Scott Gordon - Investor Relations, President of CorProminence LLC Steven C. Quay - Chairman and Chief Executive Officer Kyle Guse - Chief Financial Officer, General Counsel and Secretary

Good day everyone and welcome to the Atossa Genetics’ Full-Year 2015 Earnings Call and Webcast. 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 also note that today's event is being recorded. At this time, I would now like to turn the conference call over to Mr. Scott Gordon, President of CorProminence. Sir, please go ahead.

Thank you, Jamie and thank you everyone for joining today’s conference call to discuss Atossa Genetics’ corporate developments and financial results for the year ended December 31, 2015. With us today are Dr. Steven Quay, Chairman, CEO and President; and Mr. Kyle Guse, CFO and General Counsel. At 4:01 PM Eastern Time, Atossa released financial results for the year ended December 31, 2015. 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. Steven C. Quay: Thank you and good afternoon. Atossa is a clinical stage pharmaceutical company focused on the development of novel therapeutics and delivery methods for the treatment of breast cancer and other breast conditions. Our leading program uses our patented intraductal microcatheters, which deliver locally administered pharmaceuticals through the breast ducts. We initiated a Phase II clinical study in March 2016 using our microcatheters to deliver fulvestrant as a potential treatment of ductal carcinoma in-situ or DCIS and breast cancer. Fulvestrant is commercially available in the U.S. as a monthly intramuscular injection. This study is being conducted by Columbia University Medical Center Breast Cancer Programs. Our second pharmaceutical program underdevelopment is Afimoxifene Topical Gel or AfTG for the treatment and prevention of hyperplasia of the breast. In addition to our clinical stage pharmaceuticals programs, we are in the process of evaluating several therapeutic candidates to treat other breast conditions including breast cancer. Factors we are considering in evaluating potential drug candidates include for example the ability to obtain expedited regulatory approval, significance of an unmet medical need, the size of the patient population, intellectual property opportunities and the anticipated preclinical and clinical pathway. Before I provide an update, Kyle will summarize our 2015 financial results.

Thank you, Steve. Good afternoon, everyone. For the year ended December 31, 2015 substantially all of the revenue we recognized consisted of pharmacogenomics testing by our laboratory, The National Reference Laboratory for Breast Health. As result of sale of the NRLBH in December 2015, the revenue and cost of revenue are presented as discontinued operations for both years ended 2015 and 2014. The NRLBH had total net revenue of $5.5 million for the year ended December 31, 2015, consisting of mainly pharmacogenomics testing. This represents an increase of approximately $5 million from the total revenue of $526,000 from our ForeCYTE device sales and laboratory testing for the year ended December 31, 2014. As a result of the sale of the NRLBH, operating expenses related to the NRLBH are presented separately in our financial statements as discontinued operations for both years ended 2015 and 2014. Total operating expenses from continuing operations were $12.6 million for the year ended December 31, 2015, consisting of G&A expenses of $8.8 million, R&D expenses of $2.4 million and selling expenses of $1.4 million. Operating expenses from continuing operations increased $417,000 or 3%, from $12.2 million for the year ended December 31, 2014, which consisted of G&A expenses of $8 million, R&D expenses of $1.1 million, selling expenses of $696,000 and impairment expenses of $2.4 million. The increase was mainly due to additional costs attributable to the commercialization and launch of our ForeCYTE and FullCYTE devices in EU and in the U.S. and additional R&D spending on developing our medical devices and the AfTG drug. We incurred $3 million in loss from discontinued operations, which includes $2.3 million from operating expenses from the NLRBH, $399,000 in exit costs, and $671,000 in loss on disposal of the NLRBH. Operating expenses from discontinued operations are primarily from activities related to the NRLBH operations, which were consistent with 2014 amounts. Our cash and cash equivalents as of December 31, 2015 were approximately $3.7 million. Now during the first quarter of 2016, we have drawn on our facility with Aspire Capital raising approximately $2.2 million, as a result this substantially contributed to our cash resources particularly in light of the fact our burn rate has been reduced significantly with the sales of NRLBH. We've now fully utilized the facility with Aspire Capital and no shares remain available for sale to them under the terms of our agreement with them. I would also like to update everyone on the NASDAQ requirement that our stock trade above $1 per share, otherwise known as the $1 closing bid requirement. On September 28, 2015 we received a letter from NASDAQ stating that our stock failed to maintain a minimum closing bid price of $1 per share for 30 consecutive business days. We had until March 28, 2016 to either regain compliance or request additional time to regain compliance. We've not gained compliance as of March 28, 2016, so we requested an extension of the deadline. I'm pleased to report that yesterday NASDAQ granted us a 180-days extension, until September 26, 2016 to regain compliance. This concludes my comments, I would like to turn the call back over to Steve. Steven C. Quay: Thank you, Kyle. Atossa genetics has experienced a significant transformation in 2015 from a device and diagnostic company to a focused clinical stage pharmaceutical company and I would like to spend our time today focusing on the progress we have made with our therapeutic program aimed at developing pharmaceuticals to treat breast conditions including breast cancer. This is where we are now focusing on financial and human resources and we'll continue to do so for the foreseeable future. We've seen substantial progress on our leading pharmaceutical program which represents a multibillion dollar opportunity. I'm delighted to report that earlier this month Atossa announced our 007 trial a Phase II study in women with ductal carcinoma in-situ, DCIS or invasive breast cancer slated for mastectomy or lumpectomy opened for enrollment after gaining IRB approval. This study will assess the safety and tolerability of fulvestrant when delivered directly into the breast milk ducts of these patients. Although breast cancers and precancerous lesions are detected at an earlier stage and despite the use of systemically administered agents, such as tamoxifen or fulvestrant, marketed under the brand name Faslodex. Serious side effects remain a major challenge, and may lead to poor patient compliance with these drug regimens. The American Cancer Society estimates that over 292,000 American women were diagnosed with breast cancer both local and invasive in 2015. They also estimate that over 40,000 women died in 2015 due to their disease. Providing drug directly into the ducts targeting the site of a localized cancerous lesions could reduce the need for systemic anti-cancer drugs and potentially reduce or even eliminate the systemic side effects of the drugs and morbidity in such patients and ultimately improve drug regimen compliance. Our Phase II clinical trial is an open-label comparative study of the distribution of fulvestrant in women scheduled for mastectomy or lumpectomy. The first six study participants will receive the standard intramuscular fulvestrant dose of 500 milligrams to establish the reference drug distribution. The subsequent 24 patients will receive fulvestrant by intraductal installation using Atossa’s patented microcatheter device. The total dose administered in this manner will not exceed 500 milligrams. The primary endpoint of the clinical trial is to assess the safety and tolerability of the intraductal administration of fulvestrant in women with DCIS or stage I or II invasive ductal carcinoma prior to surgery. The secondary objective of the study is to determine if there are changes in the expression of KI67 a marker of growth as well as estrogen and progesterone receptors between a pre-fulvestrant biopsy and post-fulvestrant surgical specimen. This will help us assess the degree as a drug is permeating the breast tissue. Mammography before and after drug administration in both groups will be performed to determine the effect of fulvestrant on breast density of the participants. Atossa owns one issued patent and several pending applications directed to the treatment of breast conditions including cancer by the intraductal administration of fulvestrant and other pharmaceuticals. As I mentioned on our last earnings call, to understand our main clinical program, it's important to understand the current uses and market for this FDA approved intramuscularly injected drugs and how it will compare to our introductally administered drug. As a reminder, the intraductal administrations takes less than 30-minutes in the physicians' office and uses local anesthetic only. According to the prescribing information, fulvestrant is administered monthly as an injection of two shots typically given into the buttocks. In 2012, a published study documented that a single-dose cost of intramuscular fulvestrant was approximately $12,000, which could exceed the $140,000 per patient per year. So the first potential market for intraductal therapy is to take advantage of the huge difference in the amount of drug that gets into the tissue with the intramuscular injection versus the intraductal route. One analysis suggests that the drug levels in tissue might be over 20,000 times higher than when administered intraductally. This provides the potential to test a one-in-done intraductal treatment modality instead of the monthly injections and to figure out how to get better tissue levels that are possible with intramuscular administration. Doing so would save the healthcare system a lot of money and at the same time while potentially improving the safety and efficacy of the drug by delivering directly to the breast. Even if it turned out the intraductal administration needs to be performed every six months or so there is still a huge potential to obtain efficacy with much lower cost and as a reminder, we have an issued patent for the intraductal use of fulvestrant as well as many other pharmaceuticals. The second potential for use for our patented microcatheter is in the Neoadjuvant setting, meaning that a drug would be delivered before the primary treatment of surgery. High drug concentration at the site of the tumor and lack of systemic exposure and subsequent toxicity could represent real treatment advances. The current Neoadjuvant schedules can run for three months before surgery and the ability to shorten that by one or even two months could have immense value to the patient and the healthcare system. With respect to the regulatory path forward, we expect that our program could qualify for designation under what is called the 505(b)(2) status, allowing us to file with clinical data only and without having to perform additional significant clinical or preclinical studies. So the path to market is both faster and less expensive than a standard NDA program. With Colombia University Medical Center Breast Cancer Program conducting our first clinical study of intraductal fulvestrant, we are confident we have chosen the appropriate partner to guide the clinical trial and move forward with. We are now exclusively focusing our business on our pharmaceutical programs, our key objectives are to advance our pharmaceutical candidates through Phase II trial and then evaluate further development independently or more likely through partners and to advance one or more of our preclinical programs into the clinical trial stage. Our second pharmaceutical program under development is Afimoxifene Topical Gel for the treatment and prevention of hyperplasia of the breast, which we licensed on an exclusive basis for Besins Healthcare on May 14, 2015. Unfortunately, we became aware that Besins had started development of Afimoxifene Gel in our exclusive field. And on January 28, 2016, we filed a complaint in the United States District Court for the District of Delaware captioned Atossa Genetics Inc., v the Besins Healthcare Luxembourg SARL. The complaint asserts claims for breach of contract, breach of the implied covenant of good faith and fair dealing and for declaratory relief against Besins. Although we have received written FDA guidance pertaining to our Afimoxifene development program, all work is on hold pending resolution of our dispute with Besins. In addition to our clinical stage pharmaceutical programs, we are in the process of evaluating other therapeutic candidates to treat other breast conditions including breast cancer, which represent tremendous potential value and potentially shortened pass to clinical development, we expect more information about developments on these programs in the coming quarters. It is important for you our valued investors to understand that while Atossa has transformed its focus, our commitment to developing upon our promise of developing and commercializing treatments for DCIS and other breast diseases is steadfast and we will keep you informed of our latest developments and achievements. This concludes our prepared remarks. I will now turn the call back to the operator for any additional questions.

Ladies and gentlemen, at this time we'll begin the question-and-answer session [Operator Instructions] we will pause momentarily to assemble the roster. And our first question today comes from [Peter Kaplan from Fund Cap Industries] (Ph). Please go ahead with your question.

Yes. Just to say something quickly, the main product of the company originally was the ForeCYTE device and then when that wasn't approved by the FDA, you went to the FullCYTE and that product doesn't seem to be catching on. So then you bought the rights from Afimoxifene and as you said, there are some legal problems with that so that's on hold and you don't know if you will win or lose in that situation. And the other product the intraductal formulation of fulvestrant for breast cancer treatment that you have a trial on but again you don't know what is going to happen with that. So my question is, where is Atossa now and how are you going to survive without any income coming in and again you don't have Aspire Capital anymore? So that's again my first question.

Well, if you want to take in reverse order, I can comment on our capital raising activity. Of course I can't really comment on future activities, but on we have worked with Aspire Capital over the last three years on having them help us raise money. And a significant amount of our capital resources have come through Aspire Capital. We had entered into agreement with them in November 2015 and over the course of the first quarter of 2016, we are able to fully utilize that program with them and raised approximately $2.2 million in this first quarter that significantly added to our cash position. So we've now fully utilized that program with them. We are optimistic that there are in addition to Aspire Capital other financing possibilities out there, which will explore it when we need to. We're not presently raising money and I won't comment on future plans, but we're pretty confident where we stand now with our cash position and in particular in light of the fact that our burn rate has been cut dramatically with our sale of our laboratory

Yes, how long did you... Steven C. Quay: No, go ahead, please.

No, I was wondering how long could you continue without earning any money from anything and I don't know how long is the trial suppose to last, how long will it take for that trial to be completed, the intraductal formulation of fulvestrant.

Well we are a drug development company and our primary source of capital is going to be from the capital markets. We will not have as a important component of our business plan, generating revenues or spending our stockholders capital to develop products and services to generate revenues in the near-term. Our goal is to expand our efforts on our pharmaceutical programs and push those to the next stage phase of clinical development. We are not developing a business to generate revenue in the near-term to support our operations, it’s we are a drug development company and that's a fairly typical pathway for a drug development company to tap the capital market when they need to generating cash or to obtain financing through partners is obviously another potential source. Steven C. Quay: Yes and I guess the only thing I would like to add to Kyle's fine comments there is, the history of binary events in biotech is precisely where we are at now, which is if you look back successful Phase II clinical trials are the times when stock increased two-fold, ten-fold, very, very large binary events. So one analysis for Atossa is that we're at the beginning of Phase II trial and then the question is what is the likelihood, how do you handicap success in that situation? Well, we're using an approved drug, so we know what the safety and efficacy profile is when it's given in the buttocks. We know that we're going to get substantially more of the drug at the side of its action and substantially less of the drug in the blood stream, the details are what we will pull out of the clinical trial, but I like the handicapping of where we are at the beginning of Phase II and as we report data over the next 6-months to 12-month in this program as that starts to get absorbed into the market. I think that we're in a good position right now. And as Kyle said, we have arranged our costs and our profile and our infrastructure to support this trial and to continue to operate in a fine fashion as a public company. So we’re in very good place at this point in time.

Let me ask you this, so as far as stock you have 180-days and you think that because of the Stage II trial will help push up the stock considerably? Steven C. Quay: We make a policy of not commenting on future stocks price.

Okay and the last thing back to Afimoxifene, I don't know if you can answer this, but what are the chances that you will win this court case?

Yes, I mean we really can't comment on litigation. Steven C. Quay: Yes.

Okay. I guess that’s my questions. Thank you very much. Steven C. Quay: Thank you.

Thank you. Thanks Peter.

[Operator Instructions] Our next question comes from [Matt Wiley from Eon Capital] (Ph). Please go ahead with your question.

Hi, Steve, I was sort of disheartened to see that you haven't broken grounded in [Europe] (Ph) yet which are four site tests – overseas. Any comment as to why that didn't take off at all? Steven C. Quay: It was difficult, it's breaking new ground over there and almost six months ago when we transitioned out of that business, it was a trade-off between how much of this is going to cost in the revenue opportunities. Again, when you run the numbers on taking a Phase II program like the intraductal fulvestrant, looking at the kind of patient populations, looking at our IP position, looking at that the likelihood of a trial lasting 12-months to 18-months and getting some good success points. We think about how we spend your money there carefully and it just made a lot more sense to focus on this program.

One real quick question, who sits on your executive Compensation Board?

Yes, the board composition is posted on our website for the entire board and for all committees of the board. The chair of the Compensation Committee is Greg Weaver.

Fair enough and just one final question. How do you justify your salary of $520,000 when you haven't product a single diamond revenue outside of your NRLBH? Steven C. Quay: Well, the salaries have set by the Compensation Committee after a consultation with executive comp, consultants and after comparison with peer companies.

You guys haven't produced any revenue, I mean I don't want to comment also you are not worth it, because I actually hold Steven Quay in very high regard, it's the fact that your company hasn’t produced any revenue at all? Steven C. Quay: Well, please read our financial statement from last year, we produced $5.5 million in revenue last year and we do not have plans to generate revenue this year, because we are focusing on the drug development.

And ladies and gentlemen with that we've reached the end of our question-and-answer session. I would like to turn the conference call back over to Dr. Quay for any closing remarks. Steven C. Quay: Well, I want to thank you all for your attention this afternoon, we appreciate your support to Atossa Genetics. Please contact us if you have further calls and we appreciate it again. Thank you very much. Good bye.

And ladies and gentlemen, the conference has now concluded. We would thank you for attending today's presentation. You may now disconnect your telephone lines.