SenesTech, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022; unaudited. Amounts below are in U.S. dollars, with financial statement figures converted from thousands to millions unless stated otherwise.
Business context
SenesTech develops and commercializes ContraPest, a fertility-control product for rat populations, and related delivery systems. In June 2022, the company received EPA registration and approval for its Elevate Bait System with ContraPest, designed to target roof rats in elevated spaces. ContraPest is registered in all 50 states and the District of Columbia.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Sales | $0.277m | $0.160m | $0.472m | $0.248m |
| Gross profit (margin) | $0.136m (49.1%) | $0.041m (25.6%) | $0.226m (47.9%) | $0.079m (31.9%) |
| Operating expenses | $2.708m | $2.390m | $5.131m | $4.267m |
| Operating loss | $(2.572)m | $(2.349)m | $(4.905)m | $(4.188)m |
| Net loss | $(2.569)m | $(1.700)m | $(4.901)m | $(3.521)m |
| Loss per share | $(0.21) | $(0.14) | $(0.40) | $(0.35) |
- Sales increased 73% in Q2 and 90% in the first half versus the comparable 2021 periods. Management attributed growth to internet sales initiatives, distributor and pest-management partnerships, field sales activity, and the Elevate launch.
- Gross margin improved year over year, which the company attributed to lower production scrap and manufacturing efficiencies. Management’s stated goal is a gross margin of 50% or more and a lower year-over-year cash burn.
- SG&A rose $0.342m in Q2 and $0.827m in the first half, driven notably by professional fees and marketing. R&D was down $0.024m in Q2 but up $0.037m for the first half.
- Q2 2021 and first-half 2021 net loss benefited from approximately $0.650m of PPP loan-forgiveness income; there was no comparable income in 2022. First-half 2021 also included $0.022m of other income, versus $0.002m in 2022.
Cash flow, debt and liquidity
- Cash was $5.000m at June 30, 2022, down $4.326m from $9.326m at December 31, 2021. First-half operating cash use was $4.148m, investing cash use was $0.146m, and financing cash use was $0.032m. The prior-year period had $13.570m of financing inflows, principally equity proceeds and warrant exercises.
- Current assets were $6.420m and current liabilities $1.211m at June 30. Short-term debt was zero; finance lease and promissory-note obligations were reported as settled in full during Q2. The company also reported a $0.443m operating lease liability.
- Accumulated deficit was $117.409m. Management expects cash at June 30, anticipated revenue and any additional equity sales to fund current operations for at least six to nine months. It says additional financing may be needed sooner if revenue or margin targets are missed or expenses exceed budget.
- The filing notes substantial doubt about the company’s ability to continue as a going concern, including the prior auditor’s going-concern qualification. Management warns that financing may not be available on acceptable terms and that operations or commercialization could be curtailed if funds cannot be raised.
Outlook, risks and contingencies
- No quantified revenue or earnings guidance is provided. The company expects significant expenses and operating losses to continue and is concentrating resources on U.S. commercialization of ContraPest.
- Key execution risks include market acceptance and product profitability, building effective sales and distribution, regulatory approvals and compliance, and sourcing key ingredients—particularly triptolide. The filing also cites potential supplier disruption, COVID-19 impacts, and possible delays in purchases by public-sector customers.
- A former general counsel’s lawsuit alleges unpaid stock options and related claims; the plaintiff seeks more than $0.5m in compensatory damages, treble damages and attorneys’ fees. The company disputes the claims and intends to defend them, and says it does not expect a material operational effect.
- Potential dilution includes 4.531m outstanding warrants and 1.473m stock options, compared with 12.213m common shares outstanding at June 30, 2022.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing states there were no material changes to the risk factors in the 2021 Form 10-K.
Important facts for investors to verify
- Whether sales growth and Elevate adoption persist, and whether revenue can scale beyond the company’s still-limited sales base.
- Whether gross margins reach the stated 50%-or-higher goal and operating cash burn declines.
- Whether the six-to-nine-month liquidity estimate holds, and the timing, amount and terms of any additional financing.
- The status of going-concern uncertainty, regulatory requirements, and ingredient supply, including triptolide availability.
- Developments in the former counsel’s litigation and the potential dilution from outstanding warrants and options.