SenesTech, Inc. — FY2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019, compared with FY2018. This is an annual report, not a quarterly filing. Financial statement amounts below are in U.S. dollars; figures stated in millions or thousands are identified.
Business context
SenesTech is commercializing ContraPest, a liquid fertility-control bait intended to reduce Norway and roof rat populations. It is the company’s only product currently available for commercial sale. ContraPest had EPA approval and state registrations in all 50 states and Washington, D.C.; its label limits use to indoors and within one foot of manmade structures. In 2019, the company shifted toward direct-to-PMP and end-user sales, added an e-commerce tool in Q4, and continued using distributors and its own sales force.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales | $143,000 | $297,000 |
| Cost of sales | $101,000 | $241,000 |
| Gross profit / margin | $42,000 / 29.4% | $56,000 / 18.9% |
| Operating expenses | $10.329 million | $11.936 million |
| Net operating loss | $10.287 million | $11.880 million |
| Net loss | $10.018 million | $11.908 million |
| Net loss attributable to common shareholders | $10.029 million | $12.241 million |
| Cash used in operating activities | $8.058 million | $9.129 million |
Revenue fell about 52%, principally because a customer’s initial stocking order in Q4 2018 was not repeated and the new end-user-focused sales approach lengthened conversion times. Gross margin improved, which management attributed to lower manufacturing scrap and process improvements. The filing’s narrative has inconsistencies in its comparative-period wording; the table values are used above.
At December 31, 2019, cash and cash equivalents were $1.936 million, versus $4.920 million a year earlier. Current assets were $3.542 million and current liabilities $1.581 million. Total assets were $4.979 million; total liabilities were $2.412 million. Borrowings were $260,000 in total ($123,000 current and $137,000 long-term); the balance sheet also reported a $694,000 operating-lease liability. The company raised $5.145 million net cash from financing activities, including $3.631 million from common stock and $1.789 million from warrant exercises.
Changes, outlook, risks, and unusual items
- Research and development expense declined to $1.908 million from $2.404 million; SG&A declined to $8.421 million from $9.532 million. Lower stock-based compensation was a major factor in the SG&A decrease. Stock-based compensation was $873,000 in 2019 versus $3.412 million in 2018.
- Other income was $266,000, primarily reflecting reversal of a previously recorded $269,000 litigation reserve. The New Enterprises lawsuit was settled and dismissed with prejudice in December 2019. In March 2020, the company issued shares in settlement of $238,000 of reserved indemnification costs.
- Management said year-end cash, anticipated revenue and additional equity sales were expected to fund operations for at least six months. It expects continuing losses and says additional capital will be required; profitability and positive cash flow are not assured. The independent auditor’s report includes an explanatory paragraph expressing substantial doubt about the company’s ability to continue as a going concern.
- After year-end, the company completed registered direct offerings in January 2020 (approximately $1.42 million gross proceeds) and March 2020 (approximately $0.5 million gross proceeds), before fees and expenses. These offerings and warrant terms involved substantial dilution and downward warrant exercise-price adjustments.
- A 1-for-20 reverse stock split took effect February 4, 2020; Nasdaq confirmed the company regained minimum bid-price compliance on February 20. Continued listing compliance is not assured.
- Key risks include minimal product revenue and uncertain adoption, reliance on additional financing, commercialization and regulatory execution, dependence on limited suppliers (including triptolide sourced from China and other Asian countries), and potential dilution. ContraPest’s outdoor use and alternative formulations require additional regulatory approvals.
- The filing reports management concluded internal control over financial reporting was effective as of December 31, 2019, while the auditor did not attest to controls. Other risk disclosures say the company had not fully assessed its controls; this difference merits review.
Important facts for investors to verify
- Available cash and the actual runway after subsequent financing, operating burn, and any further capital needs.
- ContraPest sales pipeline, repeat orders, customer conversion rates, pricing, and ability to improve gross margin at scale.
- Exact customer concentration and receivables exposure: the filing’s major-customer disclosure does not clearly map all stated percentages and amounts.
- Terms and fully diluted impact of the 2020 offerings, warrants, anti-dilution provisions, and reverse split.
- Status of EPA and state testing requirements, prospective label expansions, and triptolide supply diversification.
- Resolution of the going-concern uncertainty and reconciliation of the internal-control disclosures.