SenesTech, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following financial statements and report are included in Item 8: Report of Independent Registered Public Accounting Firm (PCAOB ID 2738 ) F -2 Balance Sheets as of December 31, 202 3 and 202 2 F -3 Statements of Operations and Comprehensive Loss for the years ended December 31, 202 3 and 202 2 F -4 Statements of Changes in Stockholders’ Equity for the years ended December 31, 202 3 and 202 2 F -5 Statements of Cash Flows for the years ended December 31, 202 3 and 202 2 F -6 Notes to Financial Statements F -7 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of SenesTech, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of SenesTech, Inc. (the Company) as of December 31, 2023 and 2022, and the related statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate. Equity Transactions As discussed in Note 6 and Note 9 to the financial statements, the Company issues options and warrants. The proper valuation of options and warrants requires significant management judgment in determining the volatility and method used to calculate the option and warrant values. F-2 Table of Contents To evaluate the appropriateness of the model and estimates determined by management, we examined and evaluate the model, and the time period and stock prices used in determining the valuation of the options and warrants issued. /s/ M&K CPAS, PLLC We have served as the Company’s auditor since 2017. Houston, TX February 21, 2024 F-3 Table of Contents SENESTECH, INC. BALANCE SHEETS (In thousands, except share and per share data amounts) As of December 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 5,395 $ 4,775 Accounts receivable, net 95 113 Prepaid expenses 388 378 Inventory, net 795 853 Total current assets 6,673 6,119 Right to use assets, operating leases 210 347 Property and equipment, net 388 294 Other noncurrent assets 22 22 Total assets $ 7,293 $ 6,782 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable 150 540 Accrued expenses 368 560 Current portion of operating lease liability 217 180 Current portion of notes payable 33 — Deferred revenue 18 44 Total current liabilities 786 1,324 Operating lease liability, less current portion — 179 Notes payable, less current portion 156 — Total liabilities 942 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, 5,140,024 and 67,472 shares issued and outstanding as of December 31, 2023 and 2022, respectively 5 — Additional paid-in capital 136,259 127,482 Accumulated deficit ( 129,913 ) ( 122,203 ) Total stockholders’ equity 6,351 5,279 Total liabilities and stockholders’ equity $ 7,293 $ 6,782 See accompanying notes to the financial statements. F-4 Table of Contents SENESTECH, INC. STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share data) Years Ended December 31, 2023 2022 Product sales, net $ 1,193 $ 1,019 Cost of sales 654 555 Gross profit 539 464 Operating expenses: Research and development 1,228 1,859 Selling, general and administrative 7,043 8,279 Total operating expenses 8,271 10,138 Loss from operations ( 7,732 ) ( 9,674 ) Other income (expense): Interest income 26 7 Interest expense ( 4 ) ( 2 ) Miscellaneous expense — ( 26 ) Other income (expense), net 22 ( 21 ) Net loss and comprehensive loss ( 7,710 ) ( 9,695 ) Weighted average shares outstanding — basic and diluted 669,861 65,473 Loss per share — basic and diluted $ ( 11.51 ) $ ( 148.08 ) See accompanying notes to the financial statements. F-5 Table of Contents SENESTECH, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands, except shares) Additional Paid-In Capital Accumulated Deficit Total Common Stock Shares Amount Balances as of December 31, 2021 50,864 $ — $ 122,543 $ ( 112,508 ) $ 10,035 Stock-based compensation — — 707 — 707 Net proceeds received for issuance of common stock and prefunding of warrants 5,631 — 4,228 — 4,228 Issuance of common stock upon exercise of warrants 10,916 — — — — Issuance of common stock for services 57 — 4 — 4 Issuance of common stock for fractional shares in the 20:1 reverse stock split 4 — — — — Net loss — — — ( 9,695 ) ( 9,695 ) Balances as of December 31, 2022 67,472 — 127,482 ( 122,203 ) 5,279 Stock-based compensation — — 455 — 455 Net proceeds received for issuance of common stock and prefunding of warrants 521,735 — 5,407 — 5,407 Issuance of common stock upon exercise of warrants, net 4,544,437 5 2,826 — 2,831 Issuance of common stock for services 4,539 — 100 — 100 Issuance of shares pursuant to the vesting of restricted stock units, net of shares withheld for taxes 1,102 — ( 11 ) — ( 11 ) Issuance of common stock for fractional shares in the 12:1 reverse stock split 739 — — — — Net loss — — — ( 7,710 ) ( 7,710 ) Balances as of December 31, 2023 5,140,024 $ 5 $ 136,259 $ ( 129,913 ) $ 6,351 See accompanying notes to the financial statements. F-6 Table of Contents SENESTECH, INC. STATEMENTS OF CASH FLOWS (In thousands) Years Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 7,710 ) $ ( 9,695 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 135 183 Stock-based compensation 555 711 Loss on sale of equipment — 28 Bad debt expense ( 2 ) 6 Changes in operating assets and liabilities: Accounts receivable 20 ( 42 ) Other assets ( 4 ) — Prepaid expenses ( 10 ) ( 148 ) Inventory 58 148 Accounts payable ( 390 ) 206 Accrued expenses ( 192 ) ( 18 ) Deferred revenue ( 26 ) 44 Net cash used in operating activities ( 7,566 ) ( 8,577 ) Cash flows from investing activities: Proceeds received on sale of property and equipment — 4 Purchase of property and equipment ( 149 ) ( 174 ) Net cash used in investing activities ( 149 ) ( 170 ) Cash flows from financing activities: Proceeds from the issuance of common stock, net 5,407 4,228 Proceeds from the exercise of warrants 2,831 — Proceeds from the issuance of notes payable 114 — Repayments of notes payable ( 6 ) ( 5 ) Repayments of finance lease obligations — ( 27 ) Payment of employee withholding taxes related to share based awards ( 11 ) — Net cash provided by financing activities 8,335 4,196 Increase (decrease) in cash and cash equivalents 620 ( 4,551 ) Cash and cash equivalents, beginning of year 4,775 9,326 Cash and cash equivalents, end of year $ 5,395 $ 4,775 Supplemental disclosures of cash flow information: Cash paid for: Interest paid $ 4 $ 1 Income taxes paid — — Non-cash investing and financing activities: Notes payable incurred for the purchase of certain equipment 81 — See accompanying notes to the financial statements. F-7 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS 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 15, 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 current products known as ContraPest and Evolve. 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 EPA registration of ContraPest in the United States, we must obtain registration from the various state regulatory agencies prior to selling in each state. To date, we have received registration for ContraPest in all 50 states and the District of Columbia, 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. 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 30 states. Reverse Stock Split On November 16, 2023, we amended our amended and restated certificate of incorporation to effect a 1-for-12 reverse split of our issued and outstanding shares of common stock. The accompanying financial statements and notes thereto give retrospective effect to the reverse stock split for all periods presented. All issued and outstanding common stock, options and warrants exercisable for common stock, restricted stock units and per share amounts contained in our financial statements have been retrospectively adjusted. Going Concern Although our audited financial statements for the years ended December 31, 2023 and December 31, 2022 were prepared under the assumption that we would continue our operations as a going concern, the report of our independent registered public accounting firm that accompanies our financial statements for the years ended December 31, 2023 and December 31, 2022 contains a going concern qualification in which such firm expressed substantial doubt in our ability to continue as a going concern without additional capital from becoming available, based on the financial statements at that time. Specifically, as noted above, we have incurred operating losses since our inception, and we expect to continue to incur significant expenses and operating losses for the foreseeable future. These prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. If we encounter continued issues or delays in the commercialization of ContraPest, our prior losses and expected future losses could have an adverse effect on our financial condition and negatively impact our ability to fund continued operations, obtain additional financing in the future and continue as a going concern. 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 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. Need for Additional Capital 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 from a former license. We have primarily funded our operations F-8 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued to date through the sale of equity securities, including convertible preferred stock, common stock and warrants to purchase common stock; and debt financing, consisting primarily of convertible notes. As of December 31, 2023, we had an accumulated deficit of $ 129.9 million and cash and cash equivalents of $ 5.4 million. Our ultimate success depends upon the outcome of a combination of factors, including the following: (i) successful commercialization of ContraPest and Evolve and maintaining and obtaining regulatory approval of our products and product candidates; (ii) market acceptance, commercial viability and profitability of ContraPest, Evolve 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 December 31, 2023, in combination with anticipated revenue, will be sufficient to fund our current operations for at least the next nine months. We have evaluated and will continue to evaluate our operating expenses and will concentrate our resources toward the successful commercialization of ContraPest and Evolve in the United States and globally. 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 next nine months, and 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, we may require additional capital in order to fund our operating losses and research and development activities before 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 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. Use of Estimates The preparation of our financial statements and related disclosures in accordance with U.S. GAAP 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 conditions. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents Highly liquid investments with maturities of three months or less as the date of acquisition are classified as cash equivalents, of which we had $ 4.2 million and $ 4.4 million as of December 31, 2023 and 2022, respectively, included within Cash and cash equivalents in the balance sheets. Accounts Receivable Accounts receivable are recorded at invoiced amounts based on standard prices and do not bear interest. We provide an allowance for doubtful 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. Provisions for uncollectible accounts receivable are charged to Selling, general and administrative expense, with an offsetting credit to the allowance for uncollectible accounts. Inventories Inventories consist of raw materials, work in progress and finished goods and are stated at the lower of cost or market value, using the first-in, first-out convention. Cost includes the acquired cost of raw materials, with work-in-progress and finished goods including the application of labor and overhead costs related to the manufacturing process. Raw materials F-9 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued are stocked to reduce the risk of impact on manufacturing for any potential supply interruptions or long lead times on certain ingredients. Reserves for obsolete inventory consist of reserves primarily related to obsolete product containers and delivery systems. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Equipment held under finance 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 as follows: Research and development equipment 5 years Office and computer equipment 3 years Autos 5 years Furniture and fixtures 7 years 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 finance leases are 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. We have not recorded an impairment of long-lived assets since our inception. Revenue Recognition In accordance with Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers (“ASC 606”), we recognize revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. We derive revenue primarily from commercial sales of products, net of discounts and promotions, as well as consulting and implementation services provided in conjunction with our product deployments. We recognize revenue when product is shipped at a fixed selling price with payment terms of 30 to 120 days from invoicing. We recognize any other revenue earned from pilot studies, consulting and implementation services upon the performance of specific services under the respective service contract. 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, costs incurred related to conducting scientific trials and field studies, regulatory compliance costs, as well as manufacturing costs associated with process improvement and other research. Research and development expenses include an allocation of facilities related costs, including depreciation of equipment. F-10 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued Stock-based Compensation Stock-based awards, consisting of stock options and restricted stock units expected to be settled in shares of our common stock, are recorded as equity awards. The grant date fair value of these awards is measured using the Black-Scholes option pricing model for stock options and grant date market value for restricted stock units. We expense the grant date fair value of our stock-based awards on a straight-line basis over their respective vesting periods. Advertising Costs Advertising costs are expensed as incurred and was $ 238,000 and $ 369,000 for the years ended December 31, 2023 and 2022, respectively. Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities and net operating loss carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. These deferred tax assets are subject to periodic assessments as to recoverability and if it is determined that it is more likely than not that the benefits will not be realized, valuation allowances are recorded which would increase the provision for income taxes. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. We currently maintain a full valuation allowance against its deferred tax assets. We apply a more-likely-than-not recognition threshold for all tax uncertainties. Only those benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities are recognized. Based on our evaluation, we have concluded there are no significant uncertain tax positions requiring recognition in our financial statements. We recognize interest and/or penalties related to uncertain tax positions in income tax expense. There are no uncertain tax positions as of December 31, 2023 or December 31, 2022 and as such, no interest or penalties were recorded in income tax expense. 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 all periods presented and a separate statement of comprehensive loss is not included in the accompanying financial statements. F-11 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued NOTE 3: BALANCE SHEET COMPONENTS Accounts Receivable, Net Accounts receivable, net consist of the following (in thousands): As of December 31, 2023 2022 Accounts receivable $ 99 $ 119 Allowance for uncollectible accounts ( 4 ) ( 6 ) Accounts receivable, net $ 95 $ 113 The following is the activity in the allowance for uncollectible accounts (in thousands): Years Ended December 31, 2023 2022 Balance as of beginning of year $ 6 $ — Increase in provision 2 8 Amounts written off, less recoveries ( 4 ) ( 2 ) Balance as of end of year $ 4 $ 6 Inventory, Net Inventory, net consist of the following (in thousands): As of December 31, 2023 2022 Raw materials $ 747 $ 772 Finished goods 53 99 Total inventory 800 871 Reserve for obsolescence ( 5 ) ( 18 ) Inventory, net $ 795 $ 853 The following is the activity in the reserve for obsolescence (in thousands): Years Ended December 31, 2023 2022 Balance as of beginning of year $ 18 $ 29 Increase in reserve — — Amounts relieved ( 13 ) ( 11 ) Balance as of end of year $ 5 $ 18 F-12 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued Prepaid Expenses Prepaid expenses consist of the following (in thousands): As of December 31, 2023 2022 Software licenses $ 152 $ 157 Prepaid inventory 111 — Insurance 64 61 Professional services 30 41 Patents 14 39 Marketing programs and conferences 1 74 Other 16 6 Total prepaid expenses $ 388 $ 378 Property and Equipment, Net Property and equipment, net consist of the following (in thousands): As of December 31, 2023 2022 Research and development equipment $ 1,763 $ 1,558 Office and computer equipment 808 800 Autos 54 54 Furniture and fixtures 41 41 Leasehold improvements 141 119 Total in service 2,807 2,572 Accumulated depreciation and amortization ( 2,419 ) ( 2,283 ) Total in service, net 388 289 Construction in progress — 5 Property and equipment, net $ 388 $ 294 During the years ended December 31, 2023 and 2022, depreciation and amortization expense was $ 135,000 and $ 183,000 , respectively. F-13 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued Accrued Expenses Accrued expenses consist of the following (in thousands): As of December 31, 2023 2022 Compensation, severance and related benefits $ 232 $ 497 Legal services 121 36 Product warranty 15 18 Personal property and franchise tax — 6 Other — 3 Total accrued expenses $ 368 $ 560 Notes Payable In the second half of 2023, we arranged financing for the purchase of certain equipment. The notes payable have an annual interest rate of 9.1 % with a term of five years and is secured by the underlying equipment. As of December 31, 2023, future principal payments were as follows (in thousands): 2024 $ 33 2025 36 2026 39 2027 43 2028 38 Total principal payments 189 Less: current portion of notes payable ( 33 ) Notes payable, less current portion $ 156 NOTE 4: FAIR VALUE MEASUREMENTS The accounting guidance for fair value, among other things, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The framework for measuring fair value consists of 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. F-14 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques: A. Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. B. Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost). C. Income approach: Techniques to convert future amounts to a single present amount based upon market expectations, including present value techniques, option-pricing and excess earnings models. Financial Instruments Not Carried at Fair Value The carrying amounts of our financial instruments, including accounts payable and accrued liabilities, approximate fair value due to their short maturities. The estimated fair value of the long-term debt, not recorded at fair value, are recorded at cost or amortized cost, which was deemed to estimate fair value. NOTE 5: LEASES We determine if an arrangement is a lease at inception and whether the arrangement is classified as an operating or finance lease. At commencement of the lease, we record a right-of-use (“ROU”) asset and lease liability in the balance sheet based on the present value of lease payments over the term of the arrangement. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. If the implicit rate is not readily determinable in the contract, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Contract terms may include options to extend or terminate the lease, and, when we deem it is reasonably certain that we will exercise that option, it is included in the ROU asset and liability. Operating leases reflect lease expense on a straight-line basis, while any finance leases result in the separate presentation of interest expense on the lease liability and amortization expense of the ROU asset. 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 July 2022. The components of lease cost are as follows (in thousands): Years Ended December 31, 2023 2022 Operating lease cost $ 231 $ 222 Finance lease cost: Amortization of ROU asset — 35 Interest on lease liability — 1 Total finance lease cost $ — $ 36 F-15 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued As of December 31, 2023, maturities of operating lease liabilities are follows (in thousands): Years Ending December 31: 2024 $ 225 Total operating lease payments 225 Less imputed interest ( 8 ) Total operating lease liabilities $ 217 NOTE 6: 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 23, 2023, when our stockholders approved an increase to the total number of authorized shares to 70,717 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 two - 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 December 31, 2023, we had 42,008 shares of common stock available for issuance under the 2018 Plan. Stock Options We measure the fair value of stock options with service-based vesting criteria to employees, directors and consultants on the date of grant using the Black-Scholes option pricing model. The Black-Scholes valuation model requires us to make certain estimates and assumptions, including assumptions related to the expected price volatility of our stock, the period during which the options will be outstanding, the rate of return on risk-free investments, and the expected dividend yield for our stock. Fair value of options granted is determined using the Black-Scholes option-pricing model with the following weighted average assumptions: 2023 2022 Risk-free interest rate 5.3 % 3.7 % Expected dividend yield — % — % Expected volatility 128 % 90.5 % Expected term (in years) 5.0 3.3 The weighted average fair value of options granted during the years ended December 31, 2023 and 2022 was $ 14.88 and $ 41.04 per share, respectively. The risk-free interest rate is estimated using treasury bill interest rates. The expected dividend yield is no as we have not paid any dividends to date and do not expect to pay dividends in the future. Expected volatility is estimated based on the historical volatility of our common stock over the expected term as this represents our best estimate of future volatility. The contractual life of stock options granted is five years , and we have elected to use the “simplified method” to estimate expected term. Under the simplified method, an option’s expected term is calculated as the average of its vesting period and original contractual life. For non-employee options, the expected term of options granted is the contractual term of the options. F-16 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued The stock option activity consists of the following: Number of Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (1) Outstanding as of December 31, 2021 4,533 $ 2,071.20 3.9 $ — Granted 20,163 69.48 5.0 — Exercised — — — — Forfeited ( 1,278 ) — — — Expired ( 16 ) — — — Outstanding as of December 31, 2022 23,402 204.00 3.9 — Granted 16,616 15.00 5.0 — Exercised — — — — Forfeited ( 3,282 ) — — — Expired ( 28 ) — — — Outstanding as of December 31, 2023 36,708 119.70 4.0 — Exercisable as of December 31, 2023 20,634 (2) 154.31 3.8 — (1) Calculated based on the difference between the estimated fair value of our stock and the exercise price of the underlying option. The estimated stock values used in the calculation was $ 15.00 and $ 71.52 per share for the years ended December 31, 2023 and 2022, respectively. (2) Includes options related to 8,249 shares that are inducement awards and not granted under the 2018 Plan. As of December 31, 2023, the unrecognized stock-based compensation cost was $ 293,000 , which is expected to be recognized over a weighted average period of 13 months. Restricted Stock Units The restricted stock unit activity consists of the following: Number of Units Weighted Average Grant Date Fair Value Per Unit Outstanding as of December 31, 2021 2 $ 432.00 Granted 1,587 34.44 Vested ( 23 ) 212.04 Forfeited — — Outstanding as of December 31, 2022 1,566 32.52 Granted — — Vested ( 1,566 ) 32.52 Forfeited — — Outstanding as of December 31, 2023 — — F-17 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued The stock-based compensation expense was recorded as following (in thousands): Years Ended December 31, 2023 2022 Research and development $ 17 $ 3 General and administrative 538 (1) 708 Total stock-based compensation expense $ 555 $ 711 (1) Includes $ 100,000 related to stock issued in exchange for marketing services. NOTE 7: INCOME TAXES Our losses before income taxes for the years ended December 31, 2023 and December 31, 2022 were generated entirely from U.S. operations. We have no current or deferred provision for income taxes from continuing operations for the years ended December 31, 2023 and 2022. The significant differences between the U.S. Federal statutory rate and our effective rate for financial reporting purposes are as follows: Years Ended December 31, 2023 2022 Federal statutory tax rate ( 21.0 ) % ( 21.0 ) % State taxed, net of federal tax benefit ( 3.8 ) ( 3.7 ) Change in valuation allowance 23.5 14.3 Return-to-provision and other 0.1 7.9 Stock-based compensation 1.2 2.5 Effective tax rate — % — % F-18 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued Deferred income tax assets and liabilities consist of the following (in thousands): As of December 31, 2023 2022 Deferred income tax assets: Federal and state net operating loss carryovers $ 22,167 $ 20,498 Capitalized research costs 608 432 Stock-based compensation 260 253 Compensation accruals and other 59 92 Operating leases related to ROU assets 54 89 Deferred revenue 4 11 Depreciation 11 8 Other 2 1 Total deferred income tax assets 23,165 21,384 Valuation allowance for deferred income tax assets ( 23,113 ) ( 21,298 ) Deferred income tax assets, net of valuation allowance 52 86 Deferred income tax liabilities: ROU assets ( 52 ) ( 86 ) Total deferred income tax liabilities ( 52 ) ( 86 ) Deferred income tax assets, net $ — $ — A valuation allowance has been recognized to offset the net deferred tax assets as realization of such deferred tax assets have not met the more likely than not threshold. As of December 31, 2023, we had federal and state net operating loss carryforwards of approximately $ 91.2 million and $ 78.0 million, respectively, not considering the IRC Section 382 annual limitation discussed below. The federal loss carryforwards begin to expire in 2029, unless previously utilized. In addition, we have approximately $ 46.8 million of the total $ 91.2 million of net operating losses that do not expire, as these losses were generated after the law change introduced as part of the Tax Cuts and Jobs Act. The state net operating losses expire if not utilized by 2043. Additionally, the utilization of the net operating loss carryforwards could be subject to an annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state tax provisions due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes limit the amount of net operating loss carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. We have not conducted an analysis of an ownership change under Section 382. To the extent that a study is completed and an ownership change is deemed to occur, our net operating losses could be limited. We do no t have any unrecognized tax benefits at the beginning and end of the years ended December 31, 2023 and 2022, and do not expect a significant change in unrecognized tax benefits over the next 12 months. We file income tax returns in the United States and Arizona with general statutes of limitations of three and four years, respectively. Due to net operating losses incurred, our tax returns from inception to date are subject to examination by taxing authorities. Our policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. As of December 31, 2023, we had no interest or penalties accrued related to uncertain tax positions. F-19 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued NOTE 8: STOCKHOLDERS’ EQUITY Preferred Stock We are authorized to issue 10 million shares of preferred stock with a par value of $ 0.001 . Rights and any series designation would be established at time of issuance of preferred stock. As of December 31, 2023 and 2022 there was no preferred stock outstanding. Common Stock We are authorized to issue 100 million shares of common stock with a par value of $ 0.001 per share. Stockholders of common stock have unlimited voting rights and are entitled to receive the net assets of the Company upon dissolution, subject to the rights of the preferred stockholders, if any. We had the following common stock offerings in 2023 and 2022: November 2022 . We consummated a private placement with certain institutional and accredited investors and issued an aggregate of 5,631 shares of our common stock at a purchase price of $ 42.00 per share, pre-funded warrants to purchase up to an aggregate of 113,416 shares of common stock at a purchase price of $ 42.00 per pre-funded warrant (“November 2022 Pre-Funded Warrants”) and associated warrants to purchase up to an aggregate of 238,094 share of common stock at $ 37.98 per share (“Series A” and “Series B” warrants), for gross proceeds of approximately $ 5.0 million, prior to deducting placement agent fees and offering expenses of $ 770,000 . In connection with this offering, we issued the placement agent warrants to purchase up to 8,931 shares of common stock with an exercise price of $ 52.50 per share. Of the November 2022 Pre-Funded Warrants, 10,916 were exercised in December 2022, with the remaining 102,500 exercised in early 2023. The common stock, November 2022 Pre-Funded Warrants and Series A and Series B warrants issued in this November 2022 offering were offered and sold pursuant to a registration statement on Form S-1 (File No. 333-267991) initially filed with the SEC on October 24, 2022, as amended, which was declared effective by the SEC on November 16, 2022. April 2023 . We consummated a registered direct offering with certain institutional investors and issued an aggregate of 71,429 shares of our common stock at a purchase price of $ 21.00 per share and warrants to purchase up to an aggregate of 71,430 shares of common stock at a purchase price of $ 19.44 per share (“Series C” warrants), for gross proceeds of approximately $ 1.5 million, prior to deducting placement agent fees and offering expenses of $ 290,000 . In connection with this offering, we issued the placement agent warrants to purchase up to 5,359 share of common stock with an exercise price of $ 26.25 per share. The common stock and Series C warrants issued in this April 2023 offering were offered and sold pursuant to a shelf registration statement on Form S-3 (File No. 333-261227) initially filed with the SEC on November 19, 2021, as amended, which was declared effective by the SEC on May 6, 2022, and a prospectus supplement dated April 10, 2023. November 2023 . We consummated a private placement with certain institutional and accredited investors and issued an aggregate of 450,306 shares of our common stock at a purchase price of $ 1.30 per share, pre-funded warrants to purchase up to an aggregate of 3,395,848 shares of common stock at a purchase price of $ 1.30 per pre-funded warrant (“November 2023 Pre-Funded Warrants”) and associated warrants to purchase up to an aggregate of 7,692,308 shares of common stock at $ 1.30 per share (“Series D” and “Series E” warrants), for gross proceeds of approximately $ 5.0 million, prior to deducting placement agent fees and offering expenses of $ 800,000 . In connection with this offering, we issued the placement agent warrants to purchase up to 288,462 shares of common stock with an exercise price of $ 1.630 per share. All of the November 2023 Pre-Funded Warrants were exercised by December 31, 2023. F-20 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued The common stock, November 2023 Pre-Funded Warrants and Series D and Series E warrants issued in this November 2023 offering were offered and sold pursuant to a registration statement on Form S-1 (File No. 333-273370) initially filed with the SEC on July 21, 2023, as amended, which was declared effective by the SEC on November 27, 2023. F-21 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued NOTE 9: COMMON STOCK WARRANTS The following is the activity for common stock warrants: F-22 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued Issue Date Warrant Type Term Date Exercise Price Balance December 31, 2021 Issued Exercised Expired Balance December 31, 2022 Issued Exercised Expired Balance December 31, 2023 November 2017 Common Stock Offering November 2022 $ 327.84 507 — — ( 507 ) — — — — — June 2018 Reissue December 2023 8,736.00 236 — — — 236 — — ( 236 ) — August 2018 Rights Offering July 2023 5,520.00 843 — — — 843 — — ( 843 ) — August 2018 Dealer Manager August 2023 8,280.00 55 — — — 55 — — ( 55 ) — July 2019 Dealer Manager July 2024 8,100.00 37 — — — 37 — — — 37 January 2020 Registered Direct Offering July 2025 2,160.00 765 — — — 765 — — — 765 January 2020 Dealer Manager July 2025 2,400.00 57 — — — 57 — — — 57 March 2020 Dealer Manager March 2025 901.51 57 — — — 57 — — — 57 April 2020 Dealer Manager April 2025 952.80 493 — — — 493 — — — 493 April 2020 Registered Direct Offering April 2025 732.00 209 — — — 209 — — — 209 October 2020 Private Inducement November 2027 37.98 4,166 — — — 4,166 — ( 4,166 ) — — October 2020 Dealer Manager April 2026 517.44 356 — — — 356 — — — 356 February 2021 Private Placement Agreement August 2026 531.84 6,867 — — — 6,867 — — ( 1,372 ) 5,495 February 2021 Private Placement Agreement November 2027 37.98 2,285 — — — 2,285 — ( 2,285 ) — — February 2021 Dealer Manager August 2026 683.54 1,374 — — — 1,374 — — — 1,374 March 2021 Dealer Manager March 2026 600.00 619 — — — 619 — — — 619 November 2022 Pre-Funded Warrants February 2023 42.00 — 113,416 ( 10,916 ) — 102,500 — ( 102,500 ) — — November 2022 Series A November 2027 37.98 — 119,047 — — 119,047 — ( 119,047 ) — — November 2022 Series B December 2023 37.98 — 119,047 — — 119,047 — ( 119,047 ) — — November 2022 Dealer Manager November 2027 52.50 — 8,931 — — 8,931 — — — 8,931 April 2023 Series C October 2028 19.44 — — — — — 71,430 — — 71,430 April 2023 Dealer Manager April 2028 26.25 — — — — — 5,359 — — 5,359 August 2023 Private Inducement September 2024 8.64 — — — — — 238,096 — — 238,096 August 2023 Private Inducement August 2028 8.64 — — — — — 251,001 — — 251,001 August 2023 Dealer Manager August 2028 10.80 — — — — — 12,229 — — 12,229 November 2023 Pre-Funded Warrants December 2023 1.30 — — — — — 3,395,848 ( 3,395,848 ) — — November 2023 Series D November 2028 1.30 — — — — — 3,846,154 ( 30,000 ) — 3,816,154 November 2023 Series E May 2025 1.30 — — — — — 3,846,154 ( 771,544 ) — 3,074,610 November 2023 Dealer Manager November 2028 1.63 — — — — — 288,462 — — 288,462 18,926 360,441 ( 10,916 ) ( 507 ) 367,944 11,954,733 ( 4,544,437 ) ( 2,506 ) 7,775,734 F-23 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued As of December 31, 2023, we had 7,775,734 shares of common stock issuable upon exercise of outstanding common stock warrants, at a weighted-average exercise price of $ 2.95 per share and expiring as follows: Weighted Average Exercise Price Shares Years Ending December 31: 2024 $ 9.90 238,133 2025 2.10 3,076,191 2026 563.14 7,844 2027 52.50 8,931 2028 2.08 4,444,635 2.95 7,775,734 Common Stock Warrants Issued in November 2022 Common Stock Offering In November 2022, in connection with a registered direct offering with certain institutional and accredited investors, we issued common stock warrants as follows: • Pre-Funded Warrants to purchase up to an aggregate of 113,416 shares of common stock at an exercise price of $ 42.00 per share, which are exercisable immediately and terminate until exercised in full. A portion of the Pre-Funded Warrants were exercised in December 2022, with the last traunch of these warrants being exercised in February 2023. We estimated the fair value of the Pre-Funded Warrants to be $ 153,000 using a Black Scholes model based on the following significant inputs: common stock price of $ 36.36 per share; comparable company volatility of 93.9 %; remaining term of three months; dividend yield of 0 % and risk-free interest rate of 3.8 %. • Series A warrants to purchase up to an aggregate of 119,047 shares at an exercise price of $ 37.980 per share, which are exercisable immediately and expire five years from date of issuance. We estimated the fair value of the Series A warrants to be $ 3.1 million using a Black Scholes model based on the following significant inputs: common stock price of $ 36.36 per share; comparable company volatility of 93.9 %; remaining term of five years; dividend yield of 0 % and risk-free interest rate of 3.8 %. • Series B warrants to purchase up to an aggregate of 119,047 shares at an exercise price of $ 37.98 per share, which are exercisable immediately and expire 13 months from date of issuance. We estimated the fair value of the Series B warrants to be $ 1.6 million using a Black Scholes model based on the following significant inputs: common stock price of $ 36.36 per share; comparable company volatility of 93.9 %; remaining term of five years; dividend yield of 0 % and risk-free interest rate of 3.8 %. In August 2023, certain terms of the Series A and Series B warrants were modified to induce exercise. The exercise price was reduced to $ 8.64 per share, and the warrants were exercised in full (“Warrant Inducement Transaction”). The offsetting impact related to the warrant inducement transaction was $ 657,000 , 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 $ 8.18 per share; volatility of 96 %; term of 2.3 years; dividend yield of 0 %; and risk-free rate of 5.0 %. Common Stock Warrants Issued to Placement Agent in November 2022 Common Stock Offering In connection with the registered direct offering in November 2022, we issued to the placement agent, warrants to purchase up to 8,931 shares of common stock. The placement agent warrants will be exercisable commencing six months following the date of issuance, expire five years following the date of sale and have an exercise price per share of $ 52.50 per share. The placement agent warrants, and the shares of common stock issuable upon exercise thereof, will be issued in reliance on the exemption from registration provided in Section 4(a)(2) under the Securities Act of 1933, as amended, and Regulation D promulgated thereunder. F-24 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued We estimated the fair value of these warrants to be $ 240,000 using a Black Scholes model based on the following significant inputs: common stock price of $ 39.00 ; comparable company volatility of 93.9 %; remaining term five years; dividend yield of 0 %; and risk-free interest rate of 3.8 %. Common Stock Warrants Issued in April 2023 Registered Direct Offering In April 2023, Series C warrants were issued to the investors to purchase up to 71,430 shares of our common stock. The Series C warrants are exercisable immediately with an exercise price of $ 19.44 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 $ 16.56 per share; volatility of 164 %; term of 5.5 years; dividend yield of 0 %; and risk-free interest rate of 3.4 %. In April 2023, placement agent warrants were issued to purchase up to 5,359 shares of our common stock. The placement agent warrants are exercisable immediately upon issuance, with an exercise price per share of $ 26.25 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 $ 16.56 per share; volatility of 165 %; term of 5 years; dividend yield of 0 %; and risk-free interest rate of 3.5 %. Common Stock Warrants Issued in August 2023 Private Inducement In August 2023, in connection with the Warrant Inducement Transaction, warrants were issued to the investor in the Warrant Inducement Transaction to purchase up to 489,097 shares of our common stock. These warrants are exercisable immediately with an exercise price of $ 8.64 per share, with 251,001 expiring August 2028 (“5-Year Warrants”) and 238,096 expiring September 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 $ 8.18 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 $ 8.18 per share; volatility of 122 %; term of 1.1 years; dividend yield of 0 %; and risk-free rate of 4.4 %. In August 2023, placement agent warrants were issued to purchase up to 12,229 shares of our common stock. The placement agent warrants are exercisable immediately upon issuance, with an exercise price per share of $ 10.80 per share, and expire August 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 $ 8.18 per share; volatility of 98 %; term of 5 years; dividend yield of 0 %; and risk-free interest rate of 5.4 %. Common Stock Warrants Issued in November 2023 Common Stock Offering In November 2023, in connection with a registered direct offering with certain institutional and accredited investors, we issued common stock warrants as follows: • Pre-Funded Warrants to purchase up to an aggregate of 3,395,848 shares of common stock at an exercise price of $ 1.30 per share, which are exercisable immediately and terminate only when exercised in full. These warrants were exercised in full by December 31, 2023. We estimated the fair value of the Pre-Funded Warrants to be $ 685,000 using a Black Scholes model based on the following significant inputs: common stock price of $ 0.93 per share; volatility of 262 %; remaining term of one month; dividend yield of 0 % and risk-free interest rate of 5.5 %. • Series D warrants to purchase up to an aggregate of 3,846,154 shares at an exercise price of $ 1.30 per share, which are exercisable immediately and expire November 2028.We estimated the fair value of the Series D warrants to be $ 2.6 million using a Black Scholes model based on the following significant inputs: common stock price of $ 0.93 per share; volatility of 103 %; remaining term of 5 years; dividend yield of 0 % and risk-free interest rate of 4.2 %. • Series E warrants to purchase up to an aggregate of 3,846,154 shares at an exercise price of $ 1.30 per share, which are exercisable immediately and expire May 2025. We estimated the fair value of the Series E warrants to be $ 1.8 million using a Black Scholes model based on the following significant inputs: common stock price of $ 0.93 per share; volatility of 128 %; remaining term of 1.5 years; dividend yield of 0 % and risk-free interest rate of 4.6 %. F-25 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued Common Stock Warrants Issued to Placement Agent in November 2023 Common Stock Offering In connection with the registered direct offering in November 2023, we issued to the placement agent, warrants to purchase up to 288,462 shares of common stock. The placement agent warrants will be exercisable commencing six months following the date of issuance, expire five years following the date of sale and have an exercise price per share of $ 1.63 per share. The placement agent warrants, and the shares of common stock issuable upon exercise thereof, will be issued in reliance on the exemption from registration provided in Section 4(a)(2) under the Securities Act of 1933, as amended, and Regulation D promulgated thereunder. We estimated the fair value of these warrants to be $ 189,000 using a Black Scholes model based on the following significant inputs: common stock price of $ 0.93 per share; volatility of 103 %; remaining term of five years; dividend yield of 0 %; and risk-free interest rate of 4.2 %. NOTE 10: 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 any 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 attributable to common stockholders because their effect would be anti-dilutive given the net loss reported for the years ended December 31, 2023 and 2022. Therefore, basic and diluted loss per share was the same for all periods presented. The following shares were excluded from the calculation of diluted loss per share: December 31, 2023 2022 Common stock warrants 6,755,010 172,473 Restricted stock units — 1,567 Common stock options — 10,052 Total 6,755,010 184,092 NOTE 11: CONTINGENCIES 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 alleged, 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 claimed that we owed him. In September 2021, the Plaintiff served us and also named 10 individuals as defendants, consisting of current and former directors and employees. The Plaintiff alleged that such individuals agreed to knowingly and wrongfully withhold the stock options owed to him and were knowingly in receipt of stolen property. In November 2023, this legal matter was settled for $ 185,000 . In addition to the matter described above, we may be subject to other legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any other pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effect on our financial position, results of operations or liquidity. NOTE 12: RELATED PARTY TRANSACTIONS Related party transactions are conducted in the normal course of business and, unless otherwise noted, are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. In connection with consulting agreements in place, during each of the years ended December 31, 2023 and 2022, $ 4,200 and $ 50,400 , F-26 Table of Contents SENESTECH, INC. NOTES TO THE FINANCIAL STATEMENTS, continued respectively, of cash payments were made to the Kito Impact Foundation of which the Chair of our board, serves as chief executive officer. NOTE 13: SUBSEQUENT EVENTS Subsequent to December 31, 2023, 4,608 shares of common stock were issued pursuant to the exercise of certain warrants for gross proceeds of $ 6,000 . We have evaluated subsequent events from the balance sheet date through February 21, 2024, the date at which the financial statements were issued, and determined that there were no other items that require adjustment to or disclosure in the financial statements. F-27 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.