What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-11 compared with 2023-05-11 · 74 added, 50 removed, 123 unchanged (50% of the section changed)

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Forward-Looking Statements

The statements contained in this Quarterly Report on Form 10-Q that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).

The statements contained in this Quarterly Report on Form 10-Q that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).

All statements other than statements of historical facts contained or incorporated herein by reference in this Quarterly Report on Form 10-Q, including statements regarding our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, markets, and plans and objectives for future operations, are forward-looking statements.

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• our expectation that we will continue to incur significant expenses and generate operating losses for the foreseeable future;

• our expectation that cash and cash equivalents at March 31, 2023, in combination with anticipated revenue and any additional sales of our equity securities, will be sufficient to fund our current operations for at least the next six months;

• our expectation that cash and cash equivalents at June 30, 2023, in combination with anticipated revenue and any additional sales of our equity securities, will be sufficient to fund our current operations for at least the next three months;

• our belief that sales increased in part due to continued focus of our internet sales initiatives, enhanced strategic partnership and collaborations with key distributors and Pest Management Professionals (“PMP”s);

• our belief that the increased sales activity from our field sales organization was due in part to the launch of our new Elevate product offering;

• our belief that the increased sales activity from our field sales organization was primarily due to an increase in the number of product units sold, including our Elevate Bait System TM ;

• our successful commercialization of ContraPest;

• our belief that 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;

• our belief that if we encounter continued issues or delays in the commercialization of ContraPest, our 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;

• our ability to enter into strategic partnerships to enable us to penetrate additional target markets and geographical locations;

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• the successful commercialization of our products;

• market acceptance of our products; and

• market acceptance of our products;

• our financial performance, including our ability to fund operations;

• our ability to maintain compliance with Nasdaq’s continued listing requirements;

• regulatory approval and regulation of our products and other factors and risks identified from time to time in our filings with the SEC, including this Quarterly Report on Form 10-Q.

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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.

Through March 31, 2023, we received net proceeds of $93.6 million from our sales of 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 $2.7 million in net product sales.

As of March 31, 2023, we had an accumulated deficit of $124.2 million and cash and cash equivalents of $2.7 million.

We have incurred significant operating losses every year since our inception, with net losses of $2.0 million and $2.3 million for the three months ended March 31, 2023 and 2022, respectively.

Through June 30, 2023, we received net proceeds of $94.8 million from our sales of 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 $3.0 million in net product sales.

As of June 30, 2023, we had an accumulated deficit of $126.2 million and cash and cash equivalents of $2.2 million.

We have incurred significant operating losses every year since our inception, with net losses of $2.0 million and $2.6 million for the three months ended June 30, 2023 and 2022, respectively.

We expect to continue to incur significant expenses and generate operating losses for at least the next six months.

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and (vi) our ability to meet our working capital needs.

Based upon our current operating plan, we expect that cash and cash equivalents at March 31, 2023, in combination with anticipated revenue and any additional sales of our equity securities, will be sufficient to fund our current operations for at least the next six months.

In April 2023, we consummated a registered direct offering with certain institutional investors and issued an aggregate of 857,146 shares of our common stock for $1.75 per share for gross proceeds of $1.5 million, before deducting fees payable to the placement agent and other estimated offering expenses payable by us.

While we have evaluated and continue to evaluate our operating expenses and concentrate our resources toward the successful commercialization of ContraPest in the United States, additional financing will be needed before achieving anticipated revenue targets and margin targets If 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.

Based upon our current operating plan, we expect that cash and cash equivalents at June 30, 2023, in combination with anticipated revenue and any additional sales of our equity securities, will be sufficient to fund our current operations for at least the next three months.

In July 2023, we initiated a public offering of shares of our common stock, together with Series D and Series E warrants to purchase shares of our common stock seeking aggregate gross proceeds of up to $7.5 million.

If 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, additional capital is needed in order to fund our operating losses and research and development activities before we become profitable.

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The following table summarizes our results of operations for the periods presented (in thousands):

Three Months Ended March 31, % Increase (Decrease)

Three Months Ended June 30, % Increase (Decrease) Six Months Ended June 30, % Increase (Decrease)

2023 2022 2023 2022

Revenues, net $ 305 $ 277 10 % $ 538 $ 472 14 %

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Net loss $ (1,993) $ (2,569) (22) % $ (4,030) $ (4,901) (18) %

Sales, net of sales discounts and promotions, were $233,000 for the first quarter of 2023, compared to $195,000 for the first quarter of 2022.

Sales increased by $38,000, in part, due to continued focus on our internet sales initiatives, augmenting our existing pull through sales strategy, where demand from the consumer market encourages, or pulls, resellers and pest management professionals to offer our products, as well as enhanced strategic partnerships and collaborations with key distributors and PMP.

In addition, we saw increased sales activity from our field sales organization, including the launch of our new Elevate product offering.

Sales, net of sales discounts and promotions, were $305,000 for the second quarter of 2023, compared to $277,000 for the second quarter of 2022.

Sales increased by $28,000, due to continued focus on our internet sales initiatives, augmenting our existing pull through sales strategy, where demand from the consumer market encourages, or pulls, resellers and pest management professionals to offer our products, as well as enhanced strategic partnerships and collaborations with key distributors and PMPs.

In particular, we saw increased sales activity from our field sales team, as we continue to optimize our sales organization.

The higher sales was primarily due to an increase in the number of product units sold, including our Elevate Bait System, which was launched in June 2022.

For the six months ended June 30, 2023, sales were $538,000, compared to $472,000 for the six months ended June 30, 2022.

The $66,000 increase was primarily due to an increase in the number of units sold, including our Elevate Bait System product offering.

Cost of Sales

Cost of sales consist primarily of the cost of products sold, including scrap and reserves for obsolescence, and was $141,000, or 60.4% of net sales, for the first quarter of 2023, compared to $105,000, or 53.8% of net sales, for the first quarter of 2022.

The increase in cost of sales as a percentage of net sales during the first quarter of 2023 was driven by the scrapping of defective tanks no longer used in our products, which totaled $42,000.

Gross profit for the first quarter of 2023 was $92,000, for a gross profit margin of 39.6%, compared to a gross profit of $90,000, or a gross profit margin of 46.2%, for the first quarter of 2022.

The lower gross profit margin was the direct result of scrapping defective tanks no longer used in our products.

Excluding the cost associated with the scrapped inventory, gross profit margin is 57.8% for the first quarter of 2023.

Cost of sales consisted primarily of the cost of products sold, including scrap and reserves for obsolescence, and was $163,000, or 53.6% of net sales, for the second quarter of 2023, compared to $141,000, or 50.9% of net sales, for the second quarter of 2022.

We have experienced an increase in the cost of certain product components in 2023, and when combined with changes in the underlying mix of products sold, our cost of sales as a percent of sales for the second quarter of 2023 is higher when compared with the second quarter of 2022.

For the six months ended June 30, 2023, cost of sales was $304,000, or 56.5% of net sales, compared to $246,000, or 52.1% of net sales, for the six months ended June 30, 2022.

The higher cost of sales as a percentage of net sales was driven by the scrapping of defective trays no longer used in our products in the first quarter of 2023, which totaled $42,000.

Gross profit for the second quarter of 2023 was $142,000, for a gross profit margin of 46.4%, compared to a gross profit of $136,000, or a gross profit margin of 49.1%, for the second quarter of 2022.

For the six months ended June 30, 2023, gross profit was $234,000, for a gross profit margin of 43.5%, compared to $226,000, gross profit margin of 47.9%, for the six months ended June 30, 2022.

The lower gross profit margin was the driven by the effects of scrapping defective tanks during no longer used in our products.

Excluding the cost associated with the scrapped inventory, gross profit margin was 51.3% for the six months ended June 30, 2023.

Research and Development Expenses

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

Three Months Ended March 31, Increase

Personnel related (including stock-based compensation) $ 242 $ 241 $ 1

Three Months Ended June 30, Increase

(Decrease) Six Months Ended June 30, Increase

2023 2022 2023 2022

Personnel (including stock-based compensation) $ 214 $ 262 $ (48) $ 456 $ 503 $ (47)

Professional fees 34 58 (24) 78 148 (70)

Depreciation 28 33 (5) 56 79 (23)

Facility-related 26 26 —

Facilities 25 27 (2) 51 53 (2)

Other 80 51 29 127 164 (37)

Total $ 381 $ 431 $ (50) $ 768 $ 947 $ (179)

Research and development expenses were $387,000 for the first quarter of 2023, compared to $516,000 for the first quarter of 2022.

The $129,000 decrease was primarily due to lower consulting and legal fees required for research and development purposes, lower depreciation as several assets became fully depreciated in 2023, and lower expenses related to field and product improvement studies.

Research and development expenses were $381,000 for the second quarter of 2023, compared to $431,000 for the second quarter of 2022.

The $50,000 decrease was primarily due to lower headcount and consulting and legal fees required for research and development purposes.

Such decreases were partially offset by higher expenses related to field and product improvement studies resulting from the completion of a stability study in the second quarter of 2023.

For the six months ended June 30, 2023, research and development expenses were $768,000, compared to $947,000 for the six months ended June 30, 2022.

The $179,000 decrease was primarily due to lower headcount, consulting and legal fees required for research and development purposes, lower depreciation as several assets became fully depreciated in 2023 and lower expenses overall related to field and product improvement studies.

Selling, General and Administrative Expenses

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

Three Months Ended March 31, Increase

Personnel related (including stock-based compensation) $ 903 $ 1,070 $ (167)

Three Months Ended June 30, Increase

(Decrease) Six Months Ended June 30, Increase

2023 2022 2023 2022

Personnel (including stock-based compensation) $ 890 $ 1,115 $ (225) $ 1,793 $ 2,185 $ (392)

Professional fees 419 464 (45) 871 900 (29)

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Marketing 63 225 (162) 117 245 (128)

Facility-related 38 39 (1)

Facilities 39 39 — 77 78 (1)

Other 139 143 (4) 211 190 21

Total $ 1,761 $ 2,277 $ (516) $ 3,511 $ 4,184 $ (673)

Selling, general and administrative expenses were $1.8 million for the first quarter of 2023, as compared to $1.9 million for the first quarter of 2022.

The decrease of $157,000 was primarily due to lower personnel-related expenses, both lower stock-based compensation and lower headcount, combined with lower insurance and software-related license costs.

This decrease was partially offset by higher digital marketing advertising costs and travel and entertainment expenses as we continue to focus efforts on the commercialization of our products, as well as higher legal related to selling, general and administrative and software license costs.

Selling, general and administrative expenses were $1.8 million for the second quarter of 2023, as compared to $2.3 million for the second quarter of 2022.

The decrease of $516,000 was primarily due to lower personnel-related expenses, both lower stock-based compensation and lower headcount, and lower marketing costs resulting from changes in our overall marketing program.

Additionally, insurance is lower as well as consulting and legal fees required for general corporate purposes.

For the six months ended June 30, 2023, selling, general and administrative expenses were $3.5 million, compared to $4.2 million for the six months ended June 30, 2022.

The $673,000 decrease was primarily due to lower personnel-related expenses, both lower stock-based compensation and lower headcount, lower insurance and lower marketing costs resulting from changes in our overall marketing program.

Additionally, consulting and legal fees required for general corporate purposes is lower than the comparable period of 2022.

These decreases were partially offset by an increase in travel and entertainment costs related to increased sales-related activities.

Other Income, Net

Other income for the first quarter of 2023 consisted of interest income of $8,000, which was $6,000 higher than the first quarter of 2022 due to higher interest rates of the comparable periods.

Additionally, we had interest expense of $1,000 for the first quarter of 2022 related to certain notes payable and finance leases that expired in 2022.

Other income for the second quarter of 2023 consisted of interest income, which was $6,000 higher than the second quarter of 2022 due to higher interest rates of the comparable periods.

Additionally, we had miscellaneous income of $2,000 for the second quarter of 2022 related to the sale of certain assets.

For the six months ended June 30, 2023, other income, net, consisted of interest income, which was $12,000 higher than the six months ended June 30, 2022 due to higher interest rates of the comparable periods.

Additionally, for the six months ended June 30, 2022, we had interest expense of $1,000 related to certain notes payable and finance leases that expired in 2022 and miscellaneous income of $2,000 related to the sale of certain assets.

Liquidity and Capital Resources

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and debt financing, consisting primarily of convertible notes.

Through March 31, 2023, we have received net proceeds of $93.6 million from our sales of 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 $2.7 million in net product sales.

As of March 31, 2023, we had an accumulated deficit of $124.2 million and cash and cash equivalents of $2.7 million.

And, in April 2023, we received net proceeds of $1.2 million from the sale of common stock.

Through June 30, 2023, we have received net proceeds of $94.8 million from our sales of common stock, preferred stock and warrant exercises and issuance of convertible and other promissory notes, an aggregate of $3.0 million in net product

sales and an aggregate of $1.7 million from licensing fees.

As of June 30, 2023, we had an accumulated deficit of $126.2 million and cash and cash equivalents of $2.2 million.

Our ultimate success depends upon the outcome of a combination of factors, including the following:

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and (vi) our ability to meet our working capital needs.

We have evaluated and will continue to evaluate our operating expenses and will concentrate our resources toward the successful commercialization of ContraPest in the United States.

However, if anticipated revenue targets and margin targets are not achieved or expenses are more than we have budgeted, we may need to raise additional financing before that time.

If we need more financing, including within the next six to nine months, and we are unable to raise the necessary capital through the sale of our securities, we may be required to take other measures that could impair our ability to be successful and operate as a going concern.

If we need more financing, including within the next three months, and we are unable to raise the necessary capital through the sale of our securities, we may be required to take other measures that could impair our ability to be successful and operate as a going concern.

In any event, we may require additional capital in order to fund our operating losses and research and development activities before we become profitable and may opportunistically raise capital.

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

Capital Resources

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

Three Months Ended March 31,

Six Months Ended June 30,

Cash and cash equivalents, beginning of period $ 4,775 $ 9,326

Net cash used in:

Net cash provided by (used in):

Operating activities (3,757) (4,148)

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

During the three months ended March 31, 2023, operating activities used $2.0 million of cash, primarily resulting from our net loss of $2.0 million offset by changes in our operating assets and liabilities of $178,000 and by non-cash charges of $200,000, consisting primarily of stock-based compensation and depreciation and amortization expense.

Our net loss was primarily attributable to research and development activities and our selling, general and administrative expenses, as we generated limited product revenue during the period.

Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2023 of $178,000 consisted primarily of a net decrease in accounts payable and accrued expenses of $301,000, partially offset by decreases in accounts receivable of $69,000, inventory of $38,000 and prepaid expenses of $28,000.

During the three months ended March 31, 2022, operating activities used $2.0 million of cash, primarily resulting from our net loss of $2.3 million, changes in our operating assets and liabilities of $13,000 and by non-cash charges of $290,000, consisting primarily of stock-based compensation and depreciation and amortization expense.

Our net loss was primarily attributable to research and development activities and our selling, general and administrative expenses, as we generated limited product revenue during the period.

Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2022 of $13,000 consisted primarily of decreases in inventory of $54,000 and accounts receivable of $21,000, offset by a net decrease in accounts payable and accrued expenses of $33,000 and an increase in prepaid expenses of $29,000.

During the six months ended June 30, 2023, operating activities used $3.8 million of cash, resulting from our net loss of $4.0 million and net changes in our operating assets and liabilities of $130,000, partially offset by net non-cash charges of $403,000, consisting primarily of stock-based compensation and depreciation and amortization expense.

Our net loss was driven by costs related to our selling, general and administrative activities resulting from our continued efforts to commercialize our products, combined with research and development costs.

Net cash used by changes in our operating assets and liabilities consisted primarily of a net decrease in accounts payable and accrued expenses of $359,000, partially offset by decreases in prepaid expenses of $92,000, inventory of $88,000, and accounts receivable of $71,000.

During the six months ended June 30, 2022, operating activities used $4.1 million of cash, resulting from our net loss of $4.9 million, partially offset by net changes in our operating assets and liabilities of $198,000 and by non-cash charges of $555,000, consisting primarily of stock-based compensation and depreciation and amortization expense.

Our net loss was driven by costs related to our selling, general and administrative activities resulting from our efforts to commercialize our products, combined with our research and development costs.

Net cash provided by changes in our operating assets and liabilities consisted of a net decrease in accounts payable and accrued expenses of $259,000, a decrease in deferred revenue of $41,000 and an increase in inventory of $25,000, partially offset by increases in prepaid expenses of $108,000 and accounts receivable of $19,000.

Cash Flows from Investing Activities— Cash flows used in investing activities primarily consist of the purchase of property and equipment, offset by any proceeds received in connection with sales of property and equipment.

During the three months ended March 31, 2023 and 2022, cash flows used in investing activities consisted of property and equipment purchases of $1,000 and $66,000, respectively.

During the six months ended June 30, 2023 and 2022, cash flows used in investing activities consisted of property and equipment purchases of $21,000 and $146,000, respectively.

Cash Flows from Financing Activities— Financing activities provide cash for both day-to-day operations and capital requirements as needed.

During the three months ended March 31, 2023, net cash used in financing activities consisted of the payment of employee withholding taxes of $11,000.

During the three months ended March 31, 2022, net cash used in financing activities consisted of repayments notes payable and finance lease obligations of $16,000.

During the six months ended June 30, 2023, net cash used in financing activities consisted of net proceeds of $1.2 million from the issuance of common stock, slightly offset by the payment of employee withholding taxes of $11,000.

During the six months ended June 30, 2022, net cash used in financing activities consisted of repayments of notes payable and finance lease obligations of $32,000.

Critical Accounting Policies and Estimates

There have been no material changes to the Company’s critical accounting policies and estimates as previously disclosed in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 17, 2023.

There have been no material changes to our critical accounting policies and estimates as previously disclosed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 17, 2023.

Quantitative and Qualitative Disclosures about Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis