# To Our Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NASDAQ_SNES_2018/NASDAQ_SNES_2018.mmd` · pages 4-10_

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To Our Shareholders

2018 established SenesTech's revenue growth potential. Without any recent industry models for growing a novel approach to solve the global pest-management problem, we began the journey with a new concept: non-lethal population control. Our target goal in 2018 was to determine the optimal course for our commercialization success. The logical start was to offer ContraPest \( ^{®} \) , our fertility control tool, to the pest-management industry. The reality quickly emerged that early adopters and end-users had a pressing need and therefore demand that was ahead of the industry's adoption timing. With that, we have much to discuss in the 2018 annual report. Here is some background on the need for our solution and our approach.

When it comes to rats and rodents, we usually talk about three main challenges:

1. Rodents destroy food through consumption and contamination,

2. Rats damage infrastructure, and

3. Rats transmit disease, deadly pathogens to animals and humans and poisons to wildlife.

Centuries of trying have shown that reducing the risks by attempting to control infestations and population growth using lethal means cannot solve the problem. The heart of the problem is reproduction. Rats are one of the most successful mammalian species on earth because they can breed their way out of any threat to their species survival. The evidence is clear!

The task of implementing our vision and addressing our mission is not "easy" but the steps are fairly "simple". We strive to deliver the following:

1. Reduce harmful effects of current rodent management practices, which have historically not been effective, in the world of rodent control by addressing the root cause of the problem, reproduction, using proven scientific methods;

2. Improve the health, safety, and well-being of humanity worldwide by reducing the negative impact of rodent pest infestations on food security, disease, and the environment;

3. Provide value to our stakeholders through the increased use of our products to address current rodent pest issues while expanding our product base to meet the demands of a changing world as they are presented;

## We intend to accomplish this following our "tag line"
Sound Science. Effective Solutions.

"Sound Science" is how SenesTech began in 2004, with two scientists destined to make a difference in this world. At the heart of it, Sound Science is the methodology of going from a concept that the world's scientific community has imagined, to developing a formulation for practical application. Since science is ever evolving, the principles developed in our viable product allowed us to continuously utilize new scientific discoveries to make the most optimal product for the market and to solve our customers' rodent problems. In 2018, we moved our scientific discovery (intellectual property) from a provisional application for the base formulation, to an "issued" patent. The patent issued May 1, 2018. The total process took 6 years of laborious explanation and defense.

"Effective Solutions" stems from the history of rodent control and pest management. For years, traditional rodenticides have worked short term by killing rats. However, you can never kill them all and it only takes a breeding pair and their young to rebound the population with 15,000 individuals over a year. This rodent reproductive strategy provides room for rat infestations to become evident in a short period of time (3-4 months). Due to the principles of sound science, it also has been shown that some of the rats that aren't killed are resistant to the poisons and are selected to give birth to rodenticide-resistant pups. Through the development of a fertility control contraceptive, we have successfully produced an effective long-term sustainable solution of a non-lethal approach that targets both male and female rats. Our recent scientific publication demonstrates that our solution will not lead to resistance and help attenuate the threat of growing poison-resistant populations around the world.

## Our Mission

SenesTech is committed to providing sustainable, humane treatment of animals, improving the quality of all human life, and enhancing environmental stewardship through global application of our effective solution in fertility control technology. This statement is our promise and commitment to our stakeholders: employees, customers, regulators, the public, and our investors.

Our flagship product ContraPest is evidence of the value in "Sound Science. Effective Solutions." Fertility control in the form of a contraceptive is a solution to the root of the problem not a temporary strategy such as lethal rodenticides. Therefore, ContraPest, is an effective long-term solution that dramatically reduces the exponential reproduction rate. And the first indication of success you can see is smaller numbers of recently weaned juvenile rats that are easy to distinguish from much larger adult rats.

ContraPest is a highly attractive, liquid bait containing the active ingredients (AI) 4-vinylcyclohexene diepoxide, or VCD, and triptolide, a plant-derived chemical, delivered in a proprietary trade secret emulsion with a high fat content and sweet taste.

- Rats repeatedly feed on ContraPest because of the nutrition and taste, and absence of any adverse effects. Their fertility is reduced as they consume the bait. The active ingredients target both male and female rodents resulting in sustained contraception with continued consumption

• Sustained impact and compared to anticoagulant rodenticides avoid population "rebound"

• When lethal means are used, the death rate is always less than birth rate for rats

• Because rats are territorial the immediate reduction of rats around any food source provides an open banquet, less competitive food supply to new invading rats

• Designed to minimize risk to handlers, non-targets and other animals

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While ContraPest is a product with wide-ranging applicability, 2018 provided the evidence that our commercialization is best focused on very specific verticals: animal housing markets, commercial markets, and food markets.

## Animal Housing Markets

SenesTech understands the difficult balance required to manage pests in the human-animal conflict in a responsible and safe way. We must create a balanced management strategy as we provide for human needs while at the same time being good stewards of our animal populations. Secondary exposure (animals consuming poisoned rodents) has become an increasing concern with non-target animals, especially in environments where other animals or wildlife reside. SenesTech's goal has always been to provide a better environment for animals, which is why we developed ContraPest. The animal housing markets that have specifically emerged this year are animal research facilities, animal sanctuaries, and zoos. As of this writing we have expanded our deployments in more than a dozen zoos, half a dozen sanctuaries, and a few research facilities.

## Commercial/Structural Markets

When commercial buildings provide the critical infrastructure of our economy, nothing is more essential than effectively managing rodent control within these physical structures. However, building management is not the only factor to consider when selecting optimal products for your rodent management program. Managing the risk of exposure is critical to the health and wellbeing of the people who work in and around these properties. Additionally, construction of new buildings frequently displaces rats that migrate into adjacent properties. The urban rodent management challenge captures all of the issues of commercial buildings and must integrate that management with the human pressures of behavior, health, and sanitation. No one deserves to live with rat infestations. We have been fortunate to have been invited into some of the largest and challenging cities of the US to develop strategies and products, that ultimately deliver the right solution for municipalities and commercial business success – all while keeping control of daily operations. Our largest sale to date has been to the city of Washington DC with deployment in the first of 8 wards. Washington DC will indeed be a lead customer and flagship deployment. Toward the end of the quarter we began a small project for the city of St. Louis which is expanding in 2019. The Gateway Arch Park and numerous city buildings are included in the expansion.

## Food Markets

Today's consumers have demanded a new emphasis on food safety and humane treatment of protein production animals, and the industry must answer with newer and better solutions in their facilities. One key emphasis area is more effective vector control, and inspection audits by regulatory agencies and third-parties. Rodents are an increasing health hazard and present a challenge to these industries owing to their potential to cause product and financial losses. These concerns are compounded by: the increasing global demand for food, concerns for humane conditions for production animals, the increasing demands of biosecurity programs and reducing the risk of infectious disease transmission.
In 2018, our expected largest geographical market began to open with state approval for sales in California. As California is the fifth largest economy in the world, the total addressable market begs "all-in" efforts. In addition, California is one of the most environmentally conscientious states in the US. Currently, there are 16 municipalities within the state that have regulations demanding a poison-free approach to rodent control. In February of this year, AB1788 was introduced, cleared in committee, and is on the way to become law banning Second Generation Anti-coagulant Rodenticides (SAGARs) statewide. Our profile in the state has been raised by the discussion over this bill, and we are in the first quarter of 2019 answering the call to action for the many leading stakeholders in California. In short, we are further refining our market verticals into the California geography.

While many of these deployments were limited in nature, they all are expected to reach maturity in 2019. 2018 was also a gratifying year with respect to the financials, as we completed our first year of commercial launch. Our revenues were \(300,000 for the year, a six-fold increase over 2017. We hope that a "six-fold" increase will be conservative when 2019 concludes. We successfully transformed from the "licensing" business model of a research company to a fully operating commercial company, while holding the line on our operating expense. In our manufacturing operation we have increased our efficiency "25-fold" and improved our margin by approximately 16%. Our strategy encouraged by many of our investors was to build the business, identify the target customers, focus on the right market at the right time, and as is the culture of our company, "stay the course" to open the market to our novel innovation. We also were prudent in our capital market activities, not wanting to dilute our shareholders unnecessarily.

Corporate Social Responsibility is vital to the growth of our economy that is not at the expense of our global values. The guiding principles of our Sustainability planning and governance committee are captured in initiatives that focus on: PLANET, PEOPLE, and PROGRESS. Our immediate reach will target the problems that have been created as a result of the worldwide use of poisons. Poisons bio-accumulate in our environment threatening both humans, animals, our watersheds, and the total environment we live in. Our internal watch-dog strategy will ensure our every step works toward improving our world via our 3 focus points. The very nature of our product is a giant first step and 2019 will provide more insight for our journey ahead.

The heart of our corporate social responsibility effort is rooted in the people that make up SenesTech. Our employees are committed to helping on a local level with the donation of their time, money, and services which are provided to various community organizations, ranging from Sharon's Attic, Housing Solutions, the Flagstaff Food Bank, to High Country Puppy Rescue. We were honored to receive the Flagstaff Volunteer Business of the year for 2018 and hope we have inspired other businesses to consider their Corporate Social Responsibility. Look for our 2019 CSR report to be impacting and reflective of "who we are."

2018 has been a good year and 2019 holds the promise and clarity of a fantastic year.

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Dr. Cheryl Dyer