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spk05: Greetings. Welcome to the Pressure Biosciences Investor Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Richard Schumacher. You may begin.
spk01: Thanks, Shamali, and thanks, everybody, for joining us, and welcome to the Fourth Quarter and Fiscal Year 2020 Financial Review and Business Update. Before we begin, I'd like to read a short cautionary statement. The following remarks may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others, those detailed from time to time in the company's filings with the Securities and Exchange Commission. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements and to reflect any change in our expectations or any change in events, conditions, or circumstances on which such statement is based. So, first of all, I'm pleased once again to welcome Jeff Peterson, companies chairman Jeff is also on the call with me and I know many of you know who Jeff is you've heard Jeff on this call occasionally in the past and I've asked him to join us so that he can add color to some of the things that maybe answer some of the questions and give you a second point of view so welcome Jeff hey Rick it's a pleasure to join everybody again today so For today's meeting, we're going to start with a very brief discussion of the 2020 fiscal year results, including the fourth quarter. Then Jeff and I are going to go over some of the accomplishments of 2020, and particularly those so far in 2021 as part of a general business update. Afterwards, we're going to be pleased to take a few questions. So first of all, on the financial end, what I can say is that we certainly had a very poor year in 2020. Uh, we were hit like many with, uh, with, uh, a lot of issues related to the COVID pandemic. Um, we had trouble with our suppliers, our, our, as many of, you know, our customers are primarily, um, nonprofits and academic research institutes and, and pharma companies. And, um, For the most part, throughout the entire year from March until just about a couple of months ago, we hardly heard from anybody. We couldn't get a hold of anybody. Most of our customers, the folks we worked with were working at home. If they're working at home, they don't need our instrument. They don't need our consumables. There were a few people that were working in COVID, which we can talk about briefly, that were working and we were in touch with. There are some other people working in other areas that were considered essential. So of our 200 and roughly 225 customers, I'm going to say we might have heard from 25 of them throughout the entire year. And it certainly showed in our results, our financial results. In 2020, our revenues were at $1.2 million compared to $1.8 million the previous year, down 33%. Our operating loss was down about 20%. It went down to about 4.5 million for the year. But I think what's important there is not only, as you might have expected, would the COGS have declined because our sales were so low, but also we had decreases in all areas of research, development, selling, marketing, general, and administration. So in all areas, Our costs were down so that it reduced our loss for the year to $4.5 million. This was not a good year. We will freely admit it's not a good year. It is something that we tried hard to try to make it better, but we honestly just had difficulty getting in touch with people. We had months going in when we literally several months where we might not have heard from anybody that we put calls into. But we took advantage of that downtime, and we worked on projects with some of our researchers that were working at home and could work on the computer, and particularly some of the marketing and salespeople, and some of the companies that are our customers. We also worked with some of the scientists during this time, and we certainly worked on internal issues. We had certain upgrades we wanted to make to our pressure cycling technology, instruments, particularly our Xtreme instrument, our 2320 Xtreme. And we spent months last year, and we're ready to roll those out in the second quarter and on. We also spent time working on our Berrifold services, which were pretty much brand new about a year and a half ago. And I'm happy to say that those have now paid off, and we'll talk about that in a few minutes. And of course, we worked a lot on ultra-shear technology. We have a lot of faith that this is the killer app that every company wants. We believe we have it. This is an application and an instrument with a number of applications actually that are very exciting to us and I'm sure to many people on the phone who are investors in the company. So we did spend a lot of time during 2020 working on our existing and soon to be released programs in Ultrashear. We lost six people over the last 15 months, and we only replaced one, so we're down five people. That certainly talks about how our SG&A costs have gone down appreciably over the year, and we're still doing our best to keep them down until things are picking up and picking up strongly, and then we'll go back out and bring some additional people in. Last year was a loss when it comes to financial performance, but it was not when it comes to development and progression of our product and product line and upgrades to our equipment. We spent a lot of time on that, and we believe that we're going to see the fruits of that coming out in 2021. If we talk briefly about what happened in 2020 and 2021 in terms of accomplishments, one of the things that we highlighted middle of the year was a co-marketing agreement with Leica. Leica is a part of the Danaher Group, which is a $200 billion group. Leica is the second oldest microscope and lens company in the world. They've been around for 104 years now, I believe. And they're very well respected in the science field because they have a number of systems that they sell into the laboratories. And one of them uses a laser. It's a laser microscope that's used for biopsies for really being able to pick out some very, very minute parts of a biopsy tissue and get a lot of data that really wasn't available before. And so this laser microsystem is one that needs our system to help once they've taken out that piece of tissue that they've honed in on and they've cut it out with a laser, that tissue needs to be processed and then it needs to be analyzed. And the processing is done using our system. A number of companies have laboratories, in fact, have talked about using our system to process the of the bits of the pathology samples that are being cut out by the laser microscope. And Dr. Tom Conrads in Arlington, Virginia, who's a very well-known, internationally known cancer expert, has been leading the charge and using our system as published and presented on our system, got us in touch with Leica. So we're very excited to announce that about during the summer of 2020. But then all of the meetings that they were going to roll it out in were canceled. And so the rollout never really happened. I'm happy to say that we're back in touch with them. We have been for about two months now. We have routine meetings every two to four weeks. There was a flyer that went out just last week that I got just being on their list, but it was good to see. There's a flyer that really promotes the use of pressure cycling technology as a well-established way to process the samples that are coming out of the biopsy tissues. There are, of course, millions and millions of biopsies that are done every year. That's exciting. But there's also 3 billion biopsy tissues that are stored away in what we call FFPE, And these are stored and they're good for, really, for ages and ages. And there are scientists now that are going back and using our system to pull the proteins and DNA and RNA out of these biopsy tissues that are now formalin-fixed and paraffin-embedded. So not only do we have a play in the current pathology as this picks up, but we'll have a play in the research as they go back and look at samples that were drawn from sequential samples perhaps from the same person over a number of years. So we're very excited about the work with Leica, and we're excited that although it's been clearly on the back burner, Leica is now just now coming back to work. They were working at home, but we were working with the marketing people. So very excited about the laser capture microdissection that we are part of. Jeff, if you want to add any color to that.
spk04: Sorry, I took a moment to get off mute there. You know, I'll just add some color to the overview you were giving as well. As Rick indicated, many companies were swamped by the impact of COVID, swamped in a bad way in terms of demand and customer contact sort of disappearing into a chasm as so many companies were severely impacted and caught in lockdowns and so on. And there is certainly some variability in the timing of things. We had a nice third quarter, relatively speaking, last year, but surrounded by first, second, and fourth quarters that were reflective of the overall environment. But we are seeing the impact the beginning of the end of that and a clear shift that occurred in the first quarter with companies coming back to staffing and back into the offices more and suddenly ready to start catching up on so many things that basically had to be dropped and put on ice during 2020. So we had a very robust first quarter and we'll have some exciting results to announce on that here very soon. And we're seeing a very strong start to the second quarter. So we're optimistic about that bit of perturbation relative to impact of COVID and then sort of the underlying business. But overall, as Rick has been teeing up here, our business is in three different platform areas where pressure cycling technology is the oldest one and one that we've been building over time with key opinion leaders and sort of a slow conversion process of building up academic and government lab background and support and then seeing that begin to convert into momentum in the industrial or company settings as large customers begin to use multiples of the instruments and move from R&D into more manufacturing and quality-driven applications. And we were very excited about the Leica partnership in that it's yet another use of that PCP platform in a way that can begin to move into a more industrial level of application and biomarker discovery and finding the differences between disease and undiseased and aggressive disease and slow disease and responders to a drug and non-responders to a drug and letting those biomarkers point the way to breakthroughs in new therapies and treatment guidance and so on. So, we're very excited about the Leica dimension being added in and I'll hold comments on Barofold at UST for a few minutes and let Rick go a little further along.
spk01: Thanks, Jeff. So, also in December of 2020, we announced that three different groups that were not working together all were working on COVID-19 using our instrument and different aspects of the instrument. One of them was in diagnostics. And they presented some data that they generated using our system, which we believe and they believe goes deeper into the protein structure of what's making up portions of a cell. And therefore, you can learn more. You're looking for the Achilles heel. You're looking for a targetable molecule that you can go to with your drug. And so the more you can get, the more information you get, the better. And so they published on COVID, and then there were two other, that was in the U.S., and there were two groups outside of the U.S., one in Germany, one in China, that were more on the therapeutic end, looking at information that might help to make novel or better or improved drugs using again using our system to do the processing of the samples when they were when they were looking at cohorts of 100 or 150 different people and looking for something that can give them an idea of is there a druggable target somewhere here that maybe was missed before and maybe PCT can can be the way to get that so so PCT Certainly in the last year, we had several groups that will carry into this year. We're working with all three of the groups that published on COVID. We're working a lot with Leica and with Dr. Conrad's and his group in Arlington, Virginia, because of the things that they've said and what Jeff just said, you know, differentiating between active and non-active or aggressive and non-aggressive disease and all kinds of things that can that can be told from looking at the pathology samples. So we're believing that Leica is coming off the back burner and is going on to the middle burner. And we think very soon we'll be on the front burner. And we're also working with companies that are working with COVID and a lot are working with cancer. And now they're back at work. It's like night and day. It's like someone turned on the light switch in about February, and all of a sudden the phone started ringing and we started getting requests for A, B, and C, which we hadn't seen in almost all of last year. So it was very exciting for us to see this happen, which has happened in Q1. So now I want to move on to Barifold. Just one comment on Barifold. I was interviewed in March, and they published it in a press release, and I talked about Barifold Barrefold is our second technology. This is a technology that we purchased from a company named Barrefold about three years ago, and it's eight issued patents and more patents that are coming. And it's basically using pressure to be able to unfold and refold proteins. Remember, we've had this discussion. Proteins are this mixture of these peptides that fold onto each other, and that folding is what gives you the protein. And if it gets misfolded while it's being made, then it doesn't work. In fact, it can be detrimental. So when companies are making drugs from proteins, which I've read 22% of all new drugs right now on the market are protein-based, and that number is going to go up to 50% in the next decade because they're far more specific and they're far more efficacious and safe But if the protein has a problem being made in the lab, one of the biggest problems is that it could be folded incorrectly and therefore not work. And the other big problem is that it might aggregate or stick to itself. And pressure can fix both those problems sometimes, not with every protein. Every protein is different. But pressure can do it with these proteins. We've got the patents, we've set up a service, and quite frankly, we're far busier now than we were at any time in the past. And we have a lot of expectation for this program. And the one thing that gets me excited is that we have four different stages that when a company that's developing a protein drug or therapeutic, and they're having a problem, and they want to know, can we disaggregate it with pressure? Can we fix the misfolding with pressure? There's a research stage, and that research stage, you know, is $100,000 to a couple hundred thousand dollars, and it will tell whether or not that protein is one that reacts to pressure. And then if it does, we want to go on to stage two, which is more of a pilot stage, situation where we're actually making enough of their compound that they can use it in larger studies and we've never got to there until now and and so we we've had we've had a lot of progression last year in this program and to the point where we do have one company that we're working with now to go to what we call stage two the pilot part where we're going to be making larger amounts the end game here is is to help companies get therapeutics on the market that might never make it on the market because the protein is just not right. And if we're able to do that and we're part of this process, our expectation is that there will obviously be a fee involved. And so our goal here is to help people get on the market because once they're on the market, that's a stream of revenue that's going to last for years upon years upon years. So we're excited about Parafol. We have We have two companies that have come back with additional proteins after the first ones were tested out and they decided not to go forward with them. They've come back with additional. They're not just U.S. They're not just small. They're not big. There's a combination of multibillion-dollar companies and small startups. It's a combination of U.S. and companies from Asia and Europe. So we're excited about Verifold, and we're excited about the growth we're seeing and the fact that we're now working with one of the six companies that have come to us on a going to stage two, the pilot part, where we're going to be making much larger quantities using our pressure system.
spk04: Jeff? Yeah, I might add in here a bit of color. As I think our audience is aware, the pharmaceutical industry is enormous and continuing to grow well in the hundreds of billions. and shifting from small molecule pharmaceuticals, the aspirins and so on of the past, to the large molecule pharmaceuticals or therapeutics, what are called biopharm or biotherapeutics. And these are the protein-based molecules. And as Rick alluded to, these are extremely long chains of amino acids, dozens or hundreds of them that fold up into complex shapes. And those complex shapes are what define the functionality of the protein, the actual configuration of the surface of that shape and what other shapes it can successfully dock with determines the protein-protein interactions that are behind your biochemistry and how you function and that ultimately are determining onset of disease or response to therapy and so on. And these are enormous investment programs for pharmaceutical companies to develop these kinds of biotherapeutics. Very complex processes to make them, many, many steps involved in making a protein therapeutic. And because they have to fold into the correct shape, getting them into that desired shape is critical. If it's not in the desired shape, the market potential of that product is very large, a lot of cost buried in it, and they need to be able to remediate that when it's necessary to unfold it and refold it. That's done today with rather aggressive chemical approaches, and then they have to get the chemicals back out of it in order to be able to market that product. It is a very undesirable process today to have to do this by chemical methods. So we see enormous upside in the pressure-driven approaches to being able to disaggregate proteins that have aggregated together and to do a gentle, controlled unfolding and refolding to achieve the desired state. And the company that we acquired, Barifold, had been doing some great pioneering work in this area, had some nice IP that we wanted and were able to obtain in that acquisition. But they did not have the right business model to be able to go through the early steps of the R&D demonstration pilot approach. And we realized that our equipment platform developed from our PCT work, gave us the right stepping stones for a more successful model. So it was really a terrific fit and acquisition for us to bring those assets in, to get the synergies in place with our existing technology platforms so that we could offer an easier, stepwise, attractive business model to partners and Because to make any change in the pharmaceutical industry with the kind of regulatory environment they have, you know, a change from their existing approaches, you know, is a slow process of getting them to realize, okay, it's worth taking the risk of investigating this. And, yes, I've adequately de-risked it enough, and I'm now ready to make a fundamental change in how I approach this. But as those successes begin to accumulate, there will be a herd behavior over time and a tidal shift that will occur as acceptance for new approaches that have all these benefits of not having chemicals involved that have to be removed come into recognition. So we're very excited about how this will play out. We're excited to see that, you know, both some, you know, very well-funded earlier stage companies as well as Titanic players in the biotherapeutics arena, you know, are already engaged with us on this and seeing the benefits coming back with second rounds of products to try, even when the first one they tried, you know, they may not have gotten all the results they wanted. As Rick said, it You have to test protein by protein to see which ones respond well to the pressure-driven approach. And now seeing one of our clients moving into the second larger commitment phase with us. So we're very excited about this. And we see Barifold as, you know, another platform like PCT that will, you know, have some development time involved in getting back sort of key opinion leader or key company successes lined up and then building the momentum shift over time. But Barifold, with all of those large pharmaceutical relationships that will come with it, is likely overall a much larger revenue and profitability platform as we turn this into licenses to use our technology in the manufacture of biotherapeutics, which can easily be hundreds of millions to several billion dollars in sales volume, sales revenue on the top line for them, and us pulling out a modest percentage of that in a licensing fee. So we're very excited about it, even as we have to be patient as we engage and grow this new sector.
spk01: All right. Thank you, Jeff. I'll just reiterate Jeff mentioned about chemical remediation and cost. Our system will reduce the cost, we think, as much as a third on the cost of goods sold for a company building a therapeutic, which is astronomical savings, and also the whole time involved of adding chemicals to get things to refold properly and then taking the chemicals out. That doesn't happen when you're using pressure. So it doesn't work every time, but we know it does work. And we know we have one company that's going to stage two. As they go further along in each stage, stage two, stage three, and stage four, and then finally out in the market, of course, the revenue coming into us is going to increase dramatically. So, yes, we're very excited about that. And I know we're running short on time, so let me jump over to UST. I think one of the big things that everyone should know is we've had a lot of meetings last year. We had the time to have a lot of meetings about UST and the best way to sell it. And we came to the conclusion that the best way to sell UST is not the model we're using for pressure cycling. For pressure cycling, we've placed 325 instruments around the world as a good consumable model. consumable flow. It's a smaller, less expensive instrument, and it's really a lot for research and quality control. Ultra Shear is more of a manufacturing instrument where the customer is going to use it to generate huge profits, we hope, in the products that they're selling, whether it be juices or other beverages or gauze or creams or anything like that. So we decided that the best way to do this is really more of a leasing model, leasing and royalty model. So we've made that change. We had several press releases out last year and maybe the end of the previous year about getting purchase orders for the instruments. And that's great because the instruments are over $200,000 a piece, but it's not the right way to do this. The way to do this is to is to lease them and have a minimum royalty lease that's coming in. And then as they start to make more money using our equipment, we make more money. So we've changed that model, and this is the model that we are now taking out to people. But with UltraShear, our goal is to have the first 12 instruments made by the end of the year and the first instrument or two placed by the end of the year. That is our goal. It's been tough, but we're still – We still have that goal ahead of us. We still think we can make it so we can get that first instrument placed by the end of this year and then the rest of them placed in early 2022, all generating revenue. One of the things that we got excited about was that we had a phone call with a gentleman and we put a press release out in January. His name is Tom Schreck. I call him a guru in biotech. He and his dad and his Grandfather and his family have been involved in a dozen major, major, major biotech winners. He is CEO of a company called Sinusys, and it's an implant in the nasal cavity for people who have sinus surgery. And so we put a press release out. He thinks that Ultrashear might be something that could help him out a great deal. He got very excited about it. And then he got very excited about it because of his knowledge in biotech that he said, you guys, you know, you guys have a winner here. I want to be part. So we continue to have him consult with us and make introductions for us. Very excited about Tom coming on board. In 2000, I'll just move through USD, then ask Jeff to add a little color, then we'll move on to the Q&A. In February, we announced the formation of a food industry consortium with our partner, Ohio State. We've talked about Ohio State now for two years, two and a half. Ohio State is one of the most respected food and agriculture environmental science laboratories and actually colleges in the country. They're very well respected by the food industry. They have a number of projects going on with food companies that would just pull your socks off. So we announced a deal with them that's assigned, sealed, and delivered, where we're together setting up a food industry consortium. The purpose of this consortium is to allow food companies, global food companies, to come in, join the consortium. There is a pretty steep fee that one has to pay every year for several years. And that money is going to go to make improvements on UST to develop applications, additional applications on UST. And what do the global food companies get? They get a first look and a first right to license UST for their application. So we've developed a very large prototype. We'll be shipping the prototype soon to Ohio State, setting it up, training them. Dr. Bala at Ohio State, Dr. Ting with us, are busy working on talking to companies. In fact, tomorrow we're making a presentation. One of the dairy associations in the U.S. contacted us after the press release and said we're very interested in Ulta Shear and in the consortium. So they've asked us to make a presentation. So Dr. Lazar, Dr. Ting are making, along with Dr. Bala and some others at Ohio State, making a presentation. presentation to this dairy association because they are very interested in seeing whether Ultrashear can be of a benefit to them. We think it definitely can. So we're excited about the food industry consortium because it's going to bring some amazing companies. I think 15 to 20 companies is where they'll probably end up on the consortium. And we'll be on a first name basis and on a phone call basis, pick up the phone call and call them at some major companies or well-endowed companies with funds that we will be able to call and talk about ultra-shear. So we're excited about that. And so with that, I'll turn it over to Jeff for a few short comments on ultra-shear. Then we're going to take some questions and give some answers.
spk04: Sure. Thanks, Rick. I guess the first thing I'll take a few moments on on UST is is just to recapitulate for everybody the driving benefits behind this. So ultra-shear technology fundamentally is a technology that is using our capabilities with extreme pressure to drive mixtures of oil and water through a tiny controlled nano-gap orifice that creates huge shear forces and ultimately creates a nanoscale emulsion of the oil and water. And that means getting down to droplets that are down below 100 nanometers and even lower. And that's kind of a meaningless sounding number in our daily existence. But to give that perspective, we're down to a droplet size that can only contain a handful of molecules. So instead of normal emulsions with huge droplets where most of the molecules of interest that your body might need as a nutrient or as a therapeutic, with most of those molecules buried inside the droplet, and if it's an oily kind of material and your water-based body just is having a tough time accessing and absorbing it, you end up using tons of material to or very large amounts of material to try and dose a patient and getting very variable amounts that are actually absorbed from one patient to another, with most of it just passing through their system. Whereas when you get down to these tiny nanoemulsion droplets that we achieve very reproducibly and controllably, you now have essentially all of those molecules at the surface of the droplet available to your body to absorb as a nutrient or therapeutic or whatever the case may be. um so that is a key driving benefit is that bioavailability bioabsorption of the active ingredients that are being provided whether you're talking about a beverage that's going to be drunk or a therapeutic that's going to be rubbed on the skin or whether you're talking about an agrochemical to be absorbed by a plant that high bioavailability and effectiveness in dosing and allowing the producer to use much less of the product and still get very controlled, safer dosing of the product are huge value leverage points that will be game changers, redefining the terms of competition in some of the industries that we're going to be addressing, whether it's agrochem or a personal care cosmetic type product or a nutraceutical or therapeutic or a food or a beverage, this is really a redefining technology in terms of competition, we think, for a wide variety of companies and market sectors, so we're very excited about it. This is a much larger opportunity than Barifold is, and Barifold is substantially larger than PCT is, so it is really Now the dominant strategic focus for the company, even though our existing sales base is on PCT and Barifold, and we're reliant upon that and growth in that while we get to our critical investment and building out the equipment and starting to move up the hockey stick in the ultra-shear applications. I'll stop there, Rick.
spk01: All right. So two other things, and then we'll jump in, or one other thing. a group of things, and it's in the area of mergers. We've announced two mergers over the last year. One was with a company called CannaWorks, which was to be rolled up into a company called Avela, and it has been rolled up into Avela. And the second one is an agriculture, agrochemical company It's not in a binding LOI yet, but it's moving along quite well. We're excited about it. So first with Avela, as we've said in the K, we had four letters of intent, and each one was extended another or one letter of intent that was extended four times. It ended at the end of January, and it wasn't extended. We are still in touch with Avela. They're very good people. They've got very good products. They know what they're doing, but they're primarily a personal care and cosmetics company. And our claim to fame is going to be in licensing out our technology to multiple, to dozens, if not hundreds of companies. So where we've ended up with Avela, again, good people, good technology. But the fit for PCT and Barefold wasn't there at all, and the fit for Ultrashere was clearly there for their cosmetics and personal products care line. They now have one of our prototypes, and they're working on a program, on a collaboration program with us. And we're hoping that we can get maybe work out a deal where we can license them down the road to our technology partners. which for us and our shareholders seems to make a lot more sense for us because they would be a customer and a good customer at that. We think we could help them improve. Their products are already fine. Anybody we go to has, you know, probably a good product, but we think we can make it better using our method. And so we're not going to have the merger. with Avela, as we said in the K, but we certainly hope to have a business relationship with them and hope to work with them for years to come. And the other one is one that we can't talk about much because it is not in a binding letter of intent yet, but there is a agriculture, a agrochemical company that has sold products around the world in the past. We've called customers of theirs. The products are held in high regard. They have a business that is in a lull right now, but it can be stepped up and brought up, we think, pretty quickly. And the thing that excites us is that they are really looking at organic and more natural products rather than chemical-driven products, which is where a lot of the agrochemical products in the past have been developed. chemical and have caused a problem, of course, but they're more natural. For instance, a number of their products are based on essential oils. We've tested a number of essential oils, and we're so excited about the data we're generating from the ability to nano-emulsify some of these essential oils that people are using as antimicrobial agents, and they're using them in foods, they're using them in many different things. For their color, they're using them for their taste, et cetera. So we want to move fast with this one. We think we can get this thing done, maybe even skip a binding letter intent, go right to documentation over the next few weeks. So at that time, we'll hold a meeting like this just a day or two after we announce the acquisition of the assets and setting it up. We'll bring one or more of their people on. Jeff and I will be on, and we'll be happy to talk more about it. But it would be inappropriate right now because it's not binding, and they have some things that they need to get done in the coming days that we're giving them the time to get that done as we're working on some paperwork.
spk04: Yeah, I'll just add on top. I think Rick covered the overview of both of those well with the Vela and Canoworks team. You know, they had, you know, a very early look at our ultra-shear nanoemulsion capabilities last year and an opportunity to do some demos with us at our facilities and just immediately got the value proposition of it and saw the differentiation versus the best, you know, emulsification and nanoemulsification that they had been able to produce with their alternative approaches. And it was a very clear and exciting fit for the personal care and cosmetic type products that they were focused on. And they remain, as Rick said, actively involved in a collaboration with one of our demonstration scale, pilot scale kind of units. So we're very positive about the fit in that market for a wide variety of potential companies, and they've had an early start to look at that, and we hope that they'll have a mutually very beneficial relationship that could flow downstream from that. On the agrochem side, the company that we're proposing to complete this with has both Agrochem and a line of cleaning products that has got off to a nice start, industrial cleaning, kind of driven by the COVID impact over the last year, and has potential to extend into the cosmetics area. So we think the personal care cosmetics arena, you know, will expand in other dimensions, but Agrochem is the the real driver and the differentiation that made this company exciting for us is that it is not a classical agrochem, but it is an eco-friendly agrochem company, you know, an enlightened green oriented company that is using these natural essential oil type materials. You know, people are probably familiar with things like some of the orange oil products that are used to control ants around the home and so on. Well, essential oils of all kinds are used in a wide variety of applications, and these folks are taking this from art form to industrial scale and have had some very nice traction with a wide variety of products in the agrochem area from the pesticides, the fertilizers, to soil preparation, chemicals, and so on, or materials. excited about not only their differentiated start and positioning in this market, but the ability of UST to now make them truly unique or doubly unique with the nano emulsion effectiveness that we will bring to bear, we think is a very powerful combination. And their positions to have impact on our top line and our bottom line within 2021 and dramatically in 2022 and going forward. So we're excited about the outlook for this combination and looking forward to the chance to talk in more detail about it in the near future.
spk01: So I think we need to open this up now for questions, if there are any. Appreciate you guys joining us again. And why don't we just, Shamali, you might want to take it over from here.
spk05: Sure. And at this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And our first question is from Gary Zwetschenbaum with Palm Tree Consulting. Please proceed with your question.
spk02: Thank you, Rick. Hello, and Jeff, good to talk to you guys again. Very excited to hear about the Food Industry Consortium with Ohio State. Very excited to hear about what you're doing in the agrochemical side. I wanted to direct a question toward your new leasing model. Okay. And if you can add a little color to that, because in the past you were selling the units at 200,000 plus, you mentioned this leasing model and a little bit about it. And are you in any serious talks with anyone currently about that? If you would.
spk01: All right. So, um, This model is going to work much better for us and for our shareholders. You're right. We did mention that the price of the system is about $200,000, but once they pay it, there are consumables, but not nearly as many consumables as in our PCT instrument. But what we're doing is we're giving customers a chance to really improve the quality of their product. And that product could be a beverage. It could be a cream or an ointment. That product could be CBD infused into something. And if we're giving them that beneficial add to their product, we should be getting something on the other end. And so we changed the model. We have run this by. We've run this by groups in the pharma business. We've run this by groups in the cannabis business. which we think will be one of our early winners, will be groups in the cannabis business. We've run this by groups in the cosmetics business. And across the board, we've had no pushback. We're going to be reasonable with the monthly lease charge, but we're also going to want to have a use or a royalty or a royalty on sales on the products that they're selling that are now being enhanced by our product. So we're excited about it because it is a flow of revenue coming in. It's far better than selling it and then selling a few consumables. And we've been, I'd say, Jeff, we've probably had four or five different types of groups from those areas already. And everybody understands the model. No one's pushing back on the model. It's actually better for many of them because we're not asking for a lot of money up front. We're asking for money over time, but it's not going to end when they hit $200,000. In fact, we hope they sell crazy amounts of what they're doing because we're going to get a piece of that.
spk02: Well, I greatly appreciated the recurring revenue model is important and also continuing to share in the revenue and licensing. I'm very excited to hear about the agrochemical side from both of you. And just to clear something up, you mentioned that we may have some color on this, you said, in weeks as opposed to months. Is that correct?
spk01: Right. We're hoping so. We don't want this to last a long time. We want this to – this can really help us as a company, and the market, I think, needs this group's products, and we can help it with ultra-shear. So, yeah, we want to do it quickly.
spk02: Fantastic. Well, congratulations. Jeff and Rick on all sides. I look forward to hearing more and hearing about, you had mentioned, I think, Jeff, that quarter one and going into quarter two, that the sales have picked up nicely from where you were in that heavy COVID area over the fourth quarter. Is that correct?
spk04: That's correct. Nice to have you on the call, Gary. Yeah, quarter one actually is going to be, you know, one of the best quarters that the company's ever experienced. So we're very pleased with the kind of robust comeback. You know, certainly some of that, you know, maybe pent up demand in terms of what didn't happen in 2020, but we're seeing a very strong start to the second quarter as well. And as I mentioned in the call, you know, it's important for us to cultivate and grow the underpinnings that we have in PCT and in the barrel fold sectors. But ultimately, you know, the focus is going to be moving to UST as we fund up and get the equipment built and in place and moving into lease locations in the field. And the model, as we were just describing, is very exciting in that, you know, leasing charges, you know, will cover you know, the cost base for the instruments and servicing of them, you know, in an appropriate fashion, but a royalty licensing structure along with it is a very significant upside that falls through to the bottom line largely. And, you know, when you're dealing with a a royalty on a billion dollar pharmaceutical, you know, a single percentage point royalty, you know, is $10 million moving toward the bottom line. And this is a technology that, you know, in very tough products, you know, in the pharmaceutical arena and so on, will likely still get multiple percentage points. And in the consumer personal care kinds of spaces and so on, likely, you know, into the double digits and maybe well into the double digits. So, you know, we'll see how all that works out. But, you know, this is something that can rapidly drive EBITDA from even a few initial relationships. And we're expecting this to turn into you know, dozens of relationships in each of many different market areas. So we're very excited about the USD's impact, not just, you know, for us, but, you know, across industries and changing the effectiveness of all kinds of products. I think it's going to be of historic importance downstream.
spk02: Okay. Jeff and Rick is a long-term shareholder. I'm excited about the technology we have. We're talking about the food groups in other areas. I just think I'm looking forward to now first quarter. Are we talking mid-May? When will we have the queue roughly? Is there a rough time?
spk01: Yeah, it's due May 15th, so we're shooting for May 15th or earlier. We'd like to get it out as soon as we can. So I don't see any reason why it can't be out on time if not early for May 15th.
spk02: That's less than a month, so I'm looking forward to it. Thank you, gentlemen. Appreciate it.
spk01: Thanks, Gary.
spk05: And our next question is from Carl DeCicco, who is a private investor. Please proceed with your question.
spk06: Oh, how you doing? So I actually own the stock, but I've also been involved in investor relations on and off for many years through the company. And there's a lot of substance and sizzle that hasn't been mentioned. First of all, the stock structure, there's only 4,321,973 shares outstanding. And then when you look at the fully diluted number, all the warrants are priced anywhere from $3.50 to $12 a share. And I think that's There's over 26 international issued and completed patents, and there's probably eight or ten pending. But the big deal about this company is they're able to nano-emulsify one oil droplet into millions. So for CBD oil, the normal absorption rate or bioavailability into the bloodstream is around 6%. We're somewhere over 90% absorption rate. And nobody is even close to that. We were told by some of the large food companies that already know we have a good technology that not only is the CBD oil going to be a true soluble into the drink industry, it's going to go into a lot of the foods. So we're not talking about food and drink. We're talking about pharmaceutical, nutraceuticals, cosmetics that are oil-based, many gels and creams. For instance, there are skin creams that normally only penetrate two layers of skin. we could penetrate probably seven layers of skin. The big value of the company that nobody realizes is we have a market cap of less than $10 million, and the technologies are not recognized on the balance sheet could be worth 20 times that right now. And we can do things with milk and mayonnaise, and he's already taken products that settle, for instance, a can of paint, whether it's orange juice or salad dressing, and when they do their process to it with our technology, you can open it up six months later and not have to shake or stir it. So, you know, supposedly all these products, you know, can have better quality, longer shelf life, can be safer, better absorption rates. You know, the ultra-shearing technology, instead of pasteurizing with heat, we're hitting it with air, and none of the minerals or nutrients are compromised And even the taste is not compromised like it is with heat pasteurizing. But Rick, you know, Rick and his team have had some of these technologies for years and people wonder, well, how come you haven't made a lot of money on this stuff yet? Well, the truth is, in my opinion, in two years or less, we're going to impress some large companies. For instance, at Ohio State University, they're going to put their food and drink products through our technology and they're going to want exclusivity for ridiculous amounts of money, or they're just going to want to buy a sale.
spk01: So I think you need to make, Carl, you need to make this very clear. These are all your opinions. You're not, you know, you're not.
spk06: Absolutely. These are my opinions, but a lot of the stuff, a lot of the stuff I said, a lot of the things you're saying are forward looking.
spk01: So I'd rather not.
spk06: Yes. Okay. So they're forward looking, but a lot of the stuff I said is, is, is stuff that, uh, that the technologies have been recognized to be able to do. And, you know, when you're talking about nanomulsification, everybody's trying to do it, and everybody wants to put CBD oil, you know, into the drinks and the foods. And just I think the company has a lot more value than people realize. And even before the big revenues come in, I think we're going to be recognized by a bunch of large companies. And you can ask Rick about that, and I'm pretty sure. pretty certain that our day is coming. So, you know, I'm very high on the company and, you know, and you guys know where I stand, but I just think that we're so undervalued, it's not even close to trading.
spk01: I don't know why you beat around the bush, so I can't figure out where you stand.
spk06: I'll let you guys talk, but that's the way I feel, so thanks.
spk01: I want to add, you said some forward-looking things, and these are all from Carl. you said that we're 90% bioavailable. I want to clear that up. We expect to be over 90% bioavailable. We haven't done our bioavailability studies, but there's been a lot of studies that have been done by a number of universities and other places in the world that talk about true nanoemulsions. And the data generated generally says that if you do a real nanoemulsification, you might be able to take bioavailability from under 10% to over 90%. and we believe in our system, and we believe that the data we will generate ultimately will be very exciting to us. You said something about two layers of skin to seven. We haven't done those studies either, but we would expect that our system, because it does do a wonderful job, a high-quality job of nanomulsification, we would expect that it would not have any issue with the with going through where it's supposed to go through, if it's supposed to go through three or two or one, whatever it is. We do believe that it'll end up with better quality and longer shelf life. The whole purpose of the Ohio State funded by the US Department of Agriculture to almost a million dollars, which is shared by about a third with us and two thirds with Ohio State, is that they wanted to find a way to make milk that was room temperature stable for long periods of time so that it could be sitting on a shelf for six months and then shipped into a disaster site. But you can't send milk into a disaster site now because it's got to be refrigerated. So that's just one of the many things that they wanted to do. And we believe we're going to be able to do that. So, yes, we believe we will increase the quality, increase the shelf life, Um, and, uh, we do believe that it, uh, pressure will have less of an effect. Uh, because the data shows it less of an effect on the nutrients and, and it should keep everything, all of the nutrients, uh, in good shape. Um, so we're excited about it as Carl is apparently very excited about it, uh, which we appreciate. Yes, we do have 26 issued patents. Uh, we do have whatever you said, 4.3 million shares outstanding. And we do have fully diluted about 14 million shares if you count all of the preferred stock and things. We don't have any to that point. We have no warrants that are less than 350 a share. And I'll even go further and say we don't even have any warrants that are registered so that if the stock hit five bucks a share, let's say, or some number above 350, there's no cliff there or overhang there. where people will be able to just convert and sell because none of the warrants that we have, they're all at $350 to $12 or $14, and none of them are registered. So, yeah, I think the cap structure in that regard is quite good for the investor.
spk06: Well, let me just say one thing, Rick, in my defense. I asked you several times, are there any companies out there that you think can have a better bioavailability or absorption rate nano-emulsifying CBD oil, for instance, and you told me two different times, you said, I don't know of any that are even close to us.
spk01: I do not know of any.
spk06: Okay, so I just want to make that clear because, you know, when a large food company tells you that it's going to be in all the drinks and all the food and we can't find anybody that does it better, I think the value of the stock is ridiculously low.
spk01: One of the things, Carl, I appreciate it. Okay, appreciate that. One of the things that we should mention is that our UltraShear has an ability to do something which we don't see in anything else, which is to scale. So when you talk about food companies, when you talk about beverage companies, and you talk about big beverage companies, our system can scale. So it doesn't matter if somebody needs to go to 100 times where they are right now we can scale. It's a matter of bigger machines, but we've built the system to scale to very large manufacturing quantities. And again, we don't know of anybody out there with a system that can scale anything close to where we believe we can scale, which is one of the reasons why we've partnered with Ohio State. And one of the reasons why Ohio State and we have set up, are setting up a consortium, because the system that we're sending to Ohio State is much bigger than the system that we will most likely be leasing out in the beginning to our CBD companies and our cosmetics companies that will want to lease it, because they won't have the need, but we will have an instrument that can meet some very, very high demands in manufacturing processing volume. Jamali, any other questions?
spk05: Our next question is from Richard Barrasock, a private investor. Please proceed with your questions.
spk00: Okay. Well, hey, Rick. How are you all doing? It was touched upon a little bit, but I just want to go in a little bit depth. I think a lot of brokers and a lot of investors understand that over last year with COVID has put every market and every industry into a survival mode. Money was spent to keep the doors open. However, with this new technology and what I see going forward, can you give us some future guidance of what you see at sales and revenue going into this year and possibly into next?
spk01: Well, I appreciate the question, but I'm going to hide a little bit from it because that's really forward-looking. Jeff has gone pretty far. Jeff has said the first quarter, which has ended, is one of the best quarters we've had. Um, and, um, and it is, and, uh, uh, we, uh, we're very happy with the first quarter. Uh, we know that, that, uh, some of this might've been pent up demand, but, but looking where it's coming from, I don't think a lot of it was quite frankly, I think a lot of it is just people coming back to work and finding us. We had, we had five or six groups that, that emailed February. We had like two weeks in a row where almost every day we had emails coming in where someone said, Hey, I found out about you. I found out. So, It's not like I had this money for six months and now I can spend it. I don't know if I know anybody that was in that category. The people that helped make us a good first quarter, a really good first quarter, were groups that were coming in that literally most of them didn't know who we were, but they found us by Googling or word of mouth. And Jeff also said that we've had a good start to the second quarter. Doesn't mean it'll continue, but But certainly it's a wonderful month of April so far. So we're excited because we've come out of the dark. Last year was very upsetting to us to not be able to perform. But we see it very different. And we expect to close on the agrochemical business. And Jeff's made it very clear that we do believe that this agrochemical business will hit the ground running. And if we close in the next month or two, it should have an impact in the third, but clearly in the fourth quarter. And we do believe that its impact is going to be both top and bottom line. And we still believe we can get our first system installed in December. And we're already talking to a couple of groups that want that first system under the new leasing structure, Rick. So Everything is lining up well. We've come out of the dark ages last year. Pretty depressing for any of us in many different ways of our life and in our business. But we're very excited about where we are now in 2021. Just in the first three or four months of 2021, it's like a new lease on life. It's wonderful.
spk00: Well, I appreciate that because, I mean, everybody knows that anybody that's been involved in any type of public equity, I mean, all companies have been in survival mode. Right now, I think we're getting a little bit more action into the market. I think we're going to also see some monies being spent now. So congratulations, gentlemen. Great technology, and I'm looking forward for this year and going forward.
spk01: Thank you, Rick.
spk05: And our next question is from George Markleson, a private investor.
spk01: Please proceed with your question. George Markleson. Hey, Rick.
spk03: Hey, Jeff. It's been a while. Just a quick question. Somebody had stated before that there were 4.3 million shares outstanding, and now you're saying there's 14 and change. What is the actual... Fully diluted. So is that saying that there's a convertible preferred out there, or...
spk01: No, no, I'm counting the preferred stock. And we have, if you look at the balance sheet, you'll see that we have different classes of preferred stock. And all total, there's about 9 or 10 million shares of common share equivalents, George, that are in preferred stock. So if they all decided to convert, which they wouldn't, because there's blocker language on it, and several people in there would have more than 4.99%, So, but it's only fair. I appreciate what Carl said, but it's only fair to say, look, yeah, we have 4.3 million. It's hardly anything in common stock out there. But if you look at the preferred stock, it's more like 14 million. But again, that preferred stock is in vehicles that are, you know, most likely not going to convert much at any one time, in my opinion.
spk03: I mean, it sounds, again, I have been in your talk in a little while, as I'm sure you know. I was an early investor, and I'm potentially thinking of getting involved with you once again. I'm just trying to figure out, over the last couple of years, how have you funded yourself? How have you, where does the money come from? What kind of debt is on the books? I'm not trying to be Debbie Downer. I'm just trying to figure out what the negatives are as opposed to the positives, because it certainly sounds like the technology is there, and you have a lot of potential, but I'm looking to see what your expenses are, your burn rate is at the same time.
spk01: Well, our operating loss is, has been running between like three and 4 million a year. That's our operating loss. So you can get an idea there of, of what's happening. And, and this is with, with, and this is even after last year is 4 million. And this is after the COVID year and very little was added from Berrifold. Some last year in Berrifold, and basically nothing in ultra-shear. So when Barefold now, we have one customer that is actively working with us to go to the next stage, and that's going to increase dramatically the revenue that comes in. We have others that are coming with additional proteins. That's going to increase. So we have a lot of expectations for Barefold. Ultra-shear, it's anybody's guess. I mean, my gosh, you get one Carl said it. I think Rick might have said it. I think Gary might have said it. I know Jeff did. You get one good customer and it could be a wonderful time.
spk03: Are you concerned at all that you don't have the personnel to handle the type of business that you have going forward?
spk01: We were at 19 people this time last year. We're at 14 now. We lost six. We hired one back, an absolutely terrific guy who came in as our director of sales and marketing, John Hollister, who's got an amazing background. And he's helping us out a lot. And he's been helping us shepherd in this first quarter that we're excited about. But I am concerned about that. You know me, George, I'm concerned about everything. I'm concerned about investors, as you know, because I was concerned about you for years ago when you're in, as was Jeff. But You asked about debt. We have debt on the books. I'm not going to go into the details. I'm going to call it good debt and not as good debt. On the good debt, this is debt from people that have historically in the past converted into stock, have historically in the past kept it in debt where it should be in debt. I don't lose a lot of sleep there. But then we have debt that many companies like us might have that is not as good. We're not people that aren't perhaps as patient. And we've been working on that debt, and we've reduced that debt from $8 million to about $3 million over the last year and a half. And none of it has come out to hurt us. Nobody's converted it to hurt us. And the remaining people that are holding that debt, we respect them. them. They respect us. We work with them. So, um, yeah, I think we've been, it's been tough, very, very tough. We have a good bank in garden state securities that has, uh, been able to, to raise us money even during this pandemic, uh, as Rick said, to keep the lights on and, and, and the doors open, uh, they, they've been a great bank to, to help us out. And, but now, uh, now we're getting very close to to that threshold where we're going to pass over it and that we've all been looking for, George, and we're very close.
spk03: I wish you well, and I hope that these things come to fruition. So I'm just debating whether it's a time to get back involved. So that's something I'll figure out on my own.
spk01: The fact that you're even thinking about it makes me happy, and I am serious. So thanks, George. I hope you're well and your family's well. I haven't talked to you in four years.
spk03: It's been a while. Yes, thank you.
spk01: All right.
spk03: Thanks.
spk05: And we have reached the end of the question and answer session. I'll now turn the call back over to Rick Schumacher for closing remarks.
spk01: Well, we've, we've held everybody on for 20 minutes longer than expected. So I'm not going to do more than to thank everybody. I know everyone has a busy day. Uh, and, and so I appreciate everybody taking the time. This will be on if you, if, if you, uh, have a desire to have other people listen. The recording will be on our website most likely by tomorrow. And I'm also going to order a transcript. So if anybody wants a written transcript, we'll also have that available. So I really appreciate everybody joining. Jeff, I appreciate you joining. Any last words? No, my pleasure.
spk04: Thanks, everyone, for all the time.
spk01: Thanks, everybody. Thanks, Shemeli.
spk05: No problem. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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