Senestech, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. SenesTech develops and commercializes ContraPest, a fertility-control product for rat populations, and the Elevate Bait System dispenser. Unless stated otherwise, amounts below are in thousands of dollars.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $250 | $183 | $722 | $431 |
| Gross profit | $122 | $77 | $348 | $156 |
| Gross margin | 48.8% | 42.1% | 48.2% | 36.2% |
| Operating expenses | $2,741 | $2,330 | $7,872 | $6,597 |
| Net loss | $(2,646) | $(2,253) | $(7,547) | $(5,774) |
| Net loss per share | $(0.22) | $(0.18) | $(0.62) | $(0.53) |
| Cash used in operating activities | — | $(6,367) | $(6,033) |
- Revenue grew year over year, which management attributed to online sales initiatives, distributor and pest-management-professional relationships, field sales, and the Elevate launch. Gross margin improved as production scrap declined and manufacturing processes became more efficient.
- SG&A increased $473 in Q3 and $1,300 for the nine months, mainly from professional fees and marketing. Management cited ongoing litigation and shareholder-vote costs among Q3 legal expenses. R&D fell $62 in Q3 and $25 year to date.
- Cash was $2,792 at September 30, down from $9,326 at December 31, 2021. Total assets were $4,970 and stockholders’ equity was $3,057. Current liabilities were $1,511; the company reported no short-term debt at quarter-end and had settled finance-lease and promissory-note obligations during the first half. Operating lease liabilities remained.
- Accumulated deficit was $120,055. Financing activities used $32 in the first nine months of 2022, compared with $13,556 provided in 2021, when equity and warrant issuances generated most of the proceeds.
Outlook, risks, and notable developments
- Management expects continued losses and says additional capital will be needed unless the company achieves sufficient revenue and margin growth. The filing gives inconsistent cash-runway estimates: one passage says current resources and anticipated revenue or equity sales should fund operations for at least three to six months; another says six to nine months. Both are conditional on operating results and financing.
- Management’s stated objectives include focusing resources on U.S. commercialization, reducing the year-over-year cash-burn rate, and reaching gross margins of 50% or more. These are goals, not firm financial guidance.
- The filing describes substantial doubt about the company’s ability to continue as a going concern, referencing the auditor’s going-concern qualification in the 2021 and 2020 annual financial statements. The company warns that unavailable or inadequate financing could force it to delay or curtail development and commercialization or discontinue operations.
- Nasdaq granted an extension through February 27, 2023 to regain the $1.00 minimum bid-price requirement. Stockholders approved a reverse split in October 2022, at a ratio between 1-for-5 and 1-for-20; the board had not selected or implemented the ratio as of the filing.
- After quarter-end, the board approved a public offering of common stock with Series A and Series B warrants for gross proceeds of up to $10 million. The excerpt does not state the final amount raised.
- Potential dilution includes 4,531,447 outstanding common-stock warrants and 2,574,846 outstanding options at September 30, 2022. In September, the company also issued Series C preferred stock carrying special voting rights limited to the reverse-split and related adjournment proposals.
- A former general counsel seeks more than $500,000 in compensatory damages, treble damages, and attorneys’ fees in a dispute over claimed stock options. The company disputes the allegations and says it intends to defend the case; management does not expect a material operational effect.
- ContraPest has EPA registration and state registrations, but the company notes ongoing regulatory-compliance requirements and dependence on market acceptance, commercialization, manufacturing execution, and financing. The filing reports no material changes to the risk factors in the 2021 Form 10-K.
- Management reported disclosure controls were effective. The Vice President/Corporate Controller resigned effective September 14, 2022; the company reported no other material change in internal control over financial reporting during the quarter.
Investor facts to verify
- Available cash, actual cash burn, and the company’s financing runway; reconcile the filing’s three-to-six-month and six-to-nine-month estimates.
- Whether the announced offering closed, how much capital was raised, and the resulting dilution and warrant terms.
- The reverse-split ratio and timing, and whether the company regained Nasdaq’s minimum bid-price compliance by the deadline.
- Whether ContraPest sales and gross margins continue to improve enough to support the company’s commercialization and cash-burn targets.
- Developments in the former counsel litigation and any resulting financial exposure.