See the accompanying notes to the unaudited
condensed consolidated financial statements
See the accompanying notes to the unaudited
condensed consolidated financial statements
See the accompanying notes to the unaudited
condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2017
(unaudited)
NOTE A — SUMMARY OF ACCOUNTING
POLICIES
General
The accompanying condensed consolidated
financial statements as of March 31, 2017 and for the three and six month periods ended March 31, 2017 and 2016 are unaudited.
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements
of Rule S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly,
they do not include all the information and footnotes required by generally accepted accounting principles for complete consolidated
financial statements.
In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for
the three and six month periods ended March 31, 2017 are not necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 2017. The unaudited condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements as of and for the fiscal year ended September 30, 2016 and footnotes thereto
included in the Annual Report on Form 10-K of Applied DNA Sciences, Inc. (the “Company”) filed with the SEC on December
6, 2016.
The condensed consolidated balance sheet
as of September 30, 2016 contained herein has been derived from the audited consolidated financial statements as of September 30,
2016, but does not include all disclosures required by GAAP.
Business and Basis of Presentation
The Company is principally devoted to
developing and marketing SigNature DNA technology solutions in the United States, Europe and Asia.
To date, the Company has had a limited operating history with its current business model, and as a result, its operations have
produced limited recurring revenues from its services and products; it has incurred expenses and has sustained losses. Consequently,
its operations are subject to all the risks inherent in the establishment and development of a biotechnology company.
The unaudited condensed consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries, APDN (B.V.I.) Inc. and Applied DNA Sciences Europe
Limited, which currently have no operations or activity. Significant inter-company transactions and balances have been eliminated
in consolidation. To facilitate comparison of information across periods, certain reclassifications have been made to prior
year amounts to conform to the current year's presentation.
Inventories
Inventories, which consist primarily of
raw materials, and finished goods, is stated at the lower of cost or market, with cost determined by using the first-in, first-out
(FIFO) method.
Revenue Recognition
The Company recognizes revenue in accordance
with Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”). ASC 605 requires that
four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery
has occurred and/or service has been performed; (3) the selling price is fixed and determinable; and (4) collectability is reasonably
assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling
prices of the products delivered or services provided and the collectability of those amounts. Provisions for allowances and other
adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product
has not been delivered, service has not been provided, or is subject to refund until such time that the Company and the customer
jointly determine that the product has been delivered, the service has been provided, or no refund will be required. At March 31,
2017 and September 30, 2016, the Company recorded deferred revenue of $1,888,774 and $2,737,588, respectively.
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2017
(unaudited)
NOTE A — SUMMARY OF ACCOUNTING
POLICIES (continued)
Revenue Recognition
, continued
Revenue arrangements with multiple components
are divided into separate units of accounting if certain criteria are met, including whether the delivered component has stand-alone
value to the customer. Consideration received is allocated among the separate units of accounting based on their respective selling
prices. The selling price for each unit is based on vendor-specific objective evidence, or VSOE, if available, third party evidence
if VSOE is not available, or estimated selling price if neither VSOE nor third party evidence is available. The applicable revenue
recognition criteria are then applied to each of the units.
Revenue for government contract awards,
which supports the Company’s development efforts on specific projects, is recognized as milestones are achieved as per each
contract. The Company did not recognize revenue from these contracts during the three and six month periods ended March 31, 2017.
The Company recognized revenue from these contracts of $278,698 and $783,047 for the three and six month periods ended March 31,
2016, respectively.
The Company recognizes the revenue under
its memorandum of understanding ("MOU") with LD Commodities Cotton LLC ("Dreyfus") when the product has been
shipped, as there is no right of return under this arrangement and there is a commitment from their customer to purchase the marked
cotton. The Company has evaluated the other indicators of gross and net revenue recognition, including whether or not the Company
is the primary obligor and if it has general inventory risk. The Company does not have any general inventory risk and is not the
primary obligor as it relates to the marketing portion of the cotton tagging fee. With respect to the Company’s mutual license
agreement with Himatsingka America Inc. (formerly known as Divatex Home Fashion, Inc.) (“Himatsingka”), the Company
has evaluated all of the key gross and net revenue recognition indicators and has concluded that the circumstances as they relate
to Himatsingka’s portion of the tagging fee are more consistent with those key indicators that support net revenue reporting.
In addition, the nature of some of the Company’s cotton contracts includes extended payment terms that will result in a longer
collection period and slower cash inflows. Under the Company’s MOU with Dreyfus, as of March 31, 2017 and September 30, 2016
there was $4,235,598 and $4,621,345 included in short term accounts receivable, respectively. As of March 31, 2017 and September
30, 2016 there was $1,044,780 and $1,535,000 included in long-term accounts receivable, respectively. Also, as of March 31, 2017
and September 30, 2016 there was $1,748,254 and $2,305,000, respectively, included in deferred revenue for shipments during the
six months ended March 31, 2017 and the fiscal year ended September 30, 2016. The cotton ginning season in the United States takes
place between September and February each year, therefore, revenues from these customer contracts may be seasonal.
Use of Estimates
In preparing financial statements in conformity
with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Income Taxes
The Company recognizes deferred tax liabilities
and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns.
Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates
the degree to which tax assets and credit carry forwards will result in a benefit based on expected profitability by tax jurisdiction.
In its interim financial statements, the
Company follows the guidance in ASC 270, “Interim Reporting” and ASC 740 “Income Taxes”, whereby the Company
utilizes the expected annual effective tax rate in determining its income tax provisions for the interim periods. That rate differs
from U.S. statutory rates primarily as a result of valuation allowance related to the Company’s net operating loss carryforward
as a result of the historical losses of the Company.
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2017
(unaudited)
NOTE A — SUMMARY OF ACCOUNTING
POLICIES (continued)
Net Loss Per Share
The Company presents loss per share utilizing
a dual presentation of basic and diluted loss per share. Basic loss per share includes no dilution and has been calculated based
upon the weighted average number of common shares outstanding during the period. Dilutive common stock equivalents consist of shares
issuable upon the exercise of the Company’s stock options and warrants.
For the three and six month periods ended
March 31, 2017 and 2016, common stock equivalent shares are excluded from the computation of the diluted loss per share as their
effect would be anti-dilutive.
Securities that could potentially dilute
basic net income per share in the future that were not included in the computation of diluted net loss per share because including
those securities would have been anti-dilutive for the three and six month periods ended March 31, 2017 and 2016 are as follows:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
9,548,969
|
|
|
|
7,324,727
|
|
Stock options
|
|
|
5,199,477
|
|
|
|
3,886,406
|
|
|
|
|
14,748,446
|
|
|
|
11,211,133
|
|
Stock-Based Compensation
The Company accounts for stock-based compensation
for employees and directors in accordance with ASC 718, Compensation (“ASC 718”). ASC 718 requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their
fair values. Under the provisions of ASC 718, stock-based compensation costs are measured at the grant date, based on the fair
value of the award, and are recognized as expense over the employee’s requisite service period (generally the vesting period
of the equity grant). The fair value of the Company’s common stock options are estimated using the Black Scholes option-pricing
model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life. The Company
expenses stock-based compensation by using the straight-line method. In accordance with ASC 718, excess tax benefits realized from
the exercise of stock-based awards are classified as cash flows from financing activities. The future realization of the reserved
deferred tax assets related to these tax benefits associated with the exercise of stock options will result in a credit to additional
paid in capital if the related tax deduction reduces taxes payable. The Company has elected the “with and without approach”
regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current
year. Under this approach, the windfall tax benefit would be recognized in additional paid-in-capital only if an incremental tax
benefit is realized after considering all other benefits presently available.
The Company accounts for stock-based compensation
awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or
the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines
enumerated in ASC 505-50.
Concentrations
Financial instruments and related items,
which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables.
The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may
be in excess of the FDIC insurance limit.
The Company’s revenues earned from sale of products and
services for the three month period ended March 31, 2017 included an aggregate of 19% and 31% from two customers, respectively.
The Company’s revenues earned from sale of products and services for the six month period ended March 31, 2017 included an
aggregate of 19% and 41% from two customers, respectively.
The Company’s revenues earned from
sale of products and services for the three month period ended March 31, 2016 included 16% and 60% from two customers, respectively.
The Company’s revenues earned from
sale of products and services for the six month period ended March 31, 2016 included 12% and 49%, from two customers, respectively.
One customer accounted for 85% and 78% of the Company’s
total accounts receivable at March 31, 2017 and September 30, 2016, respectively.
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2017
(unaudited)
NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements
In January 2017, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2017-01, “Business Combinations
(Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). The amendments in this update are to clarify
the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should
be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting
including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December
15, 2017, including interim periods within those periods. The Company is currently evaluating the impact of adopting this guidance.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles
– Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The purpose
of the amendment is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill
impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill
with the carrying amount of that goodwill. For public entities, the amendments in ASU 2017-04 are effective for interim and annual
reporting periods beginning after December 15, 2019. The Company is currently assessing the impact of ASU 2017-04 on its condensed
consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, "Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment Accounting." The objective of this update is to simplify several
aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal
years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The
Company is currently evaluating the new guidance to determine the impact it may have on its condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases
(Topic 842)." The objective of this update is to increase transparency and comparability among organizations by recognizing
lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is
effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is to be
applied utilizing a modified retrospective approach. The Company is currently evaluating the new guidance to determine the impact
it may have on its condensed consolidated financial statements.
In November 2015, the FASB issued ASU
2015-17, "Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17"). This update requires
an entity to classify deferred tax liabilities and assets as noncurrent within a classified statement of financial position. ASU
2015-17 is effective for annual and interim reporting periods beginning after December 15, 2016. This update may be applied
either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Early application
is permitted as of the beginning of the interim or annual reporting period. The Company expects the impact of the adoption
of this pronouncement on its condensed consolidated balance sheet to be a reclassification only, and does not expect the pronouncement
to have a significant impact.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory (Topic 330) ("ASU 2015-11"). ASU 2015-11 simplifies the accounting for the valuation
of all inventory not accounted for using the last-in, first-out ("LIFO") method by prescribing that inventory be valued
at the lower of cost and net realizable value. ASU 2015-11 is effective for financial statements issued for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. The Company does not expect the adoption
of ASU 2015-11 to have a material effect on its condensed consolidated financial statements.
In August 2014,
FASB
issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”
(“ASU 2014-15”). ASU 2014-15 provides guidance on management’s responsibility in evaluating whether there is
substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each
reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt
about a company’s ability to continue as a going concern within one year from the date the financial statements are issued.
The amendments in ASU 2014-15 are effective for annual reporting periods ending after December 15, 2016, and for annual and interim
periods thereafter. Early adoption is permitted. The Company will adopt the methodologies prescribed by ASU 2014-15 by the date
required, and does not anticipate that the adoption of ASU 2014-15 will have a material effect on its condensed consolidated financial
position or results of operations.
In May 2014, the FASB issued ASU No. 2014-09, Revenue
from Contracts with Customers (“ASU 2014-09”), which was subsequently modified in August 2015 by ASU No. 2015-14, Revenue
from Contracts with Customers: Deferral of the Effective Date. This guidance will be effective for fiscal years (and interim reporting
periods within those years) beginning after December 15, 2017 The core principle of ASU No. 2014-09 is that companies should
recognize revenue when the transfer of promised goods or services to customers occurs in an amount that reflects what the company
expects to receive. It requires additional disclosures to describe the nature, amount, timing and uncertainty of revenue and cash
flows from contracts with customers. In 2016, the FASB issued additional ASUs that clarify the implementation guidance on principal
versus agent considerations (ASU 2016-08), on identifying performance obligations and licensing (ASU 2016-10), and on narrow-scope
improvements and practical expedients (ASU 2016-12) as well as on the revenue recognition criteria and other technical corrections
(ASU 2016-20). The Company is in the process of evaluating the provisions of these ASU’s and assessing the potential effect
on the Company’s condensed consolidated financial position or results of operations. However, based upon the current contracts
in place, we expect to identify similar performance obligations under these ASUs as compared with the deliverables and separate
units of accounting previously identified. As a result, we expect the timing of our revenue to be the same assuming that there
are no significant changes to our current contracts and arrangements.
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2017
(unaudited)
NOTE B — LIQUIDITY AND MANAGEMENT’S
PLAN
The Company has recurring net losses, which
have resulted in an accumulated deficit of $231,207,629 as of March 31, 2017. The Company incurred a net loss of $7,390,240 and
generated negative operating cash flow of $4,699,015 for the six month period ended March 31, 2017. The Company also had working
capital of $6,527,906 and cash and cash equivalents of $4,020,412 as of March 31, 2017. The Company’s current capital resources
include cash and cash equivalents, accounts receivable, and inventories. Historically, the Company has financed its operations
principally from the sale of equity securities. As discussed in Note E, on November 7, 2016, the Company closed a private placement
of common stock and warrants to purchase common stock, for aggregate gross proceeds of $5 million, before deducting placement agent
fees and offering expenses. Total net proceeds were approximately $4.3 million.
The Company expects to finance operations
and capital expenditures primarily through cash received from the November 2016 private placement, as well as collection of its
current accounts receivables. The Company estimates that it will have sufficient cash and cash equivalents to fund operations for
the next twelve months from the balance sheet date.
The Company may require additional funds
to expand the marketing and complete the continued development of its products, product manufacturing, and to fund expected additional
losses from operations, until revenues are sufficient to cover the Company’s operating expenses. If revenues are not sufficient
to cover the Company's operating expenses, and if the Company is not successful in obtaining necessary additional financing, it
will most likely be forced to reduce operations.
NOTE C — INVENTORIES
Inventories consist of the following:
|
|
March 31,
2017
|
|
|
September 30,
2016
|
|
|
|
(unaudited)
|
|
|
|
|
Raw materials
|
|
$
|
160,754
|
|
|
$
|
100,420
|
|
Finished goods
|
|
|
192,828
|
|
|
|
197,339
|
|
Total
|
|
$
|
353,582
|
|
|
$
|
297,759
|
|
NOTE D — ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES
Accounts payable and accrued liabilities
are as follows:
|
|
March 31,
2017
|
|
|
September 30,
2016
|
|
|
|
(unaudited)
|
|
|
|
|
Accounts payable
|
|
$
|
1,158,216
|
|
|
$
|
1,530,258
|
|
Accrued salaries payable
|
|
|
624,902
|
|
|
|
678,982
|
|
Other accrued expenses
|
|
|
113,036
|
|
|
|
38,101
|
|
Total
|
|
$
|
1,896,154
|
|
|
$
|
2,247,341
|
|
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2017
(unaudited)
NOTE E — CAPITAL STOCK
On November 2, 2016, the Company entered
into a securities purchase agreement with an institutional investor providing for the purchase of $5 million of common stock and
warrants at a combined price of $2.20 per share of common stock and warrant (the “Private Placement”). In the Private
Placement, the Company sold 2,272,727 shares of its common stock and warrants to purchase 2,272,727 shares of its common stock.
The warrants have the same terms as the Company's existing publicly traded warrants (APDNW) with an exercise price of
$3.50 per share and an expiration date of November 20, 2019. The offering closed on November 7, 2016.
The Company agreed to file a registration
statement providing for the resale of these securities on Form S-3 by December 7, 2016. On December 6, 2016, the Company filed
the Form S-3, which was declared effective by the SEC on December 13, 2016. Upon effectiveness of the registration statement, the
common stock and warrants issued in the Private Placement became freely tradeable on The NASDAQ Capital Market under the symbols
"APDN" and "APDNW", respectively.
The aggregate gross proceeds to the
Company from the Private Placement were $5 million before deducting the placement agents' fee and other offering expenses. As a
result of the placement agents’ fee and other offering expenses attributable to the Private Placement, the net proceeds were
$4,319,861.
In connection
with the closing of this Private Placement, as partial compensation, on November 7, 2016, the Company granted warrants to purchase
an aggregate of 68,182 shares of its common stock to the Company's placement agents, Maxim Group LLC and Imperial Capital LLC (the
“Placement Agent Warrants”) at an exercise price of $2.53 (115% of the public offering price), subject to adjustment
as set forth therein (including for stock dividends and splits and certain other distributions and “Fundamental Transactions,”
as defined therein). The Placement Agent Warrants will be exercisable beginning six months following the closing date of the Private
Placement and terminate at 5:00 P.M. (Eastern Standard Time) on November 7, 2021. In addition, the Placement Agent Warrants provide
for cashless exercise, which the Placement Agents may elect if there is no effective registration statement registering the resale
of the shares issuable upon exercise of the Placement Agent Warrants. The number of shares of common stock that may be acquired
by the Placement Agents upon any exercise of the Placement Agent Warrants (or otherwise in respect hereof) shall be limited to
the extent necessary to insure that, following such exercise, the total number of shares of common stock then beneficially owned
by the Placement Agent and its Affiliates (as defined therein) and any other Persons whose beneficial ownership of common stock
would be aggregated with the Placement Agent pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
does not exceed 9.99% of the total number of issued and outstanding shares of common stock.
NOTE F — STOCK OPTIONS AND WARRANTS
Warrants
During the six month period ended March
31, 2017, the Company issued warrants to purchase 2,272,727 shares of its common stock as part of the Private Placement (See Note
E). In addition, warrants to purchase an aggregate of 68,182 shares of common stock were issued to the Company's placement agents,
Maxim Group LLC and Imperial Capital LLC (See Note E).
The following table summarizes the changes
in warrants outstanding and the related prices for the shares of common stock issued to non-employees of the Company. These warrants
were granted in lieu of cash for services performed or financing expenses in connection with the sale of common stock.
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2017
(unaudited)
NOTE F — STOCK OPTIONS AND WARRANTS
(continued)
Warrants
, continued
Transactions involving warrants are summarized
as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price Per
Share
|
|
Balance at October 1, 2016
|
|
|
7,208,060
|
|
|
$
|
3.64
|
|
Granted
|
|
|
2,340,909
|
|
|
|
3.47
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled or expired
|
|
|
-
|
|
|
|
-
|
|
Balance at March 31, 2017
|
|
|
9,548,969
|
|
|
$
|
3.60
|
|
Stock Options
In 2005, the Board of Directors and the
holders of a majority of the outstanding shares of common stock approved the 2005 Incentive Stock Plan (the “Incentive Plan”).
The number of shares of common stock that can be issued as stock awards and stock options thereunder is an aggregate of
8,833,333 shares and the number of shares of common stock that can be covered by awards made to any participant in any calendar
year is 833,334 shares. The Incentive Plan’s expiration date is January 25, 2025.
The Incentive Plan is designed to retain
directors, executives, and selected employees and consultants by rewarding them for making contributions to the Company's success
with an award of options. As of March 31, 2017, a total of 275,752 shares have been issued and options to purchase 5,722,045 shares
have been granted under the Incentive Plan.
Transactions involving stock options issued
to employees and consultants are summarized as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price Per
Share
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Weighted Average Contractual Life (Years)
|
Outstanding at October 1, 2016
|
|
|
4,403,234
|
|
|
$
|
4.08
|
|
|
|
|
|
|
|
Granted
|
|
|
914,000
|
|
|
|
2.23
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
(117,757
|
)
|
|
|
(4.36
|
)
|
|
|
|
|
|
|
Outstanding at March 31, 2017
|
|
|
5,199,477
|
|
|
$
|
3.76
|
|
|
|
|
|
|
|
Vested at March 31, 2017
|
|
|
3,809,116
|
|
|
$
|
3.93
|
|
|
$
|
-
|
|
|
4.49
|
Non-vested at March 31, 2017
|
|
|
1,390,361
|
|
|
|
|
|
|
$
|
-
|
|
|
7.76
|
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2017
(unaudited)
NOTE F — STOCK OPTIONS AND WARRANTS
(continued)
Stock Options
, continued
During the six month period ended March 31, 2017, the Company
issued an aggregate of 914,000 options to employees, non-employee board of director members (including award modifications of 74,181
options), a consultant and members of the strategic advisory board. Included in these grants were 280,000 options granted to executives
during the six month period ended March 31, 2017 and 5,000 performance based options granted to a consultant. These performance
based options vest when a certain performance condition is met by the consultant. During the three month period ended March 31,
2017, the Company issued an aggregate of 2,500 options to a member of the strategic advisory board.
The Company uses the Black Scholes Option
Pricing Model to determine the fair value of options issued to employees and consultants. The following significant assumptions
in the Black Scholes Option Pricing Model were utilized to estimate the fair value of share based payment awards during the three
and six month periods ended March 31, 2017 and 2016:
|
|
Three
Month Period
Ended
March 31, 2017
|
|
|
Six
Month Period
Ended
March 31, 2017
|
|
Stock price
|
|
$
|
1.68
|
|
|
$
|
2.07
|
|
Exercise price
|
|
$
|
2.87
|
|
|
$
|
2.25
|
|
Expected term, years
|
|
|
9.08
|
|
|
|
5.24
|
|
Dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
Volatility
|
|
|
133
|
%
|
|
|
112
|
%
|
Risk free rate
|
|
|
2.3
|
%
|
|
|
2.0
|
%
|
|
|
Three
Month Period
Ended
March 31, 2016
|
|
|
Six
Month Period
Ended
March 31, 2016
|
|
Stock price
|
|
$
|
2.78
|
|
|
$
|
3.03
|
|
Exercise price
|
|
$
|
2.78
|
|
|
$
|
3.03
|
|
Expected term, years
|
|
|
10.00
|
|
|
|
6.17
|
|
Dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
Volatility
|
|
|
142
|
%
|
|
|
130
|
%
|
Risk free rate
|
|
|
1.74
|
%
|
|
|
1.79
|
%
|
The Company recorded $537,904 and $489,349
as stock compensation expense for the three month periods ended March 31, 2017 and 2016, respectively. The Company recorded $1,995,924
and $886,338 as stock compensation expense for the six month periods ended March 31, 2017 and 2016, respectively. Included in this
amount is $74,537 for the six month period ended March 31, 2017 for stock option modifications to extend the term of options for
certain nonemployee board of director members. As of March 31, 2017, unrecorded compensation cost related to non-vested awards
was $2,971,071, which is expected to be recognized over a weighted average period of approximately 3.17 years. The weighted average
grant date fair value per share for options granted during the three and six month periods ended March 31, 2017 was $1.89 and $1.58,
respectively.
NOTE G — COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space under an
operating lease in Stony Brook, New York for its corporate headquarters. The lease is for a 30,000 square foot building. The term
of the lease commenced on June 15, 2013 and expired on May 31, 2016, with the option to extend the lease for up to two additional
three-year periods. The Company has exercised its option to extend the lease for one additional three-year period, ending May 31,
2019. The base rent during the additional three-year period is $458,098 per annum. Total rent expense for the three and six month
periods ended March 31, 2017 was $142,768 and $283,165, respectively. Total rent expense for the three and six month periods ended
March 31, 2016 was $135,393 and $280,109, respectively.
Employment Agreement
The Company has an employment
agreement with Dr. James Hayward, its Chief Executive Officer. On July 28, 2016, a new employment agreement was entered into with
the Chief Executive Officer effective July 1, 2016. The initial term is from July 1, 2016 through June 30, 2017, with automatic
one-year renewal periods. The terms of the agreement are substantially the same as his original employment agreement, except the
cash incentive bonus was modified. Under the new agreement, Dr. Hayward will be eligible for a special cash incentive bonus of
up to $800,000, $300,000 of which will be payable if and when annual revenue reaches $8 million and $100,000 of which would be
payable for each $2 million of annual revenue in excess of $8 million. Dr Hayward's annual salary is $400,000.
Effective May 7, 2016, the Chief Executive Officer's annual
salary was voluntarily reduced by $100,000. Accordingly, his current annual base salary as of March 31, 2017 is $300,000.
Litigation
From time to time, the Company may become
involved in various lawsuits and legal proceedings which arise in the ordinary course of business. When the Company is aware of
a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the
amount of the loss can be reasonably estimated, the Company will record a liability for the loss. In addition to the estimated
loss, the recorded liability includes probable and estimable legal costs associated with the claim or potential claim. Litigation
is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm
the Company’s business. There is no pending litigation involving the Company at this time.
NOTE H– GEOGRAPHIC AREA INFORMATION
Net revenues by geographic location of
customers are as follows:
Three Month Period Ended March 31,
|
|
|
2017
|
|
|
2016
|
|
United States
|
|
$
|
555,043
|
|
|
$
|
395,491
|
|
Europe
|
|
|
338,005
|
|
|
|
147,811
|
|
Asia and other
|
|
|
12,325
|
|
|
|
30,020
|
|
Total
|
|
$
|
905,373
|
|
|
$
|
573,322
|
|
Six Month Period Ended March 31,
|
|
|
2017
|
|
|
2016
|
|
United States
|
|
$
|
1,143,942
|
|
|
$
|
1,446,219
|
|
Europe
|
|
|
632,339
|
|
|
|
388,003
|
|
Asia and other
|
|
|
32,100
|
|
|
|
63,214
|
|
Total
|
|
$
|
1,808,381
|
|
|
$
|
1,897,436
|
|