Table of Contents

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, 2022June 30, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

Commission File Number: 001-36745

Applied DNA Sciences, Inc.

(Exact name of registrant as specified in its charter)

Delaware

59-2262718

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

50 Health Sciences Drive

 

Stony Brook, New York

11790

(Address of principal executive offices)

(Zip Code)

631-240-8800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

   Yes        No

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

   Yes        No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

   Yes        No

On February 3,August 4, 2023, the registrant had 12,908,52013,658,520 shares of common stock outstanding.

Table of Contents

Applied DNA Sciences, Inc. and Subsidiaries

Form 10-Q for the Quarter Ended December 31, 2022June 30, 2023

Table of Contents

    

Page

PART I - FINANCIAL INFORMATION

Item 1 - Condensed Consolidated Financial Statements (unaudited)

1

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

1720

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

2731

Item 4 - Controls and Procedures

2832

PART II - OTHER INFORMATION

Item 1 – Legal Proceedings

2933

Item 1A – Risk Factors

2933

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

2933

Item 3 – Defaults Upon Senior Securities

2933

Item 4 – Mine Safety Disclosures

2933

Item 5 – Other Information

2933

Item 6 – Exhibits

3034

Table of Contents

Part I - Financial Information

Item 1 - Financial Statements

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

    

December 31, 

    

September 30, 

2022

2022

ASSETS

(unaudited)

Current assets:

 

  

 

  

Cash and cash equivalents

$

12,877,179

$

15,215,285

Accounts receivable, net of allowance of $40,831 and $330,853 at December 31, 2022 and September 30, 2022, respectively

 

4,053,477

 

3,067,544

Inventories

 

477,014

 

602,244

Prepaid expenses and other current assets

 

924,682

 

1,058,056

Total current assets

 

18,332,352

 

19,943,129

Property and equipment, net

 

1,865,772

 

2,222,988

Other assets:

 

 

Deposits

 

98,987

 

98,997

Total assets

$

20,297,111

$

22,265,114

LIABILITIES AND EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable and accrued liabilities

$

3,056,123

$

3,621,751

Deferred revenue

 

273,880

 

563,557

Total current liabilities

 

3,330,003

 

4,185,308

Long term accrued liabilities

 

31,467

 

31,467

Warrants classified as a liability

7,777,200

5,139,400

Total liabilities

 

11,138,670

 

9,356,175

Commitments and contingencies (Note F)

 

  

 

  

Applied DNA Sciences, Inc. stockholders’ equity:

 

  

 

  

Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of December 31, 2022 and September 30, 2022, respectively

 

 

Series A Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- issued and outstanding as of December 31, 2022 and September 30, 2022, respectively

 

 

Series B Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- issued and outstanding as of December 31, 2022 and September 30, 2022, respectively

 

 

Common stock, par value $0.001 per share; 200,000,000 shares authorized as of December 31, 2022 and September 30, 2022, 12,908,520 shares issued and outstanding as of December 31, 2022 and September 30, 2022

 

12,909

 

12,909

Additional paid in capital

 

305,492,756

 

305,399,008

Accumulated deficit

 

(296,343,460)

 

(292,500,088)

Applied DNA Sciences, Inc. stockholders’ equity:

 

9,162,205

 

12,911,829

Noncontrolling interest

(3,764)

(2,890)

Total equity

9,158,441

12,908,939

Total liabilities and equity

$

20,297,111

$

22,265,114

    

June 30, 

    

September 30, 

2023

2022

ASSETS

(unaudited)

Current assets:

 

  

 

  

Cash and cash equivalents

$

10,756,235

$

15,215,285

Accounts receivable, net of allowance of $75,000 and $330,853 at June 30, 2023 and September 30, 2022, respectively

 

682,701

 

3,067,544

Inventories

 

276,422

 

602,244

Prepaid expenses and other current assets

 

524,904

 

1,058,056

Total current assets

 

12,240,262

 

19,943,129

Property and equipment, net

 

1,168,038

 

2,222,988

Other assets:

 

 

Restricted cash

750,000

Capitalized transaction costs

275,726

Operating right of use asset

1,355,508

Deposits

 

 

98,997

Total assets

$

15,789,534

$

22,265,114

LIABILITIES AND EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable and accrued liabilities

$

2,127,908

$

3,621,751

Operating lease liability, current

487,425

Deferred revenue

 

275,885

 

563,557

Total current liabilities

 

2,891,218

 

4,185,308

Long term accrued liabilities

 

31,467

 

31,467

Operating lease liability, long term

868,081

Warrants classified as a liability

4,804,700

5,139,400

Total liabilities

 

8,595,466

 

9,356,175

Commitments and contingencies (Note F)

 

  

 

  

Applied DNA Sciences, Inc. stockholders’ equity:

 

  

 

  

Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of June 30 2023 and September 30, 2022, respectively

 

 

Series A Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- issued and outstanding as of June 30, 2023 and September 30, 2022, respectively

 

 

Series B Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- issued and outstanding as of June 30, 2023 and September 30, 2022, respectively

 

 

Common stock, par value $0.001 per share; 200,000,000 shares authorized as of June 30, 2023 and September 30, 2022, 12,908,520 shares issued and outstanding as of June 30, 2023 and September 30, 2022

 

12,909

 

12,909

Additional paid in capital

 

306,091,402

 

305,399,008

Accumulated deficit

 

(298,854,883)

 

(292,500,088)

Applied DNA Sciences, Inc. stockholders’ equity

 

7,249,428

 

12,911,829

Noncontrolling interest

(55,360)

(2,890)

Total equity

7,194,068

12,908,939

Total liabilities and equity

$

15,789,534

$

22,265,114

See the accompanying notes to the unaudited condensed consolidated financial statements

1

Table of Contents

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)(unaudited)

Three Months Ended December 31, 

    

2022

    

2021

Revenues

 

  

 

  

Product revenues

$

516,396

$

826,311

Service revenues

232,061

139,273

Clinical laboratory service revenues

4,514,295

3,200,122

Total revenues

5,262,752

4,165,706

 

Cost of product revenues

365,378

434,929

Cost of clinical laboratory service revenues

2,519,691

2,621,639

Total cost of revenues

2,885,069

3,056,568

Gross profit

2,377,683

1,109,138

Operating expenses:

Selling, general and administrative

2,625,357

4,735,619

Research and development

971,304

1,080,096

Total operating expenses

3,596,661

5,815,715

LOSS FROM OPERATIONS

(1,218,978)

(4,706,577)

 

  

  

Interest income, net

3,686

273

Unrealized loss on change in fair value of warrants classified as a liability

(2,637,800)

Other income (expense), net

8,846

(14,607)

 

Loss before provision for income taxes

(3,844,246)

(4,720,911)

Provision for income taxes

NET LOSS

(3,844,246)

(4,720,911)

Less: Net loss (income) attributable to noncontrolling interest

874

(855)

NET LOSS attributable to Applied DNA Sciences, Inc.

$

(3,843,372)

$

(4,721,766)

Net loss per share attributable to common stockholders-basic and diluted

$

(0.30)

$

(0.63)

Weighted average shares outstanding- basic and diluted

 

12,908,520

 

7,486,120

Three Months Ended June 30, 

Nine Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

Revenues

 

  

 

  

 

  

 

  

Product revenues

$

316,950

$

219,765

$

1,130,800

$

1,454,427

Service revenues

425,694

182,796

826,813

570,759

Clinical laboratory service revenues

2,174,697

3,893,810

10,630,094

12,584,174

Total revenues

2,917,341

4,296,371

12,587,707

14,609,360

 

Cost of product revenues

368,902

307,049

1,103,843

1,211,959

Cost of clinical laboratory service revenues

1,279,121

2,950,064

6,029,428

8,760,520

Total cost of revenues

1,648,023

3,257,113

7,133,271

9,972,479

Gross profit

1,269,318

1,039,258

5,454,436

4,636,881

Operating expenses:

Selling, general and administrative

3,292,304

3,032,877

9,440,734

11,341,176

Research and development

836,123

863,025

2,796,171

3,013,162

Total operating expenses

4,128,427

3,895,902

12,236,905

14,354,338

LOSS FROM OPERATIONS

(2,859,109)

(2,856,644)

(6,782,469)

(9,717,457)

 

  

  

Interest income

26,783

34,108

5,813

Transaction costs allocated to warrant liabilities

(391,335)

Unrealized (loss) gain on change in fair value of warrants classified as a liability

(278,400)

1,758,200

334,700

2,540,700

Other (expense) income, net

(3,469)

(26,352)

6,396

(43,226)

 

Loss before provision for income taxes

(3,114,195)

(1,124,796)

(6,407,265)

(7,605,505)

Provision for income taxes

NET LOSS

$

(3,114,195)

$

(1,124,796)

$

(6,407,265)

$

(7,605,505)

Less: Net loss attributable to noncontrolling interest

14,429

576

52,470

833

NET LOSS attributable to Applied DNA Sciences, Inc.

$

(3,099,766)

$

(1,124,220)

$

(6,354,795)

$

(7,604,672)

Deemed dividend related to warrant modification

110,105

NET LOSS attributable to common stockholders

$

(3,099,766)

$

(1,124,220)

$

(6,354,795)

$

(7,714,777)

Net loss per share attributable to common stockholders-basic and diluted

$

(0.24)

$

(0.13)

$

(0.49)

$

(0.94)

Weighted average shares outstanding- basic and diluted

 

12,908,520

 

8,982,520

 

12,908,520

 

8,184,807

See the accompanying notes to the unaudited condensed consolidated financial statements

2

Table of Contents

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

For the Three-Month Period Ended December 31, 2022

Common

Additional

Common

Stock

Paid in

Accumulated

Noncontrolling

    

Shares

    

Amount

    

Capital

    

Deficit

    

Interest

    

Total

Balance, October 1, 2022

 

12,908,520

$

12,909

$

305,399,008

$

(292,500,088)

$

(2,890)

$

12,908,939

Stock based compensation expense

 

 

 

93,748

 

 

93,748

Net loss

(3,843,372)

(874)

(3,844,246)

Balance, December 31, 2022

12,908,520

$

12,909

$

305,492,756

$

(296,343,460)

$

(3,764)

$

9,158,441

Nine-Month Period Ended June 30, 2022

Common 

Additional 

    

Common 

Stock 

Paid in 

Accumulated 

Noncontrolling

    

Shares

    

Amount

    

Capital

    

Deficit

    

Interest

    

Total

Balance, October 1, 2021

 

7,486,120

$

7,488

$

295,228,272

$

(284,122,092)

$

(722)

$

11,112,946

Stock based compensation expense

 

 

 

1,699,920

 

 

1,699,920

Options issued in settlement of accrued bonus

300,000

300,000

Net loss

(4,721,766)

855

(4,720,911)

Balance, December 31, 2021

 

7,486,120

$

7,488

$

297,228,192

$

(288,843,858)

$

133

$

8,391,955

Stock based compensation expense

272,915

272,915

Deemed dividend - warrant repricing

110,105

(110,105)

Common stock issued in public offering, net of offering costs

748,200

748

4,091,085

4,091,833

Fair value of warrants issued in connection with public offering

(3,350,400)

(3,350,400)

Net loss

(1,758,685)

(1,112)

(1,759,797)

Balance, March 31, 2022

8,234,320

$

8,236

$

298,351,897

$

(290,712,648)

$

(979)

$

7,646,506

Stock based compensation expense

272,914

272,914

Exercise of warrants

748,200

748

(674)

74

Net loss

(1,124,221)

(575)

(1,124,796)

Balance, June 30, 2022

8,982,520

$

8,984

$

298,624,137

$

(291,836,869)

$

(1,554)

$

6,794,698

For the Three-Month Period Ended December 31, 2021

Common 

Additional 

    

Common 

Stock 

Paid in 

Accumulated 

Noncontrolling

    

Shares

    

Amount

    

Capital

    

Deficit

    

Interest

    

Total

Balance, October 1, 2021

 

7,486,120

$

7,488

$

295,228,272

$

(284,122,092)

$

(722)

$

11,112,946

Stock based compensation expense

 

 

 

1,699,920

 

 

1,699,920

Options issued in settlement of accrued bonus

300,000

300,000

Net loss

 

 

 

(4,721,766)

855

 

(4,720,911)

Balance, December 31, 2021

 

7,486,120

$

7,488

$

297,228,192

$

(288,843,858)

$

133

$

8,391,955

Nine-Month Period ended June 30, 2023

Common

Additional

Common

Stock

Paid in

Accumulated

Noncontrolling

    

Shares

    

Amount

    

Capital

    

Deficit

    

Interest

    

Total

Balance, October 1, 2022

 

12,908,520

$

12,909

$

305,399,008

$

(292,500,088)

$

(2,890)

$

12,908,939

Stock based compensation expense

 

 

 

93,748

 

 

93,748

Net loss

(3,843,372)

(874)

(3,844,246)

Balance December 31, 2022

12,908,520

12,909

305,492,756

(296,343,460)

(3,764)

9,158,441

Stock based compensation expense

258,604

258,604

Net income (loss)

588,343

(37,167)

551,176

Balance, March 31, 2023

12,908,520

$

12,909

$

305,751,360

$

(295,755,117)

$

(40,931)

$

9,968,221

Stock based compensation expense

340,042

340,042

Net loss

(3,099,766)

(14,429)

(3,114,195)

Balance, June 30, 2023

12,908,520

$

12,909

$

306,091,402

$

(298,854,883)

$

(55,360)

$

7,194,068

See the accompanying notes to the unaudited condensed consolidated financial statements

3

Table of Contents

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended December 31,

    

2022

    

2021

Cash flows from operating activities:

 

  

 

  

Net loss

$

(3,844,246)

$

(4,720,911)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Depreciation and amortization

 

338,918

 

320,751

Gain on sale of property and equipment

(6,083)

Unrealized loss on change in fair value of warrants classified as a liability

2,637,800

Stock-based compensation

 

93,748

 

1,699,920

Change in provision for bad debts

 

(290,022)

 

10,000

Change in operating assets and liabilities:

 

 

Accounts receivable

 

(695,912)

 

(1,063,237)

Inventories

 

125,230

 

69,304

Prepaid expenses and other current assets and deposits

 

133,374

 

(24,268)

Accounts payable and accrued liabilities

 

(586,236)

 

(169,991)

Deferred revenue

 

(289,677)

 

176,538

Net cash used in operating activities

 

(2,383,106)

 

(3,701,894)

Cash flows from investing activities:

 

  

 

  

Proceeds from sale of property and equipment

45,000

Purchase of property and equipment

 

(104,686)

Net cash provided by (used in) investing activities

 

45,000

 

(104,686)

Net decrease in cash and cash equivalents

 

(2,338,106)

 

(3,806,580)

Cash and cash equivalents at beginning of period

 

15,215,285

 

6,554,948

Cash and cash equivalents at end of period

$

12,877,179

$

2,748,368

Supplemental Disclosures of Cash Flow Information:

 

  

 

  

Cash paid during period for interest

$

$

Cash paid during period for income taxes

$

$

Non-cash investing and financing activities:

 

  

 

Property and equipment acquired, and included in accounts payable

$

20,619

$

Issuance of stock options for payment of accrued bonus

$

$

300,000

Nine Months Ended June 30, 

    

2023

    

2022

Cash flows from operating activities:

 

  

 

  

Net loss

$

(6,407,265)

$

(7,605,505)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Depreciation and amortization

 

1,032,568

 

962,800

Gain on sale of property and equipment

(6,083)

Unrealized gain on change in fair value of warrants classified as a liability

(334,700)

(2,540,700)

Stock-based compensation

 

692,394

 

2,245,749

Change in provision for bad debts

 

(255,853)

 

10,000

Write-off of property and equipment

62,000

Change in operating assets and liabilities:

Accounts receivable

2,640,694

(64,928)

Inventories

325,822

815,294

Prepaid expenses and other current assets and deposits

632,149

(603,439)

Accounts payable and accrued liabilities

(1,631,965)

586,379

Deferred revenue

(287,672)

476,264

Net cash used in operating activities

 

(3,537,911)

 

(5,718,086)

Cash flows from investing activities:

 

 

  

Capitalized transaction costs for asset purchase transaction

(137,604)

Proceeds from sale of property and equipment

45,000

Purchase of property and equipment

(78,535)

(246,892)

Net cash used in investing activities

(171,139)

(246,892)

Cash flows from financing activities:

Net proceeds from exercise of warrants

75

Net proceeds from issuance of common stock and warrants

4,091,833

Net cash provided by financing activities

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 beginning of period

15,215,285

6,554,948

Cash, cash equivalents and restricted cash at end of period

$

11,506,235

$

4,681,878

Supplemental Disclosures of Cash Flow Information:

Cash paid during period for interest

$

$

Cash paid during period for income taxes

$

$

Non-cash investing and financing activities:

Property and equipment acquired, and included in accounts payable

$

$

249,468

Deemed dividend warrant modifications

$

$

110,105

Leased assets obtained in exchange for new operating lease liabilities

$

1,545,916

$

Fair value of warrants issued

$

$

3,350,400

Transaction costs for asset purchase included in accounts payable

$

138,122

$

Issuance of stock options for payment of accrued bonus

$

$

300,000

See the accompanying notes to the unaudited condensed consolidated financial statements

4

Table of Contents

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022June 30, 2023

(unaudited)

NOTE A — NATURE OF THE BUSINESS

Applied DNA Sciences, Inc. (“Applied DNA” or the “Company”) is a biotechnology company developing and commercializing technologies to produce and detect deoxyribonucleic acid (“DNA”) and ribonucleic acid (“RNA”). The Company uses the polymerase chain reaction (“PCR”) to enable both the production and detection of DNA and RNA, for use in three primary markets: (i) the manufacture of synthetic DNA for use in the production of nucleic acid-based therapeutics and, through its recent acquisition of Spindle Biotech, Inc. (“Spindle”), for the development and sale of proprietary RNA polymerase (“RNAP”) for use in the production of mRNA therapeutics (“Therapeutic DNA Production Services”); (ii) the detection of DNA and RNA in molecular diagnostics and genetic testing services (“MDx Testing Services”); and (iii) the manufacture and detection of DNA for industrial supply chain security services (“DNA Tagging and Security Products and Services”). Under its MDx Testing Services, the Company’s wholly owned subsidiary, Applied DNA Clinical Labs, LLC (“ADCL”), is offering a high-throughput turnkey solution for population-scale COVID-19 testing marketed as safeCircleTM. safeCircle utilizes the Company’s COVID-19 Diagnostic Tests and is designed to look for infection within defined populations or communities utilizing high throughput testing methodologies (the “COVID-19 Testing Services”).

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

Interim Financial Statements

The accompanying condensed consolidated financial statements as of December 31, 2022,June 30, 2023, and for the three-monththree and nine-month periods ended December 31,June 30, 2023 and 2022 and 2021 are unaudited. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are presented in accordance with the requirements of Regulation S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month periodthree and nine-month periods ended December 31, 2022June 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2023. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the fiscal year ended September 30, 2022 and footnotes thereto included in the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission (“SEC”)SEC on December 14, 2022, as amended. To facilitate comparison of information across periods, certain reclassifications have been made to prior year amounts to conform to the current year’s presentation. The condensed consolidated balance sheet as of September 30, 2022 contained herein has been derived from the audited consolidated financial statements as of September 30, 2022 but does not include all disclosures required by GAAP.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, APDN (B.V.I.) Inc., Applied DNA Sciences Europe Limited, and Applied DNA Sciences India Private Limited, ADCL, and Spindle Acquisition Corp. (formed June 2023), and its majority-owned subsidiary, LineaRx, Inc. (“LRx”). Significant inter-company transactions and balances have been eliminated in consolidation.

LiquidityGoing Concern and Management’s Plan

The Company has recurring net losses, which have resulted in an accumulated deficit of $296,343,460$298,854,883 as of December 31, 2022.June 30, 2023. The Company incurred a net loss of $3,844,246$6,407,265 and generated negative operating cash flow of $2,383,106$3,537,911 for the three-monthnine-month period ended December 31, 2022. At December 31, 2022,June 30, 2023. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements.  The ability of the Company had cashto continue as a going concern is dependent on the Company’s ability to further implement its business plan, raise capital, and cash equivalents of $12,877,179 and working capital of $15,002,349.generate revenues.  The financial statements do not include any adjustments that  might be necessary if the Company is unable to continue as a going concern.

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022June 30, 2023

(unaudited)

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

LiquidityGoing Concern and Management's Plan,, continued

The Company’s current capital resources include cash and cash equivalents, accounts receivable and inventories. Historically, the Company has financed its operations principally from the sale of equity and equity-linked securities. Through December 31, 2022, the Company has dedicated most of its financial resources to commercialization of its MDx Testing Services, specifically its COVID-19 Testing Services, as well as to research and development efforts,primarily in the Therapeutic DNA Production segment, including the development and validation of its own technologies as well as, advancing its intellectual property, and general and administrative activities. The Company estimates that it will have sufficient cash and cash equivalents to fund operations for the next twelve months from the date of filing of this quarterly report.

The Company may require additional funds to complete the continued development of its products, services, product manufacturing, and to fund expected additional losses from operations until revenues are sufficient to cover its operating expenses. If revenues are not sufficient to cover the Company’s operating expenses, and if the Company is not successful in obtaining the necessary additional financing, the Company will most likely be forced to reduce operations.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The most significant estimates include revenue recognition, recoverability of long-lived assets, including the values assigned to property and equipment, fair value calculations for warrants, contingencies, and management’s anticipated liquidity. Management reviews its estimates on a regular basis and the effects of any material revisions are reflected in the consolidated financial statements in the period they are deemed necessary. Accordingly, actual results could differ from those estimates.

Revenue Recognition

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codifications (“ASC”), Revenue Recognition (“ASC 606” or “Topic 606”).

The Company measures revenue at the amounts that reflect the consideration to which it is expected to be entitled in exchange for transferring control of goods and services to customers. The Company recognizes revenue either at the point in time or over the period of time that performance obligations to customers are satisfied. The Company’s contracts with customers may include multiple performance obligations (e.g. taggants, maintenance, authentication services, research and development services, etc.). For such arrangements, the Company allocates revenues to each performance obligation based on their relative standalone selling price.

Due to the short-term nature of the Company’s contracts with customers, it has elected to apply the practical expedients under Topic 606 to: (1) expense as incurred, incremental costs of obtaining a contract and (2) not adjust the consideration for the effects of a significant financing component for contracts with an original expected duration of one year or less.

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022June 30, 2023

(unaudited)

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

Revenue Recognition, continued

Product Revenues and Authentication Services

The Company’s PCR-produced linear DNA product revenues are accounted for/recognized in accordance with contracts with customers. The Company recognizes revenue upon satisfying its promises to transfer goods or services to customers under the terms of its contracts. These performance obligations are satisfied at the point in time the Company transfers control of the goods to the customer, which in nearly all cases is when title to and risk of loss of the goods transfer to the customer. The timing of transfer of title and risk of loss is dictated by customary or explicitly stated contract terms. The Company invoices customers upon shipment, and its collection terms range, on average, from 30 to 60 days.

Authentication Services

The Company recognizes revenue for authentication services upon satisfying its promises to provide services to customers under the terms of its contracts. These performance obligations are satisfied at the point in time the Company services are complete, which in nearly all cases is when the authentication report is released to the customer.

Clinical Laboratory Testing Services

The Company records revenue for its clinical laboratory testing service contracts, which includes its COVID-19 Testing Services, upon satisfying its promise to provide services to customers under the terms of its contracts. These performance obligations are satisfied at the point in time that Company services are complete, which in nearly all cases is when the testing results are released to the customer. For those customers with a fixed monthly fee, the revenue is recognized over-time as the services are provided.

Research and Development Services

The Company records revenue for its research and development contracts using the over-time revenue recognition model. Revenue is primarily measured using the cost-to-cost method, which the Company believes best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation.

Revenues are recorded proportionally as costs are incurred. For contracts where the total costs cannot be estimated, revenues are recognized for the actual costs incurred during a period until the remaining costs to complete a contract can be estimated. The Company has elected not to disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022June 30, 2023

(unaudited)

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

Revenue Recognition, continued

Disaggregation of Revenue

The following table presents revenues disaggregated by our business operations and timing of revenue recognition:

Three Month Period Ended:

Three Month Period Ended:

December 31, 

December 31, 

June 30, 

June 30, 

    

2022

    

2021

    

2023

    

2022

Research and development services (over-time)

$

126,058

$

105,695

$

135,622

$

152,732

Clinical laboratory testing services (point-in-time)

3,074,414

1,873,722

1,521,315

2,506,976

Clinical laboratory testing services (over-time)

1,439,881

1,326,400

653,382

1,386,834

Product and authentication services (point-in-time):

 

 

 

 

Supply chain

 

411,765

 

411,547

 

242,826

 

43,243

Large Scale DNA Production

127,506

271,884

Asset marking

 

83,128

 

105,522

 

92,312

 

127,075

MDx test kits and supplies

342,820

79,511

Total

$

5,262,752

$

4,165,706

$

2,917,341

$

4,296,371

Nine Month Period Ended:

June 30, 

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

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

Revenue Recognition, continued

Contract balances

As of December 31, 2022,June 30, 2023, the Company has entered into contracts with customers for which revenue has not yet been recognized. Consideration received from a customer prior to revenue recognition is recorded to a contract liability and is recognized as revenue when the Company satisfies the related performance obligations under the terms of the contract. The Company’s contract liabilities, which are reported as deferred revenue on the condensed consolidated balance sheet, consist almost entirely of research and development contracts where consideration has been received and the development services have not yet been fully performed.

The opening and closing balances of the Company’s contract balances are as follows:

October 1, 

December 31, 

$

October 1,

June 30, 

$

    

Balance sheet classification

    

2022

    

2022

    

change

    

Balance sheet classification

    

2022

    

2023

    

change

Contract liabilities

 

Deferred revenue

$

563,557

$

273,880

$

289,677

 

Deferred revenue

$

563,557

$

275,885

$

287,672

For the three-month periodthree and nine-month periods ended December 31, 2022,June 30, 2023, the Company recognized $341,285$2,113 and $345,480 of revenue that was included in Contract liabilities as of October 1, 2022.2022, respectively.

Inventories

Inventories, which consist primarily of raw materials, work in progress and finished goods, are stated at the lower of cost or net realizable value, with cost determined by using the first-in, first-out (FIFO) method.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022June 30, 2023

(unaudited)

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

Net Loss Per Share

The Company presents loss per share utilizing a dual presentation of basic and diluted loss per share. Basic loss per share includes no dilution and has been calculated based upon the weighted average number of common shares outstanding during the period. Dilutive common stock equivalents consist of shares issuable upon the exercise of the Company’s stock options, restricted stock units and warrants.

For the three-month periods ended December 31, 2022 and 2021, common stock equivalent shares are excluded from the computation of the diluted loss per share as their effect would be anti-dilutive.

Securities that could potentially dilute basic net incomeloss per share in the future that were not included in the computation of diluted net loss per share because to do so would have been anti-dilutive for the three-monththree and nine-month periods ended December 31,June 30, 2023 and 2022 and 2021 are as follows:

    

2022

    

2021

    

2023

    

2022

Warrants

 

7,295,588

 

743,563

7,295,588

2,239,963

Restricted Stock Units

282,640

Stock options

 

1,006,141

 

1,061,460

2,198,971

1,063,143

Total

 

8,301,729

 

1,805,023

9,777,199

3,303,106

Cash and Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows:

June 30, 

June 30, 

    

2023

    

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

The Company’s restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its February 2023 standby letter of credit agreement related to its new operating lease. See Note F for further details.

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

Concentrations

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents, restricted cash and trade receivables. The Company places its cash and cash equivalents with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. As of December 31, 2022,June 30, 2023, the Company had cash and cash equivalents of approximately $12.2$8.5 million in excess of the FDIC insurance limit.

The Company’s revenues earned from sale of products and services for the three-month periodthree and nine-month periods ended December 31, 2022June 30, 2023 included an aggregate of 83%71% and 81%, respectively from two customers within the MDx Testing Services segment. 53% and 69% of the revenues earned for the three and nine-month periods ended June 30, 2023, respectively were derived from the COVID-19 testing contract with CUNY that terminated during June 2023.

One customer from within the MDx Testing Services segment accounted for 48%64% and 55%, respectively, of the Company’s revenues earned from sale of products and services for the three-month periodthree and nine-month periods ended December 31, 2021.June 30, 2022.

One customerTwo customers accounted for 88%86% of the Company’s accounts receivable at December 31, 2022June 30, 2023 and two customers accounted for 89% of the Company’s accounts receivable at September 30, 2022.

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022

(unaudited)

NOTE B – BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

Segment Reporting

The Company has three reportable segments. (1) Therapeutic DNA Production Services (2) MDx Testing Services, and (3) DNA Tagging and Security Products and Services. Resources are allocated by our CEO, COO, CFOChief Executive Officer (“CEO”), Chief Operating Officer (“COO”), Chief Financial Officer (“CFO”) and CLOChief Legal Officer (“CLO”) whom, collectively the Company has determined to be our Chief Operating Decision Maker (CODM)(“CODM”). The following is a brief description of our reportable segments.

Therapeutic DNA Production Services — Segment operations consist of the manufacture of DNA for use in nucleic acid-based therapeutics.

MDx Testing Services— Segment operations consist of performing and developing clinical molecular diagnostic and genetic tests and clinical laboratory testing services. Under ourthe Company’s MDx testing services, ADCL provides COVID-19 testing for large populations marketed under its safeCircleTM trademark, as well as its pharamcogenimcpharmacogenetic testing services that are currently undergoing late-stage development. ItIn the prior fiscal year, it also includesincluded the sales of ourthe Company’s MDx test kits and related supplies.

DNA Tagging and Security Products and Services — Segment operations consist of the manufacture and detection of DNA for industrial supply chain security services.

The Company evaluates the performance of its segments and allocates resources to them based on revenues and operating income (losses). Operating income (loss) includes intersegment revenues, as well as a charge allocating all corporate headquarters costs. Since each vertical has shared employee resources, payroll and certain other general expenseexpenses such as rent, and utilities were allocated based on an estimate by management of the percentage of employee time spent in each vertical. Segment assets are not reported to, or used by, the CODM to allocate resources to, or assess performance of, the segments and therefore, total segment assets have not been disclosed.

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE B – BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

Fair Value of Financial Instruments

The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related asset or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.

The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.

For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, which reports to the Chief Financial Officer, determine its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department and are approved by the Chief Financial Officer.

As of December 31, 2022,June 30, 2023, there were no transfers between Levels 1, 2 and 3 of the fair value hierarchy.

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022

(unaudited)

NOTE B – BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES, continued

Recent Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments” (“ASU-2016-13”), which changes the methodology for measuring credit losses on financial instruments and certain other instruments, including trade receivables and contract assets. The new standard replaces the current incurred loss model for measurement of credit losses on financial assets with a forward-looking expected loss model based on historical experience, current conditions, and reasonable and supportable forecasts. The new standard is effective for reporting periodsfiscal years beginning after December 15, 2022. The Company does not expect the adoption of ASU 2016-13 is not expected to have a significant impact on itsthe Company’s condensed consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40).” The objective of this update is to simplify the accounting for convertible preferred stock by removing the existing guidance in ASC 470-20, “Debt: Debt with Conversion and Other Options,” that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. This amendment also further revises the guidance in ASU 260, “Earnings per Share,” to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. The amendments in ASU 2020-06 are effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company does not expect the adoption of ASU 2020-06 to have a significant impact on its condensed consolidated financial statements.

12

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE C — INVENTORIES

Inventories consist of the following:

December 31, 

September 30, 

June 30, 

September 30, 

    

2022

    

2022

    

2023

    

2022

(unaudited)

(unaudited)

Raw materials

$

366,116

$

471,947

$

212,965

$

471,947

Work-in-progress

35,786

55,817

26,425

55,817

Finished goods

 

75,112

 

74,480

 

37,032

 

74,480

Total

$

477,014

$

602,244

$

276,422

$

602,244

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022

(unaudited)

NOTE D — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities are as follows:

December 31, 

September 30, 

June 30, 

September 30, 

    

2022

    

2022

    

2023

    

2022

(unaudited)

(unaudited)

Accounts payable

$

2,023,295

$

1,744,105

$

1,051,723

$

1,744,105

Accrued salaries payable

 

830,986

 

1,458,661

 

999,952

 

1,458,661

Other accrued expenses

 

201,842

 

418,985

 

76,233

 

418,985

Total

$

3,056,123

$

3,621,751

$

2,127,908

$

3,621,751

NOTE E —WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS

Warrants

The following table summarizes the changes in warrants outstanding. These warrants were granted as part of financing transactions, as well as in lieu of cash compensation for services performed or as financing expenses in connection with the sales of the Company’s Common Stock.common stock.

Transactions involving warrants are summarized as follows:

Weighted

Weighted

Average

Average

Exercise

Exercise

Number of

Price Per

Number of

Price Per

    

Shares

    

Share

    

Shares

    

Share

Balance at October 1, 2022

 

7,313,963

$

3.68

7,313,963

$

3.68

Granted

 

 

 

Exercised

 

 

 

Cancelled or expired

 

(18,375)

 

17.60

(18,375)

 

17.60

Balance at December 31, 2022

 

7,295,588

$

3.65

Balance at June 30, 2023

7,295,588

$

3.65

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022June 30, 2023

(unaudited)

NOTE E —WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS Continued

Options

For the nine-month period ended June 30, 2023, the Company granted 308,333 options to certain officers of the Company. These options have a ten-year term and vest 25% per year commencing on the first anniversary of the grant date. Also, during the nine-month period ended June 30, 2023, the Company granted 694,670 options to non-employee board of director members. The options granted to non-employee board of director members have a ten-year term and vest on the one-year anniversary of the date of grant.

The fair value of options granted during the nine-month period ended June 30, 2023, was determined using the Black Scholes Option Pricing Model. For the purposes of the valuation model, the Company used the simplified method for determining the granted options expected lives. The fair value for options granted during the nine-month period ended June 30, 2023 was calculated using the following weighted average assumptions: 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 rate of 3.64%. The weighted average grant date fair value per share for the options granted during the nine-month period ended June 30, 2023 was $1.20.

Restricted Stock Units

During the nine-month period ended June 30, 2023, the Company granted 282,640 restricted stock units (“RSUs”) to certain officers of the Company. These RSUs vest on the first anniversary of the grant date. The fair value of the RSUs granted was the closing stock price on the date of grant.

NOTE F — COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space under an operating lease in Stony Brook, New York for its corporate headquarters. The lease is for a 30,000 square foot building. The Company entered into an amended lease agreement on February 1, 2023. The initial term of the lease commencedis for three years and expires on June 15, 2013 and originally expired on May 31, 2016, with the option to extend theFebruary 1, 2026. The lease for two additional three-year periods. The Company exercised its option to extend the lease for one additional three-year period ending May 31, 2019. During November 2019,corporate headquarters requires monthly payments of $48,861, which is adjusted annually based on the US Consumer Price Index (“CPI”). In lieu of a security deposit, the Company extended this lease until January 15, 2020.provided a standby letter of credit of $750,000. In addition, to the office space, the Company also has 2,2002,500 square feet of laboratory space. On January 20, 2020, the Companyspace, which it entered into an amended lease agreement to amend both of these leases, extending thefor on February 1, 2023. The initial lease term for the corporate headquarters as well as the laboratory space until January 15, 2021, with a one-year renewal option. During October 2020,is one year from the Company exercised the one-year renewal option, extending the term for these leases until January 15, 2022. On February 1, 2022, the Company entered into a newcommencement date. The lease agreement for the same facility for an one-year term, expiring January 31, 2023. The base rent during the additional twelve-month period was $589,056 per annum. The Company is currently negotiating a lease renewal with its landlord and is operating under the old lease on a month-to-month basis until the new lease is finalized.requires monthly payments of $8,750. The Company also has a satellite testing facility in Ahmedabad, India, which occupies 1,108 square feet for a three-year term beginning November 1, 2017. During August 2022,2023, the Company renewed this lease with a new expiration date of July 31, 2023.2024. The base rent is approximately $6,500 per annum. The Company’s future minimum rental payments (excluding real estate tax and maintenance costslaboratory lease, as of December 31, 2022well as the testing facility in Ahmedabad are $50,839 and areboth considered short-term lease obligations).Theobligations. The total rent expense for the three-monththree and nine-month periods ended December 31, 2022June 30, 2023 were $174,399 and 2021$489,096, respectively.

The components of lease expense are as follows:

    

Three-month 

    

Nine-month

period ended 

 period ended

Lease Cost

June 30, 2023

June 30, 2023

Operating lease cost

$

244,306

$

342,028

Short-term lease cost

 

43,750

 

260,725

Total lease cost

$

288,056

$

602,753

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE F — COMMITMENTS AND CONTINGENCIES continued

Other Information

    

    

Cash paid for amounts included in the measurement of lease liabilities:

 

  

Operating cash flows from operating leases

$

244,306

Right-of-use assets obtained in exchange for new operating lease liabilities

 

1,545,916

Weighted-average remaining lease term — operating leases

 

2.6 years

Weighted-average discount rate — operating leases

 

9.1

%

Maturities of operating lease liabilities were $148,826 and $142,952, respectively.as follows:

    

Fiscal year

ended 

Maturity of Lease Liabilities

September 30,

 

Operating Leases

2023 (excluding the nine-month period ended June 30, 2023)

$

146,584

2024

 

586,334

2025

 

586,334

2026

 

195,445

2027

 

Thereafter

 

Total lease payments

 

1,514,697

Less: interest

 

(159,189)

Present value of lease liabilities

$

1,355,508

Employment Agreement

The employment agreement with Dr. James Hayward, the Company’s President and Chief Executive Officer (“CEO”),CEO, entered into in July 2016 provides that he will be the Company’s CEO and will continue to serve on the Company’s Board of Directors. The initial term was from July 1, 2016 through June 30, 2017, with automatic one-year renewal periods. On July 28, 2017, the employment agreement was renewed for a successive one-year term and the employment agreement has been renewed for successive one-year terms, most recently as of June 30, 2022.2023. Under the employment agreement, the CEO is eligible for aan annual special aggregate cash incentive bonus of up to $800,000 each fiscal year, $300,000 of which is payable if and when annual revenue reaches $8 million for such fiscal year, plus an additional $100,000 payable for each additional $2 million of annual revenue in excess of $8 million.million for such fiscal year. Pursuant to the contract, the CEO’s annual salary is $400,000. The Board of Directors, acting in its discretion, may grant annual bonuses to the CEO. The CEO will be entitled to certain benefits and perquisites and will be eligible to participate in retirement, welfare and incentive plans available to the Company’s other employees.

The employment agreement with the CEO also provides that if he is terminated before the end of the initial or a renewal term by the Company without cause or if the CEO terminates his employment for good reason, then, in addition to previously earned and unpaid salary, bonus and benefits, and subject to the delivery of a general release and continuing compliance with restrictive covenants, the CEO will be entitled to receive a pro rata portion of the greater of either (X) the annual bonus he would have received if employment had continued through the end of the year of termination or (Y) the prior year’s bonus; salary continuation payments for two years following termination equal to the greater of (i) three times base salary or (ii) two times base salary plus bonus; company-paidCompany-paid COBRA continuation coverage for 18 months post-termination; continuing life insurance benefits (if any) for two years; and extended exercisability of outstanding vested options (for three years from termination date or, if earlier, the expiration of the fixed option term). If termination of employment as described above occurs within six months before or two years after a change in control of the Company, then, in addition to the above payments and benefits, all of the CEO’s outstanding options and other equity incentive awards will become fully vested and the CEO will receive a lump sum payment of the amounts that would otherwise be paid as salary continuation. In general, a change in control will include a 30% or more change in ownership of the Company.

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE F — COMMITMENTS AND CONTINGENCIES, continued

Employment Agreement, continued

Upon termination due to death or disability, the CEO will generally be entitled to receive the same payments and benefits he would have received if his employment had been terminated by the Company without cause (as described in the preceding paragraph), other than salary continuation payments.

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022

(unaudited)

On October 29, 2021, the Board of Directors amended the existing compensatory arrangement with the CEO to increase his salary to $450,000, effective November 1, 2021.

In accordance with the terms of his employment agreement, for the nine-month period ended June 30, 2023, the CEO earned a $500,000 bonus as the Company’s year to date revenue was greater than $12 million. The bonus has not yet been paid and is included in accounts payable and accrued liabilities in the condensed consolidated balance sheet.

Litigation

From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. In addition to the estimated loss, the recorded liability includes probable and estimable legal costs associated with the claim or potential claim. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. There is no pending litigation involving the Company at this time.

NOTE G – SEGMENT INFORMATION

As detailed in Note B above, the Company has three reportable segments; (1) Therapeutic DNA Production Services, (2) MDx Testing Services, and (3) DNA Tagging and Security Products and Services. Resources are allocated by our CEO, COO, CFO and CLO whom, collectively the Company has determined to be our CODM.

Information regarding operations by segment for the three-month period ended December 31, 2022June 30, 2023 is as follows:

Therapeutic DNA

MDx Testing

DNA Tagging and

    

Therapeutic DNA

MDx Testing

DNA Tagging and

    

    

Production

    

Services

    

Security Products

    

Consolidated

    

Production

    

Services and Kits

    

Security Products

    

Consolidated

Revenues:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Product revenues

$

127,506

$

$

388,890

$

516,396

$

230,544

$

$

86,406

$

316,950

Service revenues

 

121,743

 

 

110,318

 

232,061

 

174,962

 

 

250,732

 

425,694

Clinical laboratory service revenues

 

 

4,565,815

 

 

4,565,815

 

 

2,188,817

 

 

2,188,817

Less intersegment revenues

 

 

(51,520)

 

 

(51,520)

 

 

(14,120)

 

 

(14,120)

Total revenues

$

249,249

$

4,514,295

$

499,208

$

5,262,752

405,506

2,174,697

337,138

2,917,341

Gross profit

$

170,924

$

1,933,219

$

273,540

$

2,377,683

290,541

829,798

148,979

1,269,318

(Loss) income from segment operations (a)

$

(852,253)

$

1,109,884

$

(474,715)

$

(217,084)

(717,126)

14,742

(998,966)

(1,701,350)

NOTE G – SEGMENT INFORMATION, continued

Information regarding operations by segment for the three-month period ended December 31, 2021 is as follows:

Therapeutic DNA

MDx Testing

DNA Tagging and

    

    

Production

    

Services

    

Security Products

    

Consolidated

Revenues:

 

  

 

  

 

  

 

  

Product revenues

$

$

342,821

$

483,490

$

826,311

Service revenues

 

89,438

 

 

49,835

 

139,273

Clinical laboratory service revenues

 

 

3,349,658

 

 

3,349,658

Less intersegment revenues

 

 

(149,536)

 

 

(149,536)

Total revenues

$

89,438

$

3,542,943

$

533,325

$

4,165,706

Gross profit

$

89,438

$

820,690

$

199,010

$

1,109,138

(Loss) income from segment operations (a)

$

(924,778)

$

(334,988)

$

(896,399)

$

(2,156,165)

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022June 30, 2023

(unaudited)

NOTE G – SEGMENT INFORMATION, continued

Information regarding operations by segment for the three-month period ended June 30, 2022 is as follows:

Therapeutic DNA

MDx Testing

DNA Tagging and

    

    

Production

    

Services

    

Security Products

    

Consolidated

Revenues:

 

  

 

  

 

  

 

  

Product revenues

$

$

79,512

$

140,253

$

219,765

Service revenues

 

109,395

 

 

73,401

 

182,796

Clinical laboratory service revenues

 

 

3,986,770

 

 

3,986,770

Less intersegment revenues

 

 

(92,960)

 

 

(92,960)

Total revenues

$

109,395

$

3,973,322

$

213,654

$

4,296,371

Gross profit

$

109,395

$

1,274,502

$

(344,639)

$

1,039,258

(Loss) income from segment operations (a)

$

(854,644)

$

425,706

$

(1,560,123)

$

(1,989,061)

Information regarding operations by segment for the nine-month period ended June 30, 2023 is as follows:

Therapeutic DNA

MDx Testing

DNA Tagging and

    

    

Production

    

Services and Kits

    

Security Products

    

Consolidated

Revenues:

 

  

 

  

 

  

 

  

Product revenues

$

560,000

$

$

570,800

$

1,130,800

Service revenues

 

434,287

 

 

392,526

 

826,813

Clinical laboratory service revenues

 

 

10,726,214

 

 

10,726,214

Less intersegment revenues

 

 

(96,120)

 

 

(96,120)

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 (a)

$

(2,623,502)

$

1,616,914

$

(2,388,417)

$

(3,395,005)

Information regarding operations by segment for the nine-month period ended June 30, 2022 is as follows:

Therapeutic DNA

MDx Testing

DNA Tagging and

    

    

Production

    

Services

    

Security Products

    

Consolidated

Revenues:

 

  

 

  

 

  

 

  

Product revenues

$

$

602,356

$

852,071

$

1,454,427

Service revenues

 

357,076

 

 

213,683

 

570,759

Clinical laboratory service revenues

 

 

12,960,350

 

 

12,960,350

Less intersegment revenues

 

 

(376,176)

 

 

(376,176)

Total revenues

$

357,076

$

13,186,530

$

1,065,754

$

14,609,360

Gross profit

$

357,076

$

4,430,361

$

(150,556)

$

4,636,881

(Loss) income from segment operations (a)

$

(2,828,629)

$

1,175,106

$

(3,749,155)

$

(5,402,678)

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE G – SEGMENT INFORMATION, continued

Reconciliation of segment loss from operations to consolidated loss before provision for income taxes is as follows:

Three-Month Period Ended:

June 30, 

December 31, 

    

2023

    

2022

    

2022

    

2021

Loss from operations of reportable segements

$

(217,084)

$

(2,156,165)

Loss from operations of reportable segments

$

(1,701,350)

$

(1,989,061)

General corporate expenses (b)

 

(1,001,894)

 

(2,550,412)

 

(1,157,759)

 

(867,583)

Interest income, net

 

3,686

 

273

Unrealized loss on change in fair value of warrants classified as a liability

 

(2,637,800)

 

Other income (expense), net

 

8,846

 

(14,607)

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

$

(3,844,246)

$

(4,720,911)

$

(3,114,195)

$

(1,124,796)

Nine-Month Period Ended:

June 30, 

    

2023

    

2022

Loss from operations of reportable segments

$

(3,395,005)

$

(5,402,678)

General corporate expenses (b)

 

(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)

(a)

Segment operating loss consists of net sales, less cost of sales, specifically identifiable research and development, and selling, general and administrative expenses.

(b)

General corporate expenses consists of Selling,selling, general and administrative expenses that are not specifically identifiable to a segment.

NOTE H – FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments at fair value are measured on a recurring basis. Related unrealized gains or losses are recognized in unrealized gain on change in fair value of the warrants classified as a liability in the condensed consolidated statements of operations. For additional disclosures regarding methods and assumptions used in estimating fair values of these financial instruments, see Note B.

The following table presents the fair value of the Company’s financial instruments as of December 31, 2022June 30, 2023 and summarizes the significant unobservable inputs in fair value measurement of Level 3 financial assets and liabilities as of December 31, 2022.June 30, 2023. The Company did not have any assets or liabilities categorized as Level 1 or 2 as of December 31, 2022.June 30, 2023.

Fair value at

Valuation

Unobservable

Weighted

 

Fair value at

Valuation

Unobservable

Weighted

 

    

December 31, 2022

    

Technique

    

Input

    

Average

 

    

June 30, 2023

    

Technique

    

Input

    

Average

 

Liabilities:

 

  

 

  

 

  

  

 

  

 

  

 

  

  

Common Warrants

$

2,187,000

Monte Carlo simulation

 

Annualized volatility

160.00

%

$

1,629,000

Monte Carlo simulation

 

Annualized volatility

160.00

%

Series A Warrants

$

4,269,000

Monte Carlo simulation

Annualized volatility

160.00

%

$

3,153,000

Monte Carlo simulation

Annualized volatility

160.00

%

Series B Warrants

$

1,321,200

Monte Carlo simulation

Annualized volatility

190.00

%

$

22,700

Monte Carlo simulation

Annualized volatility

130.00

%

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022June 30, 2023

(unaudited)

NOTE H – FAIR VALUE OF FINANCIAL INSTRUMENTS, continued

The change in fair value of the Common Warrants and the Series A and Series B Warrantsclassified as a liability for the three-month period ended December 31, 2022June 30, 2023 is summarized as follows:

    

Common Warrants

    

 

Series A Warrants

    

Series B Warrants

    

Common Warrants

    

Series A Warrants

    

Series B Warrants

    

Totals

Fair value at October 1, 2022

$

1,477,000

$

2,883,000

$

779,400

Fair value at April 1, 2023

$

1,429,000

$

2,768,000

$

329,300

$

4,526,300

Change in fair value

 

710,000

1,386,000

541,800

 

200,000

385,000

 

(306,600)

278,400

Fair Value at December 31, 2022

$

2,187,000

$

4,269,000

1,321,200

Fair Value at June 30, 2023

$

1,629,000

3,153,000

22,700

$

4,804,700

The change in fair value of the Warrants classified as a liability for the nine-month period ended June 30, 2023 is summarized as follows:

    

 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

On January 25,July 12, 2023 (the “Closing Date”), the Company, granted 694,670 optionsthrough its wholly-owned subsidiary, Spindle Acquisition Corp (the “Purchaser”), entered into a Share Purchase Agreement (the “Purchase Agreement”) with Spindle Biotech Inc., a corporation existing under the federal laws of Canada (“Spindle”).  Spindle is an early-stage, private biotech company developing next-generation RNA manufacturing technology, including but not limited to non-employee boardproprietary engineered RNA polymerase enzymes (collectively the “Acquired Technology”)

Pursuant to the terms of director members that havethe Purchase Agreement, the Company acquired all of the outstanding stock of Spindle from the sellers listed on Schedule 1.1 of the Purchase Agreement with effect from the Closing Date. As a ten-year termresult, Spindle became a wholly-owned subsidiary of the Purchaser, and vestthe financials of Spindle will be consolidated with those of the Company.

As consideration for the transactions the Company agreed to pay or issue to the Sellers, as applicable, on a pro rata basis: (i) a cash purchase price of $625,000, as adjusted for debt of Spindle as of the Closing Date and expenses related to the transaction, which was paid to the Sellers on the one-year anniversaryClosing Date; (ii) 750,000 restricted shares of the dateCompany’s common stock, par value $0.001 per share (the “Common Stock”), which shares were delivered to the Sellers on the Closing Date ; (iii) a percentage of grant.the revenues expected from the Company’s sale or exploitation of products including or derived from a heterologous fusion protein comprised of a DNA binding domain and an RNA polymerase enzyme developed by Spindle (the “Spindle RNAP”), payable to the Sellers in accordance with the terms of the Purchase Agreement for a period of ten (10) years commencing on the Closing Date; and (iv) upon the occurrence of certain events specified in the Purchase Agreement, including the issuance of a patent covering the Spindle RNAP and the achievement of certain designated milestones in respect of the Company’s sales or exploitation of projects including or derived from the Spindle RNAP, additional shares of Common Stock not to exceed 1,000,000 restricted shares, 250,000 of which will be issued upon the issuance of a patent for the Spindle RNAP, and 750,000 shares of which will be issued in three equal tranches upon the achievement of aggregate gross sales milestones at $5,000,000 per tranche.

The Company has incorporated the Acquired Technology into its Therapeutic DNA Production Services business segment and launched a new service marketed as the LineaTM IVT platform. The Company has begun marketing the Linea IVT platform to mRNA contract development and manufacturing organizations and mRNA therapy developers. Under the Linea IVT platform, the Company plans to supply LinearDNA IVT templates and the Spindle proprietary engineered RNA polymerase enzyme to end customers.  

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Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This Quarterly Report on Form 10-Q (including but not limited to this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are intended to qualify for the “safe harbor” created by those sections. In addition, we may make forward-looking statements in other documents filed with or furnished to the Securities and Exchange Commission (“SEC”),SEC, and our management and other representatives may make forward-looking statements orally or in writing to analysts, investors, representatives of the media and others. These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.

Forward-looking statements can generally be identified by the fact that they do not relate strictly to historical or current facts and include, but are not limited to, statements using terminology such as “can”, “may”, “could”, “should”, “assume”, “forecasts”, “believe”, “designed to”, “will”, “expect”, “plan”, “anticipate”, “estimate”, “potential”, “position”, “predicts”, “strategy”, “guidance”, “intend”, “budget”, “seek”, “project” or “continue”, or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. You should read statements that contain these words carefully because they:

discuss our future expectations;
contain projections of our future results of operations or of our financial condition; and
state other “forward-looking” information.

We believe it is important to communicate our expectations. However, forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry and are subject to known and unknown risks, uncertainties and other factors. Accordingly, our actual results and the timing of certain events may differ materially from those expressed or implied in such forward-looking statements due to a variety of factors and risks, including, but not limited to, those set forth in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report, those set forth from time to time in our other filings with the SEC, including our Annual Report on Form 10-K, for the fiscal year ended September 30, 2022, as amended, and the following factors and risks:

our expectations of future revenues, expenditures, capital or other funding requirements;
the adequacy of our cash and working capital to fund present and planned operations and growth;
the substantial doubt relating to our ability to continue as a going concern;
our need for additional financing which may in turn require the issuance of additional shares of common stock, preferred stock or other debt or equity securities (including convertible securities) which would dilute the ownership held by stockholders;
our identification of material weakness in our internal control over financial reporting;
our business strategy and the timing of our expansion plans;
demand for Therapeutic DNA Production Services;
demand for DNA Tagging ServicesServices;
demand for MDx Testing Services, including in light of significantly decreasing demand for COVID testing services;

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our expectations concerning existing or potential development and license agreements for third-party collaborations or joint ventures;
regulatory approval and compliance for our Therapeutic DNA Production Services;
whether we are able to achieve the benefits expected from the acquisition of Spindle;
the effect of governmental regulations generally;

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our expectations of when regulatory submissions may be filed or when regulatory approvals may be received;
our expectations concerning product candidates for our technologies; and
our expectations of when or if we will become profitable.

Any or all of our forward-looking statements may turn out to be wrong. They may be affected by inaccurate assumptions that we might make or by known or unknown risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in our forward-looking statements. Among the factors that could affect future results are:

the inherent uncertainties of product development based on our new and as yet not fully proven technologies;
the risks and uncertainties regarding the actual effect on humans of seemingly safe and efficacious formulations and treatments when tested clinically;
the inherent uncertainties associated with clinical trials of product candidates;
the inherent uncertainties associated with the process of obtaining regulatory clearance or approval to market product candidates;
the inherent uncertainties associated with commercialization of products that have received regulatory clearance or approval;
economic and industry conditions generally and in our specific markets;
we may conduct a reverse stock split of our common stock to meet the requirements of Nasdaq, which may adversely impact the market price and liquidity of our common stock;
the volatility of, and decline in, our stock price; and
our ability to obtain the necessary financing to fund our operations and effect our strategic development plan.

All forward-looking statements and risk factors included in this Quarterly Report are made as of the date hereof, or in the case of documents incorporated by reference, the original date of any such documents, based on information available to us as of such date, and we assume no obligations to update any forward-looking statement or risk factor, unless we are required to do so by law. If we do update one or more forward-looking statements, no inference should be drawn that we will make updates with respect to other forward-looking statements or that we will make any further updates to those forward-looking statements at any future time.

Forward-looking statements may include our plans and objectives for future operations, including plans and objectives relating to our products and our future economic performance, projections, business strategy and timing and likelihood of success. Assumptions relating to the forward-looking statements included in this Quarterly Report involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, demand for our products and services, and the time and money required to successfully complete development and commercialization of our technologies, all of which are difficult or impossible to predict accurately and many of which are beyond our control.

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Any of the assumptions underlying the forward-looking statements contained in this Quarterly Report could prove inaccurate and, therefore, we cannot assure you that any of the results or events contemplated in any of such forward-looking statements will be realized. Based on the significant uncertainties inherent in these forward-looking statements, the inclusion of any such statement should not be regarded as a representation or as a guarantee by us that our objectives or plans will be achieved, and we caution you against relying on any of the forward looking-statements contained herein.

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Our trademarks currently used in the United States include Applied DNA Sciences®, SigNature® molecular tags, SigNature® T molecular tags, fiberTyping®, SigNify®, Beacon®, CertainT®, LinearDNA™, Linea™ COVID-19 Diagnostic Assay Kit and safeCircleTM COVID-19 testing and TR8TM pharmacogenetic testing. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. All trademarks, service marks and trade names included or incorporated by reference in this Quarterly Report on Form 10-Q are the property of the respective owners.

Introduction

We are a biotechnology company developing and commercializing technologies to produce and detect DNA.DNA and RNA. Using the polymerase chain reaction (“PCR”)PCR to enable both the production and detection of DNA and RNA, we operate in three primary business markets: (i) the manufacture of synthetic DNA for use in the production of nucleic acid-based therapeutics and, through our recent acquisition of Spindle Biotech, Inc. (“Spindle”), the development and sale of a proprietary RNA polymerase (“RNAP”) for use in the production of mRNA therapeutics  (“Therapeutic DNA Production Services”); (ii) the detection of DNA and RNA in molecular diagnostics and genetic testing services (“MDx Testing Services”); and (iii) the manufacture and detection of DNA for industrial supply chain security services (“DNA Tagging and Security Products and Services”).

Our current growth strategy is to primarily focus our resources on the further development, commercialization, and customer adoption of our Therapeutic DNA Production Services, including the expansion of our contract development and manufacturing operation (“CDMO”) for the PCR-based manufacture of synthetic DNA for use in the manufacturing of nucleic acid-based therapies and the development of our own DNA-based product candidates in veterinary health.

Therapeutic DNA Production Services

Through our LineaRx, Inc. (“LRx”) subsidiary we are developing and commercializing the linearDNA (“linearDNA”) platform. The linearDNA platform enables the rapid, efficient, and large-scale cell-free manufacture of high-fidelity DNA sequences for use in the manufacturing of nucleic acid-based therapeutics. The linearDNA platform enzymatically produces a linear form of DNA we call ‘linearDNA’ that is an alternative to plasmid-based DNA manufacturing technologies that have supplied the DNA used in biotherapeutics for the past 40 years.

Through our recent acquisition of Spindle we can leverage our linearDNA platform that enables the efficient chemical modification of DNA in vitro transcription (“IVT”) templates with the high binding affinity of Spindle's proprietary, high-performance RNAP for chemically modified DNA IVT templates to deliver what we believe are multiple advantages over conventional mRNA production. The acquisition combines our linearDNA IVT templates and Spindle's RNAP polymerase into an integrated offering branded as the Linea TM IVT platform. We believe the addition of Spindle's RNAP increases the Company's addressable market and allows our customers to produce better mRNA, faster and cheaper.

We believe our PCR-based enzymatic linearDNA platform has numerous advantages over existing cell-based plasmid DNA manufacturing platforms. Plasmid-based DNA manufacturing is based on the complex, costly and time-consuming biological process of amplifying DNA in living cells. Once amplified, the DNA must be separated from the living cells and other process contaminants via multiple rounds of purification, adding further complexity and costs. Unlike plasmid-based DNA manufacturing, the linearDNA platform does not require living cells and instead amplifies DNA via the enzymatic process of PCR. The linearDNA platform is simple, with only four ingredient inputs, and can rapidly produce very large quantities of DNA without the need for complex purification steps.

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We believe the key advantages of the linearDNA platform include:

Speed – Production of linearDNA can be measured in terms of hours, not days and weeks as is the case with plasmid-based DNA manufacturing platforms.
Scalability – linearDNA production takes place on efficient bench-top instruments, allowing for rapid scalability in a minimal footprint.
Purity – DNA produced via PCR is pure, resulting in only large quantities of only the target DNA sequence. Unwanted DNA sequences such as plasmid backbone and antibiotic resistance genes, inherent to plasmid DNA, are not present in linearDNA.
Simplicity – The production of linearDNA is streamlined relative to plasmid-based DNA production. linearDNA requires only four primary ingredients, does not require living cells or complex fermentation systems and does not require multiple rounds of purification.
Flexibility – DNA produced via the linearDNA platform can be easily chemically modified to suit specific customer applications. In addition, the linearDNA platform can produce a wide range of complex DNA sequences that are difficult to produce via plasmid-based DNA production platforms. These complex sequences include inverted terminal repeats (ITRs) and long homopolymers such as polyadenylation sequences (poly (A) tail) important for gene therapy and messenger RNA (“mRNA”) therapies, respectively.

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Preclinical studies have shown that linearDNA is substitutable for plasmid DNA in numerous nucleic acid-based therapies, including:

therapeutic and prophylactic DNA vaccines;
DNA templates for in vitro transcription to produce ribonucleic acid (“RNA”), including mRNA; and
adoptive cell therapy manufacturing.

Further, we believe that linearDNA is also substitutable for plasmid DNA in the following nucleic acid-based therapies:

viral vector manufacturing for in vivo and ex vivo gene editing;
clustered regularly interspaced short palindromic repeats (“CRISPR”)-mediated homology-directed repair (“HDR”); and
non-viral gene therapy.

In addition, we believe our new integrated Linea IVT platform offers the following advantages over conventional mRNA production to mRNA developers and manufacturers:

the prevention or reduction of double-stranded RNA (dsRNA) contamination resulting in higher target mRNA yields;
delivery of IVT templates in as little as 14 days for milligram scale and 30 days for gram scale; and
reduced mRNA manufacturing complexities.

As of the thirdsecond quarter of calendar 2022,2023, there were 3,6943,905 gene, cell and RNA therapies in development from preclinical through pre-registration stages, almost all of which use DNA in their manufacturing process. (Source: ASGCT Gene, Cell & RNA Therapy Landscape: Q3 2022Q2 2023 Quarterly Report). Due to what we believe are the linearDNA platform’sand Linea IVT platforms’ numerous advantages over legacy plasmid-based DNAnucleic acid-based therapeutic manufacturing platforms, we believe this large number of therapies under development represents a substantial market opportunity for the linearDNA and/or Linea IVT platform to supplant plasmid DNAlegacy manufacturing platforms in the manufacture of nucleic acid-based therapies.

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Our linearDNA is currently manufactured pursuant to Good Laboratory Practices (“GLP”) that we believe are sufficient for pre-clinical discovery and development of nucleic acid-based therapies. In addition, for indirect clinical use of linearDNA (i.e., where linearDNA is a starting material but is not incorporated into the final therapeutic product, as is the case with the production of mRNA or certain viral vectors), we believe that high-quality grade GLP linearDNA is sufficient for clinical and commercial stage customers of our Therapeutic DNA Production Services. For the direct clinical use of our linearDNA (i.e., nucleic acid-based therapies where our linearDNA is incorporated into the final therapeutic product, as in the production of DNA vaccines, adoptive cell therapies and certain gene therapies) we believe clinical and commercial stage customers of our Therapeutic DNA Production Services will generally require our manufacturing facilities to meet current Good Manufacturing Practices (“cGMP”). We currently do not have any manufacturing facilities that meet cGMP. We will need to develop and maintain manufacturing facilities that meet cGMP to support customers that wish to use our linearDNA for direct clinical use and for indirect clinical use customers who request linearDNA manufactured under cGMP. In the longer term, we believe that the development and maintenance of a cGMP manufacturing facility for linearDNA will benefit the entirety of our Therapeutic DNA Production Services business, in both direct and indirect clinical applications.

Our business strategy for our Therapeutic DNA Production Services segment is: (i) through our recent acquisition of Spindle, to combine our linearDNA IVT templates and Spindle’s RNAP into an integrated offering branded as the linearDNALineaTM IVT platform is (i)to secure supply contracts for IVT templates and RNAP with mRNA manufacturers, including but not limited to CDMOs and mRNA therapy developers; (ii) to utilize our current GLP linearDNA Productionproduction capacity to secure CDMOsupply contracts to supply linearDNA to pre-clinical therapy developers, as well as clinical and commercial therapy developers and manufacturers that are pursuing therapeutics that require the indirect clinical use of linearDNA; and (ii) upon our development of cGMP linearDNA Production facilities, to secure CDMOsupply  contracts with clinical stage therapy developers and commercial manufactures to supply linearDNA for direct clinical use.

In addition, we plan to leverage our Therapeutic DNA Production Services and deep knowledge of PCR to develop and monetize, ourselves or with strategic partners, one or more linearDNA-based therapeutic or prophylactic vaccines for thehigh-value veterinary health market. Currently, we have in-licensed a therapeutic DNA vaccine candidate against canine lymphoma, which accounts for up to 24% of all cancers in canines. Our lymphoma vaccine candidate was licensed from Takis S.R.L and EvviVax, S.R.L. for exclusive use by the Company in association with our linearDNA platform, and is subject to certain commercialization milestones.indications (collectively “linearDNA Vaccines”). We currently seek to commercialize our canine lymphoma vaccinelinearDNA Vaccines in conjunction with lipid nanoparticle (“LNP”) encapsulation to facilitate IM administration. We have recently demonstrated in vitroandin vivo (mice studies) expression of generic reporter proteins via linearDNA

encapsulated by LNPs. For the in vivo study, successful expression of the LNP-encapsulated linearDNA was administered and achieved via IM injection. We believe thethat our linearDNA platform providesVaccines under development provide a substantial advantage toover plasmid DNA-based vaccines for the development and monetization of a therapeutic DNA vaccine against canine lymphoma.veterinary health market.

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MDx Testing Services

Through Applied DNA Clinical Labs, LLC (“ADCL”),ADCL, our clinical laboratory subsidiary, we leverage our expertise in DNA detection via PCR to provide and develop clinical molecular diagnostics and genetic (collectively “MDx”) testing services. ADCL is a New York State Department of Health (“NYSDOH”) Clinical Laboratory Evaluation Program (“CLEP”) permitted, Clinical Laboratory Improvement Amendments (“CLIA”)-certified laboratory which is currently permitted for virology. Permitting for genetics (molecular) is currently pending with NYSDOH. In providing MDx testing services, ADCL employs its own or third-party molecular diagnostic tests.

UnderWe have successfully validated our MDxpharmacogenomics testing services  (the “PGx Testing Services”). Our PGx Testing Services will utilize a 120-target PGx panel test to evaluate the unique genotype of a specific patient to help guide individual drug therapy decisions. Our PGx Testing Services are designed to interrogate DNA targets on over 33 genes and provide genotyping information relevant to certain cardiac, mental health, oncology, and pain management drug therapies. On March 22, 2023, we submitted our validation package to the NYSDOH for our PGx Testing Services, which is currently pending. Recently published studies show that population-scale PGx testing can significantly reduce overall population healthcare costs, reduce adverse drug events, and increase overall population wellbeing. These benefits can result in significant cost savings to large entities and self-insured employers, the latter accounting for approximately 65% of all U.S. employers in 2022. Once approved by NYSDOH, we plan to leverage our PGx Testing Services to provide PGx testing services to large entities and self-insured employers to potentially reduce population healthcare costs and increase overall population wellness. In addition, ADCL currently provides COVID-19 testing for large populations marketed under our safeCircleTM trademark. Leveraging ADCL’s customizable high-throughput robotically-pooled testing workflow and the Cleared4 digital health platform owned and operated by Cleared4 Inc. (the “Cleared4 Platform”), our safeCircle testing service is an adaptable turnkey large population COVID-19 testing solution that provides for all aspects of COVID-19 testing, including test scheduling, sample collection and automated results reporting. Our safeCircle testing service utilizes high-sensitivity robotically-pooled real-time PCR (“RT-PCR”) testing to help mitigate virus spread by quickly identifying COVID-19 infections within a community, school, or workplace. Our safeCircle COVID-19 testing is performed using either the Company’s internally developed Linea 2.0 RT-PCR Assay, a NYSDOH conditionally approved laboratory developed test (“LDT”) or third-party emergency use authorization (“EUA”)-authorized RT-PCR COVID-19 assays. Our safeCircle testing service also incorporates the Cleared4 Platform to enable large-scale digital test

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scheduling, in-field sample collection and registration, and results reporting. By leveraging the combination of our robotically-pooled workflows and the Cleared4 Platform, our safeCircle testing services typically return testing results within 24 to 48 hours. We currently provide safeCircle testing services to higher education institutions, private clients, and businesses located in New York State.

Historically, a majority of our revenue attributable to our MDx Testing Services has been derived from our safeCircle COVID-19 testing solutions. On April 11, 2023, the U.S. National Emergency in response to the COVID-19 pandemic was terminated. While we continue to support several safeCircle customers, we are currently observing a marked decrease in demand for COVID-19 testing, which we believe will result in significantly lower revenues from our safeCircle COVID-19 testing solutions in subsequent quarters. On May 1, 2023, we received notice from the City University of New York (“CUNY”), our largest safeCircle COVID-19 testing solution customer, that CUNY is terminating their COVID-19 testing contract with ADCL no later than June 30, 2023, testing under the CUNY contract ceased during June 2023. The CUNY COVID-19 contract represented 58% of our revenues for fiscal 2022.

ADCL has also developed PCR-based MDx testing services for the Monkeypox virus, which are currently approved by NYSDOH. These services are designed to run on the same high-throughput platform utilized by our COVID-19 testing services and provides ADCL with a substantial testing throughput. Demand for these types of services may vary greatly depending upon public health requirements, e.g., Monkeypox testing is now a lower public health priority, and we intend to pursue such opportunities on an opportunistic basis.

In addition to our infectious disease testing services, we are currently validating a genetic testing service in the form of pharmacogenetics (“PGx”) testing services. Our PGx testing services will utilize a 120-target PGx panel test to evaluate the unique genotype of a specific patient to help guide individual drug therapy decisions. Our PGx testing services are designed to interrogate DNA targets on over 35 genes and provide genotyping information relevant to certain cardiac, mental health and pain management drug therapies. We believe the economics of complex MDx testing services such as PGx are more favorable to the Company as compared to high volume, low complexity MDx tests such as COVID-19 testing. Our PGx testing services will require NYSDOH approval prior to initiating our patient testing services. If approved, we plan to commercialize our PGx testing services by offering PGx clinical reference laboratory testing services to other clinical laboratories and healthcare facilities nationwide.

Going forward, our business strategy for ADCL is to leverage our deep knowledge of PCR to develop and commercialize high complexity, high value and differentiated MDx testing services that will be offered to other clinical laboratories and healthcare facilities as clinical reference laboratory testing services and testing services for large enterprise customers. We believe operating as a clinical reference laboratory has several advantages when compared to operating as a typical clinical non-reference laboratory, including:

the ability to leverage our deep expertise in PCR to develop and perform high-value esoteric MDx testing services not performed by conventional clinical non-reference laboratories;
reduced sample acquisition costs;
reduced marketing costs; and
a national customer base that may lead to a larger total addressable market.

The clinical reference laboratory services market is forecasted to have incremental growth of $26.0B between 2020 and 2025 with a 6.71% compound annual growth rate (“CAGR”). We believe that the rapidly increasing number of specialized MDx tests for early disease detection, disease prognosis, disease risk, companion diagnostics, genetic testing and personalized medicine will drive an increase in the demand for highly specialized MDx clinical reference laboratory services.

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DNA Tagging and Security Products and Services

By leveraging our expertise in both the manufacture and detection of DNA via PCR, our DNA Tagging and Security Products and Services allow our customers to use non-biologic DNA tags manufactured on our linearDNA platform to mark objects in a unique manner and then identify these objects by detecting the absence or presence of the DNA tag. We believe our DNA tags are not economically feasible nor practical to replicate, and that our disruptive tracking platform offers broad commercial relevance across many industry verticals. The Company’s core DNA Tagging and Security Products and Services, which are marketed collectively as a platform under the trademark CertainT®, include:

SigNature® Molecular Tags, which are short non-biologic DNA taggants produced by the Company’s linearDNA platform, provide a methodology to authenticate goods within large and complex supply chains for materials such as cotton, leather, pharmaceuticals, nutraceuticals and other products.
SigNify® IF portable DNA readers and SigNify consumable reagent test kits provide definitive real-time authentication of the Company’s DNA tags in the field, providing a front-line solution for supply chain integrity backed with forensic-level molecular tag authentication. The Company’s software platform enables customers to track materials throughout a supply chain or product life.
fiberTyping®, which uses PCR-based DNA detection to determine a cotton cultivar, and other product genotyping services that utilize PCR-based DNA detection to detect a product’s naturally occurring DNA sequences for the purposes of product provenance authentication and supply chain security.

Our DNA Tagging and Security Products and Services are fully developed, highly scalable, and currently used in several commercial applications. To date, our largest commercial application for our DNA Tagging and Security Products and Services is in the tracking and provenance authentication of cotton. Cotton home textile products utilizing our DNA Tagging and Security Products and Services are available in national retail chains including Costco® and Bed Bath & Beyond®.

We believe that the Uyghur Forced Labor Prevention Act (“UFLPA”), signed into law on December 23, 2021, may be helpful to increase demand for our DNA Tagging and Security Products and Services. The UFLPA establishes a rebuttable presumption that any goods mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region (“XUAR”) of the People’s Republic of China are not entitled to entry to the United States. The presumption applies unless the importer of record has complied with specified conditions and, by clear and convincing evidence, shown that the goods were not produced using forced labor. On June 17, 2022, an implementation strategy for the UFLPA was published that listed DNA tagging as evidence that importers may present to potentially prove that a good did not originate in XUAR or did not benefit from forced labor. Approximately 20% of the world’s cotton garments contain cotton that originated in the XUAR.

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Our business plan is to leverage growing consumer and governmental awareness for product traceability and the newly enacted UFLPA to expand our existing partnerships and seek new partnerships for our DNA Tagging and Security Products and Services with a focus on cotton and synthetic fibers.

Intellectual Property

The proprietary nature of and protection for our various technologies and know-how are important to our business. Our success depends in part on our ability to protect the proprietary nature of our technologies and know-how, to operate without infringing on the proprietary rights of others and to prevent others from infringing our proprietary rights. We seek and maintain patent protection in the United States and internationally for our various technologies associated with our three primary business markets. We endeavor to patent or in-license technology, inventions and improvements that we consider important to the development of our business. We also rely on trade secrets, know-how and continuing innovation to develop and maintain our competitive position.

Because the development of our Therapeutic DNA Production Services and certain aspects of our MDx Testing Services businesses are at an early stage, our intellectual property portfolio with respect to certain technologies associated with these businesses is also at an early stage. As further described below, we have filed or intend to file patent applications on certain technologies associated with these business markets, and as we continue the development of our technologies, we intend to identify additional means of obtaining patent protection that would potentially enhance commercial success.

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We cannot be certain that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents granted to us in the future will be commercially useful in protecting our technology. Any of our intellectual property and proprietary rights could be challenged, invalidated, circumvented, infringed or misappropriated, or such intellectual property and proprietary rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages.

As of December 31, 2022, our patent portfolio included the following issued and pending patent applications applicable to each of our three primary business segments:

Therapeutic DNA Production Services
o6 issued patents and 9 pending patent applications in the United States
o11 issued foreign patents and 2 pending foreign patent applications
MDx Testing Services
o5 issued patents and 1 pending patent applications in the United States
o4 issued foreign patents and 1 pending foreign patent applications
DNA Tagging and Security Products and Services
o28 issued patents and 5 pending patent applications in the United States
o47 issued foreign patents and 13 pending foreign patent applications

In addition to patent protection, we also rely on trademarks, trade secrets, know how, other proprietary information and continuing technological innovation to develop and maintain our competitive position. In our Therapeutic DNA Production Services, we currently rely heavily on trade secret protection. We seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. Our agreements with employees also provide that all inventions conceived by the employee in the course of employment with us or from the employee’s use of our confidential information are our exclusive property. However, such confidentiality agreements and invention assignment agreements can be breached and we may not have adequate remedies for any such breach.

The patent positions of biotechnology companies like ours are generally uncertain and involve complex legal, scientific and factual questions. Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third party patent would require us to alter our development or commercial strategies, or our manufacturing processes, obtain licenses or cease certain activities. Our breach of any license agreements or our failure to obtain a license to proprietary rights required to develop or commercialize our future products or services may have a material adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference or derivation proceedings in the United States Patent and Trademark Office, or USPTO, to determine priority of invention.

Plan of Operations

General

Historically, thea substantial portion of our revenues has been generated from sales of our SigNature® and SigNature® T molecular tags, our principal supply chain security and product authentication solutions. However, especially during the last two fiscal years, most of our growth in revenues has been derived from our validated COVID-19 pooled testing, and our COVID-19 Surveillance Testing, which are part of our MDx testing services segment. We alsoare currently observing a market decrease in demand for COVID-19 testing, which we believe will continue to result in significantly lower revenues from our safeCircle COVID-19 testing solutions in subsequent quarters. On May 1, 2023, we received notice from CUNY, our largest safeCircle COVID-19 testing solution customer, that CUNY is terminating their COVID-19 testing contract with ADCL effective no later than June 30, 2023, testing under the contract was terminated during June 2023.   We expect future growth in revenues to be derived primarily from our Therapeutic DNA Production Services and our MDx testing services. To a lesser extent, we expect to grow revenues from the sale of SigNature® molecular tags, SigNature® T molecular tags, SigNify® and CertainT® offerings as we work with companies and governments to secure supply chains for various types of products and product labeling throughout the world. We have continued to incur expenses in expanding our business to meet current and anticipated future demand. We have limited sources of liquidity.

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Comparison of Results of Operations for the Three-Month Periods Ended December 31,June 30, 2023 and 2022 and 2021

Revenues

Product revenues

For the three-month periods ended December 31,June 30, 2023 and 2022, and 2021, we generated $516,396$316,950 and $826,311$219,765, respectively, in revenues from product sales, respectively.sales. Product revenue decreasedincreased by $309,315$97,185 or 38%44% for the three-month period ended December 31, 2022June 30, 2023 as compared to the three-month period ended December 31, 2021.June 30, 2022. The decreaseincrease in product revenues was primarily related to a decreasean increase of approximately $342,000$230,000 relating to our large-scale DNA manufacturing business, offset by decreases of $80,000 in sales of our MDx test kitsLineaTM COVID-19 Assay Kits and supplies, which was attributable to sales pursuant to our former contract with Stony Brook University Hospital as well as a $52,000 decrease in our nutraceuticals market. Additional decreases include $18,000 in consumer asset marking and $23,000 in  textile revenues. These decreases were offset by an increasenutraceutical supply chain marking, $20,000 in our Therapeutic DNA Production segment of $128,000.military reduced order quantity and $19,000 in cash and valuables in transit.

Service revenues

For the three-month periods ended December 31,June 30, 2023 and 2022, and 2021, we generated $232,061$425,964 and $139,273$182,796 in revenues from sales of services, respectively. The increase in service revenues of $92,788$242,898 or 67%133% for the three-month period ended December 31, 2022, as compared to the same period in the prior fiscal year is attributable to increases of approximately $33,000 for research and development projects in our Therapeutic DNA Production segment, as well as increase of approximately $21,000, and $27,000 for authentication and isotopic testing service revenue in our nutraceutical/pharmaceutical, and textile markets, respectively.

Clinical laboratory service revenues

For the three-month periods ended December 31, 2022 and 2021, we generated $4,514,295 and $3,200,122 in revenues from our clinical laboratory testing services, respectively. The increase in service revenues of $1,314,173 or 41% for the three-month period ended December 31, 2022June 30, 2023 as compared to the same period in the prior fiscal year is attributable to an increase of approximately $184,000 and $68,000 in isotopic testing and new customers in our textile and biopharmaceutical markets, respectively.

Clinical laboratory service revenues

For the three-month periods ended June 30, 2023 and 2022, we generated $2,174,697 and $3,893,810 in revenues from clinical laboratory testing services, respectively. Clinical laboratory service revenue decreased by $1,719,113 or 44% for the three-month period ended June 30, 2023 as compared to the same period in the prior fiscal year. The decrease in revenue is primarily due to a decrease in demand for COVID-19 testing services during the first three months of fiscalthree-month period ended June 30, 2023 compared to the same period during fiscal 2022.2022, as well as the City University of New York lower testing volumes as a result of the contract ending mid-June 2023.

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Cost and Expenses

Gross Profit

Gross profit for the three-month period ended December 31, 2022,June 30, 2023, increased by $1,268,545$230,060 or 114%22% from $1,109,138,$1,039,258, for the three-month period ended December 31, 2021June 30, 2022 to $2,377,683.$1,269,318. The gross profit percentage was 45%44% and 27%24% for the three-month periods ended December 31,June 30, 2023 and 2022, and 2021, respectively. The increase in the gross profit percentage during the three-month period ended June 30, 2023 was primarily from an improvedincreased gross profit percentage for our MDx testing services.  This improvement was the result of continued cost management efforts within our COVID-19 testing services contracts where we also provide and staff the test collection centers.  Additionally,  the three-month period ended June 30, 2023 included a higher percentage of COVID-19 surveillance testing volumes, coupledservices revenue, as compared to the same period in the prior fiscal year, which is at a higher gross profit.

Selling, General and Administrative

Selling, general and administrative expenses for the three-month period ended June 30, 2023 increased by $259,427 or 9% to $3,292,304 as compared to $3,032,877 for the three-month period ended June 30, 2022.  This increase is primarily due to approximately $34,000 in allowance for doubtful accounts adjustments,  and  increases of $42,000 in costs associated with isotopic testing, $81,000 for system automation implementation and $35,000 in legal expense.

Research and Development

Research and development expenses decreased to $836,123 for the three-month period ended June 30, 2023 from $863,025 for the three-month period ended June 30, 2022, a decrease of $26,902 or 3%. This decrease is primarily due to a decrease in service contracts to support our continued research and development efforts, related to our ongoing animal vaccine study.

Interest income

Interest income, net for the three-month period ended June 30, 2023, was $26,783 as compared to $0 in the three-month period ended June 30, 2022.   This increase is due to high interest bearing money market accounts, as well as a higher cash balance during the three-month period ended  June 30, 2023 as compared to the same period in the prior fiscal year.

Other expense, net

Other expense, net for the three-month periods ended June 30, 2023 and 2022, was $3,469 and $26,352, respectively.

Unrealized (loss) gain on change in fair value of warrants classified as a liability

Unrealized (loss) gain on change in fair value of warrants classified as a liability for the three-month periods ended June 30, 2023 and 2022 of ($278,400) and $1,758,200, respectively relates to the change in fair value of the warrants that are classified as a liability. The unrealized loss on change in fair value represents the difference in fair value of the warrants from April 1, 2023 compared to the fair value as of June 30, 2023. The primary driver of this change is the increase in our stock price during the period, as well as the decrease in remaining life for the Series B Warrants.  

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Net Loss

Net loss increased $1,988,399 or 177% to $3,114,195 for the three-month period ended June 30, 2023 compared to net loss of $1,124,796 for the three-month period ended June 30, 2022 due to the factors noted above.

Comparison of Results of Operations for the Nine-Month Periods Ended June 30, 2023 and 2022

Revenues

Product revenues

For the nine-month periods ended June 30, 2023 and 2022, we generated $1,130,800 and $1,454,427, respectively, in revenues from product sales. Product revenue decreased by $323,627 or 22% for the nine-month period ended June 30, 2023 as compared to the nine-month period ended June 30, 2022. The decrease in product revenues was primarily related to a decrease of approximately $602,000 in sales of our LineaTM COVID-19 Assay Kits and supplies pursuant to our contract with Stony Brook University Hospital, as well as decreases in textiles of $112,000 due to a decline year over year  in cotton DNA tagging revenue, nutraceuticals of $95,000, consumer asset marking of $29,000, cash and valuables in transit of $37,000 and military of $29,000.  This decrease was offset by an increase of $560,000 within our biopharmaceutical market for large scale DNA production order that resumed after the COVID-19 pandemic.

Service revenues

For the nine-month periods ended June 30, 2023 and 2022, we generated $826,813 and $570,759 in revenues from sales of services, respectively. The increase in service revenues of 256,054 or 45% for the nine-month period ended June 30, 2023 as compared to the same period in the prior fiscal year is attributable to an increase of approximately $198,000 from our textile market for isotopic testing and $43,000 in our biopharmaceutical market respectively.  

Clinical laboratory service revenues

For the nine-month periods ended June 30, 2023 and 2022, we generated $10,630,094 and $12,584,174 in revenues from clinical laboratory testing services, respectively. Clinical laboratory service revenue decreased by $1,954,080 or 16% for the nine-month period ended June 30, 2023 as compared to the same period in the prior fiscal year. The decrease in clinical laboratory service revenues is  due to a decrease in demand for COVID-19 testing services during the nine-month period ended June 30, 2023 compared to the same period during fiscal 2022, primarily from the wind-down of our CUNY COVID-19 testing contract, which terminated during June 2023.

Cost and Expenses

Gross Profit

Gross profit for the nine-month period ended June 30, 2023, increased by $817,555 or 18% from $4,636,881 for the nine-month period ended June 30, 2022 to $5,454,436. The gross profit percentage was 43% and 32% for the nine-month periods ended June 30, 2023 and 2022, respectively. The increase was from an increase in gross profit percentage for our MDx testing services.  This improvement was the result of continued cost management efforts for our COVID-19 testing services contracts where we also provide and staff the test collection centers.  Also, during the first three-monthsnine-months of fiscal 2022 the COVID-19 positivity rate was high,higher than the same period during fiscal 2023, which resulted in our clinical laboratory having to reduce the test pooling size, which increased the cost of consumables per sample, therefore having a negative impact on gross profit.

Selling, General and Administrative

Selling, general and administrative expenses for the three-monthnine-month period ended December 31, 2022June 30, 2023 decreased by $2,110,262$1,900,442 or 45%17% to $2,625,357$9,440,734 as compared to $4,735,619$11,341,176 for the three-monthnine-month period ended December 31, 2021.June 30, 2022. The decrease is primarily attributable to a decrease in stock-based compensation expense of $1,606,172$1,553,000 primarily relating to officer stock option grants that vested immediately as well asduring the prior fiscal year to the annual non-employee board of director grant that vests one-year from the date of grant during fiscal 2022.date. The remainder of the decrease relates to a decrease in bad debtinsurance expense of $300,000 for the collection of an outstanding receivable that was previously fully reserved for.approximately $120,000, primarily related to a decrease in our Directors and Officers insurance policy premiums.  Additionally royalty expense decreased $100,000 due to a decline in COVID-19 related testing.

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Research and Development

Research and development expenses decreased to $971,304$2,796,171 for the three-monthnine-month period ended December 31, 2022June 30, 2023 from $1,080,096$3,013,162 for the three-monthnine-month period ended December 31, 2021,June 30, 2022, a decrease of $108,792$216,991 or 10%7%. This decrease is primarily due a decrease in payrollto decreased outsourced service contracts  and laboratory supplies associated withof approximately $180,000. These costs were to support our ongoingcontinued research and development efforts, of approximately $51,000 and $33,000,primarily related to our ongoing animal vaccine study, as well as a decreasenext generation sequencing projects.  Additional decreases of approximately $34,000 of costs incurred during the three-month period ended December 31, 2021 for$46,000 occurred related to development projects in the cannabis industry.market during the prior fiscal year period.

Interest income net

Interest income net for the three-monthnine-month period ended December 31, 2022,June 30, 2023, was $3,686$34,108 as compared to $273$5,813 in the three-monthnine-month period ended December 31, 2021.June 30, 2023.

Other income (expense), net

Other income (expense), net for the three-monthnine-month periods ended December 31,June 30, 2023 and 2022, and 2021, was income of $8,846$6,396 and  expense of $14,607,$(43,266), respectively. The increasechange of $23,453$49,622 is due to a gain on the sale of vehicles of $6,082$6,083 during the current quarter,fiscal year, offset by foreign exchange translation expenses of $4,757 in the three-month period during the prior fiscal year.year to date.

Unrealized lossgain on change in fair value of warrants classified as a liability

Unrealized lossgain on change in fair value of warrants classified as a liability for the three-month periodnine-month periods ended December 31,June 30, 2023 and 2022 of $2,637,800$334,700 and $2,540,700, respectively, relates to the change in fair value of the warrants that are classified as a liability. The unrealized loss on change in fair value represents the difference in fair value of the warrants from September 30, 2022 compared to the fair value as of December 31, 2022. The primary driver of this change is the increasedecrease in our stock price during the period.

Net Loss

Net loss decreased $876,665$1,198,240 or 19%16% to $3,844,246$6,407,265 for the three-monthnine-month period ended December 31, 2022June 30, 2023 compared to $4,720,911$7,605,505 for the three-monthnine-month period ended December 31, 2021June 30, 2022 due to the factors noted above.

Liquidity and Capital Resources

Our liquidity needs consist of our working capital requirements and research and development expenditure funding. As of December 31, 2022,June 30, 2023, we had working capital of $15,002,349.$9,349,044. For the three-monthnine-month period ended December 31, 2022,June 30, 2023, we used cash in operating activities of $2,383,106$3,537,911 consisting primarily of our loss of $3,844,246$6,407,265 net with non-cash adjustments of $338,918$1,032,568 in depreciation and amortization charges, $2,637,800$334,700 in unrealized loss on change in fair value of warrants classified as a liability, $93,748$692,394 in stock-based compensation expense, $62,000 for the write-off of property and $290,022equipment and $255,853 of bad debt recovery. Additionally, we had a gain on the sale of property and equipment of $6,083, a net increasedecrease in operating assets of $437,308$3,598,665 and a net decrease in operating liabilities of $875,913.$1,919,637. Cash provided byused in investing activities of $45,000$171,139, was comprised of proceeds from the sale of property and equipment.equipment of $45,000, offset by $78,535 for the purchase of property and equipment and $137,604 in capitalized transaction costs.

Historically, a majority of our revenue attributable to our MDx Testing Services has been derived from our safeCircle COVID-19 testing solutions. On April 11, 2023, the U.S. National Emergency in response to the COVID-19 pandemic was terminated. While we continue to support several safeCircle customers, we are currently observing a marked decrease in demand for COVID-19 testing, which we believe will continue to  result in significantly lower revenues from our safeCircle COVID-19 testing solutions in subsequent quarters. On May 1, 2023, we received notice from CUNY, our largest safeCircle COVID-19 testing solution customer, that CUNY is terminating their COVID-19 testing contract with ADCL effective no later than June 30, 2023.  Testing under this contract ceased during June 2023.  The CUNY COVID-19 testing contract represented 58% of our revenue for fiscal year 2022.  These factors could also have a negative impact on the Company’s future liquidity.

We have recurring net losses. Welosses, which  have incurredresulted in a net loss of $3,844,246$6,407,265 and generated negative operating cash flow of $3,537,911 for the three-monthsnine-month period ended December 31, 2022. Our current capital resources include cash and cash equivalents, accounts receivable and inventories. Historically, we have financedJune 30, 2023.  These factors raise substantial doubt about our operations principallyability to continue as a going concern for one year from the saleissuance of equity and equity-linked securities. Through December 31, 2022, we have dedicated mostthe financial statements.  The ability of our financial resourcesthe Company to commercialization of our MDx Testing Services, specifically our COVID-19 Testing Services,continue as well as to research and development efforts focuseda going concern is dependent on the development of our Therapeutic DNA Productions Services,Company’s ability to further implement its business plan, raise capital, and generate revenues. The financial statements do not include any adjustments that  might be necessary if the Company is unable to continue as well as, advancing our intellectual property, and general and administrative activities. We estimate that we will have sufficient cash and cash equivalents to fund operations for the next twelve months from the date of filing of this quarterly report.

We may require additional funds to complete the continued development of our products, services, product manufacturing, and to fund expected additional losses from operations until revenues are sufficient to cover our operating expenses. If revenues are not sufficient to cover our operating expenses, and if we are not successful in obtaining the necessary additional financing, we will most likely be forced to reduce operations.a going concern.  

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Critical Accounting Estimates and and Policies

Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.

We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our condensed consolidated results of operations, financial position or liquidity for the periods presented in this report.

The accounting policies identified as critical are as follows:

Revenue recognition;
Equity based compensation; and
Equity based compensation.
Warrant LiabilitiesWarrants classified as a liability

Critical Accounting Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The most significant estimates include revenue recognition, recoverability of long-lived assets, including the values assigned to property and equipment, fair value calculations for warrants, contingencies, and management’s anticipated liquidity. Management reviews its estimates on a regular basis and the effects of any material revisions are reflected in the condensed consolidated financial statements in the period they are deemed necessary. Accordingly, actual results could differ from those estimates.

Revenue Recognition

We follow Financial Accounting Standards Board (“FASB”) issued accounting standard updates which clarify the principles for recognizing revenue arising from contracts with customers (“ASC 606” or “Topic 606”).

The Company measures revenue at the amounts that reflect the consideration to which it is expected to be entitled in exchange for transferring control of goods and services to customers. The Company recognizes revenue either at the point in time or over the period of time that performance obligations to customers are satisfied. The Company’s contracts with customers may include multiple performance obligations (e.g. taggants, maintenance, authentication services, research and development services, etc.). For such arrangements, the Company allocates revenues to each performance obligation based on their relative standalone selling price.

Due to the short-term nature of the Company’sour contracts with customers, it haswe have elected to apply the practical expedients under Topic 606 to: (1) expense as incurred, incremental costs of obtaining a contract and (2) not adjust the consideration for the effects of a significant financing component for contracts with an original expected duration of one year or less.

Product Revenues and Authentication Services

The Company’s PCR-produced linear DNA product revenues are accounted for/recognized in accordance with contracts with customers. The Company recognizes revenue upon satisfying its promises to transfer goods or services to customers under the terms of its contracts. These performance obligations are satisfied at the point in time the Company transfers control of the goods to the customer, which in nearly all cases is when title to and risk of loss of the goods transfer to the customer. The timing of transfer of title and risk of loss is dictated by customary or explicitly stated contract terms. The Company invoices customers upon shipment, and its collection terms range, on average, from 30 to 60 days.

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Authentication Services

The Company recognizes revenue for authentication services upon satisfying its promises to provide services to customers under the terms of its contracts. These performance obligations are satisfied at the point in time the Company services are complete, which in nearly all cases is when the authentication report is released to the customer.

Clinical Laboratory Testing Services

The Company records revenue for its clinical laboratory testing service contracts, which includes its COVID-19 Testing Services, upon satisfying its promise to provide services to customers under the terms of its contracts. These performance obligations are satisfied at the point in time that Company services are complete, which in nearly all cases is when the testing results are released to the customer. For those customers with a fixed monthly fee, the revenue is recognized over-time as the services are provided.

Research and Development Services

The Company records revenue for its research and development contracts using the over-time revenue recognition model. Revenue is primarily measured using the cost-to-cost method, which the Company believes best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation.

Revenues are recorded proportionally as costs are incurred. For contracts where the total costs cannot be estimated, revenues are recognized for the actual costs incurred during a period until the remaining costs to complete a contract can be estimated. The Company has elected not to disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

Warrant LiabilitiesWarrants classified as a liability

The Company evaluated the Common Warrants and the Series A and Series B Warrants (collectively the “Warrants”) in accordance with ASC 480 “Distinguishing Liabilities from Equity” and ASC 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity” and concluded that due to the terms of the warrant agreements, the instrument does not qualify for equity treatment. As such, the Warrants were recorded as a liability on the condensed consolidated balance sheet and measured at fair value at inception and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in the estimated fair value recognized as a non-cash gain or loss in the condensed consolidated statement of operations in the period of change.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Inflation

The effect of inflation on our revenue and operating results was not significant.

Item 3— Quantitative and Qualitative Disclosures About Market Risk.

Information requested by this Item is not applicable as we are electing scaled disclosure requirements available to smaller reporting companies with respect to this Item.

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Item 4. — Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Disclosure controls and procedures are those controls and procedures designed to provide reasonable assurance that the information required to be disclosed in our Exchange Act filings is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2022,June 30, 2023, our disclosure controls and procedures were not effective because of a material weakness in our internal control over financial reporting reported in our Annual Report on Form 10-K for the fiscal year ended September 30,2022.30, 2022. The material weakness is further described below.

Material Weakness in Internal Control Over Financial Reporting

In connection with the audit of our consolidated financial statements for the fiscal year ended September 30, 2022, and 2021, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. For the fiscal year ended September 30, 2022, the material weakness related to the controls around the accounting for complex financial instruments, as it relates to the accounting for our outstanding warrants and the related tax impact. Nonetheless, we have concluded that this material weakness does not require a restatement of or change in our consolidated financial statements for any prior interim period. We also developed a remediation plan for this material weakness which is described below.

Remediation of Material Weakness

We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that this material weakness is remediated as soon as possible. We believe we have made progress towards remediation and continue to implement our remediation plan for the current material weakness in internal control over financial reporting. Specifically, we have identified practices and/or procedures to expand and improve the review process for complex financial instruments and the related tax impact that is performed by both our personnel, as well as by the third-party professionals with whom we consult regarding complex accounting and tax applications. We will consider the material weakness remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended December 31, 2022,June 30, 2023 other than the plan discussed above under “Remediation of Material Weakness”, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II - Other Information

Item 1. — Legal Proceedings.

None.

Item 1A. — Risk Factors.

None.In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K of the Company filed with the SEC on December 14, 2022, as amended, and in Part II, Item 1A “Risk Factors” in our Quarterly Report on Form 10-Q of the Company filed with the SEC on May 11, 2023, and as updated and supplemented below and in subsequent filings. These risk factors could materially harm our business, operating results and financial condition. Additional factors and uncertainties not currently known to us or that we currently consider immaterial also may materially adversely affect our business, financial condition or future results.

There is substantial doubt relating to our ability to continue as a going concern

We have recurring net losses, which have resulted in an accumulated deficit of $298,854,883 as of June 30, 2023. We have incurred a net loss of $3,114,195 for the nine-month period ended June 30, 2023. At June 30, 2023, we had cash and cash equivalents of $10,756,235. We have concluded that these factors raise substantial doubt about our ability to continue as a going concern for one year from the issuance of the financial statements. We will continue to seek to raise additional working capital through public equity, private equity or debt financings. If we fail to raise additional working capital, or do so on commercially unfavorable terms, it would materially and adversely affect our business, prospects, financial condition and results of operations, and we may be unable to continue as a going concern.  If we seek additional financing to fund our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms, if at all.

Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. — Defaults Upon Senior Securities.

None.

Item 4. — Mine Safety Disclosures.

Not applicable.

Item 5. — Other Information.

None.

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Item 6. — Exhibits.

Incorporated by Reference to SEC Filing

Filed or Furnished with

Incorporated by Reference to SEC Filing

Filed or Furnished with

Exhibit

Exhibit

this Form

Exhibit

this Form

No.

    

Filed Exhibit Description

    

Form

    

No.

    

File No.

    

Date Filed

    

10-Q

    

Filed Exhibit Description

    

Form

    

No.

    

File No.

    

Date Filed

    

10-Q

2.1 #†

Share Purchase Agreement, dated July 12, 2023, by and among Spindle Acquisition Corp., Spindle Biotech Inc., the persons listed on Schedule 1.1 therein, Lai Him Chung and Applied DNA Sciences, Inc.

8-K

2.1

001-36745

7/13/2023

X

3.1

Conformed version of Certificate of Incorporation of Applied DNA Sciences, Inc., as most recently amended by the Fifth Certificate of Amendment, effective Thursday, September 17, 2020

S-8

4.1

333-249365

10/07/2020

Conformed version of Certificate of Incorporation of Applied DNA Sciences, Inc., as most recently amended by the Fifth Certificate of Amendment, effective Thursday, September 17, 2020

S-8

4.1

333-249365

10/07/2020

3.2

By-Laws

8-K

3.2

002-90539

01/16/2009

By-Laws

8-K

3.2

002-90539

01/16/2009

31.1*

Certification of Chief Executive Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

Certification of Chief Executive Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

31.2*

Certification of Chief Financial Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

Certification of Chief Financial Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

32.1**

Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

32.2**

Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

101 INS*

Inline XBRL Instance Document

X

Inline XBRL Instance Document

X

101 SCH*

Inline XBRL Taxonomy Extension Schema Document

X

Inline XBRL Taxonomy Extension Schema Document

X

101 CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

X

Inline XBRL Taxonomy Extension Calculation Linkbase Document

X

101 DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

X

Inline XBRL Taxonomy Extension Definition Linkbase Document

X

101 LAB*

Inline XBRL Extension Label Linkbase Document

X

Inline XBRL Extension Label Linkbase Document

X

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)

X

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)

X

* Filed herewith

** Furnished herewith

# Certain exhibits and schedules to this Exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of all omitted exhibits and schedules to the Securities and Exchange Commission upon its request.

† Certain confidential information contained in this agreement has been omitted because it is both not material and is the type that the registrant treats as private or confidential

Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act or the Exchange Act, except as otherwise stated in any such filing.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    

Applied DNA Sciences, Inc.

Dated: February 9,August 10, 2023

/s/ JAMES A. HAYWARD

James A. Hayward, Ph.D.

Chief Executive Officer

(Duly authorized officer and principal executive officer)

/s/ BETH JANTZEN

Dated: February 9,August 10, 2023

Beth Jantzen, CPA

Chief Financial Officer

(Duly authorized officer and principal financial and accounting officer)

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