Senestech, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2017. Unless otherwise noted, financial amounts are in thousands of dollars. Senestech develops fertility-control products for animal pest populations; its first product, ContraPest, targets rats.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $7 | $46; 2016 revenue was from the Neogen license |
| Gross profit | $3 | $46 |
| Operating expenses | $3,462 | $2,445 |
| Operating loss | $(3,459) | $(2,399) |
| Net loss | $(3,455); $(0.34) per share | $(2,488); $(0.56) per share |
| Operating cash flow | $(3,374) | $(867) |
| Cash and cash equivalents | $5,363 at March 31 | $11,826 at December 31, 2016 |
Cash and short-term investments totaled approximately $8,324 at March 31, 2017. Current assets were $8,893 versus current liabilities of $923. Total debt, including related-party notes, was approximately $217; total liabilities were $1,162. The filing provides no operating margin measure; gross margin was approximately 43% on very small Q1 2017 sales.
Changes and notable items
- Revenue fell to $7 from $46 as the Neogen license ended; Q1 2017 sales were ContraPest product sales. The company reported minimal product-sale revenue to date.
- Research and development expense rose $353 to $823, driven by added personnel, lab and quality-control activity, manufacturing maintenance, and regulatory filing costs. General and administrative expense rose $664 to $2,639, including higher salary, professional-service, and travel costs.
- Stock-based compensation was $1,061, about 31% of operating expenses, compared with $1,131 in the prior-year quarter.
- Investing cash outflow was $3,087, chiefly purchases of short-term securities ($2,957) and equipment ($130). Cash declined by $6,463 during the quarter.
- The company paid Neogen $1,000 in January under a settlement terminating the exclusive license agreement and dismissing the related lawsuit with prejudice. The parties mutually released related claims.
Outlook, risks, and controls
- Management said existing cash and highly liquid short-term investments, together with anticipated revenue, were expected to fund current operations for the foreseeable future. It also cautioned that assumptions may prove wrong and additional capital may be needed.
- The company expected operating losses and significant expenses to continue for at least the next 12 months, with spending increasing for research, regulatory work, manufacturing scale-up, commercialization, and public-company costs. No quantified revenue or earnings guidance was provided.
- Management expected product sales or royalties to begin contributing revenue in Q2 2017. ContraPest received U.S. EPA approval effective August 2, 2016; the company was pursuing approvals in other jurisdictions and expanding commercialization activities.
- Key risks include limited market acceptance and sales, execution of commercialization and distribution plans, regulatory uncertainty for other jurisdictions and products, continued cash burn, and inability to obtain financing on acceptable terms. Without capital, the company may have to delay, reduce, or discontinue development or commercialization.
- Management reported disclosure controls were effective at quarter-end. Previously identified material weaknesses were described as addressed and resolved, with further control improvements underway.
Investor verification priorities
- Track ContraPest sales, customer adoption, gross margins, and whether anticipated Q2 2017 revenue materialized.
- Monitor cash burn, short-term investment availability, and the timing and terms of any additional financing.
- Confirm regulatory and commercialization progress, including manufacturing capacity and distribution arrangements after the Neogen termination.
- Review the impact of stock-based compensation and potential dilution from outstanding options, restricted stock units, and warrants.
- Assess whether internal-control improvements are sustained and whether any new material weaknesses or contingencies arise.