On cotton, new capital and comebacks to come

Textile message: Applied DNA Sciences believes its cotton-industry focus will soon pay off.
By GREGORY ZELLER //

Capital infusions and superstar strategic advisors couldn’t save Applied DNA Sciences from another bottom-line beating in the first quarter of Fiscal 2017 – but the biotech appears ready to punch back.

Reporting Thursday on the quarter ended Dec. 31, the Stony Brook-based supply-chain, anti-counterfeiting, anti-theft and product-authentication specialist noted $903,000 in quarterly revenues – down 32 percent from the $1.32 million reported in 1Q FY2016, and 45 percent from the $1.64 million reported in 4Q FY2016, which ended Sept. 30.

The sliding revenues led to adjusted EBITDA for the quarter of negative $2.3 million, following negative adjusted EBITDA of $2.2 million for the same quarter last year and negative adjusted EBITDA of $1.7 million in 4Q FY2016.

The company pinned the year-over-year revenue decrease on two government contract awards that expired in FY2016.

As for its sharp increase in total operating expenses – Applied DNA reported $4.6 million for 1Q FY2017, an 11 percent jump from the $4.1 million reported in 1Q FY2016 – the culprit was Selling General & Administrative Expenses, accountese for “non-production costs.”

In this case, the SG&A was “primarily associated with stock-option grants offset by decreases in legal and accounting fees, R&D expenses and decreased amortization and depreciation,” according to Applied DNA.

All told, the company recorded a first-quarter net loss of $4 million, or 16 cents per share, down from the $2.9 million net loss (13 cents) reported for 1Q FY2016 and the $2.4 million net loss (10 cents) reported for the quarter ended Sept. 30.

The numbers don’t lie, according to Applied DNA President and CEO James Hayward, but they do “mask an expansion in our base of business over the prior quarter.”

The down performance reflects “variability in the recognition of our deferred cotton revenue” and “the timing of commitments in our textile business,” Hayward said, noting the company has been busily shipping its new SigNature T product – molecular tagging specifically for textiles – while on-boarding a seventh U.S. cotton gin, with deferred revenues ripening nicely.

James Hayward: Behind the mask.

“We expect commitments for marked cotton utilizing taggant shipped during the fourth fiscal quarter of 2016 to allow for the release of more deferred revenues in the current quarter, as well as the remainder of fiscal 2017,” Hayward said Thursday.

Looking ahead, the company’s most significant achievements of the second quarter are also unlikely to provide a bottom-line boost – at least, an immediate one.

Following the October appointment of former KeySpan and National Grid U.S. Chairman Robert Catell to chair its Strategic Advisory Board – and provide a Rolodex filled with national energy-infrastructure contacts – the company celebrated the new calendar year by assembling an all-star board, part of a national expansion strategy targeting several key verticals.

In January, the board added PepsiCo Vice Chairman Mehmood Kahn and former NYPD Police Commissioner Raymond Kelly, with visions of DNA-based supply-chain security spreading through national food packaging and law-enforcement communities, among others.

More likely to immediately impact the company’s financial fortunes is this: Scandinavia’s largest auto insurance company has begun to “actively promote our SmartDNA marking kit to policyholders of a second auto brand,” according to Hayward, while Applied DNA has started marking synthetic fibers through its new partnership with international polymer manufacturer Techmer PM, with an eye on new automotive markets.

The Stony Brook biotech has also initiated a pilot project addressing “issues of dilution and diversion” in the fertilizer industry’s supply chain, according to the CEO – and actually ended its first quarter with $6.7 million in cash and cash equivalents, up from the $4.5 million reported Sept. 30, thanks primarily to a single-investor “private placement” completed in November.

“We made steady progress in the quarter to expand our penetration of business verticals with near-term drivers of growth, while building our recurring revenue stream,” Hayward said. “Growing market adoption by these and other key business verticals, we believe, sets the stage for greater and more diversified revenue opportunities.”