SNES Q1FY2018 CC Transcript 051418 - SenesTech InvestorRoom › download › SNES+Q1FY2018+… ·...

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SENESTECH, INC.NASDAQ: SNES

First Quarter Fiscal Year 2018 Financial Results

Monday, May 14, 2018 5:00 p.m. Eastern

CORPORATE PARTICIPANTS

Dr. Loretta Mayer ‐ Chair, Chief Executive Officer and Co‐Founder, SenesTech, Inc. Tom Chesterman ‐ Chief Financial Officer, SenesTech, Inc. Brandy Pyzyna ‐ Vice President, Field and Tech Services Joe Malinowski ‐ Vice President of Sales Elissa Calloway ‐ Vice President of Manufacturing and Regulatory Robert Blum – Managing Partner, Lytham Partners

PRESENTATION

Operator Good afternoon and welcome to the SenesTech Inc. reports First Quarter 2018 Financial Results Conference Call. All participants will be in listen‐only mode. Should you need assistance, please signal a conference specialist by pressing the "*" key followed by "0." After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press "*" then "1" on your touchtone phone. To withdraw your question, please press "*" then "2." Please note that this event is being recorded.

I would now like to turn the conference over to Robert Blum. Please go ahead.

Robert Blum Thank you, Andrea and thank all of you for joining us today to discuss SenesTech’s financial results for the period ended March 31, 2018 and corporate update conference call.

With us on the call representing the company today are Dr. Loretta Mayer, Chair, Chief Executive Officer and Co‐Founder of SenesTech, Tom Chesterman, our Chief Financial Officer, Brandy Pyzyna, our VP of Field and Tech Services, Joe Malinowski, our VP of Sales, and Elissa Calloway, our VP of Manufacturing and Regulatory.

At the conclusion of today's prepared remarks, we will open the call for a question and answer session. Please note that listener’s both on the live portion of the call, as well as webcast, will be able to ask questions. If you are on the webcast, you can type your question into the box and press submit, we will take as many questions as time will permit for. If you are dialed in, you’ll ask questions by pressing the "*", "1" button as usual.

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SenesTech, Inc. Conference Call Transcript

Before beginning with prepared remarks, we submit for the record the following statement. Statements made by the management team of SenesTech during the course of this conference call may contain forward‐looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934, as amended and such forward‐looking statements are made pursuant to the 'Safe Harbor' provisions of the Private Securities Litigation Reform Act of 1995. Forward‐looking statements describe future expectations, plans, results or strategies and are generally preceded by words, such as, may, future, and plan or planned, will or should, expected, anticipate, draft, eventually or projected. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events or results to differ materially from those projected in the forward‐looking statements, including the risks that actual results may differ materially from those projected in the forward‐looking statements as a result of various factors and other risk identified in our filings with the Securities and Exchange Commission. All forward‐looking statements contained during this conference call speak only as of the date on which they were made and are based on management's assumptions and estimates as of such date. The company does not undertake any obligation to publicly update any forward‐looking statements for the results of the receipt of new information, the occurrence of future events or otherwise. With that said, let me turn the call over to Dr. Loretta Mayer, Chair, Chief Executive Officer and Co‐Founder of SenesTech. Loretta? Loretta Mayer Thank you, Robert and good afternoon to all of you. We truly appreciate you've taken the time to join us for this call. In our press release today, I made a comment that there is much to the whole story beyond the numbers. And with that said, those are embedded in our discussions of sales, operations, and team progress towards commercialization. And with that, I am going to turn it over to Tom Chesterman, our Chief Financial Officer. Tom? Tom Chesterman Thank you, Loretta, and good afternoon to all of you. We appreciate you joining us for this call today. We just released our first quarter financial results. If you need a copy, please visit our website. We expect to file our 10‐Q tomorrow and you can get a copy of it from our website or from the SEC. To reiterate what Loretta just said, it's not really all about the numbers. As we talked about on the last conference call, our challenge with commercialization involves some critical steps. To reiterate, we need to build the right team, we need to develop commercial level manufacturing, we need to develop the right marketing strategy including products definition, pricing, customer identification, value proposition, et cetera. We need to develop a distribution channel for fulfillment and we need to develop reference customers. While we certainly can talk about the first quarter numbers they really do not tell the story of where we are of these critical steps. So we would like to talk first about our progress on these critical steps to commercial success.

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First, build the right team. Starting at the tip of the spear, we have now eight seasoned sales professionals, who collectively have over 100 years in sales experience in the pest control and related industries, lead by Joe Malinowski, our VP of sales, the sales force is mostly but not wholly focused geographically. The team includes Julia Menein, here at Flagstaff who handles our inbound inquiries, Melinda Baker who handles the Southwest and Hawaii, Doug Mills, who handles the Eastern Seaboard, Carl Forhan who handles the Midwest, Jim Berry who handles Texas and the adjoining states, and Brian and Nick Wolstenholme who handle the Northwest. This team was complete in April, which is also and Tracey Hayes completed the revamp of our sales messaging and materials. At this point, though Joe, maybe you can say a few words about the sales process and the recent results of the sales efforts. Joe Malinowski Thanks, Tom. The sales team is really focused on two initiatives, working with distributors, existing and new. Working with pest management professionals or PMPs to introduce ContraPest, and how it can help the PMP improve their integrated pest management approaches. We are now working with or through four distributors, two of which have been added within the last month. While we obviously start with the distributors’ central office, that’s only the beginning of the effort. We visit distribution centers, we hold teach‐ins, we consult with them to identify PMPs who can benefit from ContraPest most and we develop incentive plans. Then leveraging those efforts, we then call an individual PMPs to more directly introduce ContraPest and explain how it can improve their business. ContraPest only works commercially when it meets the PMPs needs. Tom? Tom Chesterman Thank you, Joe. These efforts are making the difference in terms of customer acquisition. You can’t see it in the first quarter numbers as we did not have all of this in place then, and you will not see it all of it in the second quarter financials though you will see it in terms of customer acquisition, tank shift, et cetera. Let’s turn now to the second point, develop commercial level manufacturing capability and capacity. To talk about this, I'd like Elissa Calloway, our VP of Manufacturing and Regulatory, to say a few words about the progress her team has made and then perhaps a few words about regulatory matters. Elissa Calloway Thank you, Tom. As I mentioned on the last call, our focus has been on creating operational excellence. Aspects of this include increasing batch size and reducing cost of goods sold. I would like to mention a few numbers to exemplify our progress. We’ve now doubled the batch size to 30 liters, we have also improved the quality control processes and reduced the QC time and cost. Finally, we’ve negotiated both supply contracts that reduce costs but still retain flexibility. As a result, we expect cost of goods sold to be reduced by these actions by over 20%. As we look forward to the rest of the year, I am targeting further improvements that may improve cost of goods sold by another 25%.

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We have also made progress on the regulatory side. We are continuing to experience advancement in our California application and hope that will lead to an approval in the summer. The team said the regulatory process has numerous steps. While our marketing and sales teams are preparing for a positive result and we have so far been able to answer follow‐up requests, we also feel it is important to recognize that there could be additional discussions prior to approval. One last comment on regulatory. As we’ve said before, our EPA registration is dynamic, one undergoing constant improvement. One example of our label evolution is when the EPA reviewed our acute toxicity information. After finding ContraPest to have a lower hazard level, the signal word was reduced from “warning,” which indicates a higher risk, to “caution,” a level that reflects the lower toxicity. ContraPest was assigned a signal word caution due to a slight dermal irritation. Another example is the change to clarify that ContraPest may be deployed around any manmade structure, not just a building. Now, that we have been out in the market for some months, we have heard some PMPs with additional features that they would like us to investigate. Customer feedback is important to our success and we have collected a variety of requests ranging from new features and benefits to expanded use application. The next step, which we have begun, is to evaluate these features and began the regulatory process to pursue them. Tom Chesterman Thank you, Elissa. Let's turn now to the next point, develop reference customers and case studies. We believe this is as much about advancing the science as it is about sales references. And to talk about this, I would like to turn it over to Brandy Pyzyna, our VP of Field and Tech Services. Brandy Pyzyna Thank you, Tom. We have continued the work I outlined in the last conference call, but to go beyond the work, let me share some specifics. In one trial we just completed, we demonstrated with scientific rigor that when used as part of an integrated pest management approach ContraPest helps lock the population rebound, giving pest management professionals a new tool to magnify the results of their IPM protocol. This is compared to when the use lethal methodologies alone. Cameras were used to monitor the rat population at an animal care facility throughout this trial. The data showed in areas where ContraPest was used in conjunction with other tools, the rat populations were controlled or reduced while in areas that only used lethal tools explosive population growths were seen. This is qualitatively the same results what we saw at our protein production facility where ContraPest plus rodenticide showed better efficacy than areas treated with rodenticide alone. We have also listened to the customers and we are preparing a long‐term field trial. You want to understand more about how to deploy ContraPest in a diverse environment over a longer period. In this trial we will be deploying ContraPest in a new environment, one where urban and private areas interface. Think of this as the first step towards optimizing or developing the best practices for citywide development. In addition, we are also continuing to support our customers, the pest management professionals, transit agencies, et cetera. We want to provide the best practices and training. And as previously mentioned, this does include supporting commercial implementations in major urban transit settings

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and national retail chain and with our pest master partners. Tom Chesterman Thank you, Brandy. Let's turn now to metrics. I had mentioned last time that there is a leading indicator for recognized revenue hitting the books, which is the number of distribution agreements we have. As was mentioned before, we have expanded ContraPest now to four distributors all four are either supplying from inventory or supplying via direct shipment from Flagstaff for those PMPs that just can't wait. Another leading indicator is the number and scope of regional and national PMPs. We previously had six PMPs, all of whom have finished whatever assessment they needed within the last few months and are now expanding their deployment of ContraPest. We just shipped the stocking order to another and we are in final negotiations with an eighth. In the press release, we articulated some of the success stories we've gotten from these PMPs. Now with this, I would like to turn it over to our Co‐Founder and CEO. Back to you, Loretta. Loretta Mayer Thank you, Tom. We did a lot of hard work and I really appreciate this tremendous group of people here that attack this problem every day. As has been said before, it's not a matter of if, it's a matter of when. Our adaption to the market is really the key. In fact, we have a great deal of experience understanding adaptation, because we work with the most successful mammalian species on earth, the rat. The rat can adapt to almost any situation, from flooding, to dehydration, to poisoning, to beating, you name it. The idea is watch the changing environment and adjust rapidly. As we've just heard, it's about the voice of the customer. The commercial development of ContraPest is now on a track of rapid learning‐responding, learning‐responding, and we are now looking at success. I am going to leave all of that to Tom and the commercial team. They are doing a great job. While still supporting sales as our much needed component of this business, it's timely for me to lookout to the political and social landscape to form some strategic partnerships and funding for our next products. We have to continue to see the demand, whether it's through ContraPest or looking at other species. There are three states who are beginning to emerge as leaders in a public outcry to pay greater attention to our wildlife and those would be Hawaii, California and Massachusetts. They are looking to deal with a better understanding of the intersection between humans and wildlife through legislative processes. And I know this is probably not new to many people who have been involved in disruptive technologies such as ours, and it's very difficult. But in this particular case, I think we are pretty lucky because both sides are very vocal. It helps us to see both sides of this coin. Here at SenesTech, we view ourselves as straddling the gap, and that's the gap between minding the use of lethal rodenticide in areas that are exposed to wildlife and domestic pets, and the other side, which is managing the rodent infestations, damage and disease in areas such as our food production and homes. So this is one of the things that I am dedicating myself to help bring both sides together so that ContraPest can be that anchor tool to bring both sides together. Without diverting the organization from selling ContraPest, you may have noted in our recent press release that our patent issued on May 1st for reducing the reproductive capacity of all mammals. Now that opens a need to focus some attention on where we go next. How do we do so from an organizational and financial perspective? There is a lot of low hanging fruit, and believe me I get calls

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and emails every day from folks who have interest in reducing the reproductive capacity of dogs, cats, feral pigs, gray squirrels and other species of public interest. What we need to do is we need to find the partners who are pushing that request and that demand, understand the revenue opportunities and balance it with the public goods and help harvest this fruit. One of our board members, Marc Dumont, recently said SenesTech has reached the bottom of the J curve, which is traditionally experienced when creating, getting approval and introducing a disruptive technology product into an existing market. SenesTech is manufacturing a patented product, approved by the EPA and is encountering resistance to innovation in the traditional rodenticide world market. The company is spending time and money and making substantial efforts to get through with its disruptive technology and is determined to prevail. I really appreciate those comments from Marc because determination is really defined here at SenesTech every day. And we are absolutely certain that 2018 is indeed the “when” for SenesTech, not an “if.” Andrea, let me turn the call over to you for any questions.

QUESTION AND ANSWER Operator Thank you. We will now begin the question and answer session, to ask a question you may press "*" then "1" on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys, to withdraw your question, please press "*"then "2". At this time, we will pause momentarily to assemble our roster. And our first question comes from Kevin Ellich of Craig‐Hallum. Please go ahead. Kevin Ellich Good afternoon, thanks for taking my questions. Tom, I just wanted to start off with the two new distributors. Wondering if you could tell us who they are, and have they placed any stocking orders yet? Tom Chesterman These are distributors that don’t typically, in this case, have stocking orders. What they do is they work with specific PMPs within their region. They have preferred not to be named at this time, but we are working with them and working with them both to market to their customers and also develop programs with them. We certainly would hope that over time they will progress to being a more public partner, but at this point, we are just at the beginning with both of them. Kevin Ellich Are they national in scale or more a regional, what do you say? Tom Chesterman These are both regional distributors.

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Kevin Ellich Okay. That’s good enough. And then in the press release, you guys really focused on the strategic change in direction and the messaging to attract new customers. Aare you changing the mediums that you are using or is it really just the message going out to the PMPs? Tom Chesterman It's both. We have started working through, for example, Univar has its own in‐house distribution system. We are working through that, but we are also working through PCT Magazine and other forms that are directly attributable and then read by the PMPs. So that is a very direct marketing campaign that Tracy went over a little bit last time on the last conference call. And we, probably on the next conference call, will go into little more detail, but we are beginning to see better recognition and now we are entering into the education phase and the call‐to‐action phase, to use the marketing jargon. Kevin Ellich Okay. Was there enough in Q1 this quarter to affect your G&A or is that something that we should be thinking about as we are updating models going forward? Tom Chesterman There is not a huge G&A hit to it, but more and more what we tried to do is we tried to get to earned media. That is to say stuff that we are not necessarily paying for but which we have earned because it's newsworthy. So I wouldn't anticipate there will be a G&A impact from this effort. Kevin Ellich Got you. Two more questions. The four new salespeople that you added over the last month and half, did they come from within the pest control industry or are they new to it? Tom Chesterman They are far from new to it, they are all seasoned professionals with extensive experience in the pest control industry, either having been PMPs themselves or having been supplying PMPs. Kevin Ellich Okay. That’s helpful. And then, putting a combination flection in here, can we get an update on your progress in cattle feedlots? Then going back to Loretta's last comments about potential strategic partnerships, especially focusing on Hawaii, California, Massachusetts, in terms of dealing with wildlife, what other mammals and animals should we be thinking about? Tom Chesterman Well, I will answer the first part of that, but then turn it over to Loretta. In terms of cattle feedlots and other agriculture, as you can tell, our messaging campaign and our current marketing and sales focus is very laser‐focused on the PMP market. We need to develop and implement a separate approach in many cases to agriculture, and that’s something we will be doing this quarter to come up with the best way of getting at that market. But right now, we pretty focused on the PMP market and it is working. So we don't want to stop that or dilute it in any way. Loretta Mayer So thanks so much for the question about next markets. The obvious next species that we will add to our fertility control work will be mice. And I think that’s one that is a natural and so that’s no big idea there. In the realm of next species, as I mentioned, what we have to do is we have to look at where

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the demand is the greatest. So clearly the highest financial return would be companion animals, but the time and cost to that product being ready to sell is extensive compared to some of the other species that cause a great deal of damage. We have early data in feral pigs, and will be looking at that. Again, the real success here is combining the push. For example, some organization like HSUS would be looking at deer. Deer are a major cause of highway accidents, but they are also carrying ticks and other diseases that are of particular concern to the public. So what we’ll be looking at will be along those lines. Mice is an absolute for sure that we will be addressing. And then the next one I will be able to update you on that, but it will probably be somewhere in the pig arena as next, but we may be doing parallel studies in canine because their metabolism is so close to pigs. Kevin Ellich I was going to ask, if you would have to run a separate study and the answer seems like it would be, yes. Is that right, Loretta? For canines, because it doesn’t seem like you could just jump into the canine markets for with your products. Loretta Mayer Well, we already have preliminary data in canine with one of our active ingredients, and it was very successful. Every species that we look at, however, has to be formulated, first and foremost to the reproductive strategy of the animal and for its physiologic needs. For example, rodents have to drink up to 10% of their body weight a day. Mice don’t need to do that, they get their liquid requirement from the food that they eat. So again right there, you can see two differences in rodents alone. Dogs are seasonal breeders. Pigs use a different strategy. So for every single species, we have to do efficacy, formulation, regulatory and move it into the market. So for example, companion animals requiring an FDA approval, feral and stray dogs for fertility control would be in the EPA. So for each one there is a fair amount of work that has to be done, but there is a tremendous group of foundations and animal welfare groups that can provide us with that assistance, so that's why we are looking at partnerships. Kevin Ellich That’s helpful. I will follow up offline. Thank you. Operator Our next question comes from Gerry Sweeney of Roth capital. Please go ahead. Gerry Sweeney Good afternoon, Loretta. Thanks for taking my call. Tom Chesterman Hi Gerry. Loretta Mayer Hi Gerry. Gerry Sweeney There is no doubt you've gone through a steep learning curve to commercialization and it is what it is. It does appear cracking the code, obviously looking at both ends of the spectrum, the distributors

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and then the PMPs, like as the marketing products you have talked about, it is the push and pull. But what do you think right now is the key to driving additional sales? Is it more data, is it more education, is it just being out there hitting more PMPs because obviously you do have some of the largest distributors in‐house or on‐board, just curious if you could get some more structure around that? Tom Chesterman Yes, Gerry. I think it’s a great question and important to be very clear, because it is consistency. Now that we have what we believe the message that will work best with the PMP market, we have to remain on that message and get out there, and get feet on the street to make those meetings. And as long as we are consistently giving the same message to all of the PMPs and to all of the other parts of the distributors, et cetera. That's really the most important part, it is executing on the message. And as you said, we are cracking the code, we are beginning to get those. I think it might be instructive, Joe, if you might talk a little bit about the reception we have gotten, because I think it’s very positive as we talk to PMPs about the value of integrating ContraPest into their integrated pest management and it’s really indicative of where success is going to come from. Joe, would you? Joe Malinowski Yes, I will be happy too. Gerry, great question. First, I want to go back to what Tom referenced earlier. First, in the selection process of the team that we put on the field, we have a very very seasoned regional account management team that either have experience as a PMP or manufacturers rep or been in the distribution or even one individual that has worked for a competitor in the marketplace. So we have a very seasoned team. With respect to the message, thanks to Tracy and her team and the marketing message, it is as Tom pointed out, it is a very consistent pointed laser‐focused message about adding ContraPest to an integrated pest management program. And the team is on the field is really driven with their connection with the distributors in the distribution network, but also the PMPs. And they are truly after a very short time period our road warriors, they are either meeting with the PMP or several PMPs on a daily basis, they are holding meetings with the distributors where they will have anywhere from 15 to 25 to 50 PMPs in a training session. So it's a combination of a laser‐focused message, education, follow‐up and most importantly asking people to buy. So it's really a combination Gerry and hopefully I have answered your question to your satisfaction. Gerry Sweeney Yes, that’s fair. And do you think it is more a value proposition of adding ContraPest than with rodenticide keeping the rat population knocked down? So do you think it’s more the customers talking a little bit because ContraPest is this annuity, a continuous cost but longer term it obviously has the benefit keeping populations down? Is it a learning curve on the end customers' use or is it also the actual PMP operator? Tom Chesterman Well, Gerry, it's both. You definitely need to market to the PMP to show them how this is going to improve their business. We are providing a product which is part of their service. And thanks to the stuff that Brandy was mentioning before, we can show them specifically how much better IPM works with ContraPest and without. But at the same time you also need to get the customer to buy that service that includes our product, and so that’s where you get the push pull. And the piece that you don't see yet, is really the groundswell of the overall PR campaign. But as Loretta has alluded to many, many times that’s happening and it's happening faster and faster and more and more. Loretta, you

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have mentioned the three states in particular that are moving forward on this, and maybe you talk a bit about the messages that we are hearing from the end user, because you get most of those calls. Loretta Mayer Thanks, Tom, I get a lot of calls from California. Again, what I can say to California is we are on our way and as soon as our registration is approved we will be able to help out there. Probably the State of Hawaii is where I get the biggest demand from customers and this ranges from a tropical environment where rats are favored, their reproductive rates are extraordinary. And again, the use of lethal poison in and around the water is becoming problematic for the environment groups there. So this again is where we have to bridge between the two. So it is the customer, the end user. No, we are not a silver bullet, we are not going to solve all of your problems, but hand‐in‐hand with your PMP we will be able to move us all closer to a better environmental situation. So in that case it's mostly getting the information out to the PMPs because the customers in these states, they are pushing hard and rapidly. Gerry Sweeney Got it. I appreciate those answers and intuitively, that makes a lot of sense. I look forward to seeing these results as we move through 2018. Thank you. Tom Chesterman Thank you. Operator Again, if you have a question, please press "*" then "1." And our next question comes from Tony Kamin of Eastwood Partners. Please go ahead. Tony Kamin Good afternoon. Tom, you had mentioned that as you are thinking about metrics, people should look at the number of relationships you have got with distributors, for example. So in line with that, not guidance, but thing to look at, as you are halfway through the quarter now, do you anticipate having more distribution relationships that you will be able to talk about say in the next quarterly call? And affiliated with that, where you have been doing trials, for example, with cities, do you think that some of those will be wrapped up in a reasonable period of time so that those may also become new distribution points for you? Tom Chesterman So as far as the first part in terms of distribution agreements and relationships, yes, we are still pursuing some others. We are working within the ones we have, but there are some areas that we would like to cover in more depth. I think you are also going to see some further master agreements or overlying agreements with PMPs and large PMPs were continuing to pursue those and we've had some good success now. But with the relationships we have the people you got on the street right now in the sales team I have no doubt that we will see some significant progress in that as well. Turning to your question about the trials with the cities, some of them have already converted, and some of them have now turned into commercial contracts, but we continue to have others going on. We are just now entering into a fairly large one that Brandy talked about, and there will probably be

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some smaller ones that are concluded. We've got one that's concluded not that long ago that will probably end up being a published paper, the science is so compelling on it. So the answer is, yes from all of these; there will definitely be progress. Tony Kamin That’s too great to hear, and encouraging. The biggest concern, I would think, for everyone watching the company is just the level of revenue. However, you have been showing some growth. Given that you are, again, halfway through this quarter, I understand you probably want to be very careful in terms of guidance, but directionally do you think that you will see an improvement over the quarter you just reported? Tom Chesterman Yes, I am not going to go the guidance side of that, so sorry. In terms of progress, again what will be able to show is progress in terms of the metrics. There may be some program, Joe and I are talking about programs that may accelerate the customer acquisition and the number of tank shipped to VSM specific new customer promotions. Those don’t turn into revenue in the first quarter, so you may not see everything translated into revenue in the second quarter, but you will see in terms of the other metrics, the tanks shipped, customers acquired, et cetera. Tony Kamin Well, in terms of the lag time between having these first metrics of distributors and all that, do you have a sense of how many months it takes before you are seeing those customers potentially ordering at a more stable rate? Is there a six month lag time or anything that you can identify? Tom Chesterman It's not a really good track record in terms of having lots of data. The scientists in the room definitely wouldn’t see this as a proper statistical analysis, and it varies. Some PMPs are going to try it out. We had one that tried it out at one location and said, “I am doing this everywhere,” and I didn’t take very long at all. It was a month or so, a couple months. What I will say is that you've got these two different types of usages. Last year, we had a lot of people that were trying it out as a standalone product and there is definitely a lag because of how long it takes for ContraPest to have an effect on population over time. But with respect to the PMPs, what they are looking for is, as they implemented as part of IPM, do the populations stay down. That's a much quicker response, because they know how quickly rats rebound. And so, they are able to see much more quickly how much more effective their IPM is with ContraPest than without. Tony Kamin Okay. Tom Chesterman I am sorry, I don't have a real good and solid statistical trend here, but I actually think the trend is getting better as we become more integrated into the PMP business. Tony Kamin Then just one final question on the other side of things, in terms of expenses. On the quick read, it looks like your EBITDA loss was lowered a bit. Is there anything else you can do while you are waiting for that revenue to ramp to make sure you are doing everything on the expense side that can done?

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Tom Chesterman Yes, we definitely have to be very, very disciplined in expenses. And so, in the current time everything has to translate to a revenue opportunity. One of our senior managers, Kim Wolin, really, that’s a primary responsibility that she has is to be a final check to make sure that the expenses are truly translatable into revenue opportunities or cost of goods sold reductions. So we are very focused on that, we will continue to be focused on that. Everybody, again looking around the room, everybody that’s tried to go in with an expense request to Kim’s office, it hasn’t been a positive experience unless they are able to justify it. Tony Kamin Got it. Appreciate it. Thanks very much. Operator Our next question comes from Pete Enderlin of MAZ Partners. Please go ahead. Pete Enderlin Thank you. Good afternoon, Tom and Loretta. Tom Chesterman Good afternoon, Pete Loretta Mayer Hi, Pete. Pete Enderlin In the press release, you have a comment about encountering resistance in the traditional rodenticide market. It's an interesting comment, and I am wondering, who is resisting? Are you talking about, obviously could be manufacturers of rodenticide and other similar products, PMPs or government and what is the essence of their resistance at this point? Tom Chesterman So, let me approach this in two ways. I am going to approach it from a tactical standpoint, and I’ll let Loretta be strategic because she is much better at that than I am. From a tactical standpoint, it’s a resistance to something new and unknown. The PMPs have to be educated as to how do you put this into integrated pest management. And that’s the focus of Joe and his team, is just explaining how does it work as part of the business they’re already in. To some extent, you've got that with respect to the end‐user as well, in that they have to understand then what are the expectations. But from a strategic standpoint. from a resistance that Mark was talking about it and Loretta has pointed out, I am going to turn it over to Loretta to be strategic on us here. Loretta Mayer Well, thanks, Tom. I think when you understand that the PMP is the fulcrum here. The PMP takes the new innovation that we have created, and are learning every single day, to get best practices to them, so they know how to deliver it to their customer. Their customer who is saying things that vary from, “The only good rat is a dead rat,” to, “Oh wow, yeah, birth control for rats? I get that, that’s much better.” So the PMP is in the middle of learning curve with us and when you find yourself in the middle of the learning curve, some people like to jump in and learn quickly, others want to put the exam off for a later day. And so, I think that’s what we are looking at. And from a strategic position,

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we are trying to bridge that gap, as I said earlier, into helping the PMPs understand that if you do something that you have never been able to do before, and I think that’s critical, they never had a tool in their bag to stop the rapid rebound because, as I said at the very beginning, rats are adaptive. It only takes two, they have been around longer than we have and getting the PMPs to have the tools they need and know what they have is the challenge. But we are rising to that challenge and we are certainly here to help them. Pete Enderlin Okay. And the comment was also that 2018 will show the results of the changes that you have been making, and essentially that really means more of a focus on IPM rather than ContraPest as a standalone product. So the question that is what is the biggest gating factor besides maybe organizational inertia? Is it regulatory, is it financial, is it training in the field? Why does it seem to take so long at this point? Tom Chesterman Well, Pete, there is no gating factors anymore. We are out of the gate. And that’s why, what I think we are trying to communicate here, is that, it is working. It takes a while before it translates into booked revenue, but there is nothing holding us back other than just how many hours there are in a day and how many PMPs per day Joe’s team can visit. So there are no barriers now, other than continuing to execute on the strategies we have got. Pete Enderlin And by end user areas, which would you think represent the best opportunities for a quicker ramp going forward, starting in the second quarter, but especially in the second half? Tom Chesterman That really depends on each PMP, and it is actually part of the discussion the sales team has with the PMPs. Who are your customers which ones will be the most receptive to this? It usually is the customer that’s complaining that the PMP is not getting a handle on the infestation. So it's the complaining customer, but it also might be the customer who is really, really resistant to having poisons on their property, and wants to minimize the use of those, so it's going to be a very individual sales pitch type of approach. Pete Enderlin Do you think that inventory stocking will be a significant factor in revenues in the second half of the year? Tom Chesterman Yes, I would think so. I would think so, as the demand keeps picking up. Right now, we are filling the demand as needed, but it's accelerating and stocking will be necessary to avoid shortfalls. Pete Enderlin Okay. And is there any sense of how much that inventory stocking could add in the second half? Tom Chesterman Not at this time.

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Pete Enderlin Tom, what is Plan B, as far as funding the business development is concerned, if the ramp doesn’t accelerate sharply in the second half? You guys would begin to run out of money at the end of the year if not sooner, so there must be some contingent planning going on. Tom Chesterman Well, I’m a CFO, so there is always contingent planning going on. But frankly, yes, the focus is on the trend is and all of the pointers are moving towards the fact that we need to focus on executing what we have. We do not, at this point today, need to trigger a Plan B. Pete Enderlin Could a Plan B include some sort of licensing arrangements, as have been noodled out in the past? Tom Chesterman Sure, we've looked at that as well. We've got an entire alphabet pool full of alternatives here, Pete, but obviously I can't go into them in‐ depth. That would be way too forward‐looking for our attorneys. Pete Enderlin Okay, alright. Thank you. Operator At this time, I would like to turn the call over to Robert Blum for any webcast questions. Robert Blum Yes, we have a couple of questions here with the time that we have left. First question, do we have a guess as to when SenesTech might be approved in California and you have salespeople doing preliminary works there now? Tom Chesterman Yes, Elissa mentioned that we expect it and hope for it in the summer, but we can't be more specific than that because this is a regulatory process and there so far has always been just one last question that they've got and they've like the answered. So we can't be particularly forthcoming with the precise point estimate. What we can say is that, yes, we have already begun planning activities in California. We are very restricted, we cannot market the product in California. And so, it is approved, so we are not doing any direct marketing. What we can do, we can educate, we can provide education generally about the process, we can begin to get ourselves signed up for conferences and to plan out on that happy day when we get approval from California to figure out, how many people from the sales team are going to be in California the next day, and which part of California are they going to be in? Robert Blum Alright, our next question is, can you provide details of the R&D, as well as, SG&A expense? Tom Chesterman Yes, let me answer that more or less first from a qualitative standpoint. The R&D is, as I've mentioned before, all of our expenses are very specifically tied to what is the revenue implication. And so, the R&D expenses are all tied to some extent to supporting that and to support the reduction and cost of

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goods sold. So when Elissa mentioned that we've make some things that have improved our expected cost of goods sold, those R&D dollars are winning to that. When we talk about sending Brandy's team and to different places and to help with some of that, some of that is R&D as well, but it's very directly revenue based. To get any more specific, I would say that we are going to be filing our 10‐Q tomorrow and that the specific detail will be in that. Robert Blum Alright, our last question here is, do you have any comments on the recent New York Post articles on rat control in the city? Loretta Mayer Well, my first comment is, I think we ought to be a little easier on Mayor de Blasio. He is up against one of the biggest pest management issues that we’ve ever faced and we continue to face every day. Yes, what they are clearly up against in New York and in most major cities is the vast environment that’s created for rodents underground, the tremendous population, modifying public behavior for trash for us. And again, I think it’s another situation of we are there, we are expanding with PMPs in New York City and it’s that you need an integrated test management system. You need to work together with everything from sanitation to exclusion, to lethal strategies, but you've got to hit the root cause, and that’s reproduction. Do not worry, Mr. Mayor, we are there. We are here to help you. I am not from the government, but I am here to help you. That’s my comment. Robert Blum Alright, perfect. With that, management any closing remarks?

CONCLUSION Tom Chesterman Well, I want to thank everybody for their time. We are going to be very busy this quarter and we look forward to updating you on how that is resulted in terms of achievements at the next quarterly call. So thank you very much. Operator The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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