See accompanying notes to financial statements.

SENESTECH, INC.

(Unaudited)

SENESTECH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)For The Three Months Ended September 30, 2018 and 2019

The accompanying notes are an integral part of these financial statements.

See accompanying notes to financial statements.

SENESTECH, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

See accompanying notes to financial statements.

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 1 - Organization and Description of Business

SenesTech, Inc. (the “Company”(referred to in this report as “SenesTech,” the “Company,” “we” or “us”) was formed in July 2004 and incorporated in the state of Nevada. The Company subsequently reincorporated in the state of Delaware in November 2015. The Company has itsOur corporate headquarters is in Flagstaff, Arizona.

The Company has We have developed and are commercializing a global, proprietary technology for managing animal pest populations, initially rat populations, through fertility control. The Company believes that its innovative non-lethal approach, targeting reproduction, is more humane, less harmful

Although myriad tools are available to fight rat infestations, communities, food producers, zoos and sanctuaries and others continue to face challenges in controlling today’s infestations. Infestations result in significant infrastructure damage, as well as pose additional risks to the environment,health and more effectivefood security of communities. In addition to these challenges, the pest management industry and pest management professionals (PMPs) are being increasingly asked for new solutions to help solve the problem. With growing concerns about rat resistance to rodenticides and a growing interest in providingnon-lethal options, it is becoming increasingly important for PMPs to have new tools at their disposal. Our goal is to provide customers with not only a sustainable solution to pestcombat their most difficult infestations, than traditional lethalbut also offer a non-lethal option to serve customers that are looking to decrease or remove the amount of poison used in their pest management methods. Itsprograms.

Our first fertility control product, candidate, ContraPest, is a liquid bait containing the active ingredients 4-vinylcyclohexene diepoxide (VCD) and triptolide. When consumed, ContraPest targets reproduction, limiting fertility in male and female rats beginning with the first breeding cycle following consumption. ContraPest is being marketed for use in controlling rat populations, specifically Norway and roof rats. On August 23, 2015, the rat population. The innovative compound is consumed by rats and leaves them non-reproductive without other observable side effects. The U.S.United States Environmental Protection Agency (“EPA”)(EPA) granted registration approval for ContraPest as a Restricted Product Due to Professional Expertise (referred to in this report as a “Restricted Use designation”), effective August 2, 2016. The Company plansOn October 18, 2018, the EPA approved the removal of the Restricted Use designation. We believe ContraPest is the first and only non-lethal fertility control product approved by the EPA for the management of rodent populations.

In addition to the EPA registration of ContraPest in the United States, we must obtain registration from the various state regulatory agencies prior to selling in each state. As of the date of this report, we have received registration for ContraPest in all 50 states and the District of Columbia, 47 of which have approved the removal of the Restricted Use designation.

We expect to continue to commercializepursue regulatory approvals and distribute ContraPest by leveraging new andamendments to existing third-party relationships with manufacturing, marketing and distribution partnersregistration in the U.S.United States for ContraPest, and internationally.if ContraPest begins to generate sufficient revenue, regulatory approvals for any additional jurisdictions beyond the United States.

Potential Need for Additional Capital

InSince our inception, we have sustained significant operating losses in the course of itsour research and development and commercialization activities the Company has sustained operating losses since its inception and expectsexpect such losses to continue for the near future. The Company’sWe have generated limited revenue to date from product sales, research grants and licensing fees received under our former license agreement with Neogen. In 2017, we began to prepare and launch commercialization of our first product, ContraPest. We have primarily funded our operations to date through the sale of equity securities, including convertible preferred stock, common stock and warrants to purchase common stock.

We have also raised capital through debt financing, consisting primarily of convertible notes; and, to a lesser extent, payments received in connection with product sales, research grants and licensing fees.

Through September 30, 2019, we had received net proceeds of $67.2 million from sales of our common stock, preferred stock and warrant exercises and issuance of convertible and other promissory notes, an aggregate of $1.7 million from licensing fees and an aggregate of $0.5 million in net product sales. At September 30, 2019, we had an accumulated deficit of $93.1 million and cash and cash equivalents of $3.9 million.

Our ultimate success depends upon the outcome of a combination of factors, including: (i) the success of its research and development; (ii) ongoing regulatory approval andsuccessful commercialization of ContraPest and its othermaintaining and obtaining regulatory approvals of our products and product candidates; (iii)candidates, (ii) market acceptance, and commercial viability and profitability of ContraPest and other products if the Company obtains the necessary regulatory approvals; (iv)products; (iii) the ability to market itsour products and establish an effective sales force and marketing infrastructure to generate significant revenue; (iv) the success of our research and development; (v) theour ability to retain and attract key personnel to develop, operate and grow itsour 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 September 30, 2019, 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 timelynext six months. We have taken and will continue to take actions to reduce our operating expenses and to concentrate our resources toward the successful completioncommercialization of additional financing. The Company has funded its operationsContraPest in the U. S. However, if anticipated revenue targets and margin targets are not achieved and we are unable to dateraise necessary capital through the sale of convertible preferred stockour securities, we may be required take other measures that could impair our ability to be successful and common stock, including an initial public offering of 1,875,000 shares of its common stock on December 8, 2016, debt financing, consisting primarily of convertible notes and, tooperate as a lesser extent, payments received in connection with research grants and licensing fees. As of September 30, 2017, the Company had cash and cash equivalents and highly liquid investments of $3,648. However, the Company isgoing concern. In any event, we are likely to require additional capital in order to fund itsour operating losses and research and development activities by issuing additionaluntil we become profitable. We may never achieve profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise capital through equity or debt and equity instruments until such time as the Company is profitable.financing. If such equity or debt financing is not available at adequate levels the Company willor on acceptable terms, we may need to reevaluate its plans.delay, limit or terminate commercialization and development efforts.

SENESTECH, INC.

 NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except percentagesshare and per share data)

Note 1 - Organization and share amounts. Per share and share amounts reflect post-reverse split values.Description of Business – (continued)

Basis of Presentation

The accompanying unaudited condensed financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the Company’s opinion, the unaudited condensed financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly the Company’s financial position as of September 30, 2017,2019, the Company’s operating results for the three and nine months ended September 30, 20172019 and 2016,2018, and the Company’s cash flows for the nine months ended September 30, 20172019 and 2016.2018. The accompanying financial information as of December 31, 20162018 is derived from audited financial statements. Interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2016.

2018, both filed with the SEC on March 29, 2019. All amounts shown in these financial statements and accompanying notes are in thousands, except percentages and per share and share amounts.

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS 

(In thousands, except share and per share data)

Note 2 - Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”)GAAP requires management to make estimates and assumptions that affect the reported amounts and classification of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The significant estimates in the Company’s financial statements include the valuation of preferred stock, common stock and related warrants, and other stock-based awards. Actual results could differ from such estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no material impact on net earnings, financial position or cash flows.

Deferred Offering Costs

Deferred offering costs consisted primarily of legal, accounting and other direct and incremental fees and costs related to the Company’s initial public offering on December 8, 2016. Deferred offering costs of $2,234 were offset against the proceeds received from the initial public offering in December 2016.There were no deferred offering costs at September 30, 2017.

Cash and Cash Equivalents

The Company considers money market fund investments to be cash equivalents. The Company had cash equivalents of $70 and $-0- at September 30, 2017 and December 31, 2016, respectively, included in cash as reported.

Investments in Securities Held to Maturity

The Company uses cash holdings to purchase highly liquid, short term, investment grade securities diversified among security types, industries and issuers. All of the Company’s investment securities are measured at fair value. The Company’s investment securities primarily consist of municipal debt securities, corporate bonds, U.S. agency securities and commercial paper and highly-liquid money market funds.

Accounts Receivable

Accounts receivable consist primarily of trade receivables. The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. The allowance for doubtful trade receivables was $3 and $-0- as ofless than $1 at September 30, 20172019 and at December 31, 2016, respectively.2018.

Inventories

Inventories are stated at the lower of cost or market value, using the first-in, first-out convention. Inventories consist of raw materials, work in progress and finished goods. As of September 30, 2017 and December 31, 2016, the Company had inventories of $394 and $57, respectively.

SENESTECH, INC.Components of inventory are:

NOTES TO CONDENSED FINANCIAL STATEMENTS 

(In thousands, except share and per share data)

Note 2 - Summary of Significant Accounting Policies – (continued)

Prepaid Expenses

Prepaid expenses consist primarily of payments made for director and officer insurance, director compensation, rent, legal and inventory purchase deposits and seminar fees to be expensed in the current year.

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 2 - Summary of Significant Accounting Policies – (continued)

Property and Equipment

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

Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the respective assets. The cost of leasehold improvements is amortized over the life of the improvement or the term of the lease, whichever is shorter. Equipment held under capital leases is amortized over the shorter of the lease term or estimated useful life of the asset. The Company incurs repair and maintenance costs on its major equipment. Repair and maintenance costsequipment, which are expensed as incurred.

Impairment of Long-Lived Assets

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

Revenue Recognition

TheEffective January 1, 2018, the Company adopted ASC 606 —Revenue from Contracts with Customers.Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 —Revenue Recognition.Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of the fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS 

(In thousands, except share The performance obligations identified by the Company under Accounting Standards Codification (“ASC”) Topic 606, Revenue From Contracts With Customers, are straightforward and per share data)

Note 2 - Summarysimilar to the unit of Significant Accounting Policies – (continued)account and performance obligation determination under ASC Topic 605,Revenue Recognition. There was no impact on the Company’s financial statements as a result of adopting ASC 606 for the three months or nine months ended September 30, 2019 and 2018, respectively.

The Company has generatedrecognizes revenue fromwhen product leaves its dock at a license agreement with a strategic partner, pursuant to which the Company had granted to such partner the exclusive right to manufacture and distribute its product, ContraPest, once the required regulatory approvals were received. This licensing agreement was subsequently terminatedfixed selling price on January 23, 2017. Thepayment terms of the licensing agreement contained multiple elements or deliverables, as discussed below. Management evaluates whether the arrangement involving the multiple deliverables contains more than one unit of accounting. To determine the units of accounting under a multiple-element arrangement, management evaluates certain separation criteria, including whether the deliverables have stand-alone value, based on the relevant facts and circumstances of the arrangement.

The Company determined that the license granted pursuant30 to the license agreement did not have stand-alone value and, therefore, the nonrefundable, upfront license fee payments received by the Company are recognized on a straight-line basis over the estimated related performance period (i.e.120 days from the effective date of the agreement through the estimated completion date of the Company’s substantive performance obligations).

In accordance with the terms of the license agreement, the Company was also to receive a future fixed amount of contingent milestone payments (i.e. post-regulatory approval license fees) and contingent sales-based royalties to be received upon the achievement of certain milestone events. The milestone events under the agreement include regulatory approval, patent issuance or alternative intellectual property coverage, and sales-based events. The Company did not earn or receive any of the potential contingent milestone payments, as the milestone events to receive such post-approval license fees and sales-based royalties were not achieved. The Company recognizes revenue that is contingent upon the achievement of a substantive milestone event in its entirety in the period in which the milestone is achieved. A milestone is considered substantive when the consideration payable to the Company for such milestone has all of the following characteristics: (i) there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved; (ii) the event can only be achieved based in whole or part on either the Company’s performance or a specific outcome resulting from the Company’s performance; and (iii) if achieved, the event would result in additional payments being due to the Company. As the potential contingent consideration was to be received only upon the achievement of milestone events that are considered substantive, the Company would only recognize such revenue in the period the milestone is achieved and the milestone payments became due and collectible. In addition, the Company accounts for sales-based royalties as revenue upon achievement of certain sales milestones. 

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue on the balance sheet. Amounts expected to be recognized as revenue in the next twelve months following the balance sheet date are classified as a current liability.

invoicing. The Company recognizes other revenue earned from pilot studies upon the performance of specific services under the respective service contract.

For the nine months ended September 30, 2017, theThe Company generated net revenuesderives revenue primarily from commercial sales of $34.products.

Research and Development

Research and development costs are expensed as incurred. Research and development expenses primarily consist of salaries and benefits for research and development employees, stock-based compensation, consulting fees, lab supplies, and costs incurred related to conducting scientific trials and field studies, and regulatory compliance costs. Also, included in research and development expenses is an allocation of facilities related costs, including depreciation of research and development equipment.

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS 

(In thousands, except share and per share data)

Note 2 - Summary of Significant Accounting Policies – (continued)

Stock-based Compensation

Employee stock-based awards, consisting of restricted stock units and stock options expected to be settled in shares of the Company’s common stock, are recorded as equity awards. The grant date fair value of these awardsstock options is measured using the Black-Scholes option pricing model. The Company expenses the grant date fair value of its stock options on a straight-line basis over their respective vesting periods. Performance-based awards are expensed over the performance period when the related performance goals are probable of being achieved.

For equity instruments issued to non-employees, the stock-based consideration is measured using a fair value method. The measurement of the stock-based compensation is subject to re-measurement as the underlying equity instruments vest.

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 2 - Summary of Significant Accounting Policies – (continued)

The stock-based compensation expense recorded for the three and nine months ended September 30, 20172019 and 2016 2018,

is as follows:

See Note 11 for additional discussion on stock-based compensation.

Income Taxes

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

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

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

NOTES TO CONDENSED FINANCIAL STATEMENTS 

(In thousands, except shareThe Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. There are no uncertain tax positions as of September 30, 2019 or December 31, 2018 and per share data)

Note 2 - Summary of Significant Accounting Policies – (continued)as such, no interest or penalties were recorded in income tax expense.

Comprehensive Loss

Net loss and comprehensive loss were the same for all periods presented; therefore, a separate statement of comprehensive loss is not included in the accompanying financial statements.

Loss Per Share Attributable to Common Stockholders

Basic loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share attributable to common stockholders is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury stock and if-converted methods. For purposes of the computation of diluted loss per share attributable to common stockholders, the Series A convertible preferred stock (prior to its conversion into common stock), Series B convertible preferred stock (prior to its conversion into common stock), convertible promissory notes (prior to their conversion), common stock purchase warrants, and common stock options are considered to be potentially dilutive securities but have been excluded from the calculation of diluted loss per share attributable to common stockholders because their effect would be anti-dilutive given the net loss reported for the three and nine months ended September 30, 20172019 and 2016.2018. Therefore, basic and diluted loss per share attributable to common stockholders wasare the same for all periodseach period presented.

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted loss per share attributable to common stockholders (in common stock equivalent shares):

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 2 - Summary of Significant Accounting Policies – (continued)

Adoption of New Accounting Standards:

In May 2017,2014, the FASB issued Accounting Standard Update (“ASU”)No.ASU 2014-09,2017-9,Revenue from Contracts with CustomersCompensation — Stock Compensation (Topic 718): Scope. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of Modification Accounting (“ASU2017-9”), which providesthe guidance. These standards provide guidance about which changeson recognizing revenue, including a five-step model to the terms or conditions of a share-based payment award requiredetermine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to apply modification accountingdepict the transfer of control of promised goods or services to customers in Topic 718.Peran amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Effective January 1, 2018, the Company adopted ASU 2017-9, an entity should account for2014-09,“Revenue from Contracts with Customers”using the effects of a modification unlessmodified retrospective method to all the following are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used)contracts that were not completed as of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used)date of the original award immediately before the original award is modified. If the modification does not affect anyadoption. The results of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before andoperations for reported periods after the modification, (2) the vesting conditions of the modified awardJanuary 1, 2018 are the same as the vesting conditions of the original award immediately before the original award is modified, and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirementspresented under this amended guidance, while prior period amounts are reported in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in ASU 2017-9.ASU 2017-9 is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017.Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The adoption ofaccordance with ASC 605 —ASU 2017-9Revenue Recognition is not expected to have a. There was no material impact on the Company’sour financial statementsposition, results of operations, or related disclosures.cash flows.

In AugustJanuary 2016, the FASB issued ASU No. 2016-15,2016-01,StatementRecognition and Measurement of Cash Flows (Topic230): ClassificationFinancial Assets and Financial Liabilities(“ASU 2016-01”). This standard affects the accounting for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of Certain Cash Receipts and Cash Payments.financial instruments. ASU 2016-01 is effective the first quarter of 2018. The amendments in this ASU provide guidance onCompany has adopted the following eight specific cash flow classification issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. Current GAAP does not include specific guidance on these eight cash flow classification issues. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The adoptionprovisions of ASU No. 2016-15 is not expected to have a2016-01 on its financial statements. There was no material impact on the Company’sour financial statementsposition, results of operations, or related disclosures.cash flows.

In March 2016, the FASB issued ASU No. 2016-09,Improvements to Employee Share-Based Payment Accounting(“ASU 2016-09”). This standard involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods for public business entities. The method of adoption is dependent on the specific aspect of accounting addressed in this new guidance. Early adoption was permitted in any interim or annual period. ASU 2016-09 was adopted by the Company and did not have a material impact on the Company’s financial statements or related disclosures.

In February 2016, the FASB issued ASU No. 2016-02,Leases(“ASU 2016-02”). This standard amends various aspects of existing accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This standard also introduces new disclosure requirements for leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Early adoption iswas permitted, and the new standard must behad been adopted using a modified retrospective approach and provides for certain practical expedients.

On January 1, 2019, the Company adopted the new leasing standard and all related amendments. The Company is evaluatingelected the impact ofoptional transition method provided by the adoption ofFASB in ASU 2016-02 on2018-11, Leases (Topic 842): Targeted Improvements, and as a result, has not restated its condensed consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU No. 2016-01,Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities(“ASU 2016-01”). This standard affects the accounting for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. ASU 2016-01 is effective in the first quarter of 2019. The Company is evaluating the impact of the adoption of ASU 2016-01 on its financial statements and related disclosures.

In November 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2015-17,Balance Sheet Classification of Deferred Taxes, which eliminates the guidance in Topic 740, Income Taxes, that required an entity to separate deferred tax assets and liabilities between current and noncurrent amounts in a classified balance sheet. The amendments require that all deferred tax assets and liabilities of the same jurisdiction or a tax filing group, as well as any related valuation allowance, be offset and presented as a single noncurrent amount in a classified balance sheet. The standard became effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, and may be applied on either prospectively to all deferred tax liabilities and assets or retrospectively to allprior periods presented. The Company has adopted this standard retrospectivelyelected the practical expedients upon transition to retain the lease classification and initial direct costs for all periods presented.any leases that existed prior to adoption. The Company has also not reassessed whether any contracts entered into prior to adoption of this standardare leases.

ASU 2016-02 did not have a material impact on the Company’s financial statements.Condensed Consolidated Statements of Comprehensive Income. The cumulative effect of the changes made to the Company’s Consolidated Balance Sheet as of January 1, 2019 for the adoption of the new leasing standard was as follows:

At September 30, 2019, the balance remaining in Right to Use Asset-Long Term and Lease Liability-Long Term was $29,000 and ($29,000) respectively.

The Company appliesdetermines if an arrangement is a more-likely-than-not recognition threshold for all tax uncertainties. Only those benefits that have a greater than fifty percent likelihoodlease at lease inception. Operating lease right-of-use (ROU) assets and operating lease liabilities are recognized based on the present value of being sustained upon examination by the taxing authorities are recognized. Based on its evaluation,future minimum lease payments over the lease term at commencement date. As most of the Company’s lease contracts do not include an implicit rate, the Company has concluded there are no significant uncertain tax positions requiring recognitionuses its incremental borrowing rate based on information available at commencement date in its financial statements.determining the present value of future payments. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The operating lease ROU asset also includes any initial direct costs and lease payments made prior to lease commencement and excludes lease incentives incurred.

The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company recognizes interest and/or penalties relatedhas certain lease agreements that contain both lease and non-lease components, which it has elected to uncertain tax positions in income tax expense. There are no uncertain tax positionsaccount for as of September 30, 2017 or December 31, 2016 and as such, no interest or penalties were recorded in income tax expense.a single lease component for all asset classes.

See Note 12, Commitments and Contingencies, for future minimum lease payments and maturities.

SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)

Note 2 - Summary of Significant Accounting Policies – (continued)

Accounting Standards Issued but Not Yet Adopted

In August 2014,2018, the FASB issued ASU No. 2014-15,Disclosuresauthoritative guidance intended to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance also requires presentation of Uncertainties about an Entity’s Ability to Continue as a Going Concern(“ASU 2014-15”). This standard requires management to perform an evaluation in each interim and annual reporting period whether there are conditions or events, consideredthe capitalized implementation costs in the aggregate,statement of financial position and in the statement of cash flows in the same line item that raise substantial doubt abouta prepayment for the entity’s ability to continue as a going concern within one yearfees of the dateassociated hosting arrangement would be presented, and the financial statements are issued. If such conditions or events exist, ASU 2014-14 also requires certain disclosuresexpense related to the capitalized implementation costs to be presented in the same line item in the statement of management’s plans and evaluation, as welloperations as the plans, if any, that are intended to mitigate those conditions or events that will alleviatefees associated with the substantial doubt. ASU No. 2014- 15hosting element (service) of the arrangement. This guidance is effective for the annual period ending after December 15, 2016 and for annual and interim periods thereafter. Early adoption was permitted for annual or interim reporting periods for which the financial statements have not been previously issued. ASU 2014-15 was adopted by the Company and did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.

In May 2014 the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Adoption of the new standard is effective for reporting periods beginning after December 15, 2017.2019, including interim periods within those annual periods, with early adoption permitted. We plan to useare currently evaluating the modified retrospective method of adoption and will adopt the standard as of January 1, 2018, the beginning of our next fiscal year.. We have completed an initial evaluation of the potential impact from adopting the new standard, including a detailed review of performance obligations for all material revenue streams. Based on this initial evaluation, we do not expect adoption will have a material impact on our financial position, results of operations orand statement of cash flows. Related disclosures will be expanded in line with the requirements of the standard. We will continue our evaluation until ourflows upon adoption of this guidance. We do not expect this guidance to have a significant impact, or potential significant impact, to our unaudited condensed consolidated interim financial statements.

Other than the items noted above, there have been no new standard.accounting pronouncements not yet effective or adopted in the current year that we believe have a significant impact, or potential significant impact, to our unaudited condensed consolidated interim financial statements.

Note 3 - Fair Value Measurements

The carrying amountsCompany issued common stock warrants to purchase shares of certaincommon stock in June of 2015 (see Note 9 — Stock-based Compensation for more details) that contain a cash settlement provision resulting in a common stock warrant liability that is revalued at the Company’s financial instruments, including cash equivalents, accounts receivable and accounts payable approximate their fair values due to their short maturities. Assets and liabilities recordedend of each reporting period.

We value these warrant derivatives at fair value on a recurring basis in the balance sheets, as well as assets and liabilities measured at fair value on a non-recurring basis or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair values.value. The accounting guidance for fair value, providesamong other things, establishes a consistent framework for measuring fair value and requires certain disclosures about howexpands disclosure for each major asset and liability category measured at fair value is determined.on either a recurring or nonrecurring basis. Fair value is defined as the price that would be received upon the sale ofto sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurementreporting date. The accounting guidance also establishesframework 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:

The Company’s cash equivalents, which include money market funds,common stock warrant liabilities are classified as Level 13 because they are valued using quoted market prices. The Company’s marketable securities consist of held to maturity securities and are generally classified as Level 2 because their value is based on valuations using significant inputs derived from or corroborated by observable market data.

In certain cases where there is limited activity or less transparency around the inputs to valuation, securities are classified as Level 3. Level 3 liabilities consist of common stock warrant liability.valuation.

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 3 - Fair Value Measurements – (continued)

Items Measured at Fair Value on a Recurring Basis

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

⁽¹⁾ The change in the fair value of the common stock warrant and convertible notes payable for the three and nine months ended September 30, 2017 was recorded as a decrease to other income (expense) and interest expense of $30 and $69, respectively, in the statements of operations and comprehensive loss.

Financial Instruments Not Carried at Fair Value

The carrying amounts of the Company’s financial instruments, including accounts payable and accrued liabilities, approximate fair value due to their short maturities. The estimated fair value of the convertible notes and other notes, not recorded at fair value, are recorded at cost or amortized cost which was deemed to estimate fair value.

SENESTECH, INC.Note 4 - Credit Risk

The Company is potentially subject to concentrations of credit risk in its accounts receivable. Credit risk with respect to receivables is limited due to the number of companies comprising the Company’s customer base. Although the Company is directly affected by the financial condition of its customers, management does not believe significant credit risks exist at September 30, 2019 or December 31, 2018. The Company does not require collateral or other securities to support its accounts receivable.

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 4 - Investment in Securities Held to Maturity

As of September 30, 2017, investment in securities held to maturity primarily consisted of corporate fixed income securities and commercial paper. The Company did not have investments prior to the first quarter of 2017. The Company classifies all investments as held to maturity as these investments are short term, highly liquid investments which we intend to hold to maturity. Held to maturity securities are recorded at cost and gains and losses are only recognized as the sale or redemption of the securities is realized. Realized gains and losses are included in non-operating other income (expense) on the condensed statement of operations and are derived using the specific identification method for determining the cost of the securities sold. During the three and nine months ended September 30, 2017, the Company had a minimal amount of net realized gain (loss) on investments recorded. Interest and dividends on investments held to maturity are included in interest and other income, net, in the condensed statements of operations.

The following is a summary of held to maturity securities at September 30, 2017:

Note 5 - Prepaid Expenses

Prepaid expenses consist of the following:

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 6 - Property and Equipment

Property and equipment, net consist of the following:

* Shorter of lease term or estimated useful life

Depreciation and amortization expense was approximately $118$101 and $49$108 for the three months ended September 30, 20172019 and 2016,2018, respectively, and $272$314 and $143$332 for the nine months ended September 30, 20172019 and 2016,2018, respectively.

Note 7 - Accrued Expenses

Accrued expenses consist of the following:

Note 8 - Accrued Contract Cancellation Settlement

The accrued contract cancellation settlement of $1,000 was the result of the Company entering into a settlement agreement with Neogen Corporation in which Neogen and the Company agreed to (a) terminate the existing Exclusive License Agreement between the Company and Neogen dated May 15, 2014 (the “License Agreement”), with neither Neogen or the Company having any further obligations thereunder (other than certain confidentiality obligations); (b) dismiss with prejudice the court action filed by Neogen in the District Court for the District of Arizona on January 19, 2017 (the “Court Action”); and (c) mutually release any and all existing or future claims between the parties and their affiliates related to or arising from the License Agreement or the Court Action. Under the terms of the agreement, the Company agreed to make a one-time payment in the amount of $1,000 in settlement of all claims and termination of all existing contracts between the parties. This payment was made in January, 2017. See Note 15 for further details.

SENESTECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 98 - Borrowings

A summary of the Company’s borrowings, including capital lease obligations, is as follows:

Capital Lease Obligations

Capital lease obligations are for computer and lab equipment leased through Great American,GreatAmerica Financial Services, Thermo Fisher Scientific, Navitas Credit Corp. and ENGS.ENGS Commercial Finance Co. These capital leases expire at various dates through June 2022. July 2023 and carry interest rates ranging from 6.4% to 11.6%.

Other Promissory Notes

Also included in the table above are three notes payable to Direct Capital, and one note to M2 Financing and one note to Fidelity Capital, all for the financing of fixed assets.

Note 10 - Notes Payable, Related Parties

A summary of the Company’s These notes payable, related parties is as follows:

In April 2013, the Companyexpire at various dates through June 2022 and a previous employee entered into an agreementcarry interest rates ranging from 10.88% to settle all outstanding obligations consisting of a promissory note of $40, dated March 2009, and deferred salaries amounting to $72. The note and salary obligation continue to bear interest at 8% and 4.25%, respectively. The note requires monthly payments of $1 and matures in April 2018. The deferred salary obligation requires monthly payments of $1 and matures in May 2018.13.28%.

Amounts outstanding on these obligations were $18 and $36 at September 30, 2017 and December 31, 2016, respectively.

Interest expense on the notes payable, related parties, was $-0- and $1 for the three months and nine months ended September 30, 2017 and $56 for the year ended December 31, 2016 respectively.

TECH, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 119 - Common Stock Warrants and Common Stock Warrant Liability

The table summarizes the common stock warrant activity as of September 30, 20172019 as follows: