What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-09 · 80 added, 47 removed, 151 unchanged (46% of the section changed)

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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 belief that Evolve and Evolve Mouse are considered a minimum risk pesticides 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 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 cash and cash equivalents at June 30, 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 three months;

• our expectation that significant operating losses in the course of our research and development and commercialization activities will continue for the near future;

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• our belief that 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;

• 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 additional capital is needed in order 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 and may opportunistically raise capital;

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

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

• 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;

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

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

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

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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.

Through June 30, 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 $4.6 million in net product sales.

As of June 30, 2024, we had an accumulated deficit of $133.3 million and cash and cash equivalents of $2.0 million.

We have incurred significant operating losses every year since our inception, with a net loss of $1.6 million for the three months ended June 30, 2024.

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, 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.

Based upon our current operating plan, we expect that cash and cash equivalents at June 30, 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 three 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.

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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)

2024 2023 2024 2023

Revenues, net $ 459 $ 305 50 % $ 874 $ 538 62 %

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Net loss $ (1,584) $ (1,993) (21) % $ (3,416) $ (4,030) (15) %

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.

Sales, net of sales discounts and promotions, were $459,000 for the second quarter of 2024, compared to $305,000 for the second quarter of 2023.

The $154,000 increase was driven by the launch of our latest products partially offset by a decrease in the number of units sold of our existing Elevate Bait System product offering.

Launched in January 2024, Evolve is a soft bait containing the active ingredient cottonseed oil and represented approximately 58%, or $266,000, of revenues for the second quarter of 2024.

Launched in August 2023, Isolate Bait System is a liquid bait and represented 8%, or $37,000, of revenues for the second quarter of 2024.

Partially offsetting these increases was a decline in revenue in the second quarter of 2024 when compared with the second quarter of 2023, resulting from a decline in the number of units sold of our existing Elevate Bait System product offering.

Limited erosion of demand for ContraPest products is expected as Evolve products are accepted in the marketplace.

For the six months ended June 30, 2024, sales were $874,000, compared to $538,000 for the six months ended June 30, 2023.

The $336,000 increase was driven by our latest products, Evolve, which represented approximately 59%, or $519,000, and Isolate Bait System, which represented approximately 8%, or $67,000, of revenues for the first half of 2024.

These increases were offset by a decrease related to a lower number of units sold of our existing Elevate Bait System product offering in the first half of 2024 when compared with the first half of 2023.

Cost of Sales

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.

Cost of sales consists of costs related to products sold, including scrap and reserves for obsolescence, as well as shipping costs when charged to the customer.

Cost of sales was $210,000, or 45.8% of net sales, for the second quarter of 2024, compared to $163,000, or 53.6% of net sales, for the second quarter of 2023.

The lower cost of net sales is largely due to a

shift in the mix of products sold, and declined largely driven our latest product offering, Evolve, which launched in January 2024.

Shipping costs, which impacts gross profit margin, was 8.4% and 4.7% of net sales in the second quarter of 2024 and 2023, respectively.

Excluding shipping costs, cost of sales would have been $172,000, or 40.8% of net sales in the second quarter of 2024, compared with $149,000, or 51.1% of net sales in the second quarter of 2023..

For the six months ended June 30, 2024, cost of sales was $490,000, or 56.1% of net sales, compared to $304,000, or 56.5% of net sales, for the six months ended June 30, 2023.

Cost of sales in the first half of 2024 was impacted during the first few months of 2024 from the higher cost of a key ingredient for 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 half of 2023 was impacted by the scrapping of defective trays no longer used in our products in the first quarter of 2023.

Gross profit for the second quarter of 2024 was $249,000, for a gross profit margin of 54.2%, compared to a gross profit of $142,000, or a gross profit margin of 46.4%, for the second quarter of 2023.

Higher gross profit margin was driven by a shift in the mix of products sold, and increased due to our latest product offering Evolve, which launched in January 2024.

This increase was partially offset by lower gross profit margin related to a shift in the mix of sales through our sales channels, with higher sales to distributors in the second quarter of 2024 when compared with the second quarter of 2023.

For the six months ended June 30, 2024, gross profit was $384,000, for a gross profit margin of 43.9%, compared to $234,000, gross profit margin of 43.5%, for the six months ended June 30, 2023.

The gross profit margin in the first half 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 half 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 March 31, Increase

Three Months Ended June 30, Increase

(Decrease) Six Months Ended June 30, Increase

2024 2023 2024 2023

Personnel (including stock-based compensation) $ 330 $ 214 $ 116 $ 528 $ 456 $ 72

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Total $ 467 $ 381 $ 86 $ 837 $ 768 $ 69

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.

Research and development expenses were $467,000 for the second quarter of 2024, compared to $381,000 for the second quarter of 2023.

The $86,000 increase was primarily due to the realignment of the focus of our field development personnel to research and development activities, lower overhead allocation, and increased costs related to the expansion of facilities and supplies and maintenance related to research and development efforts.

These increases were partially offset by lower consulting and legal fees required for research and development purposes, combined with lower expenses overall related to field and product improvement studies in the second quarter of 2024 when compared with the second quarter of 2023.

For the six months ended June 30, 2024, research and development expenses were $837,000, compared to $768,000 for the six months ended June 30, 2023.

The $69,000 increase was primarily due to the realignment of the focus of our field development personnel to research and development activities, lower overhead allocation, and increased costs related to the expansion of facilities and supplies and maintenance related to research and development efforts.

These increases were partially offset by lower consulting and legal fees required for research and development purposes, combined with lower expenses overall related to field and product improvement studies in the first half of 2024 when compared with the first half of 2023.

Selling, General and Administrative Expenses

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

Three Months Ended March 31, Increase

Three Months Ended June 30, Increase

(Decrease) Six Months Ended June 30, Increase

2024 2023 2024 2023

Personnel (including stock-based compensation) $ 633 $ 890 $ (257) $ 1,495 $ 1,793 $ (298)

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Total $ 1,384 $ 1,761 $ (377) $ 2,992 $ 3,511 $ (519)

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.

Selling, general and administrative expenses were $1.4 million for the second quarter of 2024, as compared to $1.8 million for the second quarter of 2023.

The decrease of $377,000 was primarily due to lower personnel-related expenses resulting from both lower headcount and stock-based compensation, combined with lower professional fees and insurance costs.

Consulting fees related to marketing efforts are lower in the second quarter of 2024 when compared with the second quarter of 2023 due to changes in our overall marketing program and lower legal fees.

The changes in legal fees are due to the settlement of a legal matter in November 2023.

Additionally, our insurance cost is lower resulting from both policy and rate changes.

In the second quarter of 2023, personnel costs included severance costs of $119,000 related to the termination of our former Chief Revenue Officer.

For the six months ended June 30, 2024, selling, general and administrative expenses were $3.0 million, compared to $3.5 million for the six months ended June 30, 2023.

The $519,000 decrease was primarily due to lower personnel-related expenses resulting from both lower headcount and stock-based compensation, combined with lower professional fees and insurance costs.

Consulting fees related to marketing efforts are lower in the first half of 2024 when compared with the first half of 2023 due to changes in our overall marketing program and lower legal fees.

The changes in legal fees are due to the settlement of a legal matter in November 2023.

Additionally, our insurance cost is lower resulting from both policy and rate changes.

In the second quarter of 2023, personnel costs includes severance costs of $119,000 related to the termination of our former Chief Revenue Officer.

Other Income, Net

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.

Other income, net for the second quarter of 2024 consisted of interest income of $22,000, partially offset by interest expense of $5,000, compared with the second quarter of 2023, which consisted of interest income of $7,000.

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

Interest expense in the second quarter of 2024 relates to the notes payable entered into beginning in late 2023 for the purchase of certain equipment.

For the six months ended June 30, 2024, other income, net, consisted of interest income of $37,000, partially offset by interest expense of $9,000, compared with the six months ended June 30, 2023, which consisted of interest income of $15,000.

The higher interest income was due to a combination of a higher average balance of cash and cash equivalents and higher interest rate in the first half of 2024 when compared to the first half of 2023.

Liquidity and Capital Resources

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and debt financing, consisting primarily of convertible notes.

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.

Through June 30, 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 $4.6 million in net product sales and an aggregate of $1.7 million from licensing fees.

As of June 30, 2024, we had an accumulated deficit of $133.3 million and cash and cash equivalents of $2.0 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 our fertility control products in the United States and internationally.

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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 $ 5,395 $ 4,775

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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, 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.

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 $301,000, partially offset by increases in accounts receivable of $69,000, inventory of $38,000, and prepaid expenses of $28,000.

During the six months ended June 30, 2024, operating activities used $3.4 million of cash, resulting from our net loss of $3.4 million and net changes in our operating assets and liabilities of $248,000, partially offset by net non-cash charges of $248,000, 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 related to our continued efforts on formulations of new products and improvements to existing products.

Net cash used by changes in our operating assets and liabilities consisted primarily of increases in accounts receivable of $150,000, inventory of $104,000 and prepaid expenses of $76,000, partially offset by an increase in accounts payable and accrued expenses of $88,000.

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, partially offset by net changes in our operating assets and liabilities of $130,000 and by 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 efforts to commercialize our products, combined with costs related to our research and development efforts.

Net cash used by changes in our operating assets and liabilities consisted of a net decreases 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.

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

During the six months ended June 30, 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 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.

During the six months ended June 30, 2024, net cash provided by financing activities consisted of proceeds received from notes payable of $25,000, proceeds received from the exercise of warrants of $6,000, partially offset by repayments on notes payable of $17,000.

During the six months ended June 30, 2023, net cash provided by

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 related to share-based awards of $11,000.

Critical Accounting Policies and Estimates

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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