UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-37941
SENESTECH, INC.
(Exact name of registrant as specified in its
charter)
(Address of principal executive offices) (Zip Code)
(928)779-4143
(Registrant’s telephone number, including
area code)
(Former name, former address and former fiscal
year, if changed since last report)
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class Trading symbol Name of each exchange on which registered
Securities registered pursuant to Section 12(g)
of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.:
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☐
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held
by non-affiliates on June 30, 2021 (the last business day of the registrant’s most recently completed second fiscal quarter) as
reported by The NASDAQ Capital Market on such date was approximately $19,477,004. There were 12,097,518 shares of the registrant’s
common stock outstanding on June 30, 2021.
The number of shares of common stock outstanding
as of March 29, 2022: 12,212,283
Documents Incorporated by Reference
Portions of the registrant’s definitive proxy
statement for the 2022 Annual Meeting of Stockholders
are incorporated by reference into Part III of
this Form 10-K.
SENESTECH, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
PART I
Item 1 Business 1
Item 1A Risk Factors 9
Item 1B Unresolved Staff Comments 22
Item 2 Properties 22
Item 3 Legal Proceedings 22
Item 4 Mine Safety Disclosures 22
PART II
Item 6 Reserved 23
Item 7A Quantitative and Qualitative Disclosures About Market Risk 33
Item 8 Financial Statements and Supplementary Data F-1
Item 9A Controls and Procedures 34
Item 9B Other Information 34
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 34
PART III
Item 10 Directors, Executive Officers and Corporate Governance 35
Item 11 Executive Compensation 35
Item 14 Principal Accounting Fees and Services 35
PART IV
Item 15 Exhibits, Financial Statement Schedules 36
Signatures 39
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report
on Form 10-K that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements
of historical facts contained or incorporated herein by reference in this Annual Report on Form 10-K, including statements regarding our
future operating results, future financial position, business strategy, objectives, goals, plans, prospects, markets, and plans and objectives
for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,”
“believes,” “estimates,” “expects,” “intends,” “suggests,” “targets,”
“contemplates,” “projects,” “predicts,” “may,” “might,” “plan,”
“would,” “should,” “could,” “can,” “potential,” “continue,” “objective,”
or the negative of those terms, or similar expressions intended to identify forward-looking statements. However, not all forward-looking
statements contain these identifying words. Specific forward-looking statements in this Annual Report on Form 10-K include statements
regarding:
ii
● our plans for our business, including for research and development;
● the adequacy of our facilities to meet our current needs;
● our financial performance, including our ability to fund operations;
These forward-looking statements are not guarantees
of future performance and involve known and unknown risks, uncertainties and situations that are difficult to predict and that may cause
our own, or our industry’s, actual results to be materially different from the future results that are expressed or implied by these
statements. Accordingly, actual results may differ materially from those anticipated or expressed in such statements as a result of a
variety of factors, including those discussed in Item 1A-“Risk Factors” of Part II of in this Annual Report on Form 10-K.
A number of factors could cause our actual results to differ materially from those indicated by the forward-looking statements. Such factors
include, among others, the following:
● the impacts and implications of the COVID-19 pandemic;
● the successful commercialization of our products;
● market acceptance of our products; and
All forward-looking statements included herein
are based on information available to us as of the date hereof and speak only as of such date. Except as required by law, we undertake
no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The forward-looking
statements contained in or incorporated by reference into this Annual Report on Form 10-K reflect our views as of the date of this Annual
Report on Form 10-K about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause
our actual results, performance, or achievements to differ significantly from those expressed or implied in any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events,
results, performance, or achievements.
We are subject to the information requirements
of the Exchange Act, and we file or furnish reports, proxy statements and other information with the Securities and Exchange Commission,
or the SEC. Such reports and other information we file with the SEC are available free of charge at www.senestech.com as soon as practicable
after such reports are available on the SEC’s website at www.sec.gov. The SEC’s website contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC.
iii
PART I
Item 1. Business.
Overview
We have developed and are commercializing a global, proprietary technology
for managing animal pest populations, initially rat populations, through fertility control.
Rats pose threats to human and animal health as well as food security around
the world. In addition, rats cause extensive product loss through consumption and contamination, including in the agricultural industry.
Rats also cause significant damage to critical infrastructure by burrowing beneath foundations and gnawing on electrical wiring, insulation,
fire proofing systems, electronics and computer equipment.
The most prevalent response to rat infestations is the use of lethal tools
such as traps and rodenticides, although there are growing concerns about secondary exposure and bioaccumulation of rodenticides. These
solutions are limited by the rat’s extraordinary reproduction rate as well as their behavior.
ContraPest®, our initial product, is unique liquid bait
in the pest control industry. ContraPest targets the reproductive systems of both male and female Norway and roof rats, which can lead
to sustained reductions of the rat population.
ContraPest is a liquid bait containing the active ingredients 4-vinylcyclohexene
diepoxide (“VCD”) and triptolide. ContraPest limits the reproduction of male and female rats beginning with the first breeding
cycle following consumption. Accordingly, it offers an alternative to traditional rodenticides in many environments and also may be used
in coordination with rodenticides as part of integrated pest management. It is an important option in the increasing number of jurisdictions
that are restricting the use of second-generation anti-coagulant products.
We began the registration process with the United States Environmental
Protection Agency (the “EPA”) for ContraPest on August 23, 2015. On August 2, 2016, the EPA granted an unconditional registration
for ContraPest as a Restricted Use Product (“RUP”), due to the need for applicator expertise for deployment. On October 18,
2018, the EPA approved the removal of the RUP designation and was reclassified as a general-use pesticide. In addition to the EPA , ContraPest
is registered in all 50 states, 48 of which have approved the removal of the RUP designation, as well as the District of Columbia. In
certain cases, our registrations are conditional and require completion of testing and we continue to seek to comply with these requirements.
We continue to develop enhancements to ContraPest that align with our
target verticals while pursuing regulatory approvals and amendments to the existing U.S. registration to broaden its use and marketability.
When ContraPest begins to generate sufficient revenue, we will seek regulatory approval for additional jurisdictions beyond the United
States.
We were formed in July 2004 and incorporated in the state of Nevada.
On November 12, 2015, we subsequently reincorporated in the state of Delaware. Our corporate headquarters and manufacturing site are in
Phoenix, Arizona. On December 8, 2016, we went public and are currently traded on the Nasdaq Capital Market (“Nasdaq”) under
the symbol SNES.
On February 4, 2020, we amended our amended and restated certificate
of incorporation to effect a 1-for-20 reverse split of our issued and outstanding shares of common stock. The accompanying condensed financial
statements and notes thereto give retrospective effect to the reverse stock split for all periods presented. All issued and outstanding
common stock, options and warrants exercisable for common stock, restricted stock units, preferred stock conversions to common stock and
per share amounts contained in our condensed financial statements have been retrospectively adjusted.
1
Current Challenges in Pest Control Methodologies
Lethal control measures such as traps and rodenticides are often at
the forefront of rat control programs but reproduction, behavior, and genetic resistance can negatively impact results of mitigation efforts.
Rats reach sexual maturity at approximately nine weeks of age. Females
can give birth to six litters per year, with up to five to ten offspring each. This rapid reproduction rate can cause populations to rebound
quickly after implementing a lethal control program.
Rat behavior, either learned or innate, can negatively affect pest control
efforts. Neophobia, or the fear and avoidance of new objects, is an innate behavior that often impacts control efforts. Rats avoid bait
stations, loose bait, or traps until they are confident that these new objects pose no danger. Over time rats will begin to sample new
foods to determine if there are any negative side effects. If the food or rodenticide causes illness in rats but they do not die, they
will avoid that food or rodenticide in the future.
Genetic resistance also creates challenges for rodent control
programs. Rats can be resistant develop resistance to rodenticides due to genetic through genetic mutations. This resistance is
passed onto their offspring who will carry this resistant trait to future generations.
Because of the above factors, conventional rodenticide producers are continually
challenged to develop new, more lethal chemicals to control future rat populations.
Rodenticides have significant drawbacks, in that they may affect species
that prey on rats, including birds of prey and large cats, due to the persistence of the rodenticide in the rat tissue. In addition, there
is growing concern about the adverse effects that rodenticides may have on children and pets due to accidental, direct exposure.
Integrated Pest Management and Fertility Control
The most effective, long-term way to manage rats is by using a combination
of tools that work together to magnify the efficacy of the pest management protocol; integrated pest management (IPM) is based upon this
concept. An effective IPM program needs to reduce the existing rat population while preventing the population from rebounding. We believe
ContraPest has established a new paradigm in rodent control, making fertility control an essential component of a sustainable IPM program.
ContraPest is a highly palatable liquid formulation that reduces fertility
in both male and female rats. Rats require 10% of their body weight in water per day, making ContraPest a great tool to add to IPM programs.
The high-fat content and sweet taste promote sustained consumption even when other sought-after food sources are present. In both field
and laboratory settings, ContraPest will be consumed by rats even in the presence of abundant water sources and plentiful food choices,
including animal feed, trash and other options. Consumption of ContraPest does not cause illness in rats, and therefore, it does not change
behavior or result in bait aversion.
Adding ContraPest to an IPM program brings the rodent population down
initially and keeps it at a manageable level by minimizing reproduction and thereby limiting population rebounds. Continued maintenance
baiting of ContraPest at lower population levels dramatically reduces the risk of future population spikes, allowing customers to be more
focused on eliminating the causes of future invasions through exclusion and sanitation initiatives.
2
The following graphs illustrate the incremental benefit of adding ContraPest
to IPM programs with conventional rodenticides. The data is derived from three programs we began in late 2019 to demonstrate the effectiveness
of ContraPest to potential end-users and our study of the results through monitoring rat activity by camera. The data presented shows
the incremental benefit of ContraPest deployment beyond that achieved through rodenticides. Ongoing monitoring of the program locations
has indicated that there has been no rebound in the rodent population from the current low levels.
(source: company studies)
Other Applications
While our proprietary technology is effective on rodent species, our technology
can be applied to other mammalian species. We are currently developing a fertility control product for mice. Further, we have developed
preliminary data with feral dogs, feral pigs, wallabies and brushtail possums. While this preliminary data indicates potential for the
continued development of fertility control technology in general, we are not pursuing these opportunities at this time. We believe that
the size of the rat control market as well as mice control market are sufficient for our near-term focus. We remain open to the potential
to license our technology to other strategic partners to explore its applicability to other mammalian species.
3
Business Strategy
Our goal is to be a leader in the pest management industry; utilizing
fertility control technologies to limit the adverse effects caused by rodent infestations, educating PMP’s and the general public
on alternatives or enhancements to lethal rodenticides and developing additional product lines to address the needs of our customers.
Key elements of our strategy are as follows:
● maintain and protect our intellectual property portfolio; and
Marketing and Sales Approach
The pest control industry is highly competitive with a number of large
competitors developing and marketing pest control products, particularly rodenticides, and services. Because fertility control in general,
and ContraPest specifically, may be considered a disruptive technology, we have encountered resistance to initial adoption. We continue
to build a robust set of case studies to demonstrate efficacy and cost efficiency, identify lead users and expand within market segments.
In order to enhance the likelihood of success, we have currently targeted key market segments with the highest likelihood to add ContraPest
into their IPM programs. These include agribusiness (e.g., egg hen farms, grain and protein production and grain storage, transport and
sales facilities), municipalities and government agencies, e-Commerce, zoos and sanctuaries, and commercial accounts.
In the United States, ContraPest is most commonly deployed and serviced
by a licensed Pest Management Professional (“PMP”), although some customers have in house pest management service personnel.
In some circumstances, customers will request PMPs to use certain products in the provision of their service. Initially, our marketing
strategy involved sales to and through large distributors of pest control products. In 2019, we substantially modified this strategy to
create two different sources of pull-through-demand: sales to PMPs and sales directly to commercial customers. We believe that by making
end users aware of the existence and benefits of ContraPest, we are more likely to create demand through PMPs that would otherwise simply
continue to use their existing rodenticide-based IPM models. We currently market ContraPest both to pest management companies and directly
to target segments, using a direct to PMP sales channel; indirectly through distributor sales; and through our own direct sales force.
In addition, in the fourth quarter of 2019, we added a new e-Commerce tool to enable customers in each of our target segments to buy directly
from us. Finally, we have been pursuing strategic relationships with large pest management companies and key end-user organizations in
our target segments for the distribution and sale of ContraPest.
In each of our target segments we have identified potential lead customers
with whom we are working on large scale projects to demonstrate the efficacy of ContraPest in real world situations. We provide significant
product support to these customers to make sure that we are not only achieving desired results, but also obtaining the data to support
sales in the related market vertical. We believe that successful field trials with these influential end users will help drive significant
subsequent sales to other participants in the relevant market.
We are also focused on expanding regulatory approvals for ContraPest
to make the product more user friendly and available for use in an increased number of applications. These include alternative delivery
methods and expansion of the label to additional applications and/or species.
4
Pricing and Value
Our pricing strategy takes into account the cost of goods sold, the
cost of competitive products and the value of our product to the end user. We believe ContraPest will be perceived as a significant value
as a complement to existing pest control products or as a non-lethal stand-alone solution for managing rat infestations and, as such,
should command a premium price. Our experience is that once potential customers understand the advantages of ContraPest, they recognize
that the benefits of long-term sustained rodent reduction dramatically offset the cost of the product. We plan to continue to use promotional
efforts to support the value message and to justify our product’s premium price, built around the following advantages:
● ContraPest uses targeted delivery for maximum efficacy;
● our proprietary gravity feeding system optimizes consumption;
We also focus on specific advantages for the individual customer and
expect to position our product as having the following additional general advantages:
● savings by reducing loss or contamination of food and product inventories;
● savings by reducing damage to infrastructure and major production equipment;
● reduction in disease vectors; and
Raw Materials and Manufacturing Process
ContraPest contains two active ingredients, VCD, an industrial chemical,
and triptolide, a plant derived chemical. ContraPest also contains several other inactive, generally recognized as safe (GRAS), ingredients.
Currently, we source VCD from standard industrial chemical supply providers. Triptolide is derived from the Thunder God Vine, Tripterygium
wilfordii, which is commonly cultivated and harvested wild in southeastern China and other Asian countries. Triptolide is available from
a variety of sources, but the process to purify triptolide for use in ContraPest is expensive. Thus, we are investigating other, less
costly sources of triptolide.
Our manufacturing process involves the incorporation of our two active
ingredients, in low concentrations, into several inactive ingredients. Once incorporated, the entire product goes through a micro-encapsulation
process in order to stabilize the final formulation. This process allows ContraPest to be delivered to rats in a palatable, non-lethal,
and effective manner.
Currently, we have production scale capability in our facilities in
Arizona to manufacture ContraPest. Our internal production capabilities allow us to meet our current and anticipated demand through 2023
for ContraPest.
5
Scientific Background Regarding our Product
ContraPest is a liquid bait containing the active ingredients VCD and
triptolide. When consumed, ContraPest targets reproduction, limiting fertility in male and female rats beginning with the first breeding
cycle following consumption.
Female rats are born with a finite number of eggs, or oocytes, and
remain fertile until death. Within the ovary, eggs develop within structures called follicles. The non-regenerating and least mature follicles
are called primordial. The primordial follicles mature through primary, secondary and antral stages and ultimately ovulate. Once the primordial
follicles have become depleted, ovarian failure occurs, which terminates reproductive capability. VCD causes specific loss of small ovarian
follicles (both primordial and primary). Triptolide causes specific loss of growing follicles (secondary and antral). In males, triptolide
exerts a significant suppression of male fertility by preventing sperm maturation and impairing the movement of sperm.
The safety and efficacy of VCD, triptolide, and ContraPest are supported
by considerable evidence. VCD and triptolide are rapidly metabolized by the rat, limiting the possibility of bioaccumulation or effect
on non-target species. Further, based on our toxicology studies, ContraPest should not cause rats to become ill, change behavior or become
more susceptible to predation.
Furthermore, ContraPest is a contraceptive, not a sterilant. The average
duration of infertility ranges from 77 to over 180 days.
Other Potential Products
We have begun work on new formulations of ContraPest – particularly
solid and semi-solid variants. Although solid bait is not essential to our near-term plans, the non-liquid formulations may expand the
potential uses of ContraPest as well as pave the way for future sales through retail stores. Our plan is to accelerate the reformulation
process through partnerships with others in the industry that will be able to give us access to proven technologies, thus reducing potential
development time.
Competition
Currently,
we are unaware of any other non-lethal fertility control products targeting rats that are registered by the EPA. There is a non-registered
product being sold online that claims to control rodent reproduction humanely. We
do not believe this is a product that can compete with us.
Our principal competition is the substitution of other tools that PMPs
use in their IPM.
6
Government Regulation and Product Approval
Federal, state and local government authorities in the United States
regulate, among other things, the testing, manufacturing, quality control, approval, labeling, packaging, storage, record-keeping, distribution
and marketing of the products we develop. The process for obtaining regulatory approval and compliance with appropriate federal, state
and local regulations is rigorous and requires the expenditure of substantial time and financial resources.
United States Review and Approval Processes
In the United States, the EPA regulates the sale, distribution and
use of any pesticide under the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA). The EPA’s definition of a pesticide includes
“any substance or mixture of substances intended for preventing, destroying, repelling, or mitigating any pest.” FIFRA defines
a pest as “any insect, rodent, nematode, fungus, or weed.” To register a new product with the EPA, all active ingredients
within the product must be registered with the EPA.
The EPA granted registration for ContraPest effective August 2, 2016.
This initial EPA approval labeled ContraPest as a restricted-use product, due to the need for applicator expertise for deployment. On
October 18, 2018, the EPA removed the Restricted Use designation, meaning that we can sell ContraPest to consumers who do not have applicator
expertise. ContraPest is currently limited by EPA requirements to indoor use and to use within one foot of manmade structures. We intend
to diligently pursue additional related regulatory approvals from the EPA to support our product evolution, including seeking approval
for full outdoor use, alternative formulations and for additional rodent species. This may entail the need to complete and submit to EPA
additional studies, principally related to the effects on other animals and fish if ingested or if the product enters the water supply.
In addition to the EPA registration of ContraPest in the United States,
we must obtain registration from the various state regulatory agencies prior to selling in each state. To date, we have received registration
for ContraPest in all 50 states and the District of Columbia, 48 of which have approved the removal of the Restricted Use designation.
In addition to product registration, the EPA also approves all labeling
(the container label, instructional inserts, and the Safety Data Sheet (SDS)) of ContraPest. Generally, states accept the EPA approved
label as is. ContraPest’s labeling was submitted to states at initial registration and is resubmitted during state scheduled reregistration
or for any significant labeling change requiring EPA approval.
In certain cases, our EPA and state registrations require completion
of testing and certifications even after we have received approval for the product or its labelling. We continue to seek to comply with
these requirements.
International Review and Approval Processes
We are researching potential international markets and will evaluate
the regulatory landscapes of each prospective market. Country-specific regulatory laws have provisions that include requirements for certain
labeling, safety, efficacy and manufacturers’ quality control procedures to assure the consistency of the product, as well as company
records and reports. Some specific in-country studies will be required for particular countries, but others will generally accept an EPA
or EU compliant dossier.
Personnel
As of December 31, 2021, we had 26 full-time employees and one part-time
employee. Within our workforce, seven employees are engaged in research and development and 20 employees are engaged in sales, business
development, finance, regulatory, human resources, facilities, information technology and general management and administration.
None of our employees are represented by labor unions or covered by
collective bargaining agreements.
Intellectual Property and Other Proprietary
Rights
Maintaining a strong position in the rodenticide market requires constant
innovation along with a healthy research program to evolve product lines to remain competitive and relevant to the needs of the changing
global marketplace. We seek to protect our proprietary data and trade secrets with attention to data exchanges among employees, consultants,
collaborators and research and trade partners.
7
Patent Filings
Our intellectual property portfolio supporting ContraPest consists
of nine international patent filings (in the United States, Europe, Canada, Brazil, Russia, Japan, Mexico, South Korea, and Australia)
addressing the ContraPest compound. Claims directed toward the compound include composition-of-matter involving a diterpenoid epoxide
or salts thereof in combination with an organic diepoxide, use claims for inducing follicle depletion and for reducing the reproductive
capability of a mammalian animal or non-human mammalian population. Issued claims will have a patent term extending to 2033 or longer
based on patent term determinations in each of the filing countries. The novelty of ContraPest extends to its method of field distribution
and has required innovation to perfect the dosing of our product to rodents. We have filed U.S. and international patent applications
covering our novel bait station device to effectively and efficiently deliver our rodent bait at individual bait sites that would, if
issued, offer patent term protection through at least 2036.
License Agreements
We have an exclusive patent license with the University of Arizona
for background intellectual property that we plan to employ for future product development in the domestic animal fertility control market.
The patent claims in the United States, Australia and New Zealand cover the use of 4-vinylcyclohexene diepoxide to deplete ovarian follicles
in individual mammals and mammal populations. The license agreement, signed in 2005, will terminate with the last-to-expire patent claims,
which have a term extending to 2026.
Trade Secrets and Trademarks
Beyond our patent right holdings, we broaden our intellectual property
position with trademark, trade secret, know-how and continuous scientific discovery to accompany our product development efforts. We protect
these proprietary assets with a combination of confidentiality terms in all commercial agreements or stand-alone confidentiality agreements
along with rights-ownership agreements and structured information transfer understandings prior to beginning any collaborative projects.
We own and maintain the ContraPest trademark and intend to register new trademarks for products from our evolving rodenticide product
line and for products for mammalian species beyond rodentia.
Data Sets
We have exclusive use status with the EPA for the data sets we have
developed and submitted to the EPA as part of our application for ContraPest. The exclusive use status applies to new active ingredients
and the final formulation of the ContraPest product for a period of 10 years. For five years after the 10-year period of exclusivity,
if another applicant or the EPA Administrator chooses to rely on one or more data sets that we submitted in support of an application
submitted by another applicant, the new applicant must make a binding offer to compensate us and certify to the EPA that it has done so.
If we and the offeror cannot reach agreement on the terms of the compensation for the use of such data sets, FIFRA requires resolution
by binding arbitration. The EPA rules do not describe how the compensation should be determined, and there is publicly available information
about some, but not all, binding arbitration decisions.
Where You Can Find Additional Information
We electronically file with the SEC our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934. We make available on our website at www.senestech.com, free of charge, copies of these
reports, as soon as reasonably practicable after electronically filing such reports with, or furnishing them to, the SEC. The information
contained in, or that can be accessed through, our website is not part of, and is not incorporated into, this Annual Report on Form 10-K.
8
Item 1A. Risk Factors
As discussed immediately prior to Item 1 of Part I, “Business”
under “Cautionary Note Regarding Forward-Looking Statements,” our actual results could differ materially from those expressed
in our forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed
below. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business
operations. If any of the following risks occur, our business, financial condition, operating results, cash flows and the trading price
of our common stock could be materially adversely affected.
Risks Relating to our Business
The impacts of the coronavirus pandemic could adversely affect
our business, and other similar crises could result in similar or other harms.
The outbreak of the novel coronavirus (COVID-19) pandemic has resulted
in widespread travel and transportation restrictions and closures of commercial spaces, industrial facilities and other spaces and businesses
in and across the United States and the world, including in the locations we operate or target sales. As a result, our business has been
impacted and we could face continued or more adverse effects. In addition, our results and financial condition may be adversely affected
by federal or state legislation, or other similar laws, regulations, orders or other governmental or regulatory actions or best practices,
that would impose new restrictions on our ability to operate our business or customers to operate their businesses. For example, our sales
and technical field forces have been restricted from traveling or limited in travel, which adversely affects our ability to sell our products
and complete field studies. While we have implemented cautionary procedures at our manufacturing facility, there may be disruptions to
our ability to manufacture due to current and additional workplace controls. Our customers may be less inclined or unable to purchase
our products or continue product studies due to restrictions under which they may be operating. Those restrictions have been and are more
severe in some jurisdictions, such as California. If financial markets tighten, we may have more limited ability to raise necessary financing.
The COVID-19 pandemic is also placing a significant budgetary burden on federal, state and local governments, which may impede or delay
their ability to purchase our products. We source some of our critical raw materials from Asia, and the coronavirus has caused supply
chain disruptions, which could limit a timely supply of materials. Each of these could have negative effects on our business, results
of operations, financial condition and cash flows. Even if the coronavirus pandemic passes, another crisis with similar effects could
develop and harm our business, financial results and liquidity. The degree to which the COVID-19 pandemic may impact our results of operations
and financial condition is unknown at this time and will depend on future developments, including the ultimate severity and the duration
of the pandemic, and further actions that may be taken by governmental authorities or businesses or individuals on their own initiatives
in response to the pandemic.
Our success is dependent on the successful commercialization
of ContraPest.
The EPA granted registration approval for ContraPest effective August
2, 2016, and as of July 12, 2018, we have received registration for ContraPest in all 50 states and the District of Columbia. However,
we have not yet had significant sales of ContraPest, which is our only product to date that is available for commercialization and the
generation of revenue.
ContraPest and our other product candidates, if approved, may
not achieve adequate market acceptance necessary for commercial success.
Even following receipt of regulatory approval for ContraPest or future
regulatory approval of our other product candidates, such products may not gain market acceptance. Market acceptance of any of our product
candidates for which we receive approval depends on a number of factors, including the following:
● the efficacy and safety of such product candidates as demonstrated in trials;
● relative convenience and ease of use; and
● unfavorable publicity relating to the product.
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If we cannot successfully commercialize our products, especially
ContraPest, we will not become profitable.
If any of our approved product candidates fail to achieve sufficient
market acceptance, we will not be able to generate significant revenues or become profitable. The commercial success of ContraPest will
depend on a number of factors, including the following:
● continued refinement of our pricing strategy;
● a continued acceptable safety profile of ContraPest.
Many of these factors are beyond our control. If we are unable to successfully
commercialize ContraPest, we may not be able to earn sufficient revenues or profits to continue our business.
We will require additional capital to fund our operations. Failure
to obtain this necessary capital if needed may force us to delay, limit, or terminate our product development efforts or other operations.
Commercialization of ContraPest and developing further product candidates,
including conducting experiments and field studies, obtaining and maintaining regulatory approval and commercializing any products approved
for sale, is a time-consuming, expensive and uncertain process that takes years to complete. We expect our expenses to continue and to
increase in connection with our ongoing activities, particularly as we advance our commercialization activities. We may expand our operations,
and as a result of many factors, some of which may be currently unknown to us, our expenses may be higher than expected. Securing additional
financing may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize
our product candidates, including ContraPest. In addition, we cannot guarantee that future financing will be available in sufficient amounts
or on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be
required to take certain actions, including the following:
The occurrence of any of the events described above would have a material
adverse effect on our business, operating results and prospects and on our ability to develop our product candidates.
ContraPest is the first product we have marketed, and if we are
unable to establish and maintain an effective sales force and marketing and distribution infrastructures, or enter into and rely upon
acceptable third-party relationships, we may be unable to generate any revenue.
We continue to develop a functional infrastructure for the sales, marketing,
and distribution of our products and the cost of establishing and maintaining such an infrastructure may exceed the cost-effectiveness
of doing so. In order to market ContraPest and any other products that may be approved by the EPA and comparable foreign regulatory authorities,
we must continue to build our sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties
to perform these services for which we would incur substantial costs. If we are unable to establish and maintain adequate sales, marketing,
and distribution capabilities, whether independently or with third parties, we may not be able to generate sufficient product revenue
to become profitable. Without an effective internal commercial organization or the support of a third party to perform sales and marketing
functions, we may be unable to compete successfully.
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Risks Regulations Have on Our Business
Regulatory approval processes of the EPA and comparable foreign
regulatory authorities are lengthy, time-consuming and unpredictable, and if we are ultimately unable to obtain regulatory approval for
our product candidates, our business may fail.
The EPA review process for a product with one or more new active ingredients
typically takes approximately two years to complete and approval is never guaranteed. In addition, we continue to seek approvals to expand
labels and use designations for ContraPest to broaden its market and usability. Our efforts could fail to receive marketing approval from
the EPA or, with respect to ContraPest or our product candidates, from a comparable foreign regulatory authority for many reasons, including
the following:
● disagreement over the design or implementation of our trials;
● failure to demonstrate a product candidate’s benefits outweigh its risks;
● disagreement over our interpretation of data;
● disagreement over whether to accept efficacy results from trials;
● the insufficiency of data collected from trials to obtain regulatory approval;
Any of these factors, some of which are beyond our control, could jeopardize
our ability to obtain regulatory approval for and successfully market any of our product candidates. Any such setback in our pursuit of
regulatory approval could have a material adverse effect on our business and prospects.
Even following receipt of any regulatory approval for ContraPest
and our other product candidates, we will continue to face extensive regulatory requirements and our products may face future development
and regulatory difficulties.
Even following receipt of any regulatory approval for ContraPest or
our product candidates, our products will be subject to ongoing requirements by the EPA and comparable state and foreign regulatory authorities
governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import,
export, advertising, promotion, recordkeeping and reporting of safety and other post-market information.
The safety profile of any product will continue to be closely monitored
by the EPA and comparable foreign regulatory authorities after approval. In addition, we may be required, from time to time, to provide
further testing results and certifications to the EPA and state regulatory agencies for ContraPest.
For instance, we have found it challenging to produce applicable stability
test results for certain of our active ingredients, due in part to the small quantities used in the final product and continue to work
with the EPA to develop appropriate biological or chemical measurements of product stability. Because our data continue to demonstrate
the long-term efficacy of ContraPest, we believe that the testing is a matter we will resolve.
If the EPA or comparable foreign regulatory authorities become aware
of new information after approval of ContraPest or any other product candidate, or we are unable to adequately complete required testing
and certification requirements, a number of potentially significant negative consequences could result, including the following:
● we may be forced to suspend marketing of such product;
● we could be sued and held liable for harm caused;
● we may be subject to litigation or product liability claims; and
● our reputation may suffer.
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Any of these events could prevent us from achieving or maintaining
market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and
prospects.
Moreover, existing government regulations may change, and additional
government regulations may be enacted that could prevent, limit or delay regulatory approval of ContraPest or any other product candidates.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not
able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and/or be subject to different marketing
requirements or fines or enhanced government oversight and reporting obligations, which would adversely affect our business, prospects,
and ability to achieve or sustain profitability.
Our future success is also dependent on regulatory approval and
commercialization of our other product candidates.
We are actively working on a semi-solid product as well as an alternative
dispenser. We also plan to continue work on a product to control fertility in mice. We cannot commercialize our product candidates in
the United States without first obtaining regulatory approval for each product and each use pattern from the EPA or, if applicable, the
Food and Drug Administration, or FDA, and from any related applicable state authorities. Before obtaining regulatory approvals for the
commercial sale of any product candidate for a target indication, the law requires that applicants demonstrate through laboratory and
field studies and related data showing that the product candidate will perform its intended function without causing unreasonable adverse
effects on the environment. The EPA or a comparable foreign regulatory authority may require more information, including additional data
to support approval that may delay or prevent approval.
Even following receipt of any regulatory approval for ContraPest
and our other product candidates, we will continue to be subject to regulation of our manufacturing processes and advertising practices.
As a manufacturer of pest control products, we are subject to continual
government oversight and periodic inspections by the EPA and other regulatory authorities. If we or a regulatory agency discover problems
with a facility where our products are manufactured, a regulatory agency may impose restrictions on the manufacturing facility, including
requiring recall or withdrawal of the product from the market or suspension of manufacturing until certain procedural requirements have
been met. The occurrence of any such event or penalty could limit our ability to market ContraPest or any other product candidates and
generate revenue.
In addition, the EPA strictly regulates the advertising and promotion
of pest control products, and these pest control products may only be marketed or promoted for their EPA approved uses, consistent with
the product’s approved labeling. Advertising and promotion of any product candidate that obtains approval in the U.S. will be heavily
scrutinized by the EPA, other applicable state regulatory agencies and the public. Violations, including promotion of our products for
unapproved or off-label uses, are subject to enforcement actions, inquiries and investigations, and civil, criminal and/or administrative
sanctions imposed by the EPA.
Failure to obtain regulatory approval in foreign jurisdictions
would prevent ContraPest or any other product candidates from being marketed in those jurisdictions.
To market and sell our products globally, we must obtain separate marketing
approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve
additional testing. Obtaining foreign regulatory approvals and maintaining compliance with foreign regulatory requirements could result
in significant delays, difficulties, and cost for us and could delay or prevent the introduction of our products in certain countries.
Approval by the EPA does not ensure approval by regulatory authorities in other countries or jurisdictions, but EPA approval may influence
decisions by the foreign regulatory authority. If we are unable to obtain approval of ContraPest or for any of our other product candidates
by regulatory authorities in the world market, the commercial prospects of that product candidate may be significantly diminished and
our business prospects could decline.
Risks Related to our Operations and Supply Chain
We depend on key personnel to operate our business. If we are
unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.
We believe that our success is highly dependent on our ability to attract
and retain highly skilled and experienced sales, research and development, and other personnel. If one or more of our executive officers
or key employees terminates employment or becomes disabled or experiences long-term illness, we may not be able to replace their expertise,
fully integrate new personnel or replicate the prior working relationships, and the loss of their services might significantly delay or
prevent the achievement of our research and development and business objectives. Qualified individuals with the breadth of skills and
experience in our industry that we require are in high demand, and we may incur significant costs to attract them. Many of the other companies
that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a more established
history in the industry. They also may provide more diverse opportunities and better chances for career advancement. Our failure to attract
and/or retain key personnel could impede the achievement of our research and development and commercialization objectives.
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We have internal manufacturing capabilities to meet our current
and near term forecasted demand for ContraPest, however, we must develop additional manufacturing capability or rely upon third parties
to manufacture our products to meet future demand and our single location manufacturing operations could be disrupted.
Our existing internal manufacturing platform is adequate for meeting
our current and near term forecasted demand for ContraPest. We may be required to spend significant time and resources to expand these
manufacturing facilities to fully meet future demand. If we are unable to develop full-scale manufacturing capabilities, we may not be
able to meet demand of our products without relying on third party manufacturers, which could adversely affect our operations or financial
condition.
In addition, if our manufacturing operations fail or are disrupted
for any reason, including because of labor, disasters, and/or equipment malfunctions, among others, our ability to timely produce ContraPest
may be adversely affected, which would harm our sales and reputation. We only operate in a single location, which means we do not
have back-up facilities to produce our products during a time when our manufacturing facility becomes unavailable.
We will need to expand our operations and grow the size of our
organization, and we may experience difficulties in managing this growth.
As of December 31, 2021, we had 26 full-time employees. As our development
and commercialization plans and strategies develop, we will need additional managerial, operational, sales, marketing, scientific and
financial headcount and other resources. Our management, personnel, and systems currently in place may not be adequate to support this
future growth. Future growth would impose significant added responsibilities on members of management, including the following:
● expanding our facilities.
Our failure to accomplish any of these tasks could prevent us from
successfully growing our business.
Business or supply chain disruptions could seriously harm our
future revenues and financial condition and increase our costs and expenses, particularly because we have limited suppliers and a critical
ingredient is sourced from China.
Our operations could be subject to a variety of potential business
disruptions, including power shortages, telecommunications failures, water shortages, floods, fires, earthquakes, extreme weather conditions,
medical epidemics and other natural or manmade disasters or other interruptions, for which we are predominantly self-insured. We do not
carry insurance for all categories of risk that our business may encounter. The occurrence of any of these business disruptions could
seriously harm our operations and financial condition and increase our costs and expenses. Moreover, we rely on third parties to supply