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 current products known as ContraPest and Evolve.

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,49 of which have approved the removal of the Restricted Use designation, as well as the District of Columbia andfive major U.S. territories.

In November 2023, we launched our latest product, Evolve, a soft bait containing the active ingredient cottonseed oil. Evolve limits reproduction of male and female rats after one to two breeding cycles following consumption. Evolve is being marketed for use in controlling rat populations as a minimum risk pesticide under the U.S. Environmental Protection Agency Federal Insecticide, Fungicide, and Rodenticide Act, Section 25(b). We must obtain registration from the various state regulatory agencies that do not accept the federal exemption. To date, we are authorized to sell Evolve in 30 states.

Reverse Stock Split

On November 16, 2023, we amended our amended and restated certificate of incorporation to effect a 1-for-12 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, 2023 and December 31, 2022 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, 2023 and December 31, 2022 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, 2023, we had an accumulated deficit of $129.9 million and cash and cash equivalents of $5.4 million.

Our ultimate success depends upon the outcome of a combination of factors, including the following: (i) successful commercialization of ContraPest and Evolve and maintaining and obtaining regulatory approval of our products and product candidates; (ii) market acceptance, commercial viability and profitability of ContraPest, Evolve 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, 2023, in combination with anticipated revenue, will be sufficient to fund our current operations for at least the next nine months. We have evaluated and will continue to evaluate our operating expenses and will concentrate our resources toward the successful commercialization of ContraPest and Evolve in the United States and globally. 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 nine months, and we are unable to raise necessary capital through the sale of our securities, we may be required to take other measures that could impair our ability to be successful and operate as a going concern. In any event, we may require additional capital in order to fund our operating losses and research and development activities before we become profitable and may opportunistically raise capital. We may never achieve profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise capital through equity or debt financing. If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit or terminate commercialization and development efforts or discontinue operations.

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.

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 $4.2 million and $4.4 million as of December 31, 2023 and 2022, 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 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:

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

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 $238,000 and $369,000 for the years ended December 31, 2023 and 2022, 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 areno 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 areno uncertain tax positions as of December 31, 2023 or December 31, 2022 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.

NOTE 3: BALANCE SHEET COMPONENTS

Accounts Receivable, Net

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

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

Inventory, Net

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

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

Prepaid Expenses

Prepaid expenses consist of the following (in thousands):

Property and Equipment, Net

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

During the years ended December 31, 2023 and 2022, depreciation and amortization expense was $135,000 and $183,000, respectively.

Accrued Expenses

Accrued expenses consist of the following (in thousands):

Notes Payable

In the second half of 2023, we arranged financing for the purchase of certain equipment. The notes payable have an annual interest rate of 9.1% with a term offive years and is secured by the underlying equipment.

As of December 31, 2023, future principal payments were as follows (in thousands):

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 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 2022.

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

As of December 31, 2023, maturities of operating lease liabilities are follows (in thousands):

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 June 23, 2023, when our stockholders approved an increase to the total number of authorized shares to 70,717 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 atwo- 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, 2023, we had 42,008 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.

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

The weighted average fair value of options granted during the years ended December 31, 2023 and 2022 was $14.88 and $41.04 per share, respectively. The risk-free interest rate is estimated using treasury bill interest rates. The expected dividend yield isno as we have not paid any dividends to date and do not expect to pay dividends in the future. Expected volatility is estimated based on the historical volatility of our common stock over the expected term as this represents our best estimate of future volatility. The contractual life of stock options granted isfive years, and we have elected to use the “simplified method” to estimate expected term. Under the simplified method, an option’s expected term is calculated as the average of its vesting period and original contractual life. For non-employee options, the expected term of options granted is the contractual term of the options.

The stock option activity consists of the following:

As of December 31, 2023, the unrecognized stock-based compensation cost was $293,000, which is expected to be recognized over a weighted average period of 13 months.

Restricted Stock Units

The restricted stock unit activity consists of the following:

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

NOTE 7: INCOME TAXES

Our losses before income taxes for the years ended December 31, 2023 and December 31, 2022 were generated entirely from U.S. operations.

We haveno current or deferred provision for income taxes from continuing operations for the years ended December 31, 2023 and 2022.

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

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

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, 2023, we had federal and state net operating loss carryforwards of approximately $91.2 million and $78.0 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 $46.8 million of the total $91.2 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 2043.

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 donot have any unrecognized tax benefits at the beginning and end of the years ended December 31, 2023 and 2022, 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, 2023, we hadno interest or penalties accrued related to uncertain tax positions.

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, 2023 and 2022 there wasno 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 2023 and 2022:

November 2022. We consummated a private placement with certain institutional and accredited investors and issued an aggregate of 5,631 shares of our common stock at a purchase price of $42.00 per share, pre-funded warrants to purchase up to an aggregate of 113,416 shares of common stock at a purchase price of $42.00 per pre-funded warrant (“November 2022 Pre-Funded Warrants”) and associated warrants to purchase up to an aggregate of 238,094 share of common stock at $37.98 per share (“Series A” and “Series B” warrants), for gross proceeds of approximately $5.0 million, prior to deducting placement agent fees and offering expenses of $770,000. In connection with this offering, we issued the placement agent warrants to purchase up to 8,931 shares of common stock with an exercise price of $52.50 per share.

Of the November 2022 Pre-Funded Warrants,10,916 were exercised in December 2022, with the remaining 102,500 exercised in early 2023.

The common stock, November 2022 Pre-Funded Warrants and Series A and Series B warrants issued in this November 2022 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.

April 2023. We consummated a registered direct offering with certain institutional investors and issued an aggregate of 71,429 shares of our common stock at a purchase price of $21.00 per share and warrants to purchase up to an aggregate of 71,430 shares of common stock at a purchase price of $19.44 per share (“Series C” warrants), for gross proceeds of approximately $1.5 million, prior to deducting placement agent fees and offering expenses of $290,000. In connection with this offering, we issued the placement agent warrants to purchase up to 5,359 share of common stock with an exercise price of $26.25 per share.

The common stock and Series C warrants issued in this April 2023 offering were offered and sold pursuant to a shelf registration statement on Form S-3 (File No. 333-261227) initially filed with the SEC on November 19, 2021, as amended, which was declared effective by the SEC on May 6, 2022, and a prospectus supplement dated April 10, 2023.

November 2023. We consummated a private placement with certain institutional and accredited investors and issued an aggregate of 450,306 shares of our common stock at a purchase price of $1.30 per share, pre-funded warrants to purchase up to an aggregate of 3,395,848 shares of common stock at a purchase price of $1.30 per pre-funded warrant (“November 2023 Pre-Funded Warrants”) and associated warrants to purchase up to an aggregate of 7,692,308 shares of common stock at $1.30 per share (“Series D” and “Series E” warrants), for gross proceeds of approximately $5.0 million, prior to deducting placement agent fees and offering expenses of $800,000. In connection with this offering, we issued the placement agent warrants to purchase up to 288,462 shares of common stock with an exercise price of $1.630 per share.

All of the November 2023 Pre-Funded Warrants were exercised by December 31, 2023.

The common stock, November 2023 Pre-Funded Warrants and Series D and Series E warrants issued in this November 2023 offering were offered and sold pursuant to a registration statement on Form S-1 (File No. 333-273370) initially filed with the SEC on July 21, 2023, as amended, which was declared effective by the SEC on November 27, 2023.

NOTE 9: COMMON STOCK WARRANTS

The following is the activity for common stock warrants:

As of December 31, 2023, we had 7,775,734 shares of common stock issuable upon exercise of outstanding common stock warrants, at a weighted-average exercise price of $2.95 per share and expiring as follows:

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 113,416 shares of common stock at an exercise price of $42.00 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 $36.36 per share; comparable company volatility of 93.9%; remaining term ofthree months; dividend yield of 0% and risk-free interest rate of 3.8%.

•Series A warrants to purchase up to an aggregate of 119,047 shares at an exercise price of $37.980 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 $36.36 per share; comparable company volatility of 93.9%; remaining term offive years; dividend yield of 0% and risk-free interest rate of 3.8%.

•Series B warrants to purchase up to an aggregate of 119,047 shares at an exercise price of $37.98 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 $36.36 per share; comparable company volatility of 93.9%; remaining term offive years; dividend yield of 0% and risk-free interest rate of 3.8%.

In August 2023, certain terms of the Series A and Series B warrants were modified to induce exercise. The exercise price was reduced to $8.64 per share, and the warrants were exercised in full (“Warrant Inducement Transaction”). The offsetting impact related to the warrant inducement transaction was $657,000 , which was calculated as the difference between the fair value of the warrants immediately prior to modification and immediately after modification using the Black-Scholes model based on the following significant inputs: common stock price of $8.18 per share; volatility of 96%; term of 2.3 years; dividend yield of 0%; and risk-free rate of 5.0%.

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 the placement agent, warrants to purchase up to 8,931 shares of common stock. The placement agent warrants will be exercisable commencingsix months following the date of issuance, expire five years following the date of sale and have an exercise price per share of $52.50 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 $39.00; comparable company volatility of 93.9%; remaining term five years; dividend yield of 0%; and risk-free interest rate of 3.8%.

Common Stock Warrants Issued in April 2023 Registered Direct Offering

In April 2023, Series C warrants were issued to the investors to purchase up to 71,430 shares of our common stock. The Series C warrants are exercisable immediately with an exercise price of $19.44 per share and expire October 12, 2028. We estimated the fair value of these warrants to be $1.1 million using a Black-Scholes model based on the following significant inputs: common stock price of $16.56 per share; volatility of 164%; term of 5.5 years; dividend yield of 0%; and risk-free interest rate of 3.4%.

In April 2023, placement agent warrants were issued to purchase up to 5,359 shares of our common stock. The placement agent warrants are exercisable immediately upon issuance, with an exercise price per share of $26.25 per share, and expire April 10, 2028. We estimated the fair value of these warrants to be $82,000 using a Black-Scholes model based on the following significant inputs: common stock price of $16.56 per share; volatility of 165%; term of 5 years; dividend yield of 0%; and risk-free interest rate of 3.5%.

Common Stock Warrants Issued in August 2023 Private Inducement

In August 2023, in connection with the Warrant Inducement Transaction, warrants were issued to the investor in the Warrant Inducement Transaction to purchase up to 489,097 shares of our common stock. These warrants are exercisable immediately with an exercise price of $8.64 per share, with 251,001 expiring August 2028 (“5-Year Warrants”) and 238,096 expiring September 2024 (“13-Month Warrants”). We estimated the fair value of the 5-Year Warrants to be $1.5 million using a Black-Scholes model based on the following significant inputs: common stock price of $8.18 per share; volatility of 98%; term of 5 years; dividend yield of 0%; and risk-free rate of 4.4%. The fair value of the 13-Month Warrants was estimated to be $930,000 using the Black-Scholes model based on the following significant inputs: common stock price of $8.18 per share; volatility of 122%; term of 1.1 years; dividend yield of 0%; and risk-free rate of 4.4%.

In August 2023, placement agent warrants were issued to purchase up to 12,229 shares of our common stock. The placement agent warrants are exercisable immediately upon issuance, with an exercise price per share of $10.80 per share, and expire August 2028. We estimated the fair value of these warrants to be $72,000 using a Black-Scholes model based on the following significant inputs: common stock price of $8.18 per share; volatility of 98%; term of 5 years; dividend yield of 0%; and risk-free interest rate of 5.4%.

Common Stock Warrants Issued in November 2023 Common Stock Offering

In November 2023, 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 3,395,848 shares of common stock at an exercise price of $1.30 per share, which are exercisable immediately and terminate only when exercised in full. These warrants were exercised in full by December 31, 2023. We estimated the fair value of the Pre-Funded Warrants to be $685,000 using a Black Scholes model based on the following significant inputs: common stock price of $0.93 per share; volatility of 262%; remaining term ofone month; dividend yield of 0% and risk-free interest rate of 5.5%.

•Series D warrants to purchase up to an aggregate of 3,846,154 shares at an exercise price of $1.30 per share, which are exercisable immediately and expire November 2028.We estimated the fair value of the Series D warrants to be $2.6 million using a Black Scholes model based on the following significant inputs: common stock price of $0.93 per share; volatility of 103%; remaining term of 5 years; dividend yield of 0% and risk-free interest rate of 4.2%.

•Series E warrants to purchase up to an aggregate of 3,846,154 shares at an exercise price of $1.30 per share, which are exercisable immediately and expire May 2025. We estimated the fair value of the Series E warrants to be $1.8 million using a Black Scholes model based on the following significant inputs: common stock price of $0.93 per share; volatility of 128%; remaining term of 1.5 years; dividend yield of 0% and risk-free interest rate of 4.6%.

Common Stock Warrants Issued to Placement Agent in November 2023 Common Stock Offering

In connection with the registered direct offering in November 2023, we issued to the placement agent, warrants to purchase up to 288,462 shares of common stock. The placement agent warrants will be exercisable commencingsix months following the date of issuance, expire five years following the date of sale and have an exercise price per share of $1.63 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 $189,000 using a Black Scholes model based on the following significant inputs: common stock price of $0.93 per share; volatility of 103%; remaining term offive years; dividend yield of 0%; and risk-free interest rate of 4.2%.

NOTE 10: LOSS PER SHARE

Basic loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period, which includes prefunded warrants and any shares held in abeyance from date of issuance. Diluted loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares used in the basic loss per share calculation plus potentially dilutive securities outstanding during the period determined using the treasury stock method. Stock options, warrants and restricted stock units 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, 2023 and 2022. Therefore, basic and diluted loss per share was the same for all periods presented.

The following shares were excluded from the calculation of diluted loss per share:

NOTE 11: CONTINGENCIES

In July 2020, 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 alleged, 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 claimed that we owed him. In September 2021, the Plaintiff served us and also named 10 individuals as defendants, consisting of current and former directors and employees. The Plaintiff alleged that such individuals agreed to knowingly and wrongfully withhold the stock options owed to him and were knowingly in receipt of stolen property. In November 2023, this legal matter was settled for $185,000.

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, 2023 and 2022, $4,200 and $50,400, respectively, of cash payments were made to the Kito Impact Foundation of which the Chair of our board, serves as chief executive officer.

NOTE 13: SUBSEQUENT EVENTS

Subsequent to December 31, 2023,4,608 shares of common stock were issued pursuant to the exercise of certain warrants for gross proceeds of $6,000.

We have evaluated subsequent events from the balance sheet date through February 21, 2024, 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.