APPLIED DNA SCIENCES INC

Previous wording

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.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

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, all under our Therapeutic DNA Production Services; (ii) the detection of DNA and RNA in molecular diagnostics and genetic testing services under our MDx Testing Services; and (iii) the manufacture and detection of DNA to facilitate supply chance security under our Tagging and Security Products and Services.

Current wording

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”).

Previous wording

Through LRx we are developing and commercializing our Linea DNA and Linea IVT platforms.

Current wording

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.

Previous wording

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 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.

Current wording

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

Previous wording

As of the fourth quarter of calendar year 2023, there were 3,951 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: Q4 2023 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.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

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 calledin vitro transcription (“IVT”) that requires DNA as a starting material. As of the 4 th quarter of calendar 2023, there were almost 425 mRNA therapies under development, with the large majority of these therapies (67%) in the preclinical stage (Source: ASGCT Gene, Cell & RNA Therapy Landscape: Q4 2023 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.

Current wording

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 calledin 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.

Previous wording

In August 2022, the Company launched DNA IVT templates manufactured via its Linea DNA platform and has 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”).

Current wording

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”).

Previous wording

Through our acquisition of Spindle, we recently launched our Linea IVT platform, 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:

Current wording

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:

Previous wording

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 3x 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 by a third-party CDMO located in the United States.

Current wording

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.

Previous wording

The Company plans to offer several quality grades of Linea DNA, each of which will have different permitted uses.

Current wording

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

Previous wording

The Company currently manufactures Linea DNA pursuant to Good Laboratory Practices (“GLP”) and, is 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 first half of calendar year 2024. The Company also plans to offer 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 first half of calendar year 2025, dependent upon the availability of future funding. 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.

Current wording

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.

Previous wording

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, 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. Our current plan is: (i) through our Linea IVT platform and planned near term future GMP manufacturing capabilities for IVT templates 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, 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 facility 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 the critical starting materials fit-for-purpose manufacturing facility will be approximately $1.5 million. We anticipate that the proceeds from the Offering should be sufficient to support the costs of this facility. If we were to expand the facility to enable GMP production of Linea DNA for use as, or incorporation, into a biologic, drug substance and/or drug product, the cost may be up to approximately $7 million which would require additional funding. We anticipate that the fit-for-purpose manufacturing facility would be created within our existing laboratory space. We anticipate that a facility to enable GMP production of biologic, drug substances and/or drug products would require us to acquire additional space.

Current wording

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.

Previous wording

Through ADCL, we leverage our expertise in DNA detection via PCR to provide and develop clinical molecular diagnostics and genetic (collectively “MDx”) testing services. ADCL is a NYSDOH clinical laboratory improvement amendments -permitted, clinical laboratory improvement amendments-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.

Current wording

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.

Previous wording

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 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.

Current wording

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.

Previous wording

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. Currently, 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 and self-insured employers.

Current wording

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.

Previous wording

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 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 and we may terminate COVID-19 testing services in the future.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

For the three-month periods ended December 31, 2023 and 2022, we generated $307,317 and $516,396 in revenues from product sales, respectively. Product revenue decreased by $209,079 or 40% for the three-month period ended December 31, 2023 as compared to the three-month period ended December 31, 2022. The decrease in product revenues was primarily related to a decrease of approximately $127,000 within our Therapeutic DNA Production Services segment for large scale DNA production. Shipments under the related contract are expected to commence again during the second quarter of fiscal 2024. Additional decreases were $92,000 in our DNA Tagging and Security Products and Services segment due to a decline in cotton DNA tagging revenue.

Current wording

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.

Previous wording

For the three-month periods ended December 31, 2023 and 2022, we generated $247,147 and $232,061 in revenues from sales of services, respectively. The increase in service revenues of $15,086 or 7% for the three-month period ended December 31, 2023, as compared to the same period in the prior fiscal year is attributable to increases of $98,000 for isotopic testing for textiles within our DNA Tagging and Security Products and Services segment offset by decreases of $45,000 for research and development projects in our Therapeutic DNA Production Services segment as well as approximately $29,000 in our DNA Tagging and Security Products and Services segment.

Current wording

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.

Previous wording

For the three-month periods ended December 31, 2023 and 2022, we generated $336,700 and $4,514,295 in revenues from our clinical laboratory testing services, respectively. The decrease in service revenues of $4,177,595 or 93% for the three-month period ended December 31, 2023 as compared to the same period in the prior fiscal year is attributable to a decrease from COVID surveillance testing. The three-months ended December 31, 2022 included testing revenues under our contract with CUNY, which terminated during June 2023.

Current wording

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.

Previous wording

Gross profit for the three-month period ended December 31, 2023, decreased by $2,146,586 or 90% from $2,377,683 for the three-month period ended December 31, 2022 to $231,097. The gross profit percentage was 26% and 45% for the three-month periods ended December 31, 2023 and 2022, 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 decreased testing volumes year over year. To a lesser extent, the decline in gross profit percentage was due to lower product revenues during the three-month period ended December 31, 2023 as compared to the same period in the prior fiscal year. The lower volume of product revenues in the current period were not able to fully absorb the fixed costs that are included in cost of product revenues.

Current wording

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.

Previous wording

Research and development expenses decreased to $935,815 for the three-month period ended December 31, 2023 from $971,304 for the three-month period ended December 31, 2022, a decrease of $35,489 or 4%. This decrease is primarily due to decreased depreciation expense costs for the three-month period December 31, 2023 associated with laboratory equipment becoming fully depreciated year over year.

Current wording

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.

Previous wording

Interest income for the three-month period ended December 31, 2023 increased to $33,323 as compared to $3,686 in the three-month period ended December 31, 2022.

Current wording

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.

Previous wording

Other (expense) income for the three-month periods ended December 31, 2023 and 2022, was expense of $13,538 and income of $8,846, respectively.

Current wording

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

Previous wording

Loss from operations increased $2,570,088, or 211% to $3,789,066 for the three-month period ended December 31, 2023 compared to $1,218,978 for the three-month period ended December 31, 2022 due to the factors noted above.

Current wording

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.

Previous wording

Selling, general and administrative expenses for the three-month period ended December 31, 2023 increased by $458,991 or 17% to $3,084,348 as compared to $2,625,357 for the three-month period ended December 31, 2022. The increase relates to the prior three-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 three-month period ended December 31, 2023. The remainder of theincrease is attributable to an increase in stock-based compensation expense of $247,000. The increase in stock-based compensation expense primarily relates to the timing of the annual non-employee board of director grant that vests one-year from the date of grant, which was granted during the second quarter of fiscal 2023. These increases were offset by a decrease in payroll of approximately $107,000.

Current wording

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.

Previous wording

Unrealized gain (loss) on change in fair value of Common Warrants for the three-month periods ended December 31, 2023 and 2022 was a gain of $2,639,000 and a loss of $2,637,800, respectively 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 Series B Warrants expiring during September 2023.

Current wording

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.

Previous wording

Our liquidity needs consist of our working capital requirements and research and development expenditure funding. As of December 31, 2023, we had working capital of $2,002,107. For the three-month period ended December 31, 2023, we used cash in operating activities of $3,757,679 consisting primarily of our loss of $1,130,281 net with non-cash adjustments of $298,951 in depreciation and amortization charges, $2,639,000 in unrealized gain on change in fair value of warrants classified as a liability, and $340,705 in stock-based compensation expense. Additionally, we had a net increase in operating assets of 256,230 and a net decrease in operating liabilities of $371,824. At December 31, 2023, we had cash and cash equivalents of $3,359,045.

Current wording

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.

Previous wording

We have recurring net losses. We incurred a net loss of $1,130,281 and generated negative operating cash flow of $3,757,679 for the three-month period ended December 31, 2023. 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.

Current wording

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.

Previous wording

As discussed in Note J, on February 2, 2024, we closed on a registered direct public offering and received gross proceeds from the Offering, before deducting placement agent fees and other estimated offering expenses payable by us, of approximately $3.4 million.

Current wording

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.

Previous wording

The Company evaluated the Common Warrants and the Series A and Series B Warrants (collectively the “Warrants”) in accordance with ASC 480 “Distinguishing Liabilities from Equity” and ASC 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity” and concluded that due to the terms of the warrant agreements, the instrument does not qualify for equity treatment. As such, the Warrants were recorded as a liability on the 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 consolidated statement of operations in the period of change.

Current wording

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.