Debbie Bailey - Director, Investor Relations Dr. James Hayward - President and CEO Karol Kain Gray - Chief Financial Officer.

Analysts:.

Good morning. And welcome to our Applied DNA Sciences' Quarterly Webinar. My name is Debbie Bailey, and I'm the Director of Investor Relations. I would like to thank everyone for joining us today. On today's call, we will be hearing first from Dr. James Hayward; President and CEO, followed by Karol Kain Gray, Chief Financial Officer for the company. Dr.

Hayward will conclude and then answer questions from our shareholders.

Please note that some of the information you will hear today during our discussion may consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expense, stock-based compensation expense, taxes, earnings per share and future products.

Actual results or trends could differ materially. For more information, please refer to the risk factors discussed in our Form 10-K for fiscal 2014. Applied DNA Sciences assumes no obligation to update any forward-looking statements or information. At this time, I would like to turn the call over to Dr. Hayward..

Thank you, Debbie. Good morning to our audience and thank you for joining us today and to our new investors, I’d like to recognize those representing institutional firms, welcome to your first investor call. Our uplisting to the NASDAQ Capital Market took place on the 17th of November in 2014.

The response from our customers and potential customers has been uniformly positive in my own interactions with them and we hear similar comments coming from our sales teams.

Moreover, well, it is hard to quantify, I presently detect a greater general awareness about our company both from the media, from interested potential investors and from the potential customers who reach out to us. From our dialogue with investors, I believe that we have already attracted an investor base with a longer view.

As shown in this slide, our share price is up nearly 60% since our uplisting and we are now owned by more than 10% of institutional investors such as General American and Fidelity.

Our liquidity is also on the rise, with our trialing three-month volume averaging 100,000 shares per day were the equivalent of 6 million shares before our reverse split over three months time course, a volume which we had never enjoyed before. Our trading volume in dollars is the highest we’ve ever seen.

Since the company uplisted into the NASDAQ Capital Markets, we have experienced increase liquidity in our common stock.

For example, our total trading volume for the three months pre-uplisting was approximately $7.3 million, compared to just over $20 million for the period immediately after our uplisting through yesterday, which represents an increase of 177%.

Now as Karol Kain Gray, our CFO will report in detail momentarily, our revenue for the first quarter of fiscal 2015 was over $1.2 million, the highest revenues we’ve ever reported. When compared with the prior quarter, Q4 of fiscal ’14, our revenues are up 92%. When compared with the first quarter of last year, our revenues are up 108%.

We are gaining traction as seen by our dramatic revenue growth and we expect this trend to continue in the coming quarters. During the last quarter, we have taken steps to reduce our operating costs in the current calendar year, now the combination of our cost savings program with growing revenues takes us that much closer to profitability.

Throughout history, there have been disruptive technologies that have altered the current course of technical evolutions, examples include, our Gutenberg's printing press, Edison's light bulb, Marconi's radio and Fleming's penicillin. Penicillin was ignored for over a decade until the military began to use it in World War II.

There is probably no single technology in human history that had saved an extended as many lives as I filed or most people ignored that proven technology until they hit the market and began saving lives. I believe that Applied DNA Sciences is in a similar situation, we are making progress on multiple fronts.

Our technologies continue to be adopted by early integrators in more and more markets. We gain traction daily and in multiple industry verticals. The company not only has the momentum that comes with the adoption by government agencies and multinational companies.

We believe we have the only forensic class capable of permanent and flexible authentication marking. Now, many scientists believe that there is no other information storage technology that can match the code of life in terms of its information, density, its possibility and costs.

DNA storage is so densed that it will allow labeling products with far more information that is currently contained in bar codes and similar strategies. Given that DNA itself is a self encrypting media on a molecular scale, yet still in its infancy is attacking.

The impact on global information flows is just beginning and with our digitalDNA, we are at the forefront of this revolution. SigNature DNA, SigNature T DNA, digitalDNA, DNANet and other in our family of products will change industries. I firmly believe that the world needs our technology to help end the damage inflicted by counterfeiting and crime.

It is now my pleasure to introduce Karol Kain Gray, our CFO..

Thank you, Jim, and good morning, everyone. This has certainly been an exciting quarter for Applied DNA Sciences.

I would like to spend a few minutes highlighting the finance activities, which will include the cost-cutting measures that have been put in place in addition to discussing some of the main points in the December 31, 2014 10-Q, which was filed yesterday.

As you can see from our balance sheet as of December 31, 2014, total current assets increased by $1.7 million to $4.1 million, due to an increase in cash and accounts receivable.

The liabilities in stockholders’ equity on our balance sheet has improved greatly due to the payout of the warrant liability and the promissory notes that were converted into November 2014 public offerings. These two transactions decreased the liabilities on the balance sheet by $2.9 million.

Stockholders’ equity increased by $4.8 million, as a result of the funds received by the public offering.

Moving to the income statement, revenues for the first quarter of fiscal 2015 were a record $1.2 million, which is 108% increase from the $597,000 reported in the same quarter of the prior fiscal year and a 92% increase, compared to the prior quarter ended September 30, 2014.

The increase in revenue for this fiscal year was primarily the result of an increase in revenues from government contract awards of $425,000. The increase was also due to a $150,000 in revenues associated with the set up and marking of cotton. Three customers represented 53% of our total revenues for the quarter ended December 31, 2014.

Revenues from customers outside of the United States continued to contribute to our total revenues. For the first quarter of 2015, 21% of our revenue was from customers located outside of the U.S. We believe that the revenue from the sale of products outside the U.S. will continue to grow into future.

Our Europe, Middle East and Africa business continues to add distributors around the world. Our diverse and global customer base means less reliance on any one customer, country or industry and suggests less concentrated risks. It also demonstrates the continued growth of our products and technologies as they are introduced into new markets.

Research and development expenses decreased to $278,000 from $459,000 from the same quarter last year. This decrease was attributable to lowest spending on lab supplies. In Q1 2014, we were clipping the new laboratory spaces we had moved into a few months earlier, as well as purchasing components associated with the pilot program.

Total operating expenses were $5.1 million, compared with $4.4 million in the prior quarter, an increase of $640,000 or 15% for the three months ended December 31, 2014.

The increase is primarily attributable to non-cash stock-based compensation for grants awarded to employees during the quarter and an increase in expenses related to the company's uplisting to NASDAQ on November 17, 2014. This increase was partially offset by a decrease of almost $500,000 in legal, consulting and research and development expenses.

Net loss for the three months ended December 31, 2014 was $7.8 million, compared with a net loss of $6.3 million for the three months ending December 31st, primarily as a result of $2.2 million increase in non-cash expenses.

Excluding the non-cash expenses and interest, adjusted EBITDA for the three months would have been negative $1.7 million compared to a negative adjusted EBITDA of $2.6 million for the same quarter last year. The net loss includes non-cash transactions of approximately $6.1 million. These non-cash items had no impact on our liquidity.

So our actual cash losses decreased from the same quarter last year. While we have still not caught up to our expenses, we currently have a number of funded pilot studies ongoing, which if successful, could generate revenues more in line with our current expenses. We believe some of these pilots could come to closure within this calendar year.

We continue to manage our expenses looking to strategically lower cost in line with our current and near-future market opportunities. Our cost savings plan is being implemented that is designed to reduce our cash expenditures for this fiscal -- this calendar year.

Several positions and consultants that are no longer related to the company's business plan have been eliminated. Only vacant positions that are related to sale and revenue execution will be considered for hiring as necessary.

Our business plan ensures that we have the capacity and expertise to meet our most immediate market needs as well as being prepared for the needs of our customers in near future. Also as mentioned before, our legal and consulting fees have been reduced this quarter. In summary, it has been a very busy and positive quarter for Applied DNA Sciences.

We're working hard to manage our expenses, turn our pilot studies into commercial contracts and strategically manage the business for the benefit of all of our shareholders.

Finally, as disclosed in the 10-Q and press release, I have decided to step down from my position as Chief Financial Officer to pursue other opportunities but will remain as a financial consultant to the company. This transition will become effective February 15th.

I’m quite pleased that I had the opportunity to make substantial contributions to the company's financial initiatives by completing the recent financing, uplisting to NASDAQ and implementing financial controls throughout the organization.

I would like to personally thank Jim Hayward for the opportunity to work with him on many of his strategic initiatives. I know that I leave the company in capable hands with Beth Jantzen as the new CFO. I have worked closely with Beth during my tenure here and have complete confidence in her abilities to lead the company forward.

You will be hearing from Beth on the next quarterly webinar in May. I would now like to ask Jim to return to his report. And I would like to thank all of you for your time and attention..

Well, thank you very much Karol. And I’d like to take a moment for us to thank Karol for her tireless efforts on behalf of Applied DNA Sciences and all of its stakeholders. She leaves the company stronger than when she came. And she will be sorely missed by all of us.

We have the utmost faith in Beth who has already demonstrated her confidence on the job. And before we get to the questions submitted, I’d like to take some time talking about some new initiatives that are really game changers for our company and for the industry. And I’ve chosen to focus on our single industry vertical for the sake of simplicity.

But these game changers believe me will impact across a very broad industrial spectrum. Then in all the way to revealing those game changers, let me just remind you of some of the news we have released.

Of course, over the last week or two, first of all we announced that we are providing Anti-Theft Technology to European Car Makers earlier in the quarter. We have signed with the Fourth Federal Agency, significant relationship for us. We have won Popular Science’s Best of What's New 2014 award.

And we have been granted a new patent for the genetic identification of new variants of Pima cotton. That patent has commercial value because Pima is a highly competitive fiber of very high value. It represents only 3% of what is produced in the United States and only 1% of what is produced all over the world.

But because it's produced all over the world, very often Pima from other portions of the world are used to dilute American Pima cotton and now we have the tool in hand to prevent that. So let me get to the revolution that we’re referring to, the real game changer in our platform.

And that comes from two recent announcements we made, one last week and one yesterday. Now our typical SigNature DNA marks are comprised as shown on this slide of an optical array with a forensic DNA mark that is the flagship of our company, called SigNature DNA. And we have met this for analyzing this both on site and in a laboratory setting.

On-site, the non-forensic method simply utilizes a UV torch and the inspector can see the visible illumination that comes from the rapid screening optical array by eye, and obviously since it’s done by eye that is at low resolution.

In the laboratory, we can take that to the highest resolution using spectrophotometric methods and that’s typically what’s done as part of our identification of the SigNature DNA mark.

However, we announced last week the development of the remarkable multi-modal detection system that can work in the field, on-site and utilizes multiple methods of examining the arm target. The multi-modal reader is a screening tool.

It is in response to our customers who ask for rapid screening rather than having to wait a day or two for a laboratory-based forensic results and that multi-modal tool, small handheld can examine forensic images in their spectro detail does imaging processing and barcode reading and we have a detailed roadmap for the rollout of technologies that are friendly to the multiple devices that are already in the marketplace.

It’s handheld and contains reference spectra for specific customers. So a customer can ascertain with absolute certainty that a DNA mark is present on their product.

For forensic authentication, as always, we offer leverage or risk services and the benefit of forensic authentication in the lab is that it’s done by certified expert typically with an advanced PhD degree and that certified expert provides an expert witness document, which is suitable for court.

The detail of that evaluation includes both sequence and length analysis. Yesterday, we announced an on-site DNA authentication program that will forensically allow the examination of DNA by a real-time PCR and it will identify a customer’s unique customer DNA.

This allows us to offer to the customer without sophisticated training essentially a plug-and-play authentication platform.

As shown here on this slide for textiles, in particular for cotton, and the economist simply sampled, inserted into a 96-well sampling real-time PCR device, the processing time on-site take about five hours, but it will process up to 96 samples on a single go.

It’s fast, easy to install, occupies very little space, requires only a laptop computer to operate, and very little training, and we provide that training and a telephone support line. So that in five hours a customer working on product in their factory can have results on the spot. Now this is truly a game changer.

It greatly shortens the time to get product to market and there are no delays waiting for QC releases but most importantly, it tightens up mix in any textile supply chain.

Now with those tools, we can actually secure cotton that has been DNA marked, or we can fiber type cotton to make sure it is the right genes and species, and eventually that it comes from the right locality at any step in the supply chain, from the farm, from the joiner, which is typically where a cotton fiber gets SigNature T DNA marked.

So, we use the FiberTyping as a diagnostic to ensure that it is the right species.

If it’s the right species then we use SigNature T as the tag and trace tool that allows us to monitor the DNA easily throughout the supply chain and verify the cotton fiber as the correct one anywhere in the supply chain from the spinner and kneader to the lever and manufacturer, to the trader and indeed, all the way to the retail market what is to the consumer.

So, traceability from point of origin to point of sale and now we can empower all we’ve done without the need for shipping samples and the ability to assay both DNA and optical marks, hallmark.

This will have an immediate impact on the industry and we are arranging licensing agreements to verify that the supply chain remains tight in all relationships. We announce this week that we completed the marking of 10,000 bales of California Pima cotton, which is already on the seas, traveling to Asia for conversion to yarn.

And from the yarn, it then travels to India for weaving and finished goods and packaging until it ultimately returns to the United States for distribution and retail. And with that system, now we’ve can verify at every step in the supply chain that there is compliance with what the retailer has ordered and this is truly a game-changer.

So with that, I’d like to thank you for your interest and support. And we’ll turn now to the questions that you have forwarded in..

Thank you, Jim.

Our first question -- we have actually got in several questions regarding why Karol Kain is resigning after 18 months as CFO of the company?.

I guess I’ll take that one, Debbie. When I joined Applied DNA Sciences, Jim ask me to help the company to raise funds, uplift to NASDAQ and implement some financial controls. I have successfully completed all of these tasks and I’m ready to move on to new challenges.

I have no issues with all of the financial reporting or accounting treatment during my time here at Applied DNA Sciences. Thank you..

Thank you, Karol.

Next question, why does the overhead of this company continuously rise even as there are no profits? Jim?.

Well, as Karol mentioned earlier in the presentation that our cash losses for the quarter actually decreased, compared to the same quarter last fiscal year. Much of the increase in our operating expenses is attributable to an increase in non-cash expense.

And we both mentioned that the company has implemented financial controls and continues to manage our expenses responsibly..

Thank you, Jim.

Next question, are the salaries and options of the officers increasing while they lose money for the stockholders? Karol?.

Thanks, Debbie. Well, over the year, the salaries of the officers of the company have actually decreased. The CEO, the CFO and CIO have all taken salary cuts, as far as the overall cost-cutting measures for the company. Every single employee of Applied DNA Sciences worked very hard for the success of the company and its shareholders.

All employees have stock options, making every movement more invested in the success of the company. In order to attract and retain our employees, we must remain competitive and compensate referral..

Thank you.

What are the administrators of the company planning to do to increase shareholder value, Jim?.

Hello. Jim here. The company does not control the share price. But we do control is our operations and we continue to implement on our strategic plan, working tirelessly to expand our customer base and product line in order to grow revenues and to continue to manage our cost and expenses responsibly.

We’ve added distribution throughout Europe and are working very hard to do so under the guidance of Tony Benson, who runs our EMEA operations. We believe if we do all these things, shareholder value will continue to be positively effective as the company moves towards the profitability.

Investors have been responding to our recent announcement as demonstrated by recent increases in the share price and increase in raw material reserve [indiscernible] product institutional bonds..

Thank you, Jim. Karol, I think this next question is for you. It seems your APC amount of stock available for stock options to employees.

How did you increase this in shares from previous upgrade levels --I’m sorry, that’s it?.

Okay, Debbie. Thank you. For the option, the employee option plan is about to expire. So the Board of Directors along with our compensation committee forwarded too many option plan to extend it out for 10 years.

Options are granted to employees as part of the compensation package to help attract and retain talented personnel and to ensure that all our shareholders work with great authority at the company and for the shareholders at all times..

Thank you, Karol. And another question for you. It seems your working capital is about $2.4 million as of the start of the quarter. Your current run rate is $2.3 million a quarter.

Can you explain how you are managing the expenses?.

Another great question. Management is implementing our cost saving plans that is designed to reduce our expenditures for this calendar year. We continue to manage our expenses and as I just discussed our actual cash loss for the quarter decreased..

Thank you, Karol. Jim, we are nearly half way into the second quarter.

Can you give us any idea about Q2 revenues as you did for Q1?.

Well, last quarter when I wasn’t able to give you an idea about revenues for this quarter, there are only two weeks left in Q1. So we were fairly confident about the final revenues for this quarter. And in fact, we were pleased that they turned out to be better than that. At this time, we‘re only halfway through our Q2.

So it’s too early to say with confidence that our -- what our Q2 revenues will be. But we believe we will be at least -- we will be able to at least match the revenues of the quarter we just described..

Thank you, Jim. And we’ve two more questions for Karol. What percentage of your revenues gets generated by the U.S.

Federal government?.

Okay. 41% of our revenues for quarter one were generated by the U.S. Federal government with the majority of that revenue coming from two government contract awards..

Thank you, Karol.

And our last question, did foreign exchange rates hurt your revenue in the quarter and if so, by how much?.

No, Debbie, it did not. Foreign exchange rates did not have material impact to our revenues for this quarter..

So thank you first for participating in our Q1 investor call, presenting in your questions and giving us your time.

But most importantly, we help you feel the same excitement that all of the employees at Applied DNA do and the optimism about our future and the potential for us to really change the way business has done in pieces where it’s done in such a way negative than [Technical Difficulty] consumers on the product. Thank you very much..