Applied DNA Sciences(APDN) - 2021 Q4 - Annual Report

Part I Business 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] - Business segments include Biotherapeutic Contract Research and Manufacturing, Non-Biologic Tagging (supply chain security), and COVID-19 diagnostics and testing services[16] - 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] - 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] Overview and Corporate History 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] - 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] Business Segments and Technology 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][22] - 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] - The Linea™ COVID-19 Assay Kit received FDA Emergency Use Authorization (EUA) in May 2020 and is amended for serial asymptomatic screening[24] - 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] - The iCTC Technology uses a patented functional assay to capture live invasive circulating tumor cells for early cancer diagnosis and monitoring[33] - 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][35] Strategy and Markets 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] - The company intends to pursue strategic acquisitions and collaborations to strengthen its technology portfolio and expand market penetration[44] - 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][47][48] - The counterfeit drug market is estimated between $163 billion and $217 billion annually, targeted with molecular tags via a partnership with Colorcon[58][60] - 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][65] Operations and Commercial Activities 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] - Awarded a COVID-19 testing contract by Suffolk County Community College (SCCC) for a one-year term with renewal options[75] 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 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][83] - The company holds approximately 96 issued patents and 37 pending patent applications, expiring between 2021 and 2037[85] - 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] - The company's clinical lab (ADCL) is certified under the Clinical Laboratory Improvement Amendments (CLIA), mandating standards for personnel, quality control, and inspections[121] - 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][101] Risk Factors 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][149] - 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][158] - 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][163][164] - 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][151][152] - The company faces intense competition from larger, better-capitalized companies across all its markets, including biotherapeutics, diagnostics, and supply chain security[141][176][179] - A large number of outstanding options and warrants could cause substantial dilution to existing stockholders upon exercise[145][229] Unresolved Staff Comments The company reports no unresolved staff comments - None[235] Properties 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] - A satellite testing facility of 1,108 sq ft is leased in Ahmedabad, India, with the lease renewed through August 31, 2022[237] Legal Proceedings 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] Mine Safety Disclosures This item is not applicable to the company - Not applicable[238] 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 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] - As of December 2, 2021, there were approximately 124 holders of record of the common stock[241] - The company has never declared or paid cash dividends and does not plan to do so in the foreseeable future[242] Selected Financial Data 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] - The company recorded an impairment loss of $821,741 related to intellectual property, customer lists, and goodwill from a 2015 asset purchase[266] - A loss on extinguishment of debt of $1.77 million was recorded related to the repayment of the July 2019 Notes[269] - Net loss increased by 10% to $14.3 million for fiscal 2021, compared to $13.0 million for fiscal 2020[271] Liquidity and Capital Resources 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] - Cash used in operating activities was $13.4 million for fiscal 2021[273] - The company's history of recurring net losses raises substantial doubt about its ability to continue as a going concern[274] - In January 2021, the company closed a registered direct public offering, raising net proceeds of approximately $13.8 million[284] - In October 2020, the company repaid its secured convertible notes in full for an aggregate amount of $1.67 million[283] Quantitative and Qualitative Disclosures About Market Risk 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] Financial Statements and Supplementary Data 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] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[290] Controls and Procedures 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] - 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] Other Information The company reports no other information for this item - None[295] Part III Directors, Executive Officers, and Corporate Governance 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] Executive Compensation 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] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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] Certain Relationships and Related Transactions, and Director Independence 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] - 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] Principal Accountant Fees and Services 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] Part IV Exhibits and Financial Statement Schedules 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] - All financial statement schedules have been omitted because the required information is not applicable or is included within the main financial statements[302] - A comprehensive list of exhibits filed with the Form 10-K is provided in the exhibit index[303]