Scott Gordon – IR Steven Quay – Chairman, CEO and President Kyle Guse – CFO and General Counsel

Marc Steinberg – Dawson James Securities

Good afternoon and welcome to the Atossa Genetics Second Quarter 2014 Earnings Conference Call. All participants will be in a listen-only mode. (Operator instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator instructions) Please note this event is being recorded. I would now like to turn the conference over to Scott Gordon, President of CorProminence. Please go ahead, sir.

Thank you, Amy, and thank you everyone for joining today’s conference call to discuss Atossa Genetics’ corporate development and financial results for the second quarter ended June 30, 2014. With us today are Dr. Steven Quay, Chairman, CEO and President; and Mr. Guse, CFO and General Counsel. At 4:01 PM Eastern Time today, Atossa released financial results for the second quarter ended June 30, 2014. If you have not received Atossa’s earnings release, please visit www.atossagenetics.com. Before we begin, I would like to note that comments made during this call may include forward-looking statements regarding future events or the future financial performance of the company. Such statements are predictions only and actual events or results could differ materially from those made in any forward-looking statements due to a number of risks and uncertainties, including assumptions about future events based on current expectations, plans, business development efforts, near and long term objectives, regulatory actions, potential new business, strategies or organizational changes, changing markets, future business performance and outlook. Please see Atossa’s most recent filings with the SEC, including without limitations Form 10-K, 10-Q and 8-K. I will now turn the call over to Dr. Quay.

Thank you, Scott, and good afternoon. For those who may be new to Atossa Genetics and as a reminder to others, we are a healthcare company focused on improving breast health, through the development of laboratory developed tests, medical devices and therapeutics. Please note that our products and services are currently in the development stage and require regulatory clearance or approval prior to marketing and commercialization. I’d like to begin with a brief regulatory update. Many of you will recall that on December 23, 2013, we submitted a premarket 510(k) notification with the FDA seeking clearance of the ForeCYTE Breast Aspirator which includes the ForeCYTE breast pump and patient specimen collection kit. On February 28, 2014, we received questions about our submission from the FDA. We have until August 20 to submit a response to the FDA and so we will be announcing to you our submission within the next week. Once cleared by the FDA, we intend to relaunch the ForeCYTE Breast Aspirator to our own specialty sales force and through our existing distributors, including Fisher Healthcare and PSS McKesson. Subject to regulatory clearance, we hope to relaunch in the fourth quarter of this year. I’m pleased to report that we have now prepared the data and information necessary to respond to the FDA’s questions and we are on track to submitting this information and data to the FDA on or before the August 20 deadline. Because of the ongoing nature of the 510(k) process and our relationship with the FDA, we will not be discussing the content of our response today. Now I will turn the call over to Kyle Guse to discuss our second quarter 2014 financial results.

Thank you, Dr. Quay, and good afternoon everybody. Revenue for the three and six months ended June 30, 2014 totaled $10,000 and $34,000 respectively consisting of additional cash collected in excess of the Medicare amounts we previously accrued at the Medicare rates. Total revenue for the three and six months ended June 30, 2013 was $326,000 and $509,000. Cost of revenue was $0 for the three and six months ended June 20, 2014 compared to $222,000 and $289,000 in the same periods in 2013. Because the recall of our lead device commenced on October of 2013, we have recognized virtually no cost of revenue during the six months ended June 30, 2014. For the three and six months ended June 30, 2014, gross profit totaled $10,000 and $34,000. This compares to $104,000 and $220,000 in the same periods in 2013. Total operating expenses for the three months ended June 30, 2014 were $3.2 million consisting of G&A expenses of $2.5 million, R&D expenses of $511,000 and selling expenses of $223,000. This represents an increase of $509,000 or 19% from the $2.7 million in the same period in 2013 which consisted of G&A expenses of $2.2 million, R&D expenses of $190,000 and selling expenses of $319,000. Operating expenses for the six months ended June 30, 2014 were $5.6 million, consisting of G&A expenses of $4.2 million, R&D expenses of $933,000 and selling expenses of $461,000. Operating expenses increased $887,000 or 19% from $4.7 million for the same period in 2013 which consisted of $3.7 million in G&A, $410,000 in R&D and $592,000 in selling expenses. Now we expect that our G&A and selling expenses will continue to increase in the foreseeable future. And if we successfully relaunch the ForeCYTE Breast Aspirator and also begin to market our laboratory tests, we would also begin to incur additional sales and marketing expenses as we continue to build regional and ultimately national sales forces for both our medical devices and our laboratory business. G&A expenses for the three months ended June 30, 2014 were $2.5 million, an increase of $284,000 which is 13% from the $2.2 million in the same period in 2013. The G&A expenses for the three months ended June 30, 2014 consisted primarily of $819,000 in compensation expense, $607,000 in legal and regulatory expenses, $331,000 in consulting and professional fees, $54,000 in travel expenses, $124,000 in insurance expenses, $128,000 in amortization, depreciation expenses and $104,000 in Board of Director fees. G&A expenses for the three months ended June 30, 2013 were $2.2 million which consisted of $457,000 in compensation expense, $162,000 in legal expenses, $616,000 in consulting and professional fees, $48,000 in travel expenses and $97,000 in insurance expenses and finally $391,000 in Board of Director annual fees consisting of cash fees as well as non-cash expenses associated with fees paid in the form of stock options. G&A expenses for the six months ended June 30, 2014 were $4.2 million, an increase of $494,000 or 13% from the $3.7 million for the same period in 2013. G&A expenses for the six months ended June 30, 2014 consisted of $1.4 million in compensation expense, $816,000 in legal fees, $589,000 in consulting and professional fees, $98,000 in travel expenses, $257,000 in insurance expenses, $65,000 in bad debt, $253,000 in amortization and depreciation and $123,000 in Board of Director fees. G&A expenses for the six months ended June 30, 2013 mainly consisted of $964,000 in compensation expenses, $340,000 in legal expenses, $1.2 million in consulting and professional fees, $69,000 in travel expenses, $160,000 in insurance expenses and $106,000 in marketing expenses and finally $436,000 in Board of Director fees. Now the increase in 2014 G&A expenses over 2013 was primarily attributable to an increase in salaries and employee benefits, increased travel expenses, cost of insurance and legal and professional fees. We expect our G&A expenses to continue to grow as we hire additional administrative and manufacturing personnel as we prepare for and execute on the relaunch of the ForeCYTE Breast Aspirator and our other products under development and as we incur additional cost associated with being a publicly traded company. Selling expenses for the three months ended June 30, 2014 were $223,000, a decrease of $96,000 or 30% from the $319,000 for the three months ended June 30, 2013. The selling expenses for the three months ended June 30, 2014 consisted primarily of $116,000 in selling and marketing professional fees and $107,000 in compensation expenses. Selling expenses for the six months ended June 30, 2014 were $461,000, was a decrease of $131,000 or 22% from the $593,000 for the same period in 2013. Selling expenses for the six months ended June 30, 2014 consisted of $193,000 in salaries and $267,000 in selling and marketing professional fees. Selling expenses decreased as a result of the voluntary recall on October 2013. We expect that selling expenses will increases when we receive FDA clearance and prepare for and execute the relaunch of the ForeCYTE Breast Aspirator and as we begin to commercialize our laboratory tests. Finally, R&D expenses for the three months ended June 30, 2014 were $511,000. This is an increase of $321,000 or 169% from the $190,000 for the three months ended June 30, 2013. R&D expenses for the six months ended June 30, 2014 were $933,000, an increase of $523,000 or 128% from the same period in 2013. The increase in R&D expenses in 2014 is attributed to additional R&D expenditures on development of our products and our tests in the pipeline. We expect that our R&D expenses will continue to increase as we add additional fulltime employees and incur additional cost to continue development of our products and services under development throughout 2014. We incurred a net loss of $5.6 million for the six months ended June 30, 2014. Net cash used in operating activities was $4.9 million. Net cash used in investing activities was $191,000 and net cash provided by financing activities was $13 million. At June 30, 2014 we had cash and cash equivalent of $14.3 million versus $6.3 million at December 31, 2013. In November 2013, we entered into a stock purchase agreement with Aspire Capital Fund. One of the terms of the agreement, Aspire has committed to purchasing up to an aggregate of $25 million of Atossa common stock. And then in January 2014, we raised an additional $13 million net in a fall [ph] on public offering. So I’m pleased to report that we have strengthened our balance sheets since the yearend 2013 and we’re in a good position to execute on our ambitious business plan to relaunch the ForeCYTE Breast Aspirator and start the development of our planned therapeutic program by beginning one more study using our devices and our tests as companions to pharmaceutical therapies. We expect our existing capital resources are sufficient to fund our planned operations for the remainder of 2014. This concludes my comments and I’d like to turn it back over to Dr. Quay.

For those of you who are new to Atossa and as a brief reminder to everyone else, let me first talk about the business we’re in then I’ll talk in more detail about our products and services. Atossa Genetics is focused entirely on breast health. We own a CLIA-certified laboratory, the National Reference Laboratory for Breast Health or NRLBH which is located here in Seattle, Washington, which is developing a suite of laboratory tests to address each point in the breast healthcare pathway. Each of which represents a significant market opportunity. Separate from our laboratory tests, we are also developing medical devices to collect specimens from the breast and we are developing pharmaceuticals to treat various breast health conditions. Ultimately, we plan for our devices and laboratory tests to be used as companion diagnostics to the pharmaceuticals that we intend to develop. So there are three distinct aspects to our business – medical devices, laboratory tests and pharmaceuticals, all targeted at breast health. And I’d like to say a few words about each of these. Our leading laboratory test developed by the NRLBH is the nipple aspirate fluid cytology test. Our laboratory has historically tested NAF samples collected with our ForeCYTE Breast Aspirator and with a NAF collection device marketed by another company. In 2013, we were recognizing $600 an average per patient in insurance reimbursement for the NAF cytology testing performed at our laboratory. Our laboratory is also developing a NAF cytology test to study NAF collected through a ductal lavage process. This test is being developed for women who are identified by their physician as being at high risk for breast cancer. The specimens for this test are collected by a surgeon using microcatheters including our own patented microcatheters which are designed to collect NAF specimens from individual breast ducts. Our NextCYTE Breast Cancer Test is a test that our laboratory is developing for women newly diagnosed by their physician as having breast cancer. In the U.S. alone, approximately 235,000 are diagnosed with breast cancer annually. The NextCYTE Test is intended to assess a patient’s risk for distant metastasis, chemotherapy response and lymph node status at the time of biopsy. It uses the GeneChip 2.0 and our proprietary software that we are developing to quantify and analyze the entire tumor genetic transcriptome which represents the genes that are being actively expressed within the tumor. NextCYTE is currently in the validation stage. We plan to complete a clinical trial and after we receive any necessary clearances from the FDA, we intend to launch this product in Q4 2014 or Q1 2015. And finally, our lab is developing the ArgusCYTE Breath Heath Test. This is a blood sample test intended for the three million breast cancer survivors in the U.S. It is being designed to provide information on the presence of circulating breast tumor cells and informs potential treatment options. As you may know, most women die of metastatic disease, not the primary breast tumor. So finding and characterizing circulating breast tumor cells is extremely important. After receiving any necessary additional FDA clearances, we intend to launch the ArgusCYTE Test in Q4 2014 or Q1 2015. As I’ve mentioned, our medical devices include first and foremost our ForeCYTE Breast Aspirator for which we are seeking a 510(k) clearance. Our devices under development also include our patented microcatheters. We are completing validation studies for these devices and we plan to obtain regulatory clearance of our manufacturing procedures and processes to launch this in the fourth quarter of 2014. Finally, our medical devices include a suite to tools for breast surgeons that we acquired from Acuity Healthcare in 2012. For example, these tools include microendoscopes and various biopsy devices. We plan to reintroduce these tools in the market in 2015. We plan to develop our patented microcatheters to deliver pharmaceuticals to initially treat ductal carcinoma in situ or DCIS. We intend to partner with another company to provide this pharmaceutical which we hope to identify and announce by the end of this year. We also plan to develop our devices and laboratory services for use as companion diagnostics. For example, we intend to use our ForeCYTE Breast Aspirator to collect specimen of NAF, test the NAF specimens in our laboratory and provide pharmaceutical treatment options for breast health conditions such as hyperplasia that are detected by our test. We expect that these companion diagnostic systems will initially target proliferative epithelial disease and/or a high risk women. And we’ll require a lengthy and costly clinical trials that we will undertake only with input and direction from the FDA. As we have discussed in the past, our growth strategy is based upon five fundamental tenants. Number one, to relaunch the ForeCYTE device. Number two, introduce our other laboratory tests and other medical devices along the care path of breast health. Three, develop pharmaceutical treatments to be used as companion or to advance partnering opportunities. And five, to promote physician and patient awareness or precancerous breast conditions. All of our medical devices in the NRLBH’s laboratory tests as well as the breast health companion diagnostics systems are currently under development and we must receive additional regulatory clearances or approvals prior to marketing and commercialization. I’d now like to review our recent corporate development. If you will recall, in February 2013, Atossa began to develop a program to enter international market for Atossa’s products. In the second quarter of 2014, we accomplished a key step in expanding internationally by attaining registration certificates under the following standards. Number one, ISO 1345:2003 for medical devices and quality system management systems required for regulatory purposes. The EIN ISO 1345:2012 and AC 2012 which are the Canadian equivalents of the European ISO standards. And then finally, ISO 9001:2008, the quality management system requirement. The internal organization for standardization or ISO is the world’s largest developer of international standards which are recognized globally for their stringent criteria. We now hope to obtain our CE mark for the ForeCYTE Breast Aspirator before the end of the third quarter of 2014. And we are now working to secure distribution partners in key Asian and European markets. We also recently entered into a new lease arrangement for office space here in Seattle Washington for all of our departments other than the laboratory which will remain at its current location. Our current lease for our offices is set to expire in November of this year and we are very pleased to have located new office space within a short walking distance of our laboratory. We plan to move to our new offices in October. Finally, as mentioned at the beginning of my comments, the Atossa team has worked very hard to prepare the data and information requested by the FDA in connection with our pending 510(k) for the ForeCYTE Breast Aspirator. We look forward to completing our submission on or before August 20th – the August 20th deadline. To that end, we have hired two key executives, John Sawyer, Senior VP of Global Regulatory Affairs and Quality Assurance and Dr. Jelle Kylstra, MD, our VP of Clinical Research and Development. These executives each have more than 20 years of experience in their respective fields. They have both been instrumental in preparing the information and data for our regulatory filing. This concludes our formal remarks. Operator, please open up the call for questions.

(Operator instructions) Our first question comes from Marc Steinberg of Dawson James Securities. Marc Steinberg – Dawson James Securities: Good afternoon. My question is that when you realized back in February that information needed to be submitted to the FDA and realizing that without the FDA clearance the company could not relaunch the ForeCYTE product. My question is why is it that the company has chosen to wait literally close to or on the very last day required by the FDA to resubmit to the FDA or to them back the information they requested?

Hi, Marc. Thanks for your question. We intend – we always intended to file them as quickly as possible. The amount of information we’re providing is very extensive. I haven’t seen the final pile of papers and compared it to the original filing. But they’re probably comparable in size, Marc. So rest assured that we’ve been working diligently since February on this submission process. Marc Steinberg – Dawson James Securities: Okay. And the company – just to be clear, the company anticipates that they will be submitting before or on the 20th of August?

Yes. That’s absolutely assured. We will be filing on or before the 20th of August. Marc Steinberg – Dawson James Securities: Okay. And if I understand correctly, how long does the FDA barring no additional questions, have to make a decision with regards to clearance?

Yes. We believe they have roughly 30 days from the date that we submit it to make their final decision. And as you’ve sort of alluded to in your question, they do have the opportunity to ask us small questions which we can answer rapidly or if I guess if they ask a substantial question, they would stop the clock and have the remaining days that they have. Those I think are the two options. Marc Steinberg – Dawson James Securities: Okay, thank you.

Thank you, Marc.

(Operator instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Quay for any closing remarks.

Yes, in closing, I’d just like to reiterate that we continue to remain extremely optimistic about the future opportunities here at Atossa. We are developing and intend to commercialize laboratory tests, medical devices and pharmaceutical therapies which will significantly improve beast health. Each of our test addresses large market opportunities and could result in significant revenue streams over the coming years. We have been working extremely hard to gain FDA clearance of the ForeCYTE Breast Aspirator and we look to relaunch this product in the last quarter of this year. In addition, we’re moving as expeditiously as possible to complete validation testing and gain regulatory clearance for our other tests. Finally, we continue to manage our expenses and we have access to additional capital at our discretion through our arrangement with Aspire Capital should we choose to bring additional cash into the company. We appreciate your patience and continued support and we look forward to reporting a number of key milestones this year.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.