See accompanying notes to condensed consolidated
financial statements.
See accompanying notes to condensed consolidated
financial statements.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
Note
1 – Business Organization, Nature of Operations
Movano Inc. (the “Company”, “Movano”, “we”,
“us” 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 developing a platform to deliver purpose-driven healthcare
solutions at the intersection of medtech and consumer devices. Movano’s mission is to empower and inspire consumers to live a healthier,
happier life.
The Company’s solutions are being developed
to provide vital health information, including heart rate, HRV, sleep, respiration rate, temperature, blood oxygen saturation, steps,
calories as well as glucose and blood pressure data, in a variety of form factors to meet individual style needs and give users actionable
feedback to improve their quality of 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 six months ended June 30, 2022.
Since inception, the Company has engaged in only
limited research and development of product candidates and underlying technology. As of June 30, 2022, the Company had not yet completed
the development of its product and had not yet recorded any revenues.
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 its 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 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 10. 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, 2022, 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.
Liquidity
and Going Concern
The accompanying interim condensed
consolidated 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 has incurred significant losses and has an accumulated
deficit of $78.6 million as of June 30, 2022. The Company anticipates incurring additional losses until such time, if ever, that it
can generate significant sales. The Company’s existence is dependent upon management’s ability to obtain additional
funding sources. These circumstances raise substantial doubt about the Company’s ability to continue as
a going concern within one year after the date that the financial statements are issued.
Adequate additional financing may not be available
to the Company on acceptable terms, or at all. If the Company is unable to raise additional capital and/or enter into strategic alliances
when needed or on attractive terms, it would be forced to delay, reduce, or eliminate its product or any commercialization efforts. There
can be no assurance that the Company’s efforts will result in the resolution of the Company’s liquidity needs. The accompanying
interim condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to
continue as a going concern.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(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 condensed consolidated financial statements have been prepared on the same basis as the annual financial
statements. In the opinion of management, the accompanying unaudited 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. These financial statements should be read in conjunction with the audited financial
statements and notes thereto for the preceding fiscal year contained in the Company’s Annual Report on Form 10-K filed on March
30, 2022 with the United States Securities and Exchange Commission (the SEC).
The results of operations for the three
six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022.
The condensed consolidated balance sheet as of December 31, 2021 has been derived from audited financial statements at that date
but does not include all the information required by GAAP for complete financial statements.
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.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
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 insignificant during the three and six months ended June 30, 2022
and 2021.
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 exceed 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.
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.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
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.
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, 2022 and 2021.
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.
Stock-Based Compensation
The Company measures equity classified stock-based awards granted to
employees, non-employee directors, and nonemployees based on the estimated grant date fair value of the awards. For stock-based awards
with only service conditions, compensation expense is recognized over the requisite service period, which is generally the vesting period
of the respective award, using the straight-line method. For stock-based awards that include performance conditions, compensation expense
is not recognized until the performance condition is probable to occur. The Company uses the Black-Scholes option pricing model to estimate
the fair value of its stock-based awards. The Black-Scholes option pricing model requires the Company to make assumptions and judgements
about the variables used in the calculations, including the fair value of common stock, expected term, expected volatility of the Company’s
common stock, risk-free interest rate and expected dividend yield. The Company accounts for forfeitures of stock-based awards as they
occur.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
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
Adoption of ASU No. 2016-02
The Company adopted FASB’s ASU No. 2016-02,
Leases (“ASC 842”), as of January 1, 2022, using the modified retrospective approach which provides a method for recording
existing leases at the beginning of the period of adoption.
In addition, the Company elected the package
of practical expedients and other expedients permitted under the transition guidance within the new standard, which among other things,
allowed the Company to carry forward the historical lease classification and not to restate the comparative periods prior to the adoption
and to combine lease and non-lease components for all asset classes. The Company made an accounting policy election not to recognize
right of use assets and lease liabilities for leases with a lease term of 12 months or less, including renewal options that are reasonably
certain to be exercised, that also do not include an option to purchase the underlying asset that is reasonably certain of exercise.
Instead, lease payments for these leases are recognized as lease expense on a straight-line basis over the lease term. The disclosures
required under ASC 842 are not presented for periods before the date of adoption. For the comparative periods prior to adoption, the
Company presented the disclosures which were required under the previous accounting guidance. The adoption of the new standard did not
have a material impact on the Company’s results of operations or cash flows.
Operating lease right of use (“ROU”)
assets represent the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present
value of the future minimum lease payments over the lease term at commencement date. Adoption of the new standard resulted in the recording
of operating lease liabilities of $429,000 and ROU assets of $380,000 as of January 1, 2022. The difference between the ROU assets and
lease liabilities represents the net book value of deferred rent recognized as of December 31, 2021, which was adjusted against the ROU
asset upon adoption. The ROU asset is included in other assets on the Company’s condensed consolidated balance sheet. At adoption,
operating lease liabilities of $166,000 and $263,000, respectively, were included in other current liabilities and other noncurrent liabilities
on the Company’s condensed consolidated balance sheet.
As most leases do not provide an implicit rate,
the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value
of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included
in research and development expenses and general and administrative expenses in the condensed consolidated statements of operations and
comprehensive loss. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as
expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur.
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.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
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.
On 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 were classified within level 3
of the valuation hierarchy. However, these instruments are not present on March 31, 2021 in light of accounting ramifications of the
IPO, which are discussed further in Note 7 and Note 8.
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.
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, 2022 and December 31, 2021 (in thousands).
Fair Value Measurements
| |
June
30, 2022 | |
| |
Fair
Value | | |
Level
1 | | |
Level
2 | | |
Level
3 | |
| |
| | |
| | |
| | |
| |
Cash equivalents: | |
| | |
| | |
| | |
| |
Money
market funds | |
$ | 15,620 | | |
$ | 15,620 | | |
$ | — | | |
$ | — | |
Total cash
equivalents | |
$ | 15,620 | | |
$ | 15,620 | | |
$ | — | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
Short-term investments: | |
| | | |
| | | |
| | | |
| | |
Certificates of deposit | |
$ | 249 | | |
$ | — | | |
$ | 249 | | |
$ | — | |
Commercial
paper | |
| 550 | | |
| — | | |
| 550 | | |
| — | |
Corporate
notes | |
| 3,415 | | |
| — | | |
| 3,415 | | |
| — | |
Municipal
bonds | |
| — | | |
| — | | |
| — | | |
| — | |
Total short-term
investments | |
$ | 4,214 | | |
$ | — | | |
$ | 4,214 | | |
$ | — | |
| |
December
31, 2021 | |
| |
Fair
Value | | |
Level
1 | | |
Level
2 | | |
Level
3 | |
| |
| | |
| | |
| | |
| |
Cash equivalents: | |
| | |
| | |
| | |
| |
Money
market funds | |
$ | 16,830 | | |
$ | 16,830 | | |
$ | — | | |
$ | — | |
Total cash
equivalents | |
$ | 16,830 | | |
$ | 16,830 | | |
$ | — | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
Short-term investments: | |
| | | |
| | | |
| | | |
| | |
Certificates of deposit | |
$ | 250 | | |
$ | — | | |
$ | 250 | | |
$ | — | |
Commercial
paper | |
| 2,210 | | |
| — | | |
| 2,210 | | |
| — | |
Corporate
notes | |
| 12,024 | | |
| — | | |
| 12,024 | | |
| — | |
Municipal
bonds | |
| 1,437 | | |
| — | | |
| 1,437 | | |
| — | |
Total short-term
investments | |
$ | 15,921 | | |
$ | — | | |
$ | 15,921 | | |
$ | — | |
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(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,
| | |
December 31,
| |
| |
2022 | | |
2021 | |
Cash and cash equivalents: | |
| | |
| |
Cash | |
$ | 1,469 | | |
$ | 845 | |
Money
market funds | |
| 15,620 | | |
| 16,830 | |
Total cash
and cash equivalents | |
$ | 17,089 | | |
$ | 17,675 | |
| |
| | | |
| | |
Short-term investments: | |
| | | |
| | |
Certificates of deposit | |
$ | 249 | | |
$ | 250 | |
Commercial
paper | |
| 550 | | |
| 2,210 | |
Corporate
notes | |
| 3,415 | | |
| 12,024 | |
Municipal
bonds | |
| — | | |
| 1,437 | |
Total short-term
investments | |
$ | 4,214 | | |
$ | 15,921 | |
The contractual maturities of short-term investments
classified as available-for-sale as of June 30, 2022 were as follows (in thousands):
| |
June
30,
2022 | |
| |
| |
Due within one year | |
$ | 4,214 | |
Due after
one year through five years | |
| — | |
Total | |
$ | 4,214 | |
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, 2022 | |
| |
Amortized Cost | | |
Gross Unrealized
Gains | | |
Gross Unrealized
Losses | | |
Aggregate Estimated
Fair Value | |
Short-term investments: | |
| | |
| | |
| | |
| |
Certificates of deposit | |
$ | 250 | | |
$ | — | | |
$ | (1 | ) | |
$ | 249 | |
Commercial paper | |
| 550 | | |
| — | | |
| | | |
| 550 | |
Corporate notes | |
| 3,429 | | |
| — | | |
| (14 | ) | |
| 3,415 | |
Municipal bonds | |
| — | | |
| — | | |
| — | | |
| — | |
Total short-term investments | |
$ | 4,229 | | |
$ | — | | |
$ | (15 | ) | |
$ | 4,214 | |
| |
December 31,
2021 | |
| |
Amortized
Cost | | |
Gross
Unrealized Gains | | |
Gross
Unrealized Losses | | |
Aggregate
Estimated Fair Value | |
Short-term investments: | |
| | |
| | |
| | |
| |
Certificates
of deposit | |
$ | 250 | | |
$ | — | | |
$ | — | | |
$ | 250 | |
Commercial
paper | |
| 2,210 | | |
| — | | |
| — | | |
| 2,210 | |
Corporate
notes | |
| 12,035 | | |
| — | | |
| (11 | ) | |
| 12,024 | |
Municipal
bonds | |
| 1.437 | | |
| — | | |
| — | | |
| 1,437 | |
Total
short-term investments | |
$ | 15,932 | | |
$ | — | | |
$ | (11 | ) | |
$ | 15,921 | |
As of June 30, 2022 and December 31, 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, 2022 and December 31, 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, 2022 and 2021.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
Note
5 – Property and Equipment
Property and equipment, net, as of June 30, 2022
and December 31, 2021, consisted of the following (in thousands):
| |
June 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Office equipment and furniture | |
$ | 263 | | |
$ | 237 | |
Software | |
| 131 | | |
| 115 | |
Test equipment | |
| 233 | | |
| 278 | |
Total property and equipment | |
| 627 | | |
| 630 | |
Less: accumulated depreciation | |
| (153 | ) | |
| (101 | ) |
Total property and equipment, net | |
$ | 474 | | |
$ | 529 | |
Total depreciation and amortization expense related
to property and equipment for the three and six months ended June 30, 2022 was approximately $38,000 and $73,000, respectively. 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.
Note
6 – Other Current Liabilities
Other current liabilities as of June 30, 2022
and December 31, 2021 consisted of the following (in thousands):
| |
June 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Accrued research and development | |
$ | 199 | | |
$ | 289 | |
Accrued compensation | |
| 1,562 | | |
| 2,211 | |
Accrued vacation | |
| 353 | | |
| 276 | |
Lease liabilities, current portion | |
| 218 | | |
| — | |
Other | |
| 303 | | |
| 131 | |
| |
$ | 2,635 | | |
$ | 2,907 | |
NOTE
7 – 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).
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
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. |
|
|
|
|
|
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. |
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
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.
During the three months ended March 31,
2021, 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 $300,000 of the nonemployee services that remained
to be completed was recorded in prepaid and other current expenses on the condensed consolidated balance sheets. The Company calculated
a BCF of approximately $500,000 upon the issuance of this Convertible Note.
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 10 – 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 statements 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, 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, 2022 and 2021
(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 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 three and six months ended June 30, 2021 was the same and is presented
as follows (in thousands):
| |
December 31, | | |
Fair Value at | | |
Change in | | |
June 30, | |
Warrant Issuance | |
2020 | | |
issuance date | | |
fair value | | |
2021 | |
Derivative liability | |
$ | 121 | | |
| — | | |
| (121 | ) | |
$ | — | |
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
Note
8 – 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 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.
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, 2022 and 2021
(Unaudited)
Note
9 – Common Stock
As
of June 30, 2022 and December 31, 2021, the Company was authorized to issue 75,000,000 shares of common stock with a par value of $0.0001
per share. As of June 30, 2022 and December 31, 2021, 32,818,060 and 32,772,060 shares were outstanding.
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
were converted into 11,436,956 shares of the Company’s common stock.
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.
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 at
June 30, 2022 is summarized as follows:
Warrants to purchase common stock | |
| 1,938,143 | |
Stock options outstanding | |
| 6,869,512 | |
Stock options available for future grants | |
| 6,791,447 | |
Total | |
| 15,599,102 | |
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, 2022 and December 31, 2021, none and 8,333 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, 2022 and December 31, 2021, none and 75,833 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, 2022, no shares were
issued upon the early exercise of common stock options. 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.
As of June 30, 2022 and December 31, 2021, the
Company has recorded a repurchase liability for approximately $205,000 and $281,000 for 410,522 and 567,397 shares that remain unvested,
respectively. The weighted average remaining vesting period is approximately 1.6 years.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
Note
10 – Common Stock Warrants
Preferred A Placement Warrants
In connection with the closing of the 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. 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”). In August 2019, the Preferred A Placement Warrants were amended and reissued and the total number
of warrant shares increased to 242,847.
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 214,050 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 8, 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.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
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. 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.
The following is a summary of the Company’s
warrant activity for the six months ended June 30, 2022:
Warrant Issuance | |
Issuance | | |
Exercise Price | | |
Outstanding, December 31,
2021 | | |
Granted | | |
Exercised | | |
Canceled/ Expired | | |
Variable
Settlement
Provision
Adjustment | | |
Outstanding, June 30, 2022 | | |
Expiration | |
Preferred A Placement
Warrants | |
| March and April 2018 and August 2019 | | |
$ | 1.40 | | |
| 293,042 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 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 | | |
| 463,798 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 463,798 | | |
| April 2024 | |
Convertible Notes Placement Warrants | |
| August 2020 | | |
$ | 2.57 | | |
| 171,830 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 171,830 | | |
| August 2025 | |
Underwriter
Warrants | |
| March 2021 | | |
$ | 6.00 | | |
| 956,973 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 956,973 | | |
| March 2026 | |
| |
| | | |
| | | |
| 1,938,143 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,938,143 | | |
| | |
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 | | |
| | |
Movano
Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
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.
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.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
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 as of June 30, 2022 and December 31, 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 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.
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. There were no warrants classified as equity issued during the three and six months ended June
30, 2022, nor during the three months ended June 30, 2021. 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:
| |
Black-Scholes Fair Value Assumptions |
Warrant Issuance | |
Issuance
Date | |
Fair Value
(in ooo’s) | | |
Dividend
Yield | | |
Expected
Volatility | | |
Risk-Free
Interest
Rate | | |
Expected
Life |
Underwriter Warrants | |
March 2021 | |
$ | 2,349 | | |
| — | % | |
| 52.58 | % | |
| 0.82 | % | |
5.0 years |
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
Note
11 – 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.
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.
On April 15, 2022, the Board approved, subject
to stockholder approval, an increase in the aggregate number of shares of common stock that may be issued pursuant to the 2019 Plan
from 7,400,000 to 13,400,000. On June 21, 2022, the stockholders approved this increase.
As of June 30, 2022, the Company had 5,561,447
shares available for future grant pursuant to the 2019 Plan.
2021 Employment Inducement Plan
On September 15, 2021 the Company’s Board
adopted the Movano, Inc. 2021 Inducement Award Plan (the “Inducement Plan”) without stockholder approval pursuant
to Rule 5635(c)(4) of the Nasdaq Stock Market LLC listing rules (“Rule 5635(c)(4)”). In accordance with Rule 5635(c)(4),
awards under the Inducement Plan may only be made to a newly hired employee who has not previously been a member of the
Company’s Board, or an employee who is being rehired following a bona fide period of non-employment by the Company or a subsidiary,
as a material inducement to the employee’s entering into employment with the Company or its subsidiary. An aggregate of 2,000,000 shares
of the Company’s common stock have been reserved for issuance under the Inducement Plan.
The Company will continue to grant awards under
the 2019 Plan pursuant to the terms thereof.
During the six months ended June 30, 2022, awards
totaling 1,015,000 were issued under the Inducement Plan. The exercise price was $2.60 per share for 720,000 of the inducement stock
option awards and for $2.54 for 295,000 of the inducement stock option awards. All of the inducement stock option awards remain unvested
at June 30, 2022.
As of June 30, 2022, the Company had 1,230,000
shares available for future grant under the Inducement Plan.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
Stock Options
Stock option activity for the six months ended
June 30, 2022 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, 2021 |
|
|
5,592,137 |
|
|
$ |
2.29 |
|
|
8.6 years |
|
$ |
9,912 |
|
Granted |
|
|
1,670,000 |
|
|
$ |
2.84 |
|
|
|
|
|
|
|
Exercised |
|
|
(47,000 |
) |
|
$ |
0.41 |
|
|
|
|
|
|
|
Cancelled |
|
|
(345,625 |
) |
|
$ |
3.37 |
|
|
|
|
|
|
|
Outstanding at June 30, 2022 |
|
|
6,869,512 |
|
|
$ |
2.38 |
|
|
8.5 years |
|
$ |
4,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 30, 2022 |
|
|
3,362,341 |
|
|
$ |
1.57 |
|
|
8.1 years |
|
$ |
4,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest as of June 30, 2022 |
|
|
6,719,312 |
|
|
$ |
2.36 |
|
|
8.5 years |
|
$ |
4,824 |
|
The weighted-average grant date fair value of
options granted during the six months ended June 30, 2022 and 2021, was $1.43 and $2.80, respectively. During the six months ended June
30, 2022 and 2021, 47,000 and 134,531 options were exercised for proceeds of $19,000 and $76,000, respectively. The fair value of the
1,006,430 and 402,939 options that vested during the six months ended June 30, 2022 and 2021 was approximately $2.0 million and $0.3 million,
respectively.
On June 21, 2022, the Company granted an award
of 100,000 options to the Company’s founder at an exercise price of $5.00 per share. The options will vest in full upon the shipment
of 20,000 product units on or before June 30, 2023. If the shipments have not occurred by June 30, 2023, the options will be cancelled
and forfeited. As of June 30, 2022, the Company has not recognized stock compensation expense related to this award as the successful
achievement of the performance conditions is not yet probable.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
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, 2022 and 2021.
| |
The
Six Months Ended
June 30, | |
| |
2022 | | |
2021 | |
Dividend yield | |
| — | % | |
| — | % |
Expected volatility | |
| 61.86 | % | |
| 67.61 | % |
Risk-free interest rate | |
| 2.38 | % | |
| 0.74 | % |
Expected life | |
| 6.06 years | | |
| 6.05 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.
Forfeiture Rate—The Company recognizes
forfeitures when they occur.
The Company has recorded stock-based compensation
expense for the three and six months ended June 30, 2022 and 2021 related to the issuance of stock option awards to employees and nonemployees
in the condensed consolidated statement of operations and comprehensive loss as follows (in thousands):
| |
Three Months
Ended June 30, | | |
Six Months Ended
June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Research and development | |
$ | 301 | | |
$ | 171 | | |
$ | 607 | | |
$ | 250 | |
General and administrative | |
| 460 | | |
| 169 | | |
| 869 | | |
| 445 | |
| |
$ | 761 | | |
$ | 340 | | |
$ | 1,476 | | |
$ | 695 | |
As of June 30, 2022, unamortized compensation
expense related to unvested stock options was approximately $8.04 million, which is expected to be recognized over a weighted average
period of 2.7 years.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
Note
12 – Commitments and Contingencies
Operating Leases
As of June 30, 2022, the Company had one office
lease for the corporate headquarters and laboratory space.
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.
On April 22, 2022, the Company executed an
amendment to its corporate office lease agreement for additional corporate office space. The lease term for the additional space is 36 months
from the expansion commencement date of June 23, 2022. The base rent is approximately $5,100 per month for the first twelve months, with
subsequent escalation provisions for future months. The Company paid an additional security deposit of approximately $5,500.
On January 1, 2022, the Company adopted ASC
842. Under this new guidance, lessees are required to recognize assets and liabilities on the balance sheet for the rights and obligations
created by all leases. Upon adoption, the Company recognized ROU assets of $380,000 and corresponding lease liabilities of $429,000 for
the one operating lease of the Company at the adoption date.
The components of lease expense and supplemental
cash flow information related to leases as of and for the three and six months ended June 30, 2022 are as follows (in thousands):
Operating leases | |
As of June 30, 2022 | |
Right-of-use assets | |
$ | 477 | |
Operating lease liabilities - short-term | |
$ | 218 | |
Operating lease liabilities - long-term | |
$ | 302 | |
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30,
2022 |
|
|
June 30,
2022 |
|
|
|
|
|
|
|
|
Lease Cost: |
|
|
|
|
|
|
Operating lease cost |
|
$ |
48 |
|
|
$ |
93 |
|
|
|
|
|
|
|
|
|
|
Other Information: |
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities |
|
$ |
48 |
|
|
$ |
90 |
|
Weighted average remaining lease term - operating leases (in years) |
|
|
2.5 |
|
|
|
2.5 |
|
Average discount rate - operating lease |
|
|
10.00 |
% |
|
|
10.00 |
% |
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
Future
minimum lease payments for the operating lease are as follows as of
June 30, 2022 (in thousands):
For the years ending December 31, | |
| |
| |
| |
2022 | |
$ | 118 | |
2023 | |
| 242 | |
2024 | |
| 203 | |
2025 | |
| 27 | |
Total lease payments | |
| 590 | |
Less: Interest | |
| (70 | ) |
Total operating lease liability | |
$ | 520 | |
Rent expense for the three and
six months ended June 30 2021 was $34,000 and $48,000, 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.
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, 2022.
Movano Inc.
Notes to Condensed Consolidated Financial Statements
For the three months and six months ended June
30, 2022 and 2021
(Unaudited)
Note
13 – 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, 2022 and
2021 is as follows (in thousands, except share and per share data):
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Numerator: | |
| | |
| | |
| | |
| |
Net loss and comprehensive loss | |
$ | (6,868 | ) | |
$ | (4,687 | ) | |
$ | (13,800 | ) | |
$ | (10,295 | ) |
Accretion and dividends on redeemable convertible preferred stock | |
| — | | |
| — | | |
| — | | |
| (2,489 | ) |
Net loss attributable to common stockholders | |
$ | (6,868 | ) | |
$ | (4,687 | ) | |
$ | (13,800 | ) | |
$ | (12,784 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted-average common shares outstanding | |
| 32,793,907 | | |
| 32,017,335 | | |
| 32,769,093 | | |
| 20,099,402 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share attributable to common stockholders, basic and diluted | |
$ | (0.21 | ) | |
$ | (0.15 | ) | |
$ | (0.42 | ) | |
$ | (0.64 | ) |
The potential shares of common stock that were
excluded from the computation of diluted net loss per share attributable to common stockholders for the six months ended June 30, 2022
and 2021 because including them would have been antidilutive are as follows:
| |
Six Months Ended
June 30, | |
| |
2022 | | |
2021 | |
Non-vested shares under restricted stock grants | |
| — | | |
| 589,167 | |
Shares subject to options to purchase common stock | |
| 6,719,312 | | |
| 4,717,637 | |
Shares subject to warrants to purchase common stock | |
| 1,938,143 | | |
| 1,938,143 | |
Total | |
| 8,657,455 | | |
| 7,244,947 | |
For the three and six months ended June 30,
2022 and 2021, performance based option awards for 150,200 and 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
14 – 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.
On August 8, 2022, the Company approved common stock option awards
covering a total of 255,000 shares of common stock to non-executive employees.
On August 15, 2022, the Company entered into an
At-the-Market Issuance Agreement (the “Issuance Agreement”) with B. Riley Securities, Inc. (the “Sales Agent”).
Pursuant to the terms of the Issuance Agreement, the Company may sell from time to time through the Sales Agent shares of the Company’s
common stock having an aggregate offering price of up to $50,000,000 (the “Shares”). Sales of Shares, if any, may be made
by means of transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act,
including block trades, ordinary brokers’ transactions on the Nasdaq Capital Market or otherwise at market prices prevailing at
the time of sale, at prices related to prevailing market prices or at negotiated prices or by any other method permitted by law.
Under the terms of the Issuance Agreement, the
Company may also sell Shares to the Sales Agent as principal for its own accounts at a price to be agreed upon at the time of sale. Any
sale of Shares to the Sales Agent as principal would be pursuant to the terms of a separate terms agreement between the Company and the
Sales Agent.
The Company has no obligation to sell any of the
Shares under the Issuance Agreement and may at any time suspend solicitation and offers under the Issuance Agreement.