Applied DNA Sciences, Inc.

and welcome to the Applied DNA Sciences Fiscal Third Quarter 2019 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Clay Shorrock, Legal Counsel for Applied DNA Sciences. Please go ahead.

Thank you, Operator, and good afternoon, everyone, and thank you for joining us for our fiscal third quarter 2019 Financial Results Conference call. I am Clay Shorrock of the law firm of Allen, Dyer, Doppelt, and Gilchrist Legal Counsel for Applied DNA. A copy of the company's earnings press release and accompanying PowerPoint presentation to this call are available for download under the events and presentation section to the investor page of the Applied DNA website. With me on the call today are Dr. James Hayward, Chairman and CEO, and Beth Jantzen, Chief Financial Officer. As a reminder, please note that some of the information you will hear today during our discussion may consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, Iberdine Expenses, Other Income and Expenses, Stock-Based Compensation Expense, Taxes, Earnings Per Share, and Future Products. Actual results or trends could differ materially. For more information, please refer to the risk factors discussed in Applied DNA's Form 10-K, filed on December 18th, 2018, and on our Form 10-Q filed a short while ago. Applied DNA Sciences assumes no obligation to update any forward-looking statements or information. Now, it is my pleasure to introduce the first speaker on today's call,

Thank you, Clay. Good afternoon, everyone, and thank you for joining us today. Today I will review our consolidated financial results for the fiscal third quarter and the first nine months of fiscal 2019. Then Dr. James Hayward, our president and CEO, will provide you with an update on the company's progress, activities, and strategies for the balance of the fiscal year. Before starting our review of the financials, I wanted to walk you through some transactions that have occurred since June 30th. As recently disclosed in an 8 filing, on July 30th, we received notice from NASDAQ indicating that based upon our continued noncompliance with the minimum bid price, as well as the market value of listed securities requirements, NASDAQ has determined to delist our securities from the NASDAQ capital markets unless we timely request a hearing before the NASDAQ hearings panel. We requested a hearing and it is scheduled for September 19th. Our request for a hearing stays any further action by NASDAQ pending the ultimate conclusion of the hearing. Also, during the pendency of the hearing, our securities will remain listed on NASDAQ. Jim will provide more detail on our evolving plan to regain compliance with all applicable requirements for continued listing on NASDAQ a little later. On July 19th, we closed on a $1.5 million secured convertible note. Simultaneous with the new issuance, we also amended our existing secured convertible notes to, among other things, reduce the conversion price to $0.54. This was primarily done to facilitate the conversion to equity. The amendments also included modifying the August 2018 convertible notes so that all of the convertible notes now have the same expiration date of November 28, 2021. Last week, we announced that on August 5, we signed a nine-binding term sheet with Theracan that outline certain amendments to our exclusive licensing and cooperation agreement, which was originally entered into this past March. The non-binding term sheet is expected to be followed by a definitive agreement. Upon the signing of the definitive agreement, we will receive $4 million in Theracam convertible preferred stock with an annual dividend yield of 10% compounded quarterly as well as a $1 million convertible promissory note that is guaranteed by all of Theracan's operating subsidiaries. These will be received in exchange for a waiver of the remaining $4 million in payments that were due to us $2 million on each of June 30th and August 15th. At our option, the convertible preferred stock can either be converted into common stock or redeemed for cash. upon the signing of the definitive agreement, we will be able to recognize $4 million in revenue as the preferred stock is accounted for as consideration under the revenue recognition guidance. Starting with the statement of operations, total revenues for the period were approximately 2.1 million. This represents over a 100% increase compared to 1 million reported in the third quarter of fiscal 2018, and up approximately 164% as compared to $778,000 for the second quarter of fiscal 2019. The year-over-year and quarter-over-quarter increases in revenues were primarily from $1 million in revenue from our licensing agreement with Thurican, as we received the first cash payment of $1 million in April. For the first nine months of fiscal 2019, we recognized revenue of 3.7 million, an increase of 37% from 2.7 million during the first nine months of fiscal 2018. This increase was driven by the increase in service revenues of 1.4 million or 92%, offset by a decrease in product revenues of 28% or $344,000. Product revenues remain flat at $393,000 for the third fiscal quarters of both 2019 and 2018 and increased 129% or $221,000 compared to revenue of and 171,000 in the second quarter of fiscal 2019. The quarter-over-quarter increase in revenues reflects the fulfillment of 121,000 for shipments of DNA concentrate and DNA transfer systems for the marking of Egyptian cotton, as well as an increase in biopharmaceutical revenue of approximately 135,000. Third quarter service revenues increased 167% to $1.7 million compared to $623,000 for the same period in fiscal 2018 and increased by 174% on a sequential basis with the second quarter of fiscal 2019. The increase in service revenue was due to the $1 million of revenue recognized from our licensing agreement with DERICAN, as mentioned earlier. Cost of revenue as a percentage of product revenue in our fiscal third quarter of 2019 was 69%, as compared to 64% for the year-ago period. For the nine-month periods ended June 30, 2019, and 2018, cost of revenues improved as a percentage of product revenue to 63% from 78%. The decrease in cost of revenues as a percentage of product revenues for the first three quarters of fiscal 2019 is due to the product sales mix as sales during the first nine months of the prior fiscal year were primarily comprised of consumer asset marketing sales and Biopharmaceutical Sales, which are at a lower margin. Total operating expenses decreased in the third fiscal quarter of 2019 to $3.2 million, compared with $3.6 million for the same period in the prior fiscal year, and decreased slightly as compared to $3.3 million in the second quarter of fiscal 2019. The decrease in operating expenses on a year-over-year basis is from reduced payroll expenses of $409,000 due to a realignment of the sales force and reductions in overall headcount. The decrease in payroll was offset by increases in legal and professional fees, as well as an increase of $95,000 in R&D expenses. Fiscal year-to-date total operating expenses have increased by 486,000, or 5%, as compared to the first nine months of fiscal 2018. This increase is primarily due to an increase in stock-based compensation as a result of the credit for canceled options during the prior fiscal year, as well as expense for stock option modifications during the current fiscal year to date. The increase also relates to increased legal and professional fees of $430,000. These increases were offset by decreases in payroll of $659,000 and decreased depreciation expenses. Our net loss for the third quarter of fiscal 2019 decreased by 90% on a year-over-year basis and decreased 82% compared to our fiscal second quarter of 2019. This improvement was the result of increased revenues and, to a lesser extent, our reduction of expenses. The reduction of our net loss, coupled with an increase in shares outstanding, contributed to a decrease in our net loss per share to a negative 4 cents per share for Q3 of fiscal 2019. compared to a negative 10 cents for the same period in the prior fiscal year and a negative 8 cents as compared to Q2 of fiscal 2019. Excluding non-cash expenses, adjusted EBITDA decreased to a negative 1.2 million for the quarter ended June 30th, 2019 as compared to a negative 2.5 million and 2.3 million for the quarters ended June 30, 2018 and March 31, 2019, respectively. Turning to the balance sheet, cash and cash equivalents totaled approximately 500,000 at June 30, 2019. As discussed earlier, subsequent to the quarter end, we received 1.5 million in proceeds from the issuance of a convertible note. As of June 30th, we had $803,000 of deferred revenue. The deferred revenue balance at June 30th was comprised mainly of milestone and or phase payments under certain of our research and development pre-commercial projects that are being recognized to revenue over time on a cost-to-cost basis. Subsequent to the quarter end, the cashless exercise provision of the warrants issued in conjunction with the December 2018 financing was triggered as a result of our stock price falling below 50 cents per share. As a result, 4.7 million warrants have been cashlessly exercised. These exercises resulted in the issuance of 3.3 million shares of our common stock. As of June 30th, 2019, our average monthly cash burn rate for fiscal 19, excluding the proceeds from the financing, was $407,000 compared to $526,000 for the same period in the prior fiscal year, a decrease of 23%. The decrease in monthly burn rate for the first nine months of fiscal 19 is due to higher cash receipts and slightly lower disbursement. As of July 31, 2019, our cash position is approximately $1 million. As noted on our prior quarterly call, based on our historical financial results, we disclosed in our 2018 10-K and have also disclosed in our 10-Qs for fiscal 2019 that there is substantial doubt about the company's ability to continue as a going concern for one year from the issuance of the financial statements. The ability of the company to continue as a going concern is dependent on our ability to further implement our business plan, raise capital, and generate revenues. Thank you for joining us today, and I would now like to turn it over to Jim for his comments.