecommunications, and mobile communications; digital content; availability of third-party software applications and services; labor and employment; anti-corruption; import, export and trade; anti–money laundering; and environmental, health and safety.
Intellectual Property
We hold one patent and two trademarks. Our technology incorporates various off-the-shelf software which we license from third parties.
Competitors
There are several companies that build and sell competing voice and language earphone products. Our competitors range from small start-up companies that have not fully developed their products to global companies. For example, Google markets and sells smart earpieces that translate speech through the Google Translate app on a user’s smart phone, Chinese-based, Timekettle, sells an earbud translation system similar to ours, and Orion Labs, based in San Francisco, California, sells voice activated communication devices that translate speech. We believe that we differentiate ourselves through our superior translation software (more than 20 languages and 42 dialects), superior earpiece quality and our capability to deliver a superior translation experience.
Employees
We currently employ three full-time employees, and engage several independent contractors.
Property
We lease shared office space at 19 Morris Avenue, in Brooklyn, New York. Our monthly rent is based on the number of desks needed each month. Our current monthly rent is $2,450.
Legal Proceedings
We are not involved in any litigation, and our management is not aware of any pending or threatened legal actions relating to our intellectual property, conduct of our business activities, or otherwise.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations for the twelve-month period ended December 31, 2020 (the “2020 Annual Period”), and the twelve-month period ended December 31, 2019 (the “2019 Annual Period”) should be read in conjunction with our audited consolidated financial statements and the related notes included in this report.
Overview
We were formed as a Delaware corporation on June 16, 2014. Our headquarters are located in Brooklyn, New York. We develop voice and language products, specifically at the convergence of wearable technology and speech translation.
Results of Operation
Revenue
For the 2020 Annual Period, our revenue was $432,312, compared to $456,114 for the 2019 Annual Period. The decrease in revenue during 2020, is primarily attributable to the fact that during 2019, we discontinued of our Pilot Smart Earbuds in order to pivot to the development and release of our new product, the Ambassador Interpreter, and during September 2020, we began selling the Ambassador Interpreter.
Cost of Sales
For the 2020 Annual Period, our cost of sales was $348,510 compared to $383,429, for the 2019 Annual Period. The decrease in cost of sales for the 2020 Annual Period was primarily due to the decrease in the unit production cost of the Ambassador Interpreter.
Gross Profit
For the 2020 Annual Period, our gross profit was $74,802, compared to $72,685, for the 2019 Annual Period. The increase in gross profit for the 2020 Annual Period, primarily resulted from a decrease in unit production cost.
Operating Expenses
Our operating expenses consist of general and administrative expenses, sale and marketing expenses, and research and development expenses. For the 2020 Annual Period, our operating expenses were $1,207,264, including, $832,579 for general and administrative expenses, $145,981 for sales and marketing expenses, and $228,704 for research and development expenses. For the 2019 Annual Period, our operating expenses were $1,104,854, including, $670,050 for general and administrative expenses, $193,452 for sales and marketing expenses, and $241,352 for research and development expenses. The increase in our operating expenses for the 2020 Annual Period, is primarily a result of increased compensation and employee costs due to the development of the Ambassador Interpreter.
Operating Loss
Our operating loss for the 2020 Annual Period was $1,132,462, compared to $1,032,169 net operating loss for the 2019 Annual Period. The increase in operating loss for the 2020 Annual Period, is primarily due to additional compensation to employees including stock based compensation.
Other Income/Expenses
Other income and expense for the 2020 Annual Period was $2,858 and consisted of interest expense. We incurred $22,766 in other expense during the 2019 Annual Period, which consisted of the disposal of assets, interest expenses and other income and interest income.
Net Income/Loss
Our net loss for the 2020 Annual Period was $1,135,320, compared to a net loss of $1,054,935, for the 2019 Annual Period, a difference of $80,385. The increase in net loss is primarily due to the additional worked needed to launch to new Ambassador product.
Liquidity and Capital Resources
Since our inception, we have raised over $2,700,000 through various securities offerings, which we have used for operations. As of December 31, 2020, we had $163,780 in cash, compared to $436,446 as of December 31, 2019. The Company also had restricted cash related to Indiegogo reserves of $27,372 and $81,318 as of December 31, 2020 and 2019, respectively. As of March 31, 2021, and excluding any future proceeds of our current Regulation A+ offering, we have sufficient capital to fund our operations through August 2021.
We will incur significant additional costs in developing products, and in production, marketing, sales and customer service, and intend to continue to fund our operations through funds received from our recent Regulation Crowdfunding campaign, funds received through this offering, the proceeds of various loans, and additional debt and/or equity financing we may obtain in the future, as determined to be necessary. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results.
Debt
On April 21, 2020, we obtained an economic disaster relief loan from the US Small Business Administration in the principal amount of $51,500 which is secured by all of our assets. In connection therewith, we entered into a Loan and Authorization Agreement, a Promissory Note and a Security Agreement. The loan has a term of thirty (30) years and bears interest at a fixed rate of 3.75% per annum. We are required to make monthly loan payments of $251 commencing in April 2021. We are using the proceeds of the loan for working capital.
On April 7, 2020, we entered into a loan with Chase Bank in the principal amount of $66,207, pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The loan is evidenced by a promissory note which bears interest at a fixed rate of 0.98% per annum, and the first six months of interest is deferred. The loan has an initial term of two years and is unsecured. We have used the proceeds of the loan for payroll and other expenses permitted by the CARES Act and expect that the loan shall be fully forgiven. We applied for full forgiveness of this loan in April 2021.
In November 2020, we obtained a $50,000 loan from PayPal. The loan has fixed interest of $6,879.60 and requires weekly payments of $1,093.84, for 52 weeks. As of December 31, 2020, there was $46,153.84 in principal and interest outstanding under the loan.
In November 2020, we obtained a loan in the amount of $50,000 from StartEngine that does not accrue any interest and is due and payable upon the closing of this offering.
Plan of Operations
Throughout 2020, we intend to continue to focus on marketing and selling our Ambassador Interpreter, and launching the “Pro” subscription service. The table below outlines our significant goals for the next 12 months:
Estimated Completion Date | Milestone | Estimated Cost | ||||
Q2– 2021 | Framework and preliminary testing of Pro model | $ | 105,000 | |||
Q3 – 2021 | Launch Pro subscription service | $ | 105,000 | |||
Q4 – 2021 | Scale Ambassador production | $ | 675,000 |
The extent to which we will be able to complete the milestones outlined above is dependent upon the funds raised in this offering. If we do not raise a sufficient amount of funds in this offering, we may not incur all the costs or complete all the milestones outlined above.
ITEM 3. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following table sets forth information about our executive officers, directors and significant employees.
Name | Position | Age | Term of Office | Approximate Hours per week for part-time employees | ||||
G. Andrew Ochoa | President, Chief Executive Officer, President, Secretary, Treasurer and Director | 39 | June 2014 - Present | Full Time | ||||
Sergio Del Rio Diaz | Vice-President of Product | 34 | July 2014 – Present | Full Time | ||||
Georgiy Konovalov | Senior Software Engineer - Mobile | 29 | February 2016 – Present | Full-time | ||||
Alisher Agzamov | Senior Software Engineer – Dev Ops | 32 | September 2017 - Present | Full-time |
There are no arrangements or understandings between our executive officers and director and any other persons pursuant to which the executive officer or director was selected to act as such.
G. Andrew Ochoa, has served as our sole executive officer and as a director since our inception in July 2014, directing our business, operations and product strategy. Between July 2014 and May 2018, he served as our Vice President of Products, overseeing the product development strategy of our Pilot Smart Earbuds, including the sales/marketing initiatives that generated over $8 million in revenues. Between November 2014 and May 2016, Mr. Ochoa served as a product and support manager at Float Schedule, where he worked with management to outline product features, sales/marketing strategies, and business development initiatives.
Sergio Del Rio Diaz, has served as our Vice-President of Product since May 2018, and oversees all aspects of product development, including manufacturing, supply chain distribution, and software development integration. Between July 2014 and May 2018, Mr. Diaz served as our lead product engineer, where he was responsible for the industrial and mechanical design and product engineering of our Pilot Smart Earbuds. Between May 2009 and July 2014, Mr. Diaz was a product designer for a subsidiary of GE where he was responsible for designing and prototyping washing machines, ovens, refrigerators and dishwashers.
Georgiy Konovalov, has served as our Senior Software Engineer - Mobile since February 2016, leading our mobile application development across both android and iOS systems. He oversees software engineering research and development related to our hardware integration and communication protocols. Prior to joining us, between January 2014 and February 2016, Mr. Konovalov served as a senior software engineer at Technological ASBT, where he was responsible for implementing various national interest projects for the Republic of Uzbekistan, including the design of the Citizens Search System for the Ministry of Internal Affairs of Uzbekistan, the development of the Electronic Health Records system for the Uzbekistan Ministry of Healthcare and the design of a mobile Android app for Ipoteka Bank. Between October 2011 and January 2014, Mr. Konovalov served as a software engineer at Finnet Limited LTD, where he assisted in the development of the SAAS project, KPI.com.
Alisher Agzamov, has served as our Senior Software Engineer - Development Operations, since September 2017, and oversees the development of our backend systems, server infrastructure and automation processes. Between December 2013 and September 2017, he served as a senior software engineer at Advertising Network, where he was responsible for developing a high-load advertising platform. Between January 2015 and December 2016, Mr. Agzamov was the full-stack developer at Tabrier.
Compensation
The table below reflects the annual compensation of each of the three highest paid persons who were executive officers or directors, during the fiscal year ended December 31, 2020:
Name | Capacities in which compensation received | Cash Compensation | Other Compensation | Total Compensation | ||||||||||
G. Andrew Ochoa | President, Chief Executive Officer, President, Secretary, Treasurer and Director | $ | 85,000 | $ | 5,150 | (1) | $ | 90,150 |
(1) Represents health benefits.
The directors do not receive any compensation for their service as directors.
We are party to an Employment Agreement dated June 1, 2016, with Mr. Ochoa, which is filed as an exhibit. The Employment Agreement provides for an annual base salary of $85,000, which is subject to adjustment, from time to time, by our Board of Directors. We may terminate the agreement at any time, for any reason, on 10 days prior written notice, and Mr. Ochoa may terminate the agreement at any time, for any reason, on 30 days written notice. If Mr. Ochoa terminates his employment as a result of a material diminution of his duties, position or responsibilities, or because his total annual compensation is less than $85,000, and we fail to cure the same within 30 days following receipt of written notice, Mr. Ochoa shall be entitled to severance equal to six months base salary; unless we terminate all of our employees and consultants with management authority during such 30 day cure period, in which case no severance payment shall be due. If we terminate Mr. Ochoa without cause, Mr. Ochoa shall be entitled to severance equal to six months base salary.
ITEM 4. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
Set forth below is information regarding the beneficial ownership of our outstanding securities as of March 31, 2021, by (i) each person who we know owned, beneficially, more than 10% of our voting securities, and (ii) all of the current executive officers and directors as a group. We believe that, except as noted below, each named beneficial owner has sole voting and investment power with respect to the shares listed. Unless otherwise indicated herein, beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, and includes voting or investment power with respect to shares beneficially owned.
Title of class | Name and address of beneficial owner | Amount and nature of Beneficial ownership | Amount and nature of beneficial ownership acquirable | Percent of class | ||||||||||
Series A Common Stock | Andrew Ochoa 19 Morris Avenue Brooklyn, New York 11205 | 2,528,750 | 0 | 99.94 | % | |||||||||
Series A Common Stock | All directors and officers as a group (1 person) | 2,528,750 | 0 | 99.94 | % |
ITEM 5. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
In April 2018, in connection with the resignation of Jainam Shah as a director, we repurchased from Mr. Shah, 425,000 Series A Shares, for $0.001 per share, and 125,000 Series A Shares for $1.00 per share. In April 2018, in connection with the resignation of William Goethals as a director, we repurchased from Mr. Goethals, 220,444 Series A Shares, for $0.001 per share, and 100,000 Series A Shares for $1.00 per share.
ITEM 6. OTHER INFORMATION
None.
ITEM 7. FINANCIAL STATEMENTS
Waverly Labs Inc.
A Delaware Corporation
Financial Statements and Independent Auditor’s Report
December 31, 2020 and 2019
Waverly Labs Inc.
TABLE OF CONTENTS
Page | ||
Independent Auditor’s Report | 1-2 | |
Financial Statements as of December 31, 2020 and 2019 and for the years then ended: | ||
Balance Sheets | 3-4 | |
Statements of Operations | 5 | |
Statements of Changes in Stockholders’ Equity | 6 | |
Statements of Cash Flows | 7 | |
Notes to Financial Statements | 8–16 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Waverly Labs Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Waverly Labs Inc. (“the Company”) as of December 31, 2020 and 2019, and the related statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has an accumulated deficit, net losses, and negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
We noted identified no matters that were determined to be critical audit matters.
We have served as the Company’s auditor since 2020.
Spokane, Washington
April 28, 2021
BALANCE SHEETS
As of December 31, 2020 and 2019
2020 | 2019 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 136,408 | $ | 408,658 | ||||
Restricted cash | 27,372 | 82,318 | ||||||
Prepaid expenses | 43,815 | 69,243 | ||||||
Inventory | 882 | 1,346 | ||||||
Inventory deposit | 92,897 | 11,182 | ||||||
Security deposit | 2,800 | 2,800 | ||||||
Total Current Assets | 304,174 | 575,547 | ||||||
Non-Current Assets: | ||||||||
Property and equipment, net | 323,068 | 273,343 | ||||||
Total Non-Current Assets | 323,068 | 273,343 | ||||||
TOTAL ASSETS | $ | 627,242 | $ | 848,890 |
See Independent Auditor’s Report and accompanying notes, which are an integral part of these financial statements.
-3-
WAVERLY LABS INC.
BALANCE SHEETS
As of December 31, 2020 and 2019
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT) | ||||||||
Liabilities: | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 34,596 | $ | 42,815 | ||||
Accrued expenses | 119,020 | 17,516 | ||||||
Loans payable - current | 164,620 | - | ||||||
Deferred revenue, net | 624,365 | 555,756 | ||||||
Total Current Liabilities | 942,601 | 616,087 | ||||||
Long-Term Liabilities: | ||||||||
Loans payable - long term | 49,141 | - | ||||||
Total Long-Term Liabilities | 49,141 | - | ||||||
Total Liabilities | 991,742 | 616,087 | ||||||
Commitments & Contingencies | - | - | ||||||
Stockholders' Equity/(Deficit): | ||||||||
Series A Common Stock, $0.0001 par, 3,911,569 shares authorized, 2,530,319 and 2,530,319 shares issued and outstanding, 2,530,319 and 2,214,225 shares vested as of December 31, 2020 and 2019, all respectively. | 253 | 253 | ||||||
Series B Common Stock, $0.0001 par, 1,803,818 shares authorized, 624,791 and 624,791 shares issued and outstanding, 624,791 and 624,791 shares vested as of December 31, 2020 and 2019, all respectively. | 62 | 62 | ||||||
Series C Common Stock, $0.0001 par, 4,284,613 shares authorized, 879,677 and 699,557 shares issued and outstanding, 879,677 and 517,926 shares vested as of December 31, 2020 and 2019, all respectively. | 89 | 71 | ||||||
Treasury Stock, $0.0001 par, 889,441 and 889,087 shares held as of December 31, 2020 and 2019, respectively. | (271,072 | ) | (269,727 | ) | ||||
Additional paid-in capital | 2,717,662 | 2,178,318 | ||||||
Accumulated deficit | (2,811,494 | ) | (1,676,174 | ) | ||||
Total Stockholders' Equity/(Deficit) | (364,500 | ) | 232,803 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT) | $ | 627,242 | $ | 848,890 |
See Independent Auditor’s Report and accompanying notes, which are an integral part of these financial statements.
-4-
STATEMENTS OF OPERATIONS
For the years ended December 31, 2020 and 2019
2020 | 2019 | |||||||
Net revenues | $ | 423,312 | $ | 456,114 | ||||
Costs of goods sold | (348,510 | ) | (383,429 | ) | ||||
Gross profit | 74,802 | 72,685 | ||||||
Operating Expenses: | ||||||||
General & administrative | 832,579 | 670,050 | ||||||
Research & development | 228,704 | 241,352 | ||||||
Sales & marketing | 145,981 | 193,452 | ||||||
Total Operating Expenses | 1,207,264 | 1,104,854 | ||||||
Loss from operations | (1,132,462 | ) | (1,032,169 | ) | ||||
Other Income/(Expense): | ||||||||
Loss on disposal of assets | - | (24,904 | ) | |||||
Interest expense | (2,985 | ) | (93 | ) | ||||
Other income | - | 1,997 | ||||||
Interest income | 127 | 234 | ||||||
Total Other Income/(Expense) | (2,858 | ) | (22,766 | ) | ||||
Loss before provision for income taxes | (1,135,320 | ) | (1,054,935 | ) | ||||
Provision for income taxes | - | - | ||||||
Net loss | $ | (1,135,320 | ) | $ | (1,054,935 | ) | ||
Basic net loss per share | $ | (0.28 | ) | $ | (0.29 | ) | ||
Diluted net loss per share | $ | (0.28 | ) | $ | (0.29 | ) | ||
Weighted average shares outstanding - basic | 4,010,195 | 3,688,858 | ||||||
Weighted average shares outstanding - diluted | 4,010,195 | 3,688,858 |
See Independent Auditor’s Report and accompanying notes, which are an integral part of these financial statements.
-5-
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIT)
For the years ended December 31, 2020 and 2019
Common Stock | ||||||||||||||||||||||||||||||||||||||||||||
Series A Common Stock | Series B Common Stock | Series C Common Stock | Treasury Stock | Additional Paid-In | Accumulated | Total Stockholders' | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity/(Deficit) | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2018 | 2,530,319 | $ | 253 | 624,791 | $ | 62 | 517,926 | $ | 53 | 882,263 | $ | (265,382 | ) | $ | 1,689,818 | $ | (621,239 | ) | $ | 803,565 | ||||||||||||||||||||||||
Stock repurchases | - | - | - | - | (6,824 | ) | - | 6,824 | (4,345 | ) | - | - | (4,345 | ) | ||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | 7,081 | - | 7,081 | |||||||||||||||||||||||||||||||||
Issuance of Series C common stock | - | - | - | - | 188,455 | 18 | - | - | 531,695 | - | 531,713 | |||||||||||||||||||||||||||||||||
Offering costs | - | - | - | - | - | - | - | - | (50,276 | ) | - | (50,276 | ) | |||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | (1,054,935 | ) | (1,054,935 | ) | |||||||||||||||||||||||||||||||
Balance at December 31, 2019 | 2,530,319 | $ | 253 | 624,791 | $ | 62 | 699,557 | $ | 71 | 889,087 | $ | (269,727 | ) | $ | 2,178,318 | $ | (1,676,174 | ) | $ | 232,803 | ||||||||||||||||||||||||
Stock repurchases | - | - | - | - | (354 | ) | - | 354 | (1,345 | ) | - | - | (1,345 | ) | ||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | 2,883 | - | 2,883 | |||||||||||||||||||||||||||||||||
Issuance of Series C common stock for services | - | - | - | - | 19,553 | 2 | 35,866 | - | 35,868 | |||||||||||||||||||||||||||||||||||
Issuance of Series C common stock | - | - | - | - | 160,921 | 16 | - | - | 533,537 | - | 533,553 | |||||||||||||||||||||||||||||||||
Offering costs | - | - | - | - | - | - | - | - | (32,942 | ) | - | (32,942 | ) | |||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | (1,135,320 | ) | (1,135,320 | ) | |||||||||||||||||||||||||||||||
Balance at December 31, 2020 | 2,530,319 | $ | 253 | 624,791 | $ | 62 | 879,677 | $ | 89 | 889,441 | $ | (271,072 | ) | $ | 2,717,662 | $ | (2,811,494 | ) | $ | (364,500 | ) |
See Independent Auditor’s Report and accompanying notes, which are an integral part of these financial statements.
-6-
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2020 and 2019
2020 | 2019 | |||||||
Cash Flows From Operating Activities | ||||||||
Net Loss | $ | (1,135,320 | ) | $ | (1,054,935 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 58,738 | 58,826 | ||||||
Loss on disposal of assets | - | 24,904 | ||||||
Stock compensation expense | 2,883 | 7,081 | ||||||
Common stock issued for services | 35,868 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
(Increase)/Decrease in prepaid expenses | 25,428 | 47,750 | ||||||
(Increase)/Decrease in inventory | 464 | 24,068 | ||||||
(Increase)/Decrease in inventory deposit | (81,714 | ) | 32,887 | |||||
(Increase)/Decrease in security deposit | - | (2,124 | ) | |||||
Increase/(Decrease) in accounts payable | (8,219 | ) | 24,950 | |||||
Increase/(Decrease) in accrued expenses | 101,504 | (41,557 | ) | |||||
Increase/(Decrease) in deferred revenues | 68,609 | 555,756 | ||||||
Net Cash Used In Operating Activities | (931,759 | ) | (322,394 | ) | ||||
Cash Flows From Investing Activities | ||||||||
Purchase of property and equipment | (108,464 | ) | (251,547 | ) | ||||
Net Cash Used In Investing Activities | (108,464 | ) | (251,547 | ) | ||||
Cash Flows From Financing Activities | ||||||||
Proceeds from issuance of Class C common stock | 533,553 | 531,713 | ||||||
Offering costs | (32,942 | ) | (50,276 | ) | ||||
Payments to repurchase stock | (1,345 | ) | (4,345 | ) | ||||
Proceeds from loans payable | 213,761 | - | ||||||
Net Cash Provided By Financing Activities | 713,027 | 477,092 | ||||||
Net Change In Cash | (327,196 | ) | (96,849 | ) | ||||
Cash at Beginning of Period | 490,976 | 587,825 | ||||||
Cash at End of Period | $ | 163,780 | $ | 490,976 | ||||
Cash Report on the Balance Sheet | ||||||||
Cash and cash equivalents | $ | 136,408 | $ | 408,658 | ||||
Restricted cash | 27,372 | 82,318 | ||||||
Total Cash and cash equivalents | $ | 163,780 | $ | 490,976 | ||||
Supplemental Disclosure of Cash Flow Information | ||||||||
Cash paid for interest | $ | - | $ | - | ||||
Cash paid for income taxes | $ | - | $ | - |
See Independent Auditor’s Report and accompanying notes, which are an integral part of these financial statements.
-7-
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2020 and 2019 and for the years ended
NOTE 1: NATURE OF OPERATIONS
Waverly Labs Inc. (the “Company”), is a corporation organized June 16, 2014 under the laws of Delaware. The Company developed and sells an earpiece language translator.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP). The Company adopted the calendar year as its basis of reporting.
Advertising Costs
Advertising costs are expensed when incurred. Total advertising costs incurred for the years ended December 31, 2020 and 2019 totaled $69,958 and $42,724, respectively.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents and Concentration of Cash Balance
The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits. As of December 31, 2020 and 2019, the Company’s cash and cash equivalents exceeded FDIC insured limits by $0 and $160,050, respectively. The Company also had restricted cash related to Indiegogo reserves of $27,372 and $81,318 as of December 31, 2020 and 2019, respectively.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at their estimated collectible amounts. Accounts receivable are periodically evaluated for collectability based on past credit history with clients and other factors. Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance, and current economic conditions. As of December 31, 2020 and 2019, the Company did not carry any receivables.
Subscription Receivable
The Company records stock issuances at the effective date. If the subscription is not funded upon issuance, the Company records a subscription receivable as an asset on a balance sheet. When subscription receivables are not received prior to the issuance of financial statements at a reporting date in satisfaction of the requirements under FASB ASC 505-10-45-2, the subscription is reclassified as a contra account to stockholders’ equity on the balance sheet.
See accompanying Independent Auditor’s Report
-8-
WAVERLY LABS INC.
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2020 and 2019 and for the years ended
Inventory & Shipping and Handling Costs
Inventory is stated at the lower of cost or market and accounted for using the specific identification method. The inventory balances as of December 31, 2020 and 2019 consist of finished goods held for sale. The Company has outsourced manufacturing to an offshore third party. Deposits are made with the manufacturer when additional product is ordered for production. Such costs are recorded as current assets on the balance sheet and totaled $92,897 and $11,182 as of December 31, 2020 and 2019, respectively.
Property and Equipment
Property and equipment are recorded at cost when purchased. Depreciation is recorded for property and equipment using the straight-line method over the estimated useful lives of assets. The Company reviews the recoverability of all long-lived assets, including the related useful lives whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. The balances at December 31, 2020 and 2019 have estimated useful lives ranging from 3 – 5 years. The Company also depreciates equipment based on actual production of units over the estimated production life of the asset. The Company’s property and equipment consisted of the following as of December 31, 2020 and 2019:
2020 | 2019 | |||||||
Software and firmware | $ | 353,877 | $ | 271,173 | ||||
Computers and equipment | 41,448 | 39,669 | ||||||
Machinery | 23,980 | - | ||||||
Furniture and fixtures | 817 | 817 | ||||||
Accumulated depreciation | (97,054 | ) | (38,316 | ) | ||||
Property and equipment, net | $ | 323,068 | $ | 273,343 | ||||
Depreciation expense | $ | 58,738 | $ | 58,826 |
The Company wrote off $0 and $221,078 of fully depreciated firmware assets no longer in use during the years ended December 31, 2020 and 2019, respectively. Loss on disposal of assets totaled $0 and $24,904 for the years ended December 31, 2020 and 2019, respectively.
Fair Value of Financial Instruments
Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.
See accompanying Independent Auditor’s Report
-9-
WAVERLY LABS INC.
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2020 and 2019 and for the years ended
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities inactive markets, or quoted prices for identical or similar assets or liabilities in markets that are not active).
Level 3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts reported in the balance sheets approximate their fair value.
Revenue Recognition
The Company recognizes revenues in accordance with FASB ASC 606, Revenue From Contracts with Customers, when delivery of goods or completion of services has occurred provided there is persuasive evidence of an agreement, acceptance has been approved by its customers, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable. The Company typically collects payment upon sale and recognizes the revenue when the item has shipped and has fulfilled their sole performance obligation. The Company has conducted pre-sale crowdfunding campaigns on its products in 2020, which resulted in $624,365 and $555,756 of customer deposits on future production of its product as of December 31, 2020 and 2019, respectively. As of December 31, 2019 $555,756 of deferred revenue was recorded of that $127,324 was recognized as revenue in the year ended December 31, 2020. Revenues are recognized on these arrangements after the pre-sold units are produced and fulfilled to the customers, and all other revenue recognition criteria are achieved.
Research and Development
Research and development costs are expensed as incurred, with such expenses totaling $228,704 and $241,352 for the years ended December 31, 2020 and 2019, respectively.
Stock-Based Compensation
During the year ended December 31, 2019, the Company early adopted ASU – 2018-07, which simplifies stock-based compensation issued to non-employees. The Company accounts for stock-based compensation to both employee and non-employees in accordance with ASC 718, Compensation - Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the option vesting period. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options.
Deferred Offering Costs
The Company complies with the requirements of FASB ASC 340-10-S99-1 with regards to offering costs. Prior to the completion of an offering, offering costs are capitalized. The deferred offering costs are charged to stockholders’ equity upon the completion of an offering or to expense if the offering is not completed.
See accompanying Independent Auditor’s Report
-10-
WAVERLY LABS INC.
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2020 and 2019 and for the years ended
Income Taxes
The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is unlikely that the deferred tax assets will be realized. The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. In accordance with ASC 740-10, for those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy is to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements. The Company has determined that there are no material uncertain tax positions, aside from that discussed below. The Company accounts for income taxes with the recognition of estimated income taxes payable or refundable on income tax returns for the current period and for the estimated future tax effect attributable to temporary differences and carryforwards. Measurement of deferred income items is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized in the immediate future.
The Company estimates its taxable losses for the years ended December 31, 2020 and 2019 to be $939,000 and $388,000 respectively. Resultantly, the Company has cumulative tax loss positions of $1,277,586 and $337,000 as of December 31, 2020 and 2019, respectively. Therefore, the Company has deferred tax assets of $403,519 and $161,539 as of December 31, 2020 and 2019, respectively from this net operating loss carryforward and other book-to-tax differences, calculated using the Company’s combined effective federal and state income tax rate of 26.1%. The federal net operating loss carryforward is subject to an 80% limitation on taxable income, does not expire, and will carry on indefinitely. The Company also has a $45,000 income tax credit as of December 31, 2020 and 2019. Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in the future to utilize this deferred tax asset for future tax benefit, the Company has recorded a full valuation allowance to reduce the net deferred tax asset to zero as of December 31, 2020 and 2019.
Due to the full valuation allowance, no provision for tax was recorded for the year ended December 31, 2020. The Company owes no federal or state tax as of December 31, 2020 and 2019. All tax periods since inception remain open to examination by the taxing jurisdictions to which the Company is subject.
Basic Income/(Loss) per Common Share
Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net loss available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There are stock options convertible in to 481,918 shares of common stock, however, they were excluded from the calculation of earnings per shares as they were anti-dilutive.
See accompanying Independent Auditor’s Report
-11-
WAVERLY LABS INC.
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2020 and 2019 and for the years ended
NOTE 3: GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is in a cumulative net loss position of $2,811,494 as of December 31, 2020, had negative cash flows from operations of $931,759 and a net loss of $1,135,320 for the year ended December 31, 2020, holds less than a year worth of cash reserves as of December 31, 2020, and has a working capital deficit of $638,427 as of December 31, 2020.
The Company’s ability to continue as a going concern in the next twelve months following the date the financial statements were available to be issued is dependent upon its ability to produce revenues and/or obtain financing sufficient to meet current and future obligations and deploy such to produce profitable operating results. Management has evaluated these conditions and plans to generate revenues and raise capital as needed to satisfy its capital needs. No assurance can be given that the Company will be successful in these efforts. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 4: STOCKHOLDERS’ EQUITY
Common Stock
During 2017, the Company amended its Articles of Incorporation, authorizing 10,000,000 shares of common stock, of which 3,911,569 shares were designated as Series A Common Stock at $0.0001 par value, 1,803,818 shares were designated as Series B Common Stock at $0.0001 par value, and 4,284,613 shares were designated as Series C Common Stock at $0.0001 par value.
The rights, preferences, powers, privileges, and the restrictions, qualifications, and limitations of the Series B Common Stock and Series C Common Stock are identical to those of the Class A Common Stock other than in respect to voting and information rights, where Class A Common Stock holders are entitled to ten votes for each share of Series A Common Stock, the holders of Series B Common Stock are entitled to one vote for each share of Series B Common Stock, the holders of Series C Common Stock have no voting rights. As of December 31, 2020 and 2019, 2,530,319 and 2,530,319 shares of Series A Common Stock were issued and outstanding, respectively.
During 2020, the Company bought back 354 shares of Series C Common Stock for $1,345. During 2019, the Company bought back 6,824 shares of Series C Common Stock for $4,345.
During the years ended December 31, 2020 and 2019, the Company raised gross proceeds of $533,553 and $531,713, respectively, in an offering of its Series C Common Stock pursuant to an offering under Regulation Crowdfunding, issuing 160,921 and 188,455 shares of Class C common stock, respectively, at prices between $2.37-$3.80 per share. As of December 31, 2020 and 2019, 879,677 and 699,557 shares of Series C Common Stock were issued and outstanding, respectively. As of December 31, 2020 and 2019, $0 and $54,530, respectively, of these funds were not yet received from issued stock in this offering, and were recorded as funds held in escrow (asset) on the balance sheet. All amounts held in escrow at December 31, 2019 were received during 2020. As of December 31, 2020 and 2019, 624,791 and 624,791 shares of Series B Common Stock were issued and outstanding, respectively.
See accompanying Independent Auditor’s Report
-12-
WAVERLY LABS INC.
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2020 and 2019 and for the years ended
Certain share issuances were subject to vesting provisions, and generally vest over a period of four years, subject to a six-month or one-year cliff. As of December 31, 2020 and 2019, 2,530,319 and
2,214,225 shares of Series A Common Stock had vested, and 624,791 and 624,791 shares of Series B Common Stock had vested, all respectively.
NOTE 5: SHARE-BASED PAYMENTS
Stock Plan
The Company has adopted the 2017 Stock Option and Grant Plan (the “Plan”), which provides for the grant of shares of stock options to employees and service providers. Under the Plan, the number of shares reserved for grant was 793,918 shares as of December 31, 2020 and 2019. The option exercise price generally may not be less than the underlying stock’s fair market value at the date of the grant and generally have a term of ten years. Stock options comprise all of the awards granted since the Plan’s inception. Shares available for grant under the Plan amounted to 293,287 as of December 31, 2020. On March 10, 2020, the Company granted 19,533 shares of restricted stock under the Company’s 2017 Stock Option and Grant Plan. 9,439 shares were vested as of December 31, 2020 at a price of $3.80 per share resulting in compensation expense of $35,868 for the year ended December 31, 2020. The remaining shares will vest equally over 14 months with unrecognized compensation expense of $38,357.
The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions, including the fair value of the Company’s common stock, and for stock options, the expected life of the option, and expected stock price volatility. The Company used the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.
The expected life of stock options was estimated using the “simplified method,” which is the midpoint between the vesting start date and the end of the contractual term, as the Company has limited historical information to develop reasonable expectations about future exercise patterns and employment duration for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of options grants. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option. The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised. The assumptions utilized for option grants during the years ended December 31, 2020 and 2019 are as follows:
See accompanying Independent Auditor’s Report
-13-
WAVERLY LABS INC.
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2020 and 2019 and for the years ended
For options issued to date, a vesting schedule of 0-4 years has been used. A summary of information related to stock options for the years ended December 31, 2020 and 2019 are as follows:
December 31, 2020 | December 31, 2019 | |||||||||||||||
Options | Weighted Average Exercise Price | Options | Weighted Average Exercise Price | |||||||||||||
Outstanding - beginning of year | 481,098 | $ | 0.115 | 481,098 | $ | 0.115 | ||||||||||
Granted | - | $ | - | - | $ | - | ||||||||||
Exercised | - | $ | - | - | $ | - | ||||||||||
Forfeited | - | $ | - | - | $ | - | ||||||||||
Outstanding - end of year | 481,098 | $ | 0.115 | 481,098 | $ | 0.115 | ||||||||||
Exercisable at end of year | 481,098 | $ | 0.114 | 312,211 | $ | 0.116 | ||||||||||
Weighted average grant date fair value of options granted during year | N/A | N/A | ||||||||||||||
Weighted average duration to expiration of outstanding options at year-end | 6.3 | 7.3 |
Stock-based compensation expense of $2,883 and $7,081 were recognized under FASB ASC 718 for the years ended December 31, 2020 and 2019, respectively. Total unrecognized compensation cost related to stock option awards amounted to $0 as of December 31, 2020.
NOTE 6: LEASE OBLIGATION
The Company entered into a lease agreement for office space in New York. The lease term commenced September 1, 2016 and was scheduled to expire after 12 months on August 31, 2017. Monthly lease obligations under the lease totaled $3,900 per month. On April 1, 2017, the Company amended its previous lease dated September 1, 2016, for a new 12-month period with monthly rent payments of $5,200. Subsequently, on July 1, 2017, the Company amended the previous lease dated April 1, 2017 for a new 12-month period with monthly rent payments of $7,800. Lastly, on November 1, 2019, the Company entered into a new 12-month period with monthly rent payments of $1,400, on November 1, 2020 the lease automatically renewed, and the rent payments is dependent on the number of desks needed. Rent expense for the years ended December 31, 2020 and 2019 totaled $74,400 and $79,585, respectively.
NOTE 7: CONTINGENCIES
The Company may be subject to pending legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome, if any, arising out of any such matter will have a material adverse effect on its business, financial condition or results of operations.
See accompanying Independent Auditor’s Report
-14-
WAVERLY LABS INC.
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2020 and 2019 and for the years ended
The Company also has unknown impacts from the ongoing COVID-19 pandemic.
NOTE 8: DEBT
On April 7, 2020 the Company secured a loan through the Small Business Administration for the Payroll Protection Program, a 24-month term loan agreement in the amount of $66,207, bearing interest at .98%, no payments are due on the loan for 6 months from the date of first disbursement of the loan and shall be repaid in 18 substantially equal monthly payments of principal and interest, commencing on the first business day after the end of the deferment period. The amount of loan forgiveness shall be calculated in accordance with the requirements of the Program, including the provisions of Section 1106 of the CARES Act. As of December 31, 2020, the Company has not applied for forgiveness of debt, the Company believes a portion of this debt will be forgiven.
On April 21, 2020, the Company entered into a 30-year loan agreement with U.S. Small Business Administration in the amount of $51,500 bearing interest at 3.75%, with required monthly principal and interest payments of $251 beginning 12 months from the date of the loan agreement, the balance of principal and interest will be payable 30 years from the date of the loan agreement.
On November 11, 2020, the Company entered into a loan agreement with StartEngine Primary, LLC in the amount of $50,000 bearing no interest, the loan shall be repaid on the date of the closing of the offering out of the net proceeds of the offering. As of December 31, 2020, the amount outstanding was $50,000.
On November 23, 2020, the Company entered into a short-term loan agreement with PayPal Working Capital in the amount of $50,000. The Company is to remit $1,094 in 52 weekly installments to PayPal until $56,880 is paid back. The unpaid principal balance was $46,154 as of December 31, 2020. Total interest expense totaled $529 for the year ended December 31, 2020:
2021 | $ | 164,620 | ||
2022 | 3,012 | |||
2023 | 3,012 | |||
2024 | 3,012 | |||
2025 | 3,012 | |||
Therafter | 37,093 | |||
Total | $ | 213,761 |
NOTE 9: RECENT ACCOUNTING PRONOUNCEMENTS
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires a lessee to recognize a right-of-use asset and a lease liability under most operating leases in its balance sheet. The ASU is effective for annual and interim periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. We are continuing to evaluate the impact of this new standard on our financial reporting and disclosures.
See accompanying Independent Auditor’s Report
-15-
WAVERLY LABS INC.
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2020 and 2019 and for the years ended
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
NOTE 10: CONCENTRATION
The Company is reliant on a single manufacturer, and the loss of that manufacturers would impact the Company significantly.
NOTE 11: RECLASSIFICATION
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Balance Sheets for year ended December 31, 2019, to identify the restricted cash balance of $82,318. This change in classification does not affect previously reported Balance Sheet.
NOTE 12: SUBSEQUENT EVENTS
Subsequent Event
In 2021, the Company engaged in a Regulation A Crowdfunding campaign in which 124,492 shares of Series C Common Stock were issued in exchange for proceeds of $1,084,948.
On April 1, 2021, the $66,207 loan that was referred to in Note 8 was forgiven by the SBA in full.
In 2021, the Company issued 22,000 shares of Series C Common Stock at $5 per share, resulting in proceeds of $60,000.
On February 1, 2021 the Company secured a 2nd loan through the Small Business Administration for the Payroll Protection Program, a 24-month term loan agreement in the amount of $58,672, bearing interest at .98%, no payments are due on the loan for 6 months from the date of first disbursement of the loan and shall be repaid in 18 substantially equal monthly payments of principal and interest, commencing on the first business day after the end of the deferment period. The amount of loan forgiveness shall be calculated in accordance with the requirements of the Program, including the provisions of Section 1106 of the CARES Act.
Management’s Evaluation
Management has evaluated subsequent events through April 28, 2021, the date the financial statements were available to be issued. Based on this evaluation, no material events were identified which require adjustment or disclosure in these financial statements.
See accompanying Independent Auditor’s Report
-16-
ITEM 8. EXHIBITS
EXHIBITS
(1) | Filed as an exhibit to the Waverly Labs Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-11323) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1720044/000110465920106144/tm2029758d1_ex1.htm. |
(2) | Filed as an exhibit to the Waverly Labs Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-11323) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1720044/000110465920106144/tm2029758d1_ex2-1.htm. |
(3) | Filed as an exhibit to the Waverly Labs Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-11323) and incorporated herein by reference. Available at, Filed as an exhibit to the Waverly Labs Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-11323) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1720044/000110465920106144/tm2029758d1_ex2-2.htm. |
(4) | Filed as an exhibit to the Waverly Labs Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-11323) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1720044/000110465920106144/tm2029758d1_ex2-3.htm. |
(5) | Filed as an exhibit to the Waverly Labs Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-11323) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1720044/000110465920106144/tm2029758d1_ex4-1.htm. |
(6) | Filed as an exhibit to the Waverly Labs Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-11323) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1720044/000110465920106144/tm2029758d1_ex6-1.htm. |
(7) | Filed as an exhibit to the Waverly Labs Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-11323) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1720044/000110465920106144/tm2029758d1_ex6-2.htm. |
(8) | Filed as an exhibit to the Waverly Labs Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-11323) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1720044/000110465920106144/tm2029758d1_ex8.htm. |
(9) | Filed as an exhibit to the Waverly Labs Inc. Regulation A Offering Statement on Form 1-A (Commission File No. 024-11323) and incorporated herein by reference. Available at, https://www.sec.gov/Archives/edgar/data/1720044/000110465920106144/tm2029758d1_ex12-1.htm. |
SIGNATURES
Pursuant to the requirements of Regulation A, the issuer has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Brooklyn, NY., on April 30, 2021.
WAVERLY LABS INC.
By | /s/ Andrew Ochoa | ||
Title: | Chief Executive Officer, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and Director | ||
Dated: | April 30, 2021 |