Senestech, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Unless otherwise noted, financial amounts are in thousands of dollars. Senestech is commercializing ContraPest, an EPA-registered fertility-control product for rat populations.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $19 | $7 |
| Cost of sales | $19 | $4 |
| Gross profit (loss) | $0 | $3 |
| Operating expenses | $2,662 | $3,462 |
| Operating loss | $(2,662) | $(3,459) |
| Net loss | $(2,665) | $(3,455) |
| Net loss per share | $(0.16) | $(0.34) |
| Cash used in operating activities | $(2,318) | $(3,374) |
- Revenue was from ContraPest sales. Cost of sales equaled revenue in Q1 2018, leaving no gross profit.
- At March 31, cash was $528 and held-to-maturity investments were $4,243, totaling approximately $4.8 million in cash and highly liquid investments. Current assets were $5,822 and current liabilities were $1,030.
- Total liabilities were $1,617. Debt comprised $182 current and $552 long-term, plus $6 of related-party notes payable.
- Cash declined $1,573 during the quarter, to $528. Investing activities provided $795, principally from securities sales; financing activities used $50.
Material changes versus Q1 2017
- Revenue rose by $12, but remained very limited; sales were primarily through the distribution network.
- Operating expenses fell $800, with R&D down $189 and selling, general and administrative expenses down $612. Management attributed the reductions mainly to lower personnel and stock-compensation costs, professional fees, and lower facility and other expenses.
- Net loss improved by $790, while operating cash use declined by $1,056. The prior-year cash-flow comparison included payment of the $1,000 Neogen settlement.
- Stock-based compensation declined to $698 from $1,061. Weighted-average shares increased to 16.50 million from 10.16 million; the loss-per-share comparison therefore reflects a larger share base as well as the lower net loss.
Outlook, risks and unusual items
- Management expects continued operating losses and significant expenses for at least the next 12 months. It said available cash and short-term investments, combined with anticipated revenue, should fund current operations for the near future, but gave no specific runway date or revenue guidance.
- The company may need additional equity or debt financing if revenue targets are missed. If financing is unavailable on acceptable terms, it may reduce expenses or delay, limit, or terminate development and commercialization activities. Profitability and positive cash flow are not assured.
- Key execution dependencies include ContraPest commercialization and market acceptance, further regulatory approvals, product development, triptolide sourcing, manufacturing scale-up, and building sales and marketing capabilities. ContraPest was registered in 49 states and the District of Columbia; California registration was pending.
- New Enterprises filed suit in February 2018 against Senestech and Roth Capital, alleging, among other claims, fraud, securities fraud, and breach of a lock-up agreement, and seeking monetary damages. Senestech denied the claims and said it would vigorously defend itself. The filing does not quantify potential exposure.
- ContraPest’s former Neogen license agreement was terminated in 2017 under a settlement that included a $1,000 payment; no further Neogen license revenue is anticipated. The company recorded no revenue under that agreement in the periods presented.
- Senestech adopted ASC 606 effective January 1, 2018; it reported no material effect on its financial statements. Disclosure controls were assessed as effective, with no material change in internal control reported during the quarter.
Important facts for investors to verify
- Whether ContraPest sales and gross margins grow enough to reduce the substantial operating cash burn.
- The company’s cash runway and financing needs, including actual spending versus its operating plan and anticipated revenue.
- Progress on California registration, other regulatory approvals, distribution, market acceptance, and supply of triptolide.
- Status and potential financial impact of the New Enterprises litigation; the filing provides no clear estimate of possible loss.
- Potential dilution: 6.43 million common-stock warrants were outstanding at quarter-end, in addition to options and restricted stock units.