SenesTech, Inc. 10-Q

Item 1. Financial Statements SENESTECH, INC. CONDENSED BALANCE SHEETS (In thousands, except shares and per share data) March 31, 2023 December 31, 2022 ASSETS (unaudited) Current assets: Cash and cash equivalents $ 2,748 $ 4,775 Accounts receivable, net 46 113 Prepaid expenses 450 378 Inventory, net 815 853 Total current assets 4,059 6,119 Right to use assets, operating leases 305 347 Property and equipment, net 259 294 Other noncurrent assets 22 22 Total assets $ 4,645 $ 6,782 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 215 $ 540 Accrued expenses 584 560 Current portion of operating lease liability 184 180 Deferred revenue 33 44 Total current liabilities 1,016 1,324 Operating lease liability, less current portion 132 179 Total liabilities 1,148 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, 2,107,339 and 809,648 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively 2 1 Additional paid-in capital 127,735 127,481 Accumulated deficit ( 124,240 ) ( 122,203 ) Total stockholders’ equity 3,497 5,279 Total liabilities and stockholders’ equity $ 4,645 $ 6,782 See accompanying notes to condensed financial statements. 1 Table of Contents SENESTECH, INC. CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except shares and per share data) (Unaudited) Three Months Ended March 31, 2023 2022 Revenues, net $ 233 $ 195 Cost of sales 141 105 Gross profit 92 90 Operating expenses: Research and development 387 516 Selling, general and administrative 1,750 1,907 Total operating expenses 2,137 2,423 Loss from operations ( 2,045 ) ( 2,333 ) Other income (expense): Interest income 8 2 Interest expense — ( 1 ) Other income, net 8 1 Net loss and comprehensive loss $ ( 2,037 ) $ ( 2,332 ) Weighted average shares outstanding - basic and fully diluted 1,538,514 610,450 Net loss per share - basic and fully diluted $ ( 1.32 ) $ ( 3.82 ) See accompanying notes to condensed financial statements. 2 Table of Contents SENESTECH, INC. CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended March 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 2,037 ) $ ( 2,332 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 36 66 Stock-based compensation 166 224 Bad debt expense ( 2 ) — Changes in operating assets and liabilities: Accounts receivable 69 21 Other assets ( 1 ) — Prepaid expenses 28 ( 29 ) Inventory 38 54 Accounts payable ( 325 ) ( 89 ) Accrued expenses 24 56 Deferred revenue ( 11 ) — Net cash used in operating activities ( 2,015 ) ( 2,029 ) Cash flows from investing activities: Purchase of property and equipment ( 1 ) ( 66 ) Net cash used in investing activities ( 1 ) ( 66 ) Cash flows from financing activities: Repayments of notes payable — ( 3 ) Repayments of finance lease obligations — ( 13 ) Payment of employee withholding taxes related to share based awards ( 11 ) — Net cash used in financing activities ( 11 ) ( 16 ) Decrease in cash and cash equivalents ( 2,027 ) ( 2,111 ) Cash and cash equivalents, beginning of period 4,775 9,326 Cash and cash equivalents, end of period $ 2,748 $ 7,215 Supplemental disclosures of cash flow information: Interest paid $ — $ 1 Income taxes paid $ — $ — See accompanying notes to condensed financial statements. 3 Table of Contents SENESTECH, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) NOTE 1: BASIS OF PRESENTATION Nature of Business SenesTech, Inc. (referred to in this report as “SenesTech,” the “Company,” “we” or “us”) was incorporated in the state of Nevada in July 2004. On November 12, 2015, the Company subsequently reincorporated in the state of Delaware. Our corporate headquarters and manufacturing site are in Phoenix, Arizona. We have developed and are commercializing a global, proprietary technology for managing animal pest populations, initially rat populations, through fertility control with our product known as ContraPest. ContraPest is a liquid bait containing the active ingredients 4-vinylcyclohexene diepoxide and triptolide. ContraPest limits reproduction of male and female rats beginning with the first breeding cycle following consumption. ContraPest is being marketed for use in controlling Norway and roof rat populations. In addition to the U.S. Environmental Protection Agency registration of 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 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 March 31, 2023 were prepared under the assumption that we would continue as a going concern. The reports 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 incur significant expenses and operating losses for the foreseeable future. These prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. If we encounter continued issues or delays in the 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. There are no assurances that such financing, if necessary, will be available to us at all or will be available in sufficient amounts or on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we are unable to generate additional funds in the future through additional financings, sales of our products, licensing fees, royalty payments or from other sources or transactions, we will exhaust our resources and will be unable to continue operations. Liquidity and Capital Resources Since our inception, we have sustained significant operating losses in the course of our research and development and commercialization activities and expect such losses to continue for the near future. We have generated limited revenue to date from product sales, research grants and licensing fees received under 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 March 31, 2023, we had an accumulated deficit of $ 124.2 million and cash and cash equivalents of $ 2.7 million. 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. 4 Table of Contents Based upon our current operating plan, we expect that cash and cash equivalents at March 31, 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 next six months. While we have evaluated and continue to evaluate our operating expenses and concentrate our resources toward the successful commercialization of ContraPest 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 fund our operating losses and research and development activities before 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 financing. If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit or terminate commercialization and development efforts or discontinue operations. Condensed Financial Statements Our accompanying unaudited condensed financial statements 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 our opinion, the unaudited condensed financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly our financial position as of March 31, 2023, and our operating results and cash flows for the three-month periods ended March 31, 2023 and 2022. The accompanying financial information as of December 31, 2022 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 our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 17, 2023. Recent Accounting Pronouncements There have been no new accounting pronouncements not yet effective or adopted in the current year that we believe have a significant impact, or potential significant impact, to our condensed financial statements. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and classification of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The significant estimates in our financial statements include the valuation of inventory, common stock warrants, and stock-based awards, such as stock options and restricted stock units. Actual results could differ from such estimates. Comprehensive Loss We have no other comprehensive income items for the periods presented. As a result, our net loss and comprehensive loss were the same for the periods presented and a separate statement of comprehensive loss is not included in the accompanying condensed financial statements. NOTE 2: BALANCE SHEET COMPONENTS Cash and Cash Equivalents Highly liquid investments with maturities of three months or less as of the date of acquisition are classified as cash equivalents, of which we had $ 2.7 million and $ 4.8 million as of March 31, 2023 and December 31, 2022, respectively, included within cash and cash equivalents in the condensed balance sheets. 5 Table of Contents Accounts Receivable, Net Accounts receivable, net consist of the following (in thousands): March 31, 2023 December 31, 2022 Accounts receivable $ 50 $ 119 Allowance for uncollectible accounts ( 4 ) ( 6 ) Accounts receivable, net $ 46 $ 113 The following is the activity in the allowance for uncollectible accounts (in thousands): Three Months Ended March 31, 2023 2022 Balance as of beginning of period $ 6 $ — Increase in provision — — Amounts written off, less recoveries ( 2 ) — Balance as of end of period $ 4 $ — Inventory, net Inventory, net consist of the following (in thousands): March 31, 2023 December 31, 2022 Raw materials $ 771 $ 772 Work in progress 6 — Finished goods 56 99 Total inventory 833 871 Less: reserve for obsolescence ( 18 ) ( 18 ) Inventory, net $ 815 $ 853 The following is the activity in the reserve for obsolescence (in thousands): Three Months Ended March 31, 2023 2022 Balance as of beginning of period $ 18 $ 29 Increase in reserve — — Amounts relieved — ( 3 ) Balance as of end of period $ 18 $ 26 6 Table of Contents Prepaid Expenses Prepaid expenses consist of the following (in thousands): March 31, 2023 December 31, 2022 Software licenses $ 113 $ 157 Marketing programs and conferences 10 74 Insurance 93 61 Patents 24 39 Professional services 198 41 Other 12 6 Total prepaid expenses $ 450 $ 378 Property and Equipment, Net Property and equipment, net consist of the following (in thousands): March 31, 2023 December 31, 2022 Research and development equipment $ 1,563 $ 1,558 Office and computer equipment 801 800 Autos 54 54 Furniture and fixtures 41 41 Leasehold improvements 119 119 Total in service 2,578 2,572 Accumulated depreciation and amortization ( 2,319 ) ( 2,283 ) Total in service, net 259 289 Construction in progress — 5 Property and equipment, net $ 259 $ 294 Accrued Expenses Accrued expenses consist of the following (in thousands): March 31, 2023 December 31, 2022 Compensation, severance and related benefits $ 416 $ 497 Legal services 150 36 Product warranty 18 18 Personal property and franchise tax — 6 Other — 3 Total accrued expenses $ 584 $ 560 NOTE 3: FAIR VALUE MEASUREMENTS The carrying amounts of our financial instruments, including accounts payable and accrued liabilities, approximate fair value due to their short maturities. 7 Table of Contents 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 components of lease cost are as follows (in thousands): Three Months Ended March 31, 2023 2022 Operating lease cost $ 56 $ 56 Finance lease cost: Amortization of right-of-use asset $ — $ 16 Interest on lease liability — 1 Total finance lease cost $ — $ 17 As of March 31, 2023, maturities of operating lease liabilities are follows (in thousands): 2023 $ 149 2024 186 Total operating lease payments 335 Less imputed interest ( 19 ) Total operating lease liabilities $ 316 NOTE 5: STOCK-BASED COMPENSATION In 2018, our stockholders approved the adoption of the SenesTech, Inc. 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan has since been amended and restated on certain occasions, most recently on October 12, 2022, when our stockholders approved an increase to the total number of authorized shares to 348,614 shares. Stock options are generally issued with a per share exercise price equal to the fair market value of our common stock at the date of grant. Options granted generally vest immediately, or ratably over a 12 - to 36 -month period coinciding with their respective service periods, with terms of generally five years . Certain stock option awards provide for accelerated vesting upon a change in control. As of March 31, 2023, we had 164,522 shares of common stock available for issuance under the 2018 Plan. 8 Table of Contents Stock Options The following table summarizes the stock option activity for the periods indicated as follows: Number of Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (years) Outstanding as of December 31, 2022 280,810 $ 17.00 3.9 Granted — — — Exercised — — — Forfeited ( 326 ) — — Expired ( 36 ) — — Outstanding as of March 31, 2023 280,448 (1) 17.11 4.4 Exercisable as of March 31, 2023 98,406 32.22 — (1) - Includes options related to 99,000 shares that are inducement awards and not granted under the 2018 Plan. 9 Table of Contents Restricted Stock Units The following table summarizes restricted stock unit activity for the three months ended March 31, 2023: Number of Units Weighted Average Grant-Date Fair Value Per Unit Outstanding as of December 31, 2022 18,799 $ 2.71 Granted — — Vested ( 18,799 ) 2.71 Forfeited — — Outstanding as of March 31, 2023 — — The stock-based compensation expense was recorded as follows (in thousands): Three Months Ended March 31, 2023 2022 Research and development $ 4 $ 1 Selling, general and administrative 162 223 Total stock-based compensation expense $ 166 $ 224 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 March 31, 2023, the total compensation cost related to unvested options not yet recognized was $ 403,000 , which will be recognized over a weighted average period of 24 months, assuming the employees and non-employee s complete their service period required for vesting. 10 Table of Contents NOTE 6: STOCKHOLDERS’ EQUITY Activity in equity during the three-month periods ended March 31, 2023 and 2022 was as follows (dollars in thousands): Common Stock Additional Paid-In Capital Accumulated Deficit Total Shares Amount 2023 Balances as of December 31, 2022 809,648 $ 1 $ 127,481 $ ( 122,203 ) $ 5,279 Stock-based compensation — — 166 — 166 Issuance of common stock upon exercise of warrants 1,230,000 1 ( 1 ) — — Issuance of common stock for service 54,466 — 100 — 100 Issuance of shares pursuant to the vesting of restricted stock units, net of shares withheld for taxes 13,225 — ( 11 ) — ( 11 ) Net loss — — — ( 2,037 ) ( 2,037 ) Balances as of March 31, 2023 2,107,339 $ 2 $ 127,735 $ ( 124,240 ) $ 3,497 2022 Balances as of December 31, 2021 610,364 $ 1 $ 122,542 $ ( 112,508 ) $ 10,035 Stock-based compensation — — 221 — 221 Issuance of common stock for service 250 — 3 — 3 Net loss — — — ( 2,332 ) ( 2,332 ) Balances as of March 31, 2022 610,614 $ 1 $ 122,766 $ ( 114,840 ) $ 7,927 During the three months ended March 31, 2023, the following shares of common stock were issued: • 1,230,000 shares pursuant to the exercise of previously outstanding prefunded warrants, which were issued in November 2022 with an exercise price of $ 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 date of issuance; and • 13,225 shares pursuant to the vesting of restricted stock units. 11 Table of Contents NOTE 7: COMMON STOCK WARRANTS The following table summarizes the common stock warrant activity for the three months ended March 31, 2023: Shares Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (years) Outstanding as of December 31, 2022 4,414,810 $ 6.58 3.0 Issued — — — Exercised ( 1,230,000 ) 3.50 — Expired — — — Outstanding as of March 31, 2023 3,184,810 7.78 2.8 During the three months ended March 31, 2023, prefunded warrants representing 1,230,000 shares of common stock were 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 attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share attributable to common stockholders is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury stock and if-converted methods. For purposes of the computation of diluted loss per share attributable to common stockholders, common stock purchase warrants, and common stock options are considered to be potentially dilutive securities but have been excluded from the calculation of diluted loss per share attributable to common stockholders because their effect would be anti-dilutive given the net loss reported for the three months ended March 31, 2023 and 2022. Therefore, basic and diluted loss per share attributable to common stockholders are the same for each period 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): Three Months Ended March 31, 2023 2022 Common stock warrants $ 3,184,810 $ 226,572 Restricted stock units — 33 Common stock options 280,448 72,366 $ 3,465,258 $ 298,971 NOTE 9: CONTINGENCIES Legal Proceedings In July 2020, Kennan E. Kaeder, our former corporate general counsel (the “Plaintiff”), commenced an action against us in the Superior Court of the State of California, for the County of San Diego. The 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 2021, the Plaintiff served us and also named the following individuals as defendants: Loretta Mayer, Cheryl Dyer, Thomas C. Chesterman, Kim Wolin, Grover Wickersham, Marc Dumont, Bob Ramsey, Matthew Szot, Julia Williams, and Bill Baker. We do not believe that all of the defendants have yet been served. Furthermore, Loretta Mayer and Cheryl Dyer have separately settled with the Plaintiff. 12 Table of Contents The Plaintiff alleges that such individuals agreed to knowingly and wrongfully withhold the stock options owed to him and are knowingly in receipt of stolen property. The Plaintiff seeks compensatory damages in excess of $ 500,000 , treble damages, and reasonable attorneys’ fees. We do not believe the claims described above have merit and intend to aggressively defend against these accusations. The Plaintiff has agreed to mediation to resolve the issues. We do not believe that this litigation is likely to have a material effect on our operations. NOTE 10: SUBSEQUENT EVENTS On April 12, 2023, we consummated a registered direct offering with certain institutional investors and issued an aggregate of 857,146 shares of our common stock for $ 1.75 per share for gross proceeds of $ 1.5 million, before deducting fees payable to the placement agent and other estimated offering expenses payable by us. 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). In connection with the registered direct offering, the following warrants were issued: • Series C warrants to the investors in the offering 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, and expire five and one-half years from the date of issuance, or October 12, 2028. • Placement agent warrants to purchase up to 64,286 shares of our common stock. The placement agent warrants will be exercisable immediately upon issuance, with an exercise price per share of $ 2.1875 per share, and expire five years following the date of issuance, or April 10, 2028. We have evaluated subsequent events from the balance sheet date through May 11, 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 statements. 13 Table of Contents