UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2022

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

For the transition period from ________ to ________

Commission File Number: 001-37941

SENESTECH, INC.

(Exact name of registrant as specified in its charter)

Delaware		20-2079805
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

23460 N. 19^th Avenue, Suite 110 Phoenix, AZ		85027
(Address of principal executive offices)		(Zip Code)

(928) 779-4143

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.001 par value		SNES		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of shares of common stock outstanding as of August 12, 2022: 12,212,950

SENESTECH, INC.
FORM 10-Q
For the Quarterly Period Ended June 30, 2022

TABLE OF CONTENTS

		Page
	PART I. FINANCIAL INFORMATION	1

Item 1	Financial Statements	1
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4	Controls and Procedures	38

	PART II. OTHER INFORMATION	39

Item 1	Legal Proceedings	39
Item 1A	Risk Factors	39
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3	Defaults Upon Senior Securities	39
Item 4	Mine Safety Disclosures	39
Item 5	Other Information	39
Item 6	Exhibits	40
Signatures		41

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SENESTECH, INC.

CONDENSED BALANCE SHEETS

(In thousands, except shares and per share data)

	June 30,			December 31,
	2022			2021
ASSETS	(Unaudited)

Current assets:
Cash	$	5,000		$	9,326
Accounts receivable trade, net		84			77
Prepaid expenses		338			230
Inventory		976			1,001
Deposits		22			22
Total current assets		6,420			10,656

Right to use asset-operating leases		431			511
Property and equipment, net		367			334
Total assets	$	7,218		$	11,501

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Short-term debt	$	-		$	32
Accounts payable		286			333
Accrued expenses		884			578
Deferred Revenue		41			-
Total current liabilities		1,211			943

Operating lease liability		443			523
Total liabilities		1,654			1,466

Commitments and contingencies (See note 12)		-			-

Stockholders’ equity:
Common stock, $0.001 par value, 100,000,000 shares authorized, 12,212,950 and 12,207,283 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		12			12
Additional paid-in capital		122,961			122,531
Accumulated deficit		(117,409	)		(112,508	)
Total stockholders’ equity		5,564			10,035

Total liabilities and stockholders’ equity	$	7,218		$	11,501

See accompanying notes to financial statements.

SENESTECH, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)

(In thousands, except shares and per share data)

(Unaudited)

For The Three Months Ended June 30, 2021 and 2022

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2022			2021			2022			2021

Sales	$	277		$	160		$	472		$	248

Cost of sales		141			119			246			169
Gross profit		136			41			226			79

Operating expenses:
Research and development		431			455			947			910
Selling, general and administrative		2,277			1,935			4,184			3,357
Total operating expenses		2,708			2,390			5,131			4,267

Net operating loss		(2,572	)		(2,349	)		(4,905	)		(4,188	)

Other income (expense):
Interest income		1			1			3			3
Interest expense		-			(3	)		(1	)		(8	)
Payroll Protection Program loan forgiveness		-			650			-			650
Other income		2			1			2			22
Total other income		3			649			4			667

Net loss and comprehensive loss	$	(2,569	)	$	(1,700	)	$	(4,901	)	$	(3,521	)


Weighted average common shares outstanding - basic and fully diluted		12,212,701			12,178,754			12,210,863			10,169,061

Net loss per common share - basic and fully diluted	$	(0.21	)	$	(0.14	)	$	(0.40	)	$	(0.35	)

See accompanying notes to financial statements.

SENESTECH, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except shares and per share data)

(Unaudited)

For The Three Months Ended June 30, 2021 and 2022

					Additional						Total Stockholders’
	Common Stock				Paid-In			Accumulated			Equity
	Shares		Amount		Capital			Deficit			(Deficit)

Balance, March 31, 2021		12,164,046	$	12	$	121,897		$	(106,061	)	$	15,848

Stock-based compensation		-		-		182			-			182
Issuance of common stock upon exercise of warrants, net		499		-		11			-			11
Issuance of common stock for service		20,951		-		-			-			-
Payments for employee withholding taxes related to share based awards						(17	)					(17	)
Net loss for the three months ended June 30, 2021		-		-		-			(1,700	)		(1,700	)
Balance, June 30, 2021		12,185,496	$	12	$	122,073		$	(107,761	)	$	14,324

Balance, March 31, 2022		12,212,283	$	12	$	122,755		$	(114,840	)	$	7,927

Stock-based compensation		-		-		205			-			205
Issuance of common stock for service		667		-		1			-			1
Net loss for the three months ended June 30, 2022		-		-		-			(2,569	)		(2,569	)
Balance, June 30, 2022		12,212,950	$	12	$	122,961		$	(117,409	)	$	5,564

For The Six Months Ended June 30, 2021 and 2022

Balance, December 31, 2020		5,099,512	$	5	$	108,119		$	(104,240	)	$	3,884

Stock-based compensation		-		-		337			-			337
Issuance of common stock for service		20,951		-		-			-			-
Issuance of common stock, sold for cash, net		6,163,854		6		12,415			-			12,421
Issuance of common stock upon exercise of warrants		901,179		1		1,219			-			1,220
Payments for employee withholding taxes related to share based awards		-		-		(17	)		-			(17	)
Net loss for the six months ended June 30, 2021		-		-		-			(3,521	)		(3,521	)
Balance, June 30, 2021		12,185,496	$	12	$	122,073		$	(107,761	)	$	14,324

Balance, December 31, 2021		12,207,283	$	12	$	122,531		$	(112,508	)	$	10,035

Stock-based compensation		-		-		426			-			426
Issuance of common stock for service		5,667		-		4			-			4
Net loss for the six months ended June 30, 2022		-		-		-			(4,901	)		(4,901	)
Balance, June 30, 2022		12,212,950	$	12	$	122,961		$	(117,409	)	$	5,564

See accompanying notes to financial statements.

SENESTECH, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the Six Months
	Ended June 30,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(4,901	)	$	(3,521	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		113			151
Stock-based compensation		430			337
Bad debt expense		12			-
Paycheck Protection Program loan forgiveness		-			(648	)
Paycheck Protection Program loan accrued interest forgiveness		-			(2	)
Gain on sale of equipment		-			(1	)
(Increase) decrease in current assets:
Accounts receivable - trade		(7	)		(49	)
Accounts receivable - other		(12	)		-
Other assets		-			10
Prepaid expenses		(108	)		(203	)
Inventory		25			(24	)
Increase (decrease) in current liabilities:
Accounts payable		(47	)		(185	)
Accrued expenses		306			134
Deferred revenue		41			-
Net cash used in operating activities		(4,148	)		(4,001	)

CASH FLOWS FROM INVESTING ACTIVITIES
Cash received on sale of property and equipment		-			1
Purchase of property and equipment		(146	)		(84	)
Net cash used in investing activities		(146	)		(83	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of common stock, net		-			12,421
Repayments of notes payable		(5	)		(28	)
Repayments of finance lease obligations		(27	)		(26	)
Proceeds from the exercise of warrants		-			1,220
Payment of employee withholding taxes related to share based awards		-			(17	)
Net cash (used in) provided by financing activities		(32	)		13,570

NET CHANGE IN CASH		(4,326	)		9,486
CASH AT BEGINNING OF PERIOD		9,326			3,643
CASH AT END OF PERIOD	$	5,000		$	13,129

SUPPLEMENTAL INFORMATION:
Interest paid	$	1		$	8
Income taxes paid	$	-		$	-

See accompanying notes to financial statements.

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Unaudited)

Note 1 - Organization and Description of Business

SenesTech, Inc. (referred to in this report as “SenesTech,” the “Company,” “we,” “us”, or “our”) was formed in July 2004 and incorporated in the state of Nevada. We subsequently reincorporated in the state of Delaware in November 2015. Our corporate headquarters is in Phoenix, Arizona. We have developed and are commercializing a global, proprietary technology for managing animal pest populations, initially rat populations, through fertility control.

Although there are myriad tools available to control rat populations, most rely on some form of lethal method to achieve effectiveness. Each of these solutions is inherently limited by rat species’ resilience and survival mechanisms as well as their extraordinary rate of reproduction. ContraPest^®, our initial product, is unique in the pest control industry in attacking the reproductive systems of both male and female rats, which our field data shows will result in a sustained reduction of the rat population.

Rats have plagued humanity throughout history. They pose significant threats to the health and food security of many communities. In addition, rodents cause significant product loss and damage through consumption and contamination. Rats also cause significant damage to critical infrastructure by burrowing beneath foundations and gnawing on electrical wiring, insulation, fire proofing systems, electronics and equipment.

The most prevalent solution to rat infestations is the use of increasingly powerful rodenticides. Although these solutions provide short term results, there are growing concerns about secondary exposure and bioaccumulation of rodenticides in the environment, as well as concerns about rodenticides that have no antidotes. The pest management industry and Pest Management Professionals (“PMPs”) are being asked for new solutions that are both effective and less toxic. Our goal is to provide customers with not only a highly effective solution to combat their rat problems, but also offer a non-lethal option to serve customers that are looking to decrease or remove the amount of rodenticide used in their pest control programs.

ContraPest is a liquid bait containing the active ingredients 4-vinylcyclohexene diepoxide (“VCD”) 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.

We began the registration process with the United States Environmental Protection Agency (the “EPA”) for ContraPest on August 23, 2015. On August 2, 2016, the EPA granted an unconditional registration for ContraPest as a Restricted Use Product (“RUP”), due to the need for applicator expertise for deployment. On October 18, 2018, the EPA approved the removal of the RUP designation. We believe ContraPest is the first and only non-lethal, fertility control product approved by the EPA for the management of rodent populations.

In June 2022, we received EPA registration and approval our new Elevate Bait System with ContraPest. This innovative bait system provides a unique and effective delivery system designed to target roof rats in elevated spaces.

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, 48 of which have approved the removal of the RUP designation.

In addition to product registration, the EPA also approves all labeling (the container label, instructional inserts, and the Safety Data Sheet (“SDS”)) of ContraPest. Generally, states accept the EPA approved label as is. ContraPest’s labeling was submitted to the states at the initial registration and is resubmitted during state scheduled reregistration or for any significant labeling change requiring EPA approval.

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 1 - Organization and Description of Business – (continued)

We expect to continue to pursue regulatory approvals and amendments to the existing U.S. registration for ContraPest to broaden the marketability and use of ContraPest, and if ContraPest begins to generate sufficient revenue, regulatory approvals for additional jurisdictions beyond the United States. In certain cases, our EPA and state registrations require completion of additional testing and certifications even though we have received approval for the product or its labelling. We continue to seek to comply with these requirements.

We also continue to research and develop enhancements to ContraPest that align with our target verticals and other potential fertility control options for additional species and alternate delivery systems.

Going Concern

Our financial statements as of June 30, 2022, December 31, 2021 and June 30, 2021 were prepared under the assumption that we would continue as a going concern, the report of our independent registered public accounting firm that accompanies our financial statements for the years ended December 31, 2021 and December 31, 2020 contains 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, 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 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 our 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. See Note 10 for a description of our public equity sales.

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.

Through June 30, 2022, we received net proceeds of $89.6 million from our sales of common stock, preferred stock and warrant exercises and issuance of convertible and other promissory notes, an aggregate of $1.7 million from licensing fees and an aggregate of $2.0 million in net product sales. As of June 30, 2022, we had an accumulated deficit of $117.4 million and cash and cash equivalents of $5.0 million.

Our ultimate success depends upon the outcome of a combination of factors, including the following: (i) successful commercialization of ContraPest and maintaining and obtaining regulatory approval of our products and product candidates; (ii) market acceptance, commercial viability and profitability of ContraPest and other products; (iii) the ability to market our products and establish an effective sales force and marketing infrastructure to generate significant revenue; (iv) the success of our research and development; (v) the ability to retain and attract key personnel to develop, operate and grow our business; and (vi) our ability to meet our working capital needs.

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 1 - Organization and Description of Business – (continued)

Based upon our current operating plan, we expect that cash and cash equivalents at June 30, 2022, 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 six to nine months. We have evaluated and will continue to evaluate our operating expenses and will concentrate our resources toward the successful commercialization of ContraPest in the United States. However, if anticipated revenue targets and margin targets are not achieved or expenses are more than we have budgeted, we may need to raise additional financing before that time. If we need more financing, including within the next six to 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.

Basis of Presentation

Our accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with the U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. In our opinion, the unaudited condensed financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly our financial position as of June 30, 2022, our operating results for the three months and six months ended June 30, 2022 and 2021, and our cash flows for the six months ended June 30, 2022 and 2021. The accompanying financial information as of December 31, 2021 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, 2021, filed with the SEC on March 29, 2022. All amounts shown in these financial statements and accompanying notes are in thousands, except percentages and per share and share amounts.

Note 2 - Summary of Significant Accounting Policies

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 preferred stock, if issued, common stock and related warrants, and other stock-based awards. Actual results could differ from such estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no material impact on net earnings, financial position or cash flows.

Cash and Cash Equivalents

We consider money market fund investments to be cash equivalents. We had cash equivalents in the form of money market fund investment of $4,095 and $8,793 at June 30, 2022 and December 31, 2021, respectively, included in cash as reported.

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

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

Accounts Receivable-Trade

Accounts receivable-trade consist primarily of receivables from customers. We provide an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. We had allowance for doubtful trade receivables at June 30, 2022 of $12. We did not have any allowance for doubtful trade receivables at December 31, 2021.

Inventories

Inventories are stated at the lower of cost or market value, using the first-in, first-out convention. Inventories consist of raw materials, work in progress and finished goods. Raw materials are stocked to reduce the risk of impact on manufacturing for potential supply interruptions due to the COVID-19 pandemic, supply chain issues or long lead times on certain ingredients.

Components of inventory were:

	June 30,			December 31,
	2022			2021
Raw materials	$	880		$	937
Work in progress		5			5
Finished goods		113			88
Total inventory		998			1,030
Less:
Reserve for obsolete		(22	)		(29	)
Total net inventory	$	976		$	1,001

Prepaid Expenses

Prepaid expenses consist primarily of payments made for director and officer insurance, director compensation, rent, legal and inventory purchase deposits and seminar/trade show fees to be expensed in the current year.

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. 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 is amortized over the shorter of the lease term or estimated useful life of the asset. We incur repair and maintenance costs on our major equipment, which are expensed as incurred.

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

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

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, we compare 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 inception.

Revenue Recognition

Effective January 1, 2018, we adopted Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers (“ASC 606”). Under 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 recognize revenue when product is shipped at a fixed selling price on payment terms of 30 to 120 days from invoicing. We recognize other revenue earned from pilot studies, consulting and implementation services upon the performance of specific services under the respective service contract.

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.

Deferred revenue represents payments that have been received in advance of fulfillment of these orders. These product orders are anticipated to be fulfilled in future periods.

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.

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 stock options on a straight-line basis over their respective vesting periods.

The stock-based compensation expense recorded for the three and six months ended June 30, 2022 and 2021, was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Research and development	$	3	$	-	$	4	$	2
Selling, general and administrative		203		182		426		335
Total stock-based compensation expense	$	206	$	182	$	430	$	337

See Note 11 for additional discussion on stock-based compensation.

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

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

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 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 June 30, 2022 or December 31, 2021 and, as such, no interest or penalties were recorded in income tax expense.

Comprehensive Loss

Net loss and comprehensive loss were the same for all periods presented; therefore, a separate statement of comprehensive loss is not included in the accompanying financial statements.

Loss Per Share Attributable to Common Stockholders

Basic loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share attributable to common stockholders is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury stock and if-converted methods. For purposes of the computation of diluted loss per share attributable to common stockholders, common stock purchase warrants, and common stock options are considered to be potentially dilutive securities but have been excluded from the calculation of diluted loss per share attributable to common stockholders because their effect would be anti-dilutive given the net loss reported for the three and six months ended June 30, 2022 and 2021. Therefore, basic and diluted loss per share attributable to common stockholders are the same for each period presented.

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

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

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted loss per share attributable to common stockholders (in common stock equivalent shares):

	June 30,
	2022		2021
Common stock purchase warrants		4,531,447		4,553,234
Restricted stock units		-		667
Common stock options		1,473,320		1,069,661
Total		6,004,767		5,623,562

Accounting Standards Issued but Not Yet Adopted

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 consolidated financial statements.

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. The estimated fair value of our notes, not recorded at fair value, are recorded at cost or amortized cost which was deemed to estimate fair value.

Note 4 - Credit Risk

We are potentially subject to concentrations of credit risk in our accounts receivable. Credit risk with respect to receivables is limited due to the number of companies comprising our customer base. At June 30, 2022, we had $12 in potentially uncollectable accounts and recorded a reserve for uncollectable accounts in that amount. We did not have any potentially uncollectable accounts at December 31, 2021 and therefore, did not record a reserve for uncollectable accounts at December 31, 2021. We do not require collateral or other securities to support its accounts receivable.

Note 5 - Prepaid Expenses

Prepaid expenses consisted of the following:

	June 30,		December 31,
	2022		2021
Director, officer and other insurance	$	153	$	109
Rent		36		-
Marketing programs and conferences		48		66
Patents		71		41
Inventory deposits		20		12
Professional services		8		-
Engineering, software licenses and other		2		2
Total prepaid expenses	$	338	$	230

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 6 - Property and Equipment

Property and equipment, net consisted of the following:

	Useful	June 30,			December 31,
	Life	2022			2021
Research and development equipment (1)	5-7 years	$	1,512		$	1,425
Office and computer equipment	3 years		797			762
Autos	5 years		54			54
Furniture and fixtures	7 years		41			41
Leasehold improvements	*		117			112
Construction in progress			65			45
			2,586			2,439
Less accumulated depreciation and amortization			(2,219	)		(2,105	)
Total		$	367		$	334

*	Shorter of lease term or estimated useful life

(1)

In the three months ended and six months ended June 30, 2022, we received net proceeds of less than $2 in the sale of manufacturing, research and development equipment, resulting in gains on the sale of these assets of less than $2. In the three months ended and six months ended June 30, 2021, we received net proceeds of less than $1 in the sale of manufacturing, research and development equipment, resulting in gains on the sale of these assets of less than $1.

Depreciation and amortization expense was approximately $47 and $78 for the three months ended June 30, 2022 and 2021, respectively, and $113 and $151 for the six months ended June 30, 2022 and 2021, respectively.

Note 7 - Accrued Expenses

Accrued expenses consisted of the following:

	June 30,		December 31,
	2022		2021
Compensation and related benefits	$	715	$	524
Legal services		-		17
Digital media		77		-
Recruiting		37		-
Product warranty		31		18
Personal property and franchise tax		15		5
Other		9		14
Total accrued expenses	$	884	$	578

Note 8 - Borrowings

A summary of our borrowings, including finance lease obligations, was as follows:

	June 30,		December 31,
	2022		2021
Short-term debt:
Finance lease obligations	$	-	$	27
Other promissory notes		-		5
Total	$	-	$	32

Finance Lease Obligations

All finance lease and promissory note obligations, for manufacturing equipment leased through ENGS Commercial Finance Co., were settled in full during the three months ended June 30, 2022.

On June 18, 2021, we received notification from BMO Harris Bank National Association as the lender in a promissory note pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), that a loan to us under this program in the amount of $646 was forgiven in full under the terms of the program. The forgiveness of this note and related interest was recorded as other income on the Condensed Statements of Operations and Comprehensive Loss for the quarter ended June 30, 2021.

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 9 - Common Stock Warrants and Common Stock Warrant Liability

The table summarizes the common stock warrant activity as of June 30, 2022 by warrant type:

						Balance									Balance								Balance
Issue Date	Warrant Type	Term Date	Exercise Price			December 31, 2020		Issued		Exercised			Expired		December 31, 2021		Issued		Exercised		Expired		June 30, 2022

November 21, 2017	Common Stock Offering Warrants	November 21, 2022	$	1.3659	⁽¹⁾		143,501		-		(21,787	)		-		121,714		-		-		-		121,714
June 20, 2018	Warrant Reissue	December 20, 2023	$	36.40			56,696		-		-			-		56,696		-		-		-		56,696
August 13, 2018	Rights Offering Warrants	July 25, 2023	$	23.00			202,943		-		(499	)		-		202,444		-		-		-		202,444
August 13, 2018	Dealer Manager Warrants	August 13, 2023	$	34.50			13,393		-		-			-		13,393		-		-		-		13,393
July 16, 2019	Dealer Manager Warrants	July 11, 2024	$	33.75			8,334		-		-			-		8,334		-		-		-		8,334
January 28, 2020	Registered Direct Offering	July 28, 2025	$	9.00			177,500		-		-			-		177,500		-		-		-		177,500
January 28, 2020	Dealer Manager Warrants	July 28, 2025	$	10.00			13,315		-		-			-		13,315		-		-		-		13,315
March 6, 2020	Dealer Manager Warrants	March 4, 2025	$	3.76			13,228		-		-			-		13,228		-		-		-		13,228
April 21, 2020	Dealer Manager Warrants	April 21, 2025	$	3.97			118,073		-		-			-		118,073		-		-		-		118,073
April 24, 2020	Registered Direct Offering	April 24, 2025	$	3.05			50,000		-		-			-		50,000		-		-		-		50,000
October 26, 2020	Private Warrant Inducement	April 27, 2026	$	1.73			1,700,680				(700,680	)				1,000,000		-		-		-		1,000,000
October 26, 2020	Dealer Manager Warrants	April 27, 2026	$	2.16			85,034		-							85,034		-		-		-		85,034
February 2, 2021	Private Placement Agreement	August 2, 2026	$	2.216			-		2,194,427		-			-		2,194,427		-		-		-		2,194,427
February 2, 2021	Dealer Manager Warrants	August 2, 2026	$	2.848			-		329,164		-			-		329,164		-		-		-		329,164
March 23, 2021	Dealer Manager Warrants	March 23, 2026	$	2.50			-		148,125		-			-		148,125		-		-		-		148,125
							2,582,697									4,531,447								4,531,447

(1)

The initial exercise price of these warrants was $30.00 per share. Pursuant to antidilution price adjustment protection contained within these warrants, the initial exercise price of these warrants was adjusted downward to $29.40 on July 24, 2018, the record date of the 2018 Rights Offering (defined herein) and downward to $19.00 per share on August 13, 2018. These warrants were further adjusted downward from $19.00 to $7.13 and to $2.1122 on January 28, 2020 and March 4, 2020, respectively, in connection with separate Registered Direct Offerings. These warrants were further adjusted downward from $2.1122 to $1.3659 on October 26, 2020 in connection with a Registered Direct Offering. These warrants are subject to further adjustment pursuant to antidilution price adjustment protection.

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 9 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

Outstanding Warrants

As of June 30, 2022, we had 4,531,447 shares of common stock issuable upon exercise of outstanding common stock warrants, at a weighted-average exercise price of $4.00 per share.

On November 21, 2017, we issued a total of 232,875 detachable common stock warrants issued with the second public offering of 293,000 shares of our common stock at $20.00 per share. The common stock warrant is exercisable until five years from the date of grant. Our common stock and detachable warrants exist independently as separate securities. As such, we estimated the fair value of the common stock warrants, exercisable at $30.00 per share, to be $661 using a lattice model based on the following significant inputs: common stock price of $20.00; comparable company volatility of 73.8%; remaining term five years; dividend yield of 0% and risk-free interest rate of 1.87%. The initial exercise price of these warrants was $30.00 per share, which adjusted downward to $29.40 on July 24, 2018, the record date of the 2018 Rights Offering, and downward to $19.00 per share on August 13, 2018, the date of the 2018 Rights Offering, pursuant to antidilution price adjustment protection contained within these warrants. The exercise price of the warrants was adjusted downward to $7.13 on January 28, 2020 in connection with a private placement of common stock. Per guidance of ASC 260 – Earnings Per Share (“ASC260”), we recorded a deemed dividend of $285 on the 143,501 unexercised warrants that contained this antidilution price adjustment protection provision and was calculated as the difference between the fair value of the warrants immediately prior to downward exercise price adjustment and immediately after the adjustment using a Black Scholes model based on the following significant inputs: On January 28, 2020, common stock price of $7.90; comparable company volatility of 73.8%; remaining term 2.82 years; dividend yield of 0% and risk-free interest rate of 1.45%.

The exercise price of the warrants was adjusted downward to $2.1122 on March 4, 2020 in connection with a private placement of common stock. Per guidance of ASC 260, we recorded a deemed dividend of $129 on the 143,501 unexercised warrants that contained this antidilution price adjustment protection provision and was calculated as the difference between the fair value of the warrants immediately prior to downward exercise price adjustment and immediately after the adjustment using a Black Scholes model based on the following significant inputs: On March 4, 2020, common stock price of $2.88; comparable company volatility of 74.5%; remaining term 2.71 years; dividend yield of 0% and risk-free interest rate of 0.68%.

The exercise price of the warrants was adjusted downward to $1.3659 on October 26, 2020 in connection with an inducement offering of common stock. Per guidance of ASC 260, we recorded a deemed dividend of $22 on the 143,501 unexercised warrants that contained this antidilution price adjustment protection provision and was calculated as the difference between the fair value of the warrants immediately prior to downward exercise price adjustment and immediately after the adjustment using a Black Scholes model based on the following significant inputs: On October 26, 2020, common stock price of $1.47; comparable company volatility of 96.5%; remaining term 2.08 years; dividend yield of 0% and risk-free interest rate of 0.18%.

On June 20, 2018, we entered into an agreement with a holder of 56,696 of the November 2017 warrants to exercise its original warrant representing 56,696 shares of common stock for cash at the $30.00 exercise price for gross proceeds of $1.7 million, and we issued to holder a new warrant to purchase 56,696 shares of common stock at an exercise price of $36.40 per share. The new warrant did not contain the antidilution price adjustment protection that was contained within the exercised warrants. In June 2018, we recorded stock compensation expense of $1,700 representing the fair value of the of 56,696 inducement warrants issued. We estimated the fair value of the common stock warrants, exercisable at $36.40 per share, to be $1,700 using a Black Scholes model based on the following significant inputs: common stock price of $42.20; comparable company volatility of 72.6%; remaining term five years; dividend yield of 0% and risk-free interest rate of 2.8%. Also, in June 2018, an additional 17,088 of the November 8, 2017 warrants that were in the money at the time of exercise, were exercised for gross proceeds of $513.

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 9 - Common Stock Warrants and Common Stock Warrant Liability – (continued)

On August 13, 2018, in connection with a rights offering of 267,853 shares of our common stock (the “2018 Rights Offering”), we issued 267,853 warrants to purchase shares of our common stock at an exercise price of $23.00 per share. We estimated the fair value of the common stock warrants, exercisable at $23.00 per share, to be $3,600 using a Monte Carlo model based on the following significant inputs: common stock price of $18.80; comparable company volatility of 159.0%; remaining term five years; dividend yield of 0% and risk-free interest rate of 2.77%.

In connection with the closing of the 2018 Rights Offering, we issued a warrant to purchase 13,393 shares of common stock to Maxim Partners LLC, an affiliate of the dealer-manager of the 2018 Rights Offering. We estimated the fair value of the common stock warrants, exercisable at $34.50 per share, to be $169 using a using a Monte Carlo model based on the following significant inputs: common stock price of $18.80; comparable company volatility of 159.0%; remaining term five years; dividend yield of 0% and risk-free interest rate of 2.77%.

Common Stock Warrant Issued to Underwriter of Common Stock Offering

In July 2019, we issued to H.C. Wainwright & Co., as placement agent, a warrant to purchase 8,334 shares of common stock at an exercise price of $33.75 per share as consideration for providing services in connection with a common stock offering in July 2019. The warrant was fully vested and exercisable on the date of issuance. The common stock warrant is exercisable until five years from the date of grant. We estimated the fair value of the common stock warrants, exercisable at $33.75 per share, to be $127 using a lattice model based on the following significant inputs: common stock price of $26.80; comparable company volatility of 133.3%; remaining term five years; dividend yield of 0% and risk-free interest rate of 2.07%.

Common Stock Warrants Issued in January and March 2020 Private Placements

In January and March 2020, in separate private placements concurrent with registered direct offerings (collectively, the “2020 Registered Direct Offerings”) of shares of our common stock, we also issued warrants to purchase an aggregate of up to 353,872 shares of common stock to certain institutional and accredited investors that participated in the 2020 Registered Direct Offerings (the “2020 Warrants”). The warrants were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506(b) of Regulation D promulgated thereunder. Terms used but not otherwise defined herein will have the meanings given them in the warrants, attached as Exhibit 4.1 to our Current Report on Form 8-K filed with the SEC on January 28, 2020 and our Current Report on Form 8-K filed with the SEC on March 6, 2020.

The warrants issued in January 2020 to purchase 177,500 shares of common stock have an exercise price of $9.00 per share, are exercisable after July 28, 2020 and will expire July 28, 2025. We estimated the fair value of the common stock warrants, exercisable at $9.00 per share, to be $813 using a Black Scholes model based on the following significant inputs: common stock price of $7.90; comparable company volatility of 73.8%; remaining term five years; dividend yield of 0% and risk-free interest rate of 1.53%.

The warrants issued in March 2020 to purchase 176,372 shares of common stock have an exercise price of $2.88 per share, are immediately exercisable and will expire September 8, 2025. We estimated the fair value of the common stock warrants, exercisable at $2.88 per share, to be $242 using a Black Scholes model based on the following significant inputs: common stock price of $2.35; comparable company volatility of 74.8%; remaining term five and one-half years; dividend yield of

SEC Form 10-Q filed by SenesTech Inc.