Amended Annual Report (10-k/a)

2.073.326916999391907200000074861205142779Straight line method3 years3 years3 yearsP10YP3YP3YP1YThe agreement with Dr. Hayward also provides that if he is terminated before the end of the initial or a renewal term by the Company without cause or if Dr. Hayward 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, Dr. Hayward 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-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 Dr. Hayward's outstanding options and other equity incentive awards will become fully vested and Dr. Hayward 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.APPLIED DNA SCIENCES INCtrueFY20210000744452--09-302021FYThe purpose of this Amendment No. 1 on Form 10-K/A (the "Amendment") is to amend the Annual Report on Form 10-K of Applied DNA Sciences, Inc. (the "Company") as filed with the Securities and Exchange Commission (the "SEC") on December 9, 2021 (the "Original Filing") to correct a typographical error on the consolidated balance sheet for the period ended September 30, 2021 to clarify that that the balance sheet had been audited and to correct a typographical error in the exhibit index. There have been no other updates since the date of original issuance. This Amendment does not otherwise modify, amend or update in any way the disclosures contained in the Original Filing. This Amendment speaks as of the original filing date and does not reflect events occurring after the Original Filing. Accordingly, this Form 10-K/A should be read in conjunction with the Original Filing and the Company's other filings made with the SEC after the date of the Original Filing. 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No.1

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

For the fiscal year ended September 30, 2021

☐ 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	(631) 240-8800
(Address of principal executive offices)	(Zip Code)	(Registrant’s telephone number,
		including area code)

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


		Name of each exchange
Title of each class	Trading Symbol(s)	on which registered
Common Stock, $0.001 par value	APDN	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

☐ Yes ☒ No

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.


Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by a check mark if the registrant has elected to not use the extended transition period of 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

The aggregate market value of the Registrant’s voting and non-voting common stock held by non-affiliates of the Registrant, based upon the last sale price of the common stock reported on The Nasdaq Stock Market as of the last business day of the Registrant’s most recently completed second fiscal quarter (March 31, 2021), was approximately $45.8 million. Shares of the Registrant’s common stock held by each executive officer and director and by each entity or person that, to the Registrant’s knowledge, owned 5% or more of the Registrant’s outstanding common stock as of March 31, 2021 have been excluded in that such persons may be deemed to be affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of December 2, 2021, the Registrant had outstanding 7,486,120 shares of common stock, par value $0.001 per share.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K/A will be incorporated by reference from certain portions of the Registrant’s definitive Proxy Statement for its 2022 Annual Meeting of Shareholders, or will be included in an amendment hereto, to be filed not later than 120 days after the close of the fiscal year ended September 30, 2021. Except with respect to information specifically incorporated by reference in the Annual Report on Form 10-K/A, the Proxy Statement is not deemed to be filed as part hereof.

TABLE OF CONTENTS


		Page

PART II		2

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	2

PART III		2

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE	2

ITEM 11.	EXECUTIVE COMPENSATION	2

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	2

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	2

PART IV		6

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	3

EXPLANATORY NOTE

The purpose of this Amendment No. 1 on Form 10-K/A (the “Amendment”) is to amend the Annual Report on Form 10-K of Applied DNA Sciences, Inc. (the “Company”) as filed with the Securities and Exchange Commission (the “SEC”) on December 9, 2021 (the “Original Filing”) to correct a typographical error on the consolidated balance sheet for the period ended September 30, 2021 to clarify that that the balance sheet had been audited and to correct a typographical error in the exhibit index. There have been no other updates since the date of original issuance.

This Amendment does not otherwise modify, amend or update in any way the disclosures contained in the Original Filing. This Amendment speaks as of the original filing date and does not reflect events occurring after the Original Filing. Accordingly, this Form 10-K/A should be read in conjunction with the Original Filing and the Company’s other filings made with the SEC after the date of the Original Filing. This Amendment does not otherwise update any exhibits as originally filed or previously amended.

In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), new certifications by the Company’s principal executive officer and principal financial officer are filed herewith as exhibits to this Amendment pursuant to Rule 13a-14(a) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

PART II

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See pages F-1 through F-30 following the Exhibit Index.

Part III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

ITEM 11.

EXECUTIVE COMPENSATION

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

On December 12, 2019, we entered into a consulting agreement, with Meadow Hill Place, LLC (“Meadow Hill”), a company wholly owned by Scott L. Anchin (“Mr. Anchin”), a board member, whereby Meadow Hill will provide certain advisory services to the Company. The initial term of the agreement ended on June 12, 2020. The agreement provided for compensation in the form of both cash and equity. Meadow Hill was eligible to receive $125,000 for the initial six-month term. In addition, in satisfaction of the equity compensation portion of the agreement, (i) the Company granted an option to purchase 20,834 shares of its common stock to Mr. Anchin on December 12, 2019 at an exercise price equal to $4.26 per share, which vested on June 12, 2020, and (ii) the Company granted an option to purchase 20,786 shares of its common stock to Mr. Anchin on January 2, 2020 at an exercise price equal to $4.43 per share, of which 9,121 vested on July 2, 2020. The consulting agreement was completed on June 12, 2020 in full satisfaction of all obligations. As a result, the agreement was not extended and therefore expired on June 12, 2020. As a result, 11,665 of the options granted on January 2, 2020, which were related to the extension period, did not vest and were cancelled on June 12, 2020.

On each of December 9 and 10, 2020, Dillon Hill Capital, LLC and its affiliate, Dillon Hill Investment Company, LLC, a greater than 5% shareholder, exercised 100,000 of their 2019 Warrants, for an aggregate exercise of 200,000 of their 2019 Warrants, resulting in total net proceeds to the Company of approximately $1.1 million. As a result of these exercises, the Company issued to the Investors an aggregate of 100,000 additional replacement warrants, which are substantially similar to the Replacement Warrants described above except that 50,000 of the newly issued replacement warrants have an exercise price of $6.57 and 50,000 of such replacement warrants have an exercise price of $6.46.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information called for by Items 10, 11, 12, 13 and 14 will be included in our definitive proxy statement for the 2022 Annual Meeting of Stockholders, or will be included in an amendment hereto, which will be filed with the SEC within 120 days after September 30, 2021. The relevant portions of such definitive proxy statement are incorporated herein by reference.

PARTV IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)	We have filed the following documents as part of this Form 10-K:

1.	Consolidated Financial Statements

Our consolidated financial statements at September 30, 2021 and 2020 and for the years ended September 30, 2021 and 2020, and the notes thereto, together with the report of our independent registered public accounting firm on those consolidated financial statements, are hereby filed as part of this report beginning on page F-1.

2.	Financial Statement Schedules

All financial statement schedules have been omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

Exhibits

The information required by this item is set forth on the exhibit index that follows the signature page of this report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		APPLIED DNA SCIENCES, INC.

Date: December 14, 2021		/s/ James A. Hayward
	By:	James A. Hayward
		President and Chief Executive Officer

EXHIBIT INDEX

The following exhibits are included as part of this Form 10-K/A. References to “the Company” in this Exhibit List mean Applied DNA Sciences, Inc., a Delaware corporation.


Exhibit		Incorporated by Reference				Filed or Furnished
Number	Description	Form	Exhibit	File No.	Date Filed		Herewith
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
3.2	By-Laws	8-K	3.2	002-90539	1/16/2009
4.1	Description of Securities	10-K	4.1	001-36745	12/17/2020
4.2	Form of Underwriter’s Warrant to be issued to Maxim Group LLC	S-1/A	10.26	333-199121	10/30/2014
4.3	Form of Underwriter’s Warrant	8-K	4.1	001-36745	3/27/2015
4.4	Form of Purchase Warrant	8-K	4.1	001-36745	11/23/2015
4.5	Form of Placement Agent Warrant issued to Maxim Group LLC	8-K	4.2	001-36745	11/23/2015
4.6	Form of Placement Agent Warrant issued to Maxim Group LLC and Imperial Capital, LLC	8-K	4.1	001-36745	11/2/2016
4.7	Form of Purchase Warrant	8-K	4.1	001-36745	12/20/2017
4.8	Common Stock Purchase Warrant	8-K	4.1	001-36745	12/21/2018
4.9	Form of pre-funded warrant.	8-K	4.3	001-36745	11/14/2019
4.10	Form of common warrant certificate (included in the Warrant Agreement, dated November 15, 2019)	8-K	4.2	001-36745	11/18/2019
4.11	Form of Indenture	S-3	4.1	333-238557	05/21/2020
4.12	Form of Common Stock Purchase Warrant	8-K	10.3	001-36745	10/14/2020
10.1†	Form of employee stock option agreement under the Applied DNA Sciences, Inc. 2005 Incentive Stock Plan	10-Q	4.1	002-90539	05/15/2012
10.2†	Applied DNA Sciences, Inc. 2005 Incentive Stock Plan, as amended and restated	DEF 14A	Appendix A	001-36745	04/04/2019
10.3†	Form of employee stock option agreement under the Applied DNA Sciences, Inc. 2005 Incentive Stock Plan, as amended	10-K	10.1	001-36745	12/14/2015
10.4†	Applied DNA Sciences, Inc. 2020 Equity Incentive Plan	DEF 14A	Appendix A	001-36745	08/03/2020
10.5†	Applied DNA Sciences, Inc. 2020 Equity Incentive Plan Stock Option Grant Notice and Award Agreement	S-8	10.3	333-249365	10/07/2020

10.6†	Employment Agreement, dated July 1, 2016, between James A. Hayward and Applied DNA Sciences, Inc.	8-K	10.1	001-36745	8/2/2016
10.7	Software Distribution Agreement, dated as of January 25, 2012, by and between Applied DNA Sciences, Inc. and DivineRune, Inc.	10-Q	10.1	002-90539	5/15/2012
10.8	Form of Subscription Agreement dated June 21, 2012, by and among Applied DNA Sciences, Inc. and the investor named on the signature page thereto	10-K	10.37	002-90539	12/20/2012
10.9†	Form of Indemnification Agreement dated as of September 7, 2012, by and between Applied DNA Sciences, Inc. and each of its directors and executive officers	8-K	10.1	002-90539	9/13/2012
10.10	Warrant Agreement, dated November 20, 2014, between Applied DNA Sciences, Inc. and American Stock Transfer & Trust Company, LLC as warrant agent	8-K	4.1	001-36745	11/20/2014
10.11	First Amendment to Warrant Agreement dated April 1, 2015 between Applied DNA Sciences, Inc. and American Stock Transfer & Trust Company, LLC as warrant agent	8-K	4.1	001-36745	4/1/2015
10.12	Second Amendment to Warrant Agreement dated November 2, 2016	8-K	10.4	001-36745	11/2/2016
10.13	Asset Purchase Agreement dated September 11, 2015 between Applied DNA Sciences, Inc. and Vandalia Research, Inc.	8-K	2.1	001-36745	9/17/2015
10.14	Placement Agency Agreement by and between Applied DNA Sciences, Inc. and Maxim Group LLC, dated November 23, 2015	8-K/A	10.1	001-36745	11/23/2015
10.15	Form of Securities Purchase Agreement	8-K/A	10.2	001-36745	11/23/2015
10.16	Placement Agency Agreement between Maxim Group LLC, Imperial Capital, LLC and Applied DNA Sciences, Inc. dated November 2, 2016	8-K	10.1	001-36745	11/2/2016
10.17	Securities Purchase Agreement dated November 2, 2016	8-K	10.2	001-36745	11/2/2016
10.18	Registration Rights Agreement dated November 2, 2016	8-K	10.3	001-36745	11/2/2016
10.19*	License Agreement with Himatsingka America, Inc. dated June 23, 2017	10-Q	10.1	001-36745	8/10/2017
10.20	Placement Agency Agreement by and between Applied DNA Sciences, Inc. and Maxim Group LLC, dated December 20, 2017.	8-K	10.1	001-36745	12/20/2017
10.21	Securities Purchase Agreement dated as of December 20, 2017, by and between Applied DNA Sciences, Inc. and the Purchasers named therein.	8-K	10.2	001-36745	12/20/2017
10.22	Registration Rights Agreement, dated November 29, 2018	8-K	10.2	001-36745	12/6/2018
10.23	Securities Purchase Agreement, dated November 29, 2018	8-K	10.3	001-36745	12/6/2018
10.24	Registration Rights Agreement, dated August 31, 2018	8-K/A	10.2	001-36745	12/10/2018

10.25	Securities Purchase Agreement, dated August 31, 2018	10-K	10.45	001-36745	12/18/2018
10.26+	Patent and Know-How License and Cooperation Agreement, dated March 28, 2019, between the Company, APDN (B.V.I.), Inc., and ETCH BioTrace S.A.	10-Q	10.10	001-36745	5/9/2019
10.27	Registration Rights Agreement, dated July 16, 2019 by and among Applied DNA Sciences, Inc. and the investor named on the signature page thereof.	8-K	10.2	001-36745	07/17/2019
10.28	Securities Purchase Agreement, dated July 16, 2019 by and among Applied DNA Sciences, Inc. and the investor named on the signature page thereof.	8-K	10.3	001-36745	07/17/2019
10.29	Asset Purchase Agreement, dated July 29, 2019 by and between LineaRX, Inc. and Vitatex Inc.	8-K	10.1	001-36745	8/12/2019
10.30	Form of Subscription Agreement between investors and Applied DNA Sciences, Inc., dated August 22, 2019.	8-K	10.1	001-36745	8/26/2019
10.31	Underwriting Agreement entered into by and between Applied DNA Sciences, Inc. and Maxim Group LLC, as Representative of the Underwriters listed in Schedule I hereto, dated November 13, 2019.	8-K	1.1	001-36745	11/14/2019
10.32	Warrant Agreement, dated November 15, 2019, between Applied DNA Sciences, Inc. and American Stock Transfer & Trust Company, LLC	8-K	4.1	001-36745	11/18/2019
10.33†	Consulting Agreement, dated as of December 12, 2019, by and between Applied DNA Sciences, Inc. and Meadow Hill Place, LLC	10.Q	10.1	001-36745	08/06/2020
10.34	Agreement of Lease dated June 14, 2013, between Applied DNA Sciences, Inc. and Long Island High Technology Incubator, Inc.	10-Q	10.2	002-90539	8/13/2013
10.35	Agreement of Lease, dated November 1, 2015, by and between Applied DNA Sciences, Inc. and Long Island High Technology Incubator, Inc.	10.Q	10.2	001-36745	08/06/2020
10.36	Option Exercise Notice, dated December 3, 2015, Pursuant to Lease dated June 14, 2013, between Applied DNA Sciences, Inc. and Long Island High Technology Incubator, Inc.	10.Q	10.2	001-36745	05/12/2016
10.37	Temporary Lease Extension Agreement, dated August 9, 2019, by and between Applied DNA Sciences, Inc. and Long Island High Technology Incubator, Inc.	10.Q	10.3	001-36745	08/06/2020
10.38	Amendment to Leases, dated November 4, 2019, by and between Long Island High Technology Incubator, Inc. and Applied DNA Sciences, Inc.	10.Q	10.4	001-36745	08/06/2020
10.39	Amendment to Leases, dated January 17, 2020, by and between Long Island High Technology Incubator, Inc. and Applied DNA Sciences, Inc.	10.Q	10.5	001-36745	08/06/2020

10.40	Warrant Exercise Agreement, dated October 7, 2020, by and between Applied DNA Sciences, Inc. and Dillon Hill Capital, LLC.	8-K	10.1	001-36745	10/14/2020
10.41	Warrant Exercise Agreement, dated October 7, 2020, by and between Applied DNA Sciences, Inc. and Dillon Hill Investment Company LLC.	8-K	10.2	001-36745	10/14/2020
10.42	Registration Rights Agreement, dated October 7, 2020, by and between Applied DNA Sciences, Inc. and Dillon Hill Capital, LLC.	8-K	10.4	001-36745	10/14/2020
10.43	Registration Rights Agreement, dated October 7, 2020, by and between Applied DNA Sciences, Inc. and Dillon Hill Investment Company LLC.	8-K	10.5	001-36745	10/14/2020
10.44	Letter Agreement, dated October 9, 2020, by and among Applied DNA Sciences, Inc., Dillon Hill Capital, LLC, and Delaware Trust Company, as Collateral Agent.	8-K	10.6	001-36745	10/14/2020
10.45	Consent, dated October 9, 2020, from Dillon Hill Capital, LLC to Applied DNA Sciences, Inc.	8-K	10.7	001-36745	10/14/2020
10.46+	Joint Development Agreement, dated September 11, 2018, between LineaRx, Inc., Takis S.R.L. and Evvivax S.R.L., as amended by that First Amendment, dated February 3, 2020	10-K	10.46	001-36745	12/17/2020
10.47	Animal Clinical Trial Agreement, dated September 14, 2020, between Applied DNA Sciences, Inc., Evvivax S.R.L. and Veterinary Oncology Services, PLLC	10-K	10.47	001-36745	12/17/2020
10.48	Letter Agreement dated March 2, 2021, by and between the Company and Dr. James Hayward	8-K	10.1	001-36745	3/4/2021
10.49	Form of Placement Agency Agreement by and between Applied DNA Sciences, Inc. and Roth Capital Partners, LLC, dated January 10, 2021	8-K	10.1	001-36745	01/11/2021
10.50	Form of Securities Purchase Agreement	8-K	10.2	001-36745	01/11/2021
23.1	Consent of Marcum LLP	10-K	23.1	001-36745	12/09/2021
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					Filed
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					Filed
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					Furnished
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					Furnished
101 INS	XBRL Instance Document					Filed

101 SCH

XBRL Taxonomy Extension Schema Document

Filed

101 CAL

XBRL Taxonomy Extension Calculation Linkbase Document

Filed

101 DEF

XBRL Taxonomy Extension Definitions Linkbase Document

Filed

101 LAB

XBRL Taxonomy Extension Labels Linkbase Document

Filed

101 PRE

XBRL Taxonomy Extension Presentation Linkbase Document

Filed

†	Indicates a management contract or any compensatory plan, contract or arrangement.

*	A request for confidentiality has been granted for certain portions of the indicated document. Confidential portions have been omitted and filed separately with the SEC as required by Rule 24b-2 promulgated under the Exchange Act.

+ Portions of this exhibit have been omitted because the information is both not material and would likely cause competitive harm to the registrant if publicly disclosed. The omissions have been indicated by bracketed asterisks (“[***]”).

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS


	Page

Report of Independent Registered Public Accounting Firm	F-10

Consolidated Balance Sheets as of September 30, 2021 and 2020	F-11

Consolidated Statements of Operations for the Years Ended September 30, 2021 and 2020	F-12

Consolidated Statements of Equity for the Years Ended September 30, 2021 and 2020	F-13

Consolidated Statements of Cash Flows for the Years Ended September 30, 2021 and 2020	F-14

Notes to Consolidated Financial Statements	F-15

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Applied DNA Sciences, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Applied DNA Sciences, Inc. and Subsidiaries (the “Company”) as of September 30, 2021 and 2020, and the related consolidated statements of operations, (deficit) equity and cash flows for each of the two years in the period ended September 30, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note B, the Company has recurring net losses. The Company incurred a net loss of $14,278,439 and generated negative operating cash flow of $13,387,955. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note B. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (”PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ Marcum LLP

Marcum LLP

We have served as the Company’s auditor since 2014.

Melville, NY

December 9, 2021

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2021 and 2020


	September 30,		September 30,
	2021		2020

ASSETS
Current assets:
Cash and cash equivalents	$	6,554,948	$	7,786,743
Accounts receivable, net of allowance of $29,821 and $11,968 at September 30, 2021 and 2020, respectively		2,804,039		194,319
Inventories		1,369,933		497,367
Prepaid expenses and other current assets		568,881		599,296
Total current assets		11,297,801		9,077,725

Property and equipment, net		3,023,915		1,277,655

Other assets:
Deposits		95,040		95,083
Goodwill		—		285,386
Intangible assets, net		—		605,330
Total Assets	$	14,416,756	$	11,341,179

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	2,991,343	$	1,926,427
Promissory notes payable-current portion		—		329,299
Secured convertible notes payable , net of debt issuance costs		—		1,499,116
Deferred revenue		281,000		511,036
Total current liabilities		3,272,343		4,265,878

Long term accrued liabilities		31,467		848,307
Promissory notes payable-long term portion		—		517,488
Total liabilities		3,303,810		5,631,673

Commitments and contingencies (Note K)

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 September 30, 2021 and 2020, respectively		—		—
Series A Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- issued and outstanding as of September 30, 2021 and 2020, respectively		—		—
Series B Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- issued and outstanding as of September 30, 2021 and 2020, respectively		—		—

Common stock, par value $0.001 per share; 200,000,000 shares authorized as of September 30, 2021 and 2020, 7,486,120 and 5,142,779 shares issued and outstanding as of September 30, 2021 and 2020, respectively		7,488		5,144
Additional paid in capital		295,228,272		275,548,737
Accumulated deficit		(284,122,092)		(269,835,650)
Applied DNA Sciences, Inc. stockholders’ equity:		11,113,668		5,718,231
Noncontrolling interest		(722)		(8,725)
Total equity		11,112,946		5,709,506

Total liabilities and equity	$	14,416,756	$	11,341,179

See the accompanying notes to the consolidated financial statements

APPLIED DNA SCIENCES, INC. AND SUBSIDIAIRES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED SEPTEMBER 30, 2021 and 2020


	2021		2020
Revenues
Product revenues	$	3,295,849	$	615,430
Service revenues		937,735		1,238,517
Clinical laboratory service revenues		4,794,154		77,550
Total revenues		9,027,738		1,931,497

Cost of product revenues		1,496,659		720,900
Cost of clinical laboratory service revenues		2,602,729		106,923

Operating expenses:
Selling, general and administrative		12,610,552		10,031,180
Research and development		3,765,440		3,321,763
Depreciation and amortization		844,438		285,730
Impairment losses		821,741		—
Total operating expenses		18,042,171		13,638,673

LOSS FROM OPERATIONS		(13,113,821)		(12,534,999)

Interest income (expense), net		13,675		(115,830)
Loss on extinguishment of convertible notes payable		(1,774,662)		—
Gain on extinguishment of notes payable		839,945		—
Other expense, net		(243,576)		(378,075)

Loss before provision for income taxes		(14,278,439)		(13,028,904)

Provision for income taxes		—		—

NET LOSS		(14,278,439)		(13,028,904)

Less: Net (income) loss attributable to noncontrolling interest		(8,003)		1,685
NET LOSS attributable to Applied DNA Sciences, Inc.		(14,286,442)		(13,027,219)
Deemed dividend related to warrant modifications		—		2,842
NET LOSS attributable to common stockholders	$	(14,286,442)	$	(13,030,061)

Net loss per share attributable to common stockholders-basic and diluted	$	(2.07)	$	(3.32)

Weighted average shares outstanding-basic and diluted		6,916,999		3,919,072

See the accompanying notes to the consolidated financial statements

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF (DEFICIT) EQUITY

YEARS ENDED SEPTEMBER 30, 2021 and 2020


		Common		Additional
	Common	Stock		Paid in		Accumulated		Noncontrolling
	Shares	Amount		Capital		Deficit		Interest		Total
Balance, October 1, 2019	1,207,993	$	1,208	$	255,962,922	$	(256,805,589)	$	(7,040)	$	(848,499)
Common stock issued in public offering, net of offering costs	2,285,000		2,285		10,527,745		—		—		10,530,030
Deemed dividend - warrant repricing	—		—		2,842		(2,842)		—		—
Exercise of warrants	1,649,786		1,651		8,054,146		—		—		8,055,797
Stock based compensation expense	—		—		1,001,082		—		—		1,001,082
Net loss	—		—		—		(13,027,219)		(1,685)		(13,028,904)
Balance, September 30, 2020	5,142,779	$	5,144	$	275,548,737	$	(269,835,650)	$	(8,725)	$	5,709,506
Exercise of warrants	520,151		521		2,613,408		—		—		2,613,929
Fair value of warrants issued in connection with convertible note repayment	—		—		1,643,440		—		—		1,643,440
Stock based compensation expense	—		—		1,668,003		—		—		1,668,003
Common stock issued in public offering, net of offering costs	1,810,000		1,810		13,754,697		—		—		13,756,507
Exercise of options cashlessly	13,190		13		(13)		—		—		—
Net loss	—		—		—		(14,286,442)		8,003		(14,278,439)
Balance, September 30, 2021	7,486,120	$	7,488	$	295,228,272	$	(284,122,092)	$	(722)	$	11,112,946

See the accompanying notes to the consolidated financial statements

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

YEARS ENDED SEPTEMBER 30, 2021 and 2020


	2021		2020
Cash flows from operating activities:
Net loss	$	(14,278,439)		(13,028,904)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		844,438		285,730
Loss on disposal of property and equipment		208,782		—
Impairment of goodwill and intangible assets		821,741		—
Loss on extinguishment of convertible notes payable		1,774,662		—
Gain on extinguishment of notes payable		(839,945)		—
Stock-based compensation		1,668,003		1,001,082
Amortization of debt issuance costs		—		26,019
Provision for bad debts		28,629		45,280
Change in operating assets and liabilities:
Accounts receivable		(2,638,350)		600,352
Inventories		(872,566)		(354,738)
Prepaid expenses and other current assets and deposits		30,415		(27,288)
Accounts payable and accrued liabilities		94,711		427,365
Deferred revenue		(230,036)		(117,957)

Net cash used in operating activities		(13,387,955)		(11,143,059)

Cash flows from investing activities:

Purchase of intangible asset		—		—
Purchase of property and equipment		(2,548,695)		(1,063,698)

Net cash used in investing activities		(2,548,695)		(1,063,698)

Cash flows from financing activities:

Net proceeds from exercise of warrants		2,613,929		8,055,797
Net proceeds from sale of common stock		13,756,507		—
Net proceeds from sale of common stock and warrants		—		10,639,728
Repayment of convertible notes		(1,665,581)		(107,802)
Proceeds from promissory notes		—		846,789
Net cash provided by financing activities		14,704,855		19,434,512

Net increase in cash and cash equivalents		(1,231,795)		7,227,755
Cash and cash equivalents at beginning of period		7,786,743		558,988
Cash and cash equivalents at end of period	$	6,554,948	$	7,786,743

Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest	$	—	$	45,354
Cash paid during period for income taxes	$	—	$	—

Non-cash investing and financing activities:
Interest paid in kind	$	28,329	$	35,625
Property and equipment acquired, and included in accounts payable	$	181,807	$	144,025
Deemed dividend-warrant repricing	$	—	$	2,842
Deferred offering costs reclassified to additional paid in capital	$	—	$	109,698
Issuance of warrants in settlement of convertible notes payable	$	1,074,118	$	—

See the accompanying notes to the consolidated financial statements

NOTE A – NATURE OF THE BUSINESS

Applied DNA Sciences, Inc. (“Applied DNA” or the “Company”) develops and markets DNA-based technology solutions utilizing its LinearDNA^TM large-scale polymerase chain reaction (“PCR”) based manufacturing platform. The Company’s proprietary platform produces large quantities of DNA for use in the nucleic acid-based in vitro diagnostics and preclinical nucleic-acid based drug development and manufacturing markets (“Biotherapeutic Contract Research and Manufacturing”) and for supply chain security, anti-counterfeiting and anti-theft technology purposes (“Non-Biologic Tagging”). In response to the SARS-CoV-2 (“COVID-19”) pandemic, the Company developed a PCR-based molecular diagnostic test for COVID-19, which was granted Emergency Use Authorization (EUA) by the U.S. Food and Drug Administration (“FDA”) in May 2020. The Company currently manufactures and sells its EUA authorized COVID-19 molecular diagnostic test kit under the Linea^TM COVID-19 Assay Kit trademark (“COVID-19 Diagnostic Test Kit”). In addition, and in further response to the COVID-19 pandemic, the Company developed and is currently offering, COVID-19 testing services under its wholly owned subsidiary, Applied DNA Clinical Labs, LLC (“ADCL”). ADCL currently holds a New York clinical laboratory permit and a Clinical Laboratory Improvement Amendments of 1988, 42 U.S.C. §263a (“CLIA”) certification for virology (“Clinical Testing Laboratory”). Using the Company’s COVID-19 Diagnostic Test Kit, ADCL's currently offers to clients a high throughput pooled COVID-19 testing program, known as safeCircle^TM, which utilizes high-sensitivity pooled testing to help prevent virus spread by identifying infections within a community, school, or workplace. safeCircle provides to its clients rapid testing results using real-time PCR (RT-PCR) testing. (“COVID-19 Testing Services”). The Company is also developing an invasive circulating tumor cell capture and identification technology (“iCTC Technology”) which uses a patented functional assay to capture live invasive circulating tumor cell and associated lymphocytes that can be identified and expanded for further analysis, including genetic sequencing.

Biotherapeutic Contract Research and Manufacturing

The Company’s patented continuous flow PCR systems and other proprietary PCR-based production technology and post-processing systems that comprise the LinearDNA^TM platform allows for the large-scale enzymatic production of specific DNA sequences. The LinearDNA^TM platform is currently being used for customers to manufacture DNA as components of in vitro diagnostic tests and for preclinical nucleic acid-based drug development in the fields of adoptive cell therapies (CAR T and TCR therapies), DNA vaccines (anti-viral and cancer), RNA therapies, clustered regularly interspaced short palindromic repeats (CRISPR) based therapies and gene therapies.

The Company provides preclinical contract research and manufacturing services for the nucleic acid-based therapeutic markets. It works with biotech and pharmaceutical companies to convert conventional nucleic-acid based preclinical biotherapeutics into PCR-produced linear DNA-based forms that can be produced on the Company’s LinearDNA^TM platform. In addition, it provides contract research services to RNA based drug and biologic customers for preclinical studies. These services include the design, development and manufacture of PCR-produced DNA templates for RNA. In addition, the Company also uses its LinearDNA^TM platform to produce very large gram-scale quantities of DNA for the in vitro diagnostic market where the Company’s DNA is used for both commercially available diagnostics and diagnostics under development.

The Company is currently directly engaged in preclinical drug candidate development activities focusing on therapeutically relevant DNA constructs manufactured via its LinearDNA^TM platform in the fields of DNA-based anti-viral and anti-cancer vaccines, CAR-T cell immunotherapy and the manufacture of rAAV vectors for gene therapy.

NOTE A – NATURE OF THE BUSINESS, continued

Biotherapeutic Contract Research and Manufacturing, continued

The Company is also engaged in preclinical and animal drug candidate development activities focusing on therapeutically relevant DNA constructs manufactured via its LinearDNA production platform. The Company seeks to develop, acquire and commercialize, alone or with partners, a diverse pipeline of nucleic acid-based therapeutics based on PCR-produced linear DNA. To this end, the Company is currently working with its development partners Takis S.R.L. and Evvivax S.R.L. ("Takis/Evvivax") to develop an amplicon-based linear DNA vaccine for COVID-19 that would be manufactured on the Company's LinearDNA^TM platform. Together with its development partners, the Company's amplicon-based linear COVID-19 vaccine candidate has shown efficacy in preclinical cell, mouse and feline animal studies. In September 2020, the Company entered into an Animal Clinical Trial Agreement with Takis/Evvivax and with Veterinary Oncology Services, PLLC, an affiliate of Guardian Veterinary Specialists ("GVS"), a multi-specialty veterinary hospital. In November 2020, the Company, together with Takis/Evvivax and GVS, announced receipt of approvals from the New York State Department of Agriculture and Markets and the U.S. Department of Agriculture ("USDA") on an advanced clinical strategy to conduct a veterinary trial of an amplicon-based linear DNA vaccine COVID-19 candidate. The Company's jointly developed amplicon-based LinearDNA vaccine for COVID-19 is currently in a veterinary clinical trial in domestic feline cats, with the end goal of applying for a USDA Animal and Plant Health Inspection Service conditional license to enable commercial veterinary sales for veterinary applications. In April 2021, the Company announced preliminary data from its veterinary clinical trial in felines conducted with Takis/Evvivax and GVS. The preliminary data showed that all felines in the trial produced SARS-CoV-2 neutralizing antibodies after a single prime dose of the vaccine candidate. Subsequently in May 2021, the Company announced additional preliminary data from its feline clinical trial that showed a booster injection of the amplicon-based linear DNA vaccine candidate delivered 30 days after the prime vaccination elected a 5-fold increase in neutralizing antibody titers, with every member of the trial cohort producing neutralizing antibody titers. In June 2021, the Company further announced preliminary data from an in vitro neutralization study of sera from the feline trial cohort against the B.1.1.7 (U.K.), P1 (Brazil), and B.1.526 (New York) SARS-CoV-2 variants. The preliminary data showed that the amplicon-based linear DNA vaccine candidate induced neutralizing antibodies against the 1.1.7 (U.K.), P1 (Brazil), and B.1.526 (New York) SARS-CoV-2 variants in 100% of the trial cohort. In October 2020, Applied DNA and The Cornell University School of Veterinary Medicine began a SARS-CoV-2 challenge trial in ferrets to assess the protective efficacy of the LinearDNA vaccine against live SARS-CoV-2 virus.

COVID-19 Diagnostic Test Kit

On May 13, 2020 the Company received an EUA from the FDA for the clinical use of the Linea^TM COVID-19 Assay Kit for the qualitative detection of nucleic acid from SARS-CoV-2 in respiratory specimens including anterior nasal swabs, self-collected at a healthcare location or collected by a healthcare worker, and nasopharyngeal and oropharyngeal swabs, mid-turbinate nasal swabs, nasopharyngeal washes/aspirates or nasal aspirates, and bronchoalveolar lavage specimens collected by a healthcare worker from individuals who are suspected of COVID-19 by their healthcare provider. Under the EUA, testing is limited to laboratories certified under CLIA, that meet requirements to perform high complexity tests. Subsequently, during July and November 2020, we were granted EUA amendments that expanded the installed base of PCR equipment platforms on which the Company’s Linea^TM COVID-19 Assay Kit can be processed and significantly increased the daily testing capacity of the Linea (TM) COVID-19 Assay Kit through the use of automation. On May 11, 2021, the Company received a re-issued EUA that expanded the intended use of the Linea^TM COVID-19 Assay Kit to include use with anterior nasal swab specimens that are self-collected in the presence of a healthcare provider from individuals without symptoms or other reasons to suspect COVID-19 when tested at least weekly and with no more than 168 hours between serially collected specimens. The expanded intended use allows ADCL and other certified laboratory users of the Linea^TM COVID-19 Assay Kit, to provide serial screening testing to individuals with the return of individual testing results. The May 11, 2021 re-issued EUA also updated the Linea^TM COVID-19 Assay Kit's Instructions for Use to include the KingFisher(TM) Flex Purification System, a high-throughput robotic nucleic acid extraction system. The scope of the EUA, as amended, is expressly limited to use consistent with the Instructions for Use by authorized laboratories, certified under CLIA to perform high complexity tests. The EUA will be effective until the declaration that circumstances exist justifying the authorization of the emergency use of in vitro diagnostics for detection and/or diagnosis of COVID-19 is terminated or until the EUA’s prior termination or revocation. Our Linea (TM) COVID-19 Assay Kit has not been FDA cleared or approved, and the EUA’s limited authorization is only for the detection of nucleic acid from SARS-CoV-2, not for any other viruses or pathogens.

NOTE A – NATURE OF THE BUSINESS, continued

The Company currently manufactures the Linea^TM COVID-19 Assay Kit at its facilities in Stony Brook, New York. The Company’s COVID-19 Assay Kit is predominantly utilized by ADCL to provide safeCircle high-throughput pooled COVID-19 testing services.

COVID-19 Testing Services

The Company under its wholly owned subsidiary, ADCL, offers a high throughput COVID-19 testing program to customers as a Testing-as-a-Service (TaaS) offering branded under the safeCircle^TM trademark. safeCircle is a turnkey testing solution that provides for all aspects of large population COVID-19 testing – from sample collection to results reporting – for institutes of higher education, K-12 schools, businesses, and healthcare facilities, among other institutions with large populations. safeCircle utilizes serial, high-sensitivity pooled RT-PCR testing to help prevent virus spread by quickly identifying infections within a community, school, or workplace. Testing is conducted utilizing the Company’s Linea™ COVID-19 Assay Kit that provides rapid results using real-time PCR (RT-PCR testing) with results returned typically within 24 to 48 hours at the Company’s Clinical Laboratory Evaluation Program (“CLEP”) permitted, CLIA-certified laboratory. For the majority of safeCircle clients, test scheduling and testing result reporting is provided though the CLEARED4 digital health platform owned and operated by Chelsea Health Solutions, LLC.

The Company currently provides safeCircle^TM pooled testing to primary/secondary/higher education institutions, private clients, local governments, and businesses and college athletic programs.

In addition, starting in February 2021, the Company began the development of its Linea SARS-CoV-2 Mutation Panel (formally the Selective Genomic Surveillance Mutation Panel) for the qPCR-based detection of certain SARS-CoV-2 genetic mutations (the “Mutation Panel”). In May 2021, the Company announced that it had completed technical validation of the Mutation Panel. In October 2021, the Company announced that an EUA request for the Mutation Panel had been filed with FDA. Use of the Mutation Panel is currently limited to Research Use Only (RUO).

Clinical Testing Laboratory

Under the Company’s ADCL subsidiary, on May 10, 2021 the Company received its New York clinical laboratory permit and its CLIA certification from the New York State Department of Health, CLEP, which is currently permitted for virology. As part of the Company’s COVID-19 Testing Services its laboratory provides individual COVID-19 testing utilizing the Company’s EUA-authorized Linea COVID-19 Assay Kit, pooled screening testing under its July 13, 2021 LDT submission to NYSDOH and pooled surveillance testing that is not regulated by FDA, CDC or CMS.

On November 15, 2021 FDA revised its guidance document titled “Policy for Coronavirus Disease-2019 Tests During the Public Health Emergency (Revised)” (“FDA COVID-19 Testing Guidance”) to require all COVID-19 diagnostic assays conducted as Laboratory-Developed Tests (“LDTs”) to apply for EUA authorization within a 60-day period from the revised guidance’s issuance date. The FDA Guidance provides an exception for certain notified states, who can authorize in-state laboratories to develop and perform COVID-19 tests under the authority of their own State law in instances where the laboratory did not otherwise submit an EUA request to FDA.

On July 13, 2021, ADCL submitted data supporting the validation of a high-throughput robotic 5-sample pooling workflow utilizing the Linea COVID-19 Assay Kit to the New York State Department of Health (“NYSDOH”), which is currently pending. New York State falls within the exemption contemplated by FDA’s revised COVID-19 Testing Guidance, meaning ADCL can obtain NYSDOH authorization for conducting the test in lieu of an EUA from FDA. Pursuant to current NYSDOH guidance, ADCL is currently performing the validated workflow in its COVID-19 testing during the pendency of the NYSDOH review.

NOTE A – NATURE OF THE BUSINESS, continued

In the event that NYSDOH declines to authorize ADCL’s performance of the Linea COVID-19 assay on pooled samples, ADCL will be required to submit an EUA to FDA in order to continue performing the validated pooling workflow in its COVID-19 testing. Pursuant to the revised FDA COVID-19 Testing Guidance, laboratories can continue performing validated assays during the pendency of the EUA review by FDA. It is important to note that FDA retains the authority to review, or decline to review, as well as authorize, or decline to authorize, any EUA request for any product. ADCL cannot, therefore, guarantee that it will ultimately obtain authorization to perform its Linea COVID-19 assay on pooled samples if it is required to submit an EUA.

iCTC Technology

The Company’s iCTC Technology uses a patented functional assay to capture live invasive circulating tumor cell and associated lymphocytes that can be identified and expanded for further analysis, including genetic sequencing. The Company’s iCTC Technology has been used and is currently being used in a human cancer drug candidate clinical trial to monitor cancer disease progression in the trial subjects as a Research Use Only diagnostic assay. The Company seeks to further develop and commercialize this technology and to potentially integrate aspects of the iCTC Technology with its PCR know-how and with the LinearDNA^TM platform for cancer research and nucleic acid-based drug development.

Non-Biological Tagging and Related Services

The Company’s supply chain security business allows its customers to use non-biologic DNA (molecular) tags, manufactured via its LinearDNA^TM platform, to mark objects, and then identify these objects by detecting the absence or presence of the molecular tag. The Company’s core products include:

●

SigNature® Molecular Tags produced by the Company’s LinearDNA^TM platform, provide an approach to authenticate goods within large and complex supply chains for materials such as cotton, and leather, in-home textiles and apparel, pharmaceuticals and nutraceuticals, cannabis and other products.

●

SigNify® IF portable DNA readers and SigNify consumable reagent test kits provide definitive real-time authentication of molecular tags in the field, providing a front-line solution for supply chain integrity backed with forensic-level molecular tag authentication. Applied DNA’s software platform enables customers to track materials throughout a supply chain or product life.

●

CertainT trademark indicates the use of Applied DNA’s tagging, testing and tracking platforms and solutions, enabling manufacturers, brands and trade organizations to convey proof of their product claims.

NOTE B – GOING CONCERN AND MANAGEMENT’S PLAN

The Company has recurring net losses. The Company incurred a net loss of $14,278,439 and generated negative operating cash flow of $13,387,955 for the fiscal year ended September 30, 2021. 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 to continue as a going concern is dependent on the 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 a going concern.

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.

NOTE C – BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

On September 16, 2002, the Company was incorporated under the laws of the State of Nevada. Effective December 2008, the Company reincorporated from the State of Nevada to the State of Delaware. The Company is principally devoted to developing and marketing linear DNA technology solutions in the United States, Europe and Asia. To date, the Company has produced limited recurring revenues from its products and services; it has incurred expenses and has sustained losses. Consequently, its operations are subject to all the risks inherent in the establishment and development of a biotechnology company.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, APDN (B.V.I.) Inc., Applied DNA Sciences Europe Limited, Applied DNA Sciences India Private Limited, ADCL and its majority–owned subsidiary, LineaRx, Inc. (“LRx”). Significant inter-company transactions and balances have been eliminated in consolidation. To facilitate comparison of information across periods, certain reclassifications have been made to prior year amounts to conform to the current year’s presentation.

Use of Estimates

The preparation of the financial statements in conformity with Accounting Principles Generally Accepted in the United States of America (“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, allowance for doubtful accounts, recoverability of long-lived assets, including the values assigned to goodwill, intangible assets and property and equipment, fair value calculations for stock-based compensation and 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.

Product Revenues and Authentication Services

The Company’s PCR-produced linear DNA products are manufactured 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.

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

Revenue Recognition, continued

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.

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.

NOTE C – 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:


	Fiscal Years Ended:
	September 30,
	2021		2020
Research and development services (over-time)	$	799,718	$	1,128,511
Clinical laboratory testing services (point-in-time)		4,794,154		77,550
Product and authentication services (point-in-time):
Supply chain		1,003,248		38,577
Asset marking		458,409		404,888
Large scale DNA production		—		281,971
Diagnostic test kits		1,972,209		—
Total	$	9,027,738	$	1,931,497

Contract balances

As of September 30, 2021, 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 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,		September 30,		$
	Balance sheet classification	2020		2021		change
Contract liabilities	Deferred revenue	$	511,036	$	281,000	$	(230,036)


		October 1,		September 30,		$
	Balance sheet classification	2019		2020		change
Contract liabilities	Deferred revenue	$	628,993	$	511,036	$	(117,957)

For the fiscal year ended September 30, 2020, the Company recognized $591,360 of revenue that was included in Contract liabilities as of October 1, 2019.

For the fiscal year ended September 30, 2021, the Company recognized $277,331 of revenue that was included in Contract liabilities as of October 1, 2020.

Cash Equivalents

For the purpose of the accompanying consolidated financial statements, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents. As of September 30, 2021 and 2020, cash equivalents were $4,417,906 and $5,504,826, respectively.

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

Accounts Receivable

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts may change.

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company classifies receivable amounts as current or long-term based on expected payment and records long-term accounts receivable when the collection period is expected to be greater than one year.

At September 30, 2021 and 2020, the Company has an allowance for doubtful accounts of $29,821 and $11,968, respectively. The Company writes-off receivables that are deemed uncollectible.

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.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740-10”) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes include, but not limited to, accounting for intangibles, equity-based compensation and depreciation and amortization. The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all of the deferred tax asset will not be realized. During the fiscal years ended September 30, 2021 and 2020, the Company incurred losses from operations. Based upon these results and the trends in the Company’s performance projected for fiscal year 2021, it is more likely than not that the Company will not realize any benefit from the deferred tax assets recorded by the Company in previous periods. Management makes judgments as to the interpretation of tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. The Company has identified its federal tax return and its state tax return in New York as “major” tax jurisdictions. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements.

The Company believes that its income tax positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. It is the Company’s policy to accrue interest and penalties on unrecognized tax benefits as components of income tax provision. The Company did not have any accrued interest or penalties as of September 30, 2021 and 2020. Tax years 2016 through 2019 remain subject to future examination by the applicable taxing authorities.

Property and Equipment

Property and equipment are stated at cost and depreciated using the straight line method over their estimated useful lives. The estimated useful life for computer equipment, lab equipment and furniture is 3 years, vehicles is 5 years and leasehold improvements are amortized over the shorter of their useful life or the remaining lease terms. Property and equipment consist of:

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


	September 30,
	2021		2020
Computer equipment	$	—	$	90,509
Lab equipment		3,565,057		3,036,397
Furniture		—		74,781
Vehicles		108,361		—
Leasehold improvements		124,825		524,485
Total		3,798,243		3,726,172
Accumulated depreciation		774,328		2,448,517
Property and equipment, net	$	3,023,915	$	1,277,655

As of September 30, 2021, there was $6,580 of construction in progress that was included in lab equipment. Depreciation expense for the fiscal years ended September 30, 2021 and 2020 were $767,025 and $156,290, respectively.

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of long-lived assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. Based on the qualitative analysis performed by management, as of September 30, 2021, the Company has recorded a non-cash impairment charge of $285,386 and 536,355 to write-off the goodwill and remaining net book value of the intangible assets, respectively. The goodwill, intellectual property and customer lists were from the Vandalia Asset Acquisition and related to the right to produce, sell and have sold, market and develop the Triathlon DNA production system. Since the Company is no longer utilizing this technology, as the Company is now using a different technology to produce these products, the impairment assessment concluded that the asset group was not recoverable and resulted in the full impairment and write-off of the goodwill and intangible assets as of September 30, 2021. See Note E below for further details.

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, warrants, and secured convertible notes.

For the fiscal years ended September 30, 2021 and 2020, 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 income 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 antidilutive for the fiscal years ended September 30, 2021 and 2020 are as follows:


	2021	2020
Warrants	745,268	1,038,919
Options	487,377	291,035
Secured convertible note	—	70,962
	1,232,645	1,400,916

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

Stock-Based Compensation

The Company accounts for stock-based compensation for employees, directors, and nonemployees in accordance with ASC 718, Compensation (“ASC 718”). ASC 718 requires all share-based payments, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Under the provisions of ASC 718, stock-based compensation costs are measured at the grant date, based on the fair value of the award, and are recognized as expense over the requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s common stock options is estimated using the Black Scholes option-pricing model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life. The Company expenses stock-based compensation by using the straight-line method. In accordance with ASC 740, excess tax benefits realized from the exercise of stock-based awards are classified as cash flows from operating activities. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) are recognized as income tax expense or benefit in the consolidated statements of operations.

Concentrations

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents 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 September 30, 2021, the Company had cash and cash equivalents of approximately $6.0 million in excess of the FDIC insurance limit.

The Company's revenues earned from sale of products and services for the fiscal year ended September 30, 2021 included an aggregate of 18%, and 13%, respectively from two customers.

The Company’s revenues earned from sale of products and services for the fiscal year ended September 30, 2020 included an aggregate of 13%, 12%, 11% and 10% respectively from four customers.

Two customers accounted for 67% of the Company's accounts receivable at September 30, 2021 and four customers accounted for an aggregate of 74% of the Company’s total accounts receivable at September 30, 2020.

Research and Development

The Company accounts for research and development costs in accordance with the ASC 730, Research and Development (“ASC 730”). Under ASC 730, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. During the fiscal years ended September 30, 2021 and 2020, the Company incurred research and development expenses of $3,765,440 and $3,321,763, respectively.

Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred. The Company charged to operations $283,621 and $55,558, as advertising costs for the fiscal years ended September 30, 2021 and 2020, respectively.

Goodwill and Other Intangible Assets

The Company amortizes its intangible assets using the straight-line method over their estimated period of benefit. All of the Company’s intangible assets, except for goodwill are subject to amortization.

Goodwill arises as a result of business acquisitions. Goodwill consists of the excess of the cost of the acquisitions over the tangible and intangible assets acquired and liabilities assumed.

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

The Company evaluates goodwill for impairment at least annually. The Company qualitatively and quantitatively determines whether, more likely than not, the fair value exceeds the carrying amount of a reporting unit. There are numerous assumptions and estimates underlying the quantitative assessments including future earnings, long-term strategies, and the Company’s annual planning and forecasts. If these planned initiatives do not accomplish the targeted objectives, the assumptions and estimates underlying the quantitative assessments could be adversely affected and have a material effect upon the Company’s financial condition and results of operations. As of September 30, 2021, as a result of the qualitative analysis performed, the Company has recorded a non-cash impairment charge of $821,740 to write-off the goodwill and remaining net book value of the intangible assets due to a reduction in demand from certain customers and a transition in the way the product is produced for these customers, which no longer utilizes the previously purchased intellectual property.

Convertible Instruments

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with ASC 470-20, Debt with Conversion and Other Options. Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption and are included in interest expense in the consolidated financial statements.

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, who report 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 September 30, 2021, there were no transfers between Levels 1, 2 and 3 of the fair value hierarchy.

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

Recent Accounting Standards

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 consolidated financial statements.

NOTE D – INVENTORIES

Inventories consist of the following at September 30, 2021 and 2020:


	2021		2020
Raw materials	$	786,938	$	387,815
Work in progress		—		77,667
Finished goods		582,995		31,885
Total	$	1,369,933	$	497,367

NOTE E – INTANGIBLE ASSETS

Intangible assets at September 30, 2021 and 2020 are as follows:


	2021		2020
Internally developed software (5‑year useful life)	$	—	$	157,221
Customer relationships (10‑year useful life)		621,000		621,000
Intellectual property (5‑15 years)		917,350		917,350
		1,538,350		1,695,571
Less:
Accumulated amortization		1,001,995		933,020
Impairment losses		536,355		157,221
Intangible assets, net	$	—	$	605,330

Total amortization expense charged to operations for the fiscal years ended September 30, 2021 and 2020 were $68,976 and $129,441, respectively.

NOTE E – INTANGIBLE ASSETS, continued

During the fourth quarter of 2021, the Company performed an impairment assessment of its customer relationships and intellectual property as a result of the Company no longer using the acquired technology, as well as a reduction in demand and future demand from certain customers impacting projected net sales and cash flows. The Company is now using a different technology to produce these products. The intellectual property and customer lists were purchased as part of the Vandalia Asset Acquisition and related to the right to produce, sell and have sold, market and develop the Triathlon DNA production system, The qualitative impairment assessment concluded that the asset group was not recoverable and resulted in the full impairment of the remaining book value of these intangible assets of $536,355. See Note C above for further details.

NOTE F – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at September 30, 2021 and 2020 are as follows:


	2021		2020
Accounts payable	$	2,010,410	$	1,250,021
Accrued salaries payable		655,240		525,602
Other accrued expenses		325,693		150,804
Total	$	2,991,343	$	1,926,427

NOTE G – NOTES PAYABLE

CARES Act Loan

The Company received a loan of approximately $847,000 on May 1, 2020 from Bank of America as lender pursuant to the PPP of the CARES Act.

All or a portion of the loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company beginning 60 days but not later than 130 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest, and covered utilities during the covered period as defined by the CARES Act. The Company used the proceeds from the loan to retain employees, maintain payroll and make lease and utility payments.

For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. In the event the loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. The Company’s PPP loan, including accrued interest was fully forgiven on February 26, 2021. The forgiveness of the loan resulted in a gain on extinguishment of debt of $839,945 for the fiscal year ended September 30, 2021.

Repayment of the July 2019 Notes

On October 9, 2020, the Company entered into a letter agreement (the “Letter Agreement”) with Dillon Hill Capital, LLC (“Dillon Hill”), as sole holder of the $1.5 million of secured convertible notes issued in July 2019 (the “July 2019 Notes”), providing for the repayment in full of the July 2019 Notes, in an aggregate amount of $1,665,581 (the “Payoff Amount”), representing the outstanding principal amount of the July 2019 Notes plus accrued but unpaid interest through the scheduled maturity of the July 2019 Notes. The Company paid the Payoff Amount to Dillon Hill on October 9, 2020. As of October 9, 2020, all of the obligations and liabilities of the Company and its affiliates under the July 2019 Notes, the Purchase Agreement, and the Security Agreements, and any other related documents and instruments, were satisfied in full, and all related liens, mortgages or other security interests were automatically released. Based solely on a review of Schedule 13G filings with the SEC, Dillon Hill at the time of the repayment of the July 2019 Notes and thereafter has been a greater than 5% shareholder in the Company’s common stock.

NOTE G – NOTES PAYABLE, continued

Warrant Exercise Agreement

In conjunction with the Letter Agreement discussed above, on October 7, 2020, the Company entered into Warrant Exercise Agreements with Dillon Hill and its affiliate, Dillon Hill Investment Company LLC (together, the “Investors”), whereby 318,000 of the warrants issued to the Investors in the Company’s November 2019 underwritten public offering (the “2019 Warrants”) with an exercise price of $5.25 per share were exercised. The gross proceeds to the Company from this partial exercise of the 2019 Warrants is $1,669,500.

In consideration of this partial exercise of the 2019 Warrants and of the consent to repayment of the July 2019 Notes, as described above, the Company agreed to issue 159,000 replacement warrants (the “Replacement Warrants”) to the Investors, which is an amount equal to one-half the amount of the 2019 Warrants exercised pursuant to the Warrant Exercise Agreements. The Replacement Warrants have an exercise price of $7.54. The Warrant Exercise Agreements expired on January 5, 2021.

Each Replacement Warrant is exercisable beginning on the date of issuance thereof and ending on the five-year anniversary of such date. The exercise price and number of shares of common stock issuable upon exercise of the Replacement Warrants will be subject to adjustment in the event of any stock dividend, split, recapitalization, reorganization, or similar transaction, as described in the Replacement Warrant.

On each of December 9 and 10, 2020, the Investors exercised 100,000 of their 2019 Warrants, for an aggregate exercise of 200,000 of their 2019 Warrants, resulting in total net proceeds to the Company of approximately $1.1 million. As a result of these exercises, pursuant to the Warrant Exercise Agreements the Company issued to the Investors an aggregate of 100,000 additional replacement warrants, which are substantially similar to the Replacement Warrants described above except that 50,000 of the newly-issued replacement warrants have an exercise price of $6.57 and 50,000 of such replacement warrants have an exercise price of $6.46.

No additional 2019 Warrants were exercised by January 5, 2021 and no additional replacement warrants were issued.

The repayment of the July 2019 Notes resulted in a loss on extinguishment of debt of $1,774,662 for the fiscal year ended September 30, 2021. Included in the loss on extinguishment of debt is $1,643,440 for the fair value of the Replacement Warrants (described above) that were issued in conjunction with the payoff of the July 2019 Notes.

NOTE H – CAPITAL STOCK

On October 31, 2019, the Company filed a Certificate of Amendment of its Certificate of Incorporation with the Secretary of State of the State of Delaware that effected a one-for-forty (1:40) reverse stock split of its common stock, par value $.001 per share, effective November 1, 2019. All warrant, option, share, and per share information in the consolidated financial statements gives retroactive effect to the one-for-forty reverse stock split that was effected on November 1, 2019. On September 16, 2020, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware that reduced its authorized shares of common stock from 500,000,000 to 200,000,000.

Common Stock Transactions during the Fiscal Year Ended September 30, 2021:

On January 13, 2021, the Company closed on a registered direct public offering (the “Offering) of 1,810,000 shares (the “Shares”) of the Company’s common stock, pursuant to (i) the securities purchase agreement, dated January 10, 2021, by and between the Company and certain institutional investors(the “Purchasers”) whereby the Company agreed to issue and sell the Shares directly to the Purchasers at a price of $8.30 per share of Common Stock and (ii) the placement agency agreement, dated January 10, 2021, by and between the Company and Roth Capital Partners, LLC (the “Placement Agent”). Net proceeds, after deducting underwriting discounts and commissions, and other offering expenses, were approximately $13.8 million.

NOTE H – CAPITAL STOCK, continued

Common Stock Transactions during the Fiscal Year Ended September 30, 2020:

On November 15, 2019, the Company closed an underwritten public offering (the “Offering”) in which, pursuant to the Underwriting Agreement dated November 13, 2019 by and between the Company and Maxim Group LLC (“Maxim”), as Representative of the Underwriters, the Company issued and sold 2,285,000 shares of the Company’s common stock and 2,285,000 accompanying warrants each with the right to purchase one share of common stock at an exercise price of $5.25 per share (the “Common Warrants”). The shares of common stock and accompanying Common Warrants were sold at a combined offering price of $5.25 before underwriting discounts. The common stock and the 2019 Warrants are collectively referred to herein as the “Securities.” As part of the Offering, the Company granted Maxim a 45-day option to purchase an additional 342,750 shares of common stock and/or additional Common Warrants to purchase 342,750 shares of common stock (the “Option Warrants”, together with the 2019 Warrants, the “Warrants”) at the public offering price, less discounts and commissions, to cover any over-allotments made by the Underwriters in the sale and distribution of the Securities.

The exercise price and number of the shares of common stock issuable upon the exercise of the Common Warrant will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrant Agreement.

As a result of this financing, the exercise price of the 8,375 remaining warrants issued during December 2018 was reduced to an exercise price of $5.60 per share in accordance with the adjustment provision contained in the Warrant Agreement. The incremental change in fair value of these warrants as a result of the triggering event was $2,842 and was recorded as a deemed dividend.

During the fiscal year ended September 30, 2021, 520,151 of the 2019 Warrants were exercised, resulting in net proceeds to the Company of approximately $2.7 million.

During the fiscal year ended September 30, 2020, 1,649,786 of the 2019 Warrants were exercised, resulting in net proceeds to the Company of approximately $8.1 million.

NOTE I – STOCK OPTIONS AND WARRANTS

Warrants

Transactions involving warrants (see Note H) are summarized as follows:


		Weighted Average
	Number of	Exercise Price Per
	Shares	Share
Balance at October 1, 2020	1,038,919	$	10.83
Granted	259,000		7.14
Exercised	(520,151)		(5.25)
Cancelled or expired	(32,500)		(171.56)
Balance, September 30, 2021	745,268	$	6.44

Stock Options

During June 2020, the Board of Directors and subsequently during September 2020, the holders of a majority of the outstanding shares of common stock approved the 2020 Equity Incentive Plan (the “2020 Incentive Plan”). The 2020 Incentive Plan, among other things, reserves an additional 3,500,000 shares of the Company’s common stock for issuance in the form of equity-based awards to employees, directors, consultants, and other service providers, and those of the Company’s affiliates. The maximum total grant date fair value of awards granted under the 2020 Incentive Plan to individuals in their capacity as non-employee directors may not exceed $250,000 in any single calendar year. The 2020 Incentive Plan’s expiration date is September 15, 2030.

NOTE I – STOCK OPTIONS AND WARRANTS, continued

Stock Options, continued

The 2020 Incentive Plan is designed to retain directors, executives, and selected employees and consultants by rewarding them for making contributions to the Company's success with an award of options to purchase shares of common stock. As of September 30, 2021, a total of 6,894 shares have been issued and options to purchase 501,240 shares have been granted under the Company’s Incentive Plans.

In 2005, the Board of Directors and the holders of a majority of the outstanding shares of common stock approved the 2005 Incentive Stock Plan, as amended and restated as of January 21, 2015 (the “2005 Incentive Plan”, collectively with the 2020 Incentive Plan, the “Company’s Incentive Plans”). Effective as of September 16, 2020, no further awards will be made under the Company’s 2005 Incentive Stock Plan, as amended and restated.

Transactions involving stock options issued are summarized as follows:


					Weighted
		Weighted Average		Aggregate	Average
	Number of	Exercise Price Per		Intrinsic	Contractual
	Shares	Share		Value	Life (years)
Outstanding at October 1, 2020	320,990	$	57.75
Granted	203,405		6.15
Exercised	30,955		4.39
Cancelled or expired	6,063		5.01
Outstanding at September 30, 2021	487,377		40.26
Vested at September 30, 2021	478,627		40.90	—	7.54
Non-vested at September 30, 2021	8,750		5.46	—	8.71

For the fiscal year ended September 30, 2021, the Company issued an aggregate of 203,405 options to employees and non-employee board of director members and consultants.

For the fiscal year ended September 30, 2020, the Company issued an aggregate of 155,395 options to employees and non-employee board of director members and consultants.

During November 2021, the Company granted 361,552 options to officers of the Company. These options have a ten year term and vested immediately. Also during November 2021, the Company granted 213,889 options to non-employee board of director members. The options granted to the non-employee board of directors 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 fiscal years ended September 30, 2021 and 2020 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 simplified method is used since the Company does not have adequate historical data to utilize in calculating the expected term of options. The fair value for options granted was calculated using the following weighted average assumptions:


	2021			2020
Stock price	$	6.43		$	8.40
Exercise price	$	6.43		$	8.45
Expected term		5.10			6.85
Dividend yield		—			—
Volatility		141	%		136	%
Risk free rate		0.47	%		0.86	%

NOTE I – STOCK OPTIONS AND WARRANTS, continued

Stock Options, continued

The Company recorded $1,668,003 and $1,001,082 as stock compensation expense within selling, general and administrative for fiscal years ended September 30, 2021 and 2020, respectively. As of September 30, 2021, unrecorded compensation cost related to non-vested awards was $20,485 which is expected to be recognized over a weighted average period of approximately 2.6 years. The weighted average grant date fair value per share for options granted during the fiscal years ended September 30, 2021 and 2020 was $5.72 and $7.49, respectively.

NOTE J – INCOME TAXES

The income tax provision (benefit) for the fiscal years ended September 30, 2021 and 2020 consists of the following:


	2021		2020
Federal:
Current	$	—	$	—
Deferred		(1,423,000)		(2,914,000)
		(1,423,000)		(2,914,000)
State and local:
Current		—		—
Deferred		(26,000)		(591,000)
		(26,000)		(591,000)
Foreign:
Current		—		—
Deferred		18,000		—
		—		—
Change in valuation allowance		1,431,000		3,505,000

Income tax provision (benefit)	$	—	$	—

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory rate to losses before income tax expense for the years ended September 30, 2021 and 2020 as follows:


	2021		2020
Statutory federal income tax rate	21.00	%	21.00	%
Statutory state and local income tax rate (1%, as of September 30, 2020 and 2019), net of federal benefit	1.52	%	2.26	%
Stock based compensation	(11.54)	%	(1.60)	%
Other permanent differences	(0.56)	%	3.83	%
Change in deferred tax rate	(0.41)	%	1.66	%
Change in valuation allowance	(10.01)	%	(27.15)	%
Effective tax rate	0.00	%	0.00	%

NOTE J– INCOME TAXES, continued

Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the following:


	September 30,
	2021		2020
Deferred tax assets (liabilities):
Stock based compensation	$	650,000	$	2,120,000
Depreciation and amortization		247,000		232,000
Net operating loss carry forward		20,115,000		17,499,000
Impairment of intangibles		187,000		—
Tax credits		1,566,000		1,227,000
Other		99,000		355,000
Less: valuation allowance		(22,864,000)		(21,433,000)
Net deferred tax asset	$	—	$	—

As of September 30, 2021, the Company has approximately $84,283,000 of Federal and $35,836,000 of State net operating loss “NOL” carryforwards available which begin to expire after 2022. The Federal NOLs generated in tax years beginning after December 31, 2017 have no expiration period due to the Tax Cuts and Jobs Act that was enacted in 2017. Pursuant to Internal Revenue Code Section 382, the Company’s ability to utilize the NOLs is subject to certain limitations due to changes in stock ownership in prior years. The annual limitation ranges between $94,000 and $1,103,000 and any unused amounts can be carried forward to subsequent years.

The Company has provided a full valuation allowance against all of the net deferred tax assets based on management’s determination that it is more likely than not that the net deferred tax assets will not be realized in the future. The valuation allowance increased by $1,431,000.

The Company has Federal research and development credits of approximately $1,104,000 that will begin to expire after 2034. The Company also has state investment tax credits of $416,000 that will begin to expire after 2029.

NOTE K – 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 term of the lease commenced on June 15, 2013 and expired on May 31, 2017, with the option to extend the lease for two additional three-year periods. The Company has exercised its option to extend the lease for one additional three-year period ending May 31, 2019. The base rent during the additional three-year period is $458,098 per annum. During November 2019, the Company extended this lease until January 15, 2020. In addition to the office space, the Company also has 2,200 square feet of laboratory space. On January 20, 2020, the Company entered into an agreement to amend both of these leases, extending the term for the corporate headquarters as well as the laboratory space until January 15, 2021, with a one-year renewal option. During October 2020, the Company exercised the one-year renewal option, extending the term for these leases until January 15, 2022. 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 September 2021, the Company renewed this lease with a new expiration date of August 31, 2022. The base rent is approximately $6,500 per annum. The Company's total short-term lease obligation as of September 30, 2021 is $197,955.

Total rent expense for the fiscal years ended September 30, 2021 and 2020 were $565,597 and $585,189, respectively.

NOTE K – COMMITMENTS AND CONTINGENCIES, continued

Future minimum rental payments (excluding real estate tax and maintenance costs) as of September 30, 2021 are as follows:

For the fiscal year ending September 30,


2022		$	197,955

Employment and Consulting Agreements

Employment agreements

The employment agreement with Dr. James Hayward, the Company’s President and Chief Executive Officer (“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. On July 28, 2017, a new employment agreement was entered into with the CEO effective July 1, 2017. The initial term was from July 1, 2017 through June 30, 2018, with automatic one-year renewal periods. As of June 30, 2020, the employment contract renewed for an additional year. Under the new agreement, the CEO will be eligible for a special cash incentive bonus of up to $800,000, $300,000 of which is payable if and when annual revenue reaches $8 million and $100,000 of which would be payable for each $2 million of annual revenue in excess of $8 million. 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-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.

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.

Effective March 15, 2018, the Compensation Committee of the Company’s Board of Directors (the "Compensation Committee"), approved a bonus of $121,125 that would be payable to the CEO when the Company reaches $3,000,000 in revenues for two consecutive quarters or $12,000,000 in revenues for a fiscal year, provided that the CEO is still employed by the Company on such date (the “Revenue Bonus”).

Effective May 2, 2018, the Compensation Committee, increased the amount of the Revenue Bonus to $403,623; effective December 27, 2018, to $553,623; and effective December 5, 2019 to $803,623. The revenue targets underlying the Revenue Bonus have not yet been achieved. The Revenue Bonus has no expiration date and may be earned at any time during the CEO’s employment if the Revenue Goals are achieved.

On March 2, 2021, the Company entered into an agreement with the CEO, pursuant to which the Company agreed to accelerate the payment of $556,840 of the Revenue Bonus to the CEO in recognition of his contributions to the Company. In exchange for the payment of the Revenue Bonus, the CEO agreed to waive his right to earn any remaining portions of the Revenue Bonus.

NOTE K – COMMITMENTS AND CONTINGENCIES, continued

The CEO voluntarily reduced his salary for the fiscal years ended September 30, 2020 and 2019. As of October 3, 2020, the Company has re-affirmed the employment agreement’s annual salary of $400,000, and from that date the CEO’s salary will be paid at such rate. On October 19, 2020, the Company awarded the CEO, a one-time discretionary bonus, to be paid in cash, of $250,000, in recognition of his contributions to the Company. For the fiscal year ended September 30, 2021, the CEO earned a $300,000 bonus as the Company’s annual revenue was greater than $8 million. On November 1, 2021, this $300,000 bonus was paid to the CEO by granting stock options with a fair value of $300,000 calculated using the Black Scholes Option Pricing Model.

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

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 L – GEOGRAPHIC AREA INFORMATION

The Company attributes net revenues from external customers according to the geographic location of the customer. Net revenues by geographic location of customers are as follows:


	Year Ended September 30,
	2021		2020
Americas	$	8,520,336	$	1,165,320
Europe		359,509		266,701
Asia and other		147,893		499,476
Total	$	9,027,738	$	1,931,497

NOTE M — RELATED PARTY TRANSACTIONS

On December 12, 2019, the Company entered into a consulting agreement, with Meadow Hill Place, LLC (“Meadow Hill”), a company wholly owned by Scott L. Anchin (“Mr. Anchin”), a board member, whereby Meadow Hill will provide certain advisory services to the Company. The initial term of the agreement ended on June 12, 2020. The agreement provided for compensation in the form of both cash and equity. Meadow Hill was eligible to receive $125,000 for the initial six month term. In addition, in satisfaction of the equity compensation portion of the agreement, (i) the Company granted an option to purchase 20,834 shares of its common stock to Mr. Anchin on December 12, 2019 at an exercise price equal to $4.26 per share, which vested on June 12, 2020, and (ii) the Company granted an option to purchase 20,786 shares of its common stock to Mr. Anchin on January 2, 2020 at an exercise price equal to $4.43 per share, of which 9,121 vested on July 2, 2020. The consulting agreement was completed on June 12, 2020 in full satisfaction of all obligations. As a result, the agreement was not extended and therefore expired on June 12, 2020. As a result, 11,665 of the options granted on January 2, 2020, which were related to the extension period, did not vest and were cancelled on June 12, 2020.

On each of December 9 and 10, 2020, Dillon Hill Capital, LLC and its affiliate, Dillon Hill Investment Company LLC., a greater than 5% shareholder, exercised 100,000 of their 2019 Warrants, for an aggregate exercise of 200,000 of their 2019 Warrants, resulting in total net proceeds to the Company of approximately $1.1 million. As a result of these exercises, the Company issued to the Investors an aggregate of 100,000 additional replacement warrants, which are substantially similar to the Replacement Warrants described above except that 50,000 of the newly-issued replacement warrants have an exercise price of $6.57 and 50,000 of such replacement warrants have an exercise price of $6.46.

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