SenesTech, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed financial statements and related notes. 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 (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. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “suggests,” “targets,” “contemplates,” “projects,” “predicts,” “may,” “might,” “plan,” “would,” “should,” “could,” “can,” “potential,” “continue,” “objective,” or the negative of those terms, or similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. Specific forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding: • our expectation that we will continue to incur significant expenses and operating losses for the foreseeable future; • 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 growing concern; • our expectation that if we are unable to generate additional funds in the future through additional financings, sales of our products, licensing fees, royalty payments or from other sources or transactions, we will exhaust our resources and will be unable to continue operations; • our expectation that significant operating losses will continue for the near future; • our ability to successfully commercialize our fertility control products and obtain and maintain regulatory approval for our products and product candidates; • our ability to gain market acceptance, commercial viability and profitability of fertility control products and other products; • our ability to market our products and establish an effective sales force and marketing infrastructure to generate sufficient revenue; • our ability to retain and attract key personnel to develop, operate and grow our business; • our ability to meet our working capital needs; • our expectation that cash and cash equivalents will be sufficient to fund our current operations for at least the next four months; • our belief that the use of our products can lead to sustained reductions of the rat or mice populations; • our belief that additional financing will be needed before achieving anticipated revenue targets and margin targets; • 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 belief that we may never achieve profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise capital through equity or debt financing. If such equity or debt financing is not available tat adequate levels or on acceptable terms, we may need to delay, limit or terminate commercialization and development efforts or discontinue operations; 15 Table of Contents • our belief that we will not pay dividends; • our estimates of the fair value of warrants based on a Black-Scholes model; • our belief that we have strong defenses against the claims by Liphatech; • our belief that we may be subject to other legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course of business; • our belief that Evolve qualifies for exemption from registration as a minimum risk pesticide under the EPA’s FIFRA, Section 25(b); • our belief that additional financing will be needed before achieving anticipated revenue targets and margin targets; • our ability to raise necessary capital through the sale of our securities; • our ability to achieve profitability or generate positive cash flows; • our estimates or expectations related to our revenue, cash flow, expenses, capital requirements and need for additional financing; • our belief that if equity or debt financing is not available at adequate levels or on acceptable terms we may need to delay, limit or terminate commercialization and development efforts or discontinue operations; • our anticipation that the cost of producing Evolve will continue to be lower that ContraPest based on the current costs of raw materials; • 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 belief that the use of warrant inducements and the ATM Facility are the appropriate capital market structures of those available to us to balance the need for capital while minimizing stockholder dilution; • our expectation that we will continue to incur costs associated with operating as a public company; • our expectation that we will incur substantial and increased expenses; and • our belief that we will need additional financing to fund our continuing and additional expenses. 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, 2024, filed with the SEC on March 13, 2025, 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. Such factors include, among others, the following: • the successful commercialization of our products; • market acceptance of our products; • our financial performance, including our ability to fund operations; • our ability to maintain compliance with Nasdaq Capital Market’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. 16 Table of Contents 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. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The forward-looking statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q reflect our views as of the date of this Quarterly Report on Form 10-Q about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results, performance or achievements to differ significantly from those expressed or implied in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, performance or achievements. We are subject to the information requirements of the Exchange Act, and we file or furnish reports, proxy statements and other information with the SEC. 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. The SEC’s website contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Overview 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. Although sales of our product have increased over the last three years, 56% in 2024, 17% in 2023, and 77% in 2022, 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. We have also generated limited revenue from research grants and licensing fees received under former license agreements. Through March 31, 2025, we received net proceeds of $105.8 million from our sales of common stock, preferred stock and warrant exercises and issuance of convertible and other promissory notes, an aggregate of $6.0 million in net product sales and an aggregate of $1.7 million from licensing fees. As of March 31, 2025, we had an accumulated deficit of $137.8 million and cash and cash equivalents of $1.7 million. We have incurred significant operating losses every year since our inception, with a net loss of $1.7 million for the three months ended March 31, 2025. We expect to continue to incur significant expenses and generate operating losses for at least the next six months. Our ultimate success depends upon the outcome of a combination of factors, including the following: (i) successful commercialization of fertility control products and maintaining and obtaining regulatory approval of our products and product candidates; (ii) market acceptance, commercial viability and profitability of fertility control products and other products; (iii) the ability to market our products and establish an effective sales force and marketing infrastructure to generate significant revenue; (iv) the success of our research and development; (v) the ability to retain and attract key personnel to develop, operate and grow our business; and (vi) our ability to meet our working capital needs. Based upon our current operating plan, we expect that cash and cash equivalents at March 31, 2025, 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 four 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. In any event, additional capital is needed in order to fund our operating losses and research and development activities before we become profitable. We may never achieve profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise capital through equity or debt financing. If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit or terminate commercialization and development efforts or discontinue operations. 17 Table of Contents Results of Operations The following table summarizes our results of operations for the periods presented (in thousands): Three Months Ended March 31, % Increase (Decrease) 2025 2024 Revenues, net $ 485 $ 415 17 % Cost of sales 172 280 (39) % Gross profit 313 135 132 % Operating expenses: Research and development 418 370 13 % Selling, general and administrative 1,558 1,608 (3) % Total operating expenses 1,976 1,978 — % Loss from operations (1,663) (1,843) (10) % Other income (expense), net (2) 11 (118) % Net loss $ (1,665) $ (1,832) (9) % Revenues Three Months Ended March 31, % Increase (Decrease) 2025 2024 Evolve Rat $ 303 62 % $ 250 60 % 21 % Evolve Mouse 81 17 % — — % 100 % ContraPest 101 21 % 165 40 % (39) % Revenues , net $ 485 100 % $ 415 100 % 17 % Sales, net of sales discounts and promotions, were $485,000 for the first quarter of 2025, compared to $415,000 for the first quarter of 2024. The $70,000 increase was driven by the launch of our Evolve product offerings, Evolve Rat and Evolve Mouse, 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 79%, or $384,000, of revenues for the first quarter of 2025, compared with 60%, or $250,000, of revenues for the first quarter of 2024. Partially offsetting this increase, was a decline in revenue related to our ContraPest product offerings in the first quarter of 2025 when compared with the first quarter of 2024. Continued erosion of demand for ContraPest products is expected as Evolve products are accepted in the marketplace. Cost of Sales 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 $172,000, or 35.5% of net sales, for the first quarter of 2025, compared to $280,000, or 67.5% of net sales, for the first quarter of 2024. The lower cost of net sales is largely due to a shift in the mix of products sold, and declined largely driven by our latest product line, Evolve, having a lower cost of sales relative to ContraPest. Cost of sales in the first quarter of 2024 was impacted by the higher cost of a key ingredient in Evolve, as we transitioned from development-stage raw material pricing to production-level raw material pricing. We anticipate the cost of producing Evolve will continue to be lower than ContraPest based on the current costs of raw materials. Gross Profit Gross profit for the first quarter of 2025 was $313,000, for a gross profit margin of 64.5%, compared to a gross profit of $135,000, or a gross profit margin of 32.5%, for the first quarter of 2024. Higher gross profit margin was driven by a shift in the mix of products sold, and increased due to our latest product line, Evolve, which launched in January 2024. This 18 Table of Contents 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 first quarter of 2025 when compared with the first quarter of 2024. Research and Development Expenses Research and development expenses consisted of the following (in thousands): Three Months Ended March 31, Increase (Decrease) 2025 2024 Personnel (including stock-based compensation) $ 253 $ 212 $ 41 Facility-related 75 39 36 Depreciation 32 30 2 Supplies and maintenance 20 28 (8) Professional fees 18 18 — Stability studies, materials and testing 6 16 (10) Other 14 27 (13) Total $ 418 $ 370 $ 48 Research and development expenses were $418,000 for the first quarter of 2025, compared to $370,000 for the first quarter of 2024. The $48,000 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. These increases were partially offset by lower expenses overall related to field and product improvement studies as well as supplies and maintenance in the first quarter of 2025 when compared with the first quarter of 2024. Selling, General and Administrative Expenses Selling, general and administrative expenses consisted of the following (in thousands): Three Months Ended March 31, Increase (Decrease) 2025 2024 Personnel (including stock-based compensation) $ 712 $ 862 $ (150) Professional fees 423 314 109 Franchise fees 89 47 42 Marketing 64 73 (9) Travel and entertainment 62 59 3 Licensed software 51 69 (18) Insurance 50 61 (11) Other 107 123 (16) Total $ 1,558 $ 1,608 $ (50) Selling, general and administrative expenses were approximately $1.6 million for both the first quarter of 2025 and 2024. The decrease of $50,000 in the first quarter of 2025 was driven by lower personnel-related expenses resulting from lower headcount, which was partially offset by severance costs related to the termination of certain employees in the first quarter of 2025. In addition, licensed software and insurance costs were lower in in the first quarter of 2025 when compared with the first quarter of 2024. These decreases were partially offset by increased consulting fees as we added a social media program to our investor relations activities in the first quarter of 2025 to expand our reach to new investor bases, combined with higher board compensation resulting from changes in the compensation structure. 19 Table of Contents Other Income, Net Other expense, net for the first quarter of 2025 consisted of interest expense of $5,000, partially offset by interest income of $3,000, while in the first quarter of 2024, other income, net consisted of interest income of $15,000, partially offset by interest expense of $4,000. Interest income was lower due to a lower average balance of cash and cash equivalents combined with declining interest rates during the first quarter of 2025 when compared with the first quarter of 2024. Liquidity and Capital Resources Liquidity Since our inception, we have sustained significant operating losses in the course of our research and development activities and commercialization efforts 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 a former license. 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 and debt financing, consisting primarily of convertible notes. Through March 31, 2025, we have received net proceeds of $105.8 million from our sales of common stock, preferred stock and warrant exercises and issuance of convertible and other promissory notes, an aggregate of $6.0 million in net product sales and an aggregate of $1.7 million from licensing fees. As of March 31, 2025, we had an accumulated deficit of $137.8 million and cash and cash equivalents of $1.7 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 any other products; (iii) the ability to market our products and establish an effective sales force and marketing infrastructure to generate significant revenue; (iv) the success of our research and development activities; (v) the ability to retain and attract key personnel to develop, operate and grow our business; and (vi) our ability to meet our working capital needs. Based upon our current operating plan, we expect that cash and cash equivalents at March 31, 2025, 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 four months. 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. 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 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. We may never achieve profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise capital through equity or debt financing. If such equity or debt financing is not available at adequate levels or on acceptable terms, we may need to delay, limit or terminate commercialization and development efforts or discontinue operations. 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 fertility control products. In addition, we will continue to incur costs associated with operating as a public company. In particular, we expect to incur substantial and increased expenses as we: • work to maximize market acceptance for, and generate sales of, our products, including by conducting field demonstrations for potential lead customers; • explore strategic partnerships to enable us to penetrate additional target markets and geographical locations; • manage the infrastructure for sales, marketing and distribution of fertility control products and any other product candidates for which we may receive regulatory approval; 20 Table of Contents • seek additional 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; • 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; • 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; • maintain and protect our intellectual property portfolio; and • 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. 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, 2025 2024 Cash and cash equivalents, beginning of period $ 1,307 $ 5,395 Net cash provided by (used in): Operating activities (1,557) (1,829) Investing activities (36) (2) Financing activities 1,941 (2) Increase (decrease) in cash and cash equivalents 348 (1,833) Cash and cash equivalents, end of period $ 1,655 $ 3,562 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, 2025, operating activities used $1.6 million of cash, resulting from our net loss of $1.7 million and net changes in our operating assets and liabilities of $22,000, partially offset by net non-cash charges of $130,000, 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 of an increase in accounts receivable of $163,000 and a net decrease in accounts payable and accrued expenses of $19,000, partially offset by decreases in prepaid expenses of $119,000 and inventory of $41,000. 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, partially offset by net changes in our operating assets and liabilities of $119,000 and by 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 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 increases in inventory of $79,000, and accounts receivable of $66,000, partially offset by a decrease in prepaid expenses of $42,000. 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, 2025 and 2024, cash flows used in investing activities consisted of property and equipment 21 Table of Contents purchases and was higher in 2025 as we prepare to move into our new manufacturing facility with increased production capacity. 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, 2025, net cash provided by financing activities consisted of net proceeds received from the issuance of common stock under our ATM Facility of $1.1 million and from the exercise of warrants of $889,000, partially offset by repayments on notes payable of $14,000. During the three months ended March 31, 2024, net cash used in financing activities consisted of the repayment of notes payable of $8,000, partially offset by net proceeds received from the exercise of warrants of $6,000. We believe that the use of warrant inducements and the ATM Facility are the appropriate capital market structures of those available to us to balance the need for capital while minimizing stockholder dilution. 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, 2024, filed with the SEC on March 13, 2025. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable.