10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023

OR

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

For the transition period from          to

Commission File Number: 001-36745

Applied DNA Sciences, Inc.

(Exact name of registrant as specified in its charter)

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

631-240-8800

(Registrant’s telephone number, including area code)

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

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

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

☒   Yes    ☐    No

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

☒   Yes    ☐    No

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging Growth Company ☐

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

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

☐   Yes    ☒    No

On August 4, 2023, the registrant had 13,658,520 shares of common stock outstanding.

Applied DNA Sciences, Inc. and Subsidiaries

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

Table of Contents

	Page
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Financial Statements (unaudited)	1
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3 - Quantitative and Qualitative Disclosures About Market Risk	31
Item 4 - Controls and Procedures	32
PART II - OTHER INFORMATION
Item 1 – Legal Proceedings	33
Item 1A – Risk Factors	33
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3 – Defaults Upon Senior Securities	33
Item 4 – Mine Safety Disclosures	33
Item 5 – Other Information	33
Item 6 – Exhibits	34

Part I - Financial Information

Item 1 - Financial Statements

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,		September 30,
	2023		2022
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	10,756,235	$	15,215,285
Accounts receivable, net of allowance of $75,000 and $330,853 at June 30, 2023 and September 30, 2022, respectively		682,701		3,067,544
Inventories		276,422		602,244
Prepaid expenses and other current assets		524,904		1,058,056
Total current assets		12,240,262		19,943,129
Property and equipment, net		1,168,038		2,222,988
Other assets:
Restricted cash		750,000		—
Capitalized transaction costs		275,726		—
Operating right of use asset		1,355,508		—
Deposits		—		98,997
Total assets	$	15,789,534	$	22,265,114
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	2,127,908	$	3,621,751
Operating lease liability, current		487,425		—
Deferred revenue		275,885		563,557
Total current liabilities		2,891,218		4,185,308
Long term accrued liabilities		31,467		31,467
Operating lease liability, long term		868,081		—
Warrants classified as a liability		4,804,700		5,139,400
Total liabilities		8,595,466		9,356,175
Commitments and contingencies (Note F)
Applied DNA Sciences, Inc. stockholders’ equity:
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of June 30 2023 and September 30, 2022, respectively		—		—
Series A Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- issued and outstanding as of June 30, 2023 and September 30, 2022, respectively		—		—
Series B Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- issued and outstanding as of June 30, 2023 and September 30, 2022, respectively		—		—
Common stock, par value $0.001 per share; 200,000,000 shares authorized as of June 30, 2023 and September 30, 2022, 12,908,520 shares issued and outstanding as of June 30, 2023 and September 30, 2022		12,909		12,909
Additional paid in capital		306,091,402		305,399,008
Accumulated deficit		(298,854,883)		(292,500,088)
Applied DNA Sciences, Inc. stockholders’ equity		7,249,428		12,911,829
Noncontrolling interest		(55,360)		(2,890)
Total equity		7,194,068		12,908,939
Total liabilities and equity	$	15,789,534	$	22,265,114

See the accompanying notes to the unaudited condensed consolidated financial statements

1

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Revenues
Product revenues	$	316,950	$	219,765	$	1,130,800	$	1,454,427
Service revenues		425,694		182,796		826,813		570,759
Clinical laboratory service revenues		2,174,697		3,893,810		10,630,094		12,584,174
Total revenues		2,917,341		4,296,371		12,587,707		14,609,360
Cost of product revenues		368,902		307,049		1,103,843		1,211,959
Cost of clinical laboratory service revenues		1,279,121		2,950,064		6,029,428		8,760,520
Total cost of revenues		1,648,023		3,257,113		7,133,271		9,972,479
Gross profit		1,269,318		1,039,258		5,454,436		4,636,881
Operating expenses:
Selling, general and administrative		3,292,304		3,032,877		9,440,734		11,341,176
Research and development		836,123		863,025		2,796,171		3,013,162
Total operating expenses		4,128,427		3,895,902		12,236,905		14,354,338
LOSS FROM OPERATIONS		(2,859,109)		(2,856,644)		(6,782,469)		(9,717,457)
Interest income		26,783		—		34,108		5,813
Transaction costs allocated to warrant liabilities		—		—		—		(391,335)
Unrealized (loss) gain on change in fair value of warrants classified as a liability		(278,400)		1,758,200		334,700		2,540,700
Other (expense) income, net		(3,469)		(26,352)		6,396		(43,226)
Loss before provision for income taxes		(3,114,195)		(1,124,796)		(6,407,265)		(7,605,505)
Provision for income taxes		—		—		—		—
NET LOSS	$	(3,114,195)	$	(1,124,796)	$	(6,407,265)	$	(7,605,505)
Less: Net loss attributable to noncontrolling interest		14,429		576		52,470		833
NET LOSS attributable to Applied DNA Sciences, Inc.	$	(3,099,766)	$	(1,124,220)	$	(6,354,795)	$	(7,604,672)
Deemed dividend related to warrant modification		—		—		—		110,105
NET LOSS attributable to common stockholders	$	(3,099,766)	$	(1,124,220)	$	(6,354,795)	$	(7,714,777)
Net loss per share attributable to common stockholders-basic and diluted	$	(0.24)	$	(0.13)	$	(0.49)	$	(0.94)
Weighted average shares outstanding- basic and diluted		12,908,520		8,982,520		12,908,520		8,184,807

See the accompanying notes to the unaudited condensed consolidated financial statements

2

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

Nine-Month Period Ended June 30, 2022
		Common		Additional
	Common	Stock		Paid in		Accumulated		Noncontrolling
	Shares	Amount		Capital		Deficit		Interest		Total
Balance, October 1, 2021	7,486,120	$	7,488	$	295,228,272	$	(284,122,092)	$	(722)	$	11,112,946
Stock based compensation expense	—		—		1,699,920		—		—		1,699,920
Options issued in settlement of accrued bonus	—		—		300,000		—		—		300,000
Net loss	—		—		—		(4,721,766)		855		(4,720,911)
Balance, December 31, 2021	7,486,120	$	7,488	$	297,228,192	$	(288,843,858)	$	133	$	8,391,955
Stock based compensation expense	—		—		272,915		—		—		272,915
Deemed dividend - warrant repricing	—		—		110,105		(110,105)		—		—
Common stock issued in public offering, net of offering costs	748,200		748		4,091,085		—		—		4,091,833
Fair value of warrants issued in connection with public offering	—		—		(3,350,400)		—		—		(3,350,400)
Net loss	—		—		—		(1,758,685)		(1,112)		(1,759,797)
Balance, March 31, 2022	8,234,320	$	8,236	$	298,351,897	$	(290,712,648)	$	(979)	$	7,646,506
Stock based compensation expense	—		—		272,914		—		—		272,914
Exercise of warrants	748,200		748		(674)		—		—		74
Net loss	—		—		—		(1,124,221)		(575)		(1,124,796)
Balance, June 30, 2022	8,982,520	$	8,984	$	298,624,137	$	(291,836,869)	$	(1,554)	$	6,794,698

Nine-Month Period ended June 30, 2023
		Common		Additional
	Common	Stock		Paid in		Accumulated		Noncontrolling
	Shares	Amount		Capital		Deficit		Interest		Total
Balance, October 1, 2022	12,908,520	$	12,909	$	305,399,008	$	(292,500,088)	$	(2,890)	$	12,908,939
Stock based compensation expense	—		—		93,748		—		—		93,748
Net loss	—		—		—		(3,843,372)		(874)		(3,844,246)
Balance December 31, 2022	12,908,520		12,909		305,492,756		(296,343,460)		(3,764)		9,158,441
Stock based compensation expense	—		—		258,604		—		—		258,604
Net income (loss)	—		—		—		588,343		(37,167)		551,176
Balance, March 31, 2023	12,908,520	$	12,909	$	305,751,360	$	(295,755,117)	$	(40,931)	$	9,968,221
Stock based compensation expense	—		—		340,042		—		—		340,042
Net loss	—		—		—		(3,099,766)		(14,429)		(3,114,195)
Balance, June 30, 2023	12,908,520	$	12,909	$	306,091,402	$	(298,854,883)	$	(55,360)	$	7,194,068

See the accompanying notes to the unaudited condensed consolidated financial statements

3

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(6,407,265)	$	(7,605,505)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,032,568		962,800
Gain on sale of property and equipment		(6,083)		—
Unrealized gain on change in fair value of warrants classified as a liability		(334,700)		(2,540,700)
Stock-based compensation		692,394		2,245,749
Change in provision for bad debts		(255,853)		10,000
Write-off of property and equipment		62,000		—
Change in operating assets and liabilities:
Accounts receivable		2,640,694		(64,928)
Inventories		325,822		815,294
Prepaid expenses and other current assets and deposits		632,149		(603,439)
Accounts payable and accrued liabilities		(1,631,965)		586,379
Deferred revenue		(287,672)		476,264
Net cash used in operating activities		(3,537,911)		(5,718,086)
Cash flows from investing activities:
Capitalized transaction costs for asset purchase transaction		(137,604)		—
Proceeds from sale of property and equipment		45,000		—
Purchase of property and equipment		(78,535)		(246,892)
Net cash used in investing activities		(171,139)		(246,892)
Cash flows from financing activities:
Net proceeds from exercise of warrants		—		75
Net proceeds from issuance of common stock and warrants		—		4,091,833
Net cash provided by financing activities		—		4,091,908
Net decrease in cash, cash equivalents and restricted cash		(3,709,050)		(1,873,070)
Cash, cash equivalents and restricted cash at beginning of period		15,215,285		6,554,948
Cash, cash equivalents and restricted cash at end of period	$	11,506,235	$	4,681,878
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest	$	—	$	—
Cash paid during period for income taxes	$	—	$	—
Non-cash investing and financing activities:
Property and equipment acquired, and included in accounts payable	$	—	$	249,468
Deemed dividend warrant modifications	$	—	$	110,105
Leased assets obtained in exchange for new operating lease liabilities	$	1,545,916	$	—
Fair value of warrants issued	$	—	$	3,350,400
Transaction costs for asset purchase included in accounts payable	$	138,122	$	—
Issuance of stock options for payment of accrued bonus	$	—	$	300,000

See the accompanying notes to the unaudited condensed consolidated financial statements

4

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE A — NATURE OF THE BUSINESS

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

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

Interim Financial Statements

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

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

Principles of Consolidation

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

Going Concern and Management’s Plan

The Company has recurring net losses, which have resulted in an accumulated deficit of $298,854,883 as of June 30, 2023. The Company incurred a net loss of $6,407,265 and generated negative operating cash flow of $3,537,911 for the nine-month period ended June 30, 2023. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements.  The ability of the Company 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.

5

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

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

Going Concern and Management's Plan, continued

The Company’s current capital resources include cash and cash equivalents, accounts receivable and inventories. Historically, the Company has financed its operations principally from the sale of equity and equity-linked securities.

Use of Estimates

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

Revenue Recognition

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

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

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

6

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

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

Revenue Recognition, continued

Product Revenues

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

Authentication Services

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

Clinical Laboratory Testing Services

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

Research and Development Services

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

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

7

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

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

Revenue Recognition, continued

Disaggregation of Revenue

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

	Three Month Period Ended:
	June 30,		June 30,
	2023		2022
Research and development services (over-time)	$	135,622	$	152,732
Clinical laboratory testing services (point-in-time)		1,521,315		2,506,976
Clinical laboratory testing services (over-time)		653,382		1,386,834
Product and authentication services (point-in-time):
Supply chain		242,826		43,243
Large Scale DNA Production		271,884		—
Asset marking		92,312		127,075
MDx test kits and supplies		—		79,511
Total	$	2,917,341	$	4,296,371

	Nine Month Period Ended:
	June 30,		June 30,
	2023		2022
Research and development services (over-time)	$	349,587	$	472,539
Clinical laboratory testing services (point-in-time)		7,596,748		8,712,565
Clinical laboratory testing services (over-time)		3,033,346		3,871,609
Product and authentication services (point-in-time):
Supply chain		682,799		570,252
Large Scale DNA Production		653,015		—
Asset marking		272,212		380,039
MDx test kits and supplies		—		602,356
Total	$	12,587,707	$	14,609,360

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

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

Revenue Recognition, continued

Contract balances

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

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

		October 1,		June 30,		$
	Balance sheet classification	2022		2023		change
Contract liabilities	Deferred revenue	$	563,557	$	275,885	$	287,672

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

Inventories

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

9

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

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

Net Loss Per Share

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

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

	2023	2022
Warrants	7,295,588	2,239,963
Restricted Stock Units	282,640	—
Stock options	2,198,971	1,063,143
Total	9,777,199	3,303,106

Cash and Cash Equivalents and Restricted Cash

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

	June 30,		June 30,
	2023		2022
Cash and cash equivalents	$	10,756,235	$	4,681,878
Restricted cash		750,000		—
Total cash, cash equivalents and restricted cash	$	11,506,235	$	4,681,878

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

10

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

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

Concentrations

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

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

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

Two customers accounted for 86% of the Company’s accounts receivable at June 30, 2023 and two customers accounted for 89% of the Company’s accounts receivable at September 30, 2022.

Segment Reporting

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

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

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

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

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

11

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

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

Fair Value of Financial Instruments

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

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

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

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

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

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

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

Recent Accounting Standards

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

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

12

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE C — INVENTORIES

Inventories consist of the following:

	June 30,		September 30,
	2023		2022
	(unaudited)
Raw materials	$	212,965	$	471,947
Work-in-progress		26,425		55,817
Finished goods		37,032		74,480
Total	$	276,422	$	602,244

NOTE D — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities are as follows:

	June 30,		September 30,
	2023		2022
	(unaudited)
Accounts payable	$	1,051,723	$	1,744,105
Accrued salaries payable		999,952		1,458,661
Other accrued expenses		76,233		418,985
Total	$	2,127,908	$	3,621,751

NOTE E —WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS

Warrants

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

Transactions involving warrants are summarized as follows:

		Weighted
		Average
		Exercise
	Number of	Price Per
	Shares	Share
Balance at October 1, 2022	7,313,963	$	3.68
Granted	—		—
Exercised	—		—
Cancelled or expired	(18,375)		17.60
Balance at June 30, 2023	7,295,588	$	3.65

13

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

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

Options

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

The fair value of options granted during the nine-month period ended June 30, 2023, was determined using the Black Scholes Option Pricing Model. For the purposes of the valuation model, the Company used the simplified method for determining the granted options expected lives. The fair value for options granted during the nine-month period ended June 30, 2023 was calculated using the following weighted average assumptions: stock price of $1.27; exercise price of $1.27; expected term of 5.74 years; dividend yield of 0%; volatility of 157%; and risk-free rate of 3.64%. The weighted average grant date fair value per share for the options granted during the nine-month period ended June 30, 2023 was $1.20.

Restricted Stock Units

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

NOTE F — COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space under an operating lease in Stony Brook, New York for its corporate headquarters. The lease is for a 30,000 square foot building. The Company entered into an amended lease agreement on February 1, 2023. The initial term is for three years and expires on February 1, 2026. The lease for the corporate headquarters requires monthly payments of $48,861, which is adjusted annually based on the US Consumer Price Index (“CPI”). In lieu of a security deposit, the Company provided a standby letter of credit of $750,000. In addition, the Company also has 2,500 square feet of laboratory space, which it entered into an amended lease agreement for on February 1, 2023. The initial lease term for the laboratory space is one year from the commencement date. The lease requires monthly payments of $8,750. The Company also has a satellite testing facility in Ahmedabad, India, which occupies 1,108 square feet for a three-year term beginning November 1, 2017. During August 2023, the Company renewed this lease with a new expiration date of July 31, 2024. The base rent is approximately $6,500 per annum. The laboratory lease, as well as the testing facility in Ahmedabad are both considered short-term lease obligations. The total rent expense for the three and nine-month periods ended June 30, 2023 were $174,399 and $489,096, respectively.

The components of lease expense are as follows:

	Three-month		Nine-month
	period ended		period ended
Lease Cost	June 30, 2023		June 30, 2023
Operating lease cost	$	244,306	$	342,028
Short-term lease cost		43,750		260,725
Total lease cost	$	288,056	$	602,753

14

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE F — COMMITMENTS AND CONTINGENCIES continued

Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	244,306
Right-of-use assets obtained in exchange for new operating lease liabilities		1,545,916
Weighted-average remaining lease term — operating leases		2.6 years
Weighted-average discount rate — operating leases		9.1	%

Maturities of operating lease liabilities were as follows:

	Fiscal year
	ended
Maturity of Lease Liabilities	September 30,
	Operating Leases
2023 (excluding the nine-month period ended June 30, 2023)	$	146,584
2024		586,334
2025		586,334
2026		195,445
2027		—
Thereafter		—
Total lease payments		1,514,697
Less: interest		(159,189)
Present value of lease liabilities	$	1,355,508

Employment Agreement

The employment agreement with Dr. James Hayward, the Company’s President and CEO, entered into in July 2016 provides that he will be the Company’s CEO and will continue to serve on the Company’s Board of Directors. The initial term was from July 1, 2016 through June 30, 2017, with automatic one-year renewal periods. On July 28, 2017, the employment agreement was renewed for a successive one-year term and the employment agreement has been renewed for successive one-year terms, most recently as of June 30, 2023. Under the employment agreement, the CEO is eligible for an annual special aggregate cash incentive bonus of up to $800,000 each fiscal year, $300,000 of which is payable if and when annual revenue reaches $8 million for such fiscal year, plus an additional $100,000 payable for each additional $2 million of annual revenue in excess of $8 million for such fiscal year. Pursuant to the contract, the CEO’s annual salary is $400,000. The Board of Directors, acting in its discretion, may grant annual bonuses to the CEO. The CEO will be entitled to certain benefits and perquisites and will be eligible to participate in retirement, welfare and incentive plans available to the Company’s other employees.

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

15

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE F — COMMITMENTS AND CONTINGENCIES, continued

Employment Agreement, continued

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

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

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

Litigation

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

NOTE G – SEGMENT INFORMATION

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

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

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services and Kits		Security Products		Consolidated
Revenues:
Product revenues	$	230,544	$	—	$	86,406	$	316,950
Service revenues		174,962		—		250,732		425,694
Clinical laboratory service revenues		—		2,188,817		—		2,188,817
Less intersegment revenues		—		(14,120)		—		(14,120)
Total revenues		405,506		2,174,697		337,138		2,917,341
Gross profit		290,541		829,798		148,979		1,269,318
(Loss) income from segment operations (a)		(717,126)		14,742		(998,966)		(1,701,350)

16

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE G – SEGMENT INFORMATION, continued

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

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	—	$	79,512	$	140,253	$	219,765
Service revenues		109,395		—		73,401		182,796
Clinical laboratory service revenues		—		3,986,770		—		3,986,770
Less intersegment revenues		—		(92,960)		—		(92,960)
Total revenues	$	109,395	$	3,973,322	$	213,654	$	4,296,371
Gross profit	$	109,395	$	1,274,502	$	(344,639)	$	1,039,258
(Loss) income from segment operations (a)	$	(854,644)	$	425,706	$	(1,560,123)	$	(1,989,061)

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

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services and Kits		Security Products		Consolidated
Revenues:
Product revenues	$	560,000	$	—	$	570,800	$	1,130,800
Service revenues		434,287		—		392,526		826,813
Clinical laboratory service revenues		—		10,726,214		—		10,726,214
Less intersegment revenues		—		(96,120)		—		(96,120)
Total revenues	$	994,287	$	10,630,094	$	963,326	$	12,587,707
Gross profit	$	676,942	$	4,413,130	$	364,364	$	5,454,436
(Loss) income from segment operations (a)	$	(2,623,502)	$	1,616,914	$	(2,388,417)	$	(3,395,005)

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

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	—	$	602,356	$	852,071	$	1,454,427
Service revenues		357,076		—		213,683		570,759
Clinical laboratory service revenues		—		12,960,350		—		12,960,350
Less intersegment revenues		—		(376,176)		—		(376,176)
Total revenues	$	357,076	$	13,186,530	$	1,065,754	$	14,609,360
Gross profit	$	357,076	$	4,430,361	$	(150,556)	$	4,636,881
(Loss) income from segment operations (a)	$	(2,828,629)	$	1,175,106	$	(3,749,155)	$	(5,402,678)

17

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE G – SEGMENT INFORMATION, continued

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

Three-Month Period Ended:	June 30,
	2023		2022
Loss from operations of reportable segments	$	(1,701,350)	$	(1,989,061)
General corporate expenses (b)		(1,157,759)		(867,583)
Interest income		26,783		—
Unrealized (loss) gain on change in fair value of warrants classified as a liability		(278,400)		1,758,200
Other expense, net		(3,469)		(26,352)
Consolidated loss before provision for income taxes	$	(3,114,195)	$	(1,124,796)

Nine-Month Period Ended:	June 30,
	2023		2022
Loss from operations of reportable segments	$	(3,395,005)	$	(5,402,678)
General corporate expenses (b)		(3,387,464)		(4,314,779)
Interest income		34,108		5,813
Unrealized gain on change in fair value of warrants classified as a liability		334,700		2,540,700
Transaction costs allocated to warrant liabilities		—		(391,335)
Other income (expense), net		6,396		(43,226)
Consolidated loss before provision for income taxes	$	(6,407,265)	$	(7,605,505)

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

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

NOTE H – FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

	Fair value at		Valuation	Unobservable	Weighted
	June 30, 2023		Technique	Input	Average
Liabilities:
Common Warrants	$	1,629,000	Monte Carlo simulation	Annualized volatility	160.00	%
Series A Warrants	$	3,153,000	Monte Carlo simulation	Annualized volatility	160.00	%
Series B Warrants	$	22,700	Monte Carlo simulation	Annualized volatility	130.00	%

18

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(unaudited)

NOTE H – FAIR VALUE OF FINANCIAL INSTRUMENTS, continued

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

	Common Warrants		Series A Warrants		Series B Warrants		Totals
Fair value at April 1, 2023	$	1,429,000	$	2,768,000	$	329,300	$	4,526,300
Change in fair value		200,000		385,000		(306,600)		278,400
Fair Value at June 30, 2023	$	1,629,000		3,153,000		22,700	$	4,804,700

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

	Common Warrants		Series A Warrants		Series B Warrants		Totals
Fair value at October 1, 2022	$	1,477,000	$	2,883,000	$	779,400	$	5,139,400
Change in fair value		152,000		270,000		(756,700)		(334,700)
Fair Value at June 30, 2023	$	1,629,000		3,153,000		22,700	$	4,804,700

NOTE I – SUBSEQUENT EVENTS

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

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

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

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

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 SEC, and our management and other representatives may make forward-looking statements orally or in writing to analysts, investors, representatives of the media and others. These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.

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

● discuss our future expectations;

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

● state other “forward-looking” information.

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

● our expectations of future revenues, expenditures, capital or other funding requirements;

● the adequacy of our cash and working capital to fund present and planned operations and growth;

● the substantial doubt relating to our ability to continue as a going concern;

● our need for additional financing which may in turn require the issuance of additional shares of common stock, preferred stock or other debt or equity securities (including convertible securities) which would dilute the ownership held by stockholders;

● our identification of material weakness in our internal control over financial reporting;

● our business strategy and the timing of our expansion plans;

● demand for Therapeutic DNA Production Services;

● demand for DNA Tagging Services;

● demand for MDx Testing Services, including in light of significantly decreasing demand for COVID testing services;

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● our expectations concerning existing or potential development and license agreements for third-party collaborations or joint ventures;

● regulatory approval and compliance for our Therapeutic DNA Production Services;

● whether we are able to achieve the benefits expected from the acquisition of Spindle;

● the effect of governmental regulations generally;

● our expectations of when regulatory submissions may be filed or when regulatory approvals may be received;

● our expectations concerning product candidates for our technologies; and

● our expectations of when or if we will become profitable.

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

● the inherent uncertainties of product development based on our new and as yet not fully proven technologies;

● the risks and uncertainties regarding the actual effect on humans of seemingly safe and efficacious formulations and treatments when tested clinically;

● the inherent uncertainties associated with clinical trials of product candidates;

● the inherent uncertainties associated with the process of obtaining regulatory clearance or approval to market product candidates;

● the inherent uncertainties associated with commercialization of products that have received regulatory clearance or approval;

● economic and industry conditions generally and in our specific markets;

● the volatility of, and decline in, our stock price; and

● our ability to obtain the necessary financing to fund our operations and effect our strategic development plan.

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

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

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

Our trademarks currently used in the United States include Applied DNA Sciences®, SigNature® molecular tags, SigNature® T molecular tags, fiberTyping®, SigNify®, Beacon®, CertainT®, LinearDNA™, Linea™ COVID-19 Diagnostic Assay Kit and safeCircle^TM COVID-19 testing and TR8^TM pharmacogenetic testing. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. All trademarks, service marks and trade names included or incorporated by reference in this Quarterly Report on Form 10-Q are the property of the respective owners.

Introduction

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

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

Therapeutic DNA Production Services

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

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

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

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We believe the key advantages of the linearDNA platform include:

● Speed – Production of linearDNA can be measured in terms of hours, not days and weeks as is the case with plasmid-based DNA manufacturing platforms.

● Scalability – linearDNA production takes place on efficient bench-top instruments, allowing for rapid scalability in a minimal footprint.

● Purity – DNA produced via PCR is pure, resulting in only large quantities of only the target DNA sequence. Unwanted DNA sequences such as plasmid backbone and antibiotic resistance genes, inherent to plasmid DNA, are not present in linearDNA.

● Simplicity – The production of linearDNA is streamlined relative to plasmid-based DNA production. linearDNA requires only four primary ingredients, does not require living cells or complex fermentation systems and does not require multiple rounds of purification.

● Flexibility – DNA produced via the linearDNA platform can be easily chemically modified to suit specific customer applications. In addition, the linearDNA platform can produce a wide range of complex DNA sequences that are difficult to produce via plasmid-based DNA production platforms. These complex sequences include inverted terminal repeats (ITRs) and long homopolymers such as polyadenylation sequences (poly (A) tail) important for gene therapy and messenger RNA (“mRNA”) therapies, respectively.

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

● therapeutic and prophylactic DNA vaccines;

● DNA templates for in vitro transcription to produce ribonucleic acid (“RNA”), including mRNA; and

● adoptive cell therapy manufacturing.

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

● viral vector manufacturing for in vivo and ex vivo gene editing;

● clustered regularly interspaced short palindromic repeats (“CRISPR”)-mediated homology-directed repair (“HDR”); and

● non-viral gene therapy.

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

● the prevention or reduction of double-stranded RNA (dsRNA) contamination resulting in higher target mRNA yields;

● delivery of IVT templates in as little as 14 days for milligram scale and 30 days for gram scale; and

● reduced mRNA manufacturing complexities.

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

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

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

In addition, we plan to leverage our Therapeutic DNA Production Services and deep knowledge of PCR to develop and monetize, ourselves or with strategic partners, one or more linearDNA-based therapeutic or prophylactic vaccines for high-value veterinary health indications (collectively “linearDNA Vaccines”). We currently seek to commercialize our linearDNA Vaccines in conjunction with lipid nanoparticle (“LNP”) encapsulation to facilitate IM administration. We have recently demonstrated in vitro and in vivo (mice studies) expression of generic reporter proteins via linearDNA encapsulated by LNPs. For the in vivo study, successful expression of the LNP-encapsulated linearDNA was administered and achieved via IM injection. We believe that our linearDNA Vaccines under development provide a substantial advantage over plasmid DNA-based vaccines for the veterinary health market.

MDx Testing Services

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

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

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

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

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

DNA Tagging and Security Products and Services

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

● SigNature® Molecular Tags, which are short non-biologic DNA taggants produced by the Company’s linearDNA platform, provide a methodology to authenticate goods within large and complex supply chains for materials such as cotton, leather, pharmaceuticals, nutraceuticals and other products.

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

● fiberTyping®, which uses PCR-based DNA detection to determine a cotton cultivar, and other product genotyping services that utilize PCR-based DNA detection to detect a product’s naturally occurring DNA sequences for the purposes of product provenance authentication and supply chain security.

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

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

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

Plan of Operations

General

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

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

Revenues

Product revenues

For the three-month periods ended June 30, 2023 and 2022, we generated $316,950 and $219,765, respectively, in revenues from product sales. Product revenue increased by $97,185 or 44% for the three-month period ended June 30, 2023 as compared to the three-month period ended June 30, 2022. The increase in product revenues was primarily related to an increase of approximately $230,000 relating to our large-scale DNA manufacturing business, offset by decreases of $80,000 in sales of our Linea^TM COVID-19 Assay Kits and supplies, $23,000 in  nutraceutical supply chain marking, $20,000 in military reduced order quantity and $19,000 in cash and valuables in transit.

Service revenues

For the three-month periods ended June 30, 2023 and 2022, we generated $425,964 and $182,796 in revenues from sales of services, respectively. The increase in service revenues of $242,898 or 133% for the three-month period ended June 30, 2023 as compared to the same period in the prior fiscal year is attributable to an increase of approximately $184,000 and $68,000 in isotopic testing and new customers in our textile and biopharmaceutical markets, respectively.

Clinical laboratory service revenues

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

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Cost and Expenses

Gross Profit

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

Selling, General and Administrative

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

Research and Development

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

Interest income

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

Other expense, net

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

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

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

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Net Loss

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

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

Revenues

Product revenues

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

Service revenues

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

Clinical laboratory service revenues

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

Cost and Expenses

Gross Profit

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

Selling, General and Administrative

Selling, general and administrative expenses for the nine-month period ended June 30, 2023 decreased by $1,900,442 or 17% to $9,440,734 as compared to $11,341,176 for the nine-month period ended June 30, 2022. The decrease is primarily attributable to a decrease in stock-based compensation expense of $1,553,000 primarily relating to officer stock option grants that vested immediately during the prior fiscal year to date. The remainder of the decrease relates to a decrease in insurance expense of approximately $120,000, primarily related to a decrease in our Directors and Officers insurance policy premiums.  Additionally royalty expense decreased $100,000 due to a decline in COVID-19 related testing.

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Research and Development

Research and development expenses decreased to $2,796,171 for the nine-month period ended June 30, 2023 from $3,013,162 for the nine-month period ended June 30, 2022, a decrease of $216,991 or 7%. This decrease is primarily due to decreased outsourced service contracts  and laboratory supplies of approximately $180,000. These costs were to support our continued research and development efforts, primarily related to our ongoing animal vaccine study, as well as next generation sequencing projects.  Additional decreases of $46,000 occurred related to development projects in the cannabis market during the prior fiscal year period.

Interest income

Interest income for the nine-month period ended June 30, 2023, was $34,108 as compared to $5,813 in the nine-month period ended June 30, 2023.

Other income (expense), net

Other income (expense), net for the nine-month periods ended June 30, 2023 and 2022, was income of $6,396 and  expense of $(43,266), respectively. The change of $49,622 is due to a gain on the sale of vehicles of $6,083 during the current fiscal year, offset by foreign exchange translation expenses during the prior fiscal year to date.

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

Unrealized gain on change in fair value of warrants classified as a liability for the nine-month periods ended June 30, 2023 and 2022 of $334,700 and $2,540,700, respectively, relates to the change in fair value of the warrants that are classified as a liability. The primary driver of this change is the decrease in our stock price during the period.

Net Loss

Net loss decreased $1,198,240 or 16% to $6,407,265 for the nine-month period ended June 30, 2023 compared to $7,605,505 for the nine-month period ended June 30, 2022 due to the factors noted above.

Liquidity and Capital Resources

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

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

We have recurring net losses, which  have resulted in a net loss of $6,407,265 and generated negative operating cash flow of $3,537,911 for the nine-month period ended June 30, 2023.  These factors raise substantial doubt about our 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.  

29

Critical Accounting Estimates and Policies

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

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

The accounting policies identified as critical are as follows:

● Revenue recognition;

● Equity based compensation; and

● Warrants classified as a liability

Critical Accounting Estimates

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

Revenue Recognition

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

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

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

Product Revenues

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

30

Authentication Services

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

Clinical Laboratory Testing Services

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

Research and Development Services

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

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

Warrants classified as a liability

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Inflation

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

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

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

31

Item 4. — Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

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

Material Weakness in Internal Control Over Financial Reporting

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

Remediation of Material Weakness

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

Changes in Internal Control over Financial Reporting

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

32

Part II - Other Information

Item 1. — Legal Proceedings.

None.

Item 1A. — Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K of the Company filed with the SEC on December 14, 2022, as amended, and in Part II, Item 1A “Risk Factors” in our Quarterly Report on Form 10-Q of the Company filed with the SEC on May 11, 2023, and as updated and supplemented below and in subsequent filings. These risk factors could materially harm our business, operating results and financial condition. Additional factors and uncertainties not currently known to us or that we currently consider immaterial also may materially adversely affect our business, financial condition or future results.

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

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

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

None.

Item 3. — Defaults Upon Senior Securities.

None.

Item 4. — Mine Safety Disclosures.

Not applicable.

Item 5. — Other Information.

None.

33

Item 6. — Exhibits.

			Incorporated by Reference to SEC Filing			Filed or Furnished with
Exhibit			Exhibit			this Form
No.	Filed Exhibit Description	Form	No.	File No.	Date Filed	10-Q
2.1 #†	Share Purchase Agreement, dated July 12, 2023, by and among Spindle Acquisition Corp., Spindle Biotech Inc., the persons listed on Schedule 1.1 therein, Lai Him Chung and Applied DNA Sciences, Inc.	8-K	2.1	001-36745	7/13/2023	X
3.1	Conformed version of Certificate of Incorporation of Applied DNA Sciences, Inc., as most recently amended by the Fifth Certificate of Amendment, effective Thursday, September 17, 2020	S-8	4.1	333-249365	10/07/2020
3.2	By-Laws	8-K	3.2	002-90539	01/16/2009
31.1*	Certification of Chief Executive Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
31.2*	Certification of Chief Financial Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
32.1**	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
32.2**	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
101 INS*	Inline XBRL Instance Document					X
101 SCH*	Inline XBRL Taxonomy Extension Schema Document					X
101 CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document					X
101 DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document					X
101 LAB*	Inline XBRL Extension Label Linkbase Document					X
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)					X

* Filed herewith

** Furnished herewith

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

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

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

34

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: August 10, 2023	/s/ JAMES A. HAYWARD
	James A. Hayward, Ph.D.
	Chief Executive Officer
	(Duly authorized officer and principal executive officer)
	/s/ BETH JANTZEN
Dated: August 10, 2023	Beth Jantzen, CPA
	Chief Financial Officer
	(Duly authorized officer and principal financial and accounting officer)

35

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-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: August 10, 2023
	By:	/s/ JAMES A. HAYWARD
		James A. Hayward
		President, Chief Executive Officer and Chairman
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-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: August 10, 2023
	By:	/s/ BETH JANTZEN
		Beth Jantzen, CPA
		Chief Financial Officer
		(Principal Financial Officer)

EX-32.1

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 June 30, 2023 (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
	President, Chief Executive Officer and Chairman
	(Principal Executive Officer)
	Dated: August 10, 2023

EX-32.2

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 June 30, 2023 (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
	(Principal Financial Officer)
	Dated: August 10, 2023

XML

Document and Entity Information - shares	9 Months Ended
	Jun. 30, 2023	Aug. 04, 2023
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Jun. 30, 2023
Entity File Number	001-36745
Entity Registrant Name	Applied DNA Sciences, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	59-2262718
Entity Address, Address Line One	50 Health Sciences Drive
Entity Address, City or Town	Stony Brook
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	11790
City Area Code	631
Local Phone Number	240-8800
Title of 12(b) Security	Common Stock, $0.001 par value
Trading Symbol	APDN
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		13,658,520
Entity Central Index Key	0000744452
Current Fiscal Year End Date	--09-30
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2023	Sep. 30, 2022
Current assets:
Cash and cash equivalents	$ 10,756,235	$ 15,215,285
Accounts receivable, net of allowance of $75,000 and $330,853 at June 30, 2023 and September 30, 2022, respectively	682,701	3,067,544
Inventories	276,422	602,244
Prepaid expenses and other current assets	524,904	1,058,056
Total current assets	12,240,262	19,943,129
Property and equipment, net	1,168,038	2,222,988
Other assets:
Restricted cash	750,000
Capitalized transaction costs	275,726
Operating right of use asset	1,355,508
Deposits		98,997
Total assets	15,789,534	22,265,114
Current liabilities:
Accounts payable and accrued liabilities	2,127,908	3,621,751
Operating lease liability, current	487,425
Deferred revenue	275,885	563,557
Total current liabilities	2,891,218	4,185,308
Long term accrued liabilities	31,467	31,467
Operating lease liability, long term	868,081
Warrants classified as a liability	4,804,700	5,139,400
Total liabilities	8,595,466	9,356,175
Commitments and contingencies
Applied DNA Sciences, Inc. stockholders' equity:
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of June 30 2023 and September 30, 2022, respectively
Common stock, par value $0.001 per share; 200,000,000 shares authorized as of June 30, 2023 and September 30, 2022, 12,908,520 shares issued and outstanding as of June 30, 2023, 2023 and September 30, 2022	12,909	12,909
Additional paid in capital	306,091,402	305,399,008
Accumulated deficit	(298,854,883)	(292,500,088)
Applied DNA Sciences, Inc. stockholders' equity	7,249,428	12,911,829
Noncontrolling interest	(55,360)	(2,890)
Total equity	7,194,068	12,908,939
Total liabilities and equity	15,789,534	22,265,114
Series A Preferred stock
Applied DNA Sciences, Inc. stockholders' equity:
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of June 30 2023 and September 30, 2022, respectively
Series B Preferred stock
Applied DNA Sciences, Inc. stockholders' equity:
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of June 30 2023 and September 30, 2022, respectively

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($)	Jun. 30, 2023	Sep. 30, 2022
Allowance on accounts receivable	$ 75,000	$ 330,853
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	12,908,520	12,908,520
Common stock, shares outstanding	12,908,520	12,908,520
Series A Preferred stock
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Series B Preferred stock
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Revenues
Total revenues	$ 2,917,341	$ 4,296,371	$ 12,587,707	$ 14,609,360
Total cost of revenues	1,648,023	3,257,113	7,133,271	9,972,479
Gross profit	1,269,318	1,039,258	5,454,436	4,636,881
Operating expenses:
Selling, general and administrative	3,292,304	3,032,877	9,440,734	11,341,176
Research and development	836,123	863,025	2,796,171	3,013,162
Total operating expenses	4,128,427	3,895,902	12,236,905	14,354,338
LOSS FROM OPERATIONS	(2,859,109)	(2,856,644)	(6,782,469)	(9,717,457)
Interest income	26,783		34,108	5,813
Transaction costs allocated to warrant liabilities				(391,335)
Unrealized (loss) gain on change in fair value of warrants classified as a liability	(278,400)	1,758,200	334,700	2,540,700
Other (expense) income, net	(3,469)	(26,352)	6,396	(43,226)
Loss before provision for income taxes	(3,114,195)	(1,124,796)	(6,407,265)	(7,605,505)
Provision for income taxes	0	0	0	0
NET LOSS	(3,114,195)	(1,124,796)	(6,407,265)	(7,605,505)
Less: Net loss attributable to noncontrolling interest	14,429	576	52,470	833
NET LOSS attributable to Applied DNA Sciences, Inc.	(3,099,766)	(1,124,220)	(6,354,795)	(7,604,672)
Deemed dividend related to warrant modification				110,105
NET LOSS attributable to common stockholders	$ (3,099,766)	$ (1,124,220)	$ (6,354,795)	$ (7,714,777)
Net loss per share attributable to common stockholders - basic	$ (0.24)	$ (0.13)	$ (0.49)	$ (0.94)
Net loss per share attributable to common stockholders - diluted	$ (0.24)	$ (0.13)	$ (0.49)	$ (0.94)
Weighted average shares outstanding - basic	12,908,520	8,982,520	12,908,520	8,184,807
Weighted average shares outstanding - diluted	12,908,520	8,982,520	12,908,520	8,184,807
Product revenues
Revenues
Total revenues	$ 316,950	$ 219,765	$ 1,130,800	$ 1,454,427
Total cost of revenues	368,902	307,049	1,103,843	1,211,959
Service revenues
Revenues
Total revenues	425,694	182,796	826,813	570,759
Clinical laboratory service revenues
Revenues
Total revenues	2,174,697	3,893,810	10,630,094	12,584,174
Total cost of revenues	$ 1,279,121	$ 2,950,064	$ 6,029,428	$ 8,760,520

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($)	Common Shares	Additional Paid in Capital	Accumulated Deficit	Noncontrolling Interest	Total
Balance at Sep. 30, 2021	$ 7,488	$ 295,228,272	$ (284,122,092)	$ (722)	$ 11,112,946
Balance (in shares) at Sep. 30, 2021	7,486,120
Increase (Decrease) in Stockholders' Equity
Stock based compensation expense		1,699,920			1,699,920
Options issued in settlement of accrued bonus		300,000			300,000
Net income (loss)			(4,721,766)	855	(4,720,911)
Balance at Dec. 31, 2021	$ 7,488	297,228,192	(288,843,858)	133	8,391,955
Balance (in shares) at Dec. 31, 2021	7,486,120
Balance at Sep. 30, 2021	$ 7,488	295,228,272	(284,122,092)	(722)	11,112,946
Balance (in shares) at Sep. 30, 2021	7,486,120
Increase (Decrease) in Stockholders' Equity
Net income (loss)					(7,605,505)
Balance at Jun. 30, 2022	$ 8,984	298,624,137	(291,836,869)	(1,554)	6,794,698
Balance (in shares) at Jun. 30, 2022	8,982,520
Balance at Dec. 31, 2021	$ 7,488	297,228,192	(288,843,858)	133	8,391,955
Balance (in shares) at Dec. 31, 2021	7,486,120
Increase (Decrease) in Stockholders' Equity
Stock based compensation expense		272,915			272,915
Deemed dividend - warrant repricing		110,105	(110,105)
Common stock issued in public offering, net of offering costs	$ 748	4,091,085			4,091,833
Common stock issued in public offering, net of offering costs (in shares)	748,200
Fair value of warrants issued in connection with public offering		(3,350,400)			(3,350,400)
Net income (loss)			(1,758,685)	(1,112)	(1,759,797)
Balance at Mar. 31, 2022	$ 8,236	298,351,897	(290,712,648)	(979)	7,646,506
Balance (in shares) at Mar. 31, 2022	8,234,320
Increase (Decrease) in Stockholders' Equity
Exercise of warrants	$ 748	(674)			74
Exercise of warrants (in shares)	748,200
Stock based compensation expense		272,914			272,914
Net income (loss)			(1,124,221)	(575)	(1,124,796)
Balance at Jun. 30, 2022	$ 8,984	298,624,137	(291,836,869)	(1,554)	6,794,698
Balance (in shares) at Jun. 30, 2022	8,982,520
Balance at Sep. 30, 2022	$ 12,909	305,399,008	(292,500,088)	(2,890)	$ 12,908,939
Balance (in shares) at Sep. 30, 2022	12,908,520				12,908,520
Increase (Decrease) in Stockholders' Equity
Stock based compensation expense		93,748			$ 93,748
Net income (loss)			(3,843,372)	(874)	(3,844,246)
Balance at Dec. 31, 2022	$ 12,909	305,492,756	(296,343,460)	(3,764)	9,158,441
Balance (in shares) at Dec. 31, 2022	12,908,520
Balance at Sep. 30, 2022	$ 12,909	305,399,008	(292,500,088)	(2,890)	$ 12,908,939
Balance (in shares) at Sep. 30, 2022	12,908,520				12,908,520
Increase (Decrease) in Stockholders' Equity
Net income (loss)					$ (6,407,265)
Balance at Jun. 30, 2023	$ 12,909	306,091,402	(298,854,883)	(55,360)	$ 7,194,068
Balance (in shares) at Jun. 30, 2023	12,908,520				12,908,520
Balance at Dec. 31, 2022	$ 12,909	305,492,756	(296,343,460)	(3,764)	$ 9,158,441
Balance (in shares) at Dec. 31, 2022	12,908,520
Increase (Decrease) in Stockholders' Equity
Stock based compensation expense		258,604			258,604
Net income (loss)			588,343	(37,167)	551,176
Balance at Mar. 31, 2023	$ 12,909	305,751,360	(295,755,117)	(40,931)	9,968,221
Balance (in shares) at Mar. 31, 2023	12,908,520
Increase (Decrease) in Stockholders' Equity
Stock based compensation expense		340,042			340,042
Net income (loss)			(3,099,766)	(14,429)	(3,114,195)
Balance at Jun. 30, 2023	$ 12,909	$ 306,091,402	$ (298,854,883)	$ (55,360)	$ 7,194,068
Balance (in shares) at Jun. 30, 2023	12,908,520				12,908,520

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Cash flows from operating activities:
Net loss	$ (6,407,265)	$ (7,605,505)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,032,568	962,800
Gain on sale of property and equipment	(6,083)
Unrealized gain on change in fair value of warrants	(334,700)	(2,540,700)
Stock-based compensation	692,394	2,245,749
Change in provision for bad debts	(255,853)	10,000
Write-off of property and equipment	62,000
Change in operating assets and liabilities:
Accounts receivable	2,640,694	(64,928)
Inventories	325,822	815,294
Prepaid expenses and other current assets and deposits	632,149	(603,439)
Accounts payable and accrued liabilities	(1,631,965)	586,379
Deferred revenue	(287,672)	476,264
Net cash used in operating activities	(3,537,911)	(5,718,086)
Cash flows from investing activities:
Capitalized transaction costs for asset purchase transaction	(137,604)
Proceeds from sale of property and equipment	45,000
Purchase of property and equipment	(78,535)	(246,892)
Net cash used in investing activities	(171,139)	(246,892)
Cash flows from financing activities:
Net proceeds from exercise of warrants		75
Net proceeds from issuance of common stock and warrants		4,091,833
Net cash provided by financing activities		4,091,908
Net decrease in cash, cash equivalents and restricted cash	(3,709,050)	(1,873,070)
Cash, cash equivalents and restricted cash at beginning of period	15,215,285	6,554,948
Cash, cash equivalents and restricted cash at end of period	11,506,235	4,681,878
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest	0	0
Cash paid during period for income taxes	0	0
Non-cash investing and financing activities:
Property and equipment acquired, and included in accounts payable		249,468
Deemed dividend warrant modifications		110,105
Leased assets obtained in exchange for new operating lease liabilities	1,545,916
Fair value of warrants issued		3,350,400
Transaction costs for asset purchase included in accounts payable	$ 138,122
Issuance of stock options for payment of accrued bonus		$ 300,000

XML

NATURE OF THE BUSINESS

9 Months Ended

Jun. 30, 2023

NATURE OF THE BUSINESS

NATURE OF THE BUSINESS

NOTE A — NATURE OF THE BUSINESS

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

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BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

9 Months Ended

Jun. 30, 2023

BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

Interim Financial Statements

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

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

Principles of Consolidation

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

Going Concern and Management’s Plan

The Company has recurring net losses, which have resulted in an accumulated deficit of $298,854,883 as of June 30, 2023. The Company incurred a net loss of $6,407,265 and generated negative operating cash flow of $3,537,911 for the nine-month period ended June 30, 2023. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements.  The ability of the Company 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.

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

Going Concern and Management's Plan, continued

The Company’s current capital resources include cash and cash equivalents, accounts receivable and inventories. Historically, the Company has financed its operations principally from the sale of equity and equity-linked securities.

Use of Estimates

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

Revenue Recognition

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

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

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

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

Revenue Recognition, continued

Product Revenues

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

Authentication Services

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

Clinical Laboratory Testing Services

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

Research and Development Services

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

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

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

Revenue Recognition, continued

Disaggregation of Revenue

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

	Three Month Period Ended:
	June 30,		June 30,
	2023		2022
Research and development services (over-time)	$	135,622	$	152,732
Clinical laboratory testing services (point-in-time)		1,521,315		2,506,976
Clinical laboratory testing services (over-time)		653,382		1,386,834
Product and authentication services (point-in-time):
Supply chain		242,826		43,243
Large Scale DNA Production		271,884		—
Asset marking		92,312		127,075
MDx test kits and supplies		—		79,511
Total	$	2,917,341	$	4,296,371

	Nine Month Period Ended:
	June 30,		June 30,
	2023		2022
Research and development services (over-time)	$	349,587	$	472,539
Clinical laboratory testing services (point-in-time)		7,596,748		8,712,565
Clinical laboratory testing services (over-time)		3,033,346		3,871,609
Product and authentication services (point-in-time):
Supply chain		682,799		570,252
Large Scale DNA Production		653,015		—
Asset marking		272,212		380,039
MDx test kits and supplies		—		602,356
Total	$	12,587,707	$	14,609,360

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

Revenue Recognition, continued

Contract balances

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

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

		October 1,		June 30,		$
	Balance sheet classification	2022		2023		change
Contract liabilities	Deferred revenue	$	563,557	$	275,885	$	287,672

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

Inventories

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

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

Net Loss Per Share

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

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

	2023	2022
Warrants	7,295,588	2,239,963
Restricted Stock Units	282,640	—
Stock options	2,198,971	1,063,143
Total	9,777,199	3,303,106

Cash and Cash Equivalents and Restricted Cash

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

	June 30,		June 30,
	2023		2022
Cash and cash equivalents	$	10,756,235	$	4,681,878
Restricted cash		750,000		—
Total cash, cash equivalents and restricted cash	$	11,506,235	$	4,681,878

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

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

Concentrations

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

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

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

Two customers accounted for 86% of the Company’s accounts receivable at June 30, 2023 and two customers accounted for 89% of the Company’s accounts receivable at September 30, 2022.

Segment Reporting

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

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

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

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

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

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

Fair Value of Financial Instruments

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

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

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

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

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

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

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

Recent Accounting Standards

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

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

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INVENTORIES

9 Months Ended

Jun. 30, 2023

INVENTORIES

INVENTORIES

NOTE C — INVENTORIES

Inventories consist of the following:

	June 30,		September 30,
	2023		2022
	(unaudited)
Raw materials	$	212,965	$	471,947
Work-in-progress		26,425		55,817
Finished goods		37,032		74,480
Total	$	276,422	$	602,244

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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

9 Months Ended

Jun. 30, 2023

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

NOTE D — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities are as follows:

	June 30,		September 30,
	2023		2022
	(unaudited)
Accounts payable	$	1,051,723	$	1,744,105
Accrued salaries payable		999,952		1,458,661
Other accrued expenses		76,233		418,985
Total	$	2,127,908	$	3,621,751

XML

WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS

9 Months Ended

Jun. 30, 2023

WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS

WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS

NOTE E —WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS

Warrants

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

Transactions involving warrants are summarized as follows:

		Weighted
		Average
		Exercise
	Number of	Price Per
	Shares	Share
Balance at October 1, 2022	7,313,963	$	3.68
Granted	—		—
Exercised	—		—
Cancelled or expired	(18,375)		17.60
Balance at June 30, 2023	7,295,588	$	3.65

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

Options

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

The fair value of options granted during the nine-month period ended June 30, 2023, was determined using the Black Scholes Option Pricing Model. For the purposes of the valuation model, the Company used the simplified method for determining the granted options expected lives. The fair value for options granted during the nine-month period ended June 30, 2023 was calculated using the following weighted average assumptions: stock price of $1.27; exercise price of $1.27; expected term of 5.74 years; dividend yield of 0%; volatility of 157%; and risk-free rate of 3.64%. The weighted average grant date fair value per share for the options granted during the nine-month period ended June 30, 2023 was $1.20.

Restricted Stock Units

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

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Jun. 30, 2023

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE F — COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space under an operating lease in Stony Brook, New York for its corporate headquarters. The lease is for a 30,000 square foot building. The Company entered into an amended lease agreement on February 1, 2023. The initial term is for three years and expires on February 1, 2026. The lease for the corporate headquarters requires monthly payments of $48,861, which is adjusted annually based on the US Consumer Price Index (“CPI”). In lieu of a security deposit, the Company provided a standby letter of credit of $750,000. In addition, the Company also has 2,500 square feet of laboratory space, which it entered into an amended lease agreement for on February 1, 2023. The initial lease term for the laboratory space is one year from the commencement date. The lease requires monthly payments of $8,750. The Company also has a satellite testing facility in Ahmedabad, India, which occupies 1,108 square feet for a three-year term beginning November 1, 2017. During August 2023, the Company renewed this lease with a new expiration date of July 31, 2024. The base rent is approximately $6,500 per annum. The laboratory lease, as well as the testing facility in Ahmedabad are both considered short-term lease obligations. The total rent expense for the three and nine-month periods ended June 30, 2023 were $174,399 and $489,096, respectively.

The components of lease expense are as follows:

	Three-month		Nine-month
	period ended		period ended
Lease Cost	June 30, 2023		June 30, 2023
Operating lease cost	$	244,306	$	342,028
Short-term lease cost		43,750		260,725
Total lease cost	$	288,056	$	602,753

NOTE F — COMMITMENTS AND CONTINGENCIES continued

Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	244,306
Right-of-use assets obtained in exchange for new operating lease liabilities		1,545,916
Weighted-average remaining lease term — operating leases		2.6 years
Weighted-average discount rate — operating leases		9.1	%

Maturities of operating lease liabilities were as follows:

	Fiscal year
	ended
Maturity of Lease Liabilities	September 30,
	Operating Leases
2023 (excluding the nine-month period ended June 30, 2023)	$	146,584
2024		586,334
2025		586,334
2026		195,445
2027		—
Thereafter		—
Total lease payments		1,514,697
Less: interest		(159,189)
Present value of lease liabilities	$	1,355,508

Employment Agreement

The employment agreement with Dr. James Hayward, the Company’s President and CEO, entered into in July 2016 provides that he will be the Company’s CEO and will continue to serve on the Company’s Board of Directors. The initial term was from July 1, 2016 through June 30, 2017, with automatic one-year renewal periods. On July 28, 2017, the employment agreement was renewed for a successive one-year term and the employment agreement has been renewed for successive one-year terms, most recently as of June 30, 2023. Under the employment agreement, the CEO is eligible for an annual special aggregate cash incentive bonus of up to $800,000 each fiscal year, $300,000 of which is payable if and when annual revenue reaches $8 million for such fiscal year, plus an additional $100,000 payable for each additional $2 million of annual revenue in excess of $8 million for such fiscal year. Pursuant to the contract, the CEO’s annual salary is $400,000. The Board of Directors, acting in its discretion, may grant annual bonuses to the CEO. The CEO will be entitled to certain benefits and perquisites and will be eligible to participate in retirement, welfare and incentive plans available to the Company’s other employees.

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

NOTE F — COMMITMENTS AND CONTINGENCIES, continued

Employment Agreement, continued

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

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

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

Litigation

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

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SEGMENT INFORMATION

9 Months Ended

Jun. 30, 2023

SEGMENT INFORMATION

SEGMENT INFORMATION

NOTE G – SEGMENT INFORMATION

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

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

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services and Kits		Security Products		Consolidated
Revenues:
Product revenues	$	230,544	$	—	$	86,406	$	316,950
Service revenues		174,962		—		250,732		425,694
Clinical laboratory service revenues		—		2,188,817		—		2,188,817
Less intersegment revenues		—		(14,120)		—		(14,120)
Total revenues		405,506		2,174,697		337,138		2,917,341
Gross profit		290,541		829,798		148,979		1,269,318
(Loss) income from segment operations (a)		(717,126)		14,742		(998,966)		(1,701,350)

NOTE G – SEGMENT INFORMATION, continued

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

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	—	$	79,512	$	140,253	$	219,765
Service revenues		109,395		—		73,401		182,796
Clinical laboratory service revenues		—		3,986,770		—		3,986,770
Less intersegment revenues		—		(92,960)		—		(92,960)
Total revenues	$	109,395	$	3,973,322	$	213,654	$	4,296,371
Gross profit	$	109,395	$	1,274,502	$	(344,639)	$	1,039,258
(Loss) income from segment operations (a)	$	(854,644)	$	425,706	$	(1,560,123)	$	(1,989,061)

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

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services and Kits		Security Products		Consolidated
Revenues:
Product revenues	$	560,000	$	—	$	570,800	$	1,130,800
Service revenues		434,287		—		392,526		826,813
Clinical laboratory service revenues		—		10,726,214		—		10,726,214
Less intersegment revenues		—		(96,120)		—		(96,120)
Total revenues	$	994,287	$	10,630,094	$	963,326	$	12,587,707
Gross profit	$	676,942	$	4,413,130	$	364,364	$	5,454,436
(Loss) income from segment operations (a)	$	(2,623,502)	$	1,616,914	$	(2,388,417)	$	(3,395,005)

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

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	—	$	602,356	$	852,071	$	1,454,427
Service revenues		357,076		—		213,683		570,759
Clinical laboratory service revenues		—		12,960,350		—		12,960,350
Less intersegment revenues		—		(376,176)		—		(376,176)
Total revenues	$	357,076	$	13,186,530	$	1,065,754	$	14,609,360
Gross profit	$	357,076	$	4,430,361	$	(150,556)	$	4,636,881
(Loss) income from segment operations (a)	$	(2,828,629)	$	1,175,106	$	(3,749,155)	$	(5,402,678)

NOTE G – SEGMENT INFORMATION, continued

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

Three-Month Period Ended:	June 30,
	2023		2022
Loss from operations of reportable segments	$	(1,701,350)	$	(1,989,061)
General corporate expenses (b)		(1,157,759)		(867,583)
Interest income		26,783		—
Unrealized (loss) gain on change in fair value of warrants classified as a liability		(278,400)		1,758,200
Other expense, net		(3,469)		(26,352)
Consolidated loss before provision for income taxes	$	(3,114,195)	$	(1,124,796)

Nine-Month Period Ended:	June 30,
	2023		2022
Loss from operations of reportable segments	$	(3,395,005)	$	(5,402,678)
General corporate expenses (b)		(3,387,464)		(4,314,779)
Interest income		34,108		5,813
Unrealized gain on change in fair value of warrants classified as a liability		334,700		2,540,700
Transaction costs allocated to warrant liabilities		—		(391,335)
Other income (expense), net		6,396		(43,226)
Consolidated loss before provision for income taxes	$	(6,407,265)	$	(7,605,505)

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

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

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FAIR VALUE OF FINANCIAL INSTRUMENTS

9 Months Ended

Jun. 30, 2023

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE H – FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

	Fair value at		Valuation	Unobservable	Weighted
	June 30, 2023		Technique	Input	Average
Liabilities:
Common Warrants	$	1,629,000	Monte Carlo simulation	Annualized volatility	160.00	%
Series A Warrants	$	3,153,000	Monte Carlo simulation	Annualized volatility	160.00	%
Series B Warrants	$	22,700	Monte Carlo simulation	Annualized volatility	130.00	%

NOTE H – FAIR VALUE OF FINANCIAL INSTRUMENTS, continued

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

	Common Warrants		Series A Warrants		Series B Warrants		Totals
Fair value at April 1, 2023	$	1,429,000	$	2,768,000	$	329,300	$	4,526,300
Change in fair value		200,000		385,000		(306,600)		278,400
Fair Value at June 30, 2023	$	1,629,000		3,153,000		22,700	$	4,804,700

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

	Common Warrants		Series A Warrants		Series B Warrants		Totals
Fair value at October 1, 2022	$	1,477,000	$	2,883,000	$	779,400	$	5,139,400
Change in fair value		152,000		270,000		(756,700)		(334,700)
Fair Value at June 30, 2023	$	1,629,000		3,153,000		22,700	$	4,804,700

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SUBSEQUENT EVENTS

9 Months Ended

Jun. 30, 2023

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE I – SUBSEQUENT EVENTS

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

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

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

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

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BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES (Policies)

9 Months Ended

Jun. 30, 2023

BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

Interim Financial Statements

Interim Financial Statements

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

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

Principles of Consolidation

Principles of Consolidation

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

Going Concern And Management's Plan

Going Concern and Management’s Plan

The Company has recurring net losses, which have resulted in an accumulated deficit of $298,854,883 as of June 30, 2023. The Company incurred a net loss of $6,407,265 and generated negative operating cash flow of $3,537,911 for the nine-month period ended June 30, 2023. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements.  The ability of the Company 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.

Use of Estimates

Use of Estimates

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

Revenue Recognition

Revenue Recognition

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

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

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

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

Revenue Recognition, continued

Product Revenues

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

Authentication Services

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

Clinical Laboratory Testing Services

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

Research and Development Services

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

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

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

Revenue Recognition, continued

Disaggregation of Revenue

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

	Three Month Period Ended:
	June 30,		June 30,
	2023		2022
Research and development services (over-time)	$	135,622	$	152,732
Clinical laboratory testing services (point-in-time)		1,521,315		2,506,976
Clinical laboratory testing services (over-time)		653,382		1,386,834
Product and authentication services (point-in-time):
Supply chain		242,826		43,243
Large Scale DNA Production		271,884		—
Asset marking		92,312		127,075
MDx test kits and supplies		—		79,511
Total	$	2,917,341	$	4,296,371

	Nine Month Period Ended:
	June 30,		June 30,
	2023		2022
Research and development services (over-time)	$	349,587	$	472,539
Clinical laboratory testing services (point-in-time)		7,596,748		8,712,565
Clinical laboratory testing services (over-time)		3,033,346		3,871,609
Product and authentication services (point-in-time):
Supply chain		682,799		570,252
Large Scale DNA Production		653,015		—
Asset marking		272,212		380,039
MDx test kits and supplies		—		602,356
Total	$	12,587,707	$	14,609,360

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

Revenue Recognition, continued

Contract balances

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

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

		October 1,		June 30,		$
	Balance sheet classification	2022		2023		change
Contract liabilities	Deferred revenue	$	563,557	$	275,885	$	287,672

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

Inventories

Inventories

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

Net Loss Per Share

Net Loss Per Share

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

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

	2023	2022
Warrants	7,295,588	2,239,963
Restricted Stock Units	282,640	—
Stock options	2,198,971	1,063,143
Total	9,777,199	3,303,106

Cash and Cash Equivalents and Restricted Cash

Cash and Cash Equivalents and Restricted Cash

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

	June 30,		June 30,
	2023		2022
Cash and cash equivalents	$	10,756,235	$	4,681,878
Restricted cash		750,000		—
Total cash, cash equivalents and restricted cash	$	11,506,235	$	4,681,878

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

Concentrations

Concentrations

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

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

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

Two customers accounted for 86% of the Company’s accounts receivable at June 30, 2023 and two customers accounted for 89% of the Company’s accounts receivable at September 30, 2022.

Segment Reporting

Segment Reporting

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

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

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

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

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

Fair Value of Financial Instruments

Fair Value of Financial Instruments

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

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

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

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

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

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

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

Recent Accounting Standards

Recent Accounting Standards

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

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

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BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES (Tables)

9 Months Ended

Jun. 30, 2023

BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

Schedule of revenues disaggregated by business operations and timing of revenue recognition

	Three Month Period Ended:
	June 30,		June 30,
	2023		2022
Research and development services (over-time)	$	135,622	$	152,732
Clinical laboratory testing services (point-in-time)		1,521,315		2,506,976
Clinical laboratory testing services (over-time)		653,382		1,386,834
Product and authentication services (point-in-time):
Supply chain		242,826		43,243
Large Scale DNA Production		271,884		—
Asset marking		92,312		127,075
MDx test kits and supplies		—		79,511
Total	$	2,917,341	$	4,296,371

	Nine Month Period Ended:
	June 30,		June 30,
	2023		2022
Research and development services (over-time)	$	349,587	$	472,539
Clinical laboratory testing services (point-in-time)		7,596,748		8,712,565
Clinical laboratory testing services (over-time)		3,033,346		3,871,609
Product and authentication services (point-in-time):
Supply chain		682,799		570,252
Large Scale DNA Production		653,015		—
Asset marking		272,212		380,039
MDx test kits and supplies		—		602,356
Total	$	12,587,707	$	14,609,360

Schedule of opening and closing contract balances

		October 1,		June 30,		$
	Balance sheet classification	2022		2023		change
Contract liabilities	Deferred revenue	$	563,557	$	275,885	$	287,672

Schedule of anti-dilutive securities not included computation of net loss per share

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

	2023	2022
Warrants	7,295,588	2,239,963
Restricted Stock Units	282,640	—
Stock options	2,198,971	1,063,143
Total	9,777,199	3,303,106

Schedule of reconciliation of cash, cash equivalents and restricted cash to amounts shown in statement of cash flows

	June 30,		June 30,
	2023		2022
Cash and cash equivalents	$	10,756,235	$	4,681,878
Restricted cash		750,000		—
Total cash, cash equivalents and restricted cash	$	11,506,235	$	4,681,878

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INVENTORIES (Tables)

9 Months Ended

Jun. 30, 2023

INVENTORIES

Schedule of inventories

	June 30,		September 30,
	2023		2022
	(unaudited)
Raw materials	$	212,965	$	471,947
Work-in-progress		26,425		55,817
Finished goods		37,032		74,480
Total	$	276,422	$	602,244

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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Tables)

9 Months Ended

Jun. 30, 2023

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Schedule of accounts payable and accrued liabilities

	June 30,		September 30,
	2023		2022
	(unaudited)
Accounts payable	$	1,051,723	$	1,744,105
Accrued salaries payable		999,952		1,458,661
Other accrued expenses		76,233		418,985
Total	$	2,127,908	$	3,621,751

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WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS (Tables)

9 Months Ended

Jun. 30, 2023

WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS

Schedule of transactions involving warrants

		Weighted
		Average
		Exercise
	Number of	Price Per
	Shares	Share
Balance at October 1, 2022	7,313,963	$	3.68
Granted	—		—
Exercised	—		—
Cancelled or expired	(18,375)		17.60
Balance at June 30, 2023	7,295,588	$	3.65

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Jun. 30, 2023

COMMITMENTS AND CONTINGENCIES

Schedule of components of lease expense

	Three-month		Nine-month
	period ended		period ended
Lease Cost	June 30, 2023		June 30, 2023
Operating lease cost	$	244,306	$	342,028
Short-term lease cost		43,750		260,725
Total lease cost	$	288,056	$	602,753

Schedule of other information

Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	244,306
Right-of-use assets obtained in exchange for new operating lease liabilities		1,545,916
Weighted-average remaining lease term — operating leases		2.6 years
Weighted-average discount rate — operating leases		9.1	%

Schedule of maturities of operating lease liabilities

	Fiscal year
	ended
Maturity of Lease Liabilities	September 30,
	Operating Leases
2023 (excluding the nine-month period ended June 30, 2023)	$	146,584
2024		586,334
2025		586,334
2026		195,445
2027		—
Thereafter		—
Total lease payments		1,514,697
Less: interest		(159,189)
Present value of lease liabilities	$	1,355,508

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SEGMENT INFORMATION (Tables)

9 Months Ended

Jun. 30, 2023

SEGMENT INFORMATION

Schedule of information regarding operations by segment

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

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services and Kits		Security Products		Consolidated
Revenues:
Product revenues	$	230,544	$	—	$	86,406	$	316,950
Service revenues		174,962		—		250,732		425,694
Clinical laboratory service revenues		—		2,188,817		—		2,188,817
Less intersegment revenues		—		(14,120)		—		(14,120)
Total revenues		405,506		2,174,697		337,138		2,917,341
Gross profit		290,541		829,798		148,979		1,269,318
(Loss) income from segment operations (a)		(717,126)		14,742		(998,966)		(1,701,350)

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

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	—	$	79,512	$	140,253	$	219,765
Service revenues		109,395		—		73,401		182,796
Clinical laboratory service revenues		—		3,986,770		—		3,986,770
Less intersegment revenues		—		(92,960)		—		(92,960)
Total revenues	$	109,395	$	3,973,322	$	213,654	$	4,296,371
Gross profit	$	109,395	$	1,274,502	$	(344,639)	$	1,039,258
(Loss) income from segment operations (a)	$	(854,644)	$	425,706	$	(1,560,123)	$	(1,989,061)

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

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services and Kits		Security Products		Consolidated
Revenues:
Product revenues	$	560,000	$	—	$	570,800	$	1,130,800
Service revenues		434,287		—		392,526		826,813
Clinical laboratory service revenues		—		10,726,214		—		10,726,214
Less intersegment revenues		—		(96,120)		—		(96,120)
Total revenues	$	994,287	$	10,630,094	$	963,326	$	12,587,707
Gross profit	$	676,942	$	4,413,130	$	364,364	$	5,454,436
(Loss) income from segment operations (a)	$	(2,623,502)	$	1,616,914	$	(2,388,417)	$	(3,395,005)

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

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	—	$	602,356	$	852,071	$	1,454,427
Service revenues		357,076		—		213,683		570,759
Clinical laboratory service revenues		—		12,960,350		—		12,960,350
Less intersegment revenues		—		(376,176)		—		(376,176)
Total revenues	$	357,076	$	13,186,530	$	1,065,754	$	14,609,360
Gross profit	$	357,076	$	4,430,361	$	(150,556)	$	4,636,881
(Loss) income from segment operations (a)	$	(2,828,629)	$	1,175,106	$	(3,749,155)	$	(5,402,678)

Schedule of reconciliation of segment loss from operations to consolidated loss before provision for income taxes

Three-Month Period Ended:	June 30,
	2023		2022
Loss from operations of reportable segments	$	(1,701,350)	$	(1,989,061)
General corporate expenses (b)		(1,157,759)		(867,583)
Interest income		26,783		—
Unrealized (loss) gain on change in fair value of warrants classified as a liability		(278,400)		1,758,200
Other expense, net		(3,469)		(26,352)
Consolidated loss before provision for income taxes	$	(3,114,195)	$	(1,124,796)

Nine-Month Period Ended:	June 30,
	2023		2022
Loss from operations of reportable segments	$	(3,395,005)	$	(5,402,678)
General corporate expenses (b)		(3,387,464)		(4,314,779)
Interest income		34,108		5,813
Unrealized gain on change in fair value of warrants classified as a liability		334,700		2,540,700
Transaction costs allocated to warrant liabilities		—		(391,335)
Other income (expense), net		6,396		(43,226)
Consolidated loss before provision for income taxes	$	(6,407,265)	$	(7,605,505)

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

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

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Jun. 30, 2023

FAIR VALUE OF FINANCIAL INSTRUMENTS

Summary of the significant unobservable inputs in fair value measurement of Level 3 financial assets and liabilities

	Fair value at		Valuation	Unobservable	Weighted
	June 30, 2023		Technique	Input	Average
Liabilities:
Common Warrants	$	1,629,000	Monte Carlo simulation	Annualized volatility	160.00	%
Series A Warrants	$	3,153,000	Monte Carlo simulation	Annualized volatility	160.00	%
Series B Warrants	$	22,700	Monte Carlo simulation	Annualized volatility	130.00	%

Summary of change in fair value of warrants

	Common Warrants		Series A Warrants		Series B Warrants		Totals
Fair value at April 1, 2023	$	1,429,000	$	2,768,000	$	329,300	$	4,526,300
Change in fair value		200,000		385,000		(306,600)		278,400
Fair Value at June 30, 2023	$	1,629,000		3,153,000		22,700	$	4,804,700

	Common Warrants		Series A Warrants		Series B Warrants		Totals
Fair value at October 1, 2022	$	1,477,000	$	2,883,000	$	779,400	$	5,139,400
Change in fair value		152,000		270,000		(756,700)		(334,700)
Fair Value at June 30, 2023	$	1,629,000		3,153,000		22,700	$	4,804,700

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NATURE OF THE BUSINESS (Details)	9 Months Ended
	Jun. 30, 2023 item
NATURE OF THE BUSINESS
Number of primary markets that use the company's technologies	3

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BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES - Revenues disaggregated by our business operations and timing of revenue recognition (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total	$ 2,917,341	$ 4,296,371	$ 12,587,707	$ 14,609,360
Research and development services (over-time)
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total	135,622	152,732	349,587	472,539
Clinical laboratory testing services (point-in-time)
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total	1,521,315	2,506,976	7,596,748	8,712,565
Clinical laboratory testing services (over-time)
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total	653,382	1,386,834	3,033,346	3,871,609
Supply chain
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total	242,826	43,243	682,799	570,252
Large Scale DNA Production
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total	271,884		653,015
Asset marking
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total	$ 92,312	127,075	$ 272,212	380,039
MDx test kits and supplies
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total		$ 79,511		$ 602,356

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BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES - Opening and closing balances of the Company's contract balances (Details) - USD ($)	3 Months Ended	9 Months Ended
	Jun. 30, 2023	Jun. 30, 2023	Oct. 01, 2022
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Change in contract liabilities		$ 287,672
Revenue recognized in contract liabilities	$ 2,113	345,480
Contract liabilities
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Deferred revenue	$ 275,885	$ 275,885	$ 563,557

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BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES - Potential stock issuances under various options, and warrants (Details) - shares	3 Months Ended		9 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Antidilutive securities excluded from the computation of diluted net loss per share	9,777,199	3,303,106	9,777,199	3,303,106
Warrants
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Antidilutive securities excluded from the computation of diluted net loss per share	7,295,588	2,239,963	7,295,588	2,239,963
Stock options
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Antidilutive securities excluded from the computation of diluted net loss per share	2,198,971	1,063,143	2,198,971	1,063,143
Restricted Stock Units
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Antidilutive securities excluded from the computation of diluted net loss per share	282,640		282,640

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BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES - Cash and Cash Equivalents and Restricted Cash (Details) (Imported) - USD ($)	Jun. 30, 2023	Sep. 30, 2022	Jun. 30, 2022	Sep. 30, 2021
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Cash and cash equivalents	$ 10,756,235	$ 15,215,285	$ 4,681,878
Restricted cash	750,000
Total cash, cash equivalents and restricted cash	$ 11,506,235	$ 15,215,285	$ 4,681,878	$ 6,554,948

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BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES - Additional Information (Details)	3 Months Ended						9 Months Ended		12 Months Ended
	Jun. 30, 2023 USD ($)	Mar. 31, 2023 USD ($)	Dec. 31, 2022 USD ($)	Jun. 30, 2022 USD ($)	Mar. 31, 2022 USD ($)	Dec. 31, 2021 USD ($)	Jun. 30, 2023 USD ($) customer segment	Jun. 30, 2022 USD ($) customer	Sep. 30, 2022 USD ($) customer
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Accumulated deficit	$ 298,854,883						$ 298,854,883		$ 292,500,088
Net loss	3,114,195	$ (551,176)	$ 3,844,246	$ 1,124,796	$ 1,759,797	$ 4,720,911	6,407,265	$ 7,605,505
Operating cash flow							3,537,911
Excess of FDIC insurance limit	8,500,000						$ 8,500,000
Number of reportable segments | segment							3
Transfers from Level 2 to Level 1, Assets	0						$ 0
Transfers from Level 1 to Level 2, Assets	0						0
Transfers from Level 2 to Level 1, Liabilities	0						0
Transfers from Level 1 to Level 2, Liabilities	$ 0						0
Transfers Into Level 3, Liabilities							0
Transfers out of Level 3, Liabilities							$ 0
Customer Concentration Risk | Total Revenue
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Number of customers | customer							2	1
Customer Concentration Risk | Total Revenue | One customer
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Concentration risk percentage	71.00%			64.00%			71.00%
Customer Concentration Risk | Total Revenue | Two customer
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Concentration risk percentage	81.00%						81.00%	55.00%
Customer Concentration Risk | Accounts Receivable
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Number of customers | customer							2		2
Customer Concentration Risk | Accounts Receivable | Two customer
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Concentration risk percentage							86.00%		89.00%
Customer Concentration Risk | COVID-19 testing contract | One customer
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Concentration risk percentage							53.00%
Customer Concentration Risk | COVID-19 testing contract | Two customer
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Concentration risk percentage							69.00%

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INVENTORIES (Details) - USD ($)	Jun. 30, 2023	Sep. 30, 2022
INVENTORIES
Raw materials	$ 212,965	$ 471,947
Work-in-progress	26,425	55,817
Finished goods	37,032	74,480
Total	$ 276,422	$ 602,244

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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Details) - USD ($)	Jun. 30, 2023	Sep. 30, 2022
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable	$ 1,051,723	$ 1,744,105
Accrued salaries payable	999,952	1,458,661
Other accrued expenses	76,233	418,985
Total	$ 2,127,908	$ 3,621,751

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WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS - Transactions involving warrants (Details)	9 Months Ended
	Jun. 30, 2023 $ / shares shares
Number of Shares
Balance at October 1, 2022 | shares	7,313,963
Cancelled or expired | shares	(18,375)
Balance at March 31, 2023 | shares	7,295,588
Weighted Average Exercise Price Per Share
Balance at October 1, 2022 | $ / shares	$ 3.68
Cancelled or expired | $ / shares	17.60
Balance at March 31, 2023 | $ / shares	$ 3.65

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WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS - Options (Details) - Options	9 Months Ended
	Jun. 30, 2023 $ / shares shares
WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS
Offering price (in dollars per share)	$ 1.27
exercise price	$ 1.27
Expected term	5 years 8 months 26 days
Fair value of options, dividend yield	0.00%
Fair value of options, volatility rate	157.00%
Fair value of options, risk free rate	3.64%
Weighted average grant date fair value per share for options granted	$ 1.20
Officers of the Company
WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS
Number of shares granted | shares	308,333
Term of option	10 years
Officers of the Company | Vest on first anniversary of grant date
WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS
Vesting percentage	25.00%
Non-employee board of director
WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS
Number of shares granted | shares	694,670
Term of option	10 years
Non-employee board of director | Vest on first anniversary of grant date
WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS
Vesting period	1 year

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WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS - Restricted Stock Units (Details)	9 Months Ended
	Jun. 30, 2023 shares
Restricted Stock Units | Vest on first anniversary of grant date
WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS
Shares granted	282,640

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COMMITMENTS AND CONTINGENCIES - Operating Leases (Details)				3 Months Ended	9 Months Ended
	Feb. 01, 2023 ft²	Nov. 01, 2017 USD ($) ft²	Jun. 15, 2013 ft²	Jun. 30, 2023 USD ($)	Jun. 30, 2023 USD ($)
COMMITMENTS AND CONTINGENCIES
Area of property under operating lease | ft²			30,000
Initial term expired period	3 years
Area of laboratory space | ft²	2,500
Lease for satellite testing | ft²		1,108
Initial lease term		3 years
Base rent during initial lease term per annum		$ 6,500
Total lease rental expenses				$ 174,399	$ 489,096
Leased office space for corporate headquarters
COMMITMENTS AND CONTINGENCIES
Monthly payments of lease				48,861	48,861
Leased office space for Laboratory
COMMITMENTS AND CONTINGENCIES
Monthly payments of lease				8,750	8,750
Initial lease term	1 year
Letter of credit
COMMITMENTS AND CONTINGENCIES
Letter of credit amount				$ 750,000	$ 750,000

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COMMITMENTS AND CONTINGENCIES - Components of lease expense (Details) - USD ($)	3 Months Ended	9 Months Ended
	Jun. 30, 2023	Jun. 30, 2023
Lease Cost
Operating lease cost	$ 244,306	$ 342,028
Short-term lease cost	43,750	260,725
Total lease cost	$ 288,056	$ 602,753

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COMMITMENTS AND CONTINGENCIES - Other Information (Details)	9 Months Ended
	Jun. 30, 2023 USD ($)
COMMITMENTS AND CONTINGENCIES
Operating cash flows from operating leases	$ 244,306
Leased assets obtained in exchange for new operating lease liabilities	$ 1,545,916
Weighted-average remaining lease term - operating leases	2 years 7 months 6 days
Weighted-average discount rate - operating leases	9.10%

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COMMITMENTS AND CONTINGENCIES - Maturities of operating lease liabilities (Details)	Jun. 30, 2023 USD ($)
Maturity of Lease Liabilities
2023 (excluding the nine-month period ended June 30, 2023)	$ 146,584
2024	586,334
2025	586,334
2026	195,445
Total lease payments	1,514,697
Less: interest	(159,189)
Present value of lease liabilities	$ 1,355,508

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COMMITMENTS AND CONTINGENCIES - Employment Agreement (Details) - Employment Agreement - CEO - USD ($)				9 Months Ended	12 Months Ended
	Jun. 30, 2023	Oct. 29, 2021	Jul. 28, 2017	Jun. 30, 2023	Jun. 30, 2017
COMMITMENTS AND CONTINGENCIES
Agreement renewal period	1 year		1 year		1 year
Special cash incentive bonus			$ 800,000
Special cash incentive bonus payable on completing threshold annual revenue			300,000
Threshold annual revenue			8,000,000
Special cash incentive bonus payable on completing threshold annual revenue in excess of first threshold			100,000
Threshold annual revenue in excess of first threshold			2,000,000
Annual salary		$ 450,000	$ 400,000
Compensation description			The employment agreement with the CEO also provides that if he is terminated before the end of the initial or a renewal term by the Company without cause or if the CEO terminates his employment for good reason, then, in addition to previously earned and unpaid salary, bonus and benefits, and subject to the delivery of a general release and continuing compliance with restrictive covenants, the CEO will be entitled to receive a pro rata portion of the greater of either (X) the annual bonus he would have received if employment had continued through the end of the year of termination or (Y) the prior year’s bonus; salary continuation payments for two years following termination equal to the greater of (i) three times base salary or (ii) two times base salary plus bonus; Company-paid COBRA continuation coverage for 18 months post-termination; continuing life insurance benefits (if any) for two years; and extended exercisability of outstanding vested options (for three years from termination date or, if earlier, the expiration of the fixed option term). If termination of employment as described above occurs within six months before or two years after a change in control of the Company, then, in addition to the above payments and benefits, all of the CEO’s outstanding options and other equity incentive awards will become fully vested and the CEO will receive a lump sum payment of the amounts that would otherwise be paid as salary continuation. In general, a change in control will include a 30% or more change in ownership of the Company.
Approved bonus				$ 500,000
Revenue bonus recorded to long term accrued liabilities	$ 12,000,000			$ 12,000,000

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SEGMENT INFORMATION - Information regarding operations by segment (Details)	3 Months Ended		9 Months Ended
	Jun. 30, 2023 USD ($)	Jun. 30, 2022 USD ($)	Jun. 30, 2023 USD ($) segment	Jun. 30, 2022 USD ($)
SEGMENT INFORMATION
Number of reportable segments | segment			3
Total revenues	$ 2,917,341	$ 4,296,371	$ 12,587,707	$ 14,609,360
Gross profit	1,269,318	1,039,258	5,454,436	4,636,881
(Loss) income from segment operations	(2,859,109)	(2,856,644)	(6,782,469)	(9,717,457)
Product revenues
SEGMENT INFORMATION
Total revenues	316,950	219,765	1,130,800	1,454,427
Service revenues
SEGMENT INFORMATION
Total revenues	425,694	182,796	826,813	570,759
Clinical laboratory service revenues
SEGMENT INFORMATION
Total revenues	2,174,697	3,893,810	10,630,094	12,584,174
Therapeutic DNA Production
SEGMENT INFORMATION
Total revenues	405,506	109,395	994,287	357,076
Gross profit	290,541	109,395	676,942	357,076
MDx Testing Services
SEGMENT INFORMATION
Total revenues	2,174,697	3,973,322	10,630,094	13,186,530
Gross profit	829,798	1,274,502	4,413,130	4,430,361
MDx Testing Services | Clinical laboratory service revenues
SEGMENT INFORMATION
Total revenues	2,188,817
DNA Tagging and Security Products
SEGMENT INFORMATION
Total revenues	337,138	213,654	963,326	1,065,754
Gross profit	148,979	(344,639)	364,364	(150,556)
Operating segment
SEGMENT INFORMATION
(Loss) income from segment operations	(1,701,350)	(1,989,061)	(3,395,005)	(5,402,678)
Operating segment | Product revenues
SEGMENT INFORMATION
Total revenues	316,950	219,765	1,130,800	1,454,427
Operating segment | Service revenues
SEGMENT INFORMATION
Total revenues	425,694	182,796	826,813	570,759
Operating segment | Therapeutic DNA Production
SEGMENT INFORMATION
(Loss) income from segment operations	(717,126)	(854,644)	(2,623,502)	(2,828,629)
Operating segment | Therapeutic DNA Production | Product revenues
SEGMENT INFORMATION
Total revenues	230,544		560,000
Operating segment | Therapeutic DNA Production | Service revenues
SEGMENT INFORMATION
Total revenues	174,962	109,395	434,287	357,076
Operating segment | MDx Testing Services
SEGMENT INFORMATION
(Loss) income from segment operations	14,742	425,706	1,616,914	1,175,106
Operating segment | MDx Testing Services | Product revenues
SEGMENT INFORMATION
Total revenues		79,512		602,356
Operating segment | MDx Testing Services | Clinical laboratory service revenues
SEGMENT INFORMATION
Total revenues	2,188,817	3,986,770	10,726,214	12,960,350
Operating segment | DNA Tagging and Security Products
SEGMENT INFORMATION
(Loss) income from segment operations	(998,966)	(1,560,123)	(2,388,417)	(3,749,155)
Operating segment | DNA Tagging and Security Products | Product revenues
SEGMENT INFORMATION
Total revenues	86,406	140,253	570,800	852,071
Operating segment | DNA Tagging and Security Products | Service revenues
SEGMENT INFORMATION
Total revenues	250,732	73,401	392,526	213,683
Less intersegment revenues | MDx Testing Services
SEGMENT INFORMATION
Total revenues	$ (14,120)	$ (92,960)	$ (96,120)	$ (376,176)

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SEGMENT INFORMATION -Reconciliation of segment loss from operation to corporate loss (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Reconciliation of segment loss from operations to corporate loss
Loss from operations of reportable segments	$ (2,859,109)	$ (2,856,644)	$ (6,782,469)	$ (9,717,457)
Selling, general and administrative	3,292,304	3,032,877	9,440,734	11,341,176
Interest income	26,783		34,108	5,813
Unrealized (loss) gain on change in fair value of warrants classified as a liability	(278,400)	1,758,200	334,700	2,540,700
Transaction costs allocated to warrant liabilities				(391,335)
Other income (expense), net	(3,469)	(26,352)	6,396	(43,226)
Consolidated loss before provision for income taxes	(3,114,195)	(1,124,796)	(6,407,265)	(7,605,505)
Operating segment
Reconciliation of segment loss from operations to corporate loss
Loss from operations of reportable segments	(1,701,350)	(1,989,061)	(3,395,005)	(5,402,678)
Segment reconciling items
Reconciliation of segment loss from operations to corporate loss
Selling, general and administrative	$ 1,157,759	$ 867,583	$ 3,387,464	$ 4,314,779

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FAIR VALUE OF FINANCIAL INSTRUMENTS - Inputs used in fair value of Level 3 Financial asset and liabilities (Details) - Level 3 - Monte Carlo simulation - Annualized Volatility	Jun. 30, 2023 USD ($)
Common Warrants
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial liabilities fair value disclosure	$ 1,629,000
Common Warrants | Weighted Average
FAIR VALUE OF FINANCIAL INSTRUMENTS
Warrants and rights outstanding, measurement input	160.00
Series A Warrants
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial liabilities fair value disclosure	$ 3,153,000
Series A Warrants | Weighted Average
FAIR VALUE OF FINANCIAL INSTRUMENTS
Warrants and rights outstanding, measurement input	160.00
Series B Warrants
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial liabilities fair value disclosure	$ 22,700
Series B Warrants | Weighted Average
FAIR VALUE OF FINANCIAL INSTRUMENTS
Warrants and rights outstanding, measurement input	130.00

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FAIR VALUE OF FINANCIAL INSTRUMENTS - Change in fair value of warrants (Details) - USD ($)	3 Months Ended	9 Months Ended
	Jun. 30, 2023	Jun. 30, 2023
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value at beginning of period	$ 4,526,300	$ 5,139,400
Change in fair value	278,400	(334,700)
Fair Value at ending of period	4,804,700	4,804,700
Common Warrants
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value at beginning of period	1,429,000	1,477,000
Change in fair value	200,000	152,000
Fair Value at ending of period	1,629,000	1,629,000
Series A Warrants
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value at beginning of period	2,768,000	2,883,000
Change in fair value	385,000	270,000
Fair Value at ending of period	3,153,000	3,153,000
Series B Warrants
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value at beginning of period	329,300	779,400
Change in fair value	(306,600)	(756,700)
Fair Value at ending of period	$ 22,700	$ 22,700

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SUBSEQUENT EVENTS (Details) - USD ($)	Jul. 12, 2023	Jun. 30, 2023	Sep. 30, 2022
SUBSEQUENT EVENTS
Common stock, par value (in dollars per share)		$ 0.001	$ 0.001
Subsequent event | Share Purchase Agreement with Spindle
SUBSEQUENT EVENTS
Cash purchase price	$ 625,000
Threshold period for amount payable to sellers commencing on the closing date	10 years
Number of equal tranches for issuable of shares	3
Amount of gross sales milestone per tranche	$ 5,000,000
Subsequent event | Share Purchase Agreement with Spindle | Restricted shares
SUBSEQUENT EVENTS
Number of shares issued	750,000
Common stock, par value (in dollars per share)	$ 0.001
Maximum number of additional shares issuable	1,000,000
Number of shares issuable upon the issuance of patent	250,000
Number of shares issuable upon the achievement of sales milestone	750,000