Senestech, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Financial statement amounts below are in thousands of dollars, except per-share data, unless stated otherwise.
Business context
SenesTech is commercializing ContraPest, a liquid fertility-control product intended to reduce Norway and roof rat populations. The company says the product is EPA-registered and approved in all 50 states and the District of Columbia; certain regulatory testing and certification requirements remain. The business is still at an early commercialization stage, with limited sales and continued operating losses.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $183 | $77 | $431 | $185 |
| Product sales | $159 | $77 | $407 | $185 |
| Gross profit | $77 | $36 | $156 | $79 |
| Gross margin on total revenue | 42.1% | 46.8% | 36.2% | 42.7% |
| Operating loss | $(2,253) | $(1,912) | $(6,441) | $(5,863) |
| Net loss | $(2,253) | $(1,919) | $(5,774) | $(5,865) |
| Net loss per share | $(0.18) | $(0.56) | $(0.53) | $(2.42) |
Q3 grant revenue was $24; the balance of revenue was primarily product sales and related services. Nine-month 2021 net loss included approximately $650 of PPP loan forgiveness and $22 of other income. Nine-month 2020 loss attributable to common shareholders also included a $414 deemed dividend related to warrant price protection.
Cash flow and balance sheet: Cash used in operations was $6,033 for the first nine months of 2021, compared with $5,496 in 2020; investing activities used $83. Financing provided $13,556, principally from stock issuance and warrant exercises. Cash at September 30, 2021 was $11,083, versus $3,643 at December 31, 2020. Current assets were $12,772 and current liabilities $866. Total liabilities were $1,428, including $49 of short-term debt and $562 of operating lease liability; reported long-term debt was zero. Stockholders’ equity was $12,292.
Margins, expenses, and capital: Cost of sales was 66.7% of sales in Q3 and 67.6% for the first nine months, up from 53.2% and 57.3%, respectively, in the comparable periods. Operating expenses were $2,330 in Q3 and $6,597 year to date. The company raised $12,421 net from common-stock issuance and received $1,228 from warrant exercises during the nine-month period. Shares outstanding increased from 5,099,512 at year-end 2020 to 12,191,112 at September 30, 2021; 12,207,283 were outstanding November 12, 2021.
Material changes versus comparable periods
- Revenue increased year over year, but remained small in absolute terms. Management attributed sales growth to internet initiatives, distributor and pest-management-professional relationships, and customer demand.
- Gross profit dollars increased with sales and grant revenue, while gross margin declined. Management cited customer incentives and manufacturing scrap during production scale-up.
- Nine-month operating loss widened, mainly as research and development expense rose to $1,424 from $902. SG&A was $5,173 versus $5,040.
- Cash increased substantially, primarily because of equity financing and warrant exercises, not operating cash generation. Operating cash use increased year over year.
- The share count more than doubled during the nine months, reflecting financing activity and warrant exercises.
Outlook, risks, and unusual items
- Management expects cash on hand, anticipated revenue, and additional equity sales to fund current operations for at least 12 months. It also states that further financing may be needed, potentially within that period if revenue or margin targets are missed or expenses exceed budget. The company expects continued losses and may never achieve profitability or positive cash flow.
- The stated gross-margin objective is 50% or higher. Management expects manufacturing efficiencies to improve margins, but the filing gives no specific revenue or profitability guidance.
- COVID-19 continued to delay field studies and limit customer engagement and spending; further restrictions, strained public budgets, or supplier disruptions could affect sales and manufacturing.
- Commercial success depends on market acceptance, effective sales and marketing, continued regulatory approvals, manufacturing scale-up, research progress, and access to capital. Additional funding may be required to sustain commercialization and development.
- The filing refers to substantial doubt about going concern in the auditor’s opinions for 2019 and 2020. Management’s current runway assessment depends in part on anticipated revenue and additional equity sales. The statements contain no adjustments for the outcome of this uncertainty.
- The company reported no material changes to its previously disclosed risk factors and no known pending or threatened litigation expected to materially affect its financial position, results, or liquidity.
Most important facts for investors to verify
- Whether cash burn, sales, and access to additional financing support management’s stated 12-month funding outlook.
- Whether product-sales growth is sustained and translates into improved margins, particularly as manufacturing scrap and customer incentives affect costs.
- Whether ContraPest adoption, field-study progress, regulatory requirements, and COVID-related constraints support the commercialization plan.
- The dilution and potential overhang from financing and warrants: 4,547,618 warrants and 1,068,736 options were outstanding at September 30, 2021.