Rani Therapeutics Holdings, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 109 Consolidated Balance Sheets as of December 31, 2022 and 2021 110 Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021 111 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2022 and 2021 112 Consolidated Statements of Changes in Stockholders’ Equity/Convertible Preferred Units and Members' Deficit for the Years ended December 31, 2022 and 2021 113 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021 114 Notes to the Consolidated Financial Statements 115 108 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Rani Therapeutics Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Rani Therapeutics Holdings, Inc. (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”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2019. San Francisco, California March 22, 2023 109 RANI THERAPEUTICS HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value) December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 27,007 $ 117,453 Restricted cash equivalents 500 — Marketable securities 71,475 — Prepaid expenses and other current assets 1,942 2,142 Total current assets 100,924 119,595 Property and equipment, net 6,038 4,612 Operating lease right-of-use asset 1,065 — Total assets $ 108,027 $ 124,207 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 1,460 $ 1,080 Related party payable 53 126 Accrued expenses 2,296 1,434 Operating lease liability, current portion 1,006 — Total current liabilities 4,815 2,640 Operating lease liability, less current portion 59 — Long-term debt 29,149 — Total liabilities 34,023 2,640 Commitments and contingencies (Note 12) Stockholders' equity: Preferred stock, $ 0.0001 par value - 20,000 shares authorized; 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; 25,295 and 19,712 issued and outstanding as of December 31, 2022 and December 31, 2021, respectively 3 2 Class B common stock, $ 0.0001 par value - 40,000 shares authorized; 24,116 and 29,290 issued and outstanding as of December 31, 2022 and December 31, 2021, respectively 2 3 Class C common stock, $ 0.0001 par value - 20,000 shares authorized; none issued and outstanding as of December 31, 2022 and December 31, 2021 — — Additional paid-in capital 75,842 55,737 Accumulated other comprehensive loss ( 73 ) — Accumulated deficit ( 38,919 ) ( 8,331 ) Total stockholders' equity attributable to Rani Therapeutics Holdings, Inc. 36,855 47,411 Non-controlling interest 37,149 74,156 Total stockholders' equity 74,004 121,567 Total liabilities and stockholders' equity $ 108,027 $ 124,207 The accompanying notes are an integral part of these consolidated financial statements. 110 RANI THERAPEUTICS HOLDINGS, INC. Consolidated Statements of Operations (in thousands, except per share amounts) Year Ended December 31, 2022 2021 Contract revenue $ — $ 2,717 Operating expenses Research and development 36,607 26,482 General and administrative 26,844 27,834 Total operating expenses $ 63,451 $ 54,316 Loss from operations ( 63,451 ) ( 51,599 ) Other income (expense), net Interest income and other, net 1,248 89 Loss on extinguishment of debt — ( 700 ) Interest expense and other, net ( 1,071 ) ( 466 ) Change in estimated fair value of preferred unit warrant — ( 371 ) Loss before income taxes ( 63,274 ) ( 53,047 ) Income tax expense ( 70 ) ( 41 ) Net loss $ ( 63,344 ) $ ( 53,088 ) Net loss attributable to non-controlling interest ( 32,756 ) ( 44,757 ) Net loss attributable to Rani Therapeutics Holdings, Inc. $ ( 30,588 ) $ ( 8,331 ) Net loss per Class A common share attributable to Rani Therapeutics Holdings, Inc., basic and diluted $ ( 1.28 ) $ ( 0.43 ) Weighted-average Class A common shares outstanding—basic and diluted 23,817 19,534 The accompanying notes are an integral part of these consolidated financial statements. 111 RANI THERAPEUTICS HOLDINGS, INC. Consolidated Statements of Comprehensive Loss (in thousands) Year Ended December 31, 2022 2021 Net loss $ ( 63,344 ) $ ( 53,088 ) Other comprehensive loss Net unrealized loss on marketable securities ( 149 ) — Comprehensive loss $ ( 63,493 ) $ ( 53,088 ) Comprehensive loss attributable to non-controlling interest ( 32,832 ) ( 44,757 ) Comprehensive loss attributable to Rani Therapeutics Holdings, Inc. $ ( 30,661 ) $ ( 8,331 ) The accompanying notes are an integral part of these consolidated financial statements. 112 RANI THERAPEUTICS HOLDINGS, INC. Consolidated Statements of Changes in STOCKHOLDERS’ Equity/CONVERTIBLE PREFERRED UNITS AND MEMBERS' Deficit (in thousands) Class A Common Stock Class B Common Stock Shares Amount Shares Amount Additional Paid In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Non-Controlling Interest Total Stockholders' Equity Balance at December 31, 2021 19,712 $ 2 29,290 $ 3 $ 55,737 $ — $ ( 8,331 ) $ 74,156 $ 121,567 Effect of exchanges of Paired Interests and non-corresponding Class A Units of Rani LLC 5,332 1 ( 5,174 ) ( 1 ) — — — — — Non-controlling interest adjustment for changes in proportionate ownership in Rani LLC — — — — 12,377 — — ( 12,377 ) — Issuance of warrants — — — 503 — — — 503 Issuance of common stock under employee equity plans, net of shares withheld for tax settlement 204 — — — ( 626 ) — — — ( 626 ) Issuance of common stock under employee stock purchase plan 39 — — — 271 — — — 271 Issuance of common stock 13 — — — — — — — — Forfeiture of restricted stock awards ( 5 ) — — — ( 7 ) — — ( 6 ) ( 13 ) Equity-based compensation — — — — 7,587 — — 8,208 15,795 Net loss — — — — — — ( 30,588 ) ( 32,756 ) ( 63,344 ) Other comprehensive loss — — — — — ( 73 ) — ( 76 ) ( 149 ) Balance at December 31, 2022 25,295 $ 3 24,116 $ 2 $ 75,842 $ ( 73 ) $ ( 38,919 ) $ 37,149 $ 74,004 Class A Common Stock Class B Common Stock Convertible Preferred Units Members’ Deficit Shares Amount Shares Amount Additional Paid In Capital Accumulated Deficit Non-Controlling Interest Total Stockholders' Equity/(Members' Deficit) Balance at December 31, 2020 $ 184,714 $ ( 113,339 ) — $ — — $ — $ — $ — $ — $ ( 113,339 ) Activity prior to initial public offering ("IPO") and related Organizational Transactions Issuance of Series E preferred units 6,320 — — — — — — — — — Equity-based compensation from secondary sales transactions — 453 — — — — — — — 453 Exercise of warrant for common units — 26 — — — — — — — 26 Settlement of preferred unit warrant liability 691 — — — — — — — — — Equity-based compensation — 17,324 — — — — — — — 17,324 Net loss — ( 31,727 ) — — — — — — — ( 31,727 ) Effects of the IPO and related Organizational Transactions Effects of Organizational Transactions ( 191,725 ) 127,263 12,048 1 29,290 3 18,106 — 46,352 191,725 Issuance of Class A common stock in connection with the IPO, net of issuance costs of $ 10,686 — — 7,667 1 — — 73,647 — — 73,648 Non-controlling interest adjustment for purchase of newly issued Class A units of Rani LLC with proceeds from the IPO — — — — — — ( 37,895 ) — 37,895 — Net loss — — — — — — — ( 149 ) ( 233 ) ( 382 ) Activity subsequent to the IPO and related Organizational Transactions Equity-based compensation — — — — — — 1,880 — 2,940 4,820 Forfeiture of restricted stock awards — — ( 3 ) — — — ( 1 ) — ( 1 ) ( 2 ) Net loss — — — — — — — ( 8,182 ) ( 12,797 ) ( 20,979 ) Balance at December 31, 2021 $ — $ — 19,712 $ 2 29,290 $ 3 $ 55,737 $ ( 8,331 ) $ 74,156 $ 121,567 The accompanying notes are an integral part of these consolidated financial statements. 113 RANI THERAPEUTICS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2022 2021 Cash flows from operating activities Net loss $ ( 63,344 ) $ ( 53,088 ) Adjustments to reconcile net loss to net cash used in operating activities: Equity-based compensation expense 15,782 22,595 Depreciation and amortization 548 497 Non-cash operating lease expense 764 — Amortization of debt discount and issuance costs 77 — Net accretion and amortization of investments in marketable securities ( 851 ) — Change in fair value of preferred unit warrant liability — 371 Loss on extinguishment of debt — 700 Other — 109 Changes in operating assets and liabilities: Prepaid expenses and other current assets 505 ( 1,975 ) Accounts payable 163 543 Accrued expenses 678 739 Operating lease liabilities ( 764 ) — Related party payable ( 73 ) ( 19 ) Deferred revenue — ( 2,717 ) Net cash used in operating activities ( 46,515 ) ( 32,245 ) Cash flows from investing activities Purchases of marketable securities ( 73,817 ) — Proceeds from maturities of marketable securities 3,000 — Purchases of property and equipment ( 1,619 ) ( 506 ) Net cash used in investing activities ( 72,436 ) ( 506 ) Cash flows from financing activities Proceeds from the issuance of long-term debt and warrants, net of issuance costs 29,574 — Issuance of common stock under employee stock purchase plan 271 — Proceeds from employee stock purchase plan 46 — Tax withholdings paid on behalf of employees for net share settlement ( 626 ) — Payment of deferred financing costs ( 260 ) — Proceeds from issuance of Class A common stock sold in the IPO, net of issuance costs — 73,648 Proceeds from issuance of preferred units, net of issuance costs — 6,320 Proceeds from exercise of warrants for common units — 26 Repayment of the Paycheck Protection Program Loan — ( 1,254 ) Repayment of convertible note — ( 3,314 ) Principal and interest repayments from related party for note receivable — 1,720 Net cash provided by financing activities 29,005 77,146 Net (decrease) increase in cash, cash equivalents and restricted cash equivalents ( 89,946 ) 44,395 Cash and cash equivalents, beginning of period 117,453 73,058 Cash, cash equivalents and restricted cash equivalents, end of period $ 27,507 $ 117,453 Supplemental disclosures of cash flow information Cash paid for income taxes $ 730 $ 73 Cash paid for interest $ 48 $ 285 Supplemental disclosures of non-cash investing and financing activities Property and equipment purchases included in accounts payable and accrued expenses $ 355 $ 145 Exchanges of Paired Interests and non-corresponding Class A Units of Rani LLC $ 78,487 $ — Issuance costs deducted from long-term debt proceeds $ 851 $ — Right-of-use assets obtained in exchange for new operating lease liabilities $ 514 $ — Deferred financing costs included in prepaid expenses $ 260 $ — Interest income receivable included in prepaid expenses $ 44 $ — Exchange of Class A Units of Rani LLC from the Former LLC Owners $ — $ 132,527 Settlement of preferred unit warrant liability $ — $ 691 The accompanying notes are an integral part of these consolidated financial statements. 114 RANI THERAPEUTICS HOLDINGS, INC. Notes to THE Consolidated Financial Statements 1. Organization and Nature of Business Description of Business Rani Therapeutics Holdings, Inc. (“Rani Holdings”) was formed as a Delaware corporation in April 2021 for the purpose of facilitating an initial public offering (“IPO”) of its Class A common stock, and to facilitate certain organizational transactions and to operate the business of Rani Therapeutics, LLC (“Rani LLC”) and its consolidated subsidiary, Rani Management Services, Inc. (“RMS”). 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.” 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. Initial Public Offering and Organizational Transactions In August 2021, the Company closed its IPO and sold 7,666,667 shares of its Class A common stock, including shares issued pursuant to the exercise in full of the underwriters’ option, for cash consideration of $ 11.00 per share and received approximately $ 73.6 million in net proceeds, after deducting underwriting discounts, offering costs and commissions. The Company used the proceeds from the IPO to purchase 7,666,667 newly issued economic nonvoting Class A units (“Class A Units”) of Rani LLC. 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 non-vested incentive units (“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 ; • Amended and restated the Company’s certificate of incorporation in July 2021, to provide for the issuance of (i) Class A common stock, each share of which entitles its holders to one vote per share , (ii) Class B common stock, each share of which entitles its holders to 10 votes per share on all matters presented to the Company's stockholders , (iii) Class C common stock, which has no voting rights, except as otherwise required by law and (iv) preferred stock; • 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 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. 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. 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. 115 Liquidity The Company has incurred recurring losses since its inception, including net losses of $ 63.3 million for the year ended December 31, 2022. As of December 31, 2022 , the Company had an accumulated deficit of $ 38.9 million and for the year ended December 31, 2022 had negative cash flows from operations of $ 46.5 million. 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, 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. 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, such as “at the market offerings” 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 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. 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. 2. Summary of Significant Accounting Policies Basis of Presentation These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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. All intercompany accounts and transactions have been eliminated in consolidation. The Organizational Transactions were considered transactions between entities under common control. As a result, the consolidated financial statements for periods prior to the IPO and the Organizational Transactions have been adjusted to combine the previously separate entities for presentation purposes. Variable Interest Entities The Company consolidates all entities that it controls through a majority voting interest or as the primary beneficiary of a variable interest entity (“VIE”). In determining whether the Company is the primary beneficiary of an entity, the Company applies a qualitative approach that determines whether it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. The Company’s determination about whether it should consolidate such VIEs is made continuously as changes to existing relationships or future transactions may result in a consolidation event. Use of Estimates 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. 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. 116 Revenue Recognition The Company enters into evaluation arrangements with certain pharmaceutical partners, under which the Company performs evaluation services of the partner’s drug molecules using the RaniPill capsule. Revenue is recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for its arrangements with customers, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Revenue for an individual contract is recognized at the related transaction price, which is the amount the Company expects to be entitled to in exchange for transferring these services. The terms of the evaluation services agreements usually include payments for evaluation services and evaluation milestones based on a decision to extend the agreement. The transaction price of the evaluation services contracts may include variable consideration. Application of the constraint for variable consideration requires judgment. The constraint for variable consideration is applied such that it is probable a significant reversal of revenue will not occur when the uncertainty associated with the contingency is resolved. Application of the constraint for variable consideration is updated at each reporting period as a revision to the estimated transaction price. For arrangements where the anticipated period between timing of transfer of services and the timing of payment is one year or less, the Company has elected to not assess whether a significant financing component exists. The Company recognizes evaluation services revenue over the period in which evaluation services are provided. Specifically, the Company recognizes revenue using an output method to measure progress, using samples processed relative to total expected samples to be processed as its measure of progress. For services under these arrangements, costs incurred are included in research and development expenses in the Company’s consolidated statements of operations and comprehensive loss. Customer options, such as options granted to allow a customer to acquire later stage evaluation services, are evaluated at contract inception in order to determine whether those options provide a material right (i.e., an optional good or service offered for free or at a discount) to the customer. If the customer options represent a material right, the material right is treated as a separate performance obligation at the outset of the arrangement. The Company allocates the transaction price to material rights based on the standalone selling price, and revenue is recognized when or as the future goods or services are transferred or when the option expires. Customer options that are not material rights do not give rise to a separate performance obligation, and as such, the additional consideration that would result from a customer exercising an option in the future is not included in the transaction price for the current contract. Instead, the option is deemed a marketing offer, and additional option fee payments are recognized or being recognized as revenue when the licensee exercises the option. The exercise of an option that does not represent a material right is treated as a separate contract for accounting purposes. Revenue is recognized for each distinct performance obligation as control is transferred to the customer. The Company recognizes revenue from its evaluation services over time as services are delivered, using a cost-based input method of revenue recognition over the contract term. The cost-based input measured is based on an estimate of total costs to be incurred to deliver the services over the contract period compared to costs incurred to date for each contract. The Company’s evaluation of estimated costs to perform the services typically includes estimates for effort related to contracted research, formulation, and animal testing. These estimates are based on the Company’s reasonable assumptions and its historical experience. Actual results may differ materially and adversely from these estimates. Incremental costs of obtaining contracts are expensed when incurred when the amortization period of the assets that otherwise would have been recognized is one year or less. To date, none of these costs have been material. The costs to fulfill the contracts are determined to be immaterial and are recognized as an expense when incurred. 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, 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. The Company had no deferred revenue as of December 31, 2022 and 2021 , respectively. Concentrations of Credit Risk and Other Risks and Uncertainties Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains accounts in federally insured financial institutions in excess of federally insured limits. The 117 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. 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. Cash equivalents are carried at cost, which approximates fair value. The Company’s cash and cash equivalents consist of balances held in demand depositary accounts and money market funds. 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, 2022 2021 End of Period: Cash and cash equivalents $ 27,007 $ 117,453 Restricted cash equivalents 500 — Total cash, cash equivalents and restricted cash equivalents $ 27,507 $ 117,453 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 118 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: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. 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. 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). To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgement exercised by the Company in determining fair value is greatest for instruments categorized in Level 3 (Note 3). 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. Leases 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. 119 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 Research and development costs are expensed as incurred. Research and development expenses consist primarily of contract research fees and process development, outsourced labor and related expenses for personnel, facilities cost, fees paid to consultants and advisors, depreciation and supplies used in research and development and costs incurred under the Company's evaluation agreements. Payments made prior to the receipt of goods or services to be used in research and development activities are recorded as prepaid expenses until the related goods or services are received. Until future commercialization is considered probable and the future economic benefit is expected to be realized, the Company does not capitalize pre-launch inventory costs. Costs of property and equipment related to scaling-up of the manufacturing capacity for clinical trials and to support commercialization are capitalized as property and equipment unless the related asset does not have an alternative future use. Clinical and preclinical costs are a component of research and development expense. The Company accrues and expenses clinical and pre-clinical trial activities performed by third parties based upon actual work completed in accordance with agreements established with its service providers. The Company determines the actual costs through discussions with internal personnel and external service providers as to the progress or stage of completion of services and the agreed-upon fee to be paid for such services. Equity-Based Compensation Stock-Based Compensation In July 2021, the Company adopted and its stockholders approved, the Rani Therapeutics Holdings, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). The Company has subsequently granted stock options to purchase shares of its Class A common stock as well as restricted stock units (“RSUs”) and restricted stock awards ("RSAs") from the 2021 Plan to both employees and non-employees. The Company measures stock-based compensation at fair value on the grant date of the award. The fair value of employee and nonemployee RSUs is determined based on the number of shares granted and the closing market price of the Company’s Class A common stock on the date of grant. The fair value of employee RSAs is determined based on the estimated fair value of the Company’s Class A common stock on the grant date and is subject to the Company's reacquisition right which is accounted for as a forfeiture provision (Note 9). For awards that vest subject to the satisfaction of service requirements, compensation expense is measured based on the fair value of the award on the date of grant and expense is recognized on a straight-line basis over the requisite service period. The Company accounts for forfeitures as they occur. Stock-based compensation is classified in the accompanying consolidated statements of operations and comprehensive loss based on the function to which the related services are provided. The Company determines the grant-date fair value of options to purchase common shares using the Black-Scholes option-pricing 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. If actual results are not consistent with the Company’s assumptions and judgments used in making these estimates, the Company may be required to increase or decrease compensation expense, which could be material to the Company’s consolidated results of operations. 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 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. Forfeitures were recognized when they occurred. All of the Profits Interests were subject to service and performance-based conditions and the Company evaluated the probability of achieving each performance-based condition at each reporting date and recognized equity-based compensation expense for employee and consultant awards and distributions of equity for ICL employee awards in the consolidated financial statements when it was deemed probable that the performance-based condition would be met using the accelerated attribution method over the requisite service period. The options to purchase common units were subject to service conditions and generally vested over three or four years. 120 The Company utilized estimates and assumptions in determining the fair value of its Profits Interests and options to purchase common units on the date of grant. The Company utilized various valuation methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation , to estimate the fair value of its preferred units, common units and Profits Interests. Each valuation methodology includes estimates and assumptions that require the Company’s judgment. These estimates and assumptions include several objective and subjective factors, including probability weighting of events, volatility, time to an exit event, a risk-free interest rate, the prices at which Rani LLC sold preferred units, the superior rights, and preferences of the preferred units senior to Rani LLC’s common units at the time, and a discount for the lack of marketability. Changes to the key assumptions used in the valuations could result in different fair values at each valuation date. Income Taxes 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. As an entity classified as a partnership for tax purposes, Rani LLC is not subject to United States federal and certain state and local income taxes. 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 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. Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which the Company expects to recover or settle those temporary differences. The Company recognizes the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date. The Company reduces the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that the Company will not realize some or all of the deferred tax asset. The Company’s tax positions are subject to income tax audits. The Company uses a recognition threshold and measurement attribute for the consolidated financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. A tax position is recognized when it is more likely than not that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than a 50% likelihood of being realized upon ultimate settlement with a taxing authority. Interest and penalties related to unrecognized tax benefits are recognized in income tax expense in the accompanying consolidated statements of operations and comprehensive loss. No such interest and penalties were recognized for any period presented. 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 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 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). 121 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. 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 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 loss. 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 Property and equipment, net are stated at cost, less accumulated depreciation and amortization calculated using the straight-line method over the estimated useful lives of the assets, generally between three and five years. Leasehold improvements are amortized over the shorter of the related lease term or useful life. Maintenance and repairs are charged to operations when incurred, while betterments or renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation and amortization accounts are relieved, and any gain or loss is included in the results of operations. Construction-in-progress consists of production equipment that will be used to scale-up the manufacturing of the RaniPill capsule for clinical trials and that has been determined to have an alternative future use. Construction-in-progress is stated at cost and does not begin to depreciate until it is put into production. Impairment of Long-Lived Assets 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. 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. Management believes that no revision to the remaining useful lives or write-down of long-lived assets is required as of and for the year ended December 31, 2022 . Related Party Note Receivable 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. 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 122 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. The Company estimated the fair value of preferred unit warrants at each reporting period, using a hybrid between the probability weighted expected return and option pricing methods, estimating the probability weighted value across multiple scenarios, but using the option pricing method to estimate the allocation of value within one or more of those scenarios, until the earlier of the exercise of the preferred unit warrants, at which time the liability was revalued and reclassified to members’ deficit upon the completion of the Company’s IPO. Net Loss Per Class A Common Share Attributable to Rani Holdings Basic net loss per Class A common share attributable to Rani Holdings is computed by dividing net loss attributable to the Company by the weighted average number of Class A common shares outstanding during the period, without consideration of potential dilutive securities. Diluted net loss per Class A common share is computed giving effect to all potentially dilutive shares. 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. 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. 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. 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. 123 3. 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 $ 25,313 $ — $ — $ 25,313 Total cash equivalents 25,313 — — 25,313 Restricted cash equivalents: Money market funds 500 — — 500 Total cash equivalents and restricted cash equivalents 25,813 — — 25,813 Marketable securities: U.S. Treasuries 36,563 — ( 107 ) 36,456 Commercial paper 26,631 — — 26,631 Corporate debt securities 6,939 — ( 39 ) 6,900 International government 1,491 — ( 3 ) 1,488 Total marketable securities 71,624 — ( 149 ) 71,475 Total cash equivalents, restricted cash equivalents and marketable securities $ 97,437 $ — $ ( 149 ) $ 97,288 As of December 31, 2021 Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Current assets: Cash equivalents: Money market funds $ 115,595 $ — $ — $ 115,595 Total cash equivalents $ 115,595 $ — $ — $ 115,595 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 . 4. Fair Value Measurements The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of inputs used in such measurements (in thousands): As of December 31, 2022 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 25,313 $ — $ — $ 25,313 Restricted cash equivalents: Money market funds 500 — — 500 Marketable securities U.S. Treasuries 36,456 — — 36,456 Commercial paper — 26,631 — 26,631 Corporate debt securities — 6,900 — 6,900 International government — 1,488 — 1,488 Total assets $ 62,269 $ 35,019 $ — $ 97,288 124 As of December 31, 2021 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 115,595 $ — $ — $ 115,595 Total assets $ 115,595 $ — $ — $ 115,595 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. 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, 2022 2021 Balance at beginning of period $ — $ 320 Change in estimated fair value of Series E warrants — 371 Settlement of Series E warrants — ( 691 ) Balance at end of period $ — $ — 5 . Balance Sheet Components Property and equipment, net Property and equipment, net consist of the following (in thousands): December 31, 2022 2021 Laboratory equipment $ 2,661 $ 1,734 Leasehold improvements 1,549 1,233 Software 104 60 Office equipment 157 42 Total 4,471 3,069 Less accumulated depreciation and amortization ( 2,849 ) ( 2,331 ) Total 1,622 738 Construction-in-progress 4,416 3,874 Total property and equipment, net $ 6,038 $ 4,612 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, 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. 125 Accrued expenses Accrued expenses consist of the following (in thousands): December 31, 2022 2021 Accrued preclinical and clinical trial costs $ 1,130 $ 621 Payroll and related 348 202 Accrued professional fees 165 213 Other 653 398 Total accrued expenses $ 2,296 $ 1,434 6. Evaluation Agreements Takeda Takeda Pharmaceutical Company, Limited ("Takeda") was collaborating with the Company to conduct research on the use of the RaniPill capsule for the oral delivery of factor VIII (“FVIII”) therapy for patients with hemophilia A. The agreement granted Takeda a right of first negotiation to a worldwide, exclusive license under the Company’s intellectual property related to a FVIII-RaniPill therapeutic. Takeda paid the Company up-front payments of $ 5.9 million upon execution of and subsequent modifications to the agreement. 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 in 2021. 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 . 7 . Related Party Transactions 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 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; 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 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. In April 2022, RMS assigned the RMS-ICL Service Agreement to Rani LLC. The RMS-ICL Service 126 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’ notice. 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 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, 2022 2021 Research and development $ 1,170 $ 1,115 General and administrative 222 735 Total $ 1,392 $ 1,850 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 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, 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 The Company, through Rani LLC, and ICL entered into an exclusive license and an intellectual property agreement and common unit purchase agreement in 2012. Pursuant to the common unit purchase agreement, the Company issued 46.0 million common units to ICL in return for rights to exclusive commercialization, development, use and sale of certain products and services related to the RaniPill capsule technology. ICL also granted the Company a fully-paid, royalty-free, sublicensable, exclusive license under the intellectual property made by ICL during the course of providing services to the Company related to the RaniPill capsule technology. Such rights were not recorded on the Company’s consolidated balance sheet as the transaction was considered a common control transaction. In June 2021, ICL and the Company, through Rani LLC, entered into an Amended and Restated Exclusive License Agreement which replaced the 2012 Exclusive License Agreement between ICL and Rani LLC, as amended in 2013, and terminated the 2012 Intellectual Property Agreement between ICL and Rani LLC, as amended in June 2013. Under the Amended and Restated Exclusive License Agreement, the Company has a fully paid, exclusive license under certain scheduled patents related to optional features of the device and certain other scheduled patents to exploit products covered by those patents in the field of oral delivery of sensors, small molecule drugs or biologic drugs including, any peptide, antibody, protein, cell therapy, gene therapy or vaccine. The Company covers patent-related expenses and, after a certain period, the Company will have the right to acquire four specified United States patent families from ICL by making a one-time payment of $ 0.3 million to ICL for each United States patent family that the Company desires to acquire, up to $ 1.0 million in the aggregate. 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 127 Agreement. 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. Non-Exclusive License Agreement between Rani and ICL (“Non-Exclusive License Agreement”) In June 2021, the Company, through Rani LLC, entered into the Non-Exclusive License Agreement with ICL a related party, pursuant to which the Company granted ICL a non-exclusive, fully-paid license under specified patents that were assigned from ICL to the Company. Additionally, the Company agreed not to license these patents to a third party in a specific field outside the field of oral delivery of sensors, small molecule drugs or biologic drugs including, any peptide, antibody, protein, cell therapy, gene therapy or vaccine, if ICL can prove that it or its sublicensee has been in active development of a product covered by such patents in that specific field. ICL may grant sublicenses under this license to third parties only with the Company’s prior approval. The Non-Exclusive License Agreement will continue in perpetuity unless earlier terminated. 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 (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. The initial term of the Mir Agreement is three years, which can be extended upon mutual consent of the parties. The Mir Agreement may be terminated by either party for any reason within the initial three-year term upon providing three months’ notice to the other party. Board Services 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 In February 2021, one of the Company's named executive officer's and then member of the Board of Managers of Rani LLC, and a current member of the Board of Managers of Rani LLC sold a total of 210,000 common units to a third-party investor at $ 7.1471 per unit. The Company determined that the sales price was above fair value of such units and as a result recorded equity-based compensation expense of $ 0.5 million for which $ 0.2 million was recorded as general and administrative expense and $ 0.3 million was recorded as research and development expense. The $ 0.5 million represents the difference between the sales price and fair value of the common units. Equity-Based Compensation 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. 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, 2022 2021 Research and development $ — $ 644 General and administrative — 2,999 Total $ — $ 3,643 Tax Receivable Agreement 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, 128 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 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, 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 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. 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. 8. Leases 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’ notice. 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; 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. 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. 129 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): December 31, 2022 Balance sheet Operating lease right-of-use assets $ 1,065 Operating lease liability, current portion $ 1,006 Operating lease liability, less current portion 59 Total operating lease liability $ 1,065 December 31, 2022 Cash flows Cash paid for amounts included in lease liabilities: Operating cash flows used for operating leases $ 832 December 31, 2022 Weighted-average remaining lease term 1.1 years Weighted-average discount rate 7.0 % 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, 2023 $ 1,044 2024 59 Total undiscounted future minimum lease payments $ 1,103 Less: Imputed interest ( 38 ) Total operating lease liability $ 1,065 Less: Operating lease liability, current portion 1,006 Operating lease liability, less current portion $ 59 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. 9 . Warrants 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. 10 . Stockholders’ Equity / Members’ Deficit Prior to the Organizational Transactions, Rani LLC was authorized to issue 101,000,000 common units, of which 10,850,000 had been reserved for issuance as Profits Interests and 32,620,000 were reserved for six separate classes, the Series A convertible preferred units (the “Series A units”), the Series B convertible preferred units (the “Series B units”), the Series C convertible preferred units (the “Series C units”), the Series C-1 convertible preferred units (the “Series C-1 units”), the Series D convertible preferred units (the “Series D units”), and the Series E convertible preferred units (the “Series E units”), collectively the “Preferred Units”. 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 130 of a court; or otherwise. The members were also not obligated to make capital contributions to Rani LLC and Rani LLC would have dissolved only upon a written consent of a majority of the members. The Company’s Profits Interests were subject to either a combination of service, market, or performance vesting conditions. 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. and H.C. 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 In connection with the Organizational Transactions, the Company’s certificate of incorporation was amended and restated to, among other things, provide for the (i) authorization of 800,000,000 shares of Class A common stock with a par value of $ 0.0001 per share; (ii) authorization of 40,000,000 shares of Class B common stock with a par value of $ 0.0001 per share; (iii) authorization of 20,000,000 shares Class C common stock with a par value of $ 0.0001 per share; and (iv) authorization of 20,000,000 shares of preferred stock with a par value of $ 0.0001 per share. Holders of Class A common stock are entitled to one vote per share; holders of Class B common stock are entitled to ten votes per share; and holders of Class C common stock have no voting rights. 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. 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. Shares of Class B common stock are not transferable except (a) to the Company for no consideration (in which case the shares will be cancelled automatically) or (b) together with an equal number of Class A Units to a transferee in compliance with the LLC Agreement and the provisions set forth in the Company’s amended and restated certificate of incorporation. All Class B common stock that is exchanged as part of a Paired Interest for Class A common stock shall be automatically retired and cancelled and shall no longer be outstanding. In August 2021, the Company received 29,290,391 Class B Units of Rani LLC as consideration for the issuance of Class B common stock on a one -for-one basis. Management of Rani LLC In August 2021, Rani LLC’s members and Board of Managers adopted the amended and restated Rani LLC Agreement to, among other things, appoint the Company as Rani LLC’s sole managing member and provide that, except where the approval of one or more members is specifically required by the express terms of the Rani LLC Agreement, all management powers over the business and affairs of Rani LLC are vested exclusively in the Company as the sole managing member. Initial Public Offering 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 131 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 In connection with the IPO, the Company entered into a Registration Rights Agreement with the Continuing LLC Owners, including ICL. The Registration Rights Agreement provides the Continuing LLC Owners certain registration rights whereby, at any time following the IPO and the expiration of any related lock-up period, the Continuing LLC Owners can require the Company to register under the Securities Act shares of Class A common stock issuable to them upon, at the Company’s election, redemption or exchange of their Paired Interests. The Registration Rights Agreement also provides for piggyback registration rights for the Continuing LLC Owners. 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. 11 . Equity-Based Compensation Stock Options A summary of stock option activity during the periods indicated is as follows: Number of Stock Option Awards Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Balance at December 31, 2021 2,300,819 $ 14.12 9.55 $ 976 Granted 1,599,785 $ 12.38 9.31 $ — Cancelled ( 112,018 ) $ 13.57 Balance at December 31, 2022 3,788,586 $ 13.40 8.81 $ — Exercisable at December 31, 2022 1,088,706 $ 13.50 8.48 $ — Nonvested at December 31, 2022 2,699,880 $ 13.36 8.89 $ — The Company uses the Black-Scholes option pricing model to estimate the fair value of each stock option award on the date of grant. The assumptions and estimates are as follows: • Expected term - The expected term represents the period of time that stock option awards are expected to remain outstanding. The Company estimates the expected term as the midpoint between actual or expected vesting date and the contractual term. • Expected volatility - The expected volatility was derived from the historical stock volatilities of peer public companies within the Company's industry that are considered to be comparable businesses over a period equivalent to the expected term of the stock option awards, since there has been limited trading history of the Company's stock. • Risk-free interest rate - The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the stock option awards’ expected term. • Expected dividend yield - The expected dividend yield is zero as the Company has no plans to make dividend payments. The following table sets forth the weighted average assumptions used in estimating the fair value of stock option awards on the grant date: Year Ended December 31, 2022 2021 Expected volatility 77.2 % 81.7 % Risk-free interest rate 2.44 % 1.07 % Expected term (in years) 5.9 6.2 Expected dividend yield — % — % 132 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 596,500 $ 19.56 Granted 443,400 $ 13.21 Vested ( 267,650 ) $ 19.56 Forfeited ( 106,750 ) $ 17.63 Balance at December 31, 2022 665,500 $ 15.64 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 113,173 $ 6.15 Vested ( 41,236 ) $ 6.15 Forfeited ( 4,548 ) $ 6.25 Balance at December 31, 2022 67,389 $ 6.14 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, 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, 2022 2021 Research and development $ 6,237 $ 8,156 General and administrative 9,545 14,439 Total equity-based compensation $ 15,782 $ 22,595 133 12. Commitments and Contingencies Legal Proceedings In the ordinary course of business, the Company may be subject to legal proceedings, claims and litigation as the Company operates in an industry susceptible to patent legal claims. The Company accounts for estimated losses with respect to legal proceedings and claims when such losses are probable and estimable. Legal costs associated with these matters are expensed when incurred. The Company is currently involved in several opposition proceedings at the European Patent Office, all of which were asserted against us by Novo Nordisk AS. 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 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. 13. Long-Term Debt 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. 134 As of December 31, 2022, future principal payments for the Company’s debt are as follows (in thousands): Year ending December 31, 2023 — 2024 5,000 2025 15,000 2026 10,000 Total principal payments $ 30,000 Less: amount representing debt discount ( 851 ) Total long-term debt $ 29,149 14. Income Taxes Income tax expense consisted of the following for the years ended (in thousands): December 31, 2022 2021 Current Federal $ 68 $ 38 State 2 3 Total current tax expense $ 70 $ 41 Deferred Federal $ — $ — State — — Total deferred tax expense $ — $ — Income tax expense $ 70 $ 41 The effective tax rate for the years ended December 31, 2022 and 2021 is different from the federal statutory rate primarily due to the valuation allowance against deferred tax assets as a result of insufficient sources of income and pass-through loss not subject to income tax. A reconciliation between the Company’s effective tax rate and the applicable U.S. federal statutory income tax rate is summarized as follows: Year Ended December 31, 2022 2021 Federal statutory rate 21.0 % 21.0 % State tax, net of federal tax benefit 3.4 1.0 Non-controlling interest ( 10.4 ) ( 5.3 ) Pass-through loss not subject to tax — ( 12.6 ) Permanent items — ( 0.1 ) Research and development credits 2.1 2.9 Uncertain tax position ( 0.3 ) ( 0.4 ) Liquidating distribution ( 2.1 ) — Change in valuation allowance ( 13.8 ) ( 6.6 ) Effective tax rate ( 0.1 ) % ( 0.1 ) % 135 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. The components that comprise the Company’s net deferred taxes consist of the following (in thousands): Year Ended December 31, 2022 2021 Deferred tax assets Investment in partnership $ 44,923 $ 25,226 Net operating loss carryforward 6,807 1,952 Research and development credits 1,085 1,458 Accruals — 55 Total deferred tax assets 52,815 28,691 Valuation allowance ( 52,815 ) ( 28,671 ) Total deferred tax assets, net of valuation allowance — 20 Deferred tax liability Prepaid expenses — ( 20 ) Net deferred tax asset $ — $ — The Company determines its valuation allowance on deferred tax assets by considering both positive and negative evidence in order to ascertain whether it is more likely than not that deferred tax assets will be realized. Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain. Because of the Company’s recent history of operating losses, the Company believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has recognized a full valuation allowance on its deferred tax assets. The valuation allowance increased by $ 24.1 million and $ 28.3 million for the years ended December 31, 2022 and 2021, respectively, primarily due to the increase in the Company’s net operating losses (“NOL”) during the period. As of December 31, 2022, the Company had the following tax attribute carryforwards that will expire on various dates as follows: Amount (in thousands) Expiration Years Net operating losses, federal (post December 31, 2017) $ 21,020 Indefinite Net operating loss, state (definite) 34,264 2042 Research and development tax credits, federal 793 2041 - 2042 Research and development tax credits, state 612 Indefinite 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. If a change in ownership were to have occurred, additional tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. The Company is subject to United States federal and California income taxes and is not currently under examination by any federal or state taxing authorities. The federal and California returns for tax years 2017 through 2022 remain open to examination. The following table summarizes the changes in the amount of the unrecognized tax benefits (in thousands): Year Ended December 31, 2022 2021 Balance at the beginning of the year $ 358 $ 104 Increase related to current year positions 222 254 Increase related to prior year positions 4 — Decrease related to prior year positions ( 373 ) — Balance at the end of the year $ 211 $ 358 Included in the balance of unrecognized tax benefits at December 31, 2022 is $ 0.2 million that if recognized would impact the Company’s income tax benefit and effective tax rate. The Company does not expect any significant increases or decreases in its unrecognized tax benefits within the next twelve months. 136 Tax Receivable Agreement The Company is party to a TRA with 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 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). 15. 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, 2022 2021 Numerator: Net loss per Class A common share attributable to Rani Therapeutics Holdings, Inc. $ ( 30,588 ) $ ( 8,331 ) Denominator: Weighted average Class A common share outstanding—basic and diluted 23,817 19,534 Net loss per Class A common share attributable to Rani Therapeutics Holdings, Inc.—basic and diluted $ ( 1.28 ) $ ( 0.43 ) 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, 2022 2021 Paired Interests 24,116,444 29,290,391 Stock options 3,788,586 2,300,819 Non-corresponding Class A Units 1,387,471 1,545,522 Restricted stock units 665,500 596,500 Warrants 76,336 — Restricted stock awards 67,389 113,173 Shares issuable pursuant to the ESPP 65,586 — 30,167,312 33,846,405 Shares of Class B Common Stock do not share in the Company’s earnings and are not participating securities. Accordingly, separate presentation of loss per share of Class B common stock under the two-class method has not been provided. The outstanding shares of Class B Common Stock were determined to be anti-dilutive for the year ended December 31, 2022 . Therefore, they are not included in the computation of net loss per Class A common share attributable to Rani Therapeutics Holdings, Inc. 16. Subsequent Events 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. 137 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. 138 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.