Applied DNA Sciences, Inc.

Good day, and welcome to the Applied DNA Sciences Fiscal Third Quarter 2020 Financial Results Conference Call. All participants will be in listen-only mode. Should you need any 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 and then one on your phone. To withdraw your question, please press star then two. Please note that today's event is being recorded. I would now like to turn the conference over to Sanjay Hurry, Executive Director, Investor Relations. Please go ahead.

Sanjay Hurry Thank you, Jordan. Good afternoon, everyone, and welcome to ApplyDNA's conference call to discuss our fiscal third quarter 2020 business updates and financial results. You can access the press release that was issued after market closed today and slide presentation accompanying this call by going to the Investors section of our website. Speaking on the call today are Dr. James Hayward, our CEO, and Beth Jantzen, our CFO. Before we begin, please note that some of the information you will hear today during our discussion may consist of forward-looking statements. I refer you to slide two of the presentation and the company's Form 10-K, filed on December 12, 2019, and Form 10-Q, filed a short while ago, for important risk factors that could cause the company's actual performance and results to differ materially from those expressed or implied in any forward-looking statements. We undertake no obligation to update or revise any forward-looking statements or other information provided on this call as a result of new information or future results or developments. Now it is my pleasure to introduce our first speaker on today's call, Beth Jantzen. Please go ahead, Beth.

Thank you, Sanjay. Good afternoon, everyone. and thank you for joining us. I will begin this afternoon with a review of the consolidated financial results for our fiscal 2020 third quarter. Then Dr. James Hayward, our president and CEO, will update you on our COVID-19 diagnostics and vaccine development programs, as well as other business progress being made in our biotherapeutic segment. We'll then open the call to your questions. To preface my review of our quarterly financial performance, with New York observing quarantine and stay-at-home protocols during the majority of our fiscal third quarter, as an essential business as defined by the state, we kept our operations up and running as they relate to our diagnostics, vaccine and biotherapeutic, pharmaceutical and dietary supplements, MilGov, and law enforcement work and contracts. In our supply chain businesses, global demand slowed abruptly, and as a result, we have experienced a decline in revenue from non-biologic tagging and related services. Concurrently, we shifted much of our headcount and resources towards the fight against COVID-19 to leverage our DNA expertise and ability to manufacture linear DNA at scale, as you will hear Jim detail later. Starting with the statement of operations, total revenues for the period declined to approximately $432,000 from approximately $2.1 million in the third quarter of fiscal 2019. The year-over-year decrease in total revenue is largely attributable to a $1 million licensing agreement fee received in the prior period from a former cannabis partner. Product revenues declined to approximately $57,000 for the period compared to approximately $393,000 in the prior period. The decrease in product revenue is attributable to a decrease in biotherapeutic revenues due to the timing of shipment, as well as lower product sales to our textile and cash and valuables in transit customers due to the ongoing pandemic. Additionally, The retail sector is undergoing a drastic change in demand due to stay-at-home orders and economic uncertainty both nationally and internationally. Therefore, we expect that revenues associated with the marketing of cotton, which historically was recognized in our fiscal fourth and first quarters, may not occur for this fiscal year. We continue to work closely with both cotton and man-made fiber partners to assess demand trends. Fiscal third quarter service revenues were approximately $375,000 as compared to $1.7 million in the prior year period. As I noted, the year-ago period includes a licensing fee from a former cannabis partner. The year-over-year decrease also reflects service revenues in the prior period related to a government contract award that was completed in the second half of fiscal 2019. as well as a decrease in the number of textile and cannabis feasibility pilot projects. These decreases were offset by an increase in service revenues in our biotherapeutic contract research business, primarily from two validation studies. Cost of revenue as a percentage of product revenue in our fiscal third quarter of 2020 increased to 272% as compared to 69% for the year-ago period. The year-over-year increase was due to poor fixed cost absorption given our low level of reported product revenue. The increase is also due to the change in product sales mix as the year-ago period was comprised primarily of cotton revenue that carries a higher gross margin. Total operating expenses increased 8% were by approximately $250,000 to $3.5 million in the third fiscal quarter of 2020, compared to approximately $3.2 million for the same period in the prior fiscal year, reflecting higher SG&A costs due principally to higher stock compensation expenses and to a lesser extent from an increase in consulting offset by lower investor relations and travel expenses. Third quarter R&D expenses increased by $95,000 to approximately $815,000 from $720,000 over the prior period. This increase reflects increased development costs as they relate to our biotherapeutic contract research and manufacturing, the majority of which is ascribed to the development of our COVID-19 diagnostic kit. Expenses associated with the formation of our new clinical lab subsidiary announced last month will be reflected on our fiscal fourth quarter. Net loss for the third quarter of fiscal 2020 widened to $3.3 million as compared to $1.5 million in the year-ago period. As a reminder, we implemented a 1 for 40 reverse stock split on November 1, 2019. As a result, reported earnings per share for the third quarters of fiscal 2020 and 2019 have been calculated using the post-reverse stock split share count. Weighted average shares outstanding for the third quarter of fiscal 2020 and fiscal 2019 are 4,577,997 and 952,835 respectively. Net loss per share for the third quarter of 2020 improved to 72 cents compared to a net loss per share of $1.55 for the same period in fiscal 2019. Excluding non-cash expenses, consolidated adjusted EBITDA was a negative 2.8 million for the third quarter of fiscal 20, as compared to a negative $1.2 million in the prior period. Turning to our balance sheet, at quarter end, cash and cash equivalents totaled approximately $10.9 million. This figure includes approximately $4.4 million in net proceeds received during the fiscal third quarter for the exercise of warrants issued as part of the company's November 15 2019 underwritten public offering. Each warrant entitles its owner to purchase one share of common stock in the company at a per share price of $5.25 until November 15, 2024. Our quarter end cash balance also includes a $874,000 PPP loan secured during the quarter. We utilized the entire loan amount on qualified expenses as defined by the Paycheck Protection Program and plan to file for forgiveness of the entire sum once the portal to apply for forgiveness is available. Total debt comprised of our secured convertible notes was $1.5 million at quarter end. Our average monthly cash burn rate, that is net of warrant proceeds for the nine months ended June 30, 2020, was 837,000 compared to 407,000 for the year-ago period, an increase of 106%. The increase is due to lower cash receipts as a result of the decline in revenue period over period. Subsequent to June 30th, we received additional warrant exercises totaling 852,000 in net proceeds. Currently, approximately 979,000 warrants issued as part of the November 15th offering remained outstanding. Our cash position at July 31st was approximately $10.4 million. This concludes my prepared remark. Thank you for joining us today. I would now like to turn it over to Jim for his comments.