Applied DNA Sciences(APDN) - 2020 Q4 - Annual Report

PART I Business Applied DNA Sciences leverages its PCR-based LinearDNA platform for biotherapeutic manufacturing, supply chain security, and COVID-19 diagnostics, focusing on biopharma and COVID-19 revenue growth Overview and Business Segments The LinearDNA platform drives biotherapeutics, COVID-19 diagnostics, surveillance, iCTC technology, and non-biologic tagging for supply chain security - The company's proprietary PCR-based LinearDNA platform is central to its operations, enabling large-scale DNA production for biotherapeutics, diagnostics, and supply chain security[18] - In response to the pandemic, the company developed and received FDA Emergency Use Authorization (EUA) for its Linea™ COVID-19 Assay Kit in May 2020 and launched the safeCircle™ pooled surveillance testing service[18][27][28] - The company is also developing an invasive circulating tumor cell (iCTC) technology for cancer diagnostics and continues its Non-Biologic Tagging business for anti-counterfeiting[18][31][32] Strategy Strategy targets growth in COVID-19 diagnostics and biopharma services via the DNA platform, complemented by strategic acquisitions and alliances - The company expects future revenue growth to be driven by sales of its Linea™ COVID-19 Assay Kit, COVID-19 Surveillance Testing, and DNA manufacturing for the biotech and diagnostic markets[41] - A key part of the strategy is to pursue strategic acquisitions and collaborations to strengthen core technologies and enter new markets[42] Markets and Competition The company competes in DNA diagnostics, biotherapeutics, and anti-counterfeit tagging, facing established players in each market - The company competes in the DNA Diagnostics market, which is projected to reach $23.8 billion by 2022[44] - The company has a multi-year supply agreement with FUJIFILM Wako Pure Chemical Corp. for bulk DNA used in in vitro medical diagnostics[45] - Key competitors in the nucleic-acid based therapeutic and DNA manufacturing markets include Aldevron, LLC, Integrated DNA Technologies, Inc., and Novartis AG[82] - Competitors in the anti-counterfeiting market include Authentix, Inc., De La Rue Plc., and Oritain Global Limited[84] Research and Development R&D targets linear DNA biotherapeutics, COVID-19 diagnostics, and DNA tagging, with expenses rising in fiscal 2020 R&D Expense | Fiscal Year | R&D Expense (Approx.) | | :--- | :--- | | 2020 | $3.3 million | | 2019 | $3.0 million | - R&D efforts include developing linear DNA-based COVID-19 and cancer vaccine candidates in collaboration with Takis/Evvivax[71] Customer Concentration Significant customer concentration, with a few customers driving substantial revenue and accounts receivable, presents a material business risk Customer Concentration | Metric | Fiscal Year 2020 | Fiscal Year 2019 | | :--- | :--- | :--- | | Revenue Concentration | 46% from 4 customers | 68% from 3 customers | | Accounts Receivable Concentration | 74% from 4 customers | 77% from 1 customer | Government Regulation Products, particularly diagnostics and biopharma, face extensive government regulation, including temporary FDA EUA for COVID-19 tests and potential LDT oversight - The Linea™ COVID-19 Assay Kit operates under an FDA Emergency Use Authorization (EUA), which is effective only for the duration of the public health emergency and can be revoked[92][115] - Surveillance testing is not regulated by the FDA, and CLIA certification is not required to conduct it, according to current CMS guidance[93] - The company's iCTC capture assay is currently considered a Laboratory Developed Test (LDT), a category over which the FDA is exercising enforcement discretion, and future regulation could impose significant costs and delays[111][220] Risk Factors Significant risks include going concern doubts, potential EUA revocation, COVID-19 test obsolescence, customer concentration, intense competition, and regulatory hurdles - The company's financial condition, including a history of net losses, raises substantial doubt about its ability to continue as a going concern[132][149] - The Linea™ COVID-19 Assay Kit is sold under an FDA EUA that could be revoked or terminated, and the COVID-19 Surveillance Testing could become obsolete, particularly with the rollout of vaccines[135][136][167] - The company's opportunities in pharmaceuticals and biologics require substantial additional funding and face significant development and regulatory risks[134][158] - The company faces intense competition in all its markets, including supply chain security, diagnostics, and biotherapeutics, from larger companies with greater resources[137][138][182] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[252] Properties Headquarters and primary labs are in a leased 30,000 sq ft facility in Stony Brook, NY, with a satellite testing facility in Ahmedabad, India - The company's headquarters is a 30,000 sq. ft. leased facility in Stony Brook, NY, with the lease renewed until January 2022[253] - A satellite testing facility is maintained in Ahmedabad, India, with a lease renewed until September 2021[253] Legal Proceedings The company is not currently involved in any material legal proceedings that would adversely affect its business or financial condition - The company is not currently involved in any material legal proceedings[254] Mine Safety Disclosures This item is not applicable to the company - Not applicable[255] PART II Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "APDN", with no history or anticipation of cash dividend payments - The company's common stock trades on The Nasdaq Capital Market under the symbol "APDN"[257] - No cash dividends have ever been paid, and none are anticipated in the foreseeable future[259] Selected Financial Data As a Smaller Reporting Company, this information is not applicable due to scaled disclosure requirements - Not applicable as the company is a Smaller Reporting Company[260] Management's Discussion and Analysis of Financial Condition and Results of Operations FY2020 revenue fell 64% to $1.9 million, net loss increased 51% to $13.0 million, raising going concern doubts despite $19.4 million in financing Results of Operations FY2020 total revenues fell 64.2% to $1.9 million, product and service revenues declined, R&D rose 12%, resulting in a $13.0 million net loss Financial Performance Summary | Financial Metric | FY 2020 | FY 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $1,931,497 | $5,389,089 | (64.2%) | | Product Revenues | $615,430 | $2,136,055 | (71.2%) | | Service Revenues | $1,316,067 | $3,253,034 | (59.6%) | | Cost of Revenues | $720,900 | $877,613 | (17.9%) | | Operating Expenses | $13,745,596 | $13,635,747 | 0.8% | | R&D Expenses | $3,321,763 | $2,967,278 | 12.0% | | SG&A Expenses | $10,138,103 | $10,278,045 | (1.4%) | | Net Loss | ($13,028,904) | ($8,632,446) | 51.0% | - The decrease in product revenue was primarily driven by a $1.35 million decline in textiles-related shipments of DNA concentrate, attributed to the global shutdown from the COVID-19 pandemic[283] - The increase in R&D expense was mainly due to costs associated with the development and validation of the Linea™ COVID-19 Assay Kit and COVID-19 Surveillance Testing[287] Liquidity and Capital Resources As of Sep 30, 2020, cash was $7.8 million and working capital $4.8 million; recurring losses raise going concern doubts, despite $19.4 million in financing - The company has recurring net losses and an accumulated deficit of $269.8 million as of September 30, 2020, raising substantial doubt about its ability to continue as a going concern[297][385] Liquidity Metrics | Metric | As of Sep 30, 2020 | | :--- | :--- | | Cash and cash equivalents | $7,786,743 | | Working capital | $4,811,847 | | Cash used in operations (FY2020) | ($11,143,059) | | Cash from financing (FY2020) | $19,434,512 | - In November 2019, the company closed an underwritten public offering, raising approximately $10.8 million in net proceeds[301][302] - Subsequent to year-end, in October 2020, the company received $1.67 million from a warrant exercise and repaid $1.67 million in secured convertible notes[321][327] Quantitative and Qualitative Disclosures About Market Risk As a Smaller Reporting Company, this information is not applicable due to scaled disclosure requirements - Not applicable as the company is a Smaller Reporting Company[331] Financial Statements and Supplementary Data This section refers to the consolidated financial statements and the independent auditor's report, included from page F-1 to F-30 - The company's audited consolidated financial statements for the fiscal years ended September 30, 2020 and 2019 are included in the report[331] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[331] Controls and Procedures As of September 30, 2020, management concluded that disclosure controls and procedures and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[334] - Management's assessment concluded that internal control over financial reporting was effective as of September 30, 2020[336] Other Information The company reports no other information for this item - None[337] PART III Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Accountant Fees Information for Items 10-14, including directors, executive compensation, and accountant fees, is incorporated by reference from the 2021 proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's definitive proxy statement to be filed within 120 days of the fiscal year-end[339] PART IV Exhibits and Financial Statement Schedules This section lists documents filed as part of Form 10-K, including consolidated financial statements and exhibits, with schedules omitted as not applicable - The consolidated financial statements for the years ended September 30, 2020 and 2019, along with the independent auditor's report, are filed with this report[340] - An index of all exhibits filed with the report is provided[341]