UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 20202021

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission File Number: 001-37941

 

SENESTECH, INC. 

(Exact name of registrant as specified in its charter)

 

Delaware 20-2079805
(State or other jurisdiction of

incorporation or organization)
 (I.R.S. Employer

Identification No.)
   
23460 N. 19th Avenue, Suite 110

Phoenix, AZ
 85027
(Address of principal executive offices) (Zip Code)

 

(928) 779-4143

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.001 par value SNES The NASDAQ Stock Market LLC

(NASDAQ Capital Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The number of shares of common stock outstanding as of November 13, 2020: 4,099,51212, 2021: 12,207,283

 

 

 

 

SENESTECH, INC.


FORM 10-Q


For the Quarterly Period Ended September 30, 2020
2021

 

TABLE OF CONTENTS

 

  Page
 PART I. FINANCIAL INFORMATION1
   
Item 1Financial Statements1
Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations2527
Item 3Quantitative and Qualitative Disclosures About Market Risk3641
Item 4Controls and Procedures3641
   
 PART II. OTHER INFORMATION3742
   
Item 1Legal Proceedings3742
Item 1ARisk Factors3742
Item 2Unregistered Sales of Equity Securities and Use of Proceeds3742
Item 3Defaults Upon Senior Securities3742
Item 4Mine Safety Disclosures3742

 

i

PART I. FINANCIAL INFORMATION

 

Item 1.Financial Statements

Item 1. Financial Statements

 

SENESTECH, INC.


CONDENSED BALANCE SHEETS


(In thousands, except shares and per share data)

 

  September 30,  December 31, 
  2020  2019 
 (Unaudited)     
ASSETS       
Current assets:        
Cash $2,717  $1,936 
Accounts receivable trade, net  30   26 
Accounts receivable-other  -   123 
Prepaid expenses  281   257 
Inventory  1,102   1,180 
Deposits  28   20 
Total current assets  4,158   3,542 
         
Right to use asset-operating leases  726   699 
Property and equipment, net  541   738 
Total assets $5,425  $4,979 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Short-term debt $105  $123 
Accounts payable  444   265 
Accrued expenses  316   1,193 
Total current liabilities  865   1,581 
         
Long-term debt, net  695   137 
Operating lease liability  731   694 
Total liabilities  2,291   2,412 
         
Commitments and contingencies (See note 12)  -   - 
         
Stockholders’ equity:        
Common stock, $0.001 par value, 100,000,000 shares authorized, 3,398,832 and 1,414,671 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively  3   1 
Additional paid-in capital  105,277   98,433 
Accumulated deficit  (102,146)  (95,867)
Total stockholders’ equity  3,134   2,567 
         
Total liabilities and stockholders’ equity $5,425  $4,979 
  September 30,  December 31, 
  2021  2020 
ASSETS (Unaudited)    
       
Current assets:      
Cash $11,083  $3,643 
Accounts receivable trade, net  79   25 
Prepaid expenses  581   178 
Inventory  1,007   945 
Deposits  22   28 
Total current assets  12,772   4,819 
         
Right to use asset-operating leases  551   665 
Property and equipment, net  397   538 
Total assets $13,720  $6,022 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
Current liabilities:        
Short-term debt $49  $98 
Accounts payable  267   404 
Accrued expenses  550   292 
Total current liabilities  866   794 
         
Long-term debt, net  -   673 
Operating lease liability  562   671 
Total liabilities  1,428   2,138 
         
Commitments and contingencies (See note 12)  -   - 
         
Stockholders’ equity:        
Common stock, $0.001 par value, 100,000,000 shares authorized, 12,191,112 and 5,099,512 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively  12   5 
Additional paid-in capital  122,294   108,119 
Accumulated deficit  (110,014)  (104,240)
Total stockholders’ equity  12,292   3,884 
         
Total liabilities and stockholders’ equity $13,720  $6,022 

 

SeeThe accompanying notes toare an integral part of these financial statements.



SENESTECH, INC.


CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS


(In thousands, except shares and per share data)

(Unaudited)

(Unaudited)

 

  For the Three Months Ended  For the Nine Months Ended 
  September 30,  September 30, 
  2020  2019  2020  2019 
Revenue:                
Sales $77  $36  $185  $79 
Cost of sales  41   25   106   58 
Gross profit  36   11   79   21 
                 
Operating expenses:                
Research and development  380   432   902   1,359 
Selling, general and administrative  1,568   2,173   5,040   5,908 
Total operating expenses  1,948   2,605   5,942   7,267 
                 
Net operating loss  (1,912)  (2,594)  (5,863)  (7,246)
                 
Other income (expense):                
Interest income  -   19   2   45 
Interest expense  (7)  (10)  (22)  (34)
Other income (expense)  -   -   18   (3)
Total other income (expense)  (7)  9   (2)  8 
                 
Net loss and comprehensive loss  (1,919)  (2,585) $(5,865) $(7,238)
Deemed dividend-warrant price protection-revaluation adjustment  -   -   414   - 
Net loss attributable to common shareholders $(1,919) $(2,585) $(6,279) $(7,238)
                 
Weighted average common shares outstanding - basic and fully diluted  3,398,832   1,394,575   2,593,288   1,266,842 
                 
Net loss per common share - basic and fully diluted $(0.56) $(1.85) $(2.42) $(5.71)
  For the Three Months  For the Nine Months 
  Ended September 30,  Ended September 30, 
  2021  2020  2021  2020 
             
Revenue:            
Grant revenue $24  $-  $24  $- 
Sales  159   77   407   185 
Total revenue  183   77   431   185 
                 
Cost of sales  106   41   275   106 
Gross profit  77   36   156   79 
                 
Operating expenses:                
Research and development  514   380   1,424   902 
Selling, general and administrative  1,816   1,568   5,173   5,040 
Total operating expenses  2,330   1,948   6,597   5,942 
                 
Net operating loss  (2,253)  (1,912)  (6,441)  (5,863)
                 
Other income (expense):                
Interest income  2   -   5   2 
Interest expense  (2)  (7)  (10)  (22)
Payroll Protection Program loan forgiveness  -   -   650   - 
Other income  -   -   22   18 
Total other income  -   (7)  667   (2)
                 
Net loss and comprehensive loss  (2,253)  (1,919)  (5,774)  (5,865)
Deemed dividend-warrant price protection-revaluation adjustment  -   -   -   414 
Net loss attributable to common shareholders $(2,253) $(1,919) $(5,774) $(6,279)
                 
Weighted average common shares outstanding - basic and fully diluted  12,190,257   3,398,832   10,850,197   2,593,288 
                 
Net loss per common share - basic and fully diluted $(0.18) $(0.56) $(0.53) $(2.42)

 

SeeThe accompanying notes toare an integral part of these financial statements.

 



SENESTECH, INC.


CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)


(In thousands, except shares and per share data)


(Unaudited) 

 

For The Three Months Ended September 30, 2019 and 2020             
  Common Stock  Additional
Paid-In
  Accumulated  Total
Stockholders’
 
  Shares  Amount  Capital  Deficit  Equity (Deficit) 
Balance, June 30, 2019  1,261,628  $        1  $94,415  $(90,491) $3,925 
                     
Issuance of common stock, sold for cash, net  151,852   -   3,630   -   3,630 
Issuance of common stock for services  963   -   -   -   - 
Stock-based compensation  -   -   204   -   204 
Issuance of common stock upon exercise of warrants  226   -   5   -   5 
Payments for employee withholding taxes related to share-based awards  -   -   (31)  -   (31)
Net loss for the three months ended June 30, 2019  -   -   -   (2,585)  (2,585)
Balance, September 30, 2019  1,414,669  $1  $98,223  $(93,076) $5,148 
                     
Balance, June 30, 2020  3,398,832  $3  $105,117  $(100,227) $4,893 
                     
Offering expenses for June share offering  -   -   (2)  -   (2)
Stock-based compensation  -   -   162   -   162 
Net loss for the three months ended June 30, 2020  -   -   -   (1,919)  (1,919)
Balance, September 30, 2020  3,398,832  $3  $105,277  $(102,146) $3,134 
                     
For The Nine Months Ended September 30, 2019 and 2020                    
                     
Balance, December 31, 2018  1,173,854  $1  $92,151  $(85,838) $6,314 
                     
Issuance of common stock, sold for cash, net  151,852   -   3,630   -   3,630 
Issuance of common stock for services  7,203   -   34   -   34 
Stock-based compensation  -   -   675   -   675 
Issuance of common stock upon exercise of warrants  80,501   -   1,788   -   1,788 
Issuance of common stock upon exercise of stock options  1,259   -   -   -   - 
Payments for employee withholding taxes related to share-based awards  -   -   (55)  -   (55)
Net loss for the six months ended June 30, 2019  -   -   -   (7,238)  (7,238)
Balance, September 30, 2019  1,414,669  $1  $98,223  $(93,076) $5,148 
                     
Balance, December 31, 2019  1,414,671  $1  $98,433  $(95,867) $2,567 
                     
Issuance of common stock for services  4,543   -   -   -   - 
Stock-based compensation  -   -   453   -   453 
Issuance of common stock upon exercise of warrants  51,414   -   238   -   238 
Issuance of common stock, sold for cash, net  1,928,180   2   5,739   -   5,741 
Warrant antidilution price protection adjustment  -   -   414   -   414 
Issuance of common stock for fractional shares-20-1 reverse split  24   -   -   -   - 
Net loss for the six months ended June 30, 2020  -   -   -   (6,279)  (6,279)
Balance, September 30, 2020  3,398,832  $3  $105,277  $(102,146) $3,134 

For The Three Months Ended September 30, 2020 and 2021

 

        Additional     Total 
  Common Stock  Paid-In  Accumulated  Stockholders’ 
  Shares  Amount  Capital  Deficit  Equity (Deficit) 
                
Balance, June 30, 2020  3,398,832  $3  $105,117  $(100,227) $4,893 
                     
Stock based compensation  -   -   162   -   162 
Offering expenses for June, 2020 share offering  -   -   (2)  -   (2)
Net loss for the three months ended September 30, 2020  -   -   -   (1,919)  (1,919)
                     
Balance, September 30, 2020  3,398,832  $3  $105,277  $(102,146) $3,134 
                     
Balance, June 30, 2021  12,185,496  $12  $122,073  $(107,761) $14,324 
                     
Stock based compensation  -   -  $213   -   213 
Issuance of common stock upon exercise of warrants  5,616   -   8   -   8 
Net loss for the three months ended September 30, 2021  -   -   -   (2,253)  (2,253)
                     
Balance, September 30, 2021  12,191,112  $12  $122,294  $(110,014) $12,292 
                     
For The Nine Months Ended September 30, 2020 and 2021                    
                     
Balance, December 31, 2019  1,414,671  $1  $98,433  $(95,867) $2,567 
                     
Stock based compensation  -   -   453   -   453 
Issuance of common stock, sold for cash, net  1,928,180   2   5,739   -   5,741 
Issuance of common stock upon exercise of warrants  51,414   -   238   -   238 
Issuance costs of common stock for services  4,543   -   -   -   - 
Issuance of common stock for fractional shares-20-1 reverse split  24   -   -   -   - 
Warrant antidilution price protection adjustment  -   -   414   -   414 
Net loss for the nine months ended September 30, 2020  -   -   -   (6,279)  (6,279)
                     
Balance, September 30, 2020  3,398,832  $3  $105,277  $(102,146) $3,134 
                     
Balance, December 31, 2020  5,099,512  $5  $108,119  $(104,240) $3,884 
                     
Stock based compensation  -   -   550   -   550 
Issuance costs of common stock for service  20,951   -   -   -     
Issuance of common stock, sold for cash, net  6,163,854   6   12,415   -   12,421 
Issuance of common stock upon exercise of warrants  906,795   1   1,227   -   1,228 
Payments for employee withholding taxes related to share based awards  -   -   (17)  -   (17)
Net loss for the nine months ended September 30, 2021  -   -   -   (5,774)  (5,774)
                     
Balance, September 30, 2021  12,191,112  $12  $122,294  $(110,014) $12,292 

SeeThe accompanying notes toare an integral part of these financial statements.


SENESTECH, INC.


CONDENSED STATEMENTS OF CASH FLOWS


(In thousands)

(Unaudited)

(Unaudited)

 

  For the Nine Months Ended 
  September 30, 
  2020  2019 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss $(5,865) $(7,238)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  219   314 
Stock-based compensation  453   675 
(Gain) loss on sale of equipment  (18)  3 
(Increase) decrease in current assets:        
Accounts receivable - trade  (4)  (16)
Accounts receivable - other  123   - 
Other assets  2   3 
Prepaid expenses  (24)  38 
Inventory  78   (24)
Increase (decrease) in current liabilities:        
Accounts payable  179   118 
Accrued expenses  (639)  46 
Deferred rent  -   (11)
Net cash used in operating activities  (5,496)  (6,092)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Cash received on sale of property and equipment  44   - 
Purchase of property and equipment  (48)  (64)
Net cash used in investing activities  (4)  (64)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from the issuance of common stock, net  5,741   3,631 
Proceeds from the issuance of notes payable  646   - 
Repayments of notes payable  (44)  (184)
Repayments of finance lease obligations  (62)  - 
Proceeds from the exercise of warrants  -   1,789 
Payment of employee withholding taxes relating to share-based awards      (55)
Net cash provided by financing activities  6,281   5,181 
         
NET CHANGE IN CASH  781   (975)
CASH AT BEGINNING OF PERIOD  1,936   4,920 
CASH AT END OF PERIOD $2,717  $3,945 
         
SUPPLEMENTAL INFORMATION:        
Interest paid $22  $34 
Income taxes paid $-  $- 
         
NON-CASH INVESTING AND FINANCING ACTIVITIES:        
Forgiveness of accrual in warrant exercise $238     
Deemed dividend $414  $- 
Common stock issued on accrued bonus $-  $32 
  For the Nine Months Ended 
  September 30, 
  2021  2020 
CASH FLOWS FROM OPERATING ACTIVITIES      
Net loss $(5,774) $(5,865)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  229   219 
Stock-based compensation  550   453 
Paycheck Protection Program loan forgiveness  (646)  - 
Paycheck Protection Program loan accrued interest forgiveness  (4)  - 
Gain on sale of equipment  (1)  (18)
(Increase) decrease in current assets:        
Accounts receivable - trade  (54)  (4)
Accounts receivable - other  -   123 
Other assets  11   2 
Prepaid expenses  (403)  (24)
Inventory  (62)  78 
Increase (decrease) in current liabilities:        
Accounts payable  (137)  179 
Accrued expenses  258   (639)
Net cash used in operating activities  (6,033)  (5,496)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Cash received on sale of property and equipment  1   44 
Purchase of property and equipment  (84)  (48)
Net cash provided by (used in) investing activities  (83)  (4)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from the issuance of common stock, net  12,421   5,741 
Proceeds from the issuance of notes payable  -   646 
Repayments of notes payable  (36)  (44)
Repayments of finance lease obligations  (40)  (62)
Proceeds from the exercise of warrants  1,228   - 
Payment of employee withholding taxes related to share based awards  (17)  - 
Net cash provided by financing activities  13,556   6,281 
         
NET CHANGE IN CASH  7,440   781 
CASH AT BEGINNING OF PERIOD  3,643   1,936 
CASH AT END OF PERIOD $11,083  $2,717 
         
SUPPLEMENTAL INFORMATION:        
Interest paid $9  $22 
Income taxes paid $-  $- 
         
NON-CASH INVESTING AND FINANCING ACTIVITIES:        
Forgiveness of accrual in warrant exercise $-  $238 
Deemed dividend $-  $414 

 

SeeThe accompanying notes toare an integral part of these financial statements.


SENESTECH, INC.


NOTES TO CONDENSED FINANCIAL STATEMENTS


(In thousands, except share and per share data)

(Unaudited)

(Unaudited)

Note 1 - Organization and Description of Business

 

SenesTech, Inc. (referred to in this report as “SenesTech,” the “Company,” “we” or “us”) was formed in July 2004 and incorporated in the state of Nevada. The Company subsequently reincorporated in the state of Delaware in November 2015. Our corporate headquarters is in Phoenix, Arizona. We havehas developed and areis commercializing a global, proprietary technology for managing animal pest populations, initially rat populations, through fertility control.

 

Although there are myriad tools available to control rat populations, most rely on some form of lethal method to achieve effectiveness. Each of these solutions is inherently limited by rat species’ resilience and survival mechanisms as well as their extraordinary rate of reproduction. ContraPest®, our initial product, is unique in the pest control industry in attacking the reproductive systems of both male and female rats, which our field data shows will resultresults in a sustained reduction of the rat population.

 

Rats have plagued humanity throughout history. They pose significant threats to the environment and to the health and food security of many communities. In addition, rodents cause significantextensive product loss and damage through consumption and contamination. Rats also cause significant damage to critical infrastructure by burrowing beneath foundations and gnawing on electrical wiring, insulation, fire proofing systems, electronics and computer equipment.

 

The most prevalent solution to rat infestations is the use of increasingly powerful rodenticides. Although these solutions provide short term results, there are growing concerns about secondary exposure and bioaccumulation of rodenticides in the environment, as well as concerns about rodenticides that have no antidotes. The pest management industry and Pest Management Professionals (“PMPs”) are being asked for new solutions that are both effective and less toxic. Our goal is to provide customers with not only a solution to combat their most difficult rat problems, but also offer aan effective, non-lethal option to serve customers that are looking to decrease or remove the amount of rodenticide used in their pest control programs.

 

ContraPest is a liquid bait containing the active ingredients 4-vinylcyclohexene diepoxide (“VCD”) and triptolide. ContraPest limits reproduction of male and female rats beginning with the first breeding cycle following consumption. ContraPest is being marketed for use in controlling Norway and roof rat populations.

 

SenesTech began the registration process with the United States Environmental Protection Agency (the “EPA”) for ContraPest on August 23, 2015. On August 2, 2016, the EPA granted an unconditional registration for ContraPest as a Restricted Use Product (“RUP”), due to the need for applicator expertise for deployment. On October 18, 2018, the EPA approved the removal of the RUP designation. We believe ContraPest is the first and only non-lethal, fertility control product approved by the EPA for the management of rodent populations.

 

In addition to the EPA registration of ContraPest in the United States, ContraPest must obtain registration from the various state regulatory agencies prior to selling in each state. We have received registration for ContraPest in all 50 states and the District of Columbia. The District of Columbia 47 of whichand 48 states have also approved the removal of the RUP designation.

 

We expect to continue to pursue regulatory approvals and amendments to the existing U.S. registration for ContraPest to broaden the marketability and use of ContraPest, and if ContraPest begins to generate sufficient revenue, regulatory approvals for additional jurisdictions beyond the United States. In certain cases, our EPA and state registrations require completion of additional testing and certifications even though we have received approval for the product or its labelling. We continue to seek to comply with these requirements.

 

The Company also continues to research and develop enhancements to ContraPest that align with our target verticals and other potential fertility control options for additional species. 

 

Reverse Stock Split


SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 1 - Organization and Description of Business – (continued)

We were formed in July 2004 and incorporated in the state of Nevada. The Company subsequently reincorporated in the state of Delaware in November 2015. Our corporate headquarters and manufacturing site are in Phoenix, Arizona. On December 8, 2016, we went public and are currently traded on Nasdaq under the symbol SNES.

 

On February 4, 2020, we amended our amended and restated certificate of incorporation to effect a 1-for-20 reverse split of our issued and outstanding shares of our common stock. The accompanying condensed financial statements and notes thereto give retrospective effect to the reverse stock split for all periods presented. All issued and outstanding common stock, options and warrants exercisable for common stock, restricted stock units, preferred stock conversions to common stock and per share amounts contained in our condensed financial statements have been retrospectively adjusted.

 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)Going Concern

 

Note 1 - Organization and Description of Business – (continued)

Going Concern

Our financial statements as of September 30, 2021, December 31, 2020 and 2019September 30, 2020 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm included in its opinion for the years ended December 31, 20192020 and 20182019 an explanatory paragraph referring to our net loss from operations and net capital deficiency and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. If we encounter continued issues or delays in the commercialization of ContraPest, our prior losses and expected future losses could have an adverse effect on our financial condition and negatively impact our ability to fund continued operations, obtain additional financing in the future and continue as a going concern. There are no assurances that such financing, if necessary, will be available to us at all or will be available in sufficient amounts or on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we are unable to generate additional funds in the future through additional financings, sales of our products, licensing fees, royalty payments or from other sources or transactions, we will exhaust our resources and will be unable to continue operations.

 

Need for AdditionalLiquidity and Capital Resources

 

Since our inception, we have sustained significant operating losses in the course of our research and development and commercialization activities and expect such losses to continue for the near future. We have generated limited revenue to date from product sales, research grants and licensing fees received under our former license agreement with Neogen. In 2017, we began to prepare and launch commercialization of our first product, ContraPest.agreement. We have primarily funded our operations to date through the sale of equity securities, including convertible preferred stock, common stock and warrants to purchase common stock. See Note 10 - Stockholders’ Deficit for a description of our public equity sales.

 

We have also raised capital through debt financing, consisting primarily of convertible notes and government loan programs, and, to a lesser extent, payments received in connection with product sales, research grants and licensing fees.

 

Through September 30, 2020,2021, we received net proceeds of $73.2$89.3 million from our sales of common stock, preferred stock and warrant exercises and issuance of convertible and other promissory notes, an aggregate of $1.7 million from licensing fees and an aggregate of $0.8$1.4 million in net product sales.sales and grants. As of September 30, 2020,2021, we had an accumulated deficit of $102.2$110.0 million and cash and cash equivalents of $2.7$11.1 million.

 


SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 1 - Organization and Description of Business – (continued)

Our ultimate success depends upon the outcome of a combination of factors, including: (i) successful commercialization of ContraPest and maintaining and obtaining regulatory approvalsapproval of our products and product candidates; (ii) market acceptance, commercial viability and profitability of ContraPest and other products; (iii) the ability to market our products and establish an effective sales force and marketing infrastructure to generate significant revenue; (iv) the success of our research and development activities;development; (v) ourthe ability to retain and attract key personnel to develop, operate and grow our business; and (vi) our ability to meet our working capital needs.

We Based upon our current operating plan, we expect that cash and cash equivalents at September 30, 2021, in combination with anticipated revenue and additional sales of our equity securities, will need additional funding in order to continuebe sufficient to fund our current operations achieve profitability and become cash flow positive,for at least the next 12 months. We have evaluated and will continue to seekevaluate our operating expenses and will concentrate our resources toward the successful commercialization of ContraPest in the United States. However, if anticipated revenue targets and margin targets are not achieved or expenses are more than we have budgeted, we may need to raise additional financing before that time. If we need more financing, including within the next 12 months, and we are unable to raise necessary capital through the sale of our securities, we may be required to take other measures that could impair our ability to be successful and operate as a going concern. In any event, we may require additional capital in order to fund our operating losses and research and development activities before we become profitable and may opportunistically raise capital. We may never achieve profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise capital through equity or debt financing. If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit or terminate commercialization and development efforts or discontinue operations.

 

Basis of Presentation

 

The accompanying unaudited condensed financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the Company’s opinion, the unaudited condensed financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly the Company’s financial position as of September 30, 2020,2021, the Company’s operating results for the three and nine months ended September 30, 20202021 and 2019,2020, and the Company’s cash flows for the nine months ended September 30, 20202021 and 2019.2020. The accompanying financial information as of December 31, 20192020 is derived from audited financial statements. Interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K as amended by Form 10-K/A, for the year ended December 31, 2019,2020, filed with the SEC on March 17, 2020 and April 21, 2020, respectively.29, 2021. All amounts shown in these financial statements and accompanying notes are in thousands, except percentages and per share and share amounts. 

  


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 2 - Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and classification of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The significant estimates in the Company’s financial statements include the valuation of preferred stock, if issued, common stock and related warrants, and other stock-based awards. Actual results could differ from such estimates.

 


SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 2 - Summary of Significant Accounting Policies – (continued)

Reclassifications

 

Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no material impact on net earnings, financial position or cash flows.

 

Accounts Receivable-TradeCash and Cash Equivalents

 

The Company considers money market fund investments to be cash equivalents. The Company had cash equivalents in the form of money market fund investment of $10,493 and $1,500 at September 30, 2021 and December 31, 2020, respectively, included in cash as reported.

Accounts Receivable-Trade

Accounts receivable-trade consist primarily of receivables from customers. The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. The allowance for doubtful trade receivables was $123$0 at September 30, 20202021 and December 31, 2019.2020.

 

Accounts Receivable-OtherInventories

 

Accounts receivable-other at September 30, 2020 was $0. Accounts receivable-other at December 31, 2019 of $123 consisted primarily of receivables related to insurance reimbursements due the Company. 

Inventories

Inventories are stated at the lower of cost or market value, using the first-in, first-out convention. Inventories consist of raw materials, work in progress and finished goods. Raw materials are stocked to reduce the risk of impact on manufacturing for potential supply interruptions due to the COVID-19 pandemic or other supply chain interruptions and long lead times on certain ingredients.

 

Components of inventory are:

 

  September 30,  December 31, 
  2020  2019 
Raw materials $957  $1,035 
Work in progress  21    
Finished goods  128   149 
Total inventory  1,106   1,184 
Less:        
Reserve for obsolete  (4)  (4)
Total net inventory $1,102  $1,180 
  September 30,  December 31, 
  2021  2020 
Raw materials $941  $950 
Work in progress  4   24 
Finished goods  99   94 
Total inventory  1,044   1,068 
Less:        
Reserve for obsolete and revaluation  (37)  (123)
Total net inventory $1,007  $945 

 

Prepaid Expenses

 

Prepaid expenses consist primarily of payments made for director and officer insurance, director compensation,marketing services, rent, legal and inventory purchase deposits and seminarseminar/trade show fees to be expensed in the current year.

 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

Note 2 - Summary of Significant Accounting Policies – (continued)

 

Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation. Equipment held under finance leases are stated at the present value of minimum lease payments less accumulated amortization.

 

Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the respective assets. The cost of leasehold improvements is amortized over the life of the improvement or the term of the lease, whichever is shorter. Equipment held under finance leases is amortized over the shorter of the lease term or estimated useful life of the asset. The Company incurs repair and maintenance costs on its major equipment, which are expensed as incurred.

 

Impairment of Long-Lived Assets

 

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require long-lived assets or asset groups to be tested for possible impairment, the Company compares the undiscounted cash flows expected to be generated from the use of the asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques, such as discounted cash flow models and the use of third-party independent appraisals. The Company has not recorded an impairment of long-lived assets since its inception.

 

Revenue Recognition

 

Effective January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

 

The Company recognizes revenue when product is shipped at a fixed selling price on payment terms of 30 to 120 days from invoicing. The Company recognizes other revenue earned from pilot studies, consulting and implementation services upon the performance of specific services under the respective service contract.

 

The Company derives revenue primarily from commercial sales of products, net of discounts and promotions, as well as consulting and implementation services provided in conjunction with our product deployments. 

 

Research and Development

 

Research, and development costs are expensed as incurred. Research and development expenses primarily consist of salaries and benefits for research and development employees, stock-based compensation, consulting fees, lab supplies, costs incurred related to conducting scientific trials and field studies, regulatory compliance costs, andas well as manufacturing costs associated with process improvement.improvement and other research. Research and development expenses include an allocation of facilities related costs, including depreciation of research and development equipment.

 


SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 2 - Summary of Significant Accounting Policies – (continued)

Stock-based Compensation

 

Stock basedStock-based awards, consisting of stock options and restricted stock units and stock options expected to be settled in shares of the Company’s common stock, are recorded as equity awards. The grant date fair value of these awards is measured using

the Black-Scholes option pricing model for stock options and grant date market value for restricted stock units. The Company expenses the grant date fair value of its stock optionsstock-based awards on a straight-line basis over their respective vesting periods. Performance-based awards are expensed over the performance period when the related performance goals are probable of being achieved.


SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

 

Note 2 - Summary of Significant Accounting Policies – (continued)

The stock-based compensation expense recorded for the three and nine months ended September 30, 20202021 and 2019,2020, is as follows:

 

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
  2020  2019  2020  2019 
Research and development $2  $1  $7  $11 
General and administrative  160   203   446   664 
Total stock-based compensation expense $162  $204  $453  $675 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
  2021  2020  2021  2020 
             
Research and development $1  $2  $2  $7 
Selling, general and administrative  213   160   548   446 
Total stock-based compensation expense $214  $162  $550  $453 

 

See Note 11 for additional discussion on stock-based compensation.

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities and net operating loss carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date.

 

The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. These deferred tax assets are subject to periodic assessments as to recoverability and if it is determined that it is more likely than not that the benefits will not be realized, valuation allowances are recorded which would increase the provision for income taxes. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. The Company currently maintains a full valuation allowance against its deferred tax assets.

 

The Company applies a more-likely-than-not recognition threshold for all tax uncertainties. Only those benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities are recognized. Based on its evaluation, the Company has concluded there are no significant uncertain tax positions requiring recognition in its financial statements.

 

The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. There are no uncertain tax positions as of September 30, 20202021 or December 31, 20192020 and as such, no interest or penalties were recorded in income tax expense.

 


SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 2 - Summary of Significant Accounting Policies – (continued)

Comprehensive Loss

 

Net loss and comprehensive loss were the same for all periods presented; therefore, a separate statement of comprehensive loss is not included in the accompanying financial statements.

 

Loss Per Share Attributable to Common Stockholders

 

Basic loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share attributable to common stockholders is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury stock and if-converted methods. For purposes of the computation of diluted loss per share attributable to common stockholders, common stock purchase warrants, and common stock options are considered to be potentially dilutive securities but have been excluded from the calculation of diluted loss per share attributable to common stockholders because their effect would be anti-dilutive given the net loss reported for the three and nine months ended September 30, 20202021 and 2019.2020. Therefore, basic and diluted loss per share attributable to common stockholders are the same for each period presented.

 


SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 2 - Summary of Significant Accounting Policies – (continued)

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted loss per share attributable to common stockholders (in common stock equivalent shares):

 

  September 30, 
  2020  2019 
Common stock purchase warrants  2,504,597   489,164 
Restricted stock units  1,334   5,877 
Common stock options  427,570   137,380 
Total  2,933,501   632,421 
  September 30, 
  2021  2020 
Common stock purchase warrants  4,547,618   2,504,597 
Restricted stock units  667   1,334 
Common stock options  1,068,736   427,570 
Total  5,617,021   2,933,501 

 

Adoption of New Accounting Standards:Standard:

 

Effective January 1, 2019, the Company adopted Accounting Standards Updated (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”).  Under ASU No. 2016-02, an entity is required to recognize right-of-use lease assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements.  The Company elected the optional transition method provided by the FASB in ASU 2018-11, Leases (Topic 842): Targeted Improvements, and as a result, has not restated its condensed financial statements for prior periods presented. The Company has elected the practical expedients upon transition to retain the lease classificationconsidered all recently issued accounting pronouncements and initial direct costs for any leaseshas concluded that existed prior to adoption. The Company has also not reassessed whether any contracts entered into prior to adoptionthere are leases. The Company applied the new guidance to all operating leases within the scope of the standardno recently issued accounting pronouncements that were in effect on January 1, 2019, or entered into after, the adoption date.  Comparative information for prior periods has not been restated and continues to be reported under the accounting standards in effect for those periods.  The adoption did notwe believe may have a material impact on the Company’s condensed statement of comprehensive income (loss).  However, the new standard established $87 of liabilities and corresponding right-of-use assets of $87 on the Company’s condensed balance sheet for leases, primarily related to operating leases on rented office properties, that existed as of the January 1, 2019, adoption date. 

At September 30, 2020, the balance in Right to Use Asset-Long Term and Lease Liability-Long Term was $726 and ($731) respectively and at December 31, 2019, the balance in Right to Use Asset-Long Term and Lease Liability-Long Term was $699 and ($694) respectively.

The Company’s leases primarily relate to operating leases of rented office properties.  For contracts entered into on or after January 1, 2019, at the inception of a contract the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset.  At inception of a lease, the Company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.

For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term.  The right-of-use lease asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease.

The right-of-use lease asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred.  All right-of-use lease assets are reviewed for impairment.  The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s secured incremental borrowing rate for the same term as the underlying lease.

The Company identified and assessed the following significant assumptions in recognizing the right-of-use lease assets and corresponding liabilities.

Expected lease term – The expected lease term includes both contractual lease periods and, when applicable, cancelable option periods.  When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 2 - Summary of Significant Accounting Policies – (continued)

Incremental borrowing rate – As the Company’s leases do not provide an implicit rate, the Company obtained the incremental borrowing rate (“IBR”) based on the remaining term of each lease.  The IBR is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.  

The Company has elected not to recognize right-of-use lease assets and lease liabilities for short-term leases that have a term of 12 months or less.

The Company reports right-of-use lease assets within non-current assets in its condensed balance sheet.  The Company reports the lease liabilities within long-term liabilities in its condensed balance sheet.

See Note 12 - Commitments and Contingencies, for future minimum lease payments and maturities.

In August 2018, the FASB issued authoritative guidance intended to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance also requires presentation of the capitalized implementation costs in the statement of financial position and in the statement of cash flows in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented, and the expense related to the capitalized implementation costs to be presented in the same line item in the statement of operations as the fees associated with the hosting element (service) of the arrangement. This guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted. Effective January 1, 2020, the Company adopted the guidance and determined there was no applicability to the Company at this time and as such, there was no impact on our financial position, results of operations, or cash flows.

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its condensed financial statements and related disclosures.

Other than the items noted above, there have been no new accounting pronouncements not yet effective or adopted in the current year that we believe have a significant impact, or potential significant impact, to our unaudited condensed interim financial statements.

Note 3 - Fair Value Measurements

 

The Company issued common stock warrants to purchase shares of common stock in June of 2015 (see Note 119 - Stock-based Compensation for more details)Common Stock Warrants and Common Stock Warrant Liability) that containexpired in June of 2020. These warrants contained a cash settlement provision resultingthat resulted in a common stock warrant liability that iswas revalued at the end of each reporting period.

 

We valuevalued these warrant derivatives at fair value. The accounting guidance for fair value, among other things, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The framework for measuring fair value consists of a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:


SENESTECH, INC.


NOTES TO CONDENSED FINANCIAL STATEMENTS


(In thousands, except share and per share data)

 

Note 3 - Fair Value Measurements – (continued)

to valuation techniques is briefly summarized as follows:

 

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at

the measurement date;

 

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

 

Level 3—Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

 

An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques:

 

 A.Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

 B.
B.Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).

 C.
C.Income approach: Techniques to convert future amounts to a single present amount based upon market expectations, including present value techniques, option-pricing and excess earnings models.

 

The Company’s common stock warrant liabilities are classified as Level 3 because there is limited activity or less transparency around the inputs to valuation.

 

Items Measured at Fair Value on a Recurring Basis

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

September 30,
2020
Level 1Level 2Level 3Total
Financial Liabilities:
Common stock warrant liability$$$$
Total$$$$

December 31,
2019
Level 1Level 2Level 3Total
Financial Assets:
Money market funds$$$$
Corporate fixed income debt securities
Total$$$$
Financial Liabilities:
Common stock warrant liability$$$$
Total$$$$


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 3 - Fair Value Measurements – (continued)

Financial Instruments Not Carried at Fair Value

 

The carrying amounts of the Company’s financial instruments, including accounts payable and accrued liabilities, approximate fair value due to their short maturities. The estimated fair value of the convertible notes and other notes, not recorded at fair value, are recorded at cost or amortized cost which was deemed to estimate fair value.

 

Note 4 - Credit Risk

 

The Company is potentially subject to concentrations of credit risk in its accounts receivable. Credit risk with respect to receivables is limited due to the number of companies comprising the Company’s customer base, however the Company did identify a potentially uncollectable account and at September 30, 2020 and December 31, 2019 and maintained a reserve for this receivable balance of $123. At December 31, 2020, the account was deemed uncollectable and offset against the reserve. The Company did not have any potentially uncollectable account at September 30, 2021 or December 31, 2020 and therefore, did not record a reserve for uncollectable accounts at September 30, 2021 or December 31, 2020. The Company does not require collateral or other securities to support its accounts receivable.


SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 5 - Prepaid Expenses

 

Prepaid expenses consist of the following:

 

  September 30,  December 31, 
  2020  2019 
Director compensation $-  $9 
Director, officer and other insurance  98   115 
NASDAQ fees  14   - 
Legal retainer  25   25 
Marketing programs and conferences  93   80 
Professional services retainer  8   8 
Rent  17   11 
Equipment service deposits  2   1 
Engineering, software licenses and other  24   8 
Total prepaid expenses $281  $257 
  September 30,  December 31, 
  2021  2020 
Director, officer and other insurance $192  $18 
NASDAQ fees  15   - 
Legal retainer  25   25 
Marketing programs and conferences  300   106 
Professional services retainer  13   8 
Rent  -   18 
Engineering, software licenses and other  36   3 
Total prepaid expenses $581  $178 

Note 6 - Property and Equipment

 

Property and equipment, net consist of the following:

 

     September 30,  December 31, 
  Useful Life 2020  2019 
Research and development equipment 5 years $1,452  $1,585 
Office and computer equipment (1) 3 years  733   753 
Autos 5 years  54   54 
Furniture and fixtures 7 years  41   41 
Leasehold improvements *  283   283 
Construction in progress    48   - 
     2,611   2,716 
Less accumulated depreciation and amortization    (2,070)  (1,978)
Total   $541  $738 
  Useful  September 30,  December 31, 
  Life  2021  2020 
Research and development equipment  5 years  $1,425  $1,397 
Office and computer equipment (1)  3 years   762   733 
Autos  5 years   54   54 
Furniture and fixtures  7 years   41   41 
Leasehold improvements  *   113   283 
Construction in progress      32   115 
       2,427   2,623 
Less accumulated depreciation and amortization      (2,030)  (2,085)
Total     $397  $538 

 

*Shorter of lease term or estimated useful life

(1)
(1)In the three months ended and nine months ended September 30, 2021, the Company received net proceeds of less than $1 in the sale of research and development equipment resulting in gains on the sale of these assets of less than $1. In the three months ended and nine months ended September 30, 2020, the Company received net proceeds of $0 and $44 in the sale of research and development equipment and office and computer equipment, respectively, resulting in gainsa gain on the sale of these assets of $0 and $18 for the three months ended and nine months ended September 30, 2020, respectively.

 

Depreciation and amortization expense was approximately $71$78 and $101$71 for the three months ended September 30, 20202021 and 2019,2020, respectively, and $219$229 and $314$219 for the nine months ended September 30, 2021 and 2020, and 2019, respectively.

 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 7 - Accrued Expenses

 

Accrued expenses consist of the following:

 

  September 30,  December 31, 
  2020  2019 
Compensation and related benefits $291  $935 
Accrued Litigation  -   238 
Board Compensation  -   17 
Personal property and franchise tax  15   2 
Other  10   1 
Total accrued expenses $316  $1,193 
  September 30,  December 31, 
  2021  2020 
Compensation and related benefits $513  $218 
Board Compensation  -   3 
Personal property and franchise tax  -   57 
Legal services  22   - 
Other  15   14 
Total accrued expenses $550  $292 

 

Note 8 - Borrowings

 

A summary of the Company’s borrowings, including finance lease obligations, is as follows:

 

  September 30,  December 31, 
  2020  2019 
Short-term debt:        
Current portion of long-term debt  105   123 
Total short-term debt $105  $123 
Long-term debt:        
Finance lease obligations $93  $155 
Other promissory notes  707   105 
Total  800   260 
Less: current portion of long-term debt  (105)  (123)
Total long-term debt $695  $137 
  September 30,  December 31, 
  2021  2020 
Short-term debt:      
Current portion of long-term debt  49   98 
Total short-term debt $49  $98 
Long-term debt:        
Finance lease obligations $41  $79 
Other promissory notes  8   692 
Total  49   771 
Less: current portion of long-term debt  (49)  (98)
Total long-term debt $-  $673 

 

Finance Lease Obligations 

 

Finance lease obligations at September 30, 2020 are2021 is for computer and labmanufacturing equipment leased through GreatAmerica Financial Services and ENGS Commercial Finance Co. TheseThis finance leases expire at various dates throughlease expires on April 18, 2022 and carrycarries an interest rates ranging fromrate of 11.4% to 18.3%.

 

Other Promissory Notes

 

Also included in the table above are notes payable to Direct Capital, M2 Financing and Fidelity Capital, all for the financing of fixed assets. These notes expire at various dates through June 2022 and carry interest rates ranging from 13.1% to 13.3%.

Also included in the table above is a loan agreementnote payable to Fidelity Capital for the financing of a computing fixed asset. This note expires on July 1, 2022 and carries interest rate of 13.3%.

On June 18, 2021, the Company received notification from BMO Harris Bank National Association as the lender in an aggregate principal amount of $645,700a promissory note pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The, that a loan is evidenced by a promissory note dated April 15, 2020 and matures April 15, 2022. The loan bears interest at a rateto the Company under this program in the amount of 1.00% per annum and contains customary events of default including, among other things, payment defaults. The loan closed and$646 was funded April 20, 2020. Underforgiven in full under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP.program. The loan is subject to forgiveness to the extent proceeds are used for qualifying expenses, including certain payroll, utility, rent and mortgage interest expenses. No assurance is provided that the Company will obtain forgiveness of this note and related interest was recorded as other income on the loan in whole or in part.Condensed Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2021.

 

Pursuant to amendments to the CARES Act, as long as the Company submits its application for loan forgiveness within ten months after the expiration of the applicable covered period, the Company will not be required to make any payments until the forgiveness amount is remitted to the lender by the SBA. In the event the PPP loan is not forgiven in whole or in part, the lender is responsible for notifying the Company of the date on which the Company’s first repayment is due.


SENESTECH, INC.


NOTES TO CONDENSED FINANCIAL STATEMENTS


(In thousands, except share and per share data)

Note 9 - Common Stock Warrants and Common Stock Warrant Liability

 

The table summarizes the common stock warrant activity as of September 30, 20202021 as follows:

 

         Balance        Balance         Balance 
Issue Date Warrant Type Term
Date
 Exercise
Price
  December 31,
2018
 Issued Exercised  Expired December 31,
2019
 Issued Exercised  Expired  September 30,
2020
 
2016 and prior Various Various-2020/2021  Various   17,059        -       -        -  17,059       -  (9,375)  (750)  6,934 
November 21, 2017 Common Stock Offering Warrants November 21, 2022 $2.1122(1)  159,092  -  (15,591)  -  143,501  -      -   143,501 
November 21, 2017 Dealer Manager Warrants November 21, 2022 $30.00   47,250  -  -   -  47,250  -  (47,250)  -   - 
June 20, 2018 Warrant Reissue December 20, 2023 $36.40   56,696  -  -   -  56,696  -  -   -   56,696 
August 13, 2018 Rights Offering Warrants July 25, 2023 $23.00   267,853  -  (64,910)  -  202,943  -  -   -   202,943 
August 13, 2018 Dealer Manager Warrants August 13, 2023 $34.50   13,393  -  -   -  13,393  -  -   -   13,393 
July 16, 2019 Dealer Manager Warrants July 11, 2024 $33.75   -  8,334  -   -  8,334  -  -   -   8,334 
January 28, 2020 Registered Direct Offering July 28, 2025 $9.00   -  -  -   -  -  177,500  -   -   177,500 
January 28, 2020 Dealer Manager Warrants July 28, 2025 $10.00   -  -  -   -  -  13,315  -   -   13,315 
March 6, 2020 Registered Direct Offering September 8, 2025 $2.88   -  -  -   -  -  176,372  -   -   176,372 
March 6, 2020 Dealer Manager Warrants March 4, 2025 $3.76   -  -  -   -  -  13,228  -   -   13,228 
April 21, 2020 Dealer Manager Warrants April 21, 2025 $3.97   -  -  -   -  -  118,073  -   -   118,073 
April 24, 2020 Registered Direct Offering April 24, 2025 $3.05   -  -  -   -  -  1,574,308  -   -   1,574,308 
           561,343            489,176             2,504,597 
         Balance           Balance           Balance 
Issue Date Warrant Type Term
Date
 Exercise
Price
  December 31,
2019
  Issued  Exercised  Expired  December 31,
2020
  Issued  Exercised  Expired  September 30,
2021
 
                                   
2016 and prior Various Various-2020/2021  Various   17,059   -   (9,375)  (7,684)  -   -   -   -   - 
                                             
November 21, 2017 Common Stock Offering Warrants November 21, 2022 $1.3659(1)  143,501   -       -   143,501   -   (5,616)  -   137,885 
                                             
November 21, 2017 Dealer Manager Warrants November 21, 2022 $30.00   47,250   -   (47,250)  -   -   -   -   -   - 
                                             
June 20, 2018 Warrant Reissue December 20, 2023 $36.40   56,696   -   -   -   56,696   -   -   -   56,696 
                                             
August 13, 2018 Rights Offering Warrants July 25, 2023 $23.00   202,943   -   -   -   202,943   -   (499)  -   202,444 
                                             
August 13, 2018 Dealer Manager Warrants August 13, 2023 $34.50   13,393   -   -   -   13,393   -   -   -   13,393 
                                             
July 16, 2019 Dealer Manager Warrants July 11, 2024 $33.75   8,334   -   -   -   8,334   -   -   -   8,334 
                                             
January 28, 2020 Registered Direct Offering July 28, 2025 $9.00   -   177,500   -   -   177,500   -   -   -   177,500 
                                             
January 28, 2020 Dealer Manager Warrants July 28, 2025 $10.00   -   13,315   -   -   13,315   -   -   -   13,315 
                                             
March 6, 2020 Registered Direct Offering September 8, 2025 $2.88   -   176,372   (176,372)  -   -   -   -   -   - 
                                             
March 6, 2020 Dealer Manager Warrants March 4, 2025 $3.76   -   13,228   -   -   13,228   -   -   -   13,228 
                                             
April 21, 2020 Dealer Manager Warrants April 21, 2025 $3.97   -   118,073   -   -   118,073   -   -   -   118,073 
                                             
April 24, 2020 Registered Direct Offering April 24, 2025 $3.05   -   1,574,308   (1,524,308)  -   50,000   -   -   -   50,000 
                                             
October 26, 2020 Private Warrant Inducement April 27, 2026 $1.73   -   1,700,680           1,700,680   -   (700,680)  -   1,000,000 
                                             
October 26, 2020 Dealer Manager Warrants April 27, 2026 $2.16   -   85,034           85,034   -   -   -   85,034 
                                             
February 2, 2021 Private Placement Agreement August 2, 2026 $2.216   -   -   -   -   -   2,194,427           2,194,427 
                                             
February 2, 2021 Dealer Manager Warrants August 2, 2026 $2.848   -   -   -   -   -   329,164           329,164 
                                             
March 23, 2021 Dealer Manager Warrants March 23, 2026 $2.50   -   -   -   -   -   148,125           148,125 
                                             
           489,176               2,582,697               4,547,618 

 

(1)The initial exercise price of these warrants was $30.00 per share. Pursuant to antidilution price adjustment protection contained within these warrants, the initial exercise price of these warrants was $30.00 per share, which adjusted downward to $29.40 on July 24, 2018, the record date of the RightsRight’s Offering and downward to $19.00 per share on August 13, 2018, the date of the Rights Offering,2018. These warrants were further adjusted downward from $19.00 to $7.13 per shareand to $2.1122 on January 28, 2020 the date ofand March 4, 2020, respectively, in connection with separate Registered Direct Offerings. These warrants were further adjusted downward from $2.1122 to $1.3659 on October 26, 2020 in connection with a Registered Direct Offering and downwardOffering.  These warrants are subject to $2.1122 per share on March 6, 2020, the date of a Registered Direct Offering.further adjustment pursuant to antidilution price adjustment protection.


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

Note 9 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

Outstanding Warrants

 

Outstanding Warrants

As of September 30, 2020,2021, we had 2,504,5974,547,618 shares of common stock issuable upon exercise of outstanding common stock warrants, at a weighted-average exercise price of $6.18$3.987 per share.

 

On November 21, 2017, the Company issued a total of 232,875 detachable common stock warrants issued with the second public offering of 293,000 shares of its common stock at $20.00 per share. The common stock warrant is exercisable until five years from the date of grant. The common shares of the Company’s stock and detachable warrants exist independently as separate securities. As such, the Company estimated the fair value of the common stock warrants, exercisable at $30.00 per share, to be $661 using a lattice model based on the following significant inputs: common stock price of $20.00; comparable company volatility of 73.8%; remaining term 5 years; dividend yield of 0% and risk-free interest rate of 1.87.1.87%. The initial exercise price of these warrants was $30.00 per share, which adjusted downward to $29.40 on July 24, 2018, the record date of the Right’s Offering and downward to $19.00 per share on August 13, 2018, the date of the Rights Offering, pursuant to antidilution price adjustment protection contained within these warrants. The exercise price of the warrants was adjusted downward to $7.13 on January 28, 2020 in connection with a private placement of common stock. Per guidance of ASCAccounting Standards Codification (“ASC”) 260, the Company recorded a deemed dividend of $285 on the 143,501 unexercised warrants that contained this antidilution price adjustment protection provision and was calculated as the difference between the fair value of the warrants immediately prior to downward exercise price adjustment and immediately after the adjustment using a Black Scholes model based on the following significant inputs: Onon January 28, 2020, common stock price of $7.90; comparable company volatility of 73.8%; remaining term 2.82 years; dividend yield of 0% and risk-free interest rate of 1.45%.

 

The exercise price of the warrants was adjusted downward to $2.1122 on March 4, 2020 in connection with a private placement of common stock. Per guidance of ASC 260, the Company recorded a deemed dividend of $129 on the 143,501 unexercised warrants that contained this antidilution price adjustment protection provision and was calculated as the difference between the fair value of the warrants immediately prior to downward exercise price adjustment and immediately after the adjustment using a Black Scholes model based on the following significant inputs: Onon March 4, 2020, common stock price of $2.88; comparable company volatility of 74.5%; remaining term 2.71 years; dividend yield of 0% and risk-free interest rate of 0.68%.

 

The exercise price of the warrants was adjusted downward to $1.3659 on October 26, 2020 in connection with an inducement offering of common stock. Per guidance of ASC 260, the Company recorded a deemed dividend of $22 on the 143,501 unexercised warrants that contained this antidilution price adjustment protection provision and was calculated as the difference between the fair value of the warrants immediately prior to downward exercise price adjustment and immediately after the adjustment using a Black Scholes model based on the following significant inputs: On October 26, 2020, common stock price of $1.47; comparable company volatility of 96.5%; remaining term 2.08 years; dividend yield of 0% and risk-free interest rate of 0.18%.

On June 20, 2018, the Company entered into an agreement with a holder of 56,696 of the November 2017 warrants to exercise its original warrant representing 56,696 shares of common stock for cash at the $30.00 exercise price for gross proceeds of $1.7 million and the Company issued to holder a new warrant to purchase 56,696 shares of common stock at an exercise price of $36.40 per share. The new warrant did not contain the antidilution price adjustment protection that was contained within the exercised warrants. In June 2018, the Company recorded stock compensation expense of $1,700 representing the fair value of the of 56,696 inducement warrants issued. The Company estimated the fair value of the common stock warrants, exercisable at $36.40 per share, to be $1,700 using a Black Scholes model based on the following significant inputs: common stock price of $42.20; comparable company volatility of 72.6%; remaining term 5 years; dividend yield of 0% and risk-free interest rate of 2.8%. Also, in June 2018, an additional 17,088 of the November 8, 2017 warrants that were in the money at the time of exercise, were exercised for gross proceeds of $513.

 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 9 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

On August 13, 2018, in connection with a Rights Offering of 267,853 shares of its common stock, the Company issued 267,853 warrants to purchase shares of its common stock at an exercise price of $23.00 per share. The Company estimated the fair value of the common stock warrants, exercisable at $23.00 per share, to be $3,600 using a Monte Carlo model based on the following significant inputs: common stock price of $18.80; comparable company volatility of 159.0%; remaining term 5 years; dividend yield of 0% and risk-free interest rate of 2.77%.

 

In connection with the closing of the Rights Offering, the Company issued a warrant to purchase 13,393 shares of common stock to Maxim Partners LLC, an affiliate of the dealer-manager of the Rights Offering. The Company estimated the fair value of the common stock warrants, exercisable at $34.50 per share, to be $169 using a using a Monte Carlo model based on the following significant inputs: common stock price of $18.80; comparable company volatility of 159.0%; remaining term 5 years; dividend yield of 0% and risk-free interest rate of 2.77%.

 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 9 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

Common Stock Warrant Issued to Underwriter of Common Stock Offering

In July 2019, the Company issued to H.C. Wainwright & Co., as placement agent, a warrant to purchase 8,334 shares of common stock at an exercise price of $33.75 per share as consideration for providing services in connection with a common stock offering in July 2019. The warrant was fully vested and exercisable on the date of issuance. The common stock warrant is exercisable until five5 years from the date of grant. The Company estimated the fair value of the common stock warrants, exercisable at $33.75 per share, to be $127 using a lattice model based on the following significant inputs: common stock price of $26.80; comparable company volatility of 133.3%; remaining term 5 years; dividend yield of 0% and risk-free interest rate of 2.07%.

 

University of Arizona Common Stock Warrant

In connection with the June 2015 amended and restated exclusive license agreement with the University of Arizona (“University”), the Company issued to the University a common stock warrant to purchase 750 shares of common stock at an exercise price of $150.00 per share. The warrant was fully vested and exercisable on the date of grant, and expires, if not exercised, five years from the date of grant. In the event of a “terminating change” of the Company, as defined in the warrant agreement, the warrant holder would be paid in cash the aggregate fair market value of the underlying shares immediately prior to the consummation of the terminating change event. Due to the cash settlement provision, the derivative warrant liability was recorded at fair value and is revalued at the end of each reporting period. The changes in fair value are reported in other income (expense) in the statements of operations and comprehensive loss. The estimated fair value of the derivative warrant liability was $53 at the date of grant. These warrants expired, unexercised, on June 26, 2020.

Common Stock Warrants Issued in January and March 2020 Private Placements

 

In January and March 2020, in separate private placements concurrent with registered direct offerings (collectively, the “2020 Registered Direct Offerings”) of shares of the Company’s common stock, the Company also issued warrants to purchase an aggregate of up to 353,872 shares of common stock to certain institutional and accredited investors that participated in the 2020 Registered Direct Offerings (the “2020 Warrants”). The warrants were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506(b) of Regulation D promulgated thereunder. Terms used but not otherwise defined herein will have the meanings given them in the warrants, attached as Exhibit 4.1 to our Form 8-K filed on January 28, 2020, and our Form 8-K filed on March 6, 2020.

 

The warrants issued in January 2020 to purchase 177,500 shares of common stock have an exercise price of $9.00 per share, are exercisable after July 28, 2020 and will expire July 28, 2025. The Company estimated the fair value of the common stock warrants, exercisable at $9.00 per share, to be $813 using a Black Scholes model based on the following significant inputs: common stock price of $7.90; comparable company volatility of 73.8%; remaining term 5 years; dividend yield of 0% and risk-free interest rate of 1.53%.

 

The warrants issued in March 2020 to purchase 176,372 shares of common stock have an exercise price of $2.88 per share, are immediately exercisable and will expire September 8, 2025. The Company estimated the fair value of the common stock warrants, exercisable at $2.88 per share, to be $242 using a Black Scholes model based on the following significant inputs: common stock price of $2.35; comparable company volatility of 74.8%; remaining term 5.5 years; dividend yield of 0% and risk-free interest rate of 0.39%.

 

For so long as the 2020 Warrants remain outstanding, the exercise price and number of shares of common stock issuable upon exercise of the warrants are subject to adjustment as follows: (a) upon payment of a stock dividend or other distribution on a class or series of shares common stock, not including shares issued under this warrant;


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 9 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

(b) upon subdivision (by stock spilt, stock dividend, recapitalization, or otherwise) or combination (by reverse stock split or otherwise) of shares of common stock; or (c) upon the issuance of any shares of capital stock by reclassification of shares of the common stock.

 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 9 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

In the event that the Company declares or makes any dividend or other distribution of its assets to holders of its common stock, each 2020 Warrant holder will be entitled to participate in such distribution to the same extent that such holder would have participated therein if the holder had held the number of shares of common stock acquirable upon exercise of the 2020 Warrant.

 

In the event of a Fundamental Transaction, as described in the 2020 Warrants and generally including the sale, transfer or other disposition of all or substantially all of our properties or assets; our consolidation or merger with or into another person or reorganization; a recapitalization, reorganization or reclassification in which our common stock is converted into other securities, cash or property; or any acquisition of our outstanding common stock that results in any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding common stock, then the holders of the 2020 Warrants will be entitled to receive upon exercise of such warrants the kind and amount of securities, cash, assets or other property that the holders would have received had they exercised the 2020 Warrants immediately prior to such Fundamental Transaction. Subject to certain limitations, in the event of a Fundamental Transaction the 2020 Warrant holder may at its option require the Company or any Successor Entity to purchase such warrant from the holder by paying to the holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of the 2020 Warrant on the date of the consummation of the Fundamental Transaction.

 

Any time that the Company grants, issues, or sells any securities pro rata to all of the record holders of the common stock (the “2020 Purchase Right”), each holder of 2020 Warrants will be entitled to acquire the aggregate amount of securities that the holder could have acquired if the holder had held the number of shares of common stock acquirable upon exercise of the applicable 2020 Warrant. However, to the extent that an exercise of a 2020 Purchase Right would exceed the Beneficial Ownership Limitation (defined below), then to such extent the 2020 Purchase Right will be held in abeyance until such time, if ever, that complete exercise of the 2020 Purchase Right would not exceed the Beneficial Ownership Limitation.

 

After the Initial Exercisability Date (as defined in the 2020 Warrants), the 2020 Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full for the number of shares of our common stock purchased upon such exercise. If, at the time a holder exercises the 2020 Warrant (but not sooner than six months following the date of such warrant), a registration statement registering the issuance of the shares of common stock underlying the 2020 Warrants under the Securities Act is not then effective or available, nor is any current prospectus thereto available, and an exemption from registration under the Securities Act is not available for the issuance of such shares, then in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the number of shares of common stock determined according to a formula set forth in the 2020 Warrant.

 

Limitations on Exercise. A holder (together with its affiliates) may not exercise any portion of the 2020 Warrants to the extent that the holder would own more than 4.99% of the outstanding common stock after exercise (the “Beneficial Ownership Limitation”), except that upon at least 61 days’ prior notice from the holder to us, the holder may increase the Beneficial Ownership Limitation up to 9.99% of the number of shares of our common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the 2020 Warrants. No fractional shares of common stock will be issued in connection with the exercise of a 2020 Warrant. In lieu of fractional shares, we will either pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price or round up to the next whole share.

 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 9 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

Except as otherwise provided in the 2020 Warrants or by virtue of such holder’s ownership of shares of our common stock, the holders of the 2020 Warrants do not have the rights or privileges of holders of our common stock, including any voting rights, unless and until they exercise such warrants.

 

Common Stock Warrants Issued in April 2020 Public Offering

 

On April 24, 2020, in connection with a previously announced public offering of 145,586 Class A Units and 1,428,722 Class B Units, the Company issued warrants to purchase 1,574,308 shares of common stock to the participants in the public offering and have an exercise price of $3.05 per share (the “April 2020 Warrants”). These warrants are immediately exercisable and will expire April 24, 2025.

 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 9 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

The Common Stock, Pre-Funded Warrants and Warrants sold in this Public Offering were offered and sold pursuant to a registration statement on Form S-1 (File No. 333-236302) initially filed with the Securities and Exchange Commission (the “SEC”) on February 7, 2020, as amended (“Registration Statement”), which was declared effective by the SEC on February 14, 2020. The Post-Effective Amendment No. 2 to the Registration Statement was declared effective by the SEC on April 21, 2020.

 

The Company estimated the fair value of the common stock warrants, exercisable at $3.05 per share, to be $2,402 using a Black Scholes model based on the following significant inputs: common stock price of $2.40; comparable company volatility of 87.9%; remaining term 5 years; dividend yield of 0% and risk-free interest rate of 0.18%.

 

Common Stock Warrants Issued to Placement Agent in 2020 Registered Direct Offerings and Private Placement

In connection with the separate private placements concurrent with registered direct offerings of shares of the Company’s common stock in January and March 2020, the Company issued to H.C. Wainwright & Co., LLC, as placement agent, a warrant to purchase 13,228 shares of common stock and a warrant to purchase 13,313 shares of common stock. The warrants were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder. These warrants have substantially similar terms as the 2020 Warrants described above, except that the placement agent warrant issued in January 2020 has an exercise price of $10.00 per share, and the placement agent warrant issued in March 2020 has an exercise price of $3.7563 per share.

 

The Company estimated the fair value of the common stock warrants issued in January, with an exercise price of $10.00 per share, to be $58 using a Black Scholes model based on the following significant inputs: common stock price of $7.90; comparable company volatility of 73.8%; remaining term 5 years; dividend yield of 0% and risk-free interest rate of 1.53%.

 

The Company estimated the fair value of the common stock warrants issued in March, with an exercise price of $3.7563 per share, to be $17 using a Black Scholes model based on the following significant inputs: common stock price of $2.35; comparable company volatility of 74.8%; remaining term 5.5 years; dividend yield of 0% and risk-free interest rate of 0.39%.

 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 9 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

In connection with the public offering of 145,586 Class A Units and 1,428,722 Class B Units on April 24, 2020, the Company issued to H.C. Wainwright & Co., LLC, as placement agent, warrants to purchase 118,073 shares of common stock. The warrants were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder. These warrants have substantially similar terms as the April 2020 Warrants described above, except that the placement agent warrant issued has an exercise price of $3.97 per share.

 

The Company estimated the fair value of the common stock warrants issued in April, with an exercise price of $3.97 per share, to be $167 using a Black Scholes model based on the following significant inputs: common stock price of $2.40; comparable company volatility of 87.9%; remaining term 5.5 years; dividend yield of 0% and risk-free interest rate of 0.18%.

 

Deemed Dividend Adjustment-Warrant Modified Terms RevaluationCommon Stock Warrants Issued in October 2020 Private Warrant Inducement

 

On December 2, 2019,In October 2020, in connection with an inducement agreement with an existing accredited investor to exercise 1,700,680 outstanding warrants (the “Original Warrants”) to purchase an equal number of shares of the settlement of a filed lawsuit againstCompany’s common stock, the Company on February 20, 2018 by New Enterprises, Ltd. (“New Enterprises”), the Company agreedissued new unregistered warrants to modify the termspurchase up to an aggregate of 6,9341,700,680 shares of common stock at an exercise price of $1.725 per share. The warrants thatissued were originally issued to New Enterprises between September 2015immediately exercisable with an exercise period of five and February 2016. Specifically,one-half years from the original strike price was reduced to $20.00 per warrant from $150.00 per warrant and the expiration date of these warrants was extended one yearissuance. The Original Warrants were issued on March 6, 2020 and on April 24, 2020. Pursuant to December 13, 2020.

Per guidancethe Letter Agreement, the per share exercise price of ASC 260, the Original Warrants were reduced from $2.88 and $3.05, respectively, to $1.725. The Company recorded a deemed dividend of $11 on the 6,934 unexercised warrants that were affected by the modification of terms. The dividend was calculated as the difference betweenestimated the fair value of the common stock warrants, immediately priorexercisable at $1.725 per share, to modification of terms and immediately after the adjustmentbe $1,806 using a Black Scholes model based on the following significant inputs: On December 2, 2019: common stock price of $12.00;$1.47; comparable company volatility of 73.2%96.5%; remaining term 0.015.5 years; dividend yield of 0% and risk-free interest rate of 1.63. As adjusted,0.18%.

In connection with the private warrant inducement in October 2020 of 1,700,680 shares of the Company’s common warrants, the Company issued to H.C. Wainwright & Co., LLC, as placement agent, warrants to purchase 85,034 shares of common stock. These warrants have substantially similar terms as the 2020 Warrants described above, except that the placement agent warrant issued in October 2020 has an exercise price of $2.156 per share.

The Company estimated the fair value of these common stock warrants, with an exercise price of $2.156 per share, to be $86 using a Black Scholes model based on the following significant inputs: common stock price of $12.00;$1.47; comparable company volatility of 73.2%96.5%; remaining term 1.015.5 years; dividend yield of 0% and risk-free interest rate of 1.63. 0.18%.

 

Common Stock Warrants Issued in February 2021 Private Placement Agreement

In February 2021, in connection with a private placement agreement with certain institutional and accredited investors, the Company issued common stock warrants to purchase up to an aggregate of 2,194,427 shares of common stock at an exercise price of $2.216 per share. The warrants were exercisable immediately and have an exercise period of five and one-half years from the date of issuance. The warrant holder may not exercise any portion of such holder’s warrants to the extent that the holder, together with its affiliates, would beneficially own more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding shares of common stock immediately after exercise, except that upon at least 61 days’ prior notice from the holder to the Company, the holder may increase the beneficial ownership limitation to up to 9.99% of the number of shares of common stock outstanding immediately after giving effect to the exercise. The Company estimated the fair value of the common stock warrants, exercisable at $2.216 per share, to be $3,052 using a Black Scholes model based on the following significant inputs: common stock price of $1.93; comparable company volatility of 95.6%; remaining term 5.5 years; dividend yield of 0% and risk-free interest rate of 0.18%. 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 9 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

Common Stock Warrants Issued to Placement Agent in February 2021 Private Placement Agreement

In connection with the private placement in February 2021, the Company issued to H.C. Wainwright & Co., LLC, as placement agent, warrants to purchase up to 329,164 shares of Common Stock with an exercise price of $2.8481 per share. The warrants are exercisable immediately and have an exercise period of five and one-half years from the date of issuance. The Company estimated the fair value of these common stock warrants, with an exercise price of $2.8481 per share, to be $435 using a Black Scholes model based on the following significant inputs: common stock price of $1.93; comparable company volatility of 95.6%; remaining term 5.5 years; dividend yield of 0% and risk-free interest rate of 0.18%.

Common Stock Warrants Issued to Placement Agent in March 2021 Registered Direct Offering

On March 23, 2021, the Company consummated a registered direct offering with certain institutional investors and issued an aggregate of 1,975,000 shares of the Company’s common stock, par value $0.001 per share at a purchase price of $2.00 per share for gross proceeds to the Company of approximately $3.95 million, before deducting fees payable to the placement agent and other estimated offering expenses payable by the Company. The 1,975,000 shares of Common Stock sold in the Offering were offered and sold pursuant to a prospectus, dated August 24, 2018, and a prospectus supplement, dated March 22, 2021, in connection with a takedown from the Company’s shelf registration statement on Form S-3 (File No. 333-225712).

In connection with the registered direct offering in March 2021, the Company issued to H.C. Wainwright & Co., LLC, as the placement agent, warrants to purchase up to 148,125 shares of Common Stock. The Placement Agent Warrants will be exercisable commencing six months following the date of issuance, expire five years following the date of sale and have an exercise price per share of $2.50 per share. The Placement Agent Warrants, and the shares of Common Stock issuable upon exercise thereof, will be issued in reliance on the exemption from registration provided in Section 4(a)(2) under the Securities Act of 1933, as amended, and Regulation D promulgated thereunder. The Company estimated the fair value of these common stock warrants, with an exercise price of $2.50 per share, to be $181 using a Black Scholes model based on the following significant inputs: common stock price of $1.76; comparable company volatility of 100.8%; remaining term 5 years; dividend yield of 0% and risk-free interest rate of 0.31%.

Deemed Dividend Adjustment-Warrant Modified Terms Revaluation

On March 3, 2020, the Company issued an aggregate of 51,414 common shares in a cashless exercise of 56,625 warrants issued in December 2016 and November 2017. Consideration for the exercise of these warrants was the full settlement of an outstanding litigation reserve of $238.

On October 26, 2020, in connection with the private warrant inducement with an existing accredited investor to exercise 1,700,680 Original Warrants, the Company agreed to modify the terms of the Original Warrants that were originally issued on March 6, 2020 and on April 24, 2020. Pursuant to the agreement, the per share exercise price of the Original Warrants were reduced from $2.88 and $3.05, respectively, to $1.725.

Per recent proposed guidance of ASC 260, the Company determined that this was an exchange of the existing 1,700,680 warrants that were affected and the difference between the fair value of the warrants immediately prior to modification of terms and immediately after the adjustment was a cost of raising capital and was recorded as a reduction of equity. The difference between the fair value of the warrants immediately prior to modification of terms and immediately after the adjustment was calculated as $237, using a Black Scholes model based on the following significant inputs: On October 26, 2020: common stock price of $1.47; comparable company volatility of 96.5%; remaining term 4.5-4.8 years; dividend yield of 0% and risk-free interest rate of 0.18%.


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 10 - Stockholders’ Deficit

 

Capital Stock

 

The Company was organized under the laws of the state of Nevada on July 27, 2004 and was subsequently reincorporated under the laws of the state of Delaware on November 10, 2015. In connection with the reincorporation, as approved by the stockholders, the Company changed its authorized capital stock to consist of (i) 100 million shares of common stock, $.001 par value, and (ii) 2 million shares of preferred stock, $0.001 par value, designated as Series A convertible preferred stock. In December 2015, the Company amended its Certificate of Incorporation to change its authorized capital stock to provide for 15 million authorized shares of preferred stock of which 7,515,000 was designated as Series B convertible preferred stock, par value $.001 per share.

 

Prior to November 10, 2015, the Company’s authorized capital stock consisted of 100 million shares of common stock, $.001 par value, and 10 million shares of preferred stock, $.001 par value.

 

Common Stock

 

The Company had 3,398,83212,191,112 and 1,414,6715,099,512 shares of common stock issued and outstanding as of September 30, 20202021 and December 31, 2019,2020, respectively.

 

During the nine months ended September 30, 2020,2021, the Company issued 1,984,1617,091,600 shares of common stock as follows:

 

 an aggregate of 177,5004,388,854 shares in connection with a registered directprivate placement offering and exercise of pre-funded warrants issued in connection with the offering, generating net proceeds to the Company in January 2020February 2021 of approximately $973,$8,898, as further described below; 
   
 an aggregate of 176,3721,975,000 shares in connection with a registered direct offering generating net proceeds to the Company in March 20202021 of approximately $462,$3,523, as further described below; 
   
 an aggregate of 1,574,308706,795 shares in connection with a public offering andthe exercise of pre-fundedcommon stock warrants issued in connection with said public offering,March, June and July 2021, generating net proceeds to the Company in April 2020 of approximately $4,306,$1,228, as further described below; and
   
 an aggregate of 51,414 shares for the exercise of outstanding warrants in settlement of an outstanding litigation reserve of $238 (see Note 9 - Common Stock Warrants and Common Stock Warrant Liability for further details); 
an aggregate of 4,54320,951 shares for service as a result of the vesting of restricted stock units; and 
an aggregate of 24 shares for true up of shares as a result of the 1-for-20 reverse stock split effected in February 2020. units.

 

Public Offerings and Registered Direct Offerings

 

On April 24, 2020,February 2, 2021, the Company closedconsummated a public offeringprivate placement agreement with certain institutional and accredited investors and issued an aggregate of 145,586 Class A Units and 1,428,722 Class B Units. Each unit is comprised3,968,854 shares of one share ofits common stock, par value $0.001 per share or common stock equivalent in the form of a pre-funded warrant and one warrant to purchase one share of common stock. The Class A Units were offered at a public offering price of $3.176 per unit, and the Class B Units were offered at a public offering price of $3.175 per unit priced at-the-market under Nasdaq rules, generating net proceeds of approximately $4,306, including the full exercise of the pre-funded warrants sold in this offering and after deducting certain fees due to the placement agent and other estimated transaction expenses.


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 10 - Stockholders’ Deficit – (continued)

Also, in connection with the public offering noted above, the Company issued warrants to purchase 1,574,308 shares of common stock to the participants in the public offering, with an exercise price of $3.05 per share. These warrants are immediately exercisable and will expire April 24, 2025.

On March 6, 2020, the Company closed a registered direct offering of an aggregate of 176,372 shares of our common Stock at a purchase price of $3.005$2.2785 per share, for aggregate net proceeds of approximately $462, after deducting certain fees due to the placement agent and other estimated transaction expenses. In addition, we also issued warrants exercisable for an aggregate of up to 176,372 shares of our common stock with an exercise price of $2.88 per share. In addition, in connection with the offering, we issued the placement agent five-yearpre-funded warrants to purchase up to 13,228 shares of our common Stock at an exercise price of $3.7563 per share.

On January 28, 2020, the Company closed a registered direct offering of an aggregate of 177,500420,000 shares of our common stock at a purchase price of $8.00$2.2775 per sharepre-funded warrant and associated warrants to purchase up to an aggregate of 2,194,427 shares of common stock, for aggregate netgross proceeds of approximately $973, after$10.0 million, prior to deducting certain fees due to the placement agent fees and other estimated transactionoffering expenses. In addition, in a concurrent private placement, we also issued and sold warrants exercisable for an aggregate of up to 177,500At March 29, 2021, all 420,000 pre-funded shares of our common stock with an exercise price of $9.00 per share.had been distributed. In connection with the offering, we issued the placement agent five-year warrants to purchase up to 13,312329,164 shares of ourCommon Stock with an exercise price of $2.8481 per share.

On March 23, 2021, the Company consummated a registered direct offering with certain institutional investors and issued an aggregate of 1,975,000 shares of the Company’s common stock, par value $0.001 per share at a purchase price of $2.00 per share for gross proceeds to the Company of approximately $3.95 million, pursuant to a prospectus, dated August 24, 2018, and a prospectus supplement, dated March 22, 2021, in connection with a takedown from the Company’s shelf registration statement on Form S-3 (File No. 333-225712).


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 10 - Stockholders’ Deficit – (continued)

In connection with the offering, we issued the placement agent warrants to purchase up to 148,125 shares of Common Stock at an exercise price per share of $10.00$2.50 per share.

On March 19, 2021, June 22, 2021 and July 15, 2021, the Company issued an aggregate of 700,680, 499 and 5,616 shares of commons stock for the exercise of certain warrants, respectively. The net proceeds to the Company for these exercises was $1,228.

Note 11 - Stock-based Compensation

  

On June 12, 2018, the Company’s stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”) to replace the Company’s 2015 Equity Incentive Plan (the “2015 Plan”). As of September 30, 2020, the 2018 Plan authorizes the issuance of 50,000 shares of our common stock. In addition, up to 122,279 shares of our common stock reserved for issuance under the 2015 Plan became available for issuance under the 2018 Plan to the extent such shares were available for issuance under the 2015 Plan as of June 12, 2018 or cease to be subject to awards outstanding under the 2015 Plan, such as by expiration, cancellation, or forfeiture of such awards.Stock Options

 

Stock options are generally issued with a per share exercise price equal to no less than fair market value of our common stock aton the date of grant. Options granted under the 2018 Plan generally vest immediately, or ratably over a two-twelve- to 36-month period coinciding with their respective service periods. Options under the 2018 Plan generally have a term of five years. Certain stock option awardsoptions provide for accelerated vesting upon a change in control.

 

As of September 30, 2020,2021, the Company had 500,8132,857,184 shares of common stock available for issuance under the 2018 Plan. On July 8, 2020, the Company’s stockholders approved an amendment to the 2018 Plan to increase the number of shares of common stock available for issuance under the 2018 Plan by 800,000 shares.

 

The Company measures the fair value of stock options with service-based and performance-based vesting criteria to employees, directors and consultants on the date of grant using the Black-Scholes option pricing model. The Black-Scholes valuation model requires the Company to make certain estimates and assumptions, including assumptions related to the expected price volatility of the Company’s stock, the period underduring which the options will be outstanding, the rate of return on risk-free investments, and the expected dividend yield for the Company’s stock.

 

The weighted-average assumptions used in the Black-Scholes option-pricing model used to calculate the fair value of options granted during the nine months ended September 30, 20202021 were as follows:

 

EmployeeNon-Employee
Expected volatility   88.1-91.596.5%N/A
Expected dividend yield   N/A
Expected term (in years)  5N/A2.99 
Risk-free interest rate   0.11-0.260.44%N/A

 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 11 - Stock-based Compensation – (continued)

The weighted average grant date fair value of options granted during the nine months ended September 30, 20202021 was $1.94$0.98 per share, as per the table below.above. 

 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 11 - Stock-based Compensation – (continued)

Due to the Company’s limited operating history and lack of company-specific historical or implied volatility, the expected volatility assumption was determined based on historical volatilities from traded options of biotech companies of comparable size and stability, whose share prices are publicly available. The expected term of options granted to employees is calculated based on the mid-point between the vesting date and the end of the contractual term according to the simplified method as described in SEC Staff Accounting Bulletin 110 because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term due to the limited period of time its awards have been outstanding. For non-employee options, the expected term of options granted is the contractual term of the options. The risk-free interest rate is determined by reference to the implied yields of U.S. Treasury securities with a remaining term equal to the expected term assumed at the time of grant. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not intend to pay dividends.

 

The following table summarizes the stock option activity for both equity plans, for the periods indicated as follows: 

 

   Number of
Options
  Weighted
Average
Exercise
Price Per
Share
  Weighted
Average
Remaining
Contractual
Term
(years)
  Aggregate
Intrinsic
Value (1)
 
Outstanding at December 31, 2019   136,489  $28.00   3.9  $ 
Granted   300,206  $1.94   4.8  $ 
Exercised     $     $ 
Forfeited   (9,125) $     $ 
Expired     $     $ 
Outstanding at September 30, 2020   427,570  $10.25   3.9  $ 
Exercisable at September 30, 2020   115,655  $25.39   2.5  $ 
  Number of
Options
  Weighted
Average
Exercise
Price Per
Share
  Weighted
Average
Remaining
Contractual
Term
(years)
  Aggregate
Intrinsic
Value (1)
 
Outstanding at December 31, 2020  496,471  $8.63   3.9  $ 
Granted  575,565  $1.65   4.8  $ 
Exercised    $     $ 
Forfeited  (3,300) $     $ 
Expired    $     $ 
Outstanding at September 30, 2021  1,068,736  $4.73   2.1  $ 
Exercisable at September 30, 2021  519,125  $6.95   1.9  $ 

 

(1)The aggregate intrinsic value in the table was calculated based on the difference between the estimated fair market value of the Company’s stock and the exercise price of the underlying options. The estimated stock values used in the calculation were $1.88$1.73 and $11.00$1.51 per share for the year ended December 31, 2020 and the nine months ended September 30, 2020 and the year ended December 31, 2019,2021, respectively.

Restricted Stock Units

 

The following table summarizes restricted stock unit activity for the nine months ended September 30, 2020:2021: 

 

   Number of
Units
  Weighted Average
Grant-Date Fair
Value Per Unit
 
Outstanding as of December 31, 2019   5,877  $30.28 
Granted   30,738  $1.97 
Vested   (4,543) $1.42 
Forfeited     $ 
Outstanding as of September 30, 2020   32,072  $4.05 
  Number  of
Units
  Weighted Average
Grant-Date Fair
Value Per Unit
 
Outstanding as of December 31, 2020  32,072  $2.01 
Granted    $ 
Vested  (31,405) $1.97 
Forfeited    $ 
Outstanding as of September 30, 2021  667  $1.80 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

Note 11 - Stock-based Compensation – (continued)

 

The stock-based compensation expense was recorded as follows:

 

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
  2020  2019  2020  2019 
Research and development $2  $1  $7  $11 
General and administrative  160   203   446   664 
Total stock-based compensation expense $162  $204  $453  $675 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
  2021  2020  2021  2020 
             
Research and development $1  $2  $2  $7 
Selling, general and administrative  213   160   548   446 
Total stock-based compensation expense $214  $162  $550  $453 

  

The allocation between research and development and selling, general and administrative expense was based on the department and services performed by the employee or non-employee.

 

At September 30, 2020,2021, the total compensation cost related to restricted stock units and unvested options not yet recognized was $979,$782, which will be recognized over a weighted average period of 3432 months, assuming the employees and non-employeesnon-employees complete their service period required for vesting.

Note 12 - Commitments and Contingencies

 

Legal Proceedings 

 

The Company may be subject to legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effect on its financial position, results of operations or liquidity.

 

Lease Commitments

The Company is obligated under finance leases for certain research and computer equipment that expire on various dates through April 2022. At September 30, 2020, the gross amount of office, computer and research equipment, and the related accumulated amortization recorded under the finance leases was $478 and $334, respectively.

 

In February 2012, the Company entered into an operating lease for its then corporate headquarters in Flagstaff, Arizona, with an expirationwhich expired in January 2015. In December 2013 and February 2014, the Company amended its lease to extend the term to December 31, 2019 and expand into the remaining area in the building and an adjacent building.2019. In December 2019, we extended the current lease for only ourthe manufacturing facilities located in Flagstaff, Arizona, occupying a total of 7,632 square feet of space, with an expirationspace. The lease for these manufacturing facilities expired in December 2020. The lease is guaranteed by the former President of the Company.

 

In anticipation of the December 2020 Flagstaff, Arizona lease expiration, on June 22, 2020, the Company entered intoOn November 16, 2016, we leased an operating lease for approximately 5,103additional 1,954 square feet of warehouse/manufacturing, research and development space, also in Phoenix, Arizona. TheFlagstaff. This lease commenced on August 1, 2020 and expiresexpired on November 30, 2024. The15, 2018 but was extended for an additional 24 months, through November 2020. A subsequent amendment to the lease required escalating rental payments overallows for the Company to cancel the lease at any time through the lease term and minimum rental payments under the operating lease are being recognized onwith 30 days’ notice. The Company provided a straight-line basis over the term of the lease. Under guidance promulgated under ASU No. 2016-02, Leases the Company recorded a right-of-use lease asset and a lease liability on its balance sheet in the amount of $209.30-day cancellation notice effective February 2020.

 

On December 1, 2019, we entered into a lease for our corporate headquarters in Phoenix, Arizona where we lease and occupy approximately 5,529 square feet of office space. This lease expires in November 2024.

 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except shareOn August 1, 2020, we entered into a lease for our manufacturing and per share data)research facility in Phoenix, Arizona where we occupy approximately 5,105 square feet of manufacturing and warehouse space. This lease expires on November 30, 2024.

 

Note 12 - Commitments and Contingencies – (continued)

We believe that our existing facilities are adequate and meet our current needs for business, manufacturing and research.

 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 12 - Commitments and Contingencies – (continued)

Rent expense was $202$166 and $187$202 for the nine months ended September 30, 20202021 and 2019,2020, respectively. The future minimum lease payments under non-cancellable operating lease and future minimum finance lease payments as of September 30, 20202021 are follows:

 

  Finance
Leases
  Operating
Lease
 
Years Ending December 31,        
2020  16   71 
2021  58   190 
2022  28   194 
2023  -   198 
2024  -   186 
Total minimum lease payments $102  $839 
Years Ending December 31, Finance
Leases
  Operating
Lease
 
2021  14   48 
2022  28   194 
2023  -   198 
2024  -   186 
Total minimum lease payments $42  $626 

 

  Finance
Leases
 
Less: amounts representing interest (11.43%) $2 
Present value of minimum lease payments  40 
Less: current installments under finance lease obligations  40 
Total long-term portion $- 

 

  Finance
Leases
 
Less: amounts representing interest (ranging from 11.43% to 18.32%) $10 
Present value of minimum lease payments  92 
Less: current installments under finance lease obligations  52 
Total long-term portion $40 

Note 13 - Subsequent Events

 

Private Warrant Inducement

On October 23, 2020, the Company entered into an inducement letter agreement (the “Letter Agreement”) with an existing accredited investor to exercise certain outstanding warrants to purchase up to an aggregate of 1,700,680 shares of the Company’s common stock at a reduced exercise price per share of $1.725 (the “Original Warrants”) for aggregate net proceeds of approximately $2.93 million, before deducting fees payable to the placement agent and other estimated offering expenses payable by the Company. In consideration for the immediate exercise of the Original Warrants for cash,7, 2021, the Company issued a new unregistered warrant to the exercising Holder to purchase up to an aggregate of 1,700,68016,171 shares of common stock at an exercise price of $1.725 per share. Through November 11, 2020, 700,680 of the exercised warrants had been converted to shares. The remaining 1,000,000 shares will be issued as requested.

In addition, in connection with the offering, the Company issued the placement agent five-and-a-half year warrants to purchase up to 85,034 sharesexercise of the Company’s common stock at an exercise price of $2.156 per share. Also in connection with the offering, the exercise price of the Company’s outstanding detachable common stock warrants originally issued November 21, 2017, was adjusted downwardgenerating net proceeds to $1.3659 per share.the Company of approximately $20.

 

COVID-19

 

The travel and other restrictions that began in March 2020 in response to the COVID-19 global pandemic have resulted in a significant slowdown in our field studies and sales efforts. We were able to resume some projects by late-Aprilmid-year 2020, however, we still have delays on certain projects that might remain on hold until certainbusinesses and government restrictions are lifted.entities return to more normal operations. These continued delays have impacted our results of operations and could impact our results in future quarters. In addition, extended stay at home orders and other social distancing initiatives continue to severely limitlimited our ability to communicate with current and potential commercial and governmental customers. While many restrictions were lifted during our second and third fiscal quarters of 2021, we have not returned to full scope pre-pandemic activities, and are uncertain as to when or if, with potential further restrictions, that may occur. The COVID-19 pandemic is also placing a significant budgetary burden on federal, state and local governments, which may impede or delay their ability to purchase our products.

The Company has evaluated subsequent events from the balance sheet date through November 12, 2021, the date at which the financial statements were issued, and determined that there were no other items that require adjustment to or disclosure in the financial statements.


Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

As used in this Quarterly Report on Form 10-Q, “SenesTech,” the “Company,” “we,” “us,” or “our” refer to SenesTech, Inc., a Delaware corporation.  

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed financial statements and related notes.

 

Forward-Looking Statements

 

Some statements and information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, notes to our condensed financial statements and elsewhere in this report are not historical facts but are forward- lookingforward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, readers and within the meaning of the safe-harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can identify forward- looking statementsoften be identified by termswords such as “may,” “will,” “should,”as: “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,“plan,” “strategy,” “future,” “potential,” “continue,” or the negative of these terms or other comparable terminology, which when used are meant“may,” “should,” “will,” and similar references to signify the statement as forward-looking. These forward-lookingfuture periods. Examples include, among others, statements include, but are not limited to:about:

 

 The impacts and implications of the COVID-19 pandemic;

 

 Our commercialization and promotion strategy and plans, including key elements toof our business strategy, how we commercialize, our sales approach, the tools we use, our hiring and retention strategy; our areas and markets of focus, our pricing strategy, our strategic relationships and which geographic markets we target;

 

 The success and effectiveness of our products;

Our seeking, obtaining or maintaining regulatory approvals for our products and product candidates;

 

 Our expectations regarding the potential market size for our products and how the market may develop;

 

 Our estimates or expectations related to our revenue, cash flow, expenses, operating results, capital requirements and need for additional financing;

 
Our ability to, and the time required, to improveexpected benefits of, improving our cost structure and gross margins, and limitlimiting our cash burn;

 
Our plans for our business, including for research and development;

 

 Our ability to enter into strategic arrangements and to achieve the expected results from such arrangements;

 

 The adequacy of our facilities to meet our current needs;

The initiation, timing, progress and results of field studies and other studies and trials and our research and development programs;

 

 Our financial performance, including our ability to fund operations; and

 

 Developments and projections relating to our projects, competitors and our industry.industry, including legislative developments and impacts from those developments.

 

These forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and situations that are difficult to predict and that may cause our own, or our industry’s, actual results to be materially different from the future results that are expressed or implied by these statements. Accordingly, 27 actual results may differ materially from those anticipated or expressed in such statements as a result of a variety of factors, including those discussed in Item 1A1A-“Risk Factors” of Part III of our Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2019,2020, filed with the SEC on March 17, 2020 and April 21, 2020, respectively, (collectively, the “2019 Annual Report”),29, 2021, and Item 1A of Part II of this Form 10-Q, in each case entitled “Risk Factors,” and those contained from time to time in our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date made. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

 


Overview

 

Overview

Since our inception, we have sustained significant operating losses in the course of our research and development activities and commercialization efforts and expect such losses to continue for the near future. We have generated limited revenue to date from product sales, research grants and licensing fees received under oura former license agreement with Neogen. In 2017, we began to prepare and launch commercialization of our first product, ContraPest.license. We have primarily funded our operations to date through the sale of equity securities, including convertible preferred stock, common stock and warrants to purchase common stock.

We have also raised capital throughstock; and debt financing, consisting primarily of convertible notes; and, to a lesser extent, payments received in connection with product sales, research grants and licensing fees.notes. 

 

Through September 30, 2020,2021, we hadhave received net proceeds of $73.2$89.3 million from our sales of common stock, preferred stock and warrant exercises and issuance of convertible and other promissory notes, an aggregate of $1.7 million from licensing fees and an aggregate of $0.8$1.4 million in net product sales. AtAs of September 30, 2020,2021, we had an accumulated deficit of $102.2$110.0 million and cash and cash equivalents of $2.7$11.1 million.

 

On June 18, 2021, the Company received notification from BMO Harris Bank National Association as the lender in a promissory note pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), that a loan to the Company under this program in the amount of $645,700 was forgiven in full under the terms of the program. This loan was originally granted and funded on April 15, 2020.

We have incurred significant operating losses every year since our inception. Our net losses were $2.3 million and $1.9 million for the three months ended September 30, 2021 and 2020, respectively, and $5.8 million and $6.3 million for the three months and nine months ended September 30, 2020, respectively,2021 and $2.6 million and $7.2 million for the three months and nine months ended September 30, 2019,2020, respectively. We expect to continue to incur significant expenses and generate operating losses for at least the next 12 months.

 

We have historically utilized, and intend to continue to utilize, various forms of stock-based awards in order to hire, retain and motivate talented employees, consultants and directors and encourage them to devote their best efforts to our business and financial success. In addition, we believe that our ability to grant stock-based awards is a valuable and necessary compensation tool that aligns the long-term financial interests of our employees, consultants and directors with the financial interests of our stockholders.

As a result, a significant portion of our operating expenses includes stock-based compensation expense. Stock-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy. Specifically, our stock-based compensation expense was $162,000 and $453,000 for the three and nine months ended September 30, 2020, which represented 8.3% and 7.6%, respectively, of our total operating expenses for those periods and $204,000 and $675,000 for the three and nine months ended September 30, 2019, respectively, which represented 7.8% and 9.3%, respectively, of our total operating expenses for those periods.

We will need additional funding in order to continue to fund our operations and achieve profitability and become cash flow positive and will continue to seek additional financing. If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit or terminate commercialization and development efforts or discontinue operations.

 

While it is difficult to measure the effectseffect and impact of the COVID-19 pandemic did not have a significant impact on revenue during the three and nine months ended September 30, 2021 and September 30, 2020, the travel and other restrictions that started in March 2020 resulted in a significant slowdown in our proof of conceptproof-of-concept field studies and sales efforts. WeWhile we were able to resume field studies in some important projects by late-Aprilmid-year 2020 and initially believed that we would re-start all our most significant field studies as we obtained limited waivers of certain travel bans; however,bans, we still have delays on certain projects that might remain on hold until the liftingcertain businesses and government entities return to more normal operations. Continued delays or new restrictions on travel or operations as a result of government restrictions. These delaysnew outbreaks and variants could impact our results in future quarters. Initially, we believed that pest control would continue through the COVID-19 pandemic as a necessity and we were and have been able to maintain our manufacturing with cautionary, best practices put in place. However, we have concerns about distributor, pest control operator and individual consumer spending as restrictive measures related to the COVID-19 pandemic continue. StayExtended stay at home orders across the world, whether imposed by governments or individual businesses, have impeded our ability to communicate with current and prospective customers, potentially reducing sales until the orders are lifted. In addition, federal, state and municipal budgets are under severe straincontinue to be severely strained as a result of the COVID-19 pandemic. This may delay or impede their ability to make near term purchases of our products. While we have stocked certain long lead time inventory raw material ingredients, any prolonged impact on the suppliers we rely on for the purchase of these items by the COVID-19 pandemic could impact future manufacturing operations.

 


Components of our Results of Operations

 

Net Grant Revenue

Grant revenue is comprised entirely of grant funding provided by the City of Phoenix, Arizona for jobs created and new employee training in the City of Phoenix, Arizona during the calendar year 2021.

Sales

 

Net salesSales are comprised primarily of sales, net of discounts and promotions, of ContraPest and related components, to our distributors and customers, as well as consulting and implementation services provided in conjunction with ContraPest deployments. 

 


Cost of Sales

Cost of sales consist primarily of cost of products sold, including scrap and reserves for obsolescence. We continue to focus on improving our cost structure, with the goals of shifting resources to commercialization, significantly reducing our year-over-year burn rate and achieving a 50% or greater gross margin. Steps have included relocating to more cost-efficient space, organizational restructuring, improving our manufacturing and supply processes and reducing staffing. We expect to realize the benefits from these steps in the coming quarters.

Operating Expenses

 

Research and Development Expenses

 

Research and development expenses consist primarily of costs incurred in connection with the research and development of ContraPest and our other product candidates, which costs include:

 

 Employee related expenses, including salaries, related benefits, travel and stock-based compensation expense for employees engaged in research and development functions;

 

 Expenses incurred in connection with the development of our product candidates;candidates [including related regulatory and production expenses]; and

 

 Facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and supplies.

 

We expense research and development costs as incurred.

 

We continue to investigate other applications of our core technology to other product candidates, which includes laboratory tests and academic collaborations. We also continue to develop our supply chain, particularly identifying and improving our sourcing of triptolide, a key active ingredient for our product candidates. At this time, we cannot reasonably estimate the costs for further development of ContraPest or the cost associated with the development of any of our other product candidates.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance, sales, marketing and administrative functions. Selling, general and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, consulting, accounting and audit services.

We continue to focus on improving our cost structure, with the goals of shifting resources to commercialization, significantly reducing our year-over-year burn rate and achieving a 50% or greater gross margin. Steps have included relocating to more cost-efficient space, organizational restructuring, and improving our manufacturing and supply processes and reducing staffing. We expect to realize the benefits from these steps in the coming quarters.

We plan to continue to utilize various forms of stock-based compensation awards in order to attract and retain qualified employees. As a result, we anticipate that stock-based compensation expense will continue to represent a significant portion of our selling, general and administrative expenses for the foreseeable future.

 


Interest Income

Interest income consists primarily of interest income earned on cash and cash equivalents.

 

Interest Expense

 

Interest expense consists primarily of interest accrued on our finance lease and note commitments.

 

Other Income (Expense), Net

 

Other income (expense), net, consists primarily of recognized change in value of short-term investments, income (expense) related to the year-over-year fair market value adjustment of our derivative warrant and any recognized gains or losses related to the sale of fixed assets. In 2021, other income also included the reversal of a payroll benefits accrual from 2019 that was reversed as the liability period had expired.

 

Income Taxes

 

Deferred tax assets and liabilities are determined based on differences between the financial statement and tax basesbasis of assets and liabilities, as well as a consideration of net operating loss and credit carry forwards, using enacted tax rates in effect for the period in which the differences are expected to impact taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company’s effective tax rate for the nine months ended September 30, 2021, as well as for the year ended December 31, 2020, has been affectedimpacted by the full valuation allowance recorded since inception on the Company’s deferred tax assets.

 


Since our inception, we haveThe Company has not recorded any U.S. federal or state income tax benefits for theour net operating losses we have incurred in each year in our historysince inception or for our generated research and development tax credits generated to date, due to the uncertainty regarding our ability to realize a benefit from these tax attributes. At September 30,attributes in the future. Based on tax return activity through December 31, 2020, the Company has federal and state net operating loss carryforwards of approximately $61.3$69.1 million and $50.0$55.7 million, respectively, not considering any potential IRCInternal Revenue Code of 1986 (“IRC”) Section 382 annual limitation discussed below. The Company is accruing additional net operating losses in calendar year 2021, which will be added to the carryover net operating loss balance once the current year is completed. The federal loss carryforwards begin to expire in 2023,2029, unless previously utilized. The state loss carryforwards begin to expire in 2032, unless previously utilized. Included in the $61.3$69.1 million of federal loss carryforwards are approximately $16.9$24.7 million of net operating losses that do not expire due to the tax law changes promulgated in conjunction with the Tax Cuts and Jobs Act of 2017.

 

Additionally, the utilization of the net operating loss and tax credit carryforwards could beare subject to an annual limitationslimitation under sectionsSection 382 and 383 of the Internal Revenue Code ofod 1986, and similar state tax provisions due to ownership change limitations that may have occurred previously or that could occur in the future. These ownership changes limit the amount of net operating loss carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by sectionSection 382 and 383 results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentagepercent points over a three-year period. The Company has not conducted an analysis of an ownership change under section 382. To the extent that a study is completed and an ownership change is deemed to have occurred,occur, the Company’s net operating losses could be limited.

 

During the quarter ended June 30, 2021, the Company received notification that a loan to the Company under the Paycheck Protection Program (the “PPP”) in the amount of approximately $646 thousand was forgiven in full pursuant to the PPP program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Section 1106(i) of the CARES Act specifically requires taxpayers to exclude canceled indebtedness from PPP loans from gross income, and accordingly, the debt forgiveness amount is nontaxable to the Company. Subsequent to the passage of the CARES Act, the IRS issued Notice 2020-32, which precludes a deduction for an expense that would otherwise be deductible if the payment results in the forgiveness of a loan, thereby preventing entities from claiming a double tax benefit on the qualifying expenses for PPP loans. On December 27, 2020, the Consolidated Appropriations Act (“CAA”) was signed into law, which reverses existing IRS guidance provided in Notice 2020-32 by allowing taxpayers to fully deduct any business expenses, regardless of whether the expense was paid for using forgiven PPP loan proceeds. None of the other provisions of the CARES Act or CAA had a material impact to the Company’s tax accounts.


Comparison of the Three and Nine Months Ended September 30, 20202021 and 20192020

 

The following table summarizes our results of operations for the three and nine months ended September 30, 20202021 and 2019:2020:

 

  For the Three Months Ended  For the Nine Months Ended 
  September 30,  September 30, 
  2020  2019  2020  2019 
Revenue:                
Sales $77  $36  $185  $79 
Cost of sales  41   25   106   58 
Gross profit  36   11   79   21 
                 
Operating expenses:                
Research and development  380   432   902   1,359 
Selling, general and administrative  1,568   2,173   5,040   5,908 
Total operating expenses  1,948   2,605   5,942   7,267 
                 
Net operating loss  (1,912)  (2,594)  (5,863)  (7,246)
                 
Other income (expense):                
Interest income  -   19   2   45 
Interest expense  (7)  (10)  (22)  (34)
Other income (expense)  -   -   18   (3)
Total other income (expense)  (7)  9   (2)  8 
                 
Net loss and comprehensive loss  (1,919)  (2,585) $(5,865) $(7,238)
Deemed dividend-warrant price protection-revaluation adjustment  -   -   414   - 
Net loss attributable to common shareholders $(1,919) $(2,585) $(6,279) $(7,238)
                 
Weighted average common shares outstanding - basic and fully diluted  3,398,832   1,394,575   2,593,288   1,266,842 
                 
Net loss per common share - basic and fully diluted $(0.56) $(1.85) $(2.42) $(5.71)


Three Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019:

Net Sales

  For the Three Months  For the Nine Months 
  Ended September 30,  Ended September 30, 
  2021  2020  2021  2020 
             
Revenue:            
Grant revenue $24  $-  $24  $- 
Sales  159   77   407   185 
Total revenue  183   77   431   185 
                 
Cost of sales  106   41   275   106 
Gross profit  77   36   156   79 
                 
Operating expenses:                
Research and development  514   380   1,424   902 
Selling, general and administrative  1,816   1,568   5,173   5,040 
Total operating expenses  2,330   1,948   6,597   5,942 
                 
Net operating loss  (2,253)  (1,912)  (6,441)  (5,863)
                 
Other income (expense):                
Interest income  2   -   5   2 
Interest expense  (2)  (7)  (10)  (22)
Payroll Protection Program loan forgiveness  -   -   650   - 
Other income  -   -   22   18 
Total other income  -   (7)  667   (2)
                 
Net loss and comprehensive loss  (2,253)  (1,919)  (5,774)  (5,865)
Deemed dividend-warrant price protection-revaluation adjustment  -   -   -   414 
Net loss attributable to common shareholders $(2,253) $(1,919) $(5,774) $(6,279)
                 
Weighted average common shares outstanding - basic and fully diluted  12,190,257   3,398,832   10,850,197   2,593,288 
                 
Net loss per common share - basic and fully diluted $(0.18) $(0.56) $(0.53) $(2.42)

 

Net sales were $77,000Grant Revenue

Grant revenue for the three months ended September 30, 2021 was $24,000 compared to $0 in the same period of 2020 and $36,000was granted for jobs created and related new employee training in the City of Phoenix, Arizona during the three months ended September 30, 2021.

Sales

Sales, shown net of sales discounts and promotions, were $159,000 for the three months ended September 30, 2021, compared to $77,000 for the same period in 2019.2020. Sales increased $41,000by $82,000 in the three months ended September 30, 2021 due, in part, to our implementationthe continued focus on of anour internet sales capability,initiatives, augmenting our existing pull through sales strategy, where demand from the consumer market encourages, or pulls, resellers and pest management professionals to offer our products, as well as billings of $12,200 for customer product implementation services. Theseenhanced strategic partnerships and collaborations with key distributors and PMPs. While these initiatives have shown initial promise. However,continue to progress, we believe the benefit has been offsetbenefits of these initiatives continue to be impacted by reduced sales, reflecting continued reduced spending by customers due to the COVID-19 pandemic.

 


Cost of Sales

 

Cost of sales was $41,000$106,000 or 53.3%66.7% of net sales, exclusive of grant revenue, for the three months ended September 30, 2020,2021, compared to $25,000$41,000 or 69.4%53.2% of net sales, exclusive of grant revenue, for the three months ended September 30, 2019.2020. The increase in cost of goods soldsales of $16,000$65,000 in 2020the three months ended September 30, 2021 is primarily due to higher sales volume.volume as well as the impact of increases in manufacturing scrap associated with manufacturing scale up activities during 2021. The decreaseincrease in cost of sales as a percentage of net sales was primarily due to reducedthe impact of increased new customer sales incentives during the quarter ended September 30, 2021 and increases in manufacturing scrap expense and continuedassociated with manufacturing scale up activities during 2021 as noted above.

We continue to focus on manufacturing process improvement and efficiencies. Weefficiencies and anticipate cost of goods soldsales as a percentage of sales will improve in the future due to manufacturing efficiencies as a result of scale-up activities.

 

Gross Profit

 

Gross profit for the three months ended September 30, 20202021 was $36,000$77,000 or 46.7%42.1% of net sales,total revenue, compared to a gross profit of $11,000$36,000 or 30.6%46.8% of net sales,total revenue, for the same period in 2019.2020. The increase in gross profit was a direct result of decreased scrap related to scale-up activities as well as continued process improvement and efficiencies.

Research and Development Expenses

  Three Months Ended
September 30,
  Increase 
  2020  2019  (Decrease) 
          
  (in thousands) 
Direct research and development expenses:            
Personnel related (including stock-based compensation) $191  $206  $(15)
Facility-related  46   60   (14)
Other  143   166   (23)
Total research and development expenses $380  $432  $(52)

Research and development expenses were $380,000$41,000 for the three months ended September 30, 2020,2021 as compared to $432,000the same period in 2020 was primarily due to the impact of increased sales volume and the receipt of $24,000 of training grant revenues in the period. The decrease in gross profit as a % of net sales was a direct result of the impact of increased new customer sales incentives during the quarter ended September 30, 2021 as well as the impact of increases in manufacturing scrap associated with manufacturing scale up activities during 2021 noted above.

Research and Development Expenses

  Three Months Ended
September 30,
  Increase 
  2021  2020  (Decrease) 
  (in thousands) 
Direct research and development expenses:         
Personnel related (including stock-based compensation) $177  $191  $14 
Professional fees  92   106   14 
Facility-related  26   46   20 
Other  219   37   (182)
Total research and development expenses $514  $380  $134 

Research and development expenses were $514,000 for the three months ended September 30, 2021, compared to $380,000 for the same period in 2019.2020. The $52,000 decrease$134,000 increase in research and development expenses was primarily due to a decreasean increase of $15,000$182,000 in personnel-related costs, including stock-based compensation expense, due to the classification of certain field support employees to sales and marketing. With more focus on the commercialization of ContraPest, it was determined that these certain field support employees previously classified asother research and development are now refocused on salescosts, offset by a decrease in facility related expenses of $20,000, a decrease in professional fees of $14,000 and marketing efforts.a decrease in personnel related expenses of $14,000.

 

Facility-related expenses decreased $14,000$20,000 for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, due primarily to the cancellationexpiration of a facility lease of 1,9547,632 square feet of research and developmentmanufacturing space in Flagstaff, Arizona at December 31, 2019 and reduced allocation2020.

Personnel related expenses decreased $14,000 in the three months ended September 30, 2021 compared to the same period in 2020 due primarily to delays in hiring as a result of facility expensesemployee turnover.

Professional fees decreased $14,000 in the three months ended September 30, 2021 compared to research and development with the renewal of onlysame period in 2020 due primarily to a portion of the Flagstaff facilitiesdecrease in December 2019, offset by rent expense at the new manufacturing facility in Phoenix, Arizona, as discussed in Note 12 - Commitments and Contingencies.regulatory legal expenses.

 

The decreaseincrease in other research and development expenses of $23,000$182,000 in the three months ended September 30, 2021 compared to the same period in 2020 was primarily due to a reclass of otherincreased shipping expenses relateddue to certainhigher sales volume and field support employees to sales and marketing as described above.

regulatory compliance studies. We also continue to develop our supply chain, particularly identifying andincur expenses in improving our sourcing of key ingredients for our product candidates.manufacturing process and formulation.

 


Selling, General and Administrative Expenses

 

  Three Months Ended
September 30,
  Increase 
  2021  2020  (Decrease) 
  (in thousands) 
Direct selling, general and administrative expenses:         
Personnel related (including stock-based compensation) $995  $809  $(186)
Professional fees  335   250   (85)
Facility-related  38   44   6 
Other  448   465   17 
Total selling, general and administrative expenses $1,816  $1,568  $(248)

Selling, general and administrative expenses were approximately $1.8 million for the three months ended September 30, 2021, as compared to approximately $1.6 million for the three months ended September 30, 2020, as compared to approximately $2.2 million for the three months ended September 30, 2019.2020. The decreaseincrease of $600,000$200,000 in selling, general and administrative expenses was primarily due to a decreasean increase of $378,000$186,000 in net salary costs and an increase in professional fees of $85,000, offset by a decrease of $126,000$17,000 in travelother selling, general and administrative expenses and a $179,000 decrease in professional service fees and $67,000 decrease in marketingfacility related expenses offset by increases in expenses related to restricted use field projects. of $6,000.

The decreaseincrease in net salary costs of $378,000$186,000 was due primarily to a decreaseincentive bonuses accruals of $131,000 in stock compensation expenses as well asthe three months ended September 30, 2021, the impact of temporary salary reductions implementedincremental strategic hiring in the second quarterthree months ended June 30, 2021 of 2020 by management$50,000 and increased stock compensation due to control expenses during the COVID-19 pandemic.issuance of certain common stock option awards. The decreaseincrease in professional services expenses of $85,000 was primarily due to increased legal expenses incurred in patent registration filings.

The decrease in other selling, general and administrative expenses of $17,000 was primarily due to reduced legalmiscellaneous expenses as the result of a legaloffset by increased travel expenses related to a litigation settlement in the third quarter of 2019 that were not incurred in 2020. and increased selling and marketing initiatives.

The decreaseincrease in travel expenses was a direct result of eased COVID-19 travel restrictions that were put in place inat the end of March 2020. Likewise,The increase in marketing expenses is a result of costs associated with rebranding activities to highlight the pandemic restricted access to trade showscommercial focus of the Company and othercontinued on-line marketing activitiesprogram expansion in the three months ended September 30, 2020, resulting2021.

The decrease in lower marketingfacilities related expenses thanof $6,000 for the three months ended September 30, 2021 over the same period in 2019.2020 is a direct result of the expiration of a facility lease of 7,632 square feet of manufacturing space in Flagstaff, Arizona at December 31, 2020.

Interest Income/Expense, Net

 

We recorded interest expense, net of $0 for the three months ended September 30, 2021, as compared to interest expense, net of $7,000 for the three months ended September 30, 2020, as compared to interest expense, net of $9 for the same period in 2019.2020. The $2,000$7,000 decrease in interest expense, net for the period was a result of decreased interest expense on certain notes payable and finance leases that expired after September 30, 2020 and increased interest income in the first ninethree months ended September 30, 2021 as a result of 2020.higher investments in cash invested in money market accounts.

 

Other Income (Expense)

 

Other income, net, wasof $0 for the three months ended September 30, 2020 and2021 was unchanged as compared to the same period ended September 30, 2019. in 2020.


Nine Months Ended September 30, 20202021 compared to Nine Months Ended September 30, 2019:2020:

 

Net SalesGrant Revenue

 

Net sales were $185,000Grant revenue for the nine months ended September 30, 20202021 was $24,000 compared to $79,000$0 in the same period of 2020 and was granted for jobs created and related new employee training in the City of Phoenix, Arizona during the nine months ended September 30, 2021.

Sales

Sales, shown net of sales discounts and promotions, were $407,000 for the nine months ended September 30, 2021, compared to $185,000 for the same period in 2019.2020. Sales were $106,000 higher,increased by $222,000 in the nine months ended September 30, 2021 due, in part, due to our implementationthe continued focus on of anour internet sales capability,initiatives, augmenting our existing pull through sales strategy, where demand from the consumer market encourages, or pulls, resellers and pest management professionals to offer our products, as well as due to billings of $29,900 for customer product implementation services. This strategy has shown initial promise. However, weenhanced strategic partnerships and collaborations with key distributors and PMPs. We believe the benefitbenefits of this strategy has been offsetthese initiatives continue to be impacted by reduced sales, reflecting continued reduced spending by customers due to the COVID-19 pandemic.

 

Cost of Sales

 

Cost of sales was $106,000$275,000 or 57.3%67.6% of net sales, exclusive of grant revenue, for the nine months ended September 30, 2020,2021, compared to $58,000$106,000 or 73.4%57.3% of net sales, exclusive of grant revenue, for the nine months ended September 30, 2019.2020. The increase in cost of goods soldsales of $48,000$169,000 in 2020the nine months ended September 30, 2021 is primarily due to higher sales volume.volume as well as the impact of increases in manufacturing scrap associated with manufacturing scale up activities during 2021. The decreaseincrease in cost of sales as a %percentage of net sales was primarily due to reducedthe impact of increased new customer sales incentives during the nine months ended September 30, 2021 and increases in manufacturing scrap expense and continuedassociated with manufacturing scale up activities as noted above.

We continue to focus on manufacturing process improvement and efficiencies. We anticipate cost of goods soldsales as a percentage of sales will improve forin the foreseeable future due to manufacturing efficiencies as a result of the scale upscale-up activities.

 

Gross Profit

 

Gross profit for the nine months ended September 30, 20202021 was $79,000$156,000 or 42.7%36.2% of net sales,total revenue, compared to a gross profit of $21,000$79,000 or 26.6%42.7% of net sales, fortotal revenuefor the same period in 2019.2020. The increase in gross profit was a direct result of decreased scrap related to scale-up activities as well as continued process improvement and efficiencies noted above.


Research and Development Expenses

  Nine Months Ended
September 30,
  Increase 
  2020  2019  (Decrease) 
          
  (in thousands) 
Direct research and development expenses:            
Personnel related (including stock-based compensation) $414  $661  $(247)
Facility-related  122   184   (62)
Other  366   514   (148)
Total research and development expenses $902  $1,359  $(457)

Research and development expenses were $902,000$77,000 for the nine months ended September 30, 2020,2021 as compared to $1,359,000the same period in 2020 was primarily due to the impact of increased sales volume and the receipt of $24,000 of training grant revenues received. The decrease in gross profit as a % of net sales was a direct result of the impact of increased new customer sales incentives during the nine months ended September 30, 2021 as well as the increased manufacturing scrap discussed above, offset by the gross profit impact of grant revenue.

Research and Development Expenses

  Nine Months Ended
September 30,
  Increase 
  2021  2020  (Decrease) 
  (in thousands) 
Direct research and development expenses:         
Personnel related (including stock-based compensation) $669  $414  $(255)
Professional fees  217   107   (110)
Facility-related  72   122   50 
Other  466   259   (207)
Total research and development expenses $1,424  $902  $(522)

Research and development expenses were $1.4 million for the nine months ended September 30, 2019.2021, compared to $902,000 for the same period in 2020. The $457,000 decrease$500,000 increase in research and development expenses was primarily due to a decreasean increase of $247,000$255,000 in manufacturing personnel-related costs including stock-based compensation expense,relative to the same period of 2020, which was impacted by the COVID-19 pandemic, in addition to increases in manufacturing and regulatory headcount to meet current and future demand.


The increase in professional fee expenses of $110,000 in the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to the reclassification of certainincreased regulatory legal expenses and expenses related to field support employees to sales and marketing, decreased facility related expenses of $62,000 and decreasedregulatory compliance studies.

The increase in other research and development expenses of $148,000.$207,000 in the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to increased expenses related to field and regulatory compliance studies and increased shipping expenses due to higher sales volume during the period.

 

With more focus on commercialization of ContraPest, it was determined that these certain field support employees previously classified as research and development are now refocused on sales and marketing efforts and were reclassified as such.

Facility-related expenseexpenses decreased $62,000 during$50,000 for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, over the same period in 2019 due primarily to the cancellationexpiration of a facility lease of 1,9547,632 square feet of research and developmentmanufacturing space in Flagstaff, Arizona at December 31, 20192020.

Selling, General and reduced allocation of facilityAdministrative Expenses

  Nine Months Ended
September 30,
  Increase 
  2021  2020  (Decrease) 
  (in thousands) 
Direct selling, general and administrative expenses:         
Personnel related (including stock-based compensation) $3,046  $2,591  $(455)
Professional fees  825   1,108   283 
Facility-related  119   130   11 
Other  1,183   1,211   28 
Total selling, general and administrative expenses $5,173  $5,040  $(133)

Selling, general and administrative expenses to research and development with the renewal of only a portion of the Flagstaff facilities in December 2019, offset by rent expense at the new manufacturing facility in Phoenix, Arizona, as discussed in Note 12 - Commitments and Contingencies.

The decrease in other research and development expenses of $148,000 was primarily due to a reclassification of other expenses related to certain field support employees to sales and marketing as described above, reduced travel expenses and reduced depreciation due to the sale of certain fixed assets and certain assets fully depreciating duringwere approximately $5.2 million for the nine months ended September 30, 2020.

We also continue2021, as compared to develop our supply chain, particularly identifying and improving our sourcing of key ingredients for our product candidates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were approximately $5.0 million for the nine months ended September 30, 2020, as compared to approximately $5.9 million for the nine months ended September 30, 2019.2020. The decreaseincrease of $900,000$200,000 in selling, general and administrative expenses was primarily due to lower salariesan increase of $455,000 in net salary costs, offset by a decrease of $283,000 in professional service expenses, a decrease in other selling, general and wagesadministrative expenses of $775,000, including stock compensation expenses$28,000 and reduced travela decrease in facility related expenses of $149,000.$11,000.

 

Net salaries and wages were lowerThe increase in net salary costs of $455,000 was due primarily to arecognition of incentive compensation expense for employees of $362,000, severance expense of $40,000 for the elimination of in-house marketing program headcount in June 2021 and increased stock compensation due to the issuance of certain common stock option awards of $53,000 in the nine months ended September 30, 2021.

The $283,000 decrease in stock compensationprofessional services expenses for the nine months ended September 20, 2021 over the nine months ended September 30, 2020 was primarily due to reduced legal expenses related to option grants fully vesting and resultinga litigation settlement incurred in lower stock compensation expense as well as the impactnine months ended September 30, 2020 that were not incurred in the same period of temporary salary reductions by management to control expenses during the COVID-19 pandemic,2021, partially offset by an increase in salaries and wages dueprofessional services expenses relating to legal patent registration filings in the reclassificationnine months ended September 30, 2021 that were not incurred in the same period of certain field support employees to sales and marketing, as noted above. 2020.

The $28,000 decrease in travelother selling, general and administrative expenses for the nine months ended September 30, 2020, as2021 compared to the same period in 2019,2020 was primarily due to $34,000 of increased marketing expenses is a result of costs associated with rebranding activities to highlight the commercial focus of the Company and on-line marketing program expansion and increase in travel expenses as a direct result of eased COVID-19 travel restrictions that were put in place inat the end of March 2020, that continued intooffset by a $62,000 decrease in transfer agent fees in the threenine months ended September 30, 2021 over the same period of 2020 was due to expenses related to a 20-for-1 reverse stock split effected by the Company in February 2020.

 


The decrease in facilities related expenses of $11,000 for the nine months ended September 30, 2021 over the same period in 2020 is a direct result of the expiration of a facility lease of 7,632 square feet of manufacturing space in Flagstaff, Arizona at December 31, 2020.

Interest Income/Expense, Net

 

We recorded interest expense, net of $5,000 for the nine months ended September 30, 2021, as compared to interest expense, net of $20,000 for the nine months ended September 30, 2020, as compared to interest income, net of $11,000 for the same period in 2019.2020. The $31,000$15,000 decrease in interest income,expense, net for the period was a result of decreased interest expense on certain notes payable and finance leases that expired during 2020 and increased interest income as a result of significantly lower interest rates, offset by higher average dailyinvestments in cash balances and reduced interest expense as a result of finance leases and promissory notes that expired duringinvested in money market accounts..

Paycheck Protection Program Loan Forgiveness

PPP loan forgiveness income for the nine months ended September 30, 2020.2021 represents the forgiveness of a promissory note pursuant to the PPP under the CARES Act that the Company secured under this program. 

 


Other Income (Expense)

 

We recordedOther income, net, was $22,000 for the nine months ended September 30, 2021 as compared to $18,000 of otherfor the period ended September 30, 2020. Other income, net for the nine months ended September 30, 2020, compared to $3,000 of2021 primarily represented a payroll benefits accrual from 2019 that was reversed as the liability period had expired. The $18,000 other expense,income, net for the samenine month period in 2019. The $21,000 net increase in other income was primarily due toended September 30, 2020 represented recognized gains on the sale of certain fixed assets during the nine months ended September 30, 2020 and decreased, year-over-year fair market value adjustment of our derivative warrant in the same period.

Liquidity and Capital Resources

 

Since our inception, we have sustained significant operating losses in the course of our research and development activities and commercialization efforts and expect such losses to continue for the near future. We have generated limited revenue to date from product sales, research grants and licensing fees received under oura former license agreement with Neogen.license. We have primarily funded our operations to date through the sale of equity securities, including convertible preferred stock, common stock and warrants to purchase common stock; and debt financing, consisting primarily of convertible notes; and, to a lesser extent, payments received in connection with product sales, research grants and licensing fees.notes. 

 

Through September 30, 2020,2021, we have received net proceeds of $73.2$89.3 million from our sales of common stock, preferred stock and warrant exercises and issuance of convertible and other promissory notes, and an aggregate of $1.7 million from licensing fees and an aggregate of $0.8$1.4 million fromin net product sales. AtAs of September 30, 2020,2021, we had an accumulated deficit of $102.2$110.0 million and cash and cash equivalents of $2.7$11.1 million.

 

As discussed in Note 8 - Borrowings, of our Notes to Condensed Financial Statements, on April 15, 2020, the Company also received cash proceeds of $645,700 from the Paycheck Protection Program (or “PPP”)PPP of the Coronavirus Aid, Relief, and Economic Security Act. We are usingused the proceeds from the PPP Loanloan to retain employees, maintain payroll and make lease, interest and utility payments. This loan was fully forgiven, under terms of the PPP, on June 14, 2021.

 

In addition, as described in Note 13 - Subsequent Events, we entered into a private warrant inducement transaction on October 23, 2020, which resulted in gross proceeds to the Company of approximately $2.93 million, before deducting fees payable to the placement agent and other estimated offering expenses payable by us.

Our ultimate success depends upon the outcome of a combination of factors, including: (i) successful commercialization of ContraPest and maintaining and obtaining regulatory approval of our products and product candidates; (ii) market acceptance, commercial viability and profitability of ContraPest and other products; (iii) the ability to market our products and establish an effective sales force and marketing infrastructure to generate significant revenue; (iv) the success of our research and development; (v) the ability to retain and attract key personnel to develop, operate and grow our business; and (vi) our ability to meet our working capital needs.

 

WeBased upon our current operating plan, we expect that cash and cash equivalents at September 30, 2021, in combination with anticipated revenue and additional sales of our equity securities, will need additional funding in order to continuebe sufficient to fund our current operations and achieve profitability and become cash flow positivefor at least the next 12 months. We have evaluated and will continue to seekevaluate our operating expenses and will concentrate our resources toward the successful commercialization of ContraPest in the United States. However, if anticipated revenue targets and margin targets are not achieved or expenses are more than we have budgeted, we may need to raise additional financing before that time. If we need more financing, including within the next 12 months, and we are unable to raise necessary capital through the sale of our securities, we may be required to take other measures that could impair our ability to be successful and operate as a going concern. In any event, we may require additional capital in order to fund our operating losses and research and development activities before we become profitable and may opportunistically raise capital. We may never achieve profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise capital through equity or debt financing. If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit or terminate commercialization and development efforts or discontinue operations.

 


Additional Funding Requirements

We expect our expenses to continue or increase in connection with our ongoing activities, particularly as we focus on marketing and sales of ContraPest. Further, the COVID-19 pandemic will likely continue to delay completion of field studies and achievement of sales, which will further increase our need for financing. In addition, we will continue to incur costs associated with operating as a public company.

In particular, we expect to incur substantial and increased expenses as we:

 

 Work to maximize market acceptance for, and generate sales of, our products;
   
 Manage the infrastructure for theRamp up of our sales, marketing, advertising and distribution expenses of ContraPest and any other product candidates for which we may receive regulatory approval;


 
Continue the development of ContraPest and our other product candidates, including engaging in any necessary field studies;

 
Seek additional, and to maintain, regulatory approvals for ContraPest and our other product candidates;

 
Scale up manufacturing processes and quantities to meet future demand of ContraPest and any other product candidates for which we receive regulatory approval;

 
Continue product development of ContraPest and advance our research and development activities and advance the research and development programs for other product candidates;

Maintain, expand and protect our intellectual property portfolio; and
   
 Maintain, expand and protect our intellectual property portfolio;
Add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts and operations as a public company.company; and

 We are also increasing our expenses to expand
Expand regulatory approvals for ContraPest, with an effort to make the product more user friendly and available for use in an increased number of applications.

 

We believe we will need additional financing to fund these continuing and additional expenses.

 


Cash Flows

 

The following table summarizes our sources and uses of cash for each of the periods presented:

 

  Nine Months Ended
September  30,
 
  2020  2019 
Cash used in operating activities $(5,496) $(6,092)
Cash used in investing activities  (4)  (64)
Cash provided by financing activities  6,281   5,181 
Net increase (decrease) in cash and cash equivalents $781  $(975)
  Nine Months Ended
September 30,
 
  2021  2020 
Cash used in operating activities $(6,033) $(5,496)
Cash used in investing activities  (83)  (4)
Cash provided by financing activities  13,556   6,281 
Net increase in cash and cash equivalents $7,440  $781 

 

Operating Activities.

 

During the nine months ended September 30, 2021, operating activities used $6.0 million of cash, primarily resulting from our net loss of $5.8 million, changes in our operating assets and liabilities of $387,000, offset by non-cash charges of $128,000, consisting primarily of stock-based compensation, depreciation and amortization and by the Paycheck Protection Program loan forgiveness during the period. Our net loss was primarily attributable to research and development activities and our selling, general and administrative expenses, as we generated limited product revenue during the period. Net cash used by changes in our operating assets and liabilities for the nine months ended September 30, 2021 of $387,000 consisted primarily of an increase in prepaid expenses of $403,000, an increase in inventory of $62,000 and an increase in accounts receivable of $54,000, offset by a net increase in accrued expenses and accounts payable of $121,000 and a decrease in other assets of $11,000.

During the nine months ended September 30, 2020, operating activities used $5.5 million of cash, primarily resulting from our net loss of $5.9 million and by changes in our operating assets and liabilities of $285,000, offset by non-cash charges of $654,000, consisting primarily of stock-based compensation, depreciation and amortization. Our net loss was primarily attributable to research and development activities and our selling, general and administrative expenses, as we generated limited product revenue during the period. Net cash used by changes in our operating assets and liabilities for the nine months ended September 30, 2020, consisted primarily of a net decrease in accrued expenses and accounts payable of $460,000 and an increase in prepaid expenses of $24,000 offset by a decrease in inventory of $78,000, a decrease in receivables of $119,000 and a decrease in other assets of $2,000.

 

DuringInvesting Activities.

For the nine months ended September 30, 2019, operating2021, net cash used in investing activities used $6.1 millionwas $83,000 due to the purchases of cash, primarily resulting from our net lossproperty, plant and equipment and increases in construction in progress of $7.2 million$84,000, offset by changes in our operating assetsproceeds on sale of property and liabilitiesequipment of $154,000 and by non-cash charges of $992,000, consisting primarily of stock-based compensation, depreciation and amortization. Our net loss was primarily attributable to research and development activities and our selling, general and administrative expenses, as we generated limited product revenue during the period. Net cash provided by changes in our operating assets and liabilities for the nine months ended September 30, 2019, consisted primarily of a net increase in accrued expenses and accounts payable of $164,000, a decrease in prepaid expenses of $38,000 and a decrease in deposits of $3,000 offset by an increase in inventory of $24,000, an increase in receivables of $16,000 and a decrease in deferred rent of $11,000.$1,000.

 


Investing Activities.


For the nine months ended September 30, 2020, net cash used in investing activities was $4,000 due to the sale of property and equipment of $44,000, offset by purchases of property, plant and equipment and construction in progress of $40,000.

Financing Activities.

 

ForDuring the nine months ended September 30, 2019, we used $64,0002021, net cash provided by financing activities was $13.6 million as a result of $12.4 million in net cashproceeds from the issuance of common stock and net proceeds of $1.2 million from the exercise of warrants, offset by $40,000 related to investing activities duepayments of finance lease obligations, $36,000 related to purchasesrepayments of propertynotes payable and equipment.$17,000 for the payment of employee withholding taxes related to share based awards.

 

Financing Activities.


 

During the nine months ended September 30, 2020, net cash provided by financing activities was $6.3 million as a result of $5.7 million in net proceeds from the issuance of common stock and net proceeds of $646,000 from the issuance of a note pursuant to the Paycheck Protection Program, offset by $44,000 of repayments related to notes payable and $62,000 in repayments of finance lease obligations.

 

During the nine months ended September 30, 2019, net cash provided by financing activities was $5.2 million as a result of $3.6 million in net proceeds from the issuance of common stock and net proceeds of $1.8 million from the exercise of warrants, offset by payments of $184,000 related to notes payable and $55,000 of payments for employee withholding taxes related to share-based awards.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Significant Judgments and Estimates

 

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

 

While our significant accounting policies are described in more detail in Note 2 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

 

Revenue Recognition

 

Effective January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition (“ASC 605”). Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of the fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured. The performance obligations identified by the Company under ASC 606 are straightforward and similar to the unit of account and performance obligation determination under ASC Topic 605, Revenue Recognition.

 


The Company recognizes revenue when product is shipped at a fixed selling price on payment terms of 30 to 120 days from invoicing. The Company recognizes other revenue earned from pilot studies, consulting and implementation services upon the performance of specific services under the respective service contract.

The Company derives revenue primarily from commercial sales of products, net of discounts and promotions, as well as consulting and implementation services provided in conjunction with our product deployments.

Stock-Based Compensation

We recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures, in accordance with ASC Topic 718 — Stock Compensation. We estimate the grant date fair value of the awards, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of stock-based awards is expensed on a straight-line basis over the vesting period of the respective award.

 

We recorded stock-based compensation expense of approximately $214,000 and $162,000 for the three months ended September 30, 2021 and September 30, 2020, respectively, and approximately $550,000 and $453,000 for the three and nine months ended September 30, 2020, respectively,2021 and $204,000 and $675,000 for the three and nine months ended September 30, 2019,2020, respectively. We expect to continue to grant stock options and other equity-based awards in the future and continue to recognize stock-based compensation expense in future periods.

 


The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions, which determine the fair value of stock-based awards. If we had made different assumptions, our stock-based compensation expense, net loss and loss per share of common stock could have been significantly different. Our assumptions are as follows:

 

 Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. Our historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data. Therefore, we estimate the expected term by using the simplified method, which calculates the expected term as the average of the time-to-vesting and the contractual life of the options.

 
Expected volatility. Expected volatility is derived from the average historical volatilities of publicly traded companies within our industry that we consider to be comparable to our business over a period approximately equal to the expected term. We intend to continue to consistently apply this process using the same or similar public companies unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

 
Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term.

 
Expected dividend. The expected dividend is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends on our common stock.

 
Expected forfeitures. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the extent actual forfeitures differ from the estimates, the difference will be recorded as a cumulative adjustment in the period that the estimates are revised.

 

Significant Factors, Assumptions and Methodologies Used in Determining Fair Value of Our Common Stock

 

As noted above, we are required to estimate the fair value of the common stock underlying our stock-based awards when performing the fair value calculations using the Black-Scholes option-pricing model. In the absence of an active market for our common stock, we utilized 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 our common stock. In addition, we have conducted periodic assessments of the valuation of our common stock.

 


The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. If we had made different assumptions than those used, the amount of our stock-based compensation expense, net income and net income per share amounts could have been significantly different. The fair value per share of our common stock for purposes of determining stock-based compensation expense is the closing price of our common stock as reported on the applicable grant date. The compensation cost that has been included in the statements of operations and comprehensive loss for all stock-based compensation arrangements is as follows:

 

  Three Months Ended
September 30,
  

Nine Months Ended

September 30,

 
  2020  2019  2020  2019 
Research and development $2  $1  $7  $11 
General and administrative  160   203   446   664 
Total stock-based compensation expense $162  $204  $453  $675 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
  2021  2020  2021  2020 
             
Research and development $1  $2  $2  $7 
Selling, general and administrative  213   160   548   446 
Total stock-based compensation expense $214  $162  $550  $453 

 

The intrinsic value of stock options outstanding as of September 30, 20202021 was $0.

 


Emerging Growth Company Status

 

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we intend to comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.  We will cease to be an emerging growth company at the end of 2021.

 

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item 4.Controls and Procedures

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation (pursuant to Rule 13a-15(b) of the Exchange Act), under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)) as of the end of the period covered by this report.

 

These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

 

Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2020,2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II. OTHER INFORMATION

 

Item 1.Legal Proceedings

Item 1. Legal Proceedings

 

For information regarding legal proceedings in which we are involved, see Note 12 - Commitments and Contingencies under the subsection titled “Legal Proceedings” in our Notes to Condensed Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

Item 1A.Risk Factors

Item 1A. Risk Factors

 

Except as discussed below, thereWe have been nonot made material changes in the risk factors set forth in Part I, Item 1A, “Risk Factors” in our 20192020 Annual Report.

The impacts of the coronavirus pandemic could adversely affect our business, and other similar crises could result in similar or other harms.

��

The outbreak of the novel coronavirus (COVID-19) pandemic has resulted in widespread travel and transportation restrictions and closures of commercial spaces, industrial facilities and other spaces and businesses in and across the United States and the world, including in the locations we operate or target sales. As a result, our business has been impacted and we could face continued or more adverse effects. In addition, our results and financial condition may be adversely affected by federal or state legislation, or other similar laws, regulations, orders or other governmental or regulatory actions or best practices, that would impose new restrictions on our ability to operate our business or customers to operate their businesses. For example, our sales and technical field forces have been restricted from traveling or limited in travel, which adversely affects our ability to sell our products and complete field studies. While we have implemented cautionary procedures at our manufacturing facility, there may be disruptions to our ability to manufacture due to current and additional workplace controls. Our customers may be less inclined or unable to purchase our products or continue product studies due to restrictions under which they may be operating. Those restrictions are more severe in some jurisdictions, such as California. If financial markets continue to tighten, we may have more limited ability to raise necessary financing. The COVID-19 pandemic is also placing a significant budgetary burden on federal, state and local governments, which may impede or delay their ability to purchase our products. We source some of our critical raw materials from Asia, and the coronavirus has caused supply chain disruptions, which could limit a timely supply of materials. Each of these could have negative effects on our business, results of operations, financial condition and cash flows. Even if the coronavirus pandemic passes, another crisis with similar effects could develop and harm our business, financial results and liquidity. The degree to which the COVID-19 pandemic may impact our results of operations and financial condition is unknown at this time and will depend on future developments, including the ultimate severity and the duration of the pandemic, and further actions that may be taken by governmental authorities or businesses or individuals on their own initiatives in response to the pandemic. 

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.There have been no recent sales of unregistered securities not previously disclosed in a Current Report on Form 8-K.

 

Item 3.Defaults Upon Senior Securities

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4.Mine Safety Disclosures

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5.Other Information

Item 5. Other Information

 

None.


Item 6.Exhibits

Item 6. Exhibits

INDEX TO EXHIBITS

 

Exhibit   Filed or
Furnished
   Incorporated by Reference
Number Description Herewith Form Filing Date Exhibit File No.
3.1 Amended and Restated Certificate of Incorporation, as amended by the Certificate of Amendment to the Amended and Restated Certificate of Incorporation   10-K 3/17/2020 3.1 001-37941
             
3.2 Amended and Restated Bylaws   S-1 9/21/2016 3.5 333-213736
             
4.1 Form of New Warrant   8-K 10/27/2020 4.1 001-37941
             
4.2 Form of Placement Agent Warrant   8-K 10/27/2020 4.2 001-37941
             
10.1+ SenesTech, Inc. 2018 Equity Incentive Plan, as amended, and forms of agreement thereunder   10-Q 8/13/2020 10.3 001-37941
             
10.2 Standard Industrial/Commercial Multi-Tenant Lease, between the Company and Duke Go PP, LLC, dated as of June 22, 2020    10-Q 8/13/2020 10.4 001-37941
             
10.3 Form of Letter Agreement, dated as of October 23, 2020, between the Company and the purchaser thereto.   8-K 10/27/2020 10.1 001-37941
             
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 X        
             
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 X        
             
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X        
             
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X        
             
101.INS XBRL Instance Document X        
             
101.SCH XBRL Taxonomy Extension Schema X        
             
101.CAL XBRL Taxonomy Extension Calculation Linkbase X        
             
101.DEF XBRL Taxonomy Extension Definition Linkbase X        
             
101.LAB XBRL Taxonomy Extension Label Linkbase X        
             
101.PRE XBRL Taxonomy Extension Presentation Linkbase X        
Exhibit   Filed or
Furnished
   Incorporated by Reference
Number Description Herewith Form Filing Date Exhibit File No.
3.1 Amended and Restated Certificate of Incorporation, as amended by the Certificate of Amendment to the Amended and Restated Certificate of Incorporation   10-K 3/29/2021 3.1 001-37941
             
3.2 Amended and Restated Bylaws, as amended by Amendment No. 1   10-Q 8/13/2021 3.2 001-37941
             
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 X        
             
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 X        
             
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X        
             
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X        
             
101.INS Inline XBRL Instance Document. X        
             
101.SCH Inline XBRL Taxonomy Extension Schema Document. X        
             
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. X        
             
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. X        
             
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. X        
             
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. X        
             
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). X        

 

+Indicates a management contract or compensatory plan.


SIGNATURES

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 SENESTECH, INC.

(Registrant)
   
Dated: November 13, 202012, 2021By:/s/ Kenneth Siegel
  Kenneth Siegel
  Chief Executive Officer
   
Dated: November 13, 202012, 2021By:/s/ Thomas C. Chesterman
  Thomas C. Chesterman
  Chief Financial Officer and Treasurer

 

44

39 

0001680378 snes:CommonStockOptionsMember 2020-01-01 2020-09-30 iso4217:USD xbrli:shares