APDN: A Unique Anti-counterfeit Company Poised To
Resume Growth In Second Half Of 2013
By Grant Zeng, CFA
First Quarter Financials Disappointing, but Top Line
Growth Should Resume in 2H13
On February 14, 2013,
Applied DNA Sciences (OTC BB:
reported financial results for the first fiscal quarter of 2013
ending December 31, 2012.
For the fiscal 1Q13 ended December 31, 2012, APDN generated
$317,670 in revenues from operations compared to $516,904 for the
three months ended December 31, 2011, a 38.5% decline. The
decrease in sales was primarily caused by the expiration of
certain contracts and delays in transition to new contracts with
products in target markets.
SG&A expenses were $2.5 million for the three months ended
December 31, 2012, compared to $2.2 million for the three months
ended December 31, 2011. The increase of $368,739, or 17.1%, is
primarily attributable to higher professional and service fees
Research and development expenses increased from $78,473 for
the three months ended December 31, 2011 to $147,666 for the
three months ended December 31, 2012. The increase of $69,193 is
attributable to additional research and development activity
needed with current operations.
Total operating expenses for the three months ended December
31, 2012 were $2.7 million, compared to $2.4 million for the
three months ended December 31, 2011, an increase of $360,554
which was primarily attributable to an increase in professional
fees paid and in R&D expenditures.
GAAP net loss for the three months ended December 31, 2012
increased to $8,704,757 or $0.01 per share from a net loss of
$2,409,905 or $0.00 per share for the three months ended December
31, 2011 primarily attributable to the factors described
Non-GAAP net loss was $2.4 million or $0.00 per share for the
three months ended December 31, 2012, compared to $2.4 million or
$0.00 per share for the three months ended December 31, 2011.
Apparently, revenue for the fiscal first quarter was
disappointing to investors, but we believe revenue growth will
accelerate in the second half of the fiscal year of 2013. We
believe the Company has spent the time and resources to lay the
foundation on which to properly build its business.
Business continues to grow in the past few months. New
technology breakthroughs during the quarter strengthen the
Company's position in verticals such as textiles and in optical
reading (scanning). Meanwhile, contract with military electronics
offering continues to have strong momentum.
APDN opened new cash-in-transit business in Sweden for the
Company's anti-theft product, smartDNA, in that country. A new
patent was awarded for the APDN's linkage of SigNature® DNA marks
to optical reporting (scanners), while new breakthroughs in
SigNature DNA marking for textiles strengthen the Company's
offerings in the vertical.
In the military electronics area, APDN built new contractual
relationships with firms that will provide third-party SigNature
DNA marking on electronics, including in this effort the first
test house in the program, Premier Semiconductor. The Company
also pointed to expansion of its capacity in volume and speed in
the authentication process, and hiring of new personnel in sales,
scientific, and quality areas.
Based on all these developments, we model the Company's top
line will resume growth in the second half of this fiscal year.
Total revenue for fiscal 2013 will reach the mark of $2
Balance Sheet Boosted by Recent Financing
On January 10, 2013, APDN closed on an additional $5.5 million
(second closing) financing, bringing the total amount of
financing to $7.5 million with institutional accredited investor,
Crede CG II, Ltd
In November 2012, the Company closed on the initial $2 million
in financing with Crede for restricted common stock priced at
The additional $5,500,000 was invested by Crede in convertible
preferred stock of the Company. The closing, on January 7, 2013,
was at $1,000 per share of preferred stock which was subsequently
fully converted into 25,462,963 shares of common stock by the
Company on January 8, 2013 at a conversion price of
Series C Warrants to purchase 26,881,720 shares of Common
Stock become exercisable for six months after the eleventh
trading day following the second closing. It is the Company's
intention to exercise its right to repurchase these Series C
Warrants for $50,000 at the close of trading on the tenth trading
day following the second closing.
The investor is limited to 9.9% ownership at any given point
in time. The investor is in a "passive" position and will not
occupy a Board position.
APDN intends to use the additional capital to take advantage
of developments in its business verticals in recent months,
including in electronics, textiles, and anti-theft products. The
company has already expanded its plant and staff in order to
accommodate this progression, and aims to continue and broaden
This financing comes at an excellent time. It greatly boosted
balance sheet of the Company.
Further, on Dec 20, 2012, APDN was named a recipient of an
Empire State Development Corporation (ESDC) Consolidated Funding
Application (CFA) Round II grant award. Applied DNA Sciences was
awarded $229,957 for their "Rapid Growth and Expansion Project."
This money will be used to purchase new laboratory equipment to
complement the new hires necessary for the rapid growth project.
This new equipment will enhance the company's DNA formulation
menu especially in defense and law enforcement
As of December 31, 2012, APDN had $0.98 million in cash. With
the proceeds from the financing, the Company should have cash at
the neighborhood of $4.5 million at the end of March, 2013.
Current cash can last into 1Q14.
APDN is at a crucial stage in the development of Applied DNA
Sciences. Access to this capital enhances its capacity to respond
to growth opportunities.
APPLIED DNA SCI (APDN): Get Free Report
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