Applied DNA Sciences, Inc.

Good day, and welcome to the Applied DNA Sciences Fiscal Fourth Quarter and Full Year 2020 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would like now to turn the conference over to Sanjay Hari. Please go ahead.

Thank you, Matt. Good afternoon, everyone, and welcome to ApplyDNA's conference call to discuss our fiscal fourth quarter 2020 financial results and business updates. You can access the press release that was issued after market closed today and slide presentation accompanying this call by going to the investor relations calendar page of our website. Speaking on the call today are Dr. James Hayward, our CEO, and Beth Jansen, 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 today, December 17, 2020, 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's my pleasure to introduce our first speaker for today's call, Beth Jansen. Please go ahead, Beth.

Thank you, Sanjay. Good afternoon, everyone, and thank you for joining us. I'll begin this afternoon with a review of our consolidated financial results for the fourth quarter of fiscal 2020. Then, Dr. James Hayward, our president and CEO, will summarize the company's achievements in the year and outline our key initiatives for fiscal 2021. We will then open the call to questions from our analysts. To preface my review of our financial results for the fiscal quarter ended September 30, 2020, we continue to experience a decline in revenue from our tagging and related supply chain services business, that is primarily due to the shutdown of global supply chains at the onset of the pandemic. Specifically, the effect of the shutdown continues to adversely impact the textile industry that historically has been our largest contributor to revenue. In response, and as I detailed on our fiscal third quarter investor call, we shifted a significant percentage of our headcount and resources towards addressing the fight against COVID-19. As such, our financial results also reflect investments made in the build out of our COVID-19 testing products and services, and to a lesser extent, our vaccine development program. However, as you will note when I review the statement of operations in a moment, Revenue for the fourth fiscal quarter does not include significant revenues from our COVID-19 testing products and services, as the first contracts were signed late in the fourth quarter and have continued to increase during our first quarter of fiscal 21. Starting with the consolidated statement of operations, total revenues for the fourth quarter of fiscal 20 declined to $314,000 from $1.7 million in the prior period. This year-over-year decrease in quarterly revenue is mostly attributed to a decline in product revenue associated with shipments of DNA concentrate to protect the cotton supply chain during the prior fiscal year. Product revenues declined to $123,000 for the fourth quarter of fiscal 2020 compared to $1.3 million in the prior period. Consequently, service revenue fell to $191,000 for the fourth quarter of fiscal 2020 from $423,000 in the prior period. Cost of revenue as a percentage of product revenue in the fourth quarter of fiscal 2020 increased to 126%. as compared to 26% for the prior period. The year-over-year increase reflects low fixed cost absorption given our reported product revenue. The increase is also due to the change in product sales mix, as the prior period was comprised primarily of cotton DNA product revenue that carries a higher gross margin. Total operating expenses increased 31% or by $1 million to $4.2 million in the fourth quarter of fiscal 2020, compared with $3.2 million in the prior period. This increase was driven principally by greater SG&A and R&D expenditures. SG&A expenses for the fourth quarter of fiscal 2020 increased by $631,000 to $2.9 million, from 2.3 million in the prior period. The increase reflects the addition of staff associated with the formation of our applied DNA clinical laboratory subsidiary and a reversal of voluntary salary reductions taken by members of senior management to reduce cash burn in prior years. R&D expenses for the fourth quarter of fiscal 2020 increased by $353,000 to $1.2 million from $887,000 over the prior period, reflecting the development of our linear COVID-19 diagnostic assay, as well as the write-off of certain development costs for tagging systems that are not expected to be used commercially in the cannabis market. Net loss for the fourth quarter of fiscal 2020 widened to 4.1 million compared to 1.2 million in the year-ago period. Net loss per share for the fourth quarter of 2020 improved to 82 cents compared to a net loss per share of $1.44 for the same period in fiscal 2019. Excluding non-cash expenses, consolidated adjusted EBITDA was negative $3.8 million for the fourth quarter of fiscal 2020 compared to a negative $1.6 million in the prior period. Turning to our balance sheet, cash and cash equivalents totaled $7.8 million on September 30th. Our average monthly cash burn rate, net of financing and warrant exercise proceeds, for the 12 months ended September 30, 2020, was $980,000 compared to $465,000 for the year-ago period, an increase of 111%. The increase is due to lower cash receipts as a result of the decline in revenue period over period and increased spending due to the development and buildup of our COVID-19 product and testing services discussed above. You will recall in May that in May we received a Paycheck Protection Program loan in the amount of $847,000 under the CARES Act. The SBA has begun to process applications for loan forgiveness. We submitted our loan forgiveness application in October of 2020 and is currently under review by the SBA. Total debt at fiscal year end was $1.5 million, comprised of our secured convertible notes. We repaid the full amount of these outstanding notes subsequent to September 30th. I will provide more detail on this repayment shortly. Subsequent to September 30th, we received three warrant exercises for our November 2019 warrants that have an exercise price of $5.25. The first warrant exercise occurred in October and totaled net proceeds of approximately $1.7 million. We utilized these proceeds to repay our outstanding secured convertible notes of $1.7 million. That represents the full outstanding amount of the notes plus interest through the notes scheduled maturity. In accordance with the warrant exercise agreement, we issued approximately 159,000 replacement warrants with an exercise price of $7.54. This repayment resulted in the extinguishment of approximately $1.5 million of debt and liabilities from our balance sheet. As a result, with the exception of the PPP loan, we are now debt-free, which will be reflected in our quarterly report for the quarter ended December 31st. We filed our fiscal 2020 10-K a short while ago, in which we disclosed that based on our historical financial results, there is substantial doubt about our ability to continue as a going concern for one year from the issuance of the financial statement. Our ability to continue as a going concern is dependent on our ability to raise additional working capital. Our cash position on November 30th was approximately $4 million. We received two additional exercises of the November 2019 warrants last week that yielded total net proceeds to us of approximately $1.05 million. As a result of these exercises, in accordance with the warrant exercise agreement governing these warrants, we issued 100,000 additional replacement warrants, with 50,000 of these warrants having an exercise price of $6.57, and $50,000 of such replacement warrants having an exercise price of $6.46. Approximately 460,000 2019 warrants are outstanding as of December 10, 2020. This concludes my prepared remarks. Thank you for joining us today. Have a happy and healthy holiday season. I will now turn the call over to Jim for his comments.