UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
FOR THE QUARTERLY PERIOD ENDED
OR
COMMISSION FILE NUMBER:
(Exact name of registrant as specified in its charter)
| (State of incorporation) | (I.R.S. Employer Identification No.) |
(Address of principal executive office) (Zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of August 12, 2022, there
were
MOVANO INC.
FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
INDEX
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Movano Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(Unaudited)
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments | ||||||||
| Payroll tax credit, current portion | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Payroll tax credit, noncurrent portion | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Noncurrent liabilities: | ||||||||
| Early exercised stock option liability | ||||||||
| Other noncurrent liabilities | ||||||||
| Total noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 12) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
1
Movano Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net: | ||||||||||||||||
| Interest expense | ( | ) | ||||||||||||||
| Change in fair value of warrant liability | ( | ) | ||||||||||||||
| Change in fair value of derivative liability | ||||||||||||||||
| Forgiveness of Paycheck Protection Program Loan | ||||||||||||||||
| Interest and other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Accretion and dividends on redeemable convertible preferred stock | ( | ) | ||||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive loss: | ||||||||||||||||
| Change in unrealized gain (loss) on available-for-sale securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
See accompanying notes to condensed consolidated financial statements.
2
Movano Inc.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity
(in thousands, except share data)
(Unaudited)
| Redeemable Convertible | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Additional | Other | Total | |||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Paid-In | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2022 | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Equity | ||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of options | — | — | ||||||||||||||||||||||||||||||||||||||
| Vesting of early exercised stock options | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other comprehensive gain | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | — | $ | — | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Redeemable Convertible | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Additional | Other | Total | |||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Paid-In | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2022 | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Equity | ||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of options | — | — | ||||||||||||||||||||||||||||||||||||||
| Vesting of early exercised stock options | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Redeemable Convertible | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Additional | Other | Total | |||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Paid-In | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2021 | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Equity | ||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Vesting of early exercised stock options | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Redeemable
Convertible | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Additional | Other | Total | |||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Paid-In | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | (Deficit) Equity | ||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Accretion of Series A and Series B redeemable convertible preferred stock | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of options | — | — | ||||||||||||||||||||||||||||||||||||||
| Vesting of early exercised stock options | — | — | — | |||||||||||||||||||||||||||||||||||||
| Reclassification of negative additional paid-in capital | — | — | — | ( | ) | |||||||||||||||||||||||||||||||||||
| Conversion of preferred stock to common stock upon initial public offering net of issuance costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of common stock upon initial public offering, net of issuance costs | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of underwriter warrants upon initial public offering | — | — | — | |||||||||||||||||||||||||||||||||||||
| Reclassification of liability-classified warrants upon initial public offering | — | — | — | |||||||||||||||||||||||||||||||||||||
| Conversion of convertible promissory notes and accrued interest upon initial public offering | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for nonemployee services | — | — | ||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature upon issuance of convertible promissory note | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
Movano Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Six Months Ended June 30, |
||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Forgiveness of Paycheck Protection Program loan | ( |
) | ||||||
| Stock-based compensation | ||||||||
| Noncash lease expense | ( |
) | — | |||||
| Accretion of debt discount on convertible promissory notes | ||||||||
| Accrued interest on convertible promissory notes | ||||||||
| Accretion of discount on short-term investments | ||||||||
| Non-employee services under convertible promissory notes | ||||||||
| Compensation of non-employee services upon issuance of common stock | ||||||||
| Change in fair value of derivative liability | ( |
) | ||||||
| Change in fair value of warrant liability | ||||||||
| Loss on disposal of property and equipment | — | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Payroll tax credit | ||||||||
| Prepaid expenses and other current assets | ( |
) | ||||||
| Other assets | ( |
) | ( |
) | ||||
| Accounts payable | ||||||||
| Other current and noncurrent liabilities | ( |
|||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | ( |
( |
) | |||||
| Purchases of short-term investments | — | ( |
) | |||||
| Maturities of short-term investments | — | |||||||
| Net cash provided by / (used in) investing activities | ( |
) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Issuance of common stock | ||||||||
| Proceeds from issuance of shares upon Initial Public Offering - net of issuance costs | ||||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) / increase in cash and cash equivalents | ( |
) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Accretion of Series A redeemable convertible preferred stock | $ | $ | ||||||
| Accretion of Series B redeemable convertible preferred stock | $ | $ | ||||||
| Conversion of preferred stock to common stock upon initial public offering | $ | $ | ||||||
| Reclassification of liability-classified warrants upon initial public offering | $ | $ | ||||||
| Issuance of underwriter warrants upon initial public offering | $ | $ | ||||||
| Issuance of convertible promissory notes for completion of non-employee services | $ | $ | ||||||
| Beneficial conversion feature upon issuance of convertible promissory note | $ | $ | ||||||
| Conversion of convertible promissory notes upon initial public offering | $ | $ | ||||||
| Vesting of common stock issued upon early exercise | $ | $ | ||||||
| Issuance of common stock for non-employee services | $ | $ | ||||||
| Reclassification of deferred offering costs upon initial public offering | $ | $ | ||||||
| Property and equipment purchase in accounts payable | $ | $ | — | |||||
See accompanying notes to condensed consolidated financial statements.
4
Movano Inc.
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
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 $
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.
5
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
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.
6
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.
7
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.
8
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 $
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.
9
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 | $ | $ | $ | $ | ||||||||||||
| Total cash equivalents | $ | $ | $ | $ | ||||||||||||
| Short-term investments: | ||||||||||||||||
| Certificates of deposit | $ | $ | $ | $ | ||||||||||||
| Commercial paper | ||||||||||||||||
| Corporate notes | ||||||||||||||||
| Municipal bonds | ||||||||||||||||
| Total short-term investments | $ | $ | $ | $ | ||||||||||||
| December 31, 2021 | ||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Total cash equivalents | $ | $ | $ | $ | ||||||||||||
| Short-term investments: | ||||||||||||||||
| Certificates of deposit | $ | $ | $ | $ | ||||||||||||
| Commercial paper | ||||||||||||||||
| Corporate notes | ||||||||||||||||
| Municipal bonds | ||||||||||||||||
| Total short-term investments | $ | $ | $ | $ | ||||||||||||
10
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 | $ | $ | ||||||
| Money market funds | ||||||||
| Total cash and cash equivalents | $ | $ | ||||||
| Short-term investments: | ||||||||
| Certificates of deposit | $ | $ | ||||||
| Commercial paper | ||||||||
| Corporate notes | ||||||||
| Municipal bonds | ||||||||
| Total short-term investments | $ | $ | ||||||
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 | $ | |||
| Due after one year through five years | ||||
| Total | $ | |||
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 | $ | $ | $ | ( | ) | $ | | |||||||||
| Commercial paper | ||||||||||||||||
| Corporate notes | ( | ) | ||||||||||||||
| Municipal bonds | ||||||||||||||||
| Total short-term investments | $ | $ | $ | ( | ) | $ | ||||||||||
| December 31, 2021 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Aggregate Estimated Fair Value | |||||||||||||
| Short-term investments: | ||||||||||||||||
| Certificates of deposit | $ | $ | $ | $ | ||||||||||||
| Commercial paper | ||||||||||||||||
| Corporate notes | ( | ) | ||||||||||||||
| Municipal bonds | ||||||||||||||||
| Total short-term investments | $ | $ | $ | ( | ) | $ | ||||||||||
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.
11
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 | $ | $ | ||||||
| Software | ||||||||
| Test equipment | ||||||||
| Total property and equipment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Total depreciation and amortization expense related
to property and equipment for the three and six months ended June 30, 2022 was approximately $
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 | $ | $ | ||||||
| Accrued compensation | ||||||||
| Accrued vacation | ||||||||
| Lease liabilities, current portion | ||||||||
| Other | ||||||||
| $ | $ | |||||||
NOTE 7 – CONVERTIBLE PROMISSORY NOTES
On various dates between February 2020 and
December 2020, the Company received total proceeds of approximately $
12
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 | ||||
| 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) | ||||
| Automatic Conversion – Maturity Date | ||||
| Automatic Conversion – IPO | ||||
| Optional Conversion |
13
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 $
During the three months ended March 31,
2021, nonemployee services of $
In connection with the Convertible Notes, the
Company issued
Issuance costs and commissions to brokers to
obtain the Convertible Notes were recorded as a debt discount in the amount of approximately $
The Company determined that the terms that would
result in Convertible Notes automatically converting at
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 $
14
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 $
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 $
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 | $ | ( | ) | $ | ||||||||||||
15
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 $
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 $
Upon the IPO, the redeemable convertible preferred
stock converted in to
16
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
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
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 $
Third Amended and Restated Certificate of Incorporation
In connection with the IPO, the Third Amended
and Restated Certificate of Incorporation became effective and authorized
At the IPO date, the Company issued
Common stock reserved for future issuance at June 30, 2022 is summarized as follows:
| Warrants to purchase common stock | ||||
| Stock options outstanding | ||||
| Stock options available for future grants | ||||
| Total |
Restricted Stock Purchase Agreements
In 2018,
In 2018,
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
As of June 30, 2022 and December 31, 2021, the
Company has recorded a repurchase liability for approximately $
17
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 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
Preferred A Lead Investor Warrants
During February 2021, a total of
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
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
Convertible Note Placement Warrants
In connection with the Convertible Notes, the
Company issued
18
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
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 | 2018 and August 2019 | $ | — | — | — | |||||||||||||||||||||||||||||||
| Preferred A Lead Investor Warrants | $ | — | — | — | — | |||||||||||||||||||||||||||||||
| Preferred B Placement Warrants | $ | — | — | — | — | |||||||||||||||||||||||||||||||
| Convertible Notes Placement Warrants | $ | — | — | — | — | |||||||||||||||||||||||||||||||
| Underwriter Warrants | $ | — | — | — | — | |||||||||||||||||||||||||||||||
| — | — | — | — | |||||||||||||||||||||||||||||||||
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 | 2018 and August 2019 | $ | — | — | — | |||||||||||||||||||||||||||||||
| Preferred A Lead Investor Warrants | $ | — | — | — | — | |||||||||||||||||||||||||||||||
| Preferred B Placement Warrants | $ | — | — | — | ||||||||||||||||||||||||||||||||
| Convertible Notes Placement Warrants | $ | — | — | ( | ) | — | ||||||||||||||||||||||||||||||
| Underwriter Warrants | $ | — | — | — | — | |||||||||||||||||||||||||||||||
| — | ( | ) | ||||||||||||||||||||||||||||||||||
19
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.
20
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 | $ | | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
| Preferred B Placement Warrants | ( | ) | ||||||||||||||||||||||
| Convertible Notes Placement Warrants | ( | ) | ||||||||||||||||||||||
| $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
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 | % | % | % | |||||||||||||
| Preferred B Placement Warrants | % | % | % | |||||||||||||
| Convertible Note Placement Warrants | % | % | % | |||||||||||||
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 $
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 | $ | % | % | % | ||||||||||||||||
21
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
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
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
As of June 30, 2022, the Company had
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
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
As of June 30, 2022, the Company had
22
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 | $ | $ | ||||||||||||
| Granted | $ | |||||||||||||
| Exercised | ( |
) | $ | |||||||||||
| Cancelled | ( |
) | $ | |||||||||||
| Outstanding at June 30, 2022 | $ | $ | ||||||||||||
| Exercisable as of June 30, 2022 | $ | $ | ||||||||||||
| Vested and expected to vest as of June 30, 2022 | $ | $ | ||||||||||||
The weighted-average grant date fair value of
options granted during the six months ended June 30, 2022 and 2021, was $
On June 21, 2022, the Company granted an award
of
23
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 | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected life | ||||||||
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 | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
As of June 30, 2022, unamortized compensation
expense related to unvested stock options was approximately $
24
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
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 $
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 $
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 | $ | |||
| Operating lease liabilities - short-term | $ | |||
| Operating lease liabilities - long-term | $ | |||
| Three Months Ended | Six Months Ended | |||||||
| June 30, 2022 |
June 30, 2022 |
|||||||
| Lease Cost: | ||||||||
| Operating lease cost | $ | $ | ||||||
| Other Information: | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term - operating leases (in years) | ||||||||
| Average discount rate - operating lease | % | % | ||||||
25
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 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total lease payments | ||||
| Less: Interest | ( | ) | ||
| Total operating lease liability | $ | |||
Rent expense for the three and
six months ended June 30 2021 was $
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.
26
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 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Accretion and dividends on redeemable convertible preferred stock | ( | ) | ||||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator: | ||||||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
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 | ||||||||
| Shares subject to options to purchase common stock | ||||||||
| Shares subject to warrants to purchase common stock | ||||||||
| Total | ||||||||
For the three and six months ended June 30,
2022 and 2021, performance based option awards for
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
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 $
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.
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “would,” “could,” “seek,” “intend,” “plan,” “goal,” “project,” “estimate,” “anticipate,” “strategy”, “future”, “likely” or other comparable terms and references to future periods. All statements other than statements of historical facts included in this Form 10-Q regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding expectations for revenues, cash flows and financial performance, the anticipated results of our development efforts, product features and the timing for receipt of required regulatory approvals and product launches.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
| ● | our limited operating history and our ability to achieve profitability; | |
| ● | our ability to continue as a going concern and our need for and ability to obtain additional capital in the future; |
| ● | our ability to demonstrate the feasibility of and develop products and their underlying technologies; |
| ● | the impact of competitive or alternative products, technologies and pricing; |
| ● | the impact of the COVID-19 on our business and local and global economic conditions; |
| ● | our ability to attract and retain highly qualified personnel; |
| ● | our dependence on consultants to assist in the development of our technologies; |
| ● | our ability to manage the growth of our Company and to realize the benefits from any acquisitions or strategic alliances we may enter in the future; |
| ● | our dependence on the successful commercialization of our proposed solution; |
| ● | our dependence on third parties to design, manufacture, market and distribute our proposed products; |
| ● | the adequacy of protections afforded to us by the patents that we own and the success we may have in, and the cost to us of, maintaining, enforcing and defending those patents; |
| ● | our ability to obtain, expand and maintain patent protection in the future, and to protect our non-patented intellectual property; |
| ● | the impact of any claims of intellectual property infringement, trade secret misappropriation, product liability, product recalls or other claims; |
| ● | our need to secure required FCC, FDA and other regulatory approvals from governmental authorities in United States; |
| ● | the impact of healthcare regulations and reform measures; |
| ● | the accuracy of our estimates of market size for our planned solution; |
28
| ● | our ability to implement and maintain effective control over financial reporting and disclosure controls and procedures; and |
| ● | our success at managing the risks involved in the foregoing items. |
The risks included above are not exhaustive. Other important risks and uncertainties are described in the Risk Factors and in Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of the 2021 Form 10-K and subsequently filed Quarterly Reports on Form 10-Q. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
Overview
Movano is developing a platform to deliver purpose-driven healthcare solutions at the intersection of medtech and consumer devices. Our mission is to empower and inspire you to live a healthier, happier life.
Our proprietary platform uses RF technology, which we believe will enable the creation of low-cost and scalable sensors that are small enough to fit into wearables and other small form factors. Combined with our mobile app and cloud infrastructure, we expect that our platform will provide users with the ability to measure and continuously monitor vital health data and provide actionable feedback to jumpstart changes in behaviors.
Our platform is the foundation for our first product in development, the Movano Ring. The smart ring and its accompanying app will combine vital health metrics with personalized intelligent feedback and is designed for women of all ages, who are traditionally an afterthought when it comes to wearable technology. Once developed, we expect the Ring will measure heart rate, HRV, sleep, respiration rate, temperature, blood oxygen saturation, steps, calories and incorporate women-centric features and design. The device will provide users and their network of caregivers with continuous health data distilled down to simple, yet meaningful, insights to help users make manageable lifestyle changes and take a more proactive approach that could mitigate the risks of chronic disease. A fundamental part of our corporate development strategy is to establish one or more strategic partnerships that would allow us to more fully exploit the potential of our technology.
On April 28, 2021, the Company established Movano Ireland Limited, organized under the laws of Ireland, as a wholly owned subsidiary of the Company.
Financial Operations Overview
We are a development stage company with a limited operating history. To date, we have invested substantially all of our efforts and financial resources into the research and development of the products we are developing, including conducting clinical studies and related general and administrative costs. To date, we have funded our operations primarily from the sale of our equity securities.
Adoption of New Accounting Pronouncement - Leases
In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842) which requires lessees to recognize leases on the balance sheet by recording a right-of-use asset and lease liability. We adopted this new guidance as of January 1, 2022 and applied the modified retrospective approach, whereby prior comparative periods will not be retrospectively presented in the condensed consolidated financial statements. We elected the package of practical expedients not to reassess prior conclusions related to contracts containing leases and lease classification and the lessee practical expedient to combine lease and non-lease components for all asset classes. We made a policy election to not recognize right-of-use assets and lease liabilities for short-term leases for all asset classes. See Note 12 Commitments and Contingencies to our condensed consolidated financial statements covered under Part I, Item 1 of this Quarterly Report on Form 10-Q for further details.
Upon adoption on January 1, 2022, we recognized right-of-use assets and lease liabilities for operating leases of $380,000 and $429,000, respectively. The difference between the right-of-use asset and lease liability primarily represents the net book value of deferred rent recognized as of December 31, 2021, which was adjusted against the right-of-use asset upon adoption.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. There have been no material changes in our critical accounting policies during the three and six months ended June 30, 2022, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Significant Judgments and Estimates.”
29
Results of Operations
Three and six months ended June 30, 2022 and 2021
Our condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021 as discussed herein are presented below.
| Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | |||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | |||||||||||||||||||||||||
| (in thousands, except share and per share data) | (in thousands, except share and per share data) | |||||||||||||||||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||||||||||||||||||
| Research and development | $ | 4,112 | $ | 3,183 | $ | 929 | 29 | % | $ | 8,703 | $ | 5,125 | $ | 3,578 | 70 | % | ||||||||||||||||
| General and administrative | 2,734 | 1,863 | 871 | 47 | % | 5,081 | 3,187 | 1,894 | 59 | % | ||||||||||||||||||||||
| Total operating expenses | 6,846 | 5,046 | 1,800 | 36 | % | 13,784 | 8,312 | 5,472 | 66 | % | ||||||||||||||||||||||
| Loss from operations | (6,846 | ) | (5,046 | ) | (1,800 | ) | (36 | )% | (13,784 | ) | (8,312 | ) | (5,472 | ) | (66 | )% | ||||||||||||||||
| Other income (expense), net: | ||||||||||||||||||||||||||||||||
| Interest expense | — | — | — | — | (883 | ) | 883 | 100 | % | |||||||||||||||||||||||
| Change in fair value of warrant liability | — | — | — | — | (1,581 | ) | 1,581 | 100 | % | |||||||||||||||||||||||
| Change in fair value of derivative liability | — | — | — | — | 121 | (121 | ) | (100 | )% | |||||||||||||||||||||||
| Forgiveness of Paycheck Protection Program Loan | — | 351 | (351 | ) | 100 | % | — | 351 | (351 | ) | 100 | % | ||||||||||||||||||||
| Interest and other income (expense), net | (22 | ) | 8 | (30 | ) | (375 | )% | (16 | ) | 9 | (25 | ) | (278 | )% | ||||||||||||||||||
| Other income (expense), net | (22 | ) | 359 | (381 | ) | 106 | % | (16 | ) | (1,983 | ) | 1,967 | 99 | % | ||||||||||||||||||
| Net loss | (6,868 | ) | (4,687 | ) | (2,181 | ) | (47 | )% | (13,800 | ) | (10,295 | ) | (3,505 | ) | (34 | )% | ||||||||||||||||
| Accretion and dividends on redeemable convertible preferred stock | — | — | — | — | (2,489 | ) | 2,489 | (100 | )% | |||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | (6,868 | ) | $ | (4,687 | ) | $ | (2,181 | ) | (47 | )% | $ | (13,800 | ) | $ | (12,784 | ) | $ | (1,016 | ) | (8 | )% | ||||||||||
Research and Development
Research and development expenses totaled $4.1 million and $3.2 million for the three months ended June 30, 2022 and 2021, respectively. This increase of $0.9 million was due primarily to the growth of the Company and its activities. Research and development expenses for the three months ended June 30, 2022 included expenses related to employee compensation of $2.2 million, other professional fees of $1.2 million, research and laboratory expenses of $0.5 million, and other expenses of $0.2 million. Research and development expenses for the three months ended June 30, 2021 included expenses related to employee compensation of $1.7 million, tolls and equipment expenses of $0.2 million, other professional fees of $1.2 million, and other expenses of $0.1 million.
30
Research and development expenses totaled $8.7 million and $5.1 million for the six months ended June 30, 2022 and 2021, respectively. This increase of $3.6 million was due primarily to the growth of the Company and its activities. Research and development expenses for the six months ended June 30, 2022 included expenses related to employee compensation of $4.6 million, other professional fees of $ 2.8 million, research and laboratory expenses of $0.8 million, and other expenses of $0.5 million. Research and development expenses for the six months ended June 30, 2021 included expenses related to employee compensation of $2.5 million, tools and equipment expenses of $0.4 million, other professional fees of $2.1 million, and other expenses of $0.1 million.
General and Administrative
General and administrative expenses totaled $2.7 million and $1.9 million for the three months ended June 30, 2022 and 2021, respectively. This increase of $0.8 million was due primarily to the growth of the Company and its activities. General and administrative expenses for the three months ended June 30, 2022 included expenses related to employee and board of director compensation of $1.5 million, professional and consulting fees of $0.6 million, and other expenses of $0.6 million. General and administrative expenses for the three months ended June 30, 2021 included expenses related to employee and board of director compensation of $1.0 million, professional and consulting fees of $0.4 million, and other expenses of $0.5 million.
General and administrative expenses totaled $5.1 million and $3.2 million for the six months ended June 30, 2022 and 2021, respectively. This increase of $1.9 million was due primarily to the growth of the Company and its activities. General and administrative expenses for the six months ended June 30, 2022 included expenses related to employee and board of director compensation of $2.7 million, professional and consulting fees of $1.3 million, and other expenses of $1.1 million. General and administrative expenses for the six months ended June 30, 2021 included expenses related to employee and board of director compensation of $1.8 million, professional and consulting fees of $0.9 million, and other expenses of $0.5 million.
Loss from Operations
Loss from operations was $6.8 million for the three months ended June 30, 2022, as compared to $5.0 million for the three months ended June 30, 2021.
Loss from operations was $13.8 million for the six months ended June 30, 2022, as compared to $8.3 million for the six months ended June 30, 2021.
Other Income (Expense), Net
Other income (expense), net for the three months ended June 30, 2022 was a net other expense of $22,000 as compared to a net other income of $0.4 million for the three months ended June 30, 2021. Other income (expense), net for the three months ended June 30, 2022 included interest and other income, net and loss on the disposal of property and equipment. Other income (expense), net for the three months ended June 30, 2021 included primarily forgiveness of Paycheck Protection Program Loan of $0.4 million.
Other income (expense), net for the six months ended June 30, 2022 was a net other expense of $16,000 as compared to a net other expense of $2.0 million for the six months ended June 30, 2021. Other income (expense), net for the six months ended June 30, 2022 included interest and other income, net and loss on the disposal of property and equipment. Other income (expense), net for the six months ended June 30, 2021 included interest expense of $0.9 million related to the accrual of interest and amortization of debt discounts on the convertible promissory notes, $1.6 million related to the change in fair value of the warrant liability, $0.1 million related to the change in the fair value of the derivative liability, and forgiveness of the Paycheck Protection Program Loan of $0.4 million.
31
Net Loss
As a result of the foregoing, net loss was $6.9 million for the three months ended June 30, 2022, as compared to $4.7 million for the three months ended June 30, 2021.
As a result of the foregoing, net loss was $13.8 million for the six months ended June 30, 2022, as compared to $10.3 million for the six months ended June 30, 2021.
Liquidity and Capital Resources
At June 30, 2022, we had cash, cash equivalents and short-term investments totaling $21.3 million. During the six months ended June 30, 2022, the Company used $12.2 million of cash in our operating activities. The cash and short-term investments are not expected to be sufficient to enable us to complete the development and commercialization of our proposed planned solution. We have executed an at the market issuance agreement for $50 million which we will use as needed to fund operations. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We anticipate that our expenses will increase substantially as we:
| ● | advance the engineering design and development of our proposed wearable and other potential products; |
| ● | prepare applications required for marketing approval of our proposed planned solution in the United States; |
| ● | develop our plans for manufacturing, distributing and marketing our proposed wearable and other potential products; and |
| ● | add operational, financial and management information systems and personnel, including personnel to support our product development, planned commercialization efforts and our operation as a public company. |
Until we can generate a sufficient amount of revenue from our planned products, if ever, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaborations and licensing arrangements. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our research or development programs or our commercialization efforts. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience additional dilution, and debt financing, if available, may involve restrictive covenants. To the extent that we raise additional funds through collaborations and licensing arrangements, it may be necessary to relinquish some rights to our technologies or applications or grant licenses on terms that may not be favorable to us. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time.
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. Our financial statements do not include adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern. Our ability to continue as a going concern depends on our ability to raise additional capital through the sale of equity or debt securities to support our future operations.
32
The following table summarizes our cash flows for the periods indicated (in thousands):
| Six Months Ended June 30, |
||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (12,153 | ) | $ | (7,772 | ) | ||
| Net cash provided by / (used in) investing activities | 11,548 | (13,728 | ) | |||||
| Net cash provided by financing activities | 19 | 45,095 | ||||||
| Net (decrease) / increase in cash and cash equivalents | $ | (586 | ) | $ | 23,595 | |||
Operating Activities
During the six months ended June 30, 2022, the Company used cash of $12.2 million in operating activities, as compared to $7.8 million used in operating activities during the six months ended June 30, 2021.
The $12.2 million used in operating activities during the six months ended June 30, 2022 was primarily attributable to our net loss of $13.8 million during the period and changes in our operating assets and liabilities totaling $33,000. These items were offset by non-cash items, including stock-based compensation of $1.5 million, accretion of discount on short-term investments of $0.1 million and loss on disposal of property and equipment of $44,000.
The $7.8 million used in operating activities during the six months ended June 30, 2021 was primarily attributable to our net loss of $10.3 million during the period and changes in our operating assets and liabilities totaling $0.3 million. These items were offset by non-cash items, including stock-based compensation of $0.7 million, accretion of the debt discount on our convertible promissory notes of $0.8 million, the forgiveness of our PPP loan of $0.4 million, accrued interest on our convertible promissory notes of $0.1 million, compensation of nonemployee services upon the issuance of common stock of $0.1 million, the change in the fair value of the derivative liability of $0.1 million and the change in the fair value of the warrant liability of $1.6 million.
Investing Activities
During the six months ended June 30, 2022 the Company was provided cash of $11.5 million in investing activities, consisting primarily of $11.6 million from maturities of short-term investments.
During the six months ended June 30, 2021 the Company used cash of $13.7 million in investing activities, consisting of $13.4 million in purchases of marketable securities and $0.3 million for the purchase of office and laboratory equipment.
Financing Activities
During the six months ended June 30, 2022, the Company was provided cash of $19,000 from the issuance of common stock.
During the six months ended June 30, 2021, the Company was provided cash of $45.1 million from financing activities, comprised of $45.0 million from the net proceeds of our initial public offering and $0.1 million from the issuance of common stock.
Off-Balance Sheet Transactions
At June 30, 2022, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item 3.
33
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We are responsible for maintaining disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Based on our management’s evaluation (with the participation of our principal executive officer and our principal financial officer) of our disclosure controls and procedures as required by Rule 13a-15 under the Exchange Act, our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2022, the end of the period covered by this report.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. We identified one material weakness in our internal control over financial reporting at June 30, 2022 related to ineffective design and operation of our financial close and reporting controls. Specifically, we did not design and maintain effective controls over certain account reviews and analyses and certain information technology general controls. Although we are making efforts to remediate these issues, these efforts may not be sufficient to avoid similar material weaknesses in the future.
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and our principal financial officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of control effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the six months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
34
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently a party to any pending legal proceedings that we believe will have a material adverse effect on our business or financial condition. We may, however, be subject to various claims and legal actions arising in the ordinary course of business from time to time.
Item 1A. Risk Factors
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this report, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I, “Item 1A. Risk Factors” in the 2021 Form 10-K. There have been no material changes to the risk factors described in the 2021 Form 10-K.
Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
Use of Proceeds from Initial Public Offering
In connection with the IPO, on March 22, 2021, our Registration Statement on Form S-1, as amended (Reg. No. 333-252671) was declared effective by the SEC and, on March 23, 2021, our Registration Statement on Form S-1 (Reg. No. 333-254602) became effective upon filing with the SEC.
There has been no material change in the planned use of proceeds from the Offering as described in the prospectus for the Offering.
Recent Sales of Unregistered Securities
Pursuant to the Nasdaq Listing Rule 5635(c)(4) inducement grant exception and Section 4(a)(2) under the Securities Act of 1933, during the three months ended June 30, 2022, we issued options to purchase an aggregate of 295,000 shares of common stock to certain new hire employees at an exercise price of $2.54 per share. The shares underlying these options will be registered on a Form S-8 registration statement prior to the first vesting event applicable to each such award.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
The information set forth below is included herein for the purpose of providing disclosure under Item 1.01 (Entry into a Material Definitive Agreement) of Form 8-K.
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. The Company intends to use the net proceeds from the offering, after deducting the Sales Agent’s commissions and the Company’s offering expenses, for general corporate purposes.
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.
The Shares will be offered and sold pursuant to the Company’s registration statement on Form S-3 (File No. 333-264116), as supplemented by the prospectus supplement dated August 15, 2022.
The foregoing summary of the Issuance Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Issuance Agreement, which is attached as Exhibit 1.1 to this Quarterly Report on Form 10-Q and incorporated by reference into this Item 5.
A copy of the opinion of K&L Gates LLP relating to the legality of the issuance and sale of the Shares is attached as Exhibit 5.1
hereto.
35
Item 6. Exhibits
| * | Management contract or compensatory plan or arrangement |
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MOVANO INC. | ||
| Date: August 15, 2022 | By: | /s/ John Mastrototaro |
| John Mastrototaro | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| MOVANO INC. | ||
| Date: August 15, 2022 | By: | /s/ J. Cogan |
| J. Cogan | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
37