Answers to questions from Corporate. Appreciate the quick response. This was received early Friday evening. Apologies for my own slow turn-round here.[/quote]Thank you for your questions and for your continued support of and faith in APDN.
As I noted to you in our prior correspondence, we do our best to respond to all shareholder questions, but are on occasion limited to what we can divulge for competitive or otherwise non-public, i.e., confidential, reasons. With that said, I have provided answers to each of your questions below to the degree possible. Some will be addressed at our Annual Shareholders’ Meeting next week, which will be webcast, in a more comprehensive manner.[/quote] 1.Why aren´t some partners and customers mentioned at www.adnas.com (for instance CCL isn´t mentioned, neither is Butler Evergreen and like this a lot have disappeared from website and presentations as well)...what happened with former pilots for instance those with Borealis and Solvay.
We only mention partners that we have permission to include on our website. Butler Evergreen, for example, is no longer a partner as they did not win one of the bids to provide medical marijuana in New York State which was what we were working with them on.[/quote] 2.Which verticals will likely become commercial in 2017? Nutraceuticals? Pharma? Diagnostics/Vaccines? As Jim noted on our Q1 2017 earnings conference call, supply chain protection is likely the nearest- term driver of revenue. Specifically, he stated,
Whether those are in supply chains in military applications or commercial applications or pharmaceutics applications, if you speak with any CEO of a Fortune 100 company, top of mind for them with regard to their supply chains is the mitigation of uncertainty and risk. We can help eliminate both.
As you know, we are progressing at different rates through the verticals you noted and others not noted. Our progress has never been linear, which we attribute to having to educate the various verticals we target to a new and novel approach with our technology. With regard to Diagnostics, we already manufacture DNA on a commercial scale and we expect this business to continue to grow. At this time, because we moved Vandalia’s production facilities from West Virginia to Stony Brook, we had to undergo audits/inspections of both our facility and product by the customers we acquired. Also, we are pursuing cGMP that will enable growth in this vertical.
We continue to make progress in nutraceuticals and in pharma and will update everyone as announceable events occur.[/quote] 3. Will ADNAS be licensing their tag to everyone (ala Union Carbide model) or will they create a platform of their own, and if the latter: How? As an emerging growth company, we continue to fine tune our strategy and will consider all options as our technology evolves and the business environment dictates.[/quote] 4.We applaud your use of option awards as a method to retain our extremely gifted work pool. And we understand the awarded employees have sacrificed in remaining loyal to us. The annual exercise appears to have devolved into a blanket measure, with same number of shares awarded across-the-eligible pool. Complex subject. Bullet statement on the ballot announcement of board being in control of awards somewhat contrite. Asking the topic be opened for further discussion and the basic policy be reviewed and restructured with more substance. Thank you for your input on this topic. Your comments have been shared with management. In addition, we disclose the officer compensation model in our recently filed Proxy statement.[/quote] 5.The PIMACOTT website holds an elegant overview of how your technological break throughs based on use surviving chloroplasts within DNA of cotton for genotyping analysis. With our Intellectual Property rights, are we pursuing branch methods for crop-based neutraceutical (sp?) sector? An update on nutraceuticals will be provided as announceable events occur.
[/quote] Requesting following topics be addressed by Beth Jantzen: 1. Has any Return On Investment analysis been performed our SEC Filer Status (Accelerated, Small Company)? This status appears to reduce our 1st and 2nd Quarter earnings period by 32 days and restricts cumulative earnings. I am not sure I understand your question. Most publicly-traded companies (including APDN) report four quarters each year, January 1-March 31; April 1- June 30; July 1-September 30; and October 1-December 31. Per the SEC’s rules, as a smaller reporting company, , we are required to file our results within 45 days of the close of the quarter and 90 days at year-end. We do not have control over our status, as it is based on a calculation of our unaffiliated market cap on the last day of our fiscal second quarter. [/quote] 2.With the approximate 26.35 million common shares now outstanding, long time retail share holders are aware of the 30% dilution factor. Dilution events primarily from General American Investments quiet sell off of their warrants over the two month period spanning 2015-to-2016 when our retail float rose from ~18.4 to 24 million share. SABBY's recent recent exercise of warrants-in-to- common shares agreed upon by the PIPE* Line of Credit added approximately 2 million more shares (Private Investment Public Equity. Asking for you to provide any board position collectively acknowledging our apparently detrimental float creep, or significant rise here, and any mitigating actions planned in place to reduce further dilution events and protect long term investments?
To clarify your statement on Sabby, it has not exercised its warrants purchased as part of the PIPE transaction we conducted last fall. Warrants purchased by Sabby from APDN are at a $3.50 strike price, which at a common share price of $2.00 today makes them an unprofitable exercise. To your concern on dilution, as an emerging growth company with limited financial means with which to drive adoption of its technology, capital raises are an essential means through which to fund product development and, ultimately, top-line growth.
The opportunity for all investors retail and institutional is for the company to realize revenue and earnings growth in excess of any dilution. That has always and will continue to be our goal. Nevertheless, your input is duly noted and has been shared with management and the Board of Directors.[/quote] Requesting following topics be addressed by Judith Murrah: 1.What´s ADNAS ultimate aim, irrespective of current verticals, for this "one of a kind tag" that stands the test of time, quantum computing and ever growing cryptography methods? Is it to become THE bridge between physical and digital in the IoT world? Or will be restricted to mainly supply chain security?
The Applied DNA Sciences tag is the bridge between the physical and digital worlds today. The tag identity and other contextual information give insight about the goods carrying the tag. In effect, the tag gives a voice into the IoT world for any goods in any market which have no identity or voice. Please see the article Judy Murrah wrote on this subject in CIO Review related to pharmaceuticals: <LINK[/quote] 2.Are IT licensing and use case fees rolled in as separate line items or bundled within general receivable accounts without clear delineation? We report out revenue only at the level of Products and Services. [/quote] 3.Can you provide approximate costs for various work station with ancillary equipment and central databases maintained by ADNAS? No. This is information proprietary to APDN. These costs are a component of SG&A reported every quarter. [/quote] 4.Similarly, for cotton gin marking systems, seems all equipment contained within a standard 3-bay open console. Are these within the IT infra structure as embedded subnets or are they a remotely controlled from a domain controller within the gin? The Real Time monitoring system for SigNATURE T usage is also interesting. The cotton gin systems are fully-automated and connected both to the gin network as well as accessible remotely. They are part of the trend now called IIoT (Industrial Internet of Things) and provide APDN and our customers with a platform that can be enhanced, expanded and configured for other applications around the world. [/quote] 5.Could you provide information on steps being taken for a PCR system operating RT at each customer's processing centers? We used our in-field PCR systems at cotton gins this year to set the business model and validate protocols in this environment. Customer installations in other applications will begin in 2017. [/quote] 6.Are steps in place developing machine based methods in textile forensic tests? Recent news clip showed a laborious process. Our forensic scientists follow protocols established and accredited under ISO 17025 standards. We are continually improving our processes and technology to increase throughput and capacity to handle the larger volumes of testing samples arriving at the lab. [/quote] 7. The abbreviated technical description of our ..... I’m not sure what this question is asking, since it is cut off.fair enough [/quote] Requesting following topic be addressed by Janice Meraghlia:
1.Have the VQ-class positions within DLA's line managers been altered or depleted? We cannot answer on behalf of DLA what their intentions are. [/quote] 2.How comfortable of you for the continuation of expanded DNA marking program to the five Federal Stock Groups (e.g. engine components, tubing, pipe, etc.)? ' The RIF contract final reports were submitted last fall and are still being reviewed and discussed.[/quote] Request following topic be addressed by Tony Benson: [/quote] 1.Would appreciate customer satisfaction surveys or testimonials from our Police Department customers No. This is information proprietary to APDN. [/quote] 2.Can you provide number of criminal prosecutions using our technology as evidence? To date use of our SigNature DNA has assisted in the conviction of 114 criminals to a combined sentence of 540.9 years
[/quote] Request following topic be addressed by MeiLin Wan and Thomas Gladtke. Similar to request to Tony Benson: [/quote] 1.Would appreciate customer satisfaction surveys or testimonials from our ginning customers? No. This is information proprietary to APDN. The growth in demand for marked cotton and the onboarding of supply chains speaks directly to their satisfaction. [/quote] 2.Can you provide information on how our product is marketed to textile industry? Do ginners offer our product to smaller order firms prior to ginning, and is this a practical method at all? Other than the testimonial provided recently by Hemgsingta (sp?)the income model is unclear. With respect to the income model, Applied DNA’s flagship SigNature T DNA platform is used for tagging cotton fibers at the source gin followed by forensic authentication of the textiles product itself from fiber to finished goods. The adoption of the SigNature T platform, as opposed to any other taggant, provides forensic proof of identity and purity using genotyping of species, and authentication of the SigNature T tag at every step for full end-to-end traceability.
The tagging and testing process and data are managed through the Company’s digitalDNA® cloud-based platform. Revenue is generated at each step of the process, from the unique SigNature T DNA to the marking of the cotton to the authentication throughout the supply chain. Applied DNA Sciences is collaborating with other leading industry partners, brands and retailers in expanding the application of SigNature T for other textile fibers, yarns and fabrics requiring proof-of- origin and claims support for traceability, sustainability and quality.[/quote] •Our forensic services are going unreported. Please provide information on the reviewing the income being generated on our forensics? We report out revenue only at the level of Products and Services.
Forward Looking Statements The statements made by APDN in this communication may be forward-looking in nature within the meaning of the Private Securities Litigation Act of 1995. Forward-looking statements describe APDN’s future plans, projections, strategies and expectations, and are based on assumptions and involve a number of risks and uncertainties, many of which are beyond the control of APDN. Actual results could differ materially from those projected due to our short operating history, limited financial resources, limited market acceptance, market competition and various other factors detailed from time to time in APDN’s SEC reports and filings, including our Annual Report on Form 10-K filed on December 6, 2016, which is available at www.sec.gov. APDN undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date hereof to reflect the occurrence of unanticipated events, unless otherwise required by law.
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