UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended September 30, 2024
OR
For the transition period from ________ to ________
Commission File Number: 001-37941
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | Accelerated filer | o | ||||||||
| x | Smaller reporting company | ||||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of common stock outstanding as of November 8, 2024: 1,033,644
SENESTECH, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
Item 1. | ||||||||
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
SENESTECH, INC.
CONDENSED BALANCE SHEETS
(In thousands, except shares and per share data)
| September 30, 2024 | December 31, 2023 | ||||||||||
| ASSETS | (unaudited) | ||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Inventory, net | |||||||||||
| Total current assets | |||||||||||
| Right to use assets, operating leases | |||||||||||
| Property and equipment, net | |||||||||||
| Other noncurrent assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Current portion of operating lease liability | |||||||||||
| Current portion of notes payable | |||||||||||
| Deferred revenue | |||||||||||
| Total current liabilities | |||||||||||
| Notes payable, less current portion | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (see notes) | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to condensed financial statements.
1
SENESTECH, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except shares and per share data)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenues, net | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Loss from operations | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense | ( | ( | |||||||||||||||||||||
| Miscellaneous income | |||||||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| Net loss and comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted average shares outstanding - basic and diluted | |||||||||||||||||||||||
| Net loss per share - basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
See accompanying notes to condensed financial statements.
2
SENESTECH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation | |||||||||||
| Bad debt expense | ( | ||||||||||
| Gain on sale of property and equipment | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Inventory | ( | ||||||||||
| Other assets | ( | ( | |||||||||
| Accounts payable | ( | ( | |||||||||
| Accrued expenses | |||||||||||
| Deferred revenue | ( | ( | |||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Proceeds received from sale of property and equipment | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from the exercise of warrants, net | |||||||||||
| Proceeds from issuances of common stock, net | |||||||||||
| Proceeds from issuance of notes payable | |||||||||||
| Repayments of notes payable | ( | ||||||||||
| Payment of employee withholding taxes related to share based awards | ( | ||||||||||
| Net cash provided by financing activities | |||||||||||
| Decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
| Supplemental cash flow information is as follows: | |||||||||||
| Interest paid | $ | $ | |||||||||
| Income taxes paid | $ | $ | |||||||||
| Non-cash investing and financing activities: | |||||||||||
| Note payable incurred for the purchase of certain equipment | |||||||||||
See accompanying notes to condensed financial statements.
3
SENESTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
Nature of Business
SenesTech, Inc. (subsequently referred to in this report as “we,” “us,” “our,” or “our company”) was incorporated in the state of Nevada in July 2004. On November 12, 2015, we subsequently reincorporated in the state of Delaware. Our corporate headquarters and manufacturing site are in Phoenix, Arizona. We have developed and are commercializing a global, proprietary technology for managing animal pest populations, initially rat and mouse populations, through fertility control. Our current products are known as ContraPest®, EvolveTM and Evolve Mouse.
Our initial product ContraPest is a liquid bait containing the active ingredients 4-vinylcyclohexene diepoxide and triptolide. ContraPest limits reproduction of male and female rats beginning with the first breeding cycle following consumption. ContraPest is being marketed for use in controlling Norway and roof rat populations. In addition to the U.S. Environmental Protection Agency (“EPA”) registration of ContraPest, we must obtain registration from the various state regulatory agencies prior to selling in each state. To date, we have received registration for ContraPest in all 50 states and the District of Columbia (49 such states and the District of Columbia have approved the removal of the Restricted Use designation), as well as two major U.S. territories, Puerto Rico and The U.S. Virgin Islands.
In January 2024, we launched Evolve, which is a soft bait containing the active ingredient cottonseed oil. Evolve limits reproduction of male and female rats beginning with the first breeding cycle following consumption. Evolve is considered a minimum risk pesticide under the EPA Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”), Section 25(b). We must obtain registration from the various state regulatory agencies that do not accept the federal exemption. To date, we are authorized to sell Evolve in 45 states, and two major U.S. territories, Puerto Rico and The U.S. Virgin Islands.
In May 2024, we launched our latest product Evolve Mouse, a modified version of our soft bait technology containing the active ingredient cottonseed oil. Evolve Mouse limits reproduction of male and female mice after one to two breeding cycles following consumption. Evolve Mouse is also considered a minimum risk pesticide under the EPA’s FIFRA, Section 25(b). We must obtain registration from the various state regulatory agencies that do not accept the federal exemption. To date, we are authorized to sell Evolve Mouse in 34 states, with an additional state authorized effective January 1, 2025.
Going Concern
Our condensed financial statements as of September 30, 2024 were prepared under the assumption that we would continue as a going concern. The reports of our independent registered public accounting firm that accompanies our financial statements for each of the years ended December 31, 2023 and December 31, 2022 contain a going concern qualification in which such firm expressed substantial doubt about our ability to continue as a going concern, based on the financial statements at that time. Specifically, we have incurred operating losses since our inception, and we expect to continue to incur significant expenses and operating losses for the foreseeable future. These prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. If we encounter continued issues or delays in the commercialization of fertility control products, our expected future losses could have an adverse effect on our financial condition and negatively impact our ability to fund continued operations, obtain additional financing in the future and continue as a going concern. There are no assurances that such financing, if necessary, will be available to us at all or will be available in sufficient amounts or on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. 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.
Liquidity and Capital Resources
Since our inception, we have sustained significant operating losses in the course of our research and development and commercialization activities and expect such losses to continue for the near future. We have generated limited revenue to date from product sales, research grants and licensing fees received under a former license agreement. 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.
4
We have also raised capital through debt financing, consisting primarily of convertible notes and government loan programs, and, to a lesser extent, payments received in connection with product sales, research grants and licensing fees.
As of September 30, 2024, we had an accumulated deficit of $134.8 million and cash and cash equivalents of $2.5 million.
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 September 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 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, 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.
Reverse Stock Split
On July 23, 2024, we amended our amended and restated certificate of incorporation to effect a 1-for-10 reverse split of our issued and outstanding shares of common stock. The accompanying financial statements and notes thereto give retrospective effect to the reverse stock split for all periods presented. All issued and outstanding common stock, options and warrants exercisable for common stock and per share amounts contained in our financial statements have been retrospectively adjusted.
Condensed Financial Statements
Recent Accounting Pronouncements
There have been no new accounting pronouncements not yet effective or adopted in the current year that we believe have a significant impact, or potential significant impact, to our condensed financial statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and classification of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.
5
The significant estimates in our financial statements include the valuation of inventory, common stock warrants, and stock-based awards, such as stock options and restricted stock units. Actual results could differ from such estimates.
Advertising Costs
Advertising costs are expensed as incurred and were $58,000 and $57,000 for the three months ended September 30, 2024 and 2023, respectively, and $180,000 and $147,000 for the nine months ended September 30, 2024 and 2023, respectively.
Comprehensive Loss
We have no other comprehensive income items for the periods presented. As a result, our net loss and comprehensive loss were the same for the periods presented, and a separate statement of comprehensive loss is not included in the accompanying condensed financial statements.
NOTE 2: BALANCE SHEET COMPONENTS
Cash and Cash Equivalents
Highly liquid investments with maturities of three months or less as of the date of acquisition are classified as cash equivalents, of which we had $2.5 million and $5.4 million as of September 30, 2024 and December 31, 2023, respectively, included within cash and cash equivalents in the condensed balance sheets.
Accounts Receivable, Net
Accounts receivable, net consisted of the following (in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Accounts receivable | $ | $ | |||||||||
| Allowance for uncollectible accounts | ( | ( | |||||||||
| Accounts receivable, net | $ | $ | |||||||||
The following was the activity in the allowance for uncollectible accounts (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Balance as of beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Increase in provision | |||||||||||||||||||||||
| Amounts written off, less recoveries | ( | ( | |||||||||||||||||||||
| Balance as of end of period | $ | $ | $ | $ | |||||||||||||||||||
Inventory, net
Inventory, net consisted of the following (in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Finished goods | |||||||||||
| Total inventory | |||||||||||
| Less: reserve for obsolescence | ( | ||||||||||
| Inventory, net | $ | $ | |||||||||
6
The following was the activity in the reserve for obsolescence (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Balance as of beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Increase in reserve | |||||||||||||||||||||||
| Amounts relieved | ( | ||||||||||||||||||||||
| Balance as of end of period | $ | $ | $ | $ | |||||||||||||||||||
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Equity offering costs | $ | $ | |||||||||
| Software licenses | |||||||||||
| Insurance | |||||||||||
| Professional services | |||||||||||
| Rent | |||||||||||
| Prepaid inventory | |||||||||||
| Other | |||||||||||
| Total prepaid expenses and other current assets | $ | $ | |||||||||
7
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Research and development equipment | $ | $ | |||||||||
| Office and computer equipment | |||||||||||
| Autos | |||||||||||
| Furniture and fixtures | |||||||||||
| Leasehold improvements | |||||||||||
| Total in service | |||||||||||
| Accumulated depreciation and amortization | ( | ( | |||||||||
| Total in service, net | |||||||||||
| Construction in progress | |||||||||||
| Property and equipment, net | $ | $ | |||||||||
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
| September 30, 2024 | December 31, 2023 | ||||||||||
| Compensation and related benefits | $ | $ | |||||||||
| Legal and consulting professional services | |||||||||||
| Product warranty | |||||||||||
| Total accrued expenses | $ | $ | |||||||||
Notes Payable
We have financing arrangements related to the purchase of certain equipment. The notes payable for that certain equipment have a weighted average annual interest rate of 9.8 % with a term of five years and are secured by the underlying equipment.
As of September 30, 2024, future principal payments were as follows (in thousands):
| 2024 | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total principal payments | ||||||||
| Less: current portion of notes payable | ( | |||||||
| Notes payable, less current portion | $ | |||||||
NOTE 3: FAIR VALUE MEASUREMENTS
The carrying amounts of our financial instruments, including accounts payable and accrued liabilities, approximate fair value due to their short maturities. Notes payable are recorded at amortized cost, which approximates fair value.
8
NOTE 4: LEASES
In August, we entered into an operating lease for a new location for our corporate headquarters and manufacturing and research operations, which commences in April 2025, when we take physical possession, and expires in 2035. Our current operating lease for our corporate headquarters expires in 2024.
The components of lease cost were as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
As of September 30, 2024, maturities of operating lease liabilities were as follows (in thousands):
| 2024 | $ | |||||||
| Total operating lease payments | ||||||||
| Less: imputed interest | ||||||||
| Total operating lease liabilities | $ | |||||||
NOTE 5: STOCK-BASED COMPENSATION
In 2018, our stockholders approved the adoption of the SenesTech, Inc. 2018 Equity Incentive Plan (the “2018 Plan”), which provides for the issuance of stock-based instruments, such as stock options or restricted stock units, to employees or consultants as deemed appropriate. The 2018 Plan has since been amended and restated on certain occasions, most recently on July 11, 2024, when our stockholders approved an increase to the total number of authorized shares to 207,071 shares.
Currently, only stock options are outstanding under the 2018 Plan, which are generally issued with a per share exercise price equal to the fair market value of our common stock at the date of grant. Options granted generally vest ratably over a 12 - to 36 -month period coinciding with their respective service periods, with terms generally of ten years . Certain stock option awards provide for accelerated vesting upon a change in control.
We have 60,008 shares of common stock available for issuance under the 2018 Plan, which reflects the increase to the total number of authorized shares of 200,000 shares approved by our stockholders on July 11, 2024.
9
The following table presents the outstanding stock option activity:
| Number of Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term (years) | ||||||||||||||||||
| Three months ended September 30, 2024: | ||||||||||||||||||||
| Outstanding as of June 30, 2024 | $ | |||||||||||||||||||
| Granted | ||||||||||||||||||||
| Expired | ( | — | ||||||||||||||||||
| Outstanding as of September 30, 2024 | (1) | |||||||||||||||||||
| Nine months ended September 30, 2024: | ||||||||||||||||||||
| Outstanding as of December 31, 2023 | ||||||||||||||||||||
| Granted | ||||||||||||||||||||
| Forfeited | ( | |||||||||||||||||||
| Expired | ( | — | ||||||||||||||||||
| Outstanding as of September 30, 2024 | (1) | |||||||||||||||||||
| Exercisable as of September 30, 2024 | ||||||||||||||||||||
(1) Includes options related to 823 shares that are inducement awards and not granted under the 2018 Plan.
The weighted average grant date fair value of options granted during the nine months ended September 30, 2024 was $2.73 per share based on the following assumptions used in the Black-Scholes option pricing model:
| Expected volatility | % | ||||
| Expected dividend yield | |||||
| Expected term (in years) | |||||
| Risk-free interest rate | % | ||||
The expected volatility assumption is based on the calculated volatility of our common stock at the date of grant based on historical prices over the most recent period commensurate with the term of the award. The expected dividend yield assumption is based on our history and expected dividend payouts: we have not, and do not expect to, pay dividends. The expected term assumption is the contractual term of the options for non-employees. The risk-free interest rate assumption is determined using the U.S. treasury yields for bonds with a maturity commensurate with the term of the award.
The stock-based compensation expense was recorded as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Research and development | $ | $ | $ | $ | |||||||||||||||||||
Selling, general and administrative (1) | |||||||||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||
(1) Includes $44,000 and $100,000 related to stock issued in exchange for marketing services for the three and nine month periods ended September 30, 2023.
The allocation between research and development and selling, general and administrative expense was based on the department and services performed by the employee or non-employee.
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At September 30, 2024, the total compensation cost related to unvested options not yet recognized was $439,000 , which will be recognized over a weighted average period of 2.0 years, assuming the employees and non-employees complete their service period required for vesting.
NOTE 6: STOCKHOLDERS’ EQUITY
On July 23, 2024, we amended our amended and restated certificate of incorporation to effect a 1-for-10 reverse split of our issued and outstanding shares of common stock. The accompanying financial statements and notes thereto give retrospective effect to the reverse stock split for all periods presented. All issued and outstanding common stock, options and warrants exercisable for common stock and per share amounts contained in our financial statements have been retrospectively adjusted.
Activity in equity during the nine month periods ended September 30, 2024 and 2023 was as follows (dollars in thousands):
| Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total | ||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||||||||
| Balances as of December 31, 2023 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | — | — | |||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ( | ||||||||||||||||||||||||
| Balances as of March 31, 2024 | ( | ||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||
| Issuance of common stock for fractional shares in the 10:1 reverse stock split | — | — | — | — | |||||||||||||||||||||||||
| Net loss | — | — | — | ( | ( | ||||||||||||||||||||||||
| Balances as of June 30, 2024 | ( | ||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants, net | — | — | |||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ( | ||||||||||||||||||||||||
| Balances as of September 30, 2024 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||||||||
| Balances as of December 31, 2022 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | — | — | — | — | |||||||||||||||||||||||||
| Issuance of shares pursuant to the vesting of restricted stock units, net of shares withheld for taxes | — | ( | — | ( | |||||||||||||||||||||||||
| Issuance of common stock for service | — | — | |||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ( | ||||||||||||||||||||||||
| Balances as of March 31, 2023 | ( | ||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs | — | — | |||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ( | ||||||||||||||||||||||||
| Balances as of June 30, 2023 | ( | ||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants, net | — | — | |||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ( | ||||||||||||||||||||||||
| Balances as of September 30, 2023 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
In August 2024, we issued 505,502 shares pursuant to the exercise of warrants. Certain warrant holders were induced to exercise warrants by reducing the exercise price to the then current market price of our common stock (the “Warrant Inducement”). The original warrants consisted of 48,911 shares issued August 24, 2023 with an exercise price of $86.40 per share and a weighted average remaining life of 2.1 years (the “August 2023 Original Warrants”) and 456,591 shares issued November 29, 2023 with an exercise price of $13.00 per share and a weighted average remaining life of 2.5 years (the “November 2023 Original Warrants”) (collectively, the “Original Warrants”). The Original Warrants were exercised
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for $4.60 per share for gross proceeds of $2.3 million, before deducting $340,000 of issuance costs. Of the 505,502 shares issued, 8,293 shares were held in abeyance as of September 30, 2024 and not considered outstanding until certain conditions are met, at which time such shares will become outstanding. The balance of the shares in abeyance will be held in abeyance until notice from the stockholder that the balance, or portion thereof, may be issued in compliance with a beneficial ownership limitation provision in the warrants. Such shares were released from abeyance in October.
In connection with the Warrant Inducement transaction, new warrants to purchase 1,036,279 shares of our common stock were issued, which are discussed in Note 7.
In June 2024, we entered into an at-the-market offering arrangement with a sales agent, pursuant to which we may offer and sell, from time to time at our sole discretion, in transactions that are deemed to be “at the market” offerings under the Securities Act of 1933, as amended (the “Securities Act”), shares of our common stock for aggregate gross proceeds of up to $1,575,944 (“ATM Facility”). The offer and sale of shares will be made pursuant to a previously filed shelf registration statement on Form S-3 (Registration no. 333-261227), originally filed with the SEC on November 19, 2021 and amended on May 4, 2022, and declared effective by the SEC on May 6, 2022, and the related prospectus supplement related to the offering of shares dated June 20, 2024, and filed with the SEC on such date pursuant to Rule 424(b) under the Securities Act. As of September 30, 2024, we have not sold any shares under this ATM Facility and there are 315,189 shares of common stock reserved for potential issuance under the ATM Facility.
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NOTE 7: COMMON STOCK WARRANTS
The following table presents the common stock warrant activity:
| Issue Date | Warrant Type | Term Date | Exercise Price | Balance December 31, 2023 | Issued | Exercised | Expired | Balance September 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||
| July 2019 | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| January 2020 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| January 2020 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| March 2020 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| April 2020 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| April 2020 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| October 2020 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| February 2021 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| February 2021 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| March 2021 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| November 2022 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| April 2023 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| April 2023 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| August 2023 | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| August 2023 | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| August 2023 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| November 2023 | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| November 2023 | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| November 2023 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| August 2024 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| August 2024 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| August 2024 | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term (years) | |||||||||||||||
| Outstanding as of December 31, 2023 | $ | ||||||||||||||||
| Issued | |||||||||||||||||
| Exercised | ( | — | |||||||||||||||
| Expired | ( | — | |||||||||||||||
| Outstanding as of September 30, 2024 | |||||||||||||||||
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During the nine months ended September 30, 2024:
•In August, warrants were issued to the investors in the Warrant Inducement transaction discussed in Note 6 to purchase up to 1,011,004 shares of our common stock. These warrants are exercisable immediately with an exercise price of $4.35 per share, with 571,318 expiring August 23, 2029 (5-Year New Warrants) and 439,686 expiring February 23, 2026 (18-Month New Warrants). We estimated the fair value of the 5-Year New Warrants to be $1.9 million using a Black-Scholes model based on the following significant inputs: common stock price of $4.10 per share; volatility of 118 %; term of 5 years; dividend yield of 0 %; and risk-free rate of 3.6 %. The fair value of the 18-Month New Warrants was estimated to be $1.2 million using the Black-Scholes model based on the following significant inputs: common stock price of $4.10 per share; volatility of 153 %; term of 1.5 years; dividend yield of 0 %; and risk-free rate of 4.1 %.
•In August, placement agent warrants were issued to purchase up to 25,275 shares of our common stock. The placement agent warrants are exercisable immediately upon issuance, with an exercise price per share of $5.75 per share, and expire August 23, 2029. We estimated the fair value of these warrants to be $83,000 using a Black-Scholes model based on the following significant inputs: common stock price of $4.10 per share; volatility of 118 %; term of 5 years; dividend yield of 0 %;and risk-free interest rate of 3.6 %.
•In August, the Original Warrants representing 505,502 shares of common stock were exercised for $4.60 per share. The terms of the Original Warrants were modified in order to induce exercise. See Warrant Inducement discussion in Note 6. The difference between the fair value of the warrants immediately prior to modification and immediately after modification was $386,000 using the Black-Scholes model based on the following significant inputs:
◦For the August 2023 Original Warrants related to 48,911 shares: common stock price of $4.10 per share; volatility of 151 %; term of 2.1 years; dividend yield of 0 %; and risk-free rate of 3.9 %; and
◦For the November 2023 Original Warrants related to 456,591 shares: common stock price of $4.10 per share; volatility of 140 %; term of 2.5 years; dividend yield of 0 %; and risk-free rate of 3.8 %.
•In January, warrants representing 460 shares of common stock were exercised with an exercise price of $13.00 per share.
NOTE 8: LOSS PER SHARE
Basic loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period, which includes prefunded warrants and shares held in abeyance from date of issuance. Diluted loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares used in the basic loss per share calculation plus potentially dilutive securities outstanding during the period determined using the treasury stock method. Stock options and warrants are considered to be potentially dilutive securities but have been excluded from the calculation of diluted loss per share because their effect would be anti-dilutive given the net losses reported for all periods presented. Therefore, basic and diluted loss per share are the same for each period presented.
The following shares were excluded from the calculation of diluted net loss per share:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Common stock warrants | |||||||||||||||||||||||
| Stock options | |||||||||||||||||||||||
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NOTE 9: SEGMENT INFORMATION
We operate in one segment: the formulation, development, marketing and sale of fertility control products for use in managing pest populations. We generate our revenue from six broad product markets: agribusiness, pest management, facilities management, industrial, consumer, and governmental agencies.
Geographic Information
Revenue by geographic region was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| International | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Significant Customers
The percentage of revenue attributable to our distributors and to customers that represented 10% or more of revenue in at least one of the periods presented, was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| All distributors | % | % | % | % | |||||||||||||||||||
| Distributor A | |||||||||||||||||||||||
| Distributor B | |||||||||||||||||||||||
The following accounts represented at least 10% of total accounts receivable in at least one of the periods presented:
| September 30, 2024 | December 31, 2023 | ||||||||||
| Distributor A | % | % | |||||||||
| End customer A | % | % | |||||||||
| End customer B | % | % | |||||||||
NOTE 10: SUBSEQUENT EVENTS
Since September 30, 2024, we have issued 12,802 shares of common stock pursuant to the ATM Financing for gross proceeds of $38,000 .
We have evaluated subsequent events from the balance sheet date through November 12, 2024, the date at which the condensed financial statements were issued, and determined that there were no additional items that require adjustment to or disclosure in the condensed financial statements.
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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 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 September 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 four months;
•our expectation that significant expenses and operating losses will continue for the near future;
•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 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;
•our expectation that we will incur substantial and increased expenses;
•our belief that if we encounter continued issues or delays in the commercialization of fertility control products, our expected future losses could have an adverse effect on our financial condition and negatively impact our ability to fund continued operations, obtain additional financing in the future and continue as a going concern;
•our ability to maximize market acceptance for, and generate sales of, our products, including by conducting field demonstrations for potential lead customers;
•our ability to 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 ability to further develop our product offerings and manufacturing processes to contain costs while being able to scale to meet future demand of fertility control products and any other product candidates for which we receive regulatory approval;
•our ability to continue product development of fertility control products and advance our research and development activities and, as our operating budget permits, advance the research and development programs for other product candidates;
•our ability to maintain and protect our intellectual property portfolio;
•our ability to add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts and operations as a public company;
•our 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 retain and attract key personnel to develop, operate, and grow our business; and
•our ability to meet our working capital needs.
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, 2023, filed with the SEC on February 21, 2024, and those contained from time to time in our other filings with the SEC. A number of factors could cause our actual results to differ materially from those indicated by the forward-looking statements. 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’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 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.
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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, 17% in 2023, 77% in 2022 and 123% in 2021, we are not yet able to fund operations by product sales alone. We have primarily funded our operations to date through the sale of equity securities, including convertible preferred stock, common stock and warrants to purchase common stock. We have also generated limited revenue from research grants and licensing fees received under former license agreements.
Through September 30, 2024, we received net proceeds of $103.8 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 $5.0 million in net product sales. As of September 30, 2024, we had an accumulated deficit of $134.8 million and cash and cash equivalents of $2.5 million.
We have incurred significant operating losses every year since our inception, with a net loss of $4.9 million for the nine months ended September 30, 2024, with $1.5 million for the three months ended September 30, 2024. 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 September 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 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.
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Results of Operations
The following table summarizes our results of operations for the periods presented (in thousands):
| Three Months Ended September 30, | % Increase (Decrease) | Nine Months Ended September 30, | % Increase (Decrease) | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
| Revenues, net | $ | 482 | $ | 360 | 34 | % | $ | 1,356 | $ | 898 | 51 | % | |||||||||||||||||||||||
| Cost of sales | 167 | 184 | (9) | % | 657 | 488 | 35 | % | |||||||||||||||||||||||||||
| Gross profit | 315 | 176 | 79 | % | 699 | 410 | 70 | % | |||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Research and development | 451 | 379 | 19 | % | 1,288 | 1,147 | 12 | % | |||||||||||||||||||||||||||
| Selling, general and administrative | 1,411 | 1,748 | (19) | % | 4,403 | 5,259 | (16) | % | |||||||||||||||||||||||||||
| Total operating expenses | 1,862 | 2,127 | (12) | % | 5,691 | 6,406 | (11) | % | |||||||||||||||||||||||||||
| Loss from operations | (1,547) | (1,951) | (21) | % | (4,992) | (5,996) | (17) | % | |||||||||||||||||||||||||||
| Other income, net | 34 | 4 | 750 | % | 63 | 19 | 232 | % | |||||||||||||||||||||||||||
| Net loss | $ | (1,513) | $ | (1,947) | (22) | % | $ | (4,929) | $ | (5,977) | (18) | % | |||||||||||||||||||||||
Revenues
Sales, net of sales discounts and promotions, were $482,000 for the third quarter of 2024, compared to $360,000 for the third quarter of 2023. The $122,000 increase 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 68%, or $330,000, of revenues for the third quarter of 2024. Partially offsetting this increase, was a decline in revenue related to our ContraPest product offerings in the third quarter of 2024 when compared with the third quarter of 2023. Limited erosion of demand for ContraPest products is expected as Evolve products are accepted in the marketplace.
For the nine months ended September 30, 2024, sales were $1,356,000, compared to $898,000 for the nine months ended September 30, 2023. The $458,000 increase was driven by our latest Evolve product offerings through 2024, which represented approximately 63%, or $849,000, of revenues for the nine months ended September 30, 2024. This increase was offset by a decrease related to a lower number of units sold of our existing ContraPest product offering the Elevate Bait System in the nine months ended September 30, 2024 when compared with the nine months ended September 30, 2023.
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 $167,000, or 34.6% of net sales, for the third quarter of 2024, compared to $184,000, or 51.2% of net sales, for the third 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 by our latest product offering, Evolve, which launched in January 2024. Shipping costs, which impacts gross profit margin, was 13% and 12% of cost of sales in the third quarter of 2024 and 2023, respectively.
For the nine months ended September 30, 2024, cost of sales was $657,000, or 48.5% of net sales, compared to $488,000, or 54.4% of net sales, for the nine months ended September 30, 2023. 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. 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
Gross profit for the third quarter of 2024 was $315,000, for a gross profit margin of 65.4%, compared to a gross profit of $176,000, or a gross profit margin of 48.8%, for the third quarter of 2023. Higher gross profit margin was driven by a shift
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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 third quarter of 2024 when compared with the third quarter of 2023.
For the nine months ended September 30, 2024, gross profit was $699,000, for a gross profit margin of 51.5%, compared to $410,000, gross profit margin of 45.6%, for the nine months ended September 30, 2023. The gross profit margin in 2024 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. The gross profit margin in 2023 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 consisted of the following (in thousands):
| Three Months Ended September 30, | Increase (Decrease) | Nine Months Ended September 30, | Increase (Decrease) | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
| Personnel (including stock-based compensation) | $ | 282 | $ | 231 | $ | 51 | $ | 810 | $ | 687 | $ | 123 | |||||||||||||||||||||||
| Facility-related | 47 | 28 | 19 | 124 | 79 | 45 | |||||||||||||||||||||||||||||
| Depreciation | 34 | 28 | 6 | 94 | 84 | 10 | |||||||||||||||||||||||||||||
| Supplies and maintenance | 12 | 34 | (22) | 72 | 81 | (9) | |||||||||||||||||||||||||||||
| Professional fees | 32 | 34 | (2) | 66 | 112 | (46) | |||||||||||||||||||||||||||||
| Stability studies, materials and testing | 33 | 1 | 32 | 67 | 55 | 12 | |||||||||||||||||||||||||||||
| Other | 11 | 23 | (12) | 55 | 49 | 6 | |||||||||||||||||||||||||||||
| Total | $ | 451 | $ | 379 | $ | 72 | $ | 1,288 | $ | 1,147 | $ | 141 | |||||||||||||||||||||||
Research and development expenses were $451,000 for the third quarter of 2024, compared to $379,000 for the third quarter of 2023. The $72,000 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 third quarter of 2024 when compared with the third quarter of 2023.
For the nine months ended September 30, 2024, research and development expenses were $1,288,000, compared to $1,147,000 for the nine months ended September 30, 2023. The $141,000 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 2024 when compared with 2023.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses consisted of the following (in thousands):
| Three Months Ended September 30, | Increase (Decrease) | Nine Months Ended September 30, | Increase (Decrease) | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
| Personnel (including stock-based compensation) | $ | 648 | $ | 880 | $ | (232) | $ | 2,143 | $ | 2,673 | $ | (530) | |||||||||||||||||||||||
| Professional fees | 305 | 365 | (60) | 971 | 1,236 | (265) | |||||||||||||||||||||||||||||
| Marketing | 80 | 82 | (2) | 224 | 199 | 25 | |||||||||||||||||||||||||||||
| Licensed software | 57 | 60 | (3) | 187 | 188 | (1) | |||||||||||||||||||||||||||||
| Insurance | 59 | 120 | (61) | 182 | 299 | (117) | |||||||||||||||||||||||||||||
| Travel and entertainment | 64 | 53 | 11 | 179 | 180 | (1) | |||||||||||||||||||||||||||||
| Facilities | 39 | 39 | — | 119 | 116 | 3 | |||||||||||||||||||||||||||||
| Other | 159 | 149 | 10 | 398 | 368 | 30 | |||||||||||||||||||||||||||||
| Total | $ | 1,411 | $ | 1,748 | $ | (337) | $ | 4,403 | $ | 5,259 | $ | (856) | |||||||||||||||||||||||
Selling, general and administrative expenses were $1.4 million for the third quarter of 2024, as compared to $1.7 million for the third quarter of 2023. The decrease of $337,000 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 third quarter of 2024 when compared with the third quarter of 2023 due to changes in our overall marketing program, combined with lower legal fees. Additionally, our insurance cost is lower resulting from both policy and rate changes.
For the nine months ended September 30, 2024, selling, general and administrative expenses were $4.4 million, compared to $5.3 million for the nine months ended September 30, 2023. The $856,000 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 for the nine months ended September 30, 2024 when compared with the nine months ended September 30, 2023 due to changes in our overall marketing program, combined with lower legal fees. 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 third quarter of 2024 consisted of miscellaneous income of $29,000 and interest income of $11,000, partially offset by interest expense of $6,000. Other income consisted of interest income of $4,000 for the third quarter of 2023. During the third quarter of 2024, we realized a gain of $28,000 on the sale of equipment, which is included in miscellaneous income. Interest income was higher due to a higher average balance of cash and cash equivalents, partially offset by declining interest rates during the third quarter of 2024 when compared with the third quarter of 2023. Interest expense in the third quarter of 2024 relates to the notes payable entered into beginning in late 2023 for the purchase of certain equipment.
For the nine months ended September 30, 2024, other income, net, consisted of interest income of $48,000 and miscellaneous income of $30,000, partially offset by interest expense of $15,000, compared with the nine months ended September 30, 2023, which consisted of interest income of $19,000. The higher interest income was due to a higher average balance of cash and cash equivalents, partially offset by declining interest rates for the nine months ended September 30, 2024 when compared to the nine months ended September 30, 2023. For the nine months ended September 30, 2024, miscellaneous income largely consisted of a gain realized on the sale of equipment, while interest expense relates to the notes payable entered into beginning in late 2023 for purchases of certain equipment.
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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 September 30, 2024, we have received net proceeds of $103.8 million from our sales of common stock, preferred stock and warrant exercises and issuance of convertible and other promissory notes, an aggregate of $5.0 million in net product sales and an aggregate of $1.7 million from licensing fees. As of September 30, 2024, we had an accumulated deficit of $134.8 million and cash and cash equivalents of $2.5 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 September 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 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;
•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;
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•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):
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash and cash equivalents, beginning of period | $ | 5,395 | $ | 4,775 | |||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | (4,815) | (5,547) | |||||||||
| Investing activities | (41) | (114) | |||||||||
| Financing activities | 1,979 | 3,031 | |||||||||
| Decrease in cash and cash equivalents | (2,877) | (2,630) | |||||||||
| Cash and cash equivalents, end of period | $ | 2,518 | $ | 2,145 | |||||||
Cash Flows from Operating Activities—Cash flows from operating activities are generally determined by the amount and timing of cash received from customers and payments made to vendors, as well as the nature and amount of non-cash items, including depreciation and amortization and stock-based compensation included in operating results during a given period.
During the nine months ended September 30, 2024, operating activities used $4.8 million of cash, resulting from our net loss of $4.9 million and net changes in our operating assets and liabilities of $221,000, partially offset by net non-cash charges of $335,000, 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 $121,000, inventory of $85,000, prepaid expenses of $28,000, and deposits of $41,000, combined with a net decrease in accounts payable and accrued expenses of $4,000.
During the nine months ended September 30, 2023, operating activities used $5.5 million of cash, resulting from our net loss of $6.0 million, partially offset by net changes in our operating assets and liabilities of $137,000 and by non-cash charges of $567,000, 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 decrease in accounts payable and accrued expenses of $282,000 and deferred revenue of $29,000, partially offset by decreases in inventory of $150,000, and accounts receivable of $34,000.
Cash Flows from Investing Activities—Cash flows used in investing activities primarily consist of the purchase of property and equipment, offset by any proceeds received in connection with sales of property and equipment. During the nine months ended September 30, 2024 and 2023, cash flows used in investing activities consisted of property and equipment
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purchases. Additionally, during the nine months ended September 30, 2024, net cash used in investing activities was partially offset by proceeds received from the sale of equipment in the amount of $28,000.
Cash Flows from Financing Activities—Financing activities provide cash for both day-to-day operations and capital requirements as needed. During the nine months ended September 30, 2024, net cash provided by financing activities consisted of net proceeds received from the exercise of warrants of $2.0 million and proceeds received from notes payable of $25,000, partially offset by repayments on notes payable of $29,000. During the nine months ended September 30, 2023, net cash provided by financing activities consisted of net proceeds of $3.0 million from the issuance of common stock and proceeds received from notes payable of $44,000, slightly offset by the payment of employee withholding taxes related to share-based awards of $11,000.
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, 2023, filed with the SEC on February 21, 2024.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We periodically conduct evaluations (pursuant to Rule 13a-15(b) of the Exchange Act), under the supervision and with the participation of management, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)) as of the end of the period covered by this report.
These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be a party to certain legal proceedings, incidental to the normal course of business. We are not currently a party to any pending or threatened legal proceedings that we believe could have a material adverse effect on our business or financial condition.
Item 1A. Risk Factors
There have been no material changes to our risk factors set forth in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 21, 2024.
Item 5. Other Information
During the quarter ended September 30, 2024, no director or officer of the Company adopted terminated
Item 6. Exhibits
| Exhibit Number | Description | |||||||
3.1* | ||||||||
| 4.1* | ||||||||
| 4.2* | ||||||||
| 4.3* | ||||||||
10.1* | ||||||||
10.2* | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 101.INS | Inline XBRL Instance Document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
* Incorporated by reference as indicated.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SENESTECH, INC. | ||||||||
Date: November 12, 2024 | By: | /s/ Joel L. Fruendt | ||||||
| Joel L. Fruendt | ||||||||
| President and Chief Executive Officer | ||||||||
Date: November 12, 2024 | By: | /s/ Thomas C. Chesterman | ||||||
| Thomas C. Chesterman | ||||||||
| Executive Vice President, Chief Financial Officer, Treasurer and Secretary | ||||||||
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