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 ...

Applied DNA Sciences, Inc. (NASDAQ:APDN) Q2 2023 Earnings Conference Call May 12, 2023 4:30 PM ET Company Participants Sanjay Hurry - Head of Investor Relations Beth Jantzen - Chief Financial Officer James Hayward - Chairman, President and Chief Executive Officer Conference Call Participants Jason McCarthy - Maxim Group Yi Chen - H.C. Wainwright & Co., LLC Operator Hello and welcome to the Applied DNA Sciences Fiscal Second Quarter 2023 Financial Results. All parties will be in listen-only mode. [Operator I ...

[Part I - Financial Information](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1 - Condensed Consolidated Financial Statements (unaudited)](index=3&type=section&id=Item%201%20-%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) Unaudited financials for March 31, 2023, show decreased assets and equity, with revenue declines from reduced COVID-19 testing demand [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2023, total assets decreased to **$19.2 million** from **$22.3 million** at September 30, 2022, primarily due to reduced cash, while total equity declined Condensed Consolidated Balance Sheet Highlights (in USD) | Metric | March 31, 2023 (unaudited) | September 30, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $12,287,228 | $15,215,285 | | Total current assets | $15,379,553 | $19,943,129 | | Total assets | $19,175,477 | $22,265,114 | | **Liabilities & Equity** | | | | Total current liabilities | $3,655,378 | $4,185,308 | | Total liabilities | $9,207,256 | $9,356,175 | | Total equity | $9,968,221 | $12,908,939 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended March 31, 2023, revenues decreased to **$4.4 million**, with a net income of **$0.55 million** due to a non-cash gain, while the six-month net loss narrowed to **$3.3 million** Statements of Operations Summary (Three Months Ended March 31, in USD) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $4,407,614 | $6,147,283 | -28.3% | | Gross Profit | $1,807,435 | $2,488,485 | -27.4% | | Loss from Operations | ($2,704,024) | ($2,154,236) | +25.5% | | Net Income (Loss) | $551,176 | ($1,759,797) | N/A | | Diluted EPS | $0.05 | ($0.23) | N/A | Statements of Operations Summary (Six Months Ended March 31, in USD) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $9,670,366 | $10,312,989 | -6.2% | | Gross Profit | $4,185,118 | $3,597,623 | +16.3% | | Loss from Operations | ($3,923,002) | ($6,860,813) | -42.8% | | Net Loss | ($3,293,070) | ($6,480,708) | -49.2% | | Diluted EPS | ($0.25) | ($0.85) | N/A | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended March 31, 2023, net cash used in operating activities improved to **$2.2 million**, with no financing activities, resulting in a **$2.2 million** decrease in cash Cash Flow Summary (Six Months Ended March 31, in USD) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($2,168,718) | ($3,963,780) | | Net cash used in investing activities | ($9,339) | ($170,217) | | Net cash provided by financing activities | $0 | $4,091,833 | | **Net decrease in cash** | **($2,178,057)** | **($42,164)** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail business structure and financial condition, highlighting going concern, significant customer concentration, and segment profitability where only MDx Testing Services is profitable - The company operates in three primary markets: Therapeutic DNA Production Services, MDx Testing Services (including COVID-19 testing), and DNA Tagging and Security Products[21](index=21&type=chunk) - The company faces significant liquidity risk due to recurring net losses and an accumulated deficit of **$295.8 million**. A market decrease in COVID-19 testing demand and the termination of its contract with CUNY (its largest customer) by June 30, 2023, are expected to result in significantly lower revenues[25](index=25&type=chunk)[28](index=28&type=chunk) - For the three months ended March 31, 2023, two customers within the MDx Testing Services segment accounted for an aggregate of **85%** of total revenues[52](index=52&type=chunk) Segment Operating Income (Loss) (Three Months Ended March 31, 2023, in USD) | Segment | Operating Income (Loss) | | :--- | :--- | | Therapeutic DNA Production | ($1,054,123) | | MDx Testing Services | $492,288 | | DNA Tagging and Security | ($914,736) | [Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202%20-%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strategic focus on Therapeutic DNA Production, anticipating significant revenue decline from MDx Testing due to CUNY contract termination [Business Overview and Strategy](index=31&type=section&id=Business%20Overview%20and%20Strategy) The company focuses its growth strategy on Therapeutic DNA Production Services, while anticipating a significant revenue downturn in MDx Testing due to the CUNY contract termination, which represented **58%** of fiscal 2022 revenues - The company's current growth strategy is to primarily focus resources on the further development and commercialization of its Therapeutic DNA Production Services[114](index=114&type=chunk) - The company anticipates significantly lower revenues from its safeCircle COVID-19 testing solutions due to a market decrease in demand and the termination of its contract with CUNY, its largest customer[128](index=128&type=chunk) - The CUNY COVID-19 contract represented **58%** of the company's revenues for fiscal 2022[128](index=128&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) For the three months ended March 31, 2023, revenues fell **27%** year-over-year, while six-month gross profit margin improved to **43%** and SG&A expenses decreased by **26%** - Three-month revenue decreased by **27%** YoY, primarily due to a **$1.5 million (28%)** decrease in clinical laboratory service revenues from lower demand for COVID-19 testing[140](index=140&type=chunk) - Six-month gross profit percentage increased to **43%** from **35%** in the prior year, mainly from improved margins on MDx testing services due to cost management efforts[151](index=151&type=chunk) - Six-month SG&A expenses decreased by **$2.2 million (26%)**, primarily due to a **$1.6 million** reduction in stock-based compensation expense[152](index=152&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2023, the company had **$11.7 million** in working capital, used **$2.2 million** in cash for operating activities, and estimates sufficient cash for the next twelve months - The company had working capital of **$11,724,175** as of March 31, 2023, and used **$2,168,718** in cash for operating activities in the six-month period[159](index=159&type=chunk) - Management estimates that the company will have sufficient cash and cash equivalents to fund operations for the next twelve months from the filing date of this report[161](index=161&type=chunk) - The company warns that if revenues are insufficient to cover operating expenses and additional financing is not obtained, it will likely be forced to reduce operations[162](index=162&type=chunk) [Item 3 - Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203%20-%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable as the company is a smaller reporting company and has elected to use scaled disclosure requirements - The company, as a smaller reporting company, has elected scaled disclosure and is not required to provide information for this item[176](index=176&type=chunk) [Item 4 - Controls and Procedures](index=47&type=section&id=Item%204%20-%20Controls%20and%20Procedures) As of March 31, 2023, disclosure controls were deemed ineffective due to a material weakness in accounting for complex financial instruments, with a remediation plan underway - The CEO and CFO concluded that as of March 31, 2023, disclosure controls and procedures were not effective[177](index=177&type=chunk) - The ineffectiveness is due to a material weakness in internal control over financial reporting concerning the accounting for complex financial instruments (warrants) and the related tax impact[179](index=179&type=chunk) - A remediation plan is being implemented to improve the review process for complex financial instruments, involving both internal personnel and third-party professionals[180](index=180&type=chunk) [Part II - Other Information](index=49&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1 – Legal Proceedings](index=49&type=section&id=Item%201%20%E2%80%93%20Legal%20Proceedings) The company reports no legal proceedings during the period - There are no legal proceedings to report[183](index=183&type=chunk) [Item 1A – Risk Factors](index=49&type=section&id=Item%201A%20%E2%80%93%20Risk%20Factors) The company highlights a new risk regarding potential FDA regulation of its pharmacogenetic testing services, which could disrupt business and revenue streams - A key risk highlighted is the potential for the FDA to regulate the company's pharmacogenetic tests, which are currently offered as Laboratory-Developed Tests (LDTs). This could disrupt the business and impact revenues from this service[184](index=184&type=chunk) [Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202%20%E2%80%93%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales of equity securities during the period - None[185](index=185&type=chunk) [Item 6 – Exhibits](index=50&type=section&id=Item%206%20%E2%80%93%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including lease agreements, officer certifications, and XBRL data files - Lists exhibits filed with the report, such as amended lease agreements, officer certifications, and interactive data files[186](index=186&type=chunk)[187](index=187&type=chunk)

Applied DNA Sciences, Inc. (NASDAQ:APDN) Q1 2023 Earnings Conference Call February 9, 2023 4:30 PM ET Company Participants Sanjay Hurry - Investor Relations Beth Jantzen - Chief Financial Officer James Hayward - Chairman, President and Chief Executive Officer Clay Shorrock - Chief Legal Officer and Executive Director of Business Development Conference Call Participants Jason McCarthy - Maxim Group LLC Yi Chen - H.C. Wainwright & Co, LLC Operator Good afternoon, and welcome to the Applied DNA Sciences’ First ...

First Quarter Fiscal 2023 Financial Results 9 February 2023 Nasdaq: APDN ©2023 Applied DNA Sciences, Inc. Safe Harbor Statement The statements made by Applied DNA in this presentation may be "forward-looking" in nature within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe Applied DNA's future plans, projections, strategies, and expectations, and are base ...

Table of Contents Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $0.001 par value APDN The Nasdaq Stock Market LLC UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to C ...

Applied DNA Sciences, Inc. (NASDAQ:APDN) Q4 2022 Earnings Conference Call December 14, 2022 4:30 PM ET Company Participants Sanjay Hurry - Investor Relations Beth Jantzen - Chief Financial Officer James Hayward - Chairman, President and Chief Executive Officer Conference Call Participants Yi Chen - H.C. Wainwright & Co, LLC Jason McCarthy - Maxim Group LLC Operator Good afternoon, and welcome to the Applied DNA Sciences Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call. All participants ...

[Part I](index=7&type=section&id=PART%20I) [Business](index=7&type=section&id=ITEM%201.%20BUSINESS) Applied DNA Sciences operates in Therapeutic DNA Production, MDx Testing, and DNA Tagging segments, focusing growth on its linearDNA platform for nucleic acid therapies and veterinary health - The company operates in three primary business segments: Therapeutic DNA Production Services, MDx (Molecular Diagnostics) Testing Services, and DNA Tagging and Security Products and Services[16](index=16&type=chunk) - The company's growth strategy is to primarily focus resources on the development and commercialization of its Therapeutic DNA Production Services, including expanding its CDMO operations and developing veterinary health product candidates[17](index=17&type=chunk) Research and Development Expenses | Fiscal Year | R&D Expenses (Approx.) | | :--- | :--- | | 2022 | $3.9 million | | 2021 | $4.2 million | [Therapeutic DNA Production Services](index=7&type=section&id=Therapeutic%20DNA%20Production%20Services) This segment, through LinearRx, focuses on the linearDNA platform for cell-free synthetic DNA manufacturing, targeting nucleic acid-based therapies and veterinary health with a cGMP facility planned for 2023 - The linearDNA platform is an enzymatic, cell-free manufacturing process for synthetic DNA, positioned as an alternative to traditional plasmid-based methods[20](index=20&type=chunk) - Key advantages of the linearDNA platform are cited as speed, scalability, purity (no antibiotic resistance genes), simplicity, and flexibility in producing complex DNA sequences[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk) - The company is in the design phase for a cGMP manufacturing facility, with manufacturing expected to begin in the second half of calendar 2023 to meet requirements for direct clinical use of linearDNA[26](index=26&type=chunk) - The company is developing a therapeutic DNA vaccine candidate for canine lymphoma, licensed from Takis S.R.L and EvviVax, S.R.L., leveraging the linearDNA platform[28](index=28&type=chunk) [MDx Testing Services](index=10&type=section&id=MDx%20Testing%20Services) Through its CLIA-certified subsidiary ADCL, the company provides clinical molecular diagnostics, primarily COVID-19 testing, with a future strategy to shift towards high-complexity, high-value tests like pharmacogenetics - The safeCircle™ service provides large-scale COVID-19 testing using a high-throughput, robotically-pooled RT-PCR workflow, with results typically returned in 24-48 hours[30](index=30&type=chunk) - The company is validating pharmacogenetics (PGx) testing services, designed to analyze over 35 genes to guide drug therapy decisions in areas like cardiology, mental health, and pain management[32](index=32&type=chunk) - The business strategy is to evolve into a clinical reference laboratory, focusing on high-complexity MDx testing services to leverage PCR expertise and target a national customer base[33](index=33&type=chunk) [DNA Tagging and Security Products and Services](index=11&type=section&id=DNA%20Tagging%20and%20Security%20Products%20and%20Services) This segment offers supply chain security solutions via the CertainT® platform, using DNA tags and portable readers for authentication, with significant application in cotton tracking and potential growth from UFLPA regulations - The CertainT® platform uses non-biologic DNA tags (SigNature®) and portable readers (SigNify®) to authenticate goods and ensure supply chain integrity[35](index=35&type=chunk)[36](index=36&type=chunk) - The largest commercial application is in the cotton industry, with tagged products sold at retailers like Costco® and Bed Bath & Beyond®[37](index=37&type=chunk) - The Uyghur Forced Labor Prevention Act (UFLPA) is identified as a potential driver for increased demand, as its implementation strategy lists DNA tagging as evidence importers can use to prove goods did not originate from forced labor in the XUAR region of China[38](index=38&type=chunk) [Customer Concentration](index=16&type=section&id=Customer%20Concentration) The company faces significant customer concentration risk, with one MDx Testing Services customer accounting for 58% of fiscal year 2022 revenues and two customers representing 89% of accounts receivable Customer Concentration Analysis | Metric | Fiscal Year 2022 | Fiscal Year 2021 | | :--- | :--- | :--- | | **Revenue Concentration** | 58% from one customer | 18% and 13% from two customers | | **Accounts Receivable Concentration** | 89% from two customers | 67% from two customers | [Intellectual Property](index=18&type=section&id=Intellectual%20Property) The company protects its technology through patents, trade secrets, and trademarks, with the largest patent portfolio in DNA Tagging and Security, while Therapeutic DNA Production Services is an earlier-stage portfolio Patent Portfolio as of December 9, 2022 | Business Segment | U.S. Patents (Issued/Pending) | Foreign Patents (Issued/Pending) | | :--- | :--- | :--- | | Therapeutic DNA Production | 5 / 10 | 11 / 5 | | MDx Testing Services | 5 / 1 | 4 / 1 | | DNA Tagging & Security | 28 / 5 | 47 / 14 | [Government Regulation](index=20&type=section&id=Government%20Regulation) The company's operations are subject to extensive government regulation, including FDA and USDA for therapeutic products, and CLIA/NYSDOH for MDx testing services, with potential future changes to LDT regulation - The demand for linearDNA is partly dependent on customers' ability to obtain FDA approval for drugs or biologics using the technology, a process involving IND applications, clinical trials, and NDAs or BLAs[60](index=60&type=chunk)[66](index=66&type=chunk)[68](index=68&type=chunk) - Veterinary products, such as the company's planned canine lymphoma vaccine, are regulated by the USDA's Center for Veterinary Biologics and must be shown to be pure, safe, and effective[67](index=67&type=chunk)[80](index=80&type=chunk) - The company's clinical laboratory (ADCL) is CLIA-certified and NYSDOH-permitted. Its diagnostic tests are LDTs, which are currently under FDA enforcement discretion, but could face stricter regulation in the future (e.g., via the VALID Act)[59](index=59&type=chunk)[81](index=81&type=chunk)[83](index=83&type=chunk) [Risk Factors](index=31&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces numerous risks, including limited revenue, potential dilution from financing, a material weakness in internal controls, customer concentration, and the obsolescence of COVID-19 testing services - The company has a history of limited revenue, making future prospects difficult to evaluate[97](index=97&type=chunk)[105](index=105&type=chunk) - A material weakness in internal control over financial reporting has been identified, specifically concerning the accounting for complex financial instruments like warrants[97](index=97&type=chunk)[119](index=119&type=chunk) - Significant customer concentration risk exists, with one customer accounting for **58% of revenue in FY2022**[97](index=97&type=chunk)[120](index=120&type=chunk) - The company's COVID-19 testing services could become obsolete due to the end of the pandemic or the development of widespread vaccines, diminishing its utility[100](index=100&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk) - Failure to comply with Nasdaq's continued listing standards, such as the **$1.00 minimum bid price**, could result in delisting[103](index=103&type=chunk)[224](index=224&type=chunk) [Properties](index=66&type=section&id=ITEM%202.%20PROPERTIES) The company's corporate headquarters and main laboratory facilities are located in a 30,000 square foot leased building at Stony Brook University, with a lease renewal expiring January 31, 2023 - The main corporate headquarters is a **30,000 sq. ft.** leased facility at Stony Brook University, with the lease expiring January 31, 2023[228](index=228&type=chunk) [Legal Proceedings](index=68&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is not currently aware of any legal proceedings expected to have a material adverse effect on its business, financial condition, or operating results - The company is not currently aware of any material legal proceedings[230](index=230&type=chunk) [Part II](index=68&type=section&id=PART%20II) [Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=68&type=section&id=ITEM%205.%20MARKET%20FOR%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock is listed on The Nasdaq Capital Market under "APDN", with 126 holders of record as of December 9, 2022, and no history or plans for cash dividends - Common stock is listed on The Nasdaq Capital Market under the symbol **"APDN"**[230](index=230&type=chunk) - As of December 9, 2022, there were **126 holders of record** of the common stock[231](index=231&type=chunk) - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[231](index=231&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) In fiscal year 2022, total revenues more than doubled to $18.2 million, driven by a 224% increase in COVID-19 testing services, leading to a reduced net loss of $8.3 million due to a significant unrealized gain on warrant liabilities Comparison of Financial Results (Fiscal Years 2022 vs. 2021) | Financial Metric | FY 2022 | FY 2021 | Change (%) | | :--- | :--- | :--- | :--- | | **Total Revenues** | **$18,168,677** | **$9,027,738** | **+101.3%** | | Product Revenues | $1,882,804 | $3,295,849 | -42.9% | | Service Revenues | $759,138 | $937,735 | -19.0% | | Clinical Laboratory Service Revenues | $15,526,735 | $4,794,154 | +223.8% | | **Gross Profit** | **$5,053,640** | **$4,482,906** | **+12.7%** | | Gross Margin | 27.8% | 49.7% | -21.9 pts | | **Loss from Operations** | **($13,969,763)** | **($13,348,641)** | **+4.7%** | | **Net Loss** | **($8,270,059)** | **($14,278,439)** | **-42.1%** | | Net Loss per Share | ($0.93) | ($2.07) | -55.1% | - The **224% increase** in clinical laboratory service revenue was primarily due to a full twelve months of the contract with the City University of New York (CUNY), which contributed an increase of **$9.3 million** year-over-year[259](index=259&type=chunk) - The net loss for FY2022 was significantly reduced by a **$18.0 million unrealized gain** on the change in fair value of common warrants, which are classified as liabilities[269](index=269&type=chunk)[272](index=272&type=chunk) - The company raised approximately **$10.7 million** in net proceeds from a public offering in August 2022 and received **$3.7 million** from warrant exercises, alleviating substantial doubt about its ability to continue as a going concern[275](index=275&type=chunk) [Controls and Procedures](index=88&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were not effective as of September 30, 2022, due to a material weakness in internal control over financial reporting related to complex financial instruments, for which a remediation plan is being implemented - As of September 30, 2022, management concluded that disclosure controls and procedures were **not effective**[307](index=307&type=chunk) - A material weakness was identified in internal control over financial reporting for FY2022 and FY2021 related to the accounting for complex financial instruments, such as warrants, and their tax impact[309](index=309&type=chunk) - A remediation plan is being implemented to expand and improve the review process for complex financial instruments and their related tax implications, involving both internal personnel and third-party professionals[310](index=310&type=chunk) [Part III](index=90&type=section&id=PART%20III) [Directors, Executive Officers, and Corporate Governance](index=90&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%2C%20AND%20CORPORATE%20GOVERNANCE) Information regarding directors, executive officers, and corporate governance will be incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - The required information is incorporated by reference from the forthcoming 2023 proxy statement[312](index=312&type=chunk) [Executive Compensation](index=90&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information regarding executive compensation will be incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - The required information is incorporated by reference from the forthcoming 2023 proxy statement[313](index=313&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=90&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information regarding security ownership will be incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - The required information is incorporated by reference from the forthcoming 2023 proxy statement[314](index=314&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=90&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) This section discloses that Dillon Hill Capital, LLC, a former greater than 5% shareholder, exercised 200,000 warrants in December 2020, with further information to be incorporated by reference from the 2023 proxy statement - In December 2020, related party Dillon Hill Capital, LLC (a **>5% shareholder** at the time) exercised **200,000 warrants**. As of September 30, 2022, they are no longer a **>5% shareholder**[315](index=315&type=chunk) [Principal Accountant Fees and Services](index=90&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Information regarding principal accountant fees and services will be incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - The required information is incorporated by reference from the forthcoming 2023 proxy statement[317](index=317&type=chunk) [Part IV](index=91&type=section&id=PART%20IV) [Exhibits and Financial Statement Schedules](index=91&type=section&id=ITEM%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section confirms that the consolidated financial statements for fiscal years 2022 and 2021, along with the independent auditor's report, are filed as part of this report, with all financial statement schedules omitted as not applicable - The consolidated financial statements and the independent auditor's report are filed with this Form 10-K[318](index=318&type=chunk) [Financial Statements and Supplementary Data](index=102&type=section&id=FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) [Consolidated Financial Statements](index=104&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements present the company's financial position, operations, and cash flows, showing a net loss of $8.3 million for FY 2022, an improvement from FY 2021, largely due to non-cash gains on warrant liabilities Consolidated Balance Sheet Highlights (as of Sept 30) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $15,215,285 | $6,554,948 | | Total current assets | $19,943,129 | $11,297,801 | | Total assets | $22,265,114 | $14,416,756 | | Total current liabilities | $4,185,308 | $3,272,343 | | Common Warrant liability | $5,139,400 | $0 | | Total liabilities | $9,356,175 | $3,303,810 | | Total equity | $12,908,939 | $11,112,946 | Consolidated Statement of Operations Highlights (for year ended Sept 30) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Total revenues | $18,168,677 | $9,027,738 | | Gross profit | $5,053,640 | $4,482,906 | | Loss from operations | ($13,969,763) | ($13,348,641) | | Unrealized gain on change in fair value of warrants | $17,999,521 | $0 | | Net loss | ($8,270,059) | ($14,278,439) | [Notes to Consolidated Financial Statements](index=109&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the alleviation of going concern doubt, disaggregate revenue by business operation, disclose a goodwill impairment in FY2021, and explain the classification and fair value measurement of warrant liabilities from 2022 offerings - Management has alleviated substantial doubt about the company's ability to continue as a going concern, estimating it has sufficient cash to fund operations for the next twelve months following the August 2022 financing[365](index=365&type=chunk) Disaggregation of Revenue (FY 2022) | Business Operation | Revenue | | :--- | :--- | | Clinical laboratory testing services | $15,526,735 | | Product and authentication services | $2,469,863 | | Research and development services | $592,001 | | **Total** | **$18,168,677** | - In FY2021, the company recorded a full impairment charge of **$821,741** to write off goodwill and intangible assets related to the Triathlon DNA production system technology, which is no longer in use[391](index=391&type=chunk)[415](index=415&type=chunk) - Warrants issued in the February and August 2022 offerings are classified as liabilities and measured at fair value, with changes recognized in the statement of operations. As of Sept 30, 2022, the fair value of these warrant liabilities was **$5,139,400**[403](index=403&type=chunk)[469](index=469&type=chunk)