What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-09 · 73 added, 84 removed, 125 unchanged (56% of the section changed)

7 unchanged sentences

Specific forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding:

• our belief that Evolve is considered a minimum risk pesticide under the United States Environmental Protection Agency’s (the “EPA’s”) Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”), Section 25(b);

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

• our expectation that cash and cash equivalents at September 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 expectation that cash and cash equivalents at March 31, 2024, 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 significant operating losses in the course of our research and development and commercialization activities will continue for the near future;

3 unchanged sentences

• our additional capital is needed to fund our operating losses and research and development activities before we become profitable;

• our belief that we may require additional capital in order to fund our operating losses and research and development activities before we become profitable;

• our ability to achieve profitability or generate positive cash flows;

• our successful commercialization of fertility control products in the United States;

• our belief that 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;

• our expectation that we will incur substantial and increased expenses;

1 unchanged sentence

• our belief that if we encounter continued issues or delays in the commercialization of fertility control products, 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 maximize market acceptance for, and generate sales of, our products, including by conducting field demonstrations for potential lead customers;

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

• our expectation that our expenses will continue or increase in connection with our ongoing activities, particularly as we focus on marketing and sales of fertility control products;

• our ability to maintain and obtain regulatory approval for our product and product candidates;

• our ability to gain market acceptance, commercial viability and profitability of fertility control products and other products;

• our ability to manage the infrastructure for sales, marketing and distribution of fertility control products and any other product candidates for which we may receive regulatory approval;

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

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

• our ability to continue product development of fertility control products and advance our research and development activities and, as our operating budget permits, advance the research and development programs for other product candidates;

• our ability to maintain and protect our intellectual property portfolio;

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

• our expectation that our expenses may continue or increase in connection with our ongoing activities, particularly as we focus on marketing and sales of fertility control products;

• our successful commercialization of fertility control products in the United States;

• our ability to maintain and obtain regulatory approval of our product and product candidates;

• our ability to gain market acceptance, commercial viability and profitability of our fertility control products and any other products;

• our ability to market our products and establish an effective sales force and marketing infrastructure to generate significant revenue;

• the success of our research and development;

• the success of our research and development activities;

• our ability to retain and attract key personnel to develop, operate, and grow our business;

2 unchanged sentences

• our plans for our business, including for research and development;

• our belief the claims against us do not have merit and our intention to aggressively defend against these accusations;

• our belief the litigation against us is not likely to have a material effect on our operations;

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

1 unchanged sentence

These forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and situations that are difficult to predict and that may cause our own, or our industry’s, actual results to be materially different from the future results that are expressed or implied by these statements.

Accordingly, actual results may differ materially from those anticipated or expressed in such statements as a result of a variety of factors, including those discussed in Item 1A-“Risk Factors” of Part I of our Annual Report on Form 10-K, for the year ended December 31, 2022, filed with the SEC on March 17, 2023, and those contained from time to time in our other filings with the SEC.

Accordingly, actual results may differ materially from those anticipated or expressed in such statements as a result of a variety of factors, including

those discussed in Item 1A-“Risk Factors” of Part I of our Annual Report on Form 10-K, for the year ended December 31, 2023, filed with the SEC on February 21, 2024, and those contained from time to time in our other filings with the SEC.

A number of factors could cause our actual results to differ materially from those indicated by the forward-looking statements.

3 unchanged sentences

• 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.

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

• regulatory approval and regulation of our products;

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

All forward-looking statements included herein are based on information available to us as of the date hereof and speak only as of such date.

4 unchanged sentences

Such reports and other information we file with the SEC are available free of charge at www.senestech.com as soon as practicable after such reports are available on the SEC’s website at www.sec.gov.

SEC’s website contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

The SEC’s website contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

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 received under our former license agreement.

Although sales of our product have increased over the last three years, 17% in 2023, 77% in 2022 and 123% in 2021, we are not yet able to fund operations by product sales alone.

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 September 30, 2023, we received net proceeds of $96.6 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 $3.4 million in net product sales.

As of September 30, 2023, we had an accumulated deficit of $128.2 million and cash and cash equivalents of $2.1 million.

We have incurred significant operating losses every year since our inception, with a net loss of $1.9 million for the three months ended September 30, 2023.

We have also generated limited revenue from research grants and licensing fees received under former license agreements.

Through March 31, 2024, we received net proceeds of $101.8 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 $4.1 million in net product sales.

As of March 31, 2024, we had an accumulated deficit of $131.7 million and cash and cash equivalents of $3.6 million.

We have incurred significant operating losses every year since our inception, with a net loss of $1.8 million for the three months ended March 31, 2024.

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

6 unchanged sentences

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, 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.

And, in August 2023, a certain warrant holder was induced to exercise warrants related to 2,934,575 shares by reducing the exercise price to the then current market price for our common stock.

These warrants were exercised for $0.7202 per share for gross proceeds of $2.1 million, before deducting issuance costs.

Of the 2,934,575 shares issued, 2,619,575 shares are held in abeyance and not considered outstanding until certain conditions are met, at which time such shares will become outstanding.

The balance of the shares in abeyance will be held in abeyance until notice from the stock holder that the balance, or a portion thereof, may be issued in compliance with beneficial limitation provision in the warrants.

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

Based upon our current operating plan, we expect that cash and cash equivalents at March 31, 2024, 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.

While we have evaluated and continue to evaluate our operating expenses and concentrate our resources toward the successful commercialization of fertility control products in the United States and internationally, 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.

4 unchanged sentences

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

Three Months Ended September 30, % Increase (Decrease) Nine Months Ended September 30, % Increase (Decrease)

2023 2022 2023 2022

Three Months Ended March 31, % Increase (Decrease)

Revenues, net $ 415 $ 233 78 %

6 unchanged sentences

Loss from operations (1,843) (2,045) (10) %

Other income (expense), net 4 (27) (115) % 19 (23) (183) %

Other income, net 11 8 38 %

Net loss $ (1,832) $ (2,037) (10) %

Sales, net of sales discounts and promotions, were $360,000 for the third quarter of 2023, compared to $250,000 for the third quarter of 2022.

Sales increased by $110,000, 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 TM , which was launched in June 2022, and, most recently, our Isolate Bait System TM , which was launched in August 2023.

For the nine months ended September 30, 2023, sales were $898,000, compared to $722,000 for the nine months ended September 30, 2022.

The $176,000 increase was primarily due to an increase in the number of units sold, including our Elevate Bait System product offering, and, most recently, our Isolate Bait System, which was launched in August 2023.

Sales, net of sales discounts and promotions, were $415,000 for the first quarter of 2024, compared to $233,000 for the first quarter of 2023.

The $182,000 increase was driven by the launch of our latest product Evolve in November 2023.

Evolve is a soft bait containing the active ingredient cottonseed oil and represented approximately 56%, or $232,000, of revenues for the first quarter of 2023.

Cost of Sales

Cost of sales consisted primarily of the cost of products sold, including scrap and reserves for obsolescence, and was $184,000, or 51.2% of net sales, for the third quarter of 2023, compared to $128,000, or 51.2% of net sales, for the third quarter of 2022.

For the nine months ended September 30, 2023, cost of sales was $488,000, or 54.4% of net sales, compared to $374,000, or 51.8% of net sales, for the nine months ended September 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 third quarter of 2023 was $176,000, for a gross profit margin of 48.8%, compared to a gross profit of $122,000, or a gross profit margin of 48.8%, for the third quarter of 2022.

For the nine months ended September 30, 2023, gross profit was $410,000, for a gross profit margin of 45.6%, compared to $348,000, gross profit margin of 48.2%, for the nine months ended September 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 50.3% for the nine months ended September 30, 2023.

Cost of sales consisted primarily of the cost of products sold, including scrap and reserves for obsolescence, and was $280,000, or 67.5% of net sales, for the first quarter of 2024, compared to $141,000, or 60.4% of net sales, for the first quarter of 2023.

Cost of sales in the first quarter of 2024 was impacted by the higher cost of a key ingredient in our new Evolve product, as we transitioned from development-stage raw materials pricing to production-level raw materials pricing.

Cost of sales in the first quarter of 2023 was impacted by the scrapping of defective trays no longer used in our products, which totaled $42,000.

Gross profit for the first quarter of 2024 was $135,000, for a gross profit margin of 32.5%, compared to a gross profit of $92,000, or a gross profit margin of 39.6%, for the first quarter of 2023.

The gross profit margin in the first quarter of 2024 was impacted by both the higher-than-expected cost of a key ingredient in our new Evolve product, combined with an increased proportion of our sales coming from distributors.

The gross profit margin in the first quarter of 2023 was impacted by the higher cost of sales related to the scrapping of defective tanks during no longer used in our products.

Research and Development Expenses

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

Three Months Ended September 30, Increase

(Decrease) Nine Months Ended September 30, Increase

2023 2022 2023 2022

Three Months Ended March 31, Increase

Personnel (including stock-based compensation) $ 198 $ 242 $ (44)

Professional fees 34 68 (34) 112 216 (104)

Facility-related 39 26 13

Depreciation 30 28 2

Facilities 28 29 (1) 79 82 (3)

Supplies and maintenance 28 30 (2)

Professional fees 18 44 (26)

Stability studies, materials and testing 16 3 13

Other 41 14 27

Total $ 370 $ 387 $ (17)

Research and development expenses were $379,000 for the third quarter of 2023, compared to $452,000 for the third quarter of 2022.

The $73,000 decrease was primarily due to lower headcount and consulting and legal fees required for research and development purposes.

For the nine months ended September 30, 2023, research and development expenses were $1,147,000, compared to $1,399,000 for the nine months ended September 30, 2022.

The $252,000 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.

In 2022, we incurred costs related to product improvement and continue into 2023 using the results from those studies for product development.

Research and development expenses were $370,000 for the first quarter of 2024, compared to $387,000 for the first quarter of 2023.

The $17,000 decrease was primarily due to lower headcount and consulting and legal fees required for research and development purposes, which was partially offset by higher expenses overall related to field and product improvement studies in the first quarter of 2024 when compared with the first quarter of 2023.

Selling, General and Administrative Expenses

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

Three Months Ended September 30, Increase

(Decrease) Nine Months Ended September 30, Increase

2023 2022 2023 2022

Three Months Ended March 31, Increase

Personnel (including stock-based compensation) $ 862 $ 903 $ (41)

Professional fees 314 452 (138)

Insurance 121 143 (22) 299 454 (155)

Marketing 73 54 19

Licensed software 69 65 4

Insurance 61 86 (25)

Travel and entertainment 59 74 (15)

2 unchanged sentences

Total $ 1,608 $ 1,750 $ (142)

Selling, general and administrative expenses were $1.7 million for the third quarter of 2023, as compared to $2.3 million for the third quarter of 2022.

The decrease of $541,000 was primarily due to consulting and legal fees required for general corporate purposes largely due to higher legal fees incurred in the third quarter of 2022 and lower marketing costs resulting from changes in our overall marketing program.

See Note 9 in our Notes to Condensed Financial Statements for a discussion of our legal matter.

Additionally, personnel-related expenses were lower due to lower headcount and stock-based compensation.

For the nine months ended September 30, 2023, selling, general and administrative expenses were $5.3 million, compared to $6.5 million for the nine months ended September 30, 2022.

The $1,214,000 decrease was primarily due to lower personnel-related expenses resulting from both lower stock-based compensation and lower headcount, lower marketing

costs resulting from changes in our overall marketing program, and lower consulting and legal fees required for general corporate purposes largely due to higher legal fees incurred in the third quarter of 2022 related to our outstanding legal matter.

Additionally, insurance is lower than the comparable period of 2022 resulting from both policy and rate changes.

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

Selling, general and administrative expenses were $1.6 million for the first quarter of 2024, as compared to $1.8 million for the first quarter of 2023.

The decrease of $142,000 was primarily due to lower professional fees.

Consulting fees related to marketing efforts are lower in the first of 2024 when compared with the first quarter of 2023 due to changes in our overall marketing program, while legal fees are lower due to the settlement of a legal matter in November 2023.

Additionally, personnel-related expenses were lower due to lower headcount and stock-based compensation and insurance is lower resulting from both policy and rate changes.

These decreases were offset by higher franchise fees in the first quarter of 2024 when compared to the first quarter of 2023.

Other Income, Net

Other income for the third quarter of 2023 consisted of interest income, which was $3,000 higher than the third quarter of 2022 due to higher interest rates of the comparable periods.

Additionally, the third quarter of 2022 included a $28,000 loss on the sale of property and equipment.

For the nine months ended September 30, 2023, other income, net, consisted of interest income, which was $15,000 higher than the nine months ended September 30, 2022 due to higher interest rates of the comparable periods.

Additionally, the nine months ended September 30, 2022 included $1,000 of interest expense related to certain notes payable and finance leases that expired in 2022, a $28,000 loss on the sale of property and equipment and $2,000 of miscellaneous income.

Other income, net for the first quarter of 2024 consisted of interest income of $15,000, partially offset by interest expense of $4,000, while the first quarter of 2023 consisted of interest income of $8,000.

Interest income was higher due to a combination of a higher average balance of cash and cash equivalents and higher interest rate during the first quarter of 2024 when compared with the first quarter of 2023.

Interest expense in the first quarter of 2024 relates to the notes payable entered into in late 2023 related to the purchase of certain equipment.

Liquidity and Capital Resources

3 unchanged sentences

and debt financing, consisting primarily of convertible notes.

Through September 30, 2023, we have received net proceeds of $96.6 million from our sales of common stock, preferred stock and warrant exercises and issuance of convertible and other promissory notes, an aggregate of $3.4 million in net product sales and an aggregate of $1.7 million from licensing fees.

As of September 30, 2023, we had an accumulated deficit of $128.2 million and cash and cash equivalents of $2.1 million.

Through March 31, 2024, we have received net proceeds of $101.8 million from our sales of common stock, preferred stock and warrant exercises and issuance of convertible and other promissory notes, an aggregate of $4.1 million in net product sales and an aggregate of $1.7 million from licensing fees.

As of March 31, 2024, we had an accumulated deficit of $131.7 million and cash and cash equivalents of $3.6 million.

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

(i) successful commercialization of our fertility control products and maintaining and obtaining regulatory approval of our products and product candidates;

(ii) market acceptance, commercial viability and profitability of our fertility control products and other products;

(ii) market acceptance, commercial viability and profitability of our fertility control products and any other products;

(iii) the ability to market our products and establish an effective sales force and marketing infrastructure to generate significant revenue;

2 unchanged sentences

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 our fertility control products 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 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.

If we need more financing, including within the next six 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.

16 unchanged sentences

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

Nine Months Ended September 30,

Three Months Ended March 31,

Cash and cash equivalents, beginning of period $ 5,395 $ 4,775

6 unchanged sentences

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 nine months ended September 30, 2023, operating activities used $5.5 million of cash, resulting from our net loss of $6.0 million and net changes in our operating assets and liabilities of $137,000, partially offset by net non-cash charges of $567,000, consisting primarily of stock-based compensation and depreciation and amortization expense.

During the three months ended March 31, 2024, operating activities used $1.8 million of cash, resulting from our net loss of $1.8 million and net changes in our operating assets and liabilities of $119,000, partially offset by net non-cash charges of $122,000, 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 $282,000 and

deferred revenue of $29,000 and an increase in prepaid expenses of $7,000, partially offset by decreases in inventory of $150,000 and accounts receivable of $34,000.

During the nine months ended September 30, 2022, operating activities used $6.3 million of cash, resulting from our net loss of $7.5 million, partially offset by net changes in our operating assets and liabilities of $457,000 and by non-cash charges of $751,000, consisting primarily of stock-based compensation, depreciation and amortization expense and loss on sale of property and equipment.

Net cash used by changes in our operating assets and liabilities consisted primarily of increases in inventory of $79,000 and accounts receivable of $66,000, a net decrease in accounts payable and accrued expenses of $11,000, and a decrease in deferred revenue of $3,000, partially offset by decrease in prepaid expenses of $42,000.

During the three months ended March 31, 2023, operating activities used $2.0 million of cash, resulting from our net loss of $2.0 million, partially offset by net 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 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 decreases in accounts payable and accrued expenses of $551,000 and deferred revenue of $48,000 and an increase in inventory of $48,000, partially offset by increases in prepaid expenses of $174,000 and accounts receivable of $16,000.

Net cash provided by changes in our operating assets and liabilities consisted of a net decreases in accounts payable and accrued expenses of $301,000, partially offset by increases in accounts receivable of $69,000, inventory of $38,000, and prepaid expenses of $28,000.

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 nine months ended September 30, 2023 and 2022, cash flows used in investing activities consisted of property and equipment purchases.

During the nine months ended September 30, 2022, net cash used in investing also included proceeds received from the sale of property and equipment of $4,000.

During the three

months ended March 31, 2024 and 2023, cash flows used in investing activities consisted of property and equipment purchases.

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

During the nine months ended September 30, 2023, net cash provided by financing activities consisted of net proceeds of $3.0 million from the issuances of common stock and $44,000 from the financing of certain equipment, slightly offset by the payment of employee withholding taxes of $11,000.

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

During the three months ended March 31, 2024, net cash used in financing activities consisted of repayments on notes payable of $8,000, partially offset by proceeds received from the exercise of warrants of $6,000.

During the three months ended March 31, 2023, net cash used in financing activities consisted of the payment of employee withholding taxes related to share-based awards.

Critical Accounting Policies and Estimates

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

1 unchanged sentence

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