UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2019

 

OR

 

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

 

For the transition period from          to

 

Commission File Number: 001-36745

 

Applied DNA Sciences, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 59-2262718
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   
50 Health Sciences Drive  
Stony Brook, New York 11790
(Address of principal executive offices) (Zip Code)

 

631-240-8800

(Registrant’s telephone number, including area code)

 

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.

x    Yes     ¨     No

 

Indicate by check mark whether the registrant has submitted 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).

x    Yes     ¨    No

 

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

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer x Smaller reporting company x
  Emerging Growth Company ¨  

 

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

 

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

¨    Yes     x    No

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

 

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

Warrants to purchase Common Stock

 

APDNW

 

 

The NASDAQ Capital Market

At April 30, 2019 the registrant had 37,885,157 shares of common stock outstanding.

 

 

 

 

 

 

Applied DNA Sciences, Inc.

 

Form 10-Q for the Quarter Ended March 31, 2019

 

Table of Contents

 

  Page
PART I - FINANCIAL INFORMATION 3
   
Item 1 - Condensed Consolidated Financial Statements (unaudited) 3
   
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
   
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 30
   
Item 4 - Controls and Procedures 31
   
PART II - OTHER INFORMATION 32
   
Item 1 – Legal Proceedings 32
   
Item 1A – Risk Factors 32
   
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds 32
   
Item 3 – Defaults Upon Senior Securities 32
   
Item 4 – Mine Safety Disclosures 32
   
Item 5 – Other Information 32
   
Item 6 – Exhibits 33

 

  2  

 

 

Part I - Financial Information

Item 1 - Financial Statements.

APPLIED DNA SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    March 31,
2019
    September 30,
2018
 
    (unaudited)        
ASSETS                
Current assets:                
Cash and cash equivalents   $ 1,541,141     $ 1,659,564  
Accounts receivable, net of allowance of $4,500 and $13,133 at March 31, 2019 and September 30, 2018     316,204       1,485,938  
                 
Inventories     314,675       221,369  
Prepaid expenses and other current assets     591,069       635,174  
Total current assets     2,763,089       4,002,045  
                 
Property and equipment, net     315,751       419,774  
                 
Other assets:                
Deposits     62,371       62,325  
                 
Goodwill     285,386       285,386  
Intangible assets, net     799,487       864,203  
                 
Total Assets   $ 4,226,084     $ 5,633,733  
                 
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY                
                 
Current liabilities:                
Accounts payable and accrued liabilities (including related parties interest of $16,866 and $5,844 at March 31, 2019 and September 30, 2018, respectively)   $ 1,014,291     $ 965,167  
Deferred revenue     1,205,469       1,856,693  
                 
Total current liabilities     2,219,760       2,821,860  
                 
Long term accrued liabilities     546,114       470,739  
                 
Secured convertible notes payable, net of debt issuance costs (including related parties of $1,731,591 and $1,139,490 at March 31, 2019 and September 30, 2018, respectively)     2,194,568       1,586,631  
                 
Total Liabilities     4,960,442       4,879,230  
                 
Commitments and contingencies (see Note H)                
                 
Stockholders’ (Deficit) Equity                
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of March 31, 2019 and September 30, 2018            
Series A Preferred stock, par value $0.001 per share, 10,000,000 shares authorized; -0- issued and outstanding as of March 31, 2019 and September 30, 2018            
Series B Preferred stock, par value $0.001 per share, 10,000,000 shares authorized; -0- issued and outstanding as of March 31, 2019 and September 30, 2018            
Common stock, par value $0.001 per share; 500,000,000 shares authorized; 37,735,157 and 30,112,057 shares issued and outstanding as of March 31, 2019 and September 30, 2018, respectively     37,735       30,112  
Additional paid in capital     253,021,844       249,090,474  
Accumulated deficit     (253,793,937 )     (248,366,083 )
Total stockholders’ (deficit) equity     (734,358 )     754,503  
                 
Total Liabilities and Stockholders’ (Deficit) Equity   $ 4,226,084     $ 5,633,733  

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

  3  

 

 

APPLIED DNA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    Three Months Ended March 31,     Six Months Ended March 31,  
    2019     2018     2019     2018  
                         
Revenues:                                
Product revenues   $ 171,261     $ 486,341     $ 493,137     $ 836,474  
Service revenues     607,207       557,605       1,169,654       855,149  
Total revenues     778,468       1,043,946       1,662,791       1,691,623  
                                 
Cost of revenues     133,141       372,153       286,626       703,593  
                                 
Operating expenses:                                
Selling, general and administrative     2,528,914       1,996,604       5,611,295       4,589,759  
Research and development     651,377       669,813       1,360,941       1,409,880  
Depreciation and amortization     97,673       145,280       232,724       302,928  
                                 
Total operating expenses     3,277,964       2,811,697       7,204,960       6,302,567  
                                 
LOSS FROM OPERATIONS     (2,632,637 )     (2,139,904 )     (5,828,795 )     (5,314,537 )
                                 
Other income (expense):                                

Interest (expense) income, net (including related parties interest of $25,840 and $49,310 for the three and six months ended March 31, 2019, respectively)

    (37,417 )     -       (69,028 )     -  
Other expense     (16,703 )     (6,305 )     (23,254 )     (15,385 )
                                 
Loss before provision for income taxes     (2,686,757 )     (2,146,209 )     (5,921,077 )     (5,329,922 )
                                 
Provision for income taxes                        
                                 
NET LOSS   $ (2,686,757 )   $ (2,146,209 )   $ (5,921,077 )   $ (5,329,922 )
                                 
Net loss per share-basic and diluted   $ (0.08 )   $ (0.07 )   $ (0.16 )   $ (0.18 )
                                 
Weighted average shares outstanding- Basic and diluted     33,399,597       30,112,057       36,384,939       28,879,804  

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

  4  

 

 

APPLIED DNA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

  

For the Six Month Period Ended March 31, 2019
    Common
Shares
    Common
Stock
Amount
    Additional
Paid in
Capital
    Accumulated
Deficit
    Total  
Balance, October 1, 2018     30,112,057     $ 30,112     $ 249,090,474     $ (248,366,083 )   $ 754,503  
                                         
Common stock issued in public offering, net of offering costs     5,500,000       5,500       2,256,871       -       2,262,371  
Impact of adoption of new accounting pronouncements included in accumulated deficit     -       -       -       493,223       493,223  
Stock based compensation expense     -       -       490,244       -       490,244  
Net loss     -       -       -       (3,234,320 )     (3,234,320 )
Balance, December 31, 2018     35,612,057       35,612       251,837,589       (251,107,180 )     766,021  
                                         
Common stock issued in public offering, net of offering costs     500,000       500       200,720       -       201,220  
Exercise of warrants     1,623,100       1,623       716,441       -       718,064  
Stock based compensation expense     -       -       267,094       -       267,094  
Net loss     -       -       -       (2,686,757 )     (2,686,757 )
Balance, March 31, 2019     37,735,157       37,735       253,021,844       (253,793,937 )     (734,358 )

 

For the Six Month Period Ended March 31, 2018
    Common
Shares
    Common
Stock
Amount
    Additional
Paid in
Capital
    Accumulated
Deficit
    Total  
Balance, October 1, 2017     27,377,057     $ 27,377     $ 243,503,858     $ (236,673,155 )   $ 6,858,080  
                                         
Common stock issued in private placement, net of offering costs     2,735,000       2,735       4,230,154       -       4,232,889  
                                         
Stock based compensation expense     -       -       231,113       -       231,113  
Net loss     -       -       -       (3,183,713 )     (3,183,713 )
Balance, December 31, 2017     30,112,057       30,112       247,965,125       (239,856,868 )     8,138,369  
                               
Stock based compensation expense (benefit)     -       -       (285,045 )     -       (285,045 )
Net loss     -       -       -       (2,146,209 )     (2,146,209 )
Balance, March 31, 2018     30,112,057     $ 30,112     $ 247,680,080     $ (242,003,077 )   $ 5,707,115  

 

  5  

 

 

APPLIED DNA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Six Months Ended
March 31,
 
    2019     2018  
             
Cash flows from operating activities:                
Net loss   $ (5,921,077 )   $ (5,329,922 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     232,724       302,928  
Stock-based compensation     757,338       (53,932 )
Amortization of debt issuance costs     9,120       -  
Provision for bad debts     (8,633 )     17,117  
Change in operating assets and liabilities :                
Accounts receivable     1,178,367       1,045,136  
Inventories     (93,306 )     32,630  
Prepaid expenses and other current assets and deposits     37,393       (209,269 )
Accounts payable and accrued liabilities     157,493       62,945  
Deferred revenue     (151,444 )     852,616  
                 
Net cash used in operating activities     (3,802,025 )     (3,279,751 )
                 
Cash flows from investing activities:                
                 
Purchase of property and equipment     (63,986 )     (203,516 )
                 
 Net cash used in investing activities     (63,986 )     (203,516 )
                 
Cash flows from financing activities:                
                 
Proceeds from Promissory notes (related parties $550,000)     550,000       -  
 Net proceeds from sale of common stock and warrants     2,479,524       4,232,888  
Net proceeds from exercise of warrants     718,064       -  
                 
Net cash provided by financing activities     3,747,588       4,232,888  
                 
Net (decrease) increase in cash and cash equivalents     (118,423 )     749,621  
Cash and cash equivalents at beginning of period     1,659,564       2,959,781  
Cash and cash equivalents at end of period   $ 1,541,141     $ 3,709,402  
                 
Supplemental Disclosures of Cash Flow Information:                
Cash paid during period for interest   $     $  
Cash paid during period for income taxes   $     $  
                 
Non-cash investing and financing activities:                
Impact of adoption of new accounting pronouncements included in accumulated deficit   $ 493,223     $ -  
Interest paid in kind (related party of $35,550)   $ 48,816     $ -  
Offering costs incurred, and included in accounts payable   $ 15,933     $ -  
Property and equipment acquired, and included in accounts payable   $ -     $ 15,000  

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

  6  

 

 

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

 

NOTE A — SUMMARY OF ACCOUNTING POLICIES

 

General

 

The accompanying condensed consolidated financial statements as of March 31, 2019 and for the three and six month periods ended March 31, 2019 and 2018 are unaudited. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements of Regulation S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements.

 

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2019. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the fiscal year ended September 30, 2018 and footnotes thereto included in the Annual Report on Form 10-K of Applied DNA Sciences, Inc. (the “Company”) originally filed with the SEC on December 18, 2018 and amended by Amendment No. 1 to Form 10-K filed with the SEC on January 28, 2019 and by Amendment No. 2 to Form 10-K filed with the SEC on April 4, 2019.

 

The condensed consolidated balance sheet as of September 30, 2018 contained herein has been derived from the audited consolidated financial statements as of September 30, 2018, but does not include all disclosures required by GAAP.

 

Business and Basis of Presentation

 

The Company is principally devoted to developing and marketing DNA technology solutions in the United States, Europe and Asia. These solutions are used in, among other things, supply chain security, brand protection and drug and biologic applications. To date, the Company has produced limited recurring revenues from its products and services and 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.

 

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

 

Inventories

 

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

 

Revenue Recognition

 

In May 2014, the FASB issued accounting standard updates which clarified principles for recognizing revenue arising from contracts with customers (ASC 606) and superseded most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue standard is that an entity recognizes revenue to depict the transfer of promised goods or services to clients in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance applies a five-step model for revenue measurement and recognition and also requires increased disclosures including the nature, amount, timing, and uncertainty of revenue and cash flows related to contracts with clients.

 

  7  

 

 

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

 

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

 

Revenue Recognition , continued

 

The Company adopted the new revenue standard at the beginning of the first quarter of fiscal 2019, using the modified retrospective method of adoption and applied the guidance to those contracts that were not completed as of September 30, 2018. Comparative financial information for reporting periods beginning prior to October 1, 2018, has not been restated and continues to be reported under the previous reporting guidance. Under the modified retrospective method of adoption, the cumulative effect of applying the new standard is recorded at the date of initial application, with no restatement of the comparative prior periods presented. Based on the evaluation, the Company has identified certain customer contracts, which will require different recognition under the new guidance. The Company has determined that the revenue under certain of its research and development contracts should be recognized on an over time basis using the input method as compared to ratably over the contract term. Also, the shipment to the Company’s cotton customer during fiscal 2018 that included extended payment terms and was included in deferred revenue as of September 30, 2018, would have met the criteria under the new guidance to be recognized as revenue upon shipment. The Company has determined that the cumulative adjustment to opening retained earnings in fiscal 2019 was approximately $494,000.

 

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.

 

Under the new accounting guidance, the Company recognizes revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration it expects to receive for those goods or services, including any variable consideration.

 

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.   

 

Impact of Adoption

 

A summary and discussion of such cumulative effect adjustment and the impact on current period financial statements of adopting Topic 606 is as follows:

 

    Three months ended March 31, 2019 (unaudited)  
    prior U.S. GAAP     Topic 606 impact     as reported  
                   
Statement of Operations                        
Revenues                        
Product   $ 554,357     $ (383,096 )   $ 171,261  
Service   663,816       (56,609 )     607,207  
Total revenues     1,218,173       (439,705 )     778,468  
                         
Cost of revenues     136,474       (3,333 )     133,141  
Loss from operations     (2,196,265 )     (436,372 )     (2,632,637 )

 

    Six months ended March 31, 2019 (unaudited)  
    prior U.S. GAAP    

Topic 606 impact

    as reported  
                   
Statement of Operations                        
Revenues                        
Product   $ 1,259,329     $ (766,192 )   $ 493,137  
Service   1,233,891       (64,237 )     1,169,654  
Total revenues     2,493,220       (830,429 )     1,662,791  
                         
Cost of revenues     293,293       (6,667 )     286,626  
Loss from operations     (5,005,032 )     (823,763 )     (5,828,795 )
                         
Assets                        
Prepaids and other current assets   $ 597,736     $ (6,667 )   $ 591,069  
                         
Liabilities and stockholder's equity                        
Deferred Revenue   $ 875,232     $ 330,237     $ 1,205,469  
Accumulated Deficit     (253,463,700 )     (330,237 )     (253,793,937 )

 

  8  

 

  

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

 

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

 

Revenue Recognition , continued

 

Product Revenues and Authentication Services

 

The Company’s PCR-produced linear DNA products, including molecular taggants 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 does not consider payment terms a performance obligation for customers with contractual terms that are one year or less and has elected the practical expedient. Nearly all of the Company’s sales contracts reflect market pricing at the time the contract is executed, are one year or less, and generally provide for shipment within 30 to 60 days after the price has been agreed upon with the customer. We invoice customers upon shipment, and our collection terms range, on average from 30-60 days

 

The cotton ginning season in the United States takes place between September and March each year; therefore, revenues from these customer contracts may be seasonal and recognized primarily during the first and fourth quarters of the Company’s fiscal year.

 

Authentication Services

 

The Company recognizes revenue for authentication services upon satisfying its promises to 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.

 

Research and Development Services

 

The Company records revenue for its research and development contracts using the over-time revenue recognition model as a customer is invoiced or performance is satisfied. 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.

 

  9  

 

 

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

        

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

 

Revenue Recognition , continued

 

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 to not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

 

Disaggregation of Revenue

 

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

 

    Three Month Period Ended:  
    March 31, 2019     March 31, 2018  
Research and development services (over-time)   $ 559,568     $ 476,623  
Product and authentication services (point-in-time):                
Supply chain     20,234       136,965  
Asset marking     158,078       239,646  
Large scale DNA production     40,588       190,712  
Total   $ 778,468     $ 1,043,946  

 

    Six Month Period Ended:  
    March 31, 2019     March 31, 2018  
Research and development services (over-time)   $ 1,057,917     $ 698,488  
Product and authentication services (point-in-time):                
Supply chain     244,983       206,817  
Asset marking     319,303       487,668  
Large scale DNA production     40,588       298,650  
Total   $ 1,662,791     $ 1,691,623  

 

Contract balances

 

As of March 31, 2019, the Company has entered into contracts with customers for which revenue has not yet been recognized. Consideration received from a customer prior to revenue recognition is recorded to a contract liability and is recognized as revenue when the Company satisfies the related performance obligations under the terms of the contract. The Company’s contract liabilities, which are reported as deferred revenue on the condensed consolidated balance sheet, consist almost entirely of research and development contracts where consideration has been received and the development services have not yet been fully performed.

 

  10  

 

 

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

        

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

 

Revenue Recognition , continued

 

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

 

    Balance sheet classification   October 1,
2018
    March 31,
2019
    $
change
 
Contract liabilities   Deferred revenue   $ 1,356,502     $ 1,205,469     $ (151,033 )
                             

 

For the three and six months ended March 31, 2019, the Company recognized $407,788 and $737,323 of revenue that was included in Contract liabilities as of October 1, 2018.

 

Use of Estimates

 

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

 

Income Taxes

 

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carry forwards will result in a benefit based on expected profitability by tax jurisdiction.

 

In its interim financial statements, the Company follows the guidance in ASC 270, “Interim Reporting” and ASC 740 “Income Taxes”, whereby the Company utilizes the expected annual effective tax rate in determining its income tax provisions for the interim periods. That rate differs from U.S. statutory rates primarily as a result of valuation allowance related to the Company’s net operating loss carryforward as a result of the historical losses of the Company.

 

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 and warrants.

 

For the three and six month periods ended March 31, 2019 and 2018, common stock equivalent shares are excluded from the computation of the diluted loss per share as their effect would be anti-dilutive.

 

  11  

 

 

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

 

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

 

Net Loss Per Share , continued

 

Securities that could potentially dilute basic net income per share in the future were not included in the computation of diluted net loss per share because to do so would have been anti-dilutive for the three and six month periods ended March 31, 2019 and 2018 are as follows: 

 

    2019     2018  
             
Warrants     16,885,427       12,271,686  
Stock options     6,458,194       5,320,308  
      23,343,621       17,591,994  

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation for employees and directors in accordance with ASC 718, Compensation (“ASC 718”). ASC 718 requires all share-based payments to employees, 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 employee’s requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s common stock options are 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 718 and, 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 condensed consolidated statements of operations.

 

The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASU 2018-07.

  

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. 

 

The Company’s revenues earned from sale of products and services for the three month period ended March 31, 2019 included an aggregate of 31% and 14% from two customers, respectively. The Company’s revenues earned from sale of products and services for the six month period ended March 31, 2019 included an aggregate of 29%, 15%, 14% and 10% from four customers, respectively.

 

The Company’s revenues earned from sale of products and services for the three month period ended March 31, 2018 included an aggregate of 10%, 12%, 15%, 17% and 22% from five customers, respectively. The Company’s revenues earned from sale of products and services for the six month period ended March 31, 2018 included an aggregate of 11%, 18%, and 28% from three customers, respectively.

 

Three customers accounted for 70% of the Company’s accounts receivable at March 31, 2019 and one customer accounted for 82% of the Company’s accounts receivable at September 30, 2018.

 

Recent Accounting Pronouncements

  

In November 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-18,” Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606” (“ASU 2018-18”). The amendments in this update clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606. ASU 2018-18 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the impact of ASU 2018-18 on its condensed consolidated financial statements.

 

  12  

 

 

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

 

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

 

Recent Accounting Pronouncements , continued

 

In June 2018, the FASB issued ASU 2018-07, Compensation – “Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting”, which addresses aspects of the accounting for nonemployee share-based payment transactions. This pronouncement is effective for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The Company early adopted ASU 2018-07 on October 1, 2018 using the modified retrospective transition approach. The cumulative -effect adjustment to opening retained earnings was not material.

 

In July 2017, the FASB issued a two-part ASU No. 2017-11, I. Accounting for Certain Financial Instruments With Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception (“ASU 2017-11”). ASU 2017-11 amends guidance in FASB ASC 260, Earnings Per Share, FASB ASC 480, Distinguishing Liabilities from Equity, and FASB ASC 815, Derivatives and Hedging. The amendments in Part I of ASU 2017-11 change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. The amendments in Part II of ASU 2017-11 re-characterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. ASU 2017-11 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance.

 

In May 2017, FASB issued ASU 2017-09, Compensation – “Stock Compensation (Topic 718): Scope of Modification Accounting” ,  which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This pronouncement is effective for annual reporting periods and interim periods within those annual periods beginning after December 15, 2017. Early adoption is permitted. The Company adopted ASU 2017-09 during the three months ended December 31, 2018 and it did not have a material impact on its condensed consolidated financial statements and related disclosures.

 

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The purpose of the amendment is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. For public entities, the amendments in ASU 2017-04 are effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently assessing the impact of ASU 2017-04 on its condensed consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is to be applied utilizing a modified retrospective approach. The Company is currently evaluating the new guidance to determine the impact it may have on its condensed consolidated financial statements.

 

  13  

 

 

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

 

NOTE B — LIQUIDITY AND MANAGEMENT’S PLAN

 

The Company has recurring net losses, which have resulted in an accumulated deficit of $253,793,937 as of March 31, 2019. The Company incurred for the six month period ended March 31, 2019 a net loss of $5,921,077 and incurred negative operating cash flow of $3,802,025. The Company also had working capital of $543,329 and cash and cash equivalents of $1,541,141 as of March 31, 2019. 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.

 

On January 29, 2019 and January 30, 2019 the Company received written notices from the Listing Qualifications Department of The NASDAQ Stock Market LLC (“Nasdaq”) notifying it that the Company was not in compliance with the minimum bid price requirements as well as the market value of listed securities requirements, or the alternative standards of Nasdaq Listing Rule 5550(b)(1) or 5550(b)(3) which require the Company to have minimum stockholders equity of $2.5 million or for it to have had net income from continuing operations of at least $500 thousand in the latest fiscal year or in two of the three last fiscal years. These notices do not impact the Company’s listing on The Nasdaq Capital Market at this time. Both notification letters state that the Company has 180 calendar days, or until July 29, 2019 to regain compliance. There is the possibility for an additional 180-day compliance period for the minimum bid price compliance violation. However, no additional compliance period is applicable to the market value of listed securities or alternative standards noncompliance.

 

The Company intends to monitor the closing bid price of its common stock and may, if appropriate, consider implementing available options, including, but not limited to, implementing a reverse stock split of its outstanding securities, to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules. The Company will also consider available options to resolve the other listing deficiencies and regain compliance with all applicable Nasdaq rules.

 

NOTE C — INVENTORIES

 

Inventories consist of the following:

 

    March 31,
2019
    September 30,
2018
 
    (unaudited)        
Raw materials   $ 215,735     $ 147,984  
Finished goods     98,940       73,385  
Total   $ 314,675     $ 221,369  

 

  14  

 

 

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

 

NOTE D — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities are as follows:

 

    March 31,
2019
    September 30,
2018
 
    (unaudited)        
Accounts payable   $ 641,697     $ 500,849  
Accrued salaries payable     272,318       401,130  
Other accrued expenses     100,276       63,188  
Total   $ 1,014,291     $ 965,167  

 

NOTE E- SECURED CONVERTIBLE NOTES PAYABLE

 

On August 31, 2018, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with accredited investors and certain members of its management team and Board of Directors (the “Purchasers”), pursuant to which the Company issued and sold an aggregate of $1,650,000 in principal amount of secured convertible notes (the “August 31 st Notes”) bearing interest at a rate of 6% per annum. As part of the August 31 st Notes, the Company’s management and Board of Directors purchased August 31 st Notes with a principal amount of $1,185,000.  

 

The August 31 st Notes are convertible, in whole or in part, at any time, at the option of the Purchasers, into shares of the Company’s common stock, in an amount determined by dividing the principal amount of each August 31 st Note, together with any and all accrued and unpaid interest, by the conversion price of $2.50. The Company has the right to require the Purchasers to convert all or any part of their August 31 st Notes into shares of its Common Stock at a conversion price of $2.50 if the price of the Common Stock remains at a closing price of $3.50 or more for a period of twenty consecutive trading days.

 

Upon any Change in Control (as defined in the August 31 st Notes), the Purchasers have the right to require the Company to redeem the August 31 st Notes, in whole or in part, at a redemption price equal to such August 31 st Notes’ outstanding principal balance plus accrued interest.

 

The August 31 st Notes contain certain events of default that are customarily included in financing of this nature. If an event of default occurs, the Purchasers may require the Company to redeem the August 31 st Notes, in whole or in part, at a redemption price equal to such notes’ outstanding principal balance plus accrued interest.

 

The August 31 st Notes bear interest at the rate of 6% per annum, payable semi-annually in cash or in kind, at the Company’s option, and are due and payable in full on August 30, 2021. Until the principal and accrued but unpaid interest under the August 31 st Notes is paid in full, or converted into shares of common stock pursuant to their terms, the Company’s obligations under the August 31 st Notes will be secured by a lien on substantially all assets of the Company (excluding certain cash accounts) and the assets of APDN (B.V.I.) Inc.

 

The Company has also entered into a registration rights agreement, dated as of the date of the Purchase Agreement (the “Registration Rights Agreement”), with the Purchasers, pursuant to which it has agreed to prepare and file a registration statement with the SEC to register under the Securities Act of 1933, as amended (the “Securities Act”) resales from time to time of the common stock issued or issuable upon conversion or redemption of the August 31st Notes. The Company is required to file a registration statement within 60 days of receiving a demand registration request from holders of a majority of the outstanding principal balance of the August 31 st Notes, and to cause the registration statement to be declared effective within 45 days (or 90 days if the registration statement is reviewed by the SEC).

 

On November 29, 2018, the Company closed a securities purchase agreement with its chairman, president and chief executive officer and one member of the management team, pursuant to which the Company issued and sold an aggregate of $550,000 in principal amount of secured convertible notes bearing interest at a rate of 6% per annum (the “November 29 th Notes”). The November 29 th Notes are substantially similar to the Company’s August 31 Notes except with respect to maturity date, which is November 28, 2021 The November 29 th Notes are secured on a pari passu basis with the same Company assets as the August 31st Notes.

 

  15  

 

 

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

 

NOTE E- SECURED CONVERTIBLE NOTES PAYABLE (continued)

 

The Company recorded $64,848 to debt issuance costs based on the cost incurred to complete the financing. During the three and six month period ended March 31, 2019 the Company amortized $4,630 and $9,120 of debt issuance costs resulting in unamortized debt issuance costs of $54,248 and the secured notes payable of $2,194,568 at March 31, 2019. The debt issuance cost will be amortized over the life of the Notes. During the three and six month periods ended March 31, 2019, the Company incurred approximately $32,788 and $59,908 of interest expense. The effective interest for the three and six month period ended March 31, 2019 was 7.0%.

 

On February 28, 2019, the Company reclassified $48,816 from accrued liabilities to senior secured notes payable to represent interest due to noteholders that was paid in kind and therefore increasing the convertible note balance outstanding at March 31, 2019.

 

NOTE F — CAPITAL STOCK

 

On December 21, 2018, the Company entered into an underwriting agreement (the “Agreement”) with Maxim Group LLC (“Maxim”), as the sole underwriter and book running manager, with respect to the issuance and sale of an aggregate of 5,500,000 shares (the “Shares”) of common stock, par value $0.001 per share, together with warrants to purchase an aggregate of 5,500,000 shares of common stock (the “Warrants”) at an exercise price equal to $0.50 per share of common stock (the “Exercise Price”) in an underwritten public offering. The public offering price for each Share together with the accompanying Warrant was $0.50. Pursuant to the Agreement, the Company also granted Maxim a 45-day option to purchase an additional 825,000 Shares and/or additional Warrants to purchase 825,000 Shares to cover any over-allotments made by the underwriters in the sale and distribution of the Shares and Warrants. The gross proceeds of the offering, before deducting underwriter discounts and commissions and other offering expenses, are $2,750,000, or approximately $3,162,500 if the underwriters exercise in full their overallotment option. The offering closed on December 26, 2018. On December 26, 2018, Maxim partially exercised its overallotment option and purchased an additional 800,000 Warrants at a price of $0.0000001 per Warrant.

 

After deducting underwriting fees and other expenses related to the offering, the aggregate net proceeds were approximately $2,262,000.

 

The Warrants are immediately exercisable beginning on the date of issuance (the “Initial Exercise Date”). The Warrants will be exercisable for five years from the Initial Exercise Date, but not thereafter.

 

The Warrants include an adjustment provision that, subject to certain exceptions, reduces their exercise price if the Company issues common stock or common stock equivalents at a price lower than the then-current exercise price of the Warrants, subject to a minimum exercise price of $0.14 per share. The exercise price and number of the shares of the Company’s common stock issuable upon the exercise of the Warrants will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described therein. In addition, on or after any trading day 75 days after the closing date of the offering, if the daily volume weighted average price of the Company’s common stock fails to exceed the Exercise Price, the aggregate number of warrant shares issuable in a cashless exercise shall equal the product of (i) the aggregate number of warrant shares that would be issuable upon exercise of the Warrants if such exercise were by means of a cash exercise and (ii) 0.70.

 

As a result of this financing, the exercise price of the 2,735,000 warrants issued during December 2017 was reduced to an exercise price of $0.44 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 insignificant.

 

On January 25, 2019, the Company closed on the underwriters’ partial exercise of its over-allotment option for 500,000 shares of common stock for gross proceeds of $250,000. After deducting underwriting fees and other expenses related to the over-allotment option, the aggregate net proceeds were approximately $201,000.

 

The total number of common stock and Warrants issued under this offering, including the exercise of the over-allotment option was 6,000,000 and 6,300,000, respectively. The gross proceeds to us were $3.0 million and net proceeds after deducting underwriting expenses and other estimated offering expenses was approximately $2.5 million.

 

  16  

 

 

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

 

NOTE G — STOCK OPTIONS AND WARRANTS

 

Warrants

 

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

 

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

 

    Number of
Shares
    Weighted
Average
Exercise
Price Per
Share
 
Balance at October 1, 2018     12,208,527     $ 3.24  
Granted     9,035,000       0.48  
Exercised     (1,623,100 )     0.44  
Cancelled or expired     (2,735,000 )     3.00  
Balance at March 31, 2019     16,885,427     $ 2.24  

 

Stock Options

 

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 “Incentive Plan”). The number of shares of common stock that can be issued as stock awards and stock options thereunder is an aggregate of 8,333,333 shares and the number of shares of common stock that can be covered by awards made to any participant in any calendar year is 833,334 shares. The Incentive Plan’s expiration date is January 25, 2025.

 

The 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 March 31, 2019, a total of 275,752 shares have been issued and options to purchase 6,979,095 shares have been granted under the Incentive Plan.

 

Transactions involving stock options issued to employees and consultants are summarized as follows:

 

    Number of
Shares
    Weighted
Average
Exercise
Price Per
Share
    Aggregate
Intrinsic
Value
   

Weighted Average

Contractual Life (Years)

 
Outstanding at October 1, 2018     6,183,214     $ 3.13                  
Granted     1,578,570       4.48                  
Exercised     -       -                  
Cancelled or expired     (1,303,590 )     (5.63 )                
Outstanding at March 31, 2019     6,458,194     $ 2.95               6.72  
Vested at March 31, 2019     6,338,547     $ 2.96     $ -       6.71  
Non-vested at March 31, 2019     119,647     $ 2.54     $ -          

 

  17  

 

 

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

 

NOTE G — STOCK OPTIONS AND WARRANTS (continued)

  

The Company uses the Black Scholes Option Pricing Model to determine the fair value of options granted. The following significant weighted average assumptions in the Black Scholes Option Pricing Model were utilized to estimate the fair value of share based payment awards during the six month periods ended March 31, 2019 and 2018:

 

    Six Month Period
Ended
March 31, 2019
    Six Month Period
Ended
March 31, 2018
 
Stock price   $ 1.14     $ 1.57  
Exercise price   $ 4.47     $ 1.57  
Expected term, years     2.95       4.87  
Dividend yield       -  %     - %
Volatility     77 %     94 %
Risk free rate     2.8 %     2.6 %

 

The Company recorded an expense of $267,094 and benefit of $285,045 as stock compensation for the three month periods ended March 31, 2019 and 2018, respectively which are recorded in selling, general and administrative expenses in the condensed consolidated statement of operations. The Company recorded expense of $757,338 and benefit of $53,932 as stock compensation expense for the six month periods ended March 31, 2019 and 2018, respectively.  As of March 31, 2019, unrecorded compensation cost related to non-vested awards was $144,331, which is expected to be recognized over a weighted average period of approximately 0.79 years. The weighted average grant date fair value per share for options granted during the six month period ended March 31, 2019 was $0.19.

 

NOTE H — 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, 2016, 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. In addition to the office space, the Company also has 1,500 square feet of laboratory space. The term of the lease commenced on November 1, 2015 and expired on October 31, 2018. Effective November 20, 2017, the Company renewed this lease for one additional year, ending October 31, 2018. This lease is currently month to month. The Company set up a satellite testing facility in Ahmedabad, India during fiscal 2018. On November 17, 2017, it leased 1,108 square feet for a three-year term beginning November 1, 2017. The base rent is approximately $6,500 per annum.

 

Total rent expense for the three and six month periods ended March 31, 2019 were $129,228 and $258,422, respectively. Total rent expense for the three and six month periods ended March 31, 2018 were $138,076 and $271,293, respectively. 

 

Employment Agreement

  

The Company has an employment agreement with Dr. James Hayward, its Chief Executive Officer (“CEO”) effective July 1, 2016. The initial term was through June 30, 2017, with automatic one-year renewal periods.  As of June 30, 2018, the employment contract renewed for an additional year.  Under the agreement, the CEO will be eligible for a special cash incentive bonus of up to $800,000, $300,000 of which will be 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.  The CEO's annual base salary as of March 31, 2019 under the agreement (including voluntary salary reductions) is currently $250,000.

 

  18  

 

 

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(unaudited)

 

NOTE H — COMMITMENTS AND CONTINGENCIES (continued)

  

Effective March 15, 2018, the Compensation Committee of the Company’s Board of Directors, 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 of the Company’s Board of Directors, increased the amount of the Revenue Bonus to $403,623. Effective December 27, 2018, the compensation committee approved an additional bonus opportunity of $150,000 for the calendar year-ended December 31, 2019 that would be payable to the CEO under the same terms as described above.

 

The accrual for the Revenue Bonus of $514,646 is recorded to long term accrued liabilities on the balance sheet as of March 31, 2019.

 

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 I– GEOGRAPHIC AREA INFORMATION

 

Net revenues by geographic location of customers are as follows: 

 

Three Month Period Ended March 31,
    2019     2018  
United States   $ 335,027     $ 231,392  
Europe     221,691       378,834  
Asia and other     221,750       433,720  
Total   $ 778,468     $ 1,043,946  

 

Six Month Period Ended March 31,
    2019     2018  
United States   $ 902,243     $ 524,122  
Europe     372,360       570,662  
Asia and other     388,188       596,839  
Total   $   1,662,791     $   1,691,623  

 

  19  

 

 

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

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (including but not limited to this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are intended to qualify for the “safe harbor” created by those sections. In addition, we may make forward-looking statements in other documents filed with or furnished to the Securities and Exchange Commission (“SEC”), and our management and other representatives may make forward-looking statements orally or in writing to analysts, investors, representatives of the media and others. Forward-looking statements can generally be identified by the fact that they do not relate strictly to historical or current facts and include, but are not limited to, statements using terminology such as “can”, “may”, “could”, “should”, “assume”, “forecasts”, “believe”, “designated to”, “will”, “expect”, “plan”, “anticipate”, “estimate”, “potential”, “position”, “predicts”, “strategy”, “guidance”, “intend”, “budget”, “seek”, “project” or “continue”, or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. You should read statements that contain these words carefully because they:

 

  discuss our future expectations;

 

  contain projections of our future results of operations or of our financial condition; and

 

  state other “forward-looking” information.

 

We believe it is important to communicate our expectations. However, forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry and are subject to known and unknown risks, uncertainties and other factors. Accordingly, our actual results and the timing of certain events may differ materially from those expressed or implied in such forward-looking statements due to a variety of factors and risks, including, but not limited to, those set forth in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report, those set forth from time to time in our other filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, as amended, and the following factors and risks:

 

  · our ability to continue as a going concern;

 

  · our lack of significant revenues;

 

  · our limited experience in marketing our large-scale PCR manufacturing platform;

 

  · our history of net losses, which may continue, and our potential inability to achieve profitability;

 

  · the possibility that we may require additional financing, which may involve the issuance of additional shares of common stock or securities exercisable or convertible into common stock and dilute the percentage of ownership held by our current stockholders;

 

  ·

difficulty in obtaining or inability to obtain, additional financing if such financing becomes necessary;

     
  failure to maintain the listing on, or the delisting of our securities from, The NASDAQ Capital Market in light of the delisting notices we received from NASDAQ;

 

  ·

the possibility we may fail to make timely payment on our secured convertible notes and, as a result, the noteholders enforcing their remedies and ultimately realizing on their collateral which includes substantially all of our assets, including our intellectual property;

 

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  · volatility in the price and/or trading volume of our common stock;

 

  · future short selling and/or manipulation of the price of our common stock;

 

  · our inability to implement our short and long-term strategies;

 

  · competition from products and services provided by other companies, including competition in the principal markets for our drug and biologic candidates and linear DNA;

 

  · potential difficulties and failures in manufacturing our products;

 

  · loss of strategic relationships;

 

  · dependence on a limited number of key customers;

 

  · lack of acceptance of our products and services by potential customers;

 

  · potential failure to introduce new products and services;

 

  · difficulty or failure in expanding/and or maintaining our sales, marketing and support organizations and our distribution arrangements necessary to enable us to reach our goals with respect to increasing market acceptance of our products and services;

 

  · seasonality in revenues related to our cotton customer contracts ;
     
  ·

shifting enforcement priorities of U.S. federal laws relating to cannabis;

 

  ·

inability of our collaborators, licensees, and customers to develop, obtain approval for and successfully commercialize products that incorporate our technology;

 

  · inability of us, our collaborators, or customers to develop and timely manufacture complex biologic products and their components to exacting quality and safety standards;

 

  · inability to attract and retain qualified scientific, production and managerial personnel, including of Dr. Hayward, our Chief Executive Officer;

 

  ·

conflicts of interest with affiliates and related parties with whom we have engaged or entered into transactions;

 

  · inability to compete effectively in the industries in which we operate;

 

  · lack of success in our research and development efforts for new products;

 

  · failure to manage our growth in operations and acquisitions of new technologies and businesses;

 

  · inability to protect our intellectual property rights;

 

  · intellectual property litigation against us or other legal actions or proceedings in which we may become involved;

 

  · unauthorized disclosure of sensitive or confidential data (including customer data) and cybersecurity breaches; and

 

  · adverse changes in worldwide or domestic economic, political or business conditions.

 

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

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

 

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

 

Note

 

Our trademarks in the United States include Applied DNA Sciences ® , SigNature ® molecular tags, SigNature ® T molecular tags, fiberTyping ® , DNAnet ® , digitalDNA ® , SigNify ® , BackTrac ® , Beacon ® and CertainT ® . All trademarks, service marks and trade names included or incorporated by reference in this Quarterly Report are the property of their respective owners.

 

Introduction

 

Using our large scale polymerase chain reaction (PCR) based manufacturing platform, we manufacture large quantities of linear DNA for various markets. Whether for supply chain security, brand protection, law enforcement or drug or biologic applications, it is our goal to help establish secure flourishing environments that foster quality, integrity and success. With secure taggants, high-resolution DNA authentication, and comprehensive reporting, our SigNature molecular tag technologies are designed to deliver what we believe to be the greatest levels of security, deterrence and legal recourse strength. Under our wholly owned subsidiary, LineaRx, Inc. (LRx), we supply DNA for use in the in vitro medical diagnostics, preclinical biotechnology and preclinical drug and biologic development and manufacturing markets. We are also engaged in preclinical and animal drug candidate development directly and with collaborators focusing on therapeutically relevant DNA constructs manufactured via our PCR-based DNA production platform.

 

SigNature ® molecular tags, SigNature ® T molecular tags, fiberTyping ® , DNAnet ® , SigNify ® BackTrac ® , Beacon ® and CertainT ® comprise our principal security technology platform. The large-scale production of specific linear DNA sequences is used in the diagnostics and reagent industries. Contract research and drug development and commercialization relating to PCR-produced DNA constructs forms the basis of LRx.

 

SigNature molecular tags, the core of our supply chain security technology platform, are what we believe to be nature’s ultimate means of authentication and supply chain security. We believe our precision-engineered molecular tags have not been broken. Additional layers of protection and complexity are added to the mark in a proprietary manner. SigNature molecular tags in various carriers have proven highly resistant to UV radiation, heat, cold, vibration, abrasion and other extreme environments and conditions. We work closely with our customers to develop solutions that will be optimized to their specifications to deliver maximum impact. Our products and technology are protected by what we believe to be a robust portfolio of patents and trademarks.

 

Using our tagging products and technology, manufacturers, brands, and other stakeholders can ensure authenticity and protect against diversion throughout a product’s journey from manufacturer to use.

 

The core technologies of our supply chain security business are supplied as tag, test and track solutions for large complex supply chains. Our tag, test and track solutions allow our customers to use molecular tags to mark objects in a unique manner that we believe cannot be replicated, and then identify these objects by detecting the absence or presence of the molecular tag. We believe that our disruptive tracking platform offers broad commercial relevance across many industry verticals. Our underlying strategy in the tagging business is to become a solutions provider for supply chains of process industries in which contracts for our products and services are larger and of longer duration as compared to our historic norms, where the benefits to customers and consumers are more significant, and where our forensic security and traceability offer a unique and protected value. Consumers, governments and companies are demanding details about the systems and sources that deliver their goods. They worry about quality, safety, ethics, and the environmental impact. Farsighted organizations are directly addressing new threats and opportunities presented by this question: Where do these goods come from? This is the question and the concerns we are beginning to address for a growing number of companies. We supply key building blocks for creating secure supply chains with traceability of goods, which in turn can help ensure integrity in supply, honest sales and marketing claims, and ethical and sustainable sourcing.

 

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Customers using our PCR-produced linear DNA products and services for use in in vitro medical diagnostics, preclinical biotechnology research and preclinical drug and biologic development and manufacturing receive a DNA product we believe is made cleaner and faster than historical manufacturing methods, thereby offering the opportunity for increased efficiency and turnaround times in their processes. We are also engaged in preclinical and animal drug candidate development activities focusing on therapeutically relevant DNA constructs manufactured via our PCR-based production platform. We seek to develop, acquire and commercialize, alone or with partners, a diverse portfolio of nucleic acid based drugs and biologics based on PCR-produced linear DNA which we believe will improve existing nucleic acid based therapeutics or create new nucleic acid based therapeutics that address unmet medical needs.

 

Our products and services are offered in the United States, Europe and Asia. At the present time, we are focusing our efforts on textile and apparel, pharmaceuticals and nutraceuticals, microcircuits and other electronics, legal cannabis and PCR-produced linear DNA products, as well as services for in vitro medical diagnostics, preclinical biotechnology research and preclinical biotherapeutic manufacturing. Currently, approximately twenty percent of our annual revenue comes from the textile market. The basic technology we use in various markets is very similar, and we believe our solutions are adaptable for many types of products and markets. In the future, we plan to expand our focus to include additional consumer products, food and beverage and industrial materials. The cotton ginning season in the United States takes place between September and March each year; therefore, revenues from our cotton customer contracts may be seasonal and recognized primarily during our first and fourth fiscal quarters, which may cause operating results to fluctuate significantly quarterly and annually. To date, the substantial portion of our revenues has been generated from sales of our SigNature and SigNature T molecular tags, our principal supply chain security and product authentication solutions. We expect to grow revenues from sales of our SigNature molecular tags, SigNature T molecular tags, SigNify and CertainT offerings as we work with companies and governments to secure supply chains for various types of products and product labeling throughout the world. In addition, we expect to continue to grow revenues from PCR-produced linear DNA products and services using our Triathlon™ PCR systems.

 

  Signature Molecular Tags

 

SigNature Molecular Tags.  The SigNature molecular tag is our patented molecular taggant technology, at the core of our platform. It provides forensic power and protection for a wide array of applications. Highly secure, robust and durable, SigNature molecular tags are an ingredient that can be used to fortify brand protection efforts; strengthen supply chain security; and mark, track and convict criminals. Through our SigNature molecular tags, custom DNA sequences can be embedded into a wide range of host carriers including natural and synthetic fibers, ink, varnish, thread, metal coatings, and pharmaceuticals and nutraceuticals. SigNature molecular tags can be made resistant to challenging environments such as heat, cold, vibration, abrasion, organic solvents, chemicals, UV radiation and other extreme environmental conditions, and so can be identified for numerous years after being embedded directly, or into media applied or attached to the item to be marked. Each individual molecular tag is recorded and stored in a secure database so that we can later detect it using a simple spot test, or the molecular tags can be forensically analyzed in our laboratories to obtain definitive proof of the presence or absence of a specific SigNature molecular tag (e.g., one designed to mark a particular product). Our in-lab forensic testing capability delivers an expert witness Certificate of DNA Authentication (“CODA”). Because DNA is one of the densest information carriers known, and can be amplified with high fidelity, only minute quantities of SigNature molecular tags are necessary for successful analysis and authentication. As a result, SigNature molecular tags can fold seamlessly into production and logistics workflows at extremely low concentrations.

 

SigNature molecular tags have been subjected to rigorous testing by the Idaho National Laboratory, a U.S. National Laboratory, by CALCE (the Center for Advanced Life Cycle Engineering), the largest electronic products and systems research center focused on electronics reliability, and by verified procedures in our laboratories. The molecular tag has passed all tests across a broad spectrum of materials and substrates and has met key military stability standards. SigNature molecular tags have also passed a strenuous “red-team” vetting on behalf of the U.S. Defense Logistics Agency.

 

SigNature molecular tags now exist on hundreds of millions of commodity quantities ranging from consumer product packaging to microcircuits to cotton and synthetic fibers; to our knowledge, none has ever been copied.

 

SigNature T Molecular Tags and fiberTyping

 

SigNature T Molecular Tags.  SigNature T molecular tags are a unique patented tagging and authentication system specifically designed for textiles and apparel. Specially engineered to adhere tenaciously to textile substrates, including natural and synthetic fibers, SigNature T molecular tags are resistant to standard textile production conditions. The result: an enduring forensic level molecular tag that remains present from the fiber stage through to the finished product.

 

Our SigNature T technology allows for better quality control and assurance at any point in the supply chain. SigNature T molecular tags are currently used for brand protection efforts and raw material source compliance programs. For example, American grown cotton fibers can be tagged at the gin in the United States, verified as “American grown” and then traced through every step of the supply chain.

 

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fiberTyping . Our patented cotton genotyping platform, known as “fiberTyping,” described below, complements our SigNature T molecular tag system. fiberTyping is employed to identify the genus and species of the fibers before or after they are tagged with SigNature T molecular tags. fiberTyping cannot be used to provide unique identity of a specific cotton through the supply chain.

 

fiberTyping is not a molecular tag, but a genotyping test of native cotton fiber DNA, which gives a clear result that determines whether the intended “nature-made” endogenous cotton DNA is present in fiber, yarn or fabric. Samples from the primary material are sent to our forensic labs for DNA analysis and authentication. Cotton classification and the authentication of cotton species after cotton has left its place of origin are issues of global significance, important to brand owners and to governments that must regulate the international cotton trade. The use of endogenous DNA to identify the cotton fiber content in textile supply chains, along with the SigNature T molecular tag system is a significant opportunity for brand license holders to control their intellectual property, for brands to shield themselves against legal liabilities, and for governments to improve their ability to enforce compliance with trade agreements between nations.

 

We believe that our proprietary DNA extraction protocols and methodologies are more effective than existing forensic systems. We believe that the combination of our SigNatureT molecular tags and fiberTyping solutions cover the forensic authentication market for textiles and that the related protocols we have developed may be applicable to multiple industry verticals (such as ingredients in nutraceuticals and cannabis) and can mark and authenticate products at every stage of their life cycle, from beginning to end.

 

DNAnet, Smart DNA and Backtrac

 

Recognizing that DNA-based evidence is the cornerstone of modern-era law enforcement, we have developed what we believe to be the ultimate crime fighting tools – currently being used in vehicle and home asset marking, as well as commercial applications.

 

These molecular tags can be used to definitively link evidence and offenders to specific crime scenes. As the crime is investigated, the fluorescing molecular marker can assist police in linking the offender and stolen items to a specific crime scene, creating a greater ability to identify and convict.

 

These long-lasting tagging solutions contain unique molecular tags that can help return stolen or lost property to its rightful owner.

 

Beacon

 

Beacon locked optical markers deliver secure real-time inspection capabilities. A unique patented encrypted mechanism creates a protected, covert screening tool that can be easily adapted to packaging, security labels and high–value assets through inks, varnishes and coatings. When Beacon locked optical markers are combined with SigNature molecular tags, a strong and flexible security and screening solution is created where authenticity and provenance can be determined with confidence.

 

SigNify

 

Developing a secure method for real-time, in-field screening of molecularly-tagged items has long been a priority for us. We believe that standard fluorophores, up-converting phosphors, holograms and other more-traditional screening tools provide little to no defense against counterfeiting. We believe that secure in-field inspection backed with forensic-level molecular tag authentication is the key to maintaining a well-defended supply chain or asset management program.

 

The SigNify IF portable DNA reader provides definitive real-time authentication of SigNature and SigNature T molecular tags in the field. With SigNify IF, Signature molecular tags become a true, front-line solution for supply chain integrity.

   

Information Technology Systems

 

Applied DNA Sciences Portal.  The CertainT and other customer applications include the use of a software platform that enables customers to manage the security of company-marked goods from point of marking to point of authentication or validation to end of life. The base platform is configurable to customer requirements which differ by vertical market, company business process and IT environment. Basic functions offered include molecular tag inventory management, program training and communications, a database of marked items information, associated documents and images, chain of custody and location tracking, sample authentication processing and CODA downloads, and other administrative functions. Designed for either cloud or local operation, the system supports mobile data capture using bar codes or other technologies. The system is architected as the controller and repository for other validation and authentication devices such as our SigNify DNA Readers, DNA Transfer Systems, and other third party devices and is designed to share data with third party applications through standard interfaces.  

 

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  DNA Transfer Systems and Cannabis Tracking System.  Our DNA Transfer Systems and Cannabis Tracking System are developed for DNA marking applications which are high volume with a need for monitoring and control. They are computer based, fully automated, offer remote internet access for real-time monitoring and can be configured for application-specific alerts and reporting online. They are being used to mark cotton at six U.S. cotton gins in the 2018-2019 ginning season and one location in Australia.

 

CertainT Supply Chain Platform

 

CertainT helps brands confirm their product’s authenticity and origin with certified, trust, transparency and traceability through the seamless amalgamation of several of our platform technologies to tag, test and track. The CertainT trademark indicates use of the CertainT tagging, testing and tracking platform to enable proof of product claims for any material, item or product. Secure and proven, the CertainT Platform helps manufacturers, brands or other commercial organizations deliver on their promise that customers are buying products that are ethically-sourced, safe and authentic.

 

Large-scale production of specific DNA sequences using PCR.

 

Our patented Triathlon™ PCR systems allow for the large-scale production of specific DNA sequences. The systems are computer-controlled, self-contained and modular. DNA sequences produced through our processes and systems are being used by customers as components of diagnostic tests and reagents, which provide us the opportunity to cross-sell our DNA-based supply chain security solutions to this installed base and others. We believe we have the ability to manufacture longer DNA sequences valuable in gene therapies, adoptive cell therapies (such as CAR T), DNA vaccines, RNA therapies and diagnostics, with what we believe is a distinct competitive advantage in cost, cleanliness, and time-to-market. These types of DNA are distinct from our DNA security markers and represent a potential new entry into medical markets, where we believe there are opportunities for our broader platform. Customers using our PCR-produced linear DNA products and services for use in in vitro medical diagnostics, preclinical biotechnology research and preclinical drug and biologic manufacturing receive a DNA product that we believe is made cleaner and faster than historical manufacturing methods, thereby offering the opportunity for increased efficiency and turnaround times in their processes.

 

Contract Research

 

Under LRx, we act as a contract research organization for the nucleic acid-based medical and biologic markets. In addition, LRx is providing contract research services to several RNA based drug and biologic customers for preclinical studies. These services include the design, development and manufacture of PCR-produced DNA templates for RNA.

 

Therapeutics

 

In addition, we seek to develop, acquire and commercialize, ourselves or with partners, a diverse portfolio of nucleic acid-based drugs and biologics based on PCR-produced linear DNA to improve existing nucleic acid-based therapeutics or to create new nucleic acid-based therapeutics that address unmet medical needs. We are also engaged in preclinical and animal drug candidate development activities focusing on therapeutically relevant DNA constructs manufactured through our large scale PCR production systems. LRx uses its PCR systems to rapidly produce customized DNA for use by our CRO/CMO clients, our preclinical drug and biologic clients and partners, and for our own preclinical nucleic acid-based drugs and biologics under development in the field of CAR T-cell immunotherapy. LRx’s proprietary process enables large, gram-scale production of DNA through PCR for bio-based therapeutics, adoptive cell therapies, vaccines (including cancer), CRISPR and other nucleic acid-based therapies. Linear DNA does not require recombination, therefore, there is no need for a virus or for plasmids. This reduces the risk of unwanted DNA or other contaminants that would need to be removed.

 

Plan of Operations

 

General

 

To date, the substantial portion of our revenues has been generated from sales of our SigNature molecular tags and SigNature T molecular tags, our principal supply chain security and product authentication solutions. We expect to grow revenues from sales of our SigNature molecular tags, SigNature T molecular tags, SigNify, and CertainT offerings as we work with companies and government to secure supply chains for various types of products and product labeling throughout the world. In addition, we expect to continue to grow revenues from our PCR-produced linear DNA products and services for in vitro medical diagnostics, biotechnology research and drug and biologic manufacturing. We have continued to incur expenses in expanding our business and increasing our personnel to meet current and anticipated future demand. We have limited sources of liquidity. Our products and services are offered in the United States, Europe and Asia. At the present time, we are focusing our efforts on textile and apparel, pharmaceuticals and nutraceuticals, microcircuits and other electronics, legal cannabis and PCR-produced linear DNA products as well as services for in vitro medical diagnostics, preclinical biotechnology research and preclinical biotherapeutic manufacturing. Currently approximately twenty percent of our annual revenue comes from the textile market. The basic technology we use in various markets is very similar, and we believe our solutions are adaptable for many types of products and markets. In the future, we plan to expand our focus to include additional consumer products, food and beverage and industrial materials. The cotton ginning season in the United States takes place between September and March each year; therefore, revenues from our cotton customer contracts may be seasonal and recognized primarily during our first and fourth fiscal quarters, which may cause operating results to fluctuate significantly quarterly and annually.

 

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Critical Accounting Policies and Recently Issued Accounting Pronouncements

 

See Note A to the accompanying unaudited condensed consolidated financial statements for our critical accounting policies and recent accounting pronouncements.

 

Comparison of Results of Operations for the Three Month Periods Ended March 31, 2019 and 2018

 

Revenues

 

Product revenues

 

For the three month periods ended March 31, 2019 and 2018, we generated $171,261 and $486,341 in revenues from product sales, respectively. Product revenue decreased by $315,080 or 65% for the three month period ended March 31, 2019 as compared to the same period in the prior fiscal year. This decrease was primarily related to a decrease of $157,000 in biopharmaceutical revenues, as well as decreases of approximately $100,000, $40,000 and $30,000 in consumer asset marking, textile and industrial materials sales, respectively.

 

Service revenues

 

For the three month periods ended March 31, 2019 and 2018, we generated $607,207 and $557,605 in revenues from sales of services, respectively. Service revenues include our feasibility projects and any research and/or development contracts as well as fiberTyping and authentication services. The increase in service revenues of $49,602 or 9% for the three month period ended March 31, 2019 as compared to the same period in the prior fiscal year is attributable to an increase in revenue from feasibility pilots, primarily related to the textile industry of approximately $36,000, as well as an increase in revenue of approximately $13,000 from the government contract award.

 

Costs and Expenses

  

Cost of Revenues

 

Cost of revenues for the three month period ended March 31, 2019 decreased by $239,012 or 64% from $372,153 for the three month period ended March 31, 2018 to $133,141 for the three month period ended March 31, 2019. Cost of revenues as a percentage of product revenues remained fairly flat at 78% and 77% for the three month periods ended March 31, 2019 and 2018, respectively.

   

Selling, General and Administrative

 

Selling, general and administrative expenses for the three month period ended March 31, 2019 increased by $532,310 or 27% from $1,996,604 for the three month period ended March 31, 2018 to $2,528,914 for the three month period ended March 31, 2019. The increase is attributable to a $552,139 increase in stock compensation. This increase is primarily related to certain performance based stock options being cancelled; therefore, the performance conditions were no longer probable, and the options did not vest during the three month period ended March 31, 2018 and the related expense of $415,786 was reversed. The remaining increase in stock compensation relates to grants to employees during the three month period ended March 31, 2019 that vested immediately.

 

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Research and Development

 

Research and development expenses decreased to $651,377 for the three month period ended March 31, 2019 from $669,813 for the three month period ended March 31, 201, a decrease of $18,436 or 3%. This decrease is primarily due to decreased development costs incurred in relation to the government development contract award.

 

Depreciation and Amortization

 

In the three month period ended March 31, 2019, depreciation and amortization decreased by $47,607 or 33% from $145,280 for the three month period ended March 31, 2018 to $97,673 for the three month period ended March 31, 2019.

 

Interest expense

 

Interest expense for the three month period ended March 31, 2019, was $37,417 and primarily related to the interest earned on the convertible notes issued on August 31, 2018 and November 29, 2018, respectively.

 

Net Loss

 

Net loss increased by $540,548 or 25% from a loss of $2,146,209 for the three month period ended March 31, 2018 to a loss of $2,686,757 for the three month period ended March 31, 2019, due to the factors noted above.

 

Comparison of Results of Operations for the Six Month Periods Ended March 31, 2019 and 2018

 

Revenues

 

Product revenues

 

For the six month periods ended March 31, 2019 and 2018, we generated $493,137 and $836,474 in revenues from product sales, respectively. Product revenue decreased by $343,337 or 41% for the six month period ended March 31, 2019 as compared to the same period in the prior fiscal year. This decrease in product revenues was primarily from a decrease of $263,000 in biopharmaceutical revenues, due to the customer having decreased demand and therefore delaying the issuance of its annual purchase order. The purchase order for the current fiscal year was received during the three month period ended March 31, 2019 and shipments are expected to commence in the second half of fiscal 2019. The remaining decrease in product revenue was primarily attributable to a decrease of approximately $164,000 in consumer asset marking sales and $30,000 for industrial materials. These decreases were offset by an increase of $125,000 within the textile markets.

   

Service revenues

 

For the six month periods ended March 31, 2019 and 2018, we generated $1,169,654 and $855,149 in revenues from sales of services, respectively. The increase in service revenues of $314,505 or 37% for the six month period ended March 31, 2019 as compared to the same period in the prior fiscal year is attributable to an increase in revenue of $127,000 from the cannabis pre-commercial feasibility project under the cooperation agreement with TheraCann International Benchmark Corporation entered into during January 2018 as well as $164,000 from the pharmaceutical and nutraceutical pre-commercial pilot signed in March 2018.

 

Costs and Expenses

 

Cost of Revenues

 

Cost of revenues for the six month period ended March 30, 2019 decreased by $416,967 or 59% from $703,593 for the six month period ended March 31, 2018 to $286,626 for the six month period ended March 31, 2019. Cost of revenues as a percentage of product revenues was 58% and 84% for the six month periods ended March 31, 2019 and 2018, respectively. This decrease in cost of revenues as a percentage of product revenues is due to product sales mix, as sales during the six month period ended March 31, 2018 were primarily comprised of biopharmaceutical and consumer asset marking sales, which are at a lower gross margin.

 

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Selling, General and Administrative

 

Selling, general and administrative expenses for the six month period ended March 31, 2019 increased by $1,021,536 or 22% from $4,589,759 for the six month period ended March 31, 2018 to $5,611,295 for the six month period ended March 31, 2019. The increase is attributable to an increase in stock based compensation expense of approximately $811,000. The increase in stock based compensation was primarily associated with stock option grants during the six month period ended March 31, 2018, as a result of certain performance based stock options being cancelled; therefore, the performance conditions were no longer probable, and the options did not vest and the related expense of $415,786 was reversed. To a lesser extent, the increase in stock based compensation relates to approximately $190,000 in stock compensation expense associated with employee grant modifications during the six month period ended March 31, 2019. These modifications canceled certain existing options and replaced them with new options with a term of an additional five years. The combined term of these modified options (including the canceled options) is a total of 10 years, which is consistent with our current compensation practices, in which employee stock options are generally granted with a term of ten years, as well as the expense associated with an employee grant that vested immediately. The increase also relates to an increase in legal and professional fees of approximately $315,000 in professional fees and $53,000 in filing fees. These increases were offset by decreases in payroll of approximately $178,000.

 

Research and Development

 

Research and development expenses decreased to $1,360,941 for the six month period ended March 31, 2019 from $1,409,880 for the six month period ended March 31, 2018, a decrease of $48,939 or 3%. This decrease is primarily due to a decrease in payroll expenses of $73,000, offset by increased development costs incurred in relation to the government development contract award of $94,000.

 

Depreciation and Amortization

 

In the six month period ended March 31, 2019, depreciation and amortization decreased by $70,204 or 23% from $302,928 for the six month period ended March 31, 2018 to $232,724 for the six month period ended March 31, 2019.

 

Interest expense

 

Interest expense for the six month period ended March 31, 2019, was $69,028. The interest expense was primarily due to interest earned on the convertible notes issued on August 31, 2018 and November 29, 2018, respectively, for the six month period ended March 31, 2019.

 

Net Loss

 

Net loss increased by $591,155 or 11% from $5,329,922 for the six month period ended March 31, 2018 to $5,921,077 for the six month period ended March 31, 2019, due to the factors noted above.

 

Liquidity and Capital Resources

 

Our liquidity needs consist of our working capital requirements and research and development expenditure funding. As of March 31, 2019, we had working capital of $543,329. For the six month period ended March 31, 2019, we incurred a net cash flow deficit from operating activities of $3,802,025 consisting primarily of our loss of $5,921,077 net with non-cash adjustments of $232,724 in depreciation and amortization charges and $757,338 for stock-based compensation. Additionally, we had a net decrease in operating assets of $1,122,454 and a net increase in operating liabilities of $6,049. Cash used in investing activities was $63,986 for the purchase of property and equipment. Cash provided by financing activities was $3,747,588 consisting primarily of net proceeds from the December public offering of $2,479,524, $550,000 in proceeds from the sale of secured convertible promissory notes during November 2018 and $718,064 in proceeds from the exercise of warrants.

 

We have recurring net losses, which have resulted in an accumulated deficit of $253,793,937 as of March 31, 2019. We have incurred a net loss of $5,921,077 for the six month period ended March 31, 2019. At March 31, 2019 we had cash and cash equivalents of $1,541,141. 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 set forth in this Quarterly Report 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 or equity-linked securities.

 

  28  

 

 

NASDAQ Delisting Notice

 

On January 29, 2019, we received written notice (the “First Notification Letter”) from the Listing Qualifications Department of The NASDAQ Stock Market LLC (“Nasdaq”) notifying us that we are not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of thirty (30) consecutive business days. Based on the closing bid price of our common stock for the thirty (30) consecutive business days from December 13, 2018 to January 25, 2019, we no longer meet the minimum bid price requirement.

 

The First Notification Letter does not impact our listing on The Nasdaq Capital Market at this time. The First Notification Letter states that we have 180 calendar days, or until July 29, 2019, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the bid price of our common stock must have a closing bid price of at least $1.00 per share for a minimum of ten (10) consecutive business days. If we do not regain compliance with Nasdaq Listing Rule 5550(a)(2) by July 29, 2019, we may be eligible for an additional 180 calendar day compliance period. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of our intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the staff of Nasdaq (the “Staff”) that we will not be able to cure the deficiency, or if we are otherwise not eligible, Nasdaq would notify us that our securities would be subject to delisting. In the event of such a notification, we may appeal the Staff’s determination to delist our securities, but there can be no assurance the Staff would grant our request for continued listing.

  

We intend to monitor the closing bid price of our common stock and may, if appropriate, consider implementing available options, including, but not limited to, implementing a reverse stock split of our outstanding securities, to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules.

 

Additionally, on January 30, 2019, we received written notice (the “Second Notification Letter”) from the Listing Qualifications Department of Nasdaq notifying us that we are not in compliance with the market value of listed securities requirements set forth in Nasdaq Listing Rule 5550(b)(2), or the alternative standards of Nasdaq Listing Rule 5550(b)(1), which requires a listed company to have minimum stockholders’ equity of $2.5 million, or Nasdaq Listing Rule 5550(b)(3), which requires a listed company to have had net income from continuing operations of at least $500,000 in the latest fiscal year or in two of the last three fiscal years. Nasdaq Listing Rule 5550(b)(2) requires listed securities to maintain a market value of at least $35 million for the previous thirty (30) consecutive business days for continued listing on The Nasdaq Capital Market. Based on our market value of listed securities for the thirty (30) consecutive business days from November 30, 2018 to January 29, 2019, we no longer meet the market value of listed securities requirement. In addition, we do not satisfy the alternative requirements of sufficient minimum stockholders’ equity or sufficient net income from continuing operations.

 

The Second Notification Letter does not impact our listing on The Nasdaq Capital Market at this time. The Second Notification Letter states that we have 180 calendar days, or until July 29, 2019, to regain compliance with Nasdaq Listing Rule 5550(b)(2). Alternatively, we could gain compliance with Nasdaq Listing Rule 5550(b)(1) or Nasdaq Listing Rule 5550(b)(3). In order to regain compliance with Nasdaq Listing Rule 5550(b)(2), we must maintain a market value of listed securities of at least $35 million for a minimum of ten (10) consecutive business days. If we do not regain compliance with Nasdaq Listing Rule 5550(b)(2) or, alternatively, gain compliance with Nasdaq Listing Rule 5550(b)(1) or Nasdaq Listing Rule 5550(b)(3), prior to the expiration of the compliance period, Nasdaq would notify us that our securities would be subject to delisting. In the event of such a notification, we may appeal the Staff’s determination to delist our securities, but there can be no assurance the Staff would grant our request for continued listing. Unlike the minimum bid price noncompliance described in the First Notification Letter, no additional compliance period is applicable to the noncompliance described in the Second Notification Letter.

 

If our common stock is delisted by NASDAQ, it could lead to a number of negative implications, including an adverse effect on the price of our common stock, increased volatility in our common stock, reduced liquidity in our common stock, the loss of federal preemption of state securities laws and greater difficulty in obtaining financing. In addition, delisting of our common stock could deter broker-dealers from making a market in or otherwise seeking or generating interest in our common stock, could result in a loss of current or future coverage by certain sell-side analysts and might deter certain institutions and persons from investing in our securities at all. Delisting could also cause a loss of confidence of our customers, collaborators, vendors, suppliers and employees, which could harm our business and future prospects. We will consider available options to resolve the deficiencies and regain compliance with all applicable Nasdaq Listing Rules.

 

  29  

 

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Inflation

 

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

 

Item 3 . — Quantitative and Qualitative Disclosures About Market Risk .

 

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

 

  30  

 

 

Item 4. — Controls and Procedures .

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2019, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

During the fiscal quarter ended March 31, 2019, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

  31  

 

 

Part II — Other Information

 

Item 1. — Legal Proceedings.

 

None.

 

Item 1A. — Risk Factors.

 

Not applicable as we are a smaller reporting company.

 

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

 

None.  

 

Item 3. — Defaults Upon Senior Securities.

 

None.

 

Item 4. — Mine Safety Disclosures.

 

None.

 

Item 5. — Other Information.

 

None.

 

  32  

 

 



Item 6. — Exhibits.

   

10.1 Collateral Agency Agreement, dated as of October 19, 2018, incorporated by reference to the designated exhibit of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, originally filed with the SEC on December 18, 2018 and amended by Amendment No. 1 to Form 10-K filed with the SEC on January 28, 2019 and by Amendment No. 2 to Form 10-K filed with the SEC on April 4, 2019.

 

10.2 Security Agreement, dated as of October 19, 2018, incorporated by reference to the designated exhibit of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, originally filed with the SEC on December 18, 2018 and amended by Amendment No. 1 to Form 10-K filed with the SEC on January 28, 2019 and by Amendment No. 2 to Form 10-K filed with the SEC on April 4, 2019.

 

10. 3 First Amendment to Security Agreement, dated November 26, 2018, incorporated by reference to the designated exhibit of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, originally filed with the SEC on December 18, 2018 and amended by Amendment No. 1 to Form 10-K filed with the SEC on January 28, 2019 and by Amendment No. 2 to Form 10-K filed with the SEC on April 4, 2019.

 

10.4 Guaranty and Security Agreement, dated as of October 19, 2018. incorporated by reference to the designated exhibit of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, originally filed with the SEC on December 18, 2018 and amended by Amendment No. 1 to Form 10-K filed with the SEC on January 28, 2019 and by Amendment No. 2 to Form 10-K filed with the SEC on April 4, 2019.

 

10.5 Intellectual Property Security Agreement, dated October 19, 2019, incorporated by reference to the designated exhibit of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, originally filed with the SEC on December 18, 2018 and amended by Amendment No. 1 to Form 10-K filed with the SEC on January 28, 2019 and by Amendment No. 2 to Form 10-K filed with the SEC on April 4, 2019 .

 

10.6 Intellectual Property Security Agreement, dated October 19, 2019, incorporated by reference to the designated exhibit of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, originally filed with the SEC on December 18, 2018 and amended by Amendment No. 1 to Form 10-K filed with the SEC on January 28, 2019 and by Amendment No. 2 to Form 10-K filed with the SEC on April 4, 2019.

 

10.7* Omnibus Amendment Agreement, dated February 26, 2019, among the Company, APDN (B.V.I.), Inc., and Delaware Trust Company as collateral agent for the benefit of the buyers listed on Schedule I thereto.

 

10.8* First Amendment to Intellectual Property Security Agreement, dated February 26, 2019, between the Company and Delaware Trust Company as collateral agent for the benefit of the investors listed thereto.

 

10.9* First Amendment to Intellectual Property Security Agreement, dated February 26, 2019, between APDN (B.V.I.) Inc. and Delaware Trust Company as collateral agent for the benefit of the investors listed thereto.

 

10.10*+ 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.

 

31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

 

31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

 

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

 

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

 

  33  

 

 

101 INS* XBRL Instance Document

 

101 SCH* XBRL Taxonomy Extension Schema Document

 

101 CAL* XBRL Taxonomy Extension Calculation Linkbase Document

 

101 DEF* XBRL Taxonomy Extension Definition Linkbase Document

 

101 LAB* XBRL Extension Label Linkbase Document 

 

101 PRE* XBRL Taxonomy Extension Presentation Linkbase Document

 

+ 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 (“[***]”).

 

* Filed herewith.

** Furnished herewith.

 

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

 

  34  

 

 

EXHIBIT INDEX

 

Exhibit Number   Description
10.1   Collateral Agency Agreement, dated as of October 19, 2018, incorporated by reference to the designated exhibit of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, originally filed with the SEC on December 18, 2018 and amended by Amendment No. 1 to Form 10-K filed with the SEC on January 28, 2019 and by Amendment No. 2 to Form 10-K filed with the SEC on April 4, 2019.
     
10.2   Security Agreement, dated as of October 19, 2018, incorporated by reference to the designated exhibit of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, originally filed with the SEC on December 18, 2018 and amended by Amendment No. 1 to Form 10-K filed with the SEC on January 28, 2019 and by Amendment No. 2 to Form 10-K filed with the SEC on April 4, 2019.
     
10.3   First Amendment to Security Agreement dated November 26, 2018, incorporated by reference to the designated exhibit of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, originally filed with the SEC on December 18, 2018 and amended by Amendment No. 1 to Form 10-K filed with the SEC on January 28, 2019 and by Amendment No. 2 to Form 10-K filed with the SEC on April 4, 2019.
     
10.4   Guaranty and Security Agreement, dated as of October 19, 2018. incorporated by reference to the designated exhibit of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, originally filed with the SEC on December 18, 2018 and amended by Amendment No. 1 to Form 10-K filed with the SEC on January 28, 2019 and by Amendment No. 2 to Form 10-K filed with the SEC on April 4, 2019.
     
10.5   Intellectual Property Security Agreement, dated October 19, 2019, by Applied DNA Sciences, Inc. in favor of Delaware Trust Company as collateral agent for the secured parties defined therein, incorporated by reference to the designated exhibit of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, originally filed with the SEC on December 18, 2018 and amended by Amendment No. 1 to Form 10-K filed with the SEC on January 28, 2019 and by Amendment No. 2 to Form 10-K filed with the SEC on April 4, 2019.
     
10.6   Intellectual Property Security Agreement, dated October 19, 2019, by APDN (B.V.I.) Inc. in favor of Delaware Trust Company as collateral agent for the secured parties defined therein, incorporated by reference to the designated exhibit of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, originally filed with the SEC on December 18, 2018 and amended by Amendment No. 1 to Form 10-K filed with the SEC on January 28, 2019 and by Amendment No. 2 to Form 10-K filed with the SEC on April 4, 2019.
     
10.7*   Omnibus Amendment Agreement, dated February 26, 2019, among  the Company, APDN (B.V.I.), Inc., and Delaware Trust Company as collateral agent for the benefit of the buyers listed on Schedule I thereto.
     
10.8*   First Amendment to Intellectual Property Security Agreement, dated February 26, 2019,  between the Company and Delaware Trust Company as collateral agent for the benefit of the investors listed thereto.
     
10.9*   First Amendment to Intellectual Property Security Agreement, dated February 26, 2019,  between APDN (B.V.I.), Inc. and Delaware Trust Company as collateral agent for the benefit of the investors listed thereto.
     
10.10*+   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.

  

31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
 
31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
 
32.1** Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
 
32.2** Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).

  

  35  

 

 

101*   INS* XBRL Instance Document
101*   SCH* XBRL Taxonomy Extension Schema Document
101*   CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101*   DEF* XBRL Taxonomy Extension Definition Linkbase Document
101*   LAB* XBRL Extension Label Linkbase Document
101*   PRE* XBRL Taxonomy Extension Presentation Linkbase Document

 

+ 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 (“[***]”).

* Filed herewith.

** Furnished herewith.

 

  36  

 

 

Signatures

 

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

 

  Applied DNA Sciences, Inc.
   
Dated: May 9, 2019 /s/ JAMES A. HAYWARD
  James A. Hayward, Ph. D.
  Chief Executive Officer
  (Duly authorized officer and principal executive officer)
   
  /s/ BETH JANTZEN
Dated: May 9, 2019 Beth Jantzen, CPA
  Chief Financial Officer
  (Duly authorized officer and
  principal financial and accounting officer)

 

  37  

 

 

Exhibit 10.7

 

EXECUTION VERSION

 

OMNIBUS AMENDMENT AGREEMENT

 

This OMNIBUS AMENDMENT AGREEMENT (this “ Amendment ”), dated as of February 26, 2019, is entered into by and among APPLIED DNA SCIENCES, INC. , a Delaware corporation (the “ Issuer ”), APDN (B.V.I.) INC ., a corporation organized under the laws of the British Virgin Islands (the “ Guarantor ”, and together with the Issuer, collectively, the “ Grantors ” and each a “ Grantor ”), DELAWARE TRUST COMPANY , a Delaware corporation, as collateral agent (together with its successors and assigns, in such capacity, the “ Collateral Agent ”) for the benefit of the Buyers (defined below) and each of the investors listed on Schedule I attached hereto (each, a “ Buyer ” and collectively, the “ Buyers ”; the Buyers and the Collateral Agent are collectively, together with their successors and assigns, collectively, the “ Secured Parties ”).

 

WITNESSETH :

 

WHEREAS , the Issuer and the Collateral Agent are parties to that certain Security Agreement, dated as of October 19, 2018 (as amended to date and as the same may be further amended, amended and restated, supplemented or otherwise modified from time to time, the “ Security Agreement ”), whereby the Issuer granted a security interest in substantially all of its tangible and intangible assets, whether real or personal property, now or hereafter acquired (the “ Issuer Collateral ”), to the Collateral Agent for the ratable benefit of the Secured Parties; and

 

WHEREAS , the Guarantor and the Collateral Agent are parties to that certain Guaranty and Security Agreement, dated as of October 19, 2018 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Guaranty and Security Agreement ” and together with the Security Agreement, collectively, the “ Security Agreements ”), whereby the Guarantor granted a security interest in substantially all of its tangible and intangible assets, whether real or personal property, now or hereafter acquired (the “ Guarantor Collateral ”, and together with the Issuer Collateral, collectively, the “ Collateral ”), to the Collateral Agent for the ratable benefit of the Secured Parties; and

 

WHEREAS , the Collateral Agent, the Grantors and the investors party thereto as Buyers (the “ Original Buyers ”; each Buyer party hereto which is not an Original Buyer is a “ New Buyer ”) are parties that certain Collateral Agency Agreement, dated as of October 19, 2018 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Collateral Agency Agreement ”), whereby, among other things, the Original Buyers appointed the Collateral Agent as the Secured Parties’ representative and agent with respect to the Collateral; and

 

WHEREAS , the Grantors have requested and the Secured Parties, by their execution and acknowledgement hereof, have each agreed, subject to the terms of this Amendment, to amend each of the Security Agreement, the Guaranty and Security Agreement and the Collateral Agency Agreement (each a “ Transaction Document ” and collectively, the “ Transaction Documents ”), as provided herein.

 

NOW, THEREFORE , the parties hereto hereby agree as follows, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged and intending to be legally bound:

 

1.            Definitions . Capitalized terms used and not otherwise defined in this Amendment shall have the respective meanings given to such terms in the applicable Transaction Document.

 

 

 

 

2.            Joinder . Each New Buyer hereby becomes a Buyer under the terms of the Collateral Agency Agreement and any other Transaction Document (as defined in the Collateral Agency Agreement) to which any Buyer is a party (collectively, the “ Buyer Documents ”), and appoints the Collateral Agent as provided in Section 1 of the Collateral Agency Agreement. Each New Buyer agrees that it hereby is, and shall be deemed to be, and assumes the obligations of, a “Buyer” under each of the Buyer Documents, including the joint and several indemnification obligations in the Collateral Agency Agreement. Each New Buyer hereby agrees to perform, comply with, and be subject to and bound by each of the terms and provisions of each of the Buyer Documents jointly and severally with the other Buyers party thereto.

 

3.            Amendment to the Collateral Agency Agreement .

 

(a) the first “WHEREAS” clause of the Collateral Agency Agreement is hereby amended and restated, in its entirety, as follows:

 

WHEREAS , the Issuer and the Buyers are parties to (i) that certain Securities Purchase Agreement, dated as of August 31, 2018 (the “ August Securities Purchase Agreement ” or (ii) that certain Securities Purchase Agreement, dated as of November 29, 2018 (the “ November Securities Purchase Agreement ” and together with the August Securities Purchase Agreement, collectively, the “ Securities Purchase Agreement ”), and certain other agreements, documents and instruments executed and delivered in connection therewith (together the Securities Purchase Agreement and this Agreement, collectively, the “ Transaction Documents ”), pursuant to which the Issuer shall be required to sell, and the Buyers shall purchase or have rights to purchase, on a several and not joint basis, the principal amount of the notes issued pursuant thereto (as such notes may be amended, amended and restated, supplemented or otherwise modified from time to time, the “ Notes ”).”

 

(b) Section 10(a) ( Extension ) of the Collateral Agency Agreement is hereby amended and restated, in its entirety, as follows:

 

“The Buyers and the Issuer hereby agree to extend all delivery dates set forth in the Securities Purchase Agreement for the granting of liens securing the Notes and perfection of the security interests contemplated therein for completion within a reasonable period of time following the execution thereof, as determined by the Issuer and the Collateral Agent in their reasonable discretion; provided , however, that, all of the Buyers may agree in writing to instruct the Collateral Agent not to perfect its security interest, for the benefit of the Secured Parties, in certain types of Collateral if, in the reasonable judgment of all the Buyers, the expense or process for achieving such perfection is determined to be unduly burdensome.”

 

(c) Schedule 1 of the Collateral Agency Agreement is hereby amended and restated, in its entirety in the form of Schedule 1 attached hereto.

 

 

 

 

4.             Amendment to the Security Agreement .

 

(a) the Preamble of the Security Agreement is hereby amended and restated, in its entirety, as follows:

 

SECURITY AGREEMENT (as amended, supplemented, amended and restated or otherwise modified from time to time, this “ Agreement ”) dated October 19, 2018 made by APPLIED DNA SCIENCES, INC., a Delaware corporation with headquarters located at 50 Health Sciences Drive, Stony Brook, New York 11790 (the “ Grantor ”), in favor of DELAWARE TRUST COMPANY, a Delaware corporation, as collateral agent (together with any successor collateral agent, in such capacity, the “ Collateral Agent ”) for the benefit of the investors listed on the Schedule of Buyers (each a “ Buyer ” and collectively, the “ Buyers ”; the Buyers and the Collateral Agent are collectively, with their respective successors and assigns, the “ Secured Parties ”)) set forth in (i) the Securities Purchase Agreement, dated as of August 31, 2018 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ August Securities Purchase Agreement ”), and (ii) the Securities Purchase Agreement, dated as of November 29, 2018 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ November Securities Purchase Agreement ” and together with the August Securities Purchase Agreement, collectively, the “ Securities Purchase Agreement ”), and the other Secured Parties.”

 

(b) the second WHEREAS clause in each of Exhibits A and B of the Security Agreement is hereby amended and restated, in its entirety, as follows:

 

WHEREAS , Grantor is party to the (i) Securities Purchase Agreement, dated as of August 31, 2018 (the “ August Securities Purchase Agreement ”) and (ii) the Securities Purchase Agreement, dated as of November 29, 2018 (the “ November Securities Purchase Agreement ” and together with the August Securities Purchase Agreement, collectively, the “ Securities Purchase Agreement ”), in each case, with the Buyers party thereto.”

 

5.            Amendment to the Guaranty and Security Agreement .

 

(a) the Preamble of the Guaranty and Security Agreement is hereby amended and restated, in its entirety, as follows:

 

GUARANTY AND SECURITY AGREEMENT (as amended, supplemented, amended and restated or otherwise modified from time to time, this “ Agreement ”) dated October 19, 2018 made by APDN (B.V.I.) INC., a corporation organized under the laws of the British Virgin Islands (the “ Grantor ”), in favor of DELAWARE TRUST COMPANY, a Delaware corporation, as collateral agent (together with any successor collateral, in such capacity, the “ Collateral Agent ”) for the benefit of the investors listed on the Schedule of Buyers (each a “ Buyer ” and collectively, the “ Buyers ”; the Buyers and the Collateral Agent are collectively, with their respective successors and assigns, the “ Secured Parties ”)) set forth in (i) the Securities Purchase Agreement, dated as of August 31, 2018 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ August Securities Purchase Agreement ”) and (ii) the Securities Purchase Agreement, dated as of November 29, 2018 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ November Securities Purchase Agreement ” and together with the August Securities Purchase Agreement, collectively, the “ Securities Purchase Agreement ”), and the other Secured Parties.”

 

 

 

 

(b) the second WHEREAS clause in each of Exhibits A and B of the Guarantor IP Security Agreement is hereby amended and restated, in its entirety, as follows:

 

WHEREAS , Grantor is a wholly owned subsidiary of APPLIED DNA SCIENCES, INC., a Delaware corporation (the “ Company ”), and the Company is party to the (i) Securities Purchase Agreement, dated as of August 31, 2018 (the “ August Securities Purchase Agreement ”) and (ii) the Securities Purchase Agreement, dated as of November 29, 2018 (the “ November Securities Purchase Agreement ” and together with the August Securities Purchase Agreement, collectively, the “ Securities Purchase Agreement ”), in each case, with the Buyers party thereto.”

 

6.             Ratification . This Amendment shall be construed in connection with and as a part of each of the Security Agreement, the IP Security Agreement, the Guaranty and Security Agreement, the Guarantor IP Security Agreement and Collateral Agency Agreement, as applicable, and, except as expressly amended by this Amendment, all terms, conditions, covenants, representations and warranties contained in the Security Agreement, the IP Security Agreement, the Guaranty and Security Agreement, the Guarantor IP Security Agreement and Collateral Agency Agreement, respectively, are hereby ratified and shall be and remain in full force and effect. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment may refer to the Security Agreement, the IP Security Agreement, the Guaranty and Security Agreement, the Guarantor IP Security Agreement and Collateral Agency Agreement, as applicable, without making specific reference to this Amendment, but nevertheless all such references shall include this Amendment.

 

7.            Parties Bound . This Amendment shall be binding on and inure to the benefit of (i) each Grantor and (ii) the Secured Parties, as well as each of their respective heirs, executors, administrators, legal representatives, successors and assigns, except as otherwise expressly provided for herein.

 

8.            Counterparts and Signatures . This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original, and all of which taken together shall constitute but one and the same instrument. The transmission or receipt of a facsimile or similar communication being a reproduction of a party’s signature or initial shall produce the same legal result as the transmission or receipt of an original signature or initial.

 

9.             Severability of Provisions . Any provision of this Amendment which is prohibited and unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibitive or enforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction.

 

10.          Section Headings . The Section headings used in this Amendment are for convenience only and shall not affect the construction of this Amendment.

 

11.          Governing Law . This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

 

 

 

 

12.           Instruction to Collateral Agent . Each of the Buyers, by its acknowledgement hereof, hereby directs the Collateral Agent to execute and deliver this Amendment, and authorizes the Collateral Agent to take action as agent on its behalf and to exercise such powers and discretion under the Security Agreement, the Guaranty and Security Agreement and the Collateral Agency Agreement and the other Transaction Documents (as defined in the Collateral Agency Agreement) as are delegated to the Collateral Agent by the terms thereof, together with such powers and discretion as are reasonably incidental. This Section 12 is solely for the benefit of the Collateral Agent and the Buyers and neither the Grantor nor any other Person shall have rights as a third party beneficiary of the provisions in this Section 12 .

 

13.          Costs and Expenses . Without limiting any expense or indemnity provisions set forth in the Security Agreement, the Guaranty and Security Agreement and the Collateral Agency Agreement or any other Transaction Document, the Grantor agrees to pay on demand all reasonable and documented out-of-pocket expenses, fees, and disbursements (including reasonable and documented attorneys’ fees and expenses) of the Collateral Agent and the Buyers in connection with the negotiation, preparation, execution, delivery and administration of this Amendment.

 

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IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.

 

  GRANTORS:
   
  APPLIED DNA SCIENCES, INC., a Delaware corporation
   
  By: /s/ Beth Jantzen
  Print Name:  Beth Jantzen, CPA
  Its:  Chief Financial Officer
   
  APDN (B.V.I.) INC., a corporation formed under the laws of the British Virgin Islands
   
  By: /s/ James A. Hayward
  Print Name:  James A. Hayward
  Its:  Authorized Signatory

 

[Signatures Continue on Following Page]

 

Signature Page to Omnibus Amendment Agreement

 

 

 

 

  COLLATERAL AGENT
   
  DELAWARE TRUST COMPANY,
  as Collateral Agent
   
  By: /s/ Alan R. Halpern
  Name: Alan R. Halpern
  Title: Vice President

 

[Signatures Continue on Following Page]

 

Signature Page to Omnibus Amendment Agreement

 

 

 

 

ACKNOWLEDGED AND CONSENTED TO BY BUYERS :

 

By:   /s/ James A. Hayward  
Print Name:  James A. Hayward  
   
By:   /s/ Judith Murrah  
Print Name:  Judith Murrah  
   
By: /s/ Yavoc Shamash  
Print Name:  Yavoc Shamash  
   
By:   /s/ Robert Catell 2/13/19  
Print Name:  Robert Catell  
   
By: /s/ Elizabeth Schmalz Ferguson  
Print Name:  Elizabeth Schmalz Ferguson  
   
By: /s/ Gregg Baldwin  
Print Name:  Gregg Baldwin  
   
By:   /s/ William Montgomery 2/11/19  
Print Name:  William Montgomery  
   
By:   /s/ J van Eeden  
Print Name:  Johnette van Eeden  
   
By: /s/ John Cartier  
Print Name:  John Cartier  
   
By: /s/ Wayne Buchen  
Print Name:  Wayne Buchen  

 

Signature Page to Omnibus Amendment Agreement

 

 

 

 

ACKNOWLEDGED AND CONSENTED TO BY BUYERS (continued) :

 

Delabarta II  
   
By:   /s/ John Bitzer III  
Print Name:  John F. Bitzer III  
Title:  President  
   
The Rodgers Living Trust Dated April 7, 1995  
   
By:  /s/ Jay D. Rodgers  
Print Name:  Jay D. Rodgers  
Title:  Trustee  

 

Signature Page to Omnibus Amendment Agreement

 

 

 

 

SCHEDULE I

 

SCHEDULE OF BUYERS

 

Buyer   Address for Notices
James A. Hayward  

1 Emmet Drive, Stony Brook, NY 11790 and

50 Health Sciences Drive, Stony Brook, NY 11790

Judith Murrah   8 Old Post Lane, Saint James, NY 11780
Delabarta II   c/o Delaware Corporate  Management, 1105 North Market Street, Suite 1300, Wilmington, DE  19801
Yavoc Shamash   7 Quaker Hill Road, Stony Brook, NY 11790
Robert Catell   62 Osborne Road, Garden City, NY 11530
Elizabeth Schmalz Ferguson   101 Jersey Avenue, Spring Lake, NJ 07762
The Rodgers Living Trust Dated April 7, 1995   1277 Porter Road, Flower Mound, TX 75022
Gregg Baldwin   3391 Ichabod Way, The Villages, FL 32163
William Montgomery   34211 Seavey Loop Road, Eugene, OR 97405
Johnette van Eeden   451 Westpark Way, Suite 5, Euless, TX 76040
John Cartier   P.O. Box East Hampton, NY 11937
Wayne Buchen   50 Health Sciences Drive, Stony Brook, NY 11790

 

Schedule I to Omnibus Amendment Agreement

 

 

 

 

 

Exhibit 10.8

 

EXECUTION VERSION

 

FIRST AMENDMENT TO INTELLECTUAL PROPERTY SECURITY AGREEMENT
(APPLIED DNA SCIENCES, INC.)

 

This FIRST AMENDMENT TO INTELLECTUAL PROPERTY SECURITY AGREEMENT (this “ Amendment ”), dated as of February 26, 2019, is between APPLIED DNA SCIENCES, INC. , a Delaware corporation (the “ Grantor ”) and DELAWARE TRUST COMPANY , a Delaware corporation, as collateral agent (together with its successors and assigns, in such capacity, the “ Collateral Agent ”) for the benefit of the undersigned investors (each, a “ Buyer ” and collectively, the “ Buyers ”; the Buyers and the Collateral Agent are collectively, together with their successors and assigns, referred to herein as the “ Secured Parties ”) and the other Secured Parties.

 

WITNESSETH :

 

WHEREAS , the Grantor and the Collateral Agent are parties to that certain Security Agreement, dated as of October 19, 2018 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Security Agreement ”), whereby the Grantor granted a security interest in substantially all of its tangible and intangible assets, whether real or personal property, now or hereafter acquired (the “ Collateral ”), to the Collateral Agent for the ratable benefit of the Secured Parties;

 

WHEREAS , in connection with the Security Agreement, the Issuer executed and delivered that certain Intellectual Property Security Agreement, dated as of October 19, 2018 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ IP Security Agreement ”) in favor of the Collateral Agent for the ratable benefit of the Secured Parties;

 

WHEREAS , the Grantor has requested and the Secured Parties, by their execution and acknowledgement hereof, have each agreed, subject to the terms of this Amendment, to amend the Security Agreement as provided herein; and

 

NOW, THEREFORE , the parties hereto hereby agree as follows, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged:

 

1.        Definitions . Capitalized terms used and not otherwise defined in this Amendment shall have the respective meanings given to such terms in the IP Security Agreement.

 

2.        Amendment to the IP Security Agreement . The parties hereto agree, intending to be legally bound, the second “WHEREAS” clause of the IP Security Agreement is hereby amended and restated, in its entirety, as follows:

 

WHEREAS , Grantor is party to (i) the Securities Purchase Agreement, dated as of August 31, 2018 (the “ August Securities Purchase Agreement ”) and (ii) the Securities Purchase Agreement, dated as of November 29, 2018 (the “ November Securities Purchase Agreement ” and together with the August Securities Purchase Agreement, collectively, the “ Securities Purchase Agreement ”), in each case with the Buyers party thereto."

 

3.        Ratification . Except as specifically modified herein, the terms of the IP Security Agreement shall remain in full force and effect. This Amendment shall be construed in connection with and as a part of the IP Security Agreement and, except as expressly amended by this Amendment, all terms, conditions, covenants, representations and warranties contained in the IP Security Agreement is hereby ratified and shall be and remain in full force and effect. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment may refer to the IP Security Agreement without making specific reference to this Amendment, but nevertheless all such references shall include this Amendment.

 

 

 

 

4.        Parties Bound . This Amendment shall be binding on and inure to the benefit of (i) the Grantor and (ii) the Secured Parties, as well as each of their respective heirs, executors, administrators, legal representatives, successors and assigns, except as otherwise expressly provided for herein.

 

5.        Counterparts and Signatures . This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original, and all of which taken together shall constitute but one and the same instrument. The transmission or receipt of a facsimile or similar communication being a reproduction of a party’s signature or initial shall produce the same legal result as the transmission or receipt of an original signature or initial.

 

6.        Severability of Provisions . Any provision of this Amendment which is prohibited and unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibitive or enforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction.

 

7.        Section Headings . The Section headings used in this Amendment are for convenience only and shall not affect the construction of this Amendment.

 

8.        Governing Law . This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

 

9.        Instruction to Collateral Agent . Each of the Buyers, by its acknowledgement hereof, hereby directs the Collateral Agent to execute and deliver this Amendment, and authorizes the Collateral Agent to take action as agent on its behalf and to exercise such powers and discretion under the IP Security Agreement as are delegated to the Collateral Agent by the terms thereof, together with such powers and discretion as are reasonably incidental. This Section 9 is solely for the benefit of the Collateral Agent and the Buyers and neither the Grantor nor any other Person shall have rights as a third party beneficiary of the provisions in this Section 9 .

 

10.        Costs and Expenses . Without limiting any expense or indemnity provisions set forth in the IP Security Agreement, the Grantor agrees to pay on demand all reasonable and documented out-of-pocket expenses, fees, and disbursements (including reasonable and documented attorneys’ fees and expenses) of the Collateral Agent and the Buyers in connection with the negotiation, preparation, execution, delivery and administration of this Amendment.

 

[remainder of page intentionally left blank]

 

 

 

 

IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.

 

  GRANTOR:
   
  APPLIED DNA SCIENCES, INC., a Delaware corporation
   
  By: /s/ Beth Jantzen
  Print Name:  Beth Jantzen, CPA
  Its:  Chief Financial Officer

 

[Signatures Continue on Following Page]

 

Signature Page to First Amendment to IP Security Agreement (Issuer)

 

 

 

 

 

  COLLATERAL AGENT
   
  DELAWARE TRUST COMPANY,
  as Collateral Agent
   
  By /s/ Alan R. Halpern
  Name: Alan R. Halpern
  Title: Vice President

 

[Signatures Continue on Following Page]

 

Signature Page to First Amendment to IP Security Agreement (Issuer)

 

 

 

 

ACKNOWLEDGED AND CONSENTED TO BY BUYERS:

  

By:   /s/ James A. Hayward  
Print Name:  James A. Hayward  
   
By:   /s/ Judith Murrah  
Print Name:  Judith Murrah  
   
By:   /s/ Yavoc Shamash  
Print Name:  Yavoc Shamash  
   
By:   /s/ Robert Catell  
Print Name:  Robert Catell  
   
By:   /s/ Elizabeth Schmalz Ferguson  
Print Name:  Elizabeth Schmalz Ferguson  
   
By:   /s/ Gregg Baldwin  
Print Name:  Gregg Baldwin  
   
By:   /s/ William Montgomery 2/11/19  
Print Name:  William Montgomery  
   
By:   /s/ J van Eeden  
Print Name:  Johnette van Eeden  
   
By: /s/ John Cartier  
Print Name:  John Cartier  

 

Signature Page to First Amendment to IP Security Agreement (Issuer)

 

 

 

 

ACKNOWLEDGED AND CONSENTED TO BY BUYERS (continued) :

 

By:  /s/ Wayne Buchen  
Print Name:  Wayne Buchen  
   
Delabarta II  
   
By:   /s/ John Bitzer III  
Print Name:  John F. Bitzer III  
Title:  President  
   
The Rodgers Living Trust Dated April 7, 1995  
   
By:   /s/ Jay D. Rodgers  
Print Name:  Jay D. Rodgers  
Title:  Trustee  

 

Signature Page to First Amendment to IP Security Agreement (Issuer)

 

 

 

 

 

Exhibit 10.9

 

EXECUTION VERSION

 

FIRST AMENDMENT TO INTELLECTUAL PROPERTY SECURITY AGREEMENT
(APDN B.V.I. INC.)

 

This FIRST AMENDMENT TO INTELLECTUAL PROPERTY SECURITY AGREEMENT (this “ Amendment ”), dated as of February 26, 2019, is between APDN (B.V.I.) INC. , a corporation organized under the laws of the British Virgin Islands (the “ Grantor ”) and DELAWARE TRUST COMPANY , a Delaware corporation, as collateral agent (together with its successors and assigns, in such capacity, the “ Collateral Agent ”) for the benefit of the undersigned investors (each, a “ Buyer ” and collectively, the “ Buyers ”; the Buyers and the Collateral Agent are collectively, together with their successors and assigns, referred to herein as the “ Secured Parties ”) and the other Secured Parties.

 

WITNESSETH :

 

WHEREAS , the Grantor and the Collateral Agent are parties to that certain Guaranty and Security Agreement, dated as of October 19, 2018 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Security Agreement ”), whereby the Grantor granted a security interest in substantially all of its tangible and intangible assets, whether real or personal property, now or hereafter acquired (the “ Collateral ”), to the Collateral Agent for the ratable benefit of the Secured Parties;

 

WHEREAS , in connection with the Security Agreement, the Issuer executed and delivered that certain Intellectual Property Security Agreement, dated as of October 19, 2018 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ IP Security Agreement ”) in favor of the Collateral Agent for the ratable benefit of the Secured Parties;

 

WHEREAS , the Grantor has requested and the Secured Parties, by their execution and acknowledgement hereof, have each agreed, subject to the terms of this Amendment, to amend the Security Agreement as provided herein; and

 

NOW, THEREFORE , the parties hereto hereby agree as follows, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged:

 

1.        Definitions . Capitalized terms used and not otherwise defined in this Amendment shall have the respective meanings given to such terms in the IP Security Agreement.

 

2.        Amendment to the IP Security Agreement . The parties hereto agree, intending to be legally bound, the second “WHEREAS” clause of the IP Security Agreement is hereby amended and restated, in its entirety, as follows:

 

WHEREAS , Grantor is a wholly owned subsidiary of APPLIED DNA SCIENCES, INC., a Delaware corporation (the “ Company ”) and the Company is party to (i) the Securities Purchase Agreement, dated as of August 31, 2018 (the “ August Securities Purchase Agreement ”) and (ii) the Securities Purchase Agreement, dated as of November 29, 2018 (the “ November Securities Purchase Agreement ” and together with the August Securities Purchase Agreement, collectively, the “ Securities Purchase Agreement ”), in each case with the Buyers party thereto."

 

 

 

 

3.        Ratification . Except as specifically modified herein, the terms of the IP Security Agreement shall remain in full force and effect. This Amendment shall be construed in connection with and as a part of the IP Security Agreement and, except as expressly amended by this Amendment, all terms, conditions, covenants, representations and warranties contained in the IP Security Agreement is hereby ratified and shall be and remain in full force and effect. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment may refer to the IP Security Agreement without making specific reference to this Amendment, but nevertheless all such references shall include this Amendment.

 

4.        Parties Bound . This Amendment shall be binding on and inure to the benefit of (i) the Grantor and (ii) the Secured Parties, as well as each of their respective heirs, executors, administrators, legal representatives, successors and assigns, except as otherwise expressly provided for herein.

 

5.        Counterparts and Signatures . This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original, and all of which taken together shall constitute but one and the same instrument. The transmission or receipt of a facsimile or similar communication being a reproduction of a party’s signature or initial shall produce the same legal result as the transmission or receipt of an original signature or initial.

 

6.        Severability of Provisions . Any provision of this Amendment which is prohibited and unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibitive or enforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction.

 

7.        Section Headings . The Section headings used in this Amendment are for convenience only and shall not affect the construction of this Amendment.

 

8.        Governing Law . This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

 

9.        Instruction to Collateral Agent . Each of the Buyers, by its acknowledgement hereof, hereby directs the Collateral Agent to execute and deliver this Amendment, and authorizes the Collateral Agent to take action as agent on its behalf and to exercise such powers and discretion under the IP Security Agreement as are delegated to the Collateral Agent by the terms thereof, together with such powers and discretion as are reasonably incidental. This Section 9 is solely for the benefit of the Collateral Agent and the Buyers and neither the Grantor nor any other Person shall have rights as a third party beneficiary of the provisions in this Section 9 .

 

10.        Costs and Expenses . Without limiting any expense or indemnity provisions set forth in the IP Security Agreement, the Grantor agrees to pay on demand all reasonable and documented out-of-pocket expenses, fees, and disbursements (including reasonable and documented attorneys’ fees and expenses) of the Collateral Agent and the Buyers in connection with the negotiation, preparation, execution, delivery and administration of this Amendment.

 

[remainder of page intentionally left blank]

 

 

 

 

IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.

 

  GRANTOR:
   
  APDN (B.V.I.) INC., a corporation formed under the laws of the British Virgin Islands
   
  By: /s/ James A. Hayward
  Print Name:  James A. Hayward
  Its:  Authorized Signatory.

 

[Signatures Continue on Following Page]

 

Signature Page to First Amendment to IP Security Agreement (Guarantor)

 

 

 

 

  COLLATERAL AGENT
   
  DELAWARE TRUST COMPANY,
  as Collateral Agent
   
  By: /s/ Alan R. Halpern
  Name: Alan R. Halpern
  Title: Vice President

 

[Signatures Continue on Following Page]

 

Signature Page to First Amendment to IP Security Agreement (Guarantor)

 

 

 

 

ACKNOWLEDGED AND CONSENTED TO BY BUYERS :

 

By:   /s/ James A. Hayward  
Print Name:  James A. Hayward  
   
By:   /s/ Judith Murrah  
Print Name:  Judith Murrah  
   
By:   /s/ Yavoc Shamash  
Print Name:  Yavoc Shamash  
   
By:   /s/ Robert Catell  
Print Name:  Robert Catell  
   
By:   /s/ Elizabeth Schmalz Ferguson  
Print Name:  Elizabeth Schmalz Ferguson  
   
By:   /s/ Gregg Baldwin  
Print Name:  Gregg Baldwin  
   
By:   /s/ William Montgomery 2/11/19  
Print Name:  William Montgomery  
   
By:   /s/ J van Eeden  
Print Name:  Johnette van Eeden  
   
By:  /s/ John Cartier  
Print Name:  John Cartier  

 

Signature Page to First Amendment to IP Security Agreement (Guarantor)

 

 

 

 

ACKNOWLEDGED AND CONSENTED TO BY BUYERS (continued) :

 

By: /s/ Wayne Buchen  
Print Name:  Wayne Buchen  
   
Delabarta II  
   
By: /s/ John Bitzer III  
Print Name:  John F. Bitzer III  
Title:  President  
   
The Rodgers Living Trust Dated April 7, 1995  
   
By: /s/ Jay D. Rodgers  
Print Name:  Jay D. Rodgers  
Title:  Trustee  

 

Signature Page to First Amendment to IP Security Agreement (Guarantor)

 

 

 

 

 

Exhibit 10.10

 

[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 (“[***]”).]

 

Patent and Know-How License and Cooperation Agreement

 

This Patent and Know-How License and Cooperation Agreement (the “Agreement”), dated as of March 28, 2019 (the “Effective Date”), is by and between Applied DNA Sciences, Inc., a Delaware corporation, with an address of 50 Health Sciences Drive, Stony Brook, New York 11790, APDN (B.V.I.), Inc., a fully owned subsidiary of Applied DNA Sciences, Inc. with an address of PO Box, 3170, Road Town, Tortola, British Virgin Islands (collectively “Applied DNA” or “Licensor”) and ETCH BioTrace S.A., a Panama corporation and a fully owned subsidiary of TheraCann International Benchmark Corporation, with an address of International Business Park Unit 5B, Building 3860 Panama Pacifico, Republic of Panama, 000000 (“ETCH BioTrace” or “Licensee”). Applied DNA and ETCH BioTrace shall each be referred to as a “Party” and collectively as the “Parties.”

 

WHEREAS , Licensor is the owner of entire right, title, and interest in and has the right to license to Licensee the Licensed Patents (as defined below), the Licensed Know-How (as defined below) and the Applied DNA Technology (as defined below);

 

WHEREAS , Licensee wishes to practice the Licensed Patents, the Licensed Know-How and the Applied DNA Technology in the Exclusive and Non-Exclusive Fields of Use (as defined below) in the Territory (as defined below), and Licensor is willing to grant to Licensee a license to and under the Licensed Patents, the Licensed Know-How and Applied DNA Technology upon the terms and conditions set out in this Agreement; and

 

WHEREAS , the Parties further wish to collaborate on the strategic commercialization of the Applied DNA Technology in the Exclusive and Non-Exclusive Fields of Use.

 

NOW, THEREFORE , in consideration of the mutual covenants, terms, and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1.   Definitions . For purposes of this Agreement, the following terms shall have the following meanings:

 

Action ” has the meaning set forth in Section 14.1.

 

Affiliate ” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” for purposes of this Agreement means the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise/direct or indirect ownership of more than fifty percent (50%) of the voting securities of a Person, and “controlled by” and “under common control with” have correlative meanings.

 

Agreemen t” has the meaning set forth in the preamble.

 

 

 

   

“Applied DNA Technology” means Applied DNA’s proprietary or patented DNA tagging, DNA tag application and DNA tag authentication technologies marketed under SigNature ® and/or CertainT ® in the Exclusive and Non-Exclusive Fields of Use.

 

Backup License ” has the meaning set forth in Section 16.1.

 

Backup License Event ” means an event where the Licensor:

 

(a) is dissolved or liquidated or takes any corporate action for such purpose;

 

(b) becomes insolvent or is generally unable to pay, or fails to pay, its debts as they become due;

 

(c) files or has filed against it a petition for voluntary or involuntary bankruptcy or otherwise becomes subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency Law;

 

(d) makes or seeks to make a general assignment for the benefit of its creditors; or

 

(e) applies for or has a receiver, trustee, custodian, or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any material portion of its property or business;

 

(f) ceases its business operations generally, or ceases to function as a going concern or to conduct its operations in the normal course of business as previously conducted;

 

(g) ceases the manufacture of the Applied DNA Technology in the Exclusive or Non-Exclusive Field of Use; or

 

(h) fails to provide material aspects of the Applied DNA Technology to Licensee for a period of more than twenty (20) consecutive Business Days, wherein said failure is not caused by a Force Majeure Event or a Mutual Pricing Dispute.

 

BL Exercise ” shall mean written notice to Licensor of Licensee’s intention to exercise its rights under the Backup License.

 

Business Day” means a day other than a Saturday, Sunday, or other day which commercial banks in New York, NY are authorized or required by Law to be close for business.

 

 

 

 

Confidential Information ” means any business or technical information that is disclosed hereunder by one Party or any of its Affiliates (the disclosing Party) to the other Party or any of its Affiliates (the receiving Party). Confidential Information shall include any and all technical and business information, whether written, oral or graphic, that representatives of either Party may disclose or reveal to the other Party, including but not limited to the Licensed Know-How, financial plans and records, Information, marketing plans, business strategies and relationships with third parties, client lists, present and proposed products, trade secrets, information regarding customers and suppliers, founders, employees and affiliates, that the receiving Party has a reasonable basis to believe is confidential to the disclosing Party and is treated by the disclosing Party as confidential. Confidential Information shall also include the terms of this Agreement. Samples provided by one Party to the other are understood to be Confidential Information of the providing Party. Such Confidential Information shall not include information that:

 

(a) was known to the receiving Party prior to receipt from the disclosing Party, as documented in written records or publications that lawfully are in the possession of the receiving Party or known to the receiving Party prior to such receipt;

 

(b) was lawfully available to the trade or to the public prior to receipt from the disclosing Party;

 

(c) becomes lawfully available to the trade or to the public after receipt from the disclosing Party through no act or omission on the part of the receiving Party, its Affiliates or their directors, officers or employees;

 

(d) corresponds in substance to any information received in good faith by the receiving Party from any third party and which is not subject to confidentiality limitations; or

 

(e) is independently developed by an employee or agent of the receiving Party, without reference to information received from the disclosing Party subsequent to receipt of such information from the disclosing Party.

 

For all purposes of this Agreement, Confidential Information that is specific shall not be deemed to be within any of the specified exceptions merely because it is embraced by more general information in such exception. In addition, any combination of features shall not be deemed to be within any of the specified exceptions merely because individual features are in such exception, but only if the combination itself and its principle of operation are in such exception.

 

Development Plan ” has the meaning set forth in Section 7.3.

 

Effective Date ” means the date set forth in the preamble.

 

Exclusive Field of Use ” means cannabis sativa L and cannabis sativa L derivative products, excluding use in textiles.

 

“Force Majeure Event” has the meaning set forth in Section 19.2.

 

Governmental Authority ” means any federal, state, national, supranational, local, or other government, whether domestic or foreign, including any subdivision, department, agency, instrumentality, authority (including any regulatory authority), commission, board, or bureau thereof, or any court, tribunal, or arbitrator.

 

Improvement ” means any modification or enhancement to the Applied DNA Technology whether developed or owned by Licensor, including, but not limited to modifications and/or enhancements that increase performance, ease of use, efficacy, broaden functionality, reduce cost and/or marketability.

 

Improvement Notice ” has the meaning set forth in Sections 5.1.

 

 

 

 

Improvement Patent(s) ” means all patent applications, and all patents issuing therefrom, that claim Improvements, having a filing date or acquired by, transferred, or licensed to Licensor on or after the Effective Date.

 

Knowledge ” means the actual knowledge of Licensor and its Affiliates.

 

Law ” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any federal, state, local, or foreign government or political subdivision thereof, or any arbitrator, court, or tribunal of competent jurisdiction.

 

Licensed Know-How ” means any and all technical information, trade secrets, formulas, prototypes, specifications, directions, instructions, test protocols, procedures, results, studies, analyses, raw material sources, data, manufacturing data, formulation or production technology, conceptions, ideas, innovations, discoveries, inventions, processes, methods, materials, machines, devices, formulae, equipment, enhancements, modifications, technological developments, techniques, systems, tools, designs, drawings, plans, software, documentation, data, programs, and other knowledge, information, skills, and materials owned or controlled by Licensor pertaining to the Licensed Patents and useful in the sale, or use of the Applied DNA Technology, and any modifications, variations, derivative works, and improvements of or relating to any of the foregoing.

 

Licensed Patent(s) ” means the patents and patent applications listed in Schedule A together with all patents that issue therefrom and all continuations, continuations-in-part, divisionals, extensions, substitutions, reissues, re-examinations, international counterparts, and renewals of any of the foregoing.

 

Licensed Patent Challenge ” has the meaning set forth in Section 9.4.

 

Licensee ” has the meaning set forth in the preamble.     

 

Licensor ” has the meaning set forth in the preamble.

 

Losses ” means all losses, damages, liabilities, deficiencies, claims, actions, judgments, settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind, including reasonable attorneys’ fees and the cost of enforcing any right to indemnification hereunder, and the cost of pursuing any insurance providers. 

 

“Mutual Pricing Dispute” has the meaning set forth in Section 7.4.

 

Mutual Pricing Dispute Notice ” has the meaning set forth in Section 7.4.

 

Non-Exclusive Field of Use ” means cannabis sativa L and cannabis sativa L derivative products for use in textiles.

 

Person(s) ” means an individual, corporation, partnership, joint venture, limited liability company, governmental authority, unincorporated organization, trust, association, or other entity.

 

Representatives ” means a party’s and its Affiliates’ employees, officers, directors, consultants, and legal advisors.

 

 

 

 

Staged Payments ” has the meaning set forth in Section 6.1.

 

Sublicensee or Sublicensees ” means any Person to whom or which Licensee grants a sublicense, in whole or in part, under this Agreement.

 

Supply Agreement ” has the meaning set forth in Section 18.1(b).

 

Term ” has the meaning set forth in Section 15.1.

 

Territory ” shall mean worldwide.

 

Valid Claim ” means, on a country-by-country basis, a claim of an unexpired issued or granted Licensed Patent as long as the claim has not been admitted by Licensor or otherwise caused to be invalid or unenforceable through reissue, disclaimer, or otherwise, or held invalid or unenforceable by a Governmental Authority of competent jurisdiction from whose judgment no appeal is allowed or timely taken.

 

2. License Grant .

 

2.1   Patent and Know-How License . Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee during the Term a sublicensable, pursuant to Section 4, exclusive right and license under the Licensed Patents and Licensed Know-How to use, offer to sell, sell and import the Applied DNA Technology in the Exclusive Field of Use in the Territory. Subject to the terms and conditions of this Agreement, Licensor hereby also grants to Licensee during the Term a sublicensable, pursuant to Section 4, non-exclusive right and license under the Licensed Patents and Licensed Know-How to use, offer to sell, sell and import the Applied DNA Technology in the Non-Exclusive Field of Use in the Territory.

 

2.2   Limited Grant . Except for the rights and licenses granted by Licensor under this Section 2, or otherwise set forth hereunder, this Agreement does not grant to Licensee or any other Person any right, title, or interest by implication, estoppel, or otherwise. All rights, titles, and interests not specifically and expressly granted by Licensor hereunder are hereby reserved.

 

3. Transfer of Licensed Know-How . Licensor shall, within thirty (30) Business Days after the Effective Date, disclose the Licensed Know-How to Licensee. During the Term, upon reasonable notice and during Licensor’s normal business hours, Licensor shall (a) designate one or more technical liaisons for communications with Licensee’s technical staff, and (b) provide Licensee with all necessary technical assistance from Licensor’s technical liaisons to answer Licensee’s questions concerning the use of the Licensed Know-How as Licensee reasonably requests.

 

4. Sublicensing .

 

4.1 Scope of Sublicense . No sublicense shall exceed the scope of rights granted to Licensee hereunder. Licensee shall require all sublicensees to be in writing and to: (a) include an agreement by the Sublicensee to be bound by the terms and conditions of this Agreement; (b) include Licensor’s right to enforce its rights in the Licensed Patents and Licensed Know-How; (c) provide that the term of the sublicense thereunder shall not extend beyond the Term; and (d) indicate that Licensor is a third party beneficiary and entitled to enforce the terms and conditions of the sublicense. Licensee shall enforce all sublicenses at its cost and shall be responsible for the acts and omissions of its Sublicensees. In the event of the termination or expiration of this Agreement, all sublicense rights shall terminate effective as of the termination or expiration of this Agreement.

 

 

 

 

4.2 Licensee Liability . Notwithstanding any sublicense agreement, Licensee shall remain primarily liable to Licensor for all of Licensee’s duties and obligations contained in this Agreement, including the payment of all consideration hereunder. Any act or omission of a Sublicensee that would be a breach of this Agreement if committed or omitted by Licensee will be a breach by Licensee. Each sublicense agreement shall contain a right of termination by Licensee for the Sublicensee’s: (a) breach of any payment; or (b) breach of any other terms or conditions of the sublicense agreement that is also set forth, in substance, in this Agreement, which breach would constitute a breach of this Agreement if Licensee failed to comply therewith. In the event of a Sublicensee breach of these obligations, and if after a reasonable cure period provided in the sublicense agreement, not to exceed sixty (60) Business Days, the Sublicensee fails to cure the Sublicensee breach, then Licensee shall terminate the sublicense agreement by written notice to the Sublicensee within five (5) Business Days thereafter and concurrently provide a copy of such notice to Licensor.

 

4.3 Notice of Sublicense Agreement . Licensee shall deliver to Licensor a true, complete, and correct copy of each sublicense agreement entered into by Licensee, and any modification or termination thereof, within five (5) Business Days following the applicable execution, modification, or termination of the sublicense agreement.

 

5. Improvements

 

5.1   Notice of Improvements . No later than five (5) Business Days after the filing date or, where applicable, the effective date of any assignment or transfer to Licensor, of any relevant Improvement Patents, Licensor shall provide written notice to Licensee (“Improvement Notice”) that identifies each Improvement Patent and its filing or acquisition date and includes a summary of the subject matter claimed in each Improvement Patent/copy of each Improvement Patent. Immediately upon delivery of the Improvement Notice to Licensee, and with no additional action required of the Licensee, each Improvement Patent shall be a Licensed Patent. Licensor further agrees to license said Improvement know-how to Licensee in the Exclusive and Non-Exclusive Fields of Use for the Term.

 

5.2 Ownership of Improvements – Licensor. Subject to the terms of this Agreement, all right, title and interest in the Improvements conceived, made or reduced to practice in whole or in part by Licensor during the Term of this Agreement, and all of Licensor’s patents and patent applications claiming any of the same, shall remain the sole property of Licensor.

 

5.3 Ownership of Improvements – Licensee. All right, title, and interest in any Improvements conceived, made, or reduced to practice in whole or in part by Licensee during the Term of this Agreement, and all of Licensee’s patents and patent applications claiming any of the Improvements, shall be jointly owned by the Parties. Licensor agrees to exclusively license its ownership interest in Improvements to Licensee in the Exclusive and Non-Exclusive Fields of Use in the Territory for the Term without additional compensation under this Agreement.

 

 

 

 

6. Payments to Licensor .

 

6.1 Staged Payments . In consideration of the rights granted under Section 2, Licensee shall make the following series of non-refundable payments to Licensor as follows (the “Staged Payments”):

 

(a) $1,000,000 USD on or before April 15, 2019;

 

(b) $2,000,000 USD on or before June 30, 2019; and

 

(c) $2,000,000 USD on or before August 15, 2019

 

6.2 Payment upon Sale of Licensee . If Licensee is purchased or otherwise acquired by a third-party, Licensor shall be entitled to twenty-five percent (25%) of the purchase price consideration, whether such consideration is in the form of cash, equities or a combination thereof. Payment to Licensor under this Section 6.2 shall be made with thirty (30) Business Days of the closing of the transaction.

 

7. Conversion to Non-Exclusive License

 

7.1 Minimum Cash Payments . Licensee agrees that during the Term, Licensee (or its Sublincensees) must meet the following annual cash payment minimums to Licensor in order to maintain the exclusive license provided in Section 2.1:

 

Year   Annual Cash Min.
Payment
 
1   $ 0  
2   $ 2,000,000  
3   $ 7,000,000  
4   $ 10,000,000  
5-9   $ 12,000,000  
10 - 14   $ 16,000,000  
15- term   $ 20,000,000  

 

The Parties agree that the above annual cash payment minimums to Licensor may be comprised of any combination of cash payments from Licensee or any Sublicensee for DNA taggant, profit share, DNA authentication devices/reagents, DNA authentication services, project fees, other service or product fees, and/or other cash payments. Each annual cash payment minimum term shall be calculated from the Effective Date anniversary.

 

7.2 Conversion to Non-Exclusive License . Subject to Section 7.3, in the event Licensor does not receive the applicable annual cash payment minimum from Licensee or any Sublicensee, the exclusive license grant in Section 2.1 shall become non-exclusive for the Term. All other terms of this Agreement shall remain unchanged.

 

 

 

 

7.3 Joint Development Plan . In lieu of the annual cash payment minimums for years 1 and 2, the Parties agree to create, within sixty (60) Business Days of the Effective Date, a mutually agreeable development plan for Licensee’s commercialization of the Applied DNA Technology in the Exclusive and Non-Exclusive Fields of Use (the “Development Plan”). The Development Plan will contain Licensee commercialization milestones that shall be met by Licensee in lieu of annual cash payment minimums for years 1 and 2. Licensee’s failure to meet the commercialization milestones in the Development Plan shall be curable by either: the payment of the annual cash payment due; or meeting the applicable commercialization milestones in the Development Plan within sixty (60) Business Days of Licensor’s written notice to Licensee of Licensee’s failure to meet such applicable commercialization milestone. Licensee’s failure to meet the applicable commercialization milestone within the 60 Business Day cure period, wherein said failure is not cause by a Force Majeure Event, shall result in the exclusive license grant in Section 2.1 reverting to a non-exclusive license grant for the Term. All other terms of this Agreement shall remain unchanged.

 

7.4 Pricing Dispute . If after good faith negotiations, the Parties cannot reach mutually agreeable pricing as set forth in Section 18 for a period of more than fifteen (15) consecutive Business Days (a “Mutual Pricing Dispute”), Licensee shall provide written notice to Licensor of the pricing dispute (the “Mutual Pricing Dispute Notice”). If the Mutual Pricing Dispute is not resolved between the Parties within seven (7) Business Days of Licensor’s Mutual Pricing Dispute Notice, the annual cash payment minimum(s) applicable during the Mutual Pricing Dispute shall be reduced pro rata according to the duration of the Mutual Pricing Dispute utilizing the following formula: (((value of applicable annual cash payment minimum)/261) x (number of Business Days of the Mutual Pricing Dispute)) x (dispute value/historical 12 month sales))). If a Mutual Pricing Dispute occurs within a time period encompassing more than one annual cash payment minimum period, the aforementioned formula shall be used to calculate the pro rata annual cash payment minimum reduction for each applicable annual cash payment minimum period.

 

If a Pricing Dispute is not resolved between the Parties within thirty (30) Business Days of the Mutual Pricing Dispute Notice, the Parties agree to submit their dispute to a mutually agreeable third-party mediator whose decision on pricing shall be binding for a period of one (1) year. If the Mutual Pricing Dispute is submitted to a third-party mediator, the Mutual Pricing Dispute shall be deemed resolved upon the date of the mediator’s decision.

 

8. Patent Prosecution and Maintenance .

 

8.1 Patent Prosecution . Subject to Section 8.2 and 8.3, for each patent application and patent under the Licensed Patents, Licensor shall:

 

(a)  prepare, file, and prosecute such patent application:

 

(b)  maintain such patent;

 

(c)  pay all fees and expenses associated with its activities pursuant to Section 8.1(a) and Section 8.1(b);

 

 

 

 

(d)  keep Licensee currently informed of the filing and progress of all material aspects of the prosecution of such patent application and the issuance of patents from any such patent application;

 

(e) notify Licensee six (6) months prior to the national phase entry deadline for obtaining patent protection in any country or region of the world under the Licensed Patents, and shall timely file national (or regional) stage patent applications in accordance with Section 8.2(c) of this Agreement; and

 

(f)  notify Licensee in writing of any additions, deletions, or changes in the status of such patent or patent application.

 

8.2  Abandonment .

 

(a) Licensor wishes to abandon any patent application or patent in respect of a Licensed Patent, it shall give Licensee one-hundred-eighty (180) calendar days’ prior written notice of the desired abandonment, and Licensor shall not abandon any such Licensed Patent except upon the prior written consent of Licensee. On Licensee’s request, which may be provided at any time after the notice of desired abandonment, Licensor shall assign to Licensee any such patent application or patent that the Licensor wishes to abandon. Effective as of the effective date of the assignment, such patent application or patent shall no longer be a Licensed Patent.

 

(b) Licensee reasonably believes that Licensor, for any reason, is not diligently prosecuting or maintaining any patent application or patent in respect of a Licensed Patent, Licensee shall provide written notice to Licensor of the perceived prosecution and/or maintenance deficiency. Licensor shall have sixty (60) days to cure the deficiency to the reasonable satisfaction of Licensee. If after the 60 day cure period Licensee reasonable believes that Licensor has not cured the perceived prosecution and/or maintenance deficiency, the Parties shall submit their dispute to a mutually agreeable third-party mediator. In the event the third-party mediator concludes that Licensor has failed to cure the prosecution and/or maintenance deficiency raised by Licensee, Licensor shall immediately assign such patent application or patent to Licensee. Effective as of the effective date of the assignment, such patent application or patent shall no longer be a Licensed Patent.

 

(c) Licensee shall provide a list of countries or regions where patent protection is sought within forty five (45) days of receiving a notice under 8.1(e) of this Agreement. The Parties shall agree on a filing strategy for each country and Licensor shall pay for patent application filings, translations, attorneys fees, prosecution costs and fees, and patent maintenance fees. Should Licensee require patent protection in regions or countries not agreed to by Licensor, Licensor shall assign the right to file, own and prosecute national stage patent applications in such countries or regions to Licensee, such national stage patent applications shall include those claiming priority to PCT/US19/16385 and any related patent applications, but not those whose international filing date has lapsed as of the Effective Date of this Agreement .

 

 

 

 

8.3 Vesting of Prosecution and Maintenance Obligations . In the event the Licensor:

 

(a) takes any corporate action for dissolution or liquidation;

 

(b) becomes insolvent or is generally unable to pay, or fails to pay, its debts as they become due;

 

(c) files or has filed against it a petition for voluntary or involuntary bankruptcy or otherwise becomes subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency Law;

 

(d) makes or seeks to make a general assignment for the benefit of its creditors; or

 

(e) applies for or has a receiver, trustee, custodian, or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any material portion of its property or business;

 

for each patent application and patent under the Licensed Patents, the obligation to:

 

(i) prepare, file, and prosecute such patent application:

 

(ii) maintain such patent; and

 

(iii) pay all fees and expenses associated with its activities pursuant to Section 8.3(i) and Section 8.1(ii);

 

shall immediately vest with the Licensee.

 

9. Enforcement of Licensed Rights

 

9.1 Notice of Infringement or Third-Party Claims . If (a) either Party believes that a Licensed Patent or Licensed Know-How is being infringed or misappropriated by a third party in the Exclusive and/or Non-Exclusive Field of Use in the Territory, or (b) if a third party alleges that any Licensed Patent is invalid or unenforceable, or claims that the Applied DNA Technology, or its use, development, manufacture, or sale infringes such third party’s intellectual property rights in the Exclusive and/or Non-Exclusive Field of Use in the Territory, the party possessing such belief or awareness of such claims shall promptly provide written notice to the other party and provide it with all details of such infringement or claim, as applicable, that are known by such Party.

 

9.2 Right to Bring Action or Defend.

 

(a) Subject to Section 9.3(b), Licensor has the sole right and discretion to prevent or abate any actual or threatened misappropriation or infringement and attempt to resolve any claims relating to the Licensed Patents and Licensed Know-How, including by (a) prosecuting or defending any inter-partes review, post-grant review, covered business method patent review, opposition, derivation, interference, declaratory judgment, federal district court, US Patent and Trademark Office, US International Trade Commission, or other proceeding of any kind, and (b) taking any other lawful action that Licensor, in its sole discretion, believes is reasonably necessary to protect, enforce, or defend any Licensed Patent or Licensed Know-How. Licensor has the right to prosecute or defend any such proceeding in Licensor’s own name or, if required by applicable Law, in the name of Licensee and may join Licensee as a party if a court of competent jurisdiction determines Licensee is an indispensable party to such proceeding. Licensee shall cooperate in all respects with Licensor in the all actions taken under this Section 9, and assist in all reasonable ways, including having its employees testify when requested, and make available for discovery or trial exhibit relevant records, papers, information, samples, specimens, and the like. Licensor shall bear its own costs and expenses in all such proceedings and have the right to control the conduct thereof and be represented by counsel of its own choice therein.

 

 

 

 

(b) If Licensor undertakes the enforcement or defense of any Licensed Patent:

 

(i)  any recovery, damages, or settlement derived from such suit, action, or other proceeding shall be retained in its entirety by Licensor; and

 

(ii)  Licensor may settle any such suit, action, or other proceeding, whether by consent order, settlement, or other voluntary final disposition, without the prior written approval of Licensee provided that Licensor shall not settle any such suit, action, or other proceeding in a manner that adversely affects the rights of any of Licensee concerning the Licensed Patents and Licensed Know-How without Licensee’s prior written consent, which consent may not be unreasonably withheld or delayed.

 

9.3   Claims .

 

(a) If any suit, action, or other proceeding alleging invalidity or infringement of any Licensed Patent is brought against Licensee or any Sublicensee, Licensor, shall, as soon as practicable and, in no event later than thirty (30) Business Days after commencement of such suit, action, or other proceeding, intervene and take over the sole defense of the suit, action, or other proceeding at its own expense.

 

(b) If Licensor fails to defend any such suit, action or other proceeding alleging invalidity or infringement of any Licensed Patent against Licensee or any Sublicensee, and the failure to so defend would have an adverse effect on any Licensed Patents, then Licensee shall have the right to assume the defense against such claim at its own expense and by counsel of its own choice; provided Licensee shall not have the right to settle any patent infringement litigation under this Section 9.3(b) in a manner that diminishes the rights or interests of the Licensor without the consent of the Licensor (which shall not be unreasonably withheld).

 

(c) During the pendency of any such proceeding or any appeal thereof, any payment hereunder to Licensor shall be paid by Licensee into an interest-bearing escrow account pending the outcome of such proceeding. Upon a favorable final resolution of such proceeding or any appeal thereof retaining the full rights, Licensee shall resume paying Licensor all amounts due under this Agreement, and all funds in such escrow account shall be paid to Licensor. Upon an unfavorable final resolution of such proceeding or any appeal thereof, the funds in such escrow account shall be applied toward the damage award in such action, if any, and the balance, if any, paid to Licensor.

 

 

 

 

9.4 Licensee Challenge To Licensed Patents . If, during the Term, Licensee, its Affiliate and/or any Sublicensee institutes or actively participates as an adverse party in, or otherwise provides material support to, any action, suit, or other proceeding in the Territory to invalidate or limit the scope of any Licensed Patent claim or obtain a ruling that any Licensed Patent claim is unenforceable or not patentable (a ”Licensed Patent Challenge”), Licensor has the right to immediately terminate this Agreement with notice to Licensee and with no opportunity for Licensee to cure and this Agreement will immediately terminate effective as of the first date of Licensee’s, its Affiliate’s and/or any Sublicensee’s first filing or participation in the Licensed Patent Challenge.

 

10. Compliance with Laws.

 

10.1 Regulatory Clearance . Licensee itself or through any of its Sublicensees shall, at Licensee’s or Sublicensees’ expense, comply with all regulations and safety standards concerning the Applied DNA Technology developed and commercialized by or under the authority of Licensee and obtain all necessary governmental approvals for the development, production, distribution, sale, and use of the Applied DNA Technology developed and commercialized by or under the authority of Licensee, including any safety or clinical studies.

 

10.2 Recordation of License . If recordation of this Agreement or any part of it by a national or supranational agency is necessary for Licensee or Licensor to fully enjoy the rights, privileges, and benefits of this Agreement, Licensee shall, at its own expense and within sixty (60) Business Days of the Effective Date, record this Agreement or all such parts of this Agreement and information concerning the license granted hereunder with each such appropriate national or supranational patent agency. Licensee shall (a) provide to Licensor for Licensor’s review and approval all documents or information it proposes to record at least thirty (30) Business Day’s prior to the recordation thereof, and (b) promptly notify Licensor with verification of Licensee’s recordation or any related agency ruling. In making any such disclosures, Licensee shall maintain, to the fullest extent permitted by Law, the confidentiality of this Agreement, the terms and conditions of this Agreement, and any other Licensor Confidential Information. Any specific disclosure made in accordance with this Section and not objected to by Licensor shall not constitute a breach of the Licensee’s obligations under Section 11(Confidentiality).

 

10.3 Export Compliance . Neither Licensee nor any of its permitted Sublicensees shall, directly or indirectly, export or re-export the Applied DNA Technology (including any associated products, items, articles, computer software, media, services, technical data, and other information) in violation of any applicable U.S. Laws. Licensee and each Sublicensee shall include a provision identical in substance to this Section in its agreements with its permitted Sublicensees, third party wholesalers, distributors, customers, and end-users requiring that these Persons comply with all applicable U.S. Laws, including all applicable U.S. export Laws.

 

10.4 Patent Marking . Licensee and any permitted Sublicensee shall comply with the patent marking provisions of 35 USC § 287(a), if applicable, by marking all Licensed Products with the word “patent” or the abbreviation “pat.” and either the numbers of the relevant Licensed Patents or a web address that is freely accessible to the public and that associates the Licensed Products with the relevant Licensed Patents. Licensee and any permitted Sublicensee shall also comply with the patent marking laws of the relevant countries in the Territory.

 

 

 

 

11. Confidentiality

 

11.1 Confidentiality Obligations . Each Party (the “Receiving Party”) acknowledges that in connection with this Agreement it will gain access to Confidential Information of the other Party (the “Disclosing Party”). As a condition to being provided with Confidential Information, the Receiving Party shall, during the Term and for five (5) years thereafter:

 

(a) not use the Disclosing Party’s Confidential Information other than as strictly necessary to exercise its rights and perform its obligations under this Agreement; and

 

(b)  maintain the Disclosing Party’s Confidential Information in strict confidence and, subject to Section 11.2, not disclose the Disclosing Party’s Confidential Information without the Disclosing Party’s prior written consent, provided, however, the Receiving Party may disclose the Confidential Information to its Representatives who:

 

(i) have a need to know the Confidential Information for purposes of the Receiving Party’s performance, or exercise of its rights concerning the Confidential Information, under this Agreement;

 

(ii) have been apprised of this restriction; and

 

(iii) are themselves bound by written nondisclosure agreements at least as restrictive as those set forth in this Section 11.1, provided further that the Receiving Party shall be responsible for ensuring its Representatives’ compliance with, and shall be liable for any breach by its Representatives of, this Section 11.1.

 

The Receiving Party shall use reasonable care, at least as protective as the efforts it uses for its own confidential information, to safeguard the Disclosing Party’s Confidential Information from use or disclosure other than as permitted hereby.

 

11.2 Exceptions. If the Receiving Party becomes legally compelled to disclose any Confidential Information, the Receiving Party shall:

 

(a)  if legally permitted to do so, provide prompt written notice to the Disclosing Party so that the Disclosing Party may seek a protective order or other appropriate remedy or waive its rights under this Section 11; and

 

(b)  disclose only the portion of Confidential Information that it is legally required to furnish.

 

If a protective order or other remedy is not obtained, or the Disclosing Party waives compliance under this Section 11, the Receiving Party shall, at the Disclosing Party’s expense, use reasonable efforts to obtain assurance that confidential treatment will be afforded the Confidential Information.

 

 

 

 

11.3 Compulsory Disclosure . If a Party is disclosing any Confidential Information because it is required to do so to comply with a statute, ordinance or regulation or compulsory legal process, including, without limitation, its reporting requirements under the Securities Exchange Act of 1934, as amended, and/or the Securities Act of 1933, as amended, such Party intending to make such disclosure shall give the other Party at least five (5) Business Days prior notice in writing of the text of the intended disclosure, unless such statute, ordinance, regulation or compulsory legal process would require earlier disclosure, in which event the notice shall be provided as early as practicable. A Party that determines it is required to file this Agreement with the U.S. Securities and Exchange Commission, Canadian SEDAR (System for Electronic Document Analysis and Retrieval) or any other governmental authority, shall request confidential treatment with respect to the terms of this Agreement, shall consult in good faith with the other Parties regarding such confidential treatment and shall use commercially reasonable efforts to have redacted from any publicly available version such provisions as the Parties may agree from any copies filed pursuant to such statute, ordinance, regulation or compulsory legal process.

 

11.4 Disclosure of Agreement Existence . The Parties expressly acknowledge and agree that each Party is permitted to publicly disclosure the existence of this Agreement subject the confidentiality obligations contained herein with regards to the terms of this Agreement.

 

12. Representations and Warranties

 

12.1 Mutual Representations and Warranties . Each party represents and warrants to the other party that as of the Effective Date:

 

(a)  it is duly organized, validly existing, and in good standing as a corporation or other entity as represented herein under the laws and regulations of its jurisdiction of incorporation, organization, or chartering;

 

(b)  it has, and throughout the Term shall retain, the full right, power, and authority to enter into this Agreement and to perform its obligations hereunder;

 

(c)  the execution of this Agreement by its representative whose signature is set forth at the end hereof has been duly authorized by all necessary corporate/organizational action of the party; and

 

(d)  when executed and delivered by such party, this Agreement shall constitute the legal, valid, and binding obligation of that party, enforceable against that party in accordance with its terms.

 

12.2 Licensor’s Representations and Warranties . Licensor represents and warrants that:

 

(a)  The Licensed Patents are all the patents and/or patent applications owned by Licensor or in which Licensor has a licensable interest, that, with the accompanying licensed Know-How, are necessary or useful for Licensee to, use, offer to sell, sell, and import the Applied DNA Technology in the Exclusive and Non-Exclusive Fields of Use, and, to the extent rights in any such additional patents and patent applications are required during the Term, Licensor hereby grants Licensee a license thereto;

 

 

 

 

(b)  it is the sole and exclusive legal and beneficial owners of the entire right, title, and interest in and to the Licensed Patents and Licensed Know-How, and are, and shall remain, during the Term, the record owner of all patent applications and issued patents that are Licensed Patents;

 

(c)  neither its grant of the licenses, nor its performance of any of its obligations, under this Agreement does or to its knowledge will at any time during the Term:

 

(i)  conflict with or violate any applicable Law;

 

(ii)  require the consent, approval, or authorization of any governmental or regulatory authority or other third party; or

 

(iii)  require the provision of any payment or other consideration to any third party.

 

(d)  there is no settled, pending, or to its Knowledge threatened litigation or reissue application, re-examination, post-grant, inter partes , or covered business method patent review, interference, derivation, opposition, claim of invalidity, or other claim or proceeding (including in the form of any offer to obtain a license):

 

(i)  alleging the unpatentability, invalidity, misuse, unregisterability, unenforceability, or noninfringement of, or error in any Licensed Patents; or

 

(ii)  challenging Licensor’s ownership of, or right to practice or license any Licensed Patents or the Licensed Know-How, or alleging any adverse right, title, or interest with respect thereto.

 

(e)  it has no Knowledge, after reasonable investigation, of any factual, legal, or other reasonable basis for any litigation, claim, or proceeding described in Section 12.2(d);

 

(f)  it has not received any written, oral, or other notice of any litigation, claim, or proceeding described in Section 12.2(d);

 

(g)  it has not brought or threatened any claim against any third party alleging infringement/misappropriation of any Licensed Patents or the Licensed Know-How, nor, to its Knowledge, is any third party infringing or, to its Knowledge, preparing or threatening to infringe any patent, or practicing any claim of any patent application, included as Licensed Patents;

 

(h) it has not granted, and will not knowingly grant, licenses or other rights under the Licensed Patents and Licensed Know-How that are in conflict with the terms and conditions of this Agreement;

 

(i) to its Knowledge, Licensee’s contemplated use of the Licensed Patents and Licensed Know-How as represented to Licensor does not infringe any valid rights of any third party;

 

 

 

 

(j) there are no actions for infringement against Licensor with respect to items it manufactures and sells embodying the invention of the Licensed Patents anywhere in the world; and

 

(k) the Applied DNA Technology is safe for the purposes expressed in this Agreement, including the use of the Applied DNA Technology on substrates used for human consumption.

 

12.3 Licensee’s Representations and Warranties . Licensee represents and warrants that:

 

(a) it has not received any notice or threat of any claim, suit, action, or proceeding, and has no knowledge or reason to know of any information, that could: (i) invalidate or render unenforceable any claim of any Licensed Patents; or (ii) cause any claim of any Licensed Patent to fail to issue or be materially limited or restricted as compared with its currently pending scope;

 

(b) with the exception of a Backup License Event, it will not procure, or attempt to procure, the Applied DNA Technology, including without limitation, DNA tags, DNA tag authentication technologies, and/or DNA tag application technologies from any third-party unless approved in writing by Licensor or in the case of material breach of this Agreement by Licensor; and

 

(c) it has conducted satisfactory due diligence regarding the Licensed Patents, the Licensed Know-How and the Applied DNA Technology and is satisfied with the outcome of its due diligence inquiry.

 

13. Exclusion of Consequential and Other Damages . TO THE FULLEST EXTENT PERMITTED BY LAW, NEITHER PARTY SHALL NOT BE LIABLE TO THE OTHER PARTY (OR ANY SUBLICENSEE) OR ANY OTHER PERSON FOR ANY INJURY TO OR LOSS OF GOODWILL, REPUTATION, BUSINESS, PRODUCTION, REVENUES, PROFITS, ANTICIPATED PROFITS, CONTRACTS, OR OPPORTUNITIES (REGARDLESS OF HOW THESE ARE CLASSIFIED AS DAMAGES), OR FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL, PUNITIVE, OR ENHANCED DAMAGES WHETHER ARISING OUT OF BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE (INCLUDING THE ENTRY INTO, PERFORMANCE, OR BREACH OF THIS AGREEMENT), REGARDLESS OF WHETHER SUCH LOSS OR DAMAGE WAS FORESEEABLE OR THE PARTY AGAINST WHOM SUCH LIABILITY IS CLAIMED HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE, AND NOTWITHSTANDING THE FAILURE OF ANY AGREED OR OTHER REMEDY OF ITS ESSENTIAL PURPOSE.

 

14. Indemnification .

 

14.1 Licensor Indemnification . Licensor shall indemnify, defend, and hold harmless Licensee and its officers, directors, employees, agents, successors, and assigns (each, a “Licensee Indemnitee”) against all Losses arising out of or resulting from any third party claim, suit, action, or proceeding (each an “Action”) related to, arising out of, or resulting from Licensor’s breach of any representation, warranty, covenant, or obligation under this Agreement including but not limited to claims by a third party of infringement based on the manufacture, use, or sale of items embodying the inventions of the Licensed Patents and/or the Applied DNA Technology.

 

 

 

 

14.2 Licensee Indemnification . Licensee shall indemnify, defend, and hold harmless Licensor and its officers, directors, employees, agents, successors, and assigns (each, a “Licensor Indemnitee”) against all Losses arising out of or resulting from any Action related to, arising out of, or resulting from Licensee breach of any representation, warranty, covenant, or obligation under this Agreement.

 

14.3 Indemnification Procedure . The indemnified party shall promptly notify the indemnifying party in writing of any Action and cooperate with the indemnified party at the indemnifying party’s sole cost and expense. The indemnifying party shall immediately take control of the defense and investigation of the Action and shall employ counsel reasonably acceptable to indemnified party to handle and defend the same, at the indemnifying party’s sole cost and expense. The indemnifying party shall not settle any Action in a manner that adversely affects the rights of any indemnified party without the indemnified party’s prior written consent, which shall not be unreasonably withheld or delayed. The indemnified party’s failure to perform any obligations under this Section 14.3 shall not relieve the indemnifying party of its obligation under this Section 14, except to the extent that the indemnifying party can demonstrate that it has been materially prejudiced as a result of the failure. The indemnified party may participate in and observe the proceedings at its own cost and expense with counsel of its own choosing.

 

15. Term and Termination.

 

15.1 Term . This Agreement shall commence on the Effective Date and, unless terminated earlier in accordance with Section 15.2, remain in force on a country-to-country basis as follows (the “Term”):

 

(a) for rights and obligations concerning the Licensed Patents, until the expiration of the last to expire Valid Claim of a Licensed Patent in such country; and

 

(b) for rights and obligations concerning the Licensed Know-How, until twenty (20) years after the Effective Date.

 

15.2 Termination

 

(a) Either party may terminate this Agreement on written notice to the other party if the other party materially breaches this Agreement and such breach:

 

(i)  is incapable of cure; or

 

(ii)  being capable of cure, remains uncured sixty (60) Business Days after the breaching party receives written notice thereof.

 

 

 

 

(b) Either Party may terminate this Agreement, effective immediately, if the other party:

 

(i)  is dissolved or liquidated or takes any corporate action for such purpose;

 

(ii)  becomes insolvent or is generally unable to pay, or fails to pay, its debts as they become due;

 

(iii)  files or has filed against it a petition for voluntary or involuntary bankruptcy or otherwise becomes subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency Law;

 

(iv)  makes or seeks to make a general assignment for the benefit of its creditors; or

 

(v)  applies for or has a receiver, trustee, custodian, or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any material portion of its property or business.

 

15.3 Return of Confidential Information . On any expiration or termination of the entirety of this Agreement, the Receiving Party shall (a) return to the Disclosing Party all documents and tangible materials (and any copies) containing, reflecting, incorporating, or based on the Disclosing Party’s\ Confidential Information; (b) permanently erase the Disclosing Party’s Confidential Information from its computer systems; and (c) certify in writing to the Disclosing Party that it has complied with the requirements of this Section 15.3.

 

15.4 Survival . The rights and obligations of the parties set forth in this Section 15.4 and Section 1 (Definitions), Section 11 (Confidentiality), Section 12 (Representations and Warranties), Section 13 (Limitation of Damages) Section 14, (Indemnification), Section 16 (Backup License) and Section 19 (Miscellaneous), and any right, obligation, or required performance of the parties in this Agreement which, by its express terms or nature and context is intended to survive termination or expiration of this Agreement, will survive any such termination or expiration.

 

16. Backup License

 

16.1 Scope of Grant . Subject to the terms and conditions of this Agreement, upon the occurrence of a Backup License Event, Licensor agrees to grant, and hereby grants, to Licensee and its Affiliates, with the exceptions set forth below, the Backup License solely to enable Licensee to manufacture and/or practice the Applied DNA Technology in the Exclusive and Non-Exclusive Fields of Use, to the extent required to comply with Licensee’s ongoing commercial obligations. The Backup License shall become effective only upon the occurrence of a Backup License Event and receipt by Licensor of the BL Exercise from Licensee. In the event of a Backup License Event, Licensee shall have the right to grant sublicenses under the Backup License only to (ii) its Affiliates; and/or (ii) third parties, but only to the extent such sublicense is necessary to comply with Licensee’s ongoing commercial obligations.

 

 

 

 

16.2 Effect of BL Exercise .

 

(a)       A BL Exercise may occur only while a Backup License Event is continuing. In the event of a BL Exercise, Licensor shall cooperate with Licensee in effecting the transfer of such technology as is necessary or useful, and shall provide such technical assistance as may reasonable required and recommending suitably qualified and experienced personnel for undertaking the responsibilities necessary for Licensee to manufacture and/or practice the Applied DNA Technology to the extent required to comply with Licensee’s ongoing commercial obligations. In addition, upon the commencement of and during the pendency of a Backup License Event, Licensee shall have a right of first refusal to purchase from Licensor any physical asset necessary to manufacture the Applied DNA Technology.

 

(b)       Should any Backup License under this Article 16 fail due to legal, equitable, or regulatory reasons, Licensor covenants that neither it nor any of its Affiliates, successors, or designees, will assert any claim of any Licensed Patent hereunder against Licensee, its Affiliates or customers during the continuation of a Backup License Event.

 

16.3 Backup License Event . Licensee shall not exercise the Backup License granted herein unless and until the occurrence of Backup License Event.

 

16.4 Termination of Backup License . Upon Licensor’s cure of a Backup License Event, the Backup License shall immediately terminate.

 

16.4 Escrow . Within sixty (60) Business Days after the Effective Date, Licensor agrees to place into escrow with an escrow agent and enter into an escrow agreement reasonably acceptable to Licensee, all Know-How pertaining to the Applied DNA Technology necessary for Licensee to exercise its Backup License under this Section 16.

 

17. Limited Trademark License .

 

17.1 License Grant . During the term of this Agreement, Licensor grants to Licensee and any Sublicensee a non-exclusive, royalty-free license to use the trademarks following trademarks owned by Licensor solely for the purpose of promoting, marketing and disclosing the Applied DNA Technology to its customers and potential customers in the Exclusive and Non-Exclusive Fields of Use. All goodwill and benefit arising from such use of the trademarks shall insure to the sole and exclusive benefit of Licensor.

 

-   SigNature ®

 

-   CertainT ®

 

-   AppliedDNASciences ®

 

17.2 Licensor Monitoring . The Licensee confirms and agrees that with respect to any use of the marks licensed pursuant to this Section 17, Licensor has the authority to and shall exercise the following monitoring and quality control rights: (i) each press release, advertisement, promotional material, web site content, disclosure document or other material or document (“Materials”) on which the Licensee proposes to display any of the licensed marks shall be submitted to Licensor for its prior written approval before such Materials are used, (ii) all such Materials shall be of high quality so as to support and enhance the reputation of the Licensor, (iii) all permitted advertising, marketing and promotion using the marks shall be conducted in compliance with all applicable laws and regulations, (iv) the Licensee agrees to use such trademark notices as the Licensor may reasonably require in connection with its use of any of the marks, and (v) in order for the Licensor to verify the Licensee’s compliance herewith, the Licensee shall provide Licensor with such samples of, and shall allow Licensor such access for inspection of, any Materials bearing any of the marks as Licensor may reasonably request from time to time.

 

 

 

 

17.3 Effect of Termination. Subject to the terms of this Agreement, upon termination or expiration of this Agreement for any reason, the Licensee shall immediately cease all use of Licensor’s Marks, either alone or in conjunction with another term, as well as all Materials. Licensee agrees that they will not thereafter readopt or use any trademark, service mark, trade or corporate name or business title, or other indicium of origin, which consists of, or includes therein, any of the Licensor Marks, any portion thereof, or any trademark confusingly similar to any of the Licensor Marks.

 

18. Additional Party Obligations

 

18.1 Obligations in General .

 

(a) The Parties will collaborate on the strategic commercial development of the Applied DNA Technologies in the Exclusive and Non-Exclusive Fields of Use. The Parties will work collaboratively with potential or actual customers to facilitate the commercialization of the Applied DNA Technology in the Exclusive and Non-Exclusive Fields of Use, to set mutually agreeable pricing and create marketing content.

 

(b) Within sixty (60) Business Days of the Effective Date of this Agreement, the Parties shall use good faith efforts to execute a mutually acceptable supply and pricing agreement for the Applied DNA Technology (the “Supply Agreement ) including, without limitation, all DNA taggants, DNA authentication devices/reagents and DNA taggant application systems utilizing the exemplary pricing set forth in Schedule B. In the event the Parties fail to reach a mutually agreeable Supply Agreement within 60 days of the Effective Date, the Parties agree to submit their dispute to a mutually agreeable third-party mediator whose decision shall be binding.

 

18.2 Obligations of Licensor . Licensor shall, from the Effective Date:

 

(a) Upon mutually agreed upon prices, supply all DNA taggants, DNA authentication devices/reagents and DNA taggant application systems to Licensee and/or any Sublicensee necessary to practice the Applied DNA Technology in the Exclusive and Non-Exclusive Fields of Use;

 

(b) provide technical and commercial support relating to the Applied DNA Technology to Licensee and/or Sublicensees, including attending customer meetings;

 

(c) attend at least 6 international trade shows and other industry events annually with Licensee; and

 

(d) provide all materials as reasonably necessary to assist Licensee in the marketing of the Applied DNA Technology in the Exclusive and Non-Exclusive Fields of Use.

 

 

 

 

18.3 Obligations of Licensee . Licensee shall, from the Effective Date:

 

(a) work with Licensor to establish mutually acceptable customer pricing for the Applied DNA Technology in the Exclusive and Non-Exclusive Fields of use, taking into account economic feasibility;

 

(b) exclusively obtain or purchase DNA taggants, DNA authentication devices/reagents and DNA taggant application systems from Licensor. This obligation shall extend to all Sublicensees, and Licensee agrees to include this obligation in any sublicense agreement;

 

(c) use commercially reasonable efforts to market the Applied DNA Technology within the Exclusive and Non-Exclusive Fields of Use. The foregoing does not prohibit Licensor from undertaking additional marketing activities, at its discretion, for the Applied DNA Technologies in the Exclusive and Non-Exclusive Fields of Use;

 

(d) to promptly inform Licensor of any alternative technologies competing with the Applied DNA Technologies in the Exclusive and Non-Exclusive Fields of Use for the tracking and tracing of legal cannabis, hemp, or their derivative products; and

 

(e) provide to Licensor, at Licensor’s request, an annual marketing plan, sales plan and 12-month sales forecast for the Applied DNA Technology in the Exclusive and Non-Exclusive Fields of Use.

 

19. Miscellaneous.

 

19.1  Bankruptcy . All rights and licenses granted by Licensor under this Agreement are and shall be deemed to be rights and licenses to “intellectual property”’ as such term is used in, and interpreted under, Section 365(n) of the United States Bankruptcy Code (the “Code”) (11 U.S.C. § 365(n)). Licensee shall have all rights, elections, and protections under the Code and all other bankruptcy, insolvency, and similar laws with respect to the Agreement, and the subject matter hereof. Without limiting the generality of the foregoing, Licensor acknowledges and agrees that, if Licensor or its estate shall become subject to any bankruptcy or similar proceeding:

 

(a)  subject to Licensee’s rights of election under Section 365(n), all rights, licenses, and privileges granted to Licensee under this Agreement will continue subject to the respective terms and conditions hereof, and will not be affected, even by Licensor’s rejection of this Agreement; and

 

(b)  Licensee shall be entitled to a complete duplicate of, or complete access to, as appropriate, all such intellectual property and embodiments of intellectual property, which, if not already in Licensee’s possession, shall be promptly delivered to Licensee or its designee, unless Licensor elects to and does in fact continue to perform all of its obligations under this Agreement.

 

19.2  Force Majeure . Neither party shall be liable or responsible to the other party, nor be deemed to have defaulted under or breached this Agreement, for any failure or delay in fulfilling or performing any term of this Agreement, including any obligation to timely make any payment hereunder, when and to the extent such failure or delay is caused by:

 

 

 

(a) acts of nature;

 

(a) flood, fire, or explosion;

 

(b) cyber attack;

 

(c)  war, terrorism, invasion, riot, or other civil unrest;

 

(d)  embargoes or blockades in effect on or after the date of this Agreement;

 

(e)  national or regional emergency;

 

(f)  strikes, labor stoppages or slowdowns, or other industrial disturbances;

 

(g)  any passage of law or governmental order, rule, regulation, or direction, or any action taken by a governmental or public authority, including imposing an embargo, export or import restriction, quota, or other restriction or prohibition; or

 

(h) national or regional shortage of adequate power or telecommunications or transportation facilities:

 

(each of the foregoing, a “ Force Majeure Event ”), in each case, provided that (i) such event is outside the reasonable control of the affected party; (ii) the affected party provides prompt notice to the other party, stating the period of time the occurrence is expected to continue; and (iii) the affected party uses diligent efforts to end the failure or delay and minimize the effects of such Force Majeure Event.

 

19.3  Further Assurances . Each Party shall, upon the reasonable request, and at the sole cost and expense, of the other Party, promptly execute such documents and perform such acts as may be necessary to give full effect to the terms of this Agreement.

 

19.4  Independent Contractors . The relationship between the Parties is that of independent contractors. Nothing contained in this Agreement shall be construed as creating any agency, partnership, joint venture, or other form of joint enterprise, employment, or fiduciary relationship between the Parties, and neither party shall have authority to contract for or bind the other party in any manner whatsoever.

 

19.5  No Public Announcements . Neither party shall issue or release any announcement, statement, press release, or other publicity or marketing materials relating to this Agreement or, unless expressly permitted under this Agreement, otherwise use the other Party’s trademarks, service marks, trade names, logos, domain names, or other indicia of source, association, or sponsorship, in each case, without the prior written consent of the other Party.

 

19.6 Notices . All notices, requests, consents, claims, demands, waivers, and other communications (other than routine communications having no legal effect) shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) one Business Day after being sent, if sent by a nationally recognized overnight courier; (c) on the date sent by e-mail, if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the fourth Business Day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the addresses indicated below (or at such other address for a party as shall be specified in a notice given in accordance with this Section).

 

 

 

 

If to Licensor:

Applied DNA Sciences, Inc.

50 Health Sciences Drive

Stony Brook, New York 11790

 

Attention: James A. Hayward, Chief Executive Officer

 

E-Mail: james.hayward@adnas.com

   
If to Licensee:

ETCH BioTrace S.A. ,

 

International Business Park Unit 5B
Building 3860 Panama Pacifico

Republic of Panama, 000000

 

Attention: Jason Warnock, Chief Executive Officer

 

E-Mail Address:

jwarnock@theracanncorp.com

 

19.7  Interpretation . For purposes of this Agreement, (a) the words “include,” “includes,” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto,” and “hereunder” refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (x) to Sections and Schedules refer to the Sections of and Schedules attached to this Agreement; (y) to an agreement, instrument, or other document means such agreement, instrument, or other document as amended, supplemented, and modified from time to time to the extent permitted by the provisions thereof; and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. Any Schedules referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.

 

19.8  Headings . The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

 

 

 

 

19.9  Entire Agreement . This Agreement, together with any Schedules and any other documents incorporated herein by reference, constitutes the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter.

 

19.10  Assignment . Licensee may freely assign or otherwise transfer all or any of its rights, or delegate or otherwise transfer all or any of its obligations or performance, under this Agreement without Licensor’s consent. Licensor may not assign or otherwise transfer all or any of its rights, or delegate or otherwise transfer all or any of its obligations or performance, under this Agreement without Licensee’s prior written consent, which consent shall not be unreasonably withheld. This Agreement is binding upon and inures to the benefit of the Parties hereto and their respective permitted successors and assigns.

 

19.11  Amendment; Modification; Waiver . This Agreement may only be amended, modified, or supplemented by an agreement in writing signed by each Party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the waiving party. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any rights, remedy, power, or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege.

 

19.12  Severability . If any term or provision of this Agreement is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon a determination that any term or other provision is invalid, illegal, or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

 

19.13  Governing Law, Jurisdiction and Enforcement . This Agreement and all related documents, and all matters arising out of or relating to this Agreement, are governed by, and construed in accordance with, the laws of the State of New York, United States of America, without regard to the conflict of laws provisions thereof to the extent such principles or rules would require or permit the application of the laws of any jurisdiction other than those of the State of New York.

 

Any dispute, controversy or claim arising under, out of or relating to this Agreement and any subsequent amendments of this Agreement, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non-contractual claims, and excepting claims for temporary or preliminary injunctive relief or any form of equitable relief, shall be submitted to mediation in accordance with the WIPO Mediation Rules. The place of mediation shall be New York, NY. The language to be used in the mediation shall be English.

 

 

 

 

If, and to the extent that, any such dispute, controversy or claim has not been settled pursuant to the mediation within ninety (90) days of the commencement of the mediation, it shall, upon the filing of a Request for Arbitration by either party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. Alternatively, if, before the expiration of the said period of 90 days, either party fails to participate or to continue to participate in the mediation, the dispute, controversy or claim shall, upon the filing of a Request for Arbitration by the other party, be referred to and finally determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. The arbitral tribunal shall consist of a sole arbitrator. The language to be used in the arbitration shall be English.

 

19.14  Waiver of Jury Trial . Each Party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby.

 

19.15 Equitable Relief . Each Party acknowledges that a breach by the other party of this Agreement may cause the non-breaching party irreparable harm, for which an award of damages would not be adequate compensation, and agrees that, in the event of such a breach or threatened breach, the non-breaching party will be entitled to seek equitable relief, including in the form of a restraining order, orders for preliminary or permanent injunction, specific performance, and any other relief that may be available from any court, and the parties hereby waive any requirement for the securing or posting of any bond or the showing of actual monetary damages in connection with such relief. These remedies shall not be deemed to be exclusive but shall be in addition to all other remedies available under this Agreement at law or in equity, subject to any express exclusions or limitations in this Agreement to the contrary.

 

19.16  Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by e-mail, or other means of electronic transmission (to which a signed PDF copy is attached) shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

 

19.17 Waiver of Illegality Defense . The Parties acknowledge that there is a certain level of legal uncertainty relating to contracts for the provision of services to the legal cannabis industry. As such, both Parties hereby expressly waive any defense based upon illegality in relation to any dispute arising in connection with this Agreement.

 

19.18 Press Release . Any press release, publicity or other form of public written disclosure related to this Agreement prepared by one Party shall be submitted to the other Party prior to release for approval, which approval shall not be unreasonably withheld or delayed by such other Party. The Parties agree to issue a mutually agreeable press release within seven (7) days of the Effective Date.

 

[ Signature Page Follows ]

 

 

 

 

IN WITNESS THEREOF , the Parties, through their authorized officers, have executed this Agreement as of the Effective Date.

 

Applied DNA Sciences, Inc.  
   

By:

/s/ James A. Hayward

 

Name: James A. Hayward

 

Title: Chief Executive Office

 

Date: March 28, 2019

 

 

APDN (B.V.I.), Inc. 

 
   

By:

/s/ James A. Hayward

 

Name: James A. Hayward

 

Title: Chief Executive Office

 

Date: March 28, 2019

 
   

ETCH BioTrace S.A.

 
   

By:

/s/ Jason Warnock

 

Name: Jason Warnock

 

Title: Chief Executive Officer

 

Date: March 28, 2019

 

 

 

 

 

 

Schedule A

 

· US 16/265,631 System and Method for Tracking Origin if Cannabis Products and Cannabis Derivative Products

 

· PCT/US19/16385 System and Method for Tracking Origin if Cannabis Products and Cannabis Derivative Products

 

· US 62/700,021 Plant Material Spraying System

 

· US 9,919,512 DNA Marking of Previously Undistinguished Items for Traceability

 

· US 9,790,538 Alkaline Activation for Immobilization of DNA Taggants

 

· CA 2,903,728 Security System and Method of Marking an Inventory and/or Person in the Vicinity

 

· EU 18178632.8 Security System and Method of Marking an Inventory and/or Person in the Vicinity

 

· EU 13847647.8 Security System and Method of Marking an Inventory and/or Person in the Vicinity

 

· US 14/570,242 Security System and Method of Marking an Inventory and/or Person in the Vicinity

 

· US 9,266,370 DNA Marking of Previously Undistinguished Items for Traceability

 

 

 

 

[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 (“[***]”).]

 

Schedule B

 

All pricing contained in this Schedule is exemplary, and is based upon current tagging and testing methods as developed as of the Effective Date of the Agreement. All prices are in USD.

 

Unit Pricing

 

 

Product Description   Price to be paid by Licensee
DNA taggant   $[***] per [***]
DNA taggant application system   $[***] per unit
DNA authentication device   $[***] per unit
DNA authentication reagents   $[***] per test well

 

Profit Share

 

The Parties agree that no profit share shall be paid between the Parties until such time as Licensee has gross profits of $6M from the ETCH BioTrace Platform. Immediately upon Licensee reaching $6M in gross profits from the ETCH BioTrace Platform, Licensor shall receive a fifty percent (50%) profit share from Licensee based on Licensee’s Net Proceeds relating to the ETCH BioTrace Platform. “Net Proceeds" shall mean Licensee’s gross sales on the ETCH BioTrace Platform less Licensee’s costs of goods for the ETCH BioTrace Platform. The “ETCH BioTrace Platform” shall be defined as any platform or platform implementations and support services that utilize or relate to the Applied DNA Technology in the Exclusive and/or Non-Exclusive Fields of Use, including but not limited to the platform described by the website  https://etchbio.solutions/ , as amended or updated from time-to-time.  

 

 

 

 

 

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO RULE 13 a -14(a) OR 15 d -14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, James A. Hayward, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Applied DNA Sciences, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: May 9, 2019    
     
  By: /s/ JAMES A. HAYWARD
    James A. Hayward
    Chief Executive Officer
    Applied DNA Sciences, Inc.

 

 

 

 

Exhibit 31.2

 

CERTIFICATION PURSUANT TO RULE 13 a -14(a) OR 15 d -14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Beth Jantzen, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Applied DNA Sciences, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: May 9, 2019    
     
  By: /s/ BETH JANTZEN
    Beth Jantzen, CPA
    Chief Financial Officer
    Applied DNA Sciences, Inc.

 

 

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

The undersigned, James A. Hayward, Chief Executive Officer of Applied DNA Sciences, Inc. (the “Company”), in connection with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2019 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, hereby certifies pursuant to the requirements of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

 

the Report fully complies with the requirements of Section 13(a) or 15(d), of the Securities Exchange Act of 1934, and

 

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

This certification is being provided pursuant to 18 U.S.C. 1350 and is not to be deemed a part of the Report, nor is it to be deemed to be “filed” for any purpose whatsoever.

 

  By: /s/ JAMES A. HAYWARD
    James A. Hayward
    Chief Executive Officer
    Applied DNA Sciences, Inc.
    Dated: May 9, 2019

 

 

 

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

The undersigned, Beth Jantzen, Chief Financial Officer of Applied DNA Sciences, Inc. (the “Company”), in connection with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2019 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, hereby certifies pursuant to the requirements of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

 

the Report fully complies with the requirements of Section 13(a) or 15(d), of the Securities Exchange Act of 1934, and

 

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

This certification is being provided pursuant to 18 U.S.C. 1350 and is not to be deemed a part of the Report, nor is it to be deemed to be “filed” for any purpose whatsoever.

 

  By: /s/ BETH JANTZEN
    Beth Jantzen, CPA
    Chief Financial Officer
    Applied DNA Sciences, Inc.
    Dated: May 9, 2019