Bnb Plus Corp 10-Q for FY2025 Q1
Bnb Plus Corp. (BNBX)
About this 10-Q
Bnb Plus Corp filed this 10-Q on February 13, 2025, covering the quarter ended December 31, 2024 (FY2025 Q1).
Headline figures
Quarter ended December 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.2M
- up 34.3% from $891.16K a year earlier
- Net loss
- $2.64M
- compared with a net loss of $1.11M a year earlier
- Diluted EPS
- -$0.56
- compared with -$1.73 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
|
|
| |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class |
| Trading |
| Name of each exchange on which |
| | The |
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.
☒
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).
☒
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 ☐ |
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).
On February 11, 2024, the registrant had
Applied DNA Sciences, Inc. and Subsidiaries
Form 10-Q for the Quarter Ended December 31, 2024
Table of Contents
|
| Page |
| | |
| | |
Item 1 - Condensed Consolidated Financial Statements (unaudited) | | 1 |
| | |
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 20 |
| | |
Item 3 - Quantitative and Qualitative Disclosures About Market Risk | | 31 |
| | |
| 31 | |
| | |
| | |
| | |
| 32 | |
| | |
| 32 | |
| | |
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds | | 32 |
| | |
| 32 | |
| | |
| 32 | |
| | |
| 32 | |
| | |
| 33 |
Part I - Financial Information
Item 1 - Financial Statements
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
| December 31, |
| September 30, | ||
| | 2024 | | 2024 | ||
ASSETS | | (unaudited) | | | | |
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | | | $ | |
Accounts receivable, net of allowance for credit losses of $ | |
| | |
| |
Inventories | |
| | |
| |
Prepaid expenses and other current assets | |
| | |
| |
Total current assets | |
| | |
| |
| | | | | | |
Property and equipment, net | |
| | |
| |
Other assets: | |
| | |
| |
Restricted cash | | | | | | |
Intangible assets | | | | | | |
Operating right of use asset | | | | | | |
Total assets | | $ | | | $ | |
| | | | | | |
LIABILITIES AND EQUITY | |
|
| |
|
|
| | | | | | |
Current liabilities: | |
| | |
|
|
Accounts payable and accrued liabilities | | $ | | | $ | |
Operating lease liability, current | | | | | | |
Deferred revenue | |
| | |
| |
Total current liabilities | |
| | |
| |
| | | | | | |
Long term accrued liabilities | |
| | |
| |
Deferred revenue, long term | | | | | | |
Operating lease liability, long term | | | | | | |
Deferred tax liability, net | | | | | | |
Warrants classified as a liability | | | | | | |
Total liabilities | |
| | |
| |
| | | | | | |
Commitments and contingencies (Note G) | |
|
| |
|
|
| | | | | | |
Applied DNA Sciences, Inc. stockholders’ equity: | |
|
| |
|
|
Preferred stock, par value $ | |
| |
| ||
Series A Preferred stock, par value $ | |
| |
| ||
Series B Preferred stock, par value $ | |
| |
| ||
| | | | | | |
Common stock, par value $ | |
| | |
| |
Additional paid in capital | |
| | |
| |
Accumulated deficit | |
| ( | |
| ( |
Applied DNA Sciences, Inc. stockholders’ equity | |
| | |
| |
Noncontrolling interest | | | ( | | | ( |
Total equity | | | | | | |
| | | | | | |
Total liabilities and equity | | $ | | | $ | |
See the accompanying notes to the unaudited condensed consolidated financial statements
1
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | Three Months Ended December 31, | ||||
|
| 2024 |
| 2023 | ||
Revenues |
| |
|
| |
|
Product revenues | | $ | | | $ | |
Service revenues | | | | | | |
Clinical laboratory service revenues | | | | | | |
Total revenues | | | | | | |
| |
| | | | |
Cost of product revenues | | | | | | |
Cost of clinical laboratory service revenues | | | | | | |
Total cost of revenues | | | | | | |
| | | | | | |
Gross profit | | | | | | |
| | | | | | |
Operating expenses: | | | | | | |
Selling, general and administrative | | | | | | |
Research and development | | | | | | |
Total operating expenses | | | | | | |
| | | | | | |
LOSS FROM OPERATIONS | | | ( | | | ( |
| |
|
| | |
|
Interest income | | | | | | |
Unrealized gain on change in fair value of warrants classified as a liability | | | | | | |
Other expense, net | | | ( | | | ( |
| |
| | | | |
Loss before provision for income taxes | | | ( | | | ( |
| | | | | | |
Provision for income taxes | | | — | | | — |
| | | | | | |
NET LOSS | | $ | ( | | $ | ( |
| | | | | | |
Less: Net loss attributable to noncontrolling interest | | | | | | |
NET LOSS attributable to Applied DNA Sciences, Inc. | | $ | ( | | $ | ( |
Deemed dividend related to warrant modifications | | | ( | | | ( |
NET LOSS attributable to common stockholders | | $ | ( | | $ | ( |
Net loss per share attributable to common stockholders-basic and diluted | | $ | ( | | $ | ( |
| | | | | | |
Weighted average shares outstanding- basic and diluted | |
| | |
| |
See the accompanying notes to the unaudited condensed consolidated financial statements
2
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| | Three-Month Period ended December 31, 2023 | |||||||||||||||
| | | | Common | | Additional | | | |
| | | | | | ||
| | Common | | Stock | | Paid in | | Accumulated | | Noncontrolling | | | |||||
|
| Shares |
| Amount |
| Capital |
| Deficit |
| Interest |
| Total | |||||
Balance, October 1, 2023 |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
Exercise of warrants, cashlessly | | | | | | | | ( | | | — | | | — | | | — |
Stock based compensation expense |
| — | |
| — | |
| | |
| — | | | — | |
| |
Common stock issued in ATM, net of offering costs | | | | | | | | | | | — | | | — | | | |
Deemed dividend - warrant repricing | | — | | | — | | | | | | ( | | | — | | | — |
Net loss | | — | | | — | | | — | | | ( | | | ( | | | ( |
Balance, December 31, 2023 | | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
| | Three-Month Period ended December 31, 2024 | |||||||||||||||
| | | | Common | | Additional | | | | | | | | | | ||
| | Common | | Stock | | Paid in | | Accumulated | | Noncontrolling | | | |||||
|
| Shares |
| Amount |
| Capital |
| Deficit |
| Interest |
| Total | |||||
Balance, October 1, 2024 |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
Exercise of warrants | | | | | | | | | | | — | | | — | | | |
Exercise of warrants, cashlessly | | | | | | | | ( | | | — | | | — | | | — |
Stock based compensation expense | | — | | | — | | | | | | — | | | — | | | |
Common stock and pre-funded warrants issued in registered direct offering, net of offering costs | | | | | | | | | | | — | | | — | | | |
Deemed dividend - warrant repricing | | — | | | — | | | | | | ( | | | — | | | — |
Net Loss | | — | | | — | | | — | | | ( | | | ( | | | ( |
Balance December 31, 2024 | | | | | | | | | | | ( | | | ( | | | |
See the accompanying notes to the unaudited condensed consolidated financial statements
3
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | Three Months Ended December 31, | ||||
|
| 2024 |
| 2023 | ||
Cash flows from operating activities: |
| |
|
| |
|
Net loss | | $ | ( | | $ | ( |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | |
|
|
Depreciation and amortization | |
| | |
| |
Loss on write-off of property and equipment | | | | | | — |
Unrealized gain on change in fair value of warrants classified as a liability | | | ( | | | ( |
Stock-based compensation | |
| | |
| |
Change in provision for bad debts | |
| | |
| — |
Change in operating assets and liabilities: | | | | | | |
Accounts receivable | | | ( | | | ( |
Inventories | | | ( | | | ( |
Prepaid expenses, other current assets and deposits | | | | | | ( |
Accounts payable and accrued liabilities | | | ( | | | ( |
Deferred revenue | | | | | | |
| | | | | | |
Net cash used in operating activities | |
| ( | |
| ( |
| | | | | | |
Cash flows from investing activities: | |
| | |
|
|
Purchase of property and equipment | | | ( | | | — |
Net cash used in investing activities | | | ( | | | — |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Net proceeds from exercise of warrants | | | | | | — |
Net proceeds from issuance of common stock | | | | | | |
Capitalized transaction costs | | | — | | | ( |
| | | | | | |
Net cash provided by (used in) financing activities | | | | | | ( |
| | | | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | | | | | ( |
Cash, cash equivalents and restricted cash at beginning of period | | | | | | |
Cash, cash equivalents and restricted cash at end of period | | $ | | | $ | |
| | | | | | |
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: | | | | | | |
Transaction costs included in accounts payable | | $ | | | $ | |
Deemed dividend warrant modifications | | $ | | | $ | |
Warrants issued, cashlessly | | $ | | | $ | — |
Property and equipment acquired and included in accounts payable | | $ | | | $ | — |
See the accompanying notes to the unaudited condensed consolidated financial statements
4
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE A — NATURE OF THE BUSINESS
Applied DNA Sciences, Inc. (“Applied DNA” or the “Company”) is a biotechnology company developing and commercializing technologies to produce and detect deoxyribonucleic acid (“DNA”) and ribonucleic acid (“RNA”). Using polymerase chain reaction (“PCR”) to enable the production and detection of DNA and RNA, as of December 31, 2024, the Company operated in
On April 24, 2024, the Company filed a Certificate of Amendment of its Certificate of Incorporation with the Secretary of State of the State of Delaware that effected a -for-twenty (1:20) reverse stock split of its common stock, par value $
NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Interim Financial Statements
The accompanying condensed consolidated financial statements as of December 31, 2024, and for the three-month periods ended December 31, 2024, and 2023 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-month period ended December 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2025. 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, 2024 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 17, 2024. The condensed consolidated balance sheet as of September 30, 2024 contained herein has been derived from the audited consolidated financial statements as of September 30, 2024 but does not include all disclosures required by GAAP.
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 India Private Limited, Applied DNA Clinical Labs, LLC (“ADCL”), Spindle Biotech, Inc., Applied DNA Sciences Europe Limited (which currently has no operations) and its majority-owned subsidiary, LineaRx, Inc. (“LRx”). Significant inter-company transactions and balances have been eliminated in consolidation.
5
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued
Going Concern and Management’s Plan
The Company has recurring net losses. The Company incurred a net loss of $
The Company’s current capital resources include cash and cash equivalents. Historically, the Company has financed its operations principally from the sale of equity and equity-linked securities.
Use of Estimates
The preparation of the financial statements in conformity with Accounting Principles Generally Accepted in the United States of America (“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, recoverability of long-lived assets, including the values assigned to intangible assets, fair value calculations for 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 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 Codifications (“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
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.
6
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued
Revenue Recognition, continued
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.
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 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: | ||||
| | December 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Research and development services (over-time) | | $ | | | $ | |
Clinical laboratory testing services (point-in-time) | | | | | | |
Clinical laboratory testing services (over-time) | | | | | | |
Product and authentication services (point-in-time): | |
| | |
| |
Supply chain | |
| | |
| |
Large Scale DNA Production | | | — | | | — |
Asset marking | |
| — |
| | |
Total | | $ | | | $ | |
7
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued
Revenue Recognition, continued
Contract balances
As of December 31, 2024, 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 shipments within the DNA Tagging and Security Products and Services segment where the products have been shipped, but the performance obligations have not yet been fully performed.
The opening and closing balances of the Company’s contract balances are as follows:
| | | | October 1, | | December 31, | | $ | |||
|
| Balance sheet classification |
| 2024 |
| 2024 |
| change | |||
Contract liabilities |
| Deferred revenue | | $ | | | $ | | | $ | |
For the three-month period ended December 31, 2024, the Company recognized $
Cash, Cash Equivalents, and Restricted Cash
For the purpose of the accompanying condensed consolidated financial statements, all highly liquid investments with a maturity of three months or less from when purchased are considered to be cash equivalents. The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows.
|
| December 31, |
| September 30, | ||
| | 2024 | | 2024 | ||
Cash and cash equivalents | | $ | | | $ | |
Restricted cash | |
| | |
| |
Total cash, cash equivalents and restricted cash | | $ | | | $ | |
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.
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, restricted stock units and warrants.
Securities that could potentially dilute basic net loss per share in the future that were not included in the computation of diluted net loss per share because to do so would have been anti-dilutive for the three-month periods ended December 31, 2024 and 2023 are as follows:
|
| 2024 |
| 2023 |
Warrants | | | | |
Restricted Stock Units | | — | | |
Stock options | | | | |
Total | | | | |
8
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued
Warrant Liabilities
The Company evaluates its issued 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 certain of its warrant agreements, the instruments do not qualify for equity treatment. As such, the Common Warrants, Series A Warrants and Private 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.
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 December 31, 2024, the Company had cash and cash equivalents of approximately $
The Company’s revenues earned from sale of products and services for the three -month period ended December 31, 2024 included an aggregate of
The Company’s revenues earned from sale of products and services for the three -month period ended December 31, 2023 included an aggregate of
Segment Reporting
The Company has
Therapeutic DNA Production Services — Segment operations consist of the enzymatic manufacture of synthetic DNA for use in the production of nucleic acid - based therapeutics, the development and sale of a proprietary RNAP for use in the production of mRNA therapeutics, and large-scale manufacture of linear DNA for use in diagnostics.
MDx Testing Services— Segment operations consist of performing and developing clinical molecular diagnostic and genetic tests and clinical laboratory testing services. Under the Company’s MDx Testing Services, ADCL offers pharmacogenomics testing services that were approved by the New York State Department of Health (“NYSDOH”) during June 2024.
DNA Tagging and Security Products and Services — Segment operations consist of the manufacture and detection of DNA for industrial supply chain security services.
The Company evaluates the performance of its segments and allocates resources to them based on revenues and operating income (losses). Operating income (loss) includes intersegment revenues, as well as a charge allocating all corporate headquarters costs. Since each vertical has shared employee resources, payroll and certain other general expenses such as rent, and utilities were allocated based on an estimate by management of the percentage of employee time spent in each vertical. Segment assets are not reported to, or used by, the CODM to allocate resources to, or assess performance of, the segments and therefore, total segment assets have not been disclosed.
9
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued
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 — Unadjusted 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, which reports to the Chief Financial Officer, determine its valuation policies and procedures. The development and determination of the 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 December 31, 2024, there
10
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued
Recent Accounting Standards
In December 2023, the FASB issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, that enhances the transparency of income tax disclosures by expanding annual disclosure requirements related to the rate reconciliation and income taxes paid. The guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and should be applied prospectively with the option of retrospective application. The Company is currently evaluating the impact of adopting this ASU on its disclosures.
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure.” The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. These disclosures are required quarterly. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with early adoption permitted. The Company adopted this ASU as of October 1, 2024 and updated its segment reporting disclosures accordingly for the three-month periods ended December 31, 2024 and 2023.
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 were effective for the Company beginning October 1, 2024. The adoption of ASU 2020-06 did not have a significant impact on the Company’s condensed consolidated financial statements.
NOTE C — INVENTORIES
Inventories consist of the following:
| | December 31, | | September 30, | ||
|
| 2024 |
| 2024 | ||
| | (unaudited) | | | | |
Raw materials | | $ | | | $ | |
Work-in-progress | | | | | | |
Finished goods | |
| | |
| |
Total | | $ | | | $ | |
11
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE D — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are as follows:
| | December 31, | | September 30, | ||
|
| 2024 |
| 2024 | ||
| | (unaudited) | | | | |
Accounts payable | | $ | | | $ | |
Accrued salaries payable | |
| | |
| |
Other accrued expenses | |
| | |
| |
Total | | $ | | | $ | |
NOTE E — CAPITAL STOCK
Registered Direct Offering and Concurrent Private Placement
On October 31, 2024, the Company closed a registered direct offering (the “October Registered Direct Offering”) in which, pursuant to the Securities Purchase Agreement dated October 30, 2024 (the “October Purchase Agreement”), by and between the Company and certain institutional investors (the “October Purchasers”), the Company issued and sold
The Company received net proceeds from the October Offering, after deducting placement agent fees and other offering expenses payable by the Company, of approximately $
The exercisability of the October Series Warrants and the Placement Agent Warrants (as defined below) will be available only upon receipt of such stockholder approval (“Warrant Stockholder Approval”) as may be required by the applicable rules and regulations of The Nasdaq Stock Market LLC. Each October Series C Warrant has an exercise price of $
Pursuant to that certain engagement letter, dated August 23, 2024, by and between the Company and Craig-Hallum, the Company agreed to pay Craig-Hallum a cash placement fee equal to
12
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE E — CAPITAL STOCK, continued
Registered Direct Offering and Concurrent Private Placement, continued
The Company agreed to hold a special meeting of stockholders to obtain the Warrant Stockholder Approval no later than 90 days after the closing of the Offering (the “Special Meeting”). If the Company does not obtain Warrant Stockholder Approval at the first meeting, the Company is obligated to call a meeting every ninety days thereafter to seek Warrant Stockholder Approval until the earlier of the date on which Warrant Stockholder Approval is obtained or the October Series C Warrants and October Series D Warrants are no longer outstanding. The Company agreed to file a preliminary proxy statement with respect to obtaining Warrant Stockholder Approval at the Special Meeting within 20 days following the closing date of the October Purchase Agreement, and filed such preliminary proxy statement with the Securities and Exchange Commission (“SEC”) on November 14, 2024. Pursuant to a definitive proxy statement filed with the SEC on December 10, 2024, the Company held its Special Meeting of stockholders on January 23, 2025 to obtain Warrant Stockholder Approval. At the Special Meeting less than a quorum of the Company’s common stock was present and thus no action could be taken with respect to Warrant Stockholder Approval. The Special Meeting was adjourned until February 14, 2025 to permit additional solicitation of stockholders and to allow stockholders additional time to vote on Warrant Stockholder Approval.
Under the alternate cashless exercise option of the October Series D Warrants, the holder of an October Series D Warrant, has the right to receive an aggregate number of shares equal to the product of (x) the aggregate number of shares of Common Stock that would be issuable upon a cash exercise of the October Series D Warrant and (y)
The October Series Warrants and the Placement Agent Warrants are not registered under the Securities Act of 1933, as amended (the “Securities Act”). The October Series Warrants and the Placement Agent Warrants were issued, and the shares of Common Stock issuable upon exercise thereof will be issued (unless an effective registration statement is available), 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.
Pursuant to the October Purchase Agreement, within
13
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE E — CAPITAL STOCK, continued
Registered Direct Offering and Concurrent Private Placement, continued
In the event of any fundamental transaction, as described in the October Warrants and generally including any merger with or into another entity, sale of all or substantially all of the Company’s assets, tender offer or exchange offer, reclassification of the shares of Common Stock, or the acquisition of greater than 50% of the Company’s then outstanding shares of Common Stock by a person or persons, subject to certain exceptions, then upon any subsequent exercise of an October Warrant, the holder will have the right to receive as alternative consideration, for each share of Common Stock that would have been issuable upon such exercise immediately prior to the occurrence of such fundamental transaction, the number of shares of Common Stock of the successor or acquiring corporation of the Company, if it is the surviving corporation, and any additional consideration receivable upon or as a result of such transaction by a holder of the number of shares of Common Stock for which the October Warrant is exercisable immediately prior to such event. Notwithstanding the foregoing, in the event of a fundamental transaction, the holders of the October Warrants have the right to require the Company or a successor entity to purchase the October Warrants for cash in the amount of the Black Scholes Value (as defined in the October Warrants) of the unexercised portion of the October Warrants concurrently with or within 30 days following the consummation of a fundamental transaction. However, in the event of a fundamental transaction which is not in the Company’s control or in which the consideration payable consists of equity securities of a successor entity that is quoted or listed on a nationally recognized securities exchange, the holders of the October Warrants will only be entitled to receive from the Company or its successor entity, as of the date of consummation of such fundamental transaction the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of the October Warrants that is being offered and paid to the holders of Common Stock in connection with the fundamental transaction, whether that consideration is in the form of cash, stock or any combination of cash and stock, or whether the holders of Common Stock are given the choice to receive alternative forms of consideration in connection with the fundamental transaction.
14
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE E — CAPITAL STOCK, continued
Amendment to May 2024 Series A Warrants
On October 30, 2024, the Company entered into amendments (the “Warrant Amendments”) with certain holders of an aggregate of
In connection with the October Registered Direct Offering, the Price Reset Mechanism in the May 2024 Series A Warrants was triggered, which resulted in the number of shares of Common Stock issuable upon exercise of the May 2024 Series A Warrants increasing from
Nasdaq Minimum Bid Price Requirement Deficiency Notification
On November 12, 2024, the Company received written notice (the “Notification Letter”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it is not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of thirty (30) consecutive business days (collectively, the “Bid Price Rule”). Based on the closing bid price of the Company’s Common Stock for the thirty-one (31) consecutive business days from September 27, 2024 to November 11, 2024, the Company no longer meets the requirements of the Bid Price Rule. The Notification Letter does not impact the Company’s listing on The Nasdaq Capital Market at this time. The Notification Letter states that the Company has 180 calendar days, or until May 12, 2025, to regain compliance with the Bid Price Rule. To regain compliance, the bid price of the Company’s Common Stock must have a closing bid price of at least $1.00 per share for a minimum of ten (10) consecutive business days, with a longer period potentially required by the staff of Nasdaq (the “Staff”). If the Company does not regain compliance with the Bid Price Rule by May 12, 2025, the Company may be eligible for an additional 180 calendar day compliance period. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Bid Price Rule, and would need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary, no later than ten (10) business days prior to May 12, 2025.
However, if it appears to the Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq would notify the Company that its securities would be subject to delisting. In the event of such a notification, the Company may appeal the Staff’s determination to delist its securities, but there can be no assurance the Staff would grant the Company’s request for continued listing.
15
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE E — CAPITAL STOCK, continued
Nasdaq Minimum Bid Price Requirement Deficiency Notification, continued
Pursuant to the October Purchase Agreement, the Company is required to effect a reverse stock split of its outstanding shares of Common Stock if, after the Stockholder Approval Date, it is not in compliance with Nasdaq’s Bid Price Rule and has received a deficiency letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (the “Reverse Stock Split”). The Company must effect the Reverse Stock Split within 30 days of the Stockholder Approval Date; provided that if within such 30 day period the Company regains compliance with the Bid Price Rule, the Company shall have no obligation to effect the Reverse Stock Split. The Company intends to implement a reverse stock split of its outstanding securities to regain compliance with the Bid Price Rule and to comply with the provisions of the October Purchase Agreement.
NOTE F —WARRANTS
Warrants
The following table summarizes the changes in warrants outstanding. These warrants were granted as part of financing transactions, as well as in lieu of cash compensation for services performed or as financing expenses in connection with the sales of the Company’s common stock.
| | | | Weighted | |
| | | | Average | |
| | | | Exercise | |
| | Number of | | Price Per | |
|
| Shares |
| Share | |
Balance at October 1, 2024 | | | | $ | |
Granted | | | |
| |
Exercised | | ( | |
| |
Cancelled or expired | | ( | |
| |
Balance at December 31, 2024 | | | | $ | |
During the three-month period ended December 31, 2024,
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
16
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE G — COMMITMENTS AND CONTINGENCIES continued
Employment Agreement
The employment agreement with Dr. James Hayward, the Company’s 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 (“Board of Directors”). The initial term was from July 1, 2016 through June 30, 2017, with automatic
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 $
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.
17
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE H – SEGMENT INFORMATION
As detailed in Note B above, the Company currently has
Information regarding operations by segment for the three-month period ended December 31, 2024 is as follows:
| | Therapeutic DNA | | MDx Testing | | DNA Tagging and | |
| | |||
|
| Production |
| Services and Kits |
| Security Products |
| Consolidated | ||||
Revenues: |
| |
|
| |
|
| |
|
| |
|
Product revenues | | $ | | | $ | — | | $ | | | $ | |
Service revenues | |
| | |
| — | |
| | | $ | |
Clinical laboratory service revenues | |
| — | |
| | |
| — | | $ | |
Less intersegment revenues | |
| — | |
| ( | |
| — | | $ | ( |
Total revenues | | $ | | | $ | | | $ | | | $ | |
Gross profit | | $ | | | $ | | | $ | | | $ | |
Segment operating expenses | | | | | | | | | | | | |
Selling, general and administrative | | $ | | | $ | | | $ | | | $ | |
Research and development | | | | | | | | | | | | |
Total segment operating expenses | | $ | | | $ | | | $ | | | $ | |
(Loss) income from segment operations (a) | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Information regarding operations by segment for the three-month period ended December 31, 2023 is as follows:
| | Therapeutic DNA | | MDx Testing | | DNA Tagging and | |
| | |||
|
| Production |
| Services and Kit |
| Security Products |
| Consolidated | ||||
Revenues |
| |
|
| |
|
| |
|
| |
|
Product revenues | | $ | — | | $ | — | | $ | | | $ | |
Service revenues | |
| | |
| — | |
| | |
| |
Clinical laboratory service revenues | |
| — | |
| | |
| — | |
| |
Less intersegment revenues | |
| — | |
| ( | |
| — | |
| ( |
Total revenues | | $ | | | $ | | | $ | | | $ | |
Gross profit | | $ | | | $ | ( | | $ | | | $ | |
Segment operating expenses | | | | | | | | | | | | |
Selling, general and administrative | | | | | | | | | | | | |
Research and development | | | | | | | | | | | | |
Total segment operating expenses | | | | | | | | | | | | |
(Loss) from segment operations (a) | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
18
APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
(unaudited)
NOTE H – SEGMENT INFORMATION, continued
Reconciliation of segment loss from operations to consolidated loss before provision for income taxes is as follows:
| | December 31, | ||||
|
| 2024 |
| 2023 | ||
Loss from operations of reportable segments | | $ | ( | | $ | ( |
General corporate expenses (b) | |
| ( | |
| ( |
Interest income | |
| | |
| |
Unrealized gain (loss) on change in fair value of warrants classified as a liability | |
| | |
| |
Other (expense) income, net | |
| ( | |
| ( |
Consolidated loss before provision for income taxes | | $ | ( | | $ | ( |
(a)Segment operating loss consists of net sales, less cost of sales, specifically identifiable research and development, and selling, general and administrative expenses.
(b)General corporate expenses consist of Selling, general and administrative expenses that are not specifically identifiable to a segment.
NOTE I – 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 (loss) on change in fair value of the warrants classified as a liability 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 December 31, 2024 and summarizes the significant unobservable inputs in fair value measurement of Level 3 financial assets and liabilities as of December 31, 2024. The Company did not have any assets or liabilities categorized as Level 1 or 2 as of December 31, 2024.
| | Fair value at | | Valuation | | Unobservable | | Volatility |
| |
|
| December 31, 2024 |
| Technique |
| Input |
| Input |
| |
Liabilities: |
| |
|
|
|
|
| |
| |
Common Warrants | | $ | | | Monte Carlo simulation |
| Annualized volatility | | | % |
Series A Warrants | | $ | | | Monte Carlo simulation | | Annualized volatility | | | % |
Series A Warrants - modified | | $ | | | Monte Carlo simulation | | Annualized volatility | | | % |
Private Common Warrants | | $ | | | Monte Carlo simulation | | Annualized volatility | | | % |
The change in fair value of the Common Warrants for the three-month period ended December 31, 2024 is summarized as follows:
|
| | | | | | | Series A | | Private | | | | ||
| | Common | | Series A | | Warrants- | | Common | | | | ||||
| | Warrants |
| Warrants |
| modified |
| Warrants |
| Totals | |||||
Fair value at October 1, 2024 | | $ | | | $ | | | $ | | | $ | | | $ | |
| | ( | | | ( | |
| ( | |
| ( | | | ( | |
Fair Value at December 31, 2024 | | $ | | | $ | | | $ | | | $ | | | $ | |
19
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”, “designed 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. 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, 2024, 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 need for additional financing which may in turn require the issuance of additional shares of common stock, preferred stock or other debt or equity securities (including convertible securities) which would dilute the ownership held by stockholders; |
| ● | our business strategy and the timing of our expansion plans, including the development of new production facilities for our Therapeutic DNA Production Services; |
| ● | demand for Therapeutic DNA Production Services; |
| ● | demand for MDx Testing Services in light of unknown demand and potential business segment closure or divestiture; |
| ● | our expectations concerning existing or potential development and license agreements for third-party collaborations or joint ventures; |
20
| ● | regulatory approval and compliance for our Therapeutic DNA Production Services, upon which our business strategy is substantially dependent; |
| ● | the effect of governmental regulations generally; |
| ● | our expectations of when regulatory submissions may be filed or when regulatory approvals may be received; |
| ● | our expectations concerning restructuring of our business model with an emphasis on Therapeutic DNA Production Services; |
| ● | our expectations regarding the success of the exit of our DNA Tagging and Security Products and Services business; |
| ● | our expectations of when or if we will become profitable; |
| ● | the risk that our stockholders may suffer substantial dilution if certain provisions of our outstanding warrants are utilized; |
| ● | our current non-compliance with Nasdaq’s Bid Price Rule, which in the absence of a reverse split, may lead to delisting, potentially negatively impacting our business, our ability to raise capital, and the market price and liquidity of our Common Stock; |
| ● | the risk that the Reverse Stock Split may decrease the liquidity of our common stock and as a result our common stock may not satisfy the investing requirements of new investors, including institutional investors; |
| ● | the risk that our Laboratory Developed Tests may become subject to additional regulatory requirements due to U.S. Food and Drug Administration (“FDA”) rulemaking activity, and that compliance with such requirements may be expensive and time-consuming, resulting in significant or unanticipated delay; and |
| ● | unknown future market demand for our testing services, including for the Mpox Virus and COVID-19. |
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; |
| ● | the inherent uncertainties of formulations and treatments that utilize our Therapeutic DNA Production Services; |
| ● | the inherent uncertainties associated with clinical trials of product candidates, including product candidates that utilize our Therapeutic DNA Production Services; |
| ● | the inherent uncertainties associated with the process of obtaining regulatory clearance or approval to market product candidates, including product candidates that utilize our Therapeutic DNA Production Services; |
| ● | the inherent uncertainties associated with commercialization of products that have received regulatory clearance or approval, including products that utilize our Therapeutic DNA Production Services; |
| ● | the inherent uncertainties associated with commercialization of our MDx Testing Services (as defined below); |
| ● | economic and industry conditions generally and in our specific markets; |
| ● | the volatility of, and decline in, our stock price; and |
21
| ● | 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, based on information available to us as of such date, 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, regulatory outcomes, safety and efficacy, demand for our products and services, 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.
Our trademarks currently used in the United States include Applied DNA Sciences®, SigNature® T molecular tags, fiberTyping®, SigNify®, Beacon®, CertainT®, LineaDNA®, Linea™ COVID-19 Diagnostic Assay Kit, safeCircleTM COVID-19 testing and TR8® pharmacogenetic 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 in this Quarterly Report on Form 10-Q are the property of the respective owners.
Introduction
We are a biotechnology company developing and commercializing technologies to produce and detect DNA and RNA. Using PCR to enable the production and detection of DNA and RNA, we currently operate in two primary business markets: (i) the enzymatic manufacture of synthetic DNA for use in the production of nucleic acid-based therapeutics (including biologics and drugs), as well as the development and sale of a proprietary RNAP for use in the production of mRNA therapeutics (“Therapeutic DNA Production Services”); and (ii) the detection of DNA and RNA in molecular diagnostics and genetic testing services (“MDx Testing Services”). Previously, we operated in a third business market: the manufacture and detection of DNA for industrial supply chains and security services (“DNA Tagging and Security Products and Services”), which, as detailed above, on February 13, 2025, we announced we were exiting. However, we will continue to service certain of our existing DNA Tagging and Security Products and Services customer contracts.
Our current growth strategy is to primarily focus our resources on the further development, commercialization, and customer adoption of our Therapeutic DNA Production Services, including the expansion of our contract development and manufacturing operation (“CDMO”) for the sale of synthetic DNA and associated enzymes for use in the production of nucleic acid-based therapies.
We will continue to update our business strategy and monitor the use of our resources regarding our various business segments. The Company’s management engaged in a strategic review of its DNA tagging and Security Products and Services business segment. As a result of this strategic review, on February 13, 2025, we announced we are exiting our DNA Tagging and Security Products and Services business segment. As a result of exiting this segment, during January 2025, we completed a workforce reduction of approximately 20% of our total headcount and approximately 13% in annual payroll costs. As a result of these actions, during the three-month period ended March 31, 2025, we will incur one-time personnel-related charges of approximately $300,000. We will continue to service certain of our existing DNA Tagging and Security Products and Services customer contracts. The Company’s management has also been and currently remains engaged in a strategic review of its MDX Testing Services business segment.
We expect that based on available opportunities and our beliefs regarding future opportunities, we will continue to modify and refine our business strategy.
22
Therapeutic DNA Production Services
Through LRx we are developing and commercializing our LineaDNA and Linea IVT platforms for the sale of synthetic DNA and associated enzymes for use in the production of nucleic acid-based therapeutics.
LineaDNA Platform
Our LineaDNA platform is our core enabling technology, and enables the rapid, efficient, and large-scale cell-free manufacture of high-fidelity DNA sequences for use in the manufacturing of a broad range of nucleic acid-based therapeutics. The LineaDNA platform enzymatically produces a linear form of DNA we call “LineaDNA” that is an alternative to plasmid-based DNA manufacturing technologies that have supplied the DNA used in biotherapeutics for the past 40 years.
As of the fourth quarter of calendar year 2024, there were 4,238 gene, cell and RNA therapies in development from preclinical through pre-registration stages, almost all of which use DNA in their manufacturing process. (Source: ASGCT Gene, Cell & RNA Therapy Landscape: Q4 2024 Quarterly Report). Due to what we believe are the LineaDNA platform’s numerous advantages over legacy nucleic acid-based therapeutic manufacturing platforms, we believe this large number of therapies under development represents a substantial market opportunity for the LineaDNA platform to supplant legacy manufacturing methods in the manufacture of nucleic acid-based therapies although no assurance can be given that we will be successful in exploiting this market opportunity.
We believe our LineaDNA platform holds several important advantages over existing cell-based plasmid DNA manufacturing platforms. Plasmid-based DNA manufacturing is based on the complex, costly and time-consuming biological process of amplifying DNA in living bacterial cells. Once amplified, the DNA must be separated from the living cells and other process contaminants via multiple rounds of purification, adding further complexity and costs. Unlike plasmid-based DNA manufacturing, the LineaDNA platform does not require living cells and instead amplifies DNA via the enzymatic process of PCR. The LineaDNA platform is simple and can rapidly produce very large quantities of DNA without the need for complex purification steps.
We believe the key advantages of the LineaDNA platform include:
| ● | Speed – Production of LineaDNA can be measured in terms of hours, not days and weeks as is the case with plasmid-based DNA manufacturing platforms. |
| ● | Scalability – LineaDNA production takes place on efficient bench-top instruments, allowing for rapid scalability in a minimal footprint. |
| ● | Purity – DNA produced via PCR is pure, resulting in only large quantities of only the target DNA sequence. Unwanted DNA sequences such as the plasmid backbone and antibiotic resistance genes, inherent to plasmid DNA, are not present in LineaDNA. |
| ● | Simplicity – The production of LineaDNA is streamlined relative to plasmid-based DNA production. LineaDNA requires only four primary ingredients, does not require living cells or complex fermentation systems and does not require multiple rounds of purification. |
| ● | Flexibility – DNA produced via the LineaDNA platform can be easily chemically modified to suit specific customer applications. In addition, the LineaDNA platform can produce a wide range of complex DNA sequences that are difficult to produce via plasmid-based DNA production platforms. These complex sequences include inverted terminal repeats and long homopolymers such as polyadenylation sequences (poly (A) tail) important for gene therapy and mRNA therapies, respectively. |
Preclinical studies conducted by the Company have shown that LineaDNA is substitutable for plasmid DNA in numerous nucleic acid-based therapies, including:
| ● | DNA vaccines; |
| ● | DNA templates to produce RNA, including mRNA therapeutics; |
23
| ● | adoptive cell therapy (CAR-T) manufacturing; and |
| ● | Homology-directed repair (HDR)-mediated gene editing. |
Further, we believe that LineaDNA is also substitutable for plasmid DNA in the following nucleic acid-based therapies:
| ● | viral vector manufacturing for in vivo and ex vivo gene editing; |
| ● | clustered regularly interspaced short palindromic repeats-mediated gene therapy; and |
| ● | non-viral gene therapy. |
Linea IVT Platform
The number of mRNA therapies under development is growing at a rapid rate, thanks in part to the success of the mRNA COVID-19 vaccines. mRNA therapeutics are produced via a process called in vitro transcription (“IVT”) that requires DNA as a starting material. As of the fourth quarter of calendar 2024, there were over 450 mRNA therapies under development, with the majority of these therapies (65%) in the preclinical stage (Source: ASGCT Gene, Cell & RNA Therapy Landscape: Q4 2024 Quarterly Report). The Company believes that the mRNA market is in a nascent stage that represents a large growth opportunity for the Company via the production and supply of DNA critical starting materials and RNAP to produce mRNA therapies.
In August 2022, the Company launched DNA IVT templates manufactured via its LineaDNA platform that have resulted in evaluations of the Company’s IVT templates by numerous therapeutic developers and CDMOs in the United States and the Asia-Pacific. In addition, the Company’s IVT templates are currently under late-stage evaluations by two therapeutic developers and one CDMO for use as DNA templates for the production of mRNA intended for clinical use in calendar year 2025. However, there can be no assurance that related contracts will be entered into. In response to this demand, the continued growth of the mRNA therapeutic market, and the unique abilities of the LineaDNA platform, the Company acquired Spindle Biotech, Inc. (“Spindle”) in July 2023 to potentially increase its mRNA-related total addressable market (“TAM”) to include the manufacture and sale of RNAP for use in conjunction with our LineaDNA IVT templates.
Through our acquisition of Spindle, we launched our Linea IVT platform in July 2023, which combines Spindle’s proprietary high-performance RNAP, now marketed by the Company as Linea RNAP, with our enzymatically produced LineaDNA IVT templates. We believe the Linea IVT platform enables our customers to make better mRNA, faster. Based on data generated by the Company, we believe the integrated Linea IVT platform offers the following advantages over conventional mRNA production to therapy developers and manufacturers:
| ● | the prevention or reduction of double stranded RNA (“dsRNA”) contamination resulting in higher target mRNA yields with the potential to reduce downstream processing steps. dsRNA is a problematic immunogenic byproduct produced during conventional mRNA manufacture; |
| ● | delivery of IVT templates in as little as 14 days for milligram scale and 30 days for gram scale; |
| ● | reduced mRNA manufacturing complexities; and |
| ● | potentially enabling mRNA manufactures to produce mRNA drug substance in less than 45 days. |
According to the Company’s internal modeling, the ability to sell both LineaDNA IVT templates and Linea RNAP under the Linea IVT platform potentially increases the Company’s mRNA-related TAM by approximately 3x as compared to selling LineaDNA IVT templates alone, while also providing a more competitive offering to the mRNA manufacturing market. Currently, Linea RNAP is produced for the Company under an ISO 13485 quality system by Alphazyme, LLC (“Alphazyme”) a third-party CDMO located in the United States, which the Company believes is sufficient for early-stage clinical use of the enzyme. In conjunction with Alphazyme, the Company recently completed manufacturing process development work on its Linea RNAP to increase the production scale of the enzyme and reduce unit costs.
24
Manufacturing Scale-up
The Company plans to offer several quality grades of Linea DNA, each of which will have different permitted uses.
Quality Grade | Permitted Use | Company Status |
GLP | Research and pre-clinical discovery | Currently available |
GMP for Starting Materials | DNA critical starting materials for the production of mRNA therapies | Currently available |
GMP | DNA biologic, drug substance and/or drug product | Planned availability first half of CY 2026 (1) (GMP Site 2) |
| (1) | Dependent on the availability of future funding. |
We are currently manufacturing LineaDNA pursuant to Good Laboratory Practices (“GLP”) and have recently completed the buildout of a fit for purpose manufacturing facility within our current Stony Brook, NY laboratory space capable of producing LineaDNA IVT templates under Good Manufacturing Practices (“GMP”) suitable for use as a critical starting material for clinical and commercial mRNA therapeutics (“GMP Site 1”). GMP site 1 achieved operation status as of January 31, 2025. We also plan to offer additional capacity for LineaDNA IVT templates as well as capacity for LineaDNA materials manufactured under GMP suitable for use as, or incorporation into, a biologic, drug substance and/or drug product, with availability expected during the first half of calendar year 2026, dependent upon the availability of future funding and customer demand (“GMP Site 2”). GMP is a quality standard used globally and by the FDA to ensure pharmaceutical quality. Drug substances are the pharmaceutically active components of drug products.
Segment Business Strategy
Our business strategy for our Therapeutic DNA Production Services is to capitalize upon the rapid growth of mRNA therapies in the near term via our ability to manufacture LineaDNA IVT templates under GMP at our GMP Site 1, while at the same time laying the basis for additional clinical and commercial applications of LineaDNA with our future planned availability of LineaDNA manufactured under GMP suitable for use as, or incorporation into, a biologic, drug substance and/or drug product at planned GMP Site 2. Planned GMP Site 2 may also be used for additional LineaDNA IVT template manufacturing if customer demand exceeds capacity of GMP Site 1. In addition, we believe GMP Site 1 is capable of manufacturing LineaDNA for use as, or incorporation into, a biologic, drug substance, and/or drug product manufacturing via facility upgrades to its existing footprint.
Our current plan is: (i) through our Linea IVT platform and GMP manufacturing capabilities for IVT templates at GMP Site 1 to secure commercial-scale supply contracts with clinical and commercial mRNA and/or self-amplifying mRNA (“sa-RNA”) manufacturers for LineaDNA IVT templates and/or Linea RNAP as critical starting materials; (ii) to utilize our current GLP production capacity for non-IVT template applications to secure supply and/or development contracts with pre-clinical therapy developers that use DNA in their therapy manufacturing, and (iii) upon our development of our planned future LineaDNA production under GMP suitable for use as, or incorporation into, a biologic, drug substance and/or drug product at planned GMP Site 2 and/or our upgrade to GMP Site 1, to convert existing and new LineaDNA customers into large-scale supply contracts to supply LineaDNA for clinical and commercial use as, or incorporation into, a biologic, drug substance and/or drug product in a wide range of nucleic acid therapies. In addition, the Company plans to utilize its current and planned DNA manufacturing capabilities in GMP Site 1 and/or GMP Site 2 to convert new and existing LineaDNA IVT template customers to LineaDNA IVT platform customers to increase the Company’s mRNA-related TAM.
If we were to expand our facilities to enable GMP production of LineaDNA for use as, or incorporation, into a biologic, drug substance and/or drug product as planned for GMP Site 2, the additional CAPEX may be up to approximately $10 million which would require additional funding. We anticipate upgrades to GMP Site 1 to enable the manufacture of LineaDNA for use as, or incorporation into, a biologic, drug substance and/or drug product manufacture to cost less than $1 million. Potential upgrades to GMP Site 1 would not alter its current footprint within our existing laboratory space. We anticipate that a GMP Site 2 would require us to acquire additional space.
25
MDx Testing Services
Through ADCL, we leverage our expertise in DNA and RNA detection via PCR to provide and develop clinical molecular diagnostics and genetic (collectively “MDx”) Testing Services. ADCL is a NYSDOH clinical laboratory improvement amendments (“CLIA”)-certified laboratory which is currently permitted for virology and genetics (molecular). In providing MDx Testing Services, ADCL employs its own or third-party molecular diagnostic tests.
We have successfully internally validated our pharmacogenomics testing services (the “PGx Testing Services”). Our PGx Testing Services utilizes a 120-target PGx panel test to evaluate the unique genotype of a specific patient to help guide the patient’s healthcare provider in making individual drug therapy decisions. Our PGx Testing Services are designed to interrogate DNA targets on over 33 genes and provide genotyping information relevant to certain cardiac, mental health, oncology, and pain management drug therapies.
On June 12, 2024 we received full approval from NYSDOH for our PGx Testing Services. Recently published studies showed that population-scale PGx enabled medication management can significantly reduce overall population healthcare costs, reduce adverse drug events, and increase overall population wellbeing. These benefits can result in significant cost savings to large entities and self-insured employers, the latter accounting for approximately 65% of all U.S. employers in 2022.We plan to leverage our PGx Testing Services to provide PGx testing services to large entities, self-insured employers and healthcare providers, as well as concierge healthcare providers.
On September 11, 2024, we announced that ADCL launched an expansion of its clinical testing services for the detection of Mpox (formerly monkeypox) to include testing for both Mpox Clade I and Clade II. The launch of the expanded Mpox testing service comes after ADCL’s interaction with relevant regulatory bodies, including the NYSDOH and the FDA. The Company believes that ADCL will be able to support New York and other states’ response to the threat of Mpox. ADCL’s Linea Mpox Virus 1.0 Assay was previously approved as a laboratory-developed test for the detection of Mpox Clade II by NYSDOH in September 2022. In August 2024, ADCL conducted additional validation testing showing the Assay can also detect the genetic sequence of Mpox Clade I, which is the subject of the World Health Organization’s (WHO) August 14, 2024 declaration of a public health emergency of international concern. ADCL will provide the testing service from its CLEP/CLIA molecular diagnostics laboratory in Stony Brook, N.Y. Currently, Mpox instances in the United States are very low and the future path of Mpox is currently unknown. Accordingly, there can be no assurance that we will be able to generate revenue and profits from our approved Mpox testing.
Historically, the majority of our revenue attributable to our MDx Testing Services has been derived from our safeCircle® COVID-19 testing solutions, for which testing demand has significantly declined commencing in our fiscal third quarter of 2023, resulting in substantially reduced revenues. We expect future demand for COVID-19 testing to continue to be reduced and we may terminate COVID-19 testing services in the future.
DNA Tagging and Security Products and Services
By leveraging our expertise in both the manufacture and detection of DNA via PCR, our DNA Tagging and Security Products and Services allow our customers to use non-biologic DNA tags manufactured on our LineaDNA platform to mark objects in a unique manner and then identify these objects by detecting the absence or presence of the DNA tag. The Company’s core DNA Tagging and Security Products and Services, which are currently marketed collectively as a platform under the trademark CertainT®, include:
| ● | SigNature® Molecular Tags, which are short non-biologic DNA taggants produced by the Company’s LineaDNA platform, provide a methodology to authenticate goods within supply chains. |
| ● | fiberTyping® and other product genotyping services use PCR-based DNA detection to determine a cotton species or cultivar, via a product’s naturally occurring DNA sequence for the purposes of product provenance authentication. |
| ● | Isotopic analysis testing services, provided in partnership with third-party labs, use cotton’s carbon, hydrogen and oxygen elements to indicate origin of its fiber through finished goods. |
To date, our largest commercial application for our DNA Tagging and Security Products and Services is in the tracking and provenance authentication of cotton.
As detailed above, on February 13, 2025 the Company announced that it is exiting its DNA Tagging and Security Products and Services business segment. As a result of exiting this business segment, the Company completed a workforce reduction of approximately 20%
26
of its total headcount. The Company will continue to service certain of its existing DNA Tagging and Security Products and Services customer contracts.
Comparison of Results of Operations for the Three-Month Periods Ended December 31, 2024 and 2023
Revenues
Product revenues
For the three-month periods ended December 31, 2024 and 2023, we generated $495,847 and $307,317 in revenues from product sales, respectively. Product revenue increased by $188,530 or 61% for the three-month period ended December 31, 2024 as compared to the three-month period ended December 31, 2023. The increase in product revenues was due to a net increase in our DNA Tagging and Security Products and Services segment relating to an increase of approximately $174,000 year over year in cotton DNA tagging revenue, offset by a decrease of approximately $44,000 in sales to a nutraceutical customer. We also experienced an increase of approximately $88,000 relating to our large-scale DNA manufacturing business and the timing of related orders within our Therapeutic DNA Production Services segment.
Service Revenues
For the three-month periods ended December 31, 2024 and 2023, we generated $374,444 and $247,147 in revenues from sales of services, respectively. The increase in service revenues of $127,297 or 52% for the three-month period ended December 31, 2024, as compared to the same period in the prior fiscal year is attributable to an increase of $156,000 within our DNA Tagging and Security Products and Services segment due to an increase in our textile isotopic testing services. This increase was offset by a decrease of approximately $18,000 within our Therapeutic DNA Production Services segment due to decreased research and development projects.
Clinical Laboratory Service Revenues
For the three-month periods ended December 31, 2024 and 2023, we generated $326,326 and $336,700 in revenues from our clinical laboratory testing services, respectively. The decrease in service revenues of $10,374 or 3% for the three-month period ended December 31, 2024 as compared to the same period in the prior fiscal year is attributable to a decrease in COVID surveillance testing.
Cost and Expenses
Gross Profit
Gross profit for the three-month period ended December 31, 2024, increased by $453,010 or 196% from $231,097 for the three-month period ended December 31, 2023 to $684,107. The gross profit percentage was 57% and 26% for the three-month periods ended December 31, 2024 and 2023, respectively. The increase in gross profit percentage was primarily the result of product mix, as during the three-months ended December 31, 2024, the majority of our product revenue was for the shipment of DNA for cotton tagging, which is at a higher gross margin compared to the product sales during the same period in the prior fiscal year. To a lesser extent, the improvement in gross profit percentage was due to higher product revenues during the three-month period ended December 31, 2024 as compared to the same period in the prior fiscal year. The higher volume of product revenues in the current period was able to absorb the fixed costs that are included in cost of product revenues.
Selling, General and Administrative
Selling, general and administrative expenses for the three-month period ended December 31, 2024 decreased by $451,250 or 15% to $2,633,098 as compared to $3,084,348 for the three-month period ended December 31, 2023. The decrease is attributable to a decrease in stock-based compensation expense of approximately $312,000, which primarily relates to the timing of the annual non-employee board of director grant that vests one-year from the date of grant, which was granted during the second quarter of fiscal 2023. Additional decreases related to a decrease in consulting expense of approximately $115,000. The decrease in consulting expense was from the closure of our APDN Europe subsidiary within our DNA Tagging and Security Products and Services segment, as well as a decrease in consulting expense from our MDX Testing Services segment.
27
Research and Development
Research and development expenses increased to $1,015,010 for the three-month period ended December 31, 2024 from $935,815 for the three-month period ended December 31, 2023, an increase of $79,195 or 8%. This increase is primarily due to an increase of approximately $375,000 for the development of an enzyme for use in our Therapeutic DNA Production Services segment, offset by a decrease of approximately $77,000 for consultants being utilized for cGMP readiness during the prior year period. Additional offsets included a decrease in depreciation expense associated with laboratory equipment becoming fully depreciated period over period of approximately $94,000, service contract decreases of $68,000 as well as a payroll expense decrease of approximately $50,000.
Interest income
Interest income for the three-month period ended December 31, 2024 increased $38,117 or 114% to $71,440 as compared to $33,323 in the three-month period ended December 31, 2023 due to interest earned on our money market accounts.
Other expense, net
Other expense, net for the three-month periods ended December 31, 2024 and 2023, was $20,152 and $13,538, respectively.
Unrealized gain on change in fair value of warrants classified as a liability
Unrealized gain on change in fair value of warrants classified as a liability for the three-month periods ended December 31, 2024 and 2023 was $244,000 and $2,639,000, respectively, which relates to the change in fair value of the warrants that are classified as a liability. The primary driver of the change is the decrease in our stock price.
Loss from operations
Loss from operations decreased $825,065, or 22% to $2,964,001 for the three-month period ended December 31, 2024 compared to $3,789,066 for the three-month period ended December 31, 2023 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 December 31, 2024, we had working capital of $8,889,342. For the three-month period ended December 31, 2024, we used cash in operating activities of $3,326,074 consisting primarily of our loss of $2,668,713 net with non-cash adjustments of $58,580 in depreciation and amortization charges, $244,000 in unrealized gain on change in fair value of warrants classified as a liability, $28,973 in stock-based compensation expense, and $7,723 in provision for bad debts. Additionally, we had a net increase in operating assets of 372,738 and a net decrease in operating liabilities of $141,188. At December 31, 2024, we had cash and cash equivalents of $9,294,365.
We have recurring net losses. We incurred a net loss of $2,668,713 and generated negative operating cash flow of $3,326,074 for the three-month period ended December 31, 2024. These factors raise substantial doubt about our ability to continue as a going concern for one year from the issuance of these financial statements. The ability of the Company to continue as a going concern is dependent on our ability to further implement our business plan, raise capital, and generate revenues. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Our current capital resources include cash and cash equivalents, accounts receivable and inventories. Historically, we have financed our operations principally from the sale of equity and equity-linked securities.
As discussed in Note E, to our condensed consolidated financial statements, on October 31, 2024, we closed on a registered direct offering and received net proceeds, after deducting placement agent fees and other offering expenses payable by us, of approximately $5.7 million.
28
Critical Accounting Estimates and Policies
Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.
We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our condensed consolidated results of operations, financial position or liquidity for the periods presented in this report.
The accounting policies identified as critical are as follows:
| ● | Revenue recognition; and |
| ● | Warrant Liabilities |
Critical Accounting 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 critical estimates include recoverability of long-lived assets, including the values assigned to intangible assets, fair value calculations for warrants, and contingencies. Management reviews its estimates on a regular basis and the effects of any material revisions are reflected in the consolidated financial statements in the period they are deemed necessary. Accordingly, actual results could differ from those estimates.
Revenue Recognition
We follow FASB issued accounting standard updates which clarify the principles for recognizing revenue arising from contracts with customers (“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
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.
29
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.
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 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.
Warrant Liabilities
The Company evaluates its issued 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 certain of its warrant agreements, the instruments do not qualify for equity treatment. As such, the Common Warrants, Series A Warrants and Private Common Warrants were recorded as a liability on the 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.
Off-Balance Sheet Arrangements
As requirement of our lease agreement for our corporate headquarters entered into during January 2023, in lieu of security deposit, we provided a standby letter of credit of $750,000. The letter of credit is effective through January 2026.
Inflation
The effect of inflation on our revenue and operating results was not significant.
30
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). Disclosure controls and procedures are those controls and procedures designed to provide reasonable assurance that the information required to be disclosed in our Exchange Act filings is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2024, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended December 31, 2024, 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.
31
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 17, 2024, and as updated and supplemented 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.
Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds.
October 2024 Offering
On October 30, 2024, the Company entered into a purchase agreement with certain institutional investors (the “October Purchase Agreement”), pursuant to which the Company agreed to issue and sell, in a registered direct offering and concurrent private placement (the “Offering”) (i) 19,247,498 shares of the Company’s Common Stock, (ii) pre-funded warrants to purchase up to 1,065,002 shares of Common Stock, (iii) Series C warrants to purchase up to 20,312,500 shares of Common Stock (“Series C Warrants”), (iv) Series D warrants to purchase up to 20,312,500 shares of Common Stock (“Series D Warrants”) and (v) Placement Agent warrants to purchase up to 1,015,625 shares of Common Stock (“Placement Agent Warrants”, and, with the Series C Warrants and Series D Warrants, the “Private Placement Warrants”).
The Company received gross proceeds from the Offering, before deducting placement agent fees and other estimated offering expenses payable by the Company, of approximately $6.5 million.
Each of the Private Placement Warrants were not registered under the Securities Act and 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.
Pursuant to the Purchase Agreement, within 20 calendar days from the date of the Purchase Agreement, the Company agreed to file a registration statement on Form S-1 providing for the resale by the purchasers in the Offering of the shares of Common Stock issuable upon exercise of the Private Placement Warrants. The Company agreed to use commercially reasonable efforts to cause such registration statement to become effective within 50 calendar days following the closing date of the Purchase Agreement (or 90 calendar days following the closing date of the Purchase Agreement in the event that the Commission requires the Company to include its audited year-end financial statements for the fiscal year ended September 30, 2024 in such registration statement) and to keep such registration statement effective at all times until no Purchaser owns any Private Placement Warrants or shares of Common Stock issuable upon exercise thereof. The registration statement was filed on November 19, 2024 and became effective on January 17, 2025.
Item 3. — Defaults Upon Senior Securities.
None.
Item 4. — Mine Safety Disclosures.
Not applicable.
Item 5. — Other Information.
32
Item 6. — Exhibits.
| | | | | | Incorporated by Reference to SEC Filing | | Filed or Furnished with | ||||
Exhibit | | | | | | Exhibit | | | | | | this Form |
No. |
| Filed Exhibit Description |
| Form |
| No. |
| File No. |
| Date Filed |
| 10-Q |
3.1 | | | 1 | | 3.1 | | 333-278890 | | 05/15/2024 | | | |
3.2 | | | S-1 | | 3.2 | | 333-283315 | | 11/19/2024 | | | |
4.1 | | | 8-K | | 4.1 | | 001-36745 | | 10/30/2024 | | | |
4.2 | | | 8-K | | 4.2 | | 001-36745 | | 10/30/2024 | | | |
4.3 | | | 8-K | | 4.3 | | 001-36745 | | 10/30/2024 | | | |
4.4 | | | 8-K | | 4.4 | | 001-36745 | | 10/30/2024 | | | |
10.1 | | | 8-K | | 10.1 | | 001-36745 | | 10/30/2024 | | ||
10.2 | | | 8-K | | 10.2 | | 001-36745 | | 10/30/2024 | | | |
10.3 | | | 8-K | | 10.3 | | 001-36745 | | 10/30/2024 | | | |
31.1** | | | | | | | | | | | X | |
31.2** | | | | | | | | | | | X | |
32.1** | | | | | | | | | | | X | |
32.2** | | | | | | | | | | | X | |
101 INS* | | Inline XBRL Instance Document | | | | | | | | | | X |
101 SCH* | | Inline XBRL Taxonomy Extension Schema Document | | | | | | | | | | X |
101 CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | X |
101 DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | | | X |
101 LAB* | | Inline XBRL Extension Label Linkbase Document | | | | | | | | | | X |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101) | | | | | | | | | | 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.
33
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: February 13, 2025 | | /s/ JAMES A. HAYWARD |
| James A. Hayward, Ph.D. | |
| Chief Executive Officer | |
| (Duly authorized officer and principal executive officer) | |
| ||
| /s/ BETH JANTZEN | |
Dated: February 13, 2025 | | Beth Jantzen, CPA |
| Chief Financial Officer | |
| (Duly authorized officer and principal financial and accounting officer) |
34
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, James A. Hayward, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Applied DNA Sciences, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: February 13, 2025 |
| |
By: | /s/ JAMES A. HAYWARD | |
James A. Hayward | ||
Chief Executive Officer and Chairman | ||
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Beth Jantzen, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Applied DNA Sciences, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: February 13, 2025 |
| |
By: | /s/ BETH JANTZEN | |
Beth Jantzen, CPA | ||
Chief Financial Officer | ||
(Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, James A. Hayward, Chief Executive Officer of Applied DNA Sciences, Inc. (the “Company”), in connection with the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2024 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, hereby certifies pursuant to the requirements of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
· | the Report fully complies with the requirements of Section 13(a) or 15(d), of the Securities Exchange Act of 1934, and |
· | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
This certification is being provided pursuant to 18 U.S.C. 1350 and is not to be deemed a part of the Report, nor is it to be deemed to be “filed” for any purpose whatsoever.
By: | /s/ JAMES A. HAYWARD | |
James A. Hayward | ||
Chief Executive Officer and Chairman | ||
(Principal Executive Officer) | ||
Dated: February 13, 2025 |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Beth Jantzen, Chief Financial Officer of Applied DNA Sciences, Inc. (the “Company”), in connection with the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2024 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, hereby certifies pursuant to the requirements of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
· | the Report fully complies with the requirements of Section 13(a) or 15(d), of the Securities Exchange Act of 1934, and |
· | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
This certification is being provided pursuant to 18 U.S.C. 1350 and is not to be deemed a part of the Report, nor is it to be deemed to be “filed” for any purpose whatsoever.
By: | /s/ BETH JANTZEN | |
Beth Jantzen, CPA | ||
Chief Financial Officer | ||
(Principal Financial Officer and Principal Accounting Officer) | ||
Dated: February 13, 2025 |