Senestech, Inc. — Form 10-Q Summary
Business context and reporting period
For the quarter ended March 31, 2019, SenesTech continued commercializing ContraPest, a fertility-control bait for rat populations, and developing other potential animal health products. ContraPest had EPA approval, and the company reported state registration in all 50 states and the District of Columbia; 35 states had approved removal of its Restricted Use designation as of the filing date.
Financial performance and liquidity
Amounts below are in thousands of dollars, except per-share data.
| Metric | Q1 2019 | Q1 2018 or comparison |
|---|---|---|
| Net sales | $19 | $19 |
| Gross profit (margin) | $7 (39%) | $0 (0%) |
| Research and development | $464 | $634 |
| Selling, general and administrative | $1,904 | $2,028 |
| Net loss | $(2,364) | $(2,665) |
| Loss per share, basic and diluted | $(0.10) | $(0.16) |
| Cash used in operating activities | $(1,948) | $(2,318) |
| Cash and cash equivalents, period end | $2,946 | $4,920 at December 31, 2018 |
At March 31, 2019, total current assets were $4,784 and current liabilities were $1,250. Debt was $429 in total, including $202 current and $227 long-term. Total liabilities were $1,573; stockholders’ equity was $4,270. The accumulated deficit was $88,202.
Material changes versus the prior comparable period
- Sales were unchanged at $19,000, while gross profit improved because 2019 had less manufacturing scrap from scale-up activities.
- Operating expenses fell by $294,000. R&D declined by $170,000, primarily due to lower personnel costs and reclassification of field-support staff to sales and marketing. SG&A declined by $124,000, including lower stock-based compensation, partly offset by higher professional fees.
- Net loss narrowed by $301,000. Loss per share improved, while weighted-average shares increased to 23.5 million from 16.5 million.
- Operating cash use decreased by $370,000. Cash fell by $1,974,000 from year-end; Q1 financing included $36,000 from warrant exercises and debt and lease repayments.
Outlook, risks, contingencies, and unusual items
- Management said March 31 cash, anticipated revenue, and additional equity sales were expected to fund current operations for at least 12 months. The company also said it anticipated needing additional funding during 2019 and is likely to need further capital until profitable. If revenue or margin targets are missed and financing is unavailable, it may cut spending or delay, limit, or terminate development and commercialization.
- Management attributed flat sales to delayed ContraPest deployments during implementation of its end-user sales and marketing strategy, seasonal reductions in rodent activity, and the transition following removal of the Restricted Use designation in states.
- In April and May 2019, the company issued 1,411,885 shares upon warrant exercises and received net proceeds of $1.6 million. Shares outstanding were 24,993,279 as of May 15, 2019.
- Accrued expenses included $507,000 of accrued litigation. New Enterprises’ amended complaint against the company and Roth Capital Partners was subject to pending motions to dismiss as of May 15, 2019; Roth had made an indemnification demand that the company had not accepted. A former executive’s EEOC charge was also disclosed, with no substantive action reported since the company’s 2018 response.
- The company reported no material change in its previously disclosed risk factors, no off-balance-sheet arrangements, and effective disclosure controls and procedures. It cautioned that it expects continuing operating losses and may never achieve profitability or positive cash flow.
Important facts for investors to verify
- Whether ContraPest deployments, sales, and gross margins improve after the sales strategy and state-registration transitions; Q1 sales remained only $19,000.
- Whether the stated funding runway assumptions are achieved and whether further equity or debt financing is needed; include the $1.6 million of post-quarter warrant proceeds in liquidity monitoring.
- The status and potential financial exposure of the New Enterprises litigation, Roth’s indemnification demand, and the former executive’s EEOC charge.
- The potential dilution from outstanding warrants, options, and other equity awards; the filing reported 11.2 million warrants outstanding at March 31, 2019.