NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 1 - Organization and Description of Business
SenesTech, Inc. (“SenesTech,” the “Company,”
“we” or “us”) was formed in July 2004 and incorporated in the state of Nevada. The Company subsequently
reincorporated in the state of Delaware in November 2015. Our corporate headquarters is in Flagstaff, Arizona. We have developed
and are commercializing a global, proprietary technology for managing animal pest populations, primarily rat populations, through
fertility control.
Pest management professionals (“PMPs”) continue to face challenges
in controlling infestations. While there are many tools to bring rat populations down quickly, they are at a disadvantage: they
do not prevent the rapid reproduction, leaving PMPs and their customers open to a possible rebound in rat population.
ContraPest
®
is a proven fertility control solution
that complements integrated pest management (“IPM”) protocols to bring rat populations down and keep them down.* Without fertility
control, rat populations can rebound, but ContraPest, targets the reproductive capabilities in Norway and roof rats to minimize
these population spikes and keep rat populations down more effectively.
Additionally, PMPs are being increasingly asked for new solutions
to help them solve their customers’ toughest rat infestations. With growing interest in non-lethal options, it is becoming
increasingly important for PMPs to have proven non-lethal tools at their disposable. ContraPest can help PMPs expand their service
offering and serve customers that are looking to decrease or eliminate the amount of lethal rat control methodologies.
Our flagship fertility control product, ContraPest is a liquid
fertility control bait containing the active ingredients 4-vinylcyclohexene diepoxide (“VCD”) and triptolide. When
consumed, ContraPest targets reproduction, limiting fertility in male and female Norway and roof rats beginning with initial consumption.
ContraPest can be deployed in either the JT Eaton Rat Fortress (903TP) or the Bell Labs EVO PROTECA Express bait stations, giving
PMPs flexibility in their site deployments. We submitted ContraPest for registration with the EPA on August 23, 2015, and the EPA
granted registration approval for ContraPest effective August 2, 2016. We expect to continue to pursue regulatory approvals and
amendments to existing registration in the United States for ContraPest, including additional species and additional jurisdictions.
We believe ContraPest is the first and only non-lethal, fertility
control product approved by the EPA for the management of rat populations. In addition to the EPA registration of ContraPest in
the U.S., we must obtain registration from the various state regulatory agencies prior to being used in each state. We have received
registration for ContraPest in all 50 states and the District of Columbia. The EPA also approved the removal of Restricted Use
Pesticide (“RUP”) designation from the ContraPest
®
label in October 2018. SenesTech is currently in the approval process
for individual state approval of this new designation.
Besides providing just the product, SenesTech provides PMPs
with product training, and supports the PMPs by creating tools, training and awareness campaigns to help inform their customers,
specifically within the food safety industry and larger residential customers, such as Home Owners Associations (“HOAs”), on the
benefits of including ContraPest into their IPM protocols.
*When used as directed. ContraPest
®
is a Restricted
Use Pesticide, due to applicator expertise. Read and follow all label instructions. Target species: Norway and roof rats.
Potential Need for Additional Capital
Since our inception, we have sustained significant operating
losses in the course of our research and development 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
with Neogen. In 2017, we began to prepare and launch commercialization of our first product, ContraPest. We have funded our operations
to date through the sale of equity securities, including convertible preferred stock, common stock and warrants to purchase common
stock. Such sales include:
(i)
|
an initial public offering of 1,875,000 shares of our common stock on December 8, 2016 with warrants to purchase an additional
187,500 shares issued to Roth Capital Partners, LLC with an exercise price of $9.60 per share, as underwriter,
|
(ii)
|
a public offering on November 21, 2017 of 5,860,000 shares of our common stock at $1.00 per share with warrants issued to investors
to purchase an additional 4,657,500 shares of our common stock with an initial exercise price of $1.50 per share that subsequently
adjusted downward to $0.95 per share pursuant to antidilution price protection contained within those warrants, and warrants issued
to Roth Capital Partners, LLC, as underwriter, to purchase an additional 945,000 shares with an exercise price of $1.50 per share,
|
(iii)
|
a private placement of warrants to purchase 1,133,909 shares of common stock in June 2018 with an exercise price of $1.82 per
share in connection with an inducement agreement with a holder of outstanding warrants issued in November 2017 to exercise its
original warrant representing 1,133,909 shares at an exercise price of $1.50 per share; and
|
(iv)
|
a rights offering in August 2018 (the “Rights Offering”), where we accepted subscriptions for
5,357,052 units for a purchase price of $1.15 per unit, with each unit consisting of one share of our common stock and one warrant,
with each warrant exercisable for one share of our common stock at an exercise price of $1.15 per share, and warrants issued to
an affiliate of Maxim Group, LLC, as dealer-manager, to purchase an additional 267,853 shares at $1.725 per share
|
We have also raised capital through debt financing, consisting
primarily of convertible notes; and, to a lesser extent, payments received in connection with product sales, research grants and
licensing fees.
Through September 30, 2018, we had received net proceeds of $61.7 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 $0.2 million in product sales. At September 30, 2018, we had an accumulated deficit of $83.2
million and cash and cash equivalents and highly liquid investments of $7.2 million.
Our ultimate success depends upon the outcome of a combination
of factors, including: (i) successful commercialization of ContraPest and ongoing regulatory approvals of our other product candidates
encompassing market acceptance, commercial viability and profitability of ContraPest and other products; (ii) our ability to retain
and attract key personnel to develop, operate and grow our business; and (iii) our ability to meet our working capital needs.
Based upon our current operating plan, we expect that cash and cash equivalents and highly liquid, short term
investments at September 30, 2018, in combination with anticipated revenue, will be sufficient to fund our current operations for
at least the next 12 months. However, if anticipated revenue targets and margin targets are not achieved, we may seek to reduce
operating expenses and are likely to require additional capital in order to fund our operating losses and research and development
activities until we become profitable. We may never achieve profitability or generate positive cash flows, and unless and until
we do, we will continue to need to raise capital through equity or debt financing. If such equity or debt financing is not available
at adequate levels or on acceptable terms, we may need to delay, limit or terminate commercialization and development efforts.
Basis of Presentation
The accompanying unaudited condensed financial statements of
the Company 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 U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant
to such rules and regulations. In the Company’s opinion, the unaudited condensed financial statements include all material
adjustments, all of which are of a normal and recurring nature, necessary to present fairly the Company’s financial position
as of September 30, 2018, the Company’s operating results for the three and nine months ended September 30, 2018 and 2017,
and the Company’s cash flows for the nine months ended September 30, 2018 and 2017. The accompanying financial information
as of December 31, 2017 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 the Company’s
Annual Report on Form 10-K, as amended for the year ended December 31, 2017. All amounts shown in these financial statements and
accompanying notes are in thousands, except percentages and per share and share amounts.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 2 - Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with 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 the Company’s financial statements include the valuation of preferred
stock, 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
The Company considers money market fund investments to be cash
equivalents. The Company had such cash equivalents of $21 and $3 at September 30, 2018 and December 31, 2017, respectively, included
in cash as reported.
Investments in Securities
The Company uses cash holdings to purchase highly liquid, short
term, investment grade securities diversified among security types, industries and issuers. All of the Company’s investment
securities are measured at fair value. The Company’s investment securities primarily consist of municipal debt securities,
corporate bonds, U.S. agency securities and commercial paper and highly-liquid money market funds.
Accounts Receivable
Accounts receivable consist entirely of trade receivables. The
Company provides 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. The allowance for doubtful trade receivables was less than $1 as of September 30, 2018 and $0 at December
31, 2017.
Deferred Offering Costs
Deferred offering costs consisted primarily of legal, accounting and other direct and incremental fees and
costs related to the Rights Offering that closed on August 13, 2018 and the downward price adjustment that occurred to certain
outstanding warrants as a result of the Rights Offering. Total deferred offering costs of $1.0 million were offset against the
proceeds received from the Rights Offering during the quarter ending September 30, 2018. There were no deferred offering costs
at September 30, 2018 or December 31, 2017.
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 process and finished goods.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 2 - Summary of Significant Accounting Policies –
(continued)
Prepaid Expenses
Prepaid expenses consist primarily of payments made for director
compensation as well as payments made for director and officer insurance, rent and legal deposits to be expensed in the current
year.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Equipment held under capital 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 capital leases is amortized
over the shorter of the lease term or estimated useful life of the asset. The Company incurs repair and maintenance costs on its
major equipment, which 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. The Company has not recorded an impairment of
long-lived assets since its inception.
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 —
Revenue from Contracts with Customers.
Under ASC 606, the Company recognizes 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. For the
comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 —
Revenue Recognition.
Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2)
the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of the fee to be paid by a
customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured. The performance obligations identified
by the Company under Accounting Standards Codification (“ASC”) Topic 606, Revenue From Contracts With Customers, are
straightforward and similar to the unit of account and performance obligation determination under ASC Topic 605,
Revenue
Recognition
. There was no impact on the Company’s financial statements as a result of adopting ASC 606 for the three
and nine months ended September 30, 2018 and 2017, or the twelve months ended December 31, 2017.
The
Company recognizes revenue when it leaves their facility at a fixed selling price and payment terms of 30 to 60 days from invoicing.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 2 - Summary of Significant Accounting Policies –
(continued)
All
of the revenue recognized in the three month and nine month periods ended September 30, 2018 and 2017 is from the sale of Contrapest.
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, and regulatory compliance
costs. Also, included in research and development expenses is an allocation of facilities related costs, including depreciation
of research and development equipment.
Stock-based Compensation
Employee stock-based awards, consisting of restricted stock
units and stock options expected to be settled in shares of the Company’s common stock, are recorded as equity awards. The
grant date fair value of these awards is measured using the Black-Scholes option pricing model. The Company expenses the grant
date fair value of its stock options on a straight-line basis over their respective vesting periods. Performance-based awards are
expensed over the performance period when the related performance goals are probable of being achieved.
For equity instruments issued to non-employees, the stock-based
consideration is measured using a fair value method. The measurement of the stock-based compensation is subject to re-measurement
as the underlying equity instruments vest.
The stock-based compensation expense recorded for the three
and nine months ended September 30, 2018 and 2017, is as follows:
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
29
|
|
|
$
|
85
|
|
|
$
|
87
|
|
|
$
|
269
|
|
Selling, general and administrative
|
|
|
326
|
|
|
|
861
|
|
|
|
3,003
|
|
|
|
2,549
|
|
Total stock-based compensation expense
|
|
$
|
355
|
|
|
$
|
946
|
|
|
$
|
3,090
|
|
|
$
|
2,818
|
|
See Note 13 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
The Company accounts 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.
The Company records net deferred tax assets to the extent it
believes 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, the Company considers 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.
The Company applies 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 its evaluation, the Company has concluded there are no significant uncertain
tax positions requiring recognition in its financial statements.
The Company recognizes interest and/or penalties related to
uncertain tax positions in income tax expense. There are no uncertain tax positions as of September 30, 2018 or December 31, 2017
and as such, no interest or penalties were recorded in income tax expense.
On December 22, 2017, the SEC staff issued Staff Accounting
Bulletin No. 118 (“SAB 118”) which provides guidance on accounting for the tax effects of the Tax Cuts and Job Act
of 2017 (the “Tax Act”). SAB 118 provides a measurement period that should not extend beyond one year from the
date of enactment for companies to complete the accounting under ASC 740, Income Taxes. The Company is still analyzing the
Tax Act and the impact, if any, it will have.
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 nine months ended September 30, 2018 and 2017. 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):
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Common stock purchase warrants
|
|
|
11,714,940
|
|
|
|
829,285
|
|
Restricted stock units
|
|
|
172,912
|
|
|
|
344,982
|
|
Common stock options
|
|
|
1,725,771
|
|
|
|
1,558,800
|
|
Total
|
|
|
13,613,623
|
|
|
|
2,733,067
|
|
Adoption of New Accounting Standards:
In May 2014 the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify
various elements of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine
when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. Effective January 1, 2018, the Company adopted ASU 2014-09,
“Revenue from Contracts
with Customers”
using the modified retrospective method to all contracts that were not completed as of the date of adoption.
The results of operations for reported periods after January 1, 2018 are presented under this amended guidance, while prior period
amounts are reported in accordance with ASC 605 —
Revenue Recognition
. There was no material impact on our financial
position, results of operations, or cash flows. See Note 2 — Summary of Significant Accounting Policies — Revenue Recognition.
In August 2016, the FASB issued ASU 2016-15,
Statement of
Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. The amendments in this ASU provide guidance
on the following eight specific cash flow classification issues: (1) debt prepayment or debt extinguishment costs; (2) settlement
of zero-coupon debt instruments or other debt instruments with coupon interest rates
that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made
after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned
life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees;
(7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance
principle. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption
permitted. The Company has adopted the provisions of ASU 2016-15 on its financial statements. There was no material impact on our
financial position, results of operations, or cash flows.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 2 - Summary of Significant Accounting Policies –
(continued)
In January 2016, the FASB issued ASU 2016-01,
Recognition
and Measurement of Financial Assets and Financial Liabilities
(“ASU 2016-01”). This standard affects the accounting
for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial
instruments. ASU 2016-01 is effective the first quarter of 2018. The Company has adopted the provisions of ASU 2016-01 on its financial
statements. There was no material impact on our financial position, results of operations, or cash flows.
Accounting Standards Issued But Not Yet Adopted:
In February 2016, the FASB issued ASU 2016-02,
Leases
(“ASU
2016-02”). This standard amends various aspects of existing accounting guidance for leases, including the recognition of
a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be
classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
This standard also introduces new disclosure requirements for leasing arrangements. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years for public business entities. Early adoption is permitted
and the new standard must be adopted using a modified retrospective approach, and provides for certain practical expedients. At
September 30, 2018, the Company had future minimum lease payments on its operating leases of $282 that would be recorded as a capital
lease liability on its balance sheet. The Company plans to adopt ASU 2016-02 on its financial statements and related disclosures
at December 31, 2018.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 3 - Fair Value Measurements
We invest in various short term, highly liquid financial instruments,
which may include municipal debt securities, corporate bonds, U.S. agency securities and commercial paper. We value these instruments
at fair value. 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.
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.
|
The Company’s cash equivalents, which include money market
funds, are classified as Level 1 because they are valued using quoted market prices. The Company’s marketable securities
consist of securities and are generally classified as Level 2 because their value is based on valuations using significant inputs
derived from or corroborated by observable market data.
In certain cases where there is limited activity or less transparency
around the inputs to valuation, securities are classified as Level 3. Level 3 liabilities consist of common stock warrant
liability.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 3 - Fair Value Measurements – (continued)
Items Measured at Fair Value on a Recurring Basis
The following table sets forth the Company’s financial
instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy:
|
|
September 30, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate fixed income debt securities
|
|
|
—
|
|
|
|
2,448
|
|
|
|
—
|
|
|
|
2,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21
|
|
|
$
|
2,448
|
|
|
$
|
—
|
|
|
$
|
2,469
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability (1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate fixed income debt securities
|
|
|
—
|
|
|
|
5,023
|
|
|
|
—
|
|
|
|
5,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3
|
|
|
$
|
5,023
|
|
|
$
|
—
|
|
|
$
|
5,026
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability (1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1) The change in the fair value of the common stock warrant
and convertible notes payable for the three and nine months ended September 30, 2018 was recorded as a decrease to other income
(expense) and interest expense of $1 and $1, respectively, in the statements of operations and comprehensive loss.
Financial Instruments Not Carried at Fair Value
The carrying amounts of the Company’s financial instruments,
including accounts payable and accrued liabilities, approximate fair value due to their short maturities. The estimated fair value
of notes payable, not recorded at fair value, are recorded at cost or amortized cost which was deemed to estimate fair value.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 4 - Investments in Securities
As of September 30, 2018, investment in
securities primarily consisted of corporate fixed income securities. These investments are in short term, highly liquid investments
which are recorded at cost plus or minus market fluctuation and gains and losses are recognized as the sale or redemption of the
securities is realized. Gains and losses are included in non-operating other income (expense) on the condensed statement of operations
and are derived using the specific identification method for determining the cost of the securities sold. For the three and nine
months ended September 30, 2018, the Company recorded $12 and $44 net gain (loss) on investments recorded, respectively. Interest
and dividends on investment securities are included in interest and other income, net, in the condensed statements of operations.
The following is a summary of investment in securities at September 30,
2018:
|
|
|
|
September 30, 2018
|
|
|
|
Contractual
Maturity (in months)
|
|
Cost
|
|
|
Gross Unrealized
Gains
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Market
Value
|
|
Mutual funds
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate fixed income securities
|
Less than 12 months
|
|
|
|
2,447
|
|
|
|
1
|
|
|
|
—
|
|
|
|
2,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
|
$
|
2,447
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
2,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5 - Prepaid Expenses
Prepaid expenses consist of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Director compensation
|
|
$
|
156
|
|
|
$
|
66
|
|
Director and officer insurance
|
|
|
102
|
|
|
|
33
|
|
NASDAQ fees
|
|
|
14
|
|
|
|
—
|
|
Legal retainer
|
|
|
25
|
|
|
|
25
|
|
Inventory purchase deposits
|
|
|
20
|
|
|
|
20
|
|
Professional services retainer
|
|
|
8
|
|
|
|
8
|
|
Equipment service deposits
|
|
|
5
|
|
|
|
7
|
|
Engineering, software licenses and other
|
|
|
6
|
|
|
|
11
|
|
Total prepaid expenses
|
|
$
|
336
|
|
|
$
|
170
|
|
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 6 - Property and Equipment
Property and equipment, net consist of the following:
|
|
Useful
|
|
September 30,
|
|
|
December 31,
|
|
|
|
Life
|
|
2018
|
|
|
2017
|
|
Research and development equipment
|
|
5 years
|
|
$
|
1,540
|
|
|
$
|
1,349
|
|
Office and computer equipment
|
|
3 years
|
|
|
730
|
|
|
|
672
|
|
Autos
|
|
5 years
|
|
|
54
|
|
|
|
305
|
|
Furniture and fixtures
|
|
7 years
|
|
|
34
|
|
|
|
34
|
|
Leasehold improvements
|
|
*
|
|
|
283
|
|
|
|
283
|
|
|
|
|
|
|
2,641
|
|
|
|
2,643
|
|
Less accumulated depreciation
|
|
|
|
|
(1,470
|
)
|
|
|
(1,189
|
)
|
Total
|
|
|
|
$
|
1,171
|
|
|
$
|
1,454
|
|
* Shorter of lease term or estimated useful life
Depreciation expense was approximately $108 and $118 for the three months ended September 30, 2018 and 2017,
respectively, and $332 and $272 for nine months ended September 30, 2018 and 2017, respectively.
Note 7 - Accrued Expenses
Accrued expenses consist of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Compensation and related benefits
|
|
$
|
217
|
|
|
$
|
304
|
|
Accrued Litigation
|
|
|
269
|
|
|
|
269
|
|
Board Compensation
|
|
|
—
|
|
|
|
16
|
|
Stock service fees
|
|
|
23
|
|
|
|
—
|
|
Delaware Franchise Tax-Other
|
|
|
22
|
|
|
|
—
|
|
Total accrued expenses
|
|
$
|
531
|
|
|
$
|
589
|
|
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 8 - Borrowings
A summary of the Company’s borrowings, including capital
lease obligations, is as follows:
|
|
September 30,
|
|
|
December 31,
|
|
Short-term debt:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
235
|
|
|
|
177
|
|
Total short-term debt
|
|
$
|
235
|
|
|
$
|
177
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
$
|
252
|
|
|
$
|
272
|
|
Other promissory notes
|
|
|
279
|
|
|
|
496
|
|
Total
|
|
|
531
|
|
|
|
768
|
|
Less: current portion of long-term debt
|
|
|
(235
|
)
|
|
|
(177
|
)
|
Total long-term debt
|
|
$
|
296
|
|
|
$
|
591
|
|
Capital Lease Obligations
Capital lease obligations are for computer and lab equipment
leased through GreatAmerica Financial Services, Thermo Fisher Scientific, Navitas Credit Corp., Wells Fargo and ENGS Commercial
Finance Co. These capital leases expire at various dates through July 2023 and carry interest rates ranging from 6.0% to 11.6%.
Other Promissory Notes
Also included in the table above are three notes payable to
Direct Capital, one note to M2 Financing and one note to Fidelity Capital, all for the financing of fixed assets. These notes expire
at various dates through June 2022 and carry interest rates ranging from 4.3% to 13.8%.
Note 9 - Notes Payable, Related Parties
A summary of the Company’s notes payable, related parties
is as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Unsecured promissory note, interest rate of 4.25% and 8% per annum
|
|
$
|
0
|
|
|
$
|
12
|
|
Total notes payable, related parties
|
|
|
0
|
|
|
|
12
|
|
Less: current portion of notes payable, related parties
|
|
|
0
|
|
|
|
12
|
|
Total notes payable, long-term
|
|
$
|
—
|
|
|
$
|
—
|
|
In April 2013, the Company and a previous
employee entered into an agreement to settle all outstanding obligations consisting of a promissory note of $40, dated March 2009,
and deferred salaries amounting to $72. The note and salary obligation had an interest at 8% and 4.25%, respectively. The note
required monthly payments of $1 and matured in May 2018, but the final disbursement was not made until July 2018. The deferred
salary obligation required monthly payments of $1 and matured in June 2018, with final payment also made in July 2018.
Amounts outstanding on these obligations
were $0 and $12 at September 30, 2018 and December 31, 2017, respectively.
Interest expense on the notes payable, related parties, was
$0 for each of the three and nine months ended September 30, 2018 and $1 for the year ended December 31, 2017 respectively.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 10 - Common Stock Warrants and Common Stock Warrant
Liability
The table summarizes the common stock warrant activity as of
September 30, 2018 as follows:
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
of
|
|
|
Date
|
|
|
|
|
Exercise
|
|
Common Stock Warrants
|
|
Warrants
|
|
|
Issued
|
|
Term
|
|
|
Price
|
|
Outstanding at December 31, 2016
|
|
|
829,285
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Offering Warrants Issued
|
|
|
4,657,500
|
|
|
November 2017
|
|
|
5 years
|
|
|
$
|
1.50
|
(1)
|
Common Stock Offering Underwriter Warrants
|
|
|
945,000
|
|
|
November 2017
|
|
|
5 years
|
|
|
$
|
1.50
|
|
Outstanding at December 31, 2017
|
|
|
6,431,785
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued
|
|
|
1,133,909
|
|
|
June 2018
|
|
|
5 years
|
|
|
$
|
1.82
|
|
Common Stock Offering Warrants Issued
|
|
|
5,357,052
|
|
|
August 2018
|
|
|
5 years
|
|
|
$
|
1.15
|
(1)
|
Common Stock Offering - Dealer Manager Warrants
|
|
|
267,853
|
|
|
August 2018
|
|
|
5 years
|
|
|
$
|
1.725
|
|
Warrants exercised
|
|
|
(1,475,659)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2018
|
|
|
11,714,940
|
|
|
|
|
|
|
|
|
|
|
|
(1) The common stock warrants issued in November 2017 with an
initial exercise price of $1.50 per share adjusted downward to $0.95 per share effective July 24, 2018 in connection with our Rights
Offering, and may be subject to further downward adjustments, pursuant to antidilution price adjustment protection contained within
those warrants.
On November 21, 2017, the Company
issued a total of 4,657,500 detachable common stock warrants issued with the second public offering of 5,860,000 shares of
its common stock at $1.00 per share. The common stock warrant is exercisable until five years from the date of grant. The
common shares of the Company’s stock and detachable warrants exist independently as separate securities. As such, the
Company estimated the fair value of the common stock warrants, exercisable at $1.50 per share, to be $661 using a lattice
model based on the following significant inputs: Common stock price of $1.00; comparable company volatility of 73.8%;
remaining term 5 years; dividend yield of 0% and risk-free interest rate of 1.87. The initial exercise price of
these warrants was $1.50 per share, which adjusted downward to $1.47 on July 24, 2018, the record date of the Right’s
Offering and downward to $0.95 per share on August 13, 2018, the date of the Rights Offering, pursuant to antidilution price
adjustment protection contained within these warrants.
Per guidance of ASC 260, the Company recorded a deemed dividend of $333 on the 3,181,841 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 July 24, 2018: Common stock price of $1.38; comparable company volatility of
72.4%; remaining term 4.33 years; dividend yield of 0% and risk-free interest rate of 2.83%. On August 13, 2018: Common stock price
of $1.02; comparable company volatility of 74.0%; remaining term 4.25 years; dividend yield of 0% and risk-free interest rate of
2.75%.
On June 20, 2018, the Company entered
into an agreement with a holder of 1,133,909 of the November 2017 warrants to exercise its original warrant representing 1,133,909
shares of Common Stock for cash at the $1.50 exercise price for gross proceeds of $1.7 million and the Company issued to holder
a new warrant to purchase 1,133,909 shares of Common Stock at an exercise price of $1.82 per share.
The
new warrant did not contain the antidilution price adjustment protection that was contained within the exercised warrants. In
June 2018, the Company recorded stock compensation expense of $1.7 million representing the fair value of the of 1,133,909 inducement
warrants issued. The Company estimated the fair value of the common stock warrants, exercisable at $1.82 per share, to be $1.7
million using a Black Scholes model based on the following significant inputs: Common stock price of $2.11; comparable company
volatility of 72.6%; remaining term 5 years; dividend yield of 0% and risk-free interest rate of 2.8%. Also in June 2018, an additional
341,750 of the November 8, 2017 warrants that were in the money at the time of exercise, were exercised for gross proceeds of
$513.
On August 13, 2018, in connection with a Rights Offering of
5,357,052 shares of its common stock, the Company issued 5,357,052 warrants to purchase shares of its common stock at an exercise
price of $1.15 per share. The Company estimated the fair value of the common stock warrants, exercisable at $1.15 per share, to
be $3.6 million using a Monte Carlo model based on the following significant inputs: common stock price of $0.94; comparable company
volatility of 159.0%; remaining term 5 years; dividend yield of 0% and risk-free interest rate of 2.77%.
In connection with the closing of the Rights Offering, the Company issued a warrant to purchase 267,853 shares
of common stock to Maxim Partners LLC, an affiliate of the dealer-manager of the Rights Offering.
The
Company estimated the fair value of the common stock warrants, exercisable at $1.725 per share, to be $169 using a using a Monte
Carlo model based on the following significant inputs: common stock price of $0.94; comparable company volatility of 159.0%; remaining
term 5 years; dividend yield of 0% and risk-free interest rate of 2.77%.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 10 - Common Stock Warrants and Common Stock Warrant
Liability-continued
Common Stock Warrant Issued to Underwriter of Common Stock
Offering
In November 2017, the Company issued to Roth Capital Partners,
LLC, as underwriter, a warrant to purchase 945,000 shares of common stock at an exercise price of $1.50 per share as consideration
for providing services in connection with our common stock offering. 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. The Company estimated the fair value
of the common stock warrants, exercisable at $1.50 per share, to be $134 using a lattice model based on the following significant
inputs: Common stock price of $1.00; comparable company volatility of 73.8%; remaining term 5 years; dividend yield of 0% and risk-free
interest rate of 1.87%.
University of Arizona Common Stock Warrant
In connection with the June 2015 amended and restated exclusive
license agreement with the University of Arizona (“University”), the Company issued to the University a common stock
warrant to purchase 15,000 shares of common stock at an exercise price of $7.50 per share. The warrant was fully vested and exercisable
on the date of grant, and expires, if not exercised, five years from the date of grant. In the event of a “terminating change”
of the Company, as defined in the warrant agreement, the warrant holder would be paid in cash the aggregate fair market value of
the underlying shares immediately prior to the consummation of the terminating change event. Due to the cash settlement provision,
the derivative warrant liability was recorded at fair value and is revalued at the end of each reporting period. The changes in
fair value are reported in other income (expense) in the statements of operations and comprehensive loss. The estimated fair value
of the derivative warrant liability was $53 at the date of grant.
The estimated fair value of the derivative warrant liability was $0 at September 30, 2018. As this derivative
warrant liability is revalued at the end of each reporting period, the fair values as determined at the date of grant and subsequent
periods was based on the following significant inputs using a Monte Carlo option pricing model: common stock price of $7.91; comparable
company volatility of 77.7% of the underlying common stock; risk-free rates of 1.93%; and dividend yield of 0%; including the probability
assessment of a terminating change event occurring. The change in fair value of the derivative warrant liability was $0 for the
three and nine months ended September 30, 2018 and was recorded in other income (expense) in the accompanying statements of operations
and comprehensive loss.
Note 11 - Stockholders’ Deficit
Common Stock
The Company had 23,425,287 and 16,404,195 shares of common stock
issued and outstanding as of September 30, 2018 and December 31, 2017, respectively.
During the nine months ended September 30, 2018, the Company
issued 7,021,092 shares of common stock as follows:
|
●
|
an aggregate of 5,357,052 shares in connection with a Rights Offering generating net proceeds to the Company
of approximately $5.1 million,
|
|
●
|
an aggregate of 1,475,659 shares for net proceeds of $2.1 million for the exercise of the Company’s November 2017 warrants
(see Note 10 — Common Stock Warrants and Common Stock Warrant Liability for further details),
|
|
●
|
13,900 shares for the cashless exercise of stock options to employees,
|
|
●
|
32,625 shares to a former employee for the net settlement of restricted stock units whose vesting accelerated upon the termination
of their employment contract,
|
|
●
|
37,162 shares to a Board member in net settlement of Board compensation totaling $28 and
|
|
●
|
104,694 shares for the net settlement of restricted stock units that vested during the period.
|
Rights Offering
On August 13, 2018, the Company closed a Rights Offering. Pursuant to the Rights Offering, the Company accepted
subscriptions for 5,357,052 units for a purchase price of $1.15 per unit, with each unit consisting of one share of the Company’s
common stock, par value $0.001 per share, and one warrant. Each warrant included in the unit was exercisable for one share of the
Company’s common stock at an exercise price of $1.15 per share. At closing of the Rights Offering, the Company issued 5,357,052
shares of its common stock and 5,357,052 warrants to purchase shares of its common stock at an exercise price of $1.15 per share.
The Rights Offering generated net proceeds to the Company of approximately $5.1 million after the payment of fees and expenses
related to the Rights Offering. In connection with the closing of the Rights Offering, the Company issued a warrant to purchase
267,853 shares of common stock to Maxim Partners LLC, an affiliate of the dealer-manager of the Rights Offering.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 12 - Stock-based Compensation
On June 12, 2018, the Company’s
stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”) to replace the Company’s 2015 Equity Incentive
Plan (the “2015 Plan”). The 2018 Plan authorized the issuance of 1,000,000 shares of our common stock. In addition,
up to 2,874,280 shares of our common stock currently reserved for issuance under the 2015 Plan became available for issuance under
the 2018 Plan to the extent such shares were available for issuance under the 2015 Plan as of June 12, 2018 or cease to be subject
to awards outstanding under the 2015 Plan, such as by expiration, cancellation, or forfeiture of such awards.
The stock-based awards are generally issued with a price equal
to no less than fair value at the date of grant. Options granted under the 2018 Plan generally vest immediately, or ratably over
a two- to 36-month period coinciding with their respective service periods; however, participants may exercise their options prior
to vesting as provided by the 2018 Plan. Unvested shares issued for options exercised early may be subject to a repurchase by the
Company if the participant terminates, at the original exercise price. Options under the 2018 Plan generally have a contractual
term of five years. Certain stock option awards provide for accelerated vesting upon a change in control.
As of September 30, 2018, the Company had 1,860,375 shares of
common stock available for issuance under the 2018 Plan.
The Company measures the fair value of stock options with service-based
and performance-based vesting criteria to employees, directors and consultants on the date of grant using the Black-Scholes option
pricing model. The fair value of equity instruments issued to non-employees is re-measured as the award vests. The Black-Scholes
valuation model requires the Company to make certain estimates and assumptions, including assumptions related to the expected price
volatility of the Company’s stock, the period under which the options will be outstanding, the rate of return on risk-free
investments, and the expected dividend yield for the Company’s stock.
The weighted-average assumptions used in the Black-Scholes option-pricing
model used to calculate the fair value of options granted during the nine months ended September 30, 2018, were as follows:
|
|
Employee
|
|
|
Non-Employee
|
|
Expected volatility
|
|
|
71.0% -79.8
|
2%
|
|
|
N/A
|
|
Expected dividend yield
|
|
|
—
|
|
|
|
N/A
|
|
Expected term (in years)
|
|
|
3.0-3.5
|
|
|
|
N/A
|
|
Risk-free interest rate
|
|
|
1.58%-2.89
|
%
|
|
|
N/A
|
|
Due to the Company’s limited operating history and lack
of company-specific historical or implied volatility, the expected volatility assumption was determined based on historical volatilities
from traded options of biotech companies of comparable in size and stability, whose share prices are publicly available. The expected
term of options granted to employees is calculated based on the mid-point between the vesting date and the end of the contractual
term according to the simplified method as described in SEC Staff Accounting Bulletin 110 because the Company does not have sufficient
historical exercise data to provide a reasonable basis upon which to estimate the expected term due to the limited period of time
its awards have been outstanding. For non-employee options, the expected term of options granted is the contractual term of the
options. The risk-free rate by reference to the implied yields of U.S. Treasury securities with a remaining term equal to the expected
term assumed at the time of grant. The expected dividend assumption is based on the Company’s history and expectation of
dividend payouts. The Company has not paid and does not intend to pay dividends on its shares of capital stock.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 12 - Stock-based Compensation – (continued)
The table summarizes the stock option activity, for both the
2018 and the 2015 plans, for the periods indicated as follows:
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price Per
Share
|
|
|
Weighted
Average
Remaining
Contractual
Term
(years)
|
|
|
Aggregate
Intrinsic
Value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
|
1,651,800
|
|
|
$
|
1.67
|
|
|
|
3.7
|
|
|
$
|
—
|
|
Granted
|
|
|
|
173,471
|
|
|
$
|
1.56
|
|
|
|
4.9
|
|
|
$
|
—
|
|
Exercised
|
|
|
|
(49,000
|
)
|
|
$
|
0.50
|
|
|
|
—
|
|
|
$
|
—
|
|
Forfeited
|
|
|
|
(50,500
|
)
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Expired
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding at September 30, 2018
|
|
|
|
1,725,771
|
|
|
$
|
1.57
|
|
|
|
4.4
|
|
|
$
|
—
|
|
Exercisable at September 30, 2018
|
|
|
|
1,436,050
|
|
|
$
|
1.57
|
|
|
|
3.9
|
|
|
$
|
—
|
|
(1)
|
The aggregate intrinsic value on the table was calculated based on the difference between the estimated fair value of the Company’s stock and the exercise price of the underlying option. The estimated stock values used in the calculation was $0.69 and $0.72 per share for the nine months ended September 30, 2018 and the year ended December 31, 2017, respectively.
|
The stock-based compensation expense was recorded as follows:
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
29
|
|
$
|
85
|
|
$
|
87
|
|
$
|
269
|
|
Selling, general and administrative
|
|
|
326
|
|
|
861
|
|
|
3,003
|
|
|
2,549
|
|
Total stock-based compensation expense
|
|
$
|
355
|
|
$
|
946
|
|
$
|
3,090
|
|
$
|
2,818
|
|
The allocation between research and development and selling,
general and administrative expense was based on the department and services performed by the employee or non-employee.
At September 30, 2018, the total compensation cost related to
unvested options not yet recognized was $989, which will be recognized over a weighted average period of 18 months, assuming the
employees complete their service period required for vesting.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 12 - Stock-based Compensation – (continued)
Restricted Stock Units
The following table summarizes restricted stock unit activity
for the nine months ended September 30, 2018:
|
|
Number of
Units
|
|
|
Weighted
Average
Grant-Date Fair
Value Per Units
|
|
Outstanding as of December 31, 2017
|
|
|
287,885
|
|
|
$
|
1.86
|
|
Granted
|
|
|
75,732
|
|
|
$
|
1.62
|
|
Vested
|
|
|
(187,128
|
)(1)
|
|
$
|
2.56
|
|
Forfeited
|
|
|
(3,577
|
)
|
|
$
|
6.99
|
|
Outstanding as of September 30, 2018
|
|
|
172,912
|
|
|
$
|
0.98
|
|
(1)
|
In February 2018, the Company net issued 32,625 shares of common stock to a former employee of the Company under the employee’s separation agreement, which accelerated the vesting of certain restricted stock units.
|
Note 13 - License and Other Agreements
Neogen Corporation
On January 23, 2017 we entered into a termination agreement
(the “Settlement Agreement”) with Neogen. Pursuant to the Settlement Agreement, the parties agreed to (a) terminate
the existing Exclusive License Agreement between us and Neogen dated May 15, 2014 (the “License Agreement”), with neither
Neogen or us having any further obligations thereunder (other than certain confidentiality obligations); (b) dismiss with prejudice
the court action filed by Neogen in the District Court for the District of Arizona on January 19, 2017 (the “Court Action”),
as further described below; and (c) mutually release any and all existing or future claims between the parties and their affiliates
related to or arising from the License Agreement or the Court Action. As part of the Settlement Agreement, we agreed to pay to
Neogen upon the execution of the Settlement Agreement an aggregate of $1.0 million in settlement of all claims.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 13 - License and Other Agreements-continued
Bioceres/INMET S.A. Agreement
In January 2016, the Company entered into a services agreement
with Bioceres, Inc. (“Bioceres”), a wholly-owned subsidiary of Bioceres S.A., a leading agricultural biotechnology
company in Argentina, and its Argentinean subsidiary, Ingenieria Metabolica S.A. (“INMET”) to develop a production
method for synthetic triptolide, the main ingredient in ContraPest. The Company also entered into an agency agreement with INMET
whereby the Company appointed INMET as its exclusive agent to seek regulatory approval for and conduct pre-sales and marketing
of its product, ContraPest, in Argentina. The Company and INMET also agreed to manufacture and distribute its product in Argentina
and other countries, as mutually agreed, through a newly formed entity.
The initial term of the service agreement
is for two years. The service agreement can be terminated at any time upon written notice by either party for any reason. The term
of the agency agreement with INMET is the earlier of: (i) when the Company and INMET incorporate the joint venture entity in Argentina
or (ii) January 2018. These agreements were renewed for an additional year, through January 2019.
Note 14 - Commitments and Contingencies
Legal Proceedings
The Company may be subject to 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 pending or
threatened litigation where the ultimate disposition or resolution could have a material adverse effect on its financial position,
results of operations or liquidity.
On February 20, 2018, New Enterprises, Ltd. (“New Enterprises”), filed suit in the U.S. District
Court for the District of Arizona against the Company and Roth Capital Partners, LLC. The suit alleges nine counts against the
Company, including that the Company engaged in common law fraud and securities fraud to induce the chairman of New Enterprises
into investing in the Company; that the Company breached the lock-up agreement and tortiously interfered with prospective business
advantage. New Enterprises is seeking monetary damages, including compensatory damages, punitive damages, and attorney’s
fees. New Enterprises has also named Roth Capital Partners, LLC as a co-defendant. Pursuant to our underwriting agreement with
Roth Capital Partners, LLC, the Company may be required to indemnify Roth Capital Partners, LLC for liabilities arising out of
our initial public offering. The Company believes there is no basis to any of the claims, and intends to vigorously defend itself,
including seeking appropriate counterclaims.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 14 - Commitments and Contingencies-continued
Lease Commitments
Rent expense was $183 and $246 for the nine months ended September 30, 2018 and September 30, 2017, respectively.
The future minimum lease payments under non-cancellable operating lease and future minimum capital lease payments as of September
30, 2018 are as follows:
|
|
Capital
Leases
|
|
|
Operating
Lease
|
|
Years Ending December 31,
|
|
|
|
|
|
|
|
|
2018
|
|
|
26
|
|
|
|
61
|
|
2019
|
|
|
99
|
|
|
|
221
|
|
2020
|
|
|
78
|
|
|
|
—
|
|
2021
|
|
|
63
|
|
|
|
—
|
|
2022
|
|
|
33
|
|
|
|
—
|
|
2023
|
|
|
3
|
|
|
|
—
|
|
Total minimum lease payments
|
|
$
|
302
|
|
|
$
|
282
|
|
|
|
Capital
Leases
|
|
|
|
|
|
|
Less: amounts representing interest (6.39%, ranging from 10.48% to 11.56%)
|
|
$
|
50
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
246
|
|
|
|
|
|
|
Less: current installments under capital lease obligations
|
|
|
77
|
|
|
|
|
|
|
Total long-term portion
|
|
$
|
169
|
|
Note 15 - Subsequent Events
In October 2018, the Company net issued 27,408 shares of common
stock for the net settlement of restricted stock units that vested during the period. The shares of common stock withheld
were used to satisfy required withholding tax liability in connection with the vesting of shares.
The Company has evaluated subsequent events
from the balance sheet date through November 13, 2018, 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.