SenesTech, Inc. 10-Q

Item 1. Financial Statements SENESTECH, INC. CONDENSED BALANCE SHEETS (In thousands, except shares and per share data) June 30, 2023 December 31, 2022 ASSETS (unaudited) Current assets: Cash and cash equivalents $ 2,196 $ 4,775 Accounts receivable, net 44 113 Prepaid expenses 330 378 Inventory, net 765 853 Total current assets 3,335 6,119 Right to use assets, operating leases 261 347 Property and equipment, net 245 294 Other noncurrent assets 22 22 Total assets $ 3,863 $ 6,782 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 120 $ 540 Accrued expenses 621 560 Current portion of operating lease liability 188 180 Deferred revenue 24 44 Total current liabilities 953 1,324 Operating lease liability, less current portion 83 179 Total liabilities 1,036 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 3 1 Additional paid-in capital 129,057 127,481 Accumulated deficit ( 126,233 ) ( 122,203 ) Total stockholders’ equity 2,827 5,279 Total liabilities and stockholders’ equity $ 3,863 $ 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 June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenues, net $ 305 $ 277 $ 538 $ 472 Cost of sales 163 141 304 246 Gross profit 142 136 234 226 Operating expenses: Research and development 381 431 768 947 Selling, general and administrative 1,761 2,277 3,511 4,184 Total operating expenses 2,142 2,708 4,279 5,131 Loss from operations ( 2,000 ) ( 2,572 ) ( 4,045 ) ( 4,905 ) Other income (expense): Interest income 7 1 15 3 Interest expense — — — ( 1 ) Miscellaneous income — 2 — 2 Other income, net 7 3 15 4 Net loss and comprehensive loss $ ( 1,993 ) $ ( 2,569 ) $ ( 4,030 ) $ ( 4,901 ) Weighted average shares outstanding - basic and fully diluted 2,860,874 610,635 2,208,162 610,543 Net loss per share - basic and fully diluted $ ( 0.70 ) $ ( 4.21 ) $ ( 1.83 ) $ ( 8.03 ) See accompanying notes to condensed financial statements. 2 Table of Contents SENESTECH, INC. CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 30, 2023 2022 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 amortization 69 113 Stock-based compensation 336 430 Bad debt expense ( 2 ) 12 Changes in operating assets and liabilities: Accounts receivable 71 ( 19 ) Other assets ( 2 ) — Prepaid expenses 92 ( 108 ) Inventory 88 25 Accounts payable ( 420 ) ( 47 ) Accrued expenses 61 306 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, net 1,210 — 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 activities 1,199 ( 32 ) Decrease in cash and cash equivalents ( 2,579 ) ( 4,326 ) Cash and cash equivalents, beginning of period 4,775 9,326 Cash and cash equivalents, end of period $ 2,196 $ 5,000 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. (subsequently referred to in this report as “we,” “us,” “our,” or “our Company”) was incorporated in the state of Nevada in July 2004. On November 12, 2015, we 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 June 30, 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 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 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 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 next three 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 June 30, 2023, and our operating results and cash flows for the three- and six-month periods ended June 30, 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 $ 2.2 million and $ 4.8 million as of June 30, 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 consisted of the 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 following was the activity in the allowance for uncollectible accounts (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Balance as of beginning of period $ 4 $ — $ 6 $ — Increase in provision — 12 — 12 Amounts written off, less recoveries — — ( 2 ) — Balance as of end of period $ 4 $ 12 $ 4 $ 12 Inventory, net Inventory, net consisted of the following (in thousands): June 30, 2023 December 31, 2022 Raw materials $ 729 $ 772 Finished goods 54 99 Total inventory 783 871 Less: reserve for obsolescence ( 18 ) ( 18 ) Inventory, net $ 765 $ 853 The following was the activity in the reserve for obsolescence (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 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 Table of Contents Prepaid Expenses Prepaid expenses consisted of the following (in thousands): June 30, 2023 December 31, 2022 Professional services $ 107 $ 41 Insurance 97 61 Software licenses 94 157 Other 14 6 Patents 10 39 Marketing programs and conferences 8 74 Total prepaid expenses $ 330 $ 378 Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): June 30, 2023 December 31, 2022 Research and development equipment $ 1,569 $ 1,558 Office and computer equipment 803 800 Autos 54 54 Furniture and fixtures 41 41 Leasehold improvements 119 119 Total in service 2,586 2,572 Accumulated depreciation and amortization ( 2,353 ) ( 2,283 ) Total in service, net 233 289 Construction in progress 12 5 Property and equipment, net $ 245 $ 294 Accrued Expenses Accrued expenses consisted of the following (in thousands): June 30, 2023 December 31, 2022 Compensation, severance and related benefits $ 468 $ 497 Legal services 138 36 Product warranty 15 18 Personal property and franchise tax — 6 Other — 3 Total accrued expenses $ 621 $ 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 were as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Operating lease cost $ 55 $ 56 $ 111 $ 112 Finance lease cost: Amortization of right-of-use asset $ — $ 11 $ — $ 27 Interest on lease liability — — — 1 Total finance lease cost $ — $ 11 $ — $ 28 As of June 30, 2023, maturities of operating lease liabilities were follows (in thousands): 2023 $ 99 2024 186 Total operating lease payments 285 Less imputed interest ( 14 ) Total operating lease liabilities $ 271 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 June 26, 2023, when our stockholders approved an increase to the total number of authorized shares to 848,614 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 generally of five years . Certain stock option awards provide for accelerated vesting upon a change in control. As of June 30, 2023, we had 465,580 shares of common stock available for issuance under the 2018 Plan. 8 Table of Contents Stock Options The following table presents the outstanding stock option activity: Number of Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (years) Three months ended June 30, 2023: Outstanding as of March 31, 2023 280,448 $ 17.11 4.4 Granted 199,421 1.25 5.0 Exercised — — — Forfeited ( 107 ) 39.64 — Expired ( 336 ) 118.25 — Outstanding as of June 30, 2023 479,426 (1) 10.01 4.5 Six months ended June 30, 2023: Outstanding as of December 31, 2022 280,810 17.00 3.9 Granted 199,421 1.25 5.0 Exercised — — — Forfeited ( 433 ) 119.46 — Expired ( 372 ) 680.87 — Outstanding as of June 30, 2023 479,426 (1) 10.01 4.5 Exercisable as of June 30, 2023 139,583 29.16 3.8 (1) Includes options related to 99,000 shares that are inducement awards and not granted under the 2018 Plan. The weighted average grant date fair value of options granted during the six months ended June 30, 2023 was $ 1.24 per share, based on the following assumptions used in the Black-Scholes option pricing model: Expected volatility 128 % Expected dividend yield — Expected term (in years) 5 Risk-free interest rate 5.3 % The expected volatility assumption is based on the calculated volatility of our common stock at the date of grant based on historical prices over the most recent period commensurate with the term of the award. The expected dividend yield assumption is based on our history and expected dividend payouts: we have not, and do not expect to, pay dividends. The expected term assumption is the contractual term of the options for non-employees. The risk-free interest rate assumption is determined using the U.S. treasury yields for bonds with a maturity commensurate with the term of the award. 9 Table of Contents Restricted Stock Units The following table presents the unvested restricted stock unit activity: Number of Units Weighted Average Grant-Date Fair Value Per Unit Unvested balance as of December 31, 2022 18,799 $ 2.71 Granted — — Vested ( 18,799 ) 2.71 Forfeited — — Unvested balance as of June 30, 2023 — — The stock-based compensation expense was recorded as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Research and development $ 5 $ 3 $ 9 $ 4 Selling, general and administrative (1) 165 203 327 426 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 June 30, 2023, the total compensation cost related to unvested options not yet recognized was $ 469,000 , which will be recognized over a weighted average period of 1.6 years, assuming the employees and non-employees complete their service period required for vesting. 10 Table of Contents NOTE 6: STOCKHOLDERS’ EQUITY Activity in equity during the six month periods ended June 30, 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 Stock-based compensation — — 113 — 113 Issuance of common stock, net of issuance costs 857,146 1 1,209 — 1,210 Net loss — — — ( 1,993 ) ( 1,993 ) Balances as of June 30, 2023 2,964,485 $ 3 $ 129,057 $ ( 126,233 ) $ 2,827 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 Stock-based compensation — — 205 — 205 Issuance of common stock for service 34 — 1 — 1 Net loss — — — ( 2,569 ) ( 2,569 ) Balances as of June 30, 2022 610,648 $ 1 $ 122,972 $ ( 117,409 ) $ 5,564 During the six 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 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 the 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 presents the common stock warrant activity: 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 921,432 1.66 5.3 Exercised ( 1,230,000 ) 3.50 — Expired ( 2,835 ) 728.00 — Outstanding as of June 30, 2023 4,103,407 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 and 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 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 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 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 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 shares were excluded from the calculation of diluted net loss per share: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Common stock warrants — — 166,661 — Stock options 10,171 — 75,466 — Restricted stock units — — — — 10,171 — 242,127 — 12 Table of Contents 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 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 10 individuals as defendants, consisting of current and former directors and employees. We do not believe that all of the defendants have yet been served. Furthermore, two individually named defendants have separately settled with the Plaintiff. 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 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 sole discretion prior to the time of the Reverse Stock Split and will be publicly announced by us 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 SEC on July 21, 2023 (File No. 333-273370). We have evaluated subsequent events from the balance 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 statements. 13 Table of Contents