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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

Commission File Number: 001-36745

Applied DNA Sciences, Inc.

(Exact name of registrant as specified in its charter)

Delaware

59-2262718

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

50 Health Sciences Drive

 

Stony Brook, New York

11790

(Address of principal executive offices)

(Zip Code)

631-240-8800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading
Symbol(s)

    

Name of each exchange on which
registered

Common Stock, $0.001 par value

APDN

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

   Yes        No

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

   Yes        No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

   Yes        No

On May 6, 2022, the registrant had 8,234,320 shares of common stock outstanding.

Applied DNA Sciences, Inc. and Subsidiaries

Form 10-Q for the Quarter Ended March 31, 2022

Table of Contents

    

Page

PART I - FINANCIAL INFORMATION

Item 1 - Condensed Consolidated Financial Statements (unaudited)

2

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

25

Item 4 - Controls and Procedures

25

PART II - OTHER INFORMATION

Item 1 – Legal Proceedings

26

Item 1A – Risk Factors

26

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3 – Defaults Upon Senior Securities

27

Item 4 – Mine Safety Disclosures

27

Item 5 – Other Information

27

Item 6 – Exhibits

28

1

Part I - Financial Information

Item 1 - Financial Statements

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

    

March 31, 

    

September 30, 

2022

2021

ASSETS

(unaudited)

Current assets:

 

  

 

  

Cash and cash equivalents

$

6,512,784

$

6,554,948

Accounts receivable, net of allowance of $39,821 and $29,821 at March 31, 2022 and September 30, 2021, respectively

 

2,587,811

 

2,804,039

Inventories

 

1,410,952

 

1,369,933

Prepaid expenses and other current assets

 

643,968

 

568,881

Total current assets

 

11,155,515

 

11,297,801

Property and equipment, net

 

2,628,697

 

3,023,915

Other assets:

 

 

Deposits

 

95,018

 

95,040

Total assets

$

13,879,230

$

14,416,756

LIABILITIES AND EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable and accrued liabilities

$

3,239,701

$

2,991,343

Deferred revenue

 

393,656

 

281,000

Total current liabilities

 

3,633,357

 

3,272,343

Long term accrued liabilities

 

31,467

 

31,467

Common Warrant liability

2,567,900

Total liabilities

 

6,232,724

 

3,303,810

Commitments and contingencies (Note G)

 

  

 

  

Applied DNA Sciences, Inc. stockholders’ equity:

 

  

 

  

Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively

 

 

Series A Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- issued and outstanding as of March 31, 2022 and September 30, 2021, respectively

 

 

Series B Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- issued and outstanding as of March 31, 2022 and September 30, 2021, respectively

 

 

Common stock, par value $0.001 per share; 200,000,000 shares authorized as of March 31, 2022 and September 30, 2021, 8,234,320 and 7,486,120 shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively

 

8,236

 

7,488

Additional paid in capital

 

298,351,897

 

295,228,272

Accumulated deficit

 

(290,712,648)

 

(284,122,092)

Applied DNA Sciences, Inc. stockholders’ equity:

 

7,647,485

 

11,113,668

Noncontrolling interest

(979)

(722)

Total equity

7,646,506

11,112,946

Total liabilities and equity

$

13,879,230

$

14,416,756

See the accompanying notes to the unaudited condensed consolidated financial statements

2

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended March 31, 

Six Months Ended March 31, 

    

2022

    

2021

    

2022

    

2021

Revenues

 

  

 

  

 

  

 

  

Product revenues

$

408,351

$

965,110

$

1,234,662

$

1,515,207

Service revenues

248,690

151,552

387,963

444,826

Clinical laboratory service revenues

5,490,242

1,554,880

8,690,364

2,327,650

Total revenues

6,147,283

2,671,542

10,312,989

4,287,683

 

Cost of product revenues

469,981

367,331

904,910

638,019

Cost of clinical laboratory service revenues

3,188,817

573,237

5,810,456

818,330

Total cost of product and clinical laboratory service revenues

3,658,798

940,568

6,715,366

1,456,349

Gross profit

2,488,485

1,730,974

3,597,623

2,831,334

Operating expenses:

Selling, general and administrative

3,412,777

3,091,227

8,074,950

6,400,881

Research and development

1,070,041

955,738

2,150,137

1,719,546

Total operating expenses

4,482,818

4,046,965

10,225,087

8,120,427

LOSS FROM OPERATIONS

(1,994,333)

(2,315,991)

(6,627,464)

(5,289,093)

 

  

  

Interest income, net

5,540

13,841

5,813

8,403

Loss on extinguishment of debt

(1,774,662)

Gain on extinguishment of notes payable

839,945

839,945

Transaction cost allocated to warrant liabilities

(391,335)

(391,335)

Unrealized gain on change in fair value of the Common Warrants

782,500

782,500

Other expense, net

(162,169)

(54,873)

(250,222)

(108,733)

 

Loss before provision for income taxes

(1,759,797)

(1,517,078)

(6,480,708)

(6,324,140)

Provision for income taxes

NET LOSS

(1,759,797)

(1,517,078)

(6,480,708)

(6,324,140)

Less: Net loss (income) attributable to noncontrolling interest

1,112

278

257

(2,216)

NET LOSS attributable to Applied DNA Sciences, Inc.

(1,758,685)

(1,516,800)

(6,480,451)

(6,326,356)

Deemed dividend related to warrant modifications

110,105

110,105

NET LOSS attributable to common stockholders

$

(1,868,790)

$

(1,516,800)

$

(6,590,566)

$

(6,326,356)

Net loss per share attributable to common stockholders-basic and diluted

$

(0.23)

$

(0.21)

$

(0.85)

$

(1.00)

Weighted average shares outstanding- basic and diluted

 

8,084,680

 

7,235,031

 

7,783,747

 

6,341,590

See the accompanying notes to the unaudited condensed consolidated financial statements

3

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

Six-Month Period Ended March 31, 2022

Common

Additional

Common

Stock

Paid in

Accumulated

Noncontrolling

    

Shares

    

Amount

    

Capital

    

Deficit

    

Interest

    

Total

Balance, October 1, 2021

 

7,486,120

$

7,488

$

295,228,272

$

(284,122,092)

$

(722)

$

11,112,946

Stock based compensation expense

1,699,920

1,699,920

Options issued in settlement of accrued bonus

300,000

300,000

Net loss

(4,721,766)

855

(4,720,911)

Balance, December 31, 2021

7,486,120

7,488

297,228,192

(288,843,858)

133

8,391,955

Stock based compensation expense

272,915

272,915

Deemed dividend - warrant repricing

110,105

(110,105)

Common stock issued in public offering, net of offering costs

748,200

748

4,091,085

4,091,833

Fair value of warrants issued in connection with public offering

(3,350,400)

(3,350,400)

Net loss

(1,758,685)

(1,112)

(1,759,797)

Balance, March 31, 2022

8,234,320

$

8,236

$

298,351,897

$

(290,712,648)

$

(979)

$

7,646,506

Six Month Period Ended March 31, 2021

Common 

Additional 

    

Common 

Stock 

Paid in 

Accumulated 

Noncontrolling

    

Shares

    

Amount

    

Capital

    

Deficit

    

Interest

    

Total

Balance, October 1, 2020

 

5,142,779

$

5,144

$

275,548,737

$

(269,835,650)

$

(8,725)

$

5,709,506

Exercise of warrants

518,551

519

2,605,010

2,605,529

Fair value of warrants issued in connection with convertible note repayment

1,643,440

1,643,440

Stock based compensation expense

571,498

571,498

Net loss

(4,809,556)

2,494

(4,807,062)

Balance, December 31, 2020

5,661,330

5,663

280,368,685

(274,645,206)

(6,231)

5,722,911

Common stock issued in public offering, net of offering costs

1,810,000

1,810

13,754,697

13,756,507

Exercise of warrants

1,600

2

8,398

8,400

Exercise of options cashlessly

13,190

13

(13)

Stock based compensation expense

649,248

649,248

Net loss

(1,516,800)

(278)

(1,517,078)

Balance, March 31, 2021

7,486,120

$

7,488

$

294,781,015

$

(276,162,006)

$

(6,509)

$

18,619,988

See the accompanying notes to the unaudited condensed consolidated financial statements

4

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended March 31,

    

2022

    

2021

Cash flows from operating activities:

 

  

 

  

Net loss

$

(6,480,708)

$

(6,324,140)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Depreciation and amortization

 

641,615

 

296,793

Loss on extinguishment of convertible notes payable

1,774,662

Gain on extinguishment of notes payable

(839,945)

Unrealized gain on change in fair value of the Common Warrants

(782,500)

Stock-based compensation

 

1,972,835

 

1,220,746

Provision for bad debts

 

10,000

 

19,638

Change in operating assets and liabilities:

 

 

Accounts receivable, net

 

206,227

 

(2,011,761)

Inventories

 

725,965

 

(223,171)

Prepaid expenses and other current assets and deposits

 

(842,071)

 

13,089

Accounts payable and accrued liabilities

 

472,201

 

(1,190,947)

Deferred revenue

 

112,656

 

(160,979)

Net cash used in operating activities

 

(3,963,780)

 

(7,426,015)

Cash flows from investing activities:

 

  

 

  

Purchase of property and equipment

(170,217)

 

(1,139,586)

Net cash used in investing activities

 

(170,217)

 

(1,139,586)

Cash flows from financing activities:

Net proceeds from exercise of warrants

2,613,929

Net proceeds from issuance of common stock and warrants

4,091,833

13,756,507

Repayment of convertible notes

 

 

(1,665,581)

Net cash provided by financing activities

4,091,833

 

14,704,855

Net (decrease) increase in cash and cash equivalents

 

(42,164)

 

6,139,254

Cash and cash equivalents at beginning of period

 

6,554,948

 

7,786,743

Cash and cash equivalents at end of period

$

6,512,784

$

13,925,997

Supplemental Disclosures of Cash Flow Information:

 

  

 

  

Cash paid during period for interest

$

$

Cash paid during period for income taxes

$

$

Non-cash investing and financing activities:

 

  

 

Interest paid in kind

$

$

28,329

Deemed dividend warrant modifications

$

110,105

Property and equipment acquired, and included in accounts payable

$

76,178

$

256,194

Issuance of stock options for payment of accrued bonus

$

300,000

$

Fair value of warrants issued

$

3,350,400

$

1,074,118

See the accompanying notes to the unaudited condensed consolidated financial statements

5

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(unaudited)

NOTE A — NATURE OF THE BUSINESS

Applied DNA Sciences, Inc. (“Applied DNA” or the “Company”) develops and markets DNA-based technology solutions utilizing its LinearDNATM large-scale polymerase chain reaction (“PCR”) based manufacturing platform. The Company’s proprietary platform produces large quantities of DNA for use in the nucleic acid-based in vitro diagnostics and preclinical nucleic-acid based drug development and manufacturing markets (“Biotherapeutic Contract Research and Manufacturing”) and for supply chain security, anti-counterfeiting and anti-theft technology purposes (“Non-Biologic Tagging”). The Company also develops PCR-based molecular in vitro diagnostics for COVID-19 (the “COVID-19 Diagnostic Tests”). In addition, under its wholly owned subsidiary, Applied DNA Clinical Labs, LLC (“ADCL”), the Company is offering a high-throughput turnkey solution for population-scale COVID-19 testing marketed as safeCircleTM. safeCircle utilizes the Company’s COVID-19 Diagnostic Tests and is designed to look for infection within defined populations or communities utilizing high throughput testing methodologies (the “COVID-19 Testing Services”).

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

Interim Financial Statements

The accompanying condensed consolidated financial statements as of March 31, 2022, and for the three and six-month periods ended March 31, 2022 and 2021 are unaudited. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements of Regulation S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six-month periods ended March 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2022. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the fiscal year ended September 30, 2021 and footnotes thereto included in the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission (“SEC”) on December 9, 2021, as amended. To facilitate comparison of information across periods, certain reclassifications have been made to prior year amounts to conform to the current year’s presentation.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, APDN (B.V.I.) Inc., Applied DNA Sciences Europe Limited, and Applied DNA Sciences India Private Limited, ADCL and its majority-owned subsidiary, LineaRx, Inc. (“LRx”). Significant inter-company transactions and balances have been eliminated in consolidation. The condensed consolidated balance sheet as of September 30, 2021 contained herein has been derived from the audited consolidated financial statements as of September 30, 2021 but does not include all disclosures required by GAAP.

Going Concern and Management’s Plan

The Company has recurring net losses. The Company incurred a net loss of $6,480,708 and generated negative operating cash flow of $3,963,780 for the six-month period ended March 31, 2022. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements. The ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business plan, raise capital, and generate revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

The Company’s current capital resources include cash and cash equivalents, accounts receivable and inventories. Historically, the Company has financed its operations principally from the sale of equity and equity-linked securities.

Table of Contents

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(unaudited)

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The most significant estimates include revenue recognition, allowance for doubtful accounts, recoverability of long-lived assets, including the values assigned to property and equipment, fair value calculations for stock-based compensation and warrants, contingencies, and management’s anticipated liquidity. Management reviews its estimates on a regular basis and the effects of any material revisions are reflected in the condensed consolidated financial statements in the period they are deemed necessary. Accordingly, actual results could differ from those estimates.

Revenue Recognition

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), Revenue Recognition (“ASC 606” or “Topic 606”).

The Company measures revenue at the amounts that reflect the consideration to which it is expected to be entitled in exchange for transferring control of goods and services to customers. The Company recognizes revenue either at the point in time or over the period of time that performance obligations to customers are satisfied. The Company’s contracts with customers may include multiple performance obligations (e.g. taggants, maintenance, authentication services, research and development services, etc.). For such arrangements, the Company allocates revenues to each performance obligation based on their relative standalone selling price.

Due to the short-term nature of the Company’s contracts with customers, it has elected to apply the practical expedients under Topic 606 to: (1) expense as incurred, incremental costs of obtaining a contract and (2) not adjust the consideration for the effects of a significant financing component for contracts with an original expected duration of one year or less.

Product Revenues and Authentication Services

The Company’s PCR-produced linear DNA product revenues are accounted for/recognized in accordance with contracts with customers. The Company recognizes revenue upon satisfying its promises to transfer goods or services to customers under the terms of its contracts. These performance obligations are satisfied at the point in time the Company transfers control of the goods to the customer, which in nearly all cases is when title to and risk of loss of the goods transfer to the customer. The timing of transfer of title and risk of loss is dictated by customary or explicitly stated contract terms. The Company invoices customers upon shipment, and its collection terms range, on average, from 30 to 60 days.

Authentication Services

The Company recognizes revenue for authentication services upon satisfying its promises to provide services to customers under the terms of its contracts. These performance obligations are satisfied at the point in time the Company services are complete, which in nearly all cases is when the authentication report is released to the customer.

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(unaudited)

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

Revenue Recognition, continued

Clinical Laboratory Testing Services

The Company records revenue for its clinical laboratory testing service contracts, which includes its COVID-19 Testing Services, upon satisfying its promise to provide services to customers under the terms of its contracts. These performance obligations are satisfied at the point in time that Company services are complete, which in nearly all cases is when the testing results are released to the customer. For those customers with a fixed monthly fee, the revenue is recognized over-time as the services are provided.

Research and Development Services

The Company records revenue for its research and development contracts using the over-time revenue recognition model. Revenue is primarily measured using the cost-to-cost method, which the Company believes best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation.

Revenues are recorded proportionally as costs are incurred. For contracts where the total costs cannot be estimated, revenues are recognized for the actual costs incurred during a period until the remaining costs to complete a contract can be estimated. The Company has elected not to disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

Disaggregation of Revenue

The following table presents revenues disaggregated by our business operations and timing of revenue recognition:

Three Month Period Ended:

March 31, 

March 31, 

    

2022

    

2021

Research and development services (over-time)

$

219,898

$

124,760

Clinical laboratory testing services (point-in-time)

4,331,867

1,425,980

Clinical laboratory testing services (over-time)

1,158,375

128,900

Product and authentication services (point-in-time):

 

 

Supply chain

 

115,463

 

67,057

Asset marking

 

141,657

 

140,169

Diagnostic test kits

180,023

784,676

Total

$

6,147,283

$

2,671,542

8

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(unaudited)

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

Revenue Recognition, continued

    

Six Month Period Ended:

March 31, 

March 31, 

    

2022

    

2021

Research and development services (over-time)

$

325,591

$

388,473

Clinical laboratory testing services (point-in-time)

 

6,205,589

 

2,003,250

Clinical laboratory testing services (over-time)

 

2,484,775

 

324,400

Product and authentication services (point-in-time):

 

 

Supply chain

 

527,295

 

99,999

Asset marking

 

246,895

 

291,927

Diagnostic test kits

 

522,844

 

1,179,634

Total

$

10,312,989

$

4,287,683

Contract balances

As of March 31, 2022, the Company has entered into contracts with customers for which revenue has not yet been recognized. Consideration received from a customer prior to revenue recognition is recorded to a contract liability and is recognized as revenue when the Company satisfies the related performance obligations under the terms of the contract. The Company’s contract liabilities, which are reported as deferred revenue on the condensed consolidated balance sheet, consist almost entirely of research and development contracts where consideration has been received and the development services have not yet been fully performed.

The opening and closing balances of the Company’s contract balances are as follows:

October 1, 

March 31, 

$

    

Balance sheet classification

    

2021

    

2022

    

change

Contract liabilities

 

Deferred revenue

$

281,000

$

393,656

$

112,656

For the three and six-month periods ended March 31, 2022, the Company recognized $3,615 and $17,397 of revenue that was included in Contract liabilities as of October 1, 2021 respectively.

Inventories

Inventories, which consist primarily of raw materials, work in progress and finished goods, are stated at the lower of cost or net realizable value, with cost determined by using the first-in, first-out (FIFO) method.

Property and Equipment

Property and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives. The estimated useful life for computer equipment, lab equipment and furniture is 3 years and leasehold improvements are amortized over the shorter of their useful life or the remaining lease terms.

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(unaudited)

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction.

In its interim financial statements, the Company follows the guidance in ASC 270, “Interim Reporting” and ASC 740 “Income Taxes,” whereby the Company utilizes the expected annual effective tax rate in determining its income tax provisions for the interim periods. That rate differs from U.S. statutory rates primarily as a result of a valuation allowance related to the Company’s net operating loss carryforward as a result of the historical losses of the Company.

Warrant Liabilities

The Company evaluated the Common Warrants in accordance with ASC 480 “Distinguishing Liabilities from Equity” and ASC 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity”, and concluded that due to the terms of the warrant agreement, the instrument does not qualify for equity treatment. As such, the Common Warrants were recorded as a liability on the condensed consolidated balance sheet and measured at fair value at inception and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in the condensed consolidated statement of operations in the period of change.

Offering Costs

The Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A - “Expenses of Offering”. Offering costs consist principally of professional and underwriting fees incurred.  Accordingly, in relation to the registered direct offering (See Note E), offering costs in the aggregate of $498,393 were incurred, of which $98,058 was charged to additional paid in capital, and $391,335 was allocated to the liability classified warrants,and are included in other expense in the accompanying condensed consolidated statement of operations.

Fair Value of Financial Instruments

The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related asset or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.

The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.

For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, who report to the Chief Financial Officer, determine its valuation policies and procedures. The development and determination of the

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(unaudited)

unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department and are approved by the Chief Financial Officer.

As of March 31, 2022, there were no transfers between Levels 1, 2 and 3 of the fair value hierarchy.

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

Level 3 Measurements

Common Warrants: The Common Warrants (as defined in Note E), are recorded at fair value. The fair value for the Common Warrants is estimated using the Monte Carlo simulation model. Significant observable and unobservable inputs include stock price, exercise price, annual risk-free rate, term, likelihood of a fundamental transaction, and expected volatility. An increase or decrease in these inputs could significantly increase or decrease the fair value of the Common Warrants. See Note E.

Net Loss Per Share

The Company presents loss per share utilizing a dual presentation of basic and diluted loss per share. Basic loss per share includes no dilution and has been calculated based upon the weighted average number of common shares outstanding during the period. Dilutive common stock equivalents consist of shares issuable upon the exercise of the Company’s stock options and warrants.

For the three and six-month periods ended March 31, 2022 and 2021, common stock equivalent shares are excluded from the computation of the diluted loss per share as their effect would be anti-dilutive. For the three and six-month periods ended March 31, 2022, the Pre-Funded warrants of 748,200 were considered outstanding in the calculation of loss per share, as the shares underlying the pre-funded warrants are issuable for minimal consideration.

Securities that could potentially dilute basic net income per share in the future were not included in the computation of diluted net loss per share because to do so would have been anti-dilutive for the three and six-month periods ended March 31, 2022 and 2021 are as follows:

    

2022

    

2021

Warrants

 

2,239,963

 

776,518

Stock options

 

1,067,614

 

408,085

Total

 

3,307,577

 

1,184,603

Stock-Based Compensation

The Company accounts for stock-based compensation for employees, directors, and nonemployees in accordance with ASC 718, Compensation (“ASC 718”). ASC 718 requires all share-based payments, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Under the provisions of ASC 718, stock-based compensation costs are measured at the grant date, based on the fair value of the award, and are recognized as expense over the requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s common stock options is estimated using the Black Scholes option-pricing model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life. The Company expenses stock-based compensation by using the straight-line method. In accordance with ASC 740, excess tax benefits realized from the exercise of stock-based awards are classified as cash flows from operating activities. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) are recognized as income tax expense or benefit in the consolidated statements of operations.

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(unaudited)

NOTE B – BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

Concentrations

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and cash equivalents with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. As of March 31, 2022, the Company had cash and cash equivalents of approximately $5.9 million in excess of the FDIC insurance limit.

Two customers accounted for 53%  and 14%, respectively of the Company’s revenues earned from sale of products and services for the three-month period ended March 31, 2022.  One customer accounted for 51% of the Company’s revenues earned from sales of products and services for the six-month period ended March 31, 2022.

The Company’s revenues earned from sale of products and services for the three-month period ended March 31, 2021 included an aggregate of 30% and 21% from two customers, respectively. The Company’s revenues earned from sales of products and services for the six-month period ended March 31, 2021 included an aggregate of 29% and 16% from two customers, respectively.

Two customers accounted for 74% of the Company’s accounts receivable at March 31, 2022 and two customers accounted for 67% of the Company’s accounts receivable at September 30, 2021.

Recent Accounting Standards

In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40).” The objective of this update is to simplify the accounting for convertible preferred stock by removing the existing guidance in ASC 470-20, “Debt: Debt with Conversion and Other Options,” that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. This amendment also further revises the guidance in ASU 260, “Earnings per Share,” to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. The amendments in ASU 2020-06 are effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company does not expect the adoption of ASU 2020-06 to have a significant impact on its consolidated financial statements.

NOTE C — INVENTORIES

Inventories consist of the following:

March 31, 

September 30, 

    

2022

    

2021

(unaudited)

Raw materials

$

1,122,270

$

786,938

Work-in-progress

13,017

Finished goods

 

275,665

 

582,995

Total

$

1,410,952

$

1,369,933

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(unaudited)

NOTE D — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities are as follows:

March 31, 

September 30, 

    

2022

    

2021

(unaudited)

Accounts payable

$

1,437,210

$

2,010,410

Accrued salaries payable

 

892,035

 

655,240

Accrued technology services

583,200

150,000

Other accrued expenses

 

327,256

 

175,693

Total

$

3,239,701

$

2,991,343

NOTE E —CAPITAL STOCK

On February 24, 2022, the Company closed a registered direct offering (the “Offering”) in which, pursuant to the Securities Purchase Agreement dated February 21, 2022 by and between the Company and an institutional investor, the Company issued and sold 748,200 shares of the Company’s Common Stock (“Share”) and 748,200 pre-funded warrants (“Pre-Funded Warrants”) to purchase shares of the Company’s Common Stock.  The Pre-Funded Warrants have an exercise price of $0.0001 per share and were immediately exercisable and can be exercised at any time after their original issuance until such Pre-Funded Warrants are exercised in full.  Each Share was sold at an offering price of $2.80 and each Pre-Funded Warrant was sold at an offering price of $2.7999.  Pursuant to the Securities Purchase Agreement, in a concurrent private placement (together with the Registered Direct Offering, the “Offerings”), the Company issued unregistered warrants (“Common Warrants”) to purchase up to 1,496,400 shares of Common Stock. Each Common Warrant has an exercise price of $2.84 per share, is exercisable six months from the date of issuance and will expire five years from the initial exercise date on August 24, 2027.  The gross proceeds of the offering, before deducting placement agent fees and other offering expenses, were approximately $4.2 million.

After deducting underwriting discounts and commissions and other expenses related to the offering, the aggregate net proceeds were approximately $3.7 million.

Subject to limited exceptions, a holder of a Common Warrant will not have the right to exercise any portion of its Common Warrant 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 (the “Beneficial Ownership Limitation”); provided, however, that upon 61 days’ prior notice to us, the holder may increase the Beneficial Ownership Limitation, provided that in no event shall the Beneficial Ownership Limitation exceed 9.99%.

The exercise price and number of the shares of Common Stock issuable upon the exercise of the Common Warrant 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 Warrant Agreement.  The Common Warrants are recorded as a liability in the condensed consolidated balance sheet and were recorded at fair value and will be marked to market at each period end.  The fair value of the Common Warrants upon issuance was $3,350,400. The fair value of the warrants as of March 31, 2022 was $2,567,900, which resulted in a gain in the change in fair value of Common Warrants of $782,500 for the three and six-month periods ended March 31, 2022. Additionally, the Company allocated $391,335 of transaction costs to the warrant liabilities which is included in the statement of operations.

As a result of this financing, the exercise price of the 458,813 remaining warrants issued during November 2019, 159,000 warrants issued during October 2020 and 100,000 warrants issued during December 2020 was all reduced to an exercise price of $2.80 per share in accordance with the adjustment provision contained in their respective warrant agreements. The incremental change in fair value of these warrants as a result of the triggering event was $110,105 and is recorded as a deemed dividend in the condensed consolidated statement of operations for the three and six-month periods ended March 31, 2022.

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(unaudited)

NOTE F —WARRANTS AND STOCK OPTIONS

Warrants

The following table summarizes the changes in warrants outstanding. These warrants were granted in lieu of cash compensation for services performed or as financing expenses in connection with the sales of the Company’s Common Stock.

Transactions involving warrants (see Note E) are summarized as follows:

Weighted

Average

Exercise

Number of

Price Per

    

Shares

    

Share

Balance at October 1, 2021

 

745,268

$

6.44

Granted

 

2,962,413

 

2.11

Exercised

 

 

Cancelled or expired

 

(719,518)

 

6.16

Balance at March 31, 2022

 

2,988,163

$

2.22

Stock Options

For the six-month period ended March 31, 2022, the Company granted 361,552 options to officers of the Company. These options have a ten-year term and vest immediately. Also, during the six-month period ended March 31, 2022, the Company granted 213,889 options to non-employee board of director members. The options granted to the non-employee board of directors have a ten-year term and vest on the one-year anniversary of the date of grant.

The fair value of options granted during the six-month period ended March 31, 2022, was determined using the Black Scholes Option Pricing Model. For the purposes of the valuation model, the Company used the simplified method for determining the granted options expected lives. The simplified method is used since the Company does not have adequate historical data to utilize in calculating the expected term of options. The fair value for options granted during the six-month period ended March 31, 2022 was calculated using the following weighted average assumptions: stock price $5.57; exercise price $5.90; expected term 5.16 years; dividend yield 0; volatility 143%; and risk-free rate of 1.17%. The weighted average grant date fair value per share for the options granted during the six-month period ended March 31, 2022 was $5.90.

NOTE G — COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space under an operating lease in Stony Brook, New York for its corporate headquarters. The lease is for a 30,000 square foot building. The term of the lease commenced on June 15, 2013 and expired on May 31, 2017, with the option to extend the lease for two additional three-year periods. The Company has exercised its option to extend the lease for one additional three-year period ending May 31, 2019. The base rent during the additional three-year period was $458,098 per annum. In November 2019, the Company extended this lease until January 15, 2020. In addition to the office space, the Company also has 2,200 square feet of laboratory space. On January 20, 2020, the Company entered into an agreement to amend both of these leases, extending the term for the corporate headquarters as well as the laboratory space until January 15, 2021, with a one-year renewal option. In October 2020, the Company exercised the one-year renewal option, extending the term for these leases until January 15, 2022. On February 1, 2002, the Company entered into a new lease for the same facility for an one-year term, expiring January 31, 2023. The base rent during the additional twelve-month period is $589,056 per annum. The Company also has a satellite testing facility in Ahmedabad, India, which occupies 1,108 square feet for a three-year term beginning November 1, 2017. During September 2021, the Company renewed this lease with a new expiration date of August 31, 2022. The base rent is approximately $6,500 per annum. The Company’s total short-term lease obligation as of March 31, 2022 is $497,314.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(unaudited)

NOTE G — COMMITMENTS AND CONTINGENCIES

Operating Leases, continued

The total rent expense for the three and six-month periods ended March 31, 2022 were $146,744 and $289,696, respectively. The total rent expense for the three and six-month periods ended March 31, 2021 were $141,650 and $284,495, respectively.

Employment Agreement

The employment agreement with Dr. James Hayward, the Company’s President and Chief Executive Officer (“CEO”), entered into in July 2016 provides that he will be the Company’s CEO and will continue to serve on the Company’s Board of Directors. The initial term was from July 1, 2016 through June 30, 2017, with automatic one-year renewal periods. On July 28, 2017, the employment agreement was renewed for a successive one-year term and the employment agreement has been renewed for successive one-year terms, most recently as of June 30, 2021. Under the employment agreement, the CEO is eligible for a special aggregate cash incentive bonus of up to $800,000, $300,000 of which is payable if and when annual revenue reaches $8 million, plus an additional $100,000 payable for each additional $2 million of annual revenue in excess of $8 million. Pursuant to the contract, the CEO’s annual salary is $400,000. The Board of Directors, acting in its discretion, may grant annual bonuses to the CEO. The CEO will be entitled to certain benefits and perquisites and will be eligible to participate in retirement, welfare and incentive plans available to the Company’s other employees.

The employment agreement with the CEO also provides that if he is terminated before the end of the initial or a renewal term by the Company without cause or if the CEO terminates his employment for good reason, then, in addition to previously earned and unpaid salary, bonus and benefits, and subject to the delivery of a general release and continuing compliance with restrictive covenants, the CEO will be entitled to receive a pro rata portion of the greater of either (X) the annual bonus he would have received if employment had continued through the end of the year of termination or (Y) the prior year’s bonus; salary continuation payments for two years following termination equal to the greater of (i) three times base salary or (ii) two times base salary plus bonus; company-paid COBRA continuation coverage for 18 months post-termination; continuing life insurance benefits (if any) for two years; and extended exercisability of outstanding vested options (for three years from termination date or, if earlier, the expiration of the fixed option term). If termination of employment as described above occurs within six months before or two years after a change in control of the Company, then, in addition to the above payments and benefits, all of the CEO’s outstanding options and other equity incentive awards will become fully vested and the CEO will receive a lump sum payment of the amounts that would otherwise be paid as salary continuation. In general, a change in control will include a 30% or more change in ownership of the Company.

Upon termination due to death or disability, the CEO will generally be entitled to receive the same payments and benefits he would have received if his employment had been terminated by the Company without cause (as described in the preceding paragraph), other than salary continuation payments.

On October 29, 2021, the Board of Directors amended the existing compensatory arrangement with the CEO to increase his salary to $450,000, effective November 1, 2021. Effective March 7, 2022 the CEO voluntarily reduced his salary to $225,000.

In accordance with the terms of his employment agreement, for the six-month period ended March 31, 2022, the CEO earned a $400,000 bonus as the Company’s year to date revenue was greater than $10 million. The bonus has not yet been paid and is included in accounts payable and accrued liabilities in the condensed consolidated balance sheet.

Litigation

From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. In addition to the estimated loss, the recorded liability includes probable and estimable legal costs associated with the claim or potential claim. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. There is no pending litigation involving the Company at this time.

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Table of Contents

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(unaudited)

NOTE H —FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments at fair value are measured on a recurring basis. Related unrealized gains or losses are recognized in unrealized gain on change in fair value of the Common Warrants in the condensed consolidated statements of operations. For additional disclosures regarding methods and assumptions used in estimating fair values of these financial instruments, see Note B.

The following table presents the fair value of the Company’s financial instruments as of March 31, 2022 and summarizes the significant unobservable inputs in fair value measurement of Level 3 financial assets and liabilities as of March 31, 2022. The Company did not have any assets or liabilities categorized as Level 1 or 2 as of March 31, 2022.

Fair value at

Valuation

Unobservable

Weighted

 

    

March 31, 2022

    

Technique

    

Input

    

Range

    

Average

 

Liabilities:

 

  

 

  

 

  

 

  

  

Common Warrants

$

2,567,900

Monte Carlo simulation

 

Annualized volatility

 

72.38% -
143.91%

125

%

The change in fair value of the Common Warrants for the six-month period ended March 31, 2022 is summarized as follows:

    

Common Warrants

Fair value at issuance February 24, 2022

$

3,350,400

Change in fair value

 

(782,500)

Fair Value at March 31, 2022

$

2,567,900

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Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This Quarterly Report on Form 10-Q (including but not limited to this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are intended to qualify for the “safe harbor” created by those sections. In addition, we may make forward-looking statements in other documents filed with or furnished to the Securities and Exchange Commission (“SEC”), and our management and other representatives may make forward-looking statements orally or in writing to analysts, investors, representatives of the media and others. These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.

Forward-looking statements can generally be identified by the fact that they do not relate strictly to historical or current facts and include, but are not limited to, statements using terminology such as “can”, “may”, “could”, “should”, “assume”, “forecasts”, “believe”, “designated to”, “will”, “expect”, “plan”, “anticipate”, “estimate”, “potential”, “position”, “predicts”, “strategy”, “guidance”, “intend”, “budget”, “seek”, “project” or “continue”, or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future, including risks relating to the continuing outbreak of COVID-19. You should read statements that contain these words carefully because they:

discuss our future expectations;
contain projections of our future results of operations or of our financial condition; and
state other “forward-looking” information.

We believe it is important to communicate our expectations. However, forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry and are subject to known and unknown risks, uncertainties and other factors. Accordingly, our actual results and the timing of certain events may differ materially from those expressed or implied in such forward-looking statements due to a variety of factors and risks, including, but not limited to, those set forth in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report, those set forth from time to time in our other filings with the SEC, including our Annual Report on Form 10-K, for the fiscal year ended September 30, 2021, as amended, and the following factors and risks:

our expectations of future revenues, expenditures, capital or other funding requirements;
the adequacy of our cash and working capital to fund present and planned operations and growth;
the substantial doubt relating to our ability to continue as a going concern;
our business strategy and the timing of our expansion plans;
our expectations concerning product candidates for our technologies;
our expectations concerning existing or potential development and license agreements for third-party collaborations and joint ventures;
our expectations of when different phases of clinical activity may commence and conclude;
the effect of governmental regulations generally;
our expectations of when regulatory submissions may be filed or when regulatory approvals may be received; and

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our expectations of when or if we will become profitable.

Any or all of our forward-looking statements may turn out to be wrong. They may be affected by inaccurate assumptions that we might make or by known or unknown risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in our forward-looking statements. Among the factors that could affect future results are:

the inherent uncertainties of product development based on our new and as yet not fully proven technologies;
the risks and uncertainties regarding the actual effect on humans of seemingly safe and efficacious formulations and treatments when tested clinically;
our LineaTM COVID-19 Assay Kits and COVID-19 testing may become obsolete or suffer a decline in demand for a variety of reasons;
the inherent uncertainties associated with clinical trials of product candidates;
the inherent uncertainties associated with the process of obtaining regulatory clearance or approval to market product candidates;
the inherent uncertainties associated with commercialization of products and/or services that have received regulatory approval;
economic and industry conditions generally and in our specific markets;
The volatility of, and decline in our stock price; and
our ability to obtain the necessary financing to fund our operations and effect our strategic development plan.

All forward-looking statements and risk factors included in this Quarterly Report are made as of the date hereof, in each case based on information available to us as of the date hereof, and we assume no obligations to update any forward-looking statement or risk factor, unless we are required to do so by law. If we do update one or more forward-looking statements, no inference should be drawn that we will make updates with respect to other forward-looking statements or that we will make any further updates to those forward-looking statements at any future time.

Forward-looking statements may include our plans and objectives for future operations, including plans and objectives relating to our products and our future economic performance, projections, business strategy and timing and likelihood of success. Assumptions relating to the forward-looking statements included in this Quarterly Report involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development and commercialization of our technologies, all of which are difficult or impossible to predict accurately and many of which are beyond our control.

Any of the assumptions underlying the forward-looking statements contained in this Quarterly Report could prove inaccurate and, therefore, we cannot assure you that any of the results or events contemplated in any of such forward-looking statements will be realized. Based on the significant uncertainties inherent in these forward-looking statements, the inclusion of any such statement should not be regarded as a representation or as a guarantee by us that our objectives or plans will be achieved, and we caution you against relying on any of the forward-looking statements contained herein.

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Trademarks, Trade Names and Service Marks

Our trademarks currently used in the United States include Applied DNA Sciences®, SigNature® molecular tags, SigNature® T molecular tags, fiberTyping®, DNAnet®, SigNify®, Beacon®, CertainT®, LinearDNA™, Linea™ COVID-19 Diagnostic Assay Kit and safeCircleTM COVID-19 testing. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. All trademarks, service marks and trade names included or incorporated by reference in this Quarterly Report are the property of the respective owners.

Introduction

Applied DNA develops and markets DNA-based technology solutions utilizing its LinearDNATM large-scale polymerase chain reaction (“PCR”) based manufacturing platform. Our proprietary PCR-based DNA LinearDNATM manufacturing platform produces large quantities of DNA for use in nucleic acid-based in vitro medical diagnostics and preclinical nucleic acid-based drug development and manufacturing markets (“Biotherapeutic Contract Research and Manufacturing”) and for supply chain security, anti-counterfeiting and anti-theft technology purposes (“Non-Biologic Tagging”). We also have developed or are developing multiple PCR-based molecular diagnostic test for COVID-19. Our Linea 1.0 COVID-19 Assay Kit was granted EUA by the FDA in May 2020.  However, due to our transition to our Linea 2.0 COVID-19 Assay for our COVID-19 Testing Services, we requested the voluntary withdrawal of our EUA for our Linea 1.0 COVID-19 Assay, which was granted by FDA on April 20, 2022. Our Linea 2.0 COVID-19 Assay currently holds conditional approval from NYSDOH as an LDT and is listed as an authorized test for pooled serial testing under the FDA’s serial testing umbrella EUA dated November 15, 2021. An EUA request for the Linea 2.0 COVID-19 Assay for non-serial testing is currently pending with FDA.. In addition, under our wholly owned subsidiary, ADCL, we offer a high-throughput turnkey solution for population-scale COVID-19 testing marketed as safeCircle. safeCircle is designed to look for infection within defined populations or communities utilizing high throughput PCR-based testing methodologies (the “COVID-19 Testing Services”).

Applied DNA’s LinearDNATM PCR platform is capable of producing large scale DNA, which we believe offers many benefits over the limitations of other large scale DNA manufacturing systems, including:

Speed – Production of DNA via the LinearDNATM platform can be measured in terms of hours, not days and weeks like other large-scale DNA manufacturing platforms.
Scale – The LinearDNATM platform is flexible and can be adapted to encompass large quantity production.
Purity – DNA produced via PCR is pure, resulting in only large quantities of the target DNA sequence. Unwanted DNA sequences such as bacterially derived DNA are not present.
Customization – DNA produced via PCR can be easily chemically modified to suit specific customer applications.

Biotherapeutic Contract Research and Manufacturing

Our patented continuous flow PCR systems and other proprietary PCR-based production technology and post-processing systems that comprise the LinearDNATM platform allows for the large-scale production of specific DNA sequences. The LinearDNATM platform is currently being used for customers to manufacture DNA as components of in vitro diagnostic tests and for preclinical nucleic acid-based drug development in the fields of adoptive cell therapies (CAR T and TCR therapies), DNA vaccines (anti-viral and cancer), RNA therapies, clustered regularly interspaced short palindromic repeats (CRISPR) based therapies and gene therapies. We believe our LinearDNATM platform confers a distinct competitive advantage in cost, cleanliness, and time-to-market as compared to other DNA manufacturing systems.

The Company provides preclinical contract research and manufacturing services for the nucleic acid-based therapeutic markets. We work with biotech and pharmaceutical companies to convert plasmid-based and/or viral transduction-based preclinical biotherapeutics into PCR-produced linear DNA-based forms that can be produced on our LinearDNATM platform. In addition, we provide contract research services to RNA-based drug and biologic customers for preclinical studies. These services include the design, development and manufacture of PCR-produced DNA templates for RNA. In addition, we also use our LinearDNATM platform to produce very large gram-scale quantities of DNA for the in vitro diagnostic market where our DNA is used for both commercially available diagnostics and diagnostics under development.

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We also seek to develop, acquire, and commercialize, ourselves or with partners, a diverse portfolio of nucleic acid-based therapeutics 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 currently directly engaged in preclinical drug candidate development activities focusing on therapeutically relevant DNA constructs manufactured via our LinearDNATM platform in the fields of DNA-based anti-viral and anti-cancer vaccines, RNA therapeutics, CAR T cell immunotherapy and the manufacture of rAAV vectors for gene therapy. The Company is also engaged in preclinical animal drug candidate development activities focusing on therapeutically relevant DNA constructs manufactured via its LinearDNATM platform.

COVID-19 Diagnostic Testing

On May 13, 2020 and subsequently amended, the Company received an EUA from the FDA for the clinical use of the LineaTM 1.0 Assay for the qualitative detection of nucleic acid from SARS-CoV-2 in respiratory specimens.

Due to the emergence and spread of the Omicron BA.1 SARS-CoV-2 Variant of Concern, which may result in false negative results with the Linea 1.0 Assay, the Company received notice from FDA in December 2021 that it must cease the use and sale of the Linea 1.0 Assay as a primary diagnostic for COVID-19 (the “Linea 1.0 FDA Notice”). Subsequently, due to our transition to the Linea 2.0 Assay for our COVID-19 Testing Services, we requested the voluntary withdrawal of the EUA for our Linea 1.0 COVID-19 Assay, which was granted by FDA on April 20, 2022

On November 15, 2021 FDA revised its guidance document titled “Policy for Coronavirus Disease-2019 Tests During the Public Health Emergency (Revised)” (“FDA COVID-19 Testing Guidance”) to require all COVID-19 diagnostic assays conducted as Laboratory-Developed Tests (“LDTs”) to apply for EUA authorization within a 60-day period from the revised guidance’s issuance date. The FDA Guidance provides an exception for certain notified states, who can authorize in-state laboratories to develop and perform COVID-19 tests under the authority of their own State law in instances where the laboratory did not otherwise submit an EUA request to FDA. New York State is a notified state under the current FDA COVID-19 Testing Guidance.

In response to the impact of Omicron BA.1 and the Linea 1.0 FDA Notice, the Company, via its ADCL subsidiary, submitted data supporting the validation of the Linea 2.0 Assay as a laboratory developed test (LDT) to New York State Department of Health (NYSDOH) on December 2, 2021. This process complies with the current FDA COVID-19 Testing Guidance. Conditional approval for the Linea 2.0 Assay as a LDT from the NYSDOH was received on December 30, 2021. The NYSDOH conditional approval included single sample and up to 5-sample pooled testing. Use of the Linea 2.0 Assay under the NYSDOH conditional approval is limited to samples from New York State. In addition, on February 18, 2022, the Linea 2.0 Assay was listed as an authorized molecular test for pooled serial testing under the FDA’s serial testing umbrella EUA dated November 15, 2021 (the “Linea 2.0 Umbrella EUA”). The Linea 2.0 Umbrella EUA authorizes the Linea 2.0 Assay to be utilized on in up to 5-sample pooling on samples originating from all U.S. States when used as part of a serial testing program that utilizes a testing frequency of at least once a week. The Linea 2.0 Assay has not been FDA cleared or approved. The Linea 2.0 Assay is currently used in the Company’s COVID-19 Testing Services.  

The Company currently manufactures the Linea 2.0 Assay at its facilities in Stony Brook.

COVID-19 Testing Services and Clinical Laboratory

We offer high throughput COVID-19 testing services to customers as a Testing-as-a-Service (TaaS) offering branded under the safeCircleTM trademark. safeCircle is a turnkey testing solution that provides for all aspects of large population COVID-19 testing – from sample collection to results reporting – for institutes of higher education, K-12 schools, businesses, and healthcare facilities, among other institutions with large populations. safeCircle utilizes serial, high-sensitivity pooled RT-PCR testing to help prevent virus spread by quickly identifying infections within a community, school, or workplace. Testing is conducted utilizing the Company’s Linea 2.0 Assay or third-party EUA-authorized assays that provides rapid results using real-time PCR (RT-PCR testing) with results returned typically within 24 to 48 hours at the Company’s Clinical Laboratory Evaluation Program (“CLEP”) permitted, CLIA-certified laboratory. For the majority of safeCircle clients, test scheduling and testing result reporting is provided though the CLEARED4 digital health platform owned and operated by Chelsea Health Solutions, LLC.

We currently provide safeCircleTM pooled testing to primary/secondary/higher education institutions, private clients, local governments, and businesses and college athletic programs. The large majority of safeCircle customers are located within New York State.

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On May 10, 2021, ADCL received its New York clinical laboratory permit and its CLIA certification from the NYSDOH, CLEP, which is currently permitted for virology. As part of the Company’s COVID-19 Testing Services its laboratory provides individual COVID-19 testing utilizing the Company’s Linea 2.0 Assay or third-party EUA-authorized COVID-19 diagnostic assays. The Company’s COVID-19 Testing Services also includes pooled surveillance testing that is not regulated by FDA, CDC or CMS.

Non-Biologic Tagging and Security Products and Services

Our supply chain security business allows our customers to use non-biologic DNA (molecular) tags manufactured on our LinearDNATM platform to mark objects in a unique manner and then identify these objects by detecting the absence or presence of the molecular tag. We believe our molecular tags are not economically feasible nor practical to replicate, and that our disruptive tracking platform offers broad commercial relevance across many industry verticals. The Company’s core products include:

SigNature® Molecular Tags produced by the Company’s LinearDNATM platform, provide an approach to authenticate goods within large and complex supply chains for materials such as cotton, and leather, in-home textiles and apparel, pharmaceuticals and nutraceuticals and other products.
SigNify® IF portable DNA readers and SigNify consumable reagent test kits provide definitive real-time authentication of molecular tags in the field, providing a front-line solution for supply chain integrity backed with forensic-level molecular tag authentication. Applied DNA’s software platform enables customers to track materials throughout a supply chain or product life.
CertainT trademark indicates the use of Applied DNA’s tagging, testing and tracking platforms and solutions, enabling manufacturers, brands and trade organizations to convey proof of their product claims.

Plan of Operations

General

Historically, 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. However, most of our near-term growth in revenues has been derived from our validated COVID-19 pooled testing,  our COVID-19 Surveillance Testing and sales of our COVID-19 Assay Kit. We also expect future growth in revenues to be derived from the manufacturing of DNA products for the biotechnology and in vitro diagnostic markets. To a lesser extent, we expect to grow revenues from the sale of 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. We are also seeking to establish a revenue stream from our iCTC Technology. We have continued to incur expenses in expanding our business to meet current and anticipated future demand. We have limited sources of liquidity.

Critical Accounting Policies and Recently Issued Accounting Pronouncements

See Note B to the accompanying unaudited condensed consolidated financial statements for our critical accounting policies and recent accounting pronouncements.

Comparison of Results of Operations for the Three-Month Periods Ended March 31, 2022 and 2021

Revenues

Product revenues

For the three-month periods ended March 31, 2022 and 2021, we generated $408,351 and $965,110 in revenues from product sales, respectively. Product revenues decreased by $556,759 or 58% for the three-month period ended March 31, 2022, as compared to the three-month period ended March 31, 2021. The decrease in product revenues was primarily related to a decrease of approximately $605,000 in sales of our LineaTM COVID-19 Assay Kit, which was attributable to sales pursuant to our contract with Stony Brook University Hospital.   This decrease was offset by an increase of approximately $85,000 in Textiles.  The increase in Textiles revenue was primarily attributable to the shipment of a DNA transfer unit for the tagging of cotton in Egypt.  

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Service revenues

For the three-month periods ended March 31, 2022 and 2021, we generated $248,690 and $151,552 in revenues from sales of services, respectively. The increase in service revenues of $97,138 or 64% for the three-month period ended March 31, 2022, as compared to the same period in the prior fiscal year is attributable to an increase of approximately $106,000 for research and development projects in our biopharmaceutical market.

Clinical laboratory service revenues

For the three-month periods ended March 31, 2022 and 2021 we generated $5,490,242 and $1,554,880 in revenues from our clinical laboratory testing services, respectively. Clinical laboratory testing service revenues increased by $3,935,362, or 253% for the three-month period ended March 31, 2022, as compared to the same period in the prior fiscal year. The increase in revenue is primarily due to an increase in demand for COVID-19 testing services during the three-month period ended March 31, 2022 compared to the same period during fiscal 2021. Of this increase, approximately $3,289,000 in testing services related to our contract with the City University of New York, which commenced during august 2021.

Gross Profit

Gross profit for the three-month period ended March 31, 2022, increased by $757,511 or 44% from $1,730,974, for the three-month period ended March 31, 2021 to $2,488,485. The gross profit percentage was 40% and 65% for the three-month periods ended March 31, 2022 and 2021, respectively. The decline in the gross profit percentage was the result of a significant portion of our clinical laboratory service revenues coming from the testing contracts where we also provide and staff the testing centers, as these contracts have higher costs associated with them as compared to our surveillance testing contracts.  

Costs and Expenses

Selling, General and Administrative

Selling, general and administrative expenses for the three-month period ended March 31, 2022 increased by $321,550 or 10% to $3,412,777 as compared to $3,091,227 for the three-month period ended March 31, 2021. The increase is attributable to an increase in total payroll of approximately $740,000.  The increase in total payroll is due to an increase of approximately $143,000 for regular payroll, as well as the three months ended March 31, 2021 having a reversal of an accrual of approximately $817,000 for an accrued bonus that was forgiven by the CEO.   The increase was also due to an increase in insurance expense of approximately $129,000, which is related to an increase in our Directors and Officers insurance policy premiums.  These increases were offset by a decreases of approximately $376,000 and $169,000 in stock-based compensation and professional fees, respectively.  

Research and Development

Research and development expenses increased to $1,070,041 for the three-month period ended March 31, 2022 from $955,738 for the three-month period ended March 31, 2021, an increase of $114,303 or 12%. This increase is primarily due to an increase in service contracts to support our continued research and development efforts, related to our ongoing animal vaccine study.

Interest income, net

Interest income, net for the three-month periods ended March 31, 2022 and 2021, was $5,540 and$13,841, respectively.

Other expense, net

Other expense for the three-month periods ended March 31, 2022 and 2021, was $162,169 and $54,873, respectively. The increase of $107,296 is due to an increase in franchise tax relating to calendar year 2021.

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Gain on Extinguishment of Notes Payable

Gain on extinguishment of notes payable for the three-month period ended March 31, 2021 of $839,945 relates to the full forgiveness of our Paycheck Protection Program (“PPP”) loan. The gain on extinguishment represents the carrying value of the loan on the forgiveness date.

Transaction cost allocated to warrant liabilities

Transaction cost allocated to warrant liabilities for the three-month period ended March 31, 2022 was $391,335.

Unrealized gain on change in fair value of the Common Warrants

Unrealized gain on change in fair value of Common Warrants for the three-month period ended March 31, 2022 of $782,500 relates to the change in fair value of the Common Warrants issued as part of the Offering (see Note E of the accompanying condensed consolidated financial statements).  The gain on change in fair value represents the difference between the fair value of the Common Warrants on the issuance date compared to the fair value as of March 31, 2022.

Net Loss

Net loss increased $242,719 or 16% to $1,759,757 for the three-month period ended March 31, 2022 compared to $1,517,078 for the three-month period ended March 31, 2021 due to the factors noted above.

Comparison of Results of Operations for the Six-Month Periods Ended March 31, 2022 and 2021

Revenues

Product revenues

For the six-month periods ended March 31, 2022, and 2021, we generated $1,234,662 and $1,515,207 in revenues from product sales, respectively. Product revenues decreased by $280,545 or 19% for the six-month period ended March 31, 2022, as compared to the six-month period ended March 31, 2021. The decrease in product revenues was primarily related to an decrease of approximately $650,000 in sales of our LineaTM COVID-19 Assay Kit, which was attributable to sales pursuant to our contract with Stony Brook University Hospital offset by an increase of $411,000 of sales in the textile market relating to protecting the cotton supply chain, as well as shipment of a DNA transfer unit for the tagging of cotton in Egypt.

Service revenues

For the six-month periods ended March 31, 2022, and 2021, we generated $387,963 and $444,826 in revenues from sales of services, respectively. The decrease in service revenues of $56,863 or 13% for the six-month period ended March 31, 2022, as compared to the same period in the prior fiscal year is attributable to a decrease of approximately $110,000 for research and development projects in our pharmaceutical/nutraceutical markets offset by a $44,000 increase in biopharmaceutical markets.

Clinical laboratory service revenues

For the six-month periods ended March 31, 2022 and 2021 we generated $8,690,364 and $2,327,650 in revenues from our clinical laboratory testing services, respectively. Clinical laboratory testing service revenues increased by $6,362,714, or 273% for the six-month period ended March 31, 2022, as compared to the same period in the prior fiscal year. The increase in revenue is primarily due to an increase in demand for COVID-19 testing services during the first half of fiscal 2022 compared to the same period during fiscal 2021. Of this increase, approximately $5,308,000 in testing services related to our contract with the City University of New York, which began testing in August 2021.

Gross Profit

Gross profit for the six-month period ended March 31, 2022, increased by $766,289 or 27% from $2,831,344 for the six-month period ended March 31, 2021 to $3,597,623. The gross profit percentage was 35% and 66% for the six-month periods ended March 31, 2022

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and 2021, respectively. The decline in the gross profit percentage was the result of a significant portion of our clinical laboratory service revenues coming from the testing contracts where we also provide and staff the test collection centers, as these contracts have higher costs associated with them as compared to our surveillance testing contracts. To a lesser extent this decrease in gross profit percentage was also due to product sales mix, as sales during the six-month period ended March 31, 2021 included a higher volume of sales of our LineaTM COVID-19 Assay Kit, which are at a higher gross margin.

Costs and Expenses

Selling, General and Administrative

Selling, general and administrative expenses for the six-month period ended March 31, 2022 increased by $1,674,069 or 26% to $8,074,950 as compared to $6,400,881 for the six-month period ended March 31, 2021. The increase is primarily attributable to an increase in stock-based compensation expense of $752,000 primarily relating to officer stock option grants that vested immediately, as well as to the annual non-employee board of director grant that vests one-year from the date of grant. The remainder of the increase relates to an increase in insurance expense of approximately $261,000, primarily related to an increase in our Directors and Officers insurance policy premiums and payroll of $764,000.  The increase in total payroll is primarily due to the six-month period ended March 31, 2021 having a reversal of an accrual of approximately $817,000 for an accrued bonus that was forgiven by the CEO.

Research and Development

Research and development expenses increased to $2,150,137 for the six-month period ended March 31, 2022 from $1,719,546 for the six-month period ended March 31, 2021, an increase of $430,591 or 25%. This increase is primarily due to increased outsourced service contracts of approximately $227,000, as well as increased depreciation expense of approximately $141,000 and to a lesser extent payroll expense. These increases were to support our continued research and development efforts, primarily related to our ongoing animal vaccine study, as well as next generation sequencing projects.  

Interest income, net

Interest income, net for the six-month periods ended March 31, 2022 and 2021, was of $5,813 and $8,403, respectively.  

Other expense, net

Other expense, net for the six-month periods ended March 31, 2022 and 2021, was $250,222 and $108,733, respectively. The increase of $141,489 is due to franchise tax associated with calendar year 2021.

Transaction cost allocated to warrant liabilities

Transaction cost allocated to warrant liabilities for the six-month period ended March 31, 2022 was $391,335.

Unrealized gain on change in fair value of the Common Warrants

Unrealized gain on change in fair value of Common Warrants for the six-month period ended March 31, 2022 of $782,500 relates to the change in fair value of the Common Warrants issued as part of the Offering (see Note E of the accompanying condensed consolidated financial statements).  The gain on change in fair value represents the difference between the fair value of the Common Warrants on the issuance date compared to the fair value as of March 31, 2022.

Loss on Extinguishment of Convertible Notes Payable

Loss on extinguishment of convertible notes payable of $1,774,662 for the six-month period ended March 31, 2021 relates to the repayment of convertible notes that were originally issued during July 2019. The loss on extinguishment represents the difference between the fair value of the convertible notes, including the fair value of the replacement warrants issued, on the repayment date compared to its carrying value.

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Gain on Extinguishment of Notes Payable

Gain on extinguishment of notes payable for the six-month period ended March 31, 2021 of $839,945 relates to the full forgiveness of the Company’s PPP loan. The gain on extinguishment represents the carrying value of the loan on the forgiveness date.

Net Loss

Net loss increased $156,568 or 2% to $6,480,708 for the six-month period ended March 31, 2022 compared to $6,324,140 for the six-month period ended March 31, 2021 due to the factors noted above.

Liquidity and Capital Resources

Our liquidity needs consist of our working capital requirements and research and development expenditure funding. As of March 31, 2022, we had working capital of $7,522,158. For the six-month period ended March 31, 2022, we used cash in operating activities of $3,963,780 consisting primarily of our loss of $6,480,708 net with non-cash adjustments of $641,615 in depreciation and amortization charges, an unrealized gain on change in fair value of the Common Warrants of $782,500, $1,972,835 in stock-based compensation expense and $10,000 of bad debt expenses. Additionally, we had a net decrease in operating assets of $90,121 and a net increase in operating liabilities of $584,857. Cash used in investing activities of $170,217 was for the purchase of property and equipment. Cash flows from financing activities of $4,091,833 was from the February 2022 registered direct offering.

We have recurring net losses, which have resulted in a net loss of $6,480,708 and generated negative operating cash flow of $3,963,780 for the six-month period ended March 31, 2022. These factors raise substantial doubt about our ability to continue as a going concern for one year from the issuance of the financial statements. The ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business plan, raise capital, and generate revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Inflation

The effect of inflation on our revenue and operating results was not significant.

Item 3— Quantitative and Qualitative Disclosures About Market Risk.

Information requested by this Item is not applicable as we are electing scaled disclosure requirements available to smaller reporting companies with respect to this Item.

Item 4. — Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2022, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended March 31, 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

25

Part II - Other Information

Item 1. — Legal Proceedings.

None.

Item 1A. — Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K of the Company filed with the SEC on December 9, 2021, as amended, as updated and supplemented below and in subsequent filings. These risk factors could materially harm our business, operating results and financial condition. Additional factors and uncertainties not currently known to us or that we currently consider immaterial also may materially adversely affect our business, financial condition or future results.

The ongoing military conflict between Russia and Ukraine has caused geopolitical instability, economic uncertainty, financial markets volatility and capital markets disruption. Our business, financial condition and results of operations may be materially adversely affected by any negative impact on the capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.

In late February 2022, Russia invaded Ukraine, significantly amplifying already existing geopolitical tensions among Russia and other countries in the region and in the west, including the U.S. Russia’s invasion, the responses of countries and political bodies to Russia’s actions, the larger overarching tensions, and Ukraine’s military response and the potential for wider conflict have resulted in financial market volatility and capital markets disruption, potentially increasing in magnitude, and could have severe adverse effects on regional and global economic markets and international relations. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial.

None.

Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds.

On February 21, 2022, we entered into a securities purchase agreement (“Securities Purchase Agreement”) with an institutional investor (“Purchaser”). Pursuant to the Securities Purchase Agreement, we agreed to sell in a registered direct offering (“Registered Direct Offering”) 1,496,400 shares of our Common Stock, and/or pre-funded warrants (“Pre-Funded Warrants”) to purchase shares of Common Stock to the extent that the Purchaser determines, in its sole discretion, that such Purchaser would beneficially own in excess of 4.99% (or at the Purchaser’s election, 9.99%). The Pre-Funded Warrants have an exercise price of $0.0001 per share and are immediately exercisable and can be exercised at any time after their original issuance until such Pre-Funded Warrants are exercised in full. Each Share was sold at an offering price of $2.80 and each Pre-Funded Warrant is being sold at an offering price of $2.7999 (equal to the purchase price per Share minus the exercise price of the Pre-Funded Warrant). Pursuant to the Securities Purchase Agreement, in a concurrent private placement (together with the Registered Direct Offering, the “Offerings”), we also agreed to issue to the Purchaser unregistered warrants (“Common Warrants”) to purchase up to 1,496,400 shares of Common Stock. Each Common Warrant has an exercise price of $2.84 per share, is exercisable six months from the date of issuance and will expire five years from the initial exercise date.

Roth Capital Partners, LLC (the “Placement Agent”) acted as the exclusive placement agent for the Offerings, pursuant to a placement agency agreement (the “Placement Agreement”), dated February 21, 2022, by and between the Company and the Placement Agent.

The closing of the Offerings took place on February 24, 2022 (the “Closing Date”). The Shares and the Pre-Funded Warrants were offered and sold pursuant to our shelf registration statement on Form S-3 (File No. 333-238557) initially filed with the Securities and Exchange Commission (the “Commission”) on May 21, 2020 and declared effective on June 1, 2020. A prospectus supplement relating to the Registered Direct Offering was filed with the Commission on February 23, 2022. None of the Common Warrants or the shares of Common Stock issuable upon the exercise of the Common Warrants are registered under the Securities Act of 1933 as amended (the “Securities Act”). The Common Warrants and shares of Common Stock issuable upon exercise thereof were issued in reliance on the exemptions from registration provided by Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder for transactions not involving a public offering.

26

The net proceeds from the Offerings were approximately $3.7 million. Net proceeds are what we received after paying the placement agent’s fees and other expenses of the offering. The net proceeds exclude the proceeds, if any, from the exercise of the Pre-funded Warrants and the Common Warrants sold in the Offerings.

We intend to use the net proceeds received from the Offerings for general corporate purposes, including working capital, and to advance the adoption of our LinearDNA™ manufacturing platform. The actual allocation of proceeds realized from the Offerings will depend upon our operating revenues and cash position and our working capital requirements.

Item 3. — Defaults Upon Senior Securities.

None.

Item 4. — Mine Safety Disclosures.

Not applicable.

Item 5. — Other Information.

None.

27

Item 6. — Exhibits.

Incorporated by Reference to SEC Filing

Filed with

Exhibit

Exhibit

this Form

No.

    

Filed Exhibit Description

    

Form

    

No.

    

File No.

    

Date Filed

    

10-Q

3.1

Conformed version of Certificate of Incorporation of Applied DNA Sciences, Inc., as most recently amended by the Fifth Certificate of Amendment, effective Thursday, September 17, 2020

S-8

4.1

333-249365

10/07/2020

3.2

By-Laws

8-K

3.2

002-90539

01/16/2009

4.1

Form of Pre-Funded Common Stock Purchase Warrant

8-K

4.1

002-90539

02/22/2022

4.2

Form of Common Stock Purchase Warrant

8-K

4.2

002-90539

02/22/2022

10.2

Form of Placement Agency Agreement by and between Applied DNA Sciences, Inc. and Roth Capital Partners, LLC, dated February 21, 2022.

8-K

10.1

002-90539

02/22/2022

10.3

Form of Securities Purchase Agreement.

8-K

10.2

002-90539

02/22/2022

31.1**

Certification of Chief Executive Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

31.2**

Certification of Chief Financial Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

32.1**

Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

32.2**

Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

101 INS*

XBRL Instance Document

X

101 SCH*

XBRL Taxonomy Extension Schema Document

X

101 CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

X

101 DEF*

XBRL Taxonomy Extension Definition Linkbase Document

X

101 LAB*

XBRL Extension Label Linkbase Document

X

* Filed herewith

** Furnished herewith

Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act or the Exchange Act, except as otherwise stated in any such filing.

28

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Applied DNA Sciences, Inc.

 

 

Dated: May 12, 2022

/s/ JAMES A. HAYWARD

 

James A. Hayward, Ph.D.

 

Chief Executive Officer

 

(Duly authorized officer and principal executive officer)

 

 

 

/s/ BETH JANTZEN

Dated: May 12, 2022

Beth Jantzen, CPA

 

Chief Financial Officer

 

(Duly authorized officer and principal financial and accounting officer)

29

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