The Industrial Products group has plenty of great stocks, but investors should always be looking for companies that are outperforming their peers. Is Applied DNA Sciences (APDN) one of those stocks right now? Let's take a closer look at the stock's year-to-date performance to find out.Applied DNA Sciences is a member of our Industrial Products group, which includes 227 different companies and currently sits at #3 in the Zacks Sector Rank. The Zacks Sector Rank includes 16 different groups and is listed in o ...

Financial Data and Key Metrics Changes - Total revenues for Q1 2024 were approximately $891,000, a decline of $4.4 million compared to $5.3 million in the same period last year [5][6] - Gross profit was $231,000 or 26%, down from $2.4 million or 45% in the prior year, primarily due to a higher percentage of COVID-19 testing service revenue in the previous year [6][7] - Operating loss for the first quarter was $3.8 million compared to $1.2 million in the prior fiscal period [8] - Adjusted EBITDA deteriorated by $2.1 million to a negative $3.2 million compared to a negative $1.1 million in the prior fiscal year period [8] Business Line Data and Key Metrics Changes - Clinical laboratory service revenues decreased significantly, contributing approximately $4.2 million to the total revenue decline [5][6] - Service revenues increased by approximately $15,000 year-over-year, driven by demand for isotopic testing within the DNA Tagging and Security Products and Services segment [6] Market Data and Key Metrics Changes - The company is focusing on the biotherapeutics market, particularly in mRNA therapeutics, with approximately 425 mRNA therapies currently in development [15][17] - The establishment of a GMP capacity is crucial for supporting clinical-grade messenger RNA therapeutics, which is expected to come online in the first half of 2024 [15][16] Company Strategy and Development Direction - The primary objective is the commercialization of the Linea IVT and Linea DNA platforms, with a focus on capital allocation to support biotherapeutic goals [11] - The company aims to transition customers to scale-up agreements for Linea IVT templates and RNA polymerase manufactured under applicable GMPs [14][15] - The partnership with Kudo Bio aims to validate the commercial scale-up of the Linea IVT platform [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growing demand for mRNA therapeutics and the company's ability to meet this demand through its unique business model [15][24] - The establishment of a GMP footprint is seen as a significant step towards long-term shareholder value [26] Other Important Information - The company closed a registered direct public offering for gross proceeds of approximately $3.4 million, which will support the establishment of its GMP capacity [9][10] - Cash and cash equivalents totaled $3.4 million as of December 31, 2023, down from $7.2 million on September 30, 2023 [8][9] Q&A Session Summary Question: Can you talk about the CD123 CAR work at the Prague Hematology Institute? - Management highlighted the quality of the scientists involved and the approval process for GMP-grade materials [27] Question: What amount of product is needed for the clinical Phase I trial? - It was estimated that enough material would be needed to treat about 10 patients [29] Question: Can you provide details on Kudo Bio's scale and production? - Kudo Bio is a large player with international facilities and the capability for significant scale in mRNA manufacturing [34][35] Question: What is the customer distribution between the U.S. and international markets? - The majority of customers are currently U.S.-based, with expectations for increased international customer engagement [41][42] Question: What assumptions underlie the projected $15 million annual revenue for Linea IVT? - The projection is based on slightly greater than 100% utilization of the facility, with plans for accommodating increased customer demand [43][44] Question: How does the company benchmark against competitors in production speed? - The company is exceeding turnaround times compared to other enzymatic manufacturers in the scale-up process [48][49]

Applied DNA Sciences (APDN) came out with a quarterly loss of $0.09 per share versus the Zacks Consensus Estimate of a loss of $0.31. This compares to loss of $0.14 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 70.97%. A quarter ago, it was expected that this DNA-based security technology company would post a loss of $0.27 per share when it actually produced a loss of $0.26, delivering a surprise of 3.70%.Over the last four ...

Financial Performance - Total revenues for the three months ended December 31, 2023, were $891,164, a decrease of 83.1% compared to $5,262,752 for the same period in 2022[12]. - Product revenues were $307,317, down 40.4% from $516,396 in the prior year[12]. - Clinical laboratory service revenues significantly dropped to $336,700 from $4,514,295, reflecting a decline of 92.6%[12]. - The company reported a gross profit of $231,097, a significant decline from $2,377,683 in the same quarter last year[12]. - The net loss attributable to Applied DNA Sciences, Inc. was $1,105,100, compared to a net loss of $3,843,372 for the same period in 2022[12]. - The company reported a net loss of $1,130,281 for the three months ended December 31, 2023, compared to a net loss of $3,844,246 for the same period in 2022, indicating an improvement in financial performance[20]. - Operating cash flow was negative at $3,757,679 for the three-month period ended December 31, 2023, compared to negative cash flow of $2,383,106 for the same period in 2022[20]. - The loss from operations for reportable segments in Q4 2023 was $(2,539,861), compared to $(217,084) in Q4 2022[74]. - The company reported a discretionary bonus of $500,000 for the CEO for fiscal 2023, which was declined due to the company's cash position[68]. Cash and Assets - Cash and cash equivalents decreased to $3,359,045 from $7,151,800 as of September 30, 2023[8]. - Total assets as of December 31, 2023, were $9,913,210, down from $13,651,577 at the end of the previous quarter[10]. - The company had cash and cash equivalents of $3,359,045 as of December 31, 2023, down from $15,215,285 at the beginning of the period[20]. - The company reported total current assets of $4,590,046 as of December 31, 2023, down from $8,126,570 as of September 30, 2023, indicating a decrease of approximately 43%[8]. - Cash, cash equivalents, and restricted cash at the end of the period were $4,109,045, down from $12,877,179 at the end of December 2022[20]. - As of December 31, 2023, the company had working capital of $2,002,107 and cash and cash equivalents of $3,359,045[131]. Liabilities and Equity - Total liabilities decreased to $5,784,808 from $8,779,165 as of September 30, 2023[9]. - The company recorded warrant liabilities of $1,646,000 as of December 31, 2023, down from $4,285,000, indicating a decrease of about 62%[9]. - Accounts payable and accrued liabilities totaled $2,023,876 as of December 31, 2023, down from $2,270,388 as of September 30, 2023, representing a decrease of 10.9%[56]. - The company issued 61,200 shares of common stock for net proceeds of approximately $45,480 under an Equity Distribution Agreement, with an aggregate offering price of up to $6,397,939[57][58]. - The balance of warrants outstanding as of December 31, 2023, was 5,213,213, with a weighted average exercise price of $3.32 per share[62]. Revenue Recognition and Segments - The company recognized revenue for its clinical laboratory testing services upon completion of services, with performance obligations satisfied at the point of releasing testing results[141]. - Revenue for research and development contracts is recognized over time, primarily using the cost-to-cost method, reflecting the progress towards completion[142]. - The company has three reportable segments: Therapeutic DNA Production Services, MDx Testing Services, and DNA Tagging and Security Products and Services[46][47]. - For the three-month period ended December 31, 2023, revenues included 25% from one customer in the MDx Testing Services segment and 22% from one customer in the DNA Tagging and Security Products and Services segment[45]. Operational Highlights - The company is focused on expanding its business in the biotechnology sector, particularly in therapeutic DNA production and molecular diagnostics[23]. - The company launched DNA IVT templates in August 2022 and has secured proof of concept contracts with multiple mRNA manufacturing customers, indicating strong market demand[105]. - The acquisition of Spindle in July 2023 is expected to enhance the company's mRNA-related total addressable market (TAM) by approximately 3x compared to selling Linea DNA IVT templates alone[106]. - The company plans to manufacture Linea DNA IVT templates under Good Manufacturing Practices (GMP) with availability expected in the first half of CY2024, and additional GMP materials for drug products planned for 2025[107]. Expenses - Total operating expenses increased to $4,020,163, up 11.8% from $3,596,661 in the same quarter last year[12]. - Selling, general and administrative expenses increased by $458,991 or 17% for the three-month period ended December 31, 2023, totaling $3,084,348[125]. - Research and development expenses decreased by $35,489 or 4% for the three-month period ended December 31, 2023, totaling $935,815[126]. - The total rent expense for the three-month period ended December 31, 2023, was $174,419, compared to $148,826 for the same period in 2022, reflecting an increase of 17.2%[63]. Market Conditions - The effect of inflation on revenue and operating results was not significant, indicating stable operational performance despite economic pressures[146]. - As of Q4 2023, there are 3,951 gene, cell, and RNA therapies in development, almost all utilizing DNA in their manufacturing process, representing a substantial market opportunity for the Linea DNA platform[100]. - The Linea DNA platform offers advantages over plasmid-based DNA manufacturing, including speed, scalability, purity, simplicity, and flexibility, allowing for rapid production of high-fidelity DNA sequences[101][102][103].

Financial Data and Key Metrics Changes - Total revenues for Q4 2023 were $780,000, a decrease from $3.6 million in the same period last year, primarily due to a decline in COVID-19 testing services revenue and a reduction in product revenue [5][6][10] - Gross profit was $79,000 (10% margin) compared to $417,000 (12% margin) in the prior year, with the decline attributed to a higher percentage of COVID-19 testing services and textiles revenue in the previous year [6] - Operating loss for Q4 2023 was $4.2 million, slightly improved from a loss of $4.3 million in the prior year [7] - Cash and cash equivalents totaled $7.2 million on September 30, 2023, down from $10.8 million on June 30, 2023 [8] Business Line Data and Key Metrics Changes - The decline in revenue was largely due to a $2.4 million decrease in COVID-19 testing services, following the expiry of a testing contract [6] - The textiles vertical saw a decrease in cotton tagging revenues, contributing to a reduction in product revenue of $341,000 [6] Market Data and Key Metrics Changes - The company is experiencing strong demand in the cotton industry for traceability technologies due to federal and international legislation related to forced labor [18] - Interest in the linearDNA platform is growing, with several large CDMOs as evaluation customers, indicating a positive market response [25][33] Company Strategy and Development Direction - The company is focusing on biotherapeutic manufacturing, particularly through the linearDNA platform, which aims to provide an alternative to plasmid DNA for genetic medicines [12][32] - Plans for fiscal 2024 include launching GMP manufacturing capacity for mRNA starting materials, which is expected to unlock significant revenue opportunities [30][31] - The company aims to convert existing customers into larger, long-term commercial supply agreements, leveraging the anticipated growth in mRNA manufacturing demand [33] Management's Comments on Operating Environment and Future Outlook - Management anticipates a decline in COVID-19 testing revenues, reflecting a broader trend in the industry as public interest wanes [46] - The approval of the first IND for enzymatically-produced DNA is seen as a positive sign for the industry, indicating regulatory acceptance of enzymatic manufacturing [40] - The company is optimistic about the upcoming fiscal year, expecting to secure larger contracts and capitalize on the growing demand for mRNA starting materials [31][33] Other Important Information - The company filed an 8-K disclosing non-compliance with Nasdaq listing rules regarding minimum bid price requirements, with a 180-day period to regain compliance [10] - The average monthly cash burn for Q4 2023 was $1.2 million, aligning with forecasts post-CUNY contract expiry [8] Q&A Session Summary Question: Can you discuss the Spindle RNA polymerase acquisition and its implications? - The acquisition allowed the company to optimize the polymerase for self-amplifying RNA production, which is promising for the IP portfolio and market demand [38] Question: Who received the first IND approval for enzymatically-produced DNA? - The approval was granted to Touchlight Genetics, indicating FDA's willingness to engage with enzymatically-produced materials, which is a positive sign for the company [40] Question: What is the revenue outlook for clinical laboratory services? - A decline is expected, although local increases in COVID positivity may affect this trend [46] Question: How many customers have ordered from the Linea IVT platform? - There are over 10 customers for IVT templates, with 3 evaluation customers for the Linea IVT platform, expecting to sign more substantive agreements soon [50] Question: What is the cash position after September? - The cash position as of November 30th is approximately $4.5 million [53]

[Forward-looking Information](index=3&type=section&id=Forward-looking%20Information) This section outlines forward-looking statements in the Annual Report on Form 10-K, emphasizing inherent risks and uncertainties that may cause actual results to differ materially - Forward-looking statements are subject to **known and unknown risks, uncertainties, and other factors** that may cause actual results to differ materially from projections[8](index=8&type=chunk)[10](index=10&type=chunk)[13](index=13&type=chunk) - Key areas of forward-looking statements include **future revenues, expenditures, capital requirements, ability to continue as a going concern, need for additional financing, business strategy, demand for services (Therapeutic DNA, MDx Testing, DNA Tagging), regulatory approvals**, and **profitability**[11](index=11&type=chunk)[12](index=12&type=chunk) - The company assumes **no obligation to update** any forward-looking statement or risk factor unless required by law[14](index=14&type=chunk) [ITEM 1. BUSINESS](index=6&type=section&id=ITEM%201.%20BUSINESS) Applied DNA Sciences is a biotechnology company focused on DNA and RNA production and detection across three markets, prioritizing Therapeutic DNA Production and MDx Testing Services [Overview](index=6&type=section&id=Overview) Applied DNA Sciences develops and commercializes DNA and RNA production and detection technologies, focusing on Therapeutic DNA Production and MDx Testing Services - The company operates in three primary business markets: **Therapeutic DNA Production Services, MDx Testing Services**, and **DNA Tagging and Security Products and Services**[18](index=18&type=chunk) - Current growth strategy focuses on developing and commercializing **Therapeutic DNA Production Services** and expanding **MDx Testing Services** through genetic testing[19](index=19&type=chunk) [Corporate History](index=6&type=section&id=Corporate%20History) The company was formed in 1983, reincorporated in Delaware in 2008, and is headquartered in Stony Brook, New York - The company was initially formed in **1983**, reincorporated in **Delaware in 2008**, and is headquartered in **Stony Brook, New York**[20](index=20&type=chunk)[21](index=21&type=chunk) [Industry Background and Markets](index=8&type=section&id=Industry%20Background%20and%20Markets) This section details the company's three main business segments, highlighting their technologies, market opportunities, and strategic focus [Therapeutic DNA Production Services](index=8&type=section&id=Therapeutic%20DNA%20Production%20Services) The company develops Linea DNA and Linea IVT platforms for enzymatic DNA and mRNA production, offering advantages over traditional methods for nucleic acid-based therapeutics - The **Linea DNA platform** enables rapid, efficient, and large-scale cell-free manufacture of high-fidelity DNA sequences, offering advantages over plasmid-based methods in **speed, scalability, purity, simplicity**, and **flexibility**[24](index=24&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) - The **Linea IVT platform**, combining Linea DNA IVT templates and Linea RNAP (from Spindle acquisition), aims to improve mRNA production by preventing dsRNA contamination, offering faster delivery (**14-30 days**), and reducing manufacturing complexities[31](index=31&type=chunk) - The acquisition of Spindle in **July 2023** is expected to increase the company's mRNA-related Total Addressable Market (TAM) by approximately **3x**[32](index=32&type=chunk) Linea DNA Quality Grades and Availability | 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 | Planned availability first half of CY2024 (1) | | GMP | DNA biologic, drug substance and/or drug product | Planned availability first half of CY 2025 (1) | (1) Dependent on the availability of future financing - The company plans to develop **Linea DNA-based therapeutic or prophylactic vaccines** for high-value veterinary health indications, leveraging LNP encapsulation for intramuscular administration[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) [MDx Testing Services](index=12&type=section&id=MDx%20Testing%20Services) ADCL provides MDx testing services, including PGx testing pending NYSDOH approval, with historical revenue largely from safeCircle™ COVID-19 testing - ADCL offers **MDx testing services**, including pharmacogenomics (PGx) testing, which is currently pending **NYSDOH approval**[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk) - The majority of historical MDx revenue came from **safeCircle™ COVID-19 testing**, but demand has significantly decreased, resulting in reduced revenues[42](index=42&type=chunk) - Upon **NYSDOH approval**, the company plans to leverage **PGx Testing Services** for large entities and self-insured employers, citing potential healthcare cost reductions and improved patient wellbeing[41](index=41&type=chunk) [DNA Tagging and Security Products and Services](index=12&type=section&id=DNA%20Tagging%20and%20Security%20Products%20and%20Services) The CertainT® platform uses non-biologic DNA tags for supply chain security and product authentication, primarily for cotton, with increased interest due to UFLPA - The **CertainT® platform** uses non-biologic DNA tags for supply chain security and product authentication, with a primary focus on **cotton**[43](index=43&type=chunk)[44](index=44&type=chunk) - The **Uyghur Forced Labor Prevention Act (UFLPA)** has increased interest in DNA tagging, fiberTyping, and isotopic analysis services as evidence for product origin[45](index=45&type=chunk) [Sales and Marketing](index=14&type=section&id=Sales%20and%20Marketing) The company has a small sales and marketing team consisting of five employees, with three directly involved in sales - The sales and marketing team comprises **five employees**, with **three directly engaged in sales**[46](index=46&type=chunk) [Research and Development](index=14&type=section&id=Research%20and%20Development) R&D efforts focus on optimizing LineaDNA and Linea IVT platforms, developing veterinary vaccines, validating PGx testing, and incorporating DNA tags - R&D efforts are focused on optimizing **LineaDNA** and **Linea IVT platforms**, developing **LineaDNA-based veterinary vaccines**, validating **PGx testing services**, and incorporating/authenticating DNA tags in various products[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) Research and Development Expenses | Fiscal Year Ended September 30 | R&D Expenses (Millions) | | :----------------------------- | :---------------------- | | 2023 | $3.7 | | 2022 | $3.9 | [Raw Materials and Suppliers](index=14&type=section&id=Raw%20Materials%20and%20Suppliers) The company relies on DNA polymerase and synthesized DNA templates, but Linea RNAP is from a single third-party CDMO, posing supply risks - Key raw materials include **DNA polymerase (DNAP)** and **synthesized DNA templates**, generally available from multiple sources[51](index=51&type=chunk) - **Linea RNAP** for **Therapeutic DNA Production Services** is currently manufactured by a single third-party CDMO, creating a risk of production delays if this supplier's production ceases[51](index=51&type=chunk) [Manufacturing](index=15&type=section&id=Manufacturing) The company manufactures GLP grade Linea DNA at Stony Brook, with plans for GMP grades, while Linea RNAP is produced by a third-party CDMO - **Linea DNA** is manufactured at the Stony Brook facility, currently at **GLP grade**, with plans for **GMP non-drug substance grade in CY2024** and **GMP drug substance grade in CY2025**[52](index=52&type=chunk) - **Linea RNAP** is produced by a third-party CDMO in the United States[52](index=52&type=chunk) - In-house authentication capabilities for **DNA Tagging and Security** are available in **Stony Brook** and **India**[52](index=52&type=chunk) [Distribution of our Products/Services and Commercial Agreements](index=15&type=section&id=Distribution%20of%20our%20Products%2FServices%20and%20Commercial%20Agreements) The company distributes its products and services directly to customers, through channel partners, and via licensed distributors - Products and services are distributed directly to customers, through channel partners, and via licensed distributors[52](index=52&type=chunk) [Collaboration and Licensing Agreements](index=15&type=section&id=Collaboration%20and%20Licensing%20Agreements) The company partners with CLEARED4 for COVID-19 testing and Cornell University for veterinary health LNP formulations and LineaDNA expression vectors - Partnership with **CLEARED4** for **COVID-19 testing solutions**, integrating **safeCircle™** with their digital health platform[53](index=53&type=chunk) - Collaboration with **Cornell University College of Veterinary Medicine** to develop LNP formulations and **LineaDNA expression vectors** for veterinary health, specifically equine infectious diseases[54](index=54&type=chunk) [Customers](index=15&type=section&id=Customers) The company experienced significant customer concentration, with two MDx Testing Services customers accounting for 65% and 14% of FY2023 revenue Revenue Concentration from MDx Testing Services Customers | Fiscal Year | Customer 1 Revenue Share | Customer 2 Revenue Share | | :---------- | :----------------------- | :----------------------- | | 2023 | 65% | 14% | - The **COVID-19 testing contract with CUNY**, which accounted for **65% of FY2023** and **58% of FY2022 revenues**, terminated in **June 2023**, resulting in a significant revenue reduction[55](index=55&type=chunk) - Three customers accounted for **60% of accounts receivable** at **September 30, 2023**, and two customers accounted for **89%** at **September 30,

Third Quarter Fiscal 2023 Financial Results 10 August 2023 ...

Applied DNA Sciences, Inc. (NASDAQ:APDN) Q3 2023 Earnings Conference Call August 10, 2023 4:30 PM ET Company Participants Sanjay Hurry - Head of IR Beth Jantzen - CFO James Hayward - Chairman, President and CEO Clay Shorrock - Chief Legal Officer and Head of Business Development Conference Call Participants Jason McCarthy - Maxim Group Operator Good day, and welcome to the Applied DNA Sciences Inc. Fiscal Third Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please note, this event i ...

PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and related notes for the period ended June 30, 2023, covering financial position, operations, equity, and cash flows, along with key accounting policies and recent events [Item 1 - Condensed Consolidated Financial Statements (unaudited)](index=3&type=section&id=Item%201%20-%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents the company's unaudited condensed consolidated financial statements and related notes for the period ended June 30, 2023, covering financial position, operations, equity, and cash flows, along with key accounting policies and recent events [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This table provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of June 30, 2023, and September 30, 2022 | Metric | June 30, 2023 (unaudited) | September 30, 2022 | | :-------------------------- | :------------------------ | :----------------- | | Cash and cash equivalents | $10,756,235 | $15,215,285 | | Accounts receivable, net | $682,701 | $3,067,544 | | Inventories | $276,422 | $602,244 | | Total current assets | $12,240,262 | $19,943,129 | | Total assets | $15,789,534 | $22,265,114 | | Total current liabilities | $2,891,218 | $4,185,308 | | Warrants classified as a liability | $4,804,700 | $5,139,400 | | Total liabilities | $8,595,466 | $9,356,175 | | Total equity | $7,194,068 | $12,908,939 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This table presents the company's financial performance, including revenues, expenses, and net loss, for the three and nine months ended June 30, 2023 and 2022 | Metric (3 Months Ended June 30) | 2023 | 2022 | Change (%) | | :------------------------------ | :------------ | :------------ | :--------- | | Total revenues | $2,917,341 | $4,296,371 | -32.1% | | Product revenues | $316,950 | $219,765 | +44.2% | | Service revenues | $425,694 | $182,796 | +132.9% | | Clinical laboratory service revenues | $2,174,697 | $3,893,810 | -44.1% | | Gross profit | $1,269,318 | $1,039,258 | +22.1% | | Loss from operations | $(2,859,109) | $(2,856,644) | -0.1% | | Unrealized (loss) gain on change in fair value of warrants classified as a liability | $(278,400) | $1,758,200 | -115.8% | | NET LOSS | $(3,114,195) | $(1,124,796) | +176.9% | | Net loss per share (basic and diluted) | $(0.24) | $(0.13) | +84.6% | | Metric (9 Months Ended June 30) | 2023 | 2022 | Change (%) | | :------------------------------ | :------------ | :------------ | :--------- | | Total revenues | $12,587,707 | $14,609,360 | -13.8% | | Product revenues | $1,130,800 | $1,454,427 | -22.3% | | Service revenues | $826,813 | $570,759 | +44.9% | | Clinical laboratory service revenues | $10,630,094 | $12,584,174 | -15.5% | | Gross profit | $5,454,436 | $4,636,881 | +17.6% | | Loss from operations | $(6,782,469) | $(9,717,457) | -30.2% | | Unrealized gain on change in fair value of warrants classified as a liability | $334,700 | $2,540,700 | -86.8% | | NET LOSS | $(6,407,265) | $(7,605,505) | -15.8% | | Net loss per share (basic and diluted) | $(0.49) | $(0.94) | -47.9% | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This table details changes in the company's stockholders' equity, including net loss and stock-based compensation, for the nine-month period ended June 30, 2023 | Metric (Nine-Month Period ended June 30, 2023) | Amount | | :--------------------------------------------- | :------------ | | Balance, October 1, 2022 | $12,908,939 | | Stock based compensation expense | $692,394 | | Net loss | $(3,099,766) | | Balance, June 30, 2023 | $7,194,068 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This table summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended June 30, 2023 and 2022 | Metric (Nine Months Ended June 30) | 2023 | 2022 | | :--------------------------------- | :------------ | :------------ | | Net cash used in operating activities | $(3,537,911) | $(5,718,086) | | Net cash used in investing activities | $(171,139) | $(246,892) | | Net cash provided by financing activities | $0 | $4,091,908 | | Net decrease in cash, cash equivalents and restricted cash | $(3,709,050) | $(1,873,070) | | Cash, cash equivalents and restricted cash at end of period | $11,506,235 | $4,681,878 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the company's accounting policies, financial instruments, segment information, and other significant financial disclosures [NOTE A — NATURE OF THE BUSINESS](index=7&type=section&id=NOTE%20A%20%E2%80%94%20NATURE%20OF%20THE%20BUSINESS) This note describes the company's core biotechnology business, focusing on DNA/RNA production and detection across therapeutic, MDx testing, and DNA tagging markets - The company is a biotechnology firm developing and commercializing DNA and RNA production and detection technologies[19](index=19&type=chunk) - The company operates in three primary markets: therapeutic DNA production services (including the recent Spindle Biotech acquisition), MDx testing services (including COVID-19 testing via ADCL), and DNA tagging and security products and services[19](index=19&type=chunk) [NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES](index=7&type=section&id=NOTE%20B%20%E2%80%94%20BASIS%20OF%20PRESENTATION%20AND%20SUMMARY%20OF%20ACCOUNTING%20POLICIES) This note outlines the basis for preparing interim financial statements, consolidation principles, going concern considerations, use of estimates, and key accounting policies [Interim Financial Statements](index=7&type=section&id=Interim%20Financial%20Statements) This section clarifies that interim financial statements are unaudited and prepared under GAAP and SEC regulations, not necessarily indicative of full-year results - Interim financial statements are unaudited, prepared under US GAAP and SEC Regulation S-X, and do not include all disclosures required for complete financial statements[20](index=20&type=chunk) - Operating results for the three and nine months ended June 30, 2023, are not necessarily indicative of expected results for the fiscal year ending September 30, 2023[21](index=21&type=chunk) [Principles of Consolidation](index=7&type=section&id=Principles%20of%20Consolidation) This section details the entities included in the consolidated financial statements and the elimination of intercompany transactions - The condensed consolidated financial statements include the accounts of the company, its wholly-owned subsidiaries (APDN (B.V.I.) Inc., Applied DNA Sciences Europe Limited, Applied DNA Sciences India Private Limited, ADCL, and Spindle Acquisition Corp.), and its majority-owned subsidiary LineaRx, Inc., with significant intercompany transactions and balances eliminated[22](index=22&type=chunk) [Going Concern and Management's Plan](index=7&type=section&id=Going%20Concern%20and%20Management's%20Plan) This section addresses the company's significant doubt about its ability to continue as a going concern due to recurring losses and negative cash flows, outlining management's plans - As of June 30, 2023, the company has incurred recurring losses, with an accumulated deficit of **$298,854,883**[23](index=23&type=chunk) - For the nine months ended June 30, 2023, the company reported a net loss of **$6,407,265** and negative operating cash flow of **$3,537,911**, raising substantial doubt about its ability to continue as a going concern for the next year[23](index=23&type=chunk) - The company's ability to continue as a going concern is dependent upon its ability to further implement its business plan, raise capital, and generate revenue[23](index=23&type=chunk) [Use of Estimates](index=9&type=section&id=Use%20of%20Estimates) This section highlights management's use of estimates and assumptions in financial reporting, particularly for revenue, long-term assets, and fair value measurements - Management makes estimates and assumptions in preparing financial statements, primarily concerning revenue recognition, recoverability of long-lived assets, fair value calculations for warrants, contingencies, and expected liquidity[26](index=26&type=chunk) [Revenue Recognition](index=9&type=section&id=Revenue%20Recognition) This section details the company's revenue recognition policies under ASC 606, distinguishing between point-in-time and over-time revenue streams - The company recognizes revenue under ASC 606 when control of promised goods or services is transferred to customers, either at a point in time or over time[27](index=27&type=chunk) | Revenue Type (3 Months Ended June 30) | 2023 | 2022 | | :------------------------------------ | :---------- | :---------- | | Research and development services (over-time) | $135,622 | $152,732 | | Clinical laboratory testing services (point-in-time) | $1,521,315 | $2,506,976 | | Clinical laboratory testing services (over-time) | $653,382 | $1,386,834 | | Product and authentication services (point-in-time): | | | | Supply chain | $242,826 | $43,243 | | Large Scale DNA Production | $271,884 | — | | Asset marking | $92,312 | $127,075 | | MDx test kits and supplies | — | $79,511 | | Total | $2,917,341 | $4,296,371 | | Revenue Type (9 Months Ended June 30) | 2023 | 2022 | | :------------------------------------ | :------------ | :------------ | | Research and development services (over-time) | $349,587 | $472,539 | | Clinical laboratory testing services (point-in-time) | $7,596,748 | $8,712,565 | | Clinical laboratory testing services (over-time) | $3,033,346 | $3,871,609 | | Product and authentication services (point-in-time): | | | | Supply chain | $682,799 | $570,252 | | Large Scale DNA Production | $653,015 | — | | Asset marking | $272,212 | $380,039 | | MDx test kits and supplies | — | $602,356 | | Total | $12,587,707 | $14,609,360 | | Contract Liabilities | June 30, 2023 | September 30, 2022 | Change | | :------------------- | :------------ | :----------------- | :----- | | Deferred revenue | $275,885 | $563,557 | $(287,672) | [Inventories](index=12&type=section&id=Inventories) This section describes the company's inventory valuation methods, including raw materials, work-in-progress, and finished goods - Inventories, primarily raw materials, work-in-progress, and finished goods, are measured at the lower of cost or net realizable value, with cost determined using the first-in, first-out (FIFO) method[40](index=40&type=chunk) [Net Loss Per Share](index=13&type=section&id=Net%20Loss%20Per%20Share) This section explains the calculation of net loss per share, including the treatment of anti-dilutive securities - Dilutive common stock equivalents (warrants, restricted stock units, and stock options) are excluded from the calculation of diluted net loss per share if their inclusion would be anti-dilutive[43](index=43&type=chunk) | Anti-Dilutive Securities | 2023 | 2022 | | :----------------------- | :---------- | :---------- | | Warrants | 7,295,588 | 2,239,963 | | Restricted Stock Units | 282,640 | — | | Stock options | 2,198,971 | 1,063,143 | | Total | 9,777,199 | 3,303,106 | [Cash and Cash Equivalents and Restricted Cash](index=13&type=section&id=Cash%20and%20Cash%20Equivalents%20and%20Restricted%20Cash) This section provides a breakdown of cash, cash equivalents, and restricted cash, explaining the nature of restricted funds | Cash Components | June 30, 2023 | June 30, 2022 | | :----------------------------------- | :------------ | :------------ | | Cash and cash equivalents | $10,756,235 | $4,681,878 | | Restricted cash | $750,000 | — | | Total cash, cash equivalents and restricted cash | $11,506,235 | $4,681,878 | - Restricted cash of **$750,000** is maintained by the company as a contractual obligation under a standby letter of credit agreement related to a new operating lease in February 2023[46](index=46&type=chunk) [Concentrations](index=14&type=section&id=Concentrations) This section identifies significant customer concentrations in revenue and accounts receivable, particularly within MDx testing services - For the three and nine months ended June 30, 2023, two customers in the MDx testing services segment accounted for **71%** and **81%** of the company's total revenue, respectively[50](index=50&type=chunk) - The COVID-19 testing contract with CUNY (terminated in June 2023) accounted for **53%** and **69%** of revenue for the three and nine months ended June 30, 2023, respectively[50](index=50&type=chunk) - As of June 30, 2023, two customers accounted for **86%** of the company's accounts receivable[50](index=50&type=chunk) [Segment Reporting](index=14&type=section&id=Segment%20Reporting) This section outlines the company's three reportable segments and how their performance is evaluated based on revenue and operating profit or loss - The company has three reportable segments: Therapeutic DNA Production Services, MDx Testing Services, and DNA Tagging and Security Products and Services[51](index=51&type=chunk) - Segment performance is evaluated based on revenue and operating profit or loss, with all corporate overhead costs allocated[53](index=53&type=chunk) [Fair Value of Financial Instruments](index=15&type=section&id=Fair%20Value%20of%20Financial%20Instruments) This section explains the fair value hierarchy for financial instruments and the valuation techniques used for various assets and liabilities - Fair value measurements for financial instruments use observable and unobservable inputs, categorized into three levels: Level 1 (quoted prices in active markets), Level 2 (quoted prices for similar assets/liabilities or verifiable market data), and Level 3 (unobservable inputs unsupported by market activity)[54](index=54&type=chunk) - There were no transfers between fair value levels during the period ended June 30, 2023[55](index=55&type=chunk) [Recent Accounting Standards](index=15&type=section&id=Recent%20Accounting%20Standards) This section discusses the anticipated impact of recently adopted accounting standards on the company's consolidated financial statements - The company does not expect the adoption of ASU 2016-13 (Measurement of Credit Losses on Financial Instruments) to have a material impact on its condensed consolidated financial statements[56](index=56&type=chunk) - The company does not expect the adoption of ASU 2020-06 (Convertible Debt and Contracts on an Entity's Own Equity) to have a material impact on its condensed consolidated financial statements[57](index=57&type=chunk) [NOTE C — INVENTORIES](index=17&type=section&id=NOTE%20C%20%E2%80%94%20INVENTORIES) This note provides a detailed breakdown of the company's inventory components as of June 30, 2023, and September 30, 2022 | Inventory Component | June 30, 2023 (unaudited) | September 30, 2022 | | :------------------ | :------------------------ | :----------------- | | Raw materials | $212,965 | $471,947 | | Work-in-progress | $26,425 | $55,817 | | Finished goods | $37,032 | $74,480 | | Total | $276,422 | $602,244 | [NOTE D — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES](index=17&type=section&id=NOTE%20D%20%E2%80%94%20ACCOUNTS%20PAYABLE%20AND%20ACCRUED%20LIABILITIES) This note details the composition of accounts payable and accrued liabilities, including salaries and other expenses, at period-end | Liability Component | June 30, 2023 (unaudited) | September 30, 2022 | | :------------------------- | :------------------------ | :----------------- | | Accounts payable | $1,051,723 | $1,744,105 | | Accrued salaries payable | $999,952 | $1,458,661 | | Other accrued expenses | $76,233 | $418,985 | | Total | $2,127,908 | $3,621,751 | [NOTE E — WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS](index=17&type=section&id=NOTE%20E%20%E2%80%94WARRANTS,%20STOCK%20OPTIONS%20AND%20RESTRICTED%20STOCK%20UNITS) This note provides information on the company's outstanding warrants, stock options, and restricted stock units, including activity and valuation [Warrants](index=17&type=section&id=Warrants) This section details the activity and weighted average exercise price of the company's warrants for the period | Warrants Activity | Number of Shares | Weighted Average Exercise Price Per Share | | :------------------------- | :--------------- | :---------------------------------------- | | Balance at October 1, 2022 | 7,313,963 | $3.68 | | Cancelled or expired | (18,375) | $17.60 | | Balance at June 30, 2023 | 7,295,588 | $3.65 | [Options](index=18&type=section&id=Options) This section describes the stock options granted, their fair value calculation, and key assumptions used in the Black-Scholes model - For the nine months ended June 30, 2023, the company granted **308,333** options to executives (vesting **25%** annually) and **694,670** options to non-employee directors (vesting after one year)[66](index=66&type=chunk) - The weighted average grant-date fair value of options granted was **$1.20**, calculated using the Black-Scholes option pricing model with assumptions including a stock price of **$1.27**, exercise price of **$1.27**, expected term of **5.74 years**, dividend yield of **0%**, volatility of **157%**, and risk-free interest rate of **3.64%**[67](index=67&type=chunk) [Restricted Stock Units](index=18&type=section&id=Restricted%20Stock%20Units) This section outlines the restricted stock units granted to executives, their vesting schedule, and fair value - For the nine months ended June 30, 2023, the company granted **282,640** restricted stock units (RSUs) to executives, vesting one year from the grant date, with fair value based on the closing stock price on the grant date[68](index=68&type=chunk) [NOTE F — COMMITMENTS AND CONTINGENCIES](index=18&type=section&id=NOTE%20F%20%E2%80%94%20COMMITMENTS%20AND%20CONTINGENCIES) This note discloses the company's operating lease commitments, employment agreements, and current litigation status [Operating Leases](index=18&type=section&id=Operating%20Leases) This section details the company's operating lease agreements, including terms, costs, and related security arrangements - In February 2023, the company amended its operating lease agreement for its corporate headquarters, with a three-year term, monthly rent of **$48,861**, and a **$750,000** standby letter of credit as security[69](index=69&type=chunk) | Lease Cost (3 Months Ended June 30, 2023) | Amount | | :---------------------------------------- | :---------- | | Operating lease cost | $244,306 | | Short-term lease cost | $43,750 | | Total lease cost | $288,056 | | Lease Cost (9 Months Ended June 30, 2023) | Amount | | :---------------------------------------- | :---------- | | Operating lease cost | $342,028 | | Short-term lease cost | $260,725 | | Total lease cost | $602,753 | - The weighted average remaining lease term for operating leases is **2.6 years**, with a weighted average discount rate of **9.1%**[72](index=72&type=chunk) [Employment Agreement](index=19&type=section&id=Employment%20Agreement) This section outlines the key terms of the CEO's employment agreement, including compensation, bonuses, and severance provisions - The employment agreement for Dr. James Hayward, President and CEO, was renewed through June 30, 2023, with an annual salary of **$450,000** and eligibility for an annual cash incentive bonus of up to **$800,000** based on revenue milestones[74](index=74&type=chunk)[77](index=77&type=chunk) - For the nine months ended June 30, 2023, the CEO earned a **$500,000** bonus due to company revenues exceeding **$12 million**, which is included in accounts payable and accrued liabilities[77](index=77&type=chunk) - The agreement provides for severance and benefits, including salary continuation and accelerated vesting of equity incentives, in cases of termination without cause, resignation for good reason, or change in control of the company[75](index=75&type=chunk) [Litigation](index=21&type=section&id=Litigation) This section confirms the company is not currently involved in any pending legal proceedings - The company is not currently involved in any pending legal proceedings[78](index=78&type=chunk) [NOTE G – SEGMENT INFORMATION](index=21&type=section&id=NOTE%20G%20%E2%80%93%20SEGMENT%20INFORMATION) This note provides detailed financial performance data for each of the company's reportable segments, including revenues and operating results | Metric (3 Months Ended June 30, 2023) | Therapeutic DNA Production Services | MDx Testing Services | DNA Tagging and Security Products | Consolidated | | :------------------------------------ | :---------------------------------- | :------------------- | :-------------------------------- | :----------- | | Total revenues | $405,506 | $2,174,697 | $337,138 | $2,917,341 | | Gross profit | $290,541 | $829,798 | $148,979 | $1,269,318 | | (Loss) income from segment operations | $(717,126) | $14,742 | $(998,966) | $(1,701,350) | | Metric (9 Months Ended June 30, 2023) | Therapeutic DNA Production Services | MDx Testing Services | DNA Tagging and Security Products | Consolidated | | :------------------------------------ | :---------------------------------- | :------------------- | :-------------------------------- | :----------- | | Total revenues | $994,287 | $10,630,094 | $963,326 | $12,587,707 | | Gross profit | $676,942 | $4,413,130 | $364,364 | $5,454,436 | | (Loss) income from segment operations | $(2,623,502) | $1,616,914 | $(2,388,417) | $(3,395,005) | | Reconciliation (3 Months Ended June 30) | 2023 | 2022 | | :-------------------------------------- | :-------------- | :-------------- | | Loss from operations of reportable segments | $(1,701,350) | $(1,989,061) | | General corporate expenses | $(1,157,759) | $(867,583) | | Interest income | $26,783 | — | | Unrealized (loss) gain on change in fair value of warrants classified as a liability | $(278,400) | $1,758,200 | | Other expense, net | $(3,469) | $(26,352) | | Consolidated loss before provision for income taxes | $(3,114,195) | $(1,124,796) | | Reconciliation (9 Months Ended June 30) | 2023 | 2022 | | :-------------------------------------- | :-------------- | :-------------- | | Loss from operations of reportable segments | $(3,395,005) | $(5,402,678) | | General corporate expenses | $(3,387,464) | $(4,314,779) | | Interest income | $34,108 | $5,813 | | Unrealized gain on change in fair value of warrants classified as a liability | $334,700 | $2,540,700 | | Transaction costs allocated to warrant liabilities | — | $(391,335) | | Other income (expense), net | $6,396 | $(43,226) | | Consolidated loss before provision for income taxes | $(6,407,265) | $(7,605,505) | [NOTE H – FAIR VALUE OF FINANCIAL INSTRUMENTS](index=23&type=section&id=NOTE%20H%20%E2%80%93%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) This note details the fair value measurements of the company's financial liabilities, specifically warrants, and changes in their fair value | Liabilities (June 30, 2023) | Fair value | Valuation Technique | Unobservable Input | Weighted Average | | :-------------------------- | :----------- | :------------------ | :----------------- | :--------------- | | Common Warrants | $1,629,000 | Monte Carlo simulation | Annualized volatility | 160.00 % | | Series A Warrants | $3,153,000 | Monte Carlo simulation | Annualized volatility | 160.00 % | | Series B Warrants | $22,700 | Monte Carlo simulation | Annualized volatility | 130.00 % | | Change in Fair Value (3 Months Ended June 30, 2023) | Common Warrants | Series A Warrants | Series B Warrants | Totals | | :-------------------------------------------------- | :-------------- | :---------------- | :---------------- | :---------- | | Fair value at April 1, 2023 | $1,429,000 | $2,768,000 | $329,300 | $4,526,300 | | Change in fair value | $200,000 | $385,000 | $(306,600) | $278,400 | | Fair Value at June 30, 2023 | $1,629,000 | $3,153,000 | $22,700 | $4,804,700 | | Change in Fair Value (9 Months Ended June 30, 2023) | Common Warrants | Series A Warrants | Series B Warrants | Totals | | :-------------------------------------------------- | :-------------- | :---------------- | :---------------- | :---------- | | Fair value at October 1, 2022 | $1,477,000 | $2,883,000 | $779,400 | $5,139,400 | | Change in fair value | $152,000 | $270,000 | $(756,700) | $(334,700) | | Fair Value at June 30, 2023 | $1,629,000 | $3,153,000 | $22,700 | $4,804,700 | [NOTE I – SUBSEQUENT EVENTS](index=24&type=section&id=NOTE%20I%20%E2%80%93%20SUBSEQUENT%20EVENTS) This note describes significant events occurring after the reporting period, including the acquisition of Spindle Biotech Inc. and its integration - On July 12, 2023, the company, through its wholly-owned subsidiary Spindle Acquisition Corp., acquired Spindle Biotech Inc., an early-stage biotechnology company developing next-generation RNA manufacturing technologies[96](index=96&type=chunk) - The acquisition consideration included **$625,000** in cash, **750,000** shares of restricted common stock, and potential additional issuance of up to **1,000,000** restricted shares upon patent issuance and sales milestones[97](index=97&type=chunk) - The company has integrated the acquired technology into its Therapeutic DNA Production Services business unit, launching the Linea™ IVT platform to offer LinearDNA IVT templates and Spindle's proprietary engineered RNA polymerase to mRNA contract development and manufacturing organizations and mRNA therapeutic developers[98](index=98&type=chunk) [Item 2. — Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=26&type=section&id=Item%202.%20%E2%80%94%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section analyzes the company's financial condition and operating results for the period ended June 30, 2023, addressing business segments, operating plans, financial performance, liquidity, and critical accounting policies, with a focus on ongoing losses and the impact of reduced COVID-19 testing demand [Forward-Looking Statements](index=26&type=section&id=Forward-Looking%20Statements) This section cautions that the report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially from expectations - This quarterly report contains 'forward-looking statements' regarding future events, operating results, or financial condition, which are subject to known and unknown risks, uncertainties, and other factors[101](index=101&type=chunk) - Actual results and the timing of events may differ from those expressed or implied in forward-looking statements due to factors such as future revenues, expenses, funding needs, going concern ability, material weaknesses in internal control, business strategies, demand for services (e.g., therapeutic DNA production, DNA tagging, MDx testing), regulatory approvals, and the anticipated benefits of the Spindle acquisition[103](index=103&type=chunk)[105](index=105&type=chunk) - Forward-looking statements are based on current expectations, assumptions, estimates, and projections, and the company undertakes no obligation to update any forward-looking statements or risk factors unless required by law[103](index=103&type=chunk)[106](index=106&type=chunk) [Introduction](index=30&type=section&id=Introduction) This section introduces the company as a biotechnology firm leveraging PCR technology for DNA/RNA production and detection across therapeutic, MDx testing, and DNA tagging markets - The company is a biotechnology firm leveraging PCR technology to develop and commercialize DNA and RNA production and detection technologies[110](index=110&type=chunk) - The company operates in three primary markets: therapeutic DNA production services (including the recent Spindle Biotech acquisition), MDx testing services, and DNA tagging and security products and services[110](index=110&type=chunk) - The company's current growth strategy focuses on further development, commercialization, and customer adoption of therapeutic DNA production services, including expanding its CDMO business and developing DNA product candidates for veterinary health[111](index=111&type=chunk) [Therapeutic DNA Production Services](index=30&type=section&id=Therapeutic%20DNA%20Production%20Services) This section details the company's linearDNA platform for nucleic acid therapy, including the Linea™ IVT platform and strategic plans for CDMO and veterinary health markets - Through its LineaRx, Inc. subsidiary, the company is developing and commercializing the linearDNA platform, enabling rapid, efficient, and large-scale cell-free production of high-fidelity DNA sequences for nucleic acid therapies, offering advantages over plasmid DNA manufacturing in speed, scalability, purity, simplicity, and flexibility[112](index=112&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - Through the recent acquisition of Spindle Biotech, the company combines linearDNA IVT templates with Spindle's proprietary high-performance RNA polymerase to form the Linea™ IVT platform, expected to prevent or reduce double-stranded RNA (dsRNA) contamination, increase target mRNA yield, and deliver IVT templates within **14 to 30 days**, thereby reducing mRNA manufacturing complexity[113](index=113&type=chunk)[117](index=117&type=chunk) - The strategy for this business segment includes: securing supply contracts with mRNA manufacturers via the Linea™ IVT platform; engaging preclinical and indirect clinical therapeutic developers with existing GLP linearDNA production capabilities; entering direct clinical use supply contracts with clinical-stage therapeutic developers and commercial manufacturers upon cGMP linearDNA production facility development; and developing and commercializing linearDNA-based veterinary health vaccines[121](index=121&type=chunk)[122](index=122&type=chunk) [MDx Testing Services](index=33&type=section&id=MDx%20Testing%20Services) This section describes the company's clinical molecular diagnostics and genetic testing services, highlighting the impact of declining COVID-19 testing demand and future PGx plans - Through its clinical laboratory subsidiary ADCL, the company provides and develops clinical molecular diagnostics and genetic testing services using PCR technology, including validated pharmacogenomics (PGx) testing services (pending NYSDOH approval) and COVID-19 testing services marketed under the safeCircle™ trademark[123](index=123&type=chunk)[124](index=124&type=chunk) - Historically, COVID-19 testing services were the primary revenue source for MDx testing services, but demand has significantly declined with the end of the US national emergency, notably with the CUNY contract terminating in June 2023, which accounted for **58%** of the company's revenue in fiscal year 2022[128](index=128&type=chunk) - Upon NYSDOH approval, PGx testing services are planned for large entities and self-insured employers, aiming to reduce population healthcare costs and improve overall population health[124](index=124&type=chunk) [DNA Tagging and Security Products and Services](index=35&type=section&id=DNA%20Tagging%20and%20Security%20Products%20and%20Services) This section outlines the company's DNA tagging and security solutions, sold under the CertainT® trademark, for supply chain authentication and potential benefits from UFLPA - Leveraging its expertise in DNA manufacturing and PCR detection, the company offers DNA tagging and security products and services, sold under the CertainT® trademark, enabling customers to uniquely mark items with non-biological DNA tags and identify them by detecting the presence or absence of these tags, thereby securing industrial supply chains[130](index=130&type=chunk) - Core products include SigNature® molecular tags for supply chain authentication, SigNify® IF portable DNA readers and SigNify consumable kits for on-site authentication, and fiberTyping® for cotton variety and product traceability certification[130](index=130&type=chunk)[131](index=131&type=chunk) - The company believes the Uyghur Forced Labor Prevention Act (UFLPA) may help increase demand for its DNA tagging and security products and services, as DNA tagging is listed as one method for importers to demonstrate goods were not produced with forced labor[133](index=133&type=chunk)[135](index=135&type=chunk) [Plan of Operations](index=37&type=section&id=Plan%20of%20Operations) This section discusses the company's future revenue expectations, anticipated decline in COVID-19 testing revenue, and capital allocation for business expansion amidst liquidity constraints - The company's future revenues are expected to primarily derive from therapeutic DNA production services and MDx testing services, followed by DNA tagging and security products and services[136](index=136&type=chunk) - Revenue from safeCircle COVID-19 testing solutions is expected to significantly decrease due to the substantial decline in COVID-19 testing demand and the termination of the CUNY contract in June 2023[136](index=136&type=chunk) - The company will continue to invest capital to expand its operations to meet current and future demand, but faces limited sources of liquidity[136](index=136&type=chunk) [Comparison of Results of Operations for the Three-Month Periods Ended June 30, 2023 and 2022](index=37&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20Three-Month%20Periods%20Ended%20June%2030,%202023%20and%202022) This section compares the company's financial performance for the three months ended June 30, 2023 and 2022, analyzing changes in revenues, costs, and net loss [Revenues](index=37&type=section&id=Revenues) This section analyzes revenue changes across product, service, and clinical laboratory segments for the three months ended June 30, 2023 and 2022 - Product revenues increased **44%** to **$316,950**, primarily driven by approximately **$230,000** growth in large-scale DNA manufacturing business[138](index=138&type=chunk) - Service revenues increased **133%** to **$425,964**, primarily due to approximately **$184,000** growth in isotope detection services and **$68,000** from new customers in the textile and biopharmaceutical markets[139](index=139&type=chunk) - Clinical laboratory service revenues decreased **44%** to **$2,174,697**, primarily due to declining COVID-19 testing demand and the termination of the CUNY contract in mid-June 2023[140](index=140&type=chunk) [Cost and Expenses](index=38&type=section&id=Cost%20and%20Expenses) This section details changes in gross profit, operating expenses, interest income, and fair value adjustments for the three months ended June 30, 2023 and 2022 - Gross profit increased **22%** to **$1,269,318**, with gross margin rising from **24%** to **44%**, primarily due to improved MDx testing service gross margins and an increased proportion of COVID-19 surveillance testing services[141](index=141&type=chunk) - Selling, general, and administrative expenses increased **9%** to **$3,292,304**, mainly due to bad debt allowance adjustments, isotope detection costs, system automation implementation, and increased legal fees[142](index=142&type=chunk) - Research and development expenses decreased **3%** to **$836,123**, primarily due to reduced contract services supporting animal vaccine research[143](index=143&type=chunk) - Interest income was **$26,783** (compared to **$0** in the prior year period), primarily due to high-interest money market accounts and higher cash balances[144](index=144&type=chunk) - Unrealized loss on change in fair value of warrants classified as a liability was **$278,400**, primarily due to an increase in stock price during the period and a shorter remaining term for Series B warrants[146](index=146&type=chunk) [Net Loss](index=39&type=section&id=Net%20Loss) This section summarizes the increase in net loss for the three months ended June 30, 2023, driven by various revenue and expense factors - Net loss for the three months ended June 30, 2023, increased **177%** to **$3,114,195**, compared to **$1,124,796** in the prior year period, influenced by the factors mentioned above[149](index=149&type=chunk) [Comparison of Results of Operations for the Nine-Month Periods Ended June 30, 2023 and 2022](index=39&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20Nine-Month%20Periods%20Ended%20June%2030,%202023%20and%202022) This section compares the company's financial performance for the nine months ended June 30, 2023 and 2022, analyzing changes in revenues, costs, and net loss [Revenues](index=39&type=section&id=Revenues) This section analyzes revenue changes across product, service, and clinical laboratory segments for the nine months ended June 30, 2023 and 2022 - Product revenues decreased **22%** to **$1,130,800**, primarily due to a reduction of approximately **$602,000** in Linea™ COVID-19 test kit sales, partially offset by a **$560,000** increase in large-scale DNA production orders for the biopharmaceutical market[149](index=149&type=chunk) - Service revenues increased **45%** to **$826,813**, primarily due to approximately **$198,000** growth in isotope detection services for the textile market and **$43,000** in the biopharmaceutical market[150](index=150&type=chunk) - Clinical laboratory service revenues decreased **16%** to **$10,630,094**, primarily due to declining COVID-19 testing demand and the termination of the CUNY COVID-19 testing contract in June 2023[151](index=151&type=chunk) [Cost and Expenses](index=39&type=section&id=Cost%20and%20Expenses) This section details changes in gross profit, operating expenses, interest income, and fair value adjustments for the nine months ended June 30, 2023 and 2022 - Gross profit increased **18%** to **$5,454,436**, with gross margin rising from **32%** to **43%**, primarily due to improved cost management efficiency in MDx testing services and a reduced negative impact on gross profit from testing pool size adjustments due to lower COVID-19 positivity rates[152](index=152&type=chunk) - Selling, general, and administrative expenses decreased **17%** to **$9,440,734**, primarily attributable to a **$1,553,000** reduction in stock-based compensation expense[153](index=153&type=chunk) - Research and development expenses decreased **7%** to **$2,796,171**, primarily due to a reduction of approximately **$180,000** in outsourced service contracts and laboratory supplies[157](index=157&type=chunk) - Interest income was **$34,108**, compared to **$5,813** in the prior year period[157](index=157&type=chunk) - Unrealized gain on change in fair value of warrants classified as a liability was **$334,700**, primarily due to a decrease in stock price during the period[158](index=158&type=chunk) [Net Loss](index=41&type=section&id=Net%20Loss) This section summarizes the decrease in net loss for the nine months ended June 30, 2023, influenced by various revenue and expense factors - Net loss for the nine months ended June 30, 2023, decreased **16%** to **$6,407,265**, compared to **$7,605,505** in the prior year period, influenced by the factors mentioned above[158](index=158&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's working capital, cash flows, and the significant impact of the CUNY contract termination on liquidity and going concern - As of June 30, 2023, the company's working capital was **$9,349,044**[159](index=159&type=chunk) - For the nine months ended June 30, 2023, operating activities used **$3,537,911** in cash, and investing activities used **$171,139** in cash[159](index=159&type=chunk) - The termination of the CUNY COVID-19 testing contract (which accounted for **58%** of fiscal year 2022 revenue) is expected to result in a significant decline in future revenues and negatively impact the company's liquidity[160](index=160&type=chunk) - The company's recurring losses and negative operating cash flows raise substantial doubt about its ability to continue as a going concern, with its continuation dependent on further business plan implementation, capital raising, and revenue generation[161](index=161&type=chunk) [Critical Accounting Estimates and Policies](index=43&type=section&id=Critical%20Accounting%20Estimates%20and%20Policies) This section outlines the company's critical accounting policies and estimates, including revenue recognition, equity compensation, and warrant valuation [Critical Accounting Estimates](index=43&type=section&id=Critical%20Accounting%20Estimates) This section identifies key areas requiring management judgment and estimation, such as revenue recognition, long-term assets, and fair value measurements - Critical accounting policies include revenue recognition, stock-based compensation, and warrants classified as liabilities[164](index=164&type=chunk) - Management makes significant estimates in revenue recognition, recoverability of long-lived assets, fair value calculations for warrants, contingencies, and expected liquidity[165](index=165&type=chunk) [Revenue Recognition](index=43&type=section&id=Revenue%20Recognition) This section elaborates on the company's revenue recognition principles under ASC 606 for various product and service offerings - The company recognizes revenue under ASC 606 when control of promised goods or services is transferred to customers, either at a point in time or over time[166](index=166&type=chunk) - Product revenue, authentication service revenue, and clinical laboratory testing service revenue (point-in-time) are recognized when control is transferred or services are completed[168](index=168&type=chunk)[170](index=170&type=chunk) - Research and development service revenue and fixed monthly fee clinical laboratory testing service revenue are recognized over time, with R&D services primarily measured using the cost method[170](index=170&type=chunk)[171](index=171&type=chunk) [Warrants classified as a liability](index=45&type=section&id=Warrants%20classified%20as%20a%20liability) This section explains the accounting treatment of warrants classified as liabilities, measured at fair value with changes recognized in operations - Warrants (common stock, Series A, and Series B) are classified as liabilities under ASC 480 and ASC 815-40, measured at fair value on the balance sheet, with changes in fair value recognized as non-cash gains or losses in the statements of operations[172](index=172&type=chunk) [Off-Balance Sheet Arrangements](index=45&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any off-balance sheet arrangements for the company - The company does not have any off-balance sheet arrangements[173](index=173&type=chunk) [Inflation](index=45&type=section&id=Inflation) This section states that inflation has not had a significant impact on the company's revenues and operating results - Inflation has not had a significant impact on the company's revenues and operating results[173](index=173&type=chunk) [Item 3. — Quantitative and Qualitative Disclosures About Market Risk.](index=45&type=section&id=Item%203.%20%E2%80%94%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company has elected to use the scaled disclosure requirements applicable to smaller reporting companies, thus the market risk information required under this item is not applicable - The company has elected to use the scaled disclosure requirements applicable to smaller reporting companies, thus the market risk information required under this item is not applicable[173](index=173&type=chunk) [Item 4. — Controls and Procedures.](index=46&type=section&id=Item%204.%20%E2%80%94%20Controls%20and%20Procedures.) This section discusses the evaluation of the company's disclosure controls and procedures as of June 30, 2023, concluding their ineffectiveness due to a material weakness in internal control over financial reporting related to complex financial instruments, for which a remediation plan is underway [Evaluation of Disclosure Controls and Procedures](index=46&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports the conclusion that the company's disclosure controls and procedures were ineffective as of June 30, 2023, due to a material weakness - As of June 30, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were ineffective due to a material weakness in internal control over financial reporting[175](index=175&type=chunk) [Material Weakness in Internal Control Over Financial Reporting](index=46&type=section&id=Material%20Weakness%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section identifies a material weakness in internal control over financial reporting related to the accounting for complex financial instruments and their tax implications - During the audits of the fiscal year 2022 and 2021 consolidated financial statements, the company identified a material weakness in internal control over financial reporting[175](index=175&type=chunk) - This material weakness relates to controls over the accounting for complex financial instruments, such as outstanding warrants, and their related tax implications[175](index=175&type=chunk) - Despite the material weakness, the company believes it does not require restatement or changes to any prior interim period consolidated financial statements[175](index=175&type=chunk) [Remediation of Material Weakness](index=46&type=section&id=Remediation%20of%20Material%20Weakness) This section outlines the company's remediation plan to address the identified material weakness, involving enhanced review processes and external expertise - The company is implementing a remediation plan to expand and improve its review processes for complex financial instruments and their related tax implications, involving internal personnel and third-party professional advisors[176](index=176&type=chunk) - The material weakness will be considered remediated once the relevant controls have operated effectively for a sufficient period and have been tested by management[176](index=176&type=chunk) [Changes in Internal Control over Financial Reporting](index=46&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section confirms no other significant changes in internal control over financial reporting during the fiscal quarter ended June 30, 2023, beyond the aforementioned remediation plan - During the fiscal quarter ended June 30, 2023, there were no other significant changes in internal control over financial reporting beyond the aforementioned remediation plan[177](index=177&type=chunk) PART II - OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1 – Legal Proceedings](index=47&type=section&id=Item%201%20%E2%80%93%20Legal%20Proceedings) The company is not currently involved in any pending legal proceedings - The company is not currently involved in any pending legal proceedings[178](index=178&type=chunk) [Item 1A – Risk Factors](index=47&type=section&id=Item%201A%20%E2%80%93%20Risk%20Factors) The company reiterates previously disclosed risk factors, emphasizing significant doubt about its ability to continue as a going concern due to recurring losses and negative operating cash flows, with future operations dependent on raising additional capital and generating revenue - Due to recurring losses, with an accumulated deficit of **$298,854,883** as of June 30, 2023, significant doubt exists about the company's ability to continue as a going concern[179](index=179&type=chunk) - The company's ability to continue as a going concern is dependent upon its ability to raise additional working capital and generate revenue[179](index=179&type=chunk) - Failure to raise additional working capital or unfavorable terms for such capital would materially adversely affect the business, prospects, financial condition, and results of operations, potentially leading to the company's inability to continue as a going concern[179](index=179&type=chunk) [Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202%20%E2%80%93%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds during this reporting period - There were no unregistered sales of equity securities or use of proceeds during this reporting period[180](index=180&type=chunk) [Item 3 – Defaults Upon Senior Securities](index=47&type=section&id=Item%203%20%E2%80%93%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during this reporting period - There were no defaults upon senior securities during this reporting period[180](index=180&type=chunk) [Item 4 – Mine Safety Disclosures](index=47&type=section&id=Item%204%20%E2%80%93%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable to the company[180](index=180&type=chunk) [Item 5 – Other Information](index=47&type=section&id=Item%205%20%E2%80%93%20Other%20Information) There is no other information to report under this item - There is no other information to report under this item[180](index=180&type=chunk) [Item 6 – Exhibits](index=48&type=section&id=Item%206%20%E2%80%93%20Exhibits) This section lists exhibits filed with Form 10-Q, including the equity purchase agreement for Spindle Biotech Inc., articles of incorporation, bylaws, and certifications from the CEO and CFO, with some exhibits incorporated by reference or furnished - Exhibits include the equity purchase agreement for Spindle Biotech Inc., articles of incorporation, bylaws, and certifications from the CEO and CFO[181](index=181&type=chunk) - Exhibits 32.1 and 32.2 (CEO/CFO certifications) are furnished rather than 'filed' and are therefore not subject to the liability provisions of Section 18 of the Exchange Act[182](index=182&type=chunk)

Second Quarter Fiscal 2023 Financial Results 11 May 2023 ...