See the accompanying notes to the unaudited
condensed consolidated financial statements
See the accompanying notes to the unaudited
condensed consolidated financial statements
See the accompanying notes to the unaudited
condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(unaudited)
NOTE A — SUMMARY OF ACCOUNTING
POLICIES
General
The accompanying condensed consolidated
financial statements as of March 31, 2018 and for the three and six month periods ended March 31, 2018 and 2017 are unaudited.
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements
of Regulation S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly,
they do not include all the information and footnotes required by generally accepted accounting principles for complete consolidated
financial statements.
In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for
the three and six month periods ended March 31, 2018 are not necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 2018. 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, 2017 and footnotes thereto
included in the Annual Report on Form 10-K of Applied DNA Sciences, Inc. (the “Company”) filed with the SEC on December
28, 2017.
The condensed consolidated balance sheet
as of September 30, 2017 contained herein has been derived from the audited consolidated financial statements as of September 30,
2017, but does not include all disclosures required by GAAP.
Business and Basis of Presentation
The Company is principally devoted to developing
and marketing plant-based or other DNA technology solutions in the United States, Europe and Asia. To date, the Company has produced
limited recurring revenues from its products and services and has incurred expenses and has sustained losses. Consequently, its
operations are subject to all the risks inherent in the establishment and development of a biotechnology company.
The unaudited condensed consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries, APDN (B.V.I.) Inc., Applied DNA Sciences Europe
Limited, and Applied DNA Sciences India Private Limited. Applied DNA Sciences India Private Limited was incorporated in India on
June 22, 2017. Significant inter-company transactions and balances have been eliminated in consolidation.
Inventories
Inventories, which consist primarily of
raw materials, and finished goods, is stated at the lower of cost or net realizable value, with cost determined by using the first-in,
first-out (FIFO) method.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting
Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”). ASC 605 requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred and/or
service has been performed; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination
of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products
delivered or services provided and the collectability of those amounts. Provisions for allowances and other adjustments are provided
for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered,
service has not been provided, or is subject to refund until such time that the Company and the customer jointly determine that
the product has been delivered, the service has been provided, or no refund will be required. At March 31, 2018 and September 30,
2017, the Company recorded deferred revenue of $1,204,351 and $351,735, respectively.
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(unaudited)
NOTE A — SUMMARY OF ACCOUNTING
POLICIES (continued)
Revenue Recognition
, continued
Revenue arrangements with multiple components
are divided into separate units of accounting if certain criteria are met, including whether the delivered component has stand-alone
value to the customer. Consideration received is allocated among the separate units of accounting based on their respective selling
prices. The selling price for each unit is based on vendor-specific objective evidence, or VSOE, if available, third party evidence
if VSOE is not available, or estimated selling price if neither VSOE nor third party evidence is available. The applicable revenue
recognition criteria are then applied to each of the units.
Revenue for government contract awards,
which supports the Company’s development efforts on specific projects, is recognized as firm fixed price government contract
awards and are recognized over the period of the contract. The Company recognized revenue from a government contract of $187,010
and $374,020 for the three and six month periods ended March 31, 2018, respectively. The Company did not recognize revenue from
government contract awards during the three and six month periods ended March 31, 2017.
The Company has a licensing agreement with a company that operates
in the cotton industry. The cotton ginning season in the United States takes place between September and March each year; therefore,
revenues from these customer contracts may be seasonal and recognized primarily during the second half of the Company’s fiscal
year.
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(unaudited)
NOTE A — SUMMARY OF ACCOUNTING
POLICIES (continued)
Use of Estimates
The preparation of the financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. The most complex and subjective estimates include recoverability of long-lived assets,
fair value calculations for stock based compensation, contingencies, allowance for doubtful accounts and management’s anticipated
liquidity. Management reviews its estimates on a regular basis and the effects of any material revisions are reflected in the condensed
consolidated financial statements in the period they are deemed necessary. Accordingly, actual results could differ from those
estimates.
Income Taxes
The Company recognizes deferred tax liabilities
and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns.
Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates
the degree to which tax assets and credit carry forwards will result in a benefit based on expected profitability by tax jurisdiction.
In its interim financial statements, the
Company follows the guidance in ASC 270, “Interim Reporting” and ASC 740 “Income Taxes”, whereby the Company
utilizes the expected annual effective tax rate in determining its income tax provisions for the interim periods. That rate differs
from U.S. statutory rates primarily as a result of valuation allowance related to the Company’s net operating loss carryforward
as a result of the historical losses of the Company.
On December 22, 2017, the U.S. government
enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act
makes broad and complex changes to the U.S. tax code that will affect the Company’s fiscal year ending September 30, 2018,
including, but not limited to, reducing the U.S. federal corporate tax rate. The Tax Act reduces the federal corporate tax
rate to 21 percent in the fiscal year ending September 30, 2018. Section 15 of the Internal Revenue Code stipulates that
our fiscal year ending September 30, 2018, will have a blended corporate tax rate of approximately 25 percent, which is based on
the applicable tax rates before and after the Tax Act and the number of days in the year. The reduction of the corporate
tax rate will cause the Company to reduce its deferred tax asset to the lower federal base rate of 21% and adjust the allowance
against the deferred tax asset by the same amount. The Company has not yet determined the impact the rate reduction will have on
its gross deferred tax asset and liabilities and offsetting valuation allowance. The Company has a full allowance against the deferred
tax asset and as a result there was no impact to income tax expense for the three and six month periods ended March 31, 2018.
The changes included in the Tax Act are broad and complex. The
final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes
in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in
accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates
the Company has utilized to calculate the transition impact. The Securities Exchange Commission has issued rules that would allow
for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax
impacts. We currently anticipate finalizing and recording any resulting adjustments by the end of our current fiscal year ending
September 30, 2018.
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(unaudited)
NOTE A — SUMMARY OF ACCOUNTING
POLICIES (continued)
Net Loss Per Share
The Company presents loss per share utilizing
a dual presentation of basic and diluted loss per share. Basic loss per share includes no dilution and has been calculated based
upon the weighted average number of common shares outstanding during the period. Dilutive common stock equivalents consist of shares
issuable upon the exercise of the Company’s stock options and warrants.
For the three and six month periods ended
March 31, 2018 and 2017, common stock equivalent shares are excluded from the computation of the diluted loss per share as their
effect would be anti-dilutive.
Securities that could potentially dilute
basic net income per share in the future 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, 2018 and 2017 are as follows:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
12,271,686
|
|
|
|
9,548,969
|
|
Stock options
|
|
|
5,320,308
|
|
|
|
5,199,477
|
|
|
|
|
17,591,994
|
|
|
|
14,748,446
|
|
Stock-Based Compensation
The Company accounts for stock-based compensation
for employees and directors in accordance with ASC 718, Compensation (“ASC 718”). ASC 718 requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their
fair values. Under the provisions of ASC 718, stock-based compensation costs are measured at the grant date, based on the fair
value of the award, and are recognized as expense over the employee’s requisite service period (generally the vesting period
of the equity grant). The fair value of the Company’s common stock options are estimated using the Black Scholes option-pricing
model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life. The Company
expenses stock-based compensation by using the straight-line method. In accordance with ASC 718, excess tax benefits realized from
the exercise of stock-based awards are classified as cash flows from operating activities. All excess tax benefits and tax deficiencies
(including tax benefits of dividends on share-based payment awards) are recognized as income tax expense or benefit in the condensed
consolidated statements of operations. The Company estimates the number of awards expected to be forfeited and adjusts the estimate
when it is no longer probable that the employee will fulfill the service conditions.
The Company accounts for stock-based compensation
awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or
the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines
enumerated in ASC 505-50.
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.
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(unaudited)
NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)
The Company’s revenues earned from sale of products and
services for the three month period ended March 31, 2018 included an aggregate of 10%, 12%, 15%, 17% and 22% from five customers,
respectively. The Company’s revenues earned from sale of products and services for the six month period ended March 31, 2018
included an aggregate of 11%, 18%, and 28% from three customers, respectively.
The Company’s revenues earned from
sale of products and services for the three month period ended March 31, 2017 included 19% and 31% from two customers, respectively.
The Company’s revenues earned from sale of products and services for the six month period ended March 31, 2017 included 19%
and 41%, from two customers, respectively.
Two customers accounted for 66% and
93% of the Company’s accounts receivable at March 31, 2018 and September 30, 2017, respectively.
Recent Accounting Pronouncements
In July 2017, the Financial Accounting
Standards Board (“FASB”) issued a two-part Accounting Standards Update (“ASU”) No. 2017-11, I. Accounting
for Certain Financial Instruments With Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception
(“ASU 2017-11”). ASU 2017-11 amends guidance in FASB ASC 260, Earnings Per Share, FASB ASC 480, Distinguishing Liabilities
from Equity, and FASB ASC 815, Derivatives and Hedging. The amendments in Part I of ASU 2017-11 change the classification analysis
of certain equity-linked financial instruments (or embedded features) with down round features. The amendments in Part II of ASU
2017-11 re-characterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in
the Codification, to a scope exception. Those amendments do not have an accounting effect. ASU 2017-11 is effective for public
business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption
is permitted. The Company has adopted this guidance for the three and six month periods ended March 31, 2018. The adoption of this
pronouncement did not have a material impact on the Company’s condensed consolidated financial statements.
In May 2017, FASB issued ASU 2017-09, Compensation
– “Stock Compensation (Topic 718): Scope of Modification Accounting”
,
which provides guidance about
which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic
718. This pronouncement is effective for annual reporting periods and interim periods within those annual periods beginning after
December 15, 2017. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-09 to have a material impact
on its condensed consolidated financial statements and related disclosures.
In January 2017, the FASB ASU 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). The amendments
in this update are to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating
whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business
affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for
annual periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating
the impact of adopting this guidance.
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(unaudited)
NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements
,
continued
In January 2017, the FASB issued
ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”
(“ASU 2017-04”). The purpose of the amendment is to simplify how an entity is required to test goodwill for impairment
by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair
value of a reporting unit’s goodwill with the carrying amount of that goodwill. For public entities, the amendments in ASU
2017-04 are effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently
assessing the impact of ASU 2017-04 on its condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
"Leases (Topic 842)." The objective of this update is to increase transparency and comparability among organizations
by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods
and is to be applied utilizing a modified retrospective approach. The Company is currently evaluating the new guidance to determine
the impact it may have on its condensed consolidated financial statements.
In May 2014, the FASB issued
ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which
was subsequently modified in August 2015 by ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of
the Effective Date. This guidance will be effective for fiscal years (and interim reporting periods within those years)
beginning after December 15, 2017. The core principle of ASU No. 2014-09 is that companies should recognize revenue when
the transfer of promised goods or services to customers occurs in an amount that reflects what the company expects to
receive. It requires additional disclosures to describe the nature, amount, timing and uncertainty of revenue and cash flows
from contracts with customers. In 2016 and 2017, the FASB issued additional ASUs that clarify the implementation guidance
on principal versus agent considerations (ASU 2016-08), on identifying performance obligations and licensing (ASU
2016-10), and on narrow-scope improvements and practical expedients (ASU 2016-12), revenue recognition criteria and other
technical corrections (ASU 2016-20) as well as clarifying the scope of asset derecognition guidance and accounting for
partial sales of nonfinancial assets (ASU 2017-05). The Company is in the process of evaluating the provisions of these
ASU’s and assessing the potential effect on the Company’s condensed consolidated financial position or results of
operations. However, based upon the revenue recognized for the current contracts in place as of March 31, 2018, the
Company expects to identify similar performance obligations under these ASUs as compared with the deliverables and
separate units of accounting previously identified. The Company is also evaluating the transition guidance under ASU 2014-09
to determine if it will apply the full retrospective or modified retrospective approach.
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(unaudited)
NOTE B — LIQUIDITY AND MANAGEMENT’S
PLAN
The Company has recurring net losses, which
have resulted in an accumulated deficit of $242,003,077 as of March 31, 2018. The Company incurred a net loss of $5,329,922 and
generated negative operating cash flow of $3,279,751 for the six month period ended March 31, 2018. The Company also had working
capital of $3,877,941 and cash and cash equivalents of $3,709,402 as of March 31, 2018. 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 securities. As discussed in Note E, on December 20, 2017, the Company entered into a securities
purchase agreement with certain institutional investors providing for the purchase and sale of 2,735,000 shares of the Company’s
common stock and warrants to purchase an aggregate of 2,735,000 shares of common stock in a registered direct offering with an
aggregate gross proceeds of $4,786,250, at a combined purchase price of $1.75 per share for total net proceeds of approximately
$4,200,000, after placement agent fees and other estimated offering costs. The offering closed on December 22, 2017.
Management has evaluated relevant conditions
and events with respect to liquidity requirements for the twelve month period after the Company’s March 31, 2018 financial
statements are filed with the SEC. If the Company does not meet its forecasted revenues for the next twelve months, it would not
have sufficient cash and cash equivalents to cover the Company’s operating expenses. Due to this condition, management of
the Company has established a plan, which has been approved by its Board of Directors, that includes potential financing options
and/or cost saving measures that will be implemented if revenue targets are not met within a specified time period.
Management believes that it is probable
that such plan, if implemented, will result in the liquidity deemed necessary for the Company to mitigate the relevant conditions
that raised substantial doubt about the Company’s ability to continue as a going concern one year after the date the financial
statements are issued.
Management believes that the Company’s
cash balances on hand, collection of its accounts receivable, reduced cash burn from cost saving measures and proceeds from a potential
financing will be sufficient to fund the Company’s net cash requirements for the next twelve months from the date of filing
this quarterly report.
NOTE C — INVENTORIES
Inventories consist of the following:
|
|
March, 2018,
2018
|
|
|
September 30,
2017
|
|
|
|
(unaudited)
|
|
|
|
|
Raw materials
|
|
$
|
221,383
|
|
|
$
|
193,069
|
|
Finished goods
|
|
|
72,455
|
|
|
|
133,399
|
|
Total
|
|
$
|
293,838
|
|
|
$
|
326,468
|
|
NOTE D — ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES
Accounts payable and accrued liabilities
are as follows:
|
|
March 31,
2018
|
|
|
September 30,
2017
|
|
|
|
(unaudited)
|
|
|
|
|
|
Accounts payable
|
|
$
|
439,212
|
|
|
$
|
382,984
|
|
Accrued salaries payable
|
|
|
472,372
|
|
|
|
446,012
|
|
Other accrued expenses
|
|
|
110,493
|
|
|
|
115,137
|
|
Total
|
|
$
|
1,022,077
|
|
|
$
|
944,133
|
|
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(unaudited)
NOTE E — CAPITAL STOCK
On December 20, 2017, the Company entered
into a securities purchase agreement with certain institutional investors for the purchase and sale of 2,735,000 shares of its
common stock and warrants to purchase an aggregate of 2,735,000 shares of common stock in a registered direct offering with aggregate
gross proceeds of $4,786,250, at a combined purchase price of $1.75 per share and warrant. The warrants will be immediately exercisable
at a price of $2.00 per share of common stock and will expire five years from the date of issuance.
After deducting placement agent fees and
other estimated expenses related to the registered direct offering, the aggregate net proceeds were approximately $4,200,000.
The warrants include an adjustment provision
that, subject to certain exceptions, reduces their exercise price if the Company issues common stock or common stock equivalents
at a price lower than the then-current exercise price of the warrants, subject to a minimum exercise price of $0.44. The exercise
price and number of the shares of the Company’s common stock issuable upon the exercise of the warrants will be subject to
adjustment as set forth therein (including for stock dividends and splits, reverse stock split, recapitalization, reorganization
or similar transaction). The warrants are subject to a call provision whereby the Company may, subject to certain provisions, including
that the weighted average price of the Company’s common stock has exceeded $5.00 for twenty consecutive trading days, call
for cancellation of all or any portion of the warrants not yet exercised.
In addition, if and only if there
is no effective registration statement registering, or no current prospectus available for, the resale of the warrants, the Purchasers
may exercise the warrants by means of a “cashless exercise.”
The offering closed on December 22, 2017.
NOTE F — STOCK OPTIONS AND WARRANTS
Warrants
The following table summarizes the changes
in warrants outstanding and the related prices for the shares of common stock issued to non-employees of the Company.
Transactions involving warrants are summarized
as follows:
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price Per Share
|
|
Balance at October 1, 2017
|
|
|
9,540,455
|
|
|
$
|
3.60
|
|
Granted
|
|
|
2,735,000
|
|
|
|
2.00
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled or expired
|
|
|
(3,769
|
)
|
|
|
3.32
|
|
Balance at March 31, 2018
|
|
|
12,271,686
|
|
|
$
|
3.24
|
|
Stock Options
In 2005, the Board of Directors and the
holders of a majority of the outstanding shares of common stock approved the 2005 Incentive Stock Plan (the “Incentive Plan”).
The number of shares of common stock that can be issued as stock awards and stock options thereunder is an aggregate of 8,333,333
shares and the number of shares of common stock that can be covered by awards made to any participant in any calendar year is 833,334
shares. The Incentive Plan’s expiration date is January 25, 2025.
The Incentive Plan is designed to retain
directors, executives, and selected employees and consultants by rewarding them for making contributions to the Company's success
with an award of options to purchase shares of common stock. As of March 31, 2018, a total of 275,752 shares have been issued and
options to purchase 5,842,876 shares have been granted under the Incentive Plan.
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(unaudited)
NOTE F — STOCK OPTIONS AND WARRANTS
(continued)
Transactions involving stock options issued
to employees and consultants are summarized as follows:
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price Per Share
|
|
|
Aggregate
Intrinsic Value
|
|
|
Weighted Average Contractual Life
(Years)
|
|
Outstanding at October 1, 2017
|
|
|
5,333,227
|
|
|
$
|
3.71
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
556,147
|
|
|
|
1.57
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
(569,066
|
)
|
|
|
(3.23
|
)
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2018
|
|
|
5,320,308
|
|
|
$
|
3.53
|
|
|
|
|
|
|
|
4.16
|
|
Vested at March 31, 2018
|
|
|
4,527,351
|
|
|
$
|
3.82
|
|
|
$
|
-
|
|
|
|
3.84
|
|
Non-vested at March 31, 2018
|
|
|
792,957
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
During the six month periods ended March
31, 2018, the Company issued stock options to purchase an aggregate of 556,147 shares to non-employee Board of Director members.
The Company uses the Black Scholes Option
Pricing Model to determine the fair value of options granted. The following significant weighted average assumptions in the Black
Scholes Option Pricing Model were utilized to estimate the fair value of share based payment awards during the six month periods
ended March 31, 2018 and 2017:
|
|
Six Month
Period Ended
March 31, 2018
|
|
|
Six Month
Period Ended
March 31, 2017
|
|
Stock price
|
|
$
|
1.57
|
|
|
$
|
2.07
|
|
Exercise price
|
|
$
|
1.57
|
|
|
$
|
2.25
|
|
Expected term, years
|
|
|
4.87
|
|
|
|
5.24
|
|
Dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
Volatility
|
|
|
94
|
%
|
|
|
112
|
%
|
Risk free rate
|
|
|
2.6
|
%
|
|
|
2.0
|
%
|
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(unaudited)
NOTE F — STOCK OPTIONS AND WARRANTS
(continued)
The Company recorded a benefit of
$285,045 and expense of $537,904 as stock compensation for the three month periods ended March 31, 2018 and 2017,
respectively. The Company recorded a benefit of $53,932 and expense of $1,995,924 as stock compensation expense for the six
month periods ended March 31, 2018 and 2017, respectively. The benefits during the three and six month periods ended March
31, 2018 are the result of the reversal of the expense of $415,786 previously recorded for certain performance based stock
options that were cancelled and therefore the performance conditions were no longer probable and the options did not vest. As
of March 31, 2018, unrecorded compensation cost related to non-vested awards was $1,024,483, which is expected to be
recognized over a weighted average period of approximately 1.25 years. The weighted average grant date fair value per share
for options granted during the six month period ended March 31, 2018 was $1.13.
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 term
of the lease commenced on June 15, 2013 and expired on May 31, 2016, with the option to extend the lease for two additional three-year
periods. The Company has exercised its option to extend the lease for one additional three-year period ending May 31, 2019. The
base rent during the additional three-year period is $458,098 per annum. In addition to the office space, the Company also has
1,500 square feet of laboratory space. The term of the lease commenced on November 1, 2015 and expired on October 31, 2017. Effective
November 20, 2017, the Company renewed this lease for one additional year, ending October 31, 2018. The Company set up a satellite
testing facility in Ahmedabad, India during fiscal 2017. On November 17, 2017, it leased 1,108 square feet for a three-year term
beginning November 1, 2017. The base rent is approximately $6,500 per annum.
Total rent expense for the three and six
month periods ended March 31, 2018 were $138,076 and $271,293, respectively. Total rent expense for the three and six month period
ended March 31, 2017 were $142,768 and $283,165, respectively.
APPLIED DNA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2018
(unaudited)
NOTE G — COMMITMENTS AND CONTINGENCIES
(continued)
Employment Agreement
The
Company has an employment agreement with Dr. James Hayward, its Chief Executive Officer effective July 1, 2016. The initial term
was through June 30, 2017, with automatic one-year renewal periods.
As of June 30, 2017, the employment contract renewed
for an additional year.
Under the agreement, Dr. Hayward will be eligible for a special
cash incentive bonus of up to $800,000, $300,000 of which will be payable if and when annual revenue reaches $8 million and $100,000
of which would be payable for each $2 million of annual revenue in excess of $8 million. Dr Hayward's annual salary under
the agreement was $400,000.
Effective May 7, 2016, the Chief Executive
Officer's annual salary was voluntarily reduced by $100,000. Effective May 20, 2017, the Chief Executive Officer’s annual
salary was voluntarily reduced by an additional $50,000. Accordingly, his current annual base salary as of March 31, 2018 is $250,000.
Effective March 15, 2018, the Compensation Committee of the Company’s Board of Directors, approved that the $150,000 reduction
in the Chief Executive Officer’s annual salary will be accrued and repaid to the Chief Executive Officer when the Company
reaches $3,000,000 in revenues for two consecutive quarters or $12,000,000 in revenues for a fiscal year.
Litigation
From time to time, the Company may become
involved in various lawsuits and legal proceedings which arise in the ordinary course of business. When the Company is aware of
a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the
amount of the loss can be reasonably estimated, the Company will record a liability for the loss. In addition to the estimated
loss, the recorded liability includes probable and estimable legal costs associated with the claim or potential claim. Litigation
is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm
the Company’s business. There is no pending litigation involving the Company at this time.
NOTE H– GEOGRAPHIC AREA INFORMATION
Net revenues by geographic location of
customers are as follows:
Three Month Period Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
United States
|
|
$
|
231,392
|
|
|
$
|
555,043
|
|
Europe
|
|
|
378,834
|
|
|
|
338,005
|
|
Asia and other
|
|
|
433,720
|
|
|
|
12,325
|
|
Total
|
|
$
|
1,043,946
|
|
|
$
|
905,373
|
|
Six Month Period Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
United States
|
|
$
|
524,122
|
|
|
$
|
1,143,942
|
|
Europe
|
|
|
570,662
|
|
|
|
632,339
|
|
Asia and other
|
|
|
596,839
|
|
|
|
32,100
|
|
Total
|
|
$
|
1,691,623
|
|
|
$
|
1,808,381
|
|