SenesTech, Inc. 10-Q

Item 1. Financial Statements SENESTECH, INC. CONDENSED BALANCE SHEETS (In thousands, except shares and per share data) September 30, 2023 December 31, 2022 ASSETS (unaudited) Current assets: Cash and cash equivalents $ 2,145 $ 4,775 Accounts receivable, net 83 113 Prepaid expenses 385 378 Inventory, net 703 853 Total current assets 3,316 6,119 Right to use assets, operating leases 217 347 Property and equipment, net 313 294 Other noncurrent assets 22 22 Total assets $ 3,868 $ 6,782 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 147 $ 540 Accrued expenses 671 560 Current portion of operating lease liability 192 180 Current portion of note payable 9 — Deferred revenue 15 44 Total current liabilities 1,034 1,324 Operating lease liability, less current portion 34 179 Note payable, less current portion 44 — Total liabilities 1,112 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, 5,899,060 shares issued and 3,279,485 shares outstanding as of September 30, 2023 and 809,648 shares issued and outstanding as of December 31, 2022 3 1 Additional paid-in capital 130,933 127,481 Accumulated deficit ( 128,180 ) ( 122,203 ) Total stockholders’ equity 2,756 5,279 Total liabilities and stockholders’ equity $ 3,868 $ 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues, net $ 360 $ 250 $ 898 $ 722 Cost of sales 184 128 488 374 Gross profit 176 122 410 348 Operating expenses: Research and development 379 452 1,147 1,399 Selling, general and administrative 1,748 2,289 5,259 6,473 Total operating expenses 2,127 2,741 6,406 7,872 Loss from operations ( 1,951 ) ( 2,619 ) ( 5,996 ) ( 7,524 ) Other income (expense): Interest income 4 1 19 4 Interest expense — — — ( 1 ) Miscellaneous expense, net — ( 28 ) — ( 26 ) Other income (expense), net 4 ( 27 ) 19 ( 23 ) Net loss and comprehensive loss $ ( 1,947 ) $ ( 2,646 ) $ ( 5,977 ) $ ( 7,547 ) Weighted average shares outstanding - basic and diluted 4,176,592 610,648 3,037,790 610,578 Net loss per share - basic and diluted $ ( 0.47 ) $ ( 4.33 ) $ ( 1.97 ) $ ( 12.36 ) See accompanying notes to condensed financial statements. 2 Table of Contents SENESTECH, INC. CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 5,977 ) $ ( 7,547 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 104 148 Stock-based compensation 467 570 Bad debt expense ( 4 ) 5 Loss on sale of property and equipment — 28 Changes in operating assets and liabilities: Accounts receivable 34 ( 16 ) Prepaid expenses ( 7 ) ( 174 ) Inventory 150 48 Other assets ( 3 ) — Accounts payable ( 393 ) 142 Accrued expenses 111 409 Deferred revenue ( 29 ) 48 Net cash used in operating activities ( 5,547 ) ( 6,339 ) Cash flows from investing activities: Purchase of property and equipment ( 114 ) ( 167 ) Proceeds received from sale of property and equipment — 4 Net cash used in investing activities ( 114 ) ( 163 ) Cash flows from financing activities: Proceeds from issuances of common stock, net 2,998 — Proceeds from (repayments of) notes payable, net 44 ( 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 3,031 ( 32 ) Decrease in cash and cash equivalents ( 2,630 ) ( 6,534 ) Cash and cash equivalents, beginning of period 4,775 9,326 Cash and cash equivalents, end of period $ 2,145 $ 2,792 Supplemental cash flow information is as follows: Cash paid for interest $ — $ 1 Cash paid for income taxes — — Non-cash investing and financing activities: Note payable incurred for the purchase of certain equipment 10 — 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. Our first product is 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. We are pursuing additional products including Evolve TM , a soft bait containing the active ingredient cottonseed oil. Evolve limits reproduction of male and female rats after one to two breeding cycles following consumption. Evolve is being developed as a minimum risk pesticide under the U.S. Environmental Protection Agency Federal Insecticide, Fungicide, and Rodenticide Act, Section 25(b). For further information see Note 10. Going Concern Our condensed financial statements as of September 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 fertility control products, 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 September 30, 2023, we had an accumulated deficit of $ 128.2 million and cash and cash equivalents of $ 2.1 million. Our ultimate success depends upon the outcome of a combination of factors, including the following: (i) successful commercialization of fertility control products and maintaining and obtaining regulatory approval of our products and product candidates; (ii) market acceptance, commercial viability and profitability of fertility control products and other 4 Table of Contents 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 September 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. While we have evaluated and continue to evaluate our operating expenses and concentrate our resources toward the successful commercialization of fertility control products 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 September 30, 2023, and our operating results and cash flows for the three- and nine-month periods ended September 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. Reclassification To conform with the 2023 presentation, we have reclassified the Loss on sale of property and equipment of $ 28,000 and Proceeds received from sale of property and equipment of $ 4,000 from Purchases of property and equipment in the condensed statement of cash flows for the nine months ended September 30, 2022. These reclassifications had no impact on our condensed statement of operations and comprehensive loss for the nine months ended September 30, 2022. 5 Table of Contents 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 $ 2.1 million and $ 4.8 million as of September 30, 2023 and December 31, 2022, respectively, included within cash and cash equivalents in the condensed balance sheets. Accounts Receivable, Net Accounts receivable, net consisted of the following (in thousands): September 30, 2023 December 31, 2022 Accounts receivable $ 85 $ 119 Allowance for uncollectible accounts ( 2 ) ( 6 ) Accounts receivable, net $ 83 $ 113 The following was the activity in the allowance for uncollectible accounts (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Balance as of beginning of period $ 4 $ 12 $ 6 $ — Increase in provision 2 — 2 12 Amounts written off, less recoveries ( 4 ) ( 7 ) ( 6 ) ( 7 ) Balance as of end of period $ 2 $ 5 $ 2 $ 5 Inventory, net Inventory, net consisted of the following (in thousands): September 30, 2023 December 31, 2022 Raw materials $ 670 $ 772 Work in progress 5 — Finished goods 46 99 Total inventory 721 871 Less: reserve for obsolescence ( 18 ) ( 18 ) Inventory, net $ 703 $ 853 The following was the activity in the reserve for obsolescence (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Balance as of beginning of period $ 18 $ 22 $ 18 $ 29 Increase in reserve — — — — Amounts relieved — ( 3 ) — ( 10 ) Balance as of end of period $ 18 $ 19 $ 18 $ 19 6 Table of Contents Prepaid Expenses Prepaid expenses consisted of the following (in thousands): September 30, 2023 December 31, 2022 Software licenses 138 157 Professional services 95 41 Insurance 44 61 Patents 17 39 Marketing programs and conferences 6 74 Other 85 6 Total prepaid expenses $ 385 $ 378 Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): September 30, 2023 December 31, 2022 Research and development equipment $ 1,621 $ 1,558 Office and computer equipment 808 800 Autos 54 54 Furniture and fixtures 41 41 Leasehold improvements 119 119 Total in service 2,643 2,572 Accumulated depreciation and amortization ( 2,387 ) ( 2,283 ) Total in service, net 256 289 Construction in progress 57 5 Property and equipment, net $ 313 $ 294 Accrued Expenses Accrued expenses consisted of the following (in thousands): September 30, 2023 December 31, 2022 Compensation, severance and related benefits $ 521 $ 497 Legal services 135 36 Product warranty 15 18 Personal property and franchise tax — 6 Other — 3 Total accrued expenses $ 671 $ 560 Note Payable In August 2023, we arranged financing for the purchase of certain equipment. The note payable has an annual interest rate of 9.1 % with a term of 5 years and is secured by the underlying equipment. 7 Table of Contents As of September 30, 2023, future principal payments were as follows (in thousands): 2023 $ 3 2024 9 2025 10 2026 11 2027 12 Thereafter 8 Total principal payments 53 Less: current portion of note payable ( 9 ) Note payable, less current portion $ 44 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. Note payable is recorded at amortized cost, which approximates fair value. 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Operating lease cost $ 55 $ 55 $ 166 $ 167 Finance lease cost: Amortization of right-of-use asset $ — $ — $ — $ 27 Interest on lease liability — — — 1 Total finance lease cost $ — $ — $ — $ 28 As of September 30, 2023, maturities of operating lease liabilities were as follows (in thousands): 2023 $ 50 2024 186 Total operating lease payments 236 Less: imputed interest ( 10 ) Total operating lease liabilities $ 226 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. 8 Table of Contents As of September 30, 2023, we had 496,330 shares of common stock available for issuance under the 2018 Plan. 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 September 30, 2023: Outstanding as of June 30, 2023 479,426 $ 17.11 4.4 Granted — — — Exercised — — — Forfeited ( 30,750 ) 5.25 — Expired — — — Outstanding as of September 30, 2023 448,676 (1) 10.34 4.2 Nine months ended September 30, 2023: Outstanding as of December 31, 2022 280,810 17.00 3.9 Granted 199,421 1.25 5.0 Exercised — — — Forfeited ( 31,183 ) 17.97 — Expired ( 372 ) 680.87 — Outstanding as of September 30, 2023 448,676 (1) 10.34 4.2 Exercisable as of September 30, 2023 194,878 30.92 3.9 (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 nine months ended September 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 September 30, 2023 — — The stock-based compensation expense was recorded as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Research and development $ 5 $ 1 $ 12 $ 5 Selling, general and administrative (1) 165 139 455 565 Total stock-based compensation expense $ 170 $ 140 $ 467 $ 570 (1) Includes $ 44,000 and $ 100,000 related to stock issued in exchange for marketing services for the three and nine month periods ended September 30, 2023, respectively. The allocation between research and development and selling, general and administrative expense was based on the department and services performed by the employee or non-employee. At September 30, 2023, the total compensation cost related to unvested options not yet recognized was $ 382,000 , which will be recognized over a weighted average period of 1.3 years, assuming the employees and non-employees complete their service period required for vesting. NOTE 6: STOCKHOLDERS’ EQUITY On August 18, 2023, at a special meeting of stockholders, our stockholders 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. 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). No shares have yet been issued pursuant to this filing. 10 Table of Contents Activity in equity during the nine month periods ended September 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 13,225 — 100 — 100 Issuance of shares pursuant to the vesting of restricted stock units, net of shares withheld for taxes 54,466 — ( 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 Stock-based compensation — — 88 — 88 Modification of terms related to certain warrants — — 657 657 Issuance of common stock upon exercise of warrants, net 315,000 — 1,131 — 1,131 Net loss — — — ( 1,947 ) ( 1,947 ) Balances as of September 31, 2023 3,279,485 3 $ 130,933 $ ( 128,180 ) $ 2,756 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 Stock-based compensation — — 139 — 139 Net loss — — — ( 2,646 ) ( 2,646 ) Balances as of September 30, 2022 610,648 1 $ 123,111 $ ( 120,055 ) $ 3,057 During the nine months ended September 30, 2023, the following shares of common stock were issued: • 315,000 shares pursuant to the exercise of warrants. A certain warrant holder was induced to exercise warrants related to 2,934,575 shares by reducing the exercise price to the then current market price of our common stock (the “Warrant Inducement”). The original warrants had an exercise price of $ 3.165 per share and a weighted average remaining life of 2.3 years. These warrants were exercised for $ 0.7202 per share for gross proceeds of $ 2.1 million, before deducting $ 326,000 of issuance costs and $ 657,000 related to the modification of the terms of the warrants to induce exercise. Of the 2,934,575 shares issued, 2,619,575 shares are held in abeyance and not considered outstanding, at which time such shares will become outstanding. The balance of the shares held in abeyance will be held in abeyance until notice from the stock holder that the balance, or portion thereof, may be issued in compliance with a beneficial ownership limitation provision in the warrants. See Note 10 for a discussion of outstanding abeyance shares. In connection with the Warrant Inducement transaction, new warrants to purchase 5,869,150 shares of our common stock were issued, which are discussed in Note 7. • 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 11 Table of Contents 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 $ 1.54 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. • 13,225 shares pursuant to the vesting of restricted stock units. 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 6,937,311 0.88 4.9 Exercised ( 4,164,575 ) 1.54 — Expired ( 13,629 ) 527.05 — Outstanding as of September 30, 2023 7,173,917 2.00 4.9 During the nine months ended September 30, 2023: • In August, warrants were issued to the investor in the Warrant Inducement transaction discussed in Note 6 to purchase up to 5,869,150 shares of our common stock. These warrants are exercisable immediately with an exercise price of $ 0.7202 per share, and 3,012,006 expiring August 24, 2028 ( 5 -Year Warrants) and 2,857,144 expiring September 24, 2024 ( 13 -Month Warrants). We estimated the fair value of the 5 -Year Warrants to be $ 1.5 million using a Black-Scholes model based on the following significant inputs: common stock price of $ 0.682 per share; volatility of 98 %; term of 5 years; dividend yield of 0 %; and risk-free rate of 4.4 %. The fair value of the 13 -Month Warrants was estimated to be $ 930,000 using the Black-Scholes model based on the following significant inputs: common stock price of $ 0.682 per share; volatility of 122 %; term of 1.1 year; dividend yield of 0 %; and risk-free rate of 4.4 %. • In August, placement agent warrants were issued to purchase up to 146,729 shares of our common stock. The placement agent warrants are exercisable immediately upon issuance, with an exercise price per share of $ 0.9003 per share, and expire August 24, 2028. We estimated the fair value of these warrants to be $ 72,000 using a Black-Scholes model based on the following significant inputs: common stock price of $ 0.682 per share; volatility of 98 %; term of 5 years; dividend yield of 0 %;and risk-free interest rate of 5.4 %. • In August, warrants representing 2,934,575 shares of common stock were exercised for $ 0.7202 per share. The terms of these warrants were modified in order to induce exercise. See Warrant Inducement discussion in Note 6. We recorded additional equity costs of $ 657,000 related to the warrant exercise transaction, which was calculated as the difference between the fair value of the warrants immediately prior to modification and immediately after modification using the Black-Scholes model based on the following significant inputs: common stock price of $ 0.682 per share; volatility of 96 %; term of 2.3 years; dividend yield of 0 %; and risk-free rate of 5.0 %. • In April, 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 12 Table of Contents 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 0 %; and risk-free interest rate of 3.4 %. • In April, 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 0 %;and risk-free interest rate of 3.5 %. • In February, 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 $ 1.54 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, which includes prefunded warrants and shares held in abeyance from date of issuance. Diluted loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares used in the basic loss per share calculation plus 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Common stock warrants 259,380 — 3,277,507 — Stock options — — 42,825 10,170 Restricted stock units — — — — 259,380 — 3,320,332 10,170 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 In connection with the Warrant Inducement discussed in Note 6, of the 2,934,575 shares issued, 2,619,575 shares were held in abeyance and not considered outstanding until certain conditions are met, at which time such shares will become outstanding. The balance of the shares in abeyance will be held in abeyance until notice from the stock holder that the balance, or potion thereof, may be issued in compliance with a beneficial ownership limitation provision in the warrants. In 13 Table of Contents October 2023, the conditions were met and the stock holder provided notice to release 351,575 shares from abeyance which became outstanding. As of November 9, 2023, there were 3,631,060 shares of common stock outstanding and 2,268,000 shares held in abeyance. In November 2023, we launched our latest product, Evolve, a soft bait containing the active ingredient cottonseed oil. Evolve limits reproduction of male and female rats after one to two breeding cycles following consumption. Evolve is being marketed for use in controlling rat populations as a minimum risk pesticide under the U.S. Environmental Protection Agency Federal Insecticide, Fungicide, and Rodenticide Act, Section 25(b). We must obtain registration from the various state regulatory agencies that do not accept the federal exemption. To date, we are authorized to sell Evolve in 12 states. We have evaluated subsequent events from the balance sheet date through November 9, 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. 14 Table of Contents