Edited Transcript of PURE earnings conference call or presentation 25-Oct-18 8:30pm GMT

Along with our current revenue projections, and upon conclusion of our August $1.5 million financing, we now have estimated funding in place to support our operations through our third fiscal quarter of 2019, accelerate the commercialization of SDC-based PURE Control as an FDA-approved direct food contact processing aid for fresh produce, and an FDA and USDA-approved processing aid for raw poultry. Accelerate the commercialization of PURE Hard Surface for the sanitization of food transport trucks and pallets and further accelerate the development of PURE Hard Surface as a food contact surface disinfectant for both the food processor and restaurant chain markets.

I'll now discuss our fiscal 2018 operating results. Net product sales for the fiscal year ended July 31, 2018, were $1,774,000, a decrease of 3% compared with net product sales of $1,831,000 for the fiscal year ended July 31, 2017. Revenue from our core business, food safety, continued to gain traction, increasing 23% year over year. Our fiscal Q4 food safety revenues increased 165%, and we anticipate that in fiscal Q1 2019, triple-digit year-over-year food safety revenue growth will continue.

Total operating costs and expenses, excluding cost of goods sold and share-based compensation for the fiscal year ended July 31, 2018, and 2017 was $5.7 million and $6 million, respectively. Net loss, excluding inducement expense, derivative expense, and share-based compensation for fiscal 2018 was $4.7 million, $7 million, as compared with $4.9 million for fiscal 2017.

We ended the year with a cash position of $851,000. Cash received from financing activities during fiscal 2018 was $3.1 million, offset by cash used in operating and investing activities of $3.9 million.

On August 16, 2018, we completed a closing of a private placement financing to accredited investors. We raised approximately $1.5 million in net proceeds from the private placement and issued an aggregate of 3.3 million shares of our common stock at a purchase price of $0.45 per share, including the conversion of approximately $500 held in the form of a promissory note as of July 31, 2018.

In management's efforts to prudently manage our cash position and our opportunities against anticipated revenue flow, in April and in August of 2018, management implemented a number of wide-ranging cost-cutting initiatives to reduce expense and bring down our cash flow breakeven point. We now target an annual revenue breakeven run rate of approximately $6 million. These overhead reductions remain in various areas, including board and management compensation and vendor fees.

The Board continues to the actively evaluate our future financing needs and assesses the various types and opportunities available to us to meet those needs and to allow us to achieve our previously stated cash flow breakeven target in calendar Q1 of 2019. No future financing determinations have been made at this time regarding size, type or timing.

This concludes my financial review. I'll now turn the call over to Hank for a progress update of our business strategy. Hank?

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Henry R. Lambert, PURE Bioscience, Inc. - CEO & Director [4]

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Thanks, Mark. Good afternoon, everyone, and we certainly appreciate you joining us for today's call.

As Mark mentioned, our annual core food safety revenues continue to show strong double-digit growth and momentum is building. Fiscal Q4 core revenues increased 165%, and we anticipate that fiscal Q1 2019 comparable revenues will also increase by triple digits. This solidly validates our strategic focus and the game-changing nature of our SDC-based antimicrobial food safety solutions.

Based upon that validation and the revenue momentum being generated, the continued expense control actions Mark discussed, and the 3 key initiatives that I'll update you on in a moment, we remain optimistic that we will achieve our goal of a cash flow breakeven revenue run rate in calendar Q1 2019. Once we've achieved that milestone, we then expect to have better visibility for you into the remainder of calendar 2019 regarding projected revenues and the path for us to achieve our goal of uplisting the stock to a national exchange which, among other criteria, requires a minimum $2 stock price.

As we discussed in our fiscal Q3 call, our cash flow breakeven timing forecast is based on our current expectations of customer adoption and rollout in these 3 areas. First, Taylor Farms rollout plan for FDA-approved PURE Control in produce processing for calendar 2018 and beyond. Second, the encouraging feedback and sales progress from our food transportation customers using EPA-approved PURE Hard Surface disinfectant. And third, the continued addition of customers and expansion of use of PURE Hard Surface at food processors, manufacturers and restaurant chains. These 3 areas build upon our base of approximately $2 million in existing annualized sales.

Turning first to produce processing; the key driver of revenue generation. Taylor Farms, the largest U.S. produce processor, is our first customer for PURE Control, our direct food contact antimicrobial applied directly onto food during processing. Taylor Farms continues to deploy capital to support the rollout and use of PURE Control in its 14-plant network. You may recall, Taylor Farms is using PURE Control first on shredded lettuce as an added processing step to enhance food safety by eliminating pathogens causing foodborne illness, including the leading causes, Salmonella, E. coli and Listeria. Once fully deployed, we estimate each of Taylor's plants represents approximately $1 million per year in revenue. In other words, an annual $14 million revenue opportunity for PURE.

Taylor is combining PURE Control, or Boost as they have branded it, as a pretreatment with its SmartWash wash system. And they've launched SmartWash Boost as a game-changing antimicrobial treatment for produce. Taylor Farms has begun sales and marketing of the solution to its key food service and retail customers. In the introductory video supporting the launch, a Taylor spokesperson states that SmartWash Boost provides a "virtual kill step" that would have prevented the recent romaine E. coli outbreak, and is quote, "The next generation of prevention of outbreaks, period."

Today, PURE Control, or more correctly SmartWash Boost, is used by Taylor Farms to process produce in 2 plants in Salinas, California for its food service customers initially. Use has grown from 4 lines in Q3 to 19 lines today. Taylor's plans to complete the next phase of its rollout, adding 2 additional plants before the end of this calendar year. As Taylor's customer adoption grows, additional plants will be brought online early in 2019. Taylor has begun testing SmartWash Boost on additional produce items, such as cabbage, onions, broccoli and strawberries, with positive results. And this is expected to drive incremental usage in 2019 and beyond.

Last quarter, we previewed a new application for our PURE Hard Surface disinfectant that was being tested by Taylor. The development of protocols for use of PURE Hard Surface disinfectant on the collection bins which transport vegetables from the field into Taylor's processing plant. That work is progressing, and we anticipate 2019 sales for this new application, at which point we expect to have more information to share with you. In the meantime, what is important to note is this validation by Taylor Farms, after successfully using PURE Hard Surface extensively for environmental disinfection inside its processing plant, was initiated by them to seek to expand the use of our uniquely safe and effective SDC antimicrobial.

We routinely attend relevant trade shows in an effort to educate and increase awareness of our food safety solutions. Last week, we exhibited at the Produce Marketers (sic) [Marketing] Association, or PMA Fresh Summit, in Orlando to feature both our PURE Control antimicrobial and PURE Hard Surface to more than 20,000 attendees. PMA is the premier event for the global fresh produce supply chain. As a result of our advance awareness building campaign and the meetings held during the summit, we generated dozens of leads among leading produce companies that we are aggressively following up on. Not surprisingly, significant interest has been stimulated by our offering of a solution that can prevent future outbreaks like the industry experienced with romaine lettuce.

Looking toward expansion of PURE Control with other produce processors, today we already have 10 additional companies conducting or evaluating their own in-house validation and optimization testing, which is industry standard operating procedure before placing an initial order.