BNB Plus Corp. (BNBX) Q4 2017 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Applied DNA Sciences Fiscal Fourth Quarter 2017 Financial Results. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Clay Shorrock. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for our fourth fiscal quarter and full 2017 fiscal year results conference call get. I am Clay Shorrock, General Counsel at Applied DNA. A copy of the company's earnings press release and accompanying PowerPoint presentation to this call are available for download under the Events and Presentations section to the Investors page of the Applied DNA website. With me on the call today are Dr. James Hayward, Chairman and CEO; and Beth Jensen, Chief Financial Officer. As a reminder, 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 margins, operating expenses, other income and expense, stock-based compensation expenses, 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 Applied DNA Sciences Form 10-K for fiscal 2017 filed a short while ago. Applied DNA Sciences assumes no obligation to update any forward-looking statements or information. Now it is my pleasure to introduce our first speaker to today's call, Beth Jantzen.

Thank you, Clay. Good afternoon, everyone, and thank you for joining us today. Let me start with a review of our financial performance for our fourth fiscal quarter and full 2017 fiscal year and provide you with an update on our cash reserve following our recently completed capital raise. Then, Dr. James Hayward, our President and CEO, will summarize the company's achievements in the year and outline key ongoing and future initiatives in fiscal 2018. Starting with the statement of operations. Total revenues for the fiscal fourth quarter ended September 30, 2017, were $1.1 million. This represents an approximate 30% decrease compared to $1.6 million reported in the fiscal fourth quarter of 2016 and down approximately 36% compared to $1.8 million of revenues in the third fiscal quarter of 2017. These decreases are primarily the result of the timing of shipments and the recognition of revenue related to our cotton contracts, as well as the conclusion of the two government development contract awards that expired during Q4 of last fiscal year 2016. For the fiscal year ended September 30, 2017, we recorded revenues of $4.8 million, an increase of approximately $600,000 or 13%, compared to revenues of $4.2 million for the prior fiscal year. Although revenue for fiscal 2017 was not where we wanted, the year-over-year increase in revenues reflects our focus on revenue stream diversification, as well as building our recurring revenue base over the year. Product revenues declined approximately 38% for the fourth fiscal quarter of 2017, compared to the same quarter of 2016 and increased 47% for fiscal 2017, as compared to fiscal 2016. The increase year-over-year was driven primarily by the recognition of deferred revenue related to prior shipments of DNA concentrates for the marking of cotton. As a reminder, during Q3 of fiscal 2017, we entered into a new licensing agreement with Himatsingka. This new agreement, among other things, provides for a 60-day payment term, as well as a greater gross margin than similar sales, which took place under our previous arrangement for the sale of DNA concentrates to mark cotton. Service revenues increased 13% and declined 38% during the fiscal fourth quarter and year ended September 30, 2017, respectively, as compared to the same period in fiscal 2016. Service revenues increased in the fiscal fourth quarter due to an increase in feasibility studies, which Jim will discuss in more detail later. Service revenues declined in fiscal 2017 as compared to 2016 due to the conclusion of the two government contract awards last fiscal year, which expired during July and August 2016. This was offset in part by a new 2-year government contract awarded in our fiscal third quarter for a total net decrease in revenue from government contract awards of approximately $800,000 for the year, offset by an increase in feasibility projects during fiscal 2017. Gross margin, as a percentage of product revenue, in our fiscal fourth quarter was flat at 68% as compared to the year-ago period. Total operating expenses remained fairly constant at $3.7 million for the quarter ended September 30, 2017, compared with $3.6 million for the same period in the prior fiscal year. For the fiscal year ended September 30, 2017, total operating expenses increased 8% compared to the prior fiscal year from $15.2 million to $16.5 million. This increase reflects higher stock-based compensation expense of approximately $1.2 million and increase in bad debt expense of approximately $307,000 and an increase in depreciation and amortization expense of approximately $180,000, all of which are noncash expenses. These increases were offset by an approximate $1.4 million decrease in research and development expenses. For the fourth fiscal quarter of 2017, adjusted EBITDA was a negative $1.7 million as compared to a negative $1.5 million in the third fiscal quarter of 2017 and a negative $1.7 million for Q4 2016. Year-over-year EBITDA improved by approximately $1 million to a negative $8.3 million from a negative $9.2 million in the prior fiscal year. The improvement for the fiscal 2017 period primarily reflects the increase in revenues year-over-year, as well as a decrease in operating expenses, primarily related to certain onetime costs incurred during the prior fiscal year that were not occurred this fiscal year. Turning to the balance sheet. Cash and cash equivalents totaled approximately $3 million at September 30, 2017, compared with $2.4 million at June 30, 2017. The increased cash balance is primarily the result of proceeds received with respect to our accounts receivable balance, as well as the subscription receivable related to the June private placement. On December 22, we completed a $4.8 million registered direct offering. After deducting the placement agent's commission and other estimated operating expenses payable by us, the net proceeds are estimated to be approximately $4.2 million. This does not include any amounts we may receive from the exercise of the warrant. As of December 22, including the estimated net proceeds from above, our cash position is approximately $4.9 million. This capital raise not only strengthened our balance sheet, but also gives us the financial flexibility with which to execute on our fiscal 2018 goals, which Jim will discuss in greater detail in a moment. As of September 30, 2016, we had a total accounts receivable balance of approximately $2 million due from cotton sales related to the former MOU as well as new cotton orders. Due to the new contract payment terms and the settlement of the receivable balance from the former MOU, we expect to collect the outstanding balance in our fiscal first quarter. As of September 30, 2017, our average monthly cash burn rate for fiscal 2017 was approximately $332,000, compared to approximately $859,000 for the same period in the prior fiscal year, a decrease of approximately 62%. This significant reduction in monthly burn rate for fiscal 2017, compared to fiscal 2016 is mainly due to increased cash collection, primarily from cotton customers, as well as a decrease in cash expenditures. We continue to closely monitor our spending and intend to remain disciplined and continue to strategically manage costs in line with our current and near future market opportunities. As of September 30, 2017, we estimate that our cash and cash equivalents, along with the collection of our accounts receivable and the proceeds from the recent financing discussed, are sufficient to fund operations for the next 12 months. Thank you for joining us today, and I would now like to turn it over to Jim for his comments.

Okay. Well, thank you, Beth, and good afternoon, everyone. Thank you for attending our conference call for the combined fourth fiscal quarter and year-end results. Over the past fiscal year, we've worked diligently to capture the opportunities afforded us via our disruptive DNA platform and execute on a growth strategy that puts us on a path to greater revenues and profitability. While our technology is disruptive, we've spent this year to ensure that we provide a constructive path forward for 2018 to bolster existing business, cultivate new business and expand business overseas. We're focused on penetrating large commercial ecosystems like our established textiles vertical, and more recently, new verticals such as pharmaceutics, personal care, fertilizers and industrial materials such as bearings and their lubricants. Though disappointing, our fourth quarter financial performance does not alter what we have accomplished in fiscal 2017 nor does it reflect the momentum, I believe, we have accrued toward fiscal 2018. Let me share with you two data points that I believe best illustrate the progress we have made over the past year in executing against our growth strategy, and that put us firmly on the path to our revenue and profitability goals. Starting on this Slide 6, we portray quarterly snapshots of the forward-looking annualized run rate of recurring revenue through fiscal 2017. You will see that exiting fiscal 2016, we had established an annual recurring revenue run rate of approximately $2 million per year. Exiting fiscal 2017, one year later, our efforts have been driven, or have driven rather, a 3.5-fold increase in expected recurring revenues to over $6.5 million per year. The basis of this annual revenue run rate can be found principally in long-term contracts with guaranteed or minimum annual revenues with Himatsingka, Loftex, and GHCL, as well as from our bulk manufacturing business from the tagging of automotive parts in Europe and including our DLA part marking and rapid innovations contract. Textiles represent the majority of our recurring revenues today. You will note that the trend takes a market step-up between quarters two and three that coincides with the launch of our CertainT licensing strategy. Recall that with CertainT, we not only generate revenue from the sale of our DNA as an asset and the associated authentication services, but we also participate in the economies of the product when its value is at its highest, when it sits on a store shelf. This slide makes a compelling case for the continuing maturation of our business model and the further diversification of our revenue streams. We believe that our drive to broaden adoption on CertainT licensing strategy beyond our textile vertical to classics, pharmaceutics, fertilizers and recycled material could have a valuable impact on revenue growth in fiscal 2018. Turning to Slide 7. You can see the number of feasibility pilots has increased quarter-by-quarter throughout 2017, evidence of the growing market awareness of our platform. Our pipeline is growing, because our DNA platform was proven in the cotton market and we have demonstrated the economic value of our solution in cotton to our partner, Himatsingka, and to several of its customers, chiefly Bed, Bath & Beyond and Costco and now additional retailers and brands. Companies that represent diverse interest in locations within the supply chains of their industry from top-end suppliers to new retailers and brand owners populate our pipeline of feasibility pilots. Our current list now has grown to 24 pilots and includes programs in personal care, print and packaging, pharmaceutics, biopharmaceutics, military, industrial products and textiles, with non-cotton textile representing about 30% of our current efforts. This diversity lowers our risk concentration and increases our opportunities to gain large commercial ecosystems for our future product applications. Together, these slides show that we are creating a stronger foundation on which to build our future growth. The review of fiscal 2017 must also include our performance in the fiscal fourth quarter and especially when viewed in the context of the 2017-2018 cotton ginning season, as our most developed market, textiles are our largest contributor to revenue and currently include cotton, synthetics and leather. As we are in the middle of the 2017-2018 cotton ginning season that spans both our fiscal fourth and first quarters, I want to touch on the demand for our DNA platform from this market following the signing of our new exclusive licensing agreement with Himatsingka in June of this year. Now in the United States, cotton is planted, grown and harvested only once a year. The ginning season immediately follows harvest, and this period is our singular opportunity to tag the cotton with our Signature DNA molecular tag. The tagged cotton is bowed and then warehoused and shipped upon demand to the spinners and the rest of the supply chain when the retailers need new product. As you can see on Slide 8, which portrays cotton sales and demand trends, the demand for tagged cotton, which is denoted by the blue histograms, has steadily grown year-over-year. Our revenue from cotton, denoted by the line graph, has not matched this growth, principally because our prior business model was based on DNA purchases with no historical run rate and an outlook of demand that came from our partners. In fiscal 2015, you can see this resulted in orders to us of nearly $4 million, but it also created an oversupply situation that persisted into fiscal 2016. During fiscal year 2016, demand from our cotton was met with DNA sold in fiscal 2015. As a consequence, cotton revenue dipped steeply downward, which is evident in the negative slope of the red line over the second column from the left. Our cotton revenues that fiscal year was below the market consumption of tagged cotton, although we were supplying the demand, but from the prior year obviously. Payment terms through our prior business model were also a burden for our company, with cash receipts typically taking 18 months to collect. This was not a viable long-term strategy for us. So, in fiscal 2017, we decided to leverage the market's growing demand for tagged cotton to secure more favorable economics in a cotton business model among partners who are better constructed for Applied DNA's interests. With the signing of the agreement with Himatsingka, we secured much more favorable payment terms, net 60 days, and gained more predictable cash flows, as well as a greater gross margin than under our prior agreement. Selling directly to our end customer and no longer through an intermediary reduces complexity and improves communications and the balancing of supply and demand with shorter lead times. Orders for our taggant are now just in time, as evidenced in the tagged cotton sold being now more fully in synchrony with the quantity of cotton tagged in our estimates of 2017 and 2018 in this graphic. Because of this, going forward, we expect to receive orders from Himatsingka throughout the year in contrast to prior years, in which we typically received orders only at the start of the ginning season. But nonetheless, we should still expect seasonality to affect the timing of cotton revenue. With the growing adoption of our DNA taggant by the cotton market and longer-term contracts with retailers secured through Himatsingka, we can now begin to predict demand in the coming year. As you can see in the right-hand most column, we predict that the demand in fiscal 2018 will continue to rise and long after ginning and tagging has ended for the current season. Now recall that I noted moments ago that the only opportunity to tag cotton is when it's ginned. If retailer demand were to increase after the ginning season was over, it would result in a delayed or missed revenue opportunities for our partners and ourselves if we were tagging only to meet immediate demand. We have therefore made the strategic decision to supply additional taggant beyond committed orders to our collaborating gins to cover cotton opportunities being worked by us, our merchants and Himatsingka. Upon receipt of an order for tagged cotton, Himatsingka will buy the DNA taggant from us sufficient to cover that order. Since the cotton program began three years ago, we have literally transformed the industry's reliance on paper trail to a forensic proof of origin. Fast forward, we've demonstrated that in a relatively short period of time, from 5 million pounds in 2014 to an accumulated total of over 200 million pounds of cotton by 2017, our DNA technology has the capacity to scale to billions of pounds of fibers. It is accepted in the marketplace, and we believe it has the potential to extend beyond textiles to apparel in the U.S. and internationally. Providing proof of origin is no longer considered a nice to have, but a must to have. And demand is increasing internationally, as seen by the inquiries we are fielding about cottons from as far away as Australia and Turkey. We are participating in the Internet of Things with our DNA Transfer Systems in seven gins. We are managing our cotton contract fulfillments with our partners, Himatsingka and Louis Dreyfus. We have tested over 3,000 samples of cotton through the supply chain, all within our textiles cloud-based platform. This season, we are collecting over 685,000 sensor and control data points each day into our cloud, with real-time monitoring of spray quality, linkage to the USDA bell [indiscernible] identities and tracking of cotton pounds marked aligned through the usage of our DNA from our transfer unit. The platform gives confidence to manufacturers and retailers of the quality of the cotton flowing through our system. It is also configurable for supply chains in synthetics and other CertainT prospects that we have now in our pipeline. As long as market penetration continues to grow, and right now and for the conceivable future, we are the market for DNA tagged cotton. We can expect to tag more than we can recognize as revenue in each fiscal year to meet the forecasted demand in the following fiscal year, but before a new supply can be available from the next harvest. As you can see on Slide 8, we are for the first-time forecasting revenue for DNA sales from cotton tagging of over $4.4 million for fiscal 2018, which is an increase of more than 80% over fiscal 2017. The potential for upside beyond this is significant, with new interest from brands and retailers. To meet the potential demand, Applied DNA has created a contingent reserve of more than $1.4 million worth of DNA on tagged cotton at our cooperating gins that can help to meet any fiscal year 2018 pre-harvest requirements. Any incremental demand beyond this level can be met by additional shipments within the 2018 harvest, both before and after the end of our current fiscal year. No other system has been proven in the market, not even block chain or RFID that you can physically trace every fiber tagged from farm to shelf while maintaining economic stability, sustainability and a secure supply chain system. As for block chains, let me point out that as valuable as block chains are likely to be in logistics, all block chains and their methods suffer from a common limitation. The most trusted block chain ledger in the world will not be able to tell if criminals have substituted bad or counterfeit goods for the originals. Without a DNA tag that provides forensic tracking back to the origin, how does any block chain prove that an initial distributed entry in any ledger represents authentic goods? We believe that SigNature DNA should be the backbone to any block chain that requires a forensically certified node. We believe that this translates well for our business in general and for many of our developing opportunities. Now as we look ahead to fiscal 2018, our goal is clear. It is to continue to drive toward greater revenues and eventual profitability. For those of you who listened to our fiscal third quarter conference call on August, you will recall that I stated that if we were to hold our expenses to where they were in the third quarter and maintain the quarter's gross margin mix, we would become cash flow positive revenues of approximately $3.5 million per quarter or $14 million per year. Having established growing recurring revenues entering fiscal 2018, we are today approximately halfway to our cash even breakpoint. Let me touch on several recent developments, I believe, will contribute to revenue growth in the current year and continue our progress toward breakeven. In addition to our expectation for very strong growth in cotton revenues in fiscal 2018, and it's worth pointing out that of the $4.4 million we were projecting for fiscal 2018, nearly $4 million is already baked into our expecting recurring revenue base for cotton. I noted earlier that we exited fiscal 2017 with 23 projects in our pipeline. That number is presently 24. Each is an opportunity for commercial-scale deployment of our platform and associated services. Two of these pilots have already commercialized, and it's likely that most of the textile projects will transition quickly. We also see opportunity for revenue growth in the verticals in which we already have an established foothold, and my remaining comments will address these opportunities. Within textiles, we have already seen synthetic fiber customers expand their initial CertainT licenses, and we anticipate that additional synthetic fiber manufacturers brought on over the course of the fiscal year will engage in similar licenses. They have expanded to cover more types of synthetic, particularly those following the cotton value proposition into home products in apparel. CertainT, however, is applicable not only to synthetics. We anticipate its adoption across fertilizer, pharma and most of our supply chain markets. Over time, we hope for it to become the global standard brand for traceability, transparency and trust. We have expanded the CertainT program for PET recyclers in both India and in China to service the extended term leasing agreements with GHCL and with Loftex, respectively. Both agreements call for guaranteed minimal annual revenues and licensing royalties. Staying with textiles. Work on the leather feasibility studies with our project sponsors, who I think now number nearly 10, continues to exceed everyone's expectations and the project is on target for completion at the end of March 2018. We have already started discussions to commercialize the tagging of leather and expect to turn this into a good revenue stream for fiscal 2018. Safesolution continues to be very active in Scandinavia and has recently secured an extension of a contract with the prestigious German car manufacturer and have recently added staff to their sales force to help increase sales in the area. We are also due to recruit new distributors for the territories of Ecuador, Japan and Ireland in the new year. Following the conclusion of a pilot project for the large-scale molecular tagging of fertilizer that was successfully tracked through a West African supply chain earlier this year, our partner and market leader Rosier, a division of Borealis, is pulling us through the global supply chain as a commercialized product. Together, we are now preparing to enter geographies that account for 60% of global fertilizer consumption. Interest is being driven by agro economies to prevent and secure supply chains from fertilizer adulteration. And we anticipate that tagged fertilizer may enter target markets during early calendar 2018 and additional locations thereafter throughout calendar 2018. We also anticipate demand for tagged fertilizer in Turkey with the implementation of a federal mandate effective January 1, 2018, that requires DNA tagging of all domestically produced fertilizer and secure packaging, including the use of secured barcodes. This mandate comes in response to a series of acts of terror that utilize fertilizer-based explosives in Turkey in 2016. Having engaged the government in Turkey since mid-2016, we believe that our DNA platform was the catalyst for the government's mandate and will create demand for our taggant rather in the country. We are engaged with domestic Turkish fertilizer manufacturers to meet this demand. We announced a strategic partnership with Videojet Technologies in late September. By identifying and partnering with market leaders like Videojet and their sophisticated sales teams, we accelerate our time to revenue in our key business verticals. Market leaders already own the customer relationships that we seek, and they understand fully the workings of the supply chain in which they are engaged. We supply a truly scalable and seamless technology that gives their offering a competitive advantage in the marketplace, thereby enabling them to defend their market share and gain new market share. We gain new sales by leveraging their sales force to access their installed customer base, participating in sales of the printer and follow-on sales of DNA-tagged cartridges. Videojet, one of the largest in the world for inkjet printing and marking systems with 650 salespeople globally, has 325,000 installed machines that mark more than 10 billion items daily with barcodes and other valuable information across disparate supply chains that include military and government, personal care and in pharmaceutics serialization. With Videojet, we've vastly expanded the potential universe of items that can be tagged with DNA ink and can provide a solution that can be easily integrated into a manufacturer's production line to seamlessly tag their widgets. When inkjet printing is used to print packaging, the marketplace is almost limitless. As part of our partnership, we launched a co-branded printer with shared revenues to Applied DNA that is designed to use only DNA-infused inks. With the co-branded printer, Videojet can offer its customer base a replacement technology that still prints barcodes and other information, but now each printer and ink cartridge is turned into a secure supply chain certification tool. Once the printer is installed, the customer represents a long-term opportunity for the repeated sale of cartridges of DNA-infused ink and our CertainT platform, the perfect razorblade model. The Videojet security printer is ideally suited for high-volume printing on a production line and is specifically targeted to manufacturers to tag parts. Our targets, our brand protection and others tasked with the security of the brand and supply chain within DoD agencies and at the OEMs that sell to the military. As a first step, we've begun to train Videojet salespeople to make them effective proponents of our technology platform. We also see substantial cross-selling opportunities within our respective current and potential customer basis. I would note that this partnership is proceeding quickly and that while the initial announcement was centered on a black pigmented ink, we are already developing additional types of inks appropriate for different applications that will have the advantage of an accelerated go-to-market time line. We recently presented together to the marketplace at the DMC exhibit in Florida, where our platform was received with great interest. Now patient safety is increasingly under jeopardy due to drug counterfeiting and drug diversion, facilitated in part by the fragmented, complex, international nature of the pharmaceutic supply chain. The passing of the Drug Supply Chain Security Act was a watershed moment in enhancing patient safety through the serialization of pharmaceutical packaging; however, we believe there is an immediate opportunity to further strengthen the security of global pharmaceutic supply chains by augmentation of serialization with SigNature DNA. A growing body of experience suggests that demand for pharmaceutic authentication is going to grow in the years ahead as a result of factors directly related to the loss of supply chain controls. On December 14, we announced a memorandum of understanding with Colorcon, who brings their excipients and coatings, which are wonderful carriers for SigNature DNA directly into most of the large pharmaceutic companies in the world and to many nutraceutical companies. The MOU is nonbinding, but we expect to sign a definitive agreement very soon. Upon signing the definitive agreement, we expect to begin receiving milestone payments and with sales to their customers begin sharing revenue for product sales and for services. We expect to complete our drug master file or DMF over the next month and then review it together with Colorcon with the subsequent filing with FDA shortly thereafter. This is slightly later than I had advised some months back and I apologize, but reflects our effort to take the best plausible path with our FDA compliance. With industry-leading subject matter experts in regulatory and compliance, Colorcon has guided us toward a DMF on file with the FDA, which will accelerate the time to implementation of our joint customers as we commercialize. Just having gone through the process gives us a sense of confidence to the sales teams and customers. The purpose of the DMF is to facilitate compliance with FDA standards for our first customers who will take DNA tagging on their branded solid doses to market. Once filed, we will have the regulatory confidence to engage with potential pharmaceutic customers who wish to deploy our molecular tag in their products. Now to be clear, there is no expectation of an FDA response to the filing of a DMF. Now molecular tagging or turning the tablet into its own barcode complements the FDA regulation for package serialization, which is our approach with Videojet. Together, Applied DNA, Colorcon and Videojet can offer the pharmaceutic industry for the first-time end-to-end supply security that is well beyond current global mandates. And most importantly, we can do so with channel sales support by teams hundreds of times larger than our own. On a related, but distinct topic, we continue to cultivate strong interest in our ability to manufacture functional DNA quite more complex than our intentionally nonfunctional DNA tags for the biopharmaceutic industry. Our contracts for DNA production for diagnostics are stable and productive and part of our growing base of recurring revenue. In addition, we continue to quote on pilot studies for functional DNA in gene therapies and for vaccines. We were able to convert two of three Vandalia customers to our own long-term customers. The third customer withdrew their product from the marketplace. In retrospect, our acquisition of Vandalia has proved to be extremely valuable to our capabilities and to our current and future revenues. So, in conclusion, we expect fiscal 2018 to evidence a significant ramp in revenues. Our expected annualized recurring revenue run rate at the start of fiscal 2018 is approximately $6.5 million per year. We can expect to add to this base, in part through our recent agreements with Videojet and Colorcon, as we work in alliance to acquire customers. Beyond the growing recurring base, we can also expect to add incremental revenue within the quarters as key pilots convert to commerce. Let me enumerate our short-term goals as shown in my final slide. Firstly, we'll increase our revenues from industry verticals in which we are already established, especially textiles. We're seeking independent growth from cotton and from synthetic fibers, including recycled PET. We have secured incremental business with existing customers and partners, the interest of new retailers, as well as new brands and new geographic markets. And we are taking action to realize these sales. Secondly, we'll leverage the sales channels that are already established with new partners whose selling teams are much larger than ours, such as Colorcon and Videojet and textile players, Techmer and Loftex and GHCL. We are already training their sales teams, identifying our initial sales targets and sales goals for the year. Thirdly, we'll increase the number of CertainT licensees, which adds revenue that goes straight to our bottom line. And finally, we'll tailor the applicability of our technology platform to enter markets adjacent to our core markets such as personal care. Now this concludes my prepared remarks. I'd like to thank you for your continued support of Applied DNA. And on behalf of the company and my colleagues, I'd like to wish you all the best of the holiday season. Operator, please open the line to questions. Thank you.

[Operator Instructions] And our first question comes from Craig Pierce with Morgan Stanley. Please go ahead.

Hi Jim, how are you doing?

Very Craig, how are you? I'm sorry, I was talking so long, but we had a lot to say this time.

Well, if you want to keep going, it's fine with us. You continue to put some more meat in the conversation. Three things. One, of course, is the - I said of course - the issuance of stock. I gathered you felt the need to do that when I hadn't looked closely at the numbers as of the end of third quarter to now, but at the burn rate that Beth had been describing, it was needed at this point?

We needed the confidence. We have, Craig, some ambitious sales programs. And we needed the confidence to enter those, knowing that we could pay for the support that we need to close on those deals. And so, we regret having to go to the market. And as the largest shareholder of the company, I feel safe. So, I only do it with the greatest contemplation forehand and with the advice of my colleagues.

Two, what would you predict would be the next silo that you will be able to forecast future revenues with, like you for the first-time predicted cotton?

God willing, it's pharma. I think there is a wonderful opportunity there. There is very little the industry and the regulators are trying with serialization. We don't think that will be effective. We think we really have the only platform that can actually authenticate original drugs. We think that it will change lives in markets all over the world, if you consider hundreds of thousands of people have died from counterfeit drugs in Africa. These are markets we'd like to have an impact on. But even the [indiscernible] drugs distributed all over the United States that are counterfeit, we feel we can eliminate. And so, we are passionate about getting into that industry, doing the right thing, and we know we have the technology that will solve the problem.

And three, without going any further than you obviously feel comfortable doing, but open to as far as you can, milestone payments. Any sense of how soon - how far out in time those might begin to accrue, or I'd say accrue, be shared, be given?

Yes, I expect we will experience or benefit from milestone payments in a very short term and in the moderate term as well. So those represent the kind of typical business done in pharma and biopharma. It has not been the typical business for us in more industrial applications, and now we're very, very pleased to be entering into those markets. And I think being able to obtain contracts with milestones is a testimony to the attractiveness of our platform. And I think quite frankly, as we evolve and get involved with more and more pharmaceutic companies, more and more biopharmaceutic companies, the nature of those contracts will continue to improve.

Would you be able to give us an example, like what the first one would be? And if not that, I mean, how significant would you say the - that milestone payment would be relative to, say, your fiscal year 2017 revenue?

Our partner has asked that we not relay the precise amount, but I can tell you that the milestone is higher than many of the contracts we have signed over the last couple of years. So, it's significant. It's justified, because the kind of work that's required in that industry and the work that's done to ensure compliance with FDA, the filing of DMF, the bringing of the company up to cGMP operating standards is expensive. And so that's why it's a typical component of pharma and biopharma deals.

Thank you. I will open it up to the next person.

Okay. Thanks very much Craig.

The next question comes from Paul Cooney with Joseph Gunnar. Please go ahead.

Hi Jim.

Hi, Paul.

A couple of questions about the recent pharma deal. Obviously, in this call and prior calls, you demonstrated the need for what you guys have. Just kind of wondering with the recent deal if you can kind of give us the scope of what that company does and what percentage of the industry that they have? And also, if a pharma company did sign up with you guys, what kind of cost would it add to, like on a percentage basis, to making a certain drug?

Sure. Okay. Let's tackle first the strategic element you asked about. In prior calls and in public presentations and in print, we have guided our desire to enter the pharmaceutic industry to approach the issue of solid oral doses. Solid oral doses take the form of tablets and capsules, and our intention is to recruit partnerships in both. Those tablets and capsules have to be placed in packaging, and that packaging is the subject of the FDA law that mandated serialization. So, we have put ourselves in a very good position by starting with Colorcon. Colorcon is a world recognized and praised manufacturer of solid oral dose excipients. Those are the materials that are used to compound finished oral drugs except for the API, the Active Pharmaceutical [ph] Ingredient itself. So those are the materials that prevent tablets from dusting in your bottle, that allow tablets to pass with an enteric coating through your stomach to your intestines and that allow you to recognize certain pills by their color or by ink markings on the pill. So, this is a great way to enter the marketplace. We might have gone through one of the big pharmaceutic companies and struck a relationship to tag their drugs. That, no doubt, would have involved exclusivity. That could have kept us away from other big drug companies. And it would have been a more difficult entry to the total accessible or addressable market. By working with Colorcon, we can address the total addressable market in pharmaceutic solid oral doses in the form of tablets. They have a wonderful platform. They have a wonderful market share. And they have a terrific sales team. Beyond that, we intend to move into capsules and packaging, and we can talk about that more next time.

It looks like Paul has disconnected his line. And at this time, there are no further questions. So, I'd like to conclude the question-and-answer session. I would now like to turn the conference back over to James Hayward for any closing remarks.

Okay. Well, thank you all very much for participating in our conference call, particularly at the end of the year. We apologize that it had to be so late. But in fact, circumstances forced us to it. It wasn't our strategy to do so. And lastly, we would thank you for your dedication to Applied DNA and wish you all the best of the holiday season on behalf of myself and my colleagues. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.