Defense Logistics Agency Mandates SigNature(R) DNA on Microchips

STONY BROOK, NY--(Marketwire - Aug 16, 2012) - Applied DNA Sciences, Inc. (OTCBB: APDN), a provider of DNA-based anti-counterfeiting and security solutions has been named by DoD Defense Logistics Agency (DLA), as the provider of authentication services for microcircuits supplied by defense contractors. On August 3, 2012, DLA posted notice on its DLA Internet Bid Board System (DIBBS) that it will require the use of SigNature® DNA marking on microcircuits.

DLA stated:

"DLA is implementing new requirements for deoxyribonucleic acid (DNA) authentication marking on items falling within Federal Supply Class (FSC) 5962, Electronic Microcircuits, which have been determined to be at high risk for counterfeiting. A new clause at Defense Logistics Acquisition Directive (DLAD) 52.211-9074, Deoxyribonucleic Acid (DNA) Marking on High Risk Items, will be included in new solicitations and contracts for FSC 5962 items when the item description states that the item requires DNA marking. The clause requires contractors to provide items that have been marked with botanically-generated DNA produced by Applied DNA Sciences or its authorized licensees, if any." 

The number of companies directly affected by the DLA directive is in the hundreds, and includes many of the largest microcircuit manufacturers in the world. APDN reported immediate inquiries from numerous impacted companies.

SigNature DNA uses uncopyable plant-based DNA to mark items, which can then be authenticated throughout the supply chain to assure originality. In effect, the DNA marks provide a traveling, high-tech proof of authenticity. 

Applied DNA Sciences' SigNature DNA marking and authentication have been tested at full commercial scale in an eighteen-month project supported by DLA and managed by the not-for-profit consultancy LMI, with uniformly successful results. As part of the project, DLA tasked an independent laboratory to defeat the technology. SigNature DNA was not defeated.

"Finding counterfeits in supply chains is a daunting challenge. DLA is taking a leadership role by mandating a positive way to assure authenticity using SigNature DNA. Warfighter support is DLA's top priority." Janice Meraglia, Vice President of Government and Military Programs at APDN praised the Agency's efforts to eliminate counterfeit microelectronics from military supply chains. 

APDN will sell SigNature DNA marks to chip manufacturers, while for distributors the company will sell a source-verification marking program, to establish traceability from the moment of marking. The company also plans to provide DNA marking services directly to those manufacturers who want immediate implementation before establishing marking capability at their own facilities. Once SigNature DNA-marked, the microchips may be authenticated as originals at any stage along the military supply chain, if a participating company has purchased an authentication program from APDN. 

Defense contractors are urged to contact Applied DNA Sciences immediately to begin their own SigNature DNA marking program. A dedicated email address militarymark@adnas.com is available to support this effort. By phone, enquiries are welcome at a dedicated telephone line: 631.444.6370.

The SigNature DNA marking initiative by DLA comes at a critical juncture for the electronics industry, which is facing a new federal law that would strictly enforce new anti-counterfeiting measures by defense contractors. The legal wording of the anti-counterfeiting initiative is found in Section 818 of the National Defense Authorization Act for Fiscal Year 2012 (FY'12 NDAA). While the DLA mandate is not directly connected to the new measures called for by Section 818, it applies in an environment where defense contractors are being strongly urged in various ways to adopt new processes and technologies to combat fakes sneaking into military equipment.

Section 818 of FY'12 NDAA is due to reach an important milestone at the end of September. At that time the law directs that the Defense Federal Acquisition Regulation Supplement (DFARS), which governs all transactions with DoD, is due to be revised to include the anti-counterfeiting provisions. This highly anticipated milestone has been characterized in a public open letter from the Council of Defense and Space Industry Associations as a law that will "fundamentally change the nature of the existing global supply chain for the defense industrial base."¹

The DoD Office of the Director, Cost Assessment and Program Evaluation last year projected the value of all semiconductors sold to DoD in fiscal year 2011 to be $3.1 billion. The figure for fiscal year 2012 is projected to be $2.84 billion.² These figures include both microchips sold stand-alone ("direct sales") for spare parts or prototyping, and also microchips that are embedded in more complex electronic parts sold to the military ("indirect sales"). Indirect sales may range from amplifiers, to computers to aircraft and missile guidance systems. 

The market value of semiconductors, both military and commercial in all countries in fiscal year 2011 has been estimated at $302 billion by Gartner.³

The DLA mandate for SigNature DNA will be implemented in a staged fashion, to ensure a smooth transition for the industry providers of microcircuits falling into FSC 5962, as noted by DLA. In the first stage, already accomplished and consistent with the mandate, SigNature DNA is on the microchips produced in the DLA's Generalized Emulation of Microcircuits (GEM) program.

The penetration of counterfeit electronics into the military has become a recognized national security crisis. In a Senate Armed Services Committee hearing last November, co-chaired by Senator Carl Levin (D-Mich) and Senator John McCain (R-Ariz), 1,800 separate "counterfeit incidents" in the military were identified. Each incident can involve thousands of parts. The Committee identified more than a million counterfeit parts in all. 

In the military, load-bearing parts like ball-bearings, and other critical parts such as o-rings and brake shoes, are widely counterfeited and create much risk. In the commercial sector, fake medical and automotive parts are common, creating a comparable threat. Applied DNA believes that the risk in these areas can also be strongly mitigated by the use of SigNature DNA.

Dr. James A. Hayward, CEO of APDN, stated: "We commend the foresight of DLA command. This is an overdue, industry-changing moment that will protect our warfighters. APDN is fully prepared to meet this challenge."

About APDN
APDN is a provider of botanical-DNA based security and authentication solutions that can help protect products, brands and intellectual property of companies, governments and consumers from theft, counterfeiting, fraud and diversion. SigNature® DNA and smartDNA™, our principal anti-counterfeiting and product authentication solutions that essentially cannot be copied, provide a forensic chain of evidence and can be used to prosecute perpetrators.

The statements made by Applied DNA Sciences, Inc. (APDN) may be forward-looking in nature. 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 8, 2011 and our subsequent quarterly reports on Form 10-Q. 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.

¹ Council of Defense and Space Industry Association (CODSIA), Open Letter, "Subject: Implementation of Section 818, Detection and Avoidance of Counterfeit Electronic Parts, National Defense Authorization Act (NDAA) for Fiscal Year 2012, To: Mr. Richard T. Ginman, Director, Defense Procurement and Acquisition Policy, and Mr. Alan F. Estevez, Assistant Secretary for Logistics and Materiel Readiness (OUSD (AT&L))" February 21, 2012. Link

² Office of the Director, Cost Assessment and Program Evaluation, Projected Defense Purchases of Semiconductors, 2009-2012," March, 2011, U.S. Defense Purchases: An Introduction to IDEPPS, 2011, P. 4,5

³ Gartner, "Gartner Says Apple Became the Top Semiconductor Customer in 2011," gartner.com, January 24, 2012. Link