Applied DNA Sciences, Inc.

and welcome to the Applied DNA Sciences Fiscal Second Quarter 2022 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 on your telephone keypad. After today's presentation, there will be an opportunity to ask questions, To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Sanjay Hari, Head of Investor Relations. Please go ahead, sir.

Thank you, Ryan. Good evening, everyone, and welcome to ApplyDNA's conference call to discuss our second quarter fiscal 2022 financial results. You can access the press release that was issued after market closed today, as well as the slide presentation accompanying this call on the investor relations section of our corporate website. Speaking on the call today are Dr. James Hayward, our chairman, president, and CEO, and Beth Jansen, our CFO. Judy Murrah, our COO, and Clay Chirac, our Chief Legal Officer and Head of Business Development, will also be available to answer questions on the Q&A portion of the call. 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 to our 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's my pleasure to introduce our first speaker on today's call, Beth Jansen. Please go ahead, Beth.

Thank you, Sanjay. Good afternoon, everyone. Thank you for joining us on our second quarter fiscal 2022 investor call. I will begin today with a review of our consolidated financial results for the second quarter of fiscal 2022, which ended on March 31st. I will then turn the call over to Dr. James Hayward, our President and CEO, who will summarize our operational performance for the quarter and outline key initiatives for the second half of fiscal 22. We will then open the call to our analysts and institutional investors. Prefacing my review of our financial results, we have now demonstrated excellent operational and financial execution for two consecutive quarters. Our clinical lab subsidiary, Applied DNA Clinical Labs, or ADCL, continues to power our impressive total revenue performance. Total first half fiscal 2022 revenues have exceeded total revenues for the entirety of fiscal 2021. The increase in revenue from ADCL has helped to reduce the overall company's cash burn rate. And as you will hear from Jim shortly, We have reason to believe that we have proximity to demand for tag cotton catalyzed by the Uyghur Forced Labor Prevention Act that passed into federal law in December 2021 that could serve as a source of future revenue and cash flow to supplement ADCL. Beginning with the statement of operations, And as a reminder, we now present the revenue and cost of providing testing services performed by our clinical laboratory as separate line items in the statement of operations. We are pleased to report a second consecutive quarter of record revenue. As I noted, our top line performance was driven mainly by COVID-19 testing. Our total revenues for Q2 or $6.1 million compared to $2.7 million in the year-ago quarter and $4.2 million in Q1. The year-over-year increase in quarterly revenue is primarily attributable to increased clinical laboratory service revenue comprised of COVID-19 testing and related services. On a sequential basis, Q2 revenues increased 45% that were also due to an increase in clinical laboratory service revenue. The sequential increase is due to the impact of the Omicron-fueled spike on testing demand that began in Q1 and continues through today. Product revenues were $408,000 in Q2 compared to $965,000 in the year-ago period. The year-over-year decrease of 555,000 is primarily related to a decrease of approximately 605,000 in sales of our Linea COVID-19 assay kit. This decrease was offset by an increase of approximately 85,000 in textiles, itself attributable to the shipment of a DNA transfer unit for the tagging of cotton in India. Service revenues were $249,000 compared to $152,000 in the year-ago period. The increase of $97,000 is attributable to linear DNA projects for CRO customers. As a reminder, service revenues comprise research and development pilot projects as well as authentication services associated with our industrial DNA business. Clinical laboratory service revenues increased to $5.5 million compared to $1.6 million in the year-ago period. On a sequential basis, clinical laboratory service revenues increased 72% from $3.2 million in Q1. As I noted earlier, the increase on a sequential basis was driven by the Omicron fuel spike. Beginning in Q1, we began allocating depreciation expense versus showing it as a separate line item on our statement of operations. As a result, we are presenting a gross profit line on the statement of operations. The gross profit percentage was 40% and 65% for Q2 and the year-ago period, respectively. The decline in the gross profit percentage resulted from a substantial portion of clinical laboratory service revenues coming from testing contracts where we also provide and staff the testing centers. These contracts have higher associated costs compared with our surveillance testing contracts. To a lesser extent, the decrease in gross profit percentage was due to a product sales mix, as sales during the year-ago period included a higher volume of sales of our linear COVID-19 assay kits, which are at a higher gross margin. I draw your attention to the substantial sequential improvement in clinical lab gross profit percentages from 18% for the first quarter of fiscal 2022 to 42% for the second quarter of fiscal 2022. The high infection levels at the peak of Omicron spike eliminated our ability to conduct pooled testing, which generates higher margins for our clinical labs. As infection rates declined, we were once again able to conduct pooled testing and our margins improved as a result. This, coupled with the increased testing levels during fiscal Q2 versus Q1, led to the improved gross margins for the clinical lab. Given ADCL's concentration of educational clients and as they approach their summer break, we anticipate a lower baseline for testing demand during these months as a consequence. Of course, this could be offset if testing demand increases as the positivity rates are currently increasing in our region. We are closely monitoring support levels going into the summer months and have an array of levers we can pull to right-size support to testing demand with an aim to maintain a similar profit margin to what we reported in Q2. Total operating expenses in Q1 increased 11% or $436,000 to $4.5 million compared to $4.1 million in the year-ago period. The year-over-year increase is attributable to fiscal 2021 Q2 having a reversal of an accrual of approximately $817,000 for an accrued bonus that was forgiven by our CEO. The increase was also due to increased D&O insurance premiums and to an increase in research and development expenses. These increases were offset by decreases in stock-based compensation and professional fees. During Q2, we initiated a cost management program designed to optimize our cost structure to position the linear DNA platform for biotherapeutic applications to achieve maximum value for shareholders from current and future opportunities. Initiatives under the program primarily focused on the elimination of early stage industrial DNA and market pursuits such as cannabis, tagging, and workforce optimization. Resources have been realigned towards priority development programs centered on the linear DNA platform, as well as the development and implementation of a diagnostic strategy to power the next stage of growth at ADCL that Jim will talk about. We do not anticipate material cost savings from these actions. Rather, we are reallocating costs within OPEX. Our Q2 net loss increased to $1.8 million versus the year-ago period at $1.5 million. Included in net loss for the quarter ended March 31, 2022 is an unrealized gain from the change in fair value of common warrants associated with our February 22 registered direct of $783,000 as well as an expense of 391,000 for transaction costs that were allocated to the warrant liabilities. Net loss per share was 23 cents in Q2 versus a loss per share of 21 cents in the year-ago period on a higher number of weighted average shares outstanding. Excluding non-cash expenses, Consolidated adjusted EBITDA for Q2 was negative $1.6 million compared to a negative $1.5 million in the year-ago period and narrow compared to a negative $2.7 million in Q1. Turning to our balance sheet, cash and cash equivalents totaled $6.5 million on March 31st. This figure is inclusive of the registered direct conducted during the quarter for net proceeds of $3.7 million. Our strong cash collections caught up with the large increase in accounts receivable that occurred in Q1. Accounts receivable stood at $3.9 million at December 31 compared to $2.6 million at March 31. We collected an additional $1.1 million during April. Our outstanding warrant balance increased as a result of the February Registered Direct. We now have a total of approximately 3 million warrants outstanding and carry no debt on our balance sheet. Our just filed 10-Q for the second quarter maintains a going concern opinion and that our ability to continue as a going concern is dependent on our ability to further implement our business plan, raise capital, and or generate revenue. Our cash position on April 30th was approximately $5 million. This concludes my prepared remarks. Thank you for joining us today. I will now turn the call over to Jim for his comments.