SenesTech, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. SenesTech develops and commercializes ContraPest, a fertility-control product for rat populations, and related pest-management products. Financial statements are unaudited; amounts below are in millions except per-share data.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $0.305 | $0.277 | $0.538 | $0.472 |
| Gross profit / margin | $0.142 / 46.4% | $0.136 / 49.1% | $0.234 / 43.5% | $0.226 / 47.9% |
| Operating expenses | $2.142 | $2.708 | $4.279 | $5.131 |
| Operating loss | $(2.000) | $(2.572) | $(4.045) | $(4.905) |
| Net loss | $(1.993) | $(2.569) | $(4.030) | $(4.901) |
| Basic and diluted loss per share | $(0.70) | $(4.21) | $(1.83) | $(8.03) |
- Revenue increased 10% in Q2 and 14% in the first half, which management attributed primarily to more units sold, internet sales initiatives, distributor and pest-management-professional partnerships, and the Elevate Bait System.
- Gross margin declined year over year. Management cited higher component costs and product mix in Q2, and a $42,000 charge for scrapping defective trays in Q1. It reported first-half gross margin of 51.3% excluding that scrapped inventory.
- Lower research and development and selling, general and administrative costs reduced operating losses. First-half operating expenses fell 17%, reflecting lower personnel, stock-based compensation, marketing, insurance, and professional fees.
- Cash and cash equivalents were $2.196 at June 30, down from $4.775 at December 31, 2022. Current assets were $3.335 and current liabilities $0.953; total liabilities were $1.036, including operating lease liabilities. The filing reports no interest expense in the first half of 2023.
- First-half operating cash use was $3.757, compared with $4.148 in 2022; investing cash use was $0.021. Financing provided $1.199, primarily from common-stock issuance. Cash declined by $2.579 during the period.
- Stockholders’ equity was $2.827 and accumulated deficit was $126.233 at June 30. Outstanding common shares rose to 2,964,485 from 809,648 at year-end; 4,103,407 warrants were outstanding at June 30.
Material changes, outlook, and risks
- Management expects continued significant expenses and operating losses. It stated that June 30 cash, anticipated revenue, and additional equity sales would fund current operations for at least three months under its current operating plan. Additional financing is needed before anticipated revenue and margin targets; there is no assurance financing will be available on acceptable terms. The company may have to curtail commercialization or development, or discontinue operations.
- After quarter-end, the board approved a proposed public offering of common stock and Series D and E warrants seeking up to $7.5 million in gross proceeds. This was not reported as completed in the filing. The board also approved, subject to stockholder approval, a proposed reverse stock split in a range from 1-for-2 to 1-for-12; the ratio was to be determined later.
- The company has incurred losses since inception and its prior annual audit reports included going-concern qualifications. Management’s stated short cash runway and dependence on financing are significant liquidity risks.
- A former general counsel’s lawsuit seeks more than $500,000, treble damages, and attorneys’ fees over alleged unpaid stock options. The company disputes the claims, says it intends to defend the case, and does not expect a material operational effect.
- ContraPest is registered in all 50 states and the District of Columbia; 49 states, the District, and five major U.S. territories had approved removal of its Restricted Use designation. Commercial adoption, product economics, regulatory matters, and Nasdaq continued-listing compliance remain risks identified by the company.
- No specific revenue or earnings guidance was provided. Management said it is focusing resources on U.S. commercialization and may pursue strategic partnerships and further product development.
Important facts for investors to verify
- Whether the proposed July 2023 offering was completed, its net proceeds and terms, and how long the resulting cash supports operations.
- Whether stockholders approved the reverse split and the final ratio, and the resulting share count and market-listing status.
- Actual cash burn and sales growth relative to management’s short runway estimate; the filing does not provide a clear longer-term funding runway.
- Whether sales growth can improve gross margins, particularly after the defective-tray write-off and higher component costs.
- The potential dilution and exercise economics of the 4.1 million outstanding warrants relative to 2.96 million common shares outstanding.
- Developments in the stock-option litigation and any material change in the company’s liquidity or going-concern assessment.