What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-22 compared with 2022-03-31 · 434 added, 356 removed, 524 unchanged (60% of the section changed)

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Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021 and 2020

Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Changes in Stockholders’

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We have audited the accompanying consolidated balance sheets of Rani Therapeutics Holdings, Inc.

(the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in stockholders’

(the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, changes in stockholders’

equity / convertible preferred units and members' deficit and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

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We have served as the Company’s auditor since 2019.

Redwood City, California

San Francisco, California

March 22, 2023

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Cash and cash equivalents

Related party note receivable

Prepaid expenses

Restricted cash equivalents

Marketable securities

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Liabilities, Convertible Preferred Units and Stockholders' Equity / Members’

Operating lease right-of-use asset

Liabilities and Stockholders' Equity

Current liabilities:

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Accrued expenses

Deferred revenue

Current portion of long-term debt

Operating lease liability, current portion

Total current liabilities

Preferred unit warrant liability

Long-term debt, less current portion

Operating lease liability, less current portion

Long-term debt

Total liabilities

Commitments and contingencies (Note 12)

Convertible preferred units

Stockholders' equity / (members’

Stockholders' equity:

Preferred stock, $ 0.0001 par value - 20,000 shares authorized;

no ne issued and outstanding as of December 31, 2021

none issued and outstanding as of December 31, 2022 and December 31, 2021

Class A common stock, $ 0.0001 par value - 800,000 shares authorized;

19,712 issued and outstanding as of December 31, 2021

25,295 and 19,712 issued and outstanding as of December 31, 2022 and December 31, 2021, respectively

Class B common stock, $ 0.0001 par value - 40,000 shares authorized;

29,290 issued and outstanding as of December 31, 2021

24,116 and 29,290 issued and outstanding as of December 31, 2022 and December 31, 2021, respectively

Class C common stock, $ 0.0001 par value - 20,000 shares authorized;

no ne issued and outstanding as of December 31, 2021

none issued and outstanding as of December 31, 2022 and December 31, 2021

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders' equity attributable to Rani Therapeutics Holdings, Inc.

/ (members' deficit)

Non-controlling interest

Total stockholders' equity / (members' deficit)

Total liabilities, convertible preferred units and stockholders' equity / (members' deficit)

Total stockholders' equity

Total liabilities and stockholders' equity

The accompanying notes are an integral part of these consolidated financial statements.

RANI THERAPEUTICS HOLDINGS, INC.

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Operations

(in thousands, except per share amounts)

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Other income (expense), net

Interest income

Interest income and other, net

Loss on extinguishment of debt

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Income tax expense

Net loss and comprehensive loss

Net loss attributable to non-controlling interest

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RANI THERAPEUTICS HOLDINGS, INC.

Consolidated Statements of Comprehensive Loss

(in thousands)

Year Ended December 31,

Other comprehensive loss

Net unrealized loss on marketable securities

Comprehensive loss

Comprehensive loss attributable to non-controlling interest

Comprehensive loss attributable to Rani Therapeutics Holdings, Inc.

The accompanying notes are an integral part of these consolidated financial statements.

RANI THERAPEUTICS HOLDINGS, INC.

Consolidated Statements of Changes in STOCKHOLDERS’

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Class B Common Stock

Additional Paid In Capital

Accumulated Other Comprehensive Loss

Accumulated Deficit

Non-Controlling Interest

Total Stockholders' Equity

Balance at December 31, 2021

Effect of exchanges of Paired Interests and non-corresponding Class A Units of Rani LLC

Non-controlling interest adjustment for changes in proportionate ownership in Rani LLC

Issuance of warrants

Issuance of common stock under employee equity plans, net of shares withheld for tax settlement

Issuance of common stock under employee stock purchase plan

Issuance of common stock

Forfeiture of restricted stock awards

Equity-based compensation

Other comprehensive loss

Balance at December 31, 2022

Class A Common Stock

Class B Common Stock

Convertible Preferred Units

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Balance at December 31, 2020

Cashless exercise of Series B Preferred warrants

Issuance of Series E Preferred Units, net of issuance costs of $ 190

Balance at December 31, 2020

Activity prior to initial public offering ("IPO") and related Organizational Transactions

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Equity-based compensation from secondary sales transactions

Exercise of warrant for common

Exercise of warrant for common units

Settlement of preferred unit warrant liability

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Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Equity-based compensation expense

Depreciation and amortization

Non-cash operating lease expense

Amortization of debt discount and issuance costs

Net accretion and amortization of investments in marketable securities

Change in fair value of preferred unit warrant liability

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Changes in operating assets and liabilities:

Prepaid expenses and other assets

Prepaid expenses and other current assets

Accounts payable

Accrued expenses

Operating lease liabilities

Related party payable

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Cash flows from investing activities

Purchases of marketable securities

Proceeds from maturities of marketable securities

Purchases of property and equipment

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Cash flows from financing activities

Proceeds from the issuance of long-term debt and warrants, net of issuance costs

Issuance of common stock under employee stock purchase plan

Proceeds from employee stock purchase plan

Tax withholdings paid on behalf of employees for net share settlement

Payment of deferred financing costs

Proceeds from issuance of Class A common stock sold in the IPO, net of issuance costs

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Proceeds from exercise of warrants for common units

Proceeds from the Paycheck Protection Program Loan

Repayment of the Paycheck Protection Program Loan

Proceeds from issuance of convertible note, net of issuance costs

Repayment of convertible note

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Net cash provided by financing activities

Net increase in cash and cash equivalents

Net (decrease) increase in cash, cash equivalents and restricted cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Cash, cash equivalents and restricted cash equivalents, end of period

Supplemental disclosures of cash flow information

Cash paid for interest

Cash paid for income taxes

Cash paid for interest

Supplemental disclosures of non-cash investing and financing activities

Property and equipment purchases included in accounts payable and accrued expenses

Settlement of preferred unit warrant liability

Exchanges of Paired Interests and non-corresponding Class A Units of Rani LLC

Issuance costs deducted from long-term debt proceeds

Right-of-use assets obtained in exchange for new operating lease liabilities

Deferred financing costs included in prepaid expenses

Interest income receivable included in prepaid expenses

Exchange of Class A Units of Rani LLC from the Former LLC Owners

Reissuance of previously expired warrant for Series B preferred units

Cashless exercise of warrant for Series B preferred units

Settlement of preferred unit warrant liability

The accompanying notes are an integral part of these consolidated financial statements.

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(“RMS”).

Rani Holdings and its consolidated subsidiaries, Rani LLC and RMS are collectively referred to herein as “Rani”

Rani Holdings and its consolidated subsidiaries, Rani LLC and, prior to December 15, 2022, RMS are collectively referred to herein as “Rani”

or the “Company.”

The Company is a clinical stage biotherapeutics company focusing on advancing technologies to enable the administration of biologics orally, to provide patients, physicians, and healthcare systems with a convenient alternative to painful injections.

The Company is advancing a portfolio of oral biologic therapeutics using its proprietary delivery technology, the RaniPill capsule, which can deliver any drug, including large molecules such as peptides, proteins, and antibodies.

RMS was dissolved on December 15, 2022.

The Company is a clinical stage biotherapeutics company focusing on advancing technologies to enable the administration of biologics and drugs orally, to provide patients, physicians, and healthcare systems with a convenient alternative to painful injections.

The Company is advancing a portfolio of oral therapeutics using its proprietary delivery technology, the RaniPill capsule.

The Company is headquartered in San Jose, California and operates in one segment.

Up to December 31, 2019, Rani LLC maintained no employees of its own and contracted InCube Labs, LLC (“ICL”), the majority common unit holder of Rani LLC and a related party, through service agreements to provide research, development and administrative services.

ICL and Rani LLC have common management and interest holders and, in the course of performing under the terms of the service agreements, ICL employees acted on behalf of Rani LLC.

Effective January 1, 2020, the ICL personnel that were substantially dedicated to providing services to Rani LLC were hired by RMS as full-time employees (Note 6).

Initial Public Offering and Organizational Transactions

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In connection with the IPO, the Company was party to the following organizational transactions (the “Organizational Transactions”):

Amended and restated Rani LLC’s operating agreement (the “Rani LLC Agreement”) to appoint the Company as the sole managing member of Rani LLC and effectuated an exchange of all outstanding (i) convertible preferred units, automatic or net exercised warrants to purchase preferred units and common units, and common units of Rani LLC, into Class A Units and an equal number of voting noneconomic Class B units (“Class B Units”) and (ii) all Profits Interests into Class A Units.

In connection with the closing of the IPO, each LLC interest was exchanged 1 for 0.5282 as determined and predicated on the initial public offering price of the Company’s Class A common stock ;

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Exchanged 12,047,925 shares of Class A common stock for existing Class A Units of Rani LLC held by certain individuals and entities (the “Former LLC Owners”) on a one-for-one basis;

Issued 29,290,391 shares of Class B common stock to the certain individuals and entities that continued to hold Class A Units in Rani LLC after the IPO (the “Continuing LLC Owners”) in return for an equal amount of Rani LLC Class B Units;

Issued 29,290,391 shares of Class B common stock to certain individuals and entities that continued to hold Class A Units in Rani LLC after the IPO (the “Continuing LLC Owners”) in return for an equal amount of Rani LLC Class B Units;

Entered into a Registration Rights Agreement with certain of the Continuing LLC Owners.

Interest"), in return for shares of the Company’s Class A common stock on a one-for-one basis provided that, at the Company’s election, the Company has the ability to effect a direct exchange of such Class A common stock or make a cash payment equal to a volume weighted average market price of one share of Class A common stock for each Paired Interest redeemed.

The Continuing LLC Owners are entitled to exchange, subject to the terms of the Rani LLC Agreement, the Class A Units they hold in Rani LLC, together with the shares they hold of the Company Class B common stock (together referred to as a "Paired Interest"), in return for shares of the Company’s Class A common stock on a one-for-one basis provided that, at the Company’s election, the Company has the ability to effect a direct exchange of such Class A common stock or make a cash payment equal to a volume weighted average market price of one share of Class A common stock for each Paired Interest redeemed.

Any shares of Class B common stock will be cancelled on a one-for-one basis if, at the election of the Continuing LLC Owners, the Company redeems or exchanges such Paired Interest pursuant to the terms of the Rani LLC Agreement.

Certain individuals who continue to own interests in Rani LLC but do not hold shares of the Company’s Class B common stock have the ability to exchange their Class A Units of Rani LLC for 1,545,522 shares of the Company’s Class A common stock.

As of December 31, 2022 , certain individuals who continue to own interests in Rani LLC but do not hold shares of the Company’s Class B common stock (“non-corresponding Class A Units”) have the ability to exchange their non-corresponding Class A Units of Rani LLC for 1,387,471 shares of the Company’s Class A common stock.

The Company has incurred recurring losses since its inception, including net losses of $ 63.3 million for the year ended December 31, 2022.

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The Company expects to continue to generate operating losses and negative operating cash flows for the foreseeable future as it continues to develop the RaniPill capsule.

The Company expects that its cash and cash equivalents of $ 117.5 million as of December 31, 2021 will be sufficient to fund its operations through at least twelve months from the date the consolidated financial statements are issued.

The Company expects to finance its future operations with its existing cash and through strategic financing opportunities that could include, but are not limited to, future offerings of its equity, collaboration or licensing agreements, or the incurrence of debt.

The Company expects that its cash and cash equivalents, and marketable securities of $ 98.5 million as of December 31, 2022 will be sufficient to fund its operations through at least twelve months from the date the consolidated financial statements are issued.

as defined in Rule 415(a)(4) under the Securities Act, collaboration or licensing agreements, or the incurrence of debt.

However, there is no guarantee that any of these strategic or financing opportunities will be executed or realized on favorable terms, if at all, and some could be dilutive to existing stockholders and holders of interests in the Company.

The Company will not generate any revenue from product sales unless, and until, it successfully completes clinical development and obtains regulatory approval for the RaniPill capsule.

The Company will not generate any revenue from product sales unless, and until, it successfully completes clinical development and obtains regulatory approval of its product candidates.

If the Company obtains regulatory approval for the RaniPill capsule, it expects to incur significant expenses related to developing its internal commercialization capability to support manufacturing, product sales, marketing, and distribution.

The Company’s ability to raise additional capital through either the issuance of equity or debt, is dependent on a number of factors including, but not limited to, the market interest of the Company, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company.

Market volatility resulting from the novel coronavirus disease (“COVID-19”) pandemic or other factors could also adversely impact the Company’s ability to access capital when and as needed.

Current global economic conditions and market volatility resulting from the novel coronavirus disease (“COVID-19”) pandemic or other factors could also adversely impact the Company’s ability to access capital when and as needed.

Summary of Significant Accounting Policies

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GAAP”).

The Company operates and controls all of the business and affairs of Rani LLC and, through Rani LLC and its subsidiary, conducts its business.

The Company operates and controls all of the business and affairs of Rani LLC and, through Rani LLC and, prior to December 15, 2022, its subsidiary, conducts its business.

Because the Company manages and operates the business and controls the strategic decisions and day-to-day operations of Rani LLC and also has a substantial financial interest in Rani LLC, the Company consolidates the financial results of Rani LLC, and a portion of its net loss is allocated to the non-controlling interests in Rani LLC held by the Continuing LLC Owners.

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The preparation of the consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent

assets and liabilities in the Company’s consolidated financial statements and accompanying notes.

These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources.

Estimates include, but are not limited to, revenue recognition, equity-based compensation expense, accrued research and development costs and, until the occurrence of the Company's IPO, the fair value of Profits Interests and preferred unit warrants.

Actual results may differ materially and adversely from these estimates.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes.

We evaluate our estimates on an ongoing basis.

We base our estimates on our historical experience and also on assumptions that we believe are reasonable;

however, actual results may differ materially and adversely from these estimates.

Revenue Recognition

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Contract assets are generated when contractual billing schedules differ from revenue recognition timing and the Company records a contract receivable when it has an unconditional right to consideration.

No contract assets balance was recorded as of December 31, 2021 or December 31, 2020.

No contract assets balance was recorded as of December 31, 2022 and 2021, respectively.

Contract liabilities are recorded as deferred revenue when cash payments are received or due in advance of performance or where the Company has unsatisfied performance obligations.

As of December 31, 2020 , the Company had deferred revenue of $ 2.7 million.

There was no deferred revenue as of December 31, 2021 .

The Company had no deferred revenue as of December 31, 2022 and 2021 , respectively.

Concentrations of Credit Risk and Other Risks and Uncertainties

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The Company maintains accounts in federally insured financial institutions in excess of federally insured limits.

The Company also holds money market funds that are not federally insured.

Company also holds money market funds that are not federally insured.

However, management believes the Company is not exposed to significant credit risk due to the financial strength of the depository institutions in which these deposits are held and of the money market funds and other entities in which these investments are made.

In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China.

Since then, COVID-19 coronavirus has spread globally.

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

The COVID-19 pandemic has impacted and may continue to impact the Company’s third-party manufacturers and suppliers, which could disrupt its supply chain or the availability or cost of materials.

The effects of the public health directives and the Company’s work-from-home policies may negatively impact productivity, disrupt its business, and delay clinical programs and timelines and future clinical trials, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to conduct business in the ordinary course.

These and similar, and perhaps more severe, disruptions in the Company’s operations could negatively impact business, results of operations and financial condition, including its ability to obtain financing.

To date, the Company has not incurred impairment losses in the carrying values of its assets as a result of the pandemic and is not aware of any specific related event or circumstances that would require the Company to revise its estimates reflected in these consolidated financial statements.

The Company cannot be certain what the overall impact of the COVID-19 pandemic will be on its business and prospects.

The extent to which the COVID-19 pandemic will further directly or indirectly impact its business, results of operations, financial condition, and liquidity, including planned and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects.

In addition, the Company could see some limitations on employee resources that would otherwise be focused on its operation, including but not limited to sickness of employees or their families, the desire of employees to avoid contact with large groups of people, and increased reliance on working from home.

If the financial markets and/or the overall economy are impacted for an extended period, the Company’s business, financial condition, results of operations and prospects may be adversely affected.

Cash and Cash Equivalents

Cash, Cash Equivalents and Restricted Cash Equivalents

The Company considers all cash held on deposit and highly liquid investments purchased with original or remaining maturities of less than three months at the date of purchase to be cash equivalents.

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The Company’s cash and cash equivalents consist of balances held in demand depositary accounts and money market funds.

The Company limits its credit risk associated with cash and cash equivalents by maintaining its bank accounts at major financial institutions.

Restricted cash equivalents consist of cash collateral required by a bank in connection with the Company's commercial credit cards program.

The Company limits its credit risk associated with cash, cash equivalents and restricted cash equivalents by maintaining its bank accounts at major financial institutions.

The following table provides a reconciliation of cash, cash equivalents and restricted cash equivalents reported within the consolidated balance sheet which, in aggregate, represents the amount reported in the consolidated statements of cash flows for the years ended December 31, 2022 and 2021 (in thousands):

Year Ended December 31,

End of Period:

Cash and cash equivalents

Restricted cash equivalents

Total cash, cash equivalents and restricted cash equivalents

Marketable Securities

The Company invests its excess cash in marketable securities with high credit ratings including securities issued by U.S.

and international governments and their agencies, corporate debt securities and commercial paper.

The Company has assessed U.S.

government treasuries as Level 1 and all other marketable securities as Level 2 within the fair value hierarchy.

All the Company's marketable securities have been accounted for as available-for-sale and carried at fair value.

The Company classifies all its available-for-sale marketable securities, including those with maturity dates beyond one year, as current assets on the consolidated balance sheets as the Company may sell these securities at any time for use in current operations even if they have not yet reached maturity.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income and other, net on the consolidated statements of operations and comprehensive loss.

Realized gains and losses on marketable securities are included in other income (expense) on the consolidated statements of operations.

Gains and losses on sales are recorded based on the trade date and determined using the specific identification method.

The Company regularly reviews its investments for declines in fair value below their amortized cost basis to determine whether the impairment is due to credit-related factors or noncredit-related factors.

The Company's review includes the creditworthiness of the security issuers, the severity of the unrealized losses, whether we have the intent to sell the securities and whether it is more likely than not that the Company will be required to sell the securities before the recovery of their amortized cost bases.

When the Company determines that a portion of the unrealized loss is due to an expected credit loss, the Company recognizes the loss amount in Other income (expense), net, with a corresponding allowance against the carrying value of the security the Company holds.

The portion of the unrealized loss related to factors other than credit losses is recognized in Accumulated other comprehensive loss.

The Company has made an accounting policy election to not measure an allowance for credit loss for accrued interest receivables and will recognize a credit loss for accrued interest receivables when the loss becomes probable and estimable.

As of December 31, 2022, interest income receivable recorded as a component of prepaid expenses and other current assets on the consolidated balance sheet was de minimis.

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use

of unobservable inputs.

Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

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Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The carrying values of the Company’s cash equivalents, prepaid expenses, accounts payable, and accruals approximate their fair value due to their short-term nature.

As of December 31, 2022 and 2021, the carrying values of current assets and liabilities approximates fair value due to their short-term nature.

The fair value of the Company’s long-term debt approximated its carrying value based on borrowing rates currently available to the Company for debt with similar terms and maturities (Level 2 inputs).

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A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value of the instrument.

Prior to January 1, 2022, the Company had one cancelable operating lease agreement for its corporate headquarters and recognized related rent expense on a straight-line basis over the term of the lease.

The Company’s lease agreement contained termination and renewal options.

The Company did not assume termination nor renewals options in its determination of the lease term unless they were deemed to be reasonably certain at the renewal of the lease.

The Company began recognizing rent expense on the date that it obtained the legal right to use and control the leased space.

Subsequent to the adoption of the new leasing standard on January 1, 2022, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present at the inception of the arrangement and if such a lease is classified as a financing lease or operating lease.

The Company has elected not to recognize on the balance sheet leases with terms of one year or less.

For any arrangement that is considered to be a lease with a term greater than one year, the Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation.

Operating leases are included in operating lease right-of-use ("ROU") assets and operating lease liabilities in the Company’s consolidated balance sheet as of December 31, 2022.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease contract.

Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the expected lease term.

In determining the net present value of lease payments, the interest rate implicit in lease contracts is typically not readily determinable.

As such, the Company utilizes the appropriate incremental borrowing rate (“IBR”), which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received and impairment charges if the Company determines the ROU asset is impaired.

The Company considers a lease term to be the noncancelable period during which it has the right to use the underlying asset, including any periods where it is reasonably certain the Company will exercise the option to extend the contract.

Periods covered by an option to extend are included in the lease term if the lessor controls the exercise of that option.

The operating lease ROU assets also include any lease payments made and exclude lease incentives.

Lease expense is recognized on a straight-line basis over the expected lease term.

The Company has elected to not separate lease and non-lease components for its leased assets and accounts for all lease and non-lease components of its agreements as a single lease component.

The lease components resulting in a ROU asset have been recorded on the consolidated balance sheet and amortized as lease expense on a straight-line basis over the lease term.

Long-Term Debt with Detachable Warrants

Detachable warrants are evaluated for the classification of warrants as either equity instruments, derivative liabilities, or liabilities depending on the specific terms of the warrant agreement.

In circumstances in which debt is issued with equity-classified warrants, the proceeds from the issuance of debt are first allocated to the debt and the warrants at their relative estimated fair values.

The portion of the proceeds allocated to the warrants are accounted for as paid in capital and a debt discount.

The remaining proceeds, as further reduced by discounts created by the bifurcation of embedded derivatives and beneficial conversion features, are allocated to the debt.

The Company accounts for debt as liabilities measured at amortized cost and amortizes the resulting debt discount from the allocation of proceeds, to interest expense using the effective interest method over the expected term of the debt instrument.

The Company considers whether there are any embedded features in debt instruments that require bifurcation and separate accounting as derivative financial instruments.

Research and Development Costs

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Unit-Based Compensation

Prior to the IPO, Rani LLC had granted equity-based awards to employees, members of the Board of Managers and nonemployees, including ICL employees and consultants, in the form of non-vested incentive units (“Profits Interests”) and/or options to purchase common units.

Prior to the IPO, Rani LLC had granted equity-based awards to employees, members of the Board of Managers and nonemployees, including InCube Labs, LLC (“ICL”) employees and consultants, in the form of Profits Interests and/or options to purchase common units.

All awards of Profits Interests and options to purchase common units were measured based on the estimated fair value of the award on the date of grant.

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Changes to the key assumptions used in the valuations could result in different fair values at each valuation date.

The Company is the managing member of Rani LLC and, as a result, consolidates the financial results of Rani LLC and its taxable subsidiary RMS in the consolidated financial statements.

The Company is the managing member of Rani LLC and, as a result, consolidates the financial results of Rani LLC and, prior to December 15, 2022, its taxable subsidiary RMS in the consolidated financial statements.

RMS was dissolved on December 15, 2022.

Rani LLC is a pass-through entity for United States federal and most applicable state and local income tax purposes following the IPO and Organizational Transactions.

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Any taxable income or loss generated by Rani LLC is passed through to, and included in the taxable income or loss of, its members, including the Company.

The Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated to the it, based on the its economic interest in Rani LLC.

The Company's tax provision also includes the activity of RMS, which is taxed as a corporation for United States federal and state income tax purposes.

The Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated to it, based on its economic interest in Rani LLC.

The Company's tax provision also includes the activity of RMS prior to its dissolution, which is taxed as a corporation for United States federal and state income tax purposes.

The Company accounts for income taxes under the asset and liability method of accounting.

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No such interest and penalties were recognized for any period presented.

In March 2020, the United States enacted the Families First Coronavirus Response Act (“FFCR Act”) and Coronavirus Aid, Relief and Economic Security Act (the "CARES Act").

The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19.

While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, there was no material impact from the related income tax provisions on the Company's consolidated financial statements for each of the years ended December 31, 2021 and 2020.

In December 2020, the United States enacted the Consolidated Appropriations Act, 2021 (the "Appropriations Act").

Included in the tax provisions are a number of items directly related to COVID-19 relief such as a provision allowing recipients of PPP loans to deduct associated costs and an extension and significant expansion of the employee retention credit originally enacted in the CARES Act.

There was no material impact from the provisions of the Appropriations Act in 2020.

With respect to PPP loan, while the expenses are deductible for United States income tax purposes, they are not currently deductible for California income tax purposes as of the date of the financial statements.

In June 2020, the state of California enacted Assembly Bill No.

85 (“AB 85”) suspending California net operating loss utilization and imposing a cap on the amount of business incentive tax credits companies can utilize, effective for tax years 2020, 2021 and 2022.

There was no material impact from the provisions of AB 85 on the Company's consolidated financial statements for each of the years ended December 31, 2021 and 2020.

In March 2021, the American Rescue Plan (“H.R.

1319”) was signed into law.

This legislation extends and enhances a number of current-law tax incentives for businesses, but also expands the definition of a “covered employee”

as defined by Section 162(m)(1) of the Internal Revenue Code.

There was no material impact from the provisions of H.R.

1319 on the Company's consolidated financial statements for the year ended December 31, 2021 .

Tax Receivable Agreement

In August 2021, in connection with the IPO and Organizational Transactions, the Company entered into a tax receivable agreement ("TRA") with certain of the Continuing LLC Owners.

The TRA provides that the Company pay to such Continuing LLC Owners, 85 % of the amount of tax benefits, if any, it is deemed to realize (calculated using certain assumptions) as a result of (i) increases in the tax basis of assets of Rani LLC resulting from (a) any future redemptions or exchanges of Paired Interests and (b) payments under the TRA and (ii) certain other benefits arising from payments under the TRA (collectively the “Tax Attributes”).

The TRA provides that the Company pay to such Continuing LLC Owners, 85 % of the amount of tax benefits, if any, it is deemed to realize (calculated using certain assumptions) as a result of (i) increases in the tax basis of assets of Rani LLC resulting from (a) any future redemptions or exchanges of Paired Interests or non-corresponding Class A Units of Rani LLC and (b) payments under the TRA and (ii) certain other benefits arising from payments under the TRA (collectively the “Tax Attributes”).

A liability for the payable to parties subject to the TRA, and a reduction to stockholders’

equity, is accrued when (i) an exchange of a Paired Interest has occurred and (ii) when it is deemed probable that the Tax Attributes associated with the exchange will be used to reduce the Company’s taxable income based on the contractual percentage of the benefit of Tax Attributes that the Company expects to receive over a period of time.

No exchanges of Paired Interests had occurred through December 31, 2021 and therefore no liability had been incurred for the TRA.

equity, is accrued when (i) an exchange of a Paired Interest or non-corresponding Class A Units of Rani LLC has occurred and (ii) when it is deemed probable that the Tax Attributes associated with the exchange will be used to reduce the Company’s taxable income based on the contractual percentage of the benefit of Tax Attributes that the Company expects to receive over a period of time (Note 14).

Comprehensive Loss

Comprehensive loss is defined as a change in equity of a business enterprise during a period, resulting from transactions and other events and/or circumstances from non-owner sources.

The Company did not have any other comprehensive loss for any of the periods presented, and therefore comprehensive loss was the same as the Company’s net loss.

Other comprehensive loss represents changes in fair value of the Company's available-for-sale marketable securities.

Non-Controlling Interest

Non-controlling interest ("NCI") represents the portion of income or loss, net assets and comprehensive loss of Rani LLC that is not allocable to the Company based on the Company's percentage of ownership of Rani LLC.

In August 2021, based on the Organizational Transactions, the Company became the sole managing member of Rani LLC.

As of December 31, 2021 , the Company held approximately 39 % of the Class A Units of Rani LLC, and approximately 61 % of the outstanding Class A Units of Rani LLC are held by the Continuing LLC Owners.

Non-controlling interest ("NCI") represents the portion of income or loss, net assets and comprehensive loss of the Company's consolidated subsidiary that is not allocable to Rani Holdings based on the Company's percentage of ownership of Rani LLC.

In August 2021, based on the Organizational Transactions, Rani Holdings became the sole managing member of Rani LLC.

As of December 31, 2022 , Rani Holdings held approximately 50 % of the Class A Units of Rani LLC, and approximately 50 % of the outstanding Class A Units of Rani LLC are held by the Continuing LLC Owners.

Therefore, the Company reports NCI based on the Class A Units of Rani LLC held by the Continuing LLC Owners on its consolidated balance sheet as of December 31, 2022.

Income or loss attributed to the NCI in Rani LLC is based on the Class A Units outstanding during the period for which the income or loss is generated and is presented on the consolidated statements of operations and comprehensive income or loss.

Future exchanges of Paired Interests and certain Class A Units of Rani LLC without corresponding shares of the Company’s Class B common stock will result in a change in ownership and reduce or increase the amount recorded as NCI and increase or decrease additional paid-in-capital when Rani LLC has positive or negative net assets, respectively.

From the date of the Organizational Transactions to December 31, 2021 , there were no exchanges of Paired Interests nor certain Class A Units of Rani LLC without corresponding shares of Company's Class B common stock.

Future exchanges of Paired Interests and non-corresponding Class A Units of Rani LLC will result in a change in ownership and reduce or increase the amount recorded as NCI and increase or decrease additional paid-in-capital when Rani LLC has positive or negative net assets, respectively.

From the date of the Organizational Transactions to December 31, 2022 , there were 5,173,947 exchanges of Paired Interests and 158,051 exchanges of noncorresponding Class A Units of Rani LLC for an equal number of shares of the Company's Class A common stock.

Property and Equipment, Net

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The Company reviews the carrying amounts of its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable.

If indicators of impairment exist,

an impairment loss would be recognized when the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.

If indicators of impairment exist, an impairment loss would be recognized when the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.

The impairment charge is determined based upon the excess of the carrying value of the asset over its estimated fair value, with estimated fair value determined based upon an estimate of discounted future cash flows or other appropriate measures of estimated fair value.

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Related Party Note Receivable

The principal balance on the related party note receivable is recorded on the consolidated balance sheet along with earned and not yet received interest income.

The principal balance is classified on the consolidated balance sheet based upon the expected timing of the repayments by the related party.

Interest income received and receivable on the related party note receivable is recorded as a component of interest income in the consolidated statement of operations and comprehensive loss.

Associated interest earned is recognized using the effective interest method.

The estimated fair value of the Company’s related party note receivable at December 31, 2020, approximated its carrying value due to its short-term nature.

The principal balance on the related party note receivable was recorded on the consolidated balance sheet along with earned and not yet received interest income.

The principal balance was classified on the consolidated balance sheet based upon the expected timing of the repayments by the related party.

Interest income received and receivable on the related party note receivable was recorded as a component of interest income in the consolidated statement of operations and comprehensive loss.

Associated interest earned was recognized using the effective interest method.

In March 2021, the related party repaid in full the $ 1.7 million of principal and interest related to the note receivable.

Convertible Preferred Units

The Company records convertible preferred units at fair value on the dates of issuance, net of issuance costs.

The Company has classified convertible preferred units as temporary equity in the accompanying consolidated balance sheets due to terms that allow for redemption of the units in cash upon certain change in control events that are not within the Company’s control, including the sale or transfer of the Company.

The carrying values of the convertible preferred units are adjusted to their liquidation preferences if and when it becomes probable that such a liquidation even will occur.

The Company did not accrete the value of the convertible preferred units to their redemption values since a liquidation event was not considered probable.

The Company also evaluates the features of its convertible preferred units to determine if the features require bifurcation from the underlying units, by evaluating if they are clearly and closely related to the underlying units and if they do, or do not, meet the definition of a derivative.

Preferred Unit Warrant Liability

Outstanding warrants to purchase preferred units of the Company were classified as liabilities in the accompanying consolidated balance sheets due to a contingent redemption right of the holder of the preferred unit warrants that is outside of the control of the Company that precluded equity classification.

control of the Company that precluded equity classification.

Such preferred unit warrants were subject to re-measurement at the end of each reporting period until they were settled in July 2021.

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Diluted net loss per Class A common share for all periods presented is the same as basic loss per share as the inclusion of potentially issuable shares would be antidilutive.

Net loss per share is not presented for the year ended December 31, 2020 as the Company did not have any economic interests prior to the date of the IPO and Organizational Transactions through which it was given ownership in Rani LLC.

Losses prior to the IPO and Organizational Transactions would have been allocated to the original members of Rani LLC.

The basic and diluted net loss per Class A common share attributable to Rani Holdings for the year ended December 31, 2021 is applicable only for the period from August 4, 2021 to December 31, 2021 , which is the period following the IPO and Organizational Transactions and represents the period that the Company had Class A common shares outstanding.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”).

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to

the enactment of the JOBS Act, until such time as those standards apply to private companies.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.

The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act.

As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

New Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (“Topic 842”), as subsequently amended, to improve financial reporting and disclosures about leasing transactions.

Topic 842 requires companies that lease assets to recognize on the consolidated balance sheet the assets and liabilities for the rights and obligations created by those leases, where the lease terms exceed 12 months.

The recognition, measurement, and presentation of expense and cash flows arising from a lease by a lessee will depend primarily on its classification as a finance or operating lease;

both types of leases will be recognized on the consolidated balance sheet.

Topic 842 also requires disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.

On June 3, 2020, the FASB amended the effective dates of Topic 842 to give immediate relief from business disruptions caused by the COVID-19 pandemic and provided a one-year deferral of the effective date for nonpublic companies.

The Company plans to adopt this standard using the modified retrospective approach with a cumulative effect adjustment to accumulated deficit at the beginning of the period of adoption.

The Company will also adopt certain practical expedients provided by Topic 842.

As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act Topic 842 was effective for the Company on January 1, 2022.

The Company is in the process of evaluating the effects of Topic 842 on its consolidated financial statements but does not expect the adoption of Topic 842 will have a material impact on the Company’s consolidated financial statements and related notes to the recognition of right of use assets and lease liabilities on the Company’s consolidated balance sheets or on the Company’s consolidated statement of income.

The adoption of Topic 842 will also result in enhanced disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”) to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts.

The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, and assuming the Company continues to be considered an emerging growth company, ASU 2016-13 will be effective for the Company on January 1, 2023.

The Company has not yet determined the potential effects of ASU 2016-13 on its consolidated financial statements and disclosures.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”), as subsequently amended, to improve financial reporting and disclosures about leasing transactions.

The Company adopted this standard on January 1, 2022 using the modified retrospective approach and elected the package of practical expedients permitted under transition guidance, which allowed the Company to carry forward its historical assessments of:

1) whether contracts are or contain leases, 2) lease classification and 3) initial direct costs, where applicable.

The Company did not elect the practical expedient allowing the use-of-hindsight which would require the Company to reassess the lease term of its leases based on all facts and circumstances through the effective date and did not elect the practical expedient pertaining to land easements as this is not applicable to the current contract portfolio.

The Company elected the post-transition practical expedient to not separate lease components from non-lease components for all existing lease classes.

The Company also elected a policy of not recording leases on its balance sheets when the leases have a term of twelve months or less and the Company is not reasonably certain to elect an option to purchase the leased asset.

The adoption of this standard resulted in the recognition of a ROU asset and lease liabilities of $ 1.3 million, respectively.

The adoption of the standard had no impact on the Company’s consolidated statements of operations and comprehensive loss or to its cash flows from or used in operating, financing, or investing activities on its consolidated statements of cash flows.

No cumulative-effect adjustment within accumulated deficit was required to be recorded as a result of adopting this standard.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”), that revises the measurement of credit losses for most financial instruments measured at amortized cost, including trade receivables, from an incurred loss methodology to an expected loss methodology which results in earlier recognition of credit losses.

Under the incurred loss model, a loss is not recognized until it is probable that the loss-causing event has already occurred.

The standard introduces a forward-looking expected credit loss model that requires an estimate of the expected credit losses over the life of the instrument by considering all relevant information including historical experience, current conditions, and reasonable and supportable forecasts that affect collectability.

In addition, the standard also modifies the impairment model for available-for-sale debt securities, which are measured at fair value, by eliminating the consideration for the length of time fair value has been less than amortized cost when assessing credit loss for a debt security and provides for reversals of credit losses through income upon credit improvement.

The Company early adopted this standard on July 1, 2022, for the interim period ended September 30, 2022.

Based on the composition of the Company's investment portfolio, which reflects the Company's primary investment objective of capital preservation, the adoption of this standard did not have a material impact on the Company's consolidated financial statements or related disclosures.

Cash Equivalents, Restricted Cash Equivalents and Marketable Securities

The following tables summarizes the amortized cost and fair value of the Company's cash equivalents, restricted cash equivalents and marketable securities by major investment category (in thousands):

As of December 31, 2022

Amortized Cost

Unrealized Gains

Unrealized Losses

Estimated Fair Value

Current assets:

Cash equivalents:

Money market funds

Total cash equivalents

Restricted cash equivalents:

Money market funds

Total cash equivalents and restricted cash equivalents

Marketable securities:

Commercial paper

Corporate debt securities

International government

Total marketable securities

Total cash equivalents, restricted cash equivalents and marketable securities

As of December 31, 2021

Amortized Cost

Unrealized Gains

Unrealized Losses

Estimated Fair Value

Current assets:

Cash equivalents:

Money market funds

Total cash equivalents

As of December 31, 2022, all marketable securities held have maturity dates within one year or less.

The Company regularly reviews its available-for-sale marketable securities in an unrealized loss position and evaluates the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions.

As of December 31, 2022, the aggregate difference between the amortized cost and fair value of each security in an unrealized loss position was de minimis.

Since any provision for expected credit losses for a security held is limited to the amount the fair value is less than its amortized cost, no allowance for expected credit loss was deemed necessary at December 31, 2022 .

Fair Value Measurements

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As of December 31, 2022

Cash equivalents:

Money market funds

Restricted cash equivalents:

Money market funds

Marketable securities

Commercial paper

Corporate debt securities

International government

As of December 31, 2021

Cash equivalents:

Money market funds

Preferred unit warrant liability

Total liabilities

There were no financial liabilities measured at fair value on a recurring basis as of December 31, 2021.

Money market funds are highly liquid and actively traded marketable securities that generally transact at a stable $ 1.00 net asset value representing its estimated fair value.

Level 1 and Level 2 financial instruments are comprised of investments in money market funds and fixed-income securities.

The Company estimates the fair value of its Level 2 financial instruments by taking into consideration valuations obtained from third-party pricing services.

The third-party pricing services utilize industry standard valuation models, for which all significant inputs are observable, either directly or indirectly, to estimate fair value.

These inputs include reported trades of and broker/dealer quotes on the same or similar securities;

issuer credit spreads;

benchmark securities;

and other observable inputs.

There were no transfers between Level 1, Level 2 and Level 3 of the fair value hierarchy for any of the periods presented.

The Company held a Level 3 liability associated with preferred unit warrants that were issued in conjunction with a loan and security Agreement (Note 11).

These preferred unit warrants were settled with Class A common stock as part of the IPO and Organizational Transactions (Note 7).

For the year ended December 31, 2022 , as further discussed in Note 13, the Company issued Level 3 equity classified warrants of $ 0.5 million in connection with the loan and security agreement that were estimated on the date of issuance using the Black-Scholes valuation model which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and the Company’s expected dividend yield.

Such assumptions represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

In 2021, the Company held a Level 3 liability associated with preferred unit warrants that were issued in conjunction with a loan and security agreement.

These preferred unit warrants were settled with Class A common stock as part of the IPO and Organizational Transactions.

The following tables set forth a summary of the changes in the fair value of the Company’s liability measured using Level 3 inputs (in thousands):

Year Ended December 31,

Balance at beginning of period

Issuance of Series E warrants

Change in estimated fair value of Series B warrants

Change in estimated fair value of Series E warrants

Settlement of Series B warrants

Settlement of Series E warrants

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Depreciation and amortization expense totaled approximately $ 0.5 million and $ 0.5 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2021 and 2020 , all of the Company’s property and equipment was located in the United States, with the exception of $ 3.5 million, respectively, of construction-in-progress that is located in Germany at a third-party manufacturing facility.

As of December 31, 2022 and 2021 , all of the Company’s property and equipment was located in the United States, respectively, with the exception of $ 3.5 million of construction-in-progress in 2021 that was located in Germany at a third-party manufacturing facility.

Accrued expenses

Accrued expenses consist of the following (in thousands):

Accrued clinical trial costs

Accrued professional fees

Accrued preclinical and clinical trial costs

Payroll and related

Accrued professional fees

Total accrued expenses

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Takeda paid the Company up-front payments of $ 5.9 million upon execution of and subsequent modifications to the agreement.

Upon the initial evaluation services being completed, Takeda had an option to pay the Company $ 3.0 million to perform later stage evaluation services.

Takeda also had the ability to terminate the agreement at any time by providing 30 days written notice after the effective date of the agreement.

Unless terminated early, the agreement term ended upon the expiration of the right of first negotiation period which is 120 days after the completion of the evaluation services.

The Takeda agreement could be terminated for cause by either party based on uncured material breach by the other party or bankruptcy of the other party.

Upon early termination, all ongoing activities under the agreement and all mutual collaboration, development and commercialization licenses and sublicenses would terminate.

The Company identified one material promise under the Takeda agreement, the obligation to perform services to evaluate if Takeda’s FVIII therapy can be orally delivered using the RaniPill capsule (“Research and Development Services”), which was concluded to be a single performance obligation.

For revenue recognition purposes, the Company determined that the duration of the contract began on the effective date in November 2017 and ended upon completion of the Research and Development Services.

The contract duration was defined as the period in which parties to the contract had present enforceable rights and obligations.

The Company also analyzed the impact of Takeda terminating the agreement prior to the completion of the performance obligation and determined, considering both quantitative and qualitative factors, that there were substantive non-monetary penalties to Takeda for doing so.

The Company determined that the cost-based input method most faithfully depicted the transfer of its performance obligation to Takeda.

Accordingly, the Company recognized its contract revenue based on actual costs incurred as a percentage of total estimated costs the Company expected to incur to deliver its performance obligation.

These actual costs consisted of internal labor efforts, in vivo testing services and materials costs related to the Takeda agreement, as the costs incurred over time reflect the transfer of its performance obligations to Takeda.

The cumulative effect of revisions to estimated costs to complete the Company’s performance obligation was recorded in the period in which changes were identified and amounts were reasonably estimable.

The Company identified one material promise under the Takeda agreement, the obligation to perform services to evaluate if Takeda’s FVIII therapy can be orally delivered using the RaniPill capsule, which was concluded to be a single performance obligation.

In May 2021, the Company received written notice from Takeda as to their intent to terminate the contract for convenience.

Due to the delivery of the termination notice, the Company determined that there were no further enforceable rights and obligations under the agreement beyond May 2021 and the remaining $ 2.0 million of deferred revenue was recognized during the year ended December 31, 2021 .

For the years ended December 31, 2021 and 2020 , the Company recognized contract revenue related to the Takeda agreement of $ 2.7 million and $ 0.5 million, respectively.

As of December 31, 2020 , deferred revenue related to the remaining identified performance obligation for the Takeda agreement of $ 2.7 million was recorded on the consolidated balance sheets.

There was no deferred revenue as of December 31, 2021.

Changes in the deferred revenue balance are as follows (in thousands):

Balance at beginning of period

Balance at end of period

There were no receivables or net contract assets recorded as of December 31, 2021 or December 31, 2020 associated with the Takeda agreement.

The Company expensed all incremental costs of obtaining the Takeda agreements, as such amounts were insignificant.

For the year ended December 31, 2022 , no contract revenue related to the Takeda agreement was recognized.

For the year ended December 31, 2021 , the Company recognized contract revenue related to the Takeda agreement of $ 2.7 million.

There was no deferred revenue as of December 31, 2022 nor December 31, 2021 .

Related Party Transactions

ICL is wholly-owned by the Company’s founder and Executive Chairman and his family.

The founder and Executive Chairman is also the father of the Company’s Chief Executive Officer.

The Company’s Chief Scientific Officer is the brother of the founder and Executive Chairman and uncle of the Company’s Chief Executive Officer.

InCube Labs, LLC is wholly-owned by the Company’s founder and Chairman and his family.

The founder and Chairman is the father of the Company’s Chief Executive Officer.

The Company’s Chief Scientific Officer is also the brother of the founder and Chairman and thus uncle of the Company’s Chief Executive Officer.

Services agreements

In January 2019, Rani LLC entered into a one year service agreement with ICL.

This service agreement was amended in January 2020 to extend the period for an additional year and expired in December 2020.

In June 2021, Rani LLC entered into a Service Agreement with ICL effective retrospectively to January 1, 2021 (the "Rani LLC-ICL Service Agreement"), pursuant to which Rani LLC and ICL agreed to provide personnel services to the other upon requests.

In June 2021, Rani LLC entered into a service agreement with ICL effective retrospectively to January 1, 2021, and subsequently amended such agreement in March 2022 (as amended, the "Rani LLC-ICL Service Agreement"), pursuant to which Rani LLC and ICL agreed to provide personnel services to the other upon requests.

Under the amendment in March 2022, Rani LLC has a right to occupy certain facilities leased by ICL in Milpitas, California and San Antonio, Texas (“Occupancy Services”) for general office, research and development, and light manufacturing.

The Rani LLC-ICL Service Agreement has a twelve-month term and will automatically renew for a successive twelve-month periods unless terminated;

Rani LLC or ICL may terminate services under the Rani LLC-ICL Service Agreement upon 60 days' notice to the other party.

except that the Occupancy Services in Milpitas, California have a term until February 2024, following an extension granted in July 2022, with the potential for one additional annual renewal, subject to approval by the landlord upon a nine months’

notice of renewal prior to the end of the lease term, and the Occupancy Services in San Antonio, Texas continue until either party gives six months’

notice of termination.

Except for the Occupancy Services, Rani LLC or ICL may terminate services under the Rani LLC-ICL Service Agreement upon 60 days' notice to the other party.

The Rani LLC-ICL Service Agreement specifies the scope of services to be provided as well as the methods for determining the costs of services.

Costs are billed or charged on a monthly basis by ICL or Rani LLC, respectively.

In June 2021, RMS entered into a Service Agreement with ICL (the “RMS-ICL Service Agreement”) effective retrospectively to January 1, 2021, pursuant to which ICL agreed to rent a specified portion of its facility to RMS.

In June 2021, RMS entered into a service agreement with ICL (the “RMS-ICL Service Agreement”) effective retrospectively to January 1, 2021, pursuant to which ICL agreed to rent a specified portion of its facility in San Jose, California to RMS.

Additionally, RMS and ICL agreed to provide personnel services to the other upon requests based on rates specified in the RMS-ICL Service Agreement.

The RMS-ICL Service Agreement has a twelve month term and will automatically renew for successive twelve month periods unless terminated.

RMS or ICL may terminate services under the RMS-ICL Service Agreement upon 60 days' notice to the other party, except for occupancy which requires six months notice.

In April 2022, RMS assigned the RMS-ICL Service Agreement to Rani LLC.

The RMS-ICL Service

Agreement has a twelve-month term and will automatically renew for successive twelve-month periods unless terminated.

Rani LLC or ICL may terminate services under the RMS-ICL Service Agreement upon 60 days' notice to the other party, except for occupancy which requires six months’

The RMS-ICL Service Agreement specifies the scope of services to be provided as well as the methods for determining the costs of services.

Costs are billed or charged on a monthly basis by ICL or RMS, respectively, as well as allocations of expenses based upon RMS’s utilization of ICL’s facilities and equipment.

The table below details the amounts charged by ICL for services and rent, net of the amount that RMS charged ICL of $ 0.6 million and $ 0.4 million for the years ended December 31, 2021 and 2020, respectively, which is included in the consolidated statements of operations and comprehensive loss (in thousands):

Costs are billed or charged on a monthly basis by ICL or Rani LLC, respectively, as well as allocations of expenses based upon Rani LLC’s utilization of ICL’s facilities and equipment.

The table below details the amounts charged by ICL for services and rent, net of the amount that the Company charged ICL, which is included in the consolidated statements of operations (in thousands):

Year Ended December 31,

Research and development

General and administrative

The Company’s eligible employees are permitted to participate in ICL’s 401(k) Plan (“401(k) Plan”).

Participation in the 401(k) Plan is offered for the benefit of the employees, including the Company’s named executive officers, who satisfy certain eligibility requirements.

As of December 31, 2021 , all of the Company's facilities have a lease term of twelve months and are owned or leased by an entity affiliated with the Company’s Executive Chairman.

The Company pays for the use of these facilities through the services agreement with ICL.

Total operating lease expense incurred with ICL was $ 0.8 million for each of the years ended December 31, 2021 and 2020.

Prior to April 2022, the Company’s eligible employees were permitted to participate in ICL’s 401(k) Plan (“401(k) Plan”).

Participation in the 401(k) Plan was offered for the benefit of the employees, including the Company’s named executive officers, who satisfied certain eligibility requirements.

In April 2022, the Company established its own 401(k) Plan, with participation offered for the benefit of the employees, including the Company’s named executive officers, who satisfy certain eligibility requirements.

As of December 31, 2022, all of the Company's facilities are owned or leased by an entity affiliated with the Company’s Chairman (Note 8).

The Company pays for the use of these facilities through its services agreements with ICL.

Financing activity

From inception to the first half of 2017, the Company advanced funds to ICL, and ICL made payments directly to certain vendors on behalf of Rani, Rani has reimbursed ICL for all such payments at cost on a monthly basis.

In June 2017, the Company converted the outstanding net advances of $ 6.6 million to ICL into three notes receivable.

The notes provide for interest at 1.97 % compounded annually, loan fees of 2.75 % and are payable upon demand to the Company any time after January 1, 2024.

During 2020, the Company received $ 0.2 million in payments for interest and repayment of principal on the remaining note receivable.

As of December 31, 2020 , $ 1.7 million of the note receivable was outstanding.

In March 2021, the outstanding balance due, including all accrued interest, was fully repaid by ICL.

During 2020, the Company amended certain Series B warrants held by an entity affiliated with ICL.

In December 2020, this entity elected to cashless exercise all of their Series B warrants in return for 51,341 Series B units of Rani LLC (Note 7).

This same entity also acquired 59,312 Series D units of Rani LLC for $ 1.0 million in 2017.

During 2020 and 2021, South Lake One LLC, a related party of the Company, and its affiliates purchased 2,100,800 common units of Rani LLC and 7,880,120 Series E Preferred Units of Rani LLC.

In March 2021, an outstanding notes receivable balance totaling $ 1.7 million, including all accrued interest, was fully repaid by ICL.

During 2020 and 2021, a related party of the Company, and its affiliates, purchased 2,100,800 common units of Rani LLC and 7,880,120 Series E Preferred Units of Rani LLC.

As part of the Organizational Transactions the common units and Series E Preferred Units were exchanged for 5,277,729 shares of the Company's Class A common stock.

In connection with the IPO and subsequent thereto, South Lake One LLC and its affiliates purchased an additional 6,458,904 shares of the Company’s Class A common stock for total gross proceeds of $ 71.1 million.

In connection with the IPO and subsequent thereto, the same related party purchased an additional 6,458,904 shares of the Company’s Class A common stock for total gross proceeds of $ 71.1 million.

Exclusive License, Intellectual Property and Common Unit Purchase Agreement

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This payment will not become an obligation until the fifth anniversary of the Amended and Restated Exclusive License Agreement.

The Amended and Restated Exclusive License Agreement will terminate when there are no remaining valid claims of the patents licensed under the Amended and Restated Exclusive License Agreement.

The Amended and Restated Exclusive License Agreement will terminate when there are no remaining valid claims of the patents licensed under the Amended and Restated Exclusive License

Additionally, the Company may terminate the Amended and Restated Exclusive License Agreement in its entirety or as to any particular licensed patent upon notification to ICL of such intent to terminate.

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Intellectual Property Agreement with Mir Imran (the “Mir Agreement”)

In June 2021, the Company, through Rani LLC, entered into the Mir Agreement, pursuant to which the Company and Mir Imran agreed that the Company would own all intellectual property conceived (a) using any of the Company’s people, equipment, or facilities or (b) that is within the field of oral delivery of sensors, small molecule drugs or biologic drugs including, any peptide, antibody, protein, cell therapy, gene therapy or vaccine.

In June 2021, the Company, through Rani LLC, entered into the Mir Agreement, pursuant to which the Company and Mir Imran agreed that the Company would own all intellectual property conceived (i) using any of the Company’s people, equipment, or facilities or (ii) that is within the field of oral delivery of sensors, small molecule drugs or biologic drugs including, any peptide, antibody, protein, cell therapy, gene therapy or vaccine.

Neither the Company nor Mir Imran may assign the Mir Agreement to any third party without the prior written consent of the other party.

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Board Services

During the year ended December 31, 2020 , the Company made a $ 0.2 million payment to a member of the Board of Managers of Rani LLC for legacy board services provided to the Company, there were no such payments made in the year ended December 31, 2021.

During the year ended December 31, 2021 , the Company made a $ 0.2 million payment to a member of the Board of Managers of Rani LLC for legacy board services provided to the Company.

There were no such payments made in the year ended December 31, 2022.

Secondary Sales Transactions

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In connection with the IPO and Organizational Transactions, the Company effectuated an exchange of all outstanding Profits Interests into Class A Units including certain Profits Interests related to ICL and its affiliates ("ICL Holders").

Upon the IPO and Organizational Transactions, the performance condition was met for all Profits Interest no longer subject to a service based vesting condition resulting in the recognition of compensation cost associated with these awards (Note 9).

ICL Holders of 919,282 Class A Units exchanged 854,807 such units for the Company's Class A common stock, the remaining 64,475 Class A Units of Rani LLC continue to be outstanding and are exchangeable for the Company's Class A common stock at the option of the ICL Holders.

The following table summarizes the components of equity-based compensation expense recorded in the consolidated statement of operations and comprehensive loss related to awards granted to employees of ICL and its affiliates by the Company (in thousands):

Year Ended December 31,

Research and development

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Tax Receivable Agreement

ICL is party to the TRA, entered into in August 2021 pursuant to the IPO and Organizational Transactions.

The TRA provides that the Company pay to such entities and individuals 85% of the amount of tax benefits, if any, it is deemed to realize from exchanges of Paired Interests (Note 2).

Certain parties to the TRA, entered into in August 2021 pursuant to the IPO and Organizational Transactions are related parties of the Company.

The TRA provides that the Company pay to such entities and individuals 85% of the amount of tax benefits,

if any, it is deemed to realize from exchanges of Paired Interests (Note 2).

During the year ended December 31, 2022 , these parties to the TRA exchanged 2,317,184 Paired Interests that resulted in tax benefits subject to the TRA (Note 14).

Registration Rights Agreement

In connection with the IPO, the Company entered into a Registration Rights Agreement.

ICL is a party to this agreement.

The Registration Rights Agreement provides certain registration rights whereby, at any time following the IPO and the expiration of any related lock-up period, ICL Holders with LLC Interests can require the Company to register under the Securities Act of 1933, as amended (the “Securities Act”) shares of Class A common stock issuable to such ICL Holders upon, at the Company’s election, redemption or exchange of their Paired Interests.

ICL and its affiliates are parties to this agreement.

The Registration Rights Agreement provides certain registration rights whereby, at any time following the IPO and the expiration of any related lock-up period, ICL and its affiliates can require the Company to register under the Securities Act of 1933, as amended (the “Securities Act”) shares of Class A common stock issuable to ICL and its affiliates upon, at the Company’s election, redemption or exchange of their Paired Interests.

The Registration Rights Agreement also provides for piggyback registration rights.

In March 2022, certain holders of the Company's Class A common stock considered to be related parties were made parties to the Registration Rights Agreement.

As a result of certain stockholders exercising their registration rights under the Registration Rights Agreement, in December 2022 the Company filed a registration statement on Form S-3 to register 6,009,542 shares of Class A common stock of the Company held by certain of its stockholders.

Rani LLC Agreement

The Company operates its business through Rani LLC and its subsidiary.

In connection with the IPO, the Company and the Continuing LLC Owners, including ICL, entered into the Rani LLC Agreement.

The Company operates its business through Rani LLC and, prior to December 15, 2022, its subsidiary.

In connection with the IPO, the Company and the Continuing LLC Owners, including ICL and its affiliates, entered into the Rani LLC Agreement.

The governance of Rani LLC, and the rights and obligations of the holders of LLC Interests, are set forth in the Rani LLC Agreement.

As a Continuing LLC Owner, ICL is entitled to exchange, subject to the terms of the Rani LLC Agreement, Paired Interests for Class A common stock of the Company;

As Continuing LLC Owners, ICL and its affiliates are entitled to exchange, subject to the terms of the Rani LLC Agreement, Paired Interests for Class A common stock of the Company;

provided that, at the Company’s election, the Company may effect a direct exchange of such Class A common stock or make a cash payment equal to a volume weighted average market price of one share of Class A common stock for each Paired Interest redeemed.

No exchanges by ICL of Paired Interests occurred during the year ended December 31, 2021 .

Preferred unit warrants

In May 2013, in conjunction with the Series B convertible preferred unit (the “Series B”

or “Series B units”) financing, the Company issued warrants to ICL to purchase 107,357 Series B units.

The Series B warrants were exercisable for a period of five

years from the grant date at an exercise price of $ 3.73 per unit.

During 2018, the Company amended the terms of the Series B warrants, extending the exercise period for an additional two years .

These Series B warrants expired unexercised in May 2020 resulting in a $ 0.6 million decrease in fair value.

In December 2020, the Company amended the terms of these expired Series B warrants, extending the exercise period for an additional two years resulting in a $ 0.7 million increase in fair value.

In December 2020, ICL elected to cashless exercise all of their Series B warrants and Rani LLC issued 51,341 Series B units.

There were no Series B warrants outstanding at December 31, 2021 or 2020, respectively.

In September 2020, in conjunction with a loan and security Agreement (Note 11), the Company issued warrants to purchase up to 118,929 Series E preferred units.

The Series E warrants were exercisable for a period of seven years from the grant date at an exercise price of $ 7.1471 per unit.

In the event of a change of control or IPO, the Series E warrants were to automatically be exchanged for the same number of units of the Company’s securities for no consideration had the holder of the warrant elected to exercise the warrant immediately prior to a change in control or IPO.

In conjunction with the IPO, all of the Series E warrants were ultimately settled for 62,887 shares of the Company's Class A common stock.

At December 31, 2020 , there were 118,929 Series E warrants outstanding.

There were no Series E warrants outstanding at December 31, 2021.

Common unit warrants

In 2017, in conjunction with the Series D convertible preferred unit financing, the Company issued 229,315 common unit warrants with an exercise price of $ 2.18 per unit and an exercise period of five years .

The Company recorded the issuance-date fair value of the common warrants of $ 0.3 million in equity as the warrant met all criteria for equity classification.

In January 2021, 6,000 common unit warrants were exercised at $ 2.18 per unit, and in July 2021 5,913 common unit warrants were exercised at $ 2.18 per unit.

In connection with the IPO and Organizational Transactions, the remaining common warrants were net exercised for 71,867 Class A Units of Rani LLC, of which 60,494 were then exchanged into shares of the Company's Class A common stock as part of the Organizational Transactions.

At December 31, 2020 , 229,315 common unit warrants were outstanding.

There were no common unit warrants outstanding at December 31, 2021 .

During the year ended December 31, 2022 , certain parties to the Rani LLC Agreement exchanged 2,317,184 Paired Interests for an equal number of shares of the Company's Class A common stock.

The Company pays for the use of its office, laboratory and manufacturing facility in San Jose, California as part of the RMS-ICL Service Agreement.

In April 2022, RMS assigned the RMS-ICL Service Agreement to Rani LLC.

The RMS-ICL Service Agreement has a twelve-month term and will automatically renew for successive twelve-month periods unless Rani LLC or ICL terminate occupancy under the RMS-ICL Service Agreement upon six months’

The Company determined it to be reasonably certain that it would exercise its renewal option for a successive twelve-month period and has considered it in the determination of the right-of-use assets and lease liabilities associated with the RMS-ICL Service Agreement as of December 31, 2022.

Under the Rani LLC-ICL Service Agreement amended in March 2022, Rani LLC has a right to occupy certain facilities leased by ICL in Milpitas, California and San Antonio, Texas for general office, research and development, and light manufacturing.

The Rani LLC-ICL Service Agreement has a twelve-month term and will automatically renew for a successive twelve-month periods unless terminated;

notice of renewal prior to the end of the lease term, and the Occupancy Services in San Antonio, Texas continue until either party gives six months’

notice of termination.

The Company accounted for the lease extension as a lease modification that did not result in a separate contract and recognized the right-of-use asset and lease liabilities associated with the Rani LLC-ICL Service Agreement in the consolidated balance sheet as of December 31, 2022.

As of December 31, 2022, the second renewal option for the facility in Milpitas, California was not deemed reasonably certain to be exercised.

The Company's leases are accounted for as operating leases and require certain fixed payments of real estate taxes and insurance in addition to future minimum lease payments, and certain variable payments of common area maintenance costs and building utilities.

Variable lease payments are expensed in the period in which the obligation for those payments is incurred.

These variable lease costs are payments that vary in amount beyond the commencement date, for reasons other than passage of time.

Total operating lease expense incurred with ICL was $ 1.5 million and $ 0.8 million for the years ended December 31, 2022 and 2021, respectively.

Variable lease payments are excluded in the total operating lease expense and immaterial for the periods presented.

Supplemental information on the Company’s consolidated balance sheet and statements of cash flows as of December 31, 2022 related to leases was as follows (in thousands):

Balance sheet

Operating lease right-of-use assets

Operating lease liability, current portion

Operating lease liability, less current portion

Total operating lease liability

Cash paid for amounts included in lease liabilities:

Operating cash flows used for operating leases

Weighted-average remaining lease term

Weighted-average discount rate

As of December 31, 2022, minimum annual rental payments under the Company’s operating lease agreements are as follows (in thousands):

Year ending December 31,

Total undiscounted future minimum lease payments

Imputed interest

Total operating lease liability

Operating lease liability, current portion

Operating lease liability, less current portion

Operating leases in the table above exclude future minimum lease payments for Occupancy Services in San Antonio, Texas under the Rani LLC-ICL Service Agreement.

Future minimum lease payments for Occupancy Services in San Antonio for fiscal year 2023 total $ 0.1 million.

In August 2022, in conjunction with a loan and security agreement (Note 13), the Company issued warrants to purchase 76,336 shares of the Company's Class A common stock.

The warrants are exercisable for a period of five years from the grant date, as may be adjusted for certain anti-dilution adjustments, dividends, stock splits, and reverse stock splits, at an exercise price per share equal to $ 11.79 , which may be net share settled at the option of the holder.

As of December 31, 2022 , there were 76,336 warrants outstanding.

Stockholders’

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The members of the Rani LLC who held these common and Preferred Units were not liable, solely by reason of being a member, for the debts, obligations, or liabilities of the Company whether arising in contract or tort;

under a judgment, decree, or order of a court;

under a judgment, decree, or order

or otherwise.

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Vested Profits Interests were treated as common units for purposes of distributions.

For the year ended December 31, 2022 , certain of the Continuing LLC Owners executed an exchange of 5,173,947 Paired Interests and 158,051 non-corresponding Class A Units of Rani LLC in return for an equal number of shares of the Company’s Class A common stock.

The corresponding shares of the Company’s Class B common stock included in the exchange of Paired Interests were subsequently cancelled and retired pursuant to the terms of the Rani LLC Agreement.

In August 2022, the Company entered into a Controlled Equity Sales Agreement (the "Sales Agreement") with Cantor Fitzgerald & Co.

Wainwright & Co., LLC (collectively the "Agents"), pursuant to which the Company may offer and sell from time to time through the Agents up to $ 150.0 million of shares of its Class A common stock, in such share amounts as the Company may specify by notice to the Agents, in accordance with the terms and conditions set forth in the Sales Agreement.

The potential proceeds from the Sales Agreement are expected to be used for general corporate purposes.

As of December 31, 2022 , the Company has no sales under the Sales Agreement.

In connection with the Sales Agreement, the Company recognized deferred offering costs totaling $ 0.3 million as a component of prepaid expenses and other current assets in the consolidated balance sheet as of December 31, 2022 which will be offset against proceeds upon a sale under the Sales Agreement within the consolidated statement of changes in stockholders equity.

Amendment and Restatement of Certificate of Incorporation

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Except as otherwise expressly provided in the Amended and Restated Certificate of Incorporation or as required by law, the holders of Class A common stock and Class B common stock (and, on any matter on which the Class C common stock or the holders of preferred stock are entitled to vote with the Class A common stock and the Class B common stock, the Class C common stock and the preferred stock) will vote together as a single class and not as separate series or classes.

Class B common stock owned by the Continuing LLC Owners and the number of Class A Units owned by the Continuing LLC Owners.

The Company is required to, at all times, maintain (i) a one-to-one ratio between the number of shares of Class A common stock outstanding and the number of Class A Units owned by Company and (ii) a one-to-one ratio between the number of shares of Class B common stock owned by the Continuing LLC Owners and the number of Class A Units owned by the Continuing LLC Owners.

The Company may issue shares of Class B common stock only to the extent necessary to maintain these ratios.

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In July 2021, the Company completed an IPO of 7,666,667 shares of common stock, inclusive of the 1,000,000 shares of Class A common stock purchased by underwriters pursuant to the underwriters’

option to purchase additional shares at the offering price, less underwriting discounts and commissions.

option to purchase additional shares at the offering

price, less underwriting discounts and commissions.

The Company received net proceeds from the IPO of approximately $ 73.6 million after deducting underwriting discounts and commissions, which was used to purchase 7,666,667 newly-issued Class A Units of Rani LLC.

In March 2022, certain holders of the Company's Class A common stock considered to be related parties were made parties to the Registration Rights Agreement.

Registration Rights Agreement

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The Registration Rights Agreement also provides for piggyback registration rights for the Continuing LLC Owners.

Equity-Based Compensation

Prior to the IPO, Rani LLC had adopted the 2016 Equity Incentive Plan (the “2016 Plan”) under which the Board of Managers of Rani LLC issued options for common units, Profits Interests, and restricted common units to managers, consultants or other individuals who provide service to the Company.

The Board of Managers had the authority to determine to whom Profits Interests would be granted, the number of options granted, and the Profits Interests threshold amount, which was the minimum amount determined by the Board of Managers in its reasonable discretion to be necessary to cause such interests to be treated as Profits Interests (“Threshold Amounts”).

In 2020, the Board of Managers approved an additional 2,000,000 common units to be reserved under the Plan for issuance as Profit Interests.

Effective April 2021, in anticipation of the IPO, the Company ceased granting Profits Interests and began to issue options for common units out of the remaining pool.

In July 2021, the 2016 Plan was frozen for new awards, concurrent with the adoption of the 2021 Plan.

Immediately upon receipt of a Profits Interests award, the recipient had no initial capital account balance and the Profits Interests received did not entitle such recipient to any portion of the capital of Rani LLC at the time of such recipient’s admission to Rani LLC as an unitholder member, such that if Rani LLC’s assets were sold at fair market value immediately after the grant to such recipient of Profits Interests and the proceeds distributed in complete liquidation of Rani LLC, the Profits Interests recipient would not be entitled to receive a portion of those proceeds.

Additionally, Rani LLC would not make a distribution with respect to any Profits Interests holder until Rani LLC had made aggregate distributions to each of its members not subject to the Profits Interests Threshold Amount.

The common units underlying each Profits Interests award entitled the holder, upon a sale or other specified capital transaction (as set forth in the Operating Agreement), to participate in a portion of the profits and appreciation in the equity value of Rani LLC arising after the date of grant, as determined in reference to the Profits Interests Threshold Amount set forth in each award agreement.

In July 2021, in connection with the IPO, the Company adopted and its stockholders approved the 2021 Plan.

The 2021 Plan provides for the grant of incentive stock options ("ISOs"), non-statutory stock options ("NSOs"), stock appreciation rights, RSAs, RSUs, performance-based awards and other awards for shares of the Company’s Class A common stock.

In July 2021, the Company's board of directors adopted and its stockholders approved, the Rani Therapeutics Holdings, Inc.

2021 Employee Stock Purchase Plan (the “ESPP”).

As of December 31, 2021 , no shares have been issued under the ESPP.

The Company reserved 500,000 shares of Class A Common Stock for issuance under the ESPP and 5,500,000 shares of Class A common stock for future issuance under the 2021 Plan.

Stock Options

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Nonvested at December 31, 2022

In connection with the Organizational Transactions, 2,292,309 options for common units of Rani LLC still subject to service vesting conditions were amended to be exercisable into 1,212,124 shares of the Company’s Class A common stock.

This was considered to be a modification but did not result in modification accounting as it did not impact the awards’

vesting conditions, classification or fair value.

These stock options vest based on the grantees continued services over a three or four year period.

As of December 31, 2021 , there was $ 19.8 million of unrecognized equity-based compensation expense related to stock options which is expected to be recognized over a weighted-average period of approximately 3.3 years.

Options for Rani LLC Common Units

A summary of options for common units activity during the periods indicated is as follows:

Number of Unit Option Awards

Weighted Average Exercise Price

Remaining Contractual Term (in years)

Aggregate Intrinsic Value (in thousands)

Balance at December 31, 2020

Amended to be exercisable into the Company’s Class A common stock

Balance at December 31, 2021

Through July 2021, the Company granted options to acquire 2,292,309 common units of Rani LLC to certain executives and members of the Board of Managers.

In conjunction with the Organizational Transactions, these unit options were amended to be exercisable into 1,212,124 shares of the Company’s Class A common stock.

Restricted Stock Units

A summary of RSU activity during the periods indicated is as follows:

Number of Restricted Stock Units

Weighted Average Grant-Date Fair Value per Share

Balance at December 31, 2020

Balance at December 31, 2021

As of December 31, 2021 , there was $ 9.9 million of unrecognized equity-based compensation expense related to RSUs which is expected to be recognized over a weighted-average period of approximately 1.7 years.

Restricted Stock Awards

A summary of RSA activity during the periods indicated is as follows:

Number of Restricted Stock Awards

Weighted Average Grant-Date Fair Value per Share

Balance at December 31, 2020

Balance at December 31, 2021

In connection with the IPO and Organizational Transactions, 397,500 Profits Interests of Rani LLC were amended and replaced with 137,691 RSAs of the Company’s Class A common stock.

This was considered to be a modification but did not result in modification accounting as it did not impact the awards’

vesting conditions, classification or fair value.

The RSAs are subject to both service vesting conditions and the Company's reacquisition right of unvested RSAs from the holder, for no monetary consideration, upon the termination of continuous service by the holder.

The RSAs are not deemed to be issued for accounting purposes until they vest and are therefore excluded from shares outstanding for accounting purposes until the repurchase right lapses and the shares are no longer subject to the reacquisition right.

As of December 31, 2021 , there was $ 0.4 million of unrecognized equity-based compensation expense related to RSAs which is expected to be recognized over a weighted-average period of approximately 1.4 years.

The total fair value of the RSAs that vested in 2021 was approximately $ 0.4 million.

Profits Interests

A summary of Profits Interests activity during the periods indicated is as follows:

Balance at December 31, 2020

$ 1.44 - $ 2.29

$ 1.99 - $ 2.13

$ 1.45 - $ 2.29

$ 1.44 - $ 2.29

Canceled and replaced with restricted stock awards

$ 1.99 - $ 2.13

Balance at December 31, 2021

In connection with the IPO and Organizational Transactions, 1,771,767 units of unvested Profits Interests that contained a performance condition were modified to accelerate their vesting in return for exchanging such awards for shares of the Company’s Class A common stock upon an IPO.

Concurrent with the IPO, such Profits Interests holders exchanged their then issued 3,201,220 Class A Units of Rani LLC for 1,655,409 shares of the Company’s Class A common stock.

This resulted in an improbable to improbable modification and resulted in the remeasurement of the related compensation cost at the fair value of these Profits Interests on the modification date in July 2021.

As a result of the modification and based on the performance condition being satisfied with the IPO and Organizational Transactions in July 2021, the Company recognized an incremental equity-based compensation expense of $ 3.0 million for the year ended December 31, 2021 .

Profits Interests of 397,500 still subject to service based vesting, but where the performance condition associated with the IPO and Organizational Transactions had been met, were exchanged for 137,691 RSAs

with the same remaining service vesting conditions.

All Profits Interests no longer subject to a vesting condition and that did not participate in the exchange, were converted into 1,545,522 Class A Units of Rani LLC.

Upon the IPO and Organizational Transactions, the performance condition was met for all Profits Interest no longer subject to a service based vesting condition and the Company recorded an additional $ 14.0 million of equity-based compensation expense.

Valuation of Awards

The Company uses the Black-Scholes option pricing model to estimate the fair value of each stock option award on the date of grant.

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Expected dividend yield

As of December 31, 2022 , there was $ 22.9 million of unrecognized equity-based compensation expense related to stock options which is expected to be recognized over a weighted-average period of approximately 2.5 years.

Restricted Stock Units

A summary of RSU activity during the periods indicated is as follows:

Number of Restricted Stock Units

Weighted Average Grant-Date Fair Value per Share

Balance at December 31, 2021

Balance at December 31, 2022

As of December 31, 2022 , there was $ 7.8 million of unrecognized equity-based compensation expense related to RSUs which is expected to be recognized over a weighted-average period of approximately 2.3 years.

The total fair value of RSUs vested was $ 2.6 million for the year ended December 31, 2022.

Restricted Stock Awards

A summary of RSA activity during the periods indicated is as follows:

Number of Restricted Stock Awards

Weighted Average Grant-Date Fair Value per Share

Balance at December 31, 2021

Balance at December 31, 2022

As of December 31, 2022 , there was $ 0.1 million of unrecognized equity-based compensation expense related to RSAs which is expected to be recognized over a weighted-average period of approximately 1.0 years.

The total fair value of RSAs vested was $ 0.5 million for the year ended December 31, 2022.

2021 Employee Stock Purchase Plan

As of December 31, 2022 , 38,435 shares of Class A common stock have been issued under the Rani Therapeutics Holdings, Inc.

2021 Employee Stock Purchase Plan (the “ESPP”).

During the year ended December 31, 2022 , the Company recognized $ 0.2 million of stock-based compensation expense related to the ESPP.

There was no stock-based compensation expense related to the ESPP recognized during the year ended December 31, 2021.

As of December 31, 2022, contributions withheld from employees were de minimis and recorded as a component of accrued expenses in the consolidated balance sheet.

As of December 31, 2022 , total unrecognized compensation costs related to the ESPP totaled $ 0.2 million and will be amortized over a weighted average vesting term of 0.4 years.

As of December 31, 2022 , the Company reserved 561,565 shares of Class A Common Stock for issuance under the ESPP and 4,511,017 shares of Class A common stock for future issuance under the 2021 Plan.

Equity-Based Compensation Expense

The following table summarizes the components of equity-based compensation expense resulting from the grant of stock options, RSUs, RSAs, Profits Interests, and options for common units, recorded in the Company’s consolidated statement of operations and comprehensive loss (in thousands):

The following table summarizes the components of equity-based compensation expense resulting from the grant of stock options, RSUs, RSAs, the ESPP, and a secondary sales transaction entered into in February 2021, recorded in the Company’s consolidated statement of operations and comprehensive loss (in thousands):

Year Ended December 31,

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Commitments and Contingencies

Rani LLC pays for the use of its office, laboratory and manufacturing facility in San Jose, California as part of the RMS-ICL Service Agreement (Note 6), which is accounted for as an operating lease.

The lease requires for certain payments of real estate taxes, insurance and certain common area maintenance costs in addition to future minimum lease payments.

The RMS-ICL Service Agreement has a twelve month term and will automatically renew for successive twelve month periods unless RMS or ICL terminate occupancy under the RMS-ICL Service Agreement upon six months notice.

As of December 31, 2021 , no renewal option periods were included in the estimated minimum lease terms as the options were not deemed to be reasonably assured to be exercised.

Total operating lease expense incurred with ICL was $ 0.8 million for each of the years ended December 31, 2021 and 2020.

Legal Proceedings

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The ultimate outcome of this matter as a loss is not probable nor is there any amount that is reasonably estimable.

However, the outcome of the opposition proceedings could impact the Company’s ability to commercialize its products in Europe.

However, the outcome of the opposition proceedings could impact the Company’s ability to prevent third parties from commercializing in Europe products with characteristics similar to those of the Company’s RaniPill technology.

Tax Receivable Agreement

The Company is party to a TRA with certain of the Continuing LLC Owners (Note 2).

As of December 31, 2022 , the Company has not recorded a liability under the TRA related to the income tax benefits originating from the exchanges of Paired Interest or non-corresponding Class A Units of Rani LLC as it is not probable that the Company will realize such tax benefits.

To the extent the Company is able to realize the income tax benefits associated with the exchanges of Paired Interest or non-corresponding Class A Units of Rani LLC subject to the TRA, the TRA payable would range from zero to $ 22.9 million at December 31, 2022.

The amounts payable under the TRA will vary depending upon a number of factors, including the amount, character, and timing of the taxable income of the Company in the future.

Should the Company determine that the payment of the TRA liability becomes probable at a future date based on new information, any changes will be recorded on the Company's consolidated statement of operations and comprehensive loss at that time.

Long-Term Debt

Convertible Notes

In September 2020, Rani LLC entered into a secured convertible loan agreement (the “Loan and Security Agreement”

or the “Loan”) with Avenue Venture Opportunity Fund L.P.

(“Avenue”), whereby Rani LLC could borrow up to a maximum of $ 10.0 million, with $ 3.0 million being immediately available.

The remaining $ 7.0 million available could be borrowed if Avenue received evidence of at least $ 40.0 million of net cash proceeds from the sale or issuance of securities to existing investors, or upfront payments in connection with strategic partnerships by March 31, 2021.

Rani LLC opted not to draw down this additional amount, and the option has since expired undrawn.

In exchange for access to this facility, Rani LLC agreed to issue warrants exercisable into Rani LLC preferred units amounting to $ 0.9 million;

Rani LLC subsequently granted 118,929 Series E warrants with an exercise price of $ 7.1471 per unit (Note 7).

The Loan was interest only until September 2021 and bore interest at a variable rate of interest per annum, compounded monthly until its maturity date of September 2023 , at which time all outstanding principal and interest would have become due and payable in cash if not already converted.

Rani LLC’s obligations under the Loan were secured by a first priority security interest in substantially all of its assets.

The Loan included customary events of default, including instances of a material adverse change in the Rani LLC’s operations, which may require prepayment of the outstanding Loan.

At December 31, 2020 , the effective interest rate on the Loan was 20.56 %.

At December 31, 2021 , there was no Loan outstanding.

The Loan contained a contingent interest feature in the event of default that was not clearly and closely related to the underlying note and met the definition of a derivative.

The Company concluded that the fair value of this derivative was insignificant for all periods presented.

The Loan and Security Agreement contained negative and affirmative covenants, including covenants that restricted the ability of Rani LLC and its current and future subsidiaries' ability to, among other things, incur or prepay existing indebtedness, pay dividends or distributions, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, and make changes in the nature of the business.

The Loan and Security Agreement also contained certain objective events of default, including, without limitation, nonpayment of principal, interest or other obligations, violation of the covenants, insolvency, court ordered judgments, and change in control.

The Loan and Security Agreement required Rani LLC to provide audited consolidated financial statements to the lenders no later than 120 days after year-end.

In July 2021, the Company repaid, in full, the $ 3.0 million of principal and approximately $ 0.5 million of final payment and fees under the Loan and Security Agreement resulting in a $ 0.7 million loss on extinguishment of debt recorded in the Company's consolidated statement of operations and comprehensive loss for the year ended December 31, 2021.

Avenue Capital also waived their right to convert the outstanding principal into Series E Preferred Units.

Paycheck Protection Program Loan

In April 2020, the Company received a $ 1.3 million small business loan under the Paycheck Protection Program (“PPP Loan”) as part of the CARES Act.

The PPP Loan was due to mature in April 2022 , and bore interest at a rate of 1.0 % per annum.

The PPP Loan was evidenced by a promissory note, which contained customary events of default relating to, among other things, payment defaults and breaches of representations and warranties.

The PPP Loan could be prepaid at any time prior to maturity with no prepayment penalties.

The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments.

In September 2021, the Company repaid in full the $ 1.3 million of principal and interest related to the PPP Loan.

In August 2022, the Company entered into a loan and security agreement and related supplement (the “Loan Agreement”) with Avenue Venture Opportunities Fund, L.P (the “Lender”).

The Loan Agreement provides for term loans (the “Loans”) in an aggregate principal amount up to $ 45.0 million.

A Loan of $ 30.0 million was committed at closing, with $ 15.0 million funded immediately and $ 15.0 million available to be drawn between October 1, 2022 and December 31, 2022, which was drawn in December 2022.

The remaining $ 15.0 million of Loans (“Tranche 2”) is uncommitted and is subject to certain conditions and approval by the Lender.

The purpose of the Loans is for general corporate purposes.

In exchange for access to this facility, the Company agreed to issue warrants exercisable into 76,336 shares of the Company's Class A common stock, as may be adjusted for certain anti-dilution adjustments, dividends, stock splits, and reverse stock splits, at an exercise price per share equal to $ 11.79 (Note 9).

Pursuant to the Loan Agreement, the maturity date for the Loans is August 1, 2026 (the “Maturity Date”).

The Loan principal is repayable in equal monthly installments beginning September 2024 extendable to March 2025 under certain conditions.

The Loans bear interest at a variable rate per annum equal to the greater of (A) the prime rate, as published by the Wall Street Journal from time to time plus 5.60 % or (B) 10.35 %.

The Loan Agreement is collateralized by substantially all of the Company’s assets, in which the Lender is granted continuing security interests.

The Loans includes customary events of default, including instances of a material adverse change in the Company’s operations, which may require prepayment of the outstanding Loans.

At December 31, 2022 , the effective interest rate on the Loans was 11.01 % and there were no events of default during the year ended December 31, 2022.

The Loans contain a contingent interest feature in the event of default that is not clearly and closely related to the underlying note and meets the definition of a derivative.

The Company concluded that the fair value of this derivative was insignificant at December 31, 2022.

Pursuant to the Loan Agreement, beginning on the first anniversary of the closing, the Company is subject to a financial covenant that requires the Company to have at least two drug products utilizing its oral delivery technology in clinical development at all times.

The financial covenant does not apply if the Company has a market capitalization above $ 650.0 million.

The Loan Agreement also contains various covenants and restrictive provisions that, among other things, limit the Company’s ability to (i) incur additional debt, guarantees or liens;

(ii) pay any dividends;

(iii) enter into certain change of control transactions;

(iv) sell, transfer, lease, license, or otherwise dispose of certain assets;

(v) make certain investments or loans;

and (vi) engage in certain transactions with related persons.

As of December 31, 2022, the Company was in compliance with all applicable debt covenants under the Loan Agreement.

As of December 31, 2022, future principal payments for the Company’s debt are as follows (in thousands):

Year ending December 31,

Total principal payments

amount representing debt discount

Total long-term debt

Income tax expense consisted of the following for the years ended (in thousands):

8 unchanged sentences

State tax, net of federal tax benefit

Loss from non-controlling interest

Rate effect from pass-through entity

Non-controlling interest

Pass-through loss not subject to tax

Permanent items

Research and development credits

Uncertain tax positions

Uncertain tax position

Liquidating distribution

Change in valuation allowance

24 unchanged sentences

Research and development tax credits, state

Pursuant of Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s research and development credit carryforwards may be limited in the event accumulative change in ownership of more than 50% occurs within a three-year period.

Pursuant to Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s research and development credit carryforwards may be limited in the event cumulative change in ownership of more than 50% occurs within a three-year period.

As of December 31, 2022, the Company has not performed an IRC Section 382 or 383 analysis.

6 unchanged sentences

Balance at the beginning of the year

Gross increase related to current year positions

Increase related to current year positions

Increase related to prior year positions

Decrease related to prior year positions

Balance at the end of the year

3 unchanged sentences

The Company is party to a TRA with the Continuing LLC Owners (Note 2).

As there have been no transactions that would trigger a liability under this agreement, the Company has no t recognized any deferred tax assets or liabilities related to this agreement as of December 31, 2021 .

As of December 31, 2022 , the Company has not recorded a liability under the TRA related to the income tax benefits originating from the exchanges of Paired Interests or non-corresponding Class A Units of Rani LLC as it is not probable that the Company will realize such tax benefits (Note 12).

Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per Class A common share attributable to Rani Holdings (in thousands, except per share data):

Year Ended December 31,

Net loss per Class A common share attributable to Rani Therapeutics Holdings, Inc.

2 unchanged sentences

The following table shows the total outstanding securities considered anti-dilutive and therefore excluded from the computation of diluted net loss per Class A common share attributable to Rani Holdings:

Year Ended December 31,

Paired Interests

Stock options

Class A Units of Rani LLC exchangeable for Class A common stock

Non-corresponding Class A Units

Restricted stock units

Restricted stock awards

Shares issuable pursuant to the ESPP

Shares of Class B Common Stock do not share in the Company’s earnings and are not participating securities.

3 unchanged sentences

Subsequent Events

In March 2022, Rani LLC amended the Rani LLC-ICL Service Agreement, pursuant to which Rani LLC has a right to occupy certain facilities leased by ICL in Milpitas, California and San Antonio, Texas (“Occupancy Services”) for general office, research and development, and light manufacturing.

The Occupancy Services in Milpitas, California have a term until February 2023, with the potential for two annual renewals, subject to approval by ICL upon a nine months’

notice of renewal prior to the end of the lease term, and the Occupancy Services in San Antonio, Texas continue until either party gives six months notice of termination .

The future aggregate minimum lease payments associated with the Occupancy Services total $ 0.4 million.

Celltrion License and Supply Agreement

In January 2023, the Company entered into a License and Supply Agreement (“Celltrion Agreement”) with Celltrion, Inc.

(“Celltrion”).

Under the Celltrion Agreement, Celltrion grants the Company an exclusive, worldwide, royalty-free license to certain intellectual property to make, use, sell, offer for sale, import and otherwise exploit RT-111 and to use certain information to support the manufacture, development and commercialization of RT-111.

Celltrion will provide, and Rani will purchase, supply of ustekinumab biosimilar at supply prices set forth in the Celltrion Agreement.

Under the Celltrion Agreement, the Company has sole right to manufacture, develop and commercialize RT-111 worldwide, subject to an exclusive right of first negotiation (“ROFN”) granted to Celltrion.

Following delivery to Celltrion of a data package consisting of data related to topline results from a Phase 1 clinical trial of RT-111 that meets its primary endpoint(s), Celltrion will have a certain period to exercise its ROFN.

If Celltrion timely exercises the ROFN, then Celltrion will have an exclusive period to negotiate in good faith a definitive agreement with the Company for rights to clinically develop and commercialize RT-111 in territories selected by Celltrion.

In the event Celltrion does not timely exercise the ROFN or Celltrion notifies us that it does not intend to exercise the ROFN or, after timely exercising the ROFN, notifies us that Celltrion withdraws its exercise of the ROFN, or the parties fail to enter into a definitive agreement for the development and commercialization of RT-111 within the exclusive negotiation period, then the ROFN will terminate and we will have no further obligations under the Celltrion Agreement related to a ROFN.

The Celltrion Agreement allocates rights between the parties with respect to inventions generated in performance of the agreement for the manufacture, development and commercialization of RT-111.

Celltrion will own intellectual property generated in the program solely related to its ustekinumab biosimilar.

The Company will own all other intellectual property generated in the program, and the Company grants Celltrion an exclusive, worldwide license under such intellectual property solely for use with its ustekinumab biosimilar.

The Company will own all data related to the research, development, manufacture, regulatory activities and commercialization of RT-111 conducted by the Company.

The Company has a right to terminate the agreement for convenience subject to certain notice periods.

Celltrion has a right to terminate the agreement if the Company does not achieve certain development milestones, and each party has certain rights to terminate for material breach or safety concerns regarding the ustekinumab biosimilar or RT-111.

The Failure of Silicon Valley Bank

On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation as receiver.

At the time of the closure, the Company held limited assets in deposit and money market accounts with SVB.

Because a substantial majority of the Company's cash, cash equivalents and marketable securities were not maintained at SVB and in light of actions taken by the federal government to fully protect deposit accounts, the closure of SVB has had no material impact on the Company's operations.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data