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Update on APDN 2017 Fiscal Second Quarter Financials

By Grant Zeng, CFA


Recently, Applied DNA Sciences (NASDAQ:APDN) announced financial results for the fiscal second quarter ended March 31, 2017.

Total revenue for the fiscal second quarter was $0.91 million, compared with $0.57 million reported in the same period for fiscal 2016, an increase of 58%. and was flat with revenues of $0.90 million reported in the first fiscal quarter ended December 31, 2017. The year-over-year increase in total revenue was primarily attributable to an increase in textile revenues and to a lesser extent, an increase in sales of consumer asset marking products.

Total revenue consisted of product revenue and services revenue. 

Product revenue for the fiscal second quarter of 2017 was $0.69 million, compared to $0.18 million for the same period of 2016, an increase of 286%. 

Services revenue for the fiscal second quarter of 2017 was $0.22 million, vs $0.39 million for the same period of 2016, a decrease of 45%. 

SG&A expenses for fiscal second quarter of 2017 were $3.2 million, compared to $3.1 million for the same period of 2016.

R&D expenses for fiscal second quarter of 2017 were $0.6 million, compared to $0.7 million for the same quarter of 2016. 

Total operating expenses for fiscal 2Q17were $4.0 million, compared with $3.8 million in the prior year’s quarter, an increase of approximately 7%. 

Net loss for the quarter ended March 31, 2017 was $3.4 million ($0.13 per share), compared with a net loss of $3.5 million ($0.14 per share) for the quarter ended March 31, 2016 and a net loss of $4.0 million ( $0.16 per share) for the quarter ended December 31, 2016.

Excluding non-cash expenses, adjusted EBITDA for the quarter ended March 31, 2017 was negative $2.7 million, compared to negative adjusted EBITDA of $2.8 million for the same quarter last fiscal year and negative adjusted EBITDA of $2.3 million in the prior fiscal quarter. 

Balance Sheet Remains Strong

Cash and cash equivalents as of March 31, 2017 totaled $4.0 million as compared to $6.7 million at December 31, 2016. The decrease in cash balances was due primarily to cash used in operations.

Net cash used in operating activities in the past quarter was $2.6 million. This compares with $2.5 million in the corresponding prior-year period.

In early November 2016, APDN closed a private placement pursuant to a securities purchase agreement with a single healthcare dedicated institutional investor to purchase $5 million of common stock and warrants at a combined price of $2.20 per share of common stock and warrant. In the private placement, Applied DNA sold 2,272,727 shares of its common stock and warrants to purchase 2,272,727 shares of its common stock. The warrants have the same terms as the Company’s existing publicly traded warrants (NASDAQ: APDNW) with an exercise price of $3.50 per share and an expiration date of November 20, 2019.

The net proceeds to the Company from the private placement were $4.3 million. 

We welcome this new financing, which not only boosts the company’s balance sheet, but more importantly validates the company’s technology and commercial efforts. With the boosted balance sheet, APDN is well positioned to accelerate revenue growth in fiscal 2017 and beyond. 

Current cash in hand can fund the operations in the next 12 months according to our financial model. 

Business Continues to Grow 

In the past quarter, APDN has made great progress in operations and business development. 

In April 2017, APDN singed a 5-year Supply Agreement to supply bulk DNA to a chemicals company serving the in vitro diagnostics market. The agreement is expected to generate annual revenues of approximately $0.5 million beginning in FY18 with a pro-rated amount expected in FY17Q4. 

On March 29, 2017, the company announced that five global brands, including PUMA and C&J Clark, have contracted to sponsor a research project to develop and validate a robust SigNatureT-based system to provide comprehensive and verifiable leather traceability, from farm to finished products. The project, jointly conducted by the Company and BLC Leather Technology Centre, began in April 2017, and will be carried out over nine months;

On March 22 and 24, 2017, the Company announced the launch of CertainT and Loftex Home as one of its first CertainT customers, respectively. CertainT provides integrated, streamlined access to Applied DNA's end-to-end products and services for confirming a product's authenticity and origin with trust, transparency and traceability. CertainT licensed partners will benefit by using the platform to create new and innovative products with visible identification to its customers;

Loftex Home, the manufacturer of high-quality towels and home textiles, is adopting CertainT in its line of towels to ensure that they contain recycled plastic water bottles (PET). As a licensee, CertainT aligns Loftex Home’s commitment to innovation with the opportunity to bring its consumers sustainable products that are authentic and traceable to origin;
On February 21, 2017, Applied DNA announced a significant expansion of its U.S. and Global patent portfolio in 2016, demonstrating its ongoing commitment to innovation and leadership in the marketplace. The Company’s new patents and others under examination underpin its penetration of core business verticals with a highly secure platform of technology, methods and equipment that can reduce risk and uncertainty across global supply chains. The Company’s U.S. and Global patent portfolio total 44 issued patents, with 84 applications pending;

On February 16, 2017, APDN announced that it expects an expansion of its automotive tagging program in Scandinavia, as a result of growing support for DNA tagging through multiple insurance and automobile brands in that geography;

On February 14, 2017, the Company announced a third shipment against continuing purchase orders to the synthetic fiber market, evidencing the continuing maturation and penetration of its broader textile opportunity and execution on its strategy to diversify its revenue stream and build recurring revenues. A fourth order was shipped March 24th and the fifth purchase order was shipped on April 28, 2017.

On January 24, 2017, APDN appointed Former New York Police Department and current K2Intelligence Vice-Chairman Ray Kelly to its Strategic Advisory Board (SAB). This appointment will help APDN better penetrate the Home Asset Valuables Marking and Cash and Valuable in Transit business verticals.

On January 4, 2017, APDN appointed PepsiCo Vice Chairman and Chief Scientific Officer of Global Research and Development Dr. Mehmood Khan to its SAB. Dr. Khan's decades of involvement in the global food, beverage and pharmaceutical industries, as well as his depth of scientific innovation experience, will help APDN penetrate new vertical markets.


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