Notes
to Condensed Consolidated Financial Statements
For
the three months and nine months ended September 30, 2022 and 2021
(Unaudited)
Note
1 – Business Organization, Nature of Operations
Movano Inc. (the “Company”, “Movano”,
“Movano Health”, “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 medical and consumer devices. Movano is on a mission
to make medical grade data more accessible and actionable for all.
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 nine months ended September 30, 2022.
Since
inception, the Company has engaged in only limited research and development of product candidates and underlying technology. As of September
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
September 30, 2022, the Company has relied primarily on the proceeds from equity offerings to finance its operations. Through September
30, 2022, the Company has received proceeds of approximately $1.9 million from an at-the-market issuance program, and an
aggregate offering price amount of approximately $48 million remains available to be
issued. (See Note 9.) 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 $87.2 million
as of September, 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 nine months ended September 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 and nine months ended September, 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 nine months ended September 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 nine months ended September 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 nine months ended September 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 nine months ended
September 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 nine months ended September 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 nine months ended September 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 September
30, 2022 and December 31, 2021 (in thousands):
Fair
Value Measurements
| |
September 30, 2022 | |
| |
Fair Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| |
| | |
| | |
| | |
| |
Cash equivalents: | |
| | | |
| | | |
| | | |
| | |
Money market funds | |
$ | 11,550 | | |
$ | 11,550 | | |
$ | — | | |
$ | — | |
Total cash equivalents | |
$ | 11,550 | | |
$ | 11,550 | | |
$ | — | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
Short-term investments: | |
| | | |
| | | |
| | | |
| | |
Corporate notes | |
$ | 822 | | |
$ | — | | |
$ | 822 | | |
$ | — | |
Total short-term investments | |
$ | 822 | | |
$ | — | | |
$ | 822 | | |
$ | — | |
| |
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: | |
| | | |
| | | |
| | | |
| | |
Certificate 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 nine months ended September 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):
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Cash and cash equivalents: | |
| | | |
| | |
Cash | |
$ | 4,395 | | |
$ | 845 | |
Money market funds | |
| 11,550 | | |
| 16,830 | |
Total cash and cash equivalents | |
$ | 15,945 | | |
$ | 17,675 | |
| |
| | | |
| | |
Short-term investments: | |
| | | |
| | |
Certificate of deposit | |
$ | — | | |
$ | 250 | |
Commercial paper | |
| — | | |
| 2,210 | |
Corporate notes | |
| 822 | | |
| 12,024 | |
Municipal bonds | |
| — | | |
| 1,437 | |
Total short-term investments | |
$ | 822 | | |
$ | 15,921 | |
The
contractual maturities of short-term investments classified as available-for-sale as of September 30, 2022 were as follows (in thousands):
| |
September 30, | |
| |
2022 | |
| |
| |
Due within one year | |
$ | 822 | |
Due after one year through five years | |
| - | |
Total | |
$ | 822 | |
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):
| |
September 30, 2022 | |
| |
Amortized Cost | | |
Gross Unrealized Gains | | |
Gross Unrealized Losses | | |
Aggregate Estimated Fair Value | |
Short-term investments: | |
| | |
| | |
| | |
| |
Corporate notes | |
$ | 827 | | |
$ | - | | |
$ | (5 | ) | |
$ | 822 | |
Total short-term investments | |
$ | 827 | | |
$ | - | | |
$ | (5 | ) | |
$ | 822 | |
|
|
December 31,
2021 |
|
|
|
Amortized
Cost |
|
|
Gross
Unrealized
Gains |
|
|
Gross
Unrealized
Losses |
|
|
Aggregate
Estimated
Fair Value |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Certificate
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 September 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 September 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 nine months ended September 30, 2022 and 2021.
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and nine months ended September 30, 2022 and 2021
(Unaudited)
Note
5 – Property and Equipment
Property
and equipment, net, as of September 30, 2022 and December 31, 2021, consisted of the following (in thousands):
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Office equipment and furniture | |
$ | 263 | | |
$ | 237 | |
Software | |
| 131 | | |
| 115 | |
Test equipment | |
| 256 | | |
| 278 | |
Total property and equipment | |
| 650 | | |
| 630 | |
Less: accumulated depreciation | |
| (190 | ) | |
| (101 | ) |
Total property and equipment, net | |
$ | 460 | | |
$ | 529 | |
Total depreciation and amortization expense related to property and
equipment for the three and nine months ended September 30, 2022 was approximately $36,000 and $109,000, respectively. Total depreciation
and amortization expense related to property and equipment for the three and nine months ended September 30, 2021 was approximately $22,000 and $40,000, respectively.
Note
6 – Other Current Liabilities
Other
current liabilities as of September 30, 2022 and December 31, 2021 consisted of the following (in thousands):
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Accrued research and development | |
$ | 168 | | |
$ | 289 | |
Accrued compensation | |
| 2,592 | | |
| 2,211 | |
Accrued vacation | |
| 343 | | |
| 276 | |
Accrued consulting | |
| 251 | | |
| — | |
Lease liabilities, current portion | |
| 216 | | |
| — | |
Other | |
| 176 | | |
| 131 | |
| |
$ | 3,746 | | |
$ | 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 nine months ended September 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 nine months ended September 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 nine months ended September 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 nine months ended September 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 nine months ended September 30, 2021 was the same and is
presented as follows (in thousands):
| |
December 31, | | |
Fair Value at | | |
Change in | | |
September 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 nine months ended September 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.
Note
9 – Common Stock
As of September 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
September 30, 2022 and December 31, 2021, 33,492,251 and 32,772,060 shares were 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 were converted into 11,436,956 shares of the Company’s common stock.
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and nine months ended September 30, 2022 and 2021
(Unaudited)
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.
At-the-Market
Issuance of Common Stock
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.
During the
three months ended September 30, 2022, the Company issued and sold an aggregate of 674,191 shares of common stock through the Issuance
Agreement at a weighted-average public offering price of $2.94 per share and received net proceeds of $1.9 million. As of September
30, 2022, an aggregate offering price amount of approximately $48 million remains available
to be issued and sold under the Issuance Agreement.
Common
Stock Reserved for Future Issuance
Common
stock reserved for future issuance at September 30, 2022 is summarized as follows:
|
|
September 30, |
|
|
|
2022 |
|
Warrants to purchase common stock |
|
|
1,938,143 |
|
Stock options outstanding |
|
|
7,384,771 |
|
Stock options available for future grants |
|
|
6,276,188 |
|
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 September 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 September 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.
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and nine months ended September 30, 2022 and 2021
(Unaudited)
Early
Exercised Stock Option Liability
During
the three and nine months ended September 30, 2022, no shares were issued upon the early exercise of common stock options. During the
three and nine months ended September 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 September 30, 2022 and
December 31, 2021, the Company has recorded a repurchase liability for approximately $171,000 and $281,000 for 338,335 and 567,397 shares
that remain unvested, respectively. The weighted average remaining vesting period is 1.4 years.
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 were 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 nine months ended September 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 nine months ended September 30, 2022:
Warrant Issuance |
|
Issuance |
|
|
Exercise Price |
|
|
Outstanding, December 31, 2021 |
|
|
Granted |
|
|
Exercised |
|
|
Canceled/ Expired |
|
|
Variable Settlement Provision Adjustment |
|
|
Outstanding, September 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 nine months ended September 30, 2021:
Warrant Issuance | |
Issuance | | |
Exercise Price | | |
Outstanding, December 31, 2020 | | |
Granted | | |
Exercised | | |
Canceled/ Expired | | |
Variable Settlement Provision Adjustment | | |
Outstanding, September 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 nine months ended September 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 nine months ended September 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 September 30, 2022 and December 31, 2021.
The
changes in fair value of the outstanding warrants classified as liabilities for the nine months ended September 30, 2021 were as follows
(in thousands):
| |
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 September 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 nine months ended September 30, 2022, nor during the three months ended September 30, 2021. Those warrants and the
assumptions used to calculate the fair value at issuance are as follows for the warrants issued during the nine months ended September
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 nine months ended September 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 September 30, 2022, the Company had 5,046,188 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.
During
the nine months ended September 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 September 30, 2022.
As
of September 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 nine months ended September 30, 2022 and 2021
(Unaudited)
Stock
Options
Stock
option activity for the nine months ended September 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 |
|
|
2,275,000 |
|
|
$ |
2.85 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(47,000 |
) |
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
Cancelled |
|
|
(435,366 |
) |
|
$ |
3.48 |
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2022 |
|
|
7,384,771 |
|
|
$ |
2.40 |
|
|
|
8.4 years |
|
|
$ |
6,153 |
|
Exercisable as of September 30, 2022 |
|
|
3,615,908 |
|
|
$ |
1.64 |
|
|
|
7.9 years |
|
|
$ |
5,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest as of September 30, 2022 |
|
|
7,234,571 |
|
|
$ |
2.38 |
|
|
|
8.4 years |
|
|
$ |
6,034 |
|
The weighted-average grant date
fair value of options granted during the nine months ended September 30, 2022 and 2021, was $1.51 and $2.76, respectively. During the
nine months ended September 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 1,370,977 and 598,988 options that vested during the nine months ended September 30, 2022 and 2021 was approximately
$2.9 million and $0.4 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. For the three and nine months ended September 30, 2022, the Company has not
recognized stock compensation expense of approximately $0.1 million 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 nine months ended September 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 nine months ended September 30, 2022 and 2021.
| |
Nine Months Ended
September 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Dividend yield | |
| — | % | |
| — | % |
Expected volatility | |
| 61.91 | % | |
| 67.54 | % |
Risk-free interest rate | |
| 2.63 | % | |
| 0.76 | % |
Expected life | |
| 6.07 years | | |
| 6.06 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 nine months ended September 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 September 30, | | |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Research and development | |
$ | 295 | | |
$ | 217 | | |
$ | 901 | | |
$ | 467 | |
General and administrative | |
| 502 | | |
| 335 | | |
| 1,372 | | |
| 780 | |
| |
$ | 797 | | |
$ | 552 | | |
$ | 2,273 | | |
$ | 1,247 | |
As of September
30, 2022, unamortized compensation expense related to unvested stock options (excluding the performance award previously described) was
approximately $8.2 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 nine months ended September 30, 2022 and 2021
(Unaudited)
Note
12 – Commitments and Contingencies
Operating
Leases
As
of September 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 as of and for the three and nine months ended September 30, 2022 are as follows (in thousands):
Operating leases | |
As of September 30, 2022 | |
Right-of-use assets | |
$ | 433 | |
Operating lease liabilities - Short-term | |
$ | 216 | |
Operating lease liabilities - Long-term | |
$ | 258 | |
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, 2022 | | |
September 30, 2022 | |
Lease Cost: | |
| | |
| |
Operating lease cost | |
$ | 69 | | |
$ | 163 | |
| |
| | | |
| | |
Other Information: | |
| | | |
| | |
Cash paid for amounts included in the measurement of lease liabilities | |
$ | 59 | | |
$ | 149 | |
Weighted average remaining lease term - operating leases (in years) | |
| 2.21 | | |
| 2.21 | |
Average discount rate - operating lease | |
| 10.00 | % | |
| 10.00 | % |
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and nine months ended September 30, 2022 and 2021
(Unaudited)
Future
minimum lease payments for the operating lease are as follows as of September 30, 2022 (in thousands):
2022 | |
$ | 59 | |
2023 | |
| 242 | |
2024 | |
| 203 | |
2025 | |
| 27 | |
Total lease payments | |
| 531 | |
Less: Interest | |
| (57 | ) |
Total operating lease liability | |
$ | 474 | |
Rent expense for the three months ended September
30 2022 and 2021 was $69,000 and $57,000, respectively. Rent expense for the nine months ended September 30, 2022 and 2021 was $162,000
and $105,000, 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 September 30, 2022.
Movano
Inc.
Notes
to Condensed Consolidated Financial Statements
For
the three months and nine months ended September 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 nine months ended September 30, 2022 and 2021 is as follows (in thousands, except share and per share data):
| |
Three Months Ended
September 30, | | |
Nine Months Ended
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Numerator: | |
| | |
| | |
| | |
| |
Net loss and comprehensive loss | |
$ | (8,602 | ) | |
$ | (5,173 | ) | |
$ | (22,402 | ) | |
$ | (15,468 | ) |
Accretion and dividends on redeemable convertible preferred stock | |
| — | | |
| - | | |
| — | | |
| (2,489 | ) |
Net loss attributable to common stockholders | |
$ | (8,602 | ) | |
$ | (5,173 | ) | |
$ | (22,402 | ) | |
$ | (17,957 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted-average common shares outstanding | |
| 32,949,649 | | |
| 32,268,890 | | |
| 32,829,940 | | |
| 24,200,475 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share attributable to common stockholders, basic and diluted | |
$ | (0.26 | ) | |
$ | (0.16 | ) | |
$ | (0.68 | ) | |
$ | (0.74 | ) |
The
potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders
for the nine months ended September 30, 2022 and 2021 because including them would have been antidilutive are as follows:
|
|
Nine Months Ended
September 30, |
|
|
|
2022 |
|
|
2021 |
|
Non-vested shares under restricted stock grants |
|
|
— |
|
|
|
336,666 |
|
Shares subject to options to purchase common stock |
|
|
7,384,771 |
|
|
|
4,877,637 |
|
Shares subject to warrants to purchase common stock |
|
|
1,938,143 |
|
|
|
1,938,143 |
|
Total |
|
|
9,322,914 |
|
|
|
7,152,446 |
|
For the
three and nine months ended September 30, 2022, performance based option awards for 150,200 shares of common stock, respectively, and
for the three and nine months ended September 30, 2021, 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
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 November
9, 2022, the Company approved common stock option awards covering a total of 250,000 shares of common stock to non-executive employees.