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 through at least the end of fiscal 2027; • 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; 17 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 than 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 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. 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 18 Table of Contents 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 incurred significant operating losses related to our research and development and commercialization efforts, with a net loss of $1.6 million for the three months ended June 30, 2025, and we expect these losses to continue in the near term. 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 common stock and warrants to purchase common stock. As of June 30, 2025, we had received net proceeds of $111.4 million from the issuance of common and preferred stock, warrant exercises, and convertible and other promissory notes. We have also generated an aggregate of $6.7 million in net product sales and $1.7 million in licensing fees. At the end of the period, we reported an accumulated deficit of $139.4 million and cash and cash equivalents totaling $6.1 million. Our ultimate, long-term 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 June 30, 2025, in combination with anticipated revenue and any additional sales of our equity securities, including the most recent warrant exercise transaction in August 2025 (as further described below), will be sufficient to fund our current operations through at least the end of fiscal 2027.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 may still 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 may be 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. 19 Table of Contents Results of Operations The following table summarizes our results of operations for the periods presented (in thousands): Three Months Ended June 30, % Increase (Decrease) Six Months Ended June 30, % Increase (Decrease) 2025 2024 2025 2024 Revenues, net $ 625 $ 459 36 % $ 1,110 $ 874 27 % Cost of sales 216 210 3 % 388 490 (21) % Gross profit 409 249 64 % 722 384 88 % Operating expenses: Research and development 427 467 (9) % 845 837 1 % Selling, general and administrative 1,596 1,384 15 % 3,154 2,992 5 % Total operating expenses 2,023 1,851 9 % 3,999 3,829 4 % Loss from operations (1,614) (1,602) 1 % (3,277) (3,445) (5) % Other income (expense), net (2) 18 (111) % (4) 29 (114) % Net loss $ (1,616) $ (1,584) 2 % $ (3,281) $ (3,416) (4) % Revenues Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Evolve Rat $ 491 78 % $ 240 52 % $ 793 71 % $ 491 56 % Evolve Mouse 29 5 % 28 6 % 110 10 % 28 3 % ContraPest 105 17 % 191 42 % 207 19 % 355 41 % Revenues, net $ 625 100 % $ 459 100 % $ 1,110 100 % $ 874 100 % Sales, net of sales discounts and promotions, were $625,000 for the second quarter of 2025, compared to $459,000 for the second quarter of 2024. The $166,000 increase was driven by sales of our Evolve product offerings — Evolve Rat and Evolve Mouse (collectively, “Evolve”) — partially offset by a decline in units sold of our existing ContraPest product line. Evolve, which launched in January 2024 and expanded with variations later that year, is a soft bait containing the active ingredient, cottonseed oil. It represented approximately 83% of second quarter 2025 revenues, compared to 58% in the second quarter of 2024. The increase in Evolve revenues was partially offset by a continued decline in ContraPest sales. Sales, net of sales discounts and promotions, were $1.1 million for the first half of 2025, compared to $874,000 for the first half of 2024. The $236,000 increase was driven by sales of Evolve , partially offset by a decline in units sold of our ContraPest product line. Evolve product sales represented approximately 81% of revenues for the first half of 2025, compared with 41% in the first half of 2024. The increase in Evolve revenues was partially offset by a continued decline in ContraPest sales. We expect this trend to continue as the market adoption of Evolve grows. 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 $216,000, or 34.6% of net sales, for the second quarter of 2025, compared to $210,000, or 45.8%, for the second quarter of 2024. Cost of sales was $388,000, or 35.0% of net sales, for the first half of 2025, compared to $490,000, or 56.1%, for the first half of 2024. The decrease as a percentage of sales was driven by a shift in product mix toward Evolve, which carries a lower cost relative to ContraPest. Additionally, the second quarter of 2024 and first half of 2024 reflected higher input costs for a key Evolve ingredient, as we transitioned from development-stage pricing to production-scale sourcing. 20 Table of Contents Gross Profit Gross profit for the second quarter of 2025 was $409,000, representing a margin of 65.4%, compared to $249,000, or 54.2%, in the second quarter of 2024. Gross profit for the first half of 2025 was $722,000, representing a margin of 65.0%, compared to $384,000, or 43.9%, in the first half of 2024. The improvement in gross margin was primarily driven by a greater proportion of sales coming from Evolve. This benefit was partially offset by a shift in sales channel mix, with increased distributor sales, which typically yield lower margins. Research and Development Expenses Research and development expenses consisted of the following (in thousands): Three Months Ended June 30, Increase (Decrease) Six Months Ended June 30, Increase (Decrease) 2025 2024 2025 2024 Personnel related (including stock-based compensation) $ 219 $ 316 $ (97) $ 472 $ 528 $ (56) Facility-related 131 38 93 206 77 129 Depreciation 29 30 (1) 61 60 1 Supplies and maintenance 22 32 (10) 42 60 (18) Professional fees 12 16 (4) 30 34 (4) Stability studies, materials and testing 2 18 (16) 8 34 (26) Other 12 17 (5) 26 44 (18) Total $ 427 $ 467 $ (40) $ 845 $ 837 $ 8 Research and development expenses were $427,000 for the second quarter of 2025, compared to $467,000 for the second quarter of 2024. The $40,000 reduction was primarily due to cost containment efforts, including lower personnel costs resulting from changes in headcount. These savings were partially offset by increased facility expenses associated with our move to a new manufacturing site in April 2025, with expanded production capacity and corporate offices, and included $34,000 in non-cash operating lease costs. Research and development expenses were $845,000 for the first half of 2025, compared to $837,000 during the same period of 2024. The $8,000 increase was primarily driven by higher facility-related costs related to our April 2025 move to a new manufacturing site with expanded production capacity and corporate offices, which included $34,000 in non-cash operating lease expense. This increase was partially offset by overall reductions in spending as a result of our ongoing cost containment efforts. 21 Table of Contents Selling, General and Administrative Expenses Selling, general and administrative expenses consisted of the following (in thousands): Three Months Ended June 30, Increase (Decrease) Six Months Ended June 30, Increase (Decrease) 2025 2024 2025 2024 Personnel related (including stock-based compensation) $ 614 $ 633 $ (19) $ 1,326 $ 1,495 $ (169) Professional fees 512 352 160 942 666 276 Franchise fees 57 26 31 146 73 73 Marketing 64 71 (7) 128 144 (16) Insurance 47 62 (15) 97 123 (26) Licensed software 45 61 (16) 96 130 (34) Travel & entertainment 32 56 (24) 94 115 (21) Other 225 123 102 325 246 79 Total $ 1,596 $ 1,384 $ 212 $ 3,154 $ 2,992 $ 162 Selling, general and administrative expenses were $1.6 million for the second quarter of 2025, compared to $1.4 million for the second quarter of 2024. Selling, general and administrative expenses were approximately $3.2 million for the first half of 2025, compared to $3.0 million for the first half of 2024. The increase in selling, general and administrative expenses was primarily due to higher legal fees related to an ongoing legal matter, as well as increased franchise fees. Overall, our other operating expenses decreased as a result of our continued cost containment efforts. Other Income, Net For the second quarter of 2025, other expense, net totaled $2,000, consisting of $6,000 in interest expense partially offset by $4,000 in interest income. This compares to other income, net of $18,000 in the second quarter of 2024, which included $22,000 in interest income and $5,000 in interest expense. The increase in interest expense in 2025 reflects a higher average balance of notes payable, following the financing of new equipment in late 2024 to expand production capacity and streamline operations. Interest income declined due to a lower average balance of cash and cash equivalents compared to the same period in 2024. For the first half of 2025, other expense, net was $4,000, comprised of $11,000 in interest expense and $7,000 in interest income. In contrast, the first half of 2024 reflected other income, net of $29,000, including $37,000 in interest income and $9,000 in interest expense. The increase in interest expense and decrease in interest income in 2025 were similarly driven by a higher average balance of notes payable and a lower average balance of cash and cash equivalents, respectively. Liquidity and Capital Resources Liquidity Since our inception, we have incurred significant operating losses related to our research and development activities and commercialization efforts, and we expect these losses to continue in the near term. To date, we have generated limited revenue from product sales and have primarily funded our operations through the sale of equity securities, including common stock and warrants. As of June 30, 2025, we had received net proceeds of $111.4 million from the issuance of common and preferred stock, warrant exercises, and convertible and other promissory notes. We have also generated an aggregate of $6.7 million in net product sales and $1.7 million in licensing fees. At the end of the period, we reported an accumulated deficit of $139.4 million and cash and cash equivalents totaling $6.1 million. 22 Table of Contents Our long-term success depends on several key factors, including: (i) successful commercialization and regulatory approval of our fertility control products and pipeline candidates; (ii) market acceptance, commercial viability, and profitability of our products; (iii) the development of an effective sales and marketing infrastructure; (iv) the success of our ongoing research and development programs; (v) our ability to attract and retain key personnel; and (vi) our capacity to meet ongoing working capital requirements. Based on our current operating plan, we believe our cash and cash equivalents as of June 30, 2025, combined with anticipated revenue and potential proceeds from future equity sales, will be sufficient to fund operations through at least the end of fiscal 2027. We continue to monitor and adjust our operating expenses and remain focused on the successful commercialization of our fertility control products both in the United States and abroad. However, if our revenue or margin targets are not met, or if our expenses exceed projections, we may need to secure additional financing sooner than expected. If additional capital is required and we are unable to raise it through equity or debt offerings, we may need to take alternative actions that could negatively impact our business and our ability to continue as a going concern. Regardless, we anticipate needing additional capital to fund ongoing operating losses and research and development efforts before reaching profitability and may seek funding opportunistically. There is no guarantee that we will ever achieve profitability or positive cash flow. Without adequate financing on acceptable terms, we may be forced to delay, scale back, or discontinue commercialization and development activities—or cease operations entirely. 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; • 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. 23 Table of Contents We may 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): Six Months Ended June 30, 2025 2024 Cash and cash equivalents, beginning of period $ 1,307 $ 5,395 Net cash provided by (used in): Operating activities (2,707) (3,416) Investing activities (83) (41) Financing activities 7,538 14 Increase (decrease) in cash and cash equivalents 4,748 (3,443) Cash and cash equivalents, end of period $ 6,055 $ 1,952 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 six months ended June 30, 2025, operating activities used $2.7 million of cash, resulting from our net loss of $3.3 million and net changes in our operating assets and liabilities of $275,000, partially offset by net non-cash charges of $299,000, consisting primarily of stock-based compensation, depreciation and amortization and operating lease expenses. 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 provided by changes in our operating assets and liabilities consisted of a net increase in accounts payable and accrued expenses of $194,000 combined by decreases in prepaid expenses of $139,000 and inventory of $83,000, partially offset by increase in accounts receivable of $141,000. 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 $245,000, partially offset by non-cash charges of $245,000, 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 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. 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 six months ended June 30, 2025 and 2024, cash flows used in investing activities consisted of property and equipment purchases and was higher in 2025 in connection with the April 2025 move into our new manufacturing facility with increased production capacity and corporate offices. Cash Flows from Financing Activities— Financing activities provide cash for both day-to-day operations and capital requirements as needed. During the six months ended June 30, 2025, net cash provided by financing activities consisted of net proceeds received from the exercise of warrants of $4.9 million and from the issuance of common stock under our ATM Facility of $2.7 million, partially offset by repayments on notes payable of $28,000. During the six months ended June 30, 2024, net cash provided by financing activities consisted of proceeds received from notes payable of $25,000 and net proceeds received from the exercise of warrants of $6,000, partially offset by the repayment of notes payable of $17,000. Warrant Inducement Transaction On August 5, 2025, we completed a warrant inducement transaction resulting in the issuance of 1,458,872 shares of our common stock upon the exercise of certain existing warrants (the “Warrant Inducement Transaction”). The holders of such warrants agreed to exercise their existing warrants at the exercise price of $4.15 per share and pay a purchase price of 24 Table of Contents $0.125 per share—totaling $274,000—in consideration of our issuance, in a private placement, of new warrants. These new warrants relate to 2,188,308 shares of common stock, have an exercise price of $5.25 per share, are immediately exercisable, and will expire 15 months after the effective date of the resale registration statement covering the underlying shares. This Warrant Inducement Transaction generated gross proceeds of $6.3 million, before deducting placement agent fees and other offering expenses payable by us. In connection with this transaction, we issued placement agent warrants to purchase up to 72,944 shares of common stock. These placement agent warrants have an exercise price of $5.4219 per share and have terms substantially similar to those of the new warrants issued to the investors. As a result of the Warrant Inducement Transaction, we had approximately $11.2 million in cash and cash equivalents as of August 5, 2025, and we believe that our existing cash and cash equivalents will be sufficient to fund our operations and any capital expenditures through at least the end of fiscal 2027. If we have not yet achieved break-even or profitability by that point, our ability to continue as a going concern will depend on our ability to generate sufficient revenues, reduce operating costs, or obtain additional funding through equity or debt financings, strategic collaborations, or other arrangements. 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.