Applied DNA: Cotton, leather and finally making hay

Long term: With revenues spiking, Applied DNA Sciences CEO James Hayward sees brighter days ahead.

It’s not quite a return to the company’s financial halcyon days, but Applied DNA Sciences may have finally turned a corner.

Yes, the Stony Brook-based supply-chain, anti-counterfeiting, anti-theft and product-authentication specialist ended the second quarter of its fiscal 2017 (ended March 31) with a quarterly net loss of $3.4 million, or 13 cents per share.

But it was less of a loss (barely) than the $3.5 million bite suffered in 2Q FY2016, and less of a loss (significantly) than the $4 million loss (16 cents per share) suffered in the first quarter of this fiscal year, which ended Dec. 31.

And most importantly, Applied DNA reported a very impressive second-quarter revenue spike: up 58 percent, to $905,000, over the $573,000 in revenues recorded in 2Q FY2016, marking the first year-over-year quarterly revenue increase in many moons for the scrappy biotech.

Even the company’s higher operating costs were, in a sense, good news. Total operating expenses for 2Q FY2017 were reported as $4 million, a 7 percent increase over the $3.8 million recorded in the same quarter last year – a slight jump Applied DNA attributed primarily to higher payroll expenses, which is a good problem to have.

Furthering the happy news, the expanding payroll was offset by plunging research and development expenses related to a pair of expired government contracts.

The bottom line, for a company that has suffered a long string of miserable quarterly financial statements, is that a revenue spike – with several big-time contracts inked after the March 31 close of the second quarter yet to make hay – is a welcome sign indeed.

Applied DNA President and CEO James Hayward said the second quarter was “distinguished” by promising commercial developments and “a high number of pre-commercial opportunities, both of which we believe lay the groundwork for greater commercial-scale adoption of our SigNature DNA platform.”

That includes headway in the textile industries Applied DNA has long championed as its fiscal knight in soft, cottony armor.

“Revenue in the quarter was driven primarily by the recognition of deferred cotton revenue and from our synthetic fiber and consumer asset-marking markets,” Hayward said Thursday.

Of course, Applied DNA’s slowly developing comeback is not entirely cotton-related. With the help of a freshly minted, high-caliber Advisory Board, the company has “made strides in diversifying our recurring revenue in fiscal 2017,” Hayward noted, with its anti-theft and supply-line-authentication technologies finding their way into military applications, leather goods, forensic documentation, foreign cars and other diverse products and systems around the country and the world.

“We are building upon the base that began in 2013 with the Defense Logistics Agency,” Hayward said. “And we have expanded since then with asset and auto tagging in Europe and the long-term cotton contracts between (global home textile distributor) Himatsingka and their customers.”

Applied DNA has also benefitted from a major November 2016 capital infusion – a $5 million stock deal with a single “healthcare-dedicated institutional investor” – and from its 2015 acquisition of West Virginia-based Vandalia Research, which directly facilitated its recent DNA-supply contract with a leading provider of chemicals for the in vitro diagnostics market.

That last deal is yet to impact the bottom line, but Applied DNA expects prorated revenues from the contract to bleed into its 4Q FY2017 financials. Its new product-authentication deal with Bed Bath & Beyond, announced after the second quarter closed, should also start paying off soon, meaning the best numbers of fiscal 2017 likely lie ahead.

Hayward noted he was looking forward specifically to “the recognition of deferred revenue from SigNature T-marked cotton, supplemented by non-cotton-derived revenue sources.”

“We are seeing increasing interest in the marking of synthetic fiber for home-textile use, including our program with Loftex Home, where synthetics are increasingly used as an alternative to cotton,” the CEO said. “With the transferability of our technology and our unique competitive position in securing bulk products and commodities, we are experiencing shortened development and sales cycles and a growing pipeline of pre-commercial opportunities.

“We believe we are well-positioned to continue closing commercial-scale contracts, and broadening the adoption of our technology platform.”

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