What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-13 compared with 2024-02-21 · 55 added, 44 removed, 123 unchanged (45% of the section changed)

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Stock-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy.

Specifically, our stock-based compensation expense for the year ended December 31, 2023 and December 31, 2022 was $555,000 and $711,000, respectively, which represented 6.7% and 7.0%, respectively, of our total operating expenses for those periods.

Specifically, our stock-based compensation expense for the years ended December 31, 2024 and 2023 was $326,000 and $555,000, respectively, which represented 4.5% and 6.7%, respectively, of our total operating expenses for those periods.

Results of Operations

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Loss from operations (6,249) (7,732) (19) %

Other income (expense), net 22 (21) (205) %

Other income, net 65 22 195 %

Net loss $ (6,184) $ (7,710) (20) %

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Sales, which are net of any discounts and promotions, were $1.9 million for the year ended December 31, 2024, compared to $1.2 million for the year ended December 31, 2023.

Sales increased by $174,000 in 2023 driven by more than 70% increases in our agribusiness, commercial and distributor vertical markets, as we continue efforts at commercializing our products, slightly offset by a 10% decrease in e-commerce.

The $664,000, or 56%, increase in 2024 was driven by the launch of our latest Evolve product offerings, partially offset by a decrease in the number of units sold of our existing ContraPest product offerings.

Launched in January 2024, and expanded during 2024 with variations in product offerings, Evolve is a soft bait containing the active ingredient, cottonseed oil, and represented approximately 66%, or $1.2 million, of revenue for 2024.

Partially offsetting this increase was a decline in the revenue related to our ContraPest product offerings.

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

Also in 2024, we had a shift in our sales channels, with distributors representing approximately 34% of revenues compared to 9% in 2023.

Cost of Sales

Cost of sales, consisting primarily of the cost of products sold, including scrap and reserves for obsolescence, was $654,000 for the year ended December 31, 2023, compared with $555,000 for the year ended December 31, 2022, an increase of $99,000, or 17.8%.

However, cost of sales as a percent of sales was comparable year over year, at 54.8% for 2023 compared with 54.5% for 2022.

Gross profit for the year ended December 31, 2023 was $539,000 compared with gross profit of $464,000 for the year ended December 31, 2022, an increase of $75,000, or 16.2%.

However, gross profit margin was comparable year over year at 45.2% for 2023 compared with 45.5% for 2022.

Cost of sales, consisting primarily of the cost of products sold, including scrap and reserves for obsolescence, was $853,000, or 45.9% of net sales, for the year ended December 31, 2024, compared with $654,000, or 54.8% of net sales, for the year ended December 31, 2023.

The lower cost of net sales is largely due to a shift in the mix of products sold, and declined due to our latest product offering, Evolve, which launched in January 2024.

Furthermore, cost of sales in 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, while cost of sales in 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 year ended December 31, 2024 was $1,004,000, for a gross profit margin of 54.1%, compared with gross profit of $539,000, or a gross profit margin of 45.2%, for the year ended December 31, 2023.

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

Additionally, the 2024 gross profit margin was impacted by both the higher-than-expected cost of a key ingredient in our new Evolve product during the first quarter, combined with an increased proportion of our sales coming from distributors, who are offered a lower price due to the quantities purchased, while the 2023 gross profit margin was impacted by the higher cost of sales related to the scrapping of defective tanks no longer used in our products.

Research and Development Expenses

Research and development expenses are expensed as incurred and consist primarily of costs incurred in connection with the research and development of ContraPest and Evolve and our other product candidates.

Research and development expenses are expensed as incurred and consist primarily of costs incurred in connection with the research and development of ContraPest, Evolve, and our other product candidates.

Such costs include the following:

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• facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and supplies.

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

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

Years Ended December 31, Increase

Personnel (including stock-based compensation) $ 636 $ 996 $ (360)

Professional fees 156 284 (128)

Facility 122 108 14

Personnel-related (including stock-based compensation) $ 1,032 $ 636 $ 396

Facility-related 184 122 62

Stability and animal studies, materials and field costs 133 45 88

Depreciation 127 109 18

Professional fees 99 156 (57)

Supplies and maintenance 69 73 (4)

Other 68 87 (19)

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Research and development expenses were $1.7 million for the year ended December 31, 2024, compared to $1.2 million for the year ended December 31, 2023.

The $631,000 decrease was primarily driven by lower personnel costs and lower legal fees related to research and development matters, offset by higher costs related to increased and expanded product development efforts in the later part of 2023.

The $484,000 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, combined with higher expenses overall related to field and product improvement studies in 2024 when compared with 2023.

These increases were partially offset by lower consulting and legal fees required for research and development purposes.

Selling, General and Administrative Expenses

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Selling, general and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, consulting, accounting and audit services.

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

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

Years Ended December 31, Increase

Personnel (including stock-based compensation) $ 3,440 $ 3,851 $ (411)

Personnel-related (including stock-based compensation) $ 2,630 $ 3,440 $ (810)

Professional fees 1,240 1,722 (482)

Marketing 288 317 (29)

Travel and related expenses 228 201 27

Facility 155 155 —

Depreciation expense 27 55 (28)

Insurance 243 350 (107)

Licensed software 232 240 (8)

Travel and entertainment 230 228 2

Facility-related 146 155 (9)

Other 532 591 (59)

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Selling, general and administrative expenses were $5.5 million for the year ended December 31, 2024, compared to $7.0 million for the year ended December 31, 2023.

The $1.2 million decrease was driven by lower professional fees related to legal matters, consulting related to advertising and marketing activities and recruiting costs related to employee turnover, partially offset by higher cost in 2023 related to the settlement of a legal matter.

Additionally, costs related to software licenses and marketing efforts for digital and social media outlets were lower in 2023 when compared to 2022, combined with lower costs related to the timing of personnel changes.

In 2023, personnel costs includes severance costs of $191,000 related to the termination of our former Chief Revenue Officer, while 2022 includes severance costs of $356,000 related to the termination of our former Chief Executive Officer.

Other Income (Expense), Net

Other income (expense), net, consists of interest income and expense, as well as any gains or losses related to the sale of fixed assets and other miscellaneous items.

For the year ended December 31, 2023, other income, net largely consisted of interest income of $26,000, while other expense, net for the year ended December 31, 2022 largely consisted of a loss realized on the sale of research and development equipment of $28,000.

Interest income was higher in 2023 when compared with 2022, as interest rates continued to climb throughout 2022 and into 2023, which then leveled off.

Interest expense was also higher in 2023 when compared with 2022 due to new notes entered into to finance the purchase of new manufacturing equipment.

The $1.5 million decrease was primarily due to lower personnel-related expenses resulting from a lower headcount and stock-based compensation, the realignment of the focus of our field development personnel to research and development activities in early 2024 and severance costs incurred in 2023 related to the termination of our former Chief Revenue Officer, combined with lower professional fees and insurance costs.

Legal fees were lower as a legal matter was settled at the end of 2023, consulting fees related to marketing efforts were lower due to changes in our overall marketing program, and our insurance costs were lower resulting from both policy and rate changes.

Other Income, Net

Other income, net, consists of interest income and expense, as well as any gains or losses related to the sale of property and equipment and any other miscellaneous items.

For the year ended December 31, 2024, other income, net largely consisted of interest income of $56,000 and a gain on the sale of equipment of $28,000, partially offset by interest expense of $22,000.

For the year ended December 31, 2023, other income, net consisted of interest income of $26,000, partially offset by interest expense of $4,000.

Interest expense was higher in 2024 when compared with 2023 due to new financing arrangements entered into for the purchase of new manufacturing equipment beginning in late 2023 and continuing into 2024.

Liquidity and Capital Resources

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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 December 31, 2023, in combination with anticipated revenue, will be sufficient to fund our current operations for at least the next nine months.

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

Based upon our current operating plan, we expect that cash and cash equivalents at December 31, 2024, in combination with anticipated revenue, will be sufficient to fund our current operations for at least the next three months.

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

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.

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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Additional Funding Requirements

We expect our expenses to continue or increase in connection with our ongoing activities, particularly as we focus on marketing and sales of ContraPest.

We expect our expenses to continue or increase in connection with our ongoing activities, particularly as we focus on marketing and sales of ContraPest and Evolve.

In addition, we will continue to incur costs associated with operating as a public company.

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• manage the infrastructure for sales, marketing and distribution of ContraPest and Evolve and any other product candidates for which we may receive regulatory approval;

• seek additional regulatory approvals, if any, for ContraPest and Evolve, including to more fully expand the market and use for ContraPest and Evolve and, if we believe there is commercial viability, for our other product candidates;

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

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

• continue product development of ContraPest and Evolve and advance our research and development activities and, as our operating budget permits, advance the research and development programs for other product candidates;

• continue product enhancement and evolution of ContraPest and Evolve and advance our research and development activities and, as our operating budget permits, advance the research and development programs for other product candidates;

• maintain and protect our intellectual property portfolio;

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Revenue from our product sales did not cover our operating expenses during the year.

Net cash used by changes in our operating assets and liabilities consisted primarily of a $583,000 decrease in accrued expenses and accounts payable, a $26,000 decrease in deferred revenue;

and a $10,000 increase in prepaid expenses, offset by decreases of $58,000 in inventory and $20,000 in accounts receivable.

During 2022, net cash flows used in operating activities consisted of our net loss of $9.7 million, offset by changes in our operating assets and liabilities of $191,000 and non-cash charges of $928,000.

Our net loss was primarily attributed to research and development activities and our selling, general and administrative expenses.

Net cash generated by changes in

our operating assets and liabilities consisted primarily of a $188,000 increase in accrued expenses and accounts payable, a $148,000 decrease in inventory and a $44,000 increase in deferred revenue, offset by increases of $148,000 in prepaid expenses and $42,000 in accounts receivable.

Net cash used by changes in our operating assets and liabilities largely consisted of increases of $242,000 in accounts receivable and $44,000 in other assets.

During 2023, net cash flows used in operating activities consisted of our net loss of $7.7 million and by changes in our operating assets and liabilities of $544,000, offset by non-cash charges of $688,000.

Our net loss was primarily attributed to expenses incurred related to our selling, general and administrative activities.

Net cash used by changes in our operating assets and liabilities consisted primarily of a $582,000 decrease in accounts payable and accrued expenses, and increases of $26,000 in deferred revenue and $10,000 in prepaid expenses, offset by decreases of $58,000 in inventory and $20,000 in accounts receivable.

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.

In 2023, our purchases were $25,000 lower than 2022, slightly offset by a decrease of $4,000 in proceeds received on sales of property and equipment.

In 2024, the cash outlay for our property and equipment purchases were $65,000 lower than 2023.

In 2024, we had proceeds received of $28,000 related to the sale of certain equipment.

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

In 2023, net cash provided by financing activities largely consisted of $5.4 million of net proceeds from issuances of common stock, $2.8 million from the exercise of warrants, and $114,000 from proceeds from notes payable.

In 2022, net cash provided by financing activities consisted of $4.2 million of net proceeds from the issuance of common stock, partially offset by $32,000 of repayments related to notes payable and finance lease obligations.

In 2024, net cash provided by financing activities consisted of $2.0 million from the exercise of warrants, $38,000 from the issuance of common stock, and $25,000 from proceeds received related to notes payable, partially offset by $42,000 of repayments of notes payable.

In 2023, net cash provided by financing activities largely consisted of $5.4 million of net proceeds from the issuance of common stock, $2.8 million from the exercise of warrants, and $114,000 from proceeds from notes payable.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S.

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States (“U.S.

The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements.

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The resulting calculated fair value of stock options is recognized as compensation expenses over the requisite service period, which is generally the vesting period.

When there are changes to the assumptions used in the option-pricing model, including fluctuations in the market prices of our common stock, there will be variations in the calculated fair value of our future stock option awards, which results in variation in the stock-based compensation expensed recognized.

future stock option awards, which results in variation in the stock-based compensation expensed recognized.

Additionally, any modification of an award that increases its fair value will require us to recognize additional expense.

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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-K

Item 7. Management’s Discussion and Analysis