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PURE: Update on Fiscal Third Quarter Financials

By Grant Zeng, CFA


Update on Fiscal Third Quarter Financials

Total revenues for the fiscal third quarter ended April 30, 2017 were $338,000, compared with revenues of $403,000 in the prior year fiscal third quarter ended 2016, a decrease of 16%.

The quarter-over-quarter decline was due solely to the timing of a significant reorder from a large legacy customer. Last year’s order was placed in the third quarter of FY 2016, and this year’s order was received in the first week of the fourth fiscal quarter in 2017.

However, core food safety revenues for the third quarter increased 27% as compared with food safety revenues in the fiscal third quarter ended 2016.

Gross margin was 61% during the third quarter of fiscal 2017 as compared with 71% during the same period in fiscal 2016 due to product mix.

R&D costs for fiscal third quarter 2017 were $0.22 million, compared to $0.21 million for the same period of last year.

SG&A costs for fiscal third quarter 2017 were $1.3 million, compared to $1.4 million for the fiscal third quarter of 2016.

Net loss for the fiscal third quarter 2017 was ($1.7) million, as compared with net income of $30,000 for fiscal third quarter in 2016.

The adjusted net loss, excluding derivative income/expense and share-based compensation, for the third quarter 2017 and 2016 was ($1.3) and ($1.3) million, respectively.

As of April 30, 2017, PURE (OTC:PURE) had a cash balance of $2.7 million with no long-term debt.

With the PURE Control first order in calendar 1Q17, we believe the company could break even in the next 12 to 18 months.

Current cash combined with cash flow generated from operations will support the Company's operations and business plan through end of calendar 2017 according to our financial model.

Update on PURE Control Launch

In parallel to its PURE Hard Surface® business, PURE is launching its second business segment PURE Control-which utilizes the company’s lead compound SDC as direct food contact processing aid.

Currently, PURE is targeting three key fields for PURE Control.

Produce (FDA)

PURE introduced PURE Control at IPPE (International Production & Processing Expo) in late Jan 2016.  IPPE is the world's largest annual poultry, meat and feed industry event attended by more than 30,000 industry leaders and their suppliers seeking to learn about the latest technological developments in the industry.

PURE targeted PURE Control as a food safety solution for a broad range of processed vegetables and fruits that are most frequently associated with pathogen contamination. In its regulatory filing, PURE demonstrated materially significant reductions in Salmonella, Listeria and E. coli in processed fresh produce, as compared with current processing chemicals.

Produce is the leading source of foodborne illness in the US. Given the immediate market need and the proven superior efficacy of SDC, we believe PURE Control can quickly achieve meaningful market penetration among fruit and vegetable processors.

In March 2017, the Company received its first order for PURE Control® antimicrobial from Taylor Farms, a leading produce processor, entering a new +$300 million US produce processing aids market to prevent foodborne illness.

Poultry (FDA/USDA)

In June, 2015, PURE resubmitted a Food Contact Notification (FCN) to the US FDA for Silver Dihydrogen Citrate (SDC) as an online reprocessing antimicrobial for raw poultry processing aid. 

In April 2017, PURE received two required key regulatory notifications (USDA permission letter and an FDA FCN acknowledgement letter) on its path to obtain final regulatory approval of and commercialize PURE Control as a superior raw poultry processing aid into the +$350 million US market.

In May 2017, PURE’s FDA FCN for use of PURE Control at concentrations up to 160 PPM as a raw poultry processing aid became effective. PURE received a “Letter of No Objection” from the USDA FSIS for use of PURE Control at concentrations up to 160 PPM in pre-OLR and post-chill poultry processing. PURE Control will be listed in FSIS Directive 7120.1. PURE now has regulatory approval to commercialize PURE Control for these non-OLR poultry processing applications.

On May 29th, PURE began its in-plant poultry processing trial to gain USDA approval for use of PURE Control during online reprocessing (OLR). The trial is expected to be concluded early in calendar Q3. If the plant trial is successful and no additional trials are required by the USDA, PURE anticipates that the USDA-FSIS would issue a “Letter of No Objection” within six weeks of the trial’s completion. The Company would then have the regulatory approval necessary to begin commercialization of PURE Control for OLR applications.

Once approved and commercialized, poultry processors will be able to use PURE Control in place of the highly toxic interventions currently being used. It is anticipated that the plant trial processors will be among the first customers for PURE Control for poultry processing.

Meats (FDA/USDA)

PURE continues its product development efforts for the application of SDC as processing aid/intervention for beef and pork. Pending positive test results, PURE expects to file the FCN for processing raw beef and pork in calendar 2H2017.


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