SenesTech, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Financial statement amounts below are in thousands of dollars, except per-share data and share counts. SenesTech develops and commercializes ContraPest, a fertility-control product for rat populations.
Key financial results
| Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 |
|---|---|---|---|---|
| Sales | $24 | $36 | $43 | $55 |
| Gross profit / margin | $3 / 12.5% | $16 / 44.4% | $10 / 23.3% | $16 / 29.1% |
| Operating expenses | $2,294 | $4,101 | $4,662 | $6,763 |
| Operating loss | $(2,291) | $(4,085) | $(4,652) | $(6,747) |
| Net loss | $(2,289) | $(4,113) | $(4,653) | $(6,778) |
| Loss per share, basic and diluted | $(0.09) | $(0.25) | $(0.19) | $(0.41) |
- For H1 2019, operating cash use was $3,907, versus $4,553 in H1 2018. Investing activities used $47; financing activities provided $1,609. Cash declined $2,345, from $4,920 at year-end 2018 to $2,575 at June 30, 2019.
- At June 30, cash was $2,575 and current assets were $4,396, compared with current liabilities of $1,179. Total assets were $5,376; total liabilities were $1,451; stockholders’ equity was $3,925.
- Debt was $330 in total: $134 current and $196 long-term. The company also reported a $65 operating lease liability. Accumulated deficit was $90,491.
Changes and management commentary
- Sales declined 33% in Q2 and 22% in H1 year over year. Management attributed lower sales to the transition to removing ContraPest’s restricted-use status at the state level, increased discounts to encourage sales, and the timing of a product exchange shipment.
- Gross margin compressed to 12.5% in Q2 and 23.3% in H1. Management cited discounts and, for Q2, increased manufacturing scrap during scale-up.
- Operating expenses fell 44% in Q2 and 31% in H1. The main driver was substantially lower stock-based compensation, including the absence of $1.7 million of inducement-warrant compensation recorded in Q2 2018. Research and development spending also declined, partly because some field-support employees were reassigned to sales and marketing.
- ContraPest had EPA approval without the restricted-use designation; as of the filing, 43 states and the District of Columbia had approved removal of that designation. Management continued to pursue regulatory approvals and develop other potential products.
Outlook, liquidity and risks
- Management expected June 30 cash, anticipated revenue, the subsequent public offering proceeds and any further equity sales to fund current operations for at least 12 months. On July 16, 2019, the company sold 3,037,038 shares at $1.35 per share, receiving approximately $3.6 million net, and issued a placement-agent warrant.
- The company expected operating losses to continue and said it would likely need additional capital until profitable. It warned that missed revenue or margin targets, or unavailable financing on acceptable terms, could require cost reductions or delay, limit or end commercialization and development efforts. Profitability and positive cash flow are not assured.
- New Enterprises’ lawsuit included claims for monetary damages; the court had dismissed the original claims but allowed a motion to amend, and motions to dismiss the amended complaint were under advisement as of May 15, 2019. The company had accrued $507 for litigation at June 30. A separate former-employee EEOC charge had seen no substantive action reported.
- The company reported no material changes to its previously disclosed risk factors, no off-balance-sheet arrangements, and effective disclosure controls as of quarter-end.
Important facts for investors to verify
- Whether ContraPest sales, customer adoption and gross margins improve after the state-level regulatory transition and discounting.
- Whether the July 2019 offering and operating cash balance provide adequate runway against continuing cash burn and future capital needs.
- The status and potential financial exposure of the New Enterprises litigation and any related indemnification claim.
- The effect of share issuance and outstanding potential dilution: 28,287,351 common shares were outstanding on August 14, 2019; 9,621,125 warrants and 2,435,177 options were outstanding at June 30.