NOTES PAYABLE	12 Months Ended
Sep. 30, 2020
NOTES PAYABLE
NOTES PAYABLE	NOTE G – NOTES PAYABLE CARES Act Loan The Company received a loan of approximately $847 thousand on May 1, 2020 from Bank of America as lender pursuant to the PPP of the CARES Act. All or a portion of the loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company beginning 60 days but not later than 130 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the covered period as defined by the CARES Act. The Company used the proceeds from the loan to retain employees, maintain payroll and make lease and utility payments. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. In the event the loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. The loan matures on May 1, 2022 and bears interest at a rate of 1% per annum. Payments of principal and interest commence in November 2020. The loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties. 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 2018 Notes”) bearing interest at a rate of 6% per annum. As part of the August 2018 Notes, the Company’s management and Board of Directors purchased August 2018 Notes with a principal amount of $1,185,000. The August 2018 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 2018 Note, together with any and all accrued and unpaid interest, by the conversion price of $100.00. The August 2018 Notes bear interest at the rate of 6% per annum, payable semi-annually in cash or in kind, at the Company’s option, and were due and payable in full on August 30, 2021. Until the principal and accrued but unpaid interest under the August 2018 Notes is paid in full, or converted into shares of common stock pursuant to their terms, the Company’s obligations under the August 2018 Notes were secured by a lien on substantially all assets of the Company (excluding certain cash accounts) and the assets of APDN (B.V.I.) Inc. 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 2018 Notes”). The November 2018 Notes are substantially similar to the Company’s August 2018 Notes except with respect to maturity date, which is November 29, 2021 The November 2018 Notes are secured on a pari passu basis with the same Company assets as the August 2018 Notes. On July 17, 2019, the Company closed $1.5 million in gross proceeds in July 2019 Notes, bearing interest at a rate of 6% per annum, in a non-brokered private placement with an accredited investor, Dillon Hill Capital, LLC (“Dillon Hill”) and simultaneously amended the terms of the 2018 Notes and, (together with the July 2019 Notes, the “Company Notes”) to, among other amendments, (i) reduce the conversion price of the 2018 Notes to $21.60 to facilitate their conversion into equity and (ii) change the maturity date of the August 2018 Notes to be November 28, 2021. In addition, Dillon Hill was granted a right to participate in certain future financing transactions of the Company (each a “Subsequent Financing”) until July 16, 2020 equal to the amount required for Dillon Hill to maintain its pro rata ownership of the Company as if the July 2019 Notes had been fully converted into common stock. Until July 16, 2020, Dillon Hill has the right to participate in full for the first $1 million of such Subsequent Financing. This right was exercised and Dillon Hill participated in the November 2019 underwritten public offering. After giving effect to the amendments to the 2018 Notes, the July 2019 Notes are substantially similar to the Existing Notes. The July 2019 Notes are secured on a pari passu basis with the same Company assets as the 2018 Notes. In addition, on July 19, 2019, the Company also amended the security agreements dated as of October 19, 2018, to among other amendments, exclude 20% of the Company’s equity interest in LRx from the assets securing the Company Notes. The July 2019 Notes are convertible, in whole or in part, at any time, at the option of Dillon Hill, into shares of common stock, in an amount determined by dividing the principal amount of the July 2019 Notes, together with any and all accrued and unpaid interest, by the conversion price of $21.60 (the “Conversion Price”). The July 2019 Notes are due and payable in full on November 28, 2021. The Company has the right to require Dillon Hill to convert all or any part of their Notes into shares of the Company’s common stock at the Conversion Price if the price of the Common Stock remains at a closing price of $140.00 or more for a period of twenty consecutive trading days. The amendments to the 2018 Notes resulted in a change in fair value of the conversion option that exceeded ten percent of the carrying amount of the 2018 Notes. Accordingly, the amendment was treated as an extinguishment of the 2018 Notes and a corresponding loss on extinguishment of debt of $1,260,399. The fair value of the 2018 Notes immediately after the amendments (“Amended 2018 Notes”) was $3,498,457. Going forward, the Company has elected to record the Amended 2018 Notes at fair value in accordance with ASC 825. As a result, the Company recorded a gain on the change in fair value of $65,576 for the year ended September 30, 2019. The July 2019 Notes are recorded at carrying value. During September 2019, a total of $2.2 million of the Amended 2018 Notes was converted into 102,893 shares of the Company’s common stock. As part of the total amount converted, Dr. James A. Hayward, our Chairman, Chief Executive Officer and President (“CEO”), converted approximately $1.59 million of the Amended 2018 Notes, into approximately 73,400 shares of the Company’s common stock, and other directors, officers, and affiliates of the Company converted approximately $409,000 of such 2018 Notes in September 2019 into 18,929 shares of the Company’s common stock. The fair value of the Amended 2018 Notes was calculated immediately prior to conversion and resulted in a gain on the change in fair value of the Amended 2018 Notes of approximately $1,907,379. During December 2019, the remaining outstanding balance of the 2018 Notes, for a total of $107,802, was repaid by the Company. During the fiscal year ended September 30, 2020 and 2019, the Company reclassified $35,625 and $126,980, respectively 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 September 30, 2020 and 2019. The Company incurred $64,848 to debt issuance costs based on the cost incurred to complete the 2018 Notes financing, which was written off as part of the extinguishment accounting discussed above. The Company incurred $64,608 to debt issuance costs based on the cost incurred to complete the July 2019 Notes. During the fiscal years ended September 30, 2020 and 2019 the Company amortized $26,019 and $23,828, respectively, of debt issuance costs resulting in unamortized debt issuance costs of $34,094 and the secured notes payable of $1,499,116 at September 30, 2020. The debt issuance cost will be amortized over the life of the July 2019 Notes. During the fiscal years ended September 30, 2020 and 2019, the Company incurred $116,786 and $138,604, respectively of interest expense. The effective interest rate for the fiscal years ended September 30, 2020 and 2019 was 8.0% and 7.5%, respectively. As discussed more fully in Note O, the Company repaid the July 2019 Notes in full during October 2020.

NOTE G – NOTES PAYABLE

CARES Act Loan

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

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

For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. In the event the loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal.

The loan matures on May 1, 2022 and bears interest at a rate of 1% per annum. Payments of principal and interest commence in November 2020. The loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

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 2018 Notes”) bearing interest at a rate of 6% per annum. As part of the August 2018 Notes, the Company’s management and Board of Directors purchased August 2018 Notes with a principal amount of $1,185,000.

The August 2018 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 2018 Note, together with any and all accrued and unpaid interest, by the conversion price of $100.00.

The August 2018 Notes bear interest at the rate of 6% per annum, payable semi-annually in cash or in kind, at the Company’s option, and were due and payable in full on August 30, 2021. Until the principal and accrued but unpaid interest under the August 2018 Notes is paid in full, or converted into shares of common stock pursuant to their terms, the Company’s obligations under the August 2018 Notes were secured by a lien on substantially all assets of the Company (excluding certain cash accounts) and the assets of APDN (B.V.I.) Inc.

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 2018 Notes”). The November 2018 Notes are substantially similar to the Company’s August 2018 Notes except with respect to maturity date, which is November 29, 2021 The November 2018 Notes are secured on a pari passu basis with the same Company assets as the August 2018 Notes.

On July 17, 2019, the Company closed $1.5 million in gross proceeds in July 2019 Notes, bearing interest at a rate of 6% per annum, in a non-brokered private placement with an accredited investor, Dillon Hill Capital, LLC (“Dillon Hill”) and simultaneously amended the terms of the 2018 Notes and, (together with the July 2019 Notes, the “Company Notes”) to, among other amendments, (i) reduce the conversion price of the 2018 Notes to $21.60 to facilitate their conversion into equity and (ii) change the maturity date of the August 2018 Notes to be November 28, 2021. In addition, Dillon Hill was granted a right to participate in certain future financing transactions of the Company (each a “Subsequent Financing”) until July 16, 2020 equal to the amount required for Dillon Hill to maintain its pro rata ownership of the Company as if the July 2019 Notes had been fully converted into common stock. Until July 16, 2020, Dillon Hill has the right to participate in full for the first $1 million of such Subsequent Financing. This right was exercised and Dillon Hill participated in the November 2019 underwritten public offering.

After giving effect to the amendments to the 2018 Notes, the July 2019 Notes are substantially similar to the Existing Notes. The July 2019 Notes are secured on a pari passu basis with the same Company assets as the 2018 Notes. In addition, on July 19, 2019, the Company also amended the security agreements dated as of October 19, 2018, to among other amendments, exclude 20% of the Company’s equity interest in LRx from the assets securing the Company Notes. The July 2019 Notes are convertible, in whole or in part, at any time, at the option of Dillon Hill, into shares of common stock, in an amount determined by dividing the principal amount of the July 2019 Notes, together with any and all accrued and unpaid interest, by the conversion price of $21.60 (the “Conversion Price”). The July 2019 Notes are due and payable in full on November 28, 2021.

The Company has the right to require Dillon Hill to convert all or any part of their Notes into shares of the Company’s common stock at the Conversion Price if the price of the Common Stock remains at a closing price of $140.00 or more for a period of twenty consecutive trading days.

The amendments to the 2018 Notes resulted in a change in fair value of the conversion option that exceeded ten percent of the carrying amount of the 2018 Notes. Accordingly, the amendment was treated as an extinguishment of the 2018 Notes and a corresponding loss on extinguishment of debt of $1,260,399. The fair value of the 2018 Notes immediately after the amendments (“Amended 2018 Notes”) was $3,498,457. Going forward, the Company has elected to record the Amended 2018 Notes at fair value in accordance with ASC 825. As a result, the Company recorded a gain on the change in fair value of $65,576 for the year ended September 30, 2019. The July 2019 Notes are recorded at carrying value.

During September 2019, a total of $2.2 million of the Amended 2018 Notes was converted into 102,893 shares of the Company’s common stock. As part of the total amount converted, Dr. James A. Hayward, our Chairman, Chief Executive Officer and President (“CEO”), converted approximately $1.59 million of the Amended 2018 Notes, into approximately 73,400 shares of the Company’s common stock, and other directors, officers, and affiliates of the Company converted approximately $409,000 of such 2018 Notes in September 2019 into 18,929 shares of the Company’s common stock. The fair value of the Amended 2018 Notes was calculated immediately prior to conversion and resulted in a gain on the change in fair value of the Amended 2018 Notes of approximately $1,907,379.

During December 2019, the remaining outstanding balance of the 2018 Notes, for a total of $107,802, was repaid by the Company.

During the fiscal year ended September 30, 2020 and 2019, the Company reclassified $35,625 and $126,980, respectively 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 September 30, 2020 and 2019.

The Company incurred $64,848 to debt issuance costs based on the cost incurred to complete the 2018 Notes financing, which was written off as part of the extinguishment accounting discussed above. The Company incurred $64,608 to debt issuance costs based on the cost incurred to complete the July 2019 Notes. During the fiscal years ended September 30, 2020 and 2019 the Company amortized $26,019 and $23,828, respectively, of debt issuance costs resulting in unamortized debt issuance costs of $34,094 and the secured notes payable of $1,499,116 at September 30, 2020. The debt issuance cost will be amortized over the life of the July 2019 Notes. During the fiscal years ended September 30, 2020 and 2019, the Company incurred $116,786 and $138,604, respectively of interest expense. The effective interest rate for the fiscal years ended September 30, 2020 and 2019 was 8.0% and 7.5%, respectively.

As discussed more fully in Note O, the Company repaid the July 2019 Notes in full during October 2020.