QUARTERLY UPDATE
Third Quarter FY 2011 Financial Results and Business Update
Snapshot September 9, 2011
Applied DNA Sciences, Inc. (“Applied DNA” or “the Company”) provides
patented DNA-based security and authentication solutions to prevent theft,
counterfeiting, fraud, and diversion. DNA evidence is trusted by police and
recognized by courts worldwide. DNA authentication has a margin of error close
to zero and is used by the FBI and other forensic laboratories. The Company’s
SigNature® DNA platform is used to embed products with botanical DNA
markers that have been highly customized from plant DNA. These affordable,
traceable markers identify original products and cannot be copied or reverse Applied DNA Sciences, Inc.
engineered. As well, they can be used in the forensic setting to prosecute 25 Health Sciences Drive
counterfeiters. Over 600 million products to date have employed this DNA Stony Brook, NY 11790
Phone: (631) 444-6370
technology. The ability to incorporate DNA markers directly into individual goods
Fax: (631) 444-8848
makes SigNature® DNA applicable to many industries, including cash-and-
www.adnas.com
valuables-in-transit (CViT), textiles and apparel, packaging, secure documents,
pharmaceuticals, wine, and luxury items. A second platform, BioMaterial
Genotyping, is used to determine the authenticity of natural materials used in
finished products by detecting and identifying genomic DNA.
Recent Financial Data
Ticker (Exchange) APDN (OTC)
Recent Price (09/09/2011) $0.07
52-week Range $0.03 – $0.10
Shares Outstanding* ~473 million
Market Capitalization ~$33 million
Average 3-month Volume 609,895
Insider Owners + >5% 25.45%
Institutional Owners 22%
EPS (Qtr. ended 06/30/2011) ($0.01)
Employees 19 * As of August 10, 2011.
Key Points
■ In recent months, the Company has enhanced its product line while attracting new employees,
customers, and partners. Applied DNA is providing security solutions for government organizations,
insurers, uniform and instrument manufacturers, and specialty packaging companies, among others, to
minimize or eliminate the risk of counterfeit products in a number of industries.
■ After completing an initial DNA marking program for the U.S. Department of Defense’s (DoD) Defense
Logistics Agency in June 2011, Applied DNA was awarded a follow-on contract valued at nearly $1
million to fully engage one of the government’s microchip supply chains.
■ In June 2011, the Company, together with the UK’s Lancashire police, received a Problem-Oriented
Policing award (its second policing award in nine months), highlighting the Company as a growing force
in combating serious theft. Applied DNA’s customers in the UK have experienced a 49% decrease in
CViT losses year-over-year versus the UK industry as a whole, which only had a 34% decrease.
■ Applied DNA is focused on the global commercialization of its SmartDNA™ security system, which can
be used by police to link an individual to a crime scene. To date, eight jewelry stores have installed the
system in Sweden. As well, the Company has obtained exclusive rights to distribute Sentry 500 Intruder
Spray Systems embedded with SigNature® DNA in North America.
■ Counterfeiting and piracy is an international concern, with the global economic and social impacts
expected to reach $1.7 trillion by 2015 (Source: the International AntiCounterfeiting Coalition).
■ As of June 30, 2011, Applied DNA’s cash position was $12,464. Subsequently, in July 2011, the
Company raised $5 million via a private placement with institutional investors.
® ®
PLEASE REFER TO THE EXECUTIVE INFORMATIONAL OVERVIEW (EIO ), 11/04/2010, FOR A FULL COMPANY REPORT.
Recent Events and Financial Results
Third Quarter FY 2011 Financial Results
On August 10, 2011, Applied DNA announced its financial results for the third quarter fiscal year (FY)
2011 (ended June 30, 2011). The Company’s fiscal year ends September 30.
For the Three Months Ended June 30, 2011
For the third quarter FY 2011, the Company reported revenues from operations of $229,710, which were
attributed primarily to sales of authentication services and SigNature® DNA. In contrast, for the same
three months in FY 2010, Applied DNA reported revenues from operations of $170,195. The Company
attributed the increase in sales to higher volume activity and new customers.
The Company’s selling, general, and administrative (SG&A) expenses for the quarter ended June 30,
2011, decreased to roughly $1.6 million due to lower amortized financing costs and professional services
versus over $2.5 million for the corresponding three months in FY 2010.
Research and development (R&D) expenses for the third quarter FY 2011 increased to $47,988, up from
$18,142 for the same FY 2010 timeframe due to additional R&D necessary to support operations.
Depreciation and amortization for the three-month period in FY 2011 was $91,892 versus $92,823 for the
three months in FY 2010, which Applied DNA attributed to aging property and equipment.
Total operating expenses for the third quarter FY 2011 decreased to approximately $1.7 million versus
over $2.6 million for the same period in 2010, associated with lower amortization costs related to
financing and professional expenses.
Applied DNA’s interest expense for the three-month period was $664,037 versus $126,388 for the
corresponding FY 2010 period. The Company attributed the increase to larger amortization of debt
discounts related to recently issued or modified Convertible Promissory Notes.
Net loss for the third quarter in FY 2011 was nearly $2.2 million, or ($0.01) per share, versus a net loss of
roughly $2.6 million, or ($0.01) per share, for the same FY 2010 period.
For the Nine Months Ended June 30, 2011
For the nine-month period ended June 30, 2011, Applied DNA reported $687,970 in revenues from
operations, which were attributed primarily to sales of authentication services and Signature® DNA. For
the same nine months in FY 2010, Applied DNA reported $430,185 in revenues. The Company attributed
the rise in sales to increased volume and new customers.
SG&A expenses for the first nine months of FY 2011 were approximately $4.5 million versus nearly $5.4
million for the equivalent FY 2010 period as a result of less amortization of finance-related costs.
R&D expenses for the first nine months of 2011 were $161,645 versus $44,944 for the same 2010
timeframe as a result of additional activity related to recent development and feasibility study agreements.
In the nine-month period, depreciation and amortization was $276,608 versus $278,619 for the
corresponding FY 2010 period. Applied DNA attributed the decrease to lower depreciation as well as new
property and equipment.
Applied DNA’s total operating expenses for the nine months in FY 2011 were nearly $5 million, down from
roughly $5.7 million for the prior year period, associated with increased amortization costs for capitalized
financing.
Interest expense for the first nine months of FY 2011 was over $1.8 million, up from $537,252 in FY 2010,
attributable to larger amortization of debt discounts associated with recently issued or modified
Convertible Promissory Notes.
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 2
For the first nine months of FY 2011, net loss was nearly $6.1 million, or ($0.02) per share, versus roughly
$5.8 million, or ($0.02) per share, for the corresponding FY 2010 period, which was primarily as a result
of higher interest expenses (detailed on page 2).
As of June 30, 2011, Applied DNA’s cash position was $12,464. From September 30, 2010, to June 30,
2011, the Company raised nearly $1.6 million from issuing convertible debt. Greater details are provided
in Applied DNA’s Form 10-Q filed with the U.S. Securities and Exchange Commission (SEC) on August
10, 2011.
Subsequently, in July 2011, the Company completed a $5 million private placement to institutional
investors. Applied DNA intends to use the proceeds to capitalize on available market opportunities for its
security solutions and further expand the Company. Investors Gerald Catenacci of NeuStrada Capital
LLC and John Bitzer, III of ABARTA Inc. contributed the majority of the funding and subsequently joined
Applied DNA’s Board of Directors with the closing of the round.
Applied DNA expected its capital expenditures to be less than $200,000 for delivering prototypes and
authentication services during the remaining three months of FY 2011.
Recent Events
An overview of the Company’s recent announcements is provided below, referring the reader to Applied
DNA’s website for complete press releases (www.adnas.com).
■ On August 17, 2011, Applied DNA announced the election of four new members to its Board of
Directors. A brief biography for each new director is provided on page 13.
■ On August 10, 2011, Applied DNA announced that it entered into a long-term supply agreement
with 3SI Security Systems, Inc., a global provider of asset protection systems. Commercial supply of
the DNA markers is ongoing with repeat orders to be fulfilled on a monthly basis.
■ On July 19, 2011, the Company and C.F. Martin & Co. (www.martinguitar.com), a global acoustic
guitar and string manufacturer, announced a partnership designed to protect Martin’s customers
from counterfeiting.
■ On July 18, 2011, Applied DNA announced that it closed a $5 million institutional financing via a
private placement of its Common Stock.
■ On July 14, 2011, the Company and Disc Graphics Inc., a provider of specialty packaging solutions
for more than 40 years, entered into an exclusive distribution agreement, under which Disc
Graphics received rights to distribute a unique DNA marker exclusively for the folding carton offset
print sector and non-exclusively for pressure-sensitive labels in North America. Applied DNA
received an initial payment from Disc, and expected to receive minimum payments annually going
forward in order for Disc Graphics to maintain exclusivity.
■ On June 22, 2011, Applied DNA completed a program to DNA mark microchips for the U.S.
Department of Defense’s Defense Logistics Agency.
■ On June 2, 2011, the Company, together with the UK’s Lancashire police, was awarded its second
Problem-Oriented Policing (POP) award in nine months.
■ On May 17, 2011, Applied DNA announced that it entered into an agreement with RedWeb
Technologies for the exclusive rights to distribute Sentry 500 Intruder Spray Systems embedded
with SmartDNA™ in North America.
■ On May 5, 2011, Applied DNA announced the launch of SmartDNA™ in Sweden through a
collaboration involving the Swedish National Police, Sweden’s National Laboratory of Forensic
Science (“SKL”), a large Scandinavian insurance company, Safe Solution AB (Sweden), and
Applied DNA. Initially, eight Swedish jewelry stores installed a total of 15 SmartDNA™ spray units.
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 3
Company Background
Applied DNA Sciences, Inc. (“Applied DNA” or “the Company”) is a provider of deoxyribonucleic acid
(DNA)-based security and authentication solutions that help to identify originals and protect products,
brands, and intellectual property from counterfeiting and diversion. DNA is a form of forensic evidence
trusted by police and recognized by international courts around the world. Used by forensic laboratories
globally, including the U.S. Federal Bureau of Investigation (FBI), DNA authentication is absolute in
character, indicating that its margin of error is close to zero.
Known commercially as SigNature® DNA, Applied DNA’s unique codes can be used to identify genuine
versus fake items and provide forensic evidence that can be relied upon in court. In the UK, multiple
cases have been successfully prosecuted based on the ability to link stolen banknotes marked with DNA
to specific cash crimes. These cases demonstrate the forensic power of DNA. Reliable and robust by
nature, DNA becomes inextricably bound to the stolen banknotes (or other related evidence) and cannot
be removed by even the most aggressive solvents used by criminals. SigNature® DNA cannot be copied
or reverse engineered and is “green” and botanical in nature.
In addition to SigNature® DNA, DNA that is naturally occurring in a raw material (e.g., cotton, wine, and
wool) can be used to authenticate products. Known as BioMaterial Genotyping, this provides a means for
determining the authenticity of natural materials used in finished products by detecting and identifying
their genomic DNA. For Supima® and various yarn manufacturers around the world, Applied DNA
provides a specific FiberTyping™ genetic assay to determine the authenticity of cotton fibers used to
manufacture premium Pima cotton (G. barbadense) products.
Counterfeiting
Counterfeiting is one of the fastest growing pecuniary crimes, threatening jobs and businesses and
endangering public health and safety. The International AntiCounterfeiting Coalition (IACC) estimates that
global counterfeiting has grown almost 10,000% in the past several decades to nearly a $600 billion a
year market, up from $5.5 billion in 1982. The counterfeit goods market is fueled, in part, by consumer
demand, and represents an estimated 5% to 7% of global trade (Source: IACC [www.iacc.org]). The
Business Action to Stop Counterfeiting and Piracy (BASCAP), an International Chamber of Commerce
(ICC) initiative, forecasts that the global economic and social impacts of counterfeiting and piracy could
reach $1.7 trillion by 2015 (Source: BASCAP’s Estimating the global economic and social impacts of
counterfeiting and piracy, February 2011).
Contributing to the increase in counterfeiting is the expanding range of products that can be faked.
Textiles and apparel, pharmaceuticals, microchips, currency, and high-value documents are all affected
by counterfeiting and forgery. Fake pharmaceuticals as well as military and aerospace parts expose
consumers and governments to significant health and safety risks that undermine any economic benefit
derived from the lower prices. In addition, terrorist organizations and organized crime have become
heavily involved in product counterfeiting. Law enforcement agencies have evidence linking counterfeiting
to terrorist activities, such as the 1993 bombing of the World Trade Center and plots to bomb New York
City landmarks. Recovered al Qaeda training manuals revealed that the terrorist organization
recommends the sale of fake goods as one means to raise funds.
As the counterfeiting crisis expands, affected companies, industry organizations, and governments are
seeking systems that can protect and verify the authenticity of products. There is a global movement
among the U.S., EU, and several other countries to enact an Anti-Counterfeiting Trade Agreement as a
method to address the global trade of fake merchandise, which is valued at over $200 billion to the U.S.
(Source: Reuters, August 20, 2010). Furthermore, the market for new anti-counterfeiting technologies,
such as those supplied by Applied DNA, could surpass $82 billion by 2015 (Source: Global Industry
Analysts, Inc.’s [a market research provider] Anti-Counterfeit Packaging: a Global Business Report, July
2010). Applied DNA’s SigNature® DNA, Cashield™, DNANet™, RapiDNA™, SmartDNA™, and
BioMaterial Genotyping solutions are applicable to a multitude of different industries and security-related
applications and are capable of integration with other anti-counterfeit technologies.
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 4
SigNature® DNA
SigNature® DNA uses extrinsic, green, botanically derived DNA taggants, called markers, embedded into
products that act as unique and traceable identifiers. The SigNature® DNA solution consists of three
steps: (1) creating and encapsulating an encrypted DNA segment or marker; (2) applying the marker to a
product or material; and (3) detecting the presence of and authenticating the specific DNA marker.
The SigNature® DNA process starts with strands of DNA from plants, segmented into smaller units, and
re-arranged to create a group of specific DNA codes or sequences called markers. The DNA markers are
then encapsulated and stabilized, providing protection against manufacturing processes and natural
elements, and achieving durability and long-term shelf life for the authentication solution. Once they have
been encapsulated, SigNature® DNA markers are then applied to products for identification. According to
the Company, its embedment technology, which is the basis for a large number of patents, provides a
variety of approaches to mark commercial products. The key to this technology relies on Applied DNA’s
ability to integrate markers directly into products or various types of carriers and media, such as special
inks, dyes, paint, glue, polymers, or textile treatments, which are incorporated or attached to the product
in the form of labels or packaging. In addition, because SigNature® DNA is both a green and safe
technology, it can be used in formulations of consumables, such as pharmaceuticals, which require U.S.
Food and Drug Administration (FDA) approval.
Once applied, the presence of SigNature® DNA markers can be detected at any point along the product’s
logistic and supply chain. This is an important characteristic as counterfeiting can occur anywhere in the
distribution cycle. For example, in the technology industry, individual components, whole parts, finished
product, packaging, documentation, and software can all be counterfeit.
The Company offers two methods of authentication: (1) Level 1: non-forensic instant screening in the field
with a handheld device, typically the size of a key fob, which can immediately detect the presence of rapid
reporters layered with SigNature® DNA markers; and (2) Level 2: full forensic DNA sequencing, which is
performed at one of Applied DNA’s authentication laboratories and represents the highest resolution
authentication (typically requiring one to three hours to complete).
The SigNature® DNA security platform provides the following benefits: (1) resistance to reverse
engineering or replication (cannot be copied); (2) forensic capabilities; (3) low levels of error, with false
positives occurring at less than one in a trillion (it is absolute); and (4) affordability.
Applied DNA’s security platform has been independently validated through a two-year vetting process
conducted by the Idaho National Laboratory and managed and operated by Battelle Energy Alliance, LLC
for the U.S. Department of Energy (DOE).
SigNature® DNA Applications
Applied DNA’s ability to incorporate SigNature® DNA markers directly into products or into various types
of carriers lends itself to protect cash-and-valuables-in-transit (CViT), to protect brand owners, and to
secure legitimate supply chains against the infiltration of counterfeit products. The technology has
application across a multitude of industries, including CViT, textile and apparel authentication, secure
documents, microchips, pharmaceuticals, consumer products, fine wine, art and collectibles, and digital
and recording media, among many others. The Company targets suppliers whose components enter at
the bottom or through multiple points within a supply chain, employing its platform at “pain points” that are
subject to the most liability. For example, in the cash transportation industry, Applied DNA sells its
markers to companies that supply products to security companies and ATM owners, such as security ink
users, ATM cassette manufacturers, and cash box manufacturers.
The Company’s pipeline can include between 50 and 60 different projects at any particular time. Among
these projects, Applied DNA is focusing on the areas that it believes provide it with the best combination
of revenues and a short sales cycle while at the same time showcasing the capability and effectiveness of
its platforms. These areas are described on pages 6-11, with greater details provided on pages 31-37 of
the base Executive Informational Overview® (EIO®) published November 4, 2010 (available at
www.crystalra.com).
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 5
Cash-and-Valuables-in-Transit (CViT)
The Company applies its SigNature® DNA platform to banks and institutions involved in the CViT
business, such as cash transport and storage as well as automated teller machine (ATM) operations.
While Applied DNA’s CViT efforts have been focused initially in the UK, the Company recently announced
an agreement to provide its SigNature® DNA markers to 3SI Security Systems, Inc., a global provider of
asset protection systems based in Belgium. Commercial orders have already begun with repeat orders to
be fulfilled on a monthly basis. The Company is currently performing feasibility studies in the Swedish and
U.S. markets. Applied DNA is also receiving interest from Australia, Asia, and Africa, and expects to
propagate the use of its platform through these countries during 2011. Presently in the UK, the Company
is addressing unmet needs for improved security in the CViT industry. In 2009, £17.1 million was stolen
during 1,060 CViT robberies in the UK, which is believed to account for approximately 76% of all CViT
robberies globally (Source: Applied DNA’s August 5, 2010, press release).
Applied DNA incorporates its botanical SigNature® DNA marker with a fluorescent rapid reporter that is
embedded into cash degradation inks placed in CViT boxes. If a cash box is compromised or illegally
accessed, the security device discharges the liquid cash degradation dye onto the currency, which covers
the bank notes with the SigNature® DNA-marked ink. When the cash is recovered by police, a Level 1
screening process is performed to detect the presence of the rapid reporter layered with the SigNature®
DNA marker. If the screening is positive, the cash is sent to one of Applied DNA’s laboratories for DNA
Level 2 authentication. Since each cash box is assigned an individualized SigNature® DNA marker, a
higher forensic level analysis can match the marker present in the recovered cash or evidence to a
particular cash box and its owner, and ultimately to the criminal.
Since January 2008, Applied DNA has worked with Loomis UK Ltd., a cash-handling company that
moves over £150 billion in cash annually. Since that time, Applied DNA has gradually increased its
market share of the taggants used by the UK CViT industry to over 30%. To date, the Company has
authenticated evidence in 35 CViT cases from multiple UK police departments, with a 100% success rate
thus far in confirming dye-stained stolen goods. In March 2011, Applied DNA reported that its SigNature®
DNA markers have aided 22 convictions, with a 100% conviction record for captured criminals who have
stolen cash from its security licensees in the UK. Additional cases are being processed.
The Company believes that its technology has led to fewer attacks, reducing cash losses valued at more
than 100 times the cost of licensing its technology annually. Altogether, Applied DNA’s customers have
experienced a 49% reduction in losses as a result of CViT offenses year-over-year versus the UK industry
as a whole, which only experienced a 34% decrease.
The DNA-marking system is being used by nearly 20 police forces in the UK and has been used in other
crime initiatives, such as sting operations. In September 2010, Applied DNA, in partnership with the
Lancashire Constabulary, was presented with the Excellence in Policing Award for its innovative use of
DNA forensic markers. This award was designed to promote the sharing of creative and innovative
projects that enhance performance and productivity of the UK police. In June 2011, Applied DNA,
together with the UK’s Lancashire police, received the Problem-Oriented Policing award, which spotlights
the Company as a growing force in combating serious theft. Applied DNA and the Lancashire police are
now eligible to compete for the UK’s national Tilley Awards, which recognize innovative crime-fighting
projects, as well as the Herman Goldstein Award for Excellence in Problem-Oriented Policing.
Cashield™ Cash Degradation Inks
Cashield™ is a family of cash degradation inks marketed and sold as a combined security system that
permanently stain banknotes stolen from cash-handling or ATM systems. Ink colors include Red, Violet,
Green, Teal, Indigo, and the original AzSure® Blue, which was developed through an exclusive
agreement with Swiss company Printcolor Screen Ltd. AzSure® is characterized by a vivid blue color
under ambient light and a brilliant blue under ultraviolet (UV) light. The color pattern is novel in the
industry and indicates that stolen cash has been protected with a forensic degradation dye.
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 6
Current degradation dyes suffer from a critical technical weakness, as the dyes may be removed by the
use of solvents. Applied DNA initiated the development of Cashield™ in response to demand for a more
effective carrier for its SigNature DNA® markers. A CViT study presented by the University of Leeds cited
Applied DNA’s ink as having improved performance versus staining inks from other suppliers (Source:
Imperial Capital’s Anticounterfeiting and Brand Protection 2010). In this study, the AzSure® Blue ink was
tested across a range of currencies, including British pounds, euros, and U.S. dollars. The evaluation
involved exposure to numerous industrial solvents. Final analysis of the results concluded that the
AzSure® Blue ink was bound strongly in five seconds or less to a variety of banknotes, and could not be
removed with any available solvents. Likewise, Cashield™ has been certified for use in the EU by the
Laboratoire National de Métrologie et d’Essais (LNE) and passed all 47 individual dye penetration and
wash-out-resistance tests. As well, Cashield™ is compliant with REACH, an EU standard for chemical
safety.
Textiles and Apparel Authentication
Applied DNA is also expanding into textile and apparel authentication, including validating woven and
printed labels, which are used throughout the textile industry for product recognition and brand integrity.
The Company can incorporate its SigNature® DNA taggants into labels to aid brand security and help
protect against counterfeiting.
One of the Company’s textile-based security applications uses SigNature® DNA to offer quality assurance
for textiles and apparel manufactured in Yorkshire and to confirm that products “Made in England” are
genuine. The Company is currently working with the Textile Centre for Excellence, the European
Regional Development Fund and Yorkshire Forward (a regional development agency), the University of
Leeds, and a consortium of Yorkshire companies, to demonstrate the commercial integration of
SigNature® DNA into existing textile and apparel manufacturing processes.
In response to increasing consumer demand for quality assurance and proof of origin, Applied DNA and
the Huddersfield Textile Centre of Excellence (www.textilehouse.co.uk) have developed “Yorkshire
Signature® DNA” to protect the authenticity of fabric woven in the region. Applied DNA has a fully staffed
and equipped laboratory in the Huddersfield Centre to perform forensic analysis of DNA samples from
weavers participating in the program. In this region of the UK, fake goods are widely available, with firms
having little recourse and an inability to quickly pursue commercial justice in the court system. Proof of
origin using DNA can easily be demonstrated to consumers and could significantly assist companies in
this market that seek to provide genuine quality. The brands participating in the first commercial phase of
the Yorkshire Signature® DNA program are expected to feature DNA fabrics at Milano Unica (MU) in
Milan on September 13-15, 2011, and Premiere Vision (PV) in Paris during September 20-22, 2011.
Applied DNA’s technology can also be used to authenticate uniforms to minimize impersonations of
police, military, and security personnel. In Mexico, recent incidents of criminals impersonating federal
police have caused the military to alter the design of its uniforms to be more difficult to counterfeit. To this
extent, the Company has supplied a unique DNA taggant to Prestigio en Moda, a uniform manufacturer in
Mexico that services various government agencies (e.g., security groups and police departments), for use
in marking textiles as a tool to verify genuine uniforms and identify counterfeits.
Packaging Security
Counterfeiting in packaging has become more prevalent in recent years, affecting a number of industries
(e.g., the food, pharmaceutical, computer, and software industries). Counterfeit packaging causes health
concerns for consumers, safety concerns for law enforcement agencies, and financial concerns for
businesses worldwide. An additional issue is brand reputation, as customers who use counterfeit
products composed of lower-quality materials often do not know the product is counterfeit and mistakenly
blame the original brand manufacturer for any defects or loss in quality.
A number of strategies are being implemented at all stages of the manufacturing and distribution process
to address counterfeit packaging. Presently, there are two main types of anti-counterfeit packaging: (1)
authentication packaging, including inks and dyes, holograms, watermarks, and taggants; and (2) track
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 7
and trace packaging, composed of labels, bar codes, and radio-frequency identification (RFID). As
companies develop technologies to prevent and identify counterfeit packaging, the anti-counterfeit market
is expected to expand. Market research firm Global Industry Analysts Inc. forecasts that the global anti-
counterfeit packaging market could reach approximately $82.2 billion by 2015.
The Company believes that DNA taggants are the most advanced and secure technology available to the
printing and packaging industries to combat counterfeit products. Applied DNA’s SigNature® DNA
taggants offer a high level of security and flexibility and adapt to a range of requirements and budgets.
In July 2011, Applied DNA and Disc Graphics Inc., a provider of specialty packaging solutions, entered
into an exclusive distribution agreement. Under the agreement, Disc Graphics received rights to distribute
a unique DNA marker exclusively for the folding carton offset print sector and non-exclusively for
pressure-sensitive labels in North America. Disc Graphics’ core customers include major film studios,
pharmaceutical manufacturers, as well as fragrance and luxury brands—many of which have experienced
market erosion from counterfeit products. Applied DNA believes that the introduction of its technology to
address the needs of these brands and companies increases the Company’s exposure and market reach.
Disc Graphics has a dedicated sales force, trained by Applied DNA, with extensive selling experience to
promote this technology. To date, Applied DNA has received an initial payment from Disc Graphics and
expects to receive minimum payments annually to reserve exclusivity rights.
DNANet™
Capitalizing on the Company’s success in linking DNA-marked evidence to criminals, Applied DNA has
developed DNANet™, a tactical forensic marking system that provides unique DNA authentication codes
for covert operations. DNANet™ was developed in response to numerous requests from police and
security professionals for a means to covertly mark and forensically authenticate items in sting operations
and ransom investigations. DNANet™ is also used to manage risk and monitor employee theft at
companies.
The DNANet™ mark emits a signal in response to a handheld device and can be used in scenarios
where absolute proof of authentication is required. DNANet™ is specifically designed as a crime
prevention tool whereby law enforcement and forensic specialists can invisibly mark and assign forensic
codes to virtually any item. Marked items can be quickly authenticated by Applied DNA. Police
organizations and security companies in the U.S. and Europe are evaluating DNANet™ in the field.
The incorporation of DNA as both a taggant and an authentication tool is being realized across multiple
global industries. In the insurance industry, DNANet™ and forensic authentication are being promoted to
consumers in the form of Forensic Coding Kits to mark and identify personal and commercial items.
RapidDNA™
By integrating DNA and Magneto-Optical marking technologies, the Company has created RapiDNA™—
a secure, machine-readable, forensic authentication system that provides track-and-trace solutions to
protect brands and customers and help convict counterfeiters. Applied DNA has partnered with Bilcare
Technologies (inventors of the nonClonableID™) to market RapiDNA™.
Unique Magneto-Optical markers make tracking and screening activities quick and secure. Wireless
devices read and transmit mark data for instant authentication to a secure remote server. These compact,
lightweight readers (comparable to a personal digital assistant [PDA]), may offer a rapid and affordable
determination of whether or not a scanned product is an original. Moreover, maintaining a detailed
database of every product authentication allows clients to determine where counterfeit products, if any,
entered their supply chain. Further integration with brand owner databases enables comprehensive
supply chain management and enhanced sales data collection.
The cumulative forensic evidence this system provides may help a client build an evidentiary case that
can be used to prosecute perpetrators, thereby reducing the monetary gains of counterfeiters. Applied
DNA believes that DNA, with its international court acceptance, positions brand owners to convict
counterfeiters.
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 8
SmartDNA™: DNA-Embedded Intruder Spray Systems
The Company’s patented SmartDNA™ security system includes a water-based, non-toxic DNA spray that
can be released during a crime to uniquely mark and identify a perpetrator to prove their presence at the
scene of a crime. SmartDNA™ products include botanical DNA that is unique to each system. Applied
DNA believes that this novel crime protection system can be beneficial to stores, schools, warehouses,
banks, pharmacies, gas stations, ATMs, and individuals to protection of valuables. Businesses that
employ the SmartDNA™ system may receive the following benefits: (1) a safer working environment for
employees; (2) a reduced risk of loss to the insurer; and (3) increased risks to the criminal element,
creating a deterrent to rob locations that advertise “Protected by Smart DNA™.” As well, the Company
has reported that the insurance company involved in this strategic partnership has lowered deductibles
and provided incentives for customers using the SmartDNA™ system in partnership with local police.
SmartDNA™ security systems with multiple spray heads can be fitted at each entry point of a building or
premise. The DNA Spray can be activated manually by a panic button or automatically when linked to an
existing alarm system (triggering when the existing system detects an intrusion). Once activated, the
SmartDNA™ system emits a burst of DNA solution onto the offender. Applied DNA has reported that
SmartDNA™ markers have remained on an individual’s skin or on the fibers of clothing for weeks.
Police often narrow crimes down to one or several suspects, but lack direct proof demonstrating than an
individual was present at a specific crime—evidence necessary to pursue a conviction. Applied DNA
believes that DNA can provide the direct link between an individual and a crime scene. SmartDNA™
solution contains a unique DNA code identifying a specific location as well as a rapid-read tracer that can
be easily identified using a special detection device. Traces of the DNA solution can be taken from the
skin, hair, or clothing and sent to Applied DNA’s laboratory for forensic analysis and DNA verification.
Sample DNA matching the unique botanical DNA used in a location’s SmartDNA™ security system and
released during a crime can help prove that the offender was present at a particular crime site.
Applied DNA believes that SmartDNA™ not only links a criminal to a crime scene, but can also deter
thieves from breaking into properties and can assist victims in identifying and recovering stolen items.
Criminals are wary of DNA and other technologies capable of linking them to the scene of a crime. As
such, premises identified as being “Protected with SmartDNA™” may thwart criminal efforts.
Global Commercialization of SmartDNA™
In May 2011, Applied DNA launched SmartDNA™ in Sweden with the support of the Swedish National
Police, Sweden’s National Forensic Laboratory (“SKL”), a large Scandinavian insurance company, and
Safe Solutions AB (a Swedish security management company). Initially, eight Swedish jewelry stores
installed a total of 15 SmartDNA™ spray units mounted strategically over a jewelry case or near the
store’s entrance. Several units have already been triggered and require additional SmartDNA™ orders to
replace those units. The Company believes that initial installation at all jewelry stores in this chain could
result in up to $400,000 in revenues, in addition to renewal fees of $250,000 every 18 months. Applied
DNA has received inquiries about SmartDNA™ from additional jewelry chains, banks, pharmacies, and
ATM owners in Sweden.
The Company is also exploring global opportunities. The Company has entered into an agreement with
RedWeb Technologies Ltd. that grants Applied DNA exclusive rights to distribute Sentry 500 Intruder
Spray Systems embedded with SigNature® DNA in North America. The Company has begun marketing
these systems in North America to banks, pharmacies, and ATM owners. Applied DNA believes that the
market for this product in North America is significant, with potential sales of more than $32 million for
initial installation in jewelry stores with possible renewal fees every 18 months.
BioMaterial Genotyping
Applied DNA’s anti-counterfeiting platform, BioMaterial Genotyping, confirms the authenticity of natural
products by detecting and identifying the genomic DNA of materials used in finished products. BioMaterial
Genotyping can be used to authenticate natural materials present in, but not limited to, textiles and
apparel, consumables, nutraceuticals, pharmaceuticals, and food.
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 9
Authentication issues plague the global textile and apparel industries. Every phase of the textile supply
chain is vulnerable to counterfeiting, from fiber to finished goods. Each time a product changes hands, the
potential for illegal substitution of an inferior product increases. All forms of textiles are targeted, from
high-tech synthetic yarns to wool fabrics; from cotton bed linen to outdoor non-woven fabrics; and from
“haute couture” fabrics to automotive interiors. Billions of dollars per year are lost due to counterfeiting
practices in the textile and apparel industry, creating sub-standard products that appear to be good
quality but often fail to perform after a few launderings.
Identification and confirmation of the source or type of natural product used in a finished item has
important advantages. Authentication of the natural material helps prevent and detect counterfeits while
enabling manufacturers to improve quality control throughout all the stages of the supply chain and
manufacturing process.
BioMaterial Genotyping Applications
Applications of the Company’s technology are broad and include anything that is biological in nature. For
example, Applied DNA has developed proprietary protocols to differentiate between biological species of
cotton for the textile industry. Additionally, the Company has methods to distinguish the genetic signature
of the natural materials used in currency (typically cotton and linen) in order to identify the unique
signature of cellulose paper used in British and American currencies. This capability may have application
in the authentication of other secure documents as well, such as share certificates, wills, and insurance
policies. Due to the flexibility of this application and its ability to cover virtually any product that contains
naturally occurring DNA (such as coffee, rice, tea, biological drugs, wine, vitamins, and food), Applied
DNA believes that the global market for BioMaterial Genotyping could exceed $1 trillion.
The Company has developed two proprietary processes to identify biological species of cotton: (1)
FiberTyping™, which distinguishes between Pima and Upland cotton; and (2) PimaTyping™, which
differentiates between Pima cottons grown in different regions of the world.
Applied DNA is working within many textile sectors to strengthen the overall supply chain by
authenticating the type of materials used. Presently, the Company’s FiberTyping™ tests are employed by
yarn manufacturers from India, Pakistan, and China as well as by Supima®, the promotional organization
of the American Pima cotton growers and a widely known textile organization. In 2011, the Company
added new customers and developed existing business, including wool and wool-worsted merchants and
several entities within the woven and printed label industry.
To Applied DNA’s knowledge, prior to the FiberTyping™ assay, there had never been a successful
attempt to extract DNA from mature cotton fibers, which were believed to be devoid of usable DNA.
Applied DNA proved this untrue by developing methods that allow for the extraction of DNA from mature
cotton fibers. The Company extended its genotyping process to the genetic analysis of single fibers,
which permits the authentication of fabrics blending multiple cottons, such as towels and bed linens.
FiberTyping™ can also be used to test for premium fibers and products, such as Egyptian Giza,
Peruvian, Sea Island, and Israeli extra long staple cottons.
Supima®
Applied DNA has been working with Supima®, its member companies (including the largest Pima and
Upland cotton growers in the U.S.), and its licensees (including more than 300 retailers, brand owners,
and contract manufacturers) to help preserve the brand’s reputation. Pima cotton is among the most
costly and highest quality cotton grown in the U.S., representing less than 3% of total production. Applied
DNA currently employs its BioMaterial Genotyping platform to identify the fiber content and geographic
origin of finished textiles for Pima cotton. This is of particular value as the cost of cotton rises, causing
textile companies to evaluate less costly production materials.
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 10
The Company’s technology allows brand owners to verify the quality of finished goods and helps
governments regulate the international cotton trade by verifying compliance with textile labeling laws. In
finished goods, there is a great value to the name Pima. The cost differential between Pima and Upland
cotton (roughly 20%) is significant. Accordingly, manufacturers are incentivized to add cheaper cotton
strands, such as Upland, to products labeled 100% Pima in order to improve profit margins.
By assisting with compliance of Federal Trade Commission (FTC) labeling laws and the Textile Fiber
Products Identification Act (“Textile Act”), Applied DNA’s offerings enable Supima® to maintain its quality
standards and ensure that all parties throughout the supply chain are compliant. The FTC ruled in June
1997 that manufacturers and retailers must itemize cotton source content on any apparel or textile
product when the name of a premium fiber is being used. Under the Textile Act, a textile fiber product is
misbranded and subject to fines and penalties if it is falsely or deceptively stamped, tagged, labeled,
invoiced, or otherwise identified.
Complementary to the FiberTyping™ technology, SigNature® DNA markers allow farmers of natural fibers
or producers of synthetic fibers to track specific batches of fiber through to finished textiles and apparel.
In 2009, Applied DNA marked over 500,000 pounds of raw cotton fiber with its SigNature® DNA as part of
a pilot study conducted in collaboration with one of America’s largest cotton growers. SigNature® DNA
was detected homogeneously throughout the various stages of cotton processing, before and after baling,
right down to the single cotton fiber. The persistence and stability of the SigNature® DNA marker ensured
that it was successfully authenticated.
European Expansion
To support continued business development efforts in the UK and Europe, Applied DNA established a
new DNA textile authentication laboratory and European office at the Textile Centre of Excellence (TCE)
in Yorkshire. This partnership is designed to help expand the DNA taggant marking and product
authentication technology in European and potentially Pacific Rim markets.
Strategic Partnerships
Among other developments, the Company has focused on establishing strategic partnerships to facilitate
expansion into new markets as well as to strengthen its position in current segments with new product
introductions. Together with the Textile Centre of Excellence (representing the Yorkshire textile region) at
Premiere Vision 2010 (a global fabric show) in Paris, Applied DNA launched the first commercially
available DNA Yarn that can be woven into a wide range of worsted woolen fabrics. This is part of a
three-year, $1.5 million DNA Anti-Counterfeiting Program where Applied DNA is the primary supplier of
DNA markers and forensic authentication services. With rampant counterfeiting using sub-standard yarns
and fibers, Yorkshire Forward and the European Regional Development Agency have co-funded the DNA
Anti-Counterfeiting Program in direct response to a growing market need to verify products from the
original source provider. Applied DNA plans to participate in the upcoming Premiere Vision 2011 in Paris
in September 2011.
Applied DNA has also partnered with Nissha Printing Co., Ltd., a global company producing high-quality
industrial and artistic custom-printing systems. The companies are collaborating to market DNA-based
security printing on in-mold-decoration (IMD) products. IMD is a printing technology that allows images to
be attached to three-dimensional plastics. Currently, the technology is mostly used for mobile phones,
laptop computers, automobile interiors, and electrical appliances. Nissha selected Applied DNA’s marker
over other taggants as the preferred technological platform for both IMD and high-quality printing
applications due to its anti-counterfeiting properties. Applied DNA and Nissha are prototyping and
evaluating novel technological solutions based on the Company’s SigNature® DNA authentication system.
In July 2011, C.F. Martin & Co. (www.martinguitar.com), an American brand that has created acoustic
guitars and strings for over 175 years, announced a partnership with Applied DNA to help protect its
products, brands, and intellectual property from counterfeiting and diversion. The two companies planned
to announce further details about the partnership, including timing of implementation, later in 2011.
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 11
Partnership with the U.S. Department of Defense (DoD) to Prevent Counterfeit Microchips
As the largest logistics combat support agency for the U.S. Department of Defense (DoD), the Defense
Logistics Agency provides global logistics support to the military, civilian agencies, and foreign countries
and supplies all of the consumable items necessary for the military to operate (e.g., food, fuel, energy,
medical supplies, equipment). One of the Defense Logistics Agency’s strategic focus areas is refining
counterfeit-part risk-mitigation strategies. DNA marking may represent a proactive strategy against the
growing problem of counterfeits.
In the military setting, counterfeit microchips can be defective and potentially dangerous as they control
equipment from missiles to transponders. In June 2011, Applied DNA completed a program for the
Defense Logistics Agency, which entailed marking microchips with DNA. Once marked, each microchip
can be scanned at any point in the supply chain to ensure authenticity. As part of the initial DNA marking
program, an original microchip manufacturer marked 100% of its production for two months. In a blind
sampling of marked and unmarked microchips, forensic analysis confirmed the authenticity of products
DNA-marked as genuine. Table 1 summarizes the results from the blind sampling. The Company believes
that its first program demonstrated the ease of applying SigNature® DNA taggants at the manufacturer
level.
Table 1
Applied DNA Sciences, Inc.
SUMMARY OF RESULTS FROM THE INITIAL MICROCHIP MARKING PROGRAM
▪ 100% distinction was made between DNA-marked and unmarked product and packaging
▪ 100% forensic authentication of DNA-marked product and packaging
▪ No change was necessary to the production process
▪ No adverse impact to mark-permanency quality assurance test results at the original chip manufacturer
▪ Marks were rapidly scanned without difficulty at both the original chip manufacturer and the distributor
▪ Marking was entirely non-destructive (as expected)
Source: Applied DNA Sciences, Inc.
Following the success of the initial program, Applied DNA was awarded a follow-on contract valued at
nearly $1 million to fully engage one of the government’s microchip supply chains. With interim
deliverables that must be met, this program includes all aspects of the government’s supply chain—
including original chip manufacturers, distributors, board builders, system integrators, and the U.S. Armed
Forces. This strategy allows Applied DNA to build a secure supply chain from the source to the end-user,
supported by forensics. Applied DNA believes that the project could be a significant first step for the
company toward a major role in supply chain defense with government organizations and in business-to-
business (B2B) relationships with original chip manufacturers, distributors, and the manufacturers of
printed circuit boards and finished electronic goods.
The government and the microchip industry share a common interest in preventing counterfeit microchips
from entering the supply chain. The Company believes that, if widely implemented, DNA marking could
prevent counterfeit microchips from entry at any point in the Department of Defense’s supply chain. The
Company anticipates that pricing efficiency can be attained with even modest volume levels, making DNA
marking a cost-effective approach to prevent after-market counterfeits. As well, securing the complete
supply chain for ubiquitous technologies, such as microchips, can generate an immediate return on
investment (ROI) for Applied DNA in B2B relationships.
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 12
Corporate History, Headquarters, and Employees
Applied DNA, formerly Datalink Systems, Inc., was founded in 1983 and is headquartered in Stony Brook,
New York. In 1998, the Company reincorporated in Nevada and, in November 2002, changed its name to
Applied DNA Sciences, Inc. Effective December 17, 2008, the Company reincorporated from the State of
Nevada to the State of Delaware. For the past four years, the Company has been under new
management, including new staff, finance terms, and patents, severing ties with the Taiwanese
predecessor company, which ceased business. The current management team is heavily invested. Dr.
James A. Hayward, chairman, president, and chief executive officer (CEO), has a personal financial
commitment to the Company totaling over $3 million in the form of a secured convertible Promissory Note
and Warrants to purchase shares of the Company’s Common Stock.
Applied DNA currently has 16 full-time employees and three part-time employees, composed of two in
management, nine in operations, seven in sales and marketing, and one in investor relations. The
Company expects to increase its staffing dedicated to sales, product prototyping, manufacturing of
SigNature® DNA markers, and forensic authentication services.
Applied DNA currently trades on the Over-the-Counter (OTC) exchange under the ticker symbol “APDN.”
New Additions to Applied DNA’s Board of Directors
In August 2011, the Company added four new members to its Board of Directors, increasing the total
number of directors to seven. Biographies for each new member are provided below.
■ Dr. Charles Ryan earned a doctorate in oral biology and pathology from Stony Brook University and
a law degree from the Western New England University School of Law. Dr. Ryan is the senior vice
president and chief intellectual property counsel at Forest Laboratories, Inc. (FRX-NYSE), where he
has been employed since 2003. Forest, with a market capitalization of nearly $10 billion, develops
branded drugs, including Lexapro® and Celexa® for depression, Benicar® for hypertension, and
Aerobid®, a metered dose inhaler for asthma.
■ Ms. Karol Gray is chief financial officer (CFO) of the Stony Brook Foundation and the vice president
of finance and administration at Stony Brook University, where she has served for over 33 years. As
CFO for the Stony Brook Foundation, Ms. Gray provides financial direction and support for the
Budget, Investment, and Realty Committees. Ms. Gray is responsible for the university’s financial
operations as well as the foundation’s net assets of $200 million. She is active on several
committees, including the Brookhaven National Laboratory Audit Committee, the Presidential
Budget Working Group, and the Investment Subcommittee of the Research Foundation of the State
University of New York, and is a member of the Executive Committee of the State University of New
York Business and Officers Association. Ms. Gray has a Bachelor’s degree in business
administration from Hofstra University and currently serves as treasurer of the Faculty Student
Association.
■ Mr. John Bitzer, III, is president and CEO of ABARTA, Inc., a closely held, fourth-generation family
holding company with operations in the soft drink, newspaper publishing, oil and gas exploration
and development, and frozen food industries. In 1985, Mr. Bitzer began his career in sales for
Cleveland Coca-Cola Bottling Co Inc. He has served as a publisher of the Atlantic City Magazine in
Atlantic City, New Jersey. In 1994, he founded the ABARTA Media Group and held the position of
group publisher. In 1997, he was named president and chief operating officer (COO) of ABARTA,
Inc. and has been president and CEO since 1999. He is a director of the Institute for Entrepreneurial
Excellence at the University of Pittsburgh. Mr. Bitzer has a degree from the University of Southern
California and an MBA from the University of Michigan.
■ Mr. Gerald Catenacci is the founder and president of NeuStrada Capital, LLC, a private investment
fund. Mr. Catenacci obtained a B.S. in civil engineering from McMaster University in 1985, and has
spent his career in equity management. Formerly, Mr. Catenacci was a founding partner and
managing director of Principled Capital Management, a hedge fund that operated in New York City
from 1998 to 2010.
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 13
Key Points to Consider
■ Applied DNA is a provider of DNA-based security and authentication solutions to protect products,
brands, and intellectual property from theft, counterfeiting, fraud, and diversion. Applied DNA’s
platforms provide several advantages over competitive alternatives: (1) a resistance to replication; (2)
forensic capabilities; (3) absoluteness (e.g., low error rates); and (4) affordability.
o The global economic and social impacts of counterfeiting and piracy could reach $1.7 trillion by
2015. Furthermore, the market for new anti-counterfeiting technologies, such as those supplied
by Applied DNA, could surpass $82 billion by 2015.
■ The Company’s security-related platforms, SigNature® DNA, Cashield™, DNANet™, SmartDNA™,
RapiDNA™, and BioMaterial Genotyping, apply to a range of vertically integrated industries, including
cash-and-valuables-in-transit (CViT), business and customer security, textiles and apparel,
packaging, secure documents, pharmaceuticals, wine, and luxury items.
o The Company believes that its solutions have a broad application, are resistant to replication and
reverse engineering, and offer levels of accuracy that provide forensic advantages to enhance
competitive security options.
■ The Company applies its SigNature® DNA platform to banks and institutions involved in the CViT
business, including cash transport and storage companies and ATM operations. Focused initially in
the UK, the Company believes that its CViT technologies can be implemented worldwide. Applied
DNA is currently performing feasibility studies in Sweden and the U.S.
o The Company estimates that the UK represents nearly 76% of all CViT robberies globally, with
over £17 million (~$26 million) stolen in 2009 alone. When used with other forensic technologies,
SigNature® DNA has aided 22 convictions in the UK, with a 100% conviction record for captured
criminals who have stolen cash from the Company’s security licensees.
o In the past year, Applied DNA helped facilitate a new anti-intruder program in Sweden designed
to protect banks, ATMs, pharmacies, and jewelry and department stores, among others, and had
a role in reducing cash robberies in the UK. In June 2011, Applied DNA, together with the UK’s
Lancashire police, received the Problem-Oriented Policing award, which spotlights the Company
as a growing force in combating theft.
■ Cashield™ is a family of colored cash degradation dyes for the CViT industry that allows cash
carriers to differentiate by customers, regions, or other parameters.
■ DNANet™ entails a group of recently developed tactical DNA products for law enforcement in the
form of DNA-marked sprays and liquids marketed to global police forces. Intended to help link
criminals to crimes, DNANet™ is a tactical forensic system providing unique DNA codes for covert
operations that require absolute proof of authentication.
■ The Company’s patented SmartDNA™ security system includes a water-based, non-toxic DNA spray
that can be released during a crime to uniquely mark and identify perpetrators to prove their presence
at the scene of a crime. Applied DNA believes that this novel crime protection system can be
beneficial to stores, schools, warehouses, banks, pharmacies, gas stations, ATMs, and individuals for
protection of valuables.
o After launching SmartDNA™ in eight Swedish jewelry stores during May 2011, the Company is
focused on global commercialization. Applied DNA has obtained exclusive rights to distribute
intruder spray systems embedded with SigNature® DNA in North America.
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 14
■ RapiDNA™ combines DNA and Magneto-Optical marking technologies to create a secure, machine-
readable, forensic system that supports instant authentication to protect brands and customers and
help convict counterfeiters. Further integration with brand owners’ databases may enable
comprehensive supply chain management and enhanced sales data collection.
■ BioMaterial Genotyping offers a means for determining the authenticity of natural materials used in
finished products by detecting and identifying their genomic DNA. Its applications include anything
that is biological in nature (e.g., textiles, apparel, consumables, nutraceuticals, and biotherapeutics).
o Through the use of its BioMaterial Genotyping technology, Applied DNA has collaborated with the
premium cotton industry to differentiate between biological strains of cotton, has distinguished the
genetic signature of the raw materials used in currency manufacturing to verify paper notes, and
has identified the signature of cellulose paper used in British and American currency, which could
be used in the authentication of original financial documents.
■ The Company has developed DNA processes to authenticate the fiber content and geographic origin
of finished premium cotton textiles to help preserve the brand reputation of premium brands and
fibers (e.g., Supima®, Egyptian Giza, Peruvian, Sea Island, and Israeli cotton) as well as to ensure the
quality of products manufactured throughout the supply chain.
■ In recent months, Applied DNA has focused on enhancing its product line, attracting qualified
employees, and developing strategic alliances with industry sector leaders, industry organizations,
and technology partners to strengthen and complement its security platforms as well as to penetrate
new markets and grow its customer base.
o Applied DNA is providing security solutions to government organizations, insurers, uniform and
instrument manufacturers, and specialty packaging companies, among others, to minimize or
eliminate the risk of counterfeit products in a number of industries.
o After completing an initial DNA marking program for the U.S. Department of Defense’s (DoD)
Defense Logistics Agency in June 2011, Applied DNA was awarded a follow-on contract valued
at nearly $1 million to fully engage one of the government’s microchip supply chains.
■ Applied DNA’s leadership possesses audit trail, sales management, and licensing opportunities
experience. These individuals are closely invested in the Company.
o Dr. James Hayward, president and chief executive officer (CEO), has a personal financial
commitment to the Company totaling over $3 million.
■ As of June 30, 2011, Applied DNA’s cash position was $12,464. Subsequently, in July 2011, the
Company raised $5 million via a private placement with institutional investors.
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 15
Risks
Some of the information in this Quarterly Update relates to future events or future business and financial
performance. Such statements can only be predictions and the actual events or results may differ from
those discussed due to the risks described in Applied DNA’s statements on Forms 10-K, 10-Q, and 8-K,
as well as other forms filed from time to time. The content of this update with respect to Applied DNA has
been compiled primarily from information available to the public released by Applied DNA through news
releases, Annual Reports, and U.S. Securities and Exchange Commission (SEC) filings. Applied DNA is
solely responsible for the accuracy of this information. Information as to other companies has been
prepared from publicly available information and has not been independently verified by Applied DNA.
Certain summaries of activities have been condensed to aid the reader in gaining a general
understanding. For more complete information about Applied DNA, please refer to the Company’s
website at www.adnas.com. Additionally, please refer to Crystal Research Associates’ base report, the
Executive Informational Overview® (EIO®) dated November 4, 2010, and located on Crystal Research
Associates’ website at www.crystalra.com for more comprehensive details of Applied DNA’s risk factors.
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 16
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CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 19
Jeffrey J. Kraws or Karen B. Goldfarb
Phone: (609) 306-2274
Fax: (609) 395-9339
Email: eio@crystalra.com
Web: www.crystalra.com
Legal Notes and Disclosures: This Quarterly Update has been prepared by Applied DNA Sciences, Inc.
(“Applied DNA” or “the Company”) with the assistance of Crystal Research Associates, LLC (“CRA”) based upon
information provided by the Company. CRA has not independently verified such information. In addition, CRA
has been compensated by the Company in cash of sixty-two thousand, five hundred dollars and two hundred
thousand Warrants for its services in creating and updating the Executive Informational Overview® (EIO®), for
quarterly updates, and for printing costs.
Some of the information in this report relates to future events or future business and financial performance. Such
statements constitute forward-looking information within the meaning of the Private Securities Litigation Act of
1995. Such statements can be only predictions and the actual events or results may differ from those discussed
due to, among other things, the risks described in Applied DNA’s reports on Forms 10-K, 10-Q, 8-K, and other
forms filed with the U.S. Securities and Exchange Commission (SEC) from time to time. The content of this
report with respect to Applied DNA has been compiled primarily from information available to the public released
by the Company. Applied DNA is solely responsible for the accuracy of that information. Information as to other
companies has been prepared from publicly available information and has not been independently verified by
Applied DNA or CRA. Certain summaries of scientific activities and outcomes have been condensed to aid the
reader in gaining a general understanding. For more complete information about Applied DNA, the reader is
directed to the Company’s website at www.adnas.com. This report is published solely for information purposes
and is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any state. Past
performance does not guarantee future performance. Additional information about Applied DNA and its public
filings, as well as copies of this report, can be obtained in either a paper or electronic format by calling (631) 444-
6370.
CRYSTAL RESEARCH ASSOCIATES, LLC QUARTERLY UPDATE PAGE 20