SenesTech(SNES) - 2021 Q4 - Annual Report

Part I Business SenesTech commercializes proprietary fertility control technology for animal pest management, initially targeting rats with its non-lethal ContraPest bait - The company's core technology is a proprietary method for managing animal pest populations through fertility control, with the initial focus on rats[19] - ContraPest, the company's first commercial product, is a liquid bait that targets the reproductive systems of both male and female rats, offering a non-lethal alternative to traditional rodenticides[22][23] - ContraPest has received unconditional registration from the U.S. Environmental Protection Agency (EPA) as a general-use pesticide and is registered in all 50 states and the District of Columbia[24][61] - The company's marketing strategy targets key segments like agribusiness, municipalities, government agencies, and commercial accounts through direct sales, distributors, and e-Commerce[42][43] - SenesTech's intellectual property portfolio includes nine international patent filings for the ContraPest compound, patent applications for a novel bait station, and an exclusive license with the University of Arizona for future product development[68][69] Risk Factors The company faces significant risks related to its sole product's commercialization, regulatory hurdles, supply chain, and ongoing financial viability - The company's success is highly dependent on the successful commercialization of ContraPest, its only product available for sale[76] - The COVID-19 pandemic has adversely affected business by restricting travel for sales and field studies, potentially disrupting manufacturing, and causing supply chain issues for raw materials sourced from Asia[75] - The company has incurred significant operating losses since inception, with a net loss of $8.3 million in 2021 and an accumulated deficit of $112.5 million, raising substantial doubt about its ability to continue as a going concern[128][132] - There is a significant risk related to the supply chain, as the company relies on a single supplier for the critical ingredient triptolide, which is sourced from China and other Asian countries[107][108] - The company's common stock is at risk of being delisted from The Nasdaq Capital Market for failing to meet the minimum bid price requirement of $1.00 per share[146] Properties As of December 31, 2021, SenesTech leases two facilities in Phoenix, Arizona, for its corporate headquarters and manufacturing, with both leases expiring in November 2024 - The company leases two facilities in Phoenix, Arizona: a 5,529 sq. ft. corporate headquarters and a 5,105 sq. ft. manufacturing facility[154] - Both the headquarters and manufacturing facility leases expire on November 30, 2024[154] Legal Proceedings The company is involved in a lawsuit filed by a former general counsel seeking over $500,000 for alleged breach of contract related to stock options - A former general counsel, Kennan E. Kaedar, has sued the company for breach of contract related to stock options, seeking over $500,000 in damages[406] - The company denies the allegations, intends to defend itself aggressively, and does not expect the litigation to have a material impact on its operations[406] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities SenesTech's common stock trades on Nasdaq, and the company has never paid cash dividends, intending to retain earnings for operations and growth - The company's common stock trades on the Nasdaq Capital Market under the symbol "SNES"[158] - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[160] Management's Discussion and Analysis of Financial Condition and Results of Operations SenesTech continues to incur significant operating losses, with increased revenue in 2021 offset by rising expenses, necessitating additional capital for future operations Financial Performance Summary (2021 vs. 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $600 | $282 | +112.8% | | Gross Profit | $244 | $1 | +24300% | | Total Operating Expenses | $9,178 | $7,934 | +15.7% | | Net Operating Loss | ($8,934) | ($7,933) | +12.6% | | Net Loss | ($8,268) | ($7,937) | +4.2% | | Net Loss per Share | ($0.74) | ($2.78) | N/A | - Sales increased by $318,000 (123%) in 2021 compared to 2020, attributed to internet sales initiatives and strategic partnerships, though growth was tempered by the COVID-19 pandemic[190] - Gross profit margin improved significantly to 42.4% in 2021 from less than 1% in 2020, primarily due to increased sales and a $119,000 reserve for obsolete inventory recorded in 2020[192] - Research and Development expenses increased by $460,000 in 2021, driven by higher personnel costs, professional fees, and expenses for field and regulatory studies[193] - Selling, General and Administrative expenses rose by $784,000 in 2021, mainly due to higher salary and incentive compensation costs, and increased marketing expenses for rebranding and online programs[198] - The company received full forgiveness of its $645,700 Paycheck Protection Program (PPP) loan in June 2021, which was recorded as other income[168][204] - The company expects that its cash on hand of $9.3 million as of Dec 31, 2021, will be sufficient to fund operations for at least the next 12 months, but acknowledges the need for additional financing to achieve profitability[209] Financial Statements and Supplementary Data Audited financial statements for 2021 show increased assets and decreased liabilities, but the auditor's "going concern" qualification highlights ongoing net losses and capital deficiency - The independent auditor's report expresses substantial doubt about the company's ability to continue as a going concern due to its history of net losses and net capital deficiency[237][242] Consolidated Balance Sheet Data (as of Dec 31) | Account | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash | $9,326 | $3,643 | | Total Current Assets | $10,656 | $4,819 | | Total Assets | $11,501 | $6,022 | | Liabilities & Equity | | | | Total Current Liabilities | $943 | $794 | | Total Liabilities | $1,466 | $2,138 | | Total Stockholders' Equity | $10,035 | $3,884 | | Total Liabilities & Stockholders' Equity | $11,501 | $6,022 | Consolidated Statement of Operations Data (Year Ended Dec 31) | Account | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $600 | $282 | | Gross Profit | $244 | $1 | | Total Operating Expenses | $9,178 | $7,934 | | Net Operating Loss | ($8,934) | ($7,933) | | Net Loss | ($8,268) | ($7,937) | | Net Loss Attributable to Common Shareholders | ($8,268) | ($8,373) | - Net cash used in operating activities was $7.8 million in 2021, while net cash provided by financing activities was $13.6 million, primarily from the issuance of common stock and warrant exercises[213][214][217] - Subsequent to year-end, on March 2, 2022, the company received a notification from Nasdaq for non-compliance with the minimum bid price requirement, giving it until August 29, 2022, to regain compliance[418] Controls and Procedures As of December 31, 2021, management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[426] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[428] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership Information on directors, executive officers, corporate governance, compensation, and security ownership is incorporated by reference from the 2022 Proxy Statement - Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, and principal accounting fees is incorporated by reference from the definitive Proxy Statement for the 2022 Annual Meeting of Stockholders[434][435][436] Part IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including corporate documents, forms of securities, material contracts, and certifications - This section provides an index of all exhibits filed with the Form 10-K, including corporate documents, forms of warrants, material contracts, and required certifications[441][443]