SenesTech, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2017. Financial statements are unaudited; amounts below are in U.S. dollars. The company develops fertility-control products for animal pest management, led by ContraPest, which received EPA registration in August 2016 and entered commercialization. Unless otherwise noted, financial metrics are shown in millions.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0.017 | $0.131 | $0.034 | $0.261 |
| Gross profit | $0.006 | $0.131 | $0.007 | $0.261 |
| Operating expenses | $2.956 | $2.761 | $10.023 | $7.223 |
| Operating loss | $(2.950) | $(2.630) | $(10.016) | $(6.962) |
| Net loss | $(2.937) | $(2.704) | $(9.975) | $(7.174) |
| Basic and diluted loss per share | $(0.28) | $(0.37) | $(0.97) | $(1.26) |
- Revenue and margins: 2017 revenue was ContraPest product sales; no license revenue was recorded. Gross margin was about 35% in Q3 and 21% year to date. Management attributed the low nine-month product margin (cost of goods sold was about 80% of sales) to start-up manufacturing inefficiencies and replacement shipments for damaged product.
- Expense trends: Nine-month R&D expense rose $0.553 million, reflecting personnel, research and consulting, facilities, field activity, and depreciation. G&A rose $2.247 million, mainly from higher salaries and stock compensation, public-company insurance, and office costs. Stock-based compensation totaled $2.818 million year to date.
- Cash flow: Operating activities used $7.596 million in the first nine months, versus $4.240 million in 2016. Investing used $3.825 million, including $2.940 million for short-term securities and $0.885 million for property and equipment. Financing provided $0.294 million, principally from new notes payable.
- Liquidity: At September 30, cash was $0.699 million and held-to-maturity securities were $2.949 million, totaling $3.648 million in cash and highly liquid investments. Current assets were $4.238 million and current liabilities $1.441 million. Management said available funds plus anticipated revenue should fund operations for the “near future,” but stated additional capital is likely needed.
- Debt and balance sheet: Total liabilities were $2.127 million. Borrowings, including capital leases, were $0.811 million, of which $0.174 million was current; related-party notes payable were another $0.018 million. Accumulated deficit was $71.286 million. Property and equipment increased to $1.559 million from $0.631 million at year-end 2016.
Material changes and notable items
- Revenue fell year over year as prior-period license and grant revenue was not repeated. Neogen’s exclusive license agreement was terminated in January 2017; the company paid $1.0 million in settlement, resolving the related court action and claims.
- ContraPest sales began, but totaled only $34,000 for the first nine months. The company reported filing in all 50 states and the District of Columbia and beginning some refilings.
- The company purchased $2.940 million in short-term securities during 2017. Cash declined from $11.826 million at December 31, 2016, while cash plus securities at quarter-end was $3.648 million.
- Common shares outstanding were 10,363,189 at September 30, 2017; 10,389,497 were outstanding November 7. Potentially dilutive securities excluded from loss-per-share calculations totaled about 2.733 million shares.
Outlook, risks, and controls
- Management expected product-sales or royalty revenue to increase in Q4 2017 but provided no quantified revenue guidance. It expects operating losses and significant expenses to continue for at least the next 12 months, with spending needs tied to R&D, regulatory work, manufacturing scale-up, and commercialization.
- Additional debt or equity financing is likely required. If adequate financing is unavailable, the company may need to reconsider plans, delay or scale back development and commercialization, or seek partners or license rights on less favorable terms.
- Commercial success depends on market acceptance, effective sales and distribution, supply-chain development (including triptolide sourcing), regulatory progress, and the ability to fund operations. The filing states that no off-balance-sheet arrangements existed and management was unaware of litigation likely to materially harm financial position, results, or liquidity.
- Management concluded disclosure controls and procedures were effective at period-end and reported no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether ContraPest sales and gross margins improve as manufacturing and distribution scale, and whether Q4 revenue expectations were achieved.
- Cash burn and remaining runway, including the timing, amount, and terms of any required financing.
- Progress on regulatory registrations, state refilings, customer adoption, and commercial partnerships.
- Manufacturing reliability, replacement-product costs, and dependable access to triptolide and other supply inputs.
- Growth in operating expenses and stock-based compensation, as well as debt and potential share dilution.