Applied DNA Sciences, Inc.

Good afternoon and welcome to the Applied DNA Sciences Fiscal First Quarter 2021 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 Sanjay Hari, Investor Relations Officer. Please go ahead.

Thank you, Gary. Good afternoon, everyone, and welcome to ApplyDNA's conference call to discuss our fiscal first quarter 2021 financial results and business updates. You can access the press release that was issued after the market closed today, as well as the slide presentation accompanying this call by going to the IR calendar page of our website. Speaking on the call today are Dr. James Hayward, our CEO, Beth Jansen, our CFO, and Judy Mara, who was recently promoted to COO. Before we begin, please note that some of the information you will hear today during our discussion may contain forward-looking statements. I refer you to slide two of the presentation and to the company's Form 10-Q file today and Form 10-K filed on 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. Before introducing our first speaker for the afternoon, be advised that management will be participating virtually next month at the H.C. Wainwright Global Life Sciences Conference on the 9th and 10th and at the 33rd Annual Roth Capital Conference on the 15th through the 17th. Management will be available for one-on-ones with institutional investors at both conferences. Now, it's my pleasure to introduce our first speaker on today's call, Beth Jansen. 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 our consolidated financial results for the first quarter of fiscal 2021. Dr. James Hayward, our president and CEO, will then update you on developments across our COVID-19 diagnostics and surveillance testing business as well as progress being made in our biotherapeutic and supply chain security segments. Judy Murrah, our newly appointed Chief Operating Officer, will join us to offer insight into initiatives being undertaken to support both our near-term and long-term growth plans. We will then open the call to questions from analysts and investors. To begin, and for the benefit of our new investors, The pandemic and resulting shutdown of global supply chains serviced by our tagging and related supply chain business has had an ongoing adverse impact on revenue. Specifically, the shutdown has negatively impacted the textile industry that historically has been our largest contributor to revenue. Over the past several years, this industry has averaged revenue to us of approximately $1 million per quarter. However, early in the pandemic, we shifted our focus to COVID-19 to bring our deep expertise in DNA manufacture and diagnostics to the fight. As a result, we have experienced increased revenue from our diagnostics and biotherapeutic contract research and manufacturing businesses. The increase is specific to sales of our diagnostic assay kit and for Safe Circle, our COVID-19 surveillance testing platform. Safe Circle testing is performed under our wholly owned subsidiary, Applied DNA Clinical Labs, that we formed during our September 2020 quarter. Therefore, the statement of operations that I will review in a moment includes our first full quarter of Safe Circle revenue contribution. It also includes sizable revenue from our largest customer for our diagnostic assay, from whom we continue to receive orders. In effect, our COVID-19 test products and services business has replaced most of the tagging revenue lost to the pandemic in about one quarter's time. Further, our largest Safe Circle contract to date was signed late in the first quarter of 2021. the full benefit of which will be seen in our second fiscal quarter. Starting with the Consolidated Statement of Operations, total revenues for the first quarter of fiscal 2021 increased to $1.6 million from $634,000 in the prior period. The year-over-year increase is primarily attributed to an increase in service revenue of $1.1 million associated with Safe Circle. Product revenues increased to $550,000 for the first quarter of fiscal 21 compared to $238,000 in the same period in the prior fiscal year. This increase is primarily due to sales of our diagnostic assay kits. Cost of revenue as a percentage of product revenue in the first quarter fell to 44% compared to 98% for the prior period. This year-over-year improvement is due in part to a shift in product revenue mix as our diagnostic assay kit sales are at a higher gross margin. The decrease is also the result of certain fixed costs that were not fully absorbed with the low level of product revenues in the prior period as compared to the period we are reporting today. Total operating expenses increased 44% or by 1.3 million to 4.3 million in the first quarter compared with 3 million in the prior period. This increase was driven principally by greater SG&A and R&D expenditures. SG&A expenses for the first quarter increased by 1.1 million to 3.5 million from 2.4 million in the prior period. This increase reflects higher payroll expenses of approximately $748,000 of which $341,000 related to bonus compensation, and the remaining increase was due to increased headcount. The increase in SG&A was also the result of an increase in stock-based compensation expense of $366,000. R&D expenses increased by $184,000 to $748,000 from $564,000 over the prior period, This resulted primarily from an increase in laboratory supply purchases to support our continued research and development efforts. Net loss for the first quarter widened to $4.8 million compared to $2.7 million in the year-ago period. Net loss for the first quarter includes a non-cash charge of $1.8 million for the loss on extinguishment of debt associated with the repayment of the entirety of our secured convertible notes. Net loss per share for the first quarter improved to 88 cents compared to a net loss per share of $1.12 for the same period in fiscal 2020. Excluding non-cash expenses, consolidated adjusted EBITDA was flat at negative 2.4 million in both periods. Turning to our balance sheet, cash and cash equivalents totaled $4.2 million on December 31st, 2020. Our average monthly cash burn rate net of financing and warrant exercise proceeds for the three months ended December 31st, 2020 was $1.5 million compared to $867,000 a year ago period, an increase of 77%. The increase is primarily due to capital expenditures for our clinical lab subsidiary, as well as the purchase of equipment that underpins our Safe Circle service and the production of our diagnostic assay. In May 2020, we received a Paycheck Protection Program loan in the amount of $847,000 under the CARES Act. We submitted our loan forgiveness application in October 2020, and it is currently under review by the SBI. Except for our CARES Act loan, we are currently debt-free. Subsequent to December 31st, we raised gross proceeds of approximately $15 million via a registered direct offering. As a result, our cash position on January 31st, 2021 was approximately $16.5 million. We believe we have adequate cash to fund operations for at least the next 12 months from today. Approximately 460,000 November 2019 warrants remain outstanding as of February 8th, 2021 that carry an exercise price of $5.25. which could result in potential proceeds, if exercised, of $2.4 million. We have an additional 259,000 warrants, 50,000 of which carry an exercise price of $6.57, 50,000 of which carry an exercise price of $6.46, with the balance at an exercise price of $7.54. The possible potential proceeds upon exercise of these 259,000 warrants would be approximately $1.9 million. This concludes my prepared remarks. Thank you for joining us today. I will now turn the call over to Jim for his comments.