Applied DNA Sciences, Inc. (NASDAQ:APDN) Q1 2022 Earnings Conference Call February 10, 2022 4:30 PM ET Company Participants Sanjay Hurry - Investor Relations Beth Jantzen - Chief Financial Officer James Hayward - Chairman, President & Chief Executive Officer Conference Call Participants Jonathan Aschoff - ROTH Capital Partners Jason McCarthy - Maxim Group Matt Bullock - Maxim Group Operator Good afternoon, and welcome to Applied DNA Sciences Incorporated First Quarter Fiscal 2022 Financial Results Conferenc ...

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the reporting period [Item 1 - Condensed Consolidated Financial Statements (unaudited)](index=3&type=section&id=Item%201%20-%20Condensed%20Consolidated%20Financial%20Statements%20%28unaudited%29) This section presents the unaudited condensed consolidated financial statements for Applied DNA Sciences, Inc. and its subsidiaries, including balance sheets, statements of operations, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the nature of the business, accounting policies, and specific financial line items [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 at specific dates | ASSETS / LIABILITIES AND EQUITY | December 31, 2021 (unaudited) ($) | September 30, 2021 ($) | | :------------------------------ | :---------------------------- | :----------------- | | Cash and cash equivalents | $2,748,368 | $6,554,948 | | Accounts receivable, net | $3,857,275 | $2,804,039 | | Total current assets | $8,499,421 | $11,297,801 | | Total Assets | $11,402,313 | $14,416,756 | | Total current liabilities | $2,978,891 | $3,272,343 | | Total liabilities | $3,010,358 | $3,303,810 | | Total equity | $8,391,955 | $11,112,946 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement outlines the company's revenues, expenses, and net loss for the three-month periods ended December 31, 2021 and 2020 | Revenues / Expenses | Three Months Ended December 31, 2021 ($) | Three Months Ended December 31, 2020 ($) | | :------------------ | :----------------------------------- | :----------------------------------- | | Product revenues | $826,311 | $550,097 | | Service revenues | $139,273 | $293,274 | | Clinical laboratory service revenues | $3,200,122 | $772,770 | | Total revenues | $4,165,706 | $1,616,141 | | Gross profit | $1,109,138 | $1,100,360 | | Total operating expenses | $5,742,269 | $4,073,462 | | LOSS FROM OPERATIONS | $(4,633,131) | $(2,973,102) | | NET LOSS | $(4,720,911) | $(4,807,062) | | Net loss per share (basic and diluted) | $(0.63) | $(0.88) | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This statement details changes in stockholders' equity, reflecting the impact of net loss, stock-based compensation, and other equity transactions - For the three-month period ended December 31, 2021, stockholders' equity decreased from **$11,112,946** to **$8,391,955**, primarily due to a **net loss of $4,721,766**, partially offset by **stock-based compensation expense of $1,699,920** and **options issued in settlement of accrued bonus of $300,000**[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes cash inflows and outflows from operating, investing, and financing activities for the reporting periods | Cash Flow Activity | Three Months Ended December 31, 2021 ($) | Three Months Ended December 31, 2020 ($) | | :----------------- | :----------------------------------- | :----------------------------------- | | Net cash used in operating activities | $(3,701,894) | $(4,155,742) | | Net cash used in investing activities | $(104,686) | $(329,542) | | Net cash provided by financing activities | $0 | $939,948 | | Net decrease in cash and cash equivalents | $(3,806,580) | $(3,545,336) | | Cash and cash equivalents at end of period | $2,748,368 | $4,241,407 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide essential details and explanations supporting the condensed consolidated financial statements, covering business nature, accounting policies, and specific financial items [NOTE A — NATURE OF THE BUSINESS](index=7&type=section&id=NOTE%20A%20%E2%80%94%20NATURE%20OF%20THE%20BUSINESS) This note describes Applied DNA Sciences' core business activities, including DNA-based technology solutions for biotherapeutics, supply chain security, and COVID-19 diagnostics - Applied DNA Sciences develops and markets DNA-based technology solutions using its LinearDNA™ PCR platform for biotherapeutic contract research and manufacturing, supply chain security, anti-counterfeiting, and anti-theft. The company also develops PCR-based molecular in vitro diagnostics for COVID-19 and offers high-throughput COVID-19 testing services (safeCircle™) through its subsidiary, ADCL[20](index=20&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 of financial statement preparation, key accounting policies, revenue recognition principles, and going concern considerations - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and Regulation S-X. The Company has recurring **net losses** and **negative operating cash flow**, raising substantial doubt about its ability to continue as a **going concern** for one year from the issuance of the financial statements[21](index=21&type=chunk)[22](index=22&type=chunk)[24](index=24&type=chunk) - Revenue recognition follows ASC 606, with revenue recognized either at a point in time (product, authentication, and most clinical lab services) or over time (research and development, fixed monthly fee clinical lab services) as performance obligations are satisfied[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) Disaggregated Revenue by Business Operations and Timing | Revenue Type | December 31, 2021 ($) | December 31, 2020 ($) | | :----------------------------------- | :---------------- | :---------------- | | Research and development services (over-time) | $105,695 | $263,713 | | Clinical laboratory testing services (point-in-time) | $1,873,722 | $578,370 | | Clinical laboratory testing services (over-time) | $1,326,400 | $194,400 | | Product and authentication services (point-in-time): | | | | Supply chain | $411,547 | $32,942 | | Asset marking | $105,522 | $151,758 | | Diagnostic test kits | $342,820 | $394,958 | | Total | $4,165,706 | $1,616,141 | - As of December 31, 2021, **one customer accounted for 48% of the Company's revenues**, and **two customers accounted for 74% of accounts receivable**[43](index=43&type=chunk)[44](index=44&type=chunk) [NOTE C — INVENTORIES](index=14&type=section&id=NOTE%20C%20%E2%80%94%20INVENTORIES) This note provides a breakdown of the company's inventory, distinguishing between raw materials and finished goods Inventories Breakdown | Inventory Type | December 31, 2021 (unaudited) ($) | September 30, 2021 ($) | | :--------------- | :---------------------------- | :----------------- | | Raw materials | $1,194,571 | $786,938 | | Finished goods | $106,058 | $582,995 | | Total | $1,300,629 | $1,369,933 | [NOTE D — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES](index=14&type=section&id=NOTE%20D%20%E2%80%94%20ACCOUNTS%20PAYABLE%20AND%20ACCRUED%20LIABILITIES) This note details the composition of accounts payable and accrued liabilities, including salaries and other expenses Accounts Payable and Accrued Liabilities | Liability Type | December 31, 2021 (unaudited) ($) | September 30, 2021 ($) | | :--------------------- | :---------------------------- | :----------------- | | Accounts payable | $1,760,676 | $2,010,410 | | Accrued salaries payable | $396,796 | $655,240 | | Other accrued expenses | $363,881 | $325,693 | | Total | $2,521,353 | $2,991,343 | [NOTE E —WARRANTS AND STOCK OPTIONS](index=15&type=section&id=NOTE%20E%20%E2%80%94WARRANTS%20AND%20STOCK%20OPTIONS) This note provides information on outstanding warrants and stock options, including grants and their fair value Warrants Outstanding | Metric | October 1, 2021 | December 31, 2021 | | :-------------------------------- | :-------------- | :---------------- | | Number of Shares | 745,268 | 743,563 | | Weighted Average Exercise Price Per Share | $6.44 | $6.43 | - During the three months ended December 31, 2021, the Company granted **361,552 stock options** to officers (vested immediately) and **213,889 options** to non-employee board members (vesting in one year). The weighted average grant date fair value per share for these options was **$5.90**, calculated using the Black Scholes Option Pricing Model[53](index=53&type=chunk)[54](index=54&type=chunk) [NOTE F — COMMITMENTS AND CONTINGENCIES](index=16&type=section&id=NOTE%20F%20%E2%80%94%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's lease obligations, executive compensation details, and confirms the absence of pending litigation - The Company renewed its corporate headquarters and laboratory space leases until January 31, 2023, with an annual base rent of **$589,056**. Total short-term lease obligation as of December 31, 2021, is **$644,059**[57](index=57&type=chunk) - The CEO's annual salary was increased to **$450,000** effective November 1, 2021. A **$300,000 bonus** for FY2021, earned due to annual revenue exceeding **$8 million**, was paid to the CEO on November 1, 2021, by granting stock options with a fair value of **$300,000**[64](index=64&type=chunk) - There is **no pending litigation** involving the Company at this time[65](index=65&type=chunk) [Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202%20-%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results, including forward-looking statements, a business overview, recent developments, and a detailed comparison of financial performance for the three-month periods ended December 31, 2021 and 2020 [Forward-Looking Statements](index=19&type=section&id=Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements subject to various risks and uncertainties, including those related to COVID-19 and product development - The report contains forward-looking statements regarding future expectations, financial performance projections, and business strategies, which are subject to known and unknown risks and uncertainties, including those related to COVID-19, product development, regulatory approvals, and financing[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk)[72](index=72&type=chunk) [Introduction (Business Overview)](index=22&type=section&id=Introduction%20%28Business%20Overview%29) This overview describes Applied DNA's core DNA-based technology solutions, including its LinearDNA™ platform for biotherapeutics and supply chain security, and COVID-19 diagnostic services - Applied DNA develops DNA-based technology solutions using its LinearDNA™ PCR platform for biotherapeutic contract research and manufacturing, supply chain security (Non-Biologic Tagging), and COVID-19 diagnostic testing and services (safeCircle™)[77](index=77&type=chunk) - The LinearDNA™ platform offers benefits in speed, scale, purity, and customization for large-scale DNA production, used in in vitro diagnostics and preclinical nucleic acid-based drug development (e.g., CAR T, DNA vaccines, RNA therapies, CRISPR, gene therapies)[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) - The company's Non-Biologic Tagging business uses SigNature® Molecular Tags and SigNify® IF portable DNA readers for supply chain security, anti-counterfeiting, and anti-theft across various industries[91](index=91&type=chunk)[92](index=92&type=chunk) [Recent Developments](index=26&type=section&id=Recent%20Developments) This section details the impact of the Omicron variant on the Linea 1.0 COVID-19 Assay Kit and the subsequent development and approval status of the Linea 2.0 Assay - The Linea 1.0 COVID-19 Assay Kit was impacted by the Omicron VOC, leading to false negative results as a primary diagnostic. The FDA issued a notice in December 2021 requiring the company to **cease its use for primary diagnosis**[84](index=84&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk) - In response, the Linea 2.0 Assay received **conditional approval as an LDT** from the NYSDOH on December 30, 2021, for use in New York State, and an EUA request for the Linea 2.0 Assay was submitted to the FDA on January 19, 2021[86](index=86&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk) - The Linea 1.0 Assay may still have utility as a reflex test to identify SARS-CoV-2 mutations indicative of the Omicron VOC BA.2 subvariant[93](index=93&type=chunk)[98](index=98&type=chunk) [Plan of Operations](index=28&type=section&id=Plan%20of%20Operations) This section outlines the company's near-term revenue growth strategies, focusing on COVID-19 assay kits, testing services, DNA product manufacturing, and molecular tagging offerings - Near-term revenue growth is expected from Linea™ COVID-19 Assay Kit sales, COVID-19 pooled testing, COVID-19 Surveillance Testing, and DNA product manufacturing for biotechnology and in vitro diagnostic markets. Growth is also anticipated from SigNature® molecular tags, SigNify®, and CertainT® offerings[99](index=99&type=chunk) [Critical Accounting Policies and Recently Issued Accounting Pronouncements](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Recently%20Issued%20Accounting%20Pronouncements) This section refers to Note B for detailed information on critical accounting policies and recent accounting pronouncements - Refer to Note B in the condensed consolidated financial statements for details on critical accounting policies and recent accounting pronouncements[100](index=100&type=chunk) [Comparison of Results of Operations for the Three-Month Periods Ended December 31, 2021 and 2020](index=28&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20Three-Month%20Periods%20Ended%20December%2031%2C%202021%20and%202020) This section provides a detailed comparative analysis of the company's financial performance, including revenues, gross profit, costs, and net loss, for the specified three-month periods [Revenues](index=28&type=section&id=Revenues) This subsection analyzes the changes in product, service, and clinical laboratory service revenues, highlighting key drivers for the increases and decreases Revenue Comparison (YoY) | Revenue Type | 3 Months Ended Dec 31, 2021 ($) | 3 Months Ended Dec 31, 2020 ($) | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Product revenues | $826,311 | $550,097 | $276,214 | 50% | | Service revenues | $139,273 | $293,274 | $(154,001) | -53% | | Clinical laboratory service revenues | $3,200,122 | $772,770 | $2,427,352 | 314% | | Total revenues | $4,165,706 | $1,616,141 | $2,549,565 | 158% | - The increase in product revenues was primarily driven by a **$308,000 increase in Textiles**, offset by a **$52,000 decrease in Linea™ COVID-19 Assay Kit sales**. The decrease in service revenues was due to reduced research and development projects in pharmaceutical/nutraceutical and biopharmaceutical markets[101](index=101&type=chunk)[102](index=102&type=chunk) - Clinical laboratory service revenues saw a significant increase of **314%**, primarily due to higher demand for COVID-19 testing services, including approximately **$2,000,000** from a contract with the City University of New York[103](index=103&type=chunk) [Gross Profit](index=30&type=section&id=Gross%20Profit) This subsection examines the changes in gross profit and gross profit percentage, attributing shifts to revenue mix and associated costs Gross Profit Comparison (YoY) | Metric | 3 Months Ended Dec 31, 2021 ($) | 3 Months Ended Dec 31, 2020 ($) | Change ($) | Change (%) | | :----------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Gross profit | $1,109,138 | $1,100,360 | $8,778 | 0.8% | | Gross profit percentage | 27% | 68% | -41% | | - The decline in gross profit percentage from **68% to 27%** was mainly due to a higher proportion of clinical laboratory service revenues from testing contracts that include staffing test collection centers, which have higher associated costs. Additionally, a shift in product sales mix, with fewer high-margin Linea™ COVID-19 Assay Kit sales, contributed to the decrease[104](index=104&type=chunk) [Costs and Expenses](index=30&type=section&id=Costs%20and%20Expenses) This subsection details the changes in selling, general and administrative, research and development, and other expenses, explaining the primary factors contributing to these shifts Operating Expenses Comparison (YoY) | Expense Type | 3 Months Ended Dec 31, 2021 ($) | 3 Months Ended Dec 31, 2020 ($) | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Selling, General and Administrative | $4,662,173 | $3,309,654 | $1,352,519 | 41% | | Research and Development | $1,080,096 | $763,808 | $316,288 | 41% | | Interest income (expense), net | $273 | $(5,438) | $5,711 | -105% | | Other expense, net | $(88,053) | $(53,860) | $(34,193) | 63% | | Loss on extinguishment of debt | $0 | $(1,774,662) | $1,774,662 | -100% | - The increase in Selling, General and Administrative expenses was primarily due to a **$1,128,422 increase in stock-based compensation expense**, mainly from officer stock option grants and annual non-employee board grants, and higher Directors and Officers insurance premiums[105](index=105&type=chunk) - Research and Development expenses increased due to higher outsourced service contracts (**$90,000**) and payroll (**$96,000**), supporting animal vaccine studies and next-generation sequencing projects[106](index=106&type=chunk) [Net Loss](index=30&type=section&id=Net%20Loss) This subsection presents the net loss for the reporting periods and attributes its change to the combined effects of revenue, gross profit, and expense fluctuations Net Loss Comparison (YoY) | Metric | 3 Months Ended Dec 31, 2021 ($) | 3 Months Ended Dec 31, 2020 ($) | Change ($) | Change (%) | | :------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net loss | $(4,720,911) | $(4,807,062) | $86,151 | -2% | - Net loss decreased by **2% to $4,720,911**, primarily influenced by the factors noted in revenue, gross profit, and expense changes[110](index=110&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's working capital, cash flow from operations, and its ability to continue as a going concern given recurring net losses and negative cash flow - As of December 31, 2021, the Company had working capital of **$5,520,530**. It used **$3,701,894** in operating activities during the three-month period, primarily due to a **net loss of $4,720,911**[111](index=111&type=chunk) - The Company's recurring **net losses** and **negative operating cash flow** raise substantial doubt about its ability to continue as a **going concern** for one year from the issuance of the financial statements, dependent on implementing its business plan, raising capital, and generating revenues[112](index=112&type=chunk) [Off-Balance Sheet Arrangements](index=31&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**[112](index=112&type=chunk) [Inflation](index=31&type=section&id=Inflation) This section states that inflation did not significantly impact the company's revenue or operating results during the period - The effect of inflation on the Company's revenue and operating results was **not significant**[112](index=112&type=chunk) [Item 3 - Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203%20-%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Applied DNA Sciences, Inc. is electing scaled disclosure requirements and therefore this item is not applicable - The Company is electing scaled disclosure requirements available to smaller reporting companies, making this item **not applicable**[113](index=113&type=chunk) [Item 4 - Controls and Procedures](index=31&type=section&id=Item%204%20-%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021, with no material changes in internal control over financial reporting - As of December 31, 2021, the disclosure controls and procedures were evaluated and deemed **effective** by management, including the CEO and CFO[113](index=113&type=chunk) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the fiscal quarter ended December 31, 2021[114](index=114&type=chunk) PART II - OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits [Item 1 – Legal Proceedings](index=31&type=section&id=Item%201%20%E2%80%93%20Legal%20Proceedings) There are no legal proceedings pending against the Company at this time - There is **no pending litigation** involving the Company at this time[114](index=114&type=chunk) [Item 1A – Risk Factors](index=33&type=section&id=Item%201A%20%E2%80%93%20Risk%20Factors) This section indicates that there are no new risk factors to report for the period - **No new risk factors** are reported in this section[115](index=115&type=chunk) [Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds](index=33&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 to report for the period - **No unregistered sales of equity securities** and use of proceeds are reported[115](index=115&type=chunk) [Item 3 – Defaults Upon Senior Securities](index=33&type=section&id=Item%203%20%E2%80%93%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report for the period - **No defaults upon senior securities** are reported[115](index=115&type=chunk) [Item 4 – Mine Safety Disclosures](index=33&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**[115](index=115&type=chunk) [Item 5 – Other Information](index=33&type=section&id=Item%205%20%E2%80%93%20Other%20Information) There is no other information to report for the period - **No other information** is reported[115](index=115&type=chunk) [Item 6 – Exhibits](index=34&type=section&id=Item%206%20%E2%80%93%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications, XBRL documents, and other incorporated by reference filings - The exhibits include certifications from the CEO and CFO (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act), XBRL Instance Document, Taxonomy Extension Schema Document, Calculation Linkbase Document, Definition Linkbase Document, and Label Linkbase Document[117](index=117&type=chunk)

Applied DNA Sciences, Inc. (NASDAQ:APDN) Q4 2021 Earnings Conference Call December 9, 2021 4:30 PM ET Company Participants Sanjay Hurry - Investor Relations Beth Jantzen - Chief Financial Officer James Hayward - Chairman, President & Chief Executive Officer Conference Call Participants Jonathan Aschoff - ROTH Capital Partners Yi Chen - H.C. Wainwright & Co. Jason McCarthy - Maxim Group Anthony Vendetti - Maxim Group Operator Good day and welcome to Applied DNA Sciences' Fourth Quarter and Full Fiscal Year 2 ...

Part I [Business](index=6&type=section&id=Item%201.%20Business) Applied DNA Sciences (APDN) develops DNA-based technology solutions via its LinearDNA™ platform for biotherapeutics, COVID-19 diagnostics, and supply chain security, with recent growth driven by COVID-19 products - The company develops and markets DNA-based technology solutions using its **LinearDNA™** large-scale polymerase chain reaction (PCR) manufacturing platform[16](index=16&type=chunk) - Business segments include Biotherapeutic Contract Research and Manufacturing, Non-Biologic Tagging (supply chain security), and COVID-19 diagnostics and testing services[16](index=16&type=chunk) - In response to the pandemic, the company developed and sells an FDA EUA-authorized PCR-based molecular diagnostic test for COVID-19 (**Linea™ COVID-19 Assay Kit**) and offers high-throughput pooled testing services (**safeCircle™**)[16](index=16&type=chunk) - While historically generating revenue from supply chain security solutions, near-term growth has been primarily driven by sales of its **Linea™ COVID-19 Assay Kit** and related testing services[41](index=41&type=chunk) [Overview and Corporate History](index=6&type=section&id=Overview%20and%20Corporate%20History) The company utilizes its LinearDNA™ platform for DNA production across diagnostics, drug development, and supply chain security, recently expanding into COVID-19 testing with an FDA EUA-authorized kit - The **LinearDNA™ platform** is highlighted for its speed, scale, and purity compared to traditional plasmid-based DNA manufacturing[17](index=17&type=chunk) - The company was initially formed in **1983**, reincorporated in Delaware in **2008**, with key subsidiaries **LineaRx, Inc.** (2018) for biotherapeutics and **Applied DNA Clinical Labs, LLC** (2020) for COVID-19 testing[19](index=19&type=chunk) [Business Segments and Technology](index=7&type=section&id=Business%20Segments%20and%20Technology) The company's segments include Biotherapeutics (LinearDNA™ for therapies), COVID-19 (Linea™ Assay Kit, safeCircle™ services), iCTC Technology for cancer diagnostics, and Non-Biologic Tagging for supply chain security - The **LinearDNA™ platform** manufactures DNA for in vitro diagnostics and preclinical nucleic acid-based drug development, including CAR T therapies, DNA vaccines, and RNA therapies[21](index=21&type=chunk)[22](index=22&type=chunk) - A jointly developed **LinearDNA COVID-19 vaccine candidate** is in a veterinary clinical trial in domestic felines, inducing neutralizing antibodies against SARS-CoV-2 variants[23](index=23&type=chunk) - The **Linea™ COVID-19 Assay Kit** received FDA Emergency Use Authorization (EUA) in **May 2020** and is amended for serial asymptomatic screening[24](index=24&type=chunk) - The company's clinical lab (**ADCL**) received its New York clinical laboratory permit and CLIA certification in **May 2021**, enabling COVID-19 testing services[27](index=27&type=chunk) - The **iCTC Technology** uses a patented functional assay to capture live invasive circulating tumor cells for early cancer diagnosis and monitoring[33](index=33&type=chunk) - The **Non-Biologic Tagging** business uses **SigNature® molecular tags** for product authentication and supply chain security, with the **CertainT® platform** integrating tagging, testing, and tracking[34](index=34&type=chunk)[35](index=35&type=chunk) [Strategy and Markets](index=12&type=section&id=Strategy%20and%20Markets) The company's strategy leverages its LinearDNA™ platform for DNA manufacturing, COVID-19 testing, and supply chain security, targeting large markets like DNA diagnostics, biotherapeutics, and anti-counterfeiting, while pursuing strategic acquisitions - The company's strategy focuses on **DNA manufacturing services**, **COVID-19 testing**, and **supply chain security** for textiles, pharmaceuticals, and nutraceuticals[40](index=40&type=chunk) - The company intends to pursue **strategic acquisitions and collaborations** to strengthen its technology portfolio and expand market penetration[44](index=44&type=chunk) - The **DNA Diagnostics market** is projected to reach **$23.8 billion by 2022**, addressed by LinearDNA for in vitro diagnostics and iCTC technology for cancer diagnostics[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk) - The **counterfeit drug market** is estimated between **$163 billion and $217 billion annually**, targeted with molecular tags via a partnership with Colorcon[58](index=58&type=chunk)[60](index=60&type=chunk) - The company's **CertainT platform** provides molecular tagging and authentication for textiles, including cotton, recycled polyester, and leather, ensuring product integrity throughout the supply chain[64](index=64&type=chunk)[65](index=65&type=chunk) [Operations and Commercial Activities](index=22&type=section&id=Operations%20and%20Commercial%20Activities) The company's operations include R&D ($3.8 million in FY2021) and manufacturing at its NY facility, with key COVID-19 testing contracts up to $35 million, and significant customer concentration in FY2021 Research and Development Expenses (Millions USD) | Fiscal Year | R&D Expense | | :--- | :--- | | 2021 | $3.8M | | 2020 | $3.3M | - Awarded a competitively-bid COVID-19 testing contract by the **City University of New York (CUNY)** with a maximum value not to exceed **$35.0 million** over 12 months[76](index=76&type=chunk) - Awarded a COVID-19 testing contract by **Suffolk County Community College (SCCC)** for a one-year term with renewal options[75](index=75&type=chunk) Customer Concentration (Fiscal Year 2021) | Metric | Value | | :--- | :--- | | Revenue from Customer 1 | 18% | | Revenue from Customer 2 | 13% | | Accounts Receivable from 2 Customers | 67% | [Competition, IP, and Regulations](index=25&type=section&id=Competition%2C%20IP%2C%20and%20Regulations) The company faces intense competition, relying on its 96 issued patents, while its COVID-19 kit operates under a temporary FDA EUA, and future products face extensive, costly FDA regulatory processes - Competitors in nucleic-acid therapeutics include **Precigen, Aldevron, and Touchlight Genetics**; in diagnostics, **LabCorp, Quest, and Roche**; and in anti-counterfeiting, **Authentix and De La Rue**[82](index=82&type=chunk)[83](index=83&type=chunk) - The company holds approximately **96 issued patents** and **37 pending patent applications**, expiring between **2021 and 2037**[85](index=85&type=chunk) - The **Linea™ COVID-19 Assay Kit** is sold under a temporary **FDA EUA**, effective until the public health emergency ends or the EUA is revoked[91](index=91&type=chunk) - The company's clinical lab (**ADCL**) is certified under the **Clinical Laboratory Improvement Amendments (CLIA)**, mandating standards for personnel, quality control, and inspections[121](index=121&type=chunk) - Drug and biologic products require a lengthy and expensive **FDA regulatory approval process**, including preclinical studies and multi-phase human clinical trials, before marketing[98](index=98&type=chunk)[101](index=101&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including going concern doubt from recurring losses, reliance on temporary FDA EUA for COVID-19 revenue, intense competition, and the need for substantial funding for high-risk pharmaceutical development - There is substantial doubt about the company's ability to continue as a going concern, given recurring net losses, an accumulated deficit of **$284.1 million** as of September 30, 2021, and a net loss of **$14.3 million** for fiscal year 2021[139](index=139&type=chunk)[149](index=149&type=chunk) - The **Linea™ COVID-19 Assay Kit** is sold under a temporary **FDA Emergency Use Authorization (EUA)**, which can be revoked or cease, significantly harming business[140](index=140&type=chunk)[158](index=158&type=chunk) - COVID-19 testing services could become obsolete due to the pandemic's end, widespread vaccine distribution, or changes in regulatory guidance for surveillance and pooled testing[141](index=141&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) - Opportunities in pharmaceuticals and biologics require substantial additional funding and face high inherent risks of failure in drug development, with no guarantee of regulatory approval or commercial success[140](index=140&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk) - The company faces intense competition from larger, better-capitalized companies across all its markets, including biotherapeutics, diagnostics, and supply chain security[141](index=141&type=chunk)[176](index=176&type=chunk)[179](index=179&type=chunk) - A large number of outstanding options and warrants could cause substantial dilution to existing stockholders upon exercise[145](index=145&type=chunk)[229](index=229&type=chunk) [Unresolved Staff Comments](index=66&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[235](index=235&type=chunk) [Properties](index=67&type=section&id=Item%202.%20Properties) The company leases its 30,000 sq ft corporate headquarters and 2,200 sq ft lab space in Stony Brook, NY, plus a 1,108 sq ft satellite facility in Ahmedabad, India - The company leases its **30,000 sq ft** corporate headquarters and **2,200 sq ft** of lab space in Stony Brook, NY, with the lease extended to **January 15, 2022**[237](index=237&type=chunk) - A satellite testing facility of **1,108 sq ft** is leased in Ahmedabad, India, with the lease renewed through **August 31, 2022**[237](index=237&type=chunk) [Legal Proceedings](index=67&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently aware of any material legal proceedings expected to adversely affect its business or financial condition - The company is not currently aware of any material legal proceedings[238](index=238&type=chunk) [Mine Safety Disclosures](index=67&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[238](index=238&type=chunk) Part II [Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=67&type=section&id=Item%205.%20Market%20for%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under "APDN" with 124 record holders as of December 2, 2021, and no history or plans for cash dividends - Common stock is listed on **The Nasdaq Capital Market** under the symbol **"APDN"**[240](index=240&type=chunk) - As of **December 2, 2021**, there were approximately **124 holders of record** of the common stock[241](index=241&type=chunk) - The company has never declared or paid cash dividends and does not plan to do so in the foreseeable future[242](index=242&type=chunk) [Selected Financial Data](index=67&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not applicable as the company is a Smaller Reporting Company electing scaled disclosure requirements - Information is not applicable as the company is a **Smaller Reporting Company**[243](index=243&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=69&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Total revenues significantly increased to **$9.0 million** in FY2021, driven by COVID-19 testing and product sales, yet net loss widened to **$14.3 million** due to higher operating expenses, raising going concern doubts [Results of Operations](index=74&type=section&id=Results%20of%20Operations) In FY2021, total revenues surged **367%** to **$9.03 million**, primarily from COVID-19 services and products, but operating expenses increased, leading to a wider net loss of **$14.28 million** Comparison of Revenues (Fiscal Year Ended September 30) | Revenue Category | 2021 (USD) | 2020 (USD) | Change (USD) | % Change | | :--- | :--- | :--- | :--- | :--- | | Product Revenues | $3,295,849 | $615,430 | +$2,680,419 | +436% | | Service Revenues | $937,735 | $1,238,517 | -$300,782 | -24% | | Clinical Laboratory Service Revenues | $4,794,154 | $77,550 | +$4,716,604 | +6,082% | | **Total Revenues** | **$9,027,738** | **$1,931,497** | **+$7,096,241** | **+367%** | - The increase in product revenue was primarily driven by **$1.95 million** in sales of the **Linea™ COVID-19 Assay Kit**[259](index=259&type=chunk) - Selling, general and administrative (SG&A) expenses increased by **26%** to **$12.6 million**, mainly due to higher stock-based compensation and payroll costs[263](index=263&type=chunk) - The company recorded an impairment loss of **$821,741** related to intellectual property, customer lists, and goodwill from a 2015 asset purchase[266](index=266&type=chunk) - A loss on extinguishment of debt of **$1.77 million** was recorded related to the repayment of the July 2019 Notes[269](index=269&type=chunk) - Net loss increased by **10%** to **$14.3 million** for fiscal 2021, compared to **$13.0 million** for fiscal 2020[271](index=271&type=chunk) [Liquidity and Capital Resources](index=77&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2021, the company had **$6.6 million** in cash, used **$13.4 million** in operations, and raised **$14.7 million** from financing activities, with recurring losses raising going concern doubts - As of **September 30, 2021**, the company had cash and cash equivalents of **$6.6 million**, down from **$7.8 million** at the end of fiscal 2020[326](index=326&type=chunk) - Cash used in operating activities was **$13.4 million** for fiscal 2021[273](index=273&type=chunk) - The company's history of recurring net losses raises substantial doubt about its ability to continue as a going concern[274](index=274&type=chunk) - In **January 2021**, the company closed a registered direct public offering, raising net proceeds of approximately **$13.8 million**[284](index=284&type=chunk) - In **October 2020**, the company repaid its secured convertible notes in full for an aggregate amount of **$1.67 million**[283](index=283&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=81&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable as the company is a Smaller Reporting Company electing scaled disclosure requirements - Information requested by this Item is not applicable as the company is electing scaled disclosure requirements available to **Smaller Reporting Companies**[289](index=289&type=chunk) [Financial Statements and Supplementary Data](index=81&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The company's consolidated financial statements and supplementary data are included in the report from page F-1 through F-30 - The full financial statements are available starting on **page F-1** of the report[289](index=289&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=81&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item is not applicable to the company - Not applicable[290](index=290&type=chunk) [Controls and Procedures](index=83&type=section&id=Item%209A.%20Controls%20and%20Procedures) As of September 30, 2021, management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective - Management, including the CEO and CFO, concluded that as of **September 30, 2021**, the company's disclosure controls and procedures were effective[292](index=292&type=chunk) - Based on the **2013 COSO framework**, management concluded that the company's internal control over financial reporting was effective as of **September 30, 2021**[294](index=294&type=chunk) [Other Information](index=83&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[295](index=295&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=84&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) Information for this item will be incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders - Information for this item will be included in the definitive proxy statement for the **2022 Annual Meeting of Stockholders** and is incorporated by reference[299](index=299&type=chunk) [Executive Compensation](index=84&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item will be incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders - Information for this item will be included in the definitive proxy statement for the **2022 Annual Meeting of Stockholders** and is incorporated by reference[299](index=299&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=84&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item will be incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders - Information for this item will be included in the definitive proxy statement for the **2022 Annual Meeting of Stockholders** and is incorporated by reference[299](index=299&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=84&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company disclosed related party transactions, including a completed 2019 consulting agreement and December 2020 warrant exercises by a major shareholder yielding **$1.1 million** in net proceeds - In **December 2019**, the company entered into a consulting agreement with **Meadow Hill Place, LLC**, owned by board member Scott L. Anchin, completed in **June 2020**[297](index=297&type=chunk) - In **December 2020**, **Dillon Hill Capital, LLC**, a greater than 5% shareholder, exercised **200,000 warrants**, providing approximately **$1.1 million** in net proceeds to the company[298](index=298&type=chunk) [Principal Accountant Fees and Services](index=84&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information for this item will be incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders - Information for this item will be included in the definitive proxy statement for the **2022 Annual Meeting of Stockholders** and is incorporated by reference[299](index=299&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=84&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists documents filed with the Form 10-K, including consolidated financial statements, auditor's report, and a detailed index of exhibits, with financial statement schedules omitted - The consolidated financial statements for the years ended **September 30, 2021 and 2020**, along with the auditor's report, are filed with this report[301](index=301&type=chunk) - All financial statement schedules have been omitted because the required information is not applicable or is included within the main financial statements[302](index=302&type=chunk) - A comprehensive list of exhibits filed with the **Form 10-K** is provided in the exhibit index[303](index=303&type=chunk)

Applied DNA Sciences, Inc. (NASDAQ:APDN) Q3 2021 Earnings Conference Call August 12, 2021 4:30 PM ET Company Participants Sanjay Hurry - IR Beth Jantzen - CFO James Hayward - President & CEO Judy Murrah - COO Clay Shorrock - Chief Legal Officer Conference Call Participants Jonathan Aschoff - ROTH Capital Partners Jon Salmanson - Hubble Wealth Management Operator Good day and welcome to the Applied DNA Sciences Fiscal Third Quarter 2021 Financial Results Conference Call. All participants will be in a listen- ...

PART I - FINANCIAL INFORMATION [Item 1 - Condensed Consolidated Financial Statements (unaudited)](index=4&type=section&id=Item%201%20-%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) Q2 2021 unaudited financials show total assets at $17.2M, liabilities at $1.6M, and nine-month revenues at $6.0M, with a $9.8M net loss [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (Unaudited) | Metric | June 30, 2021 | September 30, 2020 | Change | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Cash and cash equivalents | $12,173,443 | $7,786,743 | +$4,386,700 | | Total current assets | $13,696,320 | $9,077,725 | +$4,618,595 | | Total Assets | $17,189,729 | $11,341,179 | +$5,848,550 | | **Liabilities & Equity** | | | | | Total current liabilities | $1,574,560 | $4,265,878 | -$2,691,318 | | Total liabilities | $1,606,027 | $5,631,673 | -$4,025,646 | | Total equity | $15,583,702 | $5,709,506 | +$9,874,196 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | YoY Change | | :--- | :--- | :--- | :--- | | Total revenues | $1,700,320 | $431,516 | +294% | | Loss from operations | ($3,367,488) | ($3,188,794) | +5.6% | | Net loss | ($3,446,715) | ($3,290,112) | +4.8% | | Net loss per share | ($0.46) | ($0.72) | N/A | | **Metric** | **Nine Months Ended June 30, 2021** | **Nine Months Ended June 30, 2020** | **YoY Change** | | Total revenues | $5,988,003 | $1,617,508 | +270% | | Loss from operations | ($8,656,580) | ($8,482,420) | +2.1% | | Net loss | ($9,770,855) | ($8,903,758) | +9.7% | | Net loss per share | ($1.45) | ($2.54) | N/A | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for the Nine Months Ended June 30 (Unaudited) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($8,675,878) | ($8,159,954) | | Net cash used in investing activities | ($1,642,277) | ($56,182) | | Net cash provided by financing activities | $14,704,855 | $18,582,116 | | **Net increase in cash** | **$4,386,700** | **$10,365,980** | - Financing activities in the nine months ended June 30, 2021, were primarily driven by **$13.8 million** in net proceeds from the sale of common stock and **$2.6 million** from the exercise of warrants, offset by a **$1.7 million** repayment of convertible notes[14](index=14&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail expanded COVID-19 diagnostics, PPP loan forgiveness, a $13.8M stock offering, and a $35M CUNY testing contract - The company's business is segmented into Biotherapeutic Contract Research, COVID-19 Diagnostic and Surveillance Testing, a Clinical Testing Laboratory, iCTC Technology for cancer research, and Non-Biologic Tagging for supply chain security[17](index=17&type=chunk)[18](index=18&type=chunk)[33](index=33&type=chunk) - The company's Linea™ COVID-19 Assay Kit received Emergency Use Authorization (EUA) from the FDA in May 2020, with subsequent amendments expanding its use for serial screening of asymptomatic individuals[17](index=17&type=chunk)[25](index=25&type=chunk) - As of June 30, 2021, the company had an accumulated deficit of **$279.6 million** but believes its cash of **$12.2 million** is sufficient to fund operations for the next twelve months, supported by a recent **$13.8 million** stock offering and **$2.6 million** from warrant exercises[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk) Disaggregation of Revenue (Nine Months Ended June 30) | Revenue Source | 2021 | 2020 | | :--- | :--- | :--- | | Clinical laboratory testing services | $3,154,263 | $0 | | Diagnostic kits | $1,587,300 | $0 | | Research and development services | $586,285 | $996,597 | | Asset marking | $386,160 | $303,261 | | Equipment lease services | $150,048 | $0 | | Supply chain | $123,947 | $35,678 | | Large scale DNA production | $0 | $281,972 | | **Total** | **$5,988,003** | **$1,617,508** | - The company's PPP loan of approximately **$847,000** was fully forgiven in February 2021, resulting in a gain on extinguishment of debt of **$839,945**[82](index=82&type=chunk)[83](index=83&type=chunk) - In October 2020, the company repaid **$1.7 million** of secured convertible notes, resulting in a loss on extinguishment of debt of **$1,774,662** for the nine-month period[84](index=84&type=chunk)[90](index=90&type=chunk) - Subsequent to the quarter end, on August 3, 2021, the company's subsidiary ADCL was awarded a 12-month COVID-19 testing contract by the City University of New York (CUNY) with a maximum value not to exceed **$35.0 million**[111](index=111&type=chunk) [Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202%20-%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes 294% Q3 revenue growth to COVID-19 testing, confirming sufficient cash for 12 months operations [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Q3 revenues surged 294% to $1.7M from COVID-19 products/services; nine-month net loss widened to $9.8M Revenue Comparison (Three Months Ended June 30) | Revenue Type | 2021 | 2020 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Product revenues | $639,637 | $56,911 | +$582,726 | +1024% | | Service revenues | $1,060,683 | $374,605 | +$686,078 | +183% | | **Total revenues** | **$1,700,320** | **$431,516** | **+$1,268,804** | **+294%** | - The increase in Q3 product revenue was primarily due to a **~$538,000** increase in sales of the LineaTM COVID-19 Assay Kit[152](index=152&type=chunk)[154](index=154&type=chunk) - The increase in service revenue was driven by **~$827,000** from COVID-19 Surveillance Testing[152](index=152&type=chunk)[154](index=154&type=chunk) Revenue Comparison (Nine Months Ended June 30) | Revenue Type | 2021 | 2020 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Product revenues | $2,154,844 | $492,582 | +$1,662,262 | +337% | | Service revenues | $3,833,159 | $1,124,926 | +$2,708,233 | +241% | | **Total revenues** | **$5,988,003** | **$1,617,508** | **+$4,370,495** | **+270%** | - For the nine-month period, SG&A expenses increased by **42%** to **$10.3 million**, primarily due to a **$708,000** increase in stock-based compensation and a **$1.4 million** increase in payroll related to staffing the ADCL clinical lab and officer bonuses[165](index=165&type=chunk) - The nine-month results include a **$1,774,662** loss on the extinguishment of convertible notes and an **$839,945** gain from the forgiveness of the company's PPP loan[170](index=170&type=chunk)[171](index=171&type=chunk) [Liquidity and Capital Resources](index=48&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2021, the company held $12.2M cash and $12.1M working capital, with financing activities providing $14.7M - The company had **$12.2 million** in cash and cash equivalents and **$12.1 million** in working capital as of June 30, 2021[173](index=173&type=chunk)[174](index=174&type=chunk) - In January 2021, the company raised approximately **$13.8 million** in net proceeds from a registered direct public offering[175](index=175&type=chunk) - An additional **$2.6 million** was raised from warrant exercises during the nine-month period[175](index=175&type=chunk) - Management estimates that the company has sufficient cash and cash equivalents to fund operations for the next twelve months from the filing date of this report[176](index=176&type=chunk) [Item 3 - Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%203%20-%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, the company is exempt from providing market risk disclosures - As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk[180](index=180&type=chunk) [Item 4 - Controls and Procedures](index=52&type=section&id=Item%204%20-%20Controls%20and%20Procedures) CEO and CFO concluded disclosure controls were effective as of June 30, 2021, with no material changes to internal controls - Management, including the CEO and CFO, concluded that as of June 30, 2021, the company's disclosure controls and procedures were effective[180](index=180&type=chunk) - No changes in internal control over financial reporting occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[181](index=181&type=chunk) PART II - OTHER INFORMATION [Item 1 – Legal Proceedings](index=52&type=section&id=Item%201%20%E2%80%93%20Legal%20Proceedings) The company reported no legal proceedings for the period - There were no legal proceedings to report[181](index=181&type=chunk) [Item 1A – Risk Factors](index=52&type=section&id=Item%201A%20%E2%80%93%20Risk%20Factors) The company reported no new risk factors for the period - There were no new risk factors to report[181](index=181&type=chunk) [Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds](index=52&type=section&id=Item%202%20%E2%80%93%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities for the period - There were no unregistered sales of equity securities to report[181](index=181&type=chunk) [Item 3 – Defaults Upon Senior Securities](index=52&type=section&id=Item%203%20%E2%80%93%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - There were no defaults upon senior securities to report[181](index=181&type=chunk) [Item 4 – Mine Safety Disclosures](index=52&type=section&id=Item%204%20%E2%80%93%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine safety disclosures are not applicable[181](index=181&type=chunk) [Item 5 – Other Information](index=52&type=section&id=Item%205%20%E2%80%93%20Other%20Information) The company reported no other information - There was no other information to report[181](index=181&type=chunk) [Item 6 – Exhibits](index=54&type=section&id=Item%206%20%E2%80%93%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO - This section contains a list of all exhibits filed with the report, including Sarbanes-Oxley certifications and XBRL data files[183](index=183&type=chunk)

Financial Data and Key Metrics Changes - Total revenues for Q2 2021 increased to $2.7 million from $552,000 in the prior period, representing a year-over-year increase of 384% and a quarter-over-quarter increase of 65% [6][9] - Product revenues rose to $965,000 for Q2 2021 compared to $198,000 in the same period last year, primarily due to sales of the COVID-19 Diagnostic Assay Kit [7] - Net loss for Q2 narrowed to $1.5 million compared to $3 million in the year-ago period, with net loss per share improving to $0.21 from $0.79 [9][10] - Cash and cash equivalents totaled $13.9 million as of March 31, 2021, reflecting a strong balance sheet and increased working capital [10] Business Line Data and Key Metrics Changes - The safeCircle pooled COVID-19 surveillance testing service significantly contributed to service revenue, with an increase of $1.4 million attributed to a full quarter of testing for clients secured in the prior quarter [5][6] - Operating expenses increased by 52% to $4.6 million, driven by higher SG&A and depreciation expenses, with SG&A expenses rising to $3.6 million from $2.3 million [8][9] - R&D expenses increased to $874,000 from $703,000, mainly due to clinical lab build-out and development of COVID-variant mutation panels [9] Market Data and Key Metrics Changes - The pandemic has increased the relevance of the Health Sciences components of the business, particularly in diagnostics and the development of LinearDNA as an alternative to plasmid-based therapies [15][16] - Year-over-year revenues from the wellness and dietary supplement market saw a 2.5-fold increase, driven by Nutrition21's transition to the CertainT platform [39] - The supply chain security business has been negatively impacted by the pandemic, but brands are adapting to operational changes, which may lead to future growth [16][39] Company Strategy and Development Direction - The company aims to establish LinearDNA as a manufacturing platform and a disruptive alternative to current DNA sourcing standards, with a focus on developing a pipeline of LinearDNA-based therapeutic candidates [13][17] - The strategy includes targeting profitable market niches, particularly in diagnostics and therapeutics, while leveraging the pandemic's impact to enhance growth opportunities [24][30] - The company is expanding its CLIA-certified lab capabilities to include high-throughput diagnostic testing and developing a portfolio of novel diagnostics and complementary services [21][30] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, highlighting the successful commercialization of COVID-19 diagnostics and the potential for LinearDNA in therapeutic applications [13][17] - The company anticipates a normalization of capital expenditures as the clinical lab becomes fully operational, which should lead to lower cash burn in the second half of fiscal 2021 [11] - Management noted that the pandemic has spurred innovation and investment in the biopharmaceutical industry, which could benefit the company in the long term [14][15] Other Important Information - The company received a reissued EUA from the FDA, expanding the intended use of the Linea Assay Kit to include asymptomatic serial screening testing [22] - The SGS Panel was launched to identify mutations associated with COVID-19 variants, which could enhance the company's market position in diagnostics [26][30] - The company is exploring entry into the larger apparel market, leveraging its expertise in cotton genotyping and next-generation sequencing capabilities [41][42] Q&A Session Summary Question: What is your sense of the commercial appetite and thus, the partnership potential for a mink vaccine? - Management believes the mink vaccine is crucial for the industry's recovery and presents a significant opportunity, especially given the similarities in clinical responses between minks and humans [47] Question: Can you update us on the cannabis tagging and the invasive CTC programs? - Management sees strong interest in cannabis tagging as the industry evolves, while the invasive CTC program is progressing well, with plans for CLIA certification to enhance its marketability [49][51] Question: Did you provide any update to 2021 revenue with the CLIA certification and testing asymptomatic patients? - Management has not provided specific revenue guidance at this stage [53] Question: Can you quantify the opportunity from the LinearDNA platform? - The initial commercial effort has led to significant orders from a key customer, with expectations for further success from additional projects in development [55][57] Question: When do you anticipate a pickup in cotton demand? - Management indicated that cotton demand may begin to pick up around the ginning season starting in October, with potential orders as early as June [59]

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1 – Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201%20%E2%80%93%20Condensed%20Consolidated%20Financial%20Statements) The company's financial position strengthened with increased assets and revenue driven by COVID-19 products, despite a net loss Condensed Consolidated Balance Sheets (Unaudited) | Account | March 31, 2021 | September 30, 2020 | | :--- | :--- | :--- | | **Total Current Assets** | $17,419,184 | $9,077,725 | | **Total Assets** | **$20,781,584** | **$11,341,179** | | **Total Current Liabilities** | $2,130,129 | $4,265,878 | | **Total Liabilities** | **$2,161,596** | **$5,631,673** | | **Total Equity** | **$18,619,988** | **$5,709,506** | Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | **Total Revenues** | $2,671,542 | $552,473 | | **Loss from Operations** | ($2,315,991) | ($2,682,208) | | **Gain on extinguishment of notes payable** | $839,945 | - | | **Net Loss** | ($1,517,078) | ($2,950,905) | | **Net Loss Per Share (basic and diluted)** | ($0.21) | ($0.79) | Condensed Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity | Six Months Ended March 31, 2021 | Six Months Ended March 31, 2020 | | :--- | :--- | :--- | | **Net cash used in operating activities** | ($7,426,015) | ($5,151,404) | | **Net cash used in investing activities** | ($1,139,586) | ($44,752) | | **Net cash provided by financing activities** | $14,704,855 | $13,300,059 | | **Net increase in cash and cash equivalents** | $6,139,254 | $8,103,903 | | **Cash and cash equivalents at end of period** | $13,925,997 | $8,662,891 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail business expansion due to COVID-19, improved liquidity from financing, and significant debt extinguishment events - The company's business is centered on its **LinearDNA PCR-based manufacturing platform**, with applications in Biotherapeutics, COVID-19 Diagnostics, COVID-19 Surveillance, cancer technology, and Non-Biologic Tagging[20](index=20&type=chunk)[28](index=28&type=chunk)[32](index=32&type=chunk) - The company secured **approximately $13.8 million** in net proceeds from a registered direct public offering and an additional **$2.6 million** from warrant exercises, providing sufficient cash for the next twelve months[40](index=40&type=chunk)[88](index=88&type=chunk) - The company's Paycheck Protection Program (PPP) loan of **approximately $847,000** was fully forgiven, resulting in a **gain on extinguishment of debt of $839,945**[78](index=78&type=chunk)[79](index=79&type=chunk) - The company repaid **$1.67 million** to settle secured convertible notes, resulting in a **loss on extinguishment of debt of $1,774,662** for the six-month period[80](index=80&type=chunk)[87](index=87&type=chunk) Disaggregation of Revenue (Three Months Ended) | Revenue Source | March 31, 2021 | March 31, 2020 | | :--- | :--- | :--- | | Clinical laboratory testing services | $1,554,880 | $0 | | Diagnostic kits | $724,588 | $0 | | Research and development services | $124,760 | $286,598 | | Other Product/Service Revenue | $267,314 | $265,875 | | **Total** | **$2,671,542** | **$552,473** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202%20%E2%80%93%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses significant revenue growth from COVID-19 products, increased operating expenses, and a strengthened liquidity position from recent financing [Recent Developments](index=33&type=section&id=Recent%20Developments) The company's COVID-19 test kit received FDA recognition for variant detection and an expanded Emergency Use Authorization (EUA) - The FDA noted the Linea™ COVID-19 Assay Kit's **"S-gene target dropout"** pattern may aid in early identification of variants like **B.1.1.7**[140](index=140&type=chunk)[142](index=142&type=chunk) - The company received a **re-issued EUA** from the FDA, expanding the kit's use to include **serial screening for asymptomatic individuals**[143](index=143&type=chunk) [Results of Operations](index=35&type=section&id=Comparison%20of%20Results%20of%20Operations) Revenue grew 384% year-over-year driven by new COVID-19 testing services and kits, while operating expenses rose with business expansion Revenue Comparison (Three Months Ended March 31) | Revenue Type | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Product Revenues | $965,110 | $197,801 | +$767,309 | +388% | | Service Revenues | $1,706,432 | $354,672 | +$1,351,760 | +381% | | **Total Revenues** | **$2,671,542** | **$552,473** | **+$2,119,069** | **+384%** | - The increase in Q2 FY21 product revenue was primarily driven by **approximately $785,000** in sales of the Linea COVID-19 Assay Kit[148](index=148&type=chunk) - The increase in Q2 FY21 service revenue was attributable to **$1,554,880** from COVID-19 Surveillance Testing services[149](index=149&type=chunk) - Selling, general and administrative expenses for Q2 FY21 **increased by 56% to $3.6 million**, primarily due to higher stock-based compensation, payroll, and lab supplies[151](index=151&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity improved significantly with $13.9 million in cash, supported by recent financing activities ensuring operational funding - The company had **$13.9 million in cash and cash equivalents** and **$15.3 million in working capital** as of March 31, 2021[173](index=173&type=chunk)[174](index=174&type=chunk) - Financing activities provided **$14.7 million in cash** for the six months ended March 31, 2021, primarily from a registered direct offering (**$13.8M net**) and warrant exercises (**$2.6M net**)[173](index=173&type=chunk)[175](index=175&type=chunk) - The company estimates it has **sufficient cash to fund operations for the next twelve months** from the filing date of this report[175](index=175&type=chunk) - The COVID-19 pandemic led to a **reduction of textile-related revenues** but an **increase in the Biotherapeutic Contract Research and Manufacturing business**[176](index=176&type=chunk)[177](index=177&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203%20%E2%80%93%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable as the company is a smaller reporting company using scaled disclosure requirements - The company is a **smaller reporting company** and has elected scaled disclosure requirements, making this item **not applicable**[180](index=180&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204%20%E2%80%93%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Management concluded that as of March 31, 2021, the company's **disclosure controls and procedures were effective**[182](index=182&type=chunk) - **No changes in internal control** over financial reporting occurred during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[183](index=183&type=chunk) [PART II - OTHER INFORMATION](index=43&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=43&type=section&id=Item%201%20%E2%80%93%20Legal%20Proceedings) The company reports no legal proceedings - There are **no legal proceedings to report**[185](index=185&type=chunk) [Risk Factors](index=43&type=section&id=Item%201A%20%E2%80%93%20Risk%20Factors) New risks were identified related to the company's COVID-19 test kit, including potential false negatives and increased competition - A new risk factor highlights that the Linea™ COVID-19 Assay Kit may produce **false negatives**, which could lead to **potential termination of the EUA** by the FDA[186](index=186&type=chunk) - The company acknowledges a risk that **competitors may develop** and receive authorization for diagnostics that can also detect the 69-70del mutation, potentially **impacting sales**[187](index=187&type=chunk) [Other Information](index=43&type=section&id=Item%205%20%E2%80%93%20Other%20Information) The company received a re-issued EUA from the FDA, expanding the use of its COVID-19 kit for asymptomatic screening - On May 11, 2021, the FDA provided a **re-issued EUA** for the Linea COVID-19 Assay Kit, expanding its use to include **serial screening of asymptomatic individuals** and updating it to include the **KingFisher™ Flex Purification System**[189](index=189&type=chunk)

LinearDNA Platform Highlights - Applied DNA Sciences' LinearDNA is positioned as a disruptive nucleic acid manufacturing platform, offering a pure, fast, and flexible alternative to plasmid-based DNA production[4, 7, 17] - The LinearDNA manufacturing process enables large, gram-scale DNA production through PCR, eliminating the need for recombination or plasmids[17] - LinearDNA offers advantages over plasmid DNA, including no risk of antibiotic resistance transfer or endotoxin contamination, and faster manufacturing times (hours vs days to weeks)[20] COVID-19 Related Programs - Applied DNA Sciences has COVID-19 programs focused on detection and protection against coronavirus, including Dx, Surveillance, Variant Detection, and Vaccine Design & Production[5] - The company offers COVID-19 pooled surveillance testing services, utilizing self-collected saliva or anterior nasal swabs, with samples pooled in groups of 5[9, 11] - The Linea™ COVID-19 Assay Kit discriminates virus-positive samples for the 69-70del mutation, enabling efficient and cost-effective variant spread monitoring[16] Vaccine Development - Applied DNA Sciences is developing LinearDNA COVID-19 vaccine candidates for both humans and veterinary use, in partnership with Takis Biotech[9, 26] - Preclinical studies of LinearDNA COVID-19 human vaccine candidates yielded strong antibody and T cell responses in mice, with seroconversion in all mice to produce IgG against SARS-CoV-2 Spike protein by Day 14[26] - The company is pursuing a USDA APHIS conditional license for its veterinary vaccine to prevent SARS-CoV-2 in animals, with Phase I and II trials planned[27] Commercialization and Pipeline - Applied DNA Sciences is pursuing a multi-faceted commercialization strategy for Linear DNA, including CRO, CMO, strategic alliances, and proprietary therapeutics[23] - The company has multiple revenue-generating development customers and is developing a cancer vaccine candidate in partnership with Takis/Evvivax SRL[25] - The development pipeline includes preclinical and clinical programs in veterinary anti-cancer vaccines, LinearDNA COVID-19 human and veterinary vaccine candidates, and anti-CD19b CAR T adoptive cell therapy[26]