Notes
to Condensed Consolidated Financial Statements
For
the three months and six months ended June 30, 2021 and 2020
(Unaudited)
Note
1 – Business Organization, Nature of Operations
Movano Inc. (the “Company” or “Movano”
or “Our”) was incorporated in Delaware on January 30, 2018 as Maestro Sensors Inc. and changed its name to Movano Inc. on
August 3, 2018. The Company is in the development-stage and is a health-focused technology company creating simple, smart, and personalized
devices designed to help individuals on their health journey optimize for good health today and to help prevent and manage chronic diseases
in the future. The Company’s devices are being developed to provide vital health information, including glucose and blood pressure
data, in a variety of form factors to meet individual style needs and give users actionable feedback to improve the quality of their life.
On April 28, 2021, the Company established Movano
Ireland Limited, organized under the laws of Ireland, as a wholly owned subsidiary of the Company. Operations and activity at the wholly
owned subsidiary were not significant for the three months ended June 30, 2021.
Since inception, the Company has engaged in only
limited research and development of product candidates and underlying technology. As of December 31, 2020, the Company had not yet completed
the development of its product and had not yet recorded any revenues. From February 2020 to December 2020, the Company issued subordinated
convertible promissory notes for approximately $11.1 million in net proceeds (See Note 8). Additionally, in May 2020, the Company received
a Paycheck Protection Program loan for $0.4 million (See Note 7).
In December 2019, a novel coronavirus and the
resulting disease (“COVID-19”) was reported, and in January 2020, the World Health Organization (“WHO”) declared
it a Public Health Emergency of International Concern. In February 2020, the WHO raised its assessment of the COVID-19 threat from high
to very high at a global level due to the continued increase in the number of cases and affected countries, and in March 2020, the WHO
characterized COVID-19 as a pandemic. The Company is continuing to ascertain the long-term impact of the COVID-19 pandemic on its business,
but given the uncertainty about the situation, the Company cannot estimate the impact to our financial statements from the economic crisis
arising from COVID-19.
The Company’s Registration Statement on
Form S-1, as amended (Reg. No. 333-252671), was declared effective by the U.S. Securities and Exchange Commission (the “SEC”)
on March 23, 2021. The registration statement registered the securities offered in the Company’s initial public offering (“IPO”).
In the IPO, the Company sold 9,775,000 shares of common stock at a price to the public of $5.00 per share, including the full exercise
of the underwriters’ option to purchase additional shares. The IPO closed on March 25, 2021 and the underwriters exercised their
overallotment option as of March 25, 2021, as a result of which the Company raised net proceeds of $44.3 million after deducting $3.3
million in underwriting discounts, commissions, and expenses and $1.3 million in offering expenses paid or payable by the Company. National
Securities Corporation (“NSC”) was the underwriter for the IPO, and also received a warrant related to the IPO, which is discussed
in Note 11. No portion of the net proceeds from the IPO were used for payments made by the Company to its directors or officers or persons
owning ten percent or more of its common stock or to their associates, or to the Company’s affiliates, other than payments in the
ordinary course of business to officers for salaries and to nonemployee directors as compensation for board or board committee service.
The Company has incurred losses from operations
and has generated negative cash flows from operating activities since inception. The Company expects to continue to incur net losses for
the foreseeable future as it continues the development of its technology. The Company’s ultimate success depends on the outcome
of its research and development and commercialization activities, for which it expects to incur additional losses in the future. Through
June 30, 2021, the Company has relied primarily on the proceeds from equity offerings to finance its operations. The Company expects
to require additional financing to fund its future planned operations, including research and development and commercialization of its
products. The Company will likely raise additional capital through the issuance of equity, borrowings, or strategic alliances with partner
companies. However, if such financing is not available at adequate levels, the Company would need to reevaluate its operating plans.
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and six months ended June 30, 2021 and 2020
(Unaudited)
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation
The accompanying unaudited condensed consolidated
financial statements include the accounts of the Company and its wholly owned subsidiary and have been prepared in accordance with U.S.
generally accepted accounting principles (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial
statements. The unaudited and condensed consolidated financial statements have been prepared on the same basis as the annual financial
statements. In the opinion of management, the accompanying unaudited and condensed consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) considered necessary for a fair presentation. Intercompany transactions are eliminated
in the condensed consolidated financial statements. The results of operations for the three and six months ended June 30, 2021 are
not necessarily indicative of the results to be expected for the year ending December 31, 2021. The condensed consolidated balance sheet
as of December 31, 2020 has been derived from audited financial statements at that date but does not include all the information required
by GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the audited
financial statements and notes thereto for the preceding fiscal year included in Amendment No. 2 to the Company’s Registration Statement
on Form S-1 filed with the SEC on March 17, 2021.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of expenses during the reporting periods.
Significant estimates and assumptions reflected
in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses,
the valuation of common stock, stock options and warrants, the valuation of the embedded redemption derivative liability and income taxes.
Estimates are periodically reviewed considering changes in circumstances, facts, and experience. Changes in estimates are recorded in
the period in which they become known. Actual results could differ from those estimates or assumptions.
Segment
Information
Operating
segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief
operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views
its operations and manages its business in one segment. The Company’s chief operating decision maker is the chief executive officer.
Cash,
Cash Equivalents and Short-term Investments
The
Company invests its excess cash primarily in money market funds, commercial paper and short-term debt securities. The Company considers
all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company classifies all marketable
securities for use in current operations, even if the security matures beyond 12 months, and presents them as short-term investments
in the condensed consolidated balance sheets.
The Company determines the appropriate classification
of marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified
and accounted for the purchased marketable securities as available-for-sale. After considering the Company’s capital preservation
objectives, as well as its liquidity requirements, the Company may sell securities prior to their stated maturities. The Company carries
its available-for-sale short-term investments at fair value. The Company reports the unrealized gains and losses, net of taxes, as a component
of stockholders’ equity, except for unrealized losses determined to be credit-related, which are recorded as other income (expense),
net in the condensed consolidated statements of operations and comprehensive loss and reports an allowance for credit losses in short-term
investments on the balance sheet, if any. The Company determines any realized gains or losses on the sale of short-term investments on
a specific identification method and records such gains and losses as a component of other income (expense), net. Interest earned on cash,
cash equivalents, and short-term investments is recorded in interest and other income, net in the accompanying condensed consolidated
statements of operations and comprehensive loss and was not significant during the three and six months ended June 30, 2021 or 2020.
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and six months ended June 30, 2021 and 2020
(Unaudited)
The Company's investment policy only allows purchases
of high credit quality instruments and provides guidelines on concentrations and credit quality to ensure minimum risk of loss. The Company
evaluates whether the unrealized loss on available-for-sale short-term investments is the result of the credit worthiness of the securities
it held, or other non-credit-related factors such as liquidity by reviewing a number of factors such as the implied yield of the corporate
note based on the market price, the nature of the invested entity's business or industry, market capitalization relative to debt, changes
in credit ratings, and the market prices of the instruments subsequent to the period end.
Concentrations
of Credit Risk and Off-Balance Sheet Risk
Cash
and cash equivalents are financial instruments that are potentially subject to concentrations of credit risk. All cash and cash equivalents
are held in United States financial institutions. Cash equivalents consist of interest-bearing money market accounts. The amounts deposited
in the money market accounts exceeds federally insured limits. The Company has not experienced any losses related to this account and
believes the associated credit risk to be minimal due to the financial condition of the depository institutions in which those deposits
are held.
The
Company has no financial instruments with off-balance sheet risk of loss.
Prepaid
Expenses and Other Current Assets
Prepaid expenses and other current assets were
comprised of prepaid expenses, other current receivables, and deferred offering costs, which consist of legal, accounting, filing and
other fees related to the IPO that were capitalized prior to the IPO. The deferred offering costs were offset against proceeds from the
IPO within additional paid-in capital upon the effective date of the IPO. As of June 30, 2021 and December 31, 2020, offering
costs of approximately $0 and $0.5 million were capitalized, respectively.
Paycheck
Protection Program Loan
The Company accounted for funds received from the Paycheck Protection
Program as a financial liability with interest accrued and expensed over the term of the loan under the effective interest method. The
loan remained recorded as a liability until the Company was legally released from the liability. The amount that was ultimately forgiven
by the lender was recognized in the condensed consolidated statement of operations and comprehensive loss as a gain on extinguishment.
Convertible
Financial Instruments
The Company bifurcates embedded redemption and
conversion options from their host instruments and accounts for them as freestanding derivative financial instruments at fair value if
certain criteria are met. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable
GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument. Debt discounts under these arrangements are amortized to interest expense using
the interest method over the earlier of the term of the related debt or their earliest date of redemption.
From
time to time, the Company issues convertible financial instruments to nonemployees in payment for services that are provided. Until the
services are completely rendered, the Company will expense the principal and any interest earned prior to the service completion to the
representative expense account for the services performed and will record a noncurrent liability for the expected amount of the principal
balance. Upon completion of the services, the Company will reclassify the noncurrent liability balance to the balance of an outstanding
convertible financial instrument and assess the embedded redemption and conversion options that are applicable at that time.
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and six months ended June 30, 2021 and 2020
(Unaudited)
Beneficial
Conversion Feature
If
the conversion feature of conventional convertible promissory notes provides for a rate of conversion that is below market value, this
feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount
and as additional paid-in capital on the condensed consolidated balance sheet. In those circumstances, the convertible debt is recorded
net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the
effective interest method.
Redeemable
Convertible Preferred Stock
The
Company records all shares of redeemable convertible preferred stock at their respective issuance price less issuance costs on the dates
of issuance. Under certain circumstances the Company will be required to redeem the Series A and Series B redeemable convertible
preferred stock unless an IPO has been consummated prior to April 1, 2021, or an extension or waiver is obtained upon approval of
a majority of the holders of such preferred stock. As the preferred stock becomes redeemable due to the passage of time, the Company
considers the preferred stock to be redeemable as of April 1, 2021. The Company records the accretion of the Series A and B preferred
stock balances to their respective redemption amounts using the effective interest method. The redeemable convertible preferred stock
is presented outside of stockholders’ deficit on the condensed consolidated balance sheet as of December 31, 2020. Upon the IPO,
the redeemable convertible preferred stock converted in to 11,436,956 shares of common stock.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial statement and tax basis of assets and liabilities and net operating loss and credit carryforwards
using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be realized. As the Company maintained a full valuation allowance
against its deferred tax assets, the changes resulted in no provision or benefit from income taxes during the three and six months ended
June 30, 2021 and 2020.
The
Company accounts for unrecognized tax benefits using a more-likely-than-not threshold for financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return. The Company establishes a liability for tax-related uncertainties based
on estimates of whether, and the extent to which, additional taxes will be due. The Company records an income tax liability, if any,
for the difference between the benefit recognized and measured and the tax position taken or expected to be taken on the Company’s
tax returns. To the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which
the determination is made. The liability is adjusted considering changing facts and circumstances, such as the outcome of a tax audit.
The provision for income taxes includes the impact of liability provisions and changes to the liability that are considered appropriate.
Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
For
interim periods, the Company estimates its annual effective income tax rate and applies the estimated rate to the year-to-date income
or loss before income taxes. The Company computes the tax provision or benefit related to items reported separately and recognizes the
items net of their related tax effect in the interim periods in which they occur. The Company recognizes the effect of changes in enacted
tax laws or rates in the interim periods in which the changes occur.
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and six months ended June 30, 2021 and 2020
(Unaudited)
Stock-Based
Compensation
The
Company measures equity classified stock-based awards granted to employees, directors, and nonemployees based on the estimated fair value
on the date of grant and recognizes compensation expense of those awards on a straight-line basis over the requisite service period,
which is generally the vesting period of the respective award. The fair value of each stock option grant is estimated on the date of
grant using the Black-Scholes option pricing model. This valuation model for stock-based compensation expense requires the Company to
make assumptions and judgments about the variables used in the calculation including the expected term, the volatility of the Company’s
common stock, and an assumed risk-free interest rate. The Company accounts for forfeitures as they occur.
Early
Exercised Stock Option Liability
Upon
the early exercise of stock options by employees, the Company records as a liability the purchase price of unvested common stock that
the Company has a right to repurchase if and when the employment of the stockholder terminates before the end of the requisite service
period. The proceeds originally recorded as a liability are reclassified to additional paid-in capital as the Company’s repurchase
right lapses.
Net
Loss per Share Attributable to Common Stockholders
Basic
net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by
the weighted average number of shares of common stock outstanding during the period, without consideration for common stock equivalents.
The net loss attributable to common stockholders is calculated by adjusting the net loss of the Company for the accretion on the Series
A and B redeemable convertible preferred stock and cumulative dividends on Series A and B redeemable convertible preferred stock.
Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders,
since the effects of potentially dilutive securities are antidilutive.
Recently
Adopted Accounting Pronouncements
In
December 2019, the FASB issued Accounting Standards Update 2019-12, Income Taxes (Topic 740). The amendments in this update provide
further simplification of accounting standards for the accounting for income taxes. Certain exceptions for requirements regarding the
accounting for franchise taxes, tax basis of goodwill, and tax law rate changes are made. The Company early adopted this guidance as
of January 1, 2021 and the adoption did not have a significant impact on the financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which requires the
early recognition of credit losses on financing receivables and other financial assets in scope. ASU 2016-13 requires the use of a transition
model that will result in the earlier recognition of allowances for losses. The Company early adopted this guidance as of January 1,
2021 and the adoption did not have a significant impact on the financial statements and related disclosures.
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and six months ended June 30, 2021 and 2020
(Unaudited)
Note
3 – FAIR VALUE MEASUREMENTS
Financial
assets and liabilities are recorded at fair value. The Company uses a three-level hierarchy, which prioritizes, within the measurement
of fair value, the use of market-based information over entity-specific information for fair value measurements based on the nature of
inputs used in the valuation of an asset or liability as of the measurement date. Fair value focuses on an exit price and is defined
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The inputs or methodology used for valuing financial instruments are not necessarily an indication of the risk
associated with investing in those financial instruments.
A
three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:
|
Level
1 –
|
Quoted
prices in active markets for identical assets or liabilities.
|
|
Level 2
–
|
Quoted prices for similar
assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active,
or other inputs that are observable, either directly or indirectly.
|
|
Level 3
–
|
Significant unobservable
inputs that cannot be corroborated by market data.
|
The
Company measures its cash equivalents, short-term investments and derivative financial instruments at fair value. The Company classifies
its cash equivalents and short-term investments within Level 1 or Level 2 because the Company values these investments using quoted market
prices or alternative pricing sources and models utilizing market observable inputs. The fair value of the Company’s Level 1 financial
assets is based on quoted market prices of the identical underlying security. The fair value of the Company’s Level 2 financial
assets is based on inputs that are directly or indirectly observable in the market, including the readily-available pricing sources for
the identical underlying security that may not be actively traded.
The asset’s or liability’s fair value
measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Changes in fair value measurements categorized
within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
At December 31, 2020, the warrants related to the Series A preferred stock issuance, the Series B preferred stock issuance, and the convertible
promissory notes and the derivative liability related to the issuance of convertible promissory notes are classified within level 3 of
the valuation hierarchy. The instruments are not present at June 30, 2021 in light of accounting ramifications of the IPO, which are discussed
further in Note 8 and Note 11.
The carrying amounts of prepaid expenses, payroll
tax credit, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these instruments.
Based upon interest rates currently available
to the Company for debt with similar terms, the carrying values of the Company’s convertible promissory notes and Paycheck Protection
Program Loan are approximately equal to their fair values.
The
following tables provide a summary of the assets and liabilities that are measured at fair value on a recurring basis as of June 30,
2021 and December 31, 2020 (in thousands).
|
|
June 30, 2021
|
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
18,496
|
|
|
$
|
18,496
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial paper
|
|
|
7,856
|
|
|
|
-
|
|
|
|
7,856
|
|
|
|
-
|
|
Corporate notes
|
|
|
337
|
|
|
|
-
|
|
|
|
337
|
|
|
|
-
|
|
Municipal bonds
|
|
|
1,866
|
|
|
|
-
|
|
|
|
1,866
|
|
|
|
-
|
|
Total cash equivalents
|
|
$
|
28,555
|
|
|
$
|
18,496
|
|
|
$
|
10,059
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
3,529
|
|
|
$
|
-
|
|
|
$
|
3,529
|
|
|
$
|
-
|
|
Corporate notes
|
|
|
7,391
|
|
|
|
-
|
|
|
|
7,391
|
|
|
|
-
|
|
Municipal bonds
|
|
|
2,482
|
|
|
|
-
|
|
|
|
2,482
|
|
|
|
-
|
|
Total short-term investments
|
|
$
|
13,402
|
|
|
$
|
-
|
|
|
$
|
13,402
|
|
|
$
|
-
|
|
|
|
December 31,
2020
|
|
|
|
Fair
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Cash equivalents – money market funds
|
|
$
|
5,181
|
|
|
$
|
5,181
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Warrant liability
|
|
$
|
1,549
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,549
|
|
Derivative liability
|
|
$
|
121
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
121
|
|
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and six months ended June 30, 2021 and 2020
(Unaudited)
Note
4 – CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash,
cash equivalents and short-term investments consist of the following (in thousands):
|
|
June 30,
2021
|
|
|
December 31,
2021
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
Cash
|
|
$
|
750
|
|
|
$
|
529
|
|
Money market funds
|
|
|
18,496
|
|
|
|
5,181
|
|
Commercial paper
|
|
|
7,856
|
|
|
|
-
|
|
Corporate notes
|
|
|
337
|
|
|
|
-
|
|
Municipal bonds
|
|
|
1,866
|
|
|
|
-
|
|
Total cash and cash equivalents
|
|
$
|
29,305
|
|
|
$
|
5,710
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
3,529
|
|
|
$
|
-
|
|
Corporate notes
|
|
|
7,391
|
|
|
|
-
|
|
Municipal bonds
|
|
|
2,482
|
|
|
|
-
|
|
Total short-term investments
|
|
$
|
13,402
|
|
|
$
|
-
|
|
The contractual maturities of short-term investments
classified as available-for-sale as of June 30, 2021 were as follows (in thousands):
|
|
June 30,
2021
|
|
|
|
|
|
Due within one year
|
|
$
|
11,739
|
|
Due after one year through five years
|
|
|
1,663
|
|
Total
|
|
$
|
13,402
|
|
The following table summarizes the unrealized
gains and losses related to short-term investments classified as available-for-sale on the Company’s condensed consolidated balance
sheet (in thousands):
|
|
June 30, 2021
|
|
|
|
Amortized Cost
|
|
|
Gross Unrealized Gains
|
|
|
Gross Unrealized Losses
|
|
|
Aggregate
Estimated Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
3,530
|
|
|
$
|
-
|
|
|
$
|
(1
|
)
|
|
$
|
3,529
|
|
Corporate notes
|
|
|
7,393
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
7,391
|
|
Municipal bonds
|
|
|
2,481
|
|
|
|
1
|
|
|
|
-
|
|
|
|
2,482
|
|
Total short-term investments
|
|
$
|
13,403
|
|
|
$
|
1
|
|
|
$
|
(2
|
)
|
|
$
|
13,402
|
|
As of June 30, 2021, the gross unrealized loss
on available-for-sale short-term investments was immaterial and there were no expected credit losses related to the Company's available-for-sale
debt securities. The Company has determined that all unrealized losses are temporary. As of June 30, 2021, no allowance for credit losses
in short-term investments was recorded.
No sales of available-for-sale short-term investments occurred during
the three and six months ended June 30, 2021.
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and six months ended June 30, 2021 and 2020
(Unaudited)
Note
5 – Property and Equipment
Property
and equipment, net, as of June 30, 2021 and December 31, 2020, consisted of the following (in thousands):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Office equipment and furniture
|
|
$
|
171
|
|
|
$
|
43
|
|
Software
|
|
|
115
|
|
|
|
—
|
|
Test equipment
|
|
|
83
|
|
|
|
22
|
|
Total property and equipment
|
|
|
369
|
|
|
|
65
|
|
Less: accumulated depreciation and amortization
|
|
|
(45
|
)
|
|
|
(27
|
)
|
Total property and equipment, net
|
|
$
|
324
|
|
|
$
|
38
|
|
Total depreciation and amortization expense related
to property and equipment for the three and six months ended June 30, 2021 was approximately $17,000 and $18,000, respectively. Total
depreciation expense related to property and equipment for the three and six months ended June 30, 2020 was approximately $3,000
and $6,000, respectively.
Note
6 – Other Current Liabilities
Other
current liabilities as of June 30, 2021 and December 31, 2020 consisted of the following (in thousands):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Accrued research and development
|
|
$
|
29
|
|
|
$
|
197
|
|
Accrued compensation
|
|
|
1,158
|
|
|
|
184
|
|
Accrued vacation
|
|
|
232
|
|
|
|
192
|
|
Accrued legal expense
|
|
|
8
|
|
|
|
41
|
|
Accrued accounting and consulting expense
|
|
|
17
|
|
|
|
40
|
|
Other
|
|
|
52
|
|
|
|
12
|
|
|
|
$
|
1,496
|
|
|
$
|
666
|
|
NOTE
7 – PAYCHECK PROTECTION PROGRAM LOAN
The
Paycheck Protection Program (“PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”) and is administered by the U.S. Small Business Administration (“SBA”). On April 23, 2020, the Company entered
into a promissory note with Silicon Valley Bank evidencing an unsecured loan in the aggregate amount of approximately $351,000 under
the PPP (the “PPP Loan”). The interest rate on the PPP Loan was 1.00% and the term was two years, with a deferral of payments
for ten months from the date of origination. On May 7, 2020, the Company elected to repay the PPP loan in full until further guidance
was provided by the SBA on the loan origination and eligibility requirements. On May 27, 2020, the Company entered into a promissory
note with Silicon Valley Bank evidencing an unsecured loan in the aggregate amount of approximately $351,000, with all other terms the
same as the prior loan. Beginning eleven months from the date of the PPP Loan, the Company was required to make monthly payments of principal
and interest. The promissory note evidencing the PPP Loan contained customary events of default relating to, among other things, payment
defaults or breaching the terms of the PPP Loan documents. The occurrence of an event of default may result in the repayment of all amounts
outstanding, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. The PPP Loan
was repayable at any time by the Company without prepayment penalties.
Funds
from the PPP Loan could be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities,
and interest on other debt obligations, if those debt obligations were incurred before February 15, 2020. The Company used the entire
PPP Loan amount for qualifying expenses.
Under the terms of the CARES Act, PPP loan recipients
can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. Such forgiveness will be determined,
subject to limitations, based on the use of loan proceeds for qualifying expenses. On May 28, 2021, the Company received full loan forgiveness
for obligations related to the PPP loan. The Company accounted for the PPP loan
as debt, and the loan forgiveness was accounted for as a debt extinguishment. The amount of loan and interest forgiven is
recognized as a gain upon debt extinguishment and is reported in the accompanying condensed consolidated statement of operations and comprehensive
loss for the three months and six months ended June 30, 2021.
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and six months ended June 30, 2021 and 2020
(Unaudited)
NOTE
8 – CONVERTIBLE PROMISSORY NOTES
On
various dates between February 2020 and December 2020, the Company received total proceeds of approximately $11.8 million from the issuance
of subordinated convertible promissory notes (“Convertible Notes”) to investors. The Convertible Notes accrued interest at
4% per year and the principal balance of the Convertible Notes, plus all accrued interest would have been due on February 28, 2022 (the
Maturity Date).
The
Convertible Notes were convertible upon the occurrence of certain events, including upon a change in control or a next equity financing.
The conversion features are described as follows:
Conversion Event
|
|
Description
|
|
Conversion Price
|
Automatic Conversion – Next Qualified Equity Financing
|
|
Upon the closing of a Next Qualified Equity Financing (defined as greater than $5,000,000), the Convertible Notes are converted into shares issued equal to the outstanding balance divided by the Conversion Price.
|
|
An amount equal to the lower of (i) 80% of the lowest per-share selling price of such stock sold by the Company at the Next Qualified Equity Financing or (ii) the implied per share price determined by dividing $60,000,000 by the total number of Common Stock Equivalents (defined as fully diluted common shares for all outstanding securities, excluding common shares reserved for issuance or exercise of options or grants in the future) immediately prior to Next Qualified Equity Financing closing.
|
|
|
|
|
|
Automatic Conversion – Change of Control (defined as consolidation or merger of the Company or transfer of a majority of share ownership or disposition of substantially all assets of the Company)
|
|
If at any time before payment or conversion of the balance, the Company effects a Change of Control, all of the balance outstanding immediately prior to such Change of Control will automatically convert into the most senior series of Preferred Stock outstanding immediately prior to such Change of Control at the Conversion Price.
|
|
An amount equal to the implied per share price determined by dividing $60,000,000 by the total number of Common Stock Equivalents immediately prior to such Change of Control.
|
|
|
|
|
|
Automatic Conversion – Maturity Date
|
|
If the Company has not paid or otherwise converted the entire balance before the Maturity Date, then on the Maturity Date, all of the balance then outstanding will automatically convert into the most senior series of Preferred Stock outstanding as of the Maturity Date at the Conversion Price then in effect.
|
|
An amount equal to the implied per share price determined by dividing $60,000,000 by the total number of Common Stock Equivalents as of the Maturity Date.
|
|
|
|
|
|
Automatic Conversion – IPO
|
|
If at any time before payment or conversion of the balance, the Company consummates an IPO, all of the balance outstanding immediately prior to the IPO will automatically convert into Common Stock at the Conversion Price.
|
|
An amount equal to the lower of (i) 80% of the lowest per-share selling price of the Common Stock sold by the Company in an IPO or (ii) the implied per share price determined by dividing $60,000,000 by the total number of Common Stock Equivalents immediately prior to closing of an IPO.
|
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and six months ended June 30, 2021 and 2020
(Unaudited)
Conversion
Event
|
|
Description
|
|
Conversion
Price
|
Optional
Conversion
|
|
If at any time while the Convertible Notes are still outstanding the Company sells stock in a single transaction or in a series of related transactions that does not constitute a Next Qualified Equity Financing (and thus is defined as a Non-qualified Financing), then, at the closing of the Nonqualified Financing, the balance then outstanding may be converted, at the option of the holder, into that number of shares of Non-qualified Preferred Stock (preferred stock sold in the Non-qualified Financing) determined by dividing (i) the balance by (ii) the Conversion Price then in effect.
|
|
An amount equal to the lowest per share selling price of Nonqualified Preferred Stock sold by the Company for new cash investment in the Non-Qualified Financing.
|
As
part of the Convertible Note financing, the Company agreed to issue subordinated convertible promissory notes to nonemployees in exchange
for services totaling $747,000.
As
of December 31, 2020, Convertible Notes totaling approximately $247,000 were issued to nonemployees in exchange for services. As
of December 31, 2020, future services of $500,000 of the original $747,000 had not been fully completed. A portion of those services
that had been completed were recorded as a component of other noncurrent liabilities of $150,000 on the condensed consolidated balance
sheet at December 31, 2020.
During
the three months ended March 31, 2021, additional nonemployee services of $50,000 were completed, which were recorded as a component
of other noncurrent liabilities. In connection with the IPO, a Convertible Note for $500,000 was issued for nonemployee services and
the $300,000 of the nonemployee services that remained to be completed was recorded in prepaid assets and other current expenses on the
condensed consolidated balance sheet. The Company calculated a BCF of approximately $500,000 upon the issuance of this Convertible Note.
During the three and six months ended June 30, 2020, nonemployee services of services of $50,000 were completed.
In
connection with the Convertible Notes, the Company issued 10,000 and 204,500 warrants to purchase common stock, to a noteholder and its
brokers, respectively. The warrants have a five-year life and are initially exercisable into common stock at $2.97 per share. (See Note
11 – Common Stock Warrants for fair value computation and discussion of the change in the exercise price). During March 2021, 42,220
of these warrants to purchase common stock were cancelled.
Issuance
costs and commissions to brokers to obtain the Convertible Notes were recorded as a debt discount in the amount of approximately $83,000
and $612,000, respectively.
The
Company determined that the terms that would result in Convertible Notes automatically converting at (i) 80% of the lowest per-share
selling price of the stock sold by the Company in the Next Qualified Equity Financing or (ii) 80% of the lowest per-share selling price
of the Conversion Stock sold by the Company in an IPO are deemed a redemption feature. The Company also concluded that those redemption
features require bifurcation from the Convertible Notes and subsequent accounting in the same manner as a freestanding derivative. Accordingly,
subsequent changes in the fair value of these redemption features are measured at each reporting period and recognized in the condensed
consolidated statement of operations and comprehensive loss.
The
sum of the fair value of the warrants, the fair value of the embedded redemption derivative liability, issuance costs, BCF and commission
payments for the Convertible Notes were recorded as debt discounts to be amortized to interest expense over the respective term using
the effective interest method. During the three and six months ended June 30, 2021, the Company recognized interest expense of approximately
$0 and $0.8 million from the accretion of those debt discounts, respectively. During the three and six months ended June 30, 2020, the
Company recognized interest expense of approximately $0.1 million and $0.1 million, respectively, from the accretion of those debt discounts.
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and six months ended June 30, 2021 and 2020
(Unaudited)
The
Convertible Notes automatically converted upon the closing of the IPO at the implied per share price determined by dividing $60,000,000
by the total number of Common Stock Equivalents immediately prior to the closing of the IPO. The outstanding principal ($12.5 million)
and interest due ($0.4 million) under the Convertible Notes, in an aggregate amount of $12.9 million, was converted into 5,015,494 shares
of the Company’s common stock at the implied per share conversion of $2.5736. The carrying value of the Convertible Notes was credited
to common stock and additional paid-in capital on the condensed consolidated balance sheet. The remaining unamortized discount of $0.4
million was recorded to additional paid-in capital and no gain or loss was recognized on the conversion. The remaining unamortized discount
related to the BCF of $0.5 million was recognized immediately as interest expense in the condensed consolidated statement of operations
and comprehensive loss.
Derivative
Liability
As
described above, the redemption provisions embedded in the Convertible Notes required bifurcation and measurement at fair value as a
derivative. The fair value of the Convertible Note embedded redemption derivative liability was calculated by determining the value of
the debt component of the Convertible Notes at various conversion or maturity dates using a Probability Weighted Expected Return valuation
method. The fair value calculation placed greater probability on the occurrence of the conversion or the maturity date scenario, with
little or no weight given to other scenarios. The fair value of the embedded redemption derivative liability is significantly influenced
by the discount rate, the remaining term to maturity and the Company’s assumptions related to the probability of a qualified financing
or no financing prior to maturity. The Financing Date is the estimated date of an automatic conversion as the result of a Next Qualified
Equity Financing or an IPO.
The
Company estimated the fair value of the embedded redemption derivative liability using the following weighed average assumptions as of
December 31, 2020:
|
|
Financing
Date
|
|
Maturity
Date
|
Probability of Conversion at Financing
|
|
80%
|
|
20%
|
Expected Term
|
|
March 2021
|
|
February 2022
|
Conversion Ratio
|
|
1.25
|
|
N/A
|
Discount Rate
|
|
1.68% to 11.67%
|
|
N/A
|
The
Company estimated the fair value of the embedded redemption derivative liability using the following weighed average assumptions as of
June 30, 2020:
|
|
Financing
Date
|
|
Maturity
Date
|
Probability of Conversion at Financing
|
|
80%
|
|
20%
|
Expected Term
|
|
March 2021
|
|
February 2022
|
Conversion Ratio
|
|
1.25
|
|
N/A
|
Discount Rate
|
|
6.18% to 11.67%
|
|
N/A
|
The
embedded redemption derivative liability no longer had significant value as of the date of the Company’s IPO since the conversion
of the Convertible Notes occurred via a redemption feature that was not bifurcated as a derivative. Upon the conversion of the Convertible
Notes at the IPO, the Company recorded a final change in the fair value of the derivative liability of $0.1 million in the condensed
consolidated statement of operations and comprehensive loss, and the derivative liability was extinguished.
The
changes in the fair value of the derivative liability for the six months ended June 30, 2021 and for the three and six months ended
June 30, 2020 were as follows:
|
|
December 31,
2020
|
|
|
Fair Value at
issuance date
|
|
|
Change in
fair value
|
|
|
June 30,
2021
|
|
Derivative liability
|
|
$
|
121
|
|
|
|
—
|
|
|
|
(121
|
)
|
|
$
|
—
|
|
|
|
March 31,
2020
|
|
|
Fair Value at
issuance date
|
|
|
Change in
fair value
|
|
|
June 30,
2020
|
|
Derivative liability
|
|
$
|
103
|
|
|
|
517
|
|
|
|
(167
|
)
|
|
$
|
453
|
|
|
|
December 31,
2019
|
|
|
Fair Value at
issuance date
|
|
|
Change in
fair value
|
|
|
June 30,
2020
|
|
Derivative liability
|
|
$
|
—
|
|
|
|
588
|
|
|
|
(135
|
)
|
|
$
|
453
|
|
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and six months ended June 30, 2021 and 2020
(Unaudited)
Note
9 – REDEEMABLE Convertible Preferred Stock
On
March 28, 2019, the Company’s Second Amended and Restated Certificate of Incorporation was filed with the Delaware Secretary of
State which (i) increased the number of shares of common stock the Company is authorized to issue to 22,069,652; (ii) increased the number
of shares of preferred stock the Company was authorized to issue to 7,930,348, of which 2,692,253 shares were designated as Series A
preferred stock and 5,238,095 shares were designated as Series B preferred stock; (iii) amended and set a fixed conversion price of Series
A preferred stock to $1.40; and (iv) extended the IPO Commitment Date from April 1, 2020 to no later than March 31, 2021.
The
Company assessed the accounting treatment of the amendment of the Certificate of Incorporation related to the Series A preferred stock
and determined that the amendment is a modification for accounting purposes. After considering the nature of the changes as a result
of the amendment, the Company determined the modification of the Series A preferred stock did not have a significant impact on the financial
statements.
On
various dates from March 2019 through August 2019, the Company issued 4,942,319 shares of Series B preferred stock at $2.10 per share
for net cash proceeds of $9.3 million. The Series B preferred stock has a liquidation preference of an amount equal to the greater
of (i) two times the original issue price of $2.10 per share (adjusted for stock splits, stock dividends, stock combination, recapitalizations
and certain similar events) plus any declared and unpaid dividends thereon or (ii) the amount per share that would have been received
by the holders had the Series B preferred stock been converted into common stock immediately prior to such liquidation, dissolution or
winding-up plus any declared and unpaid dividends thereon, pari passu with the Series A preferred stock and in preference to any distributions
to the holders of common stock.
The
Series B preferred stock was measured and recorded at the transaction price net of issuance costs, resulting in an initial value of $9.3 million.
The accretion to the carrying value of the Series B preferred stock was recorded as a charge to additional paid in capital. The accumulated
accretion as of the IPO date was $11.5 million, which resulted in an adjusted Series B preferred stock carrying value of $20.8 million.
The
accretion to the carrying value of the Series A preferred stock was recorded as a charge to additional paid in capital. The accumulated
accretion as of the IPO date was $8.2 million, which resulted in an adjusted Series A preferred stock carrying value of $14.5 million.
Upon
the IPO, the redeemable convertible preferred stock converted in to 11,436,956 shares of common stock and no shares of redeemable convertible
preferred stock remain outstanding as of June 30, 2021.
On
March 24, 2021, the Company’s Third Amended and Restated Certificate of Incorporation was filed with the Delaware Secretary of
State which (i) eliminated the Company’s Series A and Series B preferred stock, (ii) increased the authorized number of shares
of common stock to 75,000,000 and (iii) authorized 5,000,000 shares of preferred stock at par value of $0.0001 per share. The significant
rights and preferences of the preferred stock will be established by the Company’s Board of Directors (the “Board”)
upon issuance of any such series of preferred stock in the future.
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and six months ended June 30, 2021 and 2020
(Unaudited)
Note
10– Common Stock
As
of June 30, 2021 and December 31, 2020, the Company was authorized to issue 75,000,000 and 22,069,652 shares of common stock with a par
value of $0.0001 per share, and 32,772,060 and 6,393,069 shares were issued and outstanding, respectively.
Conversion
of Redeemable Convertible Preferred Stock
In
connection with the closing of the IPO, on March 25, 2021, the outstanding shares of the Company’s Series A and Series B redeemable
convertible preferred stock was converted into 11,436,956 shares of the Company’s common stock. The holders of the common stock
with respect to the conversion shares are subject to lock-up requirements with respect to the conversion shares until September 25, 2021.
Conversion
of Convertible Notes
In
connection with the funding of the IPO, on March 25, 2021, the principal and interest due under the Company’s Convertible Notes,
in an aggregate amount of $12.9 million, was converted into 5,015,494 shares of the Company’s common stock. The purchasers
of the convertible notes are subject to lock-up requirements with respect to the conversion shares until September 25, 2021.
Third
Amended and Restated Certificate of Incorporation
In
connection with the IPO, the Third Amended and Restated Certificate of Incorporation became effective and authorized 75,000,000 shares
of common stock at par value of $0.0001 per share. Dividends may be declared and paid on the common stock when and if determined by the
Board of Directors. Upon liquidation, each common stockholder is entitled to receive an equal portion of the distribution. Each holder
of common stock will have one vote in respect of each share of common stock held. The rights and privileges listed above will be subject
to preferential rights of any then outstanding shares of preferred stock.
At
the IPO date, the Company issued 17,000 shares of common stock for nonemployee services valued at $85,000.
Common
stock reserved for future issuance as June 30, 2021 is summarized as follows:
Warrants to purchase common stock
|
|
|
1,938,143
|
|
Stock options outstanding
|
|
|
4,717,637
|
|
Stock options available for future grants
|
|
|
990,322
|
|
Total
|
|
|
7,646,102
|
|
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and six months ended June 30, 2021 and 2020
(Unaudited)
Restricted
Stock Purchase Agreements
In
2018, 400,000 shares were issued to the Company’s founder at inception pursuant to a Restricted Stock Purchase Agreement. The Restricted
Stock Purchase Agreement stipulates that in the event of the voluntary or involuntary termination of the Company’s founder’s
continuous service status for any reason (including death or disability), with or without cause, the Company or its assignees(s) shall
have an option (“Repurchase Option”) to repurchase all or any portion of the shares held by the Purchaser as of the termination
date which have not yet been released from the Company’s Repurchase Option at the original purchase price of $0.0125 per share.
Shares are to be released from the Repurchase Option over four years. The initial 12/48ths of the shares were released on January 30,
2019, and an additional 1/48th of the shares are being released monthly thereafter. As of June 30, 2021 and December 31, 2020, 58,333
and 108,333 of the shares issued to the Company’s founder remain subject to the Repurchase Option, respectively. These shares were
originally purchased by the Company’s founder at $0.0125 per share.
In
2018, 3,640,000 shares were also issued pursuant to a Restricted Stock Purchase Agreement. The holders of these shares are considered
related parties of the Company because the holders are directly related either to the founder or to the legal counsel of the Company.
The same terms described above apply to these issuances. As of June 30, 2021 and December 31, 2020, 530,834 and 985,834 of the shares
issued to these holders remain subject to the Repurchase Option, respectively. These shares were originally purchased by the holders
at $0.0125 per share.
Early
Exercised Stock Option Liability.
During the three and six months ended June 30,
2021, none and 50,000 shares, respectively, were issued upon the early exercise of common stock options. The Exercise Notice (Early Exercise)
Agreement states that the Company has the option to repurchase all or a portion of the unvested shares in the event of the separation
of the holder from service to the Company. The shares continue to vest in accordance with the original vesting schedules of the former
option agreements. There were no early exercises during the three and six months ended June 30, 2020.
As of June 30, 2021 and December 31, 2020, the
Company has recorded a repurchase liability for approximately $370,000 and $417,000 for 749,272 and 856,814 shares that remain unvested.
The weighted average remaining vesting period is approximately 2.5 years.
Note
11 – Common Stock Warrants
Preferred
A Placement Warrants
On
February 22, 2018, the Company entered into an agreement with NSC, pursuant to which the Company engaged NSC as the Company’s exclusive
financial advisor and placement agent in connection with an offering or series of offerings of Company securities. Specifically, NSC
was the placement agent in connection with the sale of its Series A preferred stock.
In connection with the closing of Series A preferred
stock offering, the Company issued warrants (“Preferred A Placement Warrants”) to purchase a total of 133,648 shares of its
common stock to NSC on March 14, 2018 and April 23, 2018. On June 1, 2018, the Preferred A Placement Warrants were reassigned among
NSC and three individuals at Liquid Venture Partners (“LVP”). The Preferred A Placement Warrants have a term of five years
and the exercise price is equal to the conversion price of Series A preferred stock upon its conversion. The Preferred A Placement Warrants
included an adjustment provision pursuant to which upon completion of the IPO, and the conversion of the Series A preferred stock in connection
therewith, the number of shares issuable upon exercise of the warrants was adjusted to be equal to 10% of the aggregate number of common
stock shares issued by the Company upon conversion of 1,336,485 shares of Series A preferred stock (the “Preferred A Adjustment
Provision”).
The Second Amended and Restated Certificate of
Incorporation that was approved on March 28, 2019 amended and fixed the conversion price of the Series A preferred stock at $1.40. As
a result, on August 28, 2019, the Company elected to amend and reissue the Preferred A Placement Warrants, thereby reducing the exercise
price to $1.40 and increasing the number of warrant shares by 109,200 to a total of 242,847 warrant shares.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2021 and 2020
(Unaudited)
In connection with the IPO, pursuant to the Preferred
A Adjustment Provision variable settlement provision, the number of shares of common stock subject to the Preferred A Placement Warrants
settled, resulting in an additional 50,195 shares of common stock.
Preferred A Lead Investor Warrants
During February 2021, a total of 52,500 warrants
for common stock were issued to advisors to the Company at a weighted average exercise price of $0.0125 per share. The resulting fair
value of the warrants for common stock is not significant.
Preferred B Placement Warrants
On April 16, 2019, in connection with the Series
B preferred stock offering, the Company issued warrants (“Preferred B Placement Warrants”) to purchase 414,270 shares of its
common stock to NSC, Newbridge Securities Corporation, and five individuals at LVP. The Preferred B Placement Warrants have a term of
five years and their exercise price is equal to $2.10, the conversion price of Series B preferred stock. The Preferred B Placement Warrants
included an adjustment provision pursuant to which upon completion of the IPO, and the conversion of the Series B preferred stock in connection
therewith, the number of shares issuable upon exercise of the warrants was adjusted to be equal to 10% of the aggregate number of common
stock shares issued by the Company upon conversion of 4,142,270 shares of Series B preferred stock (the “Preferred B Adjustment
Provision”).
In connection with the IPO, pursuant to the Preferred
B Adjustment Provision variable settlement provision, the number of shares of common stock subject to the Preferred B Placement Warrants
settled, resulting in an additional 49,528 shares of common stock.
Convertible Note Placement Warrants
In connection with the Convertible Notes, the
Company issued 10,000 and 204,500 warrants to purchase common stock, to a noteholder and its brokers, respectively. The warrants have
a five-year life and are initially exercisable into common stock at $2.97 per share with the warrants ultimately being exercisable into
common stock at the final Conversion Price of the Convertible Notes. When the Convertible Notes converted at the IPO date as described
in Note 9, the exercise price of the warrants was adjusted to equal the Conversion Price, which is $2.57. During March 2021, 42,220 of
these warrants to purchase common stock were cancelled.
Underwriter Warrants
In connection with the IPO, the Company issued
the underwriter a warrant to purchase shares of common stock equal to 9.79% of the shares of common stock sold in the IPO or 956,973 shares.
The warrant is exercisable at $6.00 per share and has a 5-year term. The warrant is subject to a six-month lock-up period. Additionally,
the underwriter has contractually agreed that it will not sell, transfer, assign, pledge, or hypothecate this warrant or the securities
underlying this warrant, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the
effective economic disposition of this warrant or the underlying securities for a period of 540 days (approximately 18 months) from the
IPO.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2021 and 2020
(Unaudited)
The following is a summary of the Company’s
warrant activity for the six months ended June 30, 2021:
Warrant Issuance
|
|
Issuance
|
|
|
Exercise
Price
|
|
|
Outstanding,
December 31,
2020
|
|
|
Granted
|
|
|
Exercised
|
|
|
Canceled/
Expired
|
|
|
Variable Settlement Provision Adjustment
|
|
|
Outstanding,
June 30,
2021
|
|
|
Expiration
|
|
Preferred A Placement Warrants
|
|
|
March and April 2018 and August 2019
|
|
|
$
|
1.40
|
|
|
|
242,847
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50,195
|
|
|
|
293,042
|
|
|
|
March and April 2023
|
|
Preferred A Lead Investor Warrants
|
|
|
February 2021
|
|
|
$
|
0.0125
|
|
|
|
—
|
|
|
|
52,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
52,500
|
|
|
|
March 2023
|
|
Preferred B Placement Warrants
|
|
|
April 2019
|
|
|
$
|
2.10
|
|
|
|
414,270
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49,528
|
|
|
|
463,798
|
|
|
|
April 2024
|
|
Convertible Notes Placement Warrants
|
|
|
August 2020
|
|
|
$
|
2.57
|
|
|
|
214,050
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(42,220
|
)
|
|
|
—
|
|
|
|
171,830
|
|
|
|
August 2025
|
|
Underwriter Warrants
|
|
|
March 2021
|
|
|
$
|
6.00
|
|
|
|
—
|
|
|
|
956,973
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
956,973
|
|
|
|
March 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
871,167
|
|
|
|
1,009,473
|
|
|
|
—
|
|
|
|
(42,220
|
)
|
|
|
99,723
|
|
|
|
1,938,143
|
|
|
|
|
|
Warrants Classified as Liabilities
Preferred A Placement Warrants and Preferred
B Placement Warrants
The Preferred A Placement Warrants and Preferred
B Placement Warrants were initially classified as a derivative liability because their variable terms did not qualify these as being indexed
to the Company’s own common stock and will be measured at fair value on a recurring basis.
As a result of the conversion of the Preferred
Stock into common stock in connection with the IPO, and the related impact of the Preferred A Adjustment Provision and the Preferred B
Adjustment Provision, the number of warrant shares that are convertible is no longer variable. Accordingly, the Preferred A Placement
Warrants and Preferred B Placement Warrants were determined to be indexed to the Company’s own common stock and will no longer be
measured at fair value on a recurring basis. Instead the Preferred A Placement Warrants and the Preferred B Placement Warrants were determined
to be equity instruments, and the liability was recorded at fair value with the change in fair value recorded in the condensed consolidated
statement of operations and comprehensive loss and reclassified to additional paid-in capital at their estimated fair value at the IPO
date.
Convertible Notes Placement Warrants
The Convertible Notes Placement Warrants were
classified as a derivative liability because the exercise price was variable, thus these did not qualify as being indexed to the Company’s
own common stock and were measured at fair value on a recurring basis.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2021 and 2020
(Unaudited)
As a result of the conversion of the Convertible
Notes into common stock in connection with the IPO, the exercise price is no longer variable. Accordingly, the Convertible Notes Placement
Warrants were determined to be indexed to the Company’s own common stock and will no longer be measured at fair value on a recurring
basis. Instead the Convertible Notes Placement Warrants were determined to be equity instruments, and the liability was recorded at fair
value with the change in fair value recorded in the condensed consolidated statement of operations and comprehensive loss and reclassified
to additional paid-in capital at their estimated fair value at the IPO date.
Estimated Fair Value of Outstanding Warrants
Classified as Liabilities
The estimated fair value of outstanding warrants
classified as liabilities is determined at each balance sheet date. Any decrease or increase in the estimated fair value of the warrant
liability since the most recent balance sheet date is recorded in the condensed consolidated statements of operations and comprehensive
loss as a change in fair value of warrant liability.
There were no warrants classified as liabilities
outstanding during the three months ended June 30, 2021.
The changes in fair value of the outstanding warrants
classified as liabilities for the six months ended June 30, 2021 were as follows (in thousands):
Warrant Issuance
|
|
Warrant liability,
December 31,
2020
|
|
|
Fair value
of warrants granted
|
|
|
Fair value
of warrants exercised
|
|
|
Change in fair
value of warrants
|
|
|
Reclassified to additional
paid-in
capital
|
|
|
Warrant liability,
June 30,
2021
|
|
Preferred A Placement Warrants
|
|
$
|
518
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
575
|
|
|
$
|
(1,093
|
)
|
|
$
|
—
|
|
Preferred B Placement Warrants
|
|
|
708
|
|
|
|
—
|
|
|
|
—
|
|
|
|
800
|
|
|
|
(1,508
|
)
|
|
$
|
—
|
|
Convertible Notes Placement Warrants
|
|
|
323
|
|
|
|
—
|
|
|
|
—
|
|
|
|
206
|
|
|
|
(529
|
)
|
|
$
|
—
|
|
|
|
$
|
1,549
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,581
|
|
|
$
|
(3,130
|
)
|
|
$
|
—
|
|
The changes in fair value of the warrant liability for the six months
ended June 30, 2020 were as follows (in thousands):
Warrant Issuance
|
|
Warrant liability,
December 31,
2019
|
|
|
Fair value of
warrants granted
|
|
|
Fair value of
warrants exercised
|
|
|
Change in fair
value of warrants
|
|
|
Warrant liability,
June 30,
2020
|
|
Preferred A Placement Warrants
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
11
|
|
Preferred B Placement Warrants
|
|
|
20
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
12
|
|
|
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
$
|
23
|
|
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2021 and 2020
(Unaudited)
The fair values of the outstanding warrants accounted
for as liabilities at the IPO date are calculated using the Black-Scholes option pricing model with the following assumptions:
|
|
Black-Scholes Fair Value Assumptions at IPO Date
|
|
Warrant Issuance
|
|
Dividend
Yield
|
|
|
Expected
Volatility
|
|
|
Risk-Free
Interest
Rate
|
|
|
Expected
Life
|
|
Preferred A Placement Warrants
|
|
|
–
|
%
|
|
|
59.21
|
%
|
|
|
0.14
|
%
|
|
|
2.0 years
|
|
Preferred B Placement Warrants
|
|
|
–
|
%
|
|
|
58.51
|
%
|
|
|
0.30
|
%
|
|
|
3.0 years
|
|
Convertible Note Placement Warrants
|
|
|
–
|
%
|
|
|
52.28
|
%
|
|
|
0.82
|
%
|
|
|
4.4 years
|
|
Upon the conversion of the redeemable convertible
preferred stock and the Convertible Notes into common stock at the IPO date, the estimated fair value of the outstanding warrants accounted
for as liabilities of $3.1 million was reclassified to additional paid-in capital.
The fair values of the outstanding warrants accounted
for as liabilities at December 31, 2020 are calculated using the Black-Scholes option pricing model with the following assumptions:
|
|
Black-Scholes Fair Value Assumptions - December 31, 2020
|
|
Warrant Issuance
|
|
Dividend
Yield
|
|
|
Expected
Volatility
|
|
|
Risk-Free
Interest
Rate
|
|
|
Expected
Life
|
|
Preferred A Placement Warrants
|
|
|
–
|
%
|
|
|
67.75
|
%
|
|
|
0.13
|
%
|
|
2.2 years
|
|
Preferred B Placement Warrants
|
|
|
–
|
%
|
|
|
55.76
|
%
|
|
|
0.17
|
%
|
|
3.3 years
|
|
Convertible Note Placement Warrants
|
|
|
–
|
%
|
|
|
52.93
|
%
|
|
|
0.36
|
%
|
|
4.7 years
|
|
The fair values of the outstanding warrants accounted
for as liabilities at June 30, 2020 are calculated using the Black-Scholes option pricing model with the following assumptions:
|
|
Black-Scholes
Fair Value Assumptions – June 30, 2020
|
|
Warrant
Issuance
|
|
Dividend
Yield
|
|
|
Expected
Volatility
|
|
|
Risk-Free
Interest
Rate
|
|
|
Expected
Life
|
|
Preferred
A Placement Warrants
|
|
|
–
|
%
|
|
|
50.26
|
%
|
|
|
0.18
|
%
|
|
|
2.7 years
|
|
Preferred
B Placement Warrants
|
|
|
–
|
%
|
|
|
48.15
|
%
|
|
|
0.24
|
%
|
|
|
3.8 years
|
|
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2021 and 2020
(Unaudited)
Warrants Classified as Equity
Certain warrants are classified as equity instruments
since they do not meet the characteristics of a liability or a derivative and are recorded at fair value on the date of issuance using
the Black-Scholes option pricing model with the following assumptions. The fair value as determined at the issuance date is recorded as
an issuance cost of the related stock. Those warrants and the assumptions used to calculate the fair value at issuance are as follows
for the warrants issued during the six months ended June 30, 2021. There were no warrants issued during the three months ended June 30,
2021, nor during the three and six months ended June 30, 2020.
|
|
Black-Scholes Fair Value Assumptions
|
Warrant Issuance
|
|
Issuance
Date
|
|
Fair
Value
|
|
|
Dividend
Yield
|
|
|
Expected
Volatility
|
|
|
Risk-Free
Interest
Rate
|
|
|
Expected
Life
|
Underwriter Warrants
|
|
March 2021
|
|
$
|
2,349
|
|
|
|
–
|
%
|
|
|
52.58
|
%
|
|
|
0.82
|
%
|
|
5.0 years
|
Note
12 – Stock-based Compensation
2019 Equity Incentive Plan
Effective as of November 18, 2019, the Company
adopted the 2019 Omnibus Incentive Plan (“2019 Plan”) administered by the Board. The 2019 Plan provides for the issuance of
incentive stock options, non-statutory stock options, and restricted stock awards, for the purchase of up to a total of 4,000,000 shares
of the Company’s common stock to employees, directors, and consultants and replaces the previous plan. The Board or a committee
of the Board has the authority to determine the amount, type, and terms of each award. The options granted under the 2019 Plan generally
have a contractual term of ten years and a vesting term of four years with a one-year cliff. The exercise price for options granted under
the 2019 Plan must generally be at least equal to 100% of the fair value of the Company’s common stock at the date of grant, as
determined by the Board. The incentive stock options granted under the 2019 Plan to 10% or greater stockholders must have an exercise
price at least equal to 110% of the fair value of the Company’s common stock at the date of grant, as determined by the Board, and
have a contractual term of ten years.
On September 30, 2020, the Board approved an increase
in the aggregate number of shares of common stock that may be issued pursuant to the 2019 Plan from 4,000,000 to 4,500,000.
On December 7, 2020, the Board approved an increase
in the aggregate number of shares of common stock that may be issued pursuant to the 2019 Plan from 4,500,000 to 6,000,000.
In connection with the closing of the IPO, effective
as of March 25, 2021 the 2019 Plan was amended and restated as a result of which the aggregate number of shares of common stock that may
be issued pursuant to the 2019 Plan was increased from 6,000,000 to 7,400,000.
As of June 30, 2021, the Company had 990,322 shares
available for future grant under the 2019 Plan.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2021 and 2020
(Unaudited)
Stock Options
Stock option activity for the six months ended
June 30, 2021 was as follows (in thousands, except share, per share, and remaining life data):
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Life
|
|
Intrinsic Value
|
|
Outstanding at December 31, 2020
|
|
|
3,188,011
|
|
|
$
|
0.66
|
|
|
9.0 years
|
|
$
|
8,155
|
|
Granted
|
|
|
1,810,000
|
|
|
$
|
3.74
|
|
|
|
|
|
|
|
Exercised
|
|
|
(134,541
|
)
|
|
$
|
0.56
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(145,833
|
)
|
|
$
|
0.59
|
|
|
|
|
|
|
|
Outstanding at June 30, 2021
|
|
|
4,717,637
|
|
|
$
|
1.84
|
|
|
8.9 years
|
|
$
|
15,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 30, 2021
|
|
|
1,757,533
|
|
|
$
|
0.49
|
|
|
8.4 years
|
|
$
|
8,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest as of June 30, 2021
|
|
|
4,667,437
|
|
|
$
|
1.86
|
|
|
9.0 years
|
|
$
|
15,221
|
|
The weighted-average grant date fair value of
options granted during the six months ended June 30, 2021 and 2020 was $2.80 and $0.21. During the six months ended June 30,
2021 and 2020, 134,531 and no options were exercised for proceeds of $76,000 and $0, respectively. The fair value of the 402,939 and 450,840
options that vested during the six months ended June 30, 2021 and 2020 was approximately $0.3 million and $0.1 million,
respectively.
The Company estimated the fair value of stock
options using the Black-Scholes option pricing model. The fair value of the stock options was estimated using the following weighted average
assumptions for the six months ended June 30, 2021 and 2020.
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
–
|
%
|
|
|
–
|
%
|
Expected volatility
|
|
|
67.61
|
%
|
|
|
61.93
|
%
|
Risk-free interest rate
|
|
|
0.74
|
%
|
|
|
1.48
|
%
|
Expected life
|
|
|
6.05 years
|
|
|
|
5.57 years
|
|
Dividend Rate—The expected dividend
rate was assumed to be zero, as the Company had not previously paid dividends on common stock and has no current plans to do so.
Expected Volatility—The expected
volatility was derived from the historical stock volatilities of several public companies within the Company’s industry that the
Company considers to be comparable to the business over a period equivalent to the expected term of the stock option grants.
Risk-Free Interest Rate—The risk-free
interest rate is based on the interest yield in effect at the date of grant for zero coupon U.S. Treasury notes with maturities approximately
equal to the option’s expected term.
Expected Term—The expected term represents
the period that the Company’s stock options are expected to be outstanding. The expected term of option grants that are considered
to be “plain vanilla” are determined using the simplified method. The simplified method deems the term to be the average of
the time-to-vesting and the contractual life of the options. For other option grants not considered to be “plain vanilla,”
the Company determined the expected term to be the contractual life of the options.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2021 and 2020
(Unaudited)
Forfeiture Rate—The Company made
the one-time policy election to recognize forfeitures when they occur.
The Company has recorded stock-based compensation
expense for the three and six months ended June 30, 2021 and 2020 related to the issuance of stock option awards to employees and
nonemployees in the condensed consolidated statement of operations and comprehensive loss as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Research and development
|
|
$
|
171
|
|
|
$
|
12
|
|
|
$
|
250
|
|
|
$
|
25
|
|
General and administrative
|
|
|
169
|
|
|
|
29
|
|
|
|
445
|
|
|
|
65
|
|
|
|
$
|
340
|
|
|
$
|
41
|
|
|
$
|
695
|
|
|
$
|
90
|
|
As of June 30, 2021, unamortized compensation
expense related to unvested stock options was approximately $7.2 million, which is expected to be recognized over a weighted average
period of 3.0 years.
Note
13 – Commitments and Contingencies
Operating Leases
As of June 30, 2021, the Company had two
office leases. One lease, for facility space in Dublin, California expires in September 2021, and future minimum lease payments for that
lease during 2021 are approximately $13,800.
On April 15, 2021, the Company executed a lease
agreement for corporate office space. The lease commenced on May 14, 2021 when the improvements were completed by the landlord and the
Company had access to the facility. The lease term is 40 months, and the base rent is approximately $14,000 per month for the first twelve
months, with subsequent escalation provisions for future months. The Company paid a security deposit of approximately $47,000.
Future minimum lease payments for this new corporate
office space lease are as follows as of June 30, 2021:
Remainder of 2021
|
|
$
|
51
|
|
2022
|
|
|
173
|
|
2023
|
|
|
179
|
|
2024
|
|
|
138
|
|
Total
|
|
$
|
541
|
|
Rent expense for the three months ended June 30,
2021 and 2020 was $34,000 and $28,000, respectively. Rent expense for the six months ended June 30, 2021 and 2020 was $48,000 and
$56,000, respectively.
Litigation
From time to time, the Company may become involved
in various litigation and administrative proceedings relating to claims arising from its operations in the normal course of business.
Management is not currently aware of any matters that may have a material adverse impact on the Company’s business, financial position,
results of operations or cash flows.
Indemnification
The Company enters into standard indemnification
agreements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless and agrees to reimburse
the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent
or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification
agreements is generally perpetual after the execution of the agreement. The maximum potential amount of future payments the Company could
be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the
future, but have not yet been made. The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification
agreements.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2021 and 2020
(Unaudited)
The Company has entered into indemnification agreements
with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise
by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual.
No amounts associated with such indemnifications
have been recorded as of June 30, 2021.
Note
14 – NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
The following table computes the computation of
the basic and diluted net loss per share attributable to common stockholders during the three and six months ended June 30, 2021
and 2020 is as follows (in thousands, except share and per share data):
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,687
|
)
|
|
$
|
(2,739
|
)
|
|
$
|
(10,295
|
)
|
|
$
|
(4,764
|
)
|
Accretion and dividends on redeemable convertible preferred stock
|
|
|
-
|
|
|
|
(2,118
|
)
|
|
|
(2,489
|
)
|
|
|
(4,074
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(4,687
|
)
|
|
$
|
(4,857
|
)
|
|
$
|
(12,784
|
)
|
|
$
|
(8,838
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
32,017,335
|
|
|
|
2,775,784
|
|
|
|
20,099,402
|
|
|
|
2,649,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders, basic and diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(1.75
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(3.34
|
)
|
The potential shares of common stock that were
excluded from the computation of diluted net loss per share attributable to common stockholders for the three and six months ended June 30,
2021 and 2020 because including them would have been antidilutive are as follows:
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Shares of redeemable convertible preferred stock
|
|
|
—
|
|
|
|
10,998,700
|
|
Non-vested shares under restricted stock grants
|
|
|
589,167
|
|
|
|
1,599,167
|
|
Shares related to convertible promissory notes
|
|
|
—
|
|
|
|
2,847,221
|
|
Shares subject to options to purchase common stock
|
|
|
4,717,637
|
|
|
|
3,062,478
|
|
Shares subject to warrants to purchase common stock
|
|
|
1,938,143
|
|
|
|
960,117
|
|
Total
|
|
|
7,244,947
|
|
|
|
19,467,683
|
|
For the three and six months ended June 30,
2021 and 2020, performance based option awards for 50,200 shares of common stock, respectively, are not included in in the table above
or considered in the calculation of diluted earnings per share until the performance conditions of the option award are considered probable
by the Company.
Note
15 – Subsequent Events
Management of the Company evaluated events that
have occurred after the balance sheet dates through the date these condensed consolidated financial statements were issued. Based upon
the review, management did not identify any recognized or non-recognized subsequent events that would have required
adjustment or disclosure in the condensed consolidated financial statements.