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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the sections of this report titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

Overview

Since our inception, we have sustained significant operating losses in the course of our research and development activities and commercialization efforts 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 a former license. 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; and debt financing, consisting primarily of convertible notes.

Through December 31, 2022, we had received net proceeds of $84.3 million from our sales of common stock, preferred stock and issuance of convertible and other promissory notes, an aggregate of $1.7 million from research grants and licensing fees and an aggregate of $2.5 million in product sales. At December 31, 2022, we had an accumulated deficit of $122.2 million and cash and cash equivalents of $4.8 million.

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On April 15, 2020, we also received cash proceeds of $645,700 from the Paycheck Protection Program (or “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). We used the proceeds from the PPP Loan to retain employees, maintain payroll and make lease, interest and utility payments. On June 18, 2021, the Company received notification from BMO Harris Bank National Association as the lender in a promissory note pursuant to the CARES Act, that such loan was forgiven in full under the terms of the program.

We have incurred significant operating losses every year since our inception. Our net losses were $9.7 million and $8.3 million for the years ended December 31, 2022 and 2021, respectively. We expect to continue to incur significant expenses and generate operating losses for at least the next 12 months.

We will need additional funding to continue to fund our operations, achieve profitability and become cash flow positive, we will continue to seek additional financing. If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit or terminate commercialization and development efforts or discontinue operations.

While it is difficult to measure the effect and impact of the COVID-19 pandemic on revenue over time, the travel and other restrictions that started in March 2020 resulted in a significant slowdown in our proof-of-concept field studies and sales efforts. We continue to experience delays on certain projects with certain businesses and government entities that have not yet returned to pre-COVID-19 pandemic operations. We have concerns about distributor, pest control operator, individual consumer, and government entity spending as a result of continued financial strain on certain industries due to the COVID-19 pandemic. This may delay or impede near term purchases of our products by these potential consumers. Additionally, while we have stocked certain long lead time inventory raw material ingredients, any prolonged impact on the suppliers we rely on for the purchase of these items by the COVID-19 pandemic could impact future manufacturing operations.

We have historically utilized, and intend to continue to utilize, various forms of stock-based awards in order to hire, retain and motivate talented employees, consultants and directors and encourage them to devote their best efforts to our business and financial success. In addition, we believe that our ability to grant stock-based awards is a valuable and necessary compensation tool that aligns the long-term financial interests of our employees, consultants and directors with the financial interests of our stockholders. As a result, a significant portion of our operating expenses includes stock-based compensation expense. Stock-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy. Specifically, our stock-based compensation expense for the year ended December 31, 2022 and December 31, 2021 was $0.7 million and $0.8 million, respectively, which represented 7.0% and 8.3%, respectively, of our total operating expenses for those periods.

Results of Operations

The following tables provide financial and operational information to be considered in conjunction with management’s discussion and analysis of results of operations.

The results of operations are as following for the years presented (dollars in thousands):

Years Ended December 31, % Increase (Decrease)

Operating expenses:

Selling, general and administrative 8,279 7,224 15 %

Other income (expense), net (21) 666 (103) %

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Revenues, net

Sales, which are net of any discounts and promotions, were $1.0 million for the year ended December 31, 2022, compared to $576,000 for year ended December 31, 2021. Sales increased by $443,000 in 2022 driven by an increase of $282,000, or 60%, from our e-commerce vertical market, combined with a $161,000, or 28%, increase driven by sales to pest management professionals and zoos and sanctuaries.

Also included in revenues in 2021, was $24,000 of grant revenue for jobs created and related new employee training in the City of Phoenix, Arizona during the year.

Cost of Sales

Cost of sales consist primarily of the cost of products sold, including scrap and reserves for obsolescence and was $555,000, or 54.5% of sales, for the year ended December 31, 2022, compared to $356,000, or 61.8% of sales, exclusive of grant revenue, for the year ended December 31, 2021. Higher costs of sales is driven by increased sales combined with the modification of our shipping policies in April 2022 to significantly reduce free shipping to customers.

Gross Profit

Gross profit for the year ended December 31, 2022 was $464,200, or 45.5%, compared to a gross profit of $244,000, or 42.4%, excluding grant revenue, for the year ended December 31, 2021. The increase in gross profit was primarily due to increased sales volume, which reflects price increases implemented in April 2022, and the impact related to the significant reduction of free shipping to customers both contributed to the improvement in gross profit margin.

Research and Development Expenses

Research and development expenses are expensed as incurred and consist primarily of costs incurred in connection with the research and development of ContraPest and our other product candidates. Such costs include the following:

•employee related expenses, including salaries, related benefits, travel and stock-based compensation expense for employees engaged in research and development functions, including that portion of manufacturing not included in cost of goods sold;

•expenses incurred in connection with the development of our product candidates, including related regulatory and production expenses; and

•facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and supplies.

Research and development expense consisted of the following (in thousands):

Years Ended December 31, Increase (Decrease)

Personnel related, including stock-based compensation $ 996 $ 847 $ 149

Research and development expenses were $1.9 million for the year ended December 31, 2022, compared to $2.0 million for the year ended December 31, 2021. The $95,000 decrease was primarily driven by lower depreciation expense and lower legal fees related to research and development matters, offset by higher personnel costs, as personnel turnover was higher in 2022 compared to 2021, and higher utility costs related to increased production.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance, sales, marketing and administrative functions. Selling, general and

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administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, consulting, accounting and audit services.

Selling, general and administrative expense consisted of the following (in thousands):

Years Ended December 31, Increase (Decrease)

Personnel related, including stock-based compensation $ 3,851 $ 3,940 $ (89)

Depreciation expense 55 46 9

Selling, general and administrative expenses were $8.3 million for the year ended December 31, 2022, compared to $7.2 million for the year ended December 31, 2021. The $1.1 million increase was driven by higher professional fees related to legal matters, consulting related to advertising and marketing and recruiting costs related to employee turnover. Additionally, costs related to software licenses and marketing efforts for digital and social media outlets were higher in 2022 when compared to 2021, which was partially offset by lower costs related to the timing of personnel changes. In 2022, personnel-related costs includes severance costs of $356,000 related to the termination of the former Chief Executive Officer, while 2021 includes severance-related costs related to certain employee terminations and bonuses.

Other Income (Expense), Net

Other income (expense), net, consists of interest income and expense, as well as any recognized gains or losses related to the sale of fixed assets and other miscellaneous items. For the year ended December 31, 2022, other expense, net largely consisted of a $28,000 loss realized on the sale of research and development equipment, while other income, net for the year ended December 31, 2021 largely consisted of the PPP loan forgiveness in the amount of $645,700.

Liquidity and Capital Resources

Since our inception, we have sustained significant operating losses in the course of our research and development activities and commercialization efforts 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 a former license. 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; and debt financing, consisting primarily of convertible notes.

Through December 31, 2022, we had received net proceeds of $84.3 million from our sales of common stock, preferred stock and issuance of convertible and other promissory notes, an aggregate of $1.7 million from research grants and licensing fees and an aggregate of $2.5 million in product sales. At December 31, 2022, we had an accumulated deficit of $122.2 million and cash and cash equivalents of $4.8 million.

In April 2020, we received cash proceeds of $645,700 from the PPP of the CARES Act, which we used to retain employees, maintain payroll and make lease, interest and utility payments. This loan was fully forgiven under terms of the PPP in June 2021.

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

Based upon our current operating plan, we expect that cash and cash equivalents at December 31, 2022, in combination with anticipated revenue and any additional sales of our equity securities, will be sufficient to fund our current operations for at least the next 12 months. We have evaluated and will continue to evaluate our operating expenses and will concentrate our resources toward the successful commercialization of ContraPest in the United States. However, if

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anticipated revenue targets and margin targets are not achieved or expenses are more than we have budgeted, we may need to raise additional financing before that time. If we need more financing, including within the next 12 months, and we are unable to raise the necessary capital through the sale of our securities, we may be required to take other measures that could impair our ability to be successful and operate as a going concern. In any event, we may require additional capital in order to fund our operating losses and research and development activities before we become profitable and may opportunistically raise capital. We may never achieve profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise capital through equity or debt financing. If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit or terminate commercialization and development efforts or discontinue operations.

Additional Funding Requirements

We expect our expenses to continue or increase in connection with our ongoing activities, particularly as we focus on marketing and sales of ContraPest. Further, continuing effects of the COVID-19 pandemic may delay the completion of field studies and achievement of sales, which will further increase our need for financing. In addition, we will continue to incur costs associated with operating as a public company.

In particular, we expect to incur substantial and increased expenses as we:

•work to maximize market acceptance for, and generate sales of, our products, including by conducting field demonstrations at potential lead customers;

•explore strategic partnerships to enable us to penetrate additional target markets and geographical locations;

•manage the infrastructure for sales, marketing and distribution of ContraPest and any other product candidates for which we may receive regulatory approval;

•seek additional regulatory approvals for ContraPest, including to more fully expand the market and use for ContraPest and, if we believe there is commercial viability, for our other product candidates;

•further develop our manufacturing processes to contain costs while being able to scale to meet future demand of ContraPest and any other product candidates for which we receive regulatory approval;

•continue product development of ContraPest and advance our research and development activities and, as our operating budget permits, advance the research and development programs for other product candidates;

•maintain and protect our intellectual property portfolio; and

•add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts and operations as a public company.

We believe we will need additional financing to fund these continuing and additional expenses.

Cash Flows

The following table summarizes our sources and uses of cash for each of the years presented (in thousands):

Years Ended December 31,

Cash and cash equivalents, beginning of year $ 9,326 $ 3,643

Net cash provided by (used in):

Investing activities (170) (99)

Net change in cash and cash equivalents (4,551) 5,683

Cash and cash equivalents, end of year $ 4,775 $ 9,326

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Cash Flows from Operating Activities—Cash flows from operating activities are generally determined by the amount and timing of cash received from customers and payments made to vendors, as well as the nature and amount of non-cash items, including depreciation and amortization and stock-based compensation included in operating results during a given period.

During 2022, net cash flows used in operating activities consisted of our net loss of $9.7 million, offset by changes in our operating assets and liabilities of $191,000 and non-cash charges of $928,000. Our net loss was primarily attributed to research and development activities and our selling, general and administrative expenses, as we generated limited product sales and grant revenue during the year. Net cash generated by changes in our operating assets and liabilities consisted primarily of a $188,000 increase in accrued expenses and accounts payable, a $148,000 decrease in net inventories, and a $44,000 increase in deferred revenue, offset by increases of $148,000 in prepaid expenses and $42,000 in accounts receivable.

During 2021, net cash flows used in operating activities consisted of our net loss of $8.3 million, offset by changes in our operating assets and liabilities of $67,000 and non-cash charges of $422,000. Our net loss was primarily attributed to research and development activities and our selling, general and administrative expenses, as we generated limited product sales and grant revenue during the year. Net cash generated by changes in our operating assets and liabilities consisted primarily of a $215,000 increase in accrued expenses and accounts payable and a $12,000 decrease in other assets, offset by increases of $56,000 in net inventories, $52,000 in prepaid expenses and $52,000 in net accounts receivable.

Cash Flows from Investing Activities—Cash flows used in investing activities primarily consist of the purchase of property and equipment, offset by any proceeds received in connection with sales of property and equipment. In 2022, our purchases were $74,000 higher than 2021, slightly offset by an increase of $3,000 in proceeds received on sales of property and equipment.

Cash Flows from Financing Activities—Financing activities provide cash for both day-to-day operations and capital requirements as needed. In 2022, net cash provided by financing activities consisted of $4.2 million in net proceeds from the issuance of common stock, partially offset by $32,000 of repayments related to notes payable and finance lease obligations. In 2021, net cash provided by financing activities consisted of $12.4 million in net proceeds from the issuance of common stock and $1.3 million in proceeds from warrant exercises, partially offset by $93,000 of repayments related to notes payable and finance lease obligations.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:

Inventory Valuation. We value inventory at the lower of cost or net realizable value. In addition, we write down any obsolete, unmarketable or otherwise impaired inventory to net realizable value. The determination of obsolete, or excess inventory requires us to estimate the future demand for our products. The estimate of future demand is compared to inventory levels to determine the amount, if any, of obsolete or excess inventory. If actual market conditions are less favorable than those we projected at the time the inventory was written down, additional inventory write-downs may be required. Inventory valuation is re-evaluated on a quarterly basis.

Stock-Based Compensation. Stock-based compensation expenses is measured at the grant date, based on the estimated fair value of the award using the Black-Scholes option pricing model for stock options and market price for restricted stock units. The use of the Black-Scholes option pricing model, requires certain estimates, including expected term of options granted, the method of calculating expected volatilities and the risk-free interest rate used in the option-pricing model. The resulting calculated fair value of stock options is recognized as compensation expenses over the requisite service period, which is generally the vesting period. When there are changes to the assumptions used in the option-pricing model, including fluctuations in the market prices of our common stock, there will be variations in the calculated fair value of our

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future stock option awards, which results in variation in the stock-based compensation expensed recognized. Additionally, any modification of an award that increases its fair value will require us to recognize additional expense.

Income Taxes. We record deferred income taxes for temporary difference between the amounts of assets and liabilities for financial and tax reporting purposes and we record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We also regularly conduct a comprehensive review of our uncertain tax positions. In this regard, an uncertain tax position represents our expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. Until these positions are sustained by the taxing authorities, we do not recognize the tax benefit resulting from such positions and report the tax effect for uncertain tax positions in our balance sheets.

Off-Balance Sheet Arrangements

None.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The following financial statements and report are included in Item 8:

Report of Independent Registered Public Accounting Firm (PCAOB ID 2738) F-2

Statements of Cash Flows for the years ended December 31, 2022 and 2021 F-6

Notes to Financial Statements F-7

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of SenesTech, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of SenesTech, Inc. (the Company) as of December 31, 2022 and 2021, and the related statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Equity Transactions

As discussed in Note 9 to the financial statements, the Company issues options and warrants. The proper valuation of options and warrants requires significant management judgment in determining the volatility and method used to calculate the option and warrant values.

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To evaluate the appropriateness of the model and estimates determined by management, we examined and evaluate the model, and the time period and stock prices used in determining the valuation of the options and warrants issued.

/s/ M&K CPAS, PLLC

We have served as the Company’s auditor since 2017.

Houston, TX

March 16, 2023

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SENESTECH, INC.

BALANCE SHEETS

(In thousands, except share and per share data amounts)

As of December 31,

ASSETS

Current assets:

Cash and cash equivalents $ 4,775 $ 9,326

Accounts receivable, net 113 77

Right to use assets, operating leases 347 511

Property and equipment, net 294 334

Other noncurrent assets 22 22

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Short-term debt $ — $ 32

Current portion of operating lease liability 180 164

Deferred revenue 44 —

Operating lease liability, less current portion 179 359

Commitments and contingencies (see notes)

Stockholders’ equity:

Total liabilities and stockholders’ equity $ 6,782 $ 11,501

See accompanying notes to the financial statements.

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SENESTECH, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

Years Ended December 31,

Revenues:

Grant revenue — 24

Operating expenses:

Selling, general and administrative 8,279 7,224

Other income (expense):

Interest income 7 4

Interest expense (2) (11)

Payroll Protection Program loan forgiveness — 651

Miscellaneous income (expense) (26) 22

Other income (expense), net (21) 666

Net loss and comprehensive loss (9,695) (8,268)

Weighted average shares outstanding - basic and diluted 625,401 559,591

Loss per share - basic and diluted $ (15.50) $ (14.77)

See accompanying notes to the financial statements.

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SENESTECH, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except shares)

Additional Paid-In Capital Accumulated Deficit Total

Common Stock

Shares Amount

Stock-based compensation — — 765 — 765

Issuance of common stock for services 1,047 — — — —

Stock-based compensation — — 707 — 707

Issuance of common stock upon exercise of warrants 131,000 — — — —

Issuance of common stock for services 679 — 4 — 4

See accompanying notes to the financial statements.

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SENESTECH, INC.

STATEMENTS OF CASH FLOWS

(In thousands)

Years Ended December 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 183 303

Stock-based compensation 711 765

Paycheck Protection Program loan forgiveness — (646)

Loss on sale of equipment 28 —

Bad debt expense 6 —

Changes in operating assets and liabilities:

Accounts receivable (42) (52)

Other assets — 12

Prepaid expenses (148) (52)

Deferred revenue 44 —

Net cash used in operating activities (8,577) (7,779)

Cash flows from investing activities:

Proceeds received on sale of property and equipment 4 1

Purchase of property and equipment (174) (100)

Net cash used in investing activities (170) (99)

Cash flows from financing activities:

Proceeds from the issuance of common stock, net 4,228 12,421

Repayments of notes payable (5) (39)

Repayments of finance lease obligations (27) (54)

Proceeds from the exercise of warrants — 1,250

Payment of employee withholding taxes related to share based awards — (17)

Net cash provided by financing activities 4,196 13,561

Increase (decrease) in cash and cash equivalents (4,551) 5,683

Cash and cash equivalents, beginning of year 9,326 3,643

Cash and cash equivalents, end of year $ 4,775 $ 9,326

Supplemental disclosures of cash flow information:

Cash paid for:

Interest paid $ 1 $ 11

Income taxes paid — —

See accompanying notes to the financial statements.

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SENESTECH, INC.

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

Nature of Business

SenesTech, Inc. (referred to in this report as “SenesTech,” the “Company,” “we” or “us”) was incorporated in the state of Nevada in July 2004. On November 15, 2015, the Company subsequently reincorporated in the state of Delaware. Our corporate headquarters and manufacturing site are in Phoenix, Arizona. We have developed and are commercializing a global, proprietary technology for managing animal pest populations, initially rat populations, through fertility control with our product known as ContraPest.

ContraPest is a liquid bait containing the active ingredients 4-vinylcyclohexene diepoxide and triptolide. ContraPest limits reproduction of male and female rats beginning with the first breeding cycle following consumption. ContraPest is being marketed for use in controlling Norway and roof rat populations. In addition to the EPA registration of ContraPest in the United States, we must obtain registration from the various state regulatory agencies prior to selling in each state. To date, we have received registration for ContraPest in all 50 states and the District of Columbia, 48 of which have approved the removal of the Restricted Use designation, as well as the District of Columbia and five major U.S. territories.

Reverse Stock Split

On November 15, 2022, 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 financial statements and notes thereto give retrospective effect to the reverse stock split for all periods presented. All issued and outstanding common stock, options and warrants exercisable for common stock, restricted stock units and per share amounts contained in our financial statements have been retrospectively adjusted.

Going Concern

Although our audited financial statements for the years ended December 31, 2022 and December 31, 2021 were prepared under the assumption that we would continue our operations as a going concern, the report of our independent registered public accounting firm that accompanies our financial statements for the years ended December 31, 2022 and December 31, 2021 contains a going concern qualification in which such firm expressed substantial doubt in our ability to continue as a going concern without additional capital from becoming available, based on the financial statements at that time. Specifically, as noted above, we have incurred operating losses since our inception, and we expect to continue to incur significant expenses and operating losses for the foreseeable future. These prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. If we encounter continued issues or delays in the commercialization of ContraPest, our prior losses and expected future losses could have an adverse effect on our financial condition and negatively impact our ability to fund continued operations, obtain additional financing in the future and continue as a going concern. There are no assurances that such financing, if necessary, will be available to us at all or will be available in sufficient amounts or on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we are unable to generate additional funds in the future through financings, sales of our products, licensing fees, royalty payments or from other sources or transactions, we will exhaust our resources and will be unable to continue operations.

Need for Additional Capital

Since our inception, we have sustained significant operating losses in the course of our research and development and commercialization activities and expect such losses to continue for the near future. We have generated limited revenue to date from product sales, research grants and licensing fees from a former license. We have primarily funded our operations to date through the sale of equity securities, including convertible preferred stock, common stock and warrants to purchase common stock; and debt financing, consisting primarily of convertible notes. As of December 31, 2022, we had an accumulated deficit of $122.2 million and cash and cash equivalents of $4.8 million.

In April 2020, we received cash proceeds of $645,700 from the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). We used the proceeds from the PPP loan to retain employees,

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SENESTECH, INC.

NOTES TO THE FINANCIAL STATEMENTS, continued

maintain payroll and make lease, interest and utility payments. In June 2021, the Company received notification from BMO Harris Bank National Association as the lender in a promissory note pursuant to the CARES Act, that this loan was forgiven in full under the terms of the program.

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

Based upon our current operating plan, we expect that cash and cash equivalents at December 31, 2022, in combination with anticipated revenue and any additional sales of our equity securities, will be sufficient to fund our current operations for at least the next 12 months. We have evaluated and will continue to evaluate our operating expenses and will concentrate our resources toward the successful commercialization of ContraPest in the United States. However, if anticipated revenue targets and margin targets are not achieved or expenses are more than we have budgeted, we may need to raise additional financing before that time. If we need more financing, including within the next 12 months, and we are unable to raise necessary capital through the sale of our securities, we may be required to take other measures that could impair our ability to be successful and operate as a going concern. In any event, we may require additional capital in order to fund our operating losses and research and development activities before we become profitable and may opportunistically raise capital. We may never achieve profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise capital through equity or debt financing. If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit or terminate commercialization and development efforts or discontinue operations.

Use of Estimates

The preparation of our financial statements and related disclosures in accordance with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different conditions.

Reclassifications

To conform with the 2022 presentation, we have reclassified (i) Deposits of $22,000 with Other noncurrent assets and (ii) provided separate presentation of Current portion of operating lease liability of $164,000 from Operating lease liability in the balance sheet as of December 31, 2021. In addition, we have reclassified $22,000 to Miscellaneous income from Paycheck Protection Program loan forgiveness in the statement of operations and comprehensive loss for the year ended December 31, 2021. These reclassifications had no impact on our statement of cash flows for the year ended December 31, 2021.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

Highly liquid investments with maturities of three months or less as the date of acquisition are classified as cash equivalents, of which we had $4.4 million and $8.8 million as of December 31, 2022 and 2021, respectively, included within Cash and cash equivalents in the balance sheets.

Accounts Receivable

Accounts receivable are recorded at invoiced amounts based on standard prices and do not bear interest. We provide an allowance for doubtful receivables equal to the estimated uncollectible amounts. That estimate is based on historical

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collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. Provisions for uncollectible accounts receivable are charged to Selling, general and administrative expense, with an offsetting credit to the allowance for uncollectible accounts.

Inventories

Inventories consist of raw materials, work in progress and finished goods and are stated at the lower of cost or market value, using the first-in, first-out convention. Cost includes the acquired cost of raw materials, with work-in-progress and finished goods including the application of labor and overhead costs related to the manufacturing process. Raw materials are stocked to reduce the risk of impact on manufacturing for any potential supply interruptions or long lead times on certain ingredients.

Reserves for obsolete inventory consist of reserves primarily related to obsolete product containers and delivery systems.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Equipment held under finance leases are stated at the present value of minimum lease payments less accumulated amortization.

Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the respective assets as follows:

Research and development equipment 5 years

Office and computer equipment 3 years

Autos 5 years

Furniture and fixtures 7 years

The cost of leasehold improvements is amortized over the life of the improvement or the term of the lease, whichever is shorter. Equipment held under finance leases are amortized over the shorter of the lease term or estimated useful life of the asset. The Company incurs maintenance costs on its major equipment. Repair and maintenance costs are expensed as incurred.

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require long-lived assets or asset groups to be tested for possible impairment, the Company compares the undiscounted cash flows expected to be generated from the use of the asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques, such as discounted cash flow models and the use of third- party independent appraisals. We have not recorded an impairment of long-lived assets since our inception.

Revenue Recognition

In accordance with Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers (“ASC 606”), we recognize revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

We recognize revenue when product is shipped at a fixed selling price on payment terms of 30 to 120 days from invoicing. We recognize other revenue earned from pilot studies, consulting and implementation services upon the performance of specific services under the respective service contract.

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We derive revenue primarily from commercial sales of products, net of discounts and promotions, as well as consulting and implementation services provided in conjunction with our product deployments.

Research and Development

Research and development costs are expensed as incurred. Research and development expenses primarily consist of salaries and benefits for research and development employees, stock-based compensation, consulting fees, lab supplies, costs incurred related to conducting scientific trials and field studies, regulatory compliance costs, as well as manufacturing costs associated with process improvement and other research. Research and development expenses include an allocation of facilities related costs, including depreciation of equipment.

Stock-based Compensation

Stock-based awards, consisting of stock options and restricted stock units expected to be settled in shares of our common stock, are recorded as equity awards. The grant date fair value of these awards is measured using the Black-Scholes option pricing model for stock options and grant date market value for restricted stock units. We expense the grant date fair value of our stock-based awards on a straight-line basis over their respective vesting periods.

Advertising Costs

Advertising costs are expensed as incurred and was $369,000 and $431,000 for the years ended December 31, 2022 and 2021, respectively.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities and net operating loss carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. These deferred tax assets are subject to periodic assessments as to recoverability and if it is determined that it is more likely than not that the benefits will not be realized, valuation allowances are recorded which would increase the provision for income taxes. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. We currently maintain a full valuation allowance against its deferred tax assets.

We apply a more-likely-than-not recognition threshold for all tax uncertainties. Only those benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities are recognized. Based on our evaluation, we have concluded there are no significant uncertain tax positions requiring recognition in our financial statements.

We recognize interest and/or penalties related to uncertain tax positions in income tax expense. There are no uncertain tax positions as of December 31, 2022 or December 31, 2021 and as such, no interest or penalties were recorded in income tax expense.

Comprehensive Loss

We have no other comprehensive income items for the periods presented. As a result, our net loss and comprehensive loss were the same for all periods presented and a separate statement of comprehensive loss is not included in the accompanying financial statements.

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NOTE 3: BALANCE SHEET COMPONENTS

Accounts Receivable, Net

Accounts receivable, net consist of the following (in thousands):

As of December 31,

Accounts receivable $ 119 $ 77

Allowance for uncollectible accounts (6) —

Accounts receivable, net $ 113 $ 77

The following is the activity in the allowance for uncollectible accounts (in thousands):

Years Ended December 31,

Balance as of beginning of year $ — $ —

Increase in provision 8 —

Amounts written off, less recoveries (2) —

Balance as of end of year $ 6 $ —

Inventory, Net

Inventory, net consist of the following (in thousands):

As of December 31,

Work in progress 0 5

Reserve for obsolescence (18) (29)

The following is the activity in the reserve for obsolescence (in thousands):

Years Ended December 31,

Balance as of beginning of year $ 29 $ 123

Increase in reserve — 13

Amounts relieved (11) (107)

Balance as of end of year $ 18 $ 29

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Prepaid Expenses

Prepaid expenses consist of the following (in thousands):

As of December 31,

Software licenses $ 157 $ 14

Marketing programs and conferences 74 66

Professional services 41 —

Other 6 —

Total prepaid expenses $ 378 $ 230

Property and Equipment, Net

Property and equipment, net consist of the following (in thousands):

As of December 31,

Research and development equipment $ 1,558 $ 1,425

Office and computer equipment 800 762

Furniture and fixtures 41 41

Accumulated depreciation and amortization (2,283) (2,105)

Construction in progress 5 45

Property and equipment, net $ 294 $ 334

During the years ended December 31, 2022 and 2021, depreciation and amortization expense was $183,000 and $303,000, respectively.

Accrued Expenses

Accrued expenses consist of the following (in thousands):

As of December 31,

Compensation, severance and related benefits $ 497 $ 524

Product warranty 18 18

Personal property and franchise tax 6 5

Total accrued expenses $ 560 $ 578

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NOTE 4: FAIR VALUE MEASUREMENTS

The accounting guidance for fair value, among other things, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The framework for measuring fair value consists of a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1 —Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2 —Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3 —Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques:

A.Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

B.Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).

C.Income approach: Techniques to convert future amounts to a single present amount based upon market expectations, including present value techniques, option-pricing and excess earnings models.

Financial Instruments Not Carried at Fair Value

The carrying amounts of our financial instruments, including accounts payable and accrued liabilities, approximate fair value due to their short maturities. The estimated fair value of the long-term debt, not recorded at fair value, are recorded at cost or amortized cost, which was deemed to estimate fair value.

NOTE 5: LEASES

We determine if an arrangement is a lease at inception and whether the arrangement is classified as an operating or finance lease. At commencement of the lease, we record a right-of-use (“ROU”) asset and lease liability in the balance sheet based on the present value of lease payments over the term of the arrangement. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. If the implicit rate is not readily determinable in the contract, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Contract terms may

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include options to extend or terminate the lease, and, when we deem it is reasonably certain that we will exercise that option, it is included in the ROU asset and liability.

Operating leases reflect lease expense on a straight-line basis, while any finance leases result in the separate presentation of interest expense on the lease liability and amortization expense of the ROU asset.

We have operating leases for our corporate headquarters and our manufacturing and research facility, which expire in 2024. We were obligated under finance leases for certain research and computer equipment, of which the last arrangement expired in July 2023.

The components of lease cost are as follows (in thousands):

Years Ended December 31,

Operating lease cost $ 222 $ 222

Finance lease cost:

Amortization of ROU asset 35 86

Interest on lease liability 1 6

Total finance lease cost $ 36 $ 92

As of December 31, 2022, maturities of operating lease liabilities are follows (in thousands):

Years Ending December 31:

Total operating lease payments 384

Less imputed interest (25)

Total operating lease liabilities $ 359

NOTE 6: STOCK-BASED COMPENSATION

In 2018, our stockholders approved the adoption of the SenesTech, Inc. 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan has since been amended and restated on certain occasions, most recently on October 12, 2022, when our stockholders approved an increase to the total number of authorized shares to 348,614 shares.

Stock options are generally issued with a per share exercise price equal to the fair market value of our common stock at the date of grant. Options granted generally vest immediately, or ratably over a two- to 36-month period coinciding with their respective service periods, with terms of generally five years. Certain stock option awards provide for accelerated vesting upon a change in control.

As of December 31, 2022, we had 164,486 shares of common stock available for issuance under the 2018 Plan.

Stock Options

We measure the fair value of stock options with service-based vesting criteria to employees, directors and consultants on the date of grant using the Black-Scholes option pricing model. The Black-Scholes valuation model requires us to make certain estimates and assumptions, including assumptions related to the expected price volatility of our stock, the period during which the options will be outstanding, the rate of return on risk-free investments, and the expected dividend yield for our stock.

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Fair value of options granted is determined using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate 3.7 % 0.5 %

Expected dividend yield — % — %

Expected volatility 90.5 % 95.8 %

Expected term (in years) 3.3 3.0

Due to our 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 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 we do 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 our 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 our history and expectation of dividend payouts. We have not paid and do not intend to pay dividends.

The stock option activity consists of the following:

Exercised — — — $ —

Forfeited (165) — — $ —

Expired (200) — — $ —

Exercised — — — $ —

Forfeited (15,343) — — $ —

Expired (200) — — $ —

The weighted average grant date fair value of options granted to employees for the year ended December 31, 2022 was $3.42 per share.

As of December 31, 2022, the unrecognized stock-based compensation cost was $569,000, which is expected to be recognized over a weighted average period of 28 months.

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Restricted Stock Units

The restricted stock unit activity consists of the following:

Number ofUnits Weighted AverageGrant Date Fair Value Per Unit

Granted — —

Forfeited — —

Forfeited — —

The stock-based compensation expense was recorded as following (in thousands):

Years Ended December 31,

Research and development $ 3 $ 3

General and administrative 708 762

Total stock-based compensation expense $ 711 $ 765

NOTE 7: INCOME TAXES

Our losses before income taxes for the years ended December 31, 2022 and December 31, 2021 were generated entirely from U.S. operations.

We have no current or deferred provision for income taxes from continuing operations for the years ended December 31, 2022 and 2021.

The significant differences between the U.S. Federal statutory rate and our effective rate for financial reporting purposes are as follows:

Years Ended December 31,

Federal statutory tax rate (21.0) % (21.0) %

State taxed, net of federal tax benefit (3.7) (4.0)

Change in valuation allowance 14.3 23.9

Return-to-provision and other 7.9 1.3

Stock-based compensation 2.5 1.4

PPP loan forgiveness — (1.7)

Effective tax rate — % — %

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Deferred income tax assets and liabilities consist of the following (in thousands):

As of December 31,

Deferred income tax assets:

Federal and state net operating loss carryovers $ 20,498 $ 19,448

Capitalized research costs 432 —

Stock-based compensation 253 333

Compensation accruals and other 92 139

Operating leases related to ROU assets 89 130

Deferred revenue 11 —

Depreciation 8 —

Other 1 —

Valuation allowance for deferred income tax assets (21,298) (19,916)

Deferred income tax assets, net of valuation allowance 86 134

Deferred income tax liabilities:

Depreciation — (7)

Total deferred income tax liabilities (86) (134)

Deferred income tax assets, net $ — $ —

A valuation allowance has been recognized to offset the net deferred tax assets as realization of such deferred tax assets have not met the more likely than not threshold.

As of December 31, 2022, we had federal and state net operating loss carryforwards of approximately $84.5 million and $71.0 million, respectively, not considering the IRC Section 382 annual limitation discussed below. The federal loss carryforwards begin to expire in 2029, unless previously utilized. In addition, we have approximately $40.1 million of the total $84.5 million of net operating losses that do not expire, as these losses were generated after the law change introduced as part of the Tax Cuts and Jobs Act. The state net operating losses expire if not utilized by 2042.

Additionally, the utilization of the net operating loss carryforwards could be subject to an annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state tax provisions due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes limit the amount of net operating loss carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. We have not conducted an analysis of an ownership change under section 382. To the extent that a study is completed and an ownership change is deemed to occur, our net operating losses could be limited.

We do not have any unrecognized tax benefits at the beginning and end of the years ended December 31, 2022 and 2021, and do not expect a significant change in unrecognized tax benefits over the next 12 months.

We file income tax returns in the United States and Arizona with general statutes of limitations of three and four years, respectively. Due to net operating losses incurred, our tax returns from inception to date are subject to examination by taxing authorities. Our policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. As of December 31, 2022, we had no interest or penalties accrued related to uncertain tax positions.

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NOTE 8: STOCKHOLDERS’ EQUITY

Preferred Stock

We are authorized to issue 10 million shares of preferred stock with a par value of $0.001. Rights and any series designation would be established at time of issuance of preferred stock. As of December 31, 2022 and 2021 there was no preferred stock outstanding.

Common Stock

We are authorized to issue 100 million shares of common stock with a par value of $0.001 per share. Stockholders of common stock have unlimited voting rights and are entitled to receive the net assets of the Company upon dissolution, subject to the rights of the preferred stockholders, if any.

We had the following common stock offerings in 2022 and 2021:

November 2022. We consummated a private placement with certain institutional and accredited investors and issued an aggregate of 67,572 shares of our common stock at a purchase price of $3.50 per share, pre-funded warrants to purchase up to an aggregate of 1,361,000 shares of common stock at a purchase price of $3.50 per pre-funded warrant (“Pre-Funded Warrants”) and associated warrants to purchase up to an aggregate of 2,857,144 share of common stock at $3.165 per share, for gross proceeds of approximately $5.0 million, prior to deducting placement agent fees and offering expenses. In connection with this offering, we issued the placement agent warrants to purchase up to 107,143 shares of common stock with an exercise price of $4.375 per share.

Of the Pre-Funded Warrants, 131,000 were exercised in December 2022, with the remaining 1,230,000 exercised in early 2023.

The common stock, Pre-Funded Warrants and warrants sold in this November 2022 public offering were offered and sold pursuant to a registration statement on Form S-1 (File No. 333-267991) initially filed with the SEC on October 24, 2022, as amended, which was declared effective by the SEC on November 16, 2022.

March 2021. We consummated a registered direct offering with certain institutional investors and issued an aggregate of 98,750 shares of our common stock at a purchase price of $40.00 per share for gross proceeds of approximately $3.95 million, pursuant to a prospectus, dated August 24, 2018, and a prospectus supplement, dated March 22, 2021, in connection with a takedown from our shelf registration statement on Form S-3 (File No. 333-225712). In connection with the offering, we issued the placement agent warrants to purchase up to 7,408 shares of common stock at an exercise price per share of $50.00 per share.

February 2021. We consummated a private placement with certain institutional and accredited investors and issued an aggregate of 198,443 shares of our common stock at a purchase price of $45.57 per share, pre-funded warrants to purchase up to an aggregate of 21,000 shares of common stock at a purchase price of $2.2775 per pre-funded warrant and associated warrants to purchase up to an aggregate of 109,730 shares of common stock, for gross proceeds of approximately $10.0 million, prior to deducting placement agent fees and offering expenses. During 2021, all 420,000 pre-funded shares had been distributed. In connection with the offering, we issued the placement agent warrants to purchase up to 329,164 shares of common stock with an exercise price of $2.8481 per share.

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NOTE 9: COMMON STOCK WARRANTS

The following is the activity for common stock warrants:

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As of December 31, 2022, we had 4,414,685 shares of common stock issuable upon exercise of outstanding common stock warrants, at a weighted-average exercise price of $6.58 per share and expiring as follows:

Weighted Average Exercise Price Shares

Years Ending December 31:

Common Stock Warrant Inducement

In June 2018, in order to induce an existing warrant holder to exercise its original warrant representing 2,835 shares of common stock for cash at the $600.00 exercise price for gross proceeds of $1.7 million, we issued to the holder a new warrant to purchase 2,835 shares of common stock at an exercise price of $728.00 per share. In connection with the issuance of these inducement warrants, we recorded stock-based compensation expense of $1,700, representing the fair value of the inducement warrants issued using the Black Scholes model based on the following significant inputs: common stock price of $844.00 per share; comparable company volatility of 72.6%; remaining term of five years; dividend yield of 0%; and risk-free interest rate of 2.8%.

Common Stock Warrants Issued in August 2018 Rights Offering

In August 2018, in connection with a rights offering of 13,393 shares of our common stock, we issued warrants to purchase 13,393 shares of our common stock at an exercise price of $460.00 per share. We estimated the fair value of these warrants to be $3.6 million using a Monte Carlo model based on the following significant inputs: common stock price of $376.00 per share; comparable company volatility of 159.0%; remaining term of five years; dividend yield of 0%; and risk-free interest rate of 2.77%.

In connection with the closing of the August 2018 rights offering, we issued warrants to purchase 670 shares of our common stock at an exercise price of $690.00 per share to Maxim Partners LLC, an affiliate of the dealer-manager of the rights offering. We estimated the fair value of these warrants to be $169,000 using a using a Monte Carlo model based on the following significant inputs: common stock price of $376.00 per share; comparable company volatility of 159.0%; remaining term of five years; dividend yield of 0%; and risk-free interest rate of 2.77%.

Common Stock Warrant Issued to Underwriter of Common Stock Offering

In July 2019, we issued to H.C. Wainwright & Co., as placement agent, a warrant to purchase 419 shares of common stock at an exercise price of $675.00 per share as consideration for providing services in connection with a common stock offering in July 2019.

We estimated the fair value of this warrant to be $127,000 using a lattice model based on the following significant inputs: common stock price of $536.00 per share; comparable company volatility of 133.3%; remaining term of five years; dividend yield of 0%; and risk-free interest rate of 2.07%.

Common Stock Warrants Issued in January 2020 Private Placement

In January 2020, in a private placement concurrent with a registered direct offering of shares of our common stock, we also issued warrants to purchase an aggregate of up to 8,875 shares of common stock to certain institutional and accredited investors that participated in the 2020 Registered Direct Offerings (the “January 2020 Warrants”). These warrants were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder. Terms used but not otherwise defined herein will have the meanings given them in

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the warrants, attached as Exhibit 4.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on January 28, 2020.

We estimated the fair value of the January 2020 Warrants to be $813,000 using a Black Scholes model based on the following significant inputs: common stock price of $158.00 per share; comparable company volatility of 73.8%; remaining term of five years; dividend yield of 0% and risk-free interest rate of 1.53%.

For so long as the January 2020 Warrants remain outstanding, the exercise price and number of shares of common stock issuable upon exercise of these warrants are subject to adjustment as follows: (a) upon payment of a stock dividend or other distribution on a class or series of shares common stock, not including shares issued under this warrant; (b) upon subdivision (by stock spilled, stock dividend, recapitalization, or otherwise) or combination (by reverse stock split or otherwise) of shares of common stock; or (c) upon the issuance of any shares of capital stock by reclassification of shares of the common stock.

In the event that we declare or make any dividend or other distribution of our assets to holders of our common stock, each January 2020 Warrants holder will be entitled to participate in such distribution to the same extent that such holder would have participated therein if the holder had held the number of shares of common stock acquirable upon exercise of the January 2020 Warrants.

In the event of a Fundamental Transaction, as described in the January 2020 Warrants and generally including the sale, transfer or other disposition of all or substantially all of our properties or assets; our consolidation or merger with or into another person or reorganization; a recapitalization, reorganization or reclassification in which our common stock is converted into other securities, cash or property; or any acquisition of our outstanding common stock that results in any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding common stock, then the holders of the 2020 Warrants will be entitled to receive upon exercise of such warrants the kind and amount of securities, cash, assets or other property that the holders would have received had they exercised the January 2020 Warrants immediately prior to such Fundamental Transaction. Subject to certain limitations, in the event of a Fundamental Transaction the January 2020 Warrants holder may at its option require us or any successor entity to purchase such warrant from the holder by paying to the holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of the 2020 Warrant on the date of the consummation of the Fundamental Transaction.

Any time that we grant, issue, or sell any securities pro rata to all of the record holders of our common stock (the “2020 Purchase Right”), each holder of January 2020 Warrants will be entitled to acquire the aggregate amount of securities that the holder could have acquired if the holder had held the number of shares of common stock acquirable upon exercise of the applicable January 2020 Warrants. However, to the extent that an exercise of a 2020 Purchase Right would exceed the Beneficial Ownership Limitation (defined below), then to such extent the 2020 Purchase Right will be held in abeyance until such time, if ever, that complete exercise of the 2020 Purchase Right would not exceed the Beneficial Ownership Limitation.

After the Initial Exercisability Date, the January 2020 Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full for the number of shares of our common stock purchased upon such exercise. If, at the time a holder exercises the January 2020 Warrants (but not sooner than six months following the date of such warrant), a registration statement registering the issuance of the shares of common stock underlying the January 2020 Warrants under the Securities Act is not then effective or available, nor is any current prospectus thereto available, and an exemption from registration under the Securities Act is not available for the issuance of such shares, then in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the number of shares of common stock determined according to a formula set forth in the January 2020 Warrants.

Limitations on Exercise. A holder (together with its affiliates) may not exercise any portion of the January 2020 Warrants to the extent that the holder would own more than 4.99% of the outstanding common stock after exercise (the “Beneficial Ownership Limitation”), except that upon at least 61 days’ prior notice from the holder to us, the holder may increase the Beneficial Ownership Limitation up to 9.99% of the number of shares of our common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the January 2020

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Warrants. No fractional shares of common stock will be issued in connection with the exercise of a January 2020 Warrants. In lieu of fractional shares, we will either pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price or round up to the next whole share.

Except as otherwise provided in the January 2020 Warrants or by virtue of such holder’s ownership of shares of our common stock, the holders of the January 2020 Warrants do not have the rights or privileges of holders of our common stock, including any voting rights, unless and until they exercise such warrants.

Common Stock Warrants Issued in April 2020 Public Offering

In April 2020, in connection with a previously announced public offering of our common stock, we issued warrants to purchase 78,715 shares of common stock at an exercise price of $61.00 to the participants in the public offering (the “April 2020 Warrants”). We estimated the fair value of these warrants to be $2.4 million using a Black Scholes model based on the following significant inputs: common stock price of $48.00 per share; comparable company volatility of 87.9%; remaining term of five years; dividend yield of 0%; and risk-free interest rate of 0.18%.

The common stock, pre-funded warrants and warrants sold in this April 2020 public offering were offered and sold pursuant to a registration statement on Form S-1 (File No. 333-236302) initially filed with the SEC on February 7, 2020, as amended (“Registration Statement”), which was declared effective by the SEC on February 14, 2020. The Post-Effective Amendment No. 2 to the Registration Statement was declared effective by the SEC on April 21, 2020.

Common Stock Warrants Issued to Placement Agent in 2020 Private Placements

In connection with the separate private placements concurrent with registered direct offerings of shares of our common stock, we issued to H.C. Wainwright & Co., LLC, as placement agent, in January 2020, warrants to purchase 667 shares of common stock at an exercise price of $200.00 per share and in March 2020, warrant to purchase 664 shares of common stock at an exercise price of $75.13 per share. These warrants were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder and have substantially similar terms as the January 2020 Warrants described above, except for differing exercise prices.

We estimated the fair value of the January 2020 warrants issued in January to be $58,000 using a Black Scholes model based on the following significant inputs: common stock price of $158.00; comparable company volatility of 73.8%; remaining term of five years; dividend yield of 0% and risk-free interest rate of 1.53%.

We estimated the fair value of the March 2020 warrants to be $17,000 using a Black Scholes model based on the following significant inputs: common stock price of $47.00 per share; comparable company volatility of 74.8%; remaining term of six years; dividend yield of 0%; and risk-free interest rate of 0.39%.

Common Stock Warrants Issued to Placement Agent in 2020 Registered Direct Offering

In connection with the public offering of (preferred or common) stock in April 2020, we issued to H.C. Wainwright & Co., LLC, as placement agent, warrants to purchase 5,906 shares of common stock at an exercise price of $79.40 per share. These warrants were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder, and have substantially similar terms as the April 2020 Warrants described above, except for differing exercise prices.

We estimated the fair value of these warrants to be $167,000 using a Black Scholes model based on the following significant inputs: common stock price of $48.00 per share; comparable company volatility of 87.9%; remaining term of six years; dividend yield of 0%; and risk-free interest rate of 0.18%.

Common Stock Warrants Issued in October 2020 Private Warrant Inducement

In October 2020, in connection with an inducement agreement with an existing accredited investor to exercise 85,034 outstanding warrants to purchase an equal number of shares of our common stock, we issued new unregistered warrants to purchase up to an aggregate of 85,034 shares of common stock at an exercise price of $34.50 per share. The original

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warrants were issued in March and April, 2020, whereby the per share exercise price of the original warrants were reduced from $57.60 per share and $61.00 per share, respectively, to $34.50 per share.

We estimated the fair value of these warrants to be $1.8 million using a Black Scholes model based on the following significant inputs: common stock price of $29.40 per share; comparable company volatility of 96.5%; remaining term of six years; dividend yield of 0%; and risk-free interest rate of 0.18%.

In connection with the November 2022 registered direct offering with certain institutional and accredited investors, we modified the terms of the then outstanding warrants related to 50,000 shares to an exercise price of $3.165 per share and extended the expiration date to November 2027. We estimated the fair value of these warrants to be $110,000 using a Black Scholes model based on the following significant inputs: common stock price of $3.03 per share; comparable company volatility of 93.9%; remaining term of five years; dividend yield of 0%; and risk-free interest rate of 3.83%.

Common Stock Warrants Issued to Placement Agent in October 2020 Inducement Offering

In connection with the private warrant inducement in October 2020 of 85,034 shares of our common warrants, we issued to H.C. Wainwright & Co., LLC, as placement agent, warrants to purchase 4,254 shares of common stock at an exercise price of $43.12 per share. These warrants have substantially similar terms as the January 2020 Warrants described above, except for differing exercise prices.

We estimated the fair value of these warrants to be $86,000 using a Black Scholes model based on the following significant inputs: common stock price of $29.40 per share; comparable company volatility of 96.5%; remaining term of six years; dividend yield of 0%; and risk-free interest rate of 0.18%.

Common Stock Warrants Issued in February 2021 Private Placement Agreement

In February 2021, in connection with a private placement agreement with certain institutional and accredited investors, we issued common stock warrants to purchase up to an aggregate of 109,730 shares of common stock at an exercise price of $44.32 per share. The warrants were exercisable immediately and have an exercise period of five and one-half years from the date of issuance. The warrant holder may not exercise any portion of such holder’s warrants to the extent that the holder, together with its affiliates, would beneficially own more than 4.99% (or, at the election of the holder, 9.99%) of our outstanding shares of common stock immediately after exercise, except that upon at least 61 days’ prior notice from the holder to us, the holder may increase the beneficial ownership limitation to up to 9.99% of the number of shares of common stock outstanding immediately after giving effect to the exercise.

We estimated the fair value of these warrants to be $3.1 million using a Black Scholes model based on the following significant inputs: common stock price of $38.60 per share; comparable company volatility of 95.6%; remaining term of six years; dividend yield of 0% and risk-free interest rate of 0.18%.

In connection with the November 2022 registered direct offering with certain institutional and accredited investors, we modified the terms related to 27,430 shares of these warrants to an exercise price of $3.165 per share and extended the expiration date to November 2027. We estimated the fair value of these warrants to be $60,000 using a Black Scholes model based on the following significant inputs: common stock price of $3.03 per share; comparable company volatility of 93.9%; remaining term of five years; dividend yield of 0%; and risk-free interest rate of 3.83%.

Common Stock Warrants Issued to Placement Agent in February 2021 Private Placement Agreement

In connection with the private placement in February 2021, we issued to H.C. Wainwright & Co., LLC, as placement agent, warrants to purchase up to 16,460 shares of common stock with an exercise price of $56.96 per share.

We estimated the fair value of these warrants to be $435,000 using a Black Scholes model based on the following significant inputs: common stock price of $38.60 per share; comparable company volatility of 95.6%; remaining term six years; dividend yield of 0%; and risk-free interest rate of 0.18%.

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Common Stock Warrants Issued to Placement Agent in March 2021 Registered Direct Offering

In March 2021, we consummated a registered direct offering with certain institutional investors and issued an aggregate of 98,750 shares of our common stock at a purchase price of $40.00 per share for gross proceeds to us of approximately $3.95 million, before deducting fees payable to the placement agent and other estimated offering expenses payable by us. These shares were offered and sold pursuant to a prospectus, dated August 24, 2018, and a prospectus supplement, dated March 22, 2021, in connection with a takedown from our shelf registration statement on Form S-3 (File No. 333-225712).

In connection with the registered direct offering in March 2021, we issued to H.C. Wainwright & Co., LLC, as the placement agent, warrants to purchase up to 7,408 shares of common stock at an exercise price of $50.00 per share . The placement agent warrants, and the shares of common stock issuable upon exercise thereof, will be issued in reliance on the exemption from registration provided in Section 4(a)(2) under the Securities Act of 1933, as amended, and Regulation D promulgated thereunder.

We estimated the fair value of these warrants to be $181,000 using a Black Scholes model based on the following significant inputs: common stock price of $35.20 per share; comparable company volatility of 100.8%; remaining term of five years; dividend yield of 0%; and risk-free interest rate of 0.31%.

Common Stock Warrants Issued in November 2022 Common Stock Offering

In November 2022, in connection with a registered direct offering with certain institutional and accredited investors, we issued common stock warrants as follows:

•Pre-Funded Warrants to purchase up to an aggregate of 1,361,000 shares of common stock at an exercise price of $3.50 per share, which are exercisable immediately and terminate until exercised in full. A portion of the Pre-Funded Warrants were exercised in December 2022, with the last traunch of these warrants being exercised in February 2023. We estimated the fair value of the Pre-Funded Warrants to be $153,000 using a Black Scholes model based on the following significant inputs: common stock price of $3.03 per share; comparable company volatility of 93.9%; remaining term of three months; dividend yield of 0% and risk-free interest rate of 3.83%.

•Series A warrants to purchase up to an aggregate of 1,428,572 shares at an exercise price of $3.165 per share, which are exercisable immediately and expire five years from date of issuance.We estimated the fair value of the Series A warrants to be $3.1 million using a Black Scholes model based on the following significant inputs: common stock price of $3.03 per share; comparable company volatility of 93.9%; remaining term of five years; dividend yield of 0% and risk-free interest rate of 3.83%.

•Series B warrants to purchase up to an aggregate of 1,428,572 shares at an exercise price of $3.165 per share, which are exercisable immediately and expire 13 months from date of issuance. We estimated the fair value of the Series B warrants to be $1.6 million using a Black Scholes model based on the following significant inputs: common stock price of $3.03 per share; comparable company volatility of 93.9%; remaining term of five years; dividend yield of 0% and risk-free interest rate of 3.83%.

Common Stock Warrants Issued to Placement Agent in November 2022 Common Stock Offering

In connection with the registered direct offering in November 2022, we issued to H.C. Wainwright & Co., LLC, as the placement agent, warrants to purchase up to 107,143 shares of common stock. The placement agent warrants will be exercisable commencing six months following the date of issuance, expire five years following the date of sale and have an exercise price per share of $4.375 per share. The placement agent warrants, and the shares of common stock issuable upon exercise thereof, will be issued in reliance on the exemption from registration provided in Section 4(a)(2) under the Securities Act of 1933, as amended, and Regulation D promulgated thereunder.

We estimated the fair value of these warrants to be $240,000 using a Black Scholes model based on the following significant inputs: common stock price of $3.25; comparable company volatility of 93.9%; remaining term five years; dividend yield of 0%; and risk-free interest rate of 3.83%.

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NOTE 10: LOSS PER SHARE

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, restricted stock units 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 years ended December 31, 2022 and 2021. Therefore, basic and diluted loss per share attributable to common stockholders was the same for all periods 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):

December 31,

NOTE 11: CONTINGENCIES

In July 2020, Kennan E. Kaedar, our former corporate general counsel (the “Plaintiff”), commenced an action against us in the Superior Court of the State of California, for the County of San Diego. The complaint alleges, among other things, that we breached the Plaintiff’s employment contract with us, as well as the implied covenant of good faith and fair dealing, by refusing to issue him the balance of stock options he claims we owe him. In September 2021, the Plaintiff also named the following individuals as defendants: Loretta Mayer, Cheryl Dyer, Thomas C. Chesterman, Kim Wolin, Grover Wickersham, Marc Dumont, Bob Ramsey, Matthew Szot, Julia Williams, and Bill Baker. The Plaintiff alleges that such individuals agreed to knowingly and wrongfully withhold the stock options owed to him and are knowingly in receipt of stolen property. The Plaintiff seeks compensatory damages in excess of $500,000, treble damages and reasonable attorneys’ fees. We do not believe the claims described above have merit and intend to aggressively defend against these accusations. We do not believe that this litigation is likely to have a material effect on our operations.

In addition to the matter described above, we may be subject to other legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any other pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effect on our financial position, results of operations or liquidity.

NOTE 12: RELATED PARTY TRANSACTIONS

Related party transactions are conducted in the normal course of business and, unless otherwise noted, are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. In connection with consulting agreements in place, during each of the years ended December 31, 2022 and 2021, $50,400 of cash payments were made to the Kito Impact Foundation of which Dr. Bechtel, the Chair of our board, serves as chief executive officer.

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NOTE 13: SUBSEQUENT EVENTS

Through February 13, 2023, the Pre-Funded Warrants were exercised in full with the issuance of 1,230,000 shares of common stock.

We have evaluated subsequent events from the balance sheet date through March 16, 2023, 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.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In connection with the preparation of this Annual Report on Form 10-K, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, as of December 31, 2022, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. All internal control systems, no matter how well designed, have inherent limitations. Even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management is committed to continue monitoring our internal controls over financial reporting and will modify or implement additional controls and procedures that may be required to ensure the ongoing integrity of our consolidated financial statements.

With the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 2021. In making this assessment, the Company used the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that internal control over financial reporting was effective as of December 31, 2022 based on those criteria.

This annual report does not include an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for smaller reporting companies.

Changes in Internal Control over Financial Reporting