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

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

For the quarterly period ended SeptemberJune 30, 20172022

OR

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

☐  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)

Delaware20-2079805

(State or other jurisdiction of


incorporation or organization)

(I.R.S. Employer


Identification No.)


314023460 N. Caden Court,19th Avenue, Suite 1
Flagstaff,110
Phoenix,
AZ
8600485027
(Address of principal executive offices)(Zip Code)

(928) 779-4143

(Registrant’s telephone number, including area code)

N/A

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

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

Title of each classTrading Symbol(s)Name of each exchange on which
registered
Common Stock, $0.001 par valueSNESThe Nasdaq Stock Market LLC

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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 filer ☐(Do not check if a smaller reporting company)Smaller reporting company
Emerging growth company ☒

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

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

The number of shares of common stock outstanding as of November 7, 2017: 10,389,497August 12, 2022: 12,212,950

 


 

SENESTECH, INC.


FORM 10-Q


For the Quarterly Period Ended SeptemberJune 30, 2017
2022

TABLE OF CONTENTS

Page
PART I. FINANCIAL INFORMATION31
Item 1Financial Statements31
Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations2824
Item 3Quantitative and Qualitative Disclosures About Market Risk3938
Item 4Controls and Procedures3938
PART II. OTHER INFORMATION39
Item 1Legal Proceedings39
Item 1ARisk Factors39
Item 2Unregistered Sales of Equity Securities and Use of Proceeds39
Item 3Defaults Upon Senior Securities39
Item 4Mine Safety Disclosures39
Item 5Other Information4039
Item 6Exhibits4140
Index to Exhibits41
Signatures4241

i

 


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SENESTECH, INC.

CONDENSED BALANCE SHEETS

(In thousands, except shares and per share data)

  September 30,
2017
  December 31,
2016
 
ASSETS  (Unaudited)      
         
Current assets:        
Cash $699  $11,826 
Investment in securities held to maturity  2,949    
Accounts receivable  7   10 
Prepaid expenses  172   337 
Inventory  394   57 
Deposits  17   9 
Total current assets  4,238   12,239 
         
Property and equipment, net  1,559   631 
Total assets $5,797  $12,870 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
Current liabilities:        
Short-term debt $174  $45 
Accounts payable  175   351 
Accrued contract cancellation settlement     1,000 
Accrued expenses  1,074   371 
Notes payable, related parties  18   30 
Total current liabilities  1,441   1,797 
         
Notes payable, related parties     6 
Long-term debt, net  637   138 
Common stock warrant liability  4   69 
Deferred rent  45   33 
Total liabilities  2,127   2,043 
         
Commitments and contingencies (See note 15)      
         
Stockholders’ equity:        
         
Common stock, $0.001 par value, 100,000,000 shares authorized, 10,363,189 and 10,157,292 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively  10   10 
Additional paid-in capital  74,946   72,069 
Stock subscribed, but not issued, consisting of -0- and 4,750 shares at September 30, 2017 and December 31, 2016, respectively     59 
Accumulated deficit  (71,286)  (61,311)
Total stockholders’ equity  3,670   10,827 
         
Total liabilities and stockholders’ equity $5,797  $12,870 
  June 30,  December 31, 
  2022  2021 
ASSETS (Unaudited)    
       
Current assets:      
Cash $5,000  $9,326 
Accounts receivable trade, net  84   77 
Prepaid expenses  338   230 
Inventory  976   1,001 
Deposits  22   22 
Total current assets  6,420   10,656 
         
Right to use asset-operating leases  431   511 
Property and equipment, net  367   334 
Total assets $7,218  $11,501 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
Current liabilities:        
Short-term debt $-  $32 
Accounts payable  286   333 
Accrued expenses  884   578 
Deferred Revenue  41   - 
Total current liabilities  1,211   943 
         
Operating lease liability  443   523 
Total liabilities  1,654   1,466 
         
Commitments and contingencies (See note 12)  -   - 
         
Stockholders’ equity:        
Common stock, $0.001 par value, 100,000,000 shares authorized, 12,212,950 and 12,207,283 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively  12   12 
Additional paid-in capital  122,961   122,531 
Accumulated deficit  (117,409)  (112,508)
Total stockholders’ equity  5,564   10,035 
         
Total liabilities and stockholders’ equity $7,218  $11,501 

See accompanying notes to financial statements.


1

SENESTECH, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSINCOME/(LOSS)

(In thousands, except shares and per share data)

(Unaudited)

 

  For the Three Months
Ended September 30,
  For the Nine Months
Ended September 30,
 
  2017  2016  2017  2016 
Revenue:            
License revenue $  $131  $  $261 
Product Sales  17      34    
Total revenue  17   131   34   261 
Cost of goods sold  11      27    
Gross profit  6   131   7   261 
                 
Operating expenses:                
Research and development  721   829   2,517   1,964 
General and administrative  2,235   1,932   7,506   5,259 
Total operating expenses  2,956   2,761   10,023   7,223 
                 
Net operating loss  (2,950)  (2,630)  (10,016)  (6,962)
                 
Other income (expense):                
Interest income  9      20    
Interest expense  (33)  (6)  (54)  (49)
Interest expense, related parties     (9)  (1)  (43)
Loss on extinguishment of unsecured promissory note     (59)     (171)
Other income (expense)  37      76   51 
Total other income (expense)  13   (74)  41   (212)
                 
Net loss  (2,937)  (2,704)  (9,975)  (7,174)
                 
Series A convertible preferred stock dividends     (30)     (90)
                 
Net loss and comprehensive loss $(2,937) $(2,734) $(9,975) $(7,264)
                 
Weighted average common shares outstanding - basic and fully diluted  10,334,211   7,306,234   10,234,211   5,774,738 
                 
Net loss per common share - basic and fully diluted $(0.28) $(0.37) $(0.97) $(1.26)

For The Three Months Ended June 30, 2021 and 2022

 

  For the Three Months  For the Six Months 
  Ended June 30,  Ended June 30, 
  2022  2021  2022  2021 
             
Sales $277  $160  $472  $248 
                 
Cost of sales  141   119   246   169 
Gross profit  136   41   226   79 
                 
Operating expenses:                
Research and development  431   455   947   910 
Selling, general and administrative  2,277   1,935   4,184   3,357 
Total operating expenses  2,708   2,390   5,131   4,267 
                 
Net operating loss  (2,572)  (2,349)  (4,905)  (4,188)
                 
Other income (expense):                
Interest income  1   1   3   3 
Interest expense  -   (3)  (1)  (8)
Payroll Protection Program loan forgiveness  -   650   -   650 
Other income  2   1   2   22 
Total other income  3   649   4   667 
                 
Net loss and comprehensive loss $(2,569) $(1,700) $(4,901) $(3,521)
                 
                 
Weighted average common shares outstanding - basic and fully diluted  12,212,701   12,178,754   12,210,863   10,169,061 
                 
Net loss per common share - basic and fully diluted $(0.21) $(0.14) $(0.40) $(0.35)

See accompanying notes to financial statements.

2

 

SENESTECH, INC.

CONDENSED STATEMENTS OF CASH FLOWS
CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands)
thousands, except shares and per share data)

(Unaudited)

For The Three Months Ended June 30, 2021 and 2022

 

  For the Nine Months 
  Ended September 30, 
  2017  2016 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss $(9,975) $(7,174)
Adjustments to reconcile net loss to net cash used in operating activities:        
Gain on investments held to maturity  (20)   
Amortization of discounts on investments held to maturity  11    
Depreciation and amortization  273   143 
Stock-based compensation  2,818   2,406 
Non-cash charge for settlement of dispute     300 
Amortization of debt discount     27 
Gain on remeasurement of common stock warrant liability  (65)  (51)
Loss on extinguishment of unsecured promissory note     171 
(Increase) decrease in current assets:        
Accounts receivable  3   (4)
Prepaid expenses  165   (17)
Inventory  (337)   
Deposits  (8)   
Increase (decrease) in current liabilities:        
Accounts payable  (176)  77 
Accrued contract cancellation settlement  (1,000)   
Accrued expenses  703   61 
Deferred rent  12   (4)
Deferred revenues     (175)
Net cash used in operating activities  (7,596)  (4,240)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Purchase of securities held to maturity  (2,940)   
Purchase of property and equipment  (885)  (54)
Net cash used in investing activities  (3,825)  (54)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from the issuance of series B convertible preferred stock     896 
Proceeds from the issuance of common stock     6,199 
Proceeds from the issuance of convertible notes payable     326 
Repayments of convertible notes payable     (810)
Proceeds from the issuance of notes payable  437    
Repayments of notes payable  (48)  (24)
Repayments of notes payable, related parties  (18)  (721)
Repayments of capital lease obligations  (77)  (16)
Payment of deferred offering costs     (801)
Proceeds from exercise of stock options and warrants     449 
Net cash provided by financing activities  294   5,498 
         
NET CHANGE IN CASH  (11,127)  1,204 
CASH AT BEGINNING OF PERIOD  11,826   141 
CASH AT END OF PERIOD $699  $1,345 
         
         
SUPPLEMENTAL INFORMATION:        
Interest paid $55  $23 
Income taxes paid $  $ 
         
NON-CASH INVESTING AND FINANCING ACTIVITIES:        
Purchases of equipment under capital lease obligations $316  $157 
Original issue discount $  $147 
Debt discount on convertible notes $  $9 
Related party convertible note extinguished for settlement payable $  $404 
Contributed capital, debt forgiveness by related parties $  $2,003 
Issuance of series B convertible preferred stock in connection with conversion of convertible notes and $  $16 
Issuance of shares of common stock upon conversion of Series B convertible preferred stock $  $260 
Dividends $  $90 

        Additional     Total
Stockholders’
 
  Common Stock  Paid-In  Accumulated  Equity 
  Shares  Amount  Capital  Deficit  (Deficit) 
                
Balance, March 31, 2021  12,164,046  $12  $121,897  $(106,061) $15,848 
                     
Stock-based compensation  -   -   182   -   182 
Issuance of common stock upon exercise of warrants, net  499   -   11   -   11 
Issuance of common stock for service  20,951   -   -   -   - 
Payments for employee withholding taxes related to share based awards          (17)      (17)
Net loss for the three months ended June 30, 2021  -   -   -   (1,700)  (1,700)
Balance, June 30, 2021  12,185,496  $12  $122,073  $(107,761) $14,324 
                     
Balance, March 31, 2022  12,212,283  $12  $122,755  $(114,840) $7,927 
                     
Stock-based compensation  -   -   205   -   205 
Issuance of common stock for service  667   -   1   -   1 
Net loss for the three months ended June 30, 2022  -   -   -   (2,569)  (2,569)
Balance, June 30, 2022  12,212,950  $12  $122,961  $(117,409) $5,564 
                     
For The Six Months Ended June 30, 2021 and 2022                    
                     
Balance, December 31, 2020  5,099,512  $5  $108,119  $(104,240) $3,884 
                     
Stock-based compensation  -   -   337   -   337 
Issuance 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  901,179   1   1,219   -   1,220 
Payments for employee withholding taxes related to share based awards  -   -   (17)  -   (17)
Net loss for the six months ended June 30, 2021  -   -   -   (3,521)  (3,521)
Balance, June 30, 2021  12,185,496  $12  $122,073  $(107,761) $14,324 
                     
Balance, December 31, 2021  12,207,283  $12  $122,531  $(112,508) $10,035 
                     
Stock-based compensation  -   -   426   -   426 
Issuance of common stock for service  5,667   -   4   -   4 
Net loss for the six months ended June 30, 2022  -   -   -   (4,901)  (4,901)
Balance, June 30, 2022  12,212,950  $12  $122,961  $(117,409) $5,564 

See accompanying notes to financial statements.

3

 


SENESTECH, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

  For the Six Months 
  Ended June 30, 
  2022  2021 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss $(4,901) $(3,521)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  113   151 
Stock-based compensation  430   337 
Bad debt expense  12   - 
Paycheck Protection Program loan forgiveness  -   (648)
Paycheck Protection Program loan accrued interest forgiveness  -   (2)
Gain on sale of equipment  -   (1)
(Increase) decrease in current assets:        
Accounts receivable - trade  (7)  (49)
Accounts receivable - other  (12)  - 
Other assets  -   10 
Prepaid expenses  (108)  (203)
Inventory  25   (24)
Increase (decrease) in current liabilities:        
Accounts payable  (47)  (185)
Accrued expenses  306   134 
Deferred revenue  41   - 
Net cash used in operating activities  (4,148)  (4,001)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Cash received on sale of property and equipment  -   1 
Purchase of property and equipment  (146)  (84)
Net cash used in investing activities  (146)  (83)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from the issuance of common stock, net  -   12,421 
Repayments of notes payable  (5)  (28)
Repayments of finance lease obligations  (27)  (26)
Proceeds from the exercise of warrants  -   1,220 
Payment of employee withholding taxes related to share based awards  -   (17)
Net cash (used in) provided by financing activities  (32)  13,570 
         
NET CHANGE IN CASH  (4,326)  9,486 
CASH AT BEGINNING OF PERIOD  9,326   3,643 
CASH AT END OF PERIOD $5,000  $13,129 
         
SUPPLEMENTAL INFORMATION:        
Interest paid $1  $8 
Income taxes paid $-  $- 

See accompanying notes to financial statements.

4

 

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS


(In thousands, except share and per share data)
(Unaudited)

Note 1 - Organization and Description of Business

SenesTech, Inc. (the “Company”(referred to in this report as “SenesTech,” the “Company,” “we,” “us”, or “our”) was formed in July 2004 and incorporated in the state of Nevada. The CompanyWe subsequently reincorporated in the state of Delaware in November 2015. The Company has itsOur corporate headquarters is in Flagstaff,Phoenix, Arizona.

The Company has We have developed and are commercializing a global, proprietary technology for managing animal pest populations, initially rat populations, through fertility control. The Company believes that its innovative non-lethal approach, targeting reproduction,

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 more humane, less harmfulinherently 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 result in a sustained reduction of the rat population.

Rats have plagued humanity throughout history. They pose significant threats to the environment,health and more effective in providing a sustainablefood security of many communities. In addition, rodents cause significant 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 equipment.

The most prevalent solution to pestrat infestations than traditional lethalis 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 methods. Itsindustry 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 highly effective solution to combat their rat problems, but also offer a 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 fertility control product candidate,breeding cycle following consumption. ContraPest is being marketed for use in controlling Norway and roof rat populations.

We began the rat population. The innovative compound is consumed by rats and leaves them non-reproductive without other observable side effects. The U.S.registration process with the United States Environmental Protection Agency (“EPA”(the “EPA”) granted registration approval for ContraPest effectiveon August 23, 2015. On August 2, 2016. The Company plans2016, 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 June 2022, we received EPA registration and approval our new Elevate Bait System with ContraPest. This innovative bait system provides a unique and effective delivery system designed to target roof rats in elevated spaces.

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

In addition to product registration, the EPA also approves all labeling (the container label, instructional inserts, and the Safety Data Sheet (“SDS”)) of ContraPest. Generally, states accept the EPA approved label as is. ContraPest’s labeling was submitted to the states at the initial registration and is resubmitted during state scheduled reregistration or for any significant labeling change requiring EPA approval.

5

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

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

We expect to continue to commercializepursue regulatory approvals and distributeamendments to the existing U.S. registration for ContraPest by leveraging newto broaden the marketability and existing third-party relationshipsuse 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 manufacturing, marketingthese requirements.

We also continue to research and distribution partnersdevelop enhancements to ContraPest that align with our target verticals and other potential fertility control options for additional species and alternate delivery systems. 

Going Concern

Our financial statements as of June 30, 2022, December 31, 2021 and June 30, 2021 were prepared under the assumption that we would continue as a going concern, the report of our independent registered public accounting firm that accompanies our financial statements for the years ended December 31, 2021 and December 31, 2020 contains a going concern qualification in which such firm expressed substantial doubt about our ability to continue as a going concern, based on the financial statements at that time. Specifically, as noted above, we have incurred operating losses since our inception, and we expect to continue to incur significant expenses and operating losses for the foreseeable future. These prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. If we encounter continued issues or delays in the U.S.commercialization of ContraPest, our prior losses and internationally.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.

Liquidity and Capital Resources

Potential Need for Additional Capital

InSince our inception, we have sustained significant operating losses in the course of itsour research and development and commercialization activities the Company has sustained operating losses since its inception and expectsexpect such losses to continue for the near future. The Company’sWe have generated limited revenue to date from product sales, research grants and licensing fees received under our former license 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 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 June 30, 2022, we received net proceeds of $89.6 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 $2.0 million in net product sales. As of June 30, 2022, we had an accumulated deficit of $117.4 million and cash and cash equivalents of $5.0 million.

Our ultimate success depends upon the outcome of a combination of factors, including:including the following: (i) the success of its research and development; (ii) ongoing regulatory approval andsuccessful commercialization of ContraPest and its othermaintaining and obtaining regulatory approval of our products and product candidates; (iii)(ii) market acceptance, and commercial viability and profitability of ContraPest and other products if the Company obtains the necessary regulatory approvals; (iv)products; (iii) the ability to market itsour 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 itsour business; and (vi) our ability to meet our working capital needs.

6

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

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

Based upon our current operating plan, we expect that cash and cash equivalents at June 30, 2022, in combination with anticipated revenue and any additional sales of our equity securities, will be sufficient to fund our current operations for at least the timelynext six to nine months. We have evaluated and will continue to evaluate our operating expenses and will concentrate our resources toward the successful completioncommercialization 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. The Company has funded its operationsfinancing before that time. If we need more financing, including within the next six to datenine months, and we are unable to raise necessary capital through the sale of convertible preferred stockour securities, we may be required to take other measures that could impair our ability to be successful and common stock, including an initial public offering of 1,875,000 shares of its common stock on December 8, 2016, debt financing, consisting primarily of convertible notes and, tooperate as a lesser extent, payments received in connection with research grants and licensing fees. As of September 30, 2017, the Company had cash and cash equivalents and highly liquid investments of $3,648. However, the Company is likely togoing concern. In any event, we may require additional capital in order to fund itsour operating losses and research and development activities by issuing additionalbefore 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 and equity instruments until such time as the Company is profitable.financing. If such equity or debt financing is not available at adequate levels the Company willor on acceptable terms, we may need to reevaluate its plans.delay, limit or terminate commercialization and development efforts or discontinue operations.

All amounts shown in these financial statements are in thousands, except percentages and per share and share amounts. Per share and share amounts reflect post-reverse split values.

Basis of Presentation

TheOur 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 the U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the Company’sour 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’sour financial position as of SeptemberJune 30, 2017, the Company’s2022, our operating results for the three months and ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, and the Company’sour cash flows for the ninesix months ended SeptemberJune 30, 20172022 and 2016.2021. The accompanying financial information as of December 31, 20162021 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’sour Annual Report on Form 10-K/A10-K for the year ended December 31, 2016.

2021, filed with the SEC on March 29, 2022. 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 accounting principles generally accepted in the United States of America (“U.S. GAAP”)GAAP requires management to make estimates and assumptions that affect the reported amounts and classification of assets and liabilities, and 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’sour 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.

Reclassifications

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.

Deferred Offering Costs

Deferred offering costs consisted primarily of legal, accounting and other direct and incremental fees and costs related to the Company’s initial public offering on December 8, 2016. Deferred offering costs of $2,234 were offset against the proceeds received from the initial public offering in December 2016.There were no deferred offering costs at September 30, 2017.

Cash and Cash Equivalents

The Company considersWe consider money market fund investments to be cash equivalents. The CompanyWe had cash equivalents in the form of $70money market fund investment of $4,095 and $-0-$8,793 at SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively, included in cash as reported.

7

 

Investments in Securities Held to Maturity

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

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

Accounts Receivable-Trade

The Company uses cash holdings to purchase highly liquid, short term, investment grade securities diversified among security types, industries and issuers. All of the Company’s investment securities are measured at fair value. The Company’s investment securities primarily consist of municipal debt securities, corporate bonds, U.S. agency securities and commercial paper and highly-liquid money market funds.

Accounts Receivable

Accounts receivablereceivable-trade consist primarily of trade receivables. The Company providesreceivables from customers. We provide 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. TheWe had allowance for doubtful trade receivables was $3 and $-0- asat June 30, 2022 of September 30, 2017 and$12. We did not have any allowance for doubtful trade receivables at December 31, 2016, respectively.2021.

Inventories

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. AsRaw materials are stocked to reduce the risk of September 30, 2017 and December 31, 2016,impact on manufacturing for potential supply interruptions due to the Company had inventoriesCOVID-19 pandemic, supply chain issues or long lead times on certain ingredients.

Components of $394 and $57, respectively.inventory were:

  June 30,  December 31, 
  2022  2021 
Raw materials $880  $937 
Work in progress  5   5 
Finished goods  113   88 
Total inventory  998   1,030 
Less:        
Reserve for obsolete  (22)  (29)
Total net inventory $976  $1,001 

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS 

(In thousands, except share and per share data)

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

Prepaid Expenses

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

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Equipment held under capitalfinance 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 capitalfinance leases is amortized over the shorter of the lease term or estimated useful life of the asset. The Company incursWe incur repair and maintenance costs on itsour major equipment. Repair and maintenance costsequipment, which are expensed as incurred.

8

 

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

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

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-livedlong- lived assets or asset groups to be tested for possible impairment, the Company compareswe compare 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- partythird-party independent appraisals. The Company hasWe have not recorded an impairment of long-lived assets since its inception.

Revenue Recognition

The Company recognizesEffective January 1, 2018, we adopted Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, we recognize revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies whenby applying the following steps: (1) persuasive evidence of an arrangement exists;identify the contract with a customer; (2) identify the performance of service has been renderedobligations 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.

We recognize revenue when product is shipped at a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS 

(In thousands, except share and per share data)

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

The Company has generated revenue from a license agreement with a strategic partner, pursuant to which the Company had granted to such partner the exclusive right to manufacture and distribute its product, ContraPest, once the required regulatory approvals were received. This licensing agreement was subsequently terminatedselling price on January 23, 2017. Thepayment terms of the licensing agreement contained multiple elements or deliverables, as discussed below. Management evaluates whether the arrangement involving the multiple deliverables contains more than one unit of accounting. To determine the units of accounting under a multiple-element arrangement, management evaluates certain separation criteria, including whether the deliverables have stand-alone value, based on the relevant facts and circumstances of the arrangement.

The Company determined that the license granted pursuant30 to the license agreement did not have stand-alone value and, therefore, the nonrefundable, upfront license fee payments received by the Company are recognized on a straight-line basis over the estimated related performance period (i.e.120 days from the effective date of the agreement through the estimated completion date of the Company’s substantive performance obligations).

In accordance with the terms of the license agreement, the Company was also to receive a future fixed amount of contingent milestone payments (i.e. post-regulatory approval license fees) and contingent sales-based royalties to be received upon the achievement of certain milestone events. The milestone events under the agreement include regulatory approval, patent issuance or alternative intellectual property coverage, and sales-based events. The Company did not earn or receive any of the potential contingent milestone payments, as the milestone events to receive such post-approval license fees and sales-based royalties were not achieved. The Company recognizes revenue that is contingent upon the achievement of a substantive milestone event in its entirety in the period in which the milestone is achieved. A milestone is considered substantive when the consideration payable to the Company for such milestone has all of the following characteristics: (i) there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved; (ii) the event can only be achieved based in whole or part on either the Company’s performance or a specific outcome resulting from the Company’s performance; and (iii) if achieved, the event would result in additional payments being due to the Company. As the potential contingent consideration was to be received only upon the achievement of milestone events that are considered substantive, the Company would onlyinvoicing. We recognize such revenue in the period the milestone is achieved and the milestone payments became due and collectible. In addition, the Company accounts for sales-based royalties as revenue upon achievement of certain sales milestones. 

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue on the balance sheet. Amounts expected to be recognized as revenue in the next twelve months following the balance sheet date are classified as a current liability.

The Company recognizes other revenue earned from pilot studies, consulting and implementation services upon the performance of specific services under the respective service contract.

We derive 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. 

Deferred revenue represents payments that have been received in advance of fulfillment of these orders. These product orders are anticipated to be fulfilled in future periods.

 

For the nine months ended September 30, 2017, the Company generated net revenues of $34.

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, and costs incurred related to conducting scientific trials and field studies, and regulatory compliance costs. Also, included in researchcosts, as well as manufacturing costs associated with process improvement and other research. Research and development expenses isinclude an allocation of facilities related costs, including depreciation of research and development equipment.

Stock-Based Compensation

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

Employee stock-based awards, consisting of stock options and restricted stock units and stock options expected to be settled in shares of the Company’sour common stock, are recorded as equity awards. The grant date fair value of these awards is measured using the Black-Scholes option pricing model. The Company expensesmodel for stock options and grant date market value for restricted stock units. We expense the grant date fair value of its stock options 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.

For equity instruments issued to non-employees, the stock-based consideration is measured using a fair value method. The measurement of the stock-based compensation is subject to re-measurement as the underlying equity instruments vest.

The stock-based compensation expense recorded for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016 is2021, was as follows:

  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
  2022  2021  2022  2021 
             
Research and development $3  $-  $4  $2 
Selling, general and administrative  203   182   426   335 
Total stock-based compensation expense $206  $182  $430  $337 

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

9

 

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
  2017  2016  2017  2016 
             
Research and development $85  $135  $269  $309 
General and administrative  861   798   2,549   2,097 
Total stock-based compensation expense $946  $933  $2,818  $2,406 

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

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

Income Taxes

The Company accountsWe account 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 recordsWe record net deferred tax assets to the extent it believeswe believe 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 considerswe consider 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.

We apply 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 our evaluation, we have concluded there are no significant uncertain tax positions requiring recognition in our financial statements.

10 

We recognize interest and/or penalties related to uncertain tax positions in income tax expense. There are no uncertain tax positions as of June 30, 2022 or December 31, 2021 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, the Series A convertible preferred stock (prior to its conversion into common stock), Series B convertible preferred stock (prior to its conversion into common stock), convertible promissory notes (prior to their conversion), 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 ninesix months ended SeptemberJune 30, 20172022 and 2016.2021. Therefore, basic and diluted loss per share attributable to common stockholders wasare the same for all periodseach period presented.

10

 

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, 
  2017  2016 
Series A convertible preferred stock     400,000 
Series B convertible preferred stock     483,609 
Common stock purchase warrants  829,285   750,185 
Restricted stock units  344,982    
Common stock options  1,558,800   1,321,300 
Total  2,733,067   2,955,094 

  June 30, 
  2022  2021 
Common stock purchase warrants  4,531,447   4,553,234 
Restricted stock units  -   667 
Common stock options  1,473,320   1,069,661 
Total  6,004,767   5,623,562 

Accounting Standards Issued but Not Yet Adopted

11 

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS  

(In thousands, except share and per share data)

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

In May 2017, the FASB issued Accounting Standard Update (“ASU”)No.2017-9,Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU2017-9”), which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modificationThere have been no new accounting in Topic 718.Per ASU 2017-9, an entity should account for the effects of a modification unless all the following are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in ASU 2017-9.ASU 2017-9 is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017.Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements havepronouncements not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendmentseffective or adopted in this ASU should be applied prospectively to an award modified on or after the adoption date. The adoption ofASU 2017-9 is not expected tocurrent year that we believe have a materialsignificant impact, on the Company’s financial statements or related disclosures.

In August 2016, the FASB issued ASU No. 2016-15,Statement of Cash Flows (Topic230): Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU provide guidance on the following eight specific cash flow classification issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relationpotential significant impact, to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. Current GAAP does not include specific guidance on these eight cash flow classification issues. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The adoption of ASU No. 2016-15 is not expected to have a material impact on the Company’s financial statements or related disclosures.

In March 2016, the FASB issued ASU No. 2016-09,Improvements to Employee Share-Based Payment Accounting(“ASU 2016-09”). This standard involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods for public business entities. The method of adoption is dependent on the specific aspect of accounting addressed in this new guidance. Early adoption was permitted in any interim or annual period. ASU 2016-09 was adopted by the Company and did not have a material impact on the Company’s financial statements or related disclosures.

In February 2016, the FASB issued ASU No. 2016-02,Leases(“ASU 2016-02”). This standard amends various aspects of existing accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This standard also introduces new disclosure requirements for leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Early adoption is permitted and the new standard must be adopted using a modified retrospective approach, and provides for certain practical expedients. The Company is evaluating the impact of the adoption of ASU 2016-02 on its financial statements and related disclosures.


In January 2016, the FASB issued ASU No. 2016-01,Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities(“ASU 2016-01”). This standard affects the accounting for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. ASU 2016-01 is effective in the first quarter of 2019. The Company is evaluating the impact of the adoption of ASU 2016-01 on its financial statements and related disclosures.

In November 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2015-17,Balance Sheet Classification of Deferred Taxes, which eliminates the guidance in Topic 740, Income Taxes, that required an entity to separate deferred tax assets and liabilities between current and noncurrent amounts in a classified balance sheet. The amendments require that all deferred tax assets and liabilities of the same jurisdiction or a tax filing group, as well as any related valuation allowance, be offset and presented as a single noncurrent amount in a classified balance sheet. The standard became effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, and may be applied on either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company has adopted this standard retrospectively for all periods presented. The adoption of this standard did not have a material impact on the Company’s financial statements.

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, 2017 or December 31, 2016 and as such, no interest or penalties were recorded in income tax expense.

In August 2014, the FASB issued ASU No. 2014-15,Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern(“ASU 2014-15”). This standard requires management to perform an evaluation in each interim and annual reporting period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year of the date the financial statements are issued. If such conditions or events exist, ASU 2014-14 also requires certain disclosures of management’s plans and evaluation, as well as the plans, if any, that are intended to mitigate those conditions or events that will alleviate the substantial doubt. ASU No. 2014- 15 is effective for the annual period ending after December 15, 2016 and for annual and interim periods thereafter. Early adoption was permitted for annual or interim reporting periods for which the financial statements have not been previously issued. ASU 2014-15 was adopted by the Company and did not have a material impact on the Company’sour condensed consolidated financial statements or related disclosures.

In May 2014 the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Adoption of the new standard is effective for reporting periods beginning after December 15, 2017. We plan to use the modified retrospective method of adoption and will adopt the standard as of January 1, 2018, the beginning of our next fiscal year.. We have completed an initial evaluation of the potential impact from adopting the new standard, including a detailed review of performance obligations for all material revenue streams. Based on this initial evaluation, we do not expect adoption will have a material impact on our financial position, results of operations, or cash flows. Related disclosures will be expanded in line with the requirements of the standard. We will continue our evaluation until our adoption of the new standard.statements.


Note 3 - Fair Value Measurements

The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable and accounts payable approximate their fair values due to their short maturities. Assets and liabilities recorded at fair value on a recurring basis in the balance sheets, as well as assets and liabilities measured at fair value on a non-recurring basis or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value, and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance also establishes 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:

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.

The Company’s cash equivalents, which include money market funds, are classified as Level 1 because they are valued using quoted market prices. The Company’s marketable securities consist of held to maturity securities and are generally classified as Level 2 because their value is based on valuations using significant inputs derived from or corroborated by observable market data.

In certain cases where there is limited activity or less transparency around the inputs to valuation, securities are classified as Level 3. Level 3 liabilities consist of common stock warrant liability.


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 3 - Fair Value Measurements – (continued)

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, 2017 
  Level 1  Level 2  Level 3  Total 
Financial Assets:                
Money market funds $70  $  $  $70 
Corporate fixed income debt securities     2,949      2,949 
Total $70  $2,949  $  $3,019 
Financial Liabilities:                
Common stock warrant liability(1) $  $  $4  $4 
Total $  $  $4  $4 

  December 31, 2016 
  Level 1  Level 2  Level 3  Total 
Financial Assets:                
None $  $  $  $ 
                 
Financial Liabilities:                
Common stock warrant liability(1) $  $  $69  $69 
Total $  $  $69  $69 

(1) The change in the fair value of the common stock warrant and convertible notes payable for the three and nine months ended September 30, 2017 was recorded as a decrease to other income (expense) and interest expense of $30 and $69, respectively, in the statements of operations and comprehensive loss.

Financial Instruments Not Carried at Fair Value

The carrying amounts of the Company’sour 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 otherour notes, not recorded at fair value, are recorded at cost or amortized cost which was deemed to estimate fair value.


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 4 - InvestmentCredit Risk

We are potentially subject to concentrations of credit risk in Securities Heldour accounts receivable. Credit risk with respect to Maturity

Asreceivables is limited due to the number of Septembercompanies comprising our customer base. At June 30, 2017, investment2022, we had $12 in securities held to maturity primarily consisted of corporate fixed income securitiespotentially uncollectable accounts and commercial paper. The Companyrecorded a reserve for uncollectable accounts in that amount. We did not have investments priorany potentially uncollectable accounts at December 31, 2021 and therefore, did not record a reserve for uncollectable accounts at December 31, 2021. We do not require collateral or other securities to the first quarter of 2017. The Company classifies all investments as held to maturity as these investments are short term, highly liquid investments which we intend to hold to maturity. Held to maturity securities are recorded at cost and gains and losses are only recognized as the sale or redemption of the securities is realized. Realized gains and losses are included in non-operating other income (expense) on the condensed statement of operations and are derived using the specific identification method for determining the cost of the securities sold. During the three and nine months ended September 30, 2017, the Company had a minimal amount of net realized gain (loss) on investments recorded. Interest and dividends on investments held to maturity are included in interest and other income, net, in the condensed statements of operations.support its accounts receivable.

The following is a summary of held to maturity securities at September 30, 2017:

    September 30, 2017 
  Contractual
Maturity (in months)
 Cost  Gross Unrealized
Gains
  Gross Unrealized
Losses
  Fair Market
Value
 
Mutual funds   $  $  $  $ 
Corporate fixed income securities Less than 12 months  2,746   3      2,749 
Commercial paper Less than 12 months  200         200 
Total investments   $2,946  $3  $  $2,949 

Note 5 - Prepaid Expenses

Prepaid expenses consistconsisted of the following:

  June 30,  December 31, 
  2022  2021 
Director, officer and other insurance $153  $109 
Rent  36   - 
Marketing programs and conferences  48   66 
Patents  71   41 
Inventory deposits  20   12 
Professional services  8   - 
Engineering, software licenses and other  2   2 
Total prepaid expenses $338  $230 

 

  September 30,
2017
  December 31,
2016
 
Director compensation $  $215 
Director, officer and other insurance  95   70 
Legal retainer  25   25 
Rent  17   17 
Inventory Purchase Deposits  20    
Engineering, software licenses and other  15   10 
Total prepaid expenses $172  $337 

11

16

 

SENESTECH, INC.


NOTES TO CONDENSED FINANCIAL STATEMENTS


(In thousands, except share and per share data)

Note 6 - Property and Equipment

Property and equipment, net consistconsisted of the following:

  Useful
Life
 September 30,
2017
  December 31,
2016
 
Research and development equipment 5 years $1,335  $989 
Office and computer equipment 3 years  672   235 
Furniture and fixtures 7 years  34   17 
Autos/Trucks 5 years  306    
Leasehold improvements *  283   189 
     2,630   1,430 
Less accumulated depreciation and amortization    1,071   799 
Total   $1,559  $631 
  Useful June 30,  December 31, 
  Life 2022  2021 
Research and development equipment (1) 5-7 years $1,512  $1,425 
Office and computer equipment 3 years  797   762 
Autos 5 years  54   54 
Furniture and fixtures 7 years  41   41 
Leasehold improvements *  117   112 
Construction in progress    65   45 
     2,586   2,439 
Less accumulated depreciation and amortization    (2,219)  (2,105)
Total   $367  $334 

*Shorter of lease term or estimated useful life

* Shorter of lease term or estimated useful life

(1) In the three months ended and six months ended June 30, 2022, we received net proceeds of less than    $2 in the sale of manufacturing, research and development equipment, resulting in gains on the sale of these assets of less than $2. In the three months ended and six months ended June 30, 2021, we received net proceeds of less than $1 in the sale of manufacturing, research and development equipment, resulting in gains on the sale of these assets of less than $1.

Depreciation and amortization expense was approximately $118$47 and $49$78 for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, and $272$113 and $143$151 for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.

Note 7 - Accrued Expenses

Accrued expenses consistconsisted of the following:

  September 30,
2017
  December 31,
2016
 
Compensation and related benefits $705  $82 
Accrued litigation  269   286 
Research project agreement  100    
Other     3 
Total accrued expenses $1,074  $371 
  June 30,  December 31, 
  2022  2021 
Compensation and related benefits $715  $524 
Legal services  -   17 
Digital media  77   - 
Recruiting  37   - 
Product warranty  31   18 
Personal property and franchise tax  15   5 
Other  9   14 
Total accrued expenses $884  $578 

Note 8 - Accrued Contract Cancellation SettlementBorrowings

A summary of our borrowings, including finance lease obligations, was as follows:

The accrued contract cancellation settlement of $1,000 was

  June 30,  December 31, 
  2022  2021 
Short-term debt:      
Finance lease obligations $         -  $27 
Other promissory notes  -   5 
Total $-  $32 

Finance Lease Obligations 

All finance lease and promissory note obligations, for manufacturing equipment leased through ENGS Commercial Finance Co., were settled in full during the result ofthree months ended June 30, 2022.

On June 18, 2021, we received notification from BMO Harris Bank National Association as the Company entering intolender in a settlement agreement with Neogen Corporation in which Neogenpromissory note pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and the Company agreed to (a) terminate the existing Exclusive License Agreement between the Company and Neogen dated May 15, 2014Economic Security Act (the “License Agreement”“CARES Act”), with neither Neogen or the Company having any further obligations thereunder (other than certain confidentiality obligations); (b) dismiss with prejudice the court action filed by Neogenthat a loan to us under this program in the District Court for the Districtamount of Arizona on January 19, 2017 (the “Court Action”); and (c) mutually release any and all existing or future claims between the parties and their affiliates related to or arising from the License Agreement or the Court Action. Under$646 was forgiven in full under the terms of the agreement,program. The forgiveness of this note and related interest was recorded as other income on the Company agreed to make a one-time payment inCondensed Statements of Operations and Comprehensive Loss for the amount of $1,000 in settlement of all claims and termination of all existing contracts between the parties. This payment was made in January, 2017. See Note 15 for further details.quarter ended June 30, 2021.


12

SENESTECH, INC.


NOTES TO CONDENSED FINANCIAL STATEMENTS


(In thousands, except share and per share data)

Note 9 - Borrowings

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

  September 30,
2017
  December 31,
2016
 
Short-term debt:        
Current portion of long-term debt  174   45 
Total short-term debt $174  $45 
Long-term debt:        
Capital lease obligations $290  $51 
Other unsecured promissory notes  521   132 
Total  811   183 
Less: current portion of long-term debt  (174)  (45)
Total long-term debt $637  $138 

Capital Lease Obligations

Capital lease obligations are for computer and lab equipment leased through Great American, Thermo Fisher, Navitas and ENGS. These capital leases expire at various dates through June 2022. Also included in the table above are three notes payable to Direct Capital and one to M2 Financing for the financing of fixed assets.

Note 10 - Notes Payable, Related Parties

A summary of the Company’s notes payable, related parties is as follows:

  September 30,
2017
  December 31,
2016
 
Unsecured promissory note, interest rate of 4.25% and 8% per annum $18  $36 
Less: current portion of notes payable, related parties  18   30 
Total notes payable, long-term, related parties $  $6 

In April 2013, the Company and a previous employee entered into an agreement to settle all outstanding obligations consisting of a promissory note of $40, dated March 2009, and deferred salaries amounting to $72. The note and salary obligation continue to bear interest at 8% and 4.25%, respectively. The note requires monthly payments of $1 and matures in April 2018. The deferred salary obligation requires monthly payments of $1 and matures in May 2018.

Amounts outstanding on these obligations were $18 and $36 at September 30, 2017 and December 31, 2016, respectively.

Interest expense on the notes payable, related parties, was $-0- and $1 for the three months and nine months ended September 30, 2017 and $56 for the year ended December 31, 2016 respectively.


TECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 119 - Common Stock Warrants and Common Stock Warrant Liability

The table summarizes the common stock warrant activity as of SeptemberJune 30, 2017 as follows:2022 by warrant type:

  Number          
  of  Date     Exercise 
Common  Stock Warrants Warrants  Issued  Term  Price 
Outstanding at December 31, 2015  610,487            
Initial Public Offering Underwriter  187,500  December 2016   5 years  $9.60 
Marketing and Development Services  100,000  February 2016   5 years(1)  $7.50 
Other Advisory Services  40,000  August 2016   3 years(1)  $7.50 
Promissory Notes  9,031  March 2016   3 years(1)  $7.50 
Warrants issued  336,531            
Warrants exercised  (117,733)           
Outstanding at December 31, 2016  829,285            
Warrants issued              
Warrants exercised              
Outstanding at September 30, 2017  829,285            
         Balance           Balance           Balance 
Issue Date Warrant Type Term
Date
 Exercise
Price
  December 31,
2020
  Issued  Exercised  Expired  December 31,
2021
  Issued  Exercised  Expired  June 30,
2022
 
                                   
November 21, 2017 Common Stock Offering Warrants November 21, 2022 $1.3659(1)  143,501          -   (21,787)  -   121,714   -   -   -   121,714 
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   -   (499)  -   202,444   -   -   -   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 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   50,000   -   -   -   50,000   -   -   -   50,000 
October 26, 2020 Private Warrant Inducement April 27, 2026 $1.73   1,700,680       (700,680)      1,000,000   -   -   -   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   -   -   -   2,194,427 
February 2, 2021 Dealer Manager Warrants August 2, 2026 $2.848   -   329,164   -   -   329,164   -   -   -   329,164 
March 23, 2021 Dealer Manager Warrants March 23, 2026 $2.50   -   148,125   -   -   148,125   -   -   -   148,125 
           2,582,697               4,531,447               4,531,447 

(1)The initial exercise price of these warrants also terminate, if not exercised bywas $30.00 per share. Pursuant to antidilution price adjustment protection contained within these warrants, the earlierinitial exercise price of (i) December 13,these warrants was adjusted downward to $29.40 on July 24, 2018, or the second anniversaryrecord date of the closing of an initial public offering of common stock; or (ii)2018 Rights Offering (defined herein) and downward to $19.00 per share on August 13, 2018. These warrants were further adjusted downward from $19.00 to $7.13 and to $2.1122 on January 28, 2020 and 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 liquidation, dissolution or winding up of the Company.Registered Direct Offering. These warrants are subject to further adjustment pursuant to antidilution price adjustment protection.

13

Promissory Notes; Common Stock Warrants

 

In conjunction with the issuance by the Company of certain promissory notes, the Company issued detachable common stock warrants (“Warrants”) to purchase an aggregate 270,400 shares of common stock, with an exercise price of $7.50 per share. The Warrants were exercisable until the earlier of (i) 5 years from the date of grant; (ii) December 13, 2018, or the second anniversary of the closing of our initial public offering; and (iii) the closing of liquidation, dissolution or winding up of the Company.

The Warrants have a net share settlement (cashless exercise) provision. With this provision the holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of the common stock at the time of exercise of the warrant after deduction of the aggregate exercise price. However, the Warrants would be exercised automatically in full pursuant to the net exercise provision, without any further action on behalf of the holder, immediately prior to the time the Warrants would otherwise terminate.

The Warrants are considered freestanding instruments as (i) they were transferred together with the notes issued but exist independently as a separate security; (ii) they may be exercised separately from the notes; and (iii) they are exercisable for a specific period (term) and do not impact the notes if and when exercised. 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

Note 119 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

Outstanding Warrants

 

The Company estimated the fair valueAs of the Warrants at issuance using a Monte Carlo option pricing model based on the following significant inputs: common stock price of $7.50 to $7.575; comparable company volatility of 58.0% to 76.7%; risk- free rates of 1.31% to 1.76%; and the probability of an equity event occurring. The Company reflected the amounts recorded for the Warrants issued within stockholders’ deficit, as additional paid-in-capital. Although the Warrants are a derivative that can be net share settled, the Warrants are considered indexed to the Company’s common stock and the Company has the ability to settle the warrant contract in common shares and met the conditions within the contract to classify the Warrants as an equity instrument.

Common Stock Warrant Issued for Marketing and Development Services

In February 2016, the Company issued to a stockholder a warrant to purchase 100,000June 30, 2022, we had 4,531,447 shares of common stock issuable upon exercise of outstanding common stock warrants, at ana weighted-average exercise price of $7.50$4.00 per share as consideration for providing marketing and development services in Southeast Asia. The warrant was fully vested and exercisable on the dateshare.

On November 21, 2017, we issued a total of grant. The232,875 detachable common stock warrant haswarrants issued with the similar features as the Warrants discussed above, except it is exercisable until the earlier of (i) five years from the date of grant; (ii) December 13, 2018, or the second anniversary of the closing of our initial public offering of common stock; and (iii) the closing293,000 shares of a liquidation, dissolution or winding up of the Company. The Company estimated the fair value of the common stock warrant to be $431 on the date of grant using a Black- Scholes option pricing model based on the following significant inputs:common stock price of $7.57; comparable company volatility of 77.8%; remaining term 3.75 years; dividend yield of 0% and risk-free rate of 2.09%. The Company recorded the fair value of the warrant as stock-based compensation expense within general and administrative expense on the date of grant.

March 2016 Promissory Notes Common Stock Warrants

In March 2016, the Company issued certain unsecured notes with common stock warrants to purchase an aggregate of 9,032 shares ofour common stock at an exercise price of $7.50$20.00 per share. The common stock warrants are exercisable until the earlier of (i) three years from the date of grant; (ii) December 13, 2018, or the second anniversary of the closing of our initial public offering of common stock; and (iii) the closing of a liquidation, dissolution or winding up of the Company. The Company estimated the fair value of the common stock warrants on the date of grant using a Monte Carlo pricing model based on the following significant inputs: common stock price of $7.575; comparable company volatility 79.6%; and risk-free rate of 1.49%.

August 2016 Other Advisory Services

On August 16, 2016, the Company issued to each of two advisors warrants to purchase 20,000 shares of common stock at an exercise price of $7.50 per share as consideration for providing advisory services to the Company. The warrants were fully vested and exercisable on the date of grant until the earlier of (i) three years from the date of grant; (ii) December 13, 2018, or the second anniversary of the closing of our initial public offering of common stock; and (iii) the closing of a liquidation, dissolution or winding up of the Company. The Company recorded the fair value of the warrants as stock-based compensation expense within general and administrative expense on the date of grant.

Common Stock Warrant Issued to Initial Public Offering Underwriter

In December 2016, the Company issued to the underwriter of its IPO a warrant to purchase 187,500 shares of common stock at an exercise price of $9.60 per share as consideration for providing services in connection with the Company’s initial public offering. The warrant was fully vested and exercisable on the date of grant. The common stock warrant is exercisable until five years from the date of grant. The CompanyOur common stock and detachable warrants exist independently as separate securities. As such, we estimated the fair value of the common stock warrantwarrants, exercisable at $30.00 per share, to be $939 on the date of grant$661 using a Black- Scholes option pricinglattice model based on the following significant inputs:inputs: common stock price of $8.00;$20.00; comparable company volatility of 82.1%73.8%; remaining term 5five years; dividend yield of 0% and risk-free interest rate of 1.92%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 2018 Rights Offering, and downward to $19.00 per share on August 13, 2018, the date of the 2018 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 ASC 260 – Earnings Per Share (“ASC260”), we 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: On 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%.

 


SENESTECH, INC.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, we 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: On 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, we 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, we 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 we 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, we recorded stock compensation expense of $1,700 representing the fair value of the of 56,696 inducement warrants issued. We 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 five 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.

14

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS


(In thousands, except share and per share data)

 

Note 119 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

On August 13, 2018, in connection with a rights offering of 267,853 shares of our common stock (the “2018 Rights Offering”), we issued 267,853 warrants to purchase shares of our common stock at an exercise price of $23.00 per share. We 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 five years; dividend yield of 0% and risk-free interest rate of 2.77%.

 

University of Arizona Common Stock Warrant

In connection with the June 2015 amended and restated exclusive license agreement withclosing of the University of Arizona (“University”), the Company2018 Rights Offering, we issued to the University a common stock warrant to purchase 15,00013,393 shares of common stock to Maxim Partners LLC, an affiliate of the dealer-manager of the 2018 Rights Offering. We 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 five years; dividend yield of 0% and risk-free interest rate of 2.77%.

Common Stock Warrant Issued to Underwriter of Common Stock Offering

In July 2019, we issued to H.C. Wainwright & Co., as placement agent, a warrant to purchase 8,334 shares of common stock at an exercise price of $7.50$33.75 per share.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 grant, and expires, if not exercised,issuance. The common stock warrant is exercisable until 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.

The estimated fair value of the derivative warrant liability was $4 at September 30, 2017. As this derivative warrant liability is revalued at the end of each reporting period, the fair values as determined at the date of grant and subsequent periods were based on the following significant inputs using a Monte Carlo option pricing model: common stock price of $7.91; comparable company volatility of 77.7% of the underlying common stock; risk-free rates of 1.93%; and dividend yield of 0%; including the probability assessment of a terminating change event occurring. The change in fair value of the derivative warrant liability was $65 for the nine months ended September 30, 2017 and was recorded in other income (expense) in the accompanying statements of operations and comprehensive loss.

July 2015 Consulting Agreement Common Stock Warrant

In July 2015, the Company issued a common stock warrant to purchase 121,227 shares of common stock, with an exercise price of $7.50 per share, as consideration for services under a consulting arrangement. The warrant was fully vested and exercisable on the date of grant. This common stock warrant has the similar features as the Warrants described above, except it is exercisable until the earlier of (i) ten years from the date of grant; (ii) December 13, 2018, the second anniversary of the closing of our initial public offering of common stock; and (iii) the closing of a liquidation, dissolution or winding up of the Company. TheWe estimated the fair value of the common stock warrant on the date of grant was $537 as determined bywarrants, exercisable at $33.75 per share, to be $127 using a Black-Scholes option pricinglattice model based on the following significant inputs: common stock price of $7.575;$26.80; comparable company volatility of 60.9%133.3%; expectedremaining term of 6.25five years; risk-free rate of 2.09%; and dividend yield of 0% and risk-free interest rate of 2.07%.

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 our common stock, we 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 Company recordedwarrants 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 Current Report on Form 8-K filed with the SEC on January 28, 2020 and our Current Report on Form 8-K filed with the SEC 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. We estimated the fair value of the warrantcommon 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 five 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. We 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 five and one-half years; dividend yield of 0% and risk-free interest rate of 0.39%.

15

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)

For so long as stock-based compensation expense within generalthe 2020 Warrants remain outstanding, the exercise price and administrative expensenumber 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 of common stock, not including shares issued under this warrant; (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.

In the event that we declare or make any dividend or other distribution of our assets to holders of our 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 accompanying statements2020 Warrants and generally including the sale, transfer or other disposition of operationsall 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 comprehensive lossamount 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 2015.the event of a Fundamental Transaction the 2020 Warrant holder may at its option require us 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 we grant, issue or sell any securities pro rata to all of the record holders of our 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, 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.

Northern Arizona UniversityLimitations 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.

16

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, we 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.

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 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.

We 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 five 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 November 2015,connection with the Companyseparate private placements concurrent with registered direct offerings of shares of our common stock in January and March 2020, we issued to H.C. Wainwright & Co., LLC, as placement agent, a common stock warrant to purchase 210,52613,228 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.

We 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 five years; dividend yield of 0% and risk-free interest rate of 1.53%.

We 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 five and one-half years; dividend yield of 0% and risk-free interest rate of 0.39%.

In connection with the public offering of 145,586 Class A Units and 1,428,722 Class B Units on April 24, 2020, we 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.

17

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)

We 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 five and one-half years; dividend yield of 0% and risk-free interest rate of 0.18%.

Common Stock Warrants Issued in October 2020 Private Warrant Inducement

In October 2020, in connection with an inducement agreement with an existing accredited investor to exercise 1,700,680 outstanding warrants to purchase an equal number of shares of our common stock, we issued new unregistered warrants to purchase up to an aggregate of 1,700,680 shares of common stock at an exercise price of $15.00$1.725 per share. The warrants issued were immediately exercisable with an exercise period of five and one-half years from the date of issuance. The Original Warrants were issued on March 6, 2020 and on April 24, 2020. Pursuant to the Letter Agreement, the per share exercise price of the Original Warrants were reduced from $2.88 and $3.05, respectively, to $1.725. We estimated the fair value of the common stock warrants, exercisable at $1.725 per share, to Northern Arizona University (“NAU”)be $1,806 using a Black Scholes model based on the following significant inputs: common stock price of $1.47; comparable company volatility of 96.5%; remaining term five and one-half years; dividend yield of 0% and risk-free interest rate of 0.18%.

Common Stock Warrants Issued to Placement Agent in October 2020 Inducement Offering

In connection with the private warrant inducement in October 2020 of 1,700,680 shares of our common warrants, we issued to H.C. Wainwright & Co., LLC, as partplacement 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.

We 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 $1.47; comparable company volatility of 96.5%; remaining term 5.5 years; dividend yield of 0% and risk-free interest rate of 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, we 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 consideration givenholder, 9.99%) of our outstanding shares of common stock immediately after exercise, except that upon at least 61 days’ prior notice from the holder to us, 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. We 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 five and one-half years; dividend yield of 0% and risk-free interest rate of 0.18%. 

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 Series A convertible preferredprivate placement in February 2021, we 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. We 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 five and one-half years; dividend yield of 0% and risk-free interest rate of 0.18%.

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

On March 23, 2021, we consummated a registered direct offering with certain institutional investors and issued an aggregate of 1,975,000 shares of our common stock, par value $0.001 per share at a purchase price of $2.00 per share for gross proceeds to us of approximately $3.95 million, before deducting fees payable to the placement agent and other estimated offering expenses payable by us. 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 our shelf registration statement on Form S-3 (File No. 333-225712).

In connection with the registered direct offering in March 2021, we 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. We 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 five years; dividend yield of 0% and risk-free interest rate of 0.31%.

Deemed Dividend Adjustment-Warrant Modified Terms Revaluation

On March 3, 2020, we 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 cancellationsettlement 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 outstanding warrants (“Original Warrants”), we 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, we 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 promissory note that had been previously issuedcost of raising capital and was recorded as a reduction of equity. The difference between the fair value of the warrants immediately prior to NAU.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.

19

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

Note 1210 - Stockholders’ Deficit

 

CommonCapital Stock

 

The CompanyWe organized under the laws of the state of Nevada on July 27, 2004 and subsequently reincorporated under the laws of the state of Delaware on November 10, 2015. In connection with the reincorporation, as approved by the stockholders, we changed our 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, we amended our Certificate of Incorporation to change our 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, our 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

We had 10,363,18912,212,950 and 10,157,29212,207,283 shares of common stock issued and outstanding as of SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively.

 

During the ninesix months ended SeptemberJune 30, 2017, the Company2022, we issued an aggregate of 205,8975,667 shares of common stock as follows: 48,240 shares to consultants for services, valued at $137, to settle previous claims; 14,014 shares for the cashless exercise of vested stock options; and 143,643 shares for net settlement of restricted stock units that vested during the period.

 


Rights Offering

an aggregate of 5,000 shares in connection with a restricted stock grant that was issued and vested on February 25, 2022 for services.

 

In April 2016, the Company offered to the existing holders of shares of (i) its common stock and (ii) Series B convertible preferred stock, in each case, as of April 8, 2016 (the “Record Date”), at no charge, non-transferable subscription rights, on a pro rata basis, to purchase shares of common stock at a subscription price of $2.50 per share (the “Rights Offering”). In addition, the holders also had the right to purchase additional shares of common stock, if any shares remain unsubscribed. The Company offered subscription rights on 5,794,162 shares of its common stock. The Rights Offering was conducted as a private placement on a “best efforts” basis, with no minimum subscription required.

an aggregate of 667 shares in connection with a restricted stock grant that vested on May 4, 2022 for services.

 

The subscription rights were initially exercisable beginning on April 8, 2016 and expiring on April 29, 2016 (the “Subscription Period”). However, the Company reserved the right to extend the Subscription Period for up to two additional weeks. The Company extended the Subscription Period for one additional week. The Rights Offering closed on May 6, 2016.

The Company issued 2,478,486 shares of common stock and received aggregate consideration of $6,199 in the Rights Offering. The aggregate consideration received consisted of: (i) $5,284 in cash; (ii) $821 in consideration paid through the cancellation of $821 in outstanding principal amount (and related unpaid interest) under certain outstanding unsecured notes; and (iii) the extinguishment of $94 in amounts owed by the Company for services and related miscellaneous expenses. Such cash proceeds will be used for working capital and general corporate purposes. As the Rights Offering was offered to certain existing holders of the Company’s stock, the shares sold are treated as outstanding from the date of their issuance in the computation of loss per share, basic and diluted in future periods.

Note 1311 - Stock-basedStock-Based Compensation

 

Effective December 2008, the Company established the 2008 – 2009 Non-Qualified Stock Option Plan (the “2008 – 2009 Plan”) under which no stock options remain outstanding at September 30, 2017. The stock-based awards were issued with a price not less than $15.00 per share or 100% of the fair value of a share of common stock on the date of grant. After July 2015, no further awards were granted under the 2008 – 2009 Plan.

Effective July 2015, the Company’sOn June 12, 2018, our stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”) to replace our 2015 Equity Incentive Plan (the “2015 Plan”), which permits the issuance of up to 2,000,000 shares reserved for the grant of stock options, stock appreciation rights, restricted stock units and other stock-based awards for employees, directors or consultants of the Company. The Board of Directors and the Company’s. On July 8, 2020, our stockholders approved an additional 1,000,000amendment to the 2018 Plan to increase the number of shares of common stock available for issuance under the 2018 Plan by 800,000 shares from 50,000 to 850,000. In addition, up to 122,279 shares of our common stock previously reserved for issuance under the 2015 Plan. The stock-basedPlan are 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 thereafter cease to be subject to awards outstanding under the 2015 Plan, such as by expiration, cancellation, or forfeiture of such awards.

On June 24, 2021, our 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 3,000,000 shares.

Stock options are generally issued with a per share exercise price equal to no less than fair market value of our common stock at the date of grant. Options granted under the 20152018 Plan generally vest immediately, or ratably over a two- to 36-month period coinciding with their respective service periods; however, participants may exercise their options prior to vesting as provided by the 2015 Plan. Unvested shares issued for option exercised early may be subject to a repurchase by the Company if the participant terminates at the original exercise price.periods. Options under the 20152018 Plan generally have a contractual term of five or ten years. Certain stock option awards provide for accelerated vesting upon a change in control.

As of SeptemberJune 30, 2017, the Company2022, we had 779,0952,457,600 shares of common stock available for issuance under the 20152018 Plan.

 

The Company measuresStock Options

We measure 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 fair value of equity instruments issued to non-employees is re-measured as the award vests. The Black-Scholes valuation model requires the Companyus to make certain estimates and assumptions, including assumptions related to the expected price volatility of the Company’sour stock, the period underduring which the options withwill be outstanding, the rate of return on risk-free investments, and the expected dividend yield for the Company’sour stock.

 


20

SENESTECH, INC.


NOTES TO CONDENSED FINANCIAL STATEMENTS


(In thousands, except share and per share data)

Note 11 - Stock-Based Compensation – (continued)

We did not issue any stock options in the three months ended June 30, 2022.

 

Note 13 - Stock-based Compensation - (continued)

The weighted-average assumptions used in the Black-Scholes option-pricing model used to calculate the fair value of options granted during the ninesix months ended SeptemberJune 30, 2017,2022 were as follows:

 

EmployeeNon-Employee
Expected volatility  73.8% -83.777.0% N/A
Expected dividend yield    N/A
Expected term (in years)  3.0 to 3.5 N/A 
Risk-free interest rate  1.45%-1.941.7% N/A

 

The weighted average grant date fair value of options granted during the six months ended June 30, 2022 was $0.444 per share, as per the table above.

Due to the Company’sour 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 in 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 doeswe do 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’sour history and expectation of dividend payouts. The Company hasWe have not paid and doesdo 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, 2016   1,477,300   1.61   5.8  $9,662 
Granted   161,500  $8.04   5.0  $ 
Exercised   (15,000) $0.50       
Forfeited     $       
Expired   (65,000) $10.22       
Outstanding at September 30, 2017   1,558,800   1.73   5.1  $183 
Exercisable at September 30, 2017   1,263,599  $1.08   4.8  $968 
  Number of
Options
  Weighted
Average
Exercise
Price Per
Share
  Weighted
Average
Remaining
Contractual
Term
(years)
  Aggregate
Intrinsic
Value (1)
 
Outstanding at December 31, 2021  1,087,820  $4.08   3.9  $ 
Granted  390,000  $0.82   4.9  $ 
Exercised    $     $ 
Forfeited  (4,500) $     $ 
Expired    $     $ 
Outstanding at June 30, 2022  1,473,320  $3.24   3.0  $ 
Exercisable at June 30, 2022  955,871  $3.68   1.7  $ 

 

(1)(1)The aggregate intrinsic value onin the table was calculated based on the difference between the estimated fair market value of the Company’sour stock and the exercise price of the underlying option.options. The estimated stock values used in the calculation was $1.85were $0.98 and $8.15$0.53 per share at September 30, 2017 andfor the year ended December 31, 2016,2021 and the six months ended June 30, 2022, respectively.

 


21

SENESTECH, INC.


NOTES TO CONDENSED FINANCIAL STATEMENTS


(In thousands, except share and per share data)

 

Note 1311 - Stock-basedStock-Based Compensation – (continued)

Restricted Stock Units

 

The following table summarizes restricted stock unit activity for the six months ended June 30, 2022:

  Number  of
Units
  Weighted Average
Grant-Date Fair
Value Per Unit
 
Outstanding as of December 31, 2021  667  $1.80 
Granted  5,000  $0.76 
Vested  (5,667) $0.76 
Forfeited    $ 
Outstanding as of June 30, 2022    $ 

The stock-based compensation expense was recorded as follows:

 

  Three Months Ended September 30 Nine Months Ended September 30, 
  2017 2016 2017 2016 
Research and development $85  135 $269 $309 
General and administrative  861  798  2,549  2,097 
Total stock-based compensation expense $946  933 $2,818 $2,406 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
  2022  2021  2022  2021 
             
Research and development $3  $-  $4  $2 
Selling, general and administrative  203   182   426   335 
Total stock-based compensation expense $206  $182  $430  $337 

 

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 SeptemberJune 30, 2017,2022, the total compensation cost related to non-vestedrestricted stock units and unvested options not yet recognized was $1,942,$327, which will be recognized over a weighted average period of four years,31 months, assuming the employees and non-employees complete their service period required for vesting.

Effective December 2008, the Company established the 2008-2009 Plan under which no stock options remain outstanding at September 30, 2017. The stock-based awards were issued with a price not less than $15.00 per share or 100% of the fair value of a share of common stock on the date of grant. After July 2015, no further awards were granted under the 2008 – 2009 Plan.

Restricted Stock Units

The following table summarizes restricted stock unit activity for the nine months ended September 30, 2017:

   Number of
 Units
  Weighted
Average
Grant-Date Fair
Value Per Units
 
Outstanding as of December 31, 2016   455,430  $0.76 
Granted   117,885(1) $6.95 
Vested   (228,333) $2.00 
Forfeited     $ 
Outstanding as of September 30, 2017   344,982(2) $2.05 

(1)40,000 restricted stock units were granted on March 27, 2017 with a weighted average grant date fair value of $8.35, 17,885 restricted stock units were granted on May 19, 2017 with a weighted average grant date fair value of $6.99 and 60,000 restricted stock units were granted on June 19, 2017 with a weighted average grant date fair value of $6.00.

(2)At September 30, 2017, the total compensation cost related to non-vested restricted stock units not yet recognized was $1,075, which will be recognized over a weighted average period of 1.3 years, assuming the recipients complete their service period required for vesting.

24

 

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 14 - License and Other Agreements

Neogen Corporation

In May 2014, the Company entered into an exclusive license agreement with Neogen Corporation (“Neogen”). The Company granted an exclusive license to Neogen to (i) use the Company’s intellectual property (“IP”), consisting primarily of the ContraPest technology and (ii) manufacture, distribute and sell commercial rodent control products in the United States and certain U.S. territories, Canada and Mexico.

As previously disclosed in our Current Report on Form 8-K dated and filed January 23, 2017, on January 23, 2017 we entered into a termination agreement (the “Settlement Agreement”) with Neogen Corporation (“Neogen”). Pursuant to the Settlement Agreement, the parties agreed to (a) terminate the existing Exclusive License Agreement between us and Neogen dated May 15, 2014 (the “License Agreement”), with neither Neogen or us having any further obligations thereunder (other than certain confidentiality obligations); (b) dismiss with prejudice the court action filed by Neogen in the District Court for the District of Arizona on January 19, 2017 (the “Court Action”), as further described below; and (c) mutually release any and all existing or future claims between the parties and their affiliates related to or arising from the License Agreement or the Court Action. As part of the Settlement Agreement, we agreed to pay to Neogen upon the execution of the Settlement Agreement an aggregate of $1,000 in settlement of all claims.

For the nine months ended September 30, 2017 and the year ended December 31, 2016, the Company recognized revenue of $0 and $186, respectively, under the License Agreement.

Bioceres/INMET S.A. Agreement

In January 2016, the Company entered into a services agreement with Bioceres, Inc. (“Bioceres”), a wholly-owned subsidiary of Bioceres S.A., a leading agricultural biotechnology company in Argentina, and its Argentinean subsidiary, Ingenieria Metabolica S.A. (“INMET”) to develop a production method for synthetic triptolide, the main ingredient in ContraPest. The Company also entered into an agency agreement with INMET whereby the Company appointed INMET as its exclusive agent to seek regulatory approval for and conduct pre-sales and marketing of its product, ContraPest, in Argentina. The Company and INMET have also agreed to manufacture and distribute its product in Argentina and other countries, as mutually agreed, through a newly formed entity.

The term of the service agreement is for two years. The service agreement can be terminated at any time upon written notice by either party for any reason. The term of the agency agreement with INMET is the earlier of: (i) when the Company and INMET incorporate the joint venture entity in Argentina or (ii) January 2018.

At September 30, 2017, the Company had accrued expenses of $100 due to Bioceres as detailed in the table or accrued expenses in Note 7


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 1512 - Commitments and Contingencies

 

Legal Proceedings

 

In July 2020, Kennan E. Kaeder, our former corporate general counsel (the “Plaintiff”), commenced an action against us in the Superior Court of the State of California, for the County of San Diego. The Companycomplaint alleges, among other things, that we breached the Plaintiff’s employment contract with us, as well as the implied covenant of good faith and fair dealing, by refusing to issue him the balance of stock options he claims we owe him. In September 2021, the Plaintiff served us and also named the following individuals as defendants: Loretta Mayer, Cheryl Dyer, Thomas C. Chesterman, Kim Wolin, Grover Wickersham, Marc Dumont, Bob Ramsey, Matthew Szot, Julia Williams, and Bill Baker. We do not believe that all of the defendants have yet been served. The Plaintiff alleges that such individuals agreed to knowingly and wrongfully withhold the stock options owed to him and are knowingly in receipt of stolen property. The Plaintiff seeks compensatory damages in excess of $500,000, treble damages, and reasonable attorneys’ fees. We do not believe the claims described above have merit and intend to aggressively defend against these accusations. We do not believe that this litigation is likely to have a material effect on our operations.

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SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 12 - Commitments and Contingencies – (continued)

In addition to the matter described above, we may be subject to other 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 other pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effect on itsour financial position, results of operations or liquidity.

Neogen Settlement Agreement

See Note 14 above with regards to the Settlement Agreement with Neogen.

Although notice of the legal action by Neogen and the Settlement Agreement with Neogen, occurred after December 31, 2016, as per the provisions of Accounting Standards Codification Topic 450 Loss Contingencies, included in the financial statements of the Company at December 31, 2016 is a $1,000 charge to general and administrative expenses and a corresponding accrual of contract cancellation settlement agreement related to this agreement.

 


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 15 - Commitments and Contingencies – (continued)

Resolution of Dispute

In recognition of his continued support and cooperation, and to resolve a dispute regarding whether his options appropriately expired in the first quarter of 2016, in July 2016, the Company’s Board of Directors agreed to issue to its former chief executive officer 120,000 shares of the Company’s common stock. The expense of $300 associated with this full and final settlement was recorded at December 31, 2016.

Lease Commitments

 

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.

On August 1, 2020, we entered into a lease for our manufacturing and 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.

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

Rent expense was $246$112 and $234$111 for the ninesix months ended June 30, 2022 and year ended September 30, 2017 and December 31, 2016,2021, respectively. The future minimum lease payments under non-cancellable operating lease and future minimum capitalfinance lease payments as of SeptemberJune 30, 20172022 are follows:

 

  Capital
Leases
  Operating
 Lease
 
Years Ending December 31,        
2017 $25  $63 
2018  96   258 
2019  88   221 
2020  67    
2021  84    
Total minimum lease payments $360  $542 
Years Ending December 31, Operating
Leases
 
2022  97 
2023  198 
2024  186 
Total minimum lease payments $481 

 

  Capital
Leases
 
Less: amounts representing interest (ranging from 7.25% to 11.56%) $75 
     
Present value of minimum lease payments  285 
     
Less: current installments under capital lease obligations  70 
     
Total long-term portion $215 

Note 1613 - Subsequent Events

In October of 2017, the Company issued 26,308 shares of its common stock to two executives of the Company in net settlement of restricted stock units that vested on September 30, 2017 but were not issued until October 2, 2017.

 


We have evaluated subsequent events from the balance sheet date through August 12, 2022, the date at which the financial statements were issued, and determined that there were no items that require adjustment to or disclosure in the financial statements. 

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

 

As used in this Quarterly Report on Form 10-Q, “we,” “us,” “our” and “the Company” 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 consolidated financial statements and related notes. Some

Forward-Looking Statements

The statements and information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, notes to our condensed consolidated financial statements and elsewhere in this Quarterly Report on Form 10-Q that are not historical facts but are forward-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”).or the Exchange Act. All statements other than statements of historical facts contained or incorporated herein by reference in this Quarterly Report on Form 10-Q, including statements regarding our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, markets, and plans and objectives for future operations, are forward-looking statements. In some cases, readersyou can identify forward-looking statements by terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “suggests,” “targets,” “contemplates,” “projects,” “predicts,” “may,” “will,“might,” “plan,” “would,” “should,” “expect,“could,“plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,“can,” “potential,” “continue,” “objective,” or the negative of thesethose terms, or other comparable terminology, which when used are meantsimilar expressions intended to signify the statement as forward-looking. Theseidentify forward-looking statements. However, not all forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements that are not historical facts.contain these identifying words. Specific examples of forward-looking statements in this Quarterly Report on Form 10-Q include those concerning the sufficiency of our cash and future revenue to fund operations, our expectations as to expenses, future revenue and the commercialization of our products, our research and development plans and initiatives and the development of our products. statements regarding:

our expectation 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; 
our belief that ContraPest is unique in the pest control industry in attacking the reproductive systems of both male and female rats;
our belief that our field data shows ContraPest will result in a sustained reduction of the rat population;
our belief that ContraPest is the first and only non-lethal, fertility control product approved by the EPA for the management of rodent populations;
our expectation to continue to incur significant expenses and operating losses for the foreseeable future; 
our expectation that cash and cash equivalents at June 30, 2022, in combination with anticipated revenue and any additional sales of our equity securities, will be sufficient to fund our current operations for at least the next six to nine months; 
our belief that sales increased in part due to continued focus of our internet sales initiatives, enhanced strategic partnership and collaborations with key distributors and PMPs;
our belief that the increased sales activity from our field sales organization was due in part to the launch of our new Elevate product offering;

24

our plan to continue to utilize various forms of stock-based compensation awards to attract and retain qualified employees;
our anticipation that stock-based compensation expense will continue to represent a significant portion of our selling, general and administrative expenses for the foreseeable future;
our expectation our expenses to continue or increase in connection with our ongoing activities, particularly as we focus on marketing and sales of ContraPest;
our expectation to continue to grant stock options and other equity-based awards, such as restricted stock units, in the future and to continue to recognize stock-based compensation expense in future periods;
our goal to shift resources to commercialization, significantly reducing our year-over-year burn rate and achieving a 50% or greater margin;
federal, state and municipal budgets may delay or impede their ability to make near term purchases of our products;
our belief that prolonged impact on the suppliers we rely on for the purchase of raw material ingredients by the COVID-19 pandemic could impact future manufacturing operations;
our maintaining and obtaining regulatory approval of our products and product candidates;
our successful commercialization of ContraPest;
our ability to obtain market acceptance, commercial viability and profitability of ContraPest and other products;
our ability to market our products and establish an effective sales force and marketing infrastructure to generate significant revenue;
the success of our research and development activities;
our ability to retain and attract key personnel to develop, operate and grow our business;
our ability to meet our working capital needs;

our estimates or expectations related to our revenue, cash flow, expenses, capital requirements and need for additional financing;
our belief that 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;
our belief that we are potentially subject to concentrations of credit risk in our accounts receivable;
our belief that our existing facilities are adequate and meet our current needs for business, manufacturing and research;
our ability, and the time required, to improve our cost structure and gross margins, and limit 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 belief the claims against us do not have merit and our intention to aggressively defend against these accusations;
our belief the litigation against us is not likely to have a material effect on our operations;
our financial performance, including our ability to fund operations; and
developments and projections relating to our projects, competitors and our industry, including legislative developments and impacts from those developments.

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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, 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 I of our Annual Report on Form 10-K/A10-K, for the year ended December 31, 2016 entitled “Risk Factors,”2021, filed with the SEC on March 29, 2022, and those contained from time to time in our other filings with the Securities and Exchange Commission. Readers are cautioned notSEC. A number of factors could cause our actual results to place undue reliance ondiffer materially from those indicated by the forward-looking statements. Such factors include, among others, the following:

the impacts and implications of the COVID-19 pandemic;
the successful commercialization of our products;
market acceptance of our products; and
regulatory approval and regulation of our products and other factors and risks identified from time to time in our filings with the SEC, including this Quarterly Report on Form 10-Q.

All forward-looking statements whichincluded herein are based on information available to us as of the date hereof and speak only as of the date made.such date. Except as required by law, we undertake no obligation to update any forward-looking statement, whetherstatements to reflect events or circumstances after the date of such statements. The forward-looking statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q reflect our views as a result of new information,the date of this Quarterly Report on Form 10-Q about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results, performance or otherwise.

All amounts shownachievements to differ significantly from those expressed or implied in any forward-looking statement. Although we believe that the expectations reflected in the following Management’s Discussionforward-looking statements are reasonable, we cannot guarantee future events, results, performance or achievements.

We are subject to the information requirements of the Exchange Act, and Analysiswe file or furnish reports, proxy statements and other information with the SEC. Such reports and other information we file with the SEC are available free of Financial Conditioncharge at www.senestech.com as soon as practicable after such reports are available on the SEC’s website at www.sec.gov. The SEC’s website contains reports, proxy and Results of Operations are full amounts (and are not shown in thousands).information statements, and other information regarding issuers that file electronically with the SEC.

 

Overview

 

Since our inception, in 2004, we have devoted substantially allsustained significant operating losses in the course of our resources to organizing and staffing our company, conducting research and development activities and commercialization efforts and expect such losses to continue for our product candidates, business planning, raising capital and acquiring and developing product and technology rights. Until August 2016, we did notthe near future. We have any products approved for sale, and we have not generated any significantlimited revenue to date from product sales, to date.research grants and licensing fees received under a former license with Neogen. We have primarily funded our operations to date with proceeds fromthrough the sale of equity securities, including convertible preferred stock, common stock and preferredwarrants to purchase common stock the issuanceand debt financing, consisting primarily of convertible and other promissory notes and, tonotes. See Note 10 for a lesser extent, payments received in connection with research grants and licensing fees. description of our public equity sales.

Through SeptemberJune 30, 2017,2022, we hadhave received net proceeds of $49.2$89.6 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 $1.6$2.0 million from research grantsin net product sales. As of June 30, 2022, we had an accumulated deficit of $117.4 million and licensing fees.cash and cash equivalents of $5.0 million.

 

On June 18, 2021, we 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 us 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 $2.9 million, $10.0$2.6 million and $11.0$1.7 million for the three and nine months ended SeptemberJune 30, 20172022 and 2021, respectively, and $4.9 million and $3.5 million for the yearsix months ended December 31, 2016,June 30, 2022 and 2021, respectively. As of September 30, 2017, we had an accumulated deficit of $71.3 million. We expect to continue to incur significant expenses and generate operating losses for at least the next 12 months.

 

Our ultimate success depends upon the outcome of a combination of factors, including the following: (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 activities; (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.

26

We have historically utilized, and intendwill need additional funding in order to continue to utilize, various forms of stock-based awards in order to hire, retainfund our operations and motivate talented employees, consultantsachieve profitability 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,become cash flow positive and will continue to be forseek 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 the foreseeable future,effect and impact of the COVID-19 pandemic on revenue during the six months ended June 30, 2022 and June 30, 2021 is difficult to measure, the travel and other restrictions that started in 2020 resulted in a significant recurring expenseslowdown in our businessproof-of-concept field studies and ansales efforts. We were able to resume field studies in some important part of our compensation strategy. Specifically, our stock-based compensation expense for each of the nine months ended September 30, 2017projects mid-year 2020 and September 30, 2016 was $2.8 million and $2.4 million, respectively, which represented 28.1% and 33.0%, respectively, of our total operating expenses for those periods.have now resumed all projects.

 

Components of our Results of Operations

 

RevenueSales

 

To date, we have generated $34,000, from productSales are comprised primarily of sales, net of discounts and we expectpromotions, of ContraPest and related components, to generate increased revenue from the saleour 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 and the cost of freight billed to our customers. 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 royalties in the fourth quarter of 2017. Except for the minimal product sales noted above, allgreater gross margin. Steps have included relocating to more cost-efficient space, organizational restructuring, and improving our revenue to date has been derived from payments received in connection with research grantsmanufacturing and licensing fees received as a result of our execution of the former license agreement with Neogen.supply processes and reducing staffing.

 


We recognized product sales revenue of $17,000 and $-0- for the three months ended September 30, 2017 and 2016, respectively, and $34,000 and $-0- and for the nine months ended September 30, 2017 and 2016, respectively. In addition, for the nine months ended September 30, 2016, we recognized revenue of $139,000 under our former license agreement with Neogen and $122,000 under NIH grants. We do not anticipate additional grant revenue under the NIH grants or additional revenue from our former license agreement with Neogen.

Operating Expenses

 

Research and Development Expenses

 

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

 

 Employee-relatedemployee related expenses, including salaries, related benefits, travel and stock-based compensation expense for employees engaged in research and development functions;functions, including that portion of manufacturing not included in cost of goods sold;

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

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

 

27

We expense research and development costs as incurred.

 

We continue to investigate other applications of our core technology to other product candidates and modifications to our existing products to expand usability, which includes laboratory tests, corporate relationships 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 completing thefurther development of ContraPest or the cost associated with the development of any of our other product candidates.

 

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

Selling, General and Administrative Expenses

 

GeneralSelling, 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. GeneralSelling, 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 anticipate that our general and administrative expenses may increase in the future as we increase our headcount to support commercialization of any approved products and further development of our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company.

We plan to continue to hire employees to support our commercialization of any approved products and further development of our product candidates, and anticipate that we will 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.

 

Other Income (Expense), Net

Interest Income.

Interest income consists primarily of interest income earned on cash and cash equivalents. Our interest income has not been significant due to nominal cash and investment balances and low interest earned on invested balances.

 


Interest Expense.

Interest expense in 2017 consists primarily of interest accrued on our finance lease and note commitments. Interest expense in 2016 consisted primarily of interest on $2.9 million in convertible and other promissory notes we issued during 2014, 2015 and 2016, most of which was converted or redeemed by December 31, 2016.

 

Other Income (Expense), Net.

Other income (expense), net;net, consists primarily of netany recognized gains or losses on extinguishmentrelated to the sale of convertible and non-convertible, secured and unsecured promissory notes.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 basis 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. Our effective tax rate for the six months ended June 30, 2022, as well as for the year ended December 31, 2021, has been impacted by the full valuation allowance on our deferred tax assets. 

Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net operating losses we have incurred in each year in our history or for our earnedgenerated research and development tax credits, due to the uncertainty regarding our uncertainty of realizingability to realize a benefit from those items. As ofthese tax attributes. Based on tax return activity through December 31, 2016,2021, we had federal net operating loss carryforwards of $34.0 million which begin to expire in 2021 and state net operating loss carryforwards of $27.8approximately $77.2 million and $63.7 million, respectively, not considering any potential Internal Revenue Code of 1986 (“IRC”) Section 382 annual limitation discussed below. We are accruing additional net operating losses in calendar year 2022, which beganwill be added to the carryover net operating loss balance once the current year is completed. The federal loss carryforwards begin to expire in 2016,2029, unless previously utilized. The state loss carryforwards begin to expire in 2032, unless previously utilized. Included in the $77.2 million of federal loss carryforwards are approximately $32.7 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.

 


ComparisonAdditionally, the utilization of the Threenet operating loss carryforwards is subject to an annual limitation under Section 382 and Nine Months Ended September383 of the Internal Revenue Code of 1986, and similar state tax provisions due to ownership change limitations that 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 Section 382 and 383 results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percent points over a three-year period. We have 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 occur, our net operating losses could be limited.

During the three months ended June 30, 20172021, we received notification that a loan to us under the Paycheck Protection Program (the “PPP”) in the amount of $646 thousand was forgiven in full pursuant to the PPP program under the Coronavirus Aid, Relief, and 2016Economic 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 us. 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 our tax accounts.

 

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The following table summarizes our results of operations for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:

 

SENESTECH, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except shares and per share data)

(Unaudited)

  For the Three Months  For the Six Months 
  Ended June 30,  Ended June 30, 
  2022  2021  2022  2021 
             
Sales $277  $160  $472  $248 
                 
Cost of sales  141   119   246   169 
Gross profit  136   41   226   79 
                 
Operating expenses:                
Research and development  431   455   947   910 
Selling, general and administrative  2,277   1,935   4,184   3,357 
Total operating expenses  2,708   2,390   5,131   4,267 
                 
Net operating loss  (2,572)  (2,349)  (4,905)  (4,188)
                 
Other income (expense):                
Interest income  1   1   3   3 
Interest expense  -   (3)  (1)  (8)
Payroll Protection Program loan forgiveness  -   650   -   650 
Other income  2   1   2   22 
Total other income  3   649   4   667 
                 
Net loss and comprehensive loss $(2,569) $(1,700) $(4,901) $(3,521)
                 
Weighted average common shares outstanding - basic and fully diluted  12,212,701   12,178,754   12,210,863   10,169,061 
                 
Net loss per common share - basic and fully diluted $(0.21) $(0.14) $(0.40) $(0.35)

 

  For the Three Months  For the Nine Months 
  Ended September 30,  Ended September 30, 
  2017  2016  2017  2016 
Revenue:            
License revenue $  $131  $  $261 
Product Sales  17      34    
Total revenue  17   131   34   261 
Cost of goods sold  11      27    
Gross profit  6   131   7   261 
                 
Operating expenses:                
Research and development  721   829   2,517   1,964 
General and administrative  2,235   1,932   7,506   5,259 
Total operating expenses  2,956   2,761   10,023   7,223 
                 
Net operating loss  (2,950)  (2,630)  (10,016)  (6,962)
                 
Other income (expense):                
Interest income  9      20    
Interest expense  (33)  (6)  (54)  (49)
Interest expense, related parties     (9)  (1)  (43)
Loss on extinguishment of unsecured promissory note     (59)     (171)
Other income (expense)  37      76   51 
Total other income (expense)  13   (74)  41   (212)
                 
Net loss  (2,937)  (2,704)  (9,975)  (7,174)
                 
Series A convertible preferred stock dividends     (30)     (90)
                 
Net loss and comprehensive loss $(2,937) $(2,734) $(9,975) $(7,264)

Comparison of the Three Months Ended SeptemberJune 30, 2017 compared to Three Months Ended September 30, 2016:2022 and 2021

 

RevenueSales

 

Revenue was $17,000Sales, net of sales discounts and promotions, were $277,000 for the three months ended SeptemberJune 30, 2017,2022, compared to $131,000$160,000 for the same period in 2021. Sales increased by $117,000 in the three months ended SeptemberJune 30, 2016.2022 due, in part, to continued focus of our internet sales 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 enhanced strategic partnerships and collaborations with key distributors and PMPs. In addition, we saw increased sales activity from our field sales organization due in part to the launch of our new Elevate product offering.

 

The $17,000 revenue recognized

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Cost of Sales

Cost of sales was $141,000, or 50.9% of net sales, for the three months ended SeptemberJune 30, 2017 represented2022, compared to $119,000, or 74.4% of net sales, of our product, ContraPest. The $131,000 of revenue for the three months ended SeptemberJune 30, 2016, was earned from research grants and from our former license agreement with Neogen, which was terminated in January 2017. We did not recognize any license fees in 2017 under this agreement.

Cost of Goods Sold

Cost of goods sold was $11,000 for the three months ended September 30, 2017, compared to $-0- for three months ended September 30, 2016.2021. The increase in cost of goods sold correspondedof $22,000 in 2022 is primarily due to higher sales volume. The decrease in cost of sales as a percentage of net sales was primarily due to lower production scrap and manufacturing process improvement and efficiencies during the product launch of ContraPest.three months ended June 30, 2022.

 


Gross Profit

 

Gross profit for the three months ended June 30, 2022 was $136,000, or 49.1% of net sales, compared to a gross profit of $41,000, or 25.6% of net sales, for the same period in 2021. The increase in gross profit was a direct result of the impact of lower production scrap and continued manufacturing efficiencies as a result of scale-up activities.

Research and Development Expenses

 

  Three Months Ended
September 30,
  Increase / 
  2017  2016   (Decrease) 
  (in thousands) 
Direct research and development expenses:            
Unallocated expenses:            
Personnel related (including stock-based compensation) $449  $701  $(252) 
Professional Fees/Consultants  39   10   29 
Facility related  76   51   25 
Other  157   67   90 
Total research and development expenses $721  $829  $(108) 
  Three Months Ended
June 30,
  Increase 
  2022  2021  (Decrease) 
  (in thousands) 
Direct research and development expenses:         
Personnel related (including stock-based compensation) $262  $240  $             22 
Professional fees  57   50   7 
Depreciation  33   78   (45)
Freight  24   21   3 
Facility-related  27   26   1 
Other  28   40   (12)
Total research and development expenses $431  $455  $(24)

 

Research and development expenses were $721,000$431,000 for the three months ended SeptemberJune 30, 2017,2022, compared to $829,000$455,000 for the same period in 2016.2021. The $108,000$24,000 decrease in research and development expenses was primarily due to a decrease of $252,000$45,000 in personnel-related costs, offset by increases in professional fees/consultant expenses of $29,000, facility expenses of $25,000 and other expenses of $90,000. The decrease in personnel-related costs resulted from lower research and development salaries of $219,000 due to reduced headcountdepreciation expense and a decrease in other research and development expenses offset by an increase in personnel-related costs of $22,000, a $7,000 increase in professional fees, a $3,000 increase in freight expense and a $1,000 increase in facility related expenses.

Personnel related expense, including stock-based compensation expense of $50,000, offset by higher payroll taxes of $17,000. Professional services and consulting expenses increased $29,000 for the three months ended SeptemberJune 30, 2017,2022, relative to the same period of 2021, due to the full quarter impact of headcount additions made in 2021 to meet current and future demand.

Professional fees increased for the three months ended June 30, 2022, relative to the same period of 2021, primarily due to increased consulting expenses related to field and regulatory compliance studies and increased annual EPA and state registrations.

Freight expense, the expense related to unbilled freight charges, increased for the three months ended June 30, 2022, relative to the same period of 2021, primarily due to increased product sales volume associated with new customer acquisition and increased freight rates due to increased fuel surcharges.

Facility-related expenses increased $1,000 due primarily to contractual rent escalation in our facility lease contracts.

The decrease in other research and development expenses of $12,000 in the three months ended June 30, 2022 compared to the same period in 20162021 was primarily due to an increase in synthetic triptolide research fees and legal fees. Rent and utilities for the three months ended September 30, 2017 increased $25,000 over the same period in 2016 due primarily to the expansion into the research space at Northern Arizona Center for Entrepreneurship and Technology (“NACET”) facility. Otherdecreased expenses increased by $90,000 from $67,000 for the three months ended September 30, 2017 as compared to the same period in 2016, primarily due to increased travel expenses of $34,000 related to field team support due to on-site evaluations of potential customers and research operations and increased depreciation expense of $70,000 due to fixed asset additions in our research operations offset by lower lab fees of $14,000. As noted last quarter, we have now filed in all 50 states and the District of Columbia and have begun the process of refiling in some states.

We continue to investigate applications of our core technology to other product candidates, which includes laboratory tests and academic collaborations.improvement studies. We also continue to develop our supply chain, particularly identifying and improving our sourcing of triptolide, a key active ingredientingredients for our product candidates.

 

Depreciation expense decreased $45,000 for the three months ended June 30, 2022 over the three months ended June 30, 2021 due to several assets becoming fully depreciated during the period. 

30

Selling, General and Administrative Expenses

 

  Three Months Ended
June 30,
  Increase 
  2022  2021  (Decrease) 
  (in thousands) 
Direct selling, general and administrative expenses:         
Personnel related (including stock-based compensation) $1,115  $1,195  $(80)
Professional fees  532   270   262 
Facility-related  39   39   - 
Marketing  162   67   95 
Office supplies/IT  85   80   5 
Insurance  145   118   27 
Travel and entertainment  60   71   (11)
Other  139   95   44 
Total selling, general and administrative expenses $2,277  $1,935  $342 

General

Selling, general and administrative expenses were $2.2approximately $2.3 million for the three months ended SeptemberJune 30, 2017,2022, as compared to approximately $1.9 million for the three months ended SeptemberJune 30, 2016.2021. The increase of $0.3 million$342,000 in selling, general and administrative expenses was primarily due to an increase of $228,000$262,000 in professional fees, an $95,000 increase in marketing expenses, a $5,000 increase in office supplies/IT expenses, a $27,000 increase in insurance expense and an increase in other selling, general and administrative expenses of $44,000, offset by an $80,000 decrease in personnel related expenses an increase of $89,000 in insurance expenses related to the increased D&O insurance expense as a public company, an increase of $18,000 in non-capitalized furniture and computer equipment and an increase in occupancy expenses of $8,000, offset by a $24,000$11,000 decrease in professional services fees due primarily to lower audit and accounting fees and a $20,000 reduction in travel and entertainment expenses. The increase in personnel relatedprofessional services expenses consisted of an increase of $144,000for the three months ended June 30, 2022 was primarily due to marketing professional fees associated with outsourcing our marketing programs. Other marketing expenses increased $95,000 during the three months ended June 30, 2022 over the same period in 2021 primarily due to increases in digital marketing advertising. Office supplies/IT expenses were higher during the three months ended June 30, 2022 over the same period in 2021 primarily due to increased IT support services and increased Directors and Officers insurance premiums. The decrease in net additional salary costs an increaseof $80,000 for the three months ended June 30, 2022 over the same period in stock based compensation of $61,000, an increase2021 was due primarily to sales salary restructuring effective January 1, 2022. Travel and entertainment expenses for the three months ended June 30, 2022 were $11,000 lower than the same period in payroll taxes and processing fees of $35,000 and an increase of $32,000 in recruiting expenses offset by a $44,000 reduction in employee benefits2021 primarily due to reduced relocation and benefits costs.the timing of travel scheduled for 2022 deferred to the third quarter.

 

Interest Income/Expense, Net

 

We recorded $24,000interest income, net of $1,000 for the three months ended June 30, 2022, as compared to interest expense, net of $2,000 for the same period in 2021. The $3,000 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 June 30, 2021.

Paycheck Protection Program Loan Forgiveness

PPP loan forgiveness income for the three months ended SeptemberJune 30, 2017, compared2021 represents the forgiveness of a promissory note pursuant to $6,000 for the same period in 2016. The increase in interest expense of $18,000 wasPPP under the result of increased debt in the form of notes payable and leases on equipment acquisitions during 2017.CARES Act, that we secured under this program.

 

Other Income (Expense), Net

 

We recorded $37,000Other income, net was $2,000 for the three months ended June 30, 2022 as compared to $1,000 for the three months ended June 30, 2021. The $1,000 increase of other income, net for the three months ended SeptemberJune 30, 2017,2022 represented increased gains on sale of miscellaneous fixed assets.

Comparison of the Six Months Ended June 30, 2022 and 2021

Sales

Sales, net of sales discounts and promotions, were $472,000 for the six months ended June 30, 2022, compared to $59,000 of other expense$248,000 for the same period in 2016. The $96,000 net decrease2021. Sales increased by $224,000 in other expense was primarilythe first six months of 2022 due, in part to lower expense relatedcontinued focus of our internet sales 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 enhanced strategic partnerships and collaborations with key distributors and PMPs. In addition, we saw increased sales activity from our field sales organization due in part to the year-over-year fair market value adjustmentlaunch of our convertible promissory notes and losses on the extinguishment of said promissory notes.new Elevate product offering.

 


Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016:

31

 

Revenue

 

Revenue was $34,000 for the nine months ended September 30, 2017, compared to $261,000 for nine months ended September 30, 2016.

The $34,000 revenue recognized for the nine months ended September 30, 2017 represented sales of our product, ContraPest. The $261,000 of revenue for the nine months ended September 30, 2016 was earned from research grants and from our former license agreement with Neogen, which was terminated in January 2017. We did not recognize any license fees in 2017 under this agreement.

Cost of Goods SoldSales

 

Cost of goods soldsales was $27,000$246,000, or 52.1% of net sales, for the ninesix months ended SeptemberJune 30, 2017,2022, compared to $-0-$169,000, or 68.1% of net sales, for ninethe six months ended SeptemberJune 30, 2016.2021. The increase in cost of goods sold correspondedof $77,000 in 2022 is primarily due to the product launchhigher sales volume. The decrease in cost of ContraPest. Cost of goods soldsales as a percentage of net sales was primarily due to lower production scrap and manufacturing process improvement and efficiencies during the six months ended June 30, 2022.

Gross Profit

Gross profit for the six months ended June 30, 2022 was $226,000, or 47.9% of net sales, compared to a gross profit of $79,000, or 31.9% of net sales, for the same period in 2021. The increase in gross profit was approximately 80% due to manufacturing inefficiencies surrounding the start-upa direct result of the newimpact of lower production scrap and continued manufacturing line and the costefficiencies as a result of replacement product shipped to replace damaged product.scale-up activities.

 

Research and Development Expenses

 

  Nine Months Ended
September 30,
  Increase/ 
  2017  2016  (Decrease) 
  (in thousands) 
Direct research and development expenses:            
Unallocated expenses:            
Personnel related (including stock-based compensation) $1,471  $1,384  $87 
Professional Fees/Consultants  272   142   130 
Facility related  228   157   71 
Other  546   281   265 
Total research and development expenses $2,517  $1,964  $553 
  Six Months Ended
June 30,
  Increase 
  2022  2021  (Decrease) 
  (in thousands) 
Direct research and development expenses:         
Personnel related (including stock-based compensation) $503  $475  $28 
Professional fees  148   125   23 
Depreciation  79   124   (45)
Freight  50   32   18 
Facility-related  53   46   7 
Other  114   108   6 
Total research and development expenses $947  $910  $37 

 

Research and development expenses were $2.5 million$947,000 for the ninesix months ended SeptemberJune 30, 2017,2022, compared to $2.0 million$910,000 for the same period in 2016.2021. The $500,000$37,000 increase in research and development expenses was partiallyprimarily due to an increase of $87,000 in personnel-related costs. This increase$28,000 in personnel-related costs, resulted from increaseda $23,000 increase in professional fees, an $18,000 increase in freight expense, a $7,000 increase in facility related expenses and $6,000 increase in other research and development salariesexpenses, offset by a $45,000 decrease in depreciation expense.

Personnel related expense, including stock-based compensation expense for the six months ended June 30, 2022 increased, relative to the same period of $47,0002021, due to headcount additions in 2017 and an increase in stock-based compensation expenseheadcount to meet current and future demand.

Professional fees increased for the six months ended June 30, 2022 relative to the same period of $40,000. Professional services and2021, primarily due to increased consulting expenses related to field and regulatory compliance studies and increased $130,000annual EPA and state registrations.

Freight expense, the expense related to unbilled freight charges, increased $18,000 for the ninesix months ended SeptemberJune 30, 20172022 relative to the same period of 2021 primarily due to increased product sales volume associated with new customer acquisition and increased freight rates due to increased fuel surcharges.

Facility-related expenses increased $7,000 due primarily to contractual rent escalation in our facility lease contracts and a slight increase in utility expenses.

The increase in other research and development expenses of $6,000 in the six months ended June 30, 2022 compared to the same period in 20162021 was primarily due to an increase in synthetic triptolide research fees and legal fees.

State registration and filing fees increased $27,000 for the nine months ended September 30, 2017 compared to the same period in 2016 due to the increase in state filings and registrations as we have now filed in all 50 states and the District of Columbia and have begun the process of refiling in some states. Travel expenses related to field team support increased $97,000 for nine months ended September 30, 2017 over the same period in 2016 due to on-site evaluations of potential customers and research operations. Rent and utilities for the nine months ended September 30, 2017 increased $51,000 over the same period in 2016 due to the expansion into the research space at our NACET facility. Depreciation expense increased $62,000 for the nine months ended September 30, 2017 over the same period in 2016 due to fixed asset additions in our research operations.


We continue to investigate applications of our core technology to other product candidates, which includes laboratory tests and academic collaborations.improvement studies. We also continue to develop our supply chain, particularly identifying and improving our sourcing of triptolide, a key active ingredientingredients for our product candidates.

 

Depreciation expense decreased $45,000 for the six months ended June 30, 2022 over the six months ended June 30, 2021 due to several assets becoming fully depreciated during the period. 

32

Selling, General and Administrative Expenses

 

  Six Months Ended
June 30,
  Increase 
  2022  2021  (Decrease) 
  (in thousands) 
Direct selling, general and administrative expenses:         
Personnel related (including stock-based compensation) $2,185  $2,051  $134 
Professional fees  900   491   409 
Facility-related  78   80   (2)
Marketing  245   153   92 
Office supplies/IT  169   149   20 
Travel and entertainment  106   96   10 
Insurance  311   235   76 
Other  190   102   88 
Total selling, general and administrative expenses $4,184  $3,357  $827 

General

Selling, general and administrative expenses were $7.5approximately $4.2 million for the ninesix months ended SeptemberJune 30, 2017,2022, as compared to $5.3approximately $3.4 million for the ninesix months ended SeptemberJune 30, 2016.2021. The increase of $2.2 million$827,000 in selling, general and administrative expenses was primarily due to an increase of $1.5 million$134,000 in personnel relatednet salary costs, an increase of $409,000 in professional fees, a $2,000 decrease in facility-related expenses, ana $92,000 increase in marketing expenses, a $20,000 increase in office supplies/IT expenses, a $10,000 increase in travel expenses of $113,000, anand entertainment, a $76,000 increase in insurance expense of $248,000, a $178,000 increase in office supplies and non-capitalized furniture and computer equipment and an increase in marketing, stock serviceother selling, general and shareholder relationsadministrative expenses of $23,000. $88,000.

The increase in personnelnet compensation costs of $134,000 was due primarily to expenses related expenses consisted ofto an equity award to our employees as well as an increase in stock basedadministrative headcount during the last 6 months of 2021, offset by sales rep compensation of $450,000 and an increase of $1.1 million in net additional salary costs.restructuring effective January 1, 2022. The increase in insuranceprofessional services expenses of $409,000 was primarily due to increased director and officer insurance as a result ofmarketing professional fees associated with outsourcing our marketing programs. Facility related expenses were lower during the public becoming a public reporting companysix months ended June 30, 2022 over the same period in December of 2016. Likewise,2021 due to lower utility costs that were incurred in 2021 to wind down the Flagstaff facility not incurred in 2022. Other marketing stock service and shareholder relations expenses increased $92,000 during the six months ended June 30, 2022 over the same period in 2021 primarily due to increases in digital marketing advertising. Office supplies/IT expenses were higher during the six months ended June 30, 2022 over the same period in 2021 due to increased IT support services Travel and entertainment expenses for the six months ended June 30, 2022 were $10,000 higher than the same period in 2021 primarily due to the Company becomingtiming of travel, incurred in Q-1, 2022. Insurance expenses increased during the six months ended June 30, 2022 primarily due to increased Directors and Officers insurance premiums. Other selling and general administrative expenses were $88,000 greater in the six months ended June 30, 2022 over the same period in 2021 due to a commercial, public reporting company in December of 2016.$12,000 reserve for uncollectable receivables and increased sales promotion and related expenses during the six months ended June 30, 2022.

 

Interest Income/Expense, Net

 

We recorded $35,000interest income, net of $2,000 for the six months ended June 30, 2022, compared to interest expense, net of $5,000 for the same period in 2021. The $7,000 decrease in interest expense, net for the nine months ended September 30, 2017, compared to $92,000 for the same period in 2016. The decrease inwas a result of decreased interest expense of $57,000 was the result of a decrease of $2.9 million in convertible notes that were issued in 2014 and exchanged for Series B convertible preferred stock in December 2016 partially offset by the increase in interest related to increased debt in the form ofon certain notes payable and finance leases on equipment acquisitions during 2017.that were paid down or expired after June 30, 2021.

 

Paycheck Protection Program Loan Forgiveness

PPP loan forgiveness income for the three months ended June 30, 2021 represents the forgiveness of a promissory note pursuant to the PPP under the CARES Act, that we secured under this program.

Other Income (Expense), Net

 

We recorded $76,000 of otherOther income, net was $2,000 for the ninesix months ended SeptemberJune 30, 2017,2022 as compared to $120,000 of other expense$22,000 for the same period in 2016.six months ended June 30, 2021. The $196,000 net$20,000 decrease in other expenseincome was primarily due to the expense related toimpact of a payroll benefits accrual from 2019 that was reversed in the year-over-year fair market value adjustment of our convertible promissory notes and losses onsix months ended June 30, 2021, as the extinguishment of said promissory notes.liability period had expired.

Liquidity and Capital Resources

 

Since our inception, we have sustained significant operating losses in the course of our research and development activities we have sustained significant operating losses and expectscommercialization 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. During the first nine months of 2017, we began full scale marketing of our first product, ContraPest and we continue to develop other product candidates, which are in various phases of development.license. We have primarily funded our operations to date primarily with proceeds fromthrough the sale of equity securities, including convertible preferred stock, common stock and preferred stock, the issuancewarrants to purchase common stock; and debt financing, consisting primarily of convertible and other promissory notes and, to a lesser extent, payments received under research grants and pursuant to our former license agreement with Neogen. notes. 

33

Through SeptemberJune 30, 2017,2022, we hadhave received net proceeds of $49.2$89.6 million from our sales of common stock, and 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 $1.6$2.0 million from licensing fees. in net product sales. As of June 30, 2022, we had an accumulated deficit of $117.4 million and cash and cash equivalents of $5.0 million.

 

The Company’sOur ultimate success depends upon the outcome of a combination of factors, including:including the following: (i) the success of its research and development; (ii) ongoing regulatory approval andsuccessful commercialization of ContraPest and its othermaintaining and obtaining regulatory approval of our products and product candidates; (iii)(ii) market acceptance, and commercial viability and profitability of ContraPest and other products if the Company obtains the necessary regulatory approvals; (iv)products; (iii) the ability to market itsour products and establish an effective sales force and marketing infrastructure to generate significant revenue; (iv) the success of our research and development activities; (v) the ability to retain and attract key personnel to develop, operate and grow itsour business; and (vi) the timely and successful completion of additional financing as needed. The Company has funded its operationsour ability to date through the sale of convertible preferred stock and common stock, including an initial public offering of 1,875,000 shares of its common stock on December 8, 2016, debt financing, consisting primarily of convertible notes and, to a lesser extent, payments received in connection with research grants and licensing fees. As of September 30, 2017, we had an accumulated deficit of $71.3 million and cash and cash equivalents and highly liquid investments of $3,648.meet our working capital needs.

Based upon itsour current operating plan, the Company expectswe expect that cash and cash equivalents and highly liquid, short term investments at SeptemberJune 30, 2017,2022, in combination with anticipated revenue and any additional sales of our equity securities, will be sufficient to fund itsour current operations for at least the near future.next six to nine months. We have evaluated and will continue to evaluate 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 Company is likelynext six to nine months, and we are unable to raise the 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 itsour operating losses and research and development activities by issuing additionalbefore 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 and equity instruments, until such time as the Company is profitable.financing. If such equity or debt financing is not available at adequate levels the Company willor on acceptable terms, we may need to reevaluate its plans.

Off-Balance Sheet Arrangements

As of September 30, 2017, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

delay, limit or terminate commercialization and development efforts or discontinue operations.


 

Additional Funding Requirements

 

We expect our expenses to continue or increase substantially in connection with our ongoing activities, particularly as we advance field studiesfocus on marketing and sales of our product candidates in development.ContraPest.. In addition, we will continue to incur additional costs associated with operating as a public company.

 

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

 

 Continue the researchwork to maximize market acceptance for, and developmentgenerate sales of, ContraPestour products, including by conducting field demonstrations at potential lead customers;
explore strategic partnerships to enable us to penetrate additional target markets and our other product candidates, including engaging in any necessary field studies;geographical locations;

 

 Seek ongoing regulatory approvals for ContraPest and our other product candidates;

Scale up manufacturing processes and quantities to prepare formanage the commercialization of ContraPest and any other product candidates for which we receive regulatory approval;

Establish an infrastructure for the sales, marketing and distribution of ContraPest and any other product candidates for which we may receive regulatory approval;

 

 Attemptseek additional regulatory approvals for ContraPest, including to achievemore fully expand the market acceptanceand use for ContraPest and, if we believe there is commercial viability, for our products;other product candidates;

 

 Expandfurther develop our manufacturing processes to contain costs while being able to scale 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, as our operating budget permits, advance the discoveryresearch and development programs for other product candidates;

 

 Maintain, expandmaintain and protect our intellectual property portfolio; and

 Add
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.

 

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

34

Cash Flows

 

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

 

  Nine Months Ended
September 30,
 
  2017  2016 
Cash used in operating activities $(7,596) $(4,240)
Cash used in investing activities  (3,825)  (54)
Cash provided by financing activities  294   5,498 
Net increase (decrease) in cash and cash equivalents $(11,127) $1,204 
  Six Months Ended
June  30,
 
  2022  2021 
Cash used in operating activities $(4,148) $(4,001)
Cash used in investing activities  (146)  (83)
Cash (used in) provided by financing activities  (32)  13,570 
Net (decrease) increase in cash and cash equivalents $(4,326) $9,486 

 

Operating Activities.

 

During the ninesix months ended SeptemberJune 30, 2017,2022, operating activities used $7.6$4.1 million of cash, primarily resulting from our net loss of $10.0$4.9 million andoffset by changes in our operating assets and liabilities of $0.6 million, partially offset$198,000 and by non-cash charges of $3.0 million.$555,000, consisting primarily of stock-based compensation, depreciation and amortization and bad debt expense. Our net loss was primarily attributedattributable to research and development activities and our selling, general and administrative expenses, as we generated limited product revenue during the period. Net cash generated by changes in our operating assets and liabilities for the six months ended June 30, 2022 of $259,000 consisted primarily of an increase in deferred revenue of $41,000, a net increase in accrued expenses and accounts payable of $145,000 and a decrease in inventory of $25,000, offset by an increase in prepaid expenses of $108,000 and an increase in accounts receivable of $19,000.

During the six months ended June 30, 2021, operating activities used $4.0 million of cash, primarily resulting from our net loss of $3.5 million, changes in our operating assets and liabilities of $317,000 and by non-cash charges of $163,000, consisting primarily of stock-based compensation, depreciation and amortization, offset by the Paycheck Protection Program loan forgiveness during the period. Our net loss was primarily attributable to manufacturing, 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 ninesix months ended SeptemberJune 30, 20172021 of $317,000 consisted primarily of a decrease in prepaid expenses of $165,000 and a decrease in receivables of $3,000 and an increase in deferred rent of $12,000, offset by a net decrease in accrued expenses and accounts payable of $473,000, a net$51,000, an increase in inventoriesprepaid expenses of $337,000$203,000, an increase in inventory of $24,000 and an increase in depositsaccounts receivable of $8,000. The net$49,000, offset by a decrease in accrued expenses and accounts payableother assets of $10,000.

Investing Activities.

For the six months ended June 30, 2022, net cash used in investing activities was primarily$146,000 due to timingthe purchases of expense occurrenceproperty, plant and payables management, offset by our payment of the $1.0 million contract cancellation settlement accrualequipment and construction in January. progress.

 


For the six months ended June 30, 2021, net cash used in investing activities was $83,000 due to the purchases of property, plant and equipment and increases in construction in progress.

Financing Activities.

During the ninesix months ended SeptemberJune 30, 2016, operating2022, net cash used by financing activities used $4.2 million of cash, primarily resulting from our net loss of $7.2 million, partially offset by non-cash charges of $3.0 million and by cash provided by changes in our operating assets and liabilities of $62,000. Our net loss was primarily attributed to research and development activities and our general and administrative expenses, as we generated limited research grant and licensing revenue during the period. Net cash provided by changes in our operating assets and liabilities for the nine months ended September 30, 2016 consisted primarily of a $175,000 decrease in deferred revenue related to our license agreement with Neogen and a $202,000 decrease in accrued expenses and accounts payable. The decrease in accrued expenses and accounts payable was due to increased payments$32,000 as a result of the receipt$5,000 of cash raised in financing activities.

Investing Activities

For the nine months ended September 30, 2017, we used $3.8 million in investing activities consisting of $2.9 million of purchases in securities to be held to maturity and $885,000 in purchases of property and equipment.

For the nine months ended September 30, 2016, we used $54,000 of cash in investing activities, consisting of purchases of property and equipment.

Financing Activities

During the nine months ended September 30, 2017, net cash generated from financing activities was $294,000 as a result of $437,000 of proceeds from the issuance notes payable offset by payments of $66,000repayments related to notes payable and notes payable related party and $77,000$27,000 in paymentsrepayments of capitalfinance lease obligations.

 

During the ninesix months ended SeptemberJune 30, 2016,2021, net cash provided by financing activities was $5.5$13.6 million as a result of $6.2$12.4 million ofin net proceeds from the issuance of shares of common stock in our rights offering discussed elsewhere in this prospectus, $326,000and net proceeds of proceeds received from our issuance of notes payable, $896,000 of proceeds received from the issuance of Series B convertible preferred stock, and $449,000 of proceeds received$1.2 million from the exercise of stock options, all of which were partiallywarrants, offset by $26,000 related to payments of $1.6finance lease obligations, $28,000 related to therepayments of notes payable notes payableand $17,000 for the payment of employee withholding taxes related party and convertible notes payable, $16,000 of capital lease repayments and $801,000 of deferred offering cost payments.to share based awards.

 

Recent Developments

35

 

None

 

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

 

We recognize revenue in accordance with the Financial Accounting Standards Board (the “FASB”)Effective January 1, 2018, we adopted Accounting Standards Codification (“ASC”), Topic 605, 606 — Revenue Recognitionfrom Contracts with Customers (“ASC 606”). Accordingly,Under ASC 606, we recognize revenue from the commercial salesales 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 us under ASC 606 are straightforward and similar to the unit of account and performance obligation determination under ASC Topic 605, Revenue Recognition.

 

We have generated revenue from a license agreement with a strategic partner pursuant to which we had granted to such partner the exclusive license in North America to manufacture, distribute and sell commercial control products based on our intellectual property, which includes ContraPest, for the later of 10 years or the expiration of the patent for ContraPest (if issued).

The license agreement was subsequently terminated on January 23, 2017.

When we receive non-refundable, upfront license fee payments for the exclusive rights to licensing our intellectual property, management determines if such license has stand-alone value. Since management determined that the license to our intellectual property did not have stand-alone value, we recognized revenue attributable to that license on a straight-line basis over the estimated related performance period. Any changes in the estimated period of performance will be accounted for prospectively as a change in estimate.

Our licensing agreement also provided for a future fixed amount of contingent milestone payments and contingent sales-based royalties to be received upon the achievement of milestone events. We recognize revenue thatwhen product is contingentshipped at a fixed selling price on payment terms of 30 to 120 days from invoicing. We recognize other revenue earned from pilot studies, consulting and implementation services upon the achievementperformance of a substantive milestonespecific services under the respective service contract.

We derive revenue primarily from commercial sales of products, net of discounts and promotions, as well as consulting and implementation services provided in its entirety in the period in which the milestone is achieved and the milestone payments are due and collectible. A milestone is considered substantive when the consideration payable to us for such milestone has all of the following characteristics: (1) there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved; (2) the event can only be achieved based in whole or part on eitherconjunction with our performance or a specific outcome resulting from our performance; and (3) if achieved, the event would result in additional payments being due to us. In making this assessment in the future, we will consider all facts and circumstances relevant to the arrangement, including whether any portion of the milestone consideration is related to future performance or deliverables. In addition, we will account for sales-based royalties as revenue upon achievement of certain sales milestones. 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 (“ASC 718”). 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 account for stock-based compensation arrangements with non-employees using a fair value approach. The fair value of these stock options is measured using the Black-Scholes option-pricing model reflecting the same assumptions as applied to employee options in each of the reported periods, other than the expected life, which is assumed to be the remaining contractual life of the option. The fair value of the stock options granted to non-employees is re-measured as the stock options vest and is recognized in the statements of operations and comprehensive loss during the period the related services are rendered.

 

We recorded stock-based compensation expense of approximately $2.8 million$206,000 and $2.4 million$182,000 for the ninethree months ended SeptemberJune 30, 20172022 and 2016,June 30, 2021, respectively, and approximately $430,000 and $337,000 for the six months ended June 30, 2022 and June 30, 2021, respectively. We expect to continue to grant stock options and other equity-based awards in the future and continue to the extent that we do, ourrecognize stock-based compensation expense recognized in future periods will likely increase.periods.

 

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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 until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, or 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. Prior to our initial public offering in December 2016, in the absence of an active market for our common stock, we previously 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. 

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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,
 
  2017  2016  2017  2016 
Research and development $85  $135  $269  $309 
General and administrative  861   798   2,549   2,097 
Total stock-based compensation expense $946  $933  $2,818  $2,406 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
  2022  2021  2022  2021 
             
Research and development $3  $-  $4  $2 
Selling, general and administrative  203   182   426   335 
Total stock-based compensation expense $206  $182  $430  $337 

 

The intrinsic value of stock options outstanding as of SeptemberJune 30, 2017 is $183,000, of which $968,000 and $(785,000) would have been related to stock options that were vested and unvested, respectively, at that date.2022 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.

 


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Item 3.Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item4.Controls and Procedures

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

We maintainperiodically conduct evaluations (pursuant to Rule 13a-15(b) of the Exchange Act), under the supervision and with the participation of management, of the effectiveness of our disclosure controls and procedures that(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 the information required to be disclosed in theour reports that we fileare filed or submitsubmitted 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 our management, including our Chief Executive Officerthe principal executive and Chief Financial Officer (or Acting Principal Financial Officer, as the case may be),principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our management conducted an evaluation (pursuant to Rule 13a-15(b)) of

Based on the Exchange Act, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)) as of the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that ourthese 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 werewas no changeschange in our internal control over financial reporting that occurred during the three-month periodquarter ended SeptemberJune 30, 20172022, that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1.Legal Proceedings

Item 1. Legal Proceedings

 

The Company may be subject toFor information regarding legal proceedings in which we are involved, see Note 12 - Commitments and claims arising from contracts or other matters from timeContingencies under the subsection titled “Legal Proceedings” in our Notes to timeCondensed Financial Statements in the ordinary coursePart I, Item 1 of business. Management is not aware of any pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effectthis Quarterly Report on its financial position, results of operations or liquidity.Form 10-Q.

 

Item 1A.Risk Factors

Item 1A. Risk Factors

 

Except as detailed below and disclosed in subsequently filed Quarterly Reports on Form 10-Q, thereThere have been no material changes in the risk factors set forth in Part I, Item 1A, “Risk Factors” in our 2021 Annual Report on Form 10-K/A for the year ended December 31, 2016.Report.

 

Depending on the commercial success of ContraPest, we may require additional capital to fund our operations. Failure to obtain this necessary capital if needed may force us to delay, limit, or terminate our product development efforts or other operations.

Developing product candidates, including conducting experiments and field studies, obtaining and maintaining regulatory approval and commercializing any products later approved for sale, is a time-consuming, expensive and uncertain process that takes years to complete. We expect our expenses to continue to increase in connection with our ongoing activities, particularly as we advance our commercialization activities. We plan to substantially expand our operations, and as a result of many factors, some of which may be currently unknown to us, our expenses may be higher than expected. Securing additional financing may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates, including ContraPest. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to:

Significantly delay, scale back or discontinue the development or commercialization of our product candidates, including ContraPest;

Seek strategic partners for the manufacturing, sales and distribution of ContraPest or any of our other product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; and
Relinquish, or license on unfavorable terms, our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves.

The occurrence of any of the events described above would have a material adverse effect on our business, operating results and prospects and on our ability to develop our product candidates.


If securities or industry analysts, or other sources of information, do not publish research, or publish inaccurate or unfavorable research or other information about our business, our stock price and trading volume could decline.

The trading market for our common stock may depend on the research, reports and other information that securities or industry analysts, or other, third party sources of information, publish about us or our business. We do not have any control over these analysts or other, third party sources of information, and from time to time inaccurate or unfavorable research or other information about our business, financial condition, results of operations and stock ownership may be published. We cannot assure that analysts will cover us or provide favorable coverage. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our share price would likely decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline. If incorrect or misleading information is disseminated publicly by third parties about us, our stock price could decline.

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

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

 

None.

 

Use of Proceeds from Public Offering of Common StockItem 3. Defaults Upon Senior Securities

 

In December 2016, we closed our initial public offering (“IPO”), in which we sold 1,875,000 shares of common stock at a price to the public of $8.00 per share. No shares were sold in connection with the underwriters’ option to purchase additional shares. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-213736), which was declared effective by the SEC on December 7, 2016. We raised approximately $12.6 million in net proceeds after deducting underwriting discounts and commissions of approximately $1.1 million and offering expenses of approximately $1.3 million. Using the proceeds from the IPO, on December 13, 2016, we paid $175,890 to the holder of all of our shares of Series A convertible preferred stock for its agreement to waive all accrued dividends on the Series A convertible preferred stock and convert all of its shares of Series A convertible preferred stock into common stock immediately prior to the consummation of the IPO. No payments were made by us to directors, officers or persons owning 10% or more of our capital stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries. There has been no material change in the planned use of proceeds from our IPO as described in the final prospectus issued in connection with the IPO.  We have invested the remaining proceeds in accordance with our board approved investment policy, which provides for investments in obligations of the U.S. government, money market instruments, registered money market funds and corporate bonds. The managing underwriter of our IPO was Roth Capital Partners, LLC and co-managing underwriters were Craig-Hallum Capital Group LLC and Aegis Capital Corp. None.

 

Item 4. Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

 None.Item 5. Other Information

 


None.

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Item 6.Exhibits

Item 6. Exhibits

 

The exhibits listed in the Index to Exhibits are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.

INDEX TO EXHIBITS

Exhibit
Number
 Filed or
Furnished Herewith

Incorporated by Reference

DescriptionForm Filing
Date
Exhibit File No.
3.1 Amended and Restated Certificate of Incorporation S-1/A 10/20/20163.3 333-213736
         
3.2Amended and Restated Bylaws S-1 9/21/20163.5 333-213736
         
31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934X      
         
31.2Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934X      
         
32.1Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002X      
         
32.2Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002X      
         
101.INSXBRL Instance DocumentX      
         
101.SCHXBRL Taxonomy Extension SchemaX      
         
101.CALXBRL Taxonomy Extension Calculation LinkbaseX      
         
101.DEFXBRL Taxonomy Extension Definition LinkbaseX      
         
101.LABXBRL Taxonomy Extension Label LinkbaseX      
         
101.PREXBRL Taxonomy Extension Presentation LinkbaseX      

 


SIGNATURES

Exhibit
Number
Filed or
Furnished
Herewith

Incorporated by Reference
DescriptionFormFiling DateExhibitFile No.
31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934X
31.2Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934X
32.1Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002X
32.2Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002X
101.INSInline XBRL Instance Document.X
101.SCHInline XBRL Taxonomy Extension Schema Document.X
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.X
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.X
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.X
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

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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 8, 2017August 12, 2022By:/s/ Loretta P. Mayer, Ph.D.Kenneth Siegel
  Loretta P. Mayer, Ph.D.Kenneth Siegel
  Chair of the Board, Chief Executive Officer and
Chief Scientific Officer
   
Dated: November 8, 2017August 12, 2022By:/s/ Thomas C. Chesterman
  Thomas C. Chesterman
  Chief Financial Officer and Treasurer

 


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