Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

xQUARTERLY 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, 2017

2023

OR

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

oTRANSITION 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

Delaware

20-2079805
(State or other jurisdiction of


incorporation or organization)

(I.R.S. Employer


Identification No.)


3140 N. Caden Court,
23460 N 19th Ave, Suite 1
Flagstaff, AZ
110
86004
Phoenix, AZ85027
(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 x No

o

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 x No

o

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 filer ☐oAccelerated filero
Non-accelerated filer ☐x(Do not check if a smaller reporting company)Smaller reporting companyx
Emerging growth company ☒o

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.

o

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

x

The number of shares of common stock outstanding as of November 7, 2017: 10,389,497

August 9, 2023: 2,964,485
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Table of Contents
SENESTECH, INC.

FORM 10-Q

For the Quarterly Period Ended September

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017

2023

TABLE OF CONTENTS

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PART I.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,
2023
December 31, 2022
ASSETS(unaudited)
Current assets:
Cash and cash equivalents$2,196 $4,775 
Accounts receivable, net44 113 
Prepaid expenses330 378 
Inventory, net765 853 
Total current assets3,335 6,119 
Right to use assets, operating leases261 347 
Property and equipment, net245 294 
Other noncurrent assets22 22 
Total assets$3,863 $6,782 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$120 $540 
Accrued expenses621 560 
Current portion of operating lease liability188 180 
Deferred revenue24 44 
Total current liabilities953 1,324 
Operating lease liability, less current portion83 179 
Total liabilities1,036 1,503 
Commitments and contingencies (see notes)
Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued and outstanding— — 
Common stock, $0.001 par value, 100,000,000 shares authorized, 2,964,485 and 809,648 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively
Additional paid-in capital129,057 127,481 
Accumulated deficit(126,233)(122,203)
Total stockholders’ equity2,827 5,279 
Total liabilities and stockholders’ equity$3,863 $6,782 
See accompanying notes to condensed financial statements.


1


SENESTECH, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE 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)

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Revenues, net$305 $277 $538 $472 
Cost of sales163 141 304 246 
Gross profit142 136 234 226 
Operating expenses:
Research and development381 431 768 947 
Selling, general and administrative1,761 2,277 3,511 4,184 
Total operating expenses2,142 2,708 4,279 5,131 
Loss from operations(2,000)(2,572)(4,045)(4,905)
Other income (expense):
Interest income15 
Interest expense— — — (1)
Miscellaneous income— — 
Other income, net15 
Net loss and comprehensive loss$(1,993)$(2,569)$(4,030)$(4,901)
Weighted average shares outstanding - basic and fully diluted2,860,874610,6352,208,162610,543
Net loss per share - basic and fully diluted$(0.70)$(4.21)$(1.83)$(8.03)
See accompanying notes to condensed financial statements.

2


SENESTECH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

  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 

Six Months Ended June 30,
20232022
Cash flows from operating activities:
Net loss$(4,030)$(4,901)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization69 113 
Stock-based compensation336 430 
Bad debt expense(2)12 
Changes in operating assets and liabilities:
Accounts receivable71 (19)
Other assets(2)— 
Prepaid expenses92 (108)
Inventory88 25 
Accounts payable(420)(47)
Accrued expenses61 306 
Deferred revenue(20)41 
Net cash used in operating activities(3,757)(4,148)
Cash flows from investing activities:
Purchase of property and equipment(21)(146)
Net cash used in investing activities(21)(146)
Cash flows from financing activities:
Proceeds from the issuance of common stock, net1,210 — 
Repayments of notes payable— (5)
Repayments of finance lease obligations— (27)
Payment of employee withholding taxes related to share based awards(11)— 
Net cash provided by (used in) financing activities1,199 (32)
Decrease in cash and cash equivalents(2,579)(4,326)
Cash and cash equivalents, beginning of period4,775 9,326 
Cash and cash equivalents, end of period$2,196 $5,000 
Supplemental disclosures of cash flow information:
Interest paid$— $
Income taxes paid$— $— 
See accompanying notes to condensed financial statements.


3


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 1 - Organization and Description

(Unaudited)
NOTE 1: BASIS OF PRESENTATION
Nature of Business

SenesTech, Inc. (the “Company”(subsequently referred to in this report as “we,” “us,” “our,” or “our Company”) was formed in July 2004 and incorporated in the state of Nevada. The CompanyNevada in July 2004. On November 12, 2015, we subsequently reincorporated in the state of Delaware in November 2015. The Company has itsDelaware. Our corporate headquarters and manufacturing site are 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, targetingcontrol with our product known as ContraPest®.

ContraPest is a liquid bait containing the active ingredients 4-vinylcyclohexene diepoxide and triptolide. ContraPest limits reproduction is more humane, less harmful toof male and female rats beginning with the environment, and more effective in providing a sustainable solution to pest infestations than traditional lethal pest management methods. Its first fertility control product candidate,breeding cycle following consumption. ContraPest is being marketed for use in controlling theNorway and roof rat population. The innovative compound is consumed by rats and leaves them non-reproductive without other observable side effects. Thepopulations. In addition to the U.S. Environmental Protection Agency (“EPA”) granted registration approvalof ContraPest, we must obtain registration from the various state regulatory agencies prior to selling in each state. To date, we have received registration for ContraPest effective August 2, 2016.in all 50 states and the District of Columbia, 49 of which have approved the removal of the Restricted Use designation, as well as the District of Columbia and five major U.S. territories.
Going Concern
Our condensed financial statements as of June 30, 2023 were prepared under the assumption that we would continue as a going concern. The Company plansreports of our independent registered public accounting firm that accompanies our financial statements for each of the years ended December 31, 2022 and December 31, 2021 contain 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, we have incurred operating losses since our inception, and we expect to continue to commercializeincur significant expenses and distribute ContraPest by leveraging newoperating losses for the foreseeable future. These prior losses and existing third-party relationships with manufacturing, marketingexpected future losses have had, and distribution partnerswill 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 expected future losses could have an adverse effect on our financial condition and internationally.

Potential Need for Additionalnegatively 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

In Resources

Since 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 a 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.
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.
As of June 30, 2023, we had an accumulated deficit of $126.2 million and cash and cash equivalents of $2.2 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.
4

Based upon our current operating plan, we expect that cash and cash equivalents at June 30, 2023, in combination with anticipated revenue and any additional sales of our equity securities (see Note 10), will be sufficient to fund our current operations for at least the timelynext three months.
While we have evaluated and continue to evaluate our operating expenses and concentrate our resources toward the successful completioncommercialization of ContraPest in the United States, additional financing. The Company has funded its operationsfinancing will be needed before achieving anticipated revenue targets and margin targets. If we are unable to dateraise 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 Companygoing concern. In any event, additional capital is likely to require additional capitalneeded in order to fund itsour operating losses and research and development activities by issuing additionalbefore we become profitable. 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.

All amounts shown in these financial statements are in thousands, except percentagesdelay, limit or terminate commercialization and per share and share amounts. Per share and share amounts reflect post-reverse split values.

Basis of Presentation

Thedevelopment efforts or discontinue operations.

Condensed Financial Statements
Our 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’s2023, and our operating results for the three and nine months ended September 30, 2017 and 2016, and the Company’s cash flows for the nine monthsthree- and six-month periods ended SeptemberJune 30, 20172023 and 2016.2022. The accompanying financial information as of December 31, 20162022 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.

All amounts shown2022, filed with the SEC on March 17, 2023.

Recent Accounting Pronouncements
There have been no new accounting pronouncements not yet effective or adopted in thesethe current year that we believe have a significant impact, or potential significant impact, to our condensed financial statements are in thousands, except percentages and per share and share amounts.

statements.

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 inventory, common stock and related warrants, and other stock-based awards.awards, such as stock options and restricted stock units. Actual results could differ from such estimates.

Reclassifications

Certain prior year amounts

Comprehensive Loss
We have been reclassified to conform to the current period presentation. These reclassifications had no 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 considers money market fund investments to be cash equivalents. The Company had cash equivalents of $70 and $-0- at September 30, 2017 and December 31, 2016, respectively, included in cash as reported.

Investments in Securities Held to Maturity

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 receivable consist primarily of trade receivables. The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. The allowance for doubtful trade receivables was $3 and $-0- as of September 30, 2017 and December 31, 2016, respectively.

Inventories

Inventories are stated at the lower of cost or market value, using the first-in, first-out convention. Inventories consist of raw materials and finished goods. As of September 30, 2017 and December 31, 2016, the Company had inventories of $394 and $57, respectively.

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, rent, legal and inventory purchase deposits and seminar fees to be expensed in the current year.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Equipment held under capital 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 capital leases is amortized over the shorter of the lease term or estimated useful life of the asset. The Company incurs maintenance costs on its major equipment. Repair and maintenance costs are expensed as incurred.

Impairment of Long-Lived Assets

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

Revenue Recognition

The Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies when (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 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 terminated on January 23, 2017. The 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 pursuant 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. 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 only 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 upon the performance of specific services under the respective service contract.

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 research and development expenses is an allocation of facilities related costs, including depreciation of research and development equipment.

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS 

(In thousands, except share and per share data)

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

Stock-based Compensation

Employee stock-based awards, consisting of restricted stock units and stock options expected to be settled in shares of the Company’s common stock, are recorded as equity awards. The grant date fair value of these awards is measured using the Black-Scholes option pricing model. The Company expenses 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 recordedcomprehensive income items for the three and nine months ended September 30, 2017 and 2016 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 

Income Taxes

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

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

10 

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 allthe periods presented; therefore,presented and a separate statement of comprehensive loss is not included in the accompanying condensed 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 nine months ended September 30, 2017 and 2016. Therefore, basic and diluted loss per share attributable to common stockholders was the same for all periods presented.

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 

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 modification 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 have 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 amendments 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 to have a material impact on the Company’s financial statements or related disclosures.

In August 2016, the FASB issued ASU No. 2016-15,Statement of

NOTE 2: BALANCE SHEET COMPONENTS
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 prepaymentEquivalents
Highly liquid investments with maturities of three months or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation 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 awardsless 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 of acquisition are classified as cash equivalents, of which we had $2.2 million and $4.8 million as of June 30, 2023 and December 31, 2022, respectively, included within cash and cash equivalents in the financial statements are issued. If such conditions or events exist, ASU 2014-14 also requires certain disclosurescondensed balance sheets.

5

Accounts Receivable, Net
Accounts receivable, net consisted of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. following (in thousands):
June 30,
2023
December 31,
2022
Accounts receivable$48 $119 
Allowance for uncollectible accounts(4)(6)
Accounts receivable, net$44 $113 
The standard requires that an entity recognize revenue to depictfollowing was the transfer of control of promised goods or services to customersactivity in an amount that reflects the consideration to which the entity expects to be entitled in exchangeallowance for those goods or services. Adoptionuncollectible accounts (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Balance as of beginning of period$$— $$— 
Increase in provision— 12 — 12 
Amounts written off, less recoveries— — (2)— 
Balance as of end of period$$12 $$12 
Inventory, net
Inventory, net consisted of the new standard is effectivefollowing (in thousands):
June 30,
2023
December 31,
2022
Raw materials$729 $772 
Finished goods54 99 
Total inventory783 871 
Less: reserve for obsolescence(18)(18)
Inventory, net$765 $853 
The following was the activity in the reserve for reporting periods beginning after December 15, 2017. We plan to use the modified retrospective methodobsolescence (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Balance as of beginning of period$18 $26 $18 $29 
Increase in reserve— — — — 
Amounts relieved— (4)— (7)
Balance as of end of period$18 $22 $18 $22 
6

Prepaid Expenses
Prepaid expenses consisted 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 requirementsfollowing (in thousands):
June 30,
2023
December 31,
2022
Professional services$107 $41 
Insurance97 61 
Software licenses94 157 
Other14 
Patents10 39 
Marketing programs and conferences74 
Total prepaid expenses$330 $378 
Property and Equipment, Net
Property and equipment, net consisted of the standard. We will continue our evaluation until our adoptionfollowing (in thousands):
June 30,
2023
December 31,
2022
Research and development equipment$1,569 $1,558 
Office and computer equipment803 800 
Autos54 54 
Furniture and fixtures41 41 
Leasehold improvements119 119 
Total in service2,586 2,572 
Accumulated depreciation and amortization(2,353)(2,283)
Total in service, net233 289 
Construction in progress12 
Property and equipment, net$245 $294 
Accrued Expenses
Accrued expenses consisted of the new standard.

following (in thousands):

June 30,
2023
December 31,
2022
Compensation, severance and related benefits$468 $497 
Legal services138 36 
Product warranty15 18 
Personal property and franchise tax— 
Other— 
Total accrued expenses$621 $560 

Note 3 - Fair Value Measurements

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.

7

NOTE 4: LEASES
We have operating leases for our corporate headquarters and our manufacturing and research facility, which expire in 2024. We were obligated under finance leases for certain research and computer equipment, of which the last arrangement expired in June 2022.
The estimated fair valuecomponents of lease cost were as follows (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Operating lease cost$55 $56 $111 $112 
Finance lease cost:
Amortization of right-of-use asset$— $11 $— $27 
Interest on lease liability— — — 
Total finance lease cost$— $11 $— $28 
As of June 30, 2023, maturities of operating lease liabilities were follows (in thousands):
2023$99 
2024186 
Total operating lease payments285 
Less imputed interest(14)
Total operating lease liabilities$271 
NOTE 5: STOCK-BASED COMPENSATION
In 2018, our stockholders approved the adoption of the convertible notesSenesTech, Inc. 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan has since been amended and other notes, not recorded at fair value,restated on certain occasions, most recently on June 26, 2023, when our stockholders approved an increase to the total number of authorized shares to 848,614 shares.
Stock options 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 andgenerally issued with a per share data)

Note 4 - Investment in Securities Held to Maturity

As of September 30, 2017, investment in securities held to maturity primarily consisted of corporate fixed income securities and commercial paper. The Company did not have investments prior 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.

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 consist of the following:

  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 

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 consist 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 

* Shorter of lease term or estimated useful life

Depreciation and amortization expense was approximately $118 and $49 for the three months ended September 30, 2017 and 2016, respectively, and $272 and $143 for the nine months ended September 30, 2017 and 2016, respectively.

Note 7 - Accrued Expenses

Accrued expenses consist 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 

Note 8 - Accrued Contract Cancellation Settlement

The accrued contract cancellation settlement of $1,000 was the result of the Company entering into a settlement agreement with Neogen Corporation in which Neogen and the Company agreed to (a) terminate the existing Exclusive License Agreement between the Company and Neogen dated May 15, 2014 (the “License Agreement”), 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 Neogen in the District Court for the District 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 the terms of the agreement, the Company agreed to make a one-time payment in 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.


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 11 - Common Stock Warrants and Common Stock Warrant Liability

The table summarizes the common stock warrant activity as of September 30, 2017 as follows:

  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            

(1)The warrants also terminate, if not exercised by the earlier of (i) December 13, 2018, or the second anniversary of the closing of an initial public offering of common stock; or (ii) a liquidation, dissolution or winding up of the Company.

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 onequal to the fair market value of theour 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 11 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

The Company estimated the fair value 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 100,000 shares of common stock at an exercise price of $7.50 per share as consideration for providing marketing and development services in Southeast Asia. The warrant was fully vested and exercisable on the date of grant. The common stock warrant has 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 closing 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 of common stock at an exercise price of $7.50 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 Company estimated the fair value of the common stock warrant to be $939 on the date of grant using a Black- Scholes option pricing model based on the following significant inputs:common stock price of $8.00; comparable company volatility of 82.1%; remaining term 5 years; dividend yield of 0% and risk-free rate of 1.92%.


SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 11 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

University of Arizona Common Stock Warrant

In connection with the June 2015 amended and restated exclusive license agreement with the University of Arizona (“University”), the Company issued to the University a common stock warrant to purchase 15,000 shares of common stock at an exercise price of $7.50 per share. The warrant was fully vested and exercisable on the date of grant, and expires, if not exercised, five years from the date of grant. In the event of a “terminating change” of the Company, as defined in the warrant agreement, the warrant holder would be paid in cash the aggregate fair market value of the underlying shares immediately prior to the consummation of the terminating change event. Due to the cash settlement provision, the derivative warrant liability was recorded at fair value and is revalued at the end of each reporting period. The changes in fair value are reported in other income (expense) in the statements of operations and comprehensive loss. The estimated fair value of the derivative warrant liability was $53 at the date of grant.

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. The estimated the fair value of the common stock warrant on the date of grant was $537 as determined by using a Black-Scholes option pricing model based on the following significant inputs: common stock price of $7.575; comparable company volatility of 60.9%; expected term of 6.25 years; risk-free rate of 2.09%; and dividend yield of 0%. The Company recorded the fair value of the warrant as stock-based compensation expense within general and administrative expense in the accompanying statements of operations and comprehensive loss in 2015.

Northern Arizona University Common Stock Warrant

In November 2015, the Company issued a common stock warrant to purchase 210,526 shares of common stock at an exercise price of $15.00 per share to Northern Arizona University (“NAU”) as part of the consideration given with the Series A convertible preferred stock in exchange for the full cancellation of a promissory note that had been previously issued to NAU.

Note 12 - Stockholders’ Deficit

Common Stock

The Company had 10,363,189 and 10,157,292 shares of common stock issued and outstanding as of September 30, 2017 and December 31, 2016, respectively. 

During the nine months ended September 30, 2017, the Company issued an aggregate of 205,897 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

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.

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 13 - Stock-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’s stockholders approved the 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 stockholders approved an additional 1,000,000 shares of common stock for issuance under the 2015 Plan. The stock-based awards are generally issued with a price equal to no less than fair value at the date of grant. Options granted under the 2015 Plan generally vest immediately, or ratably over a two-12- 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. Options under the 2015 Planperiods, with terms 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 Company2023, we had 779,095465,580 shares of common stock available for issuance under the 20152018 Plan.

8

Stock Options
The Company measuresfollowing table presents the fair value ofoutstanding 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 Company to make certain estimates and assumptions, including assumptionsactivity:
Number of OptionsWeighted
Average
Exercise
Price Per
Share
Weighted
Average
Remaining
Contractual
Term
(years)
Three months ended June 30, 2023:
Outstanding as of March 31, 2023280,448 $17.11 4.4
Granted199,421 1.25 5.0
Exercised— — — 
Forfeited(107)39.64 — 
Expired(336)118.25 — 
Outstanding as of June 30, 2023479,426 (1)10.01 4.5
Six months ended June 30, 2023:
Outstanding as of December 31, 2022280,810 17.00 3.9
Granted199,421 1.25 5.0
Exercised— — — 
Forfeited(433)119.46 — 
Expired(372)680.87 — 
Outstanding as of June 30, 2023479,426 (1)10.01 4.5
Exercisable as of June 30, 2023139,583 29.16 3.8
(1) Includes options related to 99,000 shares that are inducement awards and not granted under the expected price volatility of the Company’s stock, the period under which the options with be outstanding, the rate of return on risk-free investments, and the expected dividend yield for the Company’s stock.

2018 Plan.

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 13 - Stock-based Compensation - (continued)

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

2023 was $1.24 per share, based on the following assumptions used in the Black-Scholes option pricing model:
EmployeeNon-Employee
Expected volatility128 73.8% -83.7% N/A
Expected dividend yield—  N/A
Expected term (in years)3.0 to 3.5 N/A5
Risk-free interest rate5.3 1.45%-1.94% N/A

Due to the Company’s limited operating history and lack of company-specific historical or implied volatility, the

The expected volatility assumption was determinedis based on the calculated volatility of our common stock at the date of grant based on historical volatilities from traded optionsprices over the most recent period commensurate with the term of biotech companies of comparable in sizethe award. The expected dividend yield assumption is based on our history and stability, whose share prices are publicly available.expected dividend payouts: we have not, and do not expect to, pay dividends. The expected term of options granted to employees is calculated based on the mid-point between the vesting date and the end of the contractual term according to the simplified method as described in SEC Staff Accounting Bulletin 110 because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term due to the limited period of time its awards have been outstanding. For non-employee options, the expected term of options grantedassumption is the contractual term of the options.options for non-employees. The risk-free interest rate by reference toassumption is determined using the impliedU.S. treasury yields of U.S. Treasury securitiesfor bonds with a remainingmaturity commensurate with the term equal toof the expected term assumed ataward.
9

Restricted Stock Units
The following table presents the time of grant. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not intend to pay dividends.

The table summarizes theunvested restricted stock option activity, for both 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 

(1)The aggregate intrinsic value on the table was calculated based on the difference between the estimated fair value of the Company’s stock and the exercise price of the underlying option. The estimated stock values used in the calculation was $1.85 and $8.15 per share at September 30, 2017 and December 31, 2016, respectively.

unit activity:

Number of
Units
Weighted
Average
Grant-Date
Fair
Value Per
Unit
Unvested balance as of December 31, 202218,799 $2.71 
Granted— — 
Vested(18,799)2.71 
Forfeited— — 
Unvested balance as of June 30, 2023— — 

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 13 - Stock-based Compensation – (continued)

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 

follows (in thousands):

Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Research and development$$$$
Selling, general and administrative (1)
165203327426
Total stock-based compensation expense$170 $206 $336 $430 
(1) For the three and six month periods ended June 30, 2023, includes $56,000 related to stock issued in exchange for marketing services.
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, 2017,2023, the total compensation cost related to non-vestedunvested options not yet recognized was $1,942,$469,000, which will be recognized over a weighted average period of four1.6 years, assuming the employees and non-employees complete their service period required for vesting.

Effective December 2008,

10

NOTE 6: STOCKHOLDERS’ EQUITY
Activity in equity during the Company establishedsix month periods ended June 30, 2023 and 2022 was as follows (dollars in thousands):
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Total
SharesAmount
2023
Balances as of December 31, 2022809,648$$127,481 $(122,203)$5,279 
Stock-based compensation— 166 — 166 
Issuance of common stock upon exercise of warrants1,230,000(1)— — 
Issuance of common stock for service54,466— 100 — 100 
Issuance of shares pursuant to the vesting of restricted stock units, net of shares withheld for taxes13,225— (11)— (11)
Net loss— — (2,037)(2,037)
Balances as of March 31, 20232,107,339127,735 (124,240)3,497 
Stock-based compensation— 113 — 113 
Issuance of common stock, net of issuance costs857,1461,209 — 1,210 
Net loss— — (1,993)(1,993)
Balances as of June 30, 20232,964,485$$129,057 $(126,233)$2,827 
2022
Balances as of December 31, 2021610,364$$122,542 $(112,508)$10,035 
Stock-based compensation— 221 — 221 
Issuance of common stock for service250— — 
Net loss— — (2,332)(2,332)
Balances as of March 31, 2022610,614122,766 (114,840)7,927 
Stock-based compensation— 205 — 205 
Issuance of common stock for service34— — 
Net loss— — (2,569)(2,569)
Balances as of June 30, 2022610,648$$122,972 $(117,409)$5,564 
During the 2008-2009 Plan undersix months ended June 30, 2023, the following shares of common stock were issued:
857,146 shares pursuant to a registered direct offering with certain institutional investors for $1.75 per share for gross proceeds of $1.5 million, before deducting issuance costs of $290,000. The shares were offered and sold pursuant to a prospectus, dated May 6, 2022, and a prospectus supplement, dated April 10, 2023, in connection with a takedown from our shelf registration statement on Form S-3 (File No. 333-261227).
1,230,000 shares pursuant to the exercise of previously outstanding prefunded warrants, which no stock options remain outstanding at September 30, 2017. The stock-based awards were issued in November 2022 with aan exercise price not less than $15.00of $3.50 per share;
54,466 restricted shares in exchange for marketing services to be performed through September 2023, with the total value of services to be recognized based on the stock price on the date of issuance; and
13,225 shares pursuant to the vesting of restricted stock units.
11

NOTE 7: COMMON STOCK WARRANTS
The following table presents the common stock warrant activity:
SharesWeighted
Average
Exercise
Price Per
Share
Weighted
Average
Remaining
Contractual
Term
(years)
Outstanding as of December 31, 20224,414,810 $6.58 3.0
Issued921,432 1.66 5.3
Exercised(1,230,000)3.50 — 
Expired(2,835)728.00 — 
Outstanding as of June 30, 20234,103,407 5.91 3.2
During the six months ended June 30, 2023:
Series C warrants were issued to the investors in the offering discussed in Note 6 to purchase up to 857,146 shares of our common stock. The Series C warrants are exercisable immediately with an exercise price of $1.62 per share or 100% ofand expire October 12, 2028. We estimated the fair value of these warrants to be $1.1 million using a Black-Scholes model based on the following significant inputs: common stock price of $1.38 per share; volatility of 164%; term of 5.5 years; dividend yield of —%; and risk-free interest rate of 3.4%;
Placement agent warrants were issued to purchase up to 64,286 shares of our common stock. The placement agent warrants are exercisable immediately upon issuance, with an exercise price per share of $2.1875 per share, and expire April 10, 2028. We estimated the fair value of these warrants to be $82,000 using a Black-Scholes model based on the following significant inputs: common stock price of $1.38 per share; volatility of 165%; term of 5 years; dividend yield of —%;and risk-free interest rate of 3.5%; and
Prefunded warrants representing 1,230,000 shares of common stock onwere exercised. Such prefunded warrants were issued in November 2022 with an exercise price of $3.50 per share.
NOTE 8: LOSS PER SHARE
Basic loss per share is calculated by dividing the datenet loss attributable to common stockholders by the weighted average number of grant. After July 2015, no further awards were granted undercommon shares outstanding during the 2008 – 2009 Plan.

Restrictedperiod. Diluted loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares and potentially dilutive securities outstanding during the period determined using the treasury stock method. Stock Units

options, warrants and restricted stock units are considered to be potentially dilutive securities but have been excluded from the calculation of diluted loss per share because their effect would be anti-dilutive given the net losses reported for all periods presented. Therefore, basic and diluted loss per share are the same for each period presented.

The following table summarizes restricted stock unit activityshares were excluded from the calculation of diluted net loss per share:
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Common stock warrants— — 166,661 — 
Stock options10,171 — 75,466 — 
Restricted stock units— — — — 
10,171 — 242,127 — 
12

NOTE 9: CONTINGENCIES
Legal Proceedings
In July 2020, our former corporate general counsel (the “Plaintiff”) commenced an action against us in the Superior Court of the State of California, for the nine months endedCounty of San Diego. The complaint 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 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 share2021, the Plaintiff served us and per share data)

Note 14 - Licensealso named 10 individuals as defendants, consisting of current 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 primarilyformer directors and employees. We do not believe that all of the ContraPest technology and (ii) manufacture, distribute and sell commercial rodent control products indefendants have yet been served. Furthermore, two individually named defendants have separately settled with 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 partiesPlaintiff.

The Plaintiff alleges that such individuals agreed to (a) terminateknowingly and wrongfully withhold the existing Exclusive License Agreement between usstock options owed to him 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 prejudiceare 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 court action filed by Neogen in the District Court for the District of Arizona on January 19, 2017 (the “Court Action”), as furtherclaims described below;above have merit and (c) mutually release any and all existing or future claims between the parties and their affiliates relatedintend to or arising from the License Agreement or the Court Action. As part of the Settlement Agreement, weaggressively defend against these accusations. The Plaintiff has agreed to paymediation to Neogen uponresolve 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”)issues. We do not believe that this litigation is likely 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 15 - Commitments and Contingencies

Legal Proceedings

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

NOTE 10: SUBSEQUENT EVENTS
On July 21, 2023, subject to stockholder approval, our board of directors approved an amendment to our amended and restated certificate of incorporation, as amended, to effect a reverse stock split (the “Reverse Stock Split”) of our issued and outstanding common stock by a ratio of not less than 1-for-2 and not more than 1-for-12. The exact ratio of the Reverse Stock Split will be set within this range as determined by our board of directors in its financial position, results of operations or liquidity.

Neogen Settlement Agreement

See Note 14 above with regardssole discretion prior to the Settlement Agreement with Neogen.

Although noticetime of the legal actionReverse Stock Split and will be publicly announced by Neogenus prior to the effective time. A special meeting of stockholders is scheduled for August 18, 2023 to vote on such matter, among other items.

On July 21, 2023, our board of directors approved a public offering of shares of our common stock, together with Series D and Series E warrants to purchase shares of our common stock for aggregate gross proceeds of up to $7.5 million. See Form S-1 filed with the Settlement Agreement with Neogen, occurred after December 31, 2016, as perSEC on July 21, 2023 (File No. 333-273370).
We have evaluated subsequent events from the provisions of Accounting Standards Codification Topic 450 Loss Contingencies, includedbalance sheet date through August 10, 2023, the date at which the condensed financial statements were issued, and determined that there were no additional items that require adjustment to or disclosure in the condensed financial statementsstatements.
13


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

Rent expense was $246 and $234 for the nine months ended and year ended September 30, 2017 and December 31, 2016, respectively. The future minimum lease payments under non-cancellable operating lease and future minimum capital lease payments as of September 30, 2017 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 

  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 16 - 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.


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”). 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 concerningstatements regarding:
our expectation that we will continue to incur significant expenses and generate operating losses for the sufficiencyforeseeable future;
our expectation that cash and cash equivalents at June 30, 2023, in combination with anticipated revenue and any additional sales of our cash and future revenueequity securities, will be sufficient to fund our current operations for at least the next three months;
our expectations asbelief that sales increased in part due to expenses, future revenuecontinued focus of our internet sales initiatives, enhanced strategic partnership and collaborations with key distributors and Pest Management Professionals (“PMP”s);
our belief that the increased sales activity from our field sales organization was primarily due to an increase in the number of product units sold, including our Elevate Bait SystemTM;
our successful commercialization of ContraPest;
our belief that if we encounter continued issues or delays in the commercialization of ContraPest, our 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 ability to enter into strategic partnerships to enable us to penetrate additional target markets and geographical locations;
our expectation that our expenses will continue or increase in connection with our ongoing activities, particularly as we focus on marketing and sales of ContraPest;
our ability to maintain and obtain regulatory approval for our product and product candidates;
our ability to gain 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 developmentdevelopment;
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 plans for our business, including for research and initiativesdevelopment;
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our belief the claims against us do not have merit and our intention to aggressively defend against these accusations;
our belief the development oflitigation against us is not likely to have a material effect on our products. 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.
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,”2022, filed with the SEC on March 17, 2023, 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 successful commercialization of our products;
market acceptance of our products;
our financial performance, including our ability to fund operations;
our ability to maintain compliance with Nasdaq’s continued listing requirements; 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 and commercialization activities 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 our former license agreement. We have primarily funded our operations to date with proceeds fromthrough the sale of equity securities, including convertible preferred stock, common stock and preferred stock, the issuance of convertible and other promissory notes and,warrants to a lesser extent, payments received in connection with research grants and licensing fees. purchase common stock.
Through SeptemberJune 30, 2017,2023, we had received net proceeds of $49.2$94.8 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$3.0 million from research grantsin net product sales. As of June 30, 2023, we had an accumulated deficit of $126.2 million and licensing fees.

cash and cash equivalents of $2.2 million.

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We have incurred significant operating losses every year since our inception. Ourinception, with net losses were $2.9 million, $10.0of $2.0 million and $11.0$2.6 million for the three and nine months ended SeptemberJune 30, 20172023 and the year ended December 31, 2016,2022, 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 12six months.

We

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; (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.
Based upon our current operating plan, we expect that cash and cash equivalents at June 30, 2023, 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 three months. In July 2023, we initiated a public offering of shares of our common stock, together with Series D and Series E warrants to purchase shares of our common stock seeking aggregate gross proceeds of up to $7.5 million.
While we have historically utilized,evaluated and intend to continue to utilize, various formsevaluate our operating expenses and concentrate our resources toward the successful commercialization of stock-based awardsContraPest in the United States, additional financing will be needed before achieving anticipated revenue targets and margin targets. If we are unable to raise necessary capital through the sale of our securities, we may be required to take other measures that could impair our ability to be successful and operate as a going concern. In any event, additional capital is needed in order to hire, retain and motivate talented employees, consultants and directors and encourage them to devote their best efforts to our business and financial success. In addition, we believe that our ability to grant stock-based awards is a valuable and necessary compensation tool that aligns the long-term financial interests of our employees, consultants and directors with the financial interests of our stockholders.

As a result, a significant portion offund our operating expenses includes stock-based compensation expense. Stock-based compensation expense has been,losses and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy. Specifically, our stock-based compensation expense for each of the nine months ended September 30, 2017 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.

Components of our Results of Operations

Revenue

To date, we have generated $34,000, from product sales, and we expect to generate increased revenue from the sale of products or royalties in the fourth quarter of 2017. Except for the minimal product sales noted above, all our revenue to date has been derived from payments received in connection with research grants and licensing fees received as a result of our execution of the former license agreement with Neogen.


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 discovery and development of our product candidates, which include:

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

Expenses incurred in connection with the development of our product candidates; and

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

We expense research and development costs as incurred.

At this time,activities before we cannot reasonably estimate the costs for completing the development of ContraPestbecome profitable. We may never achieve profitability or the cost associated with the development of any of our other product candidates.

We plan to continue to hire employees to support our researchgenerate positive cash flows, and development effortsunless and anticipate thatuntil we do, we will continue to utilize various forms of stock-based compensation awards in orderneed to attract and retain employees for our researchraise capital through equity or debt financing. If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit or terminate commercialization and development efforts. As a result, we anticipate that stock-based compensation expense will continue to represent a significant portionefforts or discontinue operations.

Results of our research and development expenses for the foreseeable future.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. 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 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.

Operations

Interest Expense. Interest expense in 2017 consists primarily of interest accrued on our 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; consists primarily of net losses on extinguishment of convertible and non-convertible, secured and unsecured promissory notes.

Income Taxes

Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2016, we had federal net operating loss carryforwards of $34.0 million which begin to expire in 2021 and state net operating loss carryforwards of $27.8 million which began to expire in 2016, unless utilized.


Comparison of the Three and Nine Months Ended September 30, 2017 and 2016

The following table summarizes our results of operations for the threeperiods presented (in thousands):

Three Months Ended June 30,% Increase (Decrease)Six Months Ended June 30,% Increase (Decrease)
2023202220232022
Revenues, net$305 $277 10 %$538 $472 14 %
Cost of sales163 141 16 %304 246 24 %
Gross profit142 136 %234 226 %
Operating expenses:  
Research and development381 431 (12)%768 947 (19)%
Selling, general and administrative1,761 2,277 (23)%3,511 4,184 (16)%
Total operating expenses2,142 2,708 (21)%4,279 5,131 (17)%
Loss from operations(2,000)(2,572)(22)%(4,045)(4,905)(18)%
Other income, net133 %15 275 %
Net loss$(1,993)$(2,569)(22)%$(4,030)$(4,901)(18)%
Revenues
Sales, net of sales discounts and nine months ended September 30, 2017 and 2016:

SENESTECH, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except shares and per share data)

(Unaudited)

  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)

Three Months Ended September 30, 2017promotions, were $305,000 for the second quarter of 2023, compared to Three Months Ended September 30, 2016:

Revenue

Revenue was $17,000$277,000 for the three months ended September 30, 2017, comparedsecond quarter of 2022. Sales increased by $28,000, due to $131,000 for three months ended September 30, 2016.

The $17,000 revenue recognized forcontinued focus on our internet sales initiatives, augmenting our existing pull through sales strategy, where demand from the three months ended September 30, 2017 representedconsumer 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 particular, we saw increased sales of our product, ContraPest. The $131,000 of revenue for the three months ended September 30, 2016, was earned from research grants andactivity from our former license agreement with Neogen, whichfield sales team, as we continue to optimize our sales organization. The higher sales 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. The increase in cost of goods sold corresponded to the product launch of ContraPest.


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) 

Research and development expenses were $721,000 for the three months ended September 30, 2017, compared to $829,000 for the same period in 2016. The $108,000 decrease in research and development expenses was primarily due to a decrease of $252,000 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 headcount and a decrease in 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 September 30, 2017, compared to the same period in 2016 primarily due to an increase in synthetic triptolide research fees and legal fees. Rent and utilitiesthe number of product units sold, including our Elevate Bait System, which was launched in June 2022.

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For the six months ended June 30, 2023, sales were $538,000, compared to $472,000 for the threesix months ended SeptemberJune 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. Other 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. We also continue to develop our supply chain, particularly identifying and improving our sourcing of triptolide, a key active ingredient for our product candidates.

General and Administrative Expenses

General and administrative expenses were $2.2 million for the three months ended September 30, 2017, compared to $1.9 million for the three months ended September 30, 2016.2022. The $66,000 increase of $0.3 million in general and administrative expenses was due to an increase of $228,000 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 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 related expenses consisted of an increase of $144,000 in net additional salary costs, an increase in stock based compensation of $61,000, an increase 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 benefits due to reduced relocation and benefits costs.

Interest Expense

We recorded $24,000 of interest expense, net for the three months ended September 30, 2017, compared to $6,000 for the same period in 2016. The increase in interest expense of $18,000 was the result of increased debt in the form of notes payable and leases on equipment acquisitions during 2017.

Other Income (Expense), Net

We recorded $37,000 of other income, net for the three months ended September 30, 2017, compared to $59,000 of other expense for the same period in 2016. The $96,000 net decrease in other expense was primarily due to lower expense related to the year-over-year fair market value adjustment of our convertible promissory notes and losses on the extinguishment of said promissory notes.


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

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 Sold

Cost of goods sold was $27,000 for the nine months ended September 30, 2017, compared to $-0- for nine months ended September 30, 2016. The increase in cost of goods sold corresponded to the product launch of ContraPest. Cost of goods sold as a percentage of sales for the period was approximately 80% due to manufacturing inefficiencies surrounding the start-up of the new manufacturing line and the cost of replacement product shipped to replace damaged product.

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 

Research and development expenses were $2.5 million for the nine months ended September 30, 2017, compared to $2.0 million for the same period in 2016. The $500,000 increase in research and development expenses was partially due to an increase of $87,000 in personnel-related costs. This increase in personnel-related costs resulted from increased research and development salaries of $47,000 due to headcount additions in 2017 and an increase in stock-based compensation expense of $40,000. Professional services and consulting expenses increased $130,000 for the nine months ended September 30, 2017 compared to the same period in 2016 primarily due to an increase in synthetic triptolide research feesthe number of units sold, including our Elevate Bait System product offering.

Cost of Sales
Cost of sales consisted primarily of the cost of products sold, including scrap and reserves for obsolescence, and was $163,000, or 53.6% of net sales, for the second quarter of 2023, compared to $141,000, or 50.9% of net sales, for the second quarter of 2022. We have experienced an increase in the cost of certain product components in 2023, and when combined with changes in the underlying mix of products sold, our cost of sales as a percent of sales for the second quarter of 2023 is higher when compared with the second quarter of 2022.
For the six months ended June 30, 2023, cost of sales was $304,000, or 56.5% of net sales, compared to $246,000, or 52.1% of net sales, for the six months ended June 30, 2022. The higher cost of sales as a percentage of net sales was driven by the scrapping of defective trays no longer used in our products in the first quarter of 2023, which totaled $42,000.
Gross Profit
Gross profit for the second quarter of 2023 was $142,000, for a gross profit margin of 46.4%, compared to a gross profit of $136,000, or a gross profit margin of 49.1%, for the second quarter of 2022.
For the six months ended June 30, 2023, gross profit was $234,000, for a gross profit margin of 43.5%, compared to $226,000, gross profit margin of 47.9%, for the six months ended June 30, 2022. The lower gross profit margin was the driven by the effects of scrapping defective tanks during no longer used in our products. Excluding the cost associated with the scrapped inventory, gross profit margin was 51.3% for the six months ended June 30, 2023.
Research and Development Expenses
Research and development expenses consisted of the following (in thousands):
Three Months Ended June 30,Increase
(Decrease)
Six Months Ended June 30,Increase
(Decrease)
2023202220232022
Personnel (including stock-based compensation)$214 $262 $(48)$456 $503 $(47)
Professional fees34 58 (24)78 148 (70)
Depreciation28 33 (5)56 79 (23)
Facilities25 27 (2)51 53 (2)
Other80 51 29 127 164 (37)
Total$381 $431 $(50)$768 $947 $(179)
Research and development expenses were $381,000 for the second quarter of 2023, compared to $431,000 for the second quarter of 2022. The $50,000 decrease was primarily due to lower headcount and consulting and legal fees.

State registrationfees required for research 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. Traveldevelopment purposes. Such decreases were partially offset by higher expenses related to field team support increased $97,000 for nineand product improvement studies resulting from the completion of a stability study in the second quarter of 2023.

For the six months ended SeptemberJune 30, 2017 over2023, research and development expenses were $768,000, compared to $947,000 for the same period in 2016six months ended June 30, 2022. The $179,000 decrease was primarily due to on-site evaluationslower headcount, consulting and legal fees required for research and development purposes, lower depreciation as several assets became fully depreciated in 2023 and lower expenses overall related to field and product improvement studies.
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Table 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.

Contents

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

Selling, General and Administrative Expenses

General

Selling, general and administrative expenses consisted of the following (in thousands):
Three Months Ended June 30,Increase
(Decrease)
Six Months Ended June 30,Increase
(Decrease)
2023202220232022
Personnel (including stock-based compensation)$890 $1,115 $(225)$1,793 $2,185 $(392)
Professional fees419 464 (45)871 900 (29)
Insurance93 145 (52)179 311 (132)
Travel and entertainment53 60 (7)127 106 21 
Office supplies/IT65 86 (21)136 169 (33)
Marketing63 225 (162)117 245 (128)
Facilities39 39 — 77 78 (1)
Other139 143 (4)211 190 21 
Total$1,761 $2,277 $(516)$3,511 $4,184 $(673)
Selling, general and administrative expenses were $7.5$1.8 million for the nine months ended September 30, 2017,second quarter of 2023, as compared to $5.3$2.3 million for the ninesecond quarter of 2022. The decrease of $516,000 was primarily due to lower personnel-related expenses, both lower stock-based compensation and lower headcount, and lower marketing costs resulting from changes in our overall marketing program. Additionally, insurance is lower as well as consulting and legal fees required for general corporate purposes.
For the six months ended SeptemberJune 30, 2016. The increase of $2.2 million in2023, selling, general and administrative expenses were $3.5 million, compared to $4.2 million for the six months ended June 30, 2022. The $673,000 decrease was primarily due to an increaselower personnel-related expenses, both lower stock-based compensation and lower headcount, lower insurance and lower marketing costs resulting from changes in our overall marketing program. Additionally, consulting and legal fees required for general corporate purposes is lower than the comparable period of $1.5 million in personnel related expenses,2022. These decreases were partially offset by an increase in travel expensesand entertainment costs related to increased sales-related activities.
Other Income, Net
Other income for the second quarter of $113,000, an 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 service and shareholder relations expenses of $23,000. The increase in personnel related expenses2023 consisted of an increase in stock based compensationinterest income, which was $6,000 higher than the second quarter of $450,000 and an increase of $1.1 million in net additional salary costs. The increase in insurance was primarily2022 due to increased director and officer insurance as a resulthigher interest rates of the public becoming a public reporting company in Decembercomparable periods. Additionally, we had miscellaneous income of 2016. Likewise, marketing, stock service and shareholder relations expenses increased$2,000 for the second quarter of 2022 related to the sale of certain assets.
For the six months ended June 30, 2023, other income, net, consisted of interest income, which was $12,000 higher than the six months ended June 30, 2022 due to higher interest rates of the Company becoming a commercial, public reporting company in December of 2016.

Interest Expense

We recorded $35,000 of interest expense, netcomparable periods. Additionally, for the ninesix months ended SeptemberJune 30, 2017, compared to $92,000 for the same period in 2016. The decrease in2022, we had 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$1,000 related to increased debt in the form ofcertain notes payable and finance leases on equipment acquisitions during 2017.

Other Income (Expense), Net

We recorded $76,000that expired in 2022 and miscellaneous income of other income, net, for the nine months ended September 30, 2017, compared to $120,000 of other expense for the same period in 2016. The $196,000 net decrease in other expense was primarily due to the expense$2,000 related to the year-over-year fair market value adjustmentsale of our convertible promissory notes and losses on the extinguishment of said promissory notes.

certain assets.

Liquidity and Capital Resources

Liquidity
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.
Through SeptemberJune 30, 2017,2023, we hadhave received net proceeds of $49.2$94.8 million from our sales of common stock, and preferred stock and warrant exercises and issuance of convertible and other promissory notes, an aggregate of $3.0 million in net product
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sales and an aggregate of $1.6$1.7 million from licensing fees.

The Company’sAs of June 30, 2023, we had an accumulated deficit of $126.2 million and cash and cash equivalents of $2.2 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 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, 2017,2023, 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 three 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 three 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 research and development of ContraPest and our other product candidates, including engaging in any necessary field studies;

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

Scale up manufacturing processes and quantities to prepare for 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;

Attempt to achieve market acceptance for our products;

Expand our research and development activities and advance the discovery and development programs for other product candidates;

Maintain, expand and protect our intellectual property portfolio; and

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.

Cash Flows

work to maximize market acceptance for, and generate sales of, our products, including by conducting field demonstrations for potential lead customers;
explore strategic partnerships to enable us to penetrate additional target markets and geographical locations;
manage the infrastructure for sales, marketing and distribution of ContraPest and any other product candidates for which we may receive regulatory approval;
seek additional regulatory approvals for ContraPest, including to more fully expand the market and use for ContraPest and, if we believe there is commercial viability, for our other product candidates;
further 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 research and development programs for other product candidates;
maintain and protect our intellectual property portfolio; and
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 will need additional financing to fund these continuing and additional expenses.
19

Table of Contents
Capital Resources
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 

presented (in thousands):

Six Months Ended June 30,
20232022
Cash and cash equivalents, beginning of period$4,775 $9,326 
Net cash provided by (used in):
Operating activities(3,757)(4,148)
Investing activities(21)(146)
Financing activities1,199 (32)
Decrease in cash and cash equivalents(2,579)(4,326)
Cash and cash equivalents, end of period$2,196 $5,000 
Cash Flows from Operating Activities

Activities—Cash flows from operating activities are generally determined by the amount and timing of cash received from customers and payments made to vendors, as well as the nature and amount of non-cash items, including depreciation and amortization and stock-based compensation included in operating results during a given period.

During the ninesix months ended SeptemberJune 30, 2017,2023, operating activities used $7.6$3.8 million of cash, primarily resulting from our net loss of $10.0$4.0 million and bynet changes in our operating assets and liabilities of $0.6 million,$130,000, partially offset by net non-cash charges of $3.0 million.$403,000, consisting primarily of stock-based compensation and depreciation and amortization expense. Our net loss was primarily attributeddriven by costs related to our selling, general and administrative activities resulting from our continued efforts to commercialize our products, combined with research and development activities and our general and administrative expenses, as we generated limited product revenue during the period.costs. Net cash used by changes in our operating assets and liabilities for the nine months ended September 30, 2017 consisted primarily of a net decrease in accounts payable and accrued expenses of $359,000, partially offset by decreases in prepaid expenses of $165,000 and a decrease in receivables$92,000, inventory of $3,000 and an increase in deferred rent of $12,000, offset by a net decrease in accrued expenses$88,000, and accounts payablereceivable of $473,000, a net increase in inventories of $337,000 and an increase in deposits of $8,000. The net decrease in accrued expenses and accounts payable was primarily due to timing of expense occurrence and payables management, offset by our payment of the $1.0 million contract cancellation settlement accrual in January. 

$71,000.

During the ninesix months ended SeptemberJune 30, 2016,2022, operating activities used $4.2$4.1 million of cash, primarily resulting from our net loss of $7.2$4.9 million, partially offset by non-cash charges of $3.0 million and by cash provided bynet changes in our operating assets and liabilities of $62,000.$198,000 and by non-cash charges of $555,000, consisting primarily of stock-based compensation and depreciation and amortization expense. Our net loss was primarily attributeddriven by costs related to our selling, general and administrative activities resulting from our efforts to commercialize our products, combined with our research and development activities and our general and administrative expenses, as we generated limited research grant and licensing revenue during the period.costs. Net cash provided by changes in our operating assets and liabilities for the nine months ended September 30, 2016 consisted primarily of a $175,000net decrease in accounts payable and accrued expenses of $259,000, a decrease in deferred revenue related to our license agreement with Neogenof $41,000 and a $202,000 decreasean increase in accruedinventory of $25,000, partially offset by increases in prepaid expenses of $108,000 and accounts payable. The decrease in accrued expenses and accounts payable was due to increased payments as a resultreceivable of the receipt of cash raised in financing activities.

$19,000.

Cash Flows from Investing Activities

For the nine months ended September 30, 2017, weActivities—Cash flows used $3.8 million in investing activities consistingprimarily consist of $2.9 million of purchases in securities to be held to maturity and $885,000 in purchasesthe purchase of property and equipment, offset by any proceeds received in connection with sales of property and equipment.

For During the ninesix months ended SeptemberJune 30, 2016, we2023 and 2022, cash flows used $54,000 of cash in investing activities consisting of purchasesconsisted of property and equipment.

equipment purchases of $21,000 and $146,000, respectively.

Cash Flows from Financing Activities

Activities—Financing activities provide cash for both day-to-day operations and capital requirements as needed. During the ninesix months ended SeptemberJune 30, 2017,2023, net cash generated fromused in financing activities was $294,000 as a resultconsisted of $437,000net proceeds of proceeds from the issuance notes payable offset by payments of $66,000 related to notes payable and notes payable related party and $77,000 in payments of capital lease obligations.

During the nine months ended September 30, 2016, net cash provided by financing activities was $5.5$1.2 million as a result of $6.2 million of proceeds from the issuance of shares of common stock, slightly offset by the payment of employee withholding taxes of $11,000. During the six months ended June 30, 2022, net cash used in our rights offering discussed elsewhere in this prospectus, $326,000financing activities consisted of proceeds received from our issuancerepayments of notes payable $896,000and finance lease obligations of proceeds received from the issuance of Series B convertible preferred stock, and $449,000 of proceeds received from the exercise of stock options, all of which were partially offset by payments of $1.6 related to the notes, payable, notes payable related party and convertible notes payable, $16,000 of capital lease repayments and $801,000 of deferred offering cost payments.

Recent Developments

None

$32,000.

Critical Accounting Policies and Significant JudgmentsEstimates
There have been no material changes to our critical accounting policies and Estimates

Our financial statements are preparedestimates as previously disclosed in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparationItem 7 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 QuarterlyAnnual Report on Form 10-Q, we believe that10-K for 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 accordanceyear ended December 31, 2022, filed with the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”), Topic 605, Revenue Recognition. Accordingly, we recognize revenue from the commercial sale of products, licensing agreements and contracts to perform pilot studies when (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 fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.

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 basedSEC 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 that is contingent upon the achievement of a substantive milestone 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 either 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. 

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 and $2.4 million for the nine months ended September 30, 2017 and 2016, respectively. We expect to continue to grant stock options and other equity-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase.

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.

March 17, 2023.

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. 

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 

The intrinsic value of stock options outstanding as of September 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.

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.


Item 3.Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.

Item4.Controls and Procedures

20

Table of Contents
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 were no changes in our internal control over financial reporting that occurred during the three-month period ended September 30, 2017covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

21

PART II.II — OTHER INFORMATION

Item 1.Legal Proceedings

The Company may be subject to

Item 1. Legal Proceedings
For information regarding legal proceedings and claims arising from contracts or other matters from timein which we are involved, see Note 9 - Contingencies 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

Except as detailed below and disclosed in subsequently filed Quarterly Reports on Form 10-Q, there

Item 1A. Risk Factors
There have been no material changes in theto our risk factors set forth in Part I, Item 1A, “Risk Factors” inof our Annual Report on Form 10-K/A10-K for the year ended December 31, 2016.

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 connection2022, filed 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

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Use of Proceeds from Public Offering of Common Stock

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. 

March 17, 2023.

Item 5.

Other Information

 None.


Item 5. Other Information
During the quarter ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (in each case, as defined in Item 408 of Regulation S-K).
22

Table of Contents
Item 6. Exhibits
Item 6.Exhibits
Exhibit
Number
Description
4.28*
4.29*
10.26*
10.27*
10.28*
31.1
31.2
32.1
32.2
101.INSInline XBRL Instance Document.
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

The exhibits listed in the Index to Exhibits are filed or incorporated

*    Incorporated by reference as partindicated.
23

Table of this Quarterly Report on Form 10-Q.

ContentsINDEX 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

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)SENESTECH, INC.
Dated: November 8, 2017Date: August 10, 2023By:/s/ Loretta P. Mayer, Ph.D.Joel L. Fruendt
Loretta P. Mayer, Ph.D.Joel L. Fruendt
Chair of the Board,President and Chief Executive Officer and
Chief Scientific Officer
Date: August 10, 2023By:
Dated: November 8, 2017By:/s/ Thomas C. Chesterman
Thomas C. Chesterman
Executive Vice President, Chief Financial Officer, Treasurer and TreasurerSecretary


24