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Applied DNA Sciences(APDN) - 2022 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the reporting period Item 1 - Condensed Consolidated Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for Applied DNA Sciences, Inc. and its subsidiaries, including balance sheets, statements of operations, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the nature of the business, accounting policies, and specific financial line items Condensed Consolidated Balance Sheets This table provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific dates | ASSETS / LIABILITIES AND EQUITY | December 31, 2021 (unaudited) ($) | September 30, 2021 ($) | | :------------------------------ | :---------------------------- | :----------------- | | Cash and cash equivalents | $2,748,368 | $6,554,948 | | Accounts receivable, net | $3,857,275 | $2,804,039 | | Total current assets | $8,499,421 | $11,297,801 | | Total Assets | $11,402,313 | $14,416,756 | | Total current liabilities | $2,978,891 | $3,272,343 | | Total liabilities | $3,010,358 | $3,303,810 | | Total equity | $8,391,955 | $11,112,946 | Condensed Consolidated Statements of Operations This statement outlines the company's revenues, expenses, and net loss for the three-month periods ended December 31, 2021 and 2020 | Revenues / Expenses | Three Months Ended December 31, 2021 ($) | Three Months Ended December 31, 2020 ($) | | :------------------ | :----------------------------------- | :----------------------------------- | | Product revenues | $826,311 | $550,097 | | Service revenues | $139,273 | $293,274 | | Clinical laboratory service revenues | $3,200,122 | $772,770 | | Total revenues | $4,165,706 | $1,616,141 | | Gross profit | $1,109,138 | $1,100,360 | | Total operating expenses | $5,742,269 | $4,073,462 | | LOSS FROM OPERATIONS | $(4,633,131) | $(2,973,102) | | NET LOSS | $(4,720,911) | $(4,807,062) | | Net loss per share (basic and diluted) | $(0.63) | $(0.88) | Condensed Consolidated Statements of Stockholders' Equity This statement details changes in stockholders' equity, reflecting the impact of net loss, stock-based compensation, and other equity transactions - For the three-month period ended December 31, 2021, stockholders' equity decreased from $11,112,946 to $8,391,955, primarily due to a net loss of $4,721,766, partially offset by stock-based compensation expense of $1,699,920 and options issued in settlement of accrued bonus of $300,00013 Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities for the reporting periods | Cash Flow Activity | Three Months Ended December 31, 2021 ($) | Three Months Ended December 31, 2020 ($) | | :----------------- | :----------------------------------- | :----------------------------------- | | Net cash used in operating activities | $(3,701,894) | $(4,155,742) | | Net cash used in investing activities | $(104,686) | $(329,542) | | Net cash provided by financing activities | $0 | $939,948 | | Net decrease in cash and cash equivalents | $(3,806,580) | $(3,545,336) | | Cash and cash equivalents at end of period | $2,748,368 | $4,241,407 | Notes to Condensed Consolidated Financial Statements These notes provide essential details and explanations supporting the condensed consolidated financial statements, covering business nature, accounting policies, and specific financial items NOTE A — NATURE OF THE BUSINESS This note describes Applied DNA Sciences' core business activities, including DNA-based technology solutions for biotherapeutics, supply chain security, and COVID-19 diagnostics - Applied DNA Sciences develops and markets DNA-based technology solutions using its LinearDNA™ PCR platform for biotherapeutic contract research and manufacturing, supply chain security, anti-counterfeiting, and anti-theft. The company also develops PCR-based molecular in vitro diagnostics for COVID-19 and offers high-throughput COVID-19 testing services (safeCircle™) through its subsidiary, ADCL20 NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES This note outlines the basis of financial statement preparation, key accounting policies, revenue recognition principles, and going concern considerations - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and Regulation S-X. The Company has recurring net losses and negative operating cash flow, raising substantial doubt about its ability to continue as a going concern for one year from the issuance of the financial statements212224 - Revenue recognition follows ASC 606, with revenue recognized either at a point in time (product, authentication, and most clinical lab services) or over time (research and development, fixed monthly fee clinical lab services) as performance obligations are satisfied2728293031 Disaggregated Revenue by Business Operations and Timing | Revenue Type | December 31, 2021 ($) | December 31, 2020 ($) | | :----------------------------------- | :---------------- | :---------------- | | Research and development services (over-time) | $105,695 | $263,713 | | Clinical laboratory testing services (point-in-time) | $1,873,722 | $578,370 | | Clinical laboratory testing services (over-time) | $1,326,400 | $194,400 | | Product and authentication services (point-in-time): | | | | Supply chain | $411,547 | $32,942 | | Asset marking | $105,522 | $151,758 | | Diagnostic test kits | $342,820 | $394,958 | | Total | $4,165,706 | $1,616,141 | - As of December 31, 2021, one customer accounted for 48% of the Company's revenues, and two customers accounted for 74% of accounts receivable4344 NOTE C — INVENTORIES This note provides a breakdown of the company's inventory, distinguishing between raw materials and finished goods Inventories Breakdown | Inventory Type | December 31, 2021 (unaudited) ($) | September 30, 2021 ($) | | :--------------- | :---------------------------- | :----------------- | | Raw materials | $1,194,571 | $786,938 | | Finished goods | $106,058 | $582,995 | | Total | $1,300,629 | $1,369,933 | NOTE D — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES This note details the composition of accounts payable and accrued liabilities, including salaries and other expenses Accounts Payable and Accrued Liabilities | Liability Type | December 31, 2021 (unaudited) ($) | September 30, 2021 ($) | | :--------------------- | :---------------------------- | :----------------- | | Accounts payable | $1,760,676 | $2,010,410 | | Accrued salaries payable | $396,796 | $655,240 | | Other accrued expenses | $363,881 | $325,693 | | Total | $2,521,353 | $2,991,343 | NOTE E —WARRANTS AND STOCK OPTIONS This note provides information on outstanding warrants and stock options, including grants and their fair value Warrants Outstanding | Metric | October 1, 2021 | December 31, 2021 | | :-------------------------------- | :-------------- | :---------------- | | Number of Shares | 745,268 | 743,563 | | Weighted Average Exercise Price Per Share | $6.44 | $6.43 | - During the three months ended December 31, 2021, the Company granted 361,552 stock options to officers (vested immediately) and 213,889 options to non-employee board members (vesting in one year). The weighted average grant date fair value per share for these options was $5.90, calculated using the Black Scholes Option Pricing Model5354 NOTE F — COMMITMENTS AND CONTINGENCIES This note outlines the company's lease obligations, executive compensation details, and confirms the absence of pending litigation - The Company renewed its corporate headquarters and laboratory space leases until January 31, 2023, with an annual base rent of $589,056. Total short-term lease obligation as of December 31, 2021, is $644,05957 - The CEO's annual salary was increased to $450,000 effective November 1, 2021. A $300,000 bonus for FY2021, earned due to annual revenue exceeding $8 million, was paid to the CEO on November 1, 2021, by granting stock options with a fair value of $300,00064 - There is no pending litigation involving the Company at this time65 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results, including forward-looking statements, a business overview, recent developments, and a detailed comparison of financial performance for the three-month periods ended December 31, 2021 and 2020 Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties, including those related to COVID-19 and product development - The report contains forward-looking statements regarding future expectations, financial performance projections, and business strategies, which are subject to known and unknown risks and uncertainties, including those related to COVID-19, product development, regulatory approvals, and financing68697072 Introduction (Business Overview) This overview describes Applied DNA's core DNA-based technology solutions, including its LinearDNA™ platform for biotherapeutics and supply chain security, and COVID-19 diagnostic services - Applied DNA develops DNA-based technology solutions using its LinearDNA™ PCR platform for biotherapeutic contract research and manufacturing, supply chain security (Non-Biologic Tagging), and COVID-19 diagnostic testing and services (safeCircle™)77 - The LinearDNA™ platform offers benefits in speed, scale, purity, and customization for large-scale DNA production, used in in vitro diagnostics and preclinical nucleic acid-based drug development (e.g., CAR T, DNA vaccines, RNA therapies, CRISPR, gene therapies)787980 - The company's Non-Biologic Tagging business uses SigNature® Molecular Tags and SigNify® IF portable DNA readers for supply chain security, anti-counterfeiting, and anti-theft across various industries9192 Recent Developments This section details the impact of the Omicron variant on the Linea 1.0 COVID-19 Assay Kit and the subsequent development and approval status of the Linea 2.0 Assay - The Linea 1.0 COVID-19 Assay Kit was impacted by the Omicron VOC, leading to false negative results as a primary diagnostic. The FDA issued a notice in December 2021 requiring the company to cease its use for primary diagnosis849394 - In response, the Linea 2.0 Assay received conditional approval as an LDT from the NYSDOH on December 30, 2021, for use in New York State, and an EUA request for the Linea 2.0 Assay was submitted to the FDA on January 19, 2021869596 - The Linea 1.0 Assay may still have utility as a reflex test to identify SARS-CoV-2 mutations indicative of the Omicron VOC BA.2 subvariant9398 Plan of Operations This section outlines the company's near-term revenue growth strategies, focusing on COVID-19 assay kits, testing services, DNA product manufacturing, and molecular tagging offerings - Near-term revenue growth is expected from Linea™ COVID-19 Assay Kit sales, COVID-19 pooled testing, COVID-19 Surveillance Testing, and DNA product manufacturing for biotechnology and in vitro diagnostic markets. Growth is also anticipated from SigNature® molecular tags, SigNify®, and CertainT® offerings99 Critical Accounting Policies and Recently Issued Accounting Pronouncements This section refers to Note B for detailed information on critical accounting policies and recent accounting pronouncements - Refer to Note B in the condensed consolidated financial statements for details on critical accounting policies and recent accounting pronouncements100 Comparison of Results of Operations for the Three-Month Periods Ended December 31, 2021 and 2020 This section provides a detailed comparative analysis of the company's financial performance, including revenues, gross profit, costs, and net loss, for the specified three-month periods Revenues This subsection analyzes the changes in product, service, and clinical laboratory service revenues, highlighting key drivers for the increases and decreases Revenue Comparison (YoY) | Revenue Type | 3 Months Ended Dec 31, 2021 ($) | 3 Months Ended Dec 31, 2020 ($) | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Product revenues | $826,311 | $550,097 | $276,214 | 50% | | Service revenues | $139,273 | $293,274 | $(154,001) | -53% | | Clinical laboratory service revenues | $3,200,122 | $772,770 | $2,427,352 | 314% | | Total revenues | $4,165,706 | $1,616,141 | $2,549,565 | 158% | - The increase in product revenues was primarily driven by a $308,000 increase in Textiles, offset by a $52,000 decrease in Linea™ COVID-19 Assay Kit sales. The decrease in service revenues was due to reduced research and development projects in pharmaceutical/nutraceutical and biopharmaceutical markets101102 - Clinical laboratory service revenues saw a significant increase of 314%, primarily due to higher demand for COVID-19 testing services, including approximately $2,000,000 from a contract with the City University of New York103 Gross Profit This subsection examines the changes in gross profit and gross profit percentage, attributing shifts to revenue mix and associated costs Gross Profit Comparison (YoY) | Metric | 3 Months Ended Dec 31, 2021 ($) | 3 Months Ended Dec 31, 2020 ($) | Change ($) | Change (%) | | :----------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Gross profit | $1,109,138 | $1,100,360 | $8,778 | 0.8% | | Gross profit percentage | 27% | 68% | -41% | | - The decline in gross profit percentage from 68% to 27% was mainly due to a higher proportion of clinical laboratory service revenues from testing contracts that include staffing test collection centers, which have higher associated costs. Additionally, a shift in product sales mix, with fewer high-margin Linea™ COVID-19 Assay Kit sales, contributed to the decrease104 Costs and Expenses This subsection details the changes in selling, general and administrative, research and development, and other expenses, explaining the primary factors contributing to these shifts Operating Expenses Comparison (YoY) | Expense Type | 3 Months Ended Dec 31, 2021 ($) | 3 Months Ended Dec 31, 2020 ($) | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Selling, General and Administrative | $4,662,173 | $3,309,654 | $1,352,519 | 41% | | Research and Development | $1,080,096 | $763,808 | $316,288 | 41% | | Interest income (expense), net | $273 | $(5,438) | $5,711 | -105% | | Other expense, net | $(88,053) | $(53,860) | $(34,193) | 63% | | Loss on extinguishment of debt | $0 | $(1,774,662) | $1,774,662 | -100% | - The increase in Selling, General and Administrative expenses was primarily due to a $1,128,422 increase in stock-based compensation expense, mainly from officer stock option grants and annual non-employee board grants, and higher Directors and Officers insurance premiums105 - Research and Development expenses increased due to higher outsourced service contracts ($90,000) and payroll ($96,000), supporting animal vaccine studies and next-generation sequencing projects106 Net Loss This subsection presents the net loss for the reporting periods and attributes its change to the combined effects of revenue, gross profit, and expense fluctuations Net Loss Comparison (YoY) | Metric | 3 Months Ended Dec 31, 2021 ($) | 3 Months Ended Dec 31, 2020 ($) | Change ($) | Change (%) | | :------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net loss | $(4,720,911) | $(4,807,062) | $86,151 | -2% | - Net loss decreased by 2% to $4,720,911, primarily influenced by the factors noted in revenue, gross profit, and expense changes110 Liquidity and Capital Resources This section assesses the company's working capital, cash flow from operations, and its ability to continue as a going concern given recurring net losses and negative cash flow - As of December 31, 2021, the Company had working capital of $5,520,530. It used $3,701,894 in operating activities during the three-month period, primarily due to a net loss of $4,720,911111 - The Company's recurring net losses and negative operating cash flow raise substantial doubt about its ability to continue as a going concern for one year from the issuance of the financial statements, dependent on implementing its business plan, raising capital, and generating revenues112 Off-Balance Sheet Arrangements This section confirms the absence of any off-balance sheet arrangements for the company - The Company does not have any off-balance sheet arrangements112 Inflation This section states that inflation did not significantly impact the company's revenue or operating results during the period - The effect of inflation on the Company's revenue and operating results was not significant112 Item 3 - Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Applied DNA Sciences, Inc. is electing scaled disclosure requirements and therefore this item is not applicable - The Company is electing scaled disclosure requirements available to smaller reporting companies, making this item not applicable113 Item 4 - Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021, with no material changes in internal control over financial reporting - As of December 31, 2021, the disclosure controls and procedures were evaluated and deemed effective by management, including the CEO and CFO113 - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the fiscal quarter ended December 31, 2021114 PART II - OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits Item 1 – Legal Proceedings There are no legal proceedings pending against the Company at this time - There is no pending litigation involving the Company at this time114 Item 1A – Risk Factors This section indicates that there are no new risk factors to report for the period - No new risk factors are reported in this section115 Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities and use of proceeds are reported115 Item 3 – Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - No defaults upon senior securities are reported115 Item 4 – Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable115 Item 5 – Other Information There is no other information to report for the period - No other information is reported115 Item 6 – Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications, XBRL documents, and other incorporated by reference filings - The exhibits include certifications from the CEO and CFO (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act), XBRL Instance Document, Taxonomy Extension Schema Document, Calculation Linkbase Document, Definition Linkbase Document, and Label Linkbase Document117