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Prospectus
Summary
This summary highlights certain information
about us, this offering and in the documents we incorporate by reference in this prospectus. This summary is not complete and does
not contain all of the information that you should consider before investing in our securities. After you carefully read this summary,
to fully understand our Company and this offering and its consequences to you, you should read this entire prospectus including
the information referred to under the heading “Risk Factors” in this prospectus beginning on page 15, as well as the
other documents that we incorporate by reference into this prospectus, including our financial statements and the notes to those
financial statements, which are incorporated herein by reference from our Annual Report on Form 10-K for the year ended September 30, 2018, filed on December 18, 2018, as amended by Amendment No. 1 filed on January 28, 2019, as further amended by Amendment No. 2 filed on April 4, 2019, our Quarterly Report on Form 10-Q for the three month period ended December 31, 2018, filed on February 7, 2019, our Quarterly Report on Form 10-Q for the three month period ended March 31, 2019, filed on May 9, 2019, and our Quarterly Report on Form 10-Q for the three month period ended June 30, 2019, filed on August 13, 2019. Please read “Where You Can
Find More Information” on page 60 of this prospectus.
Our Company
Overview
Using our large scale PCR based manufacturing
platform, we manufacture large quantities of linear DNA for various markets. Whether for supply chain security, brand protection,
law enforcement or drug or biologic applications, it is our goal to help establish secure flourishing environments that foster
quality, integrity and success. With secure taggants, high-resolution DNA authentication, and comprehensive reporting, our SigNature®
molecular tag technologies are designed to deliver what we believe to be the greatest levels of security, deterrence and legal
recourse strength. Under our 98% owned subsidiary, LineaRx, Inc. (“LRx”), we supply DNA for use in the in vitro
medical diagnostics, preclinical biotechnology and preclinical drug and biologic development and manufacturing markets. We are
also engaged in preclinical and animal drug candidate development, directly and with collaborators, focusing on therapeutically
relevant DNA constructs manufactured via our PCR-based DNA production platform.
SigNature® molecular tags, SigNature®
T molecular tags, fiberTyping®, DNAnet®, SigNify® BackTrac®, Beacon® and CertainT® comprise our principal
security technology platform. The large-scale production of specific linear DNA sequences is used in the diagnostics industry.
Contract research and drug development and commercialization relating to PCR-produced DNA constructs forms the basis of LRx.
SigNature® molecular tags, the core
of our supply chain security technology platform, are what we believe to be nature’s ultimate means of authentication and
supply chain security. We believe our precision-engineered molecular tags have not been broken. Additional layers of protection
and complexity are added to the mark in a proprietary manner. SigNature® molecular tags in various carriers have proven highly
resistant to UV radiation, heat, cold, vibration, abrasion and other extreme environments and conditions. We work closely with
our customers to develop solutions that will be optimized to their specifications to deliver maximum impact. Our products and technology
are protected by what we believe to be a robust portfolio of patents and trademarks.
Using our tagging products and technology,
manufacturers, brands, and other stakeholders can ensure authenticity and protect against diversion throughout a product’s
journey from manufacturer to use.
The core technologies of our supply chain
security business are supplied as tag, test and track solutions for large complex supply chains. Our tag, test and track solutions
allow our customers to use molecular tags to mark objects in a unique manner that we believe cannot be replicated, and then identify
these objects by detecting the absence or presence of the molecular tag. We believe that our disruptive tracking platform offers
broad commercial relevance across many industry verticals. Our underlying strategy in the tagging business is to become a solutions
provider for supply chains of process industries in which contracts for our products and services are typically larger and of longer
duration as compared to our historic norms, where the benefits to customers and consumers are more significant, and where our forensic
security and traceability offer a unique and protected value. Consumers, governments and companies are demanding details about
the systems and sources that deliver their goods. They worry about quality, safety, ethics, and the environmental impact. Farsighted
organizations are directly addressing new threats and opportunities presented by this question: Where do these goods come from?
This is the question and the concerns we are beginning to address for a growing number of companies. We supply key building blocks
for creating secure supply chains with traceability of goods, which in turn can help ensure integrity in supply, honest sales and
marketing claims, and ethical and sustainable sourcing.
Customers using our PCR-produced linear
DNA products and services for use in in vitro medical diagnostics, preclinical biotechnology research and preclinical drug
and biologic development and manufacturing receive a DNA product we believe is made cleaner and faster than historical manufacturing
methods, thereby offering the opportunity for increased efficiency and turnaround times in their processes. We are also engaged
in preclinical and animal drug candidate development activities focusing on therapeutically relevant DNA constructs manufactured
via our PCR-based production platform. We seek to develop, acquire and commercialize, alone or with partners, a diverse portfolio
of nucleic acid based drugs and biologics based on PCR-produced linear DNA which we believe will improve existing nucleic acid
based therapeutics or create new nucleic acid based therapeutics that address unmet medical needs.
Our products and services are offered in
the United States, Europe and Asia. At the present time, we are focusing our efforts on textile and apparel, pharmaceuticals and
nutraceuticals, microcircuits and other electronics, legal cannabis and PCR-produced linear DNA products, as well as services for
in vitro medical diagnostics, preclinical biotechnology research and preclinical biotherapeutic manufacturing. Currently,
approximately twenty percent of our annual revenue comes from the textile market. The basic technology we use in various markets
is very similar, and we believe our solutions are adaptable for many types of products and markets. In the future, we plan to expand
our focus to include additional consumer products, food and beverage and industrial materials. The cotton ginning season in the
United States takes place between September and March each year; therefore, revenues from our cotton customer contracts may be
seasonal and recognized primarily during our first and fourth fiscal quarters, which may cause operating results to fluctuate significantly
quarterly and annually. To date, the substantial portion of our revenues has been generated from sales of our SigNature® and
SigNature® T molecular tags, our principal supply chain security and product authentication solutions. We expect to grow revenues
from sales of our SigNature® molecular tags, SigNature® T molecular tags, SigNify® and CertainT® offerings as we
work with companies and governments to secure supply chains for various types of products and product labeling throughout the world.
In addition, we expect to continue to grow revenues from PCR-produced linear DNA products and services using our patented Triathlon™
and other proprietary PCR production and post-processing systems.
Signature® Molecular Tags
SigNature® Molecular
Tags. The SigNature® molecular tag is our patented molecular taggant technology, at the core of our platform.
It provides forensic power and protection for a wide array of applications. Highly secure, robust and durable, SigNature® molecular
tags are an ingredient that can be used to fortify brand protection efforts; strengthen supply chain security; and mark, track
and convict criminals. Through our SigNature® molecular tags, custom DNA sequences can be embedded into a wide range of host
carriers including natural and synthetic fibers, ink, varnish, thread, metal coatings, and pharmaceuticals and nutraceuticals.
SigNature® molecular tags can be made resistant to challenging environments such as heat, cold, vibration, abrasion, organic
solvents, chemicals, UV radiation and other extreme environmental conditions, and so can be identified for numerous years after
being embedded directly, or into media applied or attached to the item to be marked. Each individual molecular tag is recorded
and stored in a secure database so that we can later detect it using a simple spot test, or the molecular tags can be forensically
analyzed in our laboratories to obtain definitive proof of the presence or absence of a specific SigNature® molecular tag (e.g.,
one designed to mark a particular product). Our in-lab forensic testing capability delivers an expert witness Certificate of DNA
Authentication (“CODA”). Because DNA is one of the densest information carriers known, and can be amplified with high
fidelity, only minute quantities of SigNature® molecular tags are necessary for successful analysis and authentication. As
a result, SigNature® molecular tags can fold seamlessly into production and logistics workflows at extremely low concentrations.
SigNature® molecular tags have been
subjected to rigorous testing by the Idaho National Laboratory, a U.S. National Laboratory, by CALCE (the Center for Advanced Life
Cycle Engineering), the largest electronic products and systems research center focused on electronics reliability, and by verified
procedures in our laboratories. The molecular tag has passed all tests across a broad spectrum of materials and substrates, and
has met key military stability standards. SigNature® molecular tags have also passed a strenuous “red-team” vetting
on behalf of the U.S. Defense Logistics Agency.
SigNature® molecular tags now exist
on hundreds of millions of commodity quantities ranging from consumer product packaging to microcircuits to cotton and synthetic
fibers; to our knowledge, none has ever been copied.
SigNature®
T Molecular Tags and fiberTyping®
SigNature® T Molecular Tags. SigNature®
T molecular tags are a unique patented tagging and authentication system specifically designed for textiles and apparel. Specially
engineered to adhere tenaciously to textile substrates, including natural and synthetic fibers, SigNature® T molecular tags
are resistant to standard textile production conditions. The result: an enduring forensic level molecular tag that remains present
from the fiber stage through to the finished product.
Our SigNature® T technology allows for
better quality control and assurance at any point in the supply chain. SigNature® T molecular tags are currently used for brand
protection efforts and raw material source compliance programs. For example, American grown cotton fibers can be tagged at the
gin in the United States, verified as “American grown” and then traced through every step of the supply chain.
fiberTyping®. Our patented
cotton genotyping platform, known as “fiberTyping,” complements our SigNature® T molecular tag system. fiberTyping®
is employed to identify the genus and species of the fibers before or after they are tagged with SigNature® T molecular tags.
fiberTyping® cannot be used to provide the unique identity of a specific cotton through the supply chain.
fiberTyping® is not a molecular tag,
but a genotyping test of native cotton fiber DNA, which gives a clear result that determines whether the intended “nature-made”
endogenous cotton DNA is present in fiber, yarn or fabric. Samples from the primary material are sent to our forensic labs for
DNA analysis and authentication. Cotton classification and the authentication of cotton species after cotton has left its place
of origin are issues of global significance, important to brand owners and to governments that must regulate the international
cotton trade. We believe that the use of endogenous DNA to identify the cotton fiber content in textile supply chains, along with
the SigNature® T molecular tag system, is a significant opportunity for brand license holders to control their intellectual
property, for brands to shield themselves against legal liabilities, and for governments to improve their ability to enforce compliance
with trade agreements between nations.
We believe that our proprietary DNA extraction
protocols and methodologies are more effective than existing forensic systems. We believe that the combination of our SigNature®
T molecular tags and fiberTyping® solutions cover the forensic authentication market for textiles and that the related protocols
we have developed may be applicable to multiple industry verticals (such as ingredients in nutraceuticals and cannabis) and can
mark and authenticate products at every stage of their life cycle, from beginning to end.
DNAnet®, Smart DNA and BackTrac®
Recognizing that DNA-based evidence is the
cornerstone of modern-era law enforcement, we have developed what we believe to be the ultimate crime fighting tools – currently
being used in vehicle and home asset marking, as well as commercial applications.
These molecular tags can be used to definitively
link evidence and offenders to specific crime scenes. As the crime is investigated, the fluorescing molecular marker can assist
police in linking the offender and stolen items to a specific crime scene, creating a greater ability to identify and convict.
These long-lasting tagging solutions contain
unique molecular tags that can help return stolen or lost property to its rightful owner.
Beacon®
Beacon® locked optical markers deliver
secure real-time inspection capabilities. A unique patented encrypted mechanism creates a protected, covert screening tool that
can be easily adapted to packaging, security labels and high-value assets through inks, varnishes and coatings. When Beacon®
locked optical markers are combined with SigNature® molecular tags, a strong and flexible security and screening solution is
created where authenticity and provenance can be determined with confidence.
SigNify®
Developing a secure method for real-time,
in-field screening of molecularly-tagged items has long been a priority for us. We believe that standard fluorophores, up-converting
phosphors, holograms and other more-traditional screening tools provide little to no defense against counterfeiting. We believe
that secure in-field inspection backed with forensic-level molecular tag authentication is the key to maintaining a well-defended
supply chain or asset management program.
The SigNify® IF portable DNA readers
and SigNify consumable reagent test kits provide definitive real-time authentication of SigNature® and SigNature® T molecular
tags in the field. With SigNify® IF, Signature® molecular tags become a true, front-line solution for supply chain integrity.
Information Technology Systems
Applied DNA Sciences Portal.
CertainT® and other customer applications include the use of a software platform that enables customers to manage the security
of company-marked goods from point of marking to point of authentication or validation to end of life. The base platform is configurable
to customer requirements which differ by vertical market, company business process and IT environment. Basic functions offered
include molecular tag inventory management, program training and communications, a database of marked items information, associated
documents and images, chain of custody and location tracking, sample authentication processing and CODA downloads, and other administrative
functions. Designed for either cloud or local operation, the system supports mobile data capture using bar codes or other technologies.
The system is architected as the controller and repository for other validation and authentication devices such as our SigNify®
DNA Readers, DNA Transfer Systems, and other third party devices and is designed to share data with third party applications through
standard interfaces.
DNA Transfer Systems and Cannabis
Tracking System. Our DNA Transfer Systems and Cannabis Tracking System are developed for DNA marking applications
which are high volume with a need for monitoring and control. They are computer based, fully automated, offer remote internet access
for real-time monitoring and can be configured for application-specific alerts and reporting online. They were used to mark cotton
at seven U.S. cotton gins and one gin in Egypt in the 2018-2019 ginning season.
CertainT® Supply Chain Platform
CertainT® helps brands confirm their
product’s authenticity and origin with certified, trust, transparency and traceability through the seamless amalgamation
of several of our platform technologies to tag, test and track. The CertainT® trademark indicates use of the CertainT®
tagging, testing and tracking platform to enable proof of product claims for any material, item or product. Secure and proven,
the CertainT® Platform helps manufacturers, brands or other commercial organizations deliver on their promise that customers
are buying products that are ethically-sourced, safe and authentic.
Large-scale production of specific DNA sequences
using PCR.
Our patented Triathlon™ PCR systems
and other proprietary PCR production and post-processing systems allow for the large-scale production of specific DNA sequences.
The systems are computer-controlled, self-contained and modular. DNA sequences produced through our processes and systems are being
used by customers as components of diagnostic tests, which provide us the opportunity to cross-sell our DNA-based supply chain
security solutions to this installed base and others. We believe we have the ability to manufacture longer DNA sequences valuable
in gene therapies, adoptive cell therapies (such as CAR T), DNA vaccines, RNA therapies and diagnostics, with what we believe is
a distinct competitive advantage in cost, cleanliness, and time-to-market. These types of DNA are distinct from our DNA security
markers marketed under our SigNature® and SigNature® T trademarks, and represent a potential new entry into medical markets,
where we believe there are opportunities for our broader platform. Customers using our PCR-produced linear DNA products and services
for use in in vitro medical diagnostics, preclinical biotechnology research and preclinical drug and biologic manufacturing
receive a DNA product that we believe is made cleaner and faster than historical manufacturing methods, thereby offering the opportunity
for increased efficiency and turnaround times in their processes.
Contract Research
Under LRx, we act as a preclinical contract
research organization for the nucleic acid-based medical and biologic markets. In addition, LRx is providing contract research
services to several RNA based drug and biologic customers for preclinical studies. These services include the design, development
and manufacture of PCR-produced DNA templates for RNA.
Therapeutics
We seek to develop, acquire
and commercialize, ourselves or with partners, a diverse portfolio of nucleic acid-based drugs and biologics based
on PCR-produced linear DNA to improve existing nucleic acid-based therapeutics or to create new nucleic acid-based
therapeutics that address unmet medical needs. We are also engaged in preclinical and animal drug candidate development
activities focusing on therapeutically relevant DNA constructs manufactured through our large scale PCR production systems.
LRx uses its PCR systems to rapidly produce customized DNA for use by our contract research organization/contract
manufacturing organization clients, our preclinical drug and biologic clients and partners, and for our own nucleic
acid-based preclinical drugs and biologics under development in the field of CAR T-cell immunotherapy. LRx’s
proprietary processes enables large, gram-scale production of DNA through PCR for bio-based therapeutics, adoptive cell
therapies, vaccines (including cancer), clustered regularly interspaced short palindromic repeats, or CRISPR and other
nucleic acid-based therapies. Linear DNA does not require recombination, therefore, there is no need for a virus or for
plasmids. This reduces the risk of unwanted DNA or other contaminants that would need to be removed.
Recent Developments
TheraCann International Benchmark Corporation.
During March 2019, we, with our wholly-owned subsidiary, APDN (B.V.I.), Inc., entered into a Patent and Know-How License and
Cooperation Agreement with ETCH BioTrace S.A. (“ETCH”), a wholly-owned subsidiary of TheraCann International Benchmark
Corporation (“TheraCann”), a legal cannabis and hemp consultancy, (the “TheraCann Agreement”). The TheraCann
Agreement grants ETCH the exclusive right and license, with rights to sublicense, to use, offer to sell, sell and import our proprietary
or patented DNA tagging, DNA tag application and DNA tag authentication technologies marketed under SigNature® and/or CertainT®
(the “Technology”) within the global cannabis sativa L and cannabis sativa L derivative product markets,
excluding use in textiles. The TheraCann Agreement further grants ETCH the non-exclusive right and license, with rights to sublicense,
to use, offer to sell, sell and import the Technology within the global cannabis sativa L market and cannabis sativa
L derivative product markets for use in textiles. The TheraCann Agreement also grants ETCH the limited use of trademarks owned
by us solely for the purpose of promoting, marketing and disclosing the Technology, with all goodwill and benefit arising from
such use inuring to the exclusive benefit of us. Under the TheraCann Agreement, a $5,000,000 non-refundable up-front licensing
fee is payable to us over a four-month period, with $1,000,000 paid in April 2019, $2,000,000 that was due on or before June 30,
2019 and $2,000,000 that was due on or before August 15, 2019. We will jointly market and sell the Technology with ETCH, with profits
to be shared between the parties after specified gross profit minimums are reached. The TheraCann Agreement also provides for specified
annual cash payment minimums to us, which TheraCann must pay to us to maintain its license exclusivity. Such annual cash payment
minimums may be comprised of any cash payments from ETCH or any sublicensee for DNA taggant, profit share, DNA authentication devices/reagents,
DNA authentication services, project fees, other service or product fees, and/or other cash payments. In lieu of the annual cash
payment minimums for years one and two, the parties agree to create a mutually agreeable development plan for TheraCann’s
commercialization of the Technology which will contain commercialization milestones that can be met by TheraCann in lieu of annual
cash payment minimums. On September 5, 2019, we sent a notice of continuing breach to TheraCann with respect to the TheraCann Agreement.
As of September 16, 2019, we have not received the June 30, 2019 and August 15, 2019 payments described above. If we do not receive
the June 30, 2019 payment by September 24, 2019, we have the option terminate the TheraCann Agreement for such failure to pay and
TheraCann will have no obligation to make further payments to us. If we receive the June 30, 2019 payment by September 24, 2019
but do not receive the August 15, 2019 payment by November 8, 2019, we have the option to terminate the TheraCann Agreement for
such failure to pay and TheraCann will have no obligation to make further payments to us. If the TheraCann Agreement is terminated,
TheraCann will retain no rights to the licensed technology.
Conversion by Substantial Holders of
Secured Convertible Notes. On September 12, 2019, Dr. James A. Hayward, our Chairman, Chief Executive Officer and President,
converted approximately $1.59 million of the Existing Notes, as defined below, into approximately 2.9 million shares of common
stock of the Company. In addition, as of September 16, 2019, other directors, officers, and affiliates of the Company converted
approximately $425,000 of such Existing Notes in September 2019 into 786,643 shares of common stock of the Company.
Dillon Hill Capital, LLC. On July
16, 2019, the Company issued $1.5 million of secured convertible notes (the “July 2019 Notes”), bearing interest at
a rate of 6% per annum, in a non-brokered private placement with an accredited investor, Dillon Hill Capital, LLC (“Dillon
Hill”) and simultaneously amended the terms of certain outstanding August 2018 secured convertible notes (as amended, the
“August 2018 Notes”) and November 2018 secured convertible notes (as amended, the “November 2018 Notes”,
and together with the August 2018 Notes, the “Existing Notes”, and together with the August 2018 Notes and July 2019
Notes, the “Company Notes”), to, among other amendments, (i) reduce the conversion price of the Existing Notes to $0.54
to facilitate their conversion into equity and (ii) change the maturity date of the August 2018 Notes to be November 28, 2021.
Under the terms of the July 2019 Notes, until October 13, 2019, Dillon Hill has the right to purchase on the same terms as the
July 16, 2019 sale up to an additional $500,000 in principal amount of the July 2019 Notes, and up to an additional $1 million
in principal amount of the July 2019 Notes if approved by the Company. In addition, Dillon Hill was granted a right to participate
in certain future financing transactions of the Company, including this offering, (each a “Subsequent Financing”) until
July 16, 2020 equal to the amount required for Dillon Hill to maintain its pro rata ownership of the Company as if the July 2019
Notes had been fully converted into the Company’s common stock. Until October 13, 2019, Dillon Hill shall have the right
to participate in full, including in this offering, for the first $1 million of such Subsequent Financing.
The Company Notes contain certain events
of default that are customarily included in financings of this nature. If an event of default occurs, the holders of the Company
Notes (by an affirmative vote of the holders of the Company Notes representing at least 30% of the aggregate principal amount of
the Company Notes then outstanding) may require the Company to redeem the Company Notes, in whole or in part, at a redemption price
equal to the greater of (i) their outstanding principal balance, plus all accrued and unpaid interest, divided by the Conversion
Price (as defined below), multiplied by the volume-weighted average price (“VWAP”) on the date the redemption price
is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 130% of the outstanding principal,
plus all accrued and unpaid interest.
After giving effect to the amendments to
the Existing Notes, the July 2019 Notes are substantially similar to the Existing Notes. The July 2019 Notes are secured on a pari
passu basis with the same Company assets as the Existing Notes. In addition, on July 19, 2019, the Company also amended the security
agreements dated as of October 19, 2018, to among other amendments, exclude 20% of the Company’s equity interest in LRx from
the assets securing the Company Notes. The Company Notes are convertible, in whole or in part, at any time, at the option of the
purchasers, into shares of the Company’s common stock, in an amount determined by dividing the principal amount of the Company
Notes, together with any and all accrued and unpaid interest, by the conversion price of $0.54 (the “Conversion Price”).
The Company Notes are due and payable in full on November 28, 2021.
The July 2019 Notes and the Existing Notes,
as amended, contain certain negative covenants that restrict the Company, including prohibitions or limitations, among other things,
on the incurrence of additional indebtedness, subsidiary asset sales, intercompany loans, liens, amendments to the Company’s
organization documents, dividends, and redemptions without consent of the Required Holders (as defined in the Company Notes).
Vitatex, Inc. During August 2019,
LRx entered into an Asset Purchase Agreement (the “Vitatex Agreement”) with Vitatex, Inc. (“Vitatex”),
an early stage private biotechnology company focused on advancing personalized medicine with a potential solution that isolates
Invasive Circulating Tumor Cells (“iCTCs”) from standard patient blood samples. It is expected that the Vitatex Assets,
as defined below, will be part of LRx’s diagnostics and therapeutics business. The Vitatex Agreement provides for the purchase
of substantially all of the assets of Vitatex (“Vitatex Assets”). We completed the acquisition of the Vitatex Assets
in August 2019. The Vitatex Assets include physical assets, such as laboratory equipment, as well as registered trademarks and
other intellectual property. The Vitatex Assets also include Vitatex’s rights under an exclusive patent license agreement
between The Research Foundation for the State University of New York (the “Research Foundation”) and Vitatex (the “License
Agreement”). LRx did not assume any liabilities of Vitatex. In connection with the acquisition of the Vitatex Assets, LRx
entered into the Amended and Restated Exclusive License Agreement (the “Restated License Agreement”) with the Research
Foundation and Vitatex on August 7, 2019, pursuant to which LRx assumed the rights to a global patent portfolio covering the iCTC
technology.
The purchase price for the Vitatex Assets
consisted of $500,000 in cash and common stock of LRx and up to an additional $500,000 of LRx common stock as performance-based
contingent consideration. Of this amount, (i) an initial payment comprised of $300,000 in shares of common stock of LRx (based
on the then-current valuation of $25 million of LRx) made to the shareholders of Vitatex, (ii) $100,000 in cash must be paid to
Vitatex on or before September 30, 2019, subject to adjustment as provided below, and (iii) $100,000 in cash must be paid to Vitatex
on or before December 31, 2019. The purchase price will be reduced by an amount equal to any payment required to be made by LRx
to pay off and satisfy Vitatex’s outstanding cash and/or equity obligations owed to the Research Foundation under the License
Agreement as delineated in the Restated License Agreement. Pursuant to the Restated License Agreement, LRx will pay approximately
$11,710 in cash to the Research Foundation, thereby reducing the cash payment due to Vitatex on or before September 30, 2019 to
approximately $88,290. In addition, the shareholders of Vitatex are also entitled to additional performance-based equity distributions
of up to $500,000 in shares of common stock of LRx (based on the then-current valuation of LRx) with (i) $250,000 of LRx common
stock that was paid upon the occurrence of LRx completing certain National Cancer Institute Small Business Innovation Research
program filings, (ii) $100,000 of LRx common stock that will become due if the Vitatex Assets yield more than $100,000 in gross
revenue by July 29, 2020 and (iii) $150,000 of LRx common stock that will become due if the Vitatex Assets yield an additional
$200,000 in gross revenue. The Research Foundation will receive cash instead of shares of LRx upon the completion of any such performance-based
events.
American & Efird. During
April 2018, we entered into a statement of work with American & Efird (“A&E”), one of the world’s
leading manufacturers and distributors of industrial and consumer sewing thread, embroidery thread and technical textiles, to
evaluate our Beacon® technology for use in CertainT® enhanced secure sewing threads for brand
protection. During May 2019, A&E previewed its new line of advanced identification threads, branded
“Integrity.” A&E publicly displayed the molecular-tagged thread solution at the Texprocess trade show in
Frankfurt, Germany in May 2019 and we expect them to present again in October 2019 at the Gerber Technology Summit.
iCell Gene Therapeutics, Inc. During
October 2018, we entered into an exclusive North American licensing agreement and a research services agreement with iCell Gene
Therapeutics, Inc. (“iCell”) under which iCell licensed to us an anti-CD19 CAR T therapy candidate for non-viral delivery.
We intend to utilize our non-viral, plasmid free platform, along with the in-licensed anti-CD19 CAR T therapy to develop, manufacture
and commercialize LinCART19, a non-viral, plasmid free anti-CD19 CAR T therapeutic candidate. During April 2019, we announced that
LRx had improved expression levels and survival rates of linear DNA constructs delivered without viruses or plasmids to human T
cells. In collaboration with Avectas, a cell engineering technology business enabling the manufacture of cell therapies, LRx has
achieved a greater than four-fold increase in cell survival and a more than 50% increase in linear gene expression of a model amplicon.
Results were presented by Avectas at the Cell & Gene Meeting on the Mediterranean in April 2019, which was attended by more
than 50 companies. The Company expects to continue its preclinical research relating to LinCART19 with its partners to increase
cellular expression without the use of viral transduction.
GHCL Ltd. During April 2019, GHCL
Ltd. announced the launch of the “REKOOP” range of bedding products on Amazon.com. REKOOP utilizes ecologically conscious
practices through the molecular tagging of the recycled fiber that comprise its product line through our CertainT® platform
that secures provenance and complete traceability across the supply chain. Reliance Industries Ltd., India’s largest private
sector company, is GHCL Ltd.’s fiber-manufacturing partner and supplies the ecofriendly recycled polyester fiber –
Recon® Green Gold, which is used in REKOOP bedding. New products under REKOOP with CertainT® are anticipated to be marketed
and sold in the U.S. and internationally.
Loftex Home, LLC. During April 2019,
Loftex Home, LLC (“Loftex”), a leading manufacturer of high-quality towels, announced that the first retail introduction
of their bath towels including recycled PET (r-PET) source-verified by the CertainT® platform became available at U.S. retail.
Loftex markets and sells bath and beach towels with CertainT® source verification for r-PET and pays us royalties for the use
of the CertainT® platform through an exclusive licensing agreement with us.
Corporate History
We are a Delaware corporation, which was
initially formed in 1983 under the laws of the State of Florida as Datalink Systems, Inc. In 1998, we reincorporated in the State
of Nevada, and in 2002, we changed our name to our current name, Applied DNA Sciences, Inc. On December 17, 2008, we reincorporated
from the State of Nevada to the State of Delaware.
Our corporate headquarters are located at
the Long Island High Technology Incubator at Stony Brook University in Stony Brook, New York, where we have established laboratories
for the manufacture of molecular tags, product prototyping, molecular tag authentication and bulk DNA production. The mailing address
of our corporate headquarters is 50 Health Sciences Drive, Stony Brook, New York 11790, and our telephone number is (631) 240-8800.
To date, we have produced limited recurring
revenues from our products and services, have incurred expenses and have sustained losses. Moreover, our auditors have raised substantial
doubt as to our ability to continue as a going concern. Consequently, our operations are subject to all the risks inherent in the
establishment and development of a biotechnology company.
Available Information
Because we are subject to the information
and reporting requirements of the Exchange Act, we file or furnish, as applicable, annual, quarterly and current reports, proxy
statements and other information with the SEC. The SEC maintains a website that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC. The address of that website is www.sec.gov. We make
available on our website at www.adnas.com, free of charge, copies of these reports, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. The information in or accessible through the websites referred
to above are not incorporated into, and are not considered part of, this prospectus. Further, our references to the URLs for these
websites are intended to be inactive textual references only.
Summary
of the Offering
Common stock to be offered
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shares of common stock ( shares if the underwriters exercise their over-allotment option in full)
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Pre-funded warrants offered by us in this offering
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We are also offering to each purchaser whose purchase of shares of common stock in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% of our outstanding common stock immediately following the consummation of this offering, the opportunity to purchase, if the purchaser so chooses, pre-funded warrants, in lieu of shares of common stock that would otherwise result in the purchaser’s beneficial ownership exceeding 4.99% of our outstanding common stock. Subject to limited exceptions, a holder of pre-funded warrants will not have the right to exercise any portion of its pre-funded warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to such exercise. Each pre-funded warrant will be exercisable for one share of our common stock. The purchase price of each pre-funded warrant will equal the price per share at which the shares of common stock are being sold to the public in this offering, minus $0.01, and the exercise price of each pre-funded warrant will be $0.01 per share. This offering also relates to the shares of common stock issuable upon exercise of any pre-funded warrants sold in this offering. For each pre-funded warrant we sell, the number of shares of common stock we are offering will be decreased on a one-for-one basis.
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Common warrants offered by us in this offering
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We are issuing to purchasers of shares of our common stock and/or pre-funded warrants in this offering a common warrant
to purchase share[s] of our common stock for each share purchased in this offering for a combined purchase
price of $ . Because a common warrant to purchase share[s] of our common
stock is being sold together in this offering with each share of common stock and, in the alternative, each pre-funded
warrant to purchase one share of common stock, the number of common warrants sold in this offering will not change as a
result of a change in the mix of the shares of our common stock and pre-funded warrants sold. The common warrants
will be exercisable beginning on the Initial Exercise Date at an exercise price of $ per share and
will expire on the five year anniversary of the Initial Exercise Date. The common warrants include an adjustment provision
that, subject to certain exceptions, reduces their exercise price if the Company issues common stock or common stock
equivalents at a price lower than the then-current exercise price of the common warrants, subject to a minimum exercise
price of $ per share. No fractional shares of common stock will be issued in connection with the
exercise of a common warrant. In lieu of fractional shares, we will round up to the next whole share. See
“Description of Securities — Common Warrants.” This prospectus also relates to the offering of the
shares of common stock issuable upon exercise of the common warrants.
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Common stock outstanding prior to this offering
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47,153,616 shares
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Common stock to be outstanding after this offering
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shares (assuming no sale of any pre-funded warrants and assuming none of the common warrants issued in this offering are exercised)
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Option to purchase additional shares and/or common warrants
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The Underwriter has a 45-day option to purchase up to an additional shares of our common stock and/or common warrants to purchase shares of our common stock at a price of $ per share to cover over-allotments, if any.
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Use of proceeds
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We estimate that the net proceeds to us from this offering will be approximately $ , after deducting the underwriting discounts and commissions and estimated offering expenses payable by us and assuming no exercise of the common warrants. We intend to use the net proceeds from the sale of the securities for general corporate purposes, which may include research and development expenses, capital expenditures, working capital and general and administrative expenses, and potential acquisitions of or investments in businesses, products and technologies that complement our business, although we have no present commitments or agreements to make any such acquisitions or investments as of the date of this prospectus. Pending these uses, we intend to invest the funds in short-term, investment grade, interest-bearing securities. It is possible that, pending their use, we may invest the net proceeds in a way that does not yield a favorable, or any, return for us. See “Use of Proceeds” on page 39 of this prospectus.
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Risk factors
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You should carefully read and consider the information set forth under “Risk Factors” on page 15 of this prospectus and the documents incorporated by reference herein before deciding to invest in our securities.
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Lock-up agreements
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We and all of our executive officers and directors will enter into lock-up agreements with the Underwriter. Under these agreements, we and each of these persons may not, without the prior written approval of the Underwriter, offer, sell, contract to sell or otherwise dispose of or hedge common stock or securities convertible into or exchangeable for common stock, subject to certain exceptions. The restrictions contained in these agreements will be in effect for a period of 180 days after the date of the closing of this offering. For more information, see “Underwriting” on page 56 of this prospectus.
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Market for common stock
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Our common stock is listed on The Nasdaq Capital Market under the symbol “APDN.”
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Market for publicly traded warrants
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Our publicly traded warrants are listed on The Nasdaq Capital Market under the symbol “APDNW.”
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Listing of pre-funded warrants and common warrants
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We do not intend to list the pre-funded warrants or the common warrants on any securities exchange or nationally recognized trading system.
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The discussion and tables above are based
on 47,153,616 shares of our common stock outstanding as of September 16, 2019, which excludes shares of our common stock that may
be issued upon exercise of pre-funded warrants and common warrants issued in this offering, 7,972,504 shares of common stock issuable
upon exercise of outstanding options, 11,213,527 shares of common stock issuable upon exercise of outstanding warrants, 5,563,759
shares available for grant under our 2005 Incentive Stock Plan, as amended and restated (the “2005 Incentive Stock Plan”)
as of such date, and shares of common stock initially issuable upon the common exercise of the common warrants to be issued pursuant
to this prospectus.
Unless otherwise indicated, all information
contained in this prospectus assumes no exercise by the Underwriter of its over-allotment option.
Risk Factors
Investment in our securities,
including our common stock , common warrants, and pre-funded warrants, involves a high degree of risk. In addition to the
risks and investment considerations discussed elsewhere in this prospectus or any document incorporated by reference herein,
the following factors should be carefully considered by anyone purchasing the securities offered by this prospectus. The
risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known
to us or that we currently deem immaterial also may impair our business operations. We also update risk factors from time to
time in our periodic reports on Forms
10-K, 10-Q
and 8-K
which will be incorporated by reference in this prospectus. If any of the following risks actually occur, our business could
be harmed. In such case, the trading price of our common stock could decline and investors could lose all or a part of
their investment. All of these risks could adversely affect our business, business prospects, results of operations,
financial condition and cash flows.
See also the statements contained under
the heading “Forward-Looking Statements.”
Risks Related to Our Business:
There is substantial doubt relating to our ability
to continue as a going concern.
We have recurring net losses, which have
resulted in an accumulated deficit of $255,271,848 as of June 30, 2019 and $248,366,083 as of September 30, 2018. We have
incurred a net loss of $11,692,928 for the fiscal year ended September 30, 2018 and $7,398,988 for the nine-month period ended
June 30, 2019. At September 30, 2018, we had cash and cash equivalents of $1,659,564, and $507,146 as of June 30, 2019. We have
concluded that these factors raise substantial doubt about our ability to continue as a going concern for one year from the issuance
of the financial statements.
In addition, the report from our independent
registered public accounting firm for the year ended September 30, 2018 includes an explanatory paragraph stating that our significant
losses and need to raise additional funds to meet our obligations and sustain operations raise substantial doubt about our ability
to continue as a going concern. We will continue to seek to raise additional working capital through public equity, private equity
or debt financings. If we fail to raise additional working capital, or do so on commercially unfavorable terms, it would materially
and adversely affect our business, prospects, financial condition and results of operations, and we may be unable to continue as
a going concern. Future reports from our independent registered public accounting firm may also contain statements expressing substantial
doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities in the
future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources
may be unwilling to provide additional funding to us on commercially reasonable terms, if at all.
If we are unsuccessful in our pending hearing before
the Nasdaq Hearings Panel, and a final decision is made by Nasdaq to delist our securities, our securities will be delisted from
Nasdaq and we may incur adverse consequences.
Our common stock and publicly traded warrants
are listed on The Nasdaq Capital Market under the symbols “APDN” and “APDNW,” respectively. For our common
stock and publicly traded warrants to continue to be listed on The Nasdaq Capital Market, we must meet the current continued listing
requirements, including the requirements that (1) our stock must maintain a minimum closing bid price of $1.00 pursuant to Nasdaq
Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”); and (2) we must maintain net income from continuing
operations (in the latest fiscal year or two of the three last fiscal years) of at least $500,000, a market value of listed securities
of at least $35 million (the “Minimum Value of Listed Securities Requirement”), or stockholders’ equity of at
least $2.5 million, pursuant to Nasdaq Listing Rule 5550(b).
On January 29, 2019 and
January 30, 2019, we received written notices from the Listing Qualifications Department of Nasdaq notifying us that we are not
in compliance with the Minimum Bid Price Requirement as well as the market value of listed securities requirement, or the alternative
standards of Nasdaq Listing Rule 5550(b)(1) or 5550(b)(3) which require a company to have minimum stockholders equity of $2.5
million or for it to have had net income from continuing operations of at least $500,000 in the latest fiscal year or in two of
the last three fiscal years.
On
July 30, 2019, we received written notice from Nasdaq indicating that, based upon our continued non-compliance with the Minimum
Bid Price Requirement and Minimum Value of Listed Securities Requirement, as set forth
in Nasdaq Listing Rules 5550(a)(2) and 5550(b)(2), respectively, as of July 29, 2019, the staff of Nasdaq (the “Staff”)
had determined to delist our securities (including our common stock and publicly traded warrants) from The Nasdaq Capital Market
unless we timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”). We have requested a hearing before
the Panel, which will stay any further action by the Staff at least pending the ultimate conclusion of the hearing process. During
the pendency of the requested hearing before the Panel, our listed securities will remain listed on The Nasdaq Capital Market.
Our hearing date is scheduled for September 19, 2019.
We
are diligently working to evidence compliance with all applicable requirements for continued listing on The Nasdaq Capital Market
and have submitted a plan to that effect to the Panel as part of the hearing process; however, there can be no assurance that the
Panel will grant our request for continued listing on The Nasdaq Capital Market or
that we will be able to regain compliance with the applicable listing criteria within the period of time that may be granted by
the Panel.
If
our common stock is delisted by Nasdaq, it could lead to a number of negative implications, including an adverse effect on the
price of our common stock, increased volatility in our common stock, reduced liquidity in our common stock, the loss of federal
preemption of state securities laws and greater difficulty in obtaining financing. In addition, delisting of our common stock could
deter broker-dealers from making a market in or otherwise seeking or generating interest in our common stock, could result in a
loss of current or future coverage by certain sell-side analysts and might deter certain institutions and persons from investing
in our securities at all. Delisting could also cause a loss of confidence of our customers, collaborators, vendors, suppliers and
employees, which could harm our business and future prospects.
If
our common stock is delisted by Nasdaq, our common stock may be eligible to trade on the OTC Bulletin Board, OTC-QB or another
over-the-counter market. Any such alternative would likely result in it being more difficult for us to raise additional capital
through the public or private sale of equity securities and for investors to dispose of or obtain accurate quotations as to the
market value of, our common stock. In addition, there can be no assurance that our common stock would be eligible for trading on
any such alternative exchange or markets. Moreover, if our common stock is delisted, it may come within the definition of “penny
stock” under the Exchange Act, which imposes additional sales practice requirements on broker-dealers who sell securities
to persons other than established customers and accredited investors. For example, we and/or broker-dealers are required to make
a special suitability determination for purchases of such securities and must receive a purchaser’s written consent to the
transaction prior to any purchase. Additionally, unless exempt, prior to a transaction involving a penny stock, the penny stock
rules require the delivery of a disclosure schedule prescribed by the SEC relating to the penny stock market. The broker-dealer
must also disclose the commissions payable to the broker-dealer, current quotations for the securities and, if the broker-dealer
is the sole market-maker for the security, the fact that they are the sole market-maker and their presumed control over the market.
Finally, monthly statements disclosing recent price information on the limited market in penny stocks must be sent to holders of
such penny stocks. These requirements may reduce trading activity in the secondary market for our common stock and may impact the
ability or willingness of broker-dealers to sell our securities which could limit the ability of stockholders to sell their securities
in the public market and limit our ability to attract and retain qualified employees or raise additional capital in the future.
We may conduct a reverse stock split to maintain Nasdaq’s
Minimum Bid Price Requirement which may adversely impact the market price and liquidity of our common stock.
In order to maintain listing on The Nasdaq
Capital Market, our common stock must meet the Minimum Bid Price Requirement. In the future, we may decide to effect a reverse
stock split in order to satisfy this Minimum Bid Price Requirement. Any such reverse stock split may adversely affect the liquidity
of the shares of our common stock and there is no assurance that our common stock will trade at a price consistent with such reverse
stock split. As a result, if we effect a reverse stock split after the closing of this offering, those purchasers of securities
in this offering may suffer a loss of their investment. Moreover, even if the reverse stock split achieves the requisite increase
in the market price of our common stock to be in compliance with the requirements of the Nasdaq Listing Rules, there is no assurance
that the market price of our common stock following the reverse stock split will remain at the level required to maintain compliance.
We have not produced significant revenues. This
makes it difficult to evaluate our future prospects and increases the risk that we will not be successful.
Our operations since inception have produced
limited revenues, and may not produce significant revenues in the near term, or at all, which may harm our ability to obtain additional
financing and may require us to reduce or discontinue our operations. If we create significant revenues in the future, we expect
to derive most of such revenues from the sale of supply chain security and product authentication solutions. You must consider
our business and prospects in light of the risks and difficulties we will encounter as a company operating in a rapidly evolving
industry. We may not be able to successfully address these risks and difficulties, which could significantly harm our business,
operating results, and financial condition.
We have a history of net losses which may continue,
and which may harm our ability to obtain financing and continue our operations.
We incurred net losses of $11.7 million
and $12.9 million for the fiscal years ended September 30, 2018 and 2017, respectively, and $7,398,988 and $8,217,645 for the nine-month
periods ended June 30, 2019 and 2018, respectively. These net losses have principally been the result of the various costs associated
with our selling, general and administrative and research and development expenses as we expanded operations, acquired, developed
and validated technologies and expanded marketing activities. Our operations are subject to the risks and competition inherent
in a company that moved from the development stage to an operating company. We may not generate sufficient revenues from operations
to achieve or sustain profitability on a quarterly, annual or any other basis in the future. Our revenues and profits, if any,
will depend upon various factors, including whether our existing products and services or any new products and services we develop
will achieve market acceptance. If we continue to incur losses, then our accumulated deficit will continue to increase which may
significantly impair our ability to obtain additional financing. As a result, our business, results of operations and financial
condition would be significantly harmed, and we may be required to reduce or terminate our operations.
If we are unable to obtain additional financing
our business operations may be harmed or discontinued.
Our continuation as a going concern is dependent
upon our future revenues and our ability to commercialize more products, obtain additional capital and attain profitable operations.
We will require additional funds to complete the continued development and commercialization of our products, product manufacturing,
and to fund expected additional losses from operations, until revenues are sufficient to cover our operating expenses. If we are
unsuccessful in obtaining any necessary additional financing, we will most likely be forced to reduce or terminate our operations.
Our opportunities in pharmaceuticals and biologics
will require substantial additional funding. We may not be successful in our efforts to create a pipeline of product candidates
or to develop commercially successful products. If we fail to successfully identify, finance and develop product candidates, our
commercial opportunities in pharmaceuticals and biologics may be limited.
We have no pharmaceutical or biologic products
approved for commercial sale and have not generated any revenue from pharmaceutical or biologic product sales. Identifying, developing,
obtaining regulatory approval and commercializing pharmaceutical and biologic product candidates will require substantial additional
funding beyond our current available resources and is prone to the risks of failure inherent in drug or biologic development. Developing
product candidates is expensive, and we expect to spend substantial amounts as we fund our early-stage research projects, engage
in preclinical development of early-stage programs and, in particular, advance program candidates through preclinical development
and clinical trials.
Even if we receive regulatory approval to
market any of our product candidates, we cannot assure you that any such product candidate will be successfully commercialized,
widely accepted in the marketplace or more effective than other commercially available alternatives.
Investment in pharmaceutical and biologic
product development involves significant risk that any product candidate will fail to demonstrate adequate efficacy or an acceptable
safety profile, gain regulatory approval, and become commercially viable. We cannot provide any assurance that we will be able
to successfully advance any product candidates through the development process or, if approved, successfully commercialize any
product candidates.
Even if we are able to generate revenue
from the sale of any approved pharmaceutical and biologic products, we may not become profitable and may need to obtain additional
funding to continue operations. Our failure to become and remain profitable would decrease the value of our Company and could impair
our ability to raise capital, expand our business, maintain our research and development efforts, diversify our pipeline of product
candidates or continue our operations, and cause a decline in the value of our common stock, all or any of which may adversely
affect our viability.
Our operating results could be adversely affected
by a reduction in business with our significant customers.
Our revenue earned from the sale of products
and services for the nine month period ended June 30, 2019 and the fiscal year ended September 30, 2018 included an aggregate of
68%, from three customers, and 65% of our total revenues, from four customers, respectively. At June 30, 2019, three customers
accounted for 52% of the Company’s accounts receivable, and one customer accounted for 82% of the Company’s accounts
receivable at September 30, 2018. Our revenues earned from sale of products and services for the nine month period ended June 30,
2018 included an aggregate of 59% from three customers of our total revenues. Our revenues earned from sale of products and services
for the fiscal year ended September 30, 2017 included an aggregate of 78% from four customers of our total revenues. At September
30, 2017, one customer accounted for 80% of our total accounts receivable. Generally, our customers do not have an obligation to
make purchases from us and may stop ordering our products and services or may terminate existing orders or contracts at any time
with little or no financial penalty. The loss of any of our significant customers, any substantial decline in sales to these customers,
or any significant change in the timing or volume of purchases by our customers could result in lower revenues and could harm our
business, financial condition or results of operations.
If our existing products and services are not accepted
by potential customers or if we fail to introduce new products and services, our business, results of operations and financial
condition will be harmed.
There has been limited market acceptance
of our DNA based technology, encapsulation, embedment and authentication products and services to date. Some of the factors that
will affect whether we achieve market acceptance of our solutions include:
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availability, quality and price relative to competitive solutions;
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customers’ opinions of the solutions’ utility;
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consistency with prior practices;
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scientists’ opinions of the solutions’ usefulness; and
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general trends in anti-counterfeit and security solutions’ research.
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Our dependence on channel partners exposes us to
certain risks that could harm our business, results of operations and financial condition.
Our future growth will depend to a material
extent on the successful advocacy of our technology by channel partners to their members and customers, and implementation of our
technology in solutions propagated by channel partners and provided by third parties. Our business has relied on the success of
business partners. Our continuing success is largely dependent on a new generation of business partners involved in our tagging
technology.
If our channel partners are not successful
in advocating and deploying our technology, we may not be able to achieve and sustain profitable operations. If other business
partners who include our technology in their products or otherwise license our intellectual property for use in their products
cease to do so, or we fail to obtain other partners who will incorporate, embed, integrate or bundle our technology, or these partners
are unsuccessful in their efforts, expanding deployment of our technology and increasing revenues will be adversely affected. Consequently,
our ability to increase revenue could be adversely affected and we may suffer other adverse effects to our business. In addition,
if our technology does not perform according to market expectations, our future sales would suffer as customers seek and employ
alternative technologies.
Many of our business endeavors can be impeded
or frustrated by larger, more influential companies or by standard-setting bodies or institutions downplaying, minimizing or rejecting
the value or use of our technology. A negative position by such companies, bodies or institutions, could result in obstacles for
us that we would be incapable of overcoming and may block or impede the adoption of our technology. In addition, potential customers
may delay or reject initiatives that relate to deployment of our technology. Such a development would make the achievement of our
business objectives in this market difficult or impossible.
The expenses or losses associated with lack of widespread
market acceptance of our solutions may harm our business, operating results and financial condition.
Rapid technological changes and frequent
new product introductions are typical in the markets we serve. Our future success may depend in part on continuous, timely development
and introduction of new products that address evolving market requirements. We believe successful new product introductions may
provide a significant competitive advantage because customers invest their time in selecting and learning to use new products,
and once invested in the new technology, are often reluctant to switch products. To the extent we fail to introduce new and innovative
products, we may lose any market share we then have to our competitors, which will be difficult or impossible to regain. Any inability,
for technological or other reasons, to successfully develop and introduce new products could reduce our growth rate or damage our
business. We may experience delays in the development and introduction of products. We may not keep pace with the rapid rate of
change in anti-counterfeiting and security products’ research, and any new products acquired or developed by us may not meet
the requirements of the marketplace or achieve market acceptance.
We need to expand our sales, marketing and support
organizations and our distribution arrangements to increase market acceptance of our products and services.
We currently have a limited number of sales,
marketing, customer service and support personnel and may need to increase our staff to generate a greater volume of sales and
to support any new customers or the expanding needs of existing customers. The employment market for sales, marketing, customer
service and support personnel in our industry is very competitive, and we may not be able to hire the kind and number of sales,
marketing, customer service and support personnel we are targeting. Our inability to hire qualified sales, marketing, customer
service and support personnel may harm our business, operating results and financial condition. While we have entered into a limited
number of agreements with distributors, we may not be able to sufficiently build out a distribution network or enter into arrangements
with qualified distributors on acceptable terms or at all. If we are not able to develop greater distribution capacity, we may
not be able to generate sufficient revenue to support our operations.
If we are unable to continue to retain the services
of Dr. James A. Hayward, we may not be able to continue our operations.
Our success depends to a significant extent
upon the continued service of Dr. James A. Hayward, our Chairman, Chief Executive Officer and President. On July 28, 2016, we entered
into an employment agreement with Dr. Hayward. The initial term was from July 1, 2016 through June 30, 2017, with automatic one-year
renewal periods. As of June 30, 2019, the employment contract automatically renewed for an additional year. Loss of the services
of Dr. Hayward could significantly harm our business, results of operations and financial condition. We do not maintain key-person
insurance on the life of Dr. Hayward.
We may have conflicts of interest with our affiliates
and related parties, and in the past we have engaged in transactions and entered into agreements with affiliates that were not
negotiated at arms’ length.
We have engaged, and may in the future engage,
in transactions with affiliates and other related parties. These transactions may not have been, and may not be, on terms as favorable
to us as they could have been if obtained from non-affiliated persons. While an effort has been made, and will continue to be made,
to enter into transactions with affiliated persons and other related parties at rates and on terms as favorable as would be charged
by others, there will always be an inherent conflict of interest between our interests and those of our affiliates and related
parties. In August 2018 and November 2018, we issued an aggregate of $2.2 million in principal amount of secured convertible notes,
a majority of which were owned by Dr. James A. Hayward, our Chairman, Chief Executive Officer and President. Dr. Hayward and other
directors, officers, and affiliates of the Company converted substantial portions of such August 2018 Notes and November 2018 Notes
into common stock of the Company in September 2019. Upon conversion by Dr. Hayward and by our other officers, directors, and affiliates,
such individuals gained an increased amount of control over the Company. The Company may be adversely impacted if any related party
agreement or transaction is made on unfavorable terms.
The markets for our supply chain security and product
authentication solutions are very competitive, and we may be unable to continue to compete effectively in these industries in the
future.
The principal markets for our offerings
are intensely competitive. We compete with many existing suppliers and new competitors continue to enter the market. Many of our
competitors, both in the United States and elsewhere, are major pharmaceutical, chemical and biotechnology companies, or have strategic
alliances with such companies, and many of them have substantially greater capital resources, marketing experience, research and
development staff, and facilities than we do. Any of these companies could succeed in developing products that are more effective
than the products that we have or may develop and may be more successful than us in producing and marketing their existing products.
Some of our competitors that operate in the anti-counterfeiting and fraud prevention markets include: 3DTL Inc., AlpVision Sa,
Authentix Inc., Brandwatch Technologies, Chromologic LLC, Collectors Universe Inc., DataDot Technology, De La Rue Plc., Digimarc
Corp., DNA Technologies, Inc., FractureCode Corporation, Haelixa, ICA Bremen GmbH, Ipsidy Inc., IEHCorporationInformium AG, Eastman
Kodak Company, IDEMIA, opSec Security Group plc., MicroTag Temed Ltd., Nanotech Security Corp., Nokomis, Inc., Oritain Global Limited,
Prooftag SAS, SafeTraces Inc., Selectamark Security Systems plc, Spectra Systems Corp., SmartWater Technology, Inc., Sun Chemical
Corp, TraceTag International, TruTag Technologies Inc., Tailorlux gmbH and YottaMark Inc.
We expect this competition to continue and
intensify in the future. Competition in our markets is primarily driven by:
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product performance, features and liability;
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timing of product introductions;
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ability to develop, maintain and protect proprietary products and technologies;
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sales and distribution capabilities;
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technical support and service;
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applications support; and
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breadth of product line.
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If a competitor develops superior technology
or cost-effective alternatives to our products, our business, financial condition and results of operations could be significantly
harmed.
Revenues from our customer contracts with respect
to cotton will be seasonal and may also be subject to weather conditions and other factors beyond our control, which may cause
our operating results to fluctuate significantly quarterly and annually.
A significant proportion of our revenues
is expected to be derived from customer contracts for tagging, authentications and other services related to cotton. The cotton
ginning season in the United States takes place between September and March each year. Therefore, revenues from our customer contracts
relating to cotton may be seasonal and recognized primarily during our first and fourth fiscal quarters, which may cause our operating
results to fluctuate significantly quarterly and annually. Additionally, weather and climatic conditions, natural disasters and
other factors beyond our control also affect the production and sale of cotton and other agricultural commodities to which our
customer contracts may relate, as well as our customers’ or prospective customers’ decisions regarding purchases of
our products and services, and may cause our operating results to fluctuate significantly quarterly and annually. The seasonal
fluctuations in operating results described above may cause a decline in the price of our common stock.
Fluctuations in quarterly results may cause a decline
in the price of our common stock.
Our revenues and profitability are difficult
to predict due to the nature of the markets in which we compete, fluctuating user demand, the uncertainty of current and future
global economic conditions, and for many other reasons, including that our operating results are highly dependent on the volume
and timing of orders received during a quarter, which are difficult to forecast. Customers generally order on an as-needed basis
and we typically do not obtain firm, long-term purchase commitments from our customers. The quarterly fluctuations in operating
results described above may cause a decline in the price of our common stock.
Shifting enforcement priorities of U.S. federal
laws relating to cannabis may create uncertainties for our business.
The Company is currently developing supply
chain solutions for the cannabis industry. These solutions are intended to verify the authenticity, origin and provenance of cannabis.
Cannabis is a Schedule I substance as defined under U.S. federal law, and its possession and use is generally not permitted under
U.S. federal law, although a number of individual states have enacted state laws to authorize possession, sale and use of cannabis
for medical purposes, and in some states for recreational purposes. Our solutions will be utilized in those U.S. states where
cannabis possession, sale and/or use is legal under state law. While our cannabis supply chain solutions are distinct from
cannabis itself, our cannabis supply chain business and related revenue may nevertheless be adversely impacted by such laws at
the federal and/or state level in the United States, or potentially in foreign jurisdictions. It is possible that such laws may
result in our cannabis supply chain business having no revenues or may subject the Company to increased risk of litigation.
Pharmaceutical and biologic-related revenue is generally
dependent on regulatory approval, oversight and compliance.
All of our pharmaceutical and biologic product
candidates will require significant preclinical and clinical development before we can seek regulatory approval for them and launch
a product commercially. The sale and use of our products and services in the pharmaceutical and biologic markets will generally
be subject to regulatory approval and oversight, potentially including approval and/or oversight in various foreign jurisdictions.
In addition, our pharmaceutical and biologic products and services may be incorporated into products that cannot be marketed in
the United States or in many other jurisdictions without approval by the Food and Drug Administration (“FDA”) or comparable
agencies of other countries or regions. Obtaining such regulatory approvals is costly, time-consuming, uncertain, and subject to
unanticipated delays. When, if ever, such approvals will be obtained is unknown. Our revenue in the pharmaceutical and biologic
markets is highly dependent upon obtaining such approval.
Federal agencies, including the FDA and
Federal Trade Commission (“FTC”), as well as state, local, and foreign authorities, also exercise ongoing review and
control of the manufacturing, packaging, labeling, advertising, sale, distribution, and monitoring of pharmaceutical and biologic
products. If our pharmaceutical or biologic product candidates or pharmaceutical or biologic products incorporating our products
are ever approved, failure to comply with any of these regulations or other requirements could also have an adverse effect on our
revenue in the pharmaceutical and biologic markets.
Pharmaceutical and biologic-related revenue will
be highly dependent on our collaborators’ and customers’ success in obtaining regulatory approval and commercializing
their products.
Some of our products in the pharmaceutical
and biologic market will be incorporated into products that are subject to comprehensive regulation by the FDA and other regulatory
agencies in the United States and by comparable authorities in other countries. In the United States, to obtain approval from the
FDA to market any future pharmaceutical or biologic product that incorporates our technology, our collaborators or customers will
be required to submit a New Drug Application (“NDA”) or Biologics Licensing Application (“BLA”). Ordinarily,
the FDA requires a company to support an NDA or BLA with substantial evidence of the product candidate’s safety and efficacy
in treating the targeted indication based on data derived from adequate and well-controlled clinical trials, including Phase III
safety and efficacy trials conducted in patients with the disease or condition being targeted. The process of obtaining such regulatory
approvals is expensive, often takes many years if approval is obtained at all, and can vary substantially based upon the type,
complexity and novelty of the product candidate involved. Changes in the regulatory approval process during the development period,
changes in or the enactment of additional statutes or regulations, or changes in the regulatory review process may cause delays
in the approval or rejection of an application. There is no guarantee that our collaborators and customers will ever be successful
in obtaining regulatory approval for any product that incorporates our products or technology. Even if regulatory approval is received,
the manufacturing processes, post approval clinical data, labeling, advertising and promotional activities for any such product
will be subject to continual requirements of and review by the FDA and other regulatory bodies. Our business may be materially
harmed by our collaborators’ and customers’ inability to obtain or maintain regulatory approvals for their products.
In addition, we will be dependent on, and
have no control over, consumer demand for the products into which our products are incorporated. Consumer demand for our collaborators’
and customers’ products could be adversely affected by, among other things, delays in health regulatory approval, the loss
of patent and other intellectual property rights protection, the emergence of competing products, including generic drugs or biosimilars,
the degree to which private and government drug plans subsidize payment for a particular product and changes in the marketing strategies
for such products. The healthcare industry has changed significantly over time, and we expect the industry to continue to evolve.
Some of these changes may have a material adverse effect on our collaborators and customers and thus may have a material adverse
effect on our business. If the products into which our products are incorporated do not gain market acceptance, our revenues and
profitability may be adversely affected.
Pharmaceutical and biologic products are highly
complex, and if we or our collaborators and customers are unable to provide quality and timely offerings to our respective customers,
our business could suffer.
The process of manufacturing pharmaceutical
and biologics and their components is complex, highly-regulated and subject to multiple risks.
Manufacturing biologics is highly susceptible
to product loss due to contamination, equipment failure, improper installation or operation of equipment, vendor or operator error,
inconsistency in yields, variability in product characteristics and difficulties in scaling the production process. Even minor
deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions.
Our ability to generate revenue in the pharmaceutical
and biologic market depends on our ability to manufacture products that meet exacting quality and safety standards. If we are unable
to manufacture these products to the required levels, it could have an adverse effect on our business, financial condition, and
results of operations and may subject us to regulatory actions, including product recalls, product seizures, injunctions to halt
manufacture or distribution, restrictions on our operations, or civil sanctions, including monetary sanctions and criminal actions.
In addition, we could be subject to costly litigation, including claims from our collaborators and customers for reimbursement
for the cost of our products or other related losses, the cost of which could be significant.
Our business also depends on the ability
of our collaborators and customers to manufacture the pharmaceutical or biologic products that incorporate our products. If the
FDA determines that our collaborators and customers are not in compliance with FDA laws and regulations, including those governing
Current Good Manufacturing Practice (“cGMP”) regulations, the FDA may deny NDA or BLA approval until the deficiencies
are corrected. Even if our collaborators or customers obtain regulatory approval for any of their product candidates, there is
no assurance that they will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory
authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet
potential future demand. If our collaborators or customers are unable to produce sufficient quantities for clinical trials or for
commercialization, commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition,
results of operations and growth prospects.
Pharmaceutical and biologic-related revenue will
be dependent on our collaborators’ and customers’ demand for our manufacturing services.
The amount of customer spending on biologic
development and manufacturing will have an impact on our sales and profitability in the pharmaceutical and biologic market. Our
collaborators and customers determine the amounts that they will spend based upon, among other things, available resources, access
to capital, and their need to develop new products, which, in turn, are dependent upon a number of factors, including their competitors’
research, development and product initiatives and the anticipated market uptake, and clinical and reimbursement scenarios for specific
products and therapeutic areas. Consolidation in the pharmaceutical and biologic industry may impact such spending as customers
integrate acquired operations, including R&D departments and manufacturing operations. Any reduction in spending on pharmaceutical
and biotechnology development and related services as a result of these and other factors could have a material adverse effect
on our business, results of operations and financial condition.
The markets for our drug and biologic candidates
and linear DNA are very competitive, and we may be unable to continue to compete effectively in these industries in the future.
The principal markets for our drug and biologic
candidates and linear DNA are intensely competitive. We compete with many existing suppliers and new competitors continue to enter
the market. Many of our competitors, both in the United States and elsewhere, are major pharmaceutical, chemical and biotechnology
companies, or have strategic alliances with such companies, and many of them have substantially greater capital resources, marketing
experience, research and development staff, and facilities than we do. Any of these companies could succeed in developing products
that are more effective than the product candidates that we have or may develop and may be more successful than us in producing
and marketing their existing products. Some of our competitors that operate in the drugs, biologics and DNA manufacturing markets
include: Intrexon Corp., Aldervron, LLC, Cobra Biologics, Limited, Integrated DNA Technologies, Inc., Ziopharm Oncology, Inc.,
MaxCyte Inc., Touchlight Genetics Ltd., Novartis AG, Kite Pharma, Inc. and Juno Therapeutics, Inc.
We expect this competition to continue and
intensify in the future. Our competitors also compete with us in recruiting and retaining qualified scientific and management personnel,
as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunities could be reduced
or eliminated if our competitors develop and commercialize drug and biologic candidates or linear DNA that are safer, more effective,
have fewer or less severe side effects, are more convenient, or are less expensive than any drug and biologic candidates and linear
DNA that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than
we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able
to enter the market. Additionally, drug and biologic candidates and linear DNA developed by our competitors may render our potential
drug and biologic candidates and linear DNA uneconomical or obsolete, and we may not be successful in marketing any drug and biologic
candidates and linear DNA we may develop against competitors.
If any of these risks occur, our business,
financial condition and results of operations could be significantly harmed.
Our research and development efforts for new products
may be unsuccessful.
We incur research and development expenses
to develop new products and technologies in an effort to maintain our competitive position in a market characterized by rapid rates
of technological advancement. Our research and development efforts are subject to unanticipated delays, expenses and technical
problems. There can be no assurance that any of these products or technologies will be successfully developed or that, if developed,
will be commercially successful. In the event that we are unable to develop commercialized products from our research and development
efforts or we are unable or unwilling to allocate amounts beyond our currently anticipated research and development investment,
we could lose our entire investment in these new products and technologies. Any failure to translate research and development expenditures
into successful new product introduction could have an adverse effect on our business.
In addition, research, development, and
commercialization of pharmaceutical and biologic products is inherently risky. We cannot give any assurance that any of our pharmaceutical
and biologic product candidates will receive regulatory approval, which is necessary before they can be commercialized.
Other risks include:
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Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability
to obtain regulatory approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect
on our business.
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We have no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our
future viability.
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If the FDA rejects an Investigational New Drug Application (“IND”) submitted by us or places us on clinical hold,
we will not be able to commence a Phase 1 clinical trial in the U.S., which would likely have a material adverse effect on us.
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We have never dosed any of our product candidates in humans. Our clinical trials may reveal significant adverse events, toxicities
or other side effects not seen in our preclinical studies and may result in a safety profile that could inhibit regulatory approval
or market acceptance of any of our product candidates.
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Positive results from early preclinical studies of our product candidates are not necessarily predictive of the results of
later preclinical studies and any future clinical trials of our product candidates. If we cannot show positive results or replicate
any positive results from our earlier preclinical studies of our product candidates in our later preclinical studies and future
clinical trials, we may be unable to successfully develop, obtain regulatory approval for and commercialize our product candidates.
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We may not be successful in our efforts to create a pipeline of product candidates or to develop commercially successful products.
If we fail to successfully identify and develop additional product candidates, our commercial opportunity may be limited.
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If we receive authorization to conduct our clinical trials, we may encounter substantial delays in our clinical trials, or
may not be able to conduct or complete our clinical trials on the timelines we expect, if at all.
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We may encounter difficulties enrolling patients in our clinical trials, and our clinical development activities could thereby
be delayed or otherwise adversely affected.
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Our clinical trials may fail to demonstrate substantial evidence of the safety and efficacy of our product candidates, which
would prevent, delay or limit the scope of regulatory approval and commercialization.
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Clinical development is a lengthy and expensive process with an uncertain outcome, and failure can occur at any stage of clinical
development. If we are unable to design, conduct and complete our clinical trials successfully, our product candidates will not
be able to receive regulatory approval.
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We face significant competition in an environment of rapid technological and scientific change, and there is a possibility
that our competitors may achieve regulatory approval before us or develop therapies that are safer, more advanced or more effective
than ours, which may negatively impact our ability to successfully market or commercialize any product candidates we may develop
and ultimately harm our financial condition.
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The manufacture of our product candidates is complex and difficulties may be encountered in production. If such difficulties
are encountered or failure to meet regulatory standards occurs, our ability to provide supply of our product candidates for clinical
trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable
cost structure.
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If, in the future, we are unable to establish sales and marketing capabilities or enter into agreements with third parties
to sell and market any product candidates we may develop, we may not be successful in commercializing those product candidates
if and when they are approved.
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Even if any product candidates we develop receive marketing approval, they may fail to achieve the degree of market acceptance
by physicians, patients, healthcare payors, and others in the medical community necessary for commercial success.
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Even if we are able to commercialize any product candidates, such products may become subject to unfavorable pricing regulations,
third party reimbursement practices, or healthcare reform initiatives, which would harm our business.
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Failure to license new technologies could impair
sales of our existing products or any new product development we undertake in the future.
To generate broad product lines, it is advantageous
to sometimes license technologies from third parties rather than depend exclusively on the development efforts of our own employees.
As a result, we believe our ability to license new technologies from third parties may be important to our ability to offer new
products. In addition, from time to time we are notified of, or become aware of patents held by third parties that are related
to technologies we are selling or may sell in the future. After a review of these patents, we may decide to seek a license for
these technologies from these third parties. There can be no assurance that we will be able to successfully identify new technologies
developed by others. Even if we are able to identify new technologies of interest, we may not be able to negotiate a license on
favorable terms, or at all.
Our failure to manage our growth in operations and
acquisitions of new product lines and new businesses could harm our business.
The recent growth in our operations could
place a significant strain on our current management resources. To manage such growth, we may need to improve our:
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operations and financial systems;
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procedures and controls; and
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training and management of our employees.
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Our future growth, if any, may be attributable
to acquisitions of new product lines and new businesses. Future acquisitions, if successfully consummated, would likely create
increased working capital requirements, which would likely precede by several months any material contribution of an acquisition
to our net income. Our failure to manage growth or future acquisitions successfully could seriously harm our operating results.
Also, acquisition costs could cause our operating results to vary significantly from quarter to quarter. Furthermore, our stockholders
would be diluted if we financed the acquisitions by incurring convertible debt or issuing securities.
If we explore or engage in future business combinations
or other transactions, we may be subject to various uncertainties and risks.
From time-to-time, unrelated third-parties
may approach the Company about potential transactions, including business combinations. As such, to date, we have not entered into
any agreements related to any business combination. While we may explore such opportunities when they arise, we could not pursue
any proposed business combination or other transaction unless our board of directors first has determined that doing so would be
in our and our stockholders’ interest. There can be no assurance that we will negotiate acceptable terms, enter into binding
agreements or successfully consummate any business combination or other transaction with this private company or any other third
parties.
We cannot currently predict the effects
a future, potential business combination or other transaction would have on holders of our common stock, the pre-funded warrants,
or common warrants, or any of our other securities. There are various uncertainties and risks relating to our evaluation and negotiation
of possible business combination or other transactions, our ability to consummate such transactions and the consummation of such
transactions, including:
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evaluation and negotiation of a proposed transaction may distract management from focusing our time and resources on execution
of our operating plan, which could have a material adverse effect on our operating results and business;
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the process of evaluating proposed transactions may be time consuming and expensive and may result in the loss of business
opportunities;
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perceived uncertainties as to our future direction may result in increased difficulties in retaining key employees and recruiting
new employees, particularly senior management;
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even if our board of directors negotiates a definitive agreement, successful integration or execution of a business combination
or other transaction will be subject to additional risks;
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the current market price of our common stock may reflect a market assumption that a transaction will occur, and during the
period in which we are considering a transaction, the market price of our common stock could be highly volatile;
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a failure to complete a transaction could result in a negative perception by our investors generally and could cause a decline
in the market price of our common stock, as well as lead to greater volatility in the market price of our common stock, all of
which could adversely affect our ability to access the equity and financial markets, as well as our ability to explore and enter
into different strategic alternatives;
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expected benefits may not be successfully achieved;
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such transactions may increase our operating expenses and cash requirements, cause us to assume or incur indebtedness or contingent
liabilities, make it difficult to retain management and key personnel; and
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dilution of our existing stockholders if such transaction involves our issuing dilutive securities.
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A percentage of our sales occur outside of the U.S.
As a result, we are subject to the economic, political, regulatory, legal, operational and other risks of international operations,
which could adversely impact our businesses in many ways.
For the three and nine months ended June
30, 2019, 72% and 60%, respectively, of our revenue was from customers located outside of the U.S. For fiscal 2018 and 2017, 45%
and 27%, respectively, of our revenue was from customers located outside of the U.S. We believe that the revenue from the sale
of our products and services outside the U.S. will continue to grow in the near future. We intend to expand our international operations
to the extent that suitable opportunities become available. Our foreign operations and sales could be adversely affected as a result
of:
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nationalization of private enterprises and assets;
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political or economic instability in certain countries and regions;
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differences in foreign laws, including increased difficulties in protecting intellectual property and uncertainty in enforcement
of contract rights;
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the possibility that foreign governments may adopt regulations or take other actions that could directly or indirectly harm
our business and growth strategy;
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tariff and tax increases;
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export and import restrictions and restrictive regulations of foreign governments;
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shipping products during times of crisis or wars; and
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other risks inherent in foreign operations.
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In addition, as a U.S. company, we are required
to comply with the economic sanctions and embargo programs administered by Office of Foreign Assets Control and similar multi-national
bodies and governmental agencies worldwide, and the Foreign Corrupt Practices Act (“FCPA”). A violation of a sanction
or embargo program or of the FCPA or similar laws prohibiting certain payments to governmental officials, such as the U.K. Bribery
Act, could subject us, and individual employees, to a regulatory enforcement action as well as significant civil and criminal penalties
which could adversely impact our business and operations.
Failure to attract and retain qualified scientific,
production and managerial personnel could harm our business.
Recruiting and retaining qualified scientific
and production personnel to perform and manage prototype, sample, and product manufacturing and business development personnel
to conduct business development are critical to our success. In addition, our desired growth and expansion into areas and activities
requiring additional expertise, such as clinical testing, government approvals, production, sales and marketing will require the
addition of new management personnel and the development of additional expertise by existing management personnel. Because our
industry is very competitive, we face significant challenges in attracting and retaining a qualified personnel base. Although we
believe we have been, and will continue to be, able to attract and retain these personnel, we cannot assure you that we will continue
to be able to successfully attract qualified personnel in the future. The failure to attract and retain these personnel or, alternatively,
to develop this expertise internally would harm our business since our ability to conduct business development and manufacturing
would be reduced or eliminated, resulting in lower revenues. We generally do not enter into employment agreements requiring our
employees to continue in our employment for any period of time, with the exception of Dr. James A. Hayward, our Chairman, Chief
Executive Officer and President. See “If we are unable to continue to retain the services of Dr. James A. Hayward, we may
not be able to continue our operations” above.
Our intellectual property rights are valuable, and
any inability to protect them could reduce the value of our products, services and brand.
Our patents, trademarks, trade secrets,
copyrights and all of our other intellectual property rights are important assets for us. There are events that are outside of
our control that pose a threat to our intellectual property rights as well as to our products and services. For example, effective
intellectual property protection may not be available in every country in which our products and services are distributed. The
efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual
property rights could harm our business or our ability to compete. Protecting our intellectual property rights is costly and time
consuming. Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and harm
our operating results. Although we seek to obtain patent protection for our innovations, it is possible we may not be able to protect
some of these innovations. Given the costs of obtaining patent protection, we may choose not to protect certain innovations that
later turn out to be important. There is always the possibility that the scope of the protection gained from one of our issued
patents will be insufficient or deemed invalid or unenforceable. We also seek to maintain certain intellectual property as trade
secrets. The secrecy could be compromised by third parties, or intentionally or accidentally by our employees, which would cause
us to lose the competitive advantage resulting from these trade secrets.
Intellectual property litigation could harm our
business, financial condition and results of operations.
Litigation regarding patents and other intellectual
property rights is extensive in the drug and biotechnology industry. In the event of an intellectual property dispute, we may be
forced to litigate. This litigation could involve proceedings instituted by the U.S. Patent and Trademark Office or the International
Trade Commission, as well as proceedings brought directly by affected third parties. Intellectual property litigation can be extremely
expensive, and these expenses, as well as the consequences should we not prevail, could seriously harm our business.
If a third party claims an intellectual
property right to technology we use, we might need to discontinue an important product or product line, alter our products and
processes, pay license fees or cease our affected business activities. Although we might under these circumstances attempt to obtain
a license to this intellectual property, we may not be able to do so on favorable terms, or at all. Furthermore, a third party
may claim that we are using inventions covered by the third party’s patent rights and may go to court to stop us from engaging
in our normal operations and activities, including making or selling our products. These lawsuits are costly and could affect our
results of operations and divert the attention of managerial and technical personnel. A court may decide that we are infringing
the third party’s patents and would order us to stop the activities covered by the patents. In addition, a court may order
us to pay the other party damages for having violated the other party’s patents. The drug and biotechnology industry has
produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various
types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation
is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or methods of use
either do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid, and we may not be able
to do this. Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome
the presumption of validity enjoyed by issued patents.
Because some patent applications in the
United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many
foreign jurisdictions are typically not published until eighteen months after filing, and because publications in the scientific
literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology
covered by our or our licensor’s issued patents or pending applications or that we or our licensors were the first to invent
the technology. During the ordinary course of our business, we do not conduct “prior art” searches before filing a
patent application. Our competitors may have filed, and may in the future file, patent applications covering technology similar
to ours. Any such patent application may have priority over our or our licensors’ patent applications and could further require
us to obtain rights to issued patents covering such technologies. If another party has filed a United States patent application
on inventions similar to ours, we may have to participate in an interference proceeding declared by the U.S. Patent and Trademark
Office to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is
possible that such efforts would be unsuccessful, resulting in a loss of our United States patent position with respect to such
inventions.
Some of our competitors may be able to sustain
the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition,
any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our
ability to raise the funds necessary to continue our operations.
Accidents related to hazardous materials could adversely
affect our business.
Some of our operations require the controlled
use of hazardous materials for chemical reactions and synthesis. These materials are common to molecular/biological/chemical laboratories
and require no special handling or regulation. Although we believe our safety procedures comply with the standards prescribed by
federal, state, local and foreign regulations, the risk of accidental contamination of property or injury to individuals from these
materials cannot be completely eliminated. In the event of an accident, we could be liable for any damages that result, which could
seriously damage our business and results of operations.
Potential product liability claims could affect
our earnings and financial condition.
We face a potential risk of liability claims
based on our products and services. Though we have product liability insurance coverage which we believe is adequate, we may not
be able to maintain this insurance at reasonable cost and on reasonable terms. We also cannot assure that this insurance will be
adequate to protect us against a product liability claim, should one arise. In the event that a product liability claim is successfully
brought against us, it could result in a significant decrease in our liquidity or assets, which could result in the reduction or
termination of our business. A successful product liability claim or series of claims brought against us could cause our stock
price to decline, and, if judgments exceed our insurance coverage, could adversely affect our results of operations, prospects,
and business. Product liability claims may result in impairment of our business reputation and other losses.
Litigation generally could affect our financial
condition and results of operations.
We generally may be subject to claims made
by and required to respond to litigation brought by customers, former employees, former officers and directors, former distributors
and sales representatives, former consultants and vendors and service providers. We have faced such claims and litigation in the
past and we cannot assure you that we will not be subject to claims in the future. In the event that a claim is successfully brought
against us, considering our lack of material revenue and the losses our business has incurred for the period from our inception
to June 30, 2019, this could result in a significant decrease in our liquidity or assets, which could result in the reduction or
termination of our business.
Business disruptions could seriously harm our future
revenue and financial condition and increase our costs and expenses.
Our operations could be subject to earthquakes,
power shortages, telecommunications failures, cyber-attacks or other vulnerabilities in our computer systems, terrorism, water
shortages, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, political or economic
instability, and other natural or manmade disasters or business interruptions. The occurrence of any of these business disruptions
could seriously harm our revenue and financial condition and increase our costs and expenses.
General economic conditions may adversely affect
our business, operating results and financial condition.
A general weakening or decline in the global
economy or a period of economic slowdown may have serious negative consequences for our business and operating results. Since our
customers incorporate our products into a variety of consumer goods, the demand for our products is subject to worldwide economic
conditions and their impact on levels of consumer spending. Some of the factors affecting consumer spending include general economic
conditions, unemployment, consumer debt, reductions in net worth, residential real estate and mortgage markets, taxation, energy
prices, interest rates, consumer confidence and other macroeconomic factors. During periods of economic weakness or uncertainty,
demand for consumer goods incorporating our products may weaken, and current or potential customers may defer purchases of our
products.
A cybersecurity incident and other technology disruptions
could negatively affect our business and our relationships with customers.
We use technology in substantially all aspects
of our business operations. The widespread use of technology, including mobile devices, cloud computing, and the internet, give
rise to cybersecurity risks, including security breach, espionage, system disruption, theft and inadvertent release of information.
Our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual
property, including information relating to customers and suppliers, private information about employees, and financial and strategic
information about us and our business partners. If we fail to effectively assess and identify cybersecurity risks associated with
the use of technology in our business operations, we may become increasingly vulnerable to such risks. Additionally, while we have
implemented measures to prevent security breaches and cyber incidents, our preventative measures and incident response efforts
may not be entirely effective. The theft, destruction, loss, misappropriation, or release of sensitive and/or confidential information
or intellectual property, or interference with our information technology systems or the technology systems of third parties on
which we rely, could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of customers,
potential liability and competitive disadvantage.
Risks Related to Regulatory Approval of Our Pharmaceutical
and Biotherapeutic Product Candidates and Other Legal Compliance Matters:
The regulatory approval processes of the FDA and
comparable foreign regulatory authorities are lengthy, time consuming, and inherently unpredictable. If we are ultimately unable
to obtain regulatory approval for our product candidates, we will be unable to generate product revenue and our business will be
substantially harmed.
The time required to obtain approval by
the FDA and comparable foreign regulatory authorities is unpredictable, typically takes many years following the commencement of
clinical trials, and depends upon numerous factors, including the type, complexity and novelty of the product candidates involved.
In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during
the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the
approval or the decision not to approve an application. Regulatory authorities have substantial discretion in the approval process
and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical,
clinical or other studies. We have not submitted for, or obtained regulatory approval for any product candidate, and it is possible
that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory
approval. Applications for our product candidates could fail to receive regulatory approval for a variety of reasons. This lengthy
approval process, as well as the unpredictability of the results of clinical trials, may result in our failing to obtain regulatory
approval to market any of our product candidates, which would significantly harm our business, results of operations, and prospects.
Our product candidates may cause undesirable side
effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial
potential, or result in significant negative consequences.
Adverse events or other undesirable side
effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay, or halt clinical trials
and could result in a more restrictive label or the delay or denial of regulatory approval by regulatory authorities. Side effects
related to a drug or biologic could affect patient recruitment, the ability of enrolled patients to complete the study, and/or
result in potential product liability claims.
Additionally, if one or more of our product
candidates receives marketing approval, and we or others later identify undesirable side effects or adverse events caused by such
products, a number of potentially significant negative consequences could result. Regulatory authorities may withdraw approvals
of such product or impose restrictions on distribution. They may require additional warnings or contraindications on the product
label that could diminish the usage or otherwise limit the commercial success of the product. We may be required to change the
way the product is administered, conduct additional clinical trials or post-approval studies. We may be forced to suspend marketing
of the product or required to create a Risk Evaluation and Mitigation Strategy (“REMS”). In addition, our reputation
may suffer. Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate,
if approved, and could significantly harm our business, results of operations, and prospects.
Obtaining and maintaining regulatory approval of
our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product
candidates in other jurisdictions.
Obtaining and maintaining regulatory approval
of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval
in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect
on the regulatory approval process in others. Approval procedures vary among jurisdictions and can involve requirements and administrative
review periods different from those in the United States, including additional preclinical studies or clinical trials as clinical
trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions
outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction.
In some cases, the price that we intend to charge for our products is also subject to approval. There could be significant delays,
difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. Failure to comply
with the regulatory requirements in international markets or failure to receive applicable marketing approvals could reduce our
target market and harm our ability to realize the full market potential of our product candidates.
Even if we obtain regulatory approval for a product
candidate, our products will remain subject to extensive regulatory scrutiny.
If any of our product candidates are
approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage,
advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy, and
other post-market information, including both federal and state requirements in the United States and requirements of
comparable foreign regulatory authorities. Ongoing regulatory requirements include ensuring that quality control and
manufacturing and production procedures conform to cGMP regulations, and we will be subject to continual review and
inspections to assess compliance with cGMP regulations and adherence to commitments made in any regulatory filings.
Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory
compliance.
Any regulatory approvals that we receive
for our product candidates will be subject to limitations on the approved indicated uses for which the product may be marketed
and promoted or to the conditions of approval (including the requirement to implement a REMS), or contain requirements for potentially
costly post-marketing testing. We will be required to report certain adverse reactions and production problems, if any, to the
FDA and comparable foreign regulatory authorities. Any new legislation addressing drug or biologic safety issues could result in
delays in product development or commercialization, or increased costs to assure compliance. The FDA and other agencies, including
the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they
are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved
labeling. We will have to comply with requirements concerning advertising and promotion for our products. Promotional communications
with respect to prescription drugs and biologics are subject to a variety of legal and regulatory restrictions and must be consistent
with the information in the product’s approved label. As such, we may not promote our products for indications or uses for
which they do not have approval. The holder of an approved NDA must submit new or supplemental applications and obtain approval
for certain changes to the approved product, product labeling, or manufacturing process. We could also be asked to conduct post-marketing
clinical trials to verify the safety and efficacy of our products in general or in specific patient subsets. If original marketing
approval was obtained via the accelerated approval pathway, we could be required to conduct a successful post-marketing clinical
trial to confirm clinical benefit for our products. An unsuccessful post-marketing study or failure to complete such a study could
result in the withdrawal of marketing approval.
If a regulatory agency discovers previously
unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where
the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose
restrictions on that product or us, including, but not limited to, requiring withdrawal or recall of the product from the market,
imposing civil or criminal penalties, and imposing restrictions on our operations. Any government investigation of alleged violations
of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure
to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate
revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our Company
and our operating results will be adversely affected.
In addition, the FDA’s regulations,
policies or guidance may change and new or additional statutes or government regulations in the United States and other jurisdictions
may be enacted that could further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent
of adverse government regulation that may arise from pending or future legislation or administrative action. If we are not able
to achieve and maintain regulatory compliance, we may not be permitted to market our products and/or product candidates, which
would adversely affect our ability to generate revenue and achieve or maintain profitability.
Healthcare legislative measures aimed at reducing
healthcare costs may have a material adverse effect on our business and results of operations.
Third party payors are developing increasingly
sophisticated methods of controlling healthcare costs. In both the United States and certain foreign jurisdictions, there have
been a number of legislative and regulatory changes to the health care system that could impact our ability to sell our products
profitably. In particular, in the United States in 2010, the Affordable Care Act, or ACA, was enacted. In addition, other legislative
changes have been proposed and adopted in the United States since the ACA was enacted. The repeal of or changes in some or all
of the ACA and complying with any new legislation or reversing changes implemented under the ACA could be time-intensive and expensive,
resulting in a material adverse effect on our business. Until the ACA is fully implemented or there is more certainty concerning
the future of the ACA, it will be difficult to predict its full impact and influence on our business.
There have been, and likely will continue
to be, legislative and regulatory proposals at the foreign, federal and state levels directed at containing or lowering the cost
of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance
companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose
price controls may adversely affect the demand for our product candidates, if we obtain regulatory approval, including: our ability
to receive or set a price that we believe is fair for our products; our ability to generate revenue and achieve or maintain profitability;
the level of taxes that we are required to pay; and the availability of capital. We expect that the ACA, as well as other healthcare
reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding,
more rigorous coverage criteria, lower reimbursement, and new payment methodologies. This could lower the price that we receive
for any approved product. Any denial in coverage or reduction in reimbursement from Medicare or other government-funded programs
may result in a similar denial or reduction in payments from private payors, which may prevent us from being able to generate sufficient
revenue, attain profitability or commercialize our product candidates, if approved.
Our employees, independent contractors, consultants,
commercial partners and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory
standards and requirements.
We are exposed to the risk of fraud, misconduct
or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by
these parties could include intentional, reckless and negligent conduct that fails to: comply with the laws of the FDA and other
comparable foreign regulatory authorities; provide true, complete and accurate information to the FDA and other comparable foreign
regulatory authorities; comply with manufacturing standards we have established; comply with healthcare fraud and abuse laws in
the United States and similar foreign fraudulent misconduct laws; or report financial information or data accurately or to disclose
unauthorized activities to us.
If we obtain FDA approval of any of our
product candidates and begin commercializing those products in the United States, our potential exposure under such laws will increase
significantly, and our costs associated with compliance with such laws are also likely to increase. In particular, research, sales,
marketing, education and other business arrangements in the healthcare industry are subject to extensive laws designed to prevent
fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of
pricing, discounting, educating, marketing and promotion, sales and commission, certain customer incentive programs and other business
arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of
patient recruitment for clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We
have adopted a code of business conduct and ethics, but it is not always possible to identify and deter misconduct by employees
and third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown
or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a
failure to be in compliance with such laws. If any such actions are instituted against us, and we are not successful in defending
ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant
fines or other sanctions.
If we fail to comply with healthcare laws, we could
face substantial penalties and our business, operations and financial conditions could be adversely affected.
Healthcare providers, physicians and payors
play a primary role in the recommendation and prescription of any product candidates for which we may obtain marketing approval.
Our future arrangements with payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws
and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute
any product candidates for which we may obtain marketing approval. Even though we do not and will not control referrals of healthcare
services or bill directly to Medicare, Medicaid or other third party payors, federal and state healthcare laws and regulations
pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. Restrictions under applicable
federal, state and foreign healthcare laws and regulations which may affect our ability to operate and expose us to areas of risk
include: federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act; the federal
Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic
and Clinical Health Act of 2009; the federal Physician Payments Sunshine Act, created under the ACA, and its implementing regulations;
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially
harm consumers; and analogous state and foreign laws and regulations.
Because of the breadth of these laws and
the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could,
despite our efforts to comply, be subject to challenge under one or more of such laws. Efforts to ensure that our business arrangements
will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities
will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting
applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are
not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including
the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from
participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits
and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business
and our results of operations. In addition, the approval and commercialization of any of our product candidates outside the United
States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
If we or any suppliers we engage fail to comply
with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that
could have a material adverse effect on the success of our business.
We and any suppliers we currently or may
in the future engage are subject to numerous federal, state, and local environmental, health, and safety laws, regulations, and
permitting requirements, including those governing laboratory procedures; the generation, handling, use, storage, treatment, and
disposal of hazardous and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air,
and water; and employee health and safety. Under certain environmental laws, we could be held responsible for costs relating to
any contamination at our current or past facilities and at third party facilities. We also could incur significant costs associated
with civil or criminal fines and penalties. Compliance with applicable environmental laws and regulations may be expensive, and
current or future environmental laws and regulations may impair our research, product development and manufacturing efforts. In
addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. Although
we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees
resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities.
We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty, and general liability insurance
policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination.
Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount
exceeding our resources, and our preclinical trials, future clinical trials or regulatory approvals could be suspended, which could
have a material adverse effect on our business, prospects, financial condition, results of operations, and prospects.
Risks Related to Our Common Stock and Other Securities:
There are a large number of shares of common stock
underlying our outstanding options and warrants and the sale of these shares may depress the market price of our common stock and
cause immediate and substantial dilution to our existing stockholders. The holders of our publicly traded warrants may require
their repurchase in certain circumstances.
As of September 16, 2019, we had 47,153,616
shares of common stock issued and outstanding, outstanding options to purchase 7,972,504 shares of common stock, outstanding warrants
to purchase 11,213,527 shares of common stock, 3,391,916 shares of common stock issuable upon conversion of secured convertible
notes and 5,563,759 shares available for grant under our 2005 Incentive Stock Plan. The issuance of shares upon exercise of our
outstanding options and warrants will cause immediate and substantial dilution to our stockholders. Under our publicly traded warrants
(including additional warrants sold privately that have registration rights), in the event of a “Fundamental Transaction”
(as defined in the related warrant agreement, which generally includes any merger with another entity, the sale, transfer or other
disposition of all or substantially all of our assets to another entity, or the acquisition by a person of more than 50% of our
common stock), each warrant holder will have the right at any time prior to the consummation of the Fundamental Transaction to
require us to repurchase the warrant for a purchase price in cash equal to the Black Scholes value (as calculated under the warrant
agreement) of the then remaining unexercised portion of such warrant on the date of such Fundamental Transaction, which may materially
adversely affect our financial condition and/or results of operations and may prevent or deter a third party from acquiring us.
We may require additional financing which may in
turn require the issuance of additional shares of common stock, preferred stock or other debt or equity securities (including convertible
securities) and which would dilute the ownership held by our stockholders.
We may need to raise funds through either
debt or the sale of our shares of our common stock in order to achieve our business goals. Any additional shares issued would further
dilute the percentage ownership held by the stockholders. Furthermore, if we raise funds in equity transactions through the issuance
of convertible securities which are convertible at the time of conversion at a discount to the prevailing market price, substantial
dilution is likely to occur resulting in a material decline in the price of your shares. Our public offerings completed in November
2014, April 2015, and December 2018, our registered direct public offering and concurrent private placement during November 2015,
our private placements completed in November 2016, June 2017, and August 2019, and our registered direct offering in December 2017
resulted in dilution to investors and future offerings of securities could result in further dilution to investors. Our private
placements of secured convertible notes in August 2018, November 2018 and July 2019 could result in dilution to investors if the
holders convert their notes into shares of our common stock. In particular, holders of such secured convertible notes, including
Dr. Hayward and other directors, officers, and affiliates of the Company, converted substantial portions of such August 2018 Notes
and November 2018 Notes into common stock of the Company in September 2019.
Conversion of our convertible notes into common
stock will result in additional dilution to our stockholders.
Upon satisfaction of certain conversion
conditions (including conditions outside of our control, such as market price or trading price) and proper conversion of the Company
Notes by a holder, we may be required to deliver shares of our common stock to a converting holder. If additional shares of our
common stock are issued due to conversion of some or all of the outstanding Company Notes, the ownership interests of existing
stockholders will be diluted. Further, any sales in the public market of any shares of common stock issued upon conversion or hedging
or arbitrage trading activity that develops due to the potential conversion of the Company Notes could adversely affect prevailing
market prices of our common stock.
Substantially all of our assets are encumbered.
If we should fail to make timely payments on our secured convertible notes, holders of the notes may choose to enforce their remedies
and ultimately realize on the collateral securing the notes, which includes substantially all of our intellectual property.
The Company issued and sold an aggregate
of $1.65 million in principal amount of August 2018 Notes, of which $159,296 remain outstanding and $550,000 in principal amount
of November 2018 Notes of which $52,334 remain outstanding. The Company issued and sold $1.5
million in principal amount of July 2019 Notes, bearing interest at a rate of 6% per annum, in a non-brokered private placement
with Dillon Hill and simultaneously amended the terms of the Existing Notes. The outstanding Company Notes are due and payable
in full on November 28, 2021 and are convertible, in whole or in part, at any time, at the option of the purchasers, into shares
of our common stock in an amount determined by dividing the principal amount of each Company Note, together with any and all accrued
and unpaid interest, by the Conversion Price. A majority of the Existing Notes were owned by Dr. James A. Hayward, our Chairman,
Chief Executive Officer and President. Dr. Hayward and other directors, officers, and affiliates of the Company converted the outstanding
principal and unpaid interest of their Existing Notes, which represented more than 80% of the Existing Notes, into common stock
of the Company in September 2019.
Until the principal and accrued but unpaid
interest under the Company Notes outstanding is paid in full, or the Company Notes are converted into shares of common stock, our
obligations under the Company Notes are secured by a lien on substantially all of our assets (excluding certain cash accounts)
and the assets of APDN (B.V.I.) Inc., our wholly-owned subsidiary, in favor of Delaware Trust Company, as collateral agent for
the purchasers of the Company Notes. The secured assets also include substantially all of our intellectual property. In addition,
on July 19, 2019, the Company also amended the security agreements dated as of October 19, 2018, to among other amendments, exclude
20% of the Company’s equity interest in LRx from the assets securing the Company Notes. The existence of such lien may substantially
limit our ability to obtain additional secured financing and force us to attempt to incur additional unsecured indebtedness, which
may be unavailable to us. If we should fail to make timely payments on the Company Notes, holders of the Company Notes may choose
to enforce their remedies and ultimately realize on the collateral securing the Company Notes, which may have a material adverse
effect on our business, including the inability for us to continue our operations.
We may require additional financing in the future,
which may not be available or, if available, may be on terms that cause a decline in the value of the shares of our common stock
held by stockholders.
If we raise capital in the future by issuing
additional securities, our stockholders may experience a decline in the value of the shares of our common stock they currently
hold or may acquire prior to any such financing. In addition, such securities may have rights senior to the rights of holders of
our shares of common stock.
Any material weaknesses in our internal control
over financing reporting in the future could adversely affect investor confidence, impair the value of our common stock and increase
our cost of raising capital.
Any failure to remedy deficiencies in our
internal control over financial reporting that may be discovered or our failure to implement new or improved controls, or difficulties
encountered in the implementation of such controls, could harm our operating results, cause us to fail to meet our reporting obligations
or result in material misstatements in our financial statements. Any such failure could, in turn, affect the future ability of
our management to certify that internal control over our financial reporting is effective. Inferior internal control over financial
reporting could also subject us to the scrutiny of the SEC and other regulatory bodies which could cause investors to lose confidence
in our reported financial information and could subject us to civil or criminal penalties or stockholder litigation, which could
have an adverse effect on our results of operations and the market price of our common stock.
In addition, if we or our independent registered
public accounting firm identify deficiencies in our internal control over financial reporting, the disclosure of that fact, even
if quickly remedied, could reduce the market’s confidence in our financial statements and harm our share price. Furthermore,
deficiencies could result in future non-compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Such non-compliance could
subject us to a variety of administrative sanctions, including review by the SEC or other regulatory authorities.
Short sellers of our stock may be manipulative and
may drive down the market price of our common stock.
Short selling is the practice of selling
securities that the seller does not own but rather has borrowed or intends to borrow from a third party with the intention of buying
identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in the value of the
securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects
to pay less in that purchase than it received in the sale. As it is therefore in the short seller’s interest for the price
of the stock to decline, some short sellers publish, or arrange for the publication of, opinions or characterizations regarding
the relevant issuer, its business prospects and similar matters calculated to or which may create negative market momentum, which
may permit them to obtain profits for themselves as a result of selling the stock short. Issuers whose securities have historically
had limited trading volumes and/or have been susceptible to relatively high volatility levels can be particularly vulnerable to
such short seller attacks. The publication of any such commentary regarding us in the future may bring about a temporary, or possibly
long term, decline in the market price of our common stock. In the past, the publication of commentary regarding us by a disclosed
short seller has been associated with the selling of shares of our common stock in the market on a large scale, resulting in a
precipitous decline in the market price per share of our common stock. No assurances can be made that similar declines in the market
price of our common stock will not occur in the future, in connection with such commentary by short sellers or otherwise.
The price of our common stock may be volatile or
may decline, and the trading volume of our common stock may fluctuate, which may make it more difficult to realize a profit on
your investment in our shares of common stock.
Our common stock is listed on The Nasdaq
Capital Market. The trading price of our common stock has been and may continue to be volatile. In addition, the trading volume
of our common stock may fluctuate and cause significant price variations to occur. Volatility in the market price of our common
stock may prevent you from being able to sell your shares of common stock at or above the price you paid for your shares of common
stock, which may make it more difficult to realize a profit on your investment. A number of factors may affect the market price
of our common stock, including, but not limited to, the following:
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our operating and financial performance and prospects;
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our quarterly or annual earnings or those of other companies in our industry or those that investors deem comparable to us;
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conditions that impact demand for our products and services;
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public reactions to our press releases, other public announcements and filings with the SEC;
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market and industry perception of our success, or lack thereof, in pursuing our growth strategy;
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strategic actions by us or our competitors, such as acquisitions or restructurings;
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changes in accounting standards, policies, guidance, interpretations or principles;
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arrival and departure of key personnel, including management personnel;
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changes in our capital structure;
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changes in the price of our warrants or other securities we may issue from time to time;
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sales of common stock by us, our directors, officers or large stockholders;
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the expiration of any applicable contractual lock-up agreements;
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changes in general market, economic and political conditions in the United States and global economies or financial markets,
including those resulting from natural disasters, terrorist attacks, acts of war and responses to such events;
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announcements of new products or innovations by us or our competitors and announcements concerning our competitors or our industry
in general;
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difficulties in commercialization and distribution of our products or lower than expected sales volume or revenues;
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changes in our relationships with manufacturers, suppliers or collaborators, or our inability to supply enough product to meet
demand;
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our ability to obtain additional funding;
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changes or developments in applicable laws or regulations;
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any intellectual property infringement actions or other litigation or legal proceeding in which we may become involved;
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changes in financial estimates or recommendations by securities analysts, or their ceasing to publish research or reports about
our business;
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the trading volume of our common stock; and
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the appeal and current level of investor interest in the biotechnology/biopharmaceutical capital market sector and in companies
in general with business, research strategies and product development pipelines which are similar to us.
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In addition, Nasdaq and other securities
markets have, from time to time, experienced extreme price and trading volume fluctuations. The market prices of securities of
biotechnology and other life sciences companies in a comparable stage to ours historically have been particularly volatile, and
trading volume in such securities and our common stock has often been relatively low. Moreover, the securities and financial markets
in general have experienced substantial volatility that has often been unrelated or disproportionate to the operating results of
any individual company. During certain periods, specific industry sectors, such as the biotechnology segment, may experience greater
volatility than other sectors or the securities markets as a whole. These broad market fluctuations, during which our industry
and companies at our stage may experience a stronger degree of market sensitivity, will adversely affect the market price of our
common stock.
In the past, following periods of volatility
in the market price of a company’s securities, stockholders have often instituted class action securities litigation against
those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources,
which could significantly harm our reputation and materially adversely affect our business, financial condition and results of
operations.
Risks Related to this Offering:
Management will have broad discretion as to the
use of proceeds from this offering and we may use the net proceeds in ways with which you may disagree.
We intend to use the net proceeds of this
offering for general corporate purposes, which may include research and development expenses, capital expenditures, working capital
and general and administrative expenses, and potential acquisitions of or investments in businesses, products and technologies
that complement our business, although we have no present commitments or agreements to make any such acquisitions or investments
as of the date of this prospectus. Our management will have broad discretion in the application of the net proceeds from this offering
and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. Accordingly,
you will be relying on the judgment of our management on the use of net proceeds, and you will not have the opportunity, as part
of your investment decision, to assess whether the proceeds are being used appropriately. Our failure to apply these funds effectively
could have a material adverse effect on our business and cause the price of our common stock to decline.
Pending these uses, we intend to invest
the funds in short-term, investment grade, interest-bearing securities. It is possible that, pending their use, we may invest the
net proceeds in a way that does not yield a favorable, or any, return for us.
The offering price will be set by our board of directors
and does not necessarily indicate the actual or market value of our common stock.
Our board of directors will approve the
offering price and other terms of this offering after considering, among other things: the number of shares authorized in our certificate
of incorporation, as amended (the “Certificate of Incorporation”); the current market price of our common stock; trading
prices of our common stock over time; the volatility of our common stock; our current financial condition and the prospects for
our future cash flows; the availability of and likely cost of capital of other potential sources of capital; the characteristics
of interested investors and market and economic conditions at the time of the offering. The offering price is not intended to bear
any relationship to the book value of our assets or our past operations, cash flows, losses, financial condition, net worth or
any other established criteria used to value securities. The offering price may not be indicative of the fair value of the common
stock.
If you purchase the common stock or pre-funded warrants
sold in this offering, you will experience immediate dilution as a result of this offering and future equity issuances.
Because the price per share of our common
stock and pre-funded warrants being offered is higher than the book value per share of our common stock, you will suffer immediate
substantial dilution in the net tangible book value of the common stock you purchase in this offering. See the section entitled
“Dilution” of this prospectus for a more detailed discussion of the dilution you will incur if you purchase common
stock and pre-funded warrants in this offering. The issuance of additional shares of our common stock in future offerings could
be dilutive to stockholders if they do not invest in future offerings. Moreover, to the extent that we issue options or warrants
to purchase, or securities convertible into or exchangeable for, shares of our common stock in the future and those options, warrants
or other securities are exercised, converted or exchanged, stockholders may experience further dilution.
There is no public market for the
pre-funded warrants or common warrants being offered in this offering.
There is no established
public trading market for the pre-funded warrants or common warrants being offered in this offering, and we do not expect a market
to develop. In addition, we do not intend to apply to list the pre-funded warrants or common warrants on any securities exchange
or nationally recognized trading system, including The Nasdaq Capital Market. Without an active market, the liquidity of the pre-funded
warrants or common warrants will be limited.
Holders of pre-funded warrants or
common warrants purchased in this offering will have no rights as common stockholders until such holders exercise their pre-funded
warrants or common warrants and acquire our common stock.
Until holders of pre-funded
warrants or common warrants acquire shares of our common stock upon exercise of the pre-funded warrants or common warrants, as
applicable, holders of pre-funded warrants or common warrants will have no rights with respect to the shares of our common stock
underlying such pre-funded warrants or common warrants. Upon exercise of the pre-funded warrants or common warrants, the holders
will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise
date.
Provisions of the common warrants
and pre-funded warrants offered by this prospectus could discourage an acquisition of us by a third party.
In addition to the
discussion of the provisions of our Certificate of Incorporation, certain provisions of the common warrants and pre-funded warrants
offered by this prospectus could make it more difficult or expensive for a third party to acquire us. Such common warrants and
pre-funded warrants prohibit us from engaging in certain transactions constituting “fundamental transactions” unless,
among other things, the surviving entity assumes our obligations under the common warrants and pre-funded warrants. Further, the
common warrants and pre-funded warrants provide that, in the event of certain transactions constituting “fundamental transactions,”
with some exception, holders of such the common warrants and pre-funded warrants will have the right, at their option, to require
us to repurchase such the common warrants and pre-funded warrants at a price described in the common warrants and pre-funded warrants.
These and other provisions of the common warrants and pre-funded warrants offered by this prospectus could prevent or deter a third
party from acquiring us even where the acquisition could be beneficial to you.
The exercise price of the common
warrants and pre-funded warrants offered by this prospectus will be adjusted for certain dilutive events.
The exercise price
of the common warrants and pre-funded warrants offered by this prospectus is subject to adjustment for certain events, including,
but not limited to, certain issuances and/or distributions of capital stock, options, convertible securities and other securities.
However, the exercise prices will not be adjusted for dilutive issuances of securities considered “excluded securities”
and there may be transactions or occurrences that may adversely affect the market price of our common stock or the market value
of such warrants without resulting in an adjustment of the exercise prices of such warrants.
The sale of our common stock and the common warrants in
this offering could result in the reset of the exercise price of certain outstanding warrants.
We have outstanding warrants to purchase
1,005,000 shares of our common stock with an initial exercise price of $0.50 per share that is subject to adjustment. Subject to
certain exceptions, the terms of these warrants provide that (i) if we sell common stock at a price per share less than the then-current
exercise price, or securities which are convertible or exercisable into shares of common stock at an effective per share price
less than the then current exercise price, then we are required to reduce the exercise price of the warrants to be the lower price
of such subsequent sale, or (ii) if we sell securities which are convertible or exercisable into shares of common stock at a price
which varies or may vary with the market price of the shares of our common stock, including by way of one or more reset(s) to a
fixed price, the holders of such securities have the right to substitute the variable price for the exercise price.
In connection with the August
2019 private placement offering of our common stock, the exercise price of these warrants was reduced to $0.30 per share.
Should the market price of our common stock fall below the current exercise price of $0.30 or if we sell our common stock
below $0.30 per share, and the common warrants are exercisable into shares of common stock at a price which varies or may
vary with the market price of the shares of our common stock, the sale of shares of our common stock and common warrants in
this offering may result in a reduction of the exercise price of those outstanding warrants to a price not less than $0.14
per share, which will reduce the proceeds we might receive from their possible exercise.
Use of Proceeds
We estimate that the net proceeds from this
offering will be approximately $ million, after deducting the underwriting discounts and commissions and estimated offering expenses
payable by us and assuming no exercise of the common warrants. If the Underwriter exercises their over-allotment option in full,
we estimate that our net proceeds will be approximately $ million, after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us. We will only receive additional proceeds from the exercise of the common warrants issuable
in connection with this offering if such warrants are exercised at their exercise price of $ and the holders of such warrants pay
the exercise price in cash upon such exercise. Such proceeds with respect to the common warrants could not exceed $ .
The foregoing discussion assumes (i) no
exercise of the underwriter’s option to purchase up to an additional shares of common stock and/or common warrants to purchase
up to an aggregate of shares of common stock and (ii) no sale of pre-funded warrants.
We intend to use the net proceeds from this
offering for general corporate purposes, which may include research and development expenses, capital expenditures, working capital
and general and administrative expenses, and potential acquisitions of or investments in businesses, products and technologies
that complement our business, although we have no present commitments or agreements to make any such acquisitions or investments
as of the date of this prospectus. Pending these uses, we intend to invest the funds in short-term, investment grade, interest-bearing
securities. It is possible that, pending their use, we may invest the net proceeds in a way that does not yield a favorable, or
any, return for us.
Our expected use of net proceeds from this
offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus,
we cannot currently allocate specific percentages of the net proceeds that we may use for the purposes specified above, and we
cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering,
or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds
will vary depending on numerous factors, including our ability to obtain additional financing. We may find it necessary or advisable
to use the net proceeds for other purposes, and our management will have broad discretion in the application of the net proceeds,
and investors will be relying on our judgment regarding the application of the net proceeds from this offering. See “Risk
Factors” for a discussion of certain risks that may affect our intended use of the net proceeds from this offering.
Market Price
of our Common Stock and Related Stockholder Matters
Market Information
Our common stock is listed on The
Nasdaq Capital Market under the symbol “APDN.” Our publicly traded warrants are listed on The Nasdaq Capital
Market under the symbol “APDNW.” A description of the common stock that we are issuing in this offering is set
forth under the heading “Description of Securities” beginning on page 49 of this prospectus. We do not intend to
apply for the listing of the pre-funded warrants or common warrants that are part of this offering on any national
securities exchange.
The last reported sale price for our common
stock on September 16, 2019 was $0.34 per share. The last reported sale price for our publicly traded warrants on September 16,
2019 was $ 0.004 per share.
Holders
As of September 16, 2019, we had 457 record
holders of our common stock, 3 holders of record of our publicly traded warrants, and no preferred stock issued and outstanding.
The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common
stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent
of our common stock and publicly traded warrants is American Stock Transfer & Trust Company, 6201 15th Avenue, Brooklyn, New
York 11219.
Dividend Policy
We have never declared or paid any cash
dividends on our common stock. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. In addition,
any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our
financial condition, results of operations, capital requirements, and such other factors as the board of directors deem relevant.
Capitalization
The following table sets forth our capitalization
as of June 30, 2019:
|
·
|
on an as adjusted basis to reflect: the exercise of 5,060,000 warrants between July 1 and September 16, 2019,
which resulted in the issuance of 3,542,000 shares of common stock; the issuance and sale of $1.5 million in principal amount
of the July 2019 Notes; the August 2019 private placement of $418,000 in gross proceeds; and conversion of the Company Notes
by certain note holders in September 2019; and
|
|
·
|
on a pro forma, as adjusted basis, after giving effect to the application of the net proceeds of this offering and after
deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
|
The information set forth in the following
table should be read in conjunction with and is qualified in its entirety by “Use of Proceeds” above, as well as our
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements
and the notes to those financial statements incorporated by reference in this prospectus. See “The Offering” in this
prospectus for information relating to the expected number of shares of our common stock to be outstanding after this offering.
Our capitalization following the closing of this offering will be adjusted based on the actual public offering price and other
terms of this offering determined at pricing.
|
|
As of June 30, 2019
|
|
|
|
Actual
|
|
|
As
Adjusted
|
|
|
Pro Forma, As
Adjusted for
this Offering*
|
|
Cash and cash equivalents
|
|
$
|
507,146
|
|
|
$
|
2,425,146
|
|
|
$
|
11,645,761
|
|
Stockholders’ (Deficit) Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of June 30, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Series A Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares outstanding as of June 30, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Series B Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares outstanding as of June 30, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Common stock, $0.001 par value per share; 500,000,000 shares authorized; 38,327,057 shares issued and outstanding as of June 30, 2019
|
|
|
38,327
|
|
|
|
47,154
|
|
|
|
76,565
|
|
Additional paid-in capital
|
|
|
253,444,993
|
|
|
|
255,864,267
|
|
|
|
265,055,471
|
|
Accumulated deficit
|
|
|
(255,271,848
|
)
|
|
|
(255,271,848
|
)
|
|
|
(255,271,848
|
)
|
Total Stockholders’ (Deficit) Equity
|
|
$
|
(1,788,528
|
)
|
|
$
|
639,573
|
|
|
$
|
9,860,188
|
|
*Assumes a $10,000,000 capital raise with net cash proceeds
of $9,379,385; number of shares derived by dividing closing stock price on September 16, 2019 of $0.34. Each $0.05 increase (decrease)
in the assumed public offering price per share would increase (decrease) the amount of cash and cash equivalents, working capital,
total assets, and total stockholders’ equity by approximately $1,367,647, assuming the number of securities offered by us,
as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions
and estimated offering expenses payable by us. We may also increase or decrease the number of securities to be issued in this offering.
Each increase (decrease) of 1.0 million shares offered by us would increase (decrease) the as adjusted amount of cash and cash
equivalents, working capital, total assets and total stockholders’ equity by approximately $316,200, assuming the assumed
public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses
payable by us.
Transactions involving
warrants are summarized as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price Per
Share
|
|
Balance at October 1, 2018
|
|
|
12,208,527
|
|
|
$
|
3.24
|
|
Granted
|
|
|
9,035,000
|
|
|
|
0.48
|
|
Exercised
|
|
|
(2,215,000
|
)
|
|
|
0.45
|
|
Cancelled or expired
|
|
|
(2,735,000
|
)
|
|
|
3.00
|
|
Balance at June 30, 2019
|
|
|
16,293,527
|
|
|
$
|
2.30
|
|
The discussion and tables above are based
on 38,327,057 shares of our common stock outstanding as of June 30, 2019, which excludes shares of our common stock that may be
issued upon exercise of pre-funded warrants and common warrants issued in this offering and any additional shares and/or common
warrants that may be sold to cover over-allotments, if any, 7,929,446 shares of common stock issuable upon exercise of outstanding
options, 16,293,527 shares of common stock issuable upon exercise of outstanding warrants, 5,606,817 shares available for grant
under our 2005 Incentive Stock Plan as of such date, and shares of common stock initially issuable upon the common exercise of
the common warrants to be issued pursuant to this prospectus.
Dilution
If you invest in our common stock and/or
pre-funded warrants in this offering, your ownership interest will be diluted immediately to the extent of the difference between
the public offering price per share of our common stock and the as adjusted net tangible book value per share of our common stock
after this offering. Our net tangible book value as of June 30, 2019 was approximately ($2.8 million), or $(0.07) per share of
our common stock (based upon 38,327,057 shares of our common stock outstanding). Net tangible book value per share is equal to
our total tangible assets less our total liabilities, divided by the number of shares of our outstanding common stock.
After giving effect to the sale of shares
of our common stock and accompanying common warrants in this offering at the assumed public offering price of $ 0.34 per share
(the last reported sale price of our common stock on The Nasdaq Capital Market on September 16, 2019), and after deducting the
estimated underwriting discount and commissions and estimated offering expenses payable by us, and excluding the proceeds, if any,
from the exercise of the common warrants and pre-funded warrants, if any, issued in this offering, our as adjusted net tangible
book value as of June 30, 2019 would have been approximately $6,738,822 million, or $0.10 per share of common stock. This represents
an immediate increase in as adjusted net tangible book value of $0.17 per share to our existing stockholders, and an immediate
dilution of $ per share to new investors purchasing securities in this offering at the assumed public offering price.
The following table illustrates this dilution
on a per share basis:
Assumed public offering price per share and accompanying common warrant
|
|
|
|
|
|
$
|
0.34
|
|
Historical net tangible book deficit per share as of June 30, 2019
|
|
$
|
(0.07
|
)
|
|
|
|
|
Pro forma increase in net tangible book value per share attributable to investors in this offering
|
|
$
|
0.17
|
|
|
|
|
|
As adjusted net tangible book value per share after giving effect to this offering
|
|
|
|
|
|
$
|
0.10
|
|
Dilution per share to investors participating in this offering
|
|
|
|
|
|
$
|
0.24
|
|
A $0.05 increase in the assumed
public offering price of $0.34 per share, which is the last reported sale price of our common stock on The Nasdaq Capital
Market on September 16, 2019, would result in an increase in our as adjusted net tangible book value per share after this
offering by approximately $0.01 and the dilution per share to new investors purchasing shares in this offering by $0.28
assuming the number of securities offered by us as set forth on the cover page of this prospectus remains the same, and after
deducting underwriting discounts and commissions and estimated offering expenses payable by us. A $0.05 decrease in the
assumed public offering price of $0.34 per share, which is the last reported sale price of our common stock on The Nasdaq
Capital Market on September 16, 2019, would result in a decrease in our as adjusted net tangible book value per
share after this offering by approximately $0.01 and the dilution per share to new investors purchasing shares in this
offering by $0.22 assuming the number of securities offered by us as set forth on the cover page of this prospectus remains
the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may
also increase or decrease the number of securities to be issued in this offering. Each increase (decrease) of 1.0 million
shares offered by us would increase (decrease) our as adjusted net tangible book value per share and the dilution per share
to new investors purchasing securities in this offering by $ assuming that the assumed public offering price remains the
same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The
information discussed above is illustrative only and will be adjusted based on the actual public offering price and other
terms of this offering as determined between us and the Underwriter at pricing.
The foregoing discussion and table do not
take into account further dilution to investors in this offering that could occur upon the exercise of outstanding options and
warrants, including the pre-funded warrants and common warrants offered in this offering, having a per share exercise price less
than the public offering price per share in this offering.
The discussion and tables above are based
on 38,327,057 shares of our common stock outstanding as of June 30, 2019, which excludes shares of our common stock that may be
issued upon exercise of pre-funded warrants and common warrants issued in this offering, 7,929,446 shares of common stock issuable
upon exercise of outstanding options and 16,293,527 shares of common stock issuable upon exercise of outstanding warrants, 5,606,817
shares available for grant under our 2005 Incentive Stock Plan as of such date, and shares of common stock initially issuable upon
the common exercise of the common warrants to be issued pursuant to this prospectus.
The discussion and table above assume (i)
no sale of pre-funded warrants, which, if sold, would reduce the number of shares of common stock that we are offering on a one-for-one
basis and (ii) no exercise of the underwriter’s option to purchase up to additional shares of common stock and/or common
warrants to purchase up to shares of common stock. If the Underwriter exercises their over-allotment option in full, the as adjusted
net tangible book value will increase to $ per share, representing an immediate increase to existing stockholders of $ per share
and an immediate dilution of $ per share to new investors.
To the extent that outstanding options or
warrants, new options are issued under our equity incentive plan, or we issue additional shares of common stock in the future,
there may be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital
because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future
operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these
securities could result in further dilution to our stockholders.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information
regarding the shares of our common stock beneficially owned as of September 16, 2019, (i) by each person who is known to us to
beneficially own 5% or more of the outstanding common stock, (ii) by each of our principal executive officer, our principal financial
officer and our other executive officers and by each of our directors and (iii) by all executive officers and directors as a group.
Unless otherwise indicated below, each person
or entity has an address in care of our principal executive offices at 50 Health Sciences Drive, Stony Brook, New York 11790.
Name and Address of Beneficial Owner
|
|
Title of Class
|
|
Number of
Shares
Owned(1)(2)
|
|
|
Percentage
of Class(3)
|
|
Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
|
|
James A. Hayward
|
|
Common Stock
|
|
|
8,038,697
|
(4)
|
|
|
16.13
|
%
|
Yacov A. Shamash
|
|
Common Stock
|
|
|
321,137
|
(5)
|
|
|
*
|
|
John Bitzer, III
|
|
Common Stock
|
|
|
1,696,385
|
(6)(7)
|
|
|
3.56
|
%
|
Robert C. Catell
|
|
Common Stock
|
|
|
230,405
|
(11)
|
|
|
*
|
|
Joseph D. Ceccoli
|
|
Common Stock
|
|
|
210,652
|
(8)
|
|
|
*
|
|
Beth M. Jantzen
|
|
Common Stock
|
|
|
282,842
|
(12)
|
|
|
*
|
|
Judith Murrah
|
|
Common Stock
|
|
|
461,864
|
(13)
|
|
|
*
|
|
Charles S. Ryan
|
|
Common Stock
|
|
|
227,382
|
(6)
|
|
|
*
|
|
Sanford R. Simon
|
|
Common Stock
|
|
|
212,149
|
(9)
|
|
|
*
|
|
Elizabeth Schmalz Ferguson
|
|
Common Stock
|
|
|
142,888
|
(14)
|
|
|
*
|
|
All directors and officers as a group (10 persons)
|
|
Common Stock
|
|
|
11,824,401
|
(10)
|
|
|
22.70
|
%
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
|
|
William W. Montgomery
|
|
Common Stock
|
|
|
6,030,900
|
(15)
|
|
|
12.79
|
%
|
Dillon Hill
|
|
Common Stock
|
|
|
2,777,777
|
(16)
|
|
|
5.56
|
%
|
* indicates less than one percent
(1) Beneficial ownership is determined in accordance with
the rules of the SEC and generally includes voting or investment power with respect to the shares shown. Except as indicated by
footnote and subject to community property laws where applicable, to our knowledge, the stockholders named in the table have sole
voting and investment power with respect to all shares of common stock shown as beneficially owned by them. A person is deemed
to be the beneficial owner of securities that can be acquired by such person within 60 days upon the exercise of options, warrants
or convertible securities (in any case, the “Currently Exercisable Options”).
(2) Does not include the remaining unvested shares subject
to options granted on December 21, 2015 pursuant to the 2005 Incentive Stock Plan, which vest 25% of the underlying shares ratably
on each anniversary date thereafter until fully vested on the fourth anniversary date of grant, including 12,500 for each of Dr.
Hayward, Ms. Jantzen and Ms. Murrah.
(3) Based upon 47,153,616 shares of common stock outstanding
as of September 16, 2019. Each beneficial owner’s percentage ownership is determined by assuming that the Currently Exercisable
Options that are beneficially held by such person (but not those held by any other person) have been exercised and converted.
(4) Includes 2,671,262 shares underlying currently exercisable
options and warrants.
(5) Includes 257,767 shares underlying currently exercisable
options and warrants.
(6) Includes 213,177 shares underlying currently exercisable
options for Messrs. Bitzer and Ryan.
(7) Includes 1,185,855 shares of common stock, 76,923 currently
exercisable warrants to purchase our common stock and 193,563 shares of common stock issuable upon the conversion of secured convertible
notes payable owned by Delabarta, Inc. (“Delabarta”), a wholly-owned subsidiary of ABARTA, Inc. (“ABARTA”).
Mr. Bitzer is President and a member of the board of directors of each of Delabarta and ABARTA. Mr. Bitzer disclaims beneficial
ownership of the shares held by Delabarta except to the extent of his pecuniary interest therein.
(8) Includes 187,924 shares underlying currently exercisable
options.
(9) Includes 209,308 shares underlying currently exercisable
options.
(10) Includes 4,734,228 shares underlying currently exercisable
options and warrants and 193,563 shares of common stock issuable upon conversion of secured convertible notes payable.
(11) Includes 152,830 shares underlying currently exercisable
options.
(12) Includes 280,001 shares underlying currently exercisable
options.
(13) Includes 360,001 shares underlying currently exercisable
options.
(14) Includes 111,858 shares underlying currently exercisable
options.
(15) This information is based on a Form 4 filed with the
SEC on September 16, 2019 by William W. Montgomery. William W. Montgomery reported sole voting and sole dispositive power of 6,030,900
shares of common stock. The address of William W. Montgomery is 34211 Seavey Loop Road, Eugene, Oregon 97405.
(16) This information is based on a Schedule 13G filed
with the SEC on July 24, 2019 by Bruce Grossman, the sole member of Dillon Hill. Bruce Grossman reported indirect beneficial ownership,
and sole voting and sole dispositive power, of 2,777,777 shares of common stock, issuable upon conversion of secured convertible
notes payable. Until October 13, 2019, Dillon Hill has the right to purchase up to an additional
$500,000 principal amount of such July 2019 Notes, which would be convertible into an additional 925,925 shares of common stock
of the Company. The July 2019 Notes include a provision limiting conversion of such notes to the extent that conversion
would result in the holder beneficially owning more than 9.99% of the Company’s common stock. The address of Bruce
Grossman is c/o Dillon Hill Capital LLC, 200 Business Park Drive, Suite 306, Armonk, NY 10504.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Delabarta /John Bitzer, III
John Bitzer, III, one of our directors, is
President and Chief Executive Officer of ABARTA, a private, third- and fourth-generation family holding-company, which owns Delabarta.
On June 23, 2014, Delabarta purchased 7,275 shares of our common stock at a purchase price of $6.87 per share for gross
proceeds of $50,000 in a private placement transaction. Delabarta also received 7,275 warrants to purchase shares of our common
stock as part of this private placement transaction. In connection with the investment in the Company by Delabarta during July
2011, we agreed to use best efforts to nominate its designee, Mr. Bitzer, to the board of directors and elect Mr. Bitzer as a director
within 30 days of the closing and to nominate and include Mr. Bitzer on the slate of nominees for the board of directors for election
by stockholders at the annual meetings of stockholders for so long as Delabarta owns at least 2% of the outstanding shares of common
stock.
Other Relationships
June 2017 Private Placement
On June 28, 2017, our officers and directors
purchased approximately $545,000 of our common stock as part of a private placement in the dollar amounts listed below:
Name
|
|
Amount
($)
|
|
James A. Hayward, Chief Executive Officer, President and Chairman of the Board of Directors
|
|
|
250,000
|
|
Yacov A. Shamash, Director
|
|
|
25,000
|
|
Delabarta, Affiliate of Director Mr. Bitzer
|
|
|
100,000
|
|
Robert B. Catell, Director
|
|
|
50,000
|
|
Joseph D. Ceccoli, Director
|
|
|
40,000
|
|
Beth M. Jantzen, Chief Financial Officer
|
|
|
5,000
|
|
Judith Murrah, Chief Information Officer
|
|
|
25,000
|
|
Charles S. Ryan, Director
|
|
|
25,000
|
|
Sanford R. Simon, Director
|
|
|
5,000
|
|
Elizabeth Schmalz Ferguson, Director
|
|
|
20,000
|
|
The Company Notes
On August 31, 2018, we entered into
a securities purchase agreement with certain investors, including Delabarta and William Montgomery, who subsequently became
a 5% or greater stockholder, and certain of our officers and directors, pursuant to which we issued and sold an
aggregate of $1.65 million in principal amount of August 2018 Notes. As of September 16, 2019, $159,296 remains
outstanding on the August 2018 Notes. As of September 16, 2019, we have paid $102,251 of in-kind interest with respect to the
August 2018 Notes, which increased the outstanding balance of our Company Notes.
Name
|
|
Amount
($)
|
|
James A. Hayward Chief Executive Officer, President and Chairman of the Board of Directors
|
|
|
1,000,000
|
|
Yacov A. Shamash, Director
|
|
|
25,000
|
|
Delabarta, Affiliate of Director Mr. Bitzer
|
|
|
100,000
|
|
Robert B. Catell, Director
|
|
|
25,000
|
|
William Montgomery, 5% or greater stockholder
|
|
|
200,000
|
|
Judith Murrah, Chief Information Officer
|
|
|
25,000
|
|
Elizabeth Schmalz Ferguson, Director
|
|
|
10,000
|
|
On November 29, 2018, we entered into
a securities purchase agreement, pursuant to which we issued and sold an aggregate of $550,000 in principal amount of
November 2018 Notes. Dr. Hayward, our chairman, president and chief executive officer, purchased $500,000 in principal amount
of the November 2018 Notes. As of September 16, 2019, $52,334 remains outstanding on the November 2018 Notes. As of September
16, 2019, we have paid $25,676 of in-kind interest with respect to the November 2018 Notes, which increased the outstanding balance of our
Company Notes.
During September
2019, certain holders of Company Notes, including our chief executive officer, president and chairman of the board of directors,
the chief information officer, certain board members and William Montgomery, a 5% or greater stockholder, converted an aggregate
of $1,887,974 of Company Notes into 3,496,247 shares of the Company’s common stock, which represented more than 80% of the
Existing Notes.
Name
|
|
Amount
($)
|
|
James A. Hayward Chief Executive Officer, President and Chairman of the Board of Directors
|
|
|
1,585,313
|
|
Judith Murrah, Chief Information Officer
|
|
|
26,549
|
|
Robert B. Catell, Director
|
|
|
26,549
|
|
Elizabeth Schmalz Ferguson, Director
|
|
|
10,620
|
|
Yacov A. Shamash, Director
|
|
|
26,549
|
|
William Montgomery, a 5% or greater stockholder
|
|
|
212,394
|
|
On July 16, 2019, we entered into a securities
purchase agreement, pursuant to which we issued and sold an aggregate of $1.5 million in principal amount of July 2019 Notes, in
a non-brokered private placement with Dillon Hill, who subsequently became a 5% or greater stockholder. The sole member of Dillon
Hill and indirect beneficial owner of the July 2019 Notes is Bruce Grossman. As of September 16, 2019, $1.5 million remains outstanding
on the July 2019 Notes and no interest has been paid.
Under the terms of the July 2019 Notes, until
October 13, 2019, Dillon Hill has the right to purchase on the same terms as the July 16, 2019 sale up to an additional $500,000
in principal amount of the July 2019 Notes, and up to an additional $1 million in principal amount of the July 2019 Notes if approved
by the Company. In addition, Dillon Hill was granted a right to participate in certain Subsequent Financings until July 16, 2020
equal to the amount required for Dillon Hill to maintain its pro rata ownership of the Company as if the July 2019 Notes had been
fully converted into the Company’s common stock. Until October 13, 2019, Dillon Hill shall have the right to participate
in full, including in this offering, for the first $1 million of such Subsequent Financing.
In connection with the issuance and sale
of the July 2019 Notes, the Company simultaneously amended the terms of the Existing Notes to, among other amendments, (i) reduce
the conversion price of the Existing Notes to $0.54 to facilitate their conversion into equity and (ii) change the maturity date
of the August 2018 Notes to be November 28, 2021. The Company Notes are convertible, in whole or in part, at any time, at the option
of the purchasers, into shares of our common stock, in an amount determined by dividing the principal amount of each Company Note,
together with any and all accrued and unpaid interest, by the Conversion Price. We have the right to require the purchasers to
convert all or any part of their Company Notes into shares of our common stock at the Conversion Price if the price of our common
stock remains at a closing price of $3.50 or more for a period of twenty consecutive trading days. The Company Notes are
due and payable in full on November 28, 2021.
After giving effect to the amendments to
the Existing Notes, the July 2019 Notes are substantially similar to the Existing Notes. The Company Notes bear interest at a rate
of 6% per annum. Until the principal and accrued but unpaid interest under the Company Notes is paid in full, or converted into
shares of common stock pursuant to their terms, our obligations under the Company Notes will be secured by a lien on substantially
all assets of the Company and the assets of APDN (B.V.I.) Inc., our wholly-owned subsidiary, in favor of Delaware Trust Company,
as collateral agent for the purchasers pursuant to related security agreements. In addition, on July 19, 2019, the Company also
amended the security agreements dated as of October 19, 2018, to among other amendments, exclude 20% of the Company’s equity
interest in LRx from the assets securing the Company Notes.
Upon any Change in Control (as defined in
the Company Notes), the purchasers have the right to require us to redeem the Company Notes, in whole or in part, at a redemption
price equal to such Company Notes’ outstanding principal balance plus accrued interest. The Company Notes contain certain
negative covenants that restrict the Company, including prohibitions or limitations, among other things, on the incurrence of additional
indebtedness, subsidiary asset sales, intercompany loans, liens, amendments to the Company’s organization documents, dividends,
and redemptions without consent of the Required Holders (as defined in the Company Notes).
The Company Notes contain certain events
of default that are customarily included in financings of this nature. If an event of default occurs, the holders of the Company
Notes (by an affirmative vote of the holders of the Company Notes representing at least 30% of the aggregate principal amount of
the Company Notes then outstanding) may require the Company to redeem the Company Notes, in whole or in part, at a redemption price
equal to the greater of (i) their outstanding principal balance, plus all accrued and unpaid interest, divided by the Conversion
Price, multiplied by the VWAP on the date the redemption price is either (x) demanded or otherwise due or (y) paid in full, whichever
has a higher VWAP, or (ii) 130% of the outstanding principal, plus all accrued and unpaid interest.
We also entered into related registration
rights agreements with the purchasers of the Company Notes, pursuant to which the Company has agreed to prepare and file a registration
statement with the SEC to register under the Securities Act resales from time to time of the common stock issued or issuable upon
conversion or redemption of the Notes. We are required to file a registration statement within 60 days of receiving a demand
registration request from holders of a majority of the outstanding principal balance of the Company Notes, and to cause the registration
statement to be declared effective within 45 days (or 90 days if the registration statement is reviewed by the SEC).
August 2019 Private Placement
On August 22, 2019, we issued and sold 1,548,151
shares of common stock at a price of $0.27 per share for total gross proceeds of $418,000 to a group of accredited investors, including
our chief executive officer, president and chairman of the board of directors, our chief information officer, and William Montgomery,
a 5% or greater stockholder.
Name
|
|
Amount
($)
|
|
James A. Hayward Chief Executive Officer, President and Chairman of the Board of Directors
|
|
|
100,000
|
|
Judith Murrah, Chief Information Officer
|
|
|
10,000
|
|
William Montgomery, a 5% or greater stockholder
|
|
|
108,000
|
|
Director Independence
The board of directors has determined that
currently and at all times since the fiscal year ended September 30, 2018, each of our directors other than Dr. Hayward—consisting
of John Bitzer, III, Robert B. Catell, Joseph D. Ceccoli, Charles S. Ryan, Yacov A. Shamash, Sanford R. Simon, and Elizabeth M.
Schmalz Ferguson —are and were “independent” as defined by the listing standards of Nasdaq, constituting a majority
of independent directors on our board of directors as required by the rules of Nasdaq. The board of directors considers in its
evaluation of independence whether any director has a relationship with us that would interfere with the exercise of independent
judgment in carrying out his or her responsibilities of a director.
Description
of Securities
The following description of our common
stock, pre-funded warrants, and accompanying common warrants summarizes the material terms and provisions of the common stock that
we may issue in connection with this offering. It may not contain all the information that is important to you. For the complete
terms of our common stock, please refer to our Certificate of Incorporation and our by-laws (“By-Laws”), which are
filed as exhibits to the registration statement which includes this prospectus. See “Where You Can Find More Information”
and “Incorporation by Reference.” The Delaware General Corporation Law (“DGCL”) may also affect the terms
of these securities. The summary below is qualified in its entirety by reference to our Certificate of Incorporation and By-Laws,
each as in effect at the time of any offering of securities under this prospectus.
As of September 16, 2019, our
authorized capital stock consists of 500,000,000 shares of common stock, par value $0.001 per share, of which 47,153,616
shares were issued and outstanding, and 10,000,000 shares of preferred stock, par value $0.001 per share, of which no shares
were issued and outstanding. In addition, as of September 16, 2019, there were issued and outstanding options to purchase
7,972,504 shares of common stock, warrants to purchase 11,213,527 shares of our common stock and 5,563,759 shares available
for grant under our 2005 Incentive Stock Plan. The authorized and unissued shares of common stock and preferred stock are
available for issuance without further action by our stockholders.
Common Stock
Each stockholder of our common stock is
entitled to one vote for each share issued and outstanding held on all matters to be voted upon by the stockholders. Our shares
of common stock have no preemptive, conversion, or redemption rights. The rights, preferences, and privileges of the holders of
common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock.
Upon the sale of substantially all of our stock or assets or dissolution, liquidation or winding up, and after all liquidation
preferences payable to any series of preferred stock entitled thereto have been satisfied, our remaining assets shall be distributed
to all holders of common stock and any similarly situated stockholders who are not entitled to any liquidation preference or, if
there be an insufficient amount to pay all such stockholders, then ratably among such holders. All of our issued and outstanding
shares of common stock are fully paid and non-assessable. The holders of shares of our common stock will be entitled to such cash
dividends as may be declared from time to time by our board of directors from funds available therefor.
The shares of common stock offered by this
prospectus, when issued and paid for, will also be, fully paid and non-assessable.
Our common stock is listed on The Nasdaq
Capital Market under the symbol “APDN.” American Stock Transfer & Trust Company, located in Brooklyn, New York,
is the transfer agent and registrar for our common stock.
Preferred Stock
Our Certificate
of Incorporation provides that our board of directors may, by resolution, designate classes of preferred stock in the future. The
designated series of preferred stock shall have such powers, designations, preferences and relative, participation or optional
or other special rights and qualifications, limitations or restrictions as shall be expressed in the resolution adopted by the
board of directors. Once designated by our board of directors, each series of preferred stock will have specific financial and
other terms described in the documents that govern the preferred stock, which include our Certificate of Incorporation and any
certificates of designation that our board of directors may adopt. Prior to the issuance of shares of each series of preferred
stock, the board of directors is required by the DGCL and our Certificate of Incorporation to adopt resolutions and file a certificate
of designations with the Secretary of State of the State of Delaware. The certificate of designations fixes for each class or series
the designations, powers, preferences, rights, qualifications, limitations and restrictions, including, but not limited to, some
or all of the following:
|
·
|
the number of shares constituting that series and the distinctive designation of that series, which number may be increased
or decreased (but not below the number of shares then outstanding) from time to time by action of the board of directors;
|
|
·
|
the dividend rate and the manner and frequency of payment of dividends on the shares of that series, whether dividends will
be cumulative, and, if so, from which date;
|
|
·
|
whether that series will have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such
voting rights;
|
|
·
|
whether that series will have conversion privileges, and, if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the board of directors may determine;
|
|
·
|
whether or not the shares of that series will be redeemable, and, if so, the terms and conditions of such redemption;
|
|
·
|
whether that series will have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
|
|
·
|
whether or not the shares of the series will have priority over or be on a parity with or be junior to the shares of any other
series or class in any respect;
|
|
·
|
the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of
the corporation, and the relative rights or priority, if any, of payment of shares of that series; and
|
|
·
|
any other relative rights, preferences and limitations of that series.
|
Although
our board of directors has no intention at the present time of doing so, it could authorize the issuance of a series of preferred
stock that could, depending on the terms of such series, impede the completion of a merger, tender offer or other takeover attempt.
Warrants
The following
description summarizes the material terms and provisions of our publicly traded warrants and any related warrant agreement and
warrant certificate. While the terms summarized below will apply generally to any warrants that we may offer, we will describe
the specific terms of any series of warrants in more detail in the documents that govern the warrants. Specific warrant agreements
will contain additional important terms and provisions.
We may
issue warrants for the purchase of common stock, preferred stock and/or debt securities in one or more series. We may issue warrants
independently or together with common stock, preferred stock and/or debt securities, and the warrants may be attached to or separate
from these securities. We will evidence each series of warrants by warrant certificates that we may issue under a separate agreement.
The designations, powers, preferences, rights, qualifications, limitations and restrictions of a series of warrants may include,
but may not be limited to, some or all of the following:
|
·
|
the offering price and aggregate number of warrants offered;
|
|
·
|
if applicable, the designation and terms of the securities with which the warrants are issued and the number of warrants issued
with each such security or each principal amount of such security;
|
|
·
|
if applicable, the date on and after which the warrants and the related securities will be separately transferable;
|
|
·
|
in the case of warrants to purchase debt securities, the principal amount of debt securities purchasable upon exercise of one
warrant and the price at, and currency in which, this principal amount of debt securities may be purchased upon such exercise;
|
|
·
|
in the case of warrants to purchase common stock or preferred stock, the number or amount of shares of common stock or preferred
stock, as the case may be, purchasable upon the exercise of one warrant and the price at which and currency in which these shares
may be purchased upon such exercise;
|
|
·
|
the manner of exercise of the warrants, including any cashless exercise rights;
|
|
·
|
the warrant agreement under which the warrants will be issued;
|
|
·
|
the effect of any merger, consolidation, sale or other disposition of our business on the warrant agreement and the warrants;
|
|
·
|
anti-dilution provisions of the warrants, if any;
|
|
·
|
the terms of any rights to redeem or call the warrants;
|
|
·
|
any provisions for changes to or adjustments in the exercise price or number of securities issuable upon exercise of the warrants;
|
|
·
|
the dates on which the right to exercise the warrants will commence and expire or, if the warrants are not continuously exercisable
during that period, the specific date or dates on which the warrants will be exercisable;
|
|
·
|
the manner in which the warrant agreement and warrants may be modified;
|
|
·
|
the identities of the warrant agent and any calculation or other agent for the warrants;
|
|
·
|
federal income tax consequences of holding or exercising the warrants;
|
|
·
|
the terms of the securities issuable upon exercise of the warrants;
|
|
·
|
any securities exchange or quotation system on which the warrants or any securities deliverable upon exercise of the warrants
may be listed or quoted; and
|
|
·
|
any other specific terms, preferences, rights or limitations of or restrictions on the warrants.
|
Common Warrants
The following summary of certain terms
and provisions of common warrants that are being offered hereby is not complete and is subject to, and qualified in its entirety
by, the provisions of the common warrant, the form of which is filed as an exhibit to the registration statement of which this
prospectus forms a part. Prospective investors should carefully review the terms and provisions of the form of common warrant for
a complete description of the terms and conditions of the common warrants.
We are selling to investors in this offering
shares of our common stock with accompanying common warrants to purchase shares of our common stock and/or pre-funded warrants
with accompanying common warrants to purchase shares of our common stock at a combined purchase price of $ for shares and accompanying
common warrants and $ for pre-funded warrants and accompanying common warrants.
Each common warrant will be exercisable
beginning on the Initial Exercise Date, which is the date of closing, at an exercise price of $ per share, subject to adjustment.
The common warrants will be exercisable for five years from the Initial Exercise Date, but not thereafter. No fractional shares
of common stock will be issued in connection with the exercise of a common warrant. In lieu of fractional shares, we will round
up to the next whole share. The common warrants include an adjustment provision that, subject to certain exceptions, reduces their
exercise price if the Company issues common stock or common stock equivalents at a price lower than the then-current exercise price
of the common warrants, subject to a minimum exercise price of $ per share.
The common warrants are subject to a call
provision whereby we may, subject to certain provisions including that the VWAP of the Company’s common stock has exceeded
% of the exercise price for consecutive trading days, call for cancellation of all or any portion of the common warrant not yet
exercised.
Subject to limited exceptions, a
holder of common warrants will not have the right to exercise any portion of its common warrants if the holder, together with
its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, 9.99%) of the number of shares
of our common stock outstanding immediately after giving effect to such exercise (the “Beneficial Ownership Limitation”);
provided, however, that upon 61 days’ prior notice to the Company, the holder may increase or decrease the Beneficial
Ownership Limitation, provided that in no event shall the Beneficial Ownership Limitation exceed 9.99%.
The common warrants contain a “cashless
exercise” feature that allows holders to exercise the common warrants without a cash payment to the Company upon the terms
set forth in the common warrants, if, at the time of exercise there is no effective registration statement registering, or the
prospectus contained therein is not available for the issuance of the shares to the exercising common warrant holder.
In the case of certain fundamental transactions
affecting the Company, a holder of common warrants, upon exercise of such common warrants after such fundamental transaction, will
have the right to receive, in lieu of shares of the Company’s common stock, the same amount and kind of securities, cash
or property that such holder would have been entitled to receive upon the occurrence of the fundamental transaction, had the common
warrants been exercised immediately prior to such fundamental transaction. In lieu of such consideration, a holder of common warrants
may instead elect to receive a cash payment based upon the Black-Scholes value of their common warrants.
The exercise price and number of the shares
of our common stock issuable upon the exercise of the common warrants will be subject to adjustment in the event of any stock dividends
and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the common warrants.
Pre-Funded Warrants
The following summary of certain terms
and provisions of pre-funded warrants that are being offered hereby is not complete and is subject to, and qualified in its entirety
by, the provisions of the pre-funded warrant, the form of which is filed as an exhibit to the registration statement of which this
prospectus forms a part. Prospective investors should carefully review the terms and provisions of the form of pre-funded warrant
for a complete description of the terms and conditions of the pre-funded warrants.
Each pre-funded warrant
offered hereby will have an initial exercise price per share equal to $0.01. The pre-funded warrants will be immediately exercisable
and may be exercised at any time until the pre-funded warrants are exercised in full. The exercise price and number of shares of
common stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations
or similar events affecting our common stock and the exercise price. The pre-funded warrants will be issued separately from the
accompanying common warrants, and may be transferred separately immediately thereafter.
The pre-funded warrants
will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied
by payment in full for the number of shares of our common stock purchased upon such exercise (except in the case of a cashless
exercise as discussed below). A holder (together with its affiliates) may not exercise any portion of the pre-funded warrant to
the extent that the holder would own more than 4.99 % of the outstanding common stock immediately after exercise, except that upon
at least 61 days’ prior notice from the holder to us, the holder may increase the amount of ownership of outstanding stock
after exercising the holder’s pre-funded warrants up to 9.9 % of the number of shares of our common stock outstanding immediately
after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the pre-funded
warrants. Purchasers of pre-funded warrants in this offering may also elect prior to the issuance of the pre-funded warrants to
have the initial exercise limitation set at 9.9% of our outstanding common stock. No fractional shares of common stock will be
issued in connection with the exercise of a pre-funded warrant. In lieu of fractional shares, we will either pay the holder an
amount in cash equal to the fractional amount multiplied by the exercise price or round up to the next whole share.
If, at the time
a holder exercises its pre-funded warrants, a registration statement registering the issuance of the shares of common stock underlying
the pre-funded warrants under the Securities Act is not then effective or available and an exemption from registration under the
Securities Act is not available for the issuance of such shares, then in lieu of making the cash payment otherwise contemplated
to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such
exercise (either in whole or in part) the net number of shares of common stock determined according to a formula set forth in
the pre-funded warrants.
Subject to applicable
laws, a pre-funded warrant may be transferred at the option of the holder upon surrender of the pre-funded warrant to us together
with the appropriate instruments of transfer.
We do not intend to
list the pre-funded warrants on any securities exchange or nationally recognized trading system. Except as otherwise provided in
the pre-funded warrants or by virtue of such holder’s ownership of shares of our common stock, the holders of the pre-funded
warrants do not have the rights or privileges of holders of our common stock, including any voting rights, until they exercise
their pre-funded warrants.
Possible Anti-Takeover Effects of Delaware Law and our
Certificate of Incorporation and By-Laws
Our Certificate of Incorporation contains
provisions that could make it more difficult to acquire control of our company by means of a tender offer, open market purchases,
a proxy contest or otherwise. A description of these provisions is set forth below.
Anti-Takeover Effects of Delaware Law
Companies incorporated in Delaware are subject
to the provisions of Section 203 of the DGCL, or Section 203, unless the corporation has “opted out” of these provisions
with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation
or by-laws resulting from a stockholders’ amendment approved by at least a majority of the outstanding voting shares. We
have opted out of Section 203 with an express provision in our Certificate of Incorporation. Therefore, the anti-takeover effects
of Section 203 do not apply to us.
In general, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year
period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved
in a prescribed manner. A “business combination” includes, among other things, a merger, asset or stock sale or other
transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person
who, together with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder
status, 15% or more of the corporation’s voting stock.
Under Section 203, a business combination
between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions: before the
stockholder became interested, the board of directors approved either the business combination or the transaction which resulted
in the stockholder becoming an interested stockholder; upon consummation of the transaction which resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons
who are directors and also officers, and employee stock plans, in some instances; or at or after the time the stockholder became
interested, the business combination was approved by the board of directors of the corporation and authorized at an annual or special
meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by
the interested stockholder.
Election and Removal of Directors
Directors will be elected by a plurality
of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the election
of directors. Our Certificate of Incorporation does not provide for a classified board of directors or for cumulative voting in
the election of directors. Under Article VIII of the Certificate of Incorporation and Section 3.13 of the By-Laws, directors may
be removed by the stockholders of the Company only for cause, and in such case only by the affirmative vote of the holders of at
least a majority of the voting power of the issued and outstanding shares of capital stock of the Company then entitled to vote
in the election of directors. On December 21, 2015, the Court of Chancery of the State of Delaware invalidated as a matter of law
provisions of the certificate of incorporation and bylaws of VAALCO Energy, Inc. (“VAALCO”), a Delaware corporation,
that permitted the removal of VAALCO’s directors by its stockholders only for cause. In In re VAALCO Energy, Inc. Stockholder
Litigation, Consol. C.A. No. 11775-VCL (Del. Ch. Dec. 21, 2015), the Court ruled from the bench to hold that, in the absence
of a classified board or cumulative voting, VAALCO’s “only for-cause” director removal provisions conflict with
Section 141(k) of the DGCL and are therefore invalid. Because the Company’s Certificate of Incorporation and By-Laws contain
similar “only for-cause” director removal provisions and the Company does not have a classified board of directors
or cumulative voting, the Company will not attempt to enforce the foregoing “only for-cause” director removal provision
in light of the recent VAALCO decision.
Size of Board and Vacancies
The
authorized number of directors may be determined by the board of directors, provided the board shall consist of at least one (1)
member. No decrease in the number of directors constituting the board shall shorten the term of any incumbent director.
Vacancies
occurring on our board of directors for any reason and newly created directorships resulting from an increase in the authorized
number of directors may be filled only by a vote of a majority of the remaining members of the board of directors, although less
than a quorum, or by a sole remaining director, at any meeting of the board of directors.
Amendment
The
Certificate of Incorporation may be amended in the manner prescribed by the DGCL. The board of directors is authorized to adopt,
amend, alter or repeal the By-Laws by the affirmative vote of at least a majority of the board of directors then in office. No
amendment to the Certificate of Incorporation or the By-Laws may adversely affect any indemnification right or protection of any
director, officer, employee or other agent existing at the time of such amendment, repeal or adoption of an inconsistent provision
for or in respect of any act, omission or other matter occurring, or any action or proceeding accruing or arising prior to such
amendment, repeal or adoption of an inconsistent provision.
Authorized but Unissued Shares of Common Stock and of
Preferred Stock
We believe that the availability of the
“Blank Check” preferred stock under our Certificate of Incorporation provides us with flexibility in addressing corporate
issues that may arise. The board of directors has the power, subject to applicable law, to issue series of preferred stock that
could, depending on the terms of the series, impede the completion of a merger, tender offer or other takeover attempt that some,
or a majority, of the stockholders might believe to be in their best interests or in which stockholders might receive a premium
for their stock over the then prevailing market price of the stock. Our board of directors may issue preferred stock with voting
rights or conversion rights that, if exercised, could adversely affect the voting power of the holders of common stock.
The authorized shares of preferred stock,
as well as shares of common stock, will be available for issuance without further action by our stockholders, unless action is
required by applicable law or the rules of any stock exchange on which our securities may be listed. Having these authorized shares
available for issuance allows us to issue shares without the expense and delay of a special stockholders’ meeting. We may
use additional shares for a variety of purposes, including future public offerings to raise additional capital, to fund acquisitions
and as employee compensation. The existence of authorized but unissued shares of common stock and preferred stock could render
more difficult or discourage an attempt to obtain control of our company by means of a proxy contest, tender offer, merger or otherwise.
The above provisions may deter a hostile takeover or delay a change in control or management of our company.
Advance Notice Procedure
Our By-Laws provide an advance notice procedure
for stockholders to nominate director candidates for election or to bring business before an annual meeting of stockholders. Only
persons nominated by, or at the direction of, our board of directors or by a stockholder of record who has given proper and timely
notice to our secretary prior to the meeting at which such stockholder is entitled to vote and appears, will be eligible for election
as a director. In addition, any proposed business other than the nomination of persons for election to our board of directors must
constitute a proper matter for stockholder action pursuant to a proper notice of meeting delivered to us. For notice to be timely,
it must generally be delivered to our secretary not less than 90 nor more than 120 calendar days prior to the first anniversary
of the previous year’s annual meeting (or if the date of the annual meeting is more than 30 calendar days before or more
than 60 calendar days after the anniversary date of the previous year’s annual meeting, not earlier than the 120th calendar
day prior to such meeting and not later than either the 90th calendar day prior to such meeting or the 10th calendar day after
public disclosure of the date of such meeting is first made by us). These advance notice provisions may have the effect of precluding
the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer
from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempt to obtain control of us.
Special Meetings of Stockholders
Our By-Laws provide that special meetings
of stockholders may be called only by the Chairman of the Board, the Chief Executive Officer, or the board of directors pursuant
to a resolution adopted by a majority of the board.
UNDERWRITING
Listing
We are offering up to shares of our
common stock and accompanying common warrants, and pre-funded warrants. Our common stock is listed on The Nasdaq Capital
Market under the symbol “APDN.” Our publicly traded warrants are listed on The Nasdaq Capital Market under the
symbol “APDNW.” There is no certainty that the common stock or the publicly traded warrants will continue to be
listed. We do not intend to apply for the listing of the pre-funded warrants or common warrants that are part of this
offering on any national securities exchange.
Underwriter and Underwriting Obligation
We have entered into an underwriting agreement
dated , 2019 with the Underwriter acting as the sole underwriter and book-running manager for this offering. Subject to the terms
and conditions of the underwriting agreement, the Underwriter has agreed to purchase, and we have agreed to sell to it, the number
of our securities set forth on the cover page of this prospectus.
The underwriting agreement provides that
the obligations of the Underwriter to pay for and accept delivery of the shares of our common stock and accompanying common warrants
and/or pre-funded warrants and accompanying common warrants is subject to the approval of certain legal matters by its counsel
and to certain other conditions. The Underwriter is obligated to take and pay for all of the shares of common stock and/or pre-funded
warrants and common warrants offered hereby if any of such securities are purchased. We have granted the Underwriter an over-allotment
option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the Underwriter to purchase
up to shares of common stock and/or common warrants at a price of $ per share exercisable for up to shares of common stock from
us to cover over-allotments, if any.
The Underwriter has advised us that it does
not intend to confirm sales to any account over which it exercises discretionary authority.
Underwriting Commissions and Discount and Expenses
We have agreed to pay the Underwriter a
cash fee equal to 7% of the gross proceeds raised in this offering The Underwriter proposes to offer the shares of common
stock, the pre-funded warrants, and accompanying common warrants directly to the public at the public offering price set forth
on the cover page of this prospectus. After the offering to the public, the offering price and other selling terms may be changed
by the Underwriter without changing the proceeds we will receive from the Underwriter.
The following table summarizes the public
offering price, underwriting commissions and proceeds before expenses to us assuming no exercise of the Underwriter’s option
to purchase up to an additional shares of common stock and/or common warrants to purchase shares of common stock at the public
offering price, less the underwriting discount. The underwriting commissions are equal to the public offering price per share less
the amount per share the Underwriter pays us for the shares of common stock, the pre-funded warrants and/or common warrants.
|
|
Per
Share
|
|
|
Per Pre-
Funded
Warrant
|
|
|
Per Common
Warrant
|
|
|
Total (No
Exercise)
|
|
|
Total (Full
Exercise)
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Underwriting discount to be paid to the Underwriter by us
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Proceeds to us (before expenses)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
We estimate the total expenses payable by
us for this offering to be approximately $ which amount includes (i) the underwriting discount of $ ($ if the Underwriter’s
over-allotment option is exercised in full) and (ii) reimbursement of the accountable expenses of the Underwriter up to a maximum
of $75,000 including the legal fees of the Underwriter being paid by us, regardless of whether the offering is consummated, and
(iii) other estimated company expenses of approximately $ which includes legal, accounting, printing costs and various fees associated
with the registration and listing of our shares. The securities we are offering are being offered by the Underwriter subject to
certain conditions specified in the underwriting agreement.
Over-allotment Option
We have granted
to the Underwriter an option exercisable not later than 45 days after the date of this prospectus to purchase up to
additional shares of common stock and/or common
warrants to purchase shares of common stock at the
public offering price per share of common stock and/or common warrant set forth on the cover page hereto less the
underwriting discounts and commissions. The Underwriter may exercise the option solely to cover over-allotments, if any,
made in connection with this offering. If any additional shares of common stock and/or common warrants are purchased pursuant
to the over-allotment option, the Underwriter will offer these shares of common stock and/or common warrants on the same
terms as those on which the other securities are being offered.
Determination of Offering Price
Our common stock is currently traded on
The Nasdaq Capital Market under the symbol “APDN.” On September 16, 2019 the closing price of our common stock was
$0.34 per share.
There is a material disparity between the
offering price of the shares of our common stock being offered under this prospectus and pre-funded warrants and the market price
of the common stock at the date of this prospectus. We believe that the market price of our common stock at the date of this prospectus
is not the appropriate offering price for the shares of our common stock because the market price is affected by a number of factors.
The public offering price was determined by negotiation by us and the Underwriter. The principal factors considered by us and the
Underwriter in determining the public offering price included:
|
·
|
the recent trading history of our common stock on The Nasdaq Capital Market, including market prices and trading volume of
our common stock;
|
|
·
|
the current market price of our common stock on The Nasdaq Capital Market;
|
|
·
|
the recent market prices of, and demand for, publicly traded common stock of generally comparable companies;
|
|
·
|
the information set forth or incorporated by reference in this prospectus and otherwise available to the representative;
|
|
·
|
our past and present financial performance and an assessment of our management;
|
|
·
|
our prospects for future earnings and the present state of our products;
|
|
·
|
the current status of competitive products and product developments by our competitors;
|
|
·
|
our history and prospects, and the history and prospects of the industry in which we compete;
|
|
·
|
the general condition of the securities markets at the time of this offering; and
|
|
·
|
other factors deemed relevant by the representative and us.
|
The offering price stated on the cover page
of this prospectus should not be considered an indication of the actual value of the shares of common stock and accompanying common
warrants and/or pre-funded warrants and accompanying common warrants sold in this offering. That price is subject to change as
a result of market conditions and other factors and we cannot assure you that the shares of common stock and accompanying common
warrants and/or pre-funded warrants and accompanying common warrants sold in this offering can be resold at or above the public
offering price.
Lock-up Agreements
Our officers, directors, and 5% or
greater stockholders, representing 27.42% of our outstanding shares of common stock, are
expected to agree with the Underwriter to be subject to a lock-up period of 180 days following the closing of this offering.
This means that, during the applicable lock-up period, such persons may not offer for sale, contract to sell, sell,
distribute, grant any option, right or warrant to purchase, pledge, hypothecate or otherwise dispose of, directly or
indirectly, any shares of our common stock or any securities convertible into, or exercisable or exchangeable for, shares of
our common stock. Certain limited transfers are permitted during the lock-up period if the transferee agrees to these lock-up
restrictions. We have also agreed, in the underwriting agreement, to similar lock-up restrictions on the issuance and sale of
our securities for 180 days following the closing of this offering, although we will be permitted to issue stock options or
stock awards to directors, officers and employees under our existing plans. The lock-up period is subject to an additional
extension to accommodate for our reports of financial results or material news releases. The Underwriter may, in its sole
discretion and without notice, waive the terms of any of these lock-up agreements.
Transfer Agent and Registrar
The transfer agent and registrar for our
common stock is American Stock Transfer & Trust Company, LLC.
Price Stabilization, Short Positions and Penalty Bids
In connection with this offering, the Underwriter
may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the Underwriter
may over-allot in connection with this offering by selling more shares of common stock than are set forth on the cover page of
this prospectus. This creates a short position in our common stock for the Underwriter’s own account. The short position
may be either a covered short position or a naked short position. In a covered short position, the number of shares of common stock
over-allotted by the Underwriter is not greater than the number of shares of common stock that they may purchase in the over-allotment
option. In a naked short position, the number of shares of common stock involved is greater than the number of shares of common
stock in the over-allotment option. To close out a short position, the Underwriter may elect to exercise all or part of the over-allotment
option. The Underwriter may also elect to stabilize the price of our common stock or reduce any short position by bidding for,
and purchasing, common stock in the open market.
The Underwriter may also impose a penalty
bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing a security in
this offering because the Underwriter repurchases that security in stabilizing or short covering transactions.
Finally, the Underwriter may bid for, and
purchase, shares of our common stock in market making transactions, including “passive” market making transactions
as described below.
These activities may stabilize or maintain
the market price of our common stock at a price that is higher than the price that might otherwise exist in the absence of these
activities. The Underwriter is not required to engage in these activities, and may discontinue any of these activities at any time
without notice. These transactions may be effected on The Nasdaq Capital Market, in the over-the-counter market, or otherwise.
In connection with this offering, the Underwriter
and selling group members, if any, or their affiliates may engage in passive market making transactions in our common stock immediately
prior to the commencement of sales in this offering, in accordance with Rule 103 of Regulation M under the Exchange Act. Rule 103
generally provides that:
|
·
|
a passive market maker may not effect transactions or display bids for our common stock in excess of the highest independent
bid price by persons who are not passive market makers;
|
|
·
|
net purchases by a passive market maker on each day are generally limited to 30% of the passive market maker’s average
daily trading volume in our common stock during a specified two-month prior period or 200 shares of common stock, whichever is
greater, and must be discontinued when that limit is reached; and
|
|
·
|
passive market making bids must be identified as such.
|
Our Relationship with the Underwriter
The Underwriter and its affiliates have
engaged, and may in the future engage, in investment banking transactions and other commercial dealings in the ordinary course
of business with us or our affiliates. The Underwriter has received, or may in the future receive, customary fees and commissions
for these transactions. As of the date hereof, an affiliate of the Underwriter holds warrants to purchase 128,800, 163,720, 51,137,
and 50,000 shares of our common stock with an exercise prices of $3.73, $3.44, $2.53, and $4.01 per share, respectively.
In addition, in the ordinary course of their
business activities, the Underwriter and its affiliates may make or hold a broad array of investments and actively trade debt and
equity securities (or related derivative securities) for their own account and for the accounts of their customers. Such investments
and securities activities may involve securities and/or instruments of ours or our affiliates. The Underwriter and its affiliates
may also make investment recommendations and/or publish or express independent research views in respect of such securities or
financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and
instruments.
Indemnification
We have agreed to indemnify the Underwriter
against liabilities relating to the offering arising under the Securities Act and the Exchange Act, liabilities arising from breaches
of some or all of the representations and warranties contained in the underwriting agreement, and to contribute to payments that
the Underwriter may be required to make for these liabilities.
The underwriting agreement will be filed
as an exhibit to our Current Report on Form 8-K to be filed with the SEC in connection with this offering.
Electronic Distribution
A prospectus in electronic format may be
made available on a website maintained by the Underwriter. The Underwriter may agree to allocate a number of shares to underwriters
for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives of the Underwriter
to underwriters that may make Internet distributions on the same basis as other allocations. In connection with the offering, the
Underwriter may distribute prospectuses electronically. No forms of electronic prospectus other than prospectuses that are printable
as Adobe® PDF will be used in connection with this offering.
Other than the prospectus in electronic
format, the information on the Underwriter’s website and any information contained in any other website maintained by the
Underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved
and/or endorsed by us or the Underwriter in its capacity as underwriter and should not be relied upon by investors.
Foreign Regulatory Restrictions on Purchase of Securities
Offered Hereby Generally
No action has been or will be taken in any
jurisdiction (except in the United States) that would permit a public offering of the securities offered by this prospectus, or
the possession, circulation or distribution of this prospectus or any other material relating to us or the securities offered hereby
in any jurisdiction where action for that purpose is required. Accordingly, the securities offered hereby may not be offered or
sold, directly or indirectly, and neither of this prospectus nor any other offering material or advertisements in connection with
the securities offered hereby may be distributed or published, in or from any country or jurisdiction except in compliance with
any applicable rules and regulations of any such country or jurisdiction.
The Underwriter may arrange to sell securities
offered by this prospectus in certain jurisdictions outside the United States, either directly or through affiliates, where they
are permitted to do so. The foregoing does not purport to be a complete statement of the terms and conditions of the underwriting
agreement. A copy of the underwriting agreement will be included as an exhibit to our Current Report on Form 8-K to be filed with
the SEC in connection with this offering. See “Where You Can Find More Information.”
Experts
Marcum LLP, independent registered public
accounting firm, has audited our consolidated financial statements included in our Annual Report on Form 10-K for the years ended September 30, 2018 and 2017, as set forth in their report, which is incorporated by reference in this prospectus and elsewhere
in this registration statement. Marcum LLP’s report includes an explanatory paragraph relating to our ability to continue
as a going concern. Our consolidated financial statements are incorporated by reference in reliance on Marcum LLP’s report,
given on their authority as experts in accounting and auditing.
Legal Matters
Certain legal matters relating to the issuance
of the securities offered by this prospectus will be passed upon for us by Pepper Hamilton LLP, New York, New York. Certain legal
matters in connection with this offering will be passed upon for the Underwriter by Harter Secrest & Emery LLP, Rochester,
New York.
Where you
can find more information
This prospectus is a part of the registration
statement on Form S-1 we filed with the SEC under the Securities Act and does not contain all the information set forth in the
registration statement. Whenever a reference is made in this prospectus to any of our contracts, agreements or other documents,
the reference may not be complete and you should refer to the exhibits that are a part of the registration statement or the exhibits
to the reports or other documents incorporated herein by reference for a copy of such contract, agreement or other document. Because
we are subject to the information and reporting requirements of the Exchange Act, we file or furnish, as applicable, annual, quarterly
and current reports, proxy statements and other information with the SEC. The SEC also maintains a web site that contains reports,
proxy and information statements and other information regarding companies, such as ours, that file documents electronically with
the SEC. The website address is www.sec.gov. The information on the SEC’s website is not part of this prospectus, and any
references to this website or any other website are inactive textual references only. Our Internet address is www.adnas.com. The
information found on our website is not part of this prospectus and investors should not rely on any such information in deciding
whether to invest.
Incorporation
by Reference
We have elected to incorporate certain information
by reference into this prospectus. By incorporating by reference, we can disclose important information to you by referring you
to other documents we have filed or will file with the SEC. The information incorporated by reference is deemed to be part of this
prospectus, except for information incorporated by reference that is superseded by information contained in this prospectus. This
means that you must look at all of the SEC filings that we incorporate by reference to determine if any statements in the prospectus
or any document previously incorporated by reference have been modified or superseded. This prospectus incorporates by reference
the documents set forth below that we have previously filed with the SEC, except in each case the information contained in such
document to the extent “furnished” and not “filed” (Commission File No. 001-36745):
|
·
|
Our Quarterly Reports on Form 10-Q for the three month period ended December 31, 2018, as filed with the SEC on February 7, 2019, for the three month period ended March 31, 2019, as filed with the SEC on May 9, 2019, and for the three month period ended
June 30, 2019, as filed with the SEC on August 13, 2019;
|
|
·
|
Our Current Reports
on Form 8-K (other than portions thereof furnished under Item 2.02 or Item 7.01 of Form 8-K and exhibits accompanying such reports
that are related to such items) dated August 31, 2018 (as amended December 10, 2018), November 29, 2018, December 21, 2018, January
29, 2019, March 28, 2019, May 16, 2019, July 16, 2019, July 30, 2019, August 6, 2019, and August 22, 2019, filed with the SEC
on September
4, 2018 (as amended on December
10, 2018), December 6, 2018,
December
21, 2018, January
31, 2019, April
3, 2019, May
20, 2019, July
17, 2019, August
2, 2019, August
12, 2019, and August
26, 2019, respectively; and
|
|
·
|
The description of our common stock and listed warrants contained in our Registration Statement on Form 8-A filed on November 13, 2014, including any amendment or report filed for the purpose of updating such description.
|
Information in such future filings updates
and supplements the information provided in this prospectus. Any statements in any such future filings will automatically be deemed
to modify and supersede any information in any document we previously filed with the SEC that is incorporated or deemed to be incorporated
herein by reference to the extent that statements in the later filed document modify or replace such earlier statements. Any statement
so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus.
All reports and other documents subsequently
filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of this offering, including
all such documents we may file with the SEC after the date of the initial registration statement and prior to the effectiveness
of the registration statement but excluding any information furnished and not filed with the SEC, shall be deemed to be incorporated
by reference in this prospectus and to be a part hereof from the date of filing such reports and other documents.
You may obtain copies of these documents
on the website maintained by the SEC at http://www.sec.gov. We will furnish to you, upon written or oral request, a copy
of any or all of the documents that have been incorporated by reference, including exhibits to these documents. You may request
a copy of those filings at no cost by writing or telephoning us at Corporate Secretary, Applied DNA Sciences, Inc., 50 Health Sciences
Drive, Stony Brook, New York 11790, (631) 240-8800 or visiting our website at http://www.adnas.com. No information contained on
our website is intended to be included as part of, or incorporated by reference into, this prospectus.
Shares of Common Stock
Pre-Funded Warrants to Purchase Up to
Shares of Common Stock
Warrants to Purchase Up to Shares of
Common Stock
PROSPECTUS
Maxim Group LLC
, 2019
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
Item 13.
|
Other Expenses of Issuance and Distribution
|
The following table sets forth the fees
and expenses, other than placement agent fees and expenses, payable in connection with the registration of the common stock hereunder.
All amounts are estimates except the SEC registration fee and the FINRA filing fee.
Item
|
|
Amount to be paid
|
|
SEC registration fee
|
|
$
|
4,348
|
|
FINRA filing fee
|
|
|
*
|
|
Printing expenses
|
|
|
*
|
|
Legal fees and expenses
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Transfer Agent fees and expenses
|
|
|
*
|
|
Miscellaneous expenses
|
|
|
*
|
|
Total
|
|
|
*
|
|
* To
be completed by amendment.
|
Item 14.
|
Indemnification of Directors and Officers
|
Section 145 of the Delaware General Corporation
Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses
(including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection
with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such
person being or having been a director, officer, employee or agent to the corporation. The Delaware General Corporation Law provides
that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise.
Section 102(b)(7) of the Delaware General
Corporation Law provides that a corporation may adopt a provision in its certificate of incorporation eliminating or limiting the
personal liability of a director of the corporation to the corporation or its stockholders for monetary damages for breaches of
fiduciary duty as a director, except for liability for any: (i) breach of the director’s duty of loyalty to the corporation
or its stockholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) unlawful payment of dividends or unlawful stock purchases or redemptions; or (iv) transaction from which the director
derives an improper personal benefit.
Our Certificate of Incorporation provides
to the fullest extent permitted by Delaware law that our directors or officers shall not be personally liable to us or our stockholders
for damages for breach of such director’s or officer’s fiduciary duty. The effect of this provision of our Certificate
of Incorporation is to eliminate our rights and the rights of our stockholders (through stockholders’ derivative suits on
behalf of our company) to recover damages against a director or officer for breach of the fiduciary duty of care as a director
or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations defined
by statute. We believe that the indemnification provisions in our Certificate of Incorporation are necessary to attract and retain
qualified persons as directors and officers.
Our Certificate of Incorporation also provides
that we shall have the power to indemnify, to the extent permitted by the DGCL, as it presently exists or may hereafter be amended
from time to time, any employee or agent of ours who was or is a party or is threatened to be made a party to any proceeding by
reason of the fact that he or she is or was a director, officer, employee or agent of ours or is or was serving at our request
as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, against expenses (including attorneys’ fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in connection with any such proceeding.
Section 9.3 of our By-Laws provides for
the indemnification of our directors, officers and employees to the fullest extent permitted by the DGCL.
We have entered into an indemnification
agreement (each, an “Indemnification Agreement”) with each of our directors and executive officers. In general, the
Indemnification Agreement obligates us to indemnify a director or executive officer, to the fullest extent permitted by applicable
law, for certain expenses, including attorneys’ fees, judgments, penalties, fines and settlement amounts actually and reasonably
incurred by them in any action or proceeding arising out of their services as one of our directors or executive officers, or any
of our subsidiaries or any other company or enterprise to which the person provides services at our request. In addition, the Indemnification
Agreement provides for the advancement of expenses incurred by the indemnitee in connection with any covered proceeding to the
fullest extent permitted by applicable law. The rights provided by the Indemnification Agreement are in addition to any other rights
to indemnification or advancement of expenses to which the indemnitee may be entitled under applicable law, our Certificate of
Incorporation or By-Laws, or otherwise.
Insofar as indemnification for liabilities
arising under the Securities Act, may be permitted to directors, officers and controlling persons of ours pursuant to the foregoing
provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by a director, officer or controlling person of ours in the successful
defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
We maintain a director and officer insurance
policy that covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their
capacities as directors or officers.
|
Item 15.
|
Recent Sales of Unregistered Securities
|
Since January 1, 2016, we made sales
of the unregistered securities discussed below. None of these transactions involved any underwriters, underwriting discounts or
commissions, except as specified below, or any public offering, and the registrant believes that, except as set forth below, each
transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and/or Regulation
D.
On August 22, 2019, we issued and sold 1,548,151
shares of common stock at a price of $0.27 per share for total gross proceeds of $418,000 to a group of accredited investors, including
our chief executive officer, president and chairman of the board of directors and the chief information officer. The foregoing
issuance of common stock was exempt from registration under the Securities Act by virtue of Section 4(a)(2) thereof and Regulation
D thereunder. Each investor gave representations that he, she or it was an “accredited investor” (as defined under
Rule 501 of Regulation D) and that he, she or it was purchasing such securities without a present view toward a distribution of
the securities.
On July 16, 2019, November 29, 2018 and
August 31, 2018, we sold an aggregate of $1.5 million, $550,0000 and $1.65 million, respectively, in principal amount of Company
Notes to certain investors, including Dr. James A. Hayward, our Chairman, Chief Executive Officer and President, certain members
of the board of directors and management team, and certain other accredited investors. The Company Notes are convertible, in whole
or in part, at any time, at the option of the purchasers, into shares of our common stock in an amount determined by dividing the
principal amount of each Company Note, together with any and all accrued and unpaid interest, by the Conversion Price if the price
of the common stock remains at a closing price of $3.50 or more for a period of twenty consecutive trading days. The foregoing
issuances of the Company Notes were exempt from registration under the Securities Act by virtue of Section 4(a)(2) thereof
and Regulation D thereunder. Each of the purchasers represented to the Company that it is an “accredited investor”
as that term is defined in Rule 501 of Regulation D. Holders of such secured convertible notes, including Dr. Hayward and other
directors, officers, and affiliates of the Company, converted substantial portions of such August 2018 Notes and November 2018
Notes into common stock of the Company in September 2019.
On June 28, 2017, we issued and sold 1,025,574
shares of common stock at a price of $1.76 per share for total gross proceeds of $1,805,000 to a group of investors, including
a strategic investor which is also a key customer and intellectual property licensee of the Company as well as all of the Company’s
executive officers and all members of the board of directors. The foregoing issuance of common stock was exempt from registration
under the Securities Act by virtue of Section 4(a)(2) thereof and Regulation D thereunder. Each investor gave representations
that he, she or it was an “accredited investor” (as defined under Rule 501 of Regulation D) and that he, she or it
was purchasing such securities without a present view toward a distribution of the securities.
On November 2, 2016, we issued and sold
2,272,727 shares of common stock and warrants to purchase 2,272,727 shares of common stock to certain investors. The aggregate
gross proceeds were $5.0 million before deducting the placement agents’ fee and other placement expenses. The Underwriter
in this offering acted as the lead placement agent for the November 2, 2016 issuance described in this paragraph and Imperial Capital,
LLC acted as the co-placement agent. The foregoing issuance of common stock and warrants was exempt from registration under the
Securities Act by virtue of Section 4(a)(2) thereof and Regulation D thereunder.
On June 30, 2016, we issued 3,000 shares
of our common stock to a consultant for services provided, pursuant to our 2005 Incentive Stock Plan. The foregoing issuance of
common stock was exempt from registration under the Securities Act by virtue of Section 4(a)(2) of the Securities Act and Regulation
D thereunder.
On March 31, 2016, we issued 3,000 shares
of our common stock to a consultant for services provided, pursuant to our 2005 Incentive Stock Plan. The foregoing issuance of
common stock was exempt from registration under the Securities Act by virtue of Section 4(a)(2) of the Securities Act and Regulation
D thereunder.
|
Item 16.
|
Exhibits and Financial Statement Schedules.
|
(a) Exhibits
The following exhibits are being filed with
this Registration Statement:
3.5
|
Form of Certificate of Designations of the Series A Convertible Preferred Stock
|
8-K
|
3.1
|
002-90539
|
11/29/2012
|
|
3.6
|
Form of Certificate of Designations of the Series B Convertible Preferred Stock
|
8-K
|
3.1
|
002-90539
|
7/22/2013
|
|
3.7
|
By-Laws
|
8-K
|
3.2
|
002-90539
|
1/16/2009
|
|
4.1+
|
Form of common warrant
|
|
|
|
|
|
4.2+
|
Form of pre-funded warrant
|
|
|
|
|
|
4.3+
|
Form of warrant agreement
|
|
|
|
|
|
5.1+
|
Opinion of Pepper Hamilton LLP
|
|
|
|
|
|
10.1†
|
Applied DNA Sciences, Inc. 2005 Incentive Stock Plan and form of employee stock option agreement thereunder, as amended and restated as of January 21, 2015
|
10-K
|
10.1
|
001-36745
|
12/14/2015
|
|
10.2*
|
Joint Development and Marketing Agreement, dated April 18, 2007 by and between Applied DNA Sciences and International Imaging Materials, Inc.
|
8-K
|
10.1
|
002-90539
|
4/24/2007
|
|
10.3†
|
Employment Agreement, dated July 1, 2016, between James A. Hayward and Applied DNA Sciences, Inc.
|
8-K
|
10.1
|
001-36745
|
8/2/2016
|
|
10.4*
|
Exclusive Sales Agreement dated November 1, 2011 by and between Applied DNA Sciences, Inc. and Nissha Printing Co., Ltd.
|
10-Q
|
10.1
|
002-90539
|
2/14/2012
|
|
10.5
|
Software Distribution Agreement, dated as of January 25, 2012, by and between Applied DNA Sciences, Inc. and DivineRune, Inc.
|
10-Q
|
10.1
|
002-90539
|
5/15/2012
|
|
10.6†
|
Form of Indemnification Agreement dated as of September 7, 2012, by and between Applied DNA Sciences, Inc. and each of its directors and executive officers
|
8-K
|
10.1
|
002-90539
|
9/13/2012
|
|
10.7
|
Agreement of Lease dated June 14, 2013, between Applied DNA Sciences, Inc. and Long Island High Technology Incubator, Inc.
|
10-Q
|
10.2
|
002-90539
|
8/13/2013
|
|
10.8
|
Form of Award/Contract issued by U.S. Missile Defense Agency dated July 14, 2014
|
8-K
|
10.1
|
002-90539
|
7/18/2014
|
|
10.9
|
Form of Award/Contract awarded by Office of Secretary of Defense on behalf of Defense Logistics Agency dated August 28, 2014
|
8-K/A
|
10.1
|
002-90539
|
9/8/2014
|
|
10.10
|
Form of Warrant Agreement between Applied DNA Sciences, Inc. and American Stock Transfer & Trust Company, LLC, as warrant agent
|
S-1/A
|
10.25
|
002-90539
|
11/12/2014
|
|
10.11
|
First Amendment to Warrant Agreement dated April 1, 2015 between Applied DNA Sciences, Inc. and American Stock Transfer & Trust Company, LLC as warrant agent
|
8-K
|
4.1
|
001-36745
|
4/1/2015
|
|
10.12
|
Second Amendment to Warrant Agreement dated November 2, 2016
|
8-K
|
10.4
|
001-36745
|
11/3/2016
|
|
10.13
|
Form of Subscription Agreement
|
8-K
|
10.1
|
001-36745
|
6/28/2017
|
|
10.14
|
Form of Convertible Note
|
8-K
|
10.1
|
001-36745
|
12/6/2018
|
|
10.15
|
Registration Rights Agreement, dated November 29, 2018
|
8-K
|
10.2
|
001-36745
|
12/6/2018
|
|
10.16
|
Securities Purchase Agreement, dated November 29, 2018
|
8-K
|
10.3
|
001-36745
|
12/6/2018
|
|
10.17
|
Form of Convertible Note
|
8-K/A
|
10.1
|
001-36745
|
12/10/2018
|
|
10.18
|
Registration Rights Agreement, dated August 31, 2018
|
8-K/A
|
10.2
|
001-36745
|
12/10/2018
|
|
10.19
|
Securities Purchase Agreement, dated August 31, 2018
|
8-K/A
|
10.3
|
001-36745
|
12/10/2018
|
|
10.20
|
Collateral Agency Agreement dated October 19, 2018
|
10/K
|
10.39
|
001-36745
|
12/18/2018
|
|
10.21
|
Security Agreement dated October 19, 2018
|
10/K
|
10.40
|
001-36745
|
12/18/2018
|
|
10.22
|
First Amendment to Security Agreement dated November 26, 2018
|
10/K
|
10.41
|
001-36745
|
12/18/2018
|
|
10.23
|
Guaranty and Security Agreement dated October 19, 2018
|
10/K
|
10.42
|
001-36745
|
12/18/2018
|
|
10.24
|
Intellectual Property Security Agreement dated October 19, 2018
|
10/K
|
10.43
|
001-36745
|
12/18/2018
|
|
10.25
|
Intellectual Property Security Agreement dated October 19, 2018
|
10/K
|
10.44
|
001-36745
|
12/18/2018
|
|
10.26
|
Securities Purchase Agreement, dated August 31, 2018
|
10/K
|
10.45
|
001-36745
|
12/18/2018
|
|
10.27
|
Underwriting Agreement entered into by and between Applied DNA Sciences, Inc. and Maxim Group LLC, as sole underwriter, dated December 21, 2018
|
8/K
|
1.1
|
001-36745
|
12/21/2018
|
|
10.28
|
Form of Warrant
|
8/K
|
4.1
|
001-36745
|
12/21/2018
|
|
10.29
|
Omnibus Amendment Agreement, dated February 26, 2019
|
10/Q
|
10.7
|
001-36745
|
05/09/2019
|
|
10.30
|
First Amendment to Intellectual Property Security Agreement, dated February 26, 2019
|
10/Q
|
10.8
|
001-36745
|
05/09/2019
|
|
10.31
|
First Amendment to Intellectual Property Security Agreement, dated February 26, 2019
|
10/Q
|
10.9
|
001-36745
|
05/09/2019
|
|
10.32**
|
Patent and Know-How License and Cooperation Agreement, dated March 28, 2019
|
10/Q
|
10.10
|
001-36745
|
05/09/2019
|
|
10.33
|
Form of Secured Convertible Note
|
8-K
|
10.1
|
001-36745
|
07/17/2019
|
|
10.34
|
Registration Rights Agreement, dated July 16, 2019 by and among the Company and the investor named on the signature page thereof
|
8-K
|
10.2
|
001-36745
|
07/17/2019
|
|
10.35
|
Securities Purchase Agreement, dated July 16, 2019 by and among the Company and the investor named on the signature page thereof
|
8-K
|
10.3
|
001-36745
|
07/17/2019
|
|
10.36
|
Amendment to Secured Convertible Notes, dated July 16, 2019 by and among the Company and the investors named on the signature page thereof
|
8-K
|
10.4
|
001-36745
|
07/17/2019
|
|
10.37
|
Omnibus Amendment Agreement, dated July 16, 2019 by and among the Company and the parties named on the signature page thereof
|
8-K
|
10.5
|
001-36745
|
07/17/2019
|
|
10.38
|
Asset Purchase Agreement, dated July 29, 2019 by and among LineaRX, Inc. and Vitatex Inc
|
8-K
|
10.1
|
001-36745
|
08/12/2019
|
|
10.39
|
Second Omnibus Amendment Agreement, dated July 19, 2019 by and among the Company, APDN (B.V.I.) Inc., and Delaware Trust Company, as collateral agent for the benefit of the buyers listed on Schedule I thereto
|
10-Q
|
10.7
|
001-36745
|
08/13/2019
|
|
10.40
|
Second Amendment to Intellectual Property Security Agreement, dated July 19, 2019 by the Company in favor of Delaware Trust Company as collateral agent for the secured parties defined therein.
|
10-Q
|
10.7
|
001-36745
|
08/13/2019
|
|
10.41
|
Second Amendment to Intellectual Property Security Agreement, dated July 19, 2019 by APDN (B.V.I.) Inc. in favor of Delaware Trust Company as collateral agent for the secured parties defined therein.
|
10-Q
|
10.7
|
001-36745
|
08/13/2019
|
|
10.42
|
Form of Subscription Agreement between investors and Applied DNA Sciences, Inc., dated August 22, 2019.
|
8-K
|
10.1
|
001-36745
|
08/26/2019
|
|
21.1+
|
Subsidiaries of Applied DNA Sciences, Inc.
|
|
|
|
|
|
23.1
|
Consent of Marcum LLP
|
|
|
|
|
Filed
|
23.3+
|
Consent of Pepper Hamilton LLP (included in Exhibit 5.1)
|
|
|
|
|
|
24.1
|
Power of Attorney (included on the signature page hereto)
|
|
|
|
|
Filed
|
† Indicates a management contract or any compensatory
plan, contract or arrangement.
+ Indicates to be filed by amendment.
* A request for confidentiality has been granted for certain
portions of the indicated document. Confidential portions have been omitted and filed separately with the SEC as required by Rule
24b-2 promulgated under the Exchange Act.
** Portions of the indicated document have been omitted
because the information is both not material and would likely cause competitive harm to the registrant if publicly disclosed. The
omissions have been indicated by bracketed asterisks (“[***]”).
(b) Financial Statement Schedules
All schedules have been omitted because
either they are not required, are not applicable or the information is otherwise set forth in the financial statements and related
notes thereto.
The undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the U.S. Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in
the effective registration statement; and
(iii) To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement; provided, however, that paragraphs (1)(i), (1)(ii) and
(1)(iii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained
in reports filed with or furnished to the Securities and Exchange Commission by the registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That,
for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or
other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus
that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior
to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of
the registration statement or made in any such document immediately prior to such date of first use.
(5) That
for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution
of securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant
to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller
to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule
424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to
by the undersigned registrant;
(iii) The
portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant
or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any
other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(6) The
undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange
Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(7) Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to any charter provision, by law or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933
and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by
the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of such issue.
(8) The
undersigned registrant hereby undertakes that:
(i) For
purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement
as of the time it was declared effective; and
(ii) For
the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Town of Stony Brook, State of New York, on September 18, 2019.
|
APPLIED DNA SCIENCES, INC.
|
|
|
|
|
By:
|
/s/ James A. Hayward
|
|
|
James A. Hayward
|
|
|
President and Chief Executive Officer
|
POWER OF ATTORNEY
Each person whose signature appears below
constitutes and appoints Dr. James A. Hayward and Ms. Beth Jantzen, and each of them, any of whom may act without the joinder of
the other, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for
him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any Registration Statement (including any amendment thereto) for this offering that
is to be effective upon filing pursuant to Rule 462 under the Securities Act and to file the same, with all exhibits thereto, and
all other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully
to all intents and purposes as he or she might or would do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them of their or his or her substitute and substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities
Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature
|
Title
|
Date
|
|
|
|
/s/ James A. Hayward
|
President, Chairman of the Board of Directors and Director
|
September 18, 2019
|
James A. Hayward
|
Chief Executive Officer (Principal Executive Officer)
|
|
|
|
|
/s/ Beth M. Jantzen
|
Chief Financial Officer
|
September 18, 2019
|
Beth M. Jantzen
|
(Principal Financial Officer and Principal Accounting Officer)
|
|
|
|
|
/s/ John Bitzer, III
|
Director
|
September 18, 2019
|
John Bitzer, III
|
|
|
|
|
|
/s/ Robert B. Catell
|
Director
|
September 18, 2019
|
Robert Catell
|
|
|
|
|
|
/s/ Joseph D. Ceccoli
|
Director
|
September 18, 2019
|
Joseph D. Ceccoli
|
|
|
|
|
|
/s/ Charles S. Ryan
|
Director
|
September 18, 2019
|
Charles S. Ryan
|
|
|
|
|
|
/s/ Yacov Shamash
|
Director
|
September 18, 2019
|
Yacov A. Shamash
|
|
|
|
|
|
/s/ Sanford R. Simon
|
Director
|
September 18, 2019
|
Sanford R. Simon
|
|
|
|
|
|
/s/ Elizabeth M. Schmalz Ferguson
|
Director
|
September 18, 2019
|
Elizabeth M. Schmalz Ferguson
|
|
|
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