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 March 31, 2024

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 May 8, 2024, the registrant had 984,728 shares of common stock outstanding.

Applied DNA Sciences, Inc. and Subsidiaries

Form 10-Q for the Quarter Ended March 31, 2024

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	21
Item 3 - Quantitative and Qualitative Disclosures About Market Risk	34
Item 4 - Controls and Procedures	34
PART II - OTHER INFORMATION
Item 1 – Legal Proceedings	35
Item 1A – Risk Factors	35
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3 – Defaults Upon Senior Securities	37
Item 4 – Mine Safety Disclosures	37
Item 5 – Other Information	37
Item 6 – Exhibits	38

Part I - Financial Information

Item 1 - Financial Statements

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,		September 30,
	2024		2023
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	3,149,640	$	7,151,800
Accounts receivable, net of allowance for credit losses of $75,000 at March 31, 2024 and September 30, 2023, respectively		408,853		255,502
Inventories		335,943		330,027
Prepaid expenses and other current assets		470,284		389,241
Total current assets		4,364,720		8,126,570
Property and equipment, net		367,821		838,270
Other assets:
Restricted cash		750,000		750,000
Intangible assets		2,698,975		2,698,975
Operating right of use asset		994,111		1,237,762
Total assets	$	9,175,627	$	13,651,577
LIABILITIES AND (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	2,050,035	$	2,270,388
Operating lease liability, current		521,719		498,598
Deferred revenue		51,285		76,435
Total current liabilities		2,623,039		2,845,421
Long term accrued liabilities		31,467		31,467
Deferred revenue, long term		194,000		194,000
Operating lease liability, long term		472,391		739,162
Deferred tax liability, net		684,115		684,115
Warrants classified as a liability		5,346,000		4,285,000
Total liabilities		9,351,012		8,779,165
Commitments and contingencies (Note G)
Applied DNA Sciences, Inc. stockholders’ (deficit) equity:
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of March 31, 2024 and September 30, 2023, respectively		—		—
Series A Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- issued and outstanding as of March 31, 2024 and September 30, 2023, respectively		—		—
Series B Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- issued and outstanding as of March 31, 2024 and September 30, 2023, respectively		—		—
Common stock, par value $0.001 per share; 200,000,000 shares authorized as of March 31, 2024 and September 30, 2023, 863,068 and 682,926 shares issued and outstanding as of March 31, 2024 and September 30, 2023, respectively		864		683
Additional paid in capital		308,206,796		307,397,623
Accumulated deficit		(308,255,808)		(302,447,147)
Applied DNA Sciences, Inc. stockholders’ (deficit) equity		(48,148)		4,951,159
Noncontrolling interest		(127,237)		(78,747)
Total (deficit) equity		(175,385)		4,872,412
Total liabilities and (deficit) equity	$	9,175,627	$	13,651,577

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 March 31,				Six Months Ended March 31,
	2024		2023		2024		2023
Revenues
Product revenues	$	393,125	$	297,454	$	700,442	$	813,850
Service revenues		205,486		169,058		452,633		401,119
Clinical laboratory service revenues		331,020		3,941,102		667,720		8,455,397
Total revenues		929,631		4,407,614		1,820,795		9,670,366
Cost of product revenues		340,301		369,563		622,846		734,941
Cost of clinical laboratory service revenues		293,679		2,230,616		671,201		4,750,307
Total cost of revenues		633,980		2,600,179		1,294,047		5,485,248
Gross profit		295,651		1,807,435		526,748		4,185,118
Operating expenses:
Selling, general and administrative		3,000,208		3,522,715		6,084,557		6,148,072
Research and development		913,194		988,744		1,849,009		1,960,048
Total operating expenses		3,913,402		4,511,459		7,933,566		8,108,120
LOSS FROM OPERATIONS		(3,617,751)		(2,704,024)		(7,406,818)		(3,923,002)
Interest income		15,352		3,639		48,676		7,325
Transaction costs allocated to warrant liabilities		(633,198)		—		(633,198)		—
Unrealized gain on change in fair value of warrants classified as a liability		1,765,000		3,250,900		4,404,000		613,100
Unrealized (loss) on change in fair value of warrants classified as a liability - warrant modification		(394,000)		—		(394,000)		—
Loss on issuance of warrants		(1,633,767)		—		(1,633,767)		—
Other income (expense), net		4,581		661		(8,957)		9,507
(Loss) income before provision for income taxes		(4,493,783)		551,176		(5,624,064)		(3,293,070)
Provision for income taxes		—		—		—		—
NET (LOSS) INCOME	$	(4,493,783)	$	551,176	$	(5,624,064)	$	(3,293,070)
Less: Net loss attributable to noncontrolling interest		23,309		37,167		48,490		38,041
NET (LOSS) INCOME attributable to Applied DNA Sciences, Inc.	$	(4,470,474)	$	588,343	$	(5,575,574)	$	(3,255,029)
Deemed dividend related to warrant modifications		(155,330)		—		(233,087)		—
NET (LOSS) INCOME attributable to common stockholders	$	(4,625,804)	$	588,343	$	(5,808,661)	$	(3,255,029)
Net (loss) income per share attributable to common stockholders-basic and diluted	$	(5.31)	$	0.91	$	(7.47)	$	(5.04)
Weighted average shares outstanding- basic and diluted		871,319		645,426		777,495		645,426

See the accompanying notes to the unaudited condensed consolidated financial statements

2

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

	Six-Month Period Ended March 31, 2023
		Common		Additional
	Common	Stock		Paid in		Accumulated		Noncontrolling
	Shares	Amount		Capital		Deficit		Interest		Total
Balance, October 1, 2022	645,426	$	645	$	305,411,272	$	(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	645,426		645		305,505,020		(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	645,426	$	645	$	305,763,624	$	(295,755,117)	$	(40,931)	$	9,968,221

	Six-Month Period ended March 31, 2024
		Common		Additional
	Common	Stock		Paid in		Accumulated		Noncontrolling
	Shares	Amount		Capital		Deficit		Interest		Total
Balance, October 1, 2023	682,926	$	683	$	307,397,623	$	(302,447,147)	$	(78,747)	$	4,872,412
Exercise of warrants, cashlessly	105		1		(1)		—		—		—
Stock based compensation expense	—		—		340,705		—		—		340,705
Common stock issued in ATM, net of offering costs	4,397		4		45,562		—		—		45,566
Deemed dividend - warrant repricing	—		—		77,757		(77,757)		—		—
Net loss	—		—		—		(1,105,100)		(25,181)		(1,130,281)
Balance December 31, 2023	687,428		688		307,861,646		(303,630,004)		(103,928)		4,128,402
Common stock issued in ATM, net of offering costs	105		1		18,830		—		—		18,831
Common stock issued in Registered direct offering, net of offering costs	161,403		161		—		—		—		161
Stock based compensation expense	—		—		171,004		—		—		171,004
Share issued upon restricted stock vesting	14,132		14		(14)		—		—		—
Deemed dividend - warrant repricing	—		—		155,330		(155,330)		—		—
Net loss	—		—		—		(4,470,474)		(23,309)		(4,493,783)
Balance, March 31, 2024	863,068	$	864	$	308,206,796	$	(308,255,808)	$	(127,237)	$	(175,385)

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)

	Six Months Ended March 31,
	2024		2023
Cash flows from operating activities:
Net loss	$	(5,624,064)	$	(3,293,070)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		485,277		683,422
Gain on sale of property and equipment		—		(6,083)
Unrealized gain on change in fair value of warrants classified as a liability		(4,404,000)		(613,100)
Unrealized loss on change in fair value of warrants classified as a liability-warrant modification		394,000		—
Transaction costs allocated to warrant liabilities		633,198		—
Loss on issuance of warrants		1,633,767		—
Stock-based compensation		511,709		352,352
Change in provision for bad debts		—		(290,022)
Change in operating assets and liabilities:
Accounts receivable		(153,350)		1,389,855
Inventories		(5,916)		236,159
Prepaid expenses, other current assets and deposits		(81,043)		398,523
Accounts payable and accrued liabilities		(332,100)		(746,495)
Deferred revenue		(25,150)		(280,259)
Net cash used in operating activities		(6,967,672)		(2,168,718)
Cash flows from investing activities:
Proceeds from sale of property and equipment		—		45,000
Purchase of property and equipment		(14,828)		(54,339)
Net cash used in investing activities		(14,828)		(9,339)
Cash flows from financing activities:
Net proceeds from issuance of common stock		2,980,340		—
Net cash provided by financing activities		2,980,340		—
Net decrease in cash, cash equivalents and restricted cash		(4,002,160)		(2,178,057)
Cash, cash equivalents and restricted cash at beginning of period		7,901,800		15,215,285
Cash, cash equivalents and restricted cash at end of period	$	3,899,640	$	13,037,228
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:
Offering transaction costs included in accounts payable	$	111,747	$	—
Deemed dividend warrant modifications	$	233,087	$	—
Leased assets obtained in exchange for new operating lease liabilities	$	—	$	1,545,916
Property and equipment acquired and included in accounts payable	$	—	$	20,321

See the accompanying notes to the unaudited condensed consolidated financial statements

4

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(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”). Using the polymerase chain reaction (“PCR”) to enable the production and detection of DNA and RNA, the Company currently operates in three primary business markets: (i) the enzymatic manufacture of synthetic DNA for use in the production of nucleic acid - based therapeutics (including biologics and drugs) and, through the Company’s recent acquisition of Spindle Biotech, Inc. (“Spindle”), the development and sale of a proprietary RNA polymerase (“RNAP”) for use in the production of messenger RNA (“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”).

On April 24, 2024, the Company filed a Certificate of Amendment of its Certificate of Incorporation with the Secretary of State of the State of Delaware that effected a one-for-twenty (1:20) reverse stock split of its common stock, par value $0.001 per share, effective 12:01 A.M. April 25, 2024 (the “Reverse Stock Split”). All warrant, option, share, and per share information in the condensed consolidated financial statements gives retroactive effect to a one-for-twenty reverse stock split that was affected on April 25, 2024.  Please see Note J for more information.

NOTE B — BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

Interim Financial Statements

The accompanying condensed consolidated financial statements as of March 31, 2024, and for the three and six-month periods ended March 31, 2024, and 2023 are unaudited. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements of Regulation S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by 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 six-month periods ended March 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2024. 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, 2023 and footnotes thereto included in the Annual Report on Form 10-K of the Company filed with the SEC on December 7, 2023, as amended. The condensed consolidated balance sheet as of September 30, 2023 contained herein has been derived from the audited consolidated financial statements as of September 30, 2023 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, Applied DNA Clinical Labs, LLC (“ADCL”), Spindle and its majority-owned subsidiary, LineaRx, Inc. Significant inter-company transactions and balances have been eliminated in consolidation.

Going Concern and Management’s Plan

The Company has recurring net losses. The Company incurred a net loss of $5,624,064 and generated negative operating cash flow of $6,967,672 for the six-month period ended March 31, 2024. At March 31, 2024, the Company had cash and cash equivalents of $3,149,640. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date of issuance of these 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

FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(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 intangible assets and 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.

Product Revenues and Authentication Services

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

Authentication Services

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

6

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(Unaudited)

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

Revenue Recognition, continued

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.

Disaggregation of Revenue

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

	Three Month Period Ended:
	March 31,		March 31,
	2024		2023
Research and development services (over-time)	$	65,200	$	87,907
Clinical laboratory testing services (point-in-time)		6,440		3,003,022
Clinical laboratory testing services (over-time)		324,580		938,080
Product and authentication services (point-in-time):
Supply chain		275,259		27,636
Large Scale DNA Production		258,152		253,626
Asset marking		—		97,343
Total	$	929,631	$	4,407,614

	Six Month Period Ended:
	March 31,		March 31,
	2024		2023
Research and development services (over-time)	$	142,735	$	213,964
Clinical laboratory testing services (point-in-time)		18,560		6,077,436
Clinical laboratory testing services (over-time)		649,160		2,377,961
Product and authentication services (point-in-time):
Supply chain		742,746		439,973
Large Scale DNA Production		258,152		381,131
Asset marking		9,442		179,901
Total	$	1,820,795	$	9,670,366

7

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(Unaudited)

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

Revenue Recognition, continued

Contract balances

As of March 31, 2024, 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,		March 31,		$
	Balance sheet classification	2023		2024		change
Contract liabilities	Deferred revenue	$	270,435	$	245,285	$	25,150

For the three and six-month periods ended March 31, 2024, the Company recognized $0 and $40,035, respectively of revenue that was included in Contract liabilities as of October 1, 2023, respectively.

Cash, Cash Equivalents, and Restricted Cash

For the purpose of the accompanying consolidated financial statements, all highly liquid investments with a maturity of three months or less from when purchased are considered to be cash equivalents. The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows.

	March 31,		September 30,
	2024		2023
Cash and cash equivalents	$	3,149,640	$	7,151,800
Restricted cash		750,000		750,000
Total cash, cash equivalents and restricted cash	$	3,899,640	$	7,901,800

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

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.

8

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(Unaudited)

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 six-month periods ended March  31, 2024 and 2023 are as follows:

	2024	2023
Warrants	825,066	364,779
Restricted Stock Units	—	14,132
Stock options	109,363	110,317
Total	934,429	489,228

9

APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(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 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 March 31, 2024, the Company had cash and cash equivalents of approximately $2.8 million in excess of the FDIC insurance limit.

The Company’s revenues earned from sale of products and services for the three and six-month periods ended March 31, 2024 included an aggregate of 24% and 25% from one customer, respectively within the MDx Testing Services segment and an aggregate of 28% and 14%, respectively from one customer within the Therapeutic DNA Production Services segment.

The Company’s revenues earned from sale of products and services for the three and six-month periods ended March 31, 2023 included an aggregate of 85% and 84%, respectively, from two customers within the MDx Testing Services segment. One customer accounted for 44% of the Company’s accounts receivable at March 31, 2024 and three customers accounted for 60% of the Company’s accounts receivable at September 30, 2023.

Warrant Liabilities

The Company evaluates its issued warrants (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 certain of its warrant agreements, the instruments do 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 fair value recognized in the condensed consolidated statement of operations in the period of change.

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 enzymatic manufacture of synthetic DNA for use in the production of nucleic acid - based therapeutics and, through the development and sale of a proprietary RNAP for use in the production of mRNA 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 is developing pharmacogenomics testing services that are currently waiting for approval from the New York State Department of Health (“NYSDOH”).

DNA Tagging and Security Products and Services — Segment operations consist of the manufacture and detection of DNA for industrial supply chains and 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 expense such as rent, and utilities were allocated based on an estimate by management of the percentage of employee time spent in each vertical. Segment assets are not reported to, or used by, the CODM to allocate resources to, or assess performance of, the segments and therefore, total segment assets have not been disclosed.

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FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(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 — Unadjusted 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 March 31, 2024, there were no transfers between Levels 1, 2 and 3 of the fair value hierarchy.

Recent Accounting Standards

In December 2023, the FASB issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, that enhances the transparency of income tax disclosures by expanding annual disclosure requirements related to the rate reconciliation and income taxes paid. The guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and should be applied prospectively with the option of retrospective application. The Company is currently evaluating the impact of adopting this ASU on its disclosures.

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FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(Unaudited)

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

Recent Accounting Standards, continued

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure.” The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. These disclosures are required quarterly. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with early adoption permitted. It is required to be adopted retrospectively for all prior periods presented in the financial statements The Company is currently evaluating the impact of adopting this ASU on its disclosures.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.

NOTE C — INVENTORIES

Inventories consist of the following:

	March 31,		September 30,
	2024		2023
	(unaudited)
Raw materials	$	167,252	$	212,079
Work-in-progress		15,006		19,859
Finished goods		153,685		98,089
Total	$	335,943	$	330,027

NOTE D — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities are as follows:

	March 31,		September 30,
	2024		2023
	(unaudited)
Accounts payable	$	1,127,763	$	1,072,161
Accrued salaries payable		807,100		1,138,235
Other accrued expenses		115,172		59,992
Total	$	2,050,035	$	2,270,388

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FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(Unaudited)

NOTE E – CAPITAL STOCK

Reverse Stock Split

On April 24, 2024, the Company filed a Certificate of Amendment of its Certificate of Incorporation with the Secretary of State of the State of Delaware that effected the Reverse Stock Split, as discussed further in Note J.  

Registered Direct Offering

On February 2, 2024, the Company closed on a registered direct public offering (the “Offering”) of 161,403 shares (“Shares”) of the Company’s common stock, par value $0.001 (“Common Stock”) and pre-funded warrants (“Pre-Funded Warrants”) to purchase up to 120,800 shares of Common Stock, and in a concurrent private placement, unregistered common warrants (“Private Common Warrants”) to purchase up to 564,407 shares of Common Stock. The Company received net proceeds from the Offering, after deducting placement agent fees and other estimated offering expenses payable by the Company, of approximately $2.8 million.

The Pre-Funded Warrants have an exercise price of $0.0001 per share and are immediately exercisable and can be exercised at any time after their original issuance until such Pre-Funded Warrants are exercised in full. Each Share was sold at an offering price of $12.18 and each Pre-Funded Warrant was sold at an offering price of $12.18 (equal to the purchase price per Share minus the exercise price of the Pre-Funded Warrant). Pursuant to the Purchase Agreements, the Company also agreed to issue to the Purchasers, in a concurrent private placement, the Private Common Warrants. Each Private Common Warrant has an exercise price of $12.18 per share, and became exercisable on April 15, 2024 and will expire on April 15, 2029. Subseqent to the three-month period ended March 31, 2024, all of the 120,800 Pre-Funded Warrants were exercised.  

The Private Common Warrants and the shares of Common Stock issuable upon the exercise of the Private Common Warrants are not registered under the Securities Act. The Private Common Warrants and the shares of Common Stock issuable upon exercise thereof were issued or will be issued, respectively, in reliance on the exemptions from registration provided by Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder, for transactions not involving a public offering. Pursuant to the Purchase Agreements, within 45 calendar days from the date of the Purchase Agreements, the Company agreed to file a registration statement on Form S-3 (or other appropriate form if the Company is not then S-3 eligible) providing for the resale by the Purchasers of the Shares issuable upon exercise of the Private Common Warrants. The Company agreed to use commercially reasonable efforts to cause such registration statement to become effective within 90 days following the closing date of the Purchase Agreements and to keep such registration statement effective at all times until no Purchaser owns any Private Common Warrants or Shares issuable upon exercise thereof. The Company filed the registration statement for this transaction on March 12, 2024, and the registration statement was declared effective on March 20, 2024.  

The Private Common Warrants are recorded as a liability in the condensed consolidated balance sheet and were recorded at fair value and will be marked to market at each period end (see Note I). Additionally, the Company incurred   $633,198 of transaction costs related to the Offering which is included in the condensed consolidated statement of operations for the three and six--month periods ended March 31, 2024.

In connection with the Offering and the Purchase Agreements, the Company agreed to reduce the exercise price of warrants previously issued to the Purchasers with exercise prices ranging from $25.80 to $80.00 per warrant to $12.18 per warrant. The Company also agreed to extend the expiration dates for such warrants to August 2028. In addition, 2,904 outstanding common stock warrants held by other investors who did not participate in the Offering had their exercise price reduced to $12.18 per warrant share and had their warrant expiration dates extended to August 2028. The foregoing reductions of the exercise price and extension of expiration dates of such warrants were approved by shareholders on April 15, 2024.  The incremental change in fair value as a result of the modification for the warrants that are recorded as a liability was $1,633,767 and is recorded as a unrealized loss on the change in fair value of warrants classified as a liability in the condensed consolidated statement of operations for the three and six-month periods ended March 31, 2024.  The incremental change in fair value as a result of the modification for the warrants that are recorded to equity was $155,330 and is recorded as a deemed dividend in the condensed consolidated statement of operations for the three and six-month periods ended March 31, 2024.

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FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(Unaudited)

NOTE E – CAPITAL STOCK, continued

ATM

On November 7, 2023, the Company entered into an Equity Distribution Agreement (the “Agreement”) with Maxim Group LLC, as sales agent (the “Agent”), pursuant to which the Company may, from time to time, issue and sell shares of its common stock, par value $0.001 per share, in an aggregate offering price of up to $6,397,939 (the “Shares”) through the Agent.

The offer and sales of the Shares made pursuant to the Agreement, will be made under the Company’s effective “shelf” registration statement on Form S-3.  Under the terms of the Agreement, the Agent may sell the Shares at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended. As of March 31, 2024, the Company has issued 4,501 shares of its common stock for net proceeds of approximately $64,397 under this Agreement. Effective January 30, 2024, the Company terminated the Agreement by providing notice of termination to the Agent in accordance with the terms of the Agreement. As a result of terminating the Agreement, the $217,000 of capitalized transaction costs were written off and are included in the condensed consolidated statement of operations for the three and six - month periods ended March 31, 2024.

As a result of the issuance of common stock under this Agreement, the exercise price of the 22,891 remaining warrants issued during November 2019 was reduced to $29.40 per share, the exercise price of 7,950 warrants issued during October 2020 was reduced to $30.20 per share and the exercise prices of 5,000 warrants issued during December 2020 was reduced to an exercise price of $26.20 per share for 2,500 warrants and an exercise price of $25.80 per share for the remaining 2,500 warrants. These exercise price adjustments are in accordance with the adjustment provisions contained in the respective warrant agreements. The incremental change in fair value of these warrants as a result of the triggering event was $77,757 and is recorded as a deemed dividend in the condensed consolidated statement of operations for the six-month period ended March 31, 2024.

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FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(Unaudited)

NOTE F —WARRANTS

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.

		Weighted
		Average
		Exercise
	Number of	Price Per
	Shares	Share
Balance at October 1, 2023	261,030	$	72.00
Granted	876,708		12.00
Exercised	(150)		112.00
Cancelled or expired	(191,721)		57.00
Balance at March 31, 2024	945,867	$	18.20

NOTE G — 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 six-month periods ended March 31, 2024 was $180,589 and $355,008, respectively.

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. 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.

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FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(Unaudited)

NOTE G — COMMITMENTS AND CONTINGENCIES, continued

Employment Agreement, continued

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

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

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. On January 4, 2024, in connection with certain cost management efforts, the Company entered into a letter agreement with the CEO to amend the CEO’s employment agreement with the Company and to provide for a temporary 45% reduction to the CEO’s annual base salary, from $450,000 to $250,000, for a period of three months, effective as of January 1, 2024 through March 31, 2024. On April 1, 2024, the CEO extended the voluntary salary reduction with all terms and conditions withstanding until May 15, 2024. The CEO also agreed to waive any right to resign for “good reason” under his employment agreement with the Company as a result of the foregoing salary reduction. While the compensation committee determined that the CEO was eligible to receive a discretionary bonus in the amount of $500,000 with respect to his performance for fiscal 2023, on January 19, 2024, the CEO elected not to receive any cash incentive or other bonus for fiscal 2023, in light of the Company’s cash position.

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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FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(Unaudited)

NOTE H – 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 March 31, 2024 is as follows:

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services and Kit		Security Products		Consolidated
Revenues
Product revenues	$	258,152	$	—	$	134,973	$	393,125
Service revenues		65,200		—		140,286		205,486
Clinical laboratory service revenues		—		335,580		—		335,580
Less intersegment revenues		—		(4,560)		—		(4,560)
Total revenues	$	323,352	$	331,020	$	275,259	$	929,631
Gross profit	$	190,588	$	18,515	$	86,548	$	295,651
(Loss) from segment operations (a)	$	(1,165,449)	$	(298,591)	$	(500,052)	$	(1,964,092)

Information regarding operations by segment for the three-month period ended March 31, 2023 is as follows:

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	203,951	$	—	$	93,503	$	297,454
Service revenues		135,581		—		33,477		169,058
Clinical laboratory service revenues		—		3,971,582		—		3,971,582
Less intersegment revenues		—		(30,480)		—		(30,480)
Total revenues	$	339,532	$	3,941,102	$	126,980	$	4,407,614
Gross profit	$	215,477	$	1,650,113	$	(58,155)	$	1,807,435
(Loss) income from segment operations (a)	$	(1,054,123)	$	492,288	$	(914,736)	$	(1,476,571)

Information regarding operations by segment for the six-month period ended March  31, 2024 is as follows:

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	258,152	$	—	$	442,290	$	700,442
Service revenues		142,735		—		309,898		452,633
Clinical laboratory service revenues		—		678,320		—		678,320
Less intersegment revenues		—		(10,600)		—		(10,600)
Total revenues	$	400,887	$	667,720	$	752,188	$	1,820,795
Gross profit	$	268,123	$	(44,443)	$	303,068	$	526,748
(Loss) income from segment operations (a)	$	(2,424,495)	$	(795,103)	$	(1,284,355)	$	(4,503,953)

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FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(Unaudited)

NOTE H – SEGMENT INFORMATION, continued

Information regarding operations by segment for the six-month period ended March 31, 2023 is as follows:

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	331,457	$	—	$	482,393	$	813,850
Service revenues		257,324		—		143,795		401,119
Clinical laboratory service revenues		—		8,537,397		—		8,537,397
Less intersegment revenues		—		(82,000)		—		(82,000)
Total revenues	$	588,781	$	8,455,397	$	626,188	$	9,670,366
Gross profit	$	386,401	$	3,583,332	$	215,385	$	4,185,118
(Loss) income from segment operations (a)	$	(1,906,376)	$	1,602,172	$	(1,389,451)	$	(1,693,655)

Reconciliation of loss from segment operations to Corporate (loss) income for the three-month periods ended:

	March 31,
	2024		2023
Loss from operations of reportable segments	$	(1,964,092)	$	(1,476,571)
General corporate expenses (b)		(1,653,659)		(1,227,453)
Interest income		15,352		3,639
Unrealized gain on change in fair value of warrants classified as a liability		1,765,000		3,250,900
Unrealized loss on change in fair value of warrants classified as a liability - warrant modification		(394,000)		—
Transaction costs allocated to registered direct offering		(633,198)		—
Loss on issuance of warrants		(1,633,767)		—
Other (expense) income, net		4,581		661
Consolidated (loss) income before provision for income taxes	$	(4,493,783)	$	551,176

Reconciliation of loss from segment operations to Corporate loss for the six-month periods ended:

	March 31,
	2024		2023
Loss from operations of reportable segments	$	(4,503,953)	$	(1,693,655)
General corporate expenses (b)		(2,902,865)		(2,229,347)
Interest income		48,676		7,325
Unrealized gain on change in fair value of warrants classified as a liability		4,404,000		613,100
Unrealized loss on change in fair value of warrants classified as a liability - warrant modification		(394,000)		—
Transaction costs allocated to registered direct offering		(633,198)		—
Loss on issuance of warrants		(1,633,767)		—
Other (expense) income, net		(8,957)		9,507
Consolidated loss before provision for income taxes	$	(5,624,064)	$	(3,293,070)

(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 consist of selling, general and administrative expenses that are not specifically identifiable to a segment.

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FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(Unaudited)

NOTE I – 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 (loss) 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 March 31, 2024 and summarizes the significant unobservable inputs in fair value measurement of Level 3 financial assets and liabilities as of March 31, 2024. The Company did not have any assets or liabilities categorized as Level 1 or 2 as of March 31, 2024.

	Fair value at		Valuation	Unobservable	Volatility
	March 31, 2024		Technique	Input	Input
Liabilities:
Common Warrants	$	506,000	Monte Carlo simulation	Annualized volatility	142.50	%
Series A Warrants	$	346,000	Monte Carlo simulation	Annualized volatility	130.00	%
Series A Warrants - modified	$	304,000	Monte Carlo simulation	Annualized volatility	142.50	%
Private Common Warrants	$	4,190,000	Monte Carlo simulation	Annualized volatility	160.00	%

The change in fair value of the Common Warrants, the Series A Warrants and the Private Common Warrants for the three-month period ended March 31, 2024 is summarized as follows:

					Series A		Private
	Common		Series A		Warrants-		Common
	Warrants		Warrants		modified		Warrants		Totals
Fair value at January 1, 2024	$	581,000	$	745,500		319,500		—	$	1,646,000
Fair value at February 2, 2024								5,071,000		5,071,000
Change in fair value-warrant modification		230,000		—		164,000		—		394,000
Change in fair value		(305,000)		(399,500)		(179,500)		(881,000)		(1,765,000)
Fair Value at March 31, 2024	$	506,000	$	346,000	$	304,000	$	4,190,000	$	5,346,000

The change in fair value of the Common Warrants, the Series A Warrants and the Private Common Warrants for the six-month period ended March 31, 2024 is summarized as follows:

					Series A		Private
	Common		Series A		Warrants-		Common
	Warrants		Warrants		modified		Warrants		Totals
Fair value at October 1, 2023	$	1,468,000	$	1,971,900		845,100		—	$	4,285,000
Fair value at February 2, 2024		—		—		—		5,071,000		5,071,000
Change in fair value-warrant modification		230,000		—		164,000		—		394,000
Change in fair value		(1,192,000)		(1,625,900)		(705,100)		(881,000)		(4,404,000)
Fair Value at March 31, 2024	$	506,000	$	346,000	$	304,000	$	4,190,000	$	5,346,000

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APPLIED DNA SCIENCES, INC. AND SUBSIDIARIES

FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(Unaudited)

NOTE J – SUBSEQUENT EVENTS

Special Meeting of Stockholders

On April 15, 2024, the Company held a special meeting of stockholders (the “Special Meeting”) pursuant to which the Company’s stockholders approved the following: (i) in accordance with Nasdaq Listing Rule 5635(d), the issuance to certain holders of common stock purchase warrants in connection with a private placement; (ii) in accordance with Nasdaq Listing Rule 5635(d), the repricing of certain of our common stock purchase warrants; (iii) a grant of discretionary authority to the Board of Directors giving them the authority to amend the Company’s certificate of incorporation, as amended, to effect a reverse stock split of common stock, at a ratio in the range from one-for-five to one-for-fifty, with such specific ratio to be determined by the Company’s Board of Directors following the Special Meeting (the “Reverse Split Proposal”); and (iv) an amendment to the Company’s 2020 Equity Incentive Plan to increase the number of authorized shares of common stock reserved for issuance by 200,000 shares.

Reverse Stock Split

On April 15, 2024, the Company held the Special Meeting where its stockholders approved the Reverse Split Proposal. The Company’s Board of Directors believes that the Reverse Stock Split is the best option available to increase the Company’s stock price as required for continued listing on Nasdaq and determined on April 21, 2024 that the split ratio should be one-for-twenty shares.

The Reverse Stock Split was effected as of 12:01 a.m. Eastern Time on Thursday, April 25, 2024 and combined each twenty shares of the Company’s outstanding common stock into one share of common stock, without any change in the par value per share. Moreover, the Reverse Stock Split correspondingly adjusted, a) the per share exercise price and the number of shares issuable upon the exercise of all outstanding options, and b) the number of shares underlying any of our outstanding warrants by adjusting the conversion ratio for each instrument and increasing the applicable exercise price or conversion price in accordance with the terms of each instrument and based on the reverse stock split ratio. No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split were rounded up to the nearest whole share.

Nasdaq Notification

On May 9, 2024, the Company received a written notification from Nasdaq’s Listing Qualifications Department notifying the Company that the closing bid price of its common stock had exceeded $1.00 per share for 10 consecutive trading days, and as a result, the Company had regained compliance with the Minimum Bid Price Requirement.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q (including but not limited to this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are intended to qualify for the “safe harbor” created by those sections. In addition, we may make forward-looking statements in other documents filed with or furnished to the Securities and Exchange Commission (“SEC”), 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, 2023, 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 business strategy and the timing of our expansion plans, including the development of new production facilities for our Therapeutic DNA Production Services;

● demand for Therapeutic DNA Production Services;

● demand for DNA Tagging Services;

● demand for MDx 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, upon which our business strategy is substantially dependent;

● 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;

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

● our ability to meet the listing standards of The Nasdaq Stock Market LLC (“Nasdaq”) to maintain the listing of our common stock on Nasdaq;

● the effect of the reverse stock split on the liquidity of our common stock and our ability to satisfy the investing requirements of new investors, including institutional investors;

● the potential dilution of our existing stockholders due to the effective increase in the number of shares of our common stock available for issuance as a result of our reverse stock split; and

● The risk that our laboratory developed tests (“LDTs”) may become subject to additional regulatory requirements due to FDA rulemaking activity, and that compliance with such requirements may be expensive and time-consuming, resulting in significant or unanticipated delays.

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;

● formulations and treatments that utilize our Therapeutic DNA Production Services;

● the inherent uncertainties associated with clinical trials of product candidates, including product candidates that utilize our Therapeutic DNA Production Services;

● the inherent uncertainties associated with the process of obtaining regulatory clearance or approval to market product candidates, including product candidates that utilize our Therapeutic DNA Production Services;

● the inherent uncertainties associated with commercialization of products that have received regulatory clearance or approval, including products that utilize our Therapeutic DNA Production Services;

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

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

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● 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, 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.

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®, Linea™ DNA, Linea™ RNAP, Linea™ 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 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 currently operate in three primary business markets: (i) the enzymatic manufacture of synthetic DNA for use in the production of nucleic acid-based therapeutics (including biologics and drugs) and, through our recent acquisition of Spindle, the development and sale of a proprietary 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 chains and 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 manufacture of synthetic DNA for use in the production of nucleic acid-based therapies, and to further expand and commercialize our MDx Testing Services through genetic testing.

We will continue to update our business strategy and monitor the use of our resources regarding our various business markets. In addition, we expect that based on available opportunities and our beliefs regarding future opportunities, we will continue to modify and refine our business strategy.

Therapeutic DNA Production Services

We are developing and commercializing our Linea DNA and Linea IVT platforms for the manufacture of synthetic DNA for use in the production of nucleic acid-based therapeutics.

Linea DNA Platform

Our Linea DNA platform is our core enabling technology, and enables the rapid, efficient, and large-scale cell-free manufacture of high-fidelity DNA sequences for use in the manufacturing of a broad range of nucleic acid-based therapeutics. The Linea DNA platform

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enzymatically produces a linear form of DNA we call “LineaDNA” that is an alternative to plasmid-based DNA manufacturing technologies that have supplied the DNA used in biotherapeutics for the past 40 years.

As of the first quarter of calendar year 2024, there were 4,002 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: Q1 2024 Quarterly Report). Due to what we believe are the Linea DNA platform’s 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 Linea DNA platform to supplant legacy manufacturing methods in the manufacture of nucleic acid-based therapies.

We believe our Linea DNA platform holds several important 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 bacterial 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 Linea DNA platform does not require living cells and instead amplifies DNA via the enzymatic process of PCR. The Linea DNA platform is simple and can rapidly produce very large quantities of DNA without the need for complex purification steps.

We believe the key advantages of the Linea DNA platform include:

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

● Scalability – Linea DNA 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 the plasmid backbone and antibiotic resistance genes, inherent to plasmid DNA, are not present in Linea DNA.

● Simplicity – The production of Linea DNA is streamlined relative to plasmid-based DNA production. Linea DNA 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 Linea DNA platform can be easily chemically modified to suit specific customer applications. In addition, the Linea DNA 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 mRNA therapies, respectively.

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

● DNA vaccines;

● DNA templates to produce RNA, including mRNA therapeutics; and

● adoptive cell therapy (CAR-T) manufacturing.

Further, we believe that Linea DNA 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 gene therapy; and

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● non-viral gene therapy.

Linea IVT Platform

The number of mRNA therapies under development is growing at a rapid rate, thanks in part to the success of the mRNA COVID-19 vaccines. mRNA therapeutics are produced via a process called in vitro transcription (“IVT”) that requires DNA as a starting material. As of the 1st quarter of calendar 2024, there were approximately 450 mRNA therapies under development, with the large majority of these therapies (67%) in the preclinical stage (Source: ASGCT Gene, Cell & RNA Therapy Landscape: Q1 2024 Quarterly Report). The Company believes that the mRNA market is in a nascent stage that represents a large growth opportunity for the Company via the production and supply of DNA critical starting materials and RNAP to produce mRNA therapies.

In August 2022, we launched DNA IVT templates manufactured via its Linea DNA platform and have since secured proof of concept contracts with numerous mRNA manufacturing customers. In response to this demand, the continued growth of the mRNA therapeutic market, and the unique abilities of the Linea DNA platform, the Company acquired Spindle in July 2023 to potentially increase its mRNA-related total addressable market (“TAM”).

Through our acquisition of Spindle, we launched our Linea IVT platform in July 2023, which combines Spindle’s proprietary high-performance RNAP, now marketed by the Company as Linea RNAP, with our enzymatically produced Linea DNA IVT templates. We believe the Linea IVT platform enables our customers to make better mRNA, faster. Based on data generated by the Company, we believe the integrated Linea IVT platform offers the following advantages over conventional mRNA production to therapy developers and manufacturers:

● The prevention or reduction of double stranded RNA (“dsRNA”) contamination resulting in higher target mRNA yields with the potential to reduce downstream processing steps. dsRNA is a problematic immunogenic byproduct produced during conventional mRNA manufacture;

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

● reduced mRNA manufacturing complexities.

● Potentially enabling mRNA manufactures to produce mRNA drug substance in less than 45 days.

According to the Company’s internal modeling, the ability to sell both Linea DNA IVT templates and Linea RNAP under the Linea IVT platform potentially increases the Company’s mRNA-related TAM by approximately 3-5x as compared to selling Linea DNA IVT templates alone, while also providing a more competitive offering to the mRNA manufacturing market. Currently, Linea RNAP is produced for the Company under an ISO 13485 quality system by a third-party CDMO located in the United States. The Company is currently undertaking manufacturing process development work with its Linea RNAP manufacturer to increase production scale of the enzyme.

Manufacturing Scale-up

We plan to offer several quality grades of Linea DNA, each of which will have different permitted uses.

Quality Grade	Permitted Use	Company Status
GLP	Research and pre-clinical discovery	Currently available
GMP for Starting Materials	DNA critical starting materials for the production of mRNA therapies	Planned availability in Q3 of CY2024
GMP	DNA biologic, drug substance and/or drug product	Planned availability second half of CY 2025 (1)

(1) Dependent on the availability of future financing.

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We currently manufacture Linea DNA pursuant to Good Laboratory Practices (“GLP”), and we are creating a fit for purpose manufacturing facility within our current Stony Brook, NY laboratory space capable of producing Linea DNA IVT templates under Good Manufacturing Practices (“GMP”) suitable for use as a critical starting material for clinical and commercial mRNA therapeutics, with a planned completion date in the third quarter of calendar year 2024 (“GMP Site 1”). We also plan to offer additional capacity for Linea DNA IVT templates as well as capacity for Linea DNA materials manufactured under GMP suitable for use as, or incorporation into, a biologic, drug substance and/or drug product, with availability expected during the second half of calendar year 2025, dependent upon the availability of future funding (“GMP Site 2”). GMP is a quality standard used globally and by the U.S. Food and Drug Administration (“FDA”) to ensure pharmaceutical quality. Drug substances are the pharmaceutically active components of drug products.

Segment Business Strategy

Our business strategy for our Therapeutic DNA Production Services is to capitalize upon the rapid growth of mRNA therapies in the near term via our planned near term future availability of Linea DNA IVT templates manufactured under GMP at our GMP Site 1, while at the same time laying the basis for additional clinical and commercial applications of Linea DNA with our future planned availability of Linea DNA manufactured under GMP suitable for use as, or incorporation into, a biologic, drug substance and/or drug product at planned GMP Site 2.  Planned GMP Site 2 may also be used for additional Linea DNA IVT template manufacturing if customer demand exceeds capacity of GMP Site 1.  Our current plan is: (i) through our Linea IVT platform and planned near term future GMP manufacturing capabilities for IVT templates at GMP Site 1 to secure commercial-scale supply contracts with clinical and commercial mRNA and/or self-amplifying mRNA (“sa-RNA”) manufacturers for Linea DNA IVT templates and/or Linea RNAP as critical starting materials; (ii) to utilize our current GLP production capacity for non-IVT template applications to secure supply and/or development contracts with pre-clinical therapy developers that use DNA in their therapy manufacturing, and (iii) upon our development of our planned future Linea DNA production under GMP suitable for use as, or incorporation into, a biologic, drug substance and/or drug product at planned GMP Site 2, to convert existing and new Linea DNA customers into large-scale supply contracts to supply Linea DNA for clinical and commercial use as, or incorporation into, a biologic, drug substance and/or drug product in a wide range of nucleic acid therapies. Until we complete our GMP Site 1 to produce DNA critical starting materials (DNA IVT templates) for mRNA manufacturing, we will not be able to realize significant revenues from this business. We estimate the cost of creating GMP Site 1 will be approximately $1.5 million. If we were to expand our facilities to enable GMP production of Linea DNA for use as, or incorporation, into a biologic, drug substance and/or drug product as planned for GMP Site 2, the cost may be up to approximately $10 million which would require additional funding. We are currently building GMP Site 1 within our existing laboratory space. We anticipate that a GMP Site 2 would require us to acquire additional space.

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 Linea DNA-based therapeutic or prophylactic vaccines for high-value veterinary health indications (collectively “Linea DNA Vaccines”). We currently seek to commercialize our Linea DNA Vaccines in conjunction with lipid nanoparticle (“LNP”) encapsulation to facilitate intramuscular (“IM”) administration. We have recently demonstrated in vitro and in vivo (mice studies) expression of generic reporter proteins via Linea DNA encapsulated by LNPs. For the in vivo study, successful expression of the LNP-encapsulated Linea DNA was administered and achieved via IM injection. We believe that our Linea DNA Vaccines under development provide a substantial advantage over plasmid DNA-based vaccines for the veterinary health market.

MDx Testing Services

Through ADCL, we leverage our expertise in DNA and RNA detection via PCR to provide and develop clinical molecular diagnostics and genetic (collectively “MDx”) Testing Services. ADCL is a NYSDOH clinical laboratory improvement amendments (CLIA)-certified laboratory which is currently permitted for virology. Permitting for genetics (molecular) is currently pending with the NYSDOH. In providing MDx Testing Services, ADCL employs its own or third-party molecular diagnostic tests.

We have successfully validated internally 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 the patient’s healthcare provider in making 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. Our PGx Testing Services cannot commence until we receive approval from the NYSDOH.

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On March 22, 2023, we submitted our validation package to the NYSDOH for our PGx Testing Services. On September 21, 2023, we received a first set of comments from NYSDOH requesting additional data and clarifications. A response was submitted to NYSDOH on November 17, 2023.  On December 26, 2023, we received a second set of comments from NYSDOH requesting additional data and clarifications to which a response was submitted on February 23, 2024. A third set of comments was received from NYSDOH on March 29, 2024. A response must be filed by May 28, 2024. Currently, the timing of any approval by NYSDOH for our PGx Testing Services is unclear. Recently published studies show that population-scale PGx enabled medication management 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. If and when approved by the NYSDOH, we plan to leverage our PGx Testing Services to provide PGx testing services to large entities, self-insured employers and healthcare providers.

Historically, the majority of our revenue attributable to our MDx Testing Services has been derived from our safeCircle® COVID-19 testing solutions, for which testing demand has significantly declined commencing in our fiscal third quarter of 2023, resulting in substantially reduced revenues. We expect future demand for COVID-19 testing to continue to be reduced and we may terminate COVID-19 testing services in the future.

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 Linea DNA platform to mark objects in a unique manner and then identify these objects by detecting the absence or presence of the DNA tag. 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 Linea DNA platform, provide a methodology to authenticate goods within large and complex supply chains with a focus on cotton, nutraceuticals and other products.

● SigNify® portable DNA readers and SigNify consumable reagent test kits provide definitive real-time authentication of the Company’s DNA tags in the field.

● fiberTyping® and other product genotyping services use PCR-based DNA detection to determine a cotton species or cultivar, via a product’s naturally occurring DNA sequence for the purposes of product provenance authentication.

● Isotopic analysis testing services, provided in partnership with third-party labs, use cotton’s carbon, hydrogen and oxygen elements to indicate origin of its fiber through finished goods.

To date, our largest commercial application for our DNA Tagging and Security Products and Services is in the tracking and provenance authentication of cotton.

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

FDA Publishes Final Rule on Laboratory Developed Tests

As an LDT, our MDx Testing Services are currently subject to enforcement discretion by the FDA. On April 29, 2024, however, the FDA published a final rule on LDTs, in which FDA outlines its plans to end enforcement discretion for many LDTs in five stages over a four-year period. In Phase 1 (effective May 6, 2025), clinical laboratories running LDTs will be required to comply with medical device (adverse event) reporting and correction/removal reporting requirements, as well as requirements for maintenance of complaint files under the FDA’s quality systems regulation (QSR).  In Phase 2 (effective May 6, 2026), clinical laboratories will be required to comply with all other device requirements (e.g., registration/listing, labeling, investigational use), except for the remaining QSR requirements and premarket review. In Phase 3 (effective May 6, 2027), clinical laboratories will be required to comply with all remaining QSR requirements. In Phase 4 (effective ~November 6, 2027), clinical laboratories will be required to comply with premarket review requirements for high-risk tests (i.e., tests subject to the premarket approval (PMA) requirement).  Finally, in Phase 5 (effective May 6, 2028), clinical laboratories will be required to comply with premarket review requirements for moderate- and low-risk tests (i.e., tests subject to the de novo or 510(k) requirement).

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Under the final rule, several types of tests will be eligible for some degree of continued enforcement discretion, including LDTs approved by NYSDOH. FDA notes, however, that it retains discretion to pursue enforcement action for violations of the FDCA at any time and intends to do so when appropriate. FDA further explains that it may update any of the enforcement discretion policies set forth in the final rule as circumstances warrant or if the circumstances that inform those policies change, consistent with FDA’s good guidance practices. Based on our current analysis of the FDA final rule, and assuming the final rule goes into effect without modification, we believe that ADCL’s current and future NYSDOH approved LDTs, which includes our under development PGx Testing Services, will be exempt from FDA premarket review requirements but will remain subject to the requirements of Phases 1 through 3.

Plan of Operations

General

Historically, a substantial portion of our revenues has been generated from our safeCircle COVID-19 testing solutions, for which testing demand has significantly dropped. While we continue to support several safeCircle customers, we are currently observing a marked decrease in market demand for COVID-19 testing, resulting in significantly reduced revenues. We expect future demand for COVID-19 testing to continue to be reduced. We expect future growth in revenues to be derived from our Therapeutic DNA Production Services and our MDx Testing Services, as the latter transitions to a focus on genetic testing. To a lesser extent, we expect to grow revenues our DNA Tagging and Security Products and Services offerings as we work with companies and governments to secure supply chains for various types of products and product labeling throughout the world with a focus on cotton provenance. We have continued to incur expenses in expanding our business to meet current and anticipated future demand. We have limited sources of liquidity. We will continue to update our business strategy and monitor the use of our resources regarding our various business markets. In addition, we expect that based on available opportunities and our beliefs regarding future opportunities, we will continue to modify and refine our business strategy.

Comparison of Results of Operations for the Three-Month Periods Ended March 31, 2024 and 2023

Revenues

Product revenues

For the three-month periods ended March 31, 2024 and 2023, we generated $393,125 and $297,454 in revenues from product sales, respectively. Product revenue increased by $95,671 or 32% for the three-month period ended March 31, 2024 as compared to the three-month period ended March 31, 2023. The increase in product revenues was primarily related to an increase of approximately $56,000 within our Therapeutic DNA Production Services segment for an increase in shipments for our large scale DNA production. The increase also related to an increase within our DNA Tagging and Security Products and Services segment due to increases of approximately $33,000 in revenues from a nutraceuticals customer, as well as approximately $28,000 from a textiles tagging customer, offset by a decrease of approximately $35,000 from consumer asset marking.

Service Revenues

For the three-month periods ended March 31, 2024 and 2023 we generated $205,486 and $169,058 in revenues from sales of services, respectively. The increase in service revenues of $36,428 or 22% for the three-month period ended March 31, 2024, as compared to the same period in the prior fiscal year is attributable to increases of $107,000 for isotopic testing for textiles within our DNA Tagging and Security Products and Services segment offset by a decrease of approximately $70,000 for research and development projects in our Therapeutic DNA Production Services segment, respectively.

Clinical Laboratory Service Revenues

For the three-month periods ended March 31, 2024 and 2023, we generated $331,020 and $3,941,102 in revenues from our clinical laboratory testing services, respectively. The decrease in service revenues of $3,610,082 or 92% for the three-month period ended March 31, 2024 as compared to the same period in the prior fiscal year is attributable to a decrease from COVID surveillance testing. The three-month period ended March 31, 2023 included testing revenues under our contract with CUNY, which terminated during June 2023.

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Cost and Expenses

Gross Profit

Gross profit for the three-month period ended March 31, 2024, decreased by $1,511,784 or 84% from $1,807,435 for the three-month period ended March 31, 2023 to $295,651. The gross profit percentage was 32% and 41% for the three-month periods ended March 31, 2024 and 2023, respectively. The decrease in gross profit percentage was primarily the result of a decline in gross profit percentage for our MDx Testing Services segment specifically related to significantly decreased testing volumes year over year.

Selling, General and Administrative

Selling, general and administrative expenses for the three-month period ended March 31, 2024 decreased by $522,507 or 15% to $3,000,208 as compared to $3,522,715 for the three-month period ended March 31, 2023. The decrease is primarily attributable to a decrease in payroll for bonuses paid to officers of $746,000 during the three-month period ended March 31, 2023, as well as a decrease in stock-based compensation expense of approximately $88,000.   These decreases were offset by increases of $217,000 for the reversal of capitalized offering costs related to the ATM transaction that was terminated during the three-month period ended March 31, 2024 and an increase of approximately $162,000 in professional fees.  

Research and Development

Research and development expenses decreased to $913,194 for the three-month period ended March 31, 2024 from $988,744 for the three-month period ended March 31, 2023, a decrease of $75,550 or 8%. This decrease is primarily due to decreased depreciation expense costs associated with laboratory equipment becoming fully depreciated period over period.

Interest income

Interest income for the three-month period ended March 31, 2024 was $15,352 as compared to  $3,639 in the three-month period ended March 31, 2023.

Transaction costs allocated to warrant liabilities

Registered direct offering costs for the three-month period ended March 31, 2024 was $633,198. These transaction costs represent the closing costs from the February 2024 financing transaction. These costs were expensed as it would have resulted in negative additional paid in capital.

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 three-month period ended March 31, 2024 was $1,765,000 and $3,250,900 for the three-month periods ended March 31, 2024 and 2023, respectively. The primary driver of the change is the decrease in our stock price, as well as the issuance of new warrants as part of the February 2024 registered direct offering.    

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

Unrealized loss on change in fair value of warrants classified as a liability-warrant modifications of $394,000 for the three-month period ended March 31, 2024 represents the change in fair value for the modifications made to certain warrants as a result of the February 2024 financing.

Loss on issuance of warrants

The loss on issuance of warrants of $1,633,767 for the three-month period ended March 31, 2024 relates to the February 2024 financing transaction and is the result of the fair value of the warrants being greater than the cash received from the financing.

Other income (expense), net

Other income (expense) for the three-month periods ended March 31, 2024 and 2023, was expense of $4,581 and $661, respectively.  

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Loss from operations

Loss from operations increased $913,727, or 34% to $3,617,751 for the three-month period ended March 31, 2024 compared to $2,704,024 for the three-month period ended March 31, 2023 due to the factors noted above.

Comparison of Results of Operations for the Six-Month Periods Ended March 31, 2024 and 2023

Revenues

Product revenues

For the six-month periods ended March 31, 2024 and 2023, we generated $700,442 and $813,850 in revenues from product sales, respectively. Product revenue decreased by $113,408 or 14% for the six-month period ended March 31, 2024 as compared to the six-month period ended March 31, 2023. The decrease in product revenues was primarily within our Therapeutic DNA Production Services segment for a decrease in shipments for our large scale DNA production of approximately $71,000, as well as a net decrease of approximately $42,000 within our DNA Tagging and Security Products and Services segment due decreased revenue from a consumer asset marking customer of approximately $58,000, and a decrease of approximately  $64,000 due to a decrease in shipments of taggant to a textiles customer. These decreases were offset by an increase from a nutraceutical customer of approximately $61,000 during the six-month period ended March 31, 2024.  

Service revenues

For the six month periods ended March 31, 2024 and 2023 we generated $452,633 and $401,119 in revenues from sales of services, respectively. The increase in service revenues of $51,514 or 13% for the six-month period ended March 31, 2024, as compared to the same period in the prior fiscal year is attributable to increases of approximately $205,000 for isotopic testing for textiles within our DNA Tagging and Security Products and Services segment offset primarily by a decrease of approximately $115,000 related to research and development projects within our Therapeutic DNA Production Services segment.

Clinical laboratory service revenues

For the six month periods ended March 31, 2024 and 2023, we generated $667,720 and $8,455,397 in revenues from our clinical laboratory testing services, respectively. The decrease in service revenues of $7,787,677 or 92% for the six month period ended March 31, 2024 as compared to the same period in the prior fiscal year is attributable to a decrease from COVID testing services. The six-month period ended March 31, 2023 included testing revenues under our contract with CUNY, which terminated during June 2023.

Cost and Expenses

Gross Profit

Gross profit for the six month period ended March 31, 2024, decreased by $3,658,370 or 87% from $4,185,118 for the six -month period ended March 31, 2023 to $526,748. The gross profit percentage was 29% and 43% for the six -month periods ended March 31, 2024 and 2023, respectively. The decrease in gross profit percentage was primarily the result of a decline in gross profit percentage for our MDx Testing Services segment specifically related to significantly decreased testing volumes year over year.

Selling, General and Administrative

Selling, general and administrative expenses for the six -month period ended March 31, 2024 decreased by $63,515 or 1% to $6,084,557 as compared to $6,148,072 for the six -month period ended March 31, 2023. The decrease is primarily attributable to a decrease in payroll for bonuses paid to officers of approximately $746,000 during the first half of fiscal 2023, offset by an increase in stock-based compensation expense of approximately $159,000 primarily relating to the timing of the annual grants of options to non-employee board of directors and restricted stock units issued to officers. Additional increases relate to the prior six-month period having a credit balance in bad debt expense of approximately $290,000, from a customer balance that was fully reserved during a prior period and was subsequently collected during the six-month period ended March 31, 2023, as well as $217,000 for the reversal of capitalized offering costs related to the ATM transaction that was terminated during the six-month period ended March 31, 2024.

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Research and Development

Research and development expenses decreased to $1,849,009 for the six -month period ended March 31, 2024 from $1,960,048 for the six -month period ended March 31, 2023, a decrease of $111,039 or 6%. This decrease is primarily due to decreased depreciation expense with laboratory equipment becoming fully depreciated year over year.

Interest income

Interest income for the six -month period ended March 31, 2024, represented income of $48,676  as compared to an income of $7,325 in the six -month period ended March 31, 2023.

Transaction costs allocated to warrant liabilities

Transaction cost allocated to the registered direct offering for the six-month period ended March 31, 2024 was $633,198. These transaction costs represent the closing costs from the February 2024 financing transaction. These costs were expensed as it would have resulted in negative additional paid in capital.

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

Unrealized gain on change in fair value of Common Warrants for the six -month period ended March 31, 2024 and 2023 was $4,404,000 and $613,100, respectively, and relates to the change in fair value of the warrants that are classified as a liability. The primary driver of the change is the decrease in our stock price, as well as the issuance of new warrants as part of the February 2024 registered direct offering.

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

Unrealized loss on change in fair value of warrants classified as a liability-warrant modifications of $394,000 for the six-month period ended March 31, 2024 represents the change in fair value for the modifications made to certain warrants as a result of the February 2024 financing.

Loss on issuance of warrants

The loss on issuance of warrants of $1,633,767 for the six-month period ended March 31, 2024 relates to the February 2024 financing transaction and is the result of the fair value of the warrants being greater than the cash received from the financing.

Other income (expense), net

Other income (expense), net for the six -month periods ended March 31, 2024 and 2023, was expense of $8,957 and income of $9,507, respectively.

Loss from operations

Loss from operations increased $3,483,816 or 89% to $7,406,818 for the six-month period ended March 31, 2024 compared to $3,923,002 for the six-month period ended March 31, 2023 due to the factors noted above.

Liquidity and Capital Resources

Our liquidity needs consist of our working capital requirements and research and development expenditure funding. As of March 31, 2024, we had working capital of $1,741,681. For the six-month period ended March 31, 2024, we used cash in operating activities of $6,967,672 consisting primarily of our loss of $5,624,064 net with non-cash adjustments of $485,277 in depreciation and amortization charges, $4,404,000 in unrealized gain on change in fair value of warrants classified as a liability, $394,000 in unrealized loss on change in fair value of warrants classified as liability-warrant modification, $633,198 in registered direct offering costs, $1,633,767 on loss on issuance of warrants, and $511,709 in stock-based compensation expense. Additionally, we had a net increase in operating assets of $240,309 and a net decrease in operating liabilities of $357,250. At March 31, 2024, we had cash and cash equivalents of $3,149,640.

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We have recurring net losses. We incurred a net loss of $5,624,064 and generated negative operating cash flow of $6,967,672 for the six-month period ended March 31, 2024. These factors raise substantial doubt about our ability to continue as a going concern for one year from the issuance of these financial statements. The ability of the Company to continue as a going concern is dependent on our ability to further implement our business plan, raise capital, and generate revenues. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Our current capital resources include cash and cash equivalents, accounts receivable and inventories. Historically, we have financed our operations principally from the sale of equity and equity-linked securities.

As discussed in Note E, on February 2, 2024, we closed on a registered direct public offering and received net proceeds from the Offering, after deducting placement agent fees and other estimated offering expenses payable by us, of approximately $2.8 million.

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; and

● Warrant Liabilities

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 critical estimates include recoverability of long-lived assets, including the values assigned to intangible assets, fair value calculations for warrants, and contingencies. 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

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

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

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

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Product Revenues and Authentication Services

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

Authentication Services

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

Clinical Laboratory Testing Services

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

Research and Development Services

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

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

Warrant Liabilities

The Company evaluates its warrants issued 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 certain of its warrant agreements, the instruments do 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 fair value recognized in the condensed consolidated statement of operations in the period of change.

Off-Balance Sheet Arrangements

As requirement of our lease agreement for our corporate headquarters entered into during January 2023, in lieu of security deposit, we provided a standby letter of credit of $750,000.  The letter of credit is effective through January 2025.  

Inflation

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

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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.

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 March 31, 2024, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended March 31, 2024, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II - Other Information

Item 1. — Legal Proceedings.

None.

Item 1A. — Risk Factors.

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 7, 2023, as amended, 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.

Our ability to have our securities traded on Nasdaq is subject to us meeting applicable listing criteria.

We are currently listed on The Nasdaq Capital Market, a listing tier of The Nasdaq Stock Market LLC (“Nasdaq”). Nasdaq requires listed companies to meet certain criteria to maintain their listing on Nasdaq. There can be no assurance that we will continue to meet Nasdaq’s continued listing requirements. Our failure to meet such applicable listing criteria could result in the termination of the listing of our common stock on Nasdaq. In the event we are unable to have our shares traded on Nasdaq, our common stock could potentially trade on the OTCQX or the OTCQB, each of which is generally considered less liquid and more volatile than Nasdaq. Failure to maintain our listing on Nasdaq or on another national securities exchange could make it more difficult to trade our shares, could prevent our common stock from trading on a frequent and liquid basis, and could result in the market price of our common stock being less than it would be if we maintained our listing on Nasdaq or on another national securities exchange.

We approved a reverse stock split to regain compliance with Nasdaq’s Minimum Bid Price Requirement, which was effected on Thursday, April 25, 2024 and which may adversely impact the market price of our common stock.

On December 1, 2023, we received a written notice (the “Notification Letter”) from Nasdaq’s Listing Qualifications Department notifying us that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we were not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on Nasdaq, as set forth in the Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), and that, if at any time before May 29, 2024, the closing bid price of our common stock remained at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq would provide written notification that we had regained compliance with the Minimum Bid Requirement.

On April 15, 2024, our stockholders approved the proposal in the Company’s Definitive Proxy Statement dated March 14, 2024 to grant discretionary authority to the Board of Directors to amend the Company’s Certificate of Incorporation to effect a reverse stock split within a range of one-for-five to one-for-fifty, if needed to meet the Minimum Bid Price Requirement. Subsequently, on April 21, 2024, our Board of Directors approved a reverse stock split at a ratio of one-for-twenty shares, which was effected at 12:01 a.m. Eastern Time on Thursday, April 25, 2024. On May 9, 2024, the Company received a written notification from Nasdaq’s Listing Qualifications Department notifying the Company that the closing bid price of its common stock had exceeded $1.00 per share for 10 consecutive trading days, and as a result,  the Company had regained compliance with the Minimum Bid Price Requirement. There can be no assurance that our common stock will maintain market prices consistent with such reverse stock split and that we will remain in compliance with the Minimum Bid Price Requirement or any other Nasdaq continued listing requirement, and it is possible that the market price of our common stock will decline more than would have occurred in the absence of a reverse stock split.

The reverse stock split may decrease the liquidity of the shares of our common stock and the resulting market price of our common stock may not attract or satisfy the investing requirements of new investors, including institutional investors.

The liquidity of the shares of our common stock may be affected adversely by the reverse stock split given the reduced number of shares outstanding following the reverse stock split. Additionally, the reverse stock split may increase the number of shareholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such shareholders to experience an increase in the cost of selling their shares and greater difficulty affecting such sales. Moreover, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors, and there can be no assurance that the market price of

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our common stock will satisfy the investing requirements of these investors. Consequently, the trading liquidity of our common stock may not necessarily improve as a result of the reverse stock split.

The effective increase in the number of shares of our common stock available for issuance as a result of the reverse stock split may result in further dilution to our existing stockholders and have anti-takeover implications.

The reverse stock split alone had no effect on our authorized capital stock, and the total number of authorized shares remains the same as before the reverse stock split. The reverse stock split of our issued and outstanding shares, increased the number of shares of our common stock (or securities convertible or exchangeable for our common stock) available for issuance. The additional available shares are available for issuance from time to time at the discretion of the Company’s Board of Directors when opportunities arise, without further stockholder action or the related delays and expenses, except as may be required for a particular transaction by law, the rules of any exchange on which our securities may then be listed, or other agreements or restrictions. Any issuance of additional shares of our common stock would increase the number of outstanding shares of our common stock and (unless such issuance was pro-rata among existing stockholders) the percentage ownership of existing stockholders would be diluted accordingly. In addition, any such issuance of additional shares of our common stock could have the effect of diluting the earnings per share and book value per share of outstanding shares of our common stock.

Additionally, the effective increase in the number of authorized shares could, under certain circumstances, have anti-takeover implications. For example, the additional shares of common stock that have become available for issuance could be used by us to oppose a hostile takeover attempt or to delay or prevent changes in control or our management. Although our reverse stock split is prompted by other considerations and not by the threat of any hostile takeover attempt, stockholders should be aware that our reverse stock split could facilitate future efforts by us to deter or prevent changes in control, including transactions in which our stockholders might otherwise receive a premium for their shares over then-current market prices.

If the FDA implements its plans to regulate LDTs, we could incur substantial costs and delays associated with trying to obtain pre-market clearance or approval and costs associated with complying with post-market requirements.

As an LDT, our MDx Testing Services are currently subject to enforcement discretion by the FDA. On April 29, 2024, however, the FDA published a final rule on LDTs, in which FDA outlines its plans to end enforcement discretion for many LDTs in five stages over a four-year period. In Phase 1 (effective May 6, 2025), clinical laboratories running LDTs will be required to comply with medical device (adverse event) reporting and correction/removal reporting requirements, as well as requirements for maintenance of complaint files under the FDA’s quality systems regulation (QSR).  In Phase 2 (effective May 6, 2026), clinical laboratories will be required to comply with all other device requirements (e.g., registration/listing, labeling, investigational use), except for the remaining QSR requirements and premarket review. In Phase 3 (effective May 6, 2027), clinical laboratories will be required to comply with all remaining QSR requirements. In Phase 4 (effective ~November 6, 2027), clinical laboratories will be required to comply with premarket review requirements for high-risk tests (i.e., tests subject to the premarket approval (PMA) requirement).  Finally, in Phase 5 (effective May 6, 2028), clinical laboratories will be required to comply with premarket review requirements for moderate- and low-risk tests (i.e., tests subject to the de novo or 510(k) requirement).

Under the final rule, several types of tests will be eligible for some degree of continued enforcement discretion, including LDTs approved by NYSDOH. FDA notes, however, that it retains discretion to pursue enforcement action for violations of the FDCA at any time and intends to do so when appropriate. FDA further explains that it may update any of the enforcement discretion policies set forth in the final rule as circumstances warrant or if the circumstances that inform those policies change, consistent with FDA’s good guidance practices. Based on our current analysis of the FDA final rule, and assuming the final rule goes into effect without modification, we believe that ADCL’s current and future NYSDOH approved LDTs, which includes our under development PGx Testing Services,  will be exempt from FDA premarket review requirements but will remain subject to the requirements of Phases 1 through 3.

Congress is also working on legislative language that would clarify FDA’s authority with respect to LDTs – and if enacted, would potentially supersede the final rule. In this regard, the “Verifying Accurate Leading-edge IVCT Development Act,” or VALID Act, was most recently introduced in March 2023. The bill proposes a risk-based approach that would subject many LDTs to FDA regulation by creating a new in vitro clinical test, or IVCT, category of regulated products. As proposed, the bill would grandfather many existing LDTs from the proposed premarket approval, quality systems, and labeling requirements, respectively, but would require such tests to comply with other regulatory requirements (e.g., registration/listing, adverse event reporting). To market a high-risk IVCT, reasonable assurance of analytical and clinical validity for the intended use would be needed to be established. Under VALID, a precertification process would be established that would allow a laboratory to establish that the facilities, methods, and controls used in the development

36

of its IVCTs meet quality system requirements. If pre-certified, low-risk IVCTs developed by the laboratory and falling within the scope of FDA’s precertification order would not be subject to test-specific pre-market review. The new regulatory framework would include quality control and post-market reporting requirements. The FDA would have the authority to withdraw approvals for IVCTs for various reasons, including (for example) if there were a reasonable likelihood that the test would cause death or serious adverse health consequences. However, we cannot predict if this (or any other bill) will be enacted in its current (or any other) form and cannot quantify the effect of such proposals on our business.

To the extent that FDA ultimately regulates certain LDTs, whether via final rule, final guidance, or as instructed by Congress, our LDTs may be subject to certain additional regulatory requirements. Complying with the FDA’s requirements may be expensive, time-consuming, and subject us to significant or unanticipated delays. Insofar as we may be required to obtain premarket clearance or approval to perform or continue performing an LDT, we cannot assure you that we will be able to obtain such authorization. Even if we obtain regulatory clearance or approval where required, such authorization may not be for the intended uses that we believe are commercially attractive or are critical to the commercial success of our tests. As a result, the application of the FDA’s requirements to our tests could materially and adversely affect our business, financial condition, and results of operations.

Failure to comply with applicable FDA regulatory requirements may trigger a range of enforcement actions by the FDA including warning letters, civil monetary penalties, injunctions, criminal prosecution, recall or seizure, operating restrictions, partial suspension or total shutdown of operations, and denial of or challenges to applications for clearance or approval, as well as significant adverse publicity.

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.

During the three-month period ended March 31, 2024, none of our directors or officers have adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (each defined in Item 408(a) of Regulation S-K).

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Item 6. — Exhibit.

			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
3.1	Conformed version of Certificate of Incorporation of Applied DNA Sciences, Inc., as most recently amended by the Sixth Certificate of Amendment, effective Thursday, April 25, 2024	S-1	3.1	333-278890	2024
3.2	By-Laws	8-K	3.2	002-90539	01/16/2009
4.1	Form of Pre-Funded Warrant.	8-K	4.1	001-36745	02/01/2024
4.2	Form of Private Common Warrant.	8-K	4.2	001-36745	02/01/2024
10.1	Amended and Restated Lease Agreement, dated February 24, 2023, by and between Long Island High Technology Incubator, Inc. and Applied DNA Sciences, Inc. (Office Lease).	8-K	10.1	001-36745	02/28/2023
10.2	Amended and Restated Lease Agreement, dated February 24, 2023, by and between Long Island High Technology Incubator, Inc. and Applied DNA Sciences, Inc. (Laboratory Lease).	8-K	10.2	001-36745	02/28/2023
10.3	Lease Renewal Agreement dated December 18, 2023 (Laboratory Lease).	10-Q	10.3	001-36745	02/08/2024
10.4	Placement Agency Agreement by and between Applied DNA Sciences, Inc. and Maxim Group LLC, dated January 31, 2024.	8-K	10.1	001-36745	02/01/2024
10.5	Form of Securities Purchase Agreement, dated January 31, 2024, by and between Applied DNA Sciences, Inc. and the parties thereto.	8-K	10.2	001-36745	02/01/2024
10.6	Lease Renewal Agreement dated January 10, 2024	10-Q	10.3	001-36745	02/08/2024
10.7	Form of Purchase Warrant Amendment, dated April 16, 2024	8-K	10.1	001-36745	04/19/2024
10.8	Form of Book-Entry Warrant Amendment, dated April 16, 2024	8-K	10.2	001-36745	04/19/2024
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

38

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

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Signatures

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

	Applied DNA Sciences, Inc.
Dated: May 10, 2024	/s/ JAMES A. HAYWARD
	James A. Hayward, Ph.D.
	Chief Executive Officer
	(Duly authorized officer and principal executive officer)
	/s/ BETH JANTZEN
Dated: May 10, 2024	Beth Jantzen, CPA
	Chief Financial Officer
	(Duly authorized officer and principal financial and accounting officer)

40

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.

10
Dated: May 10, 2024
	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.

10
Dated: May 10, 2024
	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 March 31, 2024 (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.

10
	By:	/s/ JAMES A. HAYWARD
		James A. Hayward
		President, Chief Executive Officer and Chairman
		(Principal Executive Officer)
		Dated: May 10, 2024

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 March 31, 2024 (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.

10
	By:	/s/ BETH JANTZEN
		Beth Jantzen, CPA
		Chief Financial Officer
		(Principal Financial Officer)
		Dated: May 10, 2024

XML

Document and Entity Information - shares	6 Months Ended
	Mar. 31, 2024	May 08, 2024
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2024
Document Transition Report	false
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		984,728
Entity Central Index Key	0000744452
Current Fiscal Year End Date	--09-30
Document Fiscal Year Focus	2024
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2024	Sep. 30, 2023
Current assets:
Cash and cash equivalents	$ 3,149,640	$ 7,151,800
Accounts receivable, net of allowance for credit losses of $75,000 at March 31, 2024 and September 30, 2023, respectively	408,853	255,502
Inventories	335,943	330,027
Prepaid expenses and other current assets	470,284	389,241
Total current assets	4,364,720	8,126,570
Property and equipment, net	367,821	838,270
Other assets:
Restricted cash	750,000	750,000
Intangible assets	2,698,975	2,698,975
Operating right of use asset	994,111	1,237,762
Total assets	9,175,627	13,651,577
Current liabilities:
Accounts payable and accrued liabilities	2,050,035	2,270,388
Operating lease liability, current	521,719	498,598
Deferred revenue	51,285	76,435
Total current liabilities	2,623,039	2,845,421
Long term accrued liabilities	31,467	31,467
Deferred revenue, long term	194,000	194,000
Operating lease liability, long term	472,391	739,162
Deferred tax liability, net	684,115	684,115
Warrants classified as a liability	5,346,000	4,285,000
Total liabilities	9,351,012	8,779,165
Commitments and contingencies (Note G)
Applied DNA Sciences, Inc. stockholders' (deficit) equity:
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of March 31, 2024 and September 30, 2023, respectively
Common stock, par value $0.001 per share; 200,000,000 shares authorized as of March 31, 2024 and September 30, 2023, 863,068 and 682,926 shares issued and outstanding as of March 31, 2024 and September 30, 2023, respectively	864	683
Additional paid in capital	308,206,796	307,397,623
Accumulated deficit	(308,255,808)	(302,447,147)
Applied DNA Sciences, Inc. stockholders' (deficit) equity	(48,148)	4,951,159
Noncontrolling interest	(127,237)	(78,747)
Total (deficit) equity	(175,385)	4,872,412
Total liabilities and (deficit) equity	9,175,627	13,651,577
Series A Preferred stock
Applied DNA Sciences, Inc. stockholders' (deficit) equity:
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of March 31, 2024 and September 30, 2023, respectively
Series B Preferred stock
Applied DNA Sciences, Inc. stockholders' (deficit) equity:
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of March 31, 2024 and September 30, 2023, respectively

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($)	Mar. 31, 2024	Sep. 30, 2023
Allowance on accounts receivable	$ 75,000	$ 75,000
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	863,068	863,068
Common stock, shares outstanding	682,926	682,926
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		6 Months Ended
	Mar. 31, 2024	Mar. 31, 2023	Mar. 31, 2024	Mar. 31, 2023
Revenues
Total revenues	$ 929,631	$ 4,407,614	$ 1,820,795	$ 9,670,366
Total cost of revenues	633,980	2,600,179	1,294,047	5,485,248
Gross profit	295,651	1,807,435	526,748	4,185,118
Operating expenses:
Selling, general and administrative	3,000,208	3,522,715	6,084,557	6,148,072
Research and development	913,194	988,744	1,849,009	1,960,048
Total operating expenses	3,913,402	4,511,459	7,933,566	8,108,120
LOSS FROM OPERATIONS	(3,617,751)	(2,704,024)	(7,406,818)	(3,923,002)
Interest income	15,352	3,639	48,676	7,325
Unrealized gain on change in fair value of warrants classified as a liability	1,765,000	3,250,900	4,404,000	613,100
Unrealized (loss) on change in fair value of warrants classified as a liability - warrant modification	(394,000)		(394,000)
Loss on issuance of warrants	(1,633,767)		(1,633,767)
Transaction cost allocated to warrant liabilities	(633,198)		(633,198)
Other income (expense), net	4,581	661	(8,957)	9,507
(Loss) income before provision for income taxes	(4,493,783)	551,176	(5,624,064)	(3,293,070)
NET (LOSS) INCOME	(4,493,783)	551,176	(5,624,064)	(3,293,070)
Less: Net loss attributable to noncontrolling interest	23,309	37,167	48,490	38,041
NET (LOSS) INCOME attributable to Applied DNA Sciences, Inc.	(4,470,474)	588,343	(5,575,574)	(3,255,029)
Deemed dividend related to warrant modifications	(155,330)		(233,087)
NET (LOSS) INCOME attributable to common stockholders	$ (4,625,804)	$ 588,343	$ (5,808,661)	$ (3,255,029)
Net (loss) income per share attributable to common stockholders - basic (in dollars per share)	$ (5.31)	$ 0.91	$ (7.47)	$ (5.04)
Net (loss) income per share attributable to common stockholders - diluted (in dollars per share)	$ (5.31)	$ 0.91	$ (7.47)	$ (5.04)
Weighted average shares outstanding - basic (in shares)	871,319	645,426	777,495	645,426
Weighted average shares outstanding - diluted (in shares)	871,319	645,426	777,495	645,426
Product revenues
Revenues
Total revenues	$ 393,125	$ 297,454	$ 700,442	$ 813,850
Total cost of revenues	340,301	369,563	622,846	734,941
Service revenues
Revenues
Total revenues	205,486	169,058	452,633	401,119
Clinical laboratory service revenues
Revenues
Total revenues	331,020	3,941,102	667,720	8,455,397
Total cost of revenues	$ 293,679	$ 2,230,616	$ 671,201	$ 4,750,307

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - USD ($)	Common Shares Offering	Common Shares	Additional Paid in Capital	Accumulated Deficit	Noncontrolling Interest	Offering	Total
Beginning Balance at Sep. 30, 2022		$ 645	$ 305,411,272	$ (292,500,088)	$ (2,890)		$ 12,908,939
Beginning Balance (in shares) at Sep. 30, 2022		645,426
Increase (Decrease) in Stockholders' Equity
Stock based compensation expense			93,748				93,748
Net income (loss)				(3,843,372)	(874)		(3,844,246)
Ending Balance at Dec. 31, 2022		$ 645	305,505,020	(296,343,460)	(3,764)		9,158,441
Ending Balance (in shares) at Dec. 31, 2022		645,426
Beginning Balance at Sep. 30, 2022		$ 645	305,411,272	(292,500,088)	(2,890)		12,908,939
Beginning Balance (in shares) at Sep. 30, 2022		645,426
Increase (Decrease) in Stockholders' Equity
Net income (loss)							(3,293,070)
Ending Balance at Mar. 31, 2023		$ 645	305,763,624	(295,755,117)	(40,931)		9,968,221
Ending Balance (in shares) at Mar. 31, 2023		645,426
Beginning Balance at Dec. 31, 2022		$ 645	305,505,020	(296,343,460)	(3,764)		9,158,441
Beginning Balance (in shares) at Dec. 31, 2022		645,426
Increase (Decrease) in Stockholders' Equity
Stock based compensation expense			258,604				258,604
Net income (loss)				588,343	(37,167)		551,176
Ending Balance at Mar. 31, 2023		$ 645	305,763,624	(295,755,117)	(40,931)		9,968,221
Ending Balance (in shares) at Mar. 31, 2023		645,426
Beginning Balance at Sep. 30, 2023		$ 683	307,397,623	(302,447,147)	(78,747)		$ 4,872,412
Beginning Balance (in shares) at Sep. 30, 2023		682,926					682,926
Increase (Decrease) in Stockholders' Equity
Stock based compensation expense			340,705				$ 340,705
Exercise of options cashlessly		$ 1	(1)
Exercise of options cashlessly (in shares)		105
Common stock issued		$ (4)	(45,562)				(45,566)
Common stock issued (In shares)		4,397
Deemed dividend - warrant repricing			77,757	(77,757)
Net income (loss)				(1,105,100)	(25,181)		(1,130,281)
Ending Balance at Dec. 31, 2023		$ 688	307,861,646	(303,630,004)	(103,928)		4,128,402
Ending Balance (in shares) at Dec. 31, 2023		687,428
Beginning Balance at Sep. 30, 2023		$ 683	307,397,623	(302,447,147)	(78,747)		$ 4,872,412
Beginning Balance (in shares) at Sep. 30, 2023		682,926					682,926
Increase (Decrease) in Stockholders' Equity
Common stock issued (In shares)							4,501
Deemed dividend - warrant repricing						$ 155,330
Net income (loss)							$ (5,624,064)
Ending Balance at Mar. 31, 2024		$ 864	308,206,796	(308,255,808)	(127,237)		$ (175,385)
Ending Balance (in shares) at Mar. 31, 2024		863,068					682,926
Beginning Balance at Dec. 31, 2023		$ 688	307,861,646	(303,630,004)	(103,928)		$ 4,128,402
Beginning Balance (in shares) at Dec. 31, 2023		687,428
Increase (Decrease) in Stockholders' Equity
Stock based compensation expense			171,004				171,004
Common stock issued	$ 161	$ 1	18,830			$ 161	18,831
Common stock issued (In shares)	161,403	105
Deemed dividend - warrant repricing			155,330	(155,330)
Share issued upon restricted stock vesting (in shares)		14,132
Share issued upon restricted stock vesting		$ 14	(14)
Net income (loss)				(4,470,474)	(23,309)		(4,493,783)
Ending Balance at Mar. 31, 2024		$ 864	$ 308,206,796	$ (308,255,808)	$ (127,237)		$ (175,385)
Ending Balance (in shares) at Mar. 31, 2024		863,068					682,926

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Cash flows from operating activities:
Net loss	$ (5,624,064)	$ (3,293,070)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	485,277	683,422
Gain on sale of property and equipment		(6,083)
Unrealized gain on change in fair value of warrants classified as a liability	(4,404,000)	(613,100)
Unrealized loss on change in fair value of warrants classified as a liability-warrant modification	394,000
Transaction costs allocated to warrant liabilities	633,198
Loss on issuance of warrants	1,633,767
Stock-based compensation	511,709	352,352
Change in provision for bad debts		(290,022)
Change in operating assets and liabilities:
Accounts receivable	(153,350)	1,389,855
Inventories	(5,916)	236,159
Prepaid expenses, other current assets and deposits	(81,043)	398,523
Accounts payable and accrued liabilities	(332,100)	(746,495)
Deferred revenue	(25,150)	(280,259)
Net cash used in operating activities	(6,967,672)	(2,168,718)
Cash flows from investing activities:
Proceeds from sale of property and equipment		45,000
Purchase of property and equipment	(14,828)	(54,339)
Net cash used in investing activities	(14,828)	(9,339)
Cash flows from financing activities:
Net proceeds from issuance of common stock	2,980,340
Net cash provided by financing activities	2,980,340
Net decrease in cash, cash equivalents and restricted cash	(4,002,160)	(2,178,057)
Cash, cash equivalents and restricted cash at beginning of period	7,901,800	15,215,285
Cash, cash equivalents and restricted cash at end of period	3,899,640	13,037,228
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:
Offering transaction costs included in accounts payable	111,747
Deemed dividend warrant modifications	$ 233,087
Leased assets obtained in exchange for new operating lease liabilities		1,545,916
Property and equipment acquired and included in accounts payable		$ 20,321

XML

NATURE OF THE BUSINESS

6 Months Ended

Mar. 31, 2024

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”). Using the polymerase chain reaction (“PCR”) to enable the production and detection of DNA and RNA, the Company currently operates in three primary business markets: (i) the enzymatic manufacture of synthetic DNA for use in the production of nucleic acid - based therapeutics (including biologics and drugs) and, through the Company’s recent acquisition of Spindle Biotech, Inc. (“Spindle”), the development and sale of a proprietary RNA polymerase (“RNAP”) for use in the production of messenger RNA (“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”).

On April 24, 2024, the Company filed a Certificate of Amendment of its Certificate of Incorporation with the Secretary of State of the State of Delaware that effected a one-for-twenty (1:20) reverse stock split of its common stock, par value $0.001 per share, effective 12:01 A.M. April 25, 2024 (the “Reverse Stock Split”). All warrant, option, share, and per share information in the condensed consolidated financial statements gives retroactive effect to a one-for-twenty reverse stock split that was affected on April 25, 2024.  Please see Note J for more information.

XML

BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

6 Months Ended

Mar. 31, 2024

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 March 31, 2024, and for the three and six-month periods ended March 31, 2024, and 2023 are unaudited. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements of Regulation S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by 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 six-month periods ended March 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2024. 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, 2023 and footnotes thereto included in the Annual Report on Form 10-K of the Company filed with the SEC on December 7, 2023, as amended. The condensed consolidated balance sheet as of September 30, 2023 contained herein has been derived from the audited consolidated financial statements as of September 30, 2023 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, Applied DNA Clinical Labs, LLC (“ADCL”), Spindle and its majority-owned subsidiary, LineaRx, Inc. Significant inter-company transactions and balances have been eliminated in consolidation.

Going Concern and Management’s Plan

The Company has recurring net losses. The Company incurred a net loss of $5,624,064 and generated negative operating cash flow of $6,967,672 for the six-month period ended March 31, 2024. At March 31, 2024, the Company had cash and cash equivalents of $3,149,640. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date of issuance of these 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 intangible assets and 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.

Product Revenues and Authentication Services

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

Authentication Services

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

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

Revenue Recognition, continued

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.

Disaggregation of Revenue

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

	Three Month Period Ended:
	March 31,		March 31,
	2024		2023
Research and development services (over-time)	$	65,200	$	87,907
Clinical laboratory testing services (point-in-time)		6,440		3,003,022
Clinical laboratory testing services (over-time)		324,580		938,080
Product and authentication services (point-in-time):
Supply chain		275,259		27,636
Large Scale DNA Production		258,152		253,626
Asset marking		—		97,343
Total	$	929,631	$	4,407,614

	Six Month Period Ended:
	March 31,		March 31,
	2024		2023
Research and development services (over-time)	$	142,735	$	213,964
Clinical laboratory testing services (point-in-time)		18,560		6,077,436
Clinical laboratory testing services (over-time)		649,160		2,377,961
Product and authentication services (point-in-time):
Supply chain		742,746		439,973
Large Scale DNA Production		258,152		381,131
Asset marking		9,442		179,901
Total	$	1,820,795	$	9,670,366

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

Revenue Recognition, continued

Contract balances

As of March 31, 2024, 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,		March 31,		$
	Balance sheet classification	2023		2024		change
Contract liabilities	Deferred revenue	$	270,435	$	245,285	$	25,150

For the three and six-month periods ended March 31, 2024, the Company recognized $0 and $40,035, respectively of revenue that was included in Contract liabilities as of October 1, 2023, respectively.

Cash, Cash Equivalents, and Restricted Cash

For the purpose of the accompanying consolidated financial statements, all highly liquid investments with a maturity of three months or less from when purchased are considered to be cash equivalents. The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows.

	March 31,		September 30,
	2024		2023
Cash and cash equivalents	$	3,149,640	$	7,151,800
Restricted cash		750,000		750,000
Total cash, cash equivalents and restricted cash	$	3,899,640	$	7,901,800

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

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 six-month periods ended March  31, 2024 and 2023 are as follows:

	2024	2023
Warrants	825,066	364,779
Restricted Stock Units	—	14,132
Stock options	109,363	110,317
Total	934,429	489,228

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 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 March 31, 2024, the Company had cash and cash equivalents of approximately $2.8 million in excess of the FDIC insurance limit.

The Company’s revenues earned from sale of products and services for the three and six-month periods ended March 31, 2024 included an aggregate of 24% and 25% from one customer, respectively within the MDx Testing Services segment and an aggregate of 28% and 14%, respectively from one customer within the Therapeutic DNA Production Services segment.

The Company’s revenues earned from sale of products and services for the three and six-month periods ended March 31, 2023 included an aggregate of 85% and 84%, respectively, from two customers within the MDx Testing Services segment. One customer accounted for 44% of the Company’s accounts receivable at March 31, 2024 and three customers accounted for 60% of the Company’s accounts receivable at September 30, 2023.

Warrant Liabilities

The Company evaluates its issued warrants (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 certain of its warrant agreements, the instruments do 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 fair value recognized in the condensed consolidated statement of operations in the period of change.

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 enzymatic manufacture of synthetic DNA for use in the production of nucleic acid - based therapeutics and, through the development and sale of a proprietary RNAP for use in the production of mRNA 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 is developing pharmacogenomics testing services that are currently waiting for approval from the New York State Department of Health (“NYSDOH”).

DNA Tagging and Security Products and Services — Segment operations consist of the manufacture and detection of DNA for industrial supply chains and 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 expense 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 — Unadjusted 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 March 31, 2024, there were no transfers between Levels 1, 2 and 3 of the fair value hierarchy.

Recent Accounting Standards

In December 2023, the FASB issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, that enhances the transparency of income tax disclosures by expanding annual disclosure requirements related to the rate reconciliation and income taxes paid. The guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and should be applied prospectively with the option of retrospective application. The Company is currently evaluating the impact of adopting this ASU on its disclosures.

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

Recent Accounting Standards, continued

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure.” The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. These disclosures are required quarterly. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with early adoption permitted. It is required to be adopted retrospectively for all prior periods presented in the financial statements The Company is currently evaluating the impact of adopting this ASU on its disclosures.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

6 Months Ended

Mar. 31, 2024

INVENTORIES

INVENTORIES

NOTE C — INVENTORIES

Inventories consist of the following:

	March 31,		September 30,
	2024		2023
	(unaudited)
Raw materials	$	167,252	$	212,079
Work-in-progress		15,006		19,859
Finished goods		153,685		98,089
Total	$	335,943	$	330,027

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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

6 Months Ended

Mar. 31, 2024

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:

	March 31,		September 30,
	2024		2023
	(unaudited)
Accounts payable	$	1,127,763	$	1,072,161
Accrued salaries payable		807,100		1,138,235
Other accrued expenses		115,172		59,992
Total	$	2,050,035	$	2,270,388

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CAPITAL STOCK

6 Months Ended

Mar. 31, 2024

CAPITAL STOCK

CAPITAL STOCK

NOTE E – CAPITAL STOCK

Reverse Stock Split

On April 24, 2024, the Company filed a Certificate of Amendment of its Certificate of Incorporation with the Secretary of State of the State of Delaware that effected the Reverse Stock Split, as discussed further in Note J.  

Registered Direct Offering

On February 2, 2024, the Company closed on a registered direct public offering (the “Offering”) of 161,403 shares (“Shares”) of the Company’s common stock, par value $0.001 (“Common Stock”) and pre-funded warrants (“Pre-Funded Warrants”) to purchase up to 120,800 shares of Common Stock, and in a concurrent private placement, unregistered common warrants (“Private Common Warrants”) to purchase up to 564,407 shares of Common Stock. The Company received net proceeds from the Offering, after deducting placement agent fees and other estimated offering expenses payable by the Company, of approximately $2.8 million.

The Pre-Funded Warrants have an exercise price of $0.0001 per share and are immediately exercisable and can be exercised at any time after their original issuance until such Pre-Funded Warrants are exercised in full. Each Share was sold at an offering price of $12.18 and each Pre-Funded Warrant was sold at an offering price of $12.18 (equal to the purchase price per Share minus the exercise price of the Pre-Funded Warrant). Pursuant to the Purchase Agreements, the Company also agreed to issue to the Purchasers, in a concurrent private placement, the Private Common Warrants. Each Private Common Warrant has an exercise price of $12.18 per share, and became exercisable on April 15, 2024 and will expire on April 15, 2029. Subseqent to the three-month period ended March 31, 2024, all of the 120,800 Pre-Funded Warrants were exercised.  

The Private Common Warrants and the shares of Common Stock issuable upon the exercise of the Private Common Warrants are not registered under the Securities Act. The Private Common Warrants and the shares of Common Stock issuable upon exercise thereof were issued or will be issued, respectively, in reliance on the exemptions from registration provided by Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder, for transactions not involving a public offering. Pursuant to the Purchase Agreements, within 45 calendar days from the date of the Purchase Agreements, the Company agreed to file a registration statement on Form S-3 (or other appropriate form if the Company is not then S-3 eligible) providing for the resale by the Purchasers of the Shares issuable upon exercise of the Private Common Warrants. The Company agreed to use commercially reasonable efforts to cause such registration statement to become effective within 90 days following the closing date of the Purchase Agreements and to keep such registration statement effective at all times until no Purchaser owns any Private Common Warrants or Shares issuable upon exercise thereof. The Company filed the registration statement for this transaction on March 12, 2024, and the registration statement was declared effective on March 20, 2024.  

The Private Common Warrants are recorded as a liability in the condensed consolidated balance sheet and were recorded at fair value and will be marked to market at each period end (see Note I). Additionally, the Company incurred   $633,198 of transaction costs related to the Offering which is included in the condensed consolidated statement of operations for the three and six--month periods ended March 31, 2024.

In connection with the Offering and the Purchase Agreements, the Company agreed to reduce the exercise price of warrants previously issued to the Purchasers with exercise prices ranging from $25.80 to $80.00 per warrant to $12.18 per warrant. The Company also agreed to extend the expiration dates for such warrants to August 2028. In addition, 2,904 outstanding common stock warrants held by other investors who did not participate in the Offering had their exercise price reduced to $12.18 per warrant share and had their warrant expiration dates extended to August 2028. The foregoing reductions of the exercise price and extension of expiration dates of such warrants were approved by shareholders on April 15, 2024.  The incremental change in fair value as a result of the modification for the warrants that are recorded as a liability was $1,633,767 and is recorded as a unrealized loss on the change in fair value of warrants classified as a liability in the condensed consolidated statement of operations for the three and six-month periods ended March 31, 2024.  The incremental change in fair value as a result of the modification for the warrants that are recorded to equity was $155,330 and is recorded as a deemed dividend in the condensed consolidated statement of operations for the three and six-month periods ended March 31, 2024.

NOTE E – CAPITAL STOCK, continued

ATM

On November 7, 2023, the Company entered into an Equity Distribution Agreement (the “Agreement”) with Maxim Group LLC, as sales agent (the “Agent”), pursuant to which the Company may, from time to time, issue and sell shares of its common stock, par value $0.001 per share, in an aggregate offering price of up to $6,397,939 (the “Shares”) through the Agent.

The offer and sales of the Shares made pursuant to the Agreement, will be made under the Company’s effective “shelf” registration statement on Form S-3.  Under the terms of the Agreement, the Agent may sell the Shares at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended. As of March 31, 2024, the Company has issued 4,501 shares of its common stock for net proceeds of approximately $64,397 under this Agreement. Effective January 30, 2024, the Company terminated the Agreement by providing notice of termination to the Agent in accordance with the terms of the Agreement. As a result of terminating the Agreement, the $217,000 of capitalized transaction costs were written off and are included in the condensed consolidated statement of operations for the three and six - month periods ended March 31, 2024.

As a result of the issuance of common stock under this Agreement, the exercise price of the 22,891 remaining warrants issued during November 2019 was reduced to $29.40 per share, the exercise price of 7,950 warrants issued during October 2020 was reduced to $30.20 per share and the exercise prices of 5,000 warrants issued during December 2020 was reduced to an exercise price of $26.20 per share for 2,500 warrants and an exercise price of $25.80 per share for the remaining 2,500 warrants. These exercise price adjustments are in accordance with the adjustment provisions contained in the respective warrant agreements. The incremental change in fair value of these warrants as a result of the triggering event was $77,757 and is recorded as a deemed dividend in the condensed consolidated statement of operations for the six-month period ended March 31, 2024.

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WARRANTS

6 Months Ended

Mar. 31, 2024

WARRANTS

WARRANTS

NOTE F —WARRANTS

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.

		Weighted
		Average
		Exercise
	Number of	Price Per
	Shares	Share
Balance at October 1, 2023	261,030	$	72.00
Granted	876,708		12.00
Exercised	(150)		112.00
Cancelled or expired	(191,721)		57.00
Balance at March 31, 2024	945,867	$	18.20

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Mar. 31, 2024

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE G — 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 six-month periods ended March 31, 2024 was $180,589 and $355,008, respectively.

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. 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.

NOTE G — COMMITMENTS AND CONTINGENCIES, continued

Employment Agreement, continued

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

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

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. On January 4, 2024, in connection with certain cost management efforts, the Company entered into a letter agreement with the CEO to amend the CEO’s employment agreement with the Company and to provide for a temporary 45% reduction to the CEO’s annual base salary, from $450,000 to $250,000, for a period of three months, effective as of January 1, 2024 through March 31, 2024. On April 1, 2024, the CEO extended the voluntary salary reduction with all terms and conditions withstanding until May 15, 2024. The CEO also agreed to waive any right to resign for “good reason” under his employment agreement with the Company as a result of the foregoing salary reduction. While the compensation committee determined that the CEO was eligible to receive a discretionary bonus in the amount of $500,000 with respect to his performance for fiscal 2023, on January 19, 2024, the CEO elected not to receive any cash incentive or other bonus for fiscal 2023, in light of the Company’s cash position.

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

6 Months Ended

Mar. 31, 2024

SEGMENT INFORMATION

SEGMENT INFORMATION

NOTE H – 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 March 31, 2024 is as follows:

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services and Kit		Security Products		Consolidated
Revenues
Product revenues	$	258,152	$	—	$	134,973	$	393,125
Service revenues		65,200		—		140,286		205,486
Clinical laboratory service revenues		—		335,580		—		335,580
Less intersegment revenues		—		(4,560)		—		(4,560)
Total revenues	$	323,352	$	331,020	$	275,259	$	929,631
Gross profit	$	190,588	$	18,515	$	86,548	$	295,651
(Loss) from segment operations (a)	$	(1,165,449)	$	(298,591)	$	(500,052)	$	(1,964,092)

Information regarding operations by segment for the three-month period ended March 31, 2023 is as follows:

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	203,951	$	—	$	93,503	$	297,454
Service revenues		135,581		—		33,477		169,058
Clinical laboratory service revenues		—		3,971,582		—		3,971,582
Less intersegment revenues		—		(30,480)		—		(30,480)
Total revenues	$	339,532	$	3,941,102	$	126,980	$	4,407,614
Gross profit	$	215,477	$	1,650,113	$	(58,155)	$	1,807,435
(Loss) income from segment operations (a)	$	(1,054,123)	$	492,288	$	(914,736)	$	(1,476,571)

Information regarding operations by segment for the six-month period ended March  31, 2024 is as follows:

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	258,152	$	—	$	442,290	$	700,442
Service revenues		142,735		—		309,898		452,633
Clinical laboratory service revenues		—		678,320		—		678,320
Less intersegment revenues		—		(10,600)		—		(10,600)
Total revenues	$	400,887	$	667,720	$	752,188	$	1,820,795
Gross profit	$	268,123	$	(44,443)	$	303,068	$	526,748
(Loss) income from segment operations (a)	$	(2,424,495)	$	(795,103)	$	(1,284,355)	$	(4,503,953)

NOTE H – SEGMENT INFORMATION, continued

Information regarding operations by segment for the six-month period ended March 31, 2023 is as follows:

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	331,457	$	—	$	482,393	$	813,850
Service revenues		257,324		—		143,795		401,119
Clinical laboratory service revenues		—		8,537,397		—		8,537,397
Less intersegment revenues		—		(82,000)		—		(82,000)
Total revenues	$	588,781	$	8,455,397	$	626,188	$	9,670,366
Gross profit	$	386,401	$	3,583,332	$	215,385	$	4,185,118
(Loss) income from segment operations (a)	$	(1,906,376)	$	1,602,172	$	(1,389,451)	$	(1,693,655)

Reconciliation of loss from segment operations to Corporate (loss) income for the three-month periods ended:

	March 31,
	2024		2023
Loss from operations of reportable segments	$	(1,964,092)	$	(1,476,571)
General corporate expenses (b)		(1,653,659)		(1,227,453)
Interest income		15,352		3,639
Unrealized gain on change in fair value of warrants classified as a liability		1,765,000		3,250,900
Unrealized loss on change in fair value of warrants classified as a liability - warrant modification		(394,000)		—
Transaction costs allocated to registered direct offering		(633,198)		—
Loss on issuance of warrants		(1,633,767)		—
Other (expense) income, net		4,581		661
Consolidated (loss) income before provision for income taxes	$	(4,493,783)	$	551,176

Reconciliation of loss from segment operations to Corporate loss for the six-month periods ended:

	March 31,
	2024		2023
Loss from operations of reportable segments	$	(4,503,953)	$	(1,693,655)
General corporate expenses (b)		(2,902,865)		(2,229,347)
Interest income		48,676		7,325
Unrealized gain on change in fair value of warrants classified as a liability		4,404,000		613,100
Unrealized loss on change in fair value of warrants classified as a liability - warrant modification		(394,000)		—
Transaction costs allocated to registered direct offering		(633,198)		—
Loss on issuance of warrants		(1,633,767)		—
Other (expense) income, net		(8,957)		9,507
Consolidated loss before provision for income taxes	$	(5,624,064)	$	(3,293,070)

(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 consist of selling, general and administrative expenses that are not specifically identifiable to a segment.

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FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

Mar. 31, 2024

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE I – 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 (loss) 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 March 31, 2024 and summarizes the significant unobservable inputs in fair value measurement of Level 3 financial assets and liabilities as of March 31, 2024. The Company did not have any assets or liabilities categorized as Level 1 or 2 as of March 31, 2024.

	Fair value at		Valuation	Unobservable	Volatility
	March 31, 2024		Technique	Input	Input
Liabilities:
Common Warrants	$	506,000	Monte Carlo simulation	Annualized volatility	142.50	%
Series A Warrants	$	346,000	Monte Carlo simulation	Annualized volatility	130.00	%
Series A Warrants - modified	$	304,000	Monte Carlo simulation	Annualized volatility	142.50	%
Private Common Warrants	$	4,190,000	Monte Carlo simulation	Annualized volatility	160.00	%

The change in fair value of the Common Warrants, the Series A Warrants and the Private Common Warrants for the three-month period ended March 31, 2024 is summarized as follows:

					Series A		Private
	Common		Series A		Warrants-		Common
	Warrants		Warrants		modified		Warrants		Totals
Fair value at January 1, 2024	$	581,000	$	745,500		319,500		—	$	1,646,000
Fair value at February 2, 2024								5,071,000		5,071,000
Change in fair value-warrant modification		230,000		—		164,000		—		394,000
Change in fair value		(305,000)		(399,500)		(179,500)		(881,000)		(1,765,000)
Fair Value at March 31, 2024	$	506,000	$	346,000	$	304,000	$	4,190,000	$	5,346,000

The change in fair value of the Common Warrants, the Series A Warrants and the Private Common Warrants for the six-month period ended March 31, 2024 is summarized as follows:

					Series A		Private
	Common		Series A		Warrants-		Common
	Warrants		Warrants		modified		Warrants		Totals
Fair value at October 1, 2023	$	1,468,000	$	1,971,900		845,100		—	$	4,285,000
Fair value at February 2, 2024		—		—		—		5,071,000		5,071,000
Change in fair value-warrant modification		230,000		—		164,000		—		394,000
Change in fair value		(1,192,000)		(1,625,900)		(705,100)		(881,000)		(4,404,000)
Fair Value at March 31, 2024	$	506,000	$	346,000	$	304,000	$	4,190,000	$	5,346,000

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SUBSEQUENT EVENTS

6 Months Ended

Mar. 31, 2024

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE J – SUBSEQUENT EVENTS

Special Meeting of Stockholders

On April 15, 2024, the Company held a special meeting of stockholders (the “Special Meeting”) pursuant to which the Company’s stockholders approved the following: (i) in accordance with Nasdaq Listing Rule 5635(d), the issuance to certain holders of common stock purchase warrants in connection with a private placement; (ii) in accordance with Nasdaq Listing Rule 5635(d), the repricing of certain of our common stock purchase warrants; (iii) a grant of discretionary authority to the Board of Directors giving them the authority to amend the Company’s certificate of incorporation, as amended, to effect a reverse stock split of common stock, at a ratio in the range from one-for-five to one-for-fifty, with such specific ratio to be determined by the Company’s Board of Directors following the Special Meeting (the “Reverse Split Proposal”); and (iv) an amendment to the Company’s 2020 Equity Incentive Plan to increase the number of authorized shares of common stock reserved for issuance by 200,000 shares.

Reverse Stock Split

On April 15, 2024, the Company held the Special Meeting where its stockholders approved the Reverse Split Proposal. The Company’s Board of Directors believes that the Reverse Stock Split is the best option available to increase the Company’s stock price as required for continued listing on Nasdaq and determined on April 21, 2024 that the split ratio should be one-for-twenty shares.

The Reverse Stock Split was effected as of 12:01 a.m. Eastern Time on Thursday, April 25, 2024 and combined each twenty shares of the Company’s outstanding common stock into one share of common stock, without any change in the par value per share. Moreover, the Reverse Stock Split correspondingly adjusted, a) the per share exercise price and the number of shares issuable upon the exercise of all outstanding options, and b) the number of shares underlying any of our outstanding warrants by adjusting the conversion ratio for each instrument and increasing the applicable exercise price or conversion price in accordance with the terms of each instrument and based on the reverse stock split ratio. No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split were rounded up to the nearest whole share.

Nasdaq Notification

On May 9, 2024, the Company received a written notification from Nasdaq’s Listing Qualifications Department notifying the Company that the closing bid price of its common stock had exceeded $1.00 per share for 10 consecutive trading days, and as a result, the Company had regained compliance with the Minimum Bid Price Requirement.

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BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES (Policies)

6 Months Ended

Mar. 31, 2024

BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

Interim Financial Statements

Interim Financial Statements

The accompanying condensed consolidated financial statements as of March 31, 2024, and for the three and six-month periods ended March 31, 2024, and 2023 are unaudited. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements of Regulation S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by 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 six-month periods ended March 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2024. 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, 2023 and footnotes thereto included in the Annual Report on Form 10-K of the Company filed with the SEC on December 7, 2023, as amended. The condensed consolidated balance sheet as of September 30, 2023 contained herein has been derived from the audited consolidated financial statements as of September 30, 2023 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, Applied DNA Clinical Labs, LLC (“ADCL”), Spindle and its majority-owned subsidiary, LineaRx, Inc. 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. The Company incurred a net loss of $5,624,064 and generated negative operating cash flow of $6,967,672 for the six-month period ended March 31, 2024. At March 31, 2024, the Company had cash and cash equivalents of $3,149,640. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date of issuance of these 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 intangible assets and 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.

Product Revenues and Authentication Services

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

Authentication Services

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

Clinical Laboratory Testing Services

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

Research and Development Services

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

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

Disaggregation of Revenue

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

	Three Month Period Ended:
	March 31,		March 31,
	2024		2023
Research and development services (over-time)	$	65,200	$	87,907
Clinical laboratory testing services (point-in-time)		6,440		3,003,022
Clinical laboratory testing services (over-time)		324,580		938,080
Product and authentication services (point-in-time):
Supply chain		275,259		27,636
Large Scale DNA Production		258,152		253,626
Asset marking		—		97,343
Total	$	929,631	$	4,407,614

	Six Month Period Ended:
	March 31,		March 31,
	2024		2023
Research and development services (over-time)	$	142,735	$	213,964
Clinical laboratory testing services (point-in-time)		18,560		6,077,436
Clinical laboratory testing services (over-time)		649,160		2,377,961
Product and authentication services (point-in-time):
Supply chain		742,746		439,973
Large Scale DNA Production		258,152		381,131
Asset marking		9,442		179,901
Total	$	1,820,795	$	9,670,366

Contract balances

As of March 31, 2024, 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,		March 31,		$
	Balance sheet classification	2023		2024		change
Contract liabilities	Deferred revenue	$	270,435	$	245,285	$	25,150

For the three and six-month periods ended March 31, 2024, the Company recognized $0 and $40,035, respectively of revenue that was included in Contract liabilities as of October 1, 2023, respectively.

Cash and Cash Equivalents and Restricted Cash

Cash, Cash Equivalents, and Restricted Cash

For the purpose of the accompanying consolidated financial statements, all highly liquid investments with a maturity of three months or less from when purchased are considered to be cash equivalents. The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows.

	March 31,		September 30,
	2024		2023
Cash and cash equivalents	$	3,149,640	$	7,151,800
Restricted cash		750,000		750,000
Total cash, cash equivalents and restricted cash	$	3,899,640	$	7,901,800

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 six-month periods ended March  31, 2024 and 2023 are as follows:

	2024	2023
Warrants	825,066	364,779
Restricted Stock Units	—	14,132
Stock options	109,363	110,317
Total	934,429	489,228

Concentrations

Concentrations

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and cash equivalents with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. As of March 31, 2024, the Company had cash and cash equivalents of approximately $2.8 million in excess of the FDIC insurance limit.

The Company’s revenues earned from sale of products and services for the three and six-month periods ended March 31, 2024 included an aggregate of 24% and 25% from one customer, respectively within the MDx Testing Services segment and an aggregate of 28% and 14%, respectively from one customer within the Therapeutic DNA Production Services segment.

The Company’s revenues earned from sale of products and services for the three and six-month periods ended March 31, 2023 included an aggregate of 85% and 84%, respectively, from two customers within the MDx Testing Services segment. One customer accounted for 44% of the Company’s accounts receivable at March 31, 2024 and three customers accounted for 60% of the Company’s accounts receivable at September 30, 2023.

Warrant Liabilities

Warrant Liabilities

The Company evaluates its issued warrants (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 certain of its warrant agreements, the instruments do 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 fair value recognized in the condensed consolidated statement of operations in the period of change.

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 enzymatic manufacture of synthetic DNA for use in the production of nucleic acid - based therapeutics and, through the development and sale of a proprietary RNAP for use in the production of mRNA 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 is developing pharmacogenomics testing services that are currently waiting for approval from the New York State Department of Health (“NYSDOH”).

DNA Tagging and Security Products and Services — Segment operations consist of the manufacture and detection of DNA for industrial supply chains and 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 expense 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 — Unadjusted 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 March 31, 2024, there were no transfers between Levels 1, 2 and 3 of the fair value hierarchy.

Recent Accounting Standards

Recent Accounting Standards

In December 2023, the FASB issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, that enhances the transparency of income tax disclosures by expanding annual disclosure requirements related to the rate reconciliation and income taxes paid. The guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and should be applied prospectively with the option of retrospective application. The Company is currently evaluating the impact of adopting this ASU on its disclosures.

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure.” The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. These disclosures are required quarterly. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with early adoption permitted. It is required to be adopted retrospectively for all prior periods presented in the financial statements The Company is currently evaluating the impact of adopting this ASU on its disclosures.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)

6 Months Ended

Mar. 31, 2024

BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

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

	Three Month Period Ended:
	March 31,		March 31,
	2024		2023
Research and development services (over-time)	$	65,200	$	87,907
Clinical laboratory testing services (point-in-time)		6,440		3,003,022
Clinical laboratory testing services (over-time)		324,580		938,080
Product and authentication services (point-in-time):
Supply chain		275,259		27,636
Large Scale DNA Production		258,152		253,626
Asset marking		—		97,343
Total	$	929,631	$	4,407,614

	Six Month Period Ended:
	March 31,		March 31,
	2024		2023
Research and development services (over-time)	$	142,735	$	213,964
Clinical laboratory testing services (point-in-time)		18,560		6,077,436
Clinical laboratory testing services (over-time)		649,160		2,377,961
Product and authentication services (point-in-time):
Supply chain		742,746		439,973
Large Scale DNA Production		258,152		381,131
Asset marking		9,442		179,901
Total	$	1,820,795	$	9,670,366

Schedule of opening and closing contract balances

		October 1,		March 31,		$
	Balance sheet classification	2023		2024		change
Contract liabilities	Deferred revenue	$	270,435	$	245,285	$	25,150

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

	March 31,		September 30,
	2024		2023
Cash and cash equivalents	$	3,149,640	$	7,151,800
Restricted cash		750,000		750,000
Total cash, cash equivalents and restricted cash	$	3,899,640	$	7,901,800

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 six-month periods ended March  31, 2024 and 2023 are as follows:

	2024	2023
Warrants	825,066	364,779
Restricted Stock Units	—	14,132
Stock options	109,363	110,317
Total	934,429	489,228

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INVENTORIES (Tables)

6 Months Ended

Mar. 31, 2024

INVENTORIES

Schedule of inventories

	March 31,		September 30,
	2024		2023
	(unaudited)
Raw materials	$	167,252	$	212,079
Work-in-progress		15,006		19,859
Finished goods		153,685		98,089
Total	$	335,943	$	330,027

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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Tables)

6 Months Ended

Mar. 31, 2024

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Schedule of accounts payable and accrued liabilities

	March 31,		September 30,
	2024		2023
	(unaudited)
Accounts payable	$	1,127,763	$	1,072,161
Accrued salaries payable		807,100		1,138,235
Other accrued expenses		115,172		59,992
Total	$	2,050,035	$	2,270,388

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WARRANTS (Tables)

6 Months Ended

Mar. 31, 2024

WARRANTS

Schedule of transactions involving warrants

		Weighted
		Average
		Exercise
	Number of	Price Per
	Shares	Share
Balance at October 1, 2023	261,030	$	72.00
Granted	876,708		12.00
Exercised	(150)		112.00
Cancelled or expired	(191,721)		57.00
Balance at March 31, 2024	945,867	$	18.20

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SEGMENT INFORMATION (Tables)

6 Months Ended

Mar. 31, 2024

SEGMENT INFORMATION

Schedule of information regarding operations by segment

Information regarding operations by segment for the three-month period ended March 31, 2024 is as follows:

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services and Kit		Security Products		Consolidated
Revenues
Product revenues	$	258,152	$	—	$	134,973	$	393,125
Service revenues		65,200		—		140,286		205,486
Clinical laboratory service revenues		—		335,580		—		335,580
Less intersegment revenues		—		(4,560)		—		(4,560)
Total revenues	$	323,352	$	331,020	$	275,259	$	929,631
Gross profit	$	190,588	$	18,515	$	86,548	$	295,651
(Loss) from segment operations (a)	$	(1,165,449)	$	(298,591)	$	(500,052)	$	(1,964,092)

Information regarding operations by segment for the three-month period ended March 31, 2023 is as follows:

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	203,951	$	—	$	93,503	$	297,454
Service revenues		135,581		—		33,477		169,058
Clinical laboratory service revenues		—		3,971,582		—		3,971,582
Less intersegment revenues		—		(30,480)		—		(30,480)
Total revenues	$	339,532	$	3,941,102	$	126,980	$	4,407,614
Gross profit	$	215,477	$	1,650,113	$	(58,155)	$	1,807,435
(Loss) income from segment operations (a)	$	(1,054,123)	$	492,288	$	(914,736)	$	(1,476,571)

Information regarding operations by segment for the six-month period ended March  31, 2024 is as follows:

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	258,152	$	—	$	442,290	$	700,442
Service revenues		142,735		—		309,898		452,633
Clinical laboratory service revenues		—		678,320		—		678,320
Less intersegment revenues		—		(10,600)		—		(10,600)
Total revenues	$	400,887	$	667,720	$	752,188	$	1,820,795
Gross profit	$	268,123	$	(44,443)	$	303,068	$	526,748
(Loss) income from segment operations (a)	$	(2,424,495)	$	(795,103)	$	(1,284,355)	$	(4,503,953)

Information regarding operations by segment for the six-month period ended March 31, 2023 is as follows:

	Therapeutic DNA		MDx Testing		DNA Tagging and
	Production		Services		Security Products		Consolidated
Revenues:
Product revenues	$	331,457	$	—	$	482,393	$	813,850
Service revenues		257,324		—		143,795		401,119
Clinical laboratory service revenues		—		8,537,397		—		8,537,397
Less intersegment revenues		—		(82,000)		—		(82,000)
Total revenues	$	588,781	$	8,455,397	$	626,188	$	9,670,366
Gross profit	$	386,401	$	3,583,332	$	215,385	$	4,185,118
(Loss) income from segment operations (a)	$	(1,906,376)	$	1,602,172	$	(1,389,451)	$	(1,693,655)

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

Schedule of reconciliation of segment loss from operations to corporate (loss) income

	March 31,
	2024		2023
Loss from operations of reportable segments	$	(1,964,092)	$	(1,476,571)
General corporate expenses (b)		(1,653,659)		(1,227,453)
Interest income		15,352		3,639
Unrealized gain on change in fair value of warrants classified as a liability		1,765,000		3,250,900
Unrealized loss on change in fair value of warrants classified as a liability - warrant modification		(394,000)		—
Transaction costs allocated to registered direct offering		(633,198)		—
Loss on issuance of warrants		(1,633,767)		—
Other (expense) income, net		4,581		661
Consolidated (loss) income before provision for income taxes	$	(4,493,783)	$	551,176

	March 31,
	2024		2023
Loss from operations of reportable segments	$	(4,503,953)	$	(1,693,655)
General corporate expenses (b)		(2,902,865)		(2,229,347)
Interest income		48,676		7,325
Unrealized gain on change in fair value of warrants classified as a liability		4,404,000		613,100
Unrealized loss on change in fair value of warrants classified as a liability - warrant modification		(394,000)		—
Transaction costs allocated to registered direct offering		(633,198)		—
Loss on issuance of warrants		(1,633,767)		—
Other (expense) income, net		(8,957)		9,507
Consolidated loss before provision for income taxes	$	(5,624,064)	$	(3,293,070)

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

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Mar. 31, 2024

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	Volatility
	March 31, 2024		Technique	Input	Input
Liabilities:
Common Warrants	$	506,000	Monte Carlo simulation	Annualized volatility	142.50	%
Series A Warrants	$	346,000	Monte Carlo simulation	Annualized volatility	130.00	%
Series A Warrants - modified	$	304,000	Monte Carlo simulation	Annualized volatility	142.50	%
Private Common Warrants	$	4,190,000	Monte Carlo simulation	Annualized volatility	160.00	%

Summary of change in fair value of warrants

					Series A		Private
	Common		Series A		Warrants-		Common
	Warrants		Warrants		modified		Warrants		Totals
Fair value at January 1, 2024	$	581,000	$	745,500		319,500		—	$	1,646,000
Fair value at February 2, 2024								5,071,000		5,071,000
Change in fair value-warrant modification		230,000		—		164,000		—		394,000
Change in fair value		(305,000)		(399,500)		(179,500)		(881,000)		(1,765,000)
Fair Value at March 31, 2024	$	506,000	$	346,000	$	304,000	$	4,190,000	$	5,346,000

					Series A		Private
	Common		Series A		Warrants-		Common
	Warrants		Warrants		modified		Warrants		Totals
Fair value at October 1, 2023	$	1,468,000	$	1,971,900		845,100		—	$	4,285,000
Fair value at February 2, 2024		—		—		—		5,071,000		5,071,000
Change in fair value-warrant modification		230,000		—		164,000		—		394,000
Change in fair value		(1,192,000)		(1,625,900)		(705,100)		(881,000)		(4,404,000)
Fair Value at March 31, 2024	$	506,000	$	346,000	$	304,000	$	4,190,000	$	5,346,000

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NATURE OF THE BUSINESS (Details)				6 Months Ended
	Apr. 25, 2024	Apr. 24, 2024 $ / shares	Apr. 15, 2024	Mar. 31, 2024 item $ / shares	Nov. 07, 2023 $ / shares	Sep. 30, 2023 $ / shares
Subsequent Event [Line Items]
Number of primary markets that use the company's technologies | item				3
Common stock, par value (in dollars per share)				$ 0.001	$ 0.001	$ 0.001
Subsequent events
Subsequent Event [Line Items]
Reverse stock split of its common stock	0.05	0.05	1
Common stock, par value (in dollars per share)		$ 0.001

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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		6 Months Ended
	Mar. 31, 2024	Mar. 31, 2023	Mar. 31, 2024	Mar. 31, 2023
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total	$ 929,631	$ 4,407,614	$ 1,820,795	$ 9,670,366
Research and development services (over-time)
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total	65,200	87,907	142,735	213,964
Clinical laboratory testing services (point-in-time)
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total	6,440	3,003,022	18,560	6,077,436
Clinical laboratory testing services (over-time)
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total	324,580	938,080	649,160	2,377,961
Supply chain
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total	275,259	27,636	742,746	439,973
Large Scale DNA Production
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total	$ 258,152	253,626	258,152	381,131
Asset marking
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Total		$ 97,343	$ 9,442	$ 179,901

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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	6 Months Ended
	Mar. 31, 2024	Mar. 31, 2024	Oct. 01, 2023
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Change in contract liabilities		$ 25,150
Revenue recognized in contract liabilities	$ 0	40,035
Contract liabilities
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Deferred revenue	$ 245,285	$ 245,285	$ 270,435

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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		6 Months Ended
	Mar. 31, 2024	Mar. 31, 2023	Mar. 31, 2024	Mar. 31, 2023
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Antidilutive securities excluded from the computation of diluted net loss per share	934,429	489,228	934,429	489,228
Warrants
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Antidilutive securities excluded from the computation of diluted net loss per share	825,066	364,779	825,066	364,779
Restricted Stock Units
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Antidilutive securities excluded from the computation of diluted net loss per share		14,132		14,132
Employee Stock Option
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Antidilutive securities excluded from the computation of diluted net loss per share	109,363	110,317	109,363	110,317

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BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES - Additional Information (Details)	3 Months Ended				6 Months Ended		12 Months Ended
	Mar. 31, 2024 USD ($) customer	Dec. 31, 2023 USD ($)	Mar. 31, 2023 USD ($) customer	Dec. 31, 2022 USD ($)	Mar. 31, 2024 USD ($) customer segment	Mar. 31, 2023 USD ($) customer	Sep. 30, 2023 USD ($) customer
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Net loss	$ 4,493,783	$ 1,130,281	$ (551,176)	$ 3,844,246	$ 5,624,064	$ 3,293,070
Operating cash flow					6,967,672
Cash and cash equivalents	3,149,640				3,149,640		$ 7,151,800
Excess of FDIC insurance limit	2,800,000				$ 2,800,000
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 | Two customer | MDx Testing Services
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Number of customers | customer			2			2
Customer Concentration Risk | Total Revenue | DNA Tagging and Security Products
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Number of customers | customer	1				1
Customer Concentration Risk | Total Revenue | MDx Testing Services
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Number of customers | customer	1				1
Customer Concentration Risk | Total Revenue | One customer | DNA Tagging and Security Products
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Concentration risk percentage	28.00%				14.00%
Customer Concentration Risk | Total Revenue | One customer | MDx Testing Services
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Concentration risk percentage	24.00%				25.00%
Customer Concentration Risk | Total Revenue | Two customer | MDx Testing Services
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Concentration risk percentage			85.00%			84.00%
Customer Concentration Risk | Accounts Receivable
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Number of customers | customer					1		3
Customer Concentration Risk | Accounts Receivable | Two customer
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Concentration risk percentage					44.00%		60.00%

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BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES - Cash and Cash Equivalents and Restricted Cash (Details) - USD ($)	Mar. 31, 2024	Sep. 30, 2023	Mar. 31, 2023	Sep. 30, 2022
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Cash and cash equivalents	$ 3,149,640	$ 7,151,800
Restricted cash	750,000	750,000
Total cash, cash equivalents and restricted cash	$ 3,899,640	$ 7,901,800	$ 13,037,228	$ 15,215,285

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INVENTORIES (Details) - USD ($)	Mar. 31, 2024	Sep. 30, 2023
INVENTORIES
Raw materials	$ 167,252	$ 212,079
Work-in-progress	15,006	19,859
Finished goods	153,685	98,089
Total	$ 335,943	$ 330,027

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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Details) - USD ($)	Mar. 31, 2024	Sep. 30, 2023
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable	$ 1,127,763	$ 1,072,161
Accrued salaries payable	807,100	1,138,235
Other accrued expenses	115,172	59,992
Total	$ 2,050,035	$ 2,270,388

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CAPITAL STOCK (Details) - USD ($)				3 Months Ended	6 Months Ended
	Feb. 02, 2024	Jan. 31, 2024	Nov. 07, 2023	Mar. 31, 2024	Mar. 31, 2024	Apr. 24, 2024	Sep. 30, 2023
CAPITAL STOCK
Number of shares issued		5,635			4,501
Common stock, par value (in dollars per share)			$ 0.001	$ 0.001	$ 0.001		$ 0.001
Maximum aggregate offering price			$ 6,397,939
Net proceeds from issuance of common stock					$ 64,397
Capitalized transaction costs				$ 217,000	$ 217,000
Offering price (in dollars per share)	$ 12.18
Number of warrants exercised					150
Threshold period to file registration statement on Form S-3 from the date of the Purchase Agreements	45 days
Threshold period to use commercially reasonable efforts to cause registration statement to become effective from closing date of the Purchase Agreements	90 days
Transaction costs from offering				(633,198)	$ (633,198)
Offering price of warrant	$ 12.18
Number of warrants held by other investors who are not participating in the Offering	2,904
Deemed dividend related to warrant modifications				155,330	233,087
Change in deemed dividend related to warrant Modification					77,757
Net proceeds from issuance of common stock					2,980,340
Offering
CAPITAL STOCK
Number of shares issued	161,403
Common stock, par value (in dollars per share)	$ 0.001
Gross proceeds	$ 2,800,000
Unrealized gain on change in fair value of warrants classified as a liability				$ 1,633,767	1,633,767
Deemed dividend - warrant repricing					$ 155,330
Subsequent events
CAPITAL STOCK
Common stock, par value (in dollars per share)						$ 0.001
Minimum
CAPITAL STOCK
Exercise price of warrants (in dollars per share)	$ 25.80
Maximum
CAPITAL STOCK
Exercise price of warrants (in dollars per share)	80.00
Private Common Warrants
CAPITAL STOCK
Offering price (in dollars per share)	$ 12.18
Private Common Warrants | Offering
CAPITAL STOCK
Warrants issued to placement agent	564,407
Number of common stock called by warrants	564,407
Number of warrants exercised				120,800
Pre-Funded Warrants
CAPITAL STOCK
Exercise price of warrants (in dollars per share)	$ 0.0001
Offering price (in dollars per share)	$ 12.18
Pre-Funded Warrants | Offering
CAPITAL STOCK
Warrants issued to placement agent	120,800
Number of common stock called by warrants	120,800
Pre-Funded Warrants | Maximum
CAPITAL STOCK
Warrants issued to placement agent		5,635
Number of common stock called by warrants		5,635
Warrants issued in November 2019
CAPITAL STOCK
Number of remaining warrants issued			22,891
Exercise price of warrants (in dollars per share)			$ 29.40
Warrants issued in October 2020
CAPITAL STOCK
Number of remaining warrants issued			7,950
Exercise price of warrants (in dollars per share)			$ 30.20
Warrants issued in December 2020
CAPITAL STOCK
Number of remaining warrants issued			5,000
Exercise price of warrants (in dollars per share)			$ 26.20
Warrants issued in December 2020, one
CAPITAL STOCK
Number of remaining warrants issued			2,500
Exercise price of warrants (in dollars per share)			$ 25.80
Warrants issued in December 2020, two
CAPITAL STOCK
Number of remaining warrants issued			2,500

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WARRANTS (Details)	6 Months Ended
	Mar. 31, 2024 $ / shares shares
Number of Shares
Balance at October 1, 2023 | shares	261,030
Granted | shares	876,708
Exercised | shares	(150)
Cancelled or expired | shares	(191,721)
Balance at December 31, 2023 | shares	945,867
Weighted Average Exercise Price Per Share
Balance at October 1, 2023 | $ / shares	$ 72.00
Granted | $ / shares	12.00
Exercised | $ / shares	112.00
Cancelled or expired | $ / shares	57.00
Balance at December 31, 2023 | $ / shares	$ 18.20

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COMMITMENTS AND CONTINGENCIES - Operating Leases (Details)			3 Months Ended	6 Months Ended
	Feb. 01, 2023 USD ($) ft²	Nov. 01, 2017 USD ($) ft²	Mar. 31, 2024 USD ($)	Mar. 31, 2024 USD ($) ft²
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			$ 180,589	$ 355,008
Leased office space for corporate headquarters
COMMITMENTS AND CONTINGENCIES
Monthly payments of lease	$ 48,861
Leased office space for Laboratory
COMMITMENTS AND CONTINGENCIES
Monthly payments of lease	$ 8,750
Initial lease term	1 year
Letter of credit
COMMITMENTS AND CONTINGENCIES
Letter of credit amount	$ 750,000

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COMMITMENTS AND CONTINGENCIES - Employment Agreement (Details) - Employment Agreement - USD ($)								12 Months Ended
	Mar. 31, 2024	Jan. 19, 2024	Jan. 04, 2024	Jan. 01, 2024	Jun. 30, 2023	Oct. 29, 2021	Jul. 28, 2017	Jun. 30, 2017
COMMITMENTS AND CONTINGENCIES
Discretionary bonus		$ 500,000
CEO
COMMITMENTS AND CONTINGENCIES
Agreement renewal period					1 year		1 year	1 year
Annual salary	$ 250,000			$ 450,000		$ 450,000
percentage of reduction CEO's annual base salary			45.00%
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.

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SEGMENT INFORMATION - Information regarding operations by segment (Details)	3 Months Ended		6 Months Ended
	Mar. 31, 2024 USD ($)	Mar. 31, 2023 USD ($)	Mar. 31, 2024 USD ($) segment	Mar. 31, 2023 USD ($)
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Number of reportable segments | segment			3
Total revenues	$ 929,631	$ 4,407,614	$ 1,820,795	$ 9,670,366
Gross profit	295,651	1,807,435	526,748	4,185,118
(Loss) income from segment operations	(3,617,751)	(2,704,024)	(7,406,818)	(3,923,002)
Product revenues
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues	393,125	297,454	700,442	813,850
Service revenues
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues	205,486	169,058	452,633	401,119
Clinical laboratory service revenues
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues	331,020	3,941,102	667,720	8,455,397
Therapeutic DNA Production
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues	323,352	339,532	400,887	588,781
Gross profit	190,588	215,477	268,123	386,401
MDx Testing Services
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues	331,020	3,941,102	667,720	8,455,397
Gross profit	18,515	1,650,113	(44,443)	3,583,332
DNA Tagging and Security Products
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues	275,259	126,980	752,188	626,188
Gross profit	86,548	(58,155)	303,068	215,385
Operating segment
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues		(30,480)		(82,000)
(Loss) income from segment operations	(1,964,092)	(1,476,571)	(4,503,953)	(1,693,655)
Operating segment | Product revenues
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues	393,125	297,454	700,442	813,850
Operating segment | Service revenues
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues	205,486	169,058	452,633	401,119
Operating segment | Clinical laboratory service revenues
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues		3,971,582		8,537,397
Operating segment | Therapeutic DNA Production
SEGMENT AND GEOGRAPHIC AREA INFORMATION
(Loss) income from segment operations	(1,165,449)	(1,054,123)	(2,424,495)	(1,906,376)
Operating segment | Therapeutic DNA Production | Product revenues
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues	258,152	203,951	258,152	331,457
Operating segment | Therapeutic DNA Production | Service revenues
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues	65,200	135,581	142,735	257,324
Operating segment | MDx Testing Services
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues		(30,480)		(82,000)
(Loss) income from segment operations	(298,591)	492,288	(795,103)	1,602,172
Operating segment | MDx Testing Services | Clinical laboratory service revenues
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues	335,580	3,971,582	678,320	8,537,397
Operating segment | DNA Tagging and Security Products
SEGMENT AND GEOGRAPHIC AREA INFORMATION
(Loss) income from segment operations	(500,052)	(914,736)	(1,284,355)	(1,389,451)
Operating segment | DNA Tagging and Security Products | Product revenues
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues	134,973	93,503	442,290	482,393
Operating segment | DNA Tagging and Security Products | Service revenues
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues	140,286	$ 33,477	309,898	$ 143,795
Less intersegment revenues | MDx Testing Services
SEGMENT AND GEOGRAPHIC AREA INFORMATION
Total revenues	$ (4,560)		$ (10,600)

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SEGMENT INFORMATION - Reconciliation of segment loss from operation to corporate loss (Details) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2024	Mar. 31, 2023	Mar. 31, 2024	Mar. 31, 2023
Reconciliation of segment loss from operations to corporate loss
Loss from operations of reportable segments	$ (3,617,751)	$ (2,704,024)	$ (7,406,818)	$ (3,923,002)
General corporate expenses (b)	3,000,208	3,522,715	6,084,557	6,148,072
Interest income	15,352	3,639	48,676	7,325
Unrealized gain on change in fair value of warrants classified as a liability	1,765,000	3,250,900	4,404,000	613,100
Unrealized (loss) on change in fair value of warrants classified as a liability - warrant modification	(394,000)		(394,000)
Transaction costs allocated to warrant liabilities	633,198		633,198
Transaction cost allocated to warrant liabilities	(633,198)		(633,198)
Loss on issuance of warrants	(1,633,767)		(1,633,767)
Other (expense) income , net	4,581	661	(8,957)	9,507
Consolidated (loss) income before provision for income taxes	(4,493,783)	551,176	(5,624,064)	(3,293,070)
Operating segment
Reconciliation of segment loss from operations to corporate loss
Loss from operations of reportable segments	(1,964,092)	(1,476,571)	(4,503,953)	(1,693,655)
Segment reconciling items
Reconciliation of segment loss from operations to corporate loss
General corporate expenses (b)	$ 1,653,659	$ 1,227,453	$ (2,902,865)	$ (2,229,347)

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FAIR VALUE OF FINANCIAL INSTRUMENTS - Inputs used in fair value of Level 3 Financial asset and liabilities (Details) - Level 3 - Annualized Volatility	Mar. 31, 2024 USD ($)
Common Warrants | Minimum
FAIR VALUE OF FINANCIAL INSTRUMENTS
Warrants and rights outstanding, measurement input	1.4250
Common Warrants | Monte Carlo simulation
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial liabilities fair value disclosure	$ 506,000
Warrants and rights outstanding, measurement input	1.4250
Series A Warrants | Monte Carlo simulation
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial liabilities fair value disclosure	$ 346,000
Warrants and rights outstanding, measurement input	1.3000
Series A Warrants - modified | Monte Carlo simulation
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial liabilities fair value disclosure	$ 304,000
Warrants and rights outstanding, measurement input	1.4250
Private Common Warrants
FAIR VALUE OF FINANCIAL INSTRUMENTS
Warrants and rights outstanding, measurement input	1.6000
Private Common Warrants | Monte Carlo simulation
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial liabilities fair value disclosure	$ 4,190,000

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FAIR VALUE OF FINANCIAL INSTRUMENTS - Change in fair value of warrants (Details) - USD ($)	3 Months Ended	6 Months Ended
	Mar. 31, 2024	Mar. 31, 2024
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value at beginning of period	$ 1,646,000	$ 4,285,000
Fair value at February 2, 2024	5,071,000	5,071,000
Change in fair value-warrant modification	394,000	394,000
Change in fair value	(1,765,000)	(4,404,000)
Fair Value at ending of period	5,346,000	5,346,000
Common Warrants
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value at beginning of period	581,000	1,468,000
Change in fair value-warrant modification	230,000	230,000
Change in fair value	(305,000)	(1,192,000)
Fair Value at ending of period	506,000	506,000
Series A Warrants
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value at beginning of period	745,500	1,971,900
Change in fair value	(399,500)	(1,625,900)
Fair Value at ending of period	$ 346,000	$ 346,000
Change in fair value, Gain (loss), Statement of Income or Comprehensive Income [Extensible Enumeration]	Loss on issuance of warrants	Loss on issuance of warrants
Series A Warrants - modified
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value at beginning of period	$ 319,500	$ 845,100
Change in fair value-warrant modification	164,000	164,000
Change in fair value	(179,500)	(705,100)
Fair Value at ending of period	304,000	304,000
Private Common Warrants
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value at February 2, 2024	5,071,000	5,071,000
Change in fair value	(881,000)	(881,000)
Fair Value at ending of period	$ 4,190,000	$ 4,190,000

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SUBSEQUENT EVENTS (Details) - Subsequent Event [Member]	Apr. 25, 2024	Apr. 24, 2024	Apr. 15, 2024 shares
Subsequent Event [Line Items]
Reverse stock split of its common stock	0.05	0.05	1
Incentive Stock Plan 2020
Subsequent Event [Line Items]
Common Stock reserved for issuance			200,000

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Pay vs Performance Disclosure - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2024	Mar. 31, 2023	Mar. 31, 2024	Mar. 31, 2023
Pay vs Performance Disclosure
Net Income (Loss)	$ (4,470,474)	$ 588,343	$ (5,575,574)	$ (3,255,029)

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Insider Trading Arrangements	3 Months Ended
	Mar. 31, 2024
Trading Arrangements, by Individual
Rule 10b5-1 Arrangement Adopted	false
Non-Rule 10b5-1 Arrangement Adopted	false
Rule 10b5-1 Arrangement Terminated	false
Non-Rule 10b5-1 Arrangement Terminated	false