Business context and reporting period
SenesTech, Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2023, compared with the three months ended March 31, 2022. The company develops and commercializes ContraPest, a fertility-control product for rats, and is focused on expanding U.S. sales and commercialization.
Key financial results
Amounts are in $thousands, except per-share data and percentages.
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $233 | $195; up 19% |
| Cost of sales | $141 | $105; up 34% |
| Gross profit / margin | $92 / 39.6% | $90 / 46.2% |
| Operating expenses | $2,137 | $2,423; down 12% |
| Operating loss | $(2,045) | $(2,333) |
| Net loss | $(2,037) | $(2,332); loss narrowed 13% |
| Net loss per share | $(1.32) | $(3.82) |
| Operating cash used | $(2,015) | $(2,029) |
| Cash and cash equivalents at period end | $2,748 | $4,775 at Dec. 31, 2022 |
| Total assets / liabilities | $4,645 / $1,148 | $6,782 / $1,503 at Dec. 31, 2022 |
Q1 2023 gross margin was reduced by $42 of costs to scrap defective tanks; the company reports margin would have been 57.8% excluding that item. Research and development expense fell 25% to $387, primarily from lower consulting and legal costs, depreciation, and field and product-improvement study expenses. Selling, general and administrative expense declined 8% to $1,750, mainly due to lower personnel and insurance costs, partly offset by higher marketing and travel expenses.
Material changes and capital structure
- Cash declined by $2,027 during the quarter, from $4,775 to $2,748. Operating cash use was the primary driver; investing activities used $1 and financing activities used $11.
- At March 31, the company reported $316 of operating lease liabilities, including $184 current. No other debt balance is listed on the condensed balance sheet.
- Common shares outstanding on the balance sheet increased from 809,648 at year-end to 2,107,339 at March 31. During the quarter, 1,230,000 shares were issued upon exercise of previously outstanding prefunded warrants, 54,466 shares were issued for marketing services, and 13,225 shares were issued upon vesting of restricted stock units.
- There were 3,184,810 warrants and 280,448 options outstanding at March 31; their potential dilution was excluded from diluted loss per share because it was anti-dilutive.
Outlook, risks and unusual items
- Management expects significant expenses and operating losses to continue. It states cash at March 31, anticipated revenue and potential equity sales were expected to fund current operations for at least six months; elsewhere in MD&A, it estimates six to nine months. The filing does not reconcile these runway estimates.
- The company says additional financing will be needed before reaching anticipated revenue and margin targets. It may need to delay, limit or terminate commercialization and development, or discontinue operations, if financing is unavailable on acceptable terms. The 2022 annual auditor reports cited substantial doubt about the company’s ability to continue as a going concern.
- On April 12, 2023, SenesTech completed a registered direct offering of 857,146 shares at $1.75 per share for $1.5 million gross proceeds; MD&A reports $1.2 million net proceeds. Investors also received warrants for up to 857,146 shares at $1.62 per share, and the placement agent received warrants for up to 64,286 shares at $2.1875 per share.
- Sales growth was attributed in part to online sales initiatives, distributor and pest-management-professional collaborations, field sales activity, and the launch of Elevate. Continued commercialization, market acceptance, regulatory matters, and the ability to raise capital remain key risks.
- A former general counsel’s lawsuit alleges breach of contract and related claims concerning stock options and seeks damages exceeding $500,000, treble damages and attorneys’ fees. The company disputes the claims, intends to defend them, and does not expect the litigation to materially affect operations.
- The company reported effective disclosure controls as of quarter-end and no material change in internal control over financial reporting. It reported no material changes to the risk factors in its 2022 Form 10-K.
Important facts for investors to verify
- How quickly cash is being used and whether financing beyond the April offering will be required; note the filing’s differing six-month and six-to-nine-month runway statements.
- Whether revenue growth can continue and gross margins can improve after the defective-tank scrap charge.
- The potential dilution from outstanding warrants and options and from the April 2023 offering warrants.
- The share-count reconciliation: the filing reports 2,107,339 shares at March 31, while its cover page reports 2,964,485 shares outstanding as of May 10.
- Progress in ContraPest commercialization, customer adoption, partnerships, and achievement of revenue and margin targets.
- Any developments in the former general counsel litigation and the company’s assessment of potential exposure.