BNB Plus Corp (BNBX) 2018 Q3 法說會逐字稿

Good day, everyone, and welcome to the Applied DNA Sciences' Fiscal Third Quarter 2018 Financial Results Conference Call and Webcast. (Operator Instructions) Please also note, today's event is being recorded.

At this time, I'd like to turn the conference call over to Ms. Judy Murrah, Chief Information Officer. Ma'am, please go ahead.

Thank you, operator. Good afternoon, everyone. We thank you for joining us for our fiscal third quarter 2018 financial results conference call. 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 on the Investors' page of the Applied DNA website. With me on the call today are Dr. James Hayward, Chairman and CEO; and Beth Jantzen, 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 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 Applied DNA Sciences' Form 10-K filed on December 28, 2017, and our subsequent quarterly report on Form 10-Q 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, Judy. Good afternoon, everyone, and thank you for joining us today. Let me take a few minutes to discuss the results of our third fiscal quarter and first 9 months of fiscal 2018. Then Dr. James Hayward, our President and CEO, will provide you with an update on the company's progress and provide some commentary around activities and strategies for the balance of the fiscal year.

Starting with the statement of operations. Total revenues for the third quarter ended June 30, 2018, were just over $1 million. This represents a 43% decrease compared to $1.8 million reported in the fiscal third quarter of 2017 and was flat compared to $1 million in the second quarter of fiscal 2018. This year-over-year decrease in revenues was primarily attributable to an initial order in our cotton industry of approximately $1.2 million for the upcoming ginning season being recorded in deferred revenue at June 30, 2018. This shipment was recorded as deferred revenue due to extended payment terms provided to a key customer. The prior fiscal year includes nearly the same amount of product, which is recognized fully within the third quarter. The $1.2 million included in deferred revenue as of June 30, 2018, is expected to be recognized as the payments become due.

The payments are due in 3 equal installments at 90, 180, and 270 days from shipment. The decrease in recognized cotton revenue was offset by an increase in service revenues during the third quarter of fiscal 2018, reflecting our RIF development contract award as well as an increase of approximately $125,000 for the cannabis development and marketing agreement entered into during last fiscal quarter as well as the recognition of approximately $187,000 from our pharmaceutical development contract.

For the first 9 months of this fiscal year, we recognized revenues of $2.7 million, a decrease of 25% from the first 9 months of the prior fiscal year. This decrease in revenue is comprised of decreased product revenue of 57%. The decrease in product revenue is from the deferral of approximately $1.2 million for a concentrate shipped with extended payment terms I noted earlier and from higher cotton textile revenues during the same period last fiscal year. These decreases were offset by an increase in biopharmaceutical sales of approximately $455,000. As a consequence of the deferral of this cotton order, however, and due to the timing of any future cotton orders, we may not meet our prior base recognized revenue guidance of $6.5 million for fiscal 2018.

Offsetting product revenue decline, service revenues increased 106% during the 9-month period ended June 30, 2018, as compared to the same period in fiscal 2017. The increase in service revenues was due to an increase in revenue from a government contract award, which the company only had for part of the prior fiscal year. This increase is also due to feasibility projects, specifically related to textiles, pharmaceuticals as well as an ongoing cannabis pilot under our TheraCann cooperation agreement entered into during January of 2018.

Cost of revenue as a percentage of product revenue in our fiscal third quarter was 64% as compared to 16% for the year-ago period, reflecting decreased sales in the textile industry for the 3 month ended June 30, 2018, which are sold at higher margins. Total operating expenses declined in the third fiscal quarter of 2018 to $3.6 million compared with $4.2 million in the third fiscal quarter of 2017, and increase as compared to $2.8 million in the second fiscal quarter of 2018.

The decrease on a year-over-year basis is primarily attributable to a decrease in stock-based compensation expense of approximately $328,000. The decrease is also due to a decrease in bad debt expense of $343,000. This decrease in bad debt expense was a result of the write-off of a portion of our accounts receivable balance during the 3-month period ended June 30, 2017.

For the first 9 months of fiscal 2018, total operating expenses decreased 22% compared to the same period in the prior fiscal year from $12.8 million to $9.9 million. This decrease reflects lower stock-based compensation expense of approximately 2.5 -- $2.4 million, primarily associated with stock-option grants during the 9-month period ended June 30, 2017, which vested immediately as well as the recognition of expense related to certain performance-based stock options during the prior fiscal year period. This decrease is also due to a decrease of approximately $343,000 in bad debt expense. These decreases were offset by an increase in research and development expenses due to cost incurred in relation to the government development contract award.

For the third fiscal quarter of 2018, adjusted EBITDA was a negative $2.5 million compared to a negative $1.5 million in the same period during the prior fiscal year and a negative $2.3 million in the second quarter of fiscal 2018. The widening in adjusted EBITDA loss is attributable to a decrease in revenues for the third quarter of fiscal 2018 as compared to the same period in fiscal 2017. Adjusted EBITDA for the 9 months ended June 30, 2018 and 2017 was a negative $7.6 million and $6.6 million, respectively.

Turning to the balance sheet. Cash and cash equivalents totaled approximately $2.5 million at June 30, 2018, compared with $3 million at September 30, 2017. The decreased cash balance is primarily the result of cash used to fund operations during the year-to-date period, offset by approximately $4.2 million of net proceeds received from a registered direct offering, which closed during Q1 of this fiscal year.

As of June 30, 2018, we had an accounts receivable balance of approximately $1.4 million, of which $1.2 million relates to the recent cotton order that was shipped during June 2018. Also as of June 30, 2018, we had $2.3 million in deferred revenue as compared to $352,000 at September 30, 2017. $1.2 million of the $2 million increase is related to the initial cotton order that was shipped under extended payment terms in June 2018 as well as milestones and/or phased payments under certain contracts, which will be recognized as revenue in future quarters. For example, as we noted during last quarter's call, we are recognizing the first milestone payment under agreements with Colorcon evenly over the estimated time period it will take to receive regulatory approval.

As of June 30, 2018, our average monthly cash burn rate for fiscal 2018, excluding the proceeds from the financing, was $526,000, a decrease of approximately 30% compared to $751,000 for the same period in the prior fiscal year. The improvement in the monthly burn rate for fiscal 2018 compared to fiscal 2017 is mainly due to increased cash receipts, coupled with a slightly lower disbursement during the first 9 months of fiscal 2018.

As of July 31, 2018, our cash position is approximately $1.3 million. As I mentioned on last quarter's call, we've implemented cost-saving measures that on an annual go-forward basis save roughly 12% of our current monthly cash burn rate. We intend to remain disciplined and continue to strategically manage costs to ensure they are in line with our current and near-future market opportunities.

As of June 30, 2018, we estimate that based on our revenue forecast model, our cash and cash equivalents, along with the collection of our account receivable, are sufficient to fund operations for the next 12 months. However, if we do not meet these forecasted revenues, we have established a plan with multiple options, which include further cost reductions as well as financing. Thank you for joining us today.

And I would now like to turn it over to Jim for his comments.

Well, thank you, Beth, and good afternoon, everyone, and thank you for joining us for our third quarter results call.

For a biotech company, the opportunity trifecta is the combination that literally describes Applied DNA and is the reason told to me by many investors for their interest. It is the combination of great science, huge markets and strong IP. These 3 qualifiers describe Applied DNA at its core and provide our team with a vision that drives us.

Our strategy as a protector of large commercial ecosystems, a phrase that I've used in talking with you before, is steadily coming together. Booked revenue is a truer indicator of our progress, as it combines recognized revenue with deferred revenue. Our orders booked were the strongest for this quarter in the last 2 years, at approximately $2.1 million. Even though most of that revenue must be recognized in future quarters. This follows our strong booked revenue from Q2 of '18, which was approximately $1.9 million.

Our strong back-to-back quarterly performance, powered by [sales] in disparate markets is evidence of our platform's growing adoption.

Now it's not easy being disruptive, but our uptake is steadily improving, and we strongly believe that trend will continue.

Now our platform is centered about our unique ability to produce DNA in very large scale, using the biochemistry behind polymerase chain reaction, or PCR. PCR assays are the most ubiquitous assays in the clinic, but they're performed in just microliters of liquid, sometimes barely voluminous enough to see. The ability to scale this reaction, which reproduces the same reaction done naturally in the nucleus of the cell, arose from the advancements made in the chemistry of DNA precursors, their increasing scale and decreasing price and steady improvements in the design of instrumentation.

Applied DNA developed the fluidics, the mechanics and the software to bring this to liter scale or even to continuous flow, more than a million-fold increase in volume. And we protected our inventions with a strong portfolio of patents. Just as important, we established the know-how to control this reaction and its products to mitigate the impurities that accompany the traditional ways of making large-scale DNA, which use bacterial fermentation. In our biopharma business, where we are producing DNA to be used in therapeutics, like vaccines and cancer therapies, we have highly beneficial methods of production in contrast to the use of plasmid or viral vectors, which are the traditional tools of the industry. That is PCR is a purely biochemical reaction, and it's well suited for the introduction of chemical modification into the gene-sized linear amplicon of these therapies, especially at 1 or both of its ends via addition of peptides or other ligands, which can be used to enhance cellular uptake and transfer the gene-sized amplicon from the cytoplasm into the nucleus.

As in our taggant business, chemical modifications can be used with PCR to ensure our tags remain bound to the material they are meant to protect. And while we have done a superb job at PCR scale-up, we have equaled that performance in the chemistries of our DNA formulations to really fit every industrial vertical and in the detection modalities that are so essential to authentication. We have another new step in our approach to field authentication that makes us smaller, more portable, internet accessible and quicker. We recently introduced at the Cannabis Industry Association conference a new PCR platform that literally fits in the palm of your hand, powered by an iPhone. We will have more to tell you about this in future calls.

Over the next few years, we have steadily advanced -- sorry, over the past few years, we have steadily advanced the development and commercial rollout of our DNA taggant platform. In that time, we worked diligently to capture the opportunities afforded us by this disruptive technology, and we have executed on a strategy, we believe, that puts us on a path to higher revenue growth and sustained profitability. And as we'll discuss today, our value proposition has never been stronger. In our supply chain business, you will hear today how new partners are in place to deepen our value proposition, breaking some of the challenges we've had in expansion to global customers. In our diagnostics and therapeutics business, I will give a brief insight into the growing demand for our PCR products.

Now textiles represent our most established business vertical. The story for this quarter is in our going footprint in these synthetics addressable market, as we continue to support our cotton business and position it for growth.

The third quarter historically signals the start of the demand cycle for our SigNature T DNA taggant for cotton, ahead of the coming ginning season. So our cotton order announced on July 17 followed this historical trends and signals that demand is present and growing.

Our PimaCott brand remains the gold standard for traceability. Our HomeGrown upland brand supported by the politics of the day with American made, is growing in footprint at Bed Bath & Beyond stores. Walk into America's #1 home and home accessories store today and you will see high-end PimaCott on the sheeting wall, but also in non-sheeting home goods. Acala and Delta, DNA tagged and marketed as HomeGrown, are also enjoying expansion in these stores. In May, our 9th SigNature T tagging system was installed on an Australia cotton gin based in Moree, New South Wales, Australia. This is the first international gin to tag pure HomeGrown Australian cotton, and we are looking to our partners, Himatsingka and Louis Dreyfus, to be ready to match increasing consumer and retailer sentiment for sustainable cotton by demonstrating traceability along the value chain with our taggant technology.

Our CertainT platform has gained traction across several business verticals that offer the opportunity for near-term revenue and several adjacent markets to which our platform is directly applicable.

During the quarter, we began commercial cotton testing in our laboratory in India, replicating our Stony Brook operation to provide full forensic authentication services to support customers in the Asia-Pacific region.

The facility offers greater utility to our India-based exclusive cotton partners, the Himatsingka Group and to their many supply chain partners. But with the majority of global cotton supply chains traversing this region, it also puts us right in front of prospective customers.

Our CertainT IT platform is now exchanging data with Himatsingka's ERP system for more efficiency. The ability to test cotton samples in India also supports Himatsingka's commercial cotton traceability initiatives. In April this year, we visited Himatsingka's India-based spinning facility, which is now the world's largest cotton spinning plant under one roof.

A major manufacturer of sheeting, Himatsingka has also began construction of a terry towel plant that will be one of the largest in the world when it's completed. Last year, the company completed the expansion of its sheeting facility, more than doubling its annual capacity.

From Himatsingka's expansion plans, we can derive only 1 conclusion: Their increased production capacity signals a growing market share, and we know that authenticity and traceability is central to its goal. Their success will be our success. The market is responding well, with trade associations inviting our team to conferences to tell our story. In June of this year, our textile team presented at the Better Cotton Initiative's annual conference in Brussels, Belgium, to over 300 brands, manufacturers and cotton leaders, on how to track and trace their cotton goods with SigNature T. The presentation was very well received, and exiting the conference, we saw interest from supply chain stakeholders from throughout the world.

Now synthetic textiles are where the bulk of our textile resources will be focused for the near future. The incredible attention being paid to problems with plastics in the oceans, with carbon footprints and with a need for differentiation by suppliers has increased our paid pilot work this year. Our partners, GHCL, Loftex, Palmetto and others, established the value propositions and are having discussions with high-profile retailers about the CertainT platform. As the central hub among them, we see the synergy of marketing the platform from all directions, but to the same retail targets. In fact, we have introduced and created working collaborations amongst some of our customers to do just that. To assist us in this complex global market, we're pleased to announce that we have hired a well-respected industry insider as a consultant for our synthetic textiles business, who we believe will assist us with additional market penetration. And he is the former head of global operations and supply chains for apparel brands known the world over.

The net impact of our business development and other initiatives across our textile practice has been very positive. We positioned our taggant platform in front of a growing number of opportunities that relate to the tagging, testing and tracking of more cotton, recycled PET fibers to finished goods as well as other renewable and recyclable materials that can be used in home apparel and in footwear. Over the next several quarters, we will look to convert these opportunities into commercial-scale opportunities and orders.

Moving on to our leather practice. As you know, we successfully completed a feasibility project in conjunction with the BLC Leather Technology Centre Limited and sponsored by 5 global brands, 1 NGO and 2 large tanneries in March of this year.

Our technology is ready to go in this harsh environment to provide forensic traceability for leather from farm to shop. In the third quarter, we started industrial-scale commercial trials with some clients that are all tracking nicely, and we are negotiating additional commercial trials with others. With this consortium model in place, we're on the path to commercial-scale tagging in leather, with expected revenue material to our quarterly performance perhaps as early as the second half of fiscal 2019.

Our cannabis business continues to be a key focus of our efforts. Within -- with a recent market projection that the Cannabis industry could reach $50 billion by 2025, it remains a very worthwhile market for us to focus on. It's moving along well, as we have shown the industry's first cannabis tagging system at the NCIA show in San Jose, at the end of July. The interest at the show relative to the physical tagging of cannabis for a real track and trace was conceptually well received by cultivators, processors and dispensary owners.

The business prospects in both the U.S. as well as international markets are strong for in-country as well as export opportunities. We will collectively continue to refine our potential timing and next steps with these and other opportunities. Our partner, TheraCann International, recently launched its modular seed-to-sale offering, which is branded ETCH biotrace, integrated with our cannabis tagging system and CertainT platform. This combined offering will be aimed at new international or statewide programs that have not yet selected a seed-to-sale system. In addition, our CertainT solution can also be a fit for opportunities where programs are already established with existing seed-to-sale systems and are looking for a mechanism to add to physical tag to prove provenance within their existing track-and-trace system.

Now a second component of our basic growth strategy is to leverage commercial agreements through which to enter new markets for additional growth opportunities.

And our momentum in pharma continues along 3 pathways: product qualification, sales and marketing, and regulatory approvals, very important. We established access to this market last year via a partnership with Colorcon, the industry's leading coatings, colorants and ink manufacturer. Following the administrative acceptance of our Type IV Drug Master File by the FDA in May, Colorcon's management and its development, regulatory and sales teams have been highly engaged in commercialization activities. To remind you, with the administrative acceptance, our DMF is ready for technical review when a Colorcon customer for our SigNature DNA product reaches that stage in their product development. Colorcon continues to drive product readiness for that eventuality, and we have several candidates already in the pipeline.

We've also initiated steps in conjunction with partners to seek regulatory approval in Europe to open its markets to us. With regard to ACG, the second largest capsule manufacturer globally, we are on target, with the milestone set out in the MOU signed last year after the Colorcon MOU.

Technical feasibility of capsule tagging is proven in pilot, with continuing work in the required stability testing, global regulatory compliance and marketing and sales underway. Discussions toward a definitive agreement are underway and aligned to the work in each of those tracks I mentioned. Subsequent to the close of the quarter, we announced a strategic partnership with UL that established a new standard for product authentication and supply chain traceability based on science. It's called the UL Verification Program and extends their testing, inspection and compliance business to new products and commodities. UL has a global footprint, a large sales team and aggressive marketing. We're in dialogue with several UL customers. Under our partnership with Videojet, we are continuing to implement marketing initiatives, which as a result are cultivating evangelists within Videojet's industry silos that are championing our technology and platform.

Now we continue to build the IT side of our platform, supporting the CertainT pillars of tag, test and track. Our recently announced partnership with Everledger teams us up with a leader in blockchain-enabled technology. They have demonstrated capacity for both technical and business execution with a large scale implementation, managing over 2 million diamonds. We both see partnership as the vital link between physical goods and digital transactions. As Leanne Kemp, Everledger founder and CEO, states, if an asset does not have an identity, it does not have ownership, value or existence. In the high-end products market, authenticity, provenance as well as value can't be separated. By incorporating a forensic layer to uniquely identifying an asset, we can provide the added confidence in the data captured and tracked on our blockchain-enabled platform.

Our teams are currently in development of a combined platform to post tagging and authentication events to a blockchain, with an initial focus on the leather industry. Other supply chain networks from both companies can be considered for implementation of our joint platform, driving revenues for both companies.

Now in each of the last 3 quarters, I've updated you on our progress with customers coming to us for therapeutic and diagnostic applications of the linear DNA we manufacture by PCR.

In each of the last 3 quarters, we've attracted new collaborators and customers for contract research and contract manufacture of the DNA that they were previously sourcing for therapeutics via a bacterial fermentation and production of plasmids. However, plasmid-based gene therapies and adoptive cell therapies do pose a number of well-defined risks for patients: Number one, the risk of bacterial toxin contamination and the potential for a generalized inflammatory response in patients; number two, the risk of contamination of the target DNA by sequences of plasmid nontarget DNA, including the genes for antibiotic resistance; and three, the risk of contamination of the target plasmid DNA sequences by DNA from the bacterial host genome. We're also negotiating cooperative development agreements in which we share in the intellectual property and the subsequent revenue for any FDA-approved or European Medicines Agency-approved products. We've already begun collaboration with well-known groups, developing cancer vaccines, adoptive T cell therapies, known as CAR-T, and more recently, using similar PCR-produced amplicons as the template for in vitro production of RNA vaccines. We will be presenting our linear DNA capabilities at the immuno-oncology conference in Cambridge, Massachusetts, at the end of this month. So in summary, we are encouraged by all of these signs of growth, and we hope that you feel the same. Our value proposition has never been stronger. And this concludes our prepared remarks.

Operator, please open the call to questions. Thank you.

(Operator Instructions) Our first question today comes from Brian Kinstlinger from Alliance Global Partners.

With the regulatory changes in cannabis, I'm curious where you are in discussions with some of the large growers. I know there's a bunch of even local growers in the United States. And is there any reason to believe the time it takes to penetrate that market will be faster than some of your other industry verticals? Or do you think it will play out similarly?

Thank you, Brian, that's a very good question. So the answer to the first part of your question is, yes, we are visiting some of the largest growers in the world. And they're not just here in the United States, obviously, but in Canada, in Colombia and in other places as well. And of course, the largest growers tend to carry the largest weight with the legislators who are listening. But what will make a precipitous change in, for example, the rate of our uptake is the reception by state governments. And should a state government -- it could be anyone, it could be the state of New York, which has amongst the smallest permitted programs for cannabis in the U.S. But if they should reach a tipping point and recognize the need to regulate the permits for the sake of the safety of the cannabis-based products and their users, and to prevent the infiltration of criminal elements and to ensure the collection of the state's intended tax base, I think that is what will make a precipitous change. So that could happen suddenly in any state, Brian, and it is rather difficult to predict.

So when you think about -- I mean, there's clearly certain states in the United States that are more lenient, have already moved quicker in terms of the regulatory landscape, someone like California and some others. Are you going direct to those governments in discussions or partners of yours going to educate them on Applied DNA services?

Yes, the answer to both questions is yes.

So it's both of you?

Yes. So we are going and we're going with our partners as well.

Got it. And then quickly on the therapeutics market. Can you talk about the number of pilots that are ongoing? And then how many are specifically in CAR-T?

Sure. First of all, we're encouraged by the number of pilots who have come to see us. We'd prefer at this stage not to simply give a count, because I think some of our investors have misinterpreted the counting of pilots in the past, but I can tell you that it's surprising, and a fair number of them are in CAR-T. And you have to recognize that these therapies, while changing the face of medicine and changing the future for patients who are affected with certain diseases like the ones currently treated, acute lymphocytic leukemia, and you can make a huge difference in the future of the kids affected with that disease. There are still elements that have to be sorted out, and this is still a very dynamic field. And we see a unique benefit that we can bring to that industry by having a much stronger sense of control that the traditional methods of DNA manufacture brought to the market. So our challenge right now is getting that marketplace to become aware, to make sure that we're ready when they come for -- to do both the developmental work as well as the manufacturing work to prepare them for the clinic.

So this is something I've asked for many years. Given the benefits of what you're doing in therapeutics, how long might this be, would it be fiscal '19, when you could generate more than $1 million of revenue from this business? Or is that too early, given all the changes going on there?

No, it could happen suddenly. All we would need is the support of a single firm who've decided to make this a major portion of their future planning.

Understood. Okay, my last -- sorry, go on.

No, I was just saying, so it could happen very quickly.

Yes. My last set of questions is around the cotton and the terms. I'm a little confused because you mentioned revenue is going to get recognized when the payments are due. But when you say it's pushed into deferred revenue, typically that means the cash was already collected. So I'm kind of confused about the dynamics. So that, Beth, if you could explain. And then as we go forward in future quarters, are these delayed terms what we should expect going forward on similar sales?

Okay. So to answer the first part of that question. Since we shipped the DNA concentrate and they took title to the concentrate, that is why it's in deferred revenue. So we have the right to invoice it based on the shipment. However, since we went outside of the contract terms and extended the payment terms, under the revenue recognition guidance, we are required to recognize the revenue as the payments become due.

Got it. And is this the standard going forward we should expect? Or is this a one-time item, a one-time benefit you've -- extend of terms that you're offering to one of your partners?

We negotiated our contract with the intention of living within the confines of the contract. We see no need to renegotiate the contract. But there is -- a contract notwithstanding, partners work together to achieve the best goals of partners. So we wouldn't rule out it happening again in the future, but it's not our preferred way to work.

And if I could, I don't know if you can answer the question or choose to answer it, but you're working with much larger partners. So I'm curious what would prompt them to need to delay payment terms for something as small as $1.2 million for much larger companies.

Sure. There are circumstances where we have to manage our production calendar and it might be in our favor for us to manufacture a product a little earlier on than we might have otherwise. And so in those circumstances, it makes sense.

Our next question comes from William Gibson from Roth Capital Partners.

My question was on the income statement, on SG&A. Roughly, what percentage is the sales portion of that?

I'm sorry, the selling portion? The amount relating to service revenues you mean?

Yes. I mean, is that 1/3 of SG&A or 40% or 20%?

I'd say, it's most likely approximately around 15% to 20%, because some of it also is -- I'm sorry, go ahead.

No, that's good. And is this a good base for going forward in terms of modeling?

I am sorry, Beth. But one of the things we have tried to do is use sales channels as effectively as we can, and then they can be managed from in-house, but it's not our feet on the street. And we have a combination between that and managing key accounts, which really require an interaction between ourselves and our customers. So the answer to that question really lies in the source of our revenue and how that evolves over time, because it'll be a difference emphasis in different industry verticals on whether, for example, in pharmaceutics, every account will be a key account. In textiles, consultants can reach out to some of our textile customers. In security, sales channels work very well. So the cost basis is different from each. Beth, did I stop you from saying something?

No, that's okay.

(Operator Instructions) Our next question comes from Josh Goltry from Maxim Group.

A lot of my questions have already been answered, but I was just curious. So the contract that was delayed in terms of revenue recognition, that's from 1 customer, right? Or is that from multiple?

That's correct. It's from one customer.

It's from 1 customer. So are there any other of your customers who've shown to delay payment in the past? And if so, should we expect that in the future?

No, we've not experienced that from other customers in the past.

Okay. So I know the contract with UL is relatively new, but you expressed that some customers are in conversations with you. So I was just wondering if you can give me some more information on what industries are those potential customers in.

Well, UL protects brands across a very wide variety of industries, but the initial ones were related to personal care and to textiles and to wire and cable.

So electronics, right. Okay, wire and cable.

Wire and cable are a little bit different from electronics, but certainly play a role in electrical items. But it's the kind of wiring that might be used in a manifold of variety of electrical elements.

And our next question is from Brian Kinstlinger from Alliance Global Partners.

One more question on the cotton. Is the $1.2 million order that you had, do you think that's sufficient to meet next year's ginning demand? Or should we expect in the next -- either the current quarter or next quarter additional orders to fulfill that demand?

We don't have the kind of assurance to provide guidance, but suffice it to say, we expect that this is not the last order for this growing season. We expect that we'll see additional DNA required, both for the existing business and we also expect to see new cotton customers signed on in new categories, including apparel. And so we would expect that we would see additional cotton orders. It could be in the current Q4, it could be in Q1. And it could spill as far as Q2, because the harvest, the ginning season actually runs through mid to end of February.

And our next question comes from Craig Pierce from Morgan Stanley.

I wanted to ask about the -- first off, an easy one, your ninth gin is the one in Australia, so you've got 8 gins in the U.S.?

Correct.

Yes.

And what do you see as the gin market in the U.S. and the gin market in Australia in terms of count? I know that each gin does different volume, but just conceptually, I mean, I'm thinking more opportunity here then there. Yet, the balancing of the seasons is certainly worth pursuing in the Southern Hemisphere.

Sure. Well, when it comes to gins, it's a much more dynamic issue than you might expect. Gins typically service farms that are close by to the gin, and I've been told that there is over 600 gins in total in the United States alone. And of those, it's not too often that more than about 200 of them are actually functional. The larger gins can handle an enormous amount of material over the course of a season. The smaller gins, a much smaller amount. So where we have tried to localize our activity to the very largest gins in the U.S., and we look forward to tagging in more gins in the U.S. And we've gotten a very strong interest internationally in tagging as well, and we'll have to see how the number of gins grows over the course of the next year or 2.

Next is, well, a question with several facets. Beth had mentioned that the $6.5 million revenue target that you'd expressed at the end of fiscal year '17, first quarter fiscal '18, second quarter fiscal '18. Today, I heard that you were backing off from that number. And so that's one aspect -- a question. Next is cash went from $2.5 million at the end of June to $1.3 million at the end of July. Beth had mentioned a $526,000 monthly burn rate. Yet, she also said that we've got enough anticipated -- we've got cash on hand and anticipated revenue to cover expenses for the next 12 months. That's not all adding up, and I wanted to see if you could fill in the gaps on that.

Sure. So to answer your first question, the $6.5 million revenue target, we had set back in Q1 of this year. For fiscal '18, we just said, due to the deferral of some of the cotton revenue and the timing that Jim had spoken of that any potential additional cotton orders may come in not until our fiscal Q1 or Q2 is why we are cautioning the $6.5 million for the current fiscal year.

Okay. And cash $2.5 million end of June, $1.3 million end of July, I believe. At a burn rate of $526,000, that's less than 3 months' worth at that burn rate.

So that coupled with our accounts receivable and projected revenue is how we met the requirements of cash on hand for -- to sustain operations for the next 12 months. However, which is why I'd cautioned in my script that those revenue forecast either get delayed or decline, that would put that at risk.

Okay. All right. So sounds like kind of a lot of positive things going on and potentially, though, a rough patch in the next couple of quarters.

Yes. Well, we have contemplated the possible eventualities, and we're prepared to meet all of them.

And ladies and gentlemen, at this time, we'll conclude today's question-and-answer session. I'd like to turn the conference call back over to Dr. Hayward for any closing remarks.

Well, first of all, we'd just like to thank you for your steadfast support. We appreciate hearing from those of you who call and reach out, and we're just grateful for your steady interest. And you can be assured that we are determined and do everything humanly possible to make sure that we succeed. Thanks very much.

Thank you.

Ladies and gentlemen, the conference call has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.