Applied DNA Sciences, Inc.

Good afternoon and welcome to the Applied DNA Sciences fourth quarter and fiscal year-end 2019 financial results conference call. All participants will be in 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 telephone keypad. 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, General Counsel. Please go ahead.

Thank you, Operator, and good afternoon, everyone, and thank you for joining us for our fiscal fourth quarter and full 2019 fiscal year results conference call. 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 today's call are Dr. James Hayward, Chairman, President, 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 gross margins, operating expenses, other income and expense, 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 Sciences Form 10-K, followed a short while ago. Applied DNA Sciences assumes no obligation to update any forward-looking statements. Now, it is my pleasure to introduce the first speaker on today's call, Beth Jantzen.

Thank you, Clay. Good afternoon, everyone, and thank you for joining us today. I will review our consolidated financial results. for our 2019 fiscal fourth quarter. Then Dr. Hayward will summarize the company's achievements in the year and outline key initiatives for the company in fiscal 2020. Clay will then rejoin us to provide you with commentary on our IP portfolio. Jim will then conclude the call with some final remarks before opening the call to your questions. Starting with the statement of operations, total revenues for the period increased 40%, to approximately $1.7 million from approximately $1.2 million in the fourth quarter of fiscal 2018 and decreased 19% compared to $2.1 million for the third quarter of fiscal 2019. Product revenues increased 109% to $1.3 million from $597,000 in the prior year and increased 218% or approximately 858,000 from 393,000 in the third quarter of 2019. This year-over-year and quarter-over-quarter increases in product revenues were primarily attributable to an increase in revenues from shipment of DNA concentrate to protect the cotton supply chain. Fourth quarter service revenues decreased 29% to $423,000 from $598,000 for the same period in fiscal 2018 and decreased 75% from $1.7 million on a sequential basis. The sequential decrease in service revenue was primarily due to the recognition in the third quarter of fiscal 19 of $1 million of revenue under our now terminated cannabis licensing agreement. Cost of revenue as a percentage of product revenue in our fiscal fourth quarter of 2019 improved to 26% as compared to 42% for the year-ago period and 69% on a sequential basis. The year-over-year and quarter-over-quarter decrease is due to product sales mix as Q4 product sales were primarily comprised of textile sales that are at a higher margin. Total operating expenses decreased 27% to $3.2 million in the fourth fiscal quarter of 2019, compared with $4.4 million for the same period in the prior fiscal year, and was flat on a sequential basis. The decrease on a year-over-year basis is due to reduced payroll expenses of $231,000 as a result of a realignment of the sales force and reductions in overall headcount. The decrease was also related to a decrease in stock-based compensation expense of $954,000. These decreases were partially offset by increases in legal and professional fees and R&D expenses. Our net loss for the fourth quarter of fiscal 2019 Narrowed by 65% on a year-over-year basis to $1.2 million from $3.5 million and by 17% from $1.5 million for the fiscal third quarter of 2019. The improvement reflects both higher revenues and lower expenses. As a reminder, we implemented a 1 for 40 reverse stock split on November 1, 2019. As a result, all share and per share information contemplates the retroactive effect for the reverse stock split. Weighted average shares outstanding for the fourth quarter of fiscal 2019 and fiscal 2018 are $1,062,896 and $752,802, respectively. Net loss per share for the fourth quarter of 2019 improved to $1.44 compared to a net loss per share of $4.62 per share for the same period in fiscal 18 for a 69% improvement and a net loss per share of $1.60 for the third quarter of fiscal 19 for a 10% improvement. Excluding non-cash expenses, adjusted EBITDA decreased to a negative $1.6 million for the quarter ended September 30, 2019, as compared to a negative $2.2 million for the quarter ended September 30, 2018, and increased from a negative $1.2 million for the quarter ended June 30, 2019. Now turning to our balance sheet. Cash and cash equivalents totaled approximately $559,000 at September 30, 2019. Subsequent to the quarter ended, we received approximately $12 million in gross proceeds through a follow-on offering of stock and warrants. Under the public offering, we sold 2.285 million shares of common stocks. Each share of common stock was sold together with one warrant to purchase one share of common stock at a combined offering price to the public of $5.25 per share and the accompanying warrant. On the liability side, at September 30th, we had $629,000 of deferred revenue. This deferred revenue balance is comprised primarily of milestone and or phased 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. Total debt comprised of our secured convertible notes was $1.5 million at quarter end. During the quarter, we converted an additional $2.2 million in notes to equity as part of our plan to regain compliance with the NASDAQ's listing requirements. This conversion was upset by additional convertible notes issued during July 2019, totaling $1.5 million. I will speak more on our compliance plan in a moment. Our average monthly cash burn rate for fiscal 2019 was $465,000 compared to $601,000 for fiscal 2018, an improvement of 23%. The decrease in monthly burn rate for fiscal 19 is due to higher cash receipts and lower operating expenses, as well as the timing of certain payments. Including the net proceeds from our secondary offering, our cash position at November 30th was approximately $9.6 million. Before I turn the call over to Jim for his remarks, for the benefit of our shareholders, I would briefly like to recap the aggressive strategy and the rest. As you are undoubtedly aware, our efforts proved fruitful and we regained compliance with NASDAQ on November 25th for continued listing on the exchange. By way of background, we received formal notification for our noncompliance in January. Our two deficiencies were stockholders' equity of $2.5 million at a minimum and a dollar minimum bid price. Following the expiry of the first 180-day grace period afforded us under NASDAQ rules, we submitted a detailed compliance plan to the NASDAQ Listing Review Panel on September 19. In that meeting, we had detailed that we had, first, converted $2.2 million of outstanding convertible notes into equity at $0.54 per share. That was at the time well above the market price of our stock. Management and insiders represented 72% of this amount. Second, we completed a private placement for $418,000. Here as well, management and insiders represented 52% of the funds raised. And third, We filed an S-1 registration statement to conduct an equity offering to raise new funds and enable us to meet the minimum stockholders' equity requirements. We were granted an extension by the panel until December 31, 2019. With all of our plans laid out, we moved into the execution phase of our plan. The reverse stock split approved by stockholders went into effect on November 1, and after 10 trading days, with a minimum bid price of about $1, we had cured the minimum bid price requirement. On November 12th, we closed an upsized $12 million offering that cured the minimum stockholders' equity requirement. And we announced that we had regained compliance on November 25th. That concludes my prepared remarks. Thank you for joining us today. And I would now like to turn it over to Jim for his comments.