SenesTech, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial statement amounts are in thousands of dollars, except per-share and share data. SenesTech is commercializing ContraPest, an EPA-registered fertility-control product for rat populations.
Financial results
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Revenue | $37 | $19 |
| Gross profit / margin | $15 / 40.5% | $7 / 39.0% |
| Operating expenses | $2,341 | $2,368 |
| Operating loss | $(2,326) | $(2,361) |
| Net loss | $(2,317) | $(2,364) |
| Net loss attributable to common shareholders | $(2,731), including $414 deemed dividend | $(2,364) |
| Basic and diluted loss per share | $(1.69) | $(2.01) |
| Operating cash used | $(1,871) | $(1,948) |
| Cash at period end | $1,492 | $1,936 at Dec. 31, 2019 |
| Total assets / liabilities | $4,249 / $2,175 | $4,979 / $2,412 at Dec. 31, 2019 |
- Cash fell by $444 during the quarter. Financing provided $1,387, primarily from common-stock offerings; investing provided $40 from asset sales.
- Current assets were $2,991 and current liabilities $1,455. Debt was $212 in total, comprising $116 current and $96 long-term; operating lease liability was $624.
- Revenue remains very limited relative to expenses. Cost of sales was 59.5% of revenue, compared with 63.2% a year earlier.
Changes and notable items
- Revenue rose $18 year over year, which management attributed to a shift toward consumer and end-user pull-through sales. It said COVID-19-related customer spending reductions offset some benefit.
- Research and development expense declined $168, partly reflecting lower personnel and facility costs and reclassification of field-support employees to sales and marketing. SG&A increased about $100, including higher professional-services and restricted-use field-project costs.
- Share count increased from 1,414,671 at year-end to 1,819,981 at March 31, mainly through January and March registered direct offerings and warrant exercises. A 1-for-20 reverse stock split took effect in February; comparative share and per-share figures were retrospectively adjusted.
- Antidilution adjustments to certain warrants resulted in a $414 deemed dividend, which increased the loss attributable to common shareholders but did not change net loss.
Outlook, risks and contingencies
- Management expects continued significant expenses and operating losses and says additional financing is needed to fund operations and pursue profitability and positive cash flow. It warns that unavailable or unfavorable financing could force it to limit or discontinue development and commercialization, or cease operations. The filing cites substantial doubt about going concern in the auditor’s prior-year opinion.
- Management aims to improve cost structure, lower the year-over-year cash burn, shift resources toward commercialization, and achieve gross margins of 50% or greater. It expects manufacturing efficiencies to improve cost of sales, but provides no numerical revenue or earnings guidance.
- COVID-19 delayed field studies and constrained sales outreach, travel and customer access; government budget pressure could hinder public-sector sales. Management also cited possible supply interruptions for critical materials sourced from Asia. The extent and duration of effects were uncertain.
- Subsequent to quarter-end, the company received a $645,700 PPP loan, funded April 20, at 1% interest and maturing April 15, 2022. Forgiveness is conditional, and no assurance was given that any amount would be forgiven.
- On April 24, the company closed a public offering of Class A and Class B units and estimated net proceeds of approximately $4.3 million, assuming full exercise of pre-funded warrants. The units included common shares or pre-funded warrants and warrants to buy shares. The company reported subsequent pre-funded warrant exercises in April and May.
- The EEOC closed its file on a former executive’s discrimination charge on February 28, 2020, stating it could not conclude that the information established a violation. Management said it was unaware of other pending or threatened litigation expected to materially affect financial condition, results or liquidity.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Confirm the actual cash runway and funding needs, including subsequent offering proceeds, PPP loan terms and any forgiveness decision.
- Track ContraPest sales growth, customer and distributor adoption, field-study restarts, and progress toward the stated gross-margin target.
- Review dilution from outstanding warrants and options and from the April offering; the filing reported 812,963 warrant shares outstanding at March 31, 2020.
- Assess the duration and operational effects of COVID-19, including sales access, government purchasing, fieldwork and critical-material supply.
- Reconcile the reported net loss with the larger loss attributable to common shareholders, particularly the warrant-related deemed dividend.