NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per
share data)
Note 1 - Organization and Description of Business
SenesTech, Inc. (referred
to in this report as “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, initially rat populations, through fertility control.
Although a myriad of tools are available to
fight rat infestations, communities continue to face challenges in controlling today’s infestations. Infestations result
in incredible infrastructure damage, as well as pose additional risks to the health and food security of communities. In addition
to these challenges, the pest management industry and Pest Management Professionals (PMPs) are being increasingly asked for new
solutions to help solve the problem. With growing concerns about rat resistance to rodenticides and a growing interest in non-lethal
options, it is becoming increasingly important for PMPs to have new tools at their disposal. Our goal is to provide customers with
not only a solution to combat their most difficult infestations, but also offer a non-lethal option to serve customers that are
looking to decrease or remove the amount of poison used in their pest management programs.
Our first fertility control product, ContraPest,
is a liquid bait containing the active ingredients 4-vinylcyclohexene diepoxide (VCD) and triptolide. When consumed, ContraPest
targets reproduction, limiting fertility in male and female rats beginning with the first breeding cycle following consumption.
ContraPest is being marketed for use in controlling rat populations, specifically Norway and roof rats. On August 23, 2015, the
United States Environmental Protection Agency (EPA) granted registration approval for ContraPest as a Restricted Product Due to
Professional Expertise (referred to in this report as a “Restricted Use designation”), effective August 2, 2016. On
October 18, 2018, the EPA approved the removal of the Restricted Use 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 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. As
of the date of this report, we have received registration for ContraPest in all 50 states and the District of Columbia, 35 of
which have approved the removal of the Restricted Use designation.
We expect to continue to pursue regulatory
approvals and amendments to existing registration in the United States for ContraPest, and if ContraPest begins to generate sufficient
revenue, regulatory approvals for any additional jurisdictions beyond the United States. The Company also continues to develop
other potential additional fertility control and animal health products for additional species.
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 primarily funded our operations to date through the sale
of equity securities, including convertible preferred stock, common stock and warrants to purchase common stock. Public equity
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
|
|
(v)
|
issuance of 31,811 shares of common stock as a result of the exercise of warrants in March
2019 at an exercise price of $1.15 per warrant.
|
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 March 31, 2019, we had received net
proceeds of $61.8 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 $0.4 million in net product sales.
At March 31, 2019, we had an accumulated deficit of $88.2 million and cash and cash equivalents of $2.9 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, (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) our ability to retain and attract key personnel to develop, operate
and grow our business; and (vi) our ability to meet our working capital needs.
Based upon our current operating plan, we expect
that cash and cash equivalents at March 31, 2019, in combination with anticipated revenue and additional sales of our equity securities,
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 and we are unable to raise necessary capital through the sale of our securities, we may seek to
reduce operating expenses and take other measures that could impair our ability to be successful and operate as a going concern.
In any event, we 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.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per
share data)
Note 1 - Organization and Description of Business –
(continued)
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 (“U.S. 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 March 31, 2019, the Company’s operating results for the three months ended March 31, 2019 and 2018, and the
Company’s cash flows for the three months ended March 31, 2019 and 2018. The accompanying financial information as of December
31, 2018 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 by Form 10-K/A, for the year ended December 31, 2018, both filed with the SEC on March 29, 2019. 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 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.
Accounts Receivable
Accounts receivable consist primarily 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 at March 31, 2019 and at December 31,
2018.
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.
Components of inventory are:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Raw materials
|
|
$
|
1,087
|
|
|
$
|
1,111
|
|
|
Work in progress
|
|
|
1
|
|
|
|
—
|
|
|
Finished goods
|
|
|
251
|
|
|
|
154
|
|
|
Total inventory
|
|
|
1,339
|
|
|
|
1,265
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Reserve for obsolete
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
Total net inventory
|
|
$
|
1,335
|
|
|
$
|
1,261
|
|
Prepaid Expenses
Prepaid expenses consist primarily of payments made
for director and officer insurance, director compensation, rent, legal and inventory purchase deposits and seminar fees 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.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per
share data)
Note 2 - Summary of Significant Accounting Policies –
(continued)
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
months ended March 31, 2019 and 2018, respectively.
The Company recognizes revenue when it leaves their
dock at a fixed selling price and payment terms of 30 to 120 days from invoicing. The Company recognizes other revenue earned from
pilot studies upon the performance of specific services under the respective service contract.
The Company derives revenue primarily from commercial sales
of products.
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
months ended March 31, 2019 and 2018, is as follows:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Research and development
|
|
$
|
9
|
|
|
$
|
29
|
|
|
Selling, general and administrative
|
|
|
243
|
|
|
|
669
|
|
|
Total stock-based compensation expense
|
|
$
|
252
|
|
|
$
|
698
|
|
See Note 11 for additional discussion on stock-based compensation.
Income Taxes
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 currently maintains a full allowance against
its deferred tax assets.
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 March 31, 2019 or December
31, 2018 and as such, no interest or penalties were recorded in income tax expense.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 2 - Summary of Significant Accounting Policies –
(continued)
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 months ended March 31, 2019 and 2018. Therefore, basic and diluted
loss per share attributable to common stockholders are the same for each period presented.
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):
|
|
|
March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Common stock purchase warrants
|
|
|
11,195,010
|
|
|
|
6,431,785
|
|
|
Restricted stock unit
|
|
|
105,841
|
|
|
|
237,885
|
|
|
Common stock options
|
|
|
1,635,889
|
|
|
|
1,629,967
|
|
|
Total
|
|
|
12,936,740
|
|
|
|
8,299,637
|
|
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 2 - Summary of Significant Accounting Policies –
(continued)
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 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.
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 was permitted, and the new standard had been adopted using a modified retrospective approach and provides for certain
practical expedients.
On January 1, 2019, the Company adopted
the new leasing standard and all related amendments. The Company elected the optional transition method provided by the FASB in
ASU 2018-11,
Leases (Topic 842): Targeted Improvements
, and as a result, has not restated its condensed consolidated
financial statements for prior periods presented. The Company has elected the practical expedients upon transition to retain the
lease classification and initial direct costs for any leases that existed prior to adoption. The Company has also not reassessed
whether any contracts entered into prior to adoption are leases.
The standard did not have a material impact
on the Company’s Condensed Consolidated Statements of Comprehensive Income. The cumulative effect of the changes made to the Company’s
Consolidated Balance Sheet as of January 1, 2019 for the adoption of the new leasing standard was as follows:
|
|
|
Balance @
December 31,
2018
|
|
|
Adjustment Due
to ASC 842
|
|
|
Balance @
January 1,
2019
|
|
|
Right to Use Asset - Long Term
|
|
|
—
|
|
|
$
|
87
|
|
|
$
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Liability – Long Term
|
|
|
—
|
|
|
($
|
87
|
)
|
|
($
|
87
|
)
|
The Company determines if an arrangement
is a lease at lease inception. Operating lease right-of-use (ROU) assets and operating lease liabilities are recognized based on
the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s lease
contracts do not include an implicit rate, the Company uses its incremental borrowing rate based on information available at commencement
date in determining the present value of future payments. The incremental borrowing rate is estimated to approximate the interest
rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located.
The operating lease ROU asset also includes any initial direct costs and lease payments made prior to lease commencement and excludes
lease incentives incurred.
The Company’s lease terms may include options
to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense for minimum
lease payments is recognized on a straight-line basis over the lease term. The Company has certain lease agreements that contain
both lease and non-lease components, which it has elected to account for as a single lease component for all asset classes
Accounting Standards Issued but Not Yet Adopted
In August 2018, the FASB issued authoritative guidance intended
to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract.
This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service
contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance
also requires presentation of the capitalized implementation costs in the statement of financial position and in the statement
of cash flows in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented, and
the expense related to the capitalized implementation costs to be presented in the same line item in the statement of operations
as the fees associated with the hosting element (service) of the arrangement. This guidance is effective for annual periods beginning
after December 15, 2019, including interim periods within those annual periods, with early adoption permitted. We are currently
evaluating the potential impact on our financial position, results of operations and statement of cash flows upon adoption of this
guidance, which will result in the change in presentation of capitalized implementation costs related to hosting arrangements from
properties to other assets on the consolidated balance sheet, as well as the expense related to such costs no longer being classified
as depreciation expense and cash flows related to those costs no longer being presented as investing activities.
Other than the items noted above, 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 unaudited condensed consolidated interim financial statements.
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share
data)
Note 3 - Fair Value Measurements
The Company issued common stock
warrants to purchase shares of common stock in June of 2015 (see Note 11 — Stock-based Compensation for more details) that
contain a cash settlement provision resulting in a common stock warrant liability that is revalued at the end of each reporting
period.
We value these warrant derivatives 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 common stock warrant liabilities are classified
as Level 3 because there is limited activity or less transparency around the inputs to valuation.
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 (in thousands):
|
|
|
March 31, 2019
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability (1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate fixed income debt securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
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 months ended March 31, 2019 was recorded as a decrease to other income (expense) and
interest expense of $5, 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 the convertible notes and other notes, 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 - Credit Risk
The
Company is potentially subject to concentrations of credit risk in its accounts receivable. Credit risk with respect to receivables
is limited due to the number of companies comprising the Company’s customer base. Although the Company is directly affected
by the financial condition of its customers, management does not believe significant credit risks exist at March 31, 2019 or December
31, 2018. The Company does not require collateral or other securities to support its accounts receivable.
Note
5 - Prepaid Expenses
Prepaid
expenses consist of the following:
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Director
compensation
|
|
$
|
50
|
|
|
$
|
100
|
|
|
Director
and officer insurance
|
|
|
146
|
|
|
|
121
|
|
|
NASDAQ
fees
|
|
|
41
|
|
|
|
|
|
|
Legal
retainer
|
|
|
25
|
|
|
|
25
|
|
|
Marketing
programs and conferences
|
|
|
50
|
|
|
|
53
|
|
|
Professional
services retainer
|
|
|
12
|
|
|
|
8
|
|
|
Rent
|
|
|
19
|
|
|
|
19
|
|
|
Equipment
service deposits
|
|
|
2
|
|
|
|
3
|
|
|
Engineering,
software licenses and other
|
|
|
—
|
|
|
|
13
|
|
|
Total
prepaid expenses
|
|
$
|
345
|
|
|
$
|
342
|
|
Note
6 - Property and Equipment
Property
and equipment, net consist of the following:
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
|
Useful
Life
|
|
2019
|
|
|
2018
|
|
|
Research
and development equipment
|
|
5
years
|
|
$
|
1,554
|
|
|
$
|
1,552
|
|
|
Office
and computer equipment
|
|
3
years
|
|
|
751
|
|
|
|
742
|
|
|
Autos
|
|
5
years
|
|
|
54
|
|
|
|
54
|
|
|
Furniture
and fixtures
|
|
7
years
|
|
|
37
|
|
|
|
37
|
|
|
Leasehold
improvements
|
|
*
|
|
|
283
|
|
|
|
283
|
|
|
|
|
|
|
|
2,679
|
|
|
|
2,668
|
|
|
Less
accumulated depreciation and amortization
|
|
|
|
|
(1,696
|
)
|
|
|
(1,585
|
)
|
|
Total
|
|
|
|
$
|
983
|
|
|
$
|
1,083
|
|
*
Shorter of lease term or estimated useful life
Depreciation
and amortization expense was approximately $111 and $117 for the three months ended March 31, 2019 and 2018, respectively.
Note
7 - Accrued Expenses
Accrued
expenses consist of the following:
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Compensation
and related benefits
|
|
$
|
259
|
|
|
$
|
479
|
|
|
Accrued
Litigation
|
|
|
507
|
|
|
|
269
|
|
|
Board
Compensation
|
|
|
—
|
|
|
|
23
|
|
|
Other
|
|
|
10
|
|
|
|
—
|
|
|
Total
accrued expenses
|
|
$
|
776
|
|
|
$
|
771
|
|
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:
|
|
|
March
31,
|
|
|
December
31,
|
|
|
Short-term
debt:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
|
202
|
|
|
|
219
|
|
|
Total
short-term debt
|
|
$
|
202
|
|
|
$
|
219
|
|
|
Long-term
debt:
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations
|
|
$
|
212
|
|
|
$
|
232
|
|
|
Other
promissory notes
|
|
|
217
|
|
|
|
248
|
|
|
Total
|
|
|
429
|
|
|
|
480
|
|
|
Less:
current portion of long-term debt
|
|
|
(202
|
)
|
|
|
(219
|
)
|
|
Total
long-term debt
|
|
$
|
227
|
|
|
$
|
261
|
|
Capital
Lease Obligations
Capital
lease obligations are for computer and lab equipment leased through GreatAmerica Financial Services, Thermo Fisher Scientific,
Navitas Credit Corp. and ENGS Commercial Finance Co. These capital leases expire at various dates through July 2023 and carry
interest rates ranging from 6.4% 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 - Common Stock Warrants and Common Stock Warrant Liability
The
table summarizes the common stock warrant activity as of March 31, 2019 as follows:
|
Common
Stock Warrants
|
|
Number
of
Warrants
|
|
|
Date
Issued
|
|
Term
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Expired
Warrants
|
|
|
(488,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2018
|
|
|
11,226,821
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
Exercised
|
|
|
(31,811
|
)
|
|
August
2018
|
|
|
|
|
|
$
|
1.15
|
|
|
Outstanding
at March 31, 2019
|
|
|
11,195,010
|
|
|
|
|
|
|
|
|
|
|
|
(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.
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
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%.
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 $5 at March 31, 2019. 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 $5 for the three months
ended March 31, 2019 and was recorded in other income (expense) in the accompanying statements of operations and comprehensive
loss.
SENESTECH,
INC.
NOTES
TO THE FINANCIAL STATEMENTS
(In
thousands, except share and per share data)
Note
10 - Stockholders’ Deficit
Capital
Stock
The
Company was organized under the laws of the state of Nevada on July 27, 2004 and was subsequently reincorporated under the laws
of the state of Delaware on November 10, 2015. In connection with the reincorporation, as approved by the stockholders, the Company
changed its authorized capital stock to consist of (i) 100 million shares of common stock, $.001 par value, and (ii) 2 million
shares of preferred stock, $0.001 par value, designated as Series A convertible preferred stock. In December 2015, the Company
amended its Certificate of Incorporation to change its authorized capital stock to provide for 15 million authorized shares of
preferred stock of which 7,515,000 was designated as Series B convertible preferred stock, par value $.001 per share.
Prior
to November 10, 2015, the Company’s authorized capital stock consisted of 100 million shares of common stock, $.001 par
value, and 10 million shares of preferred stock, $.001 par value.
Common
Stock
The
Company had 23,560,864 and 23,471,999 shares of common stock issued and outstanding as of March 31, 2019 and December 31, 2018,
respectively.
During
the three months ended March 31, 2019, the Company issued an aggregate of 88,865 shares of common stock as follows:
|
|
●
|
an
aggregate of 31,811 shares for the exercise of outstanding warrants,
|
|
|
●
|
18,474
shares for the cashless exercise of stock options and
|
|
|
●
|
an
aggregate of 38,580 shares to certain employees in net settlement of bonus compensation
totaling $32.
|
Note
11 - 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 authorizes the issuance of 1,000,000
shares of our common stock. In addition, up to 2,874,280 shares of our common stock 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 March 31, 2019, the Company had 1,874,589 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 three months ended March 31, 2019, were as follows:
|
|
|
Employee
|
|
|
Non-Employee
|
|
|
Expected
volatility
|
|
|
80.6
|
%
|
|
|
N/A
|
|
|
Expected
dividend yield
|
|
|
—
|
|
|
|
N/A
|
|
|
Expected
term (in years)
|
|
|
3.0
|
|
|
|
N/A
|
|
|
Risk-free
interest rate
|
|
|
2.48
|
%
|
|
|
N/A
|
|
The
weighted average grant date fair value of options granted during the three months ended March 31, 2019 was $0.854 per share, as
per the table below. .
SENESTECH,
INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(In
thousands, except share and per share data)
Note
11 - Stock-based Compensation – (continued)
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 interest rate is determined
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.
The
following table summarizes the stock option activity, for both equity 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, 2018
|
|
|
|
1,721,171
|
|
|
$
|
1.57
|
|
|
|
4.0
|
|
|
$
|
—
|
|
|
Granted
|
|
|
|
8,218
|
|
|
$
|
0.854
|
|
|
|
4.9
|
|
|
$
|
3
|
|
|
Exercised
|
|
|
|
(54,000
|
)
|
|
$
|
0.50
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Forfeited
|
|
|
|
(39,500
|
)
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Expired
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Outstanding
at March 31, 2019
|
|
|
|
1,635,889
|
|
|
$
|
1.54
|
|
|
|
3.8
|
|
|
$
|
—
|
|
|
Exercisable
at March 31, 2019
|
|
|
|
1,416,500
|
|
|
$
|
1.57
|
|
|
|
3.0
|
|
|
$
|
—
|
|
|
|
(1)
|
The
aggregate intrinsic value in the table was calculated based on the difference between the estimated fair market value of the
Company’s stock and the exercise price of the underlying options. The estimated stock values used in the calculation
was $1.22 and $0.59 per share for the three months ended March 31, 2019 and the year ended December 31, 2018, respectively.
|
Restricted
Stock Units
The
following table summarizes restricted stock unit activity for the three months ended March 31, 2019:
|
|
|
|
Number
of
Units
|
|
|
Weighted
Average
Grant-Date Fair
Value Per Unit
|
|
|
Outstanding
as of December 31, 2018
|
|
|
|
136,245
|
|
|
$
|
0.98
|
|
|
Granted
|
|
|
|
6,262
|
|
|
$
|
0.854
|
|
|
Vested
|
|
|
|
(36,666
|
)(1)
|
|
$
|
0.50
|
|
|
Forfeited
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Outstanding
as of March 31, 2019
|
|
|
|
105,841
|
|
|
$
|
1.26
|
|
|
|
(1)
|
These
shares vested on March 30, 2019 (Saturday) and were issued on Monday, April 1, 2019.
|
The
stock-based compensation expense was recorded as follows:
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Research
and development
|
|
$
|
9
|
|
|
$
|
29
|
|
|
Selling,
general and administrative
|
|
|
243
|
|
|
|
669
|
|
|
Total
stock-based compensation expense
|
|
$
|
252
|
|
|
$
|
698
|
|
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
March 31, 2019, the total compensation cost related to unvested options not yet recognized was $335, which will be recognized
over a weighted average period of 24 months, assuming the employees and non-employee
s
complete their service period required
for vesting.
SENESTECH,
INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(In
thousands, except share and per share data)
12
- 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 lawsuit against the Company and Roth Capital Partners, LLC (“Roth”) in the U.S. District Court for the District
of Arizona (the “Court”). The complaint 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; failed to register
New Enterprises’ requested transfer; breached stock certificates and the lock-up contract; tortuously interfered with prospective
business advantage; and conversion. New Enterprises is seeking monetary damages, including compensatory damages, punitive damages,
and attorney’s fees. On December 3, 2018, the Court issued its order granting the Company’s and Roth’s motions
to dismiss all of New Enterprises’ claims but gave them leave to file a motion to amend the complaint. On January
25, 2019, New Enterprises moved for leave to file an amended complaint, alleging similar claims against the Company and Roth.
The Company and Roth have filed motions to dismiss the amended complaint and those motions are under advisement with the Court
as of May 15, 2019. Roth has made a claim for indemnification to the Company based on contractual indemnification agreements,
but to date, the Company has not accepted Roth’s indemnification demand.
On
April 20, 2018, the Company’s former Executive Vice President and Chief Operating Officer Andrew Altman filed a charge of
employment discrimination with the Equal Employment Opportunity Commission (EEOC) against the Company. Mr. Altman claimed that
he was terminated after he expressed opposition to an email Cheryl Dyer, Chief Research Officer, had sent out to the management
team, in which she criticized a Mormon newspaper. The Company filed a position statement on May 21, 2018. No substantive action
has been taken since then, and the Company has not heard anything further either from the EEOC or Mr. Altman’s attorneys.
Lease
Commitments
The
Company is obligated under capital leases for certain research and computer equipment that expire on various dates through July
2023. At March 31, 2019, the gross amount of office and computer equipment, and research equipment and the related accumulated
amortization recorded under the capital leases was $521 and $225, respectively.
In
February 2012, the Company entered into an operating lease for its corporate headquarters. The lease was due to expire in January
2015. In December 2013, the Company amended its lease to expand into the remaining area in the building and extended the term
to December 31, 2019. In February 2014, the Company further amended the lease to expand into an adjacent building. The lease requires
escalating rental payments over the lease term. Minimum rental payments under the operating lease are recognized on a straight-line
basis over the term of the lease and accordingly, the Company records the difference between the cash rent payments and the recognition
of rent expense as a deferred rent liability. The lease is guaranteed by the President of the Company. We are currently in discussions
to extend the current lease.
On
November 16, 2016, we leased an additional 1,954 square feet of research and development space, also in Flagstaff. This lease
expired on November 15, 2018 but was extended for an additional 24 months, through November 2020. A subsequent amendment to the
lease allows for the Company to cancel the lease at any time through the lease term with 30 days notice.
The
lease extension requires fixed rental payments over the lease term. Minimum rental payments under the operating lease are recognized
on a straight-line basis over the term of the lease as expense, and accordingly, the Company recorded no deferred rent liability
under this lease.
Rent expense was $68 and $61 for the three months ended and year ended March 31, 2019 and March 31, 2018, respectively.
The future minimum lease payments under non-cancellable operating lease and future minimum capital lease payments as of March
31, 2019 are as follows:
|
|
|
|
Capital
Leases
|
|
|
Operating
Lease
|
|
|
Years
Ending December 31,
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
73
|
|
|
|
203
|
|
|
2020
|
|
|
|
78
|
|
|
|
45
|
|
|
2021
|
|
|
|
63
|
|
|
|
—
|
|
|
2022
|
|
|
|
33
|
|
|
|
—
|
|
|
2023
|
|
|
|
3
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
|
$
|
250
|
|
|
$
|
248
|
|
|
|
|
Capital
Leases
|
|
|
|
|
|
|
|
Less:
amounts representing interest (6.39%, ranging from 10.48% to 11.56%)
|
|
$
|
37
|
|
|
|
|
|
|
|
|
Present
value of minimum lease payments
|
|
|
213
|
|
|
|
|
|
|
|
|
Less:
current installments under capital lease obligations
|
|
|
77
|
|
|
|
|
|
|
|
|
Total
long-term portion
|
|
$
|
136
|
|
SENESTECH,
INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(In
thousands, except share and per share data)
Note
13 - Subsequent Events
In
April 2019, the Company net issued 17,042 shares of common stock to certain employees in 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.
Also
in April 2019, the Company net issued 3,488 shares of common stock in settlement of the cashless exercise of vested common stock
options by two former employees.
In
April and May of 2019, the Company issued an aggregate of 1,411,885 shares of commons stock for the exercise of certain warrants.
The net proceeds to the Company for these exercises was $1.6 million.
The
Company has evaluated subsequent events from the balance sheet date through May 15, 2019, 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.