10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2009

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                 to

Commission File Number: 33-17387

Applied DNA Sciences, Inc.

(Exact name of registrant as specified in its charter)

Delaware	59-2262718
(State or other jurisdiction of incorporation or organization)	(I.R.S.  Employer Identification No.)

25 Health Sciences Drive, Suite 113 Stony Brook, New York	11790
(Address of principal executive offices)	(Zip Code)

631-444- 8090

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x  Yes  o  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o  Yes  o  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer  o	Smaller reporting companyx
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o  Yes  x  No

As of February 11, 2010, the registrant had 275,204,070 shares of common stock outstanding.

Applied DNA Sciences, Inc.

Form 10-Q for the Quarter Ended December 31, 2009

Table of Contents

	Page
Part I - Financial Information
Item 1 - Financial Statements	1
Item 2 - Management’s Discussion and Analysis or Plan of Operation	23
Item 3 - Quantitative and Qualitative Disclosures About Market Risk	31
Item 4 - Controls and Procedures	31
Part II - Other Information
Item 1 - Legal Proceedings	32
Item 1A - Risk Factors	32
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3 - Defaults Upon Senior Securities	33
Item 4 - Submission of Matters to a Vote of Security Holders	33
Item 5 - Other Information	34
Item 6 - Exhibits	34
Signatures	35

Part I

Item 1 - Financial Statements

APPLIED DNA SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
	December 31,			September 30,
	2009			2009
	(unaudited)
ASSETS
Current assets:
Cash	$	6,022		$	213,307
Accounts Receivable		16,006			47,302
Prepaid expenses		51,962			79,436
Total current assets		73,990			340,045
Property, plant and equipment-net of accumulated depreciation of $201,472 and $199,119, respectively		9,390			11,743
Other assets:
Deposits		8,322			8,322
Capitalized finance costs-net of accumulated amortization of $670,391 and $615,611, respectively		132,109			146,389
Intangible assets:
Patents, net of accumulated amortization of $34,257 and $34,112, respectively (Note B)		-			145
Intellectual property, net of accumulated amortization and write off of $8,521,422 and $8,430,474, respectively  (Note B)		909,478			1,000,426
Total Assets	$	1,133,289		$	1,507,070
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities (Note C)	$	1,058,318		$	843,491
Advances from related party (Note E)		150,000			-
Convertible notes payable, net of unamortized discount of $191,253 and $319,589, (Note D)		2,808,747			2,410,411
Total current liabilities		4,017,065			3,253,902
Commitments and contingencies (Note H)		-			-
Deficiency in Stockholders’ Equity (Note F)
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- issued and outstanding as of December 31, 2009 and September 30, 2009		-			-
Common stock, par value $0.001 per share; 410,000,000 shares authorized; 275,204,070 issued and outstanding as of December 31, 2009 and September 30, 2009		275,204			275,204
Additional paid in capital		142,080,731			141,409,667
Accumulated deficit		(145,239,711	)		(143,431,703	)
Total deficiency in stockholders’ equity		(2,883,776	)		(1,746,832	)
Total Liabilities and Deficiency in Stockholders’ Equity	$	1,133,289		$	1,507,070

See the accompanying notes to the unaudited condensed consolidated financial statements

1

APPLIED DNA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
	Three Months Ended December 31,
	2009			2008
Sales	$	72,715		$	146,575
Cost of sales		(14,434	)		(43,741	)
Gross Profit		58,281			102,834
Operating expenses:
Selling, general and administrative		1,542,135			2,764,009
Research and development		6,148			62,529
Depreciation and amortization		93,446			108,984
Total operating expenses		1,641,729			2,935,522
NET LOSS FROM OPERATIONS		(1,583,448	)		(2,832,688	)
Other income (Note C)		-			-
Interest expense, net		(224,260	)		(482,829	)
Net loss before provision for income taxes		(1,807,708	)		(3,315,517	)
Income taxes (benefit)		300			497
NET LOSS	$	(1,808,008	)	$	(3,316,014	)
Net loss per share-basic and fully diluted	$	(0.01	)	$	(0.01	)
Weighted average shares outstanding-
Basic and fully diluted		275,204,070			222,657,096

See the accompanying notes to the unaudited condensed consolidated financial statements

2

APPLIED DNA SCIENCES, INC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
	Three months ended December 31,
	2009			2008
Cash flows from operating activities:
Net loss	$	(1,808,008	)	$	(3,316,014	)
Adjustments to reconcile net loss to net used in operating activities:
Depreciation and amortization		93,446			108,984
Fair value of vested options issued to officers, directors and employees		296,844			1,850,247
Amortization of capitalized financing costs		54,780			83,784
Amortization of debt discount attributable to convertible debentures		149,679			417,934
Equity based compensation		352,877			-
Change in assets and liabilities:
Decrease in accounts receivable		31,296			4,151
Decrease in prepaid expenses and deposits		27,474			31,250
Increase (decrease) in accounts payable and accrued liabilities		214,827			234,405
Net cash used in operating activities		(586,785	)		(585,259	)
Cash flows from financing activities:
Net proceeds from related party advances		150,000			-
Net proceeds from issuance of convertible notes		229,500			500,000
Net cash provided by financing activities		379,500			500,000
Net decrease in cash and cash equivalents		(207,285	)		(85,259	)
Cash and cash equivalents at beginning of period		213,307			136,405
Cash and cash equivalents at end of period	$	6,022		$	51,146
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest	$	-		$	-
Cash paid during period for taxes	$	-		$	-
Non-cash transactions:
Fair value of vested options issued to officers, directors and employees	$	296,844		$	1,850,247
Equity based compensation	$	352,877		$	-
Common stock issued in exchange for previously incurred debt	$	-		$	2,860,000

See the accompanying notes to the unaudited condensed consolidated financial statements

3

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

(unaudited)

NOTE A — SUMMARY OF ACCOUNTING POLICIES

General

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q, and therefore, do not include all the information necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended December 31, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2010. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated September 30, 2009 financial statements and footnotes thereto included in the Company’s SEC Form 10-K.

Business and Basis of Presentation

On September 16, 2002, Applied DNA Sciences, Inc. (the “Company”) was incorporated under the laws of the State of Nevada. Effective December 17, 2008, the Company reincorporated from the State of Nevada to the State of Delaware. During the year ended September 30, 2007, the Company transitioned from a development stage enterprise to an operating company. The Company is principally devoted to developing DNA embedded biotechnology security solutions in the United States. To date, the Company has generated minimum sales revenues from its services and products; it has incurred expenses and has sustained losses.  Consequently, its operations are subject to all the risks inherent in the establishment of a new business enterprise.  For the period from inception through December 31, 2009, the Company has accumulated losses of $145,239,711.

The unaudited condensed consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiaries Applied DNA Operations Management, Inc., APDN (B.V.I.), Inc. and Applied DNA Sciences Europe Limited. Significant inter-company transactions have been eliminated in consolidation.

Estimates

The preparation of the financial statement in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures.  Accordingly, actual results could differ from those estimates.

Revenue Recognition

Revenues are derived from research, development, qualification and production testing for certain commercial products. Revenue from fixed price testing contracts is generally recorded upon completion of the contracts, which are generally short-term, or upon completion of identifiable contractual tasks. At the time the Company enters into a contract that includes multiple tasks, the Company estimates the amount of actual labor and other costs that will be required to complete each task based on historical experience. Revenues are recognized which provide for a profit margin relative to the testing performed. Revenue relative to each task and from contracts which are time and materials based is recorded as effort is expended. Billings in excess of amounts earned are deferred. Any anticipated losses on contracts are charged to income when identified. To the extent management does not accurately forecast the level of effort required to complete a contract, or individual tasks within a contract, and the Company is unable to negotiate additional billings with a customer for cost over-runs, the Company may incur losses on individual contracts. All selling, general and administrative costs are treated as period costs and expensed as incurred.

4

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

For revenue from product sales, the Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”). ASC 605-10 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for allowances and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. At December 31, 2009 and September 30, 2009, the Company did not record any deferred revenue for the respective periods.

ASC 605-10 incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arraignments (“ASC 605-25”). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.  The effect of implementing ASC 605-25 on the Company’s financial position and results of operations was not significant.

Cash Equivalents

For the purpose of the accompanying unaudited condensed consolidated financial statements, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents.

Accounts Receivable

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. At December 31, 2009 and September 30, 2009, the Company has deemed that no allowance for doubtful accounts was necessary.

Income Taxes

The Company has adopted Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Temporary differences between taxable income reported for financial reporting purposes and income tax purposes are insignificant.

5

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

Property and Equipment

Property and equipment are stated at cost and depreciated over their estimated useful lives of 3 to 5 years using the straight line method.  At December 31, 2009 and September 30, 2009 property and equipment consist of:

	December 31, 2009  (unaudited)			September 30, 2009
Computer equipment	$	27,404		$	27,404
Lab equipment		77,473			77,473
Furniture		105,985			105,985
		210,862			210,862
Accumulated depreciation		(201,472	)		(199,119	)
Net	$	9,390		$	11,743

Impairment of Long-Lived Assets

The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset.  ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

Comprehensive Income

The Company does not have any items of comprehensive income in any of the years presented.

Segment Information

The Company adopted Accounting Standards Codification subtopic Segment Reporting 280-10 (“ASC 280-10”). ASC 280-10 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders.  ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision- making group, in making decisions how to allocate resources and assess performance.  The information disclosed herein, materially represents all of the financial information related to the Company’s single principal operating segment.

6

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

Net Loss Per Share

The Company has adopted Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”) which specifies the computation, presentation and disclosure requirements of earnings per share information.  Basic earnings per share have been calculated based upon the weighted average number of common shares outstanding. For the three months ended December 31, 2009 and 2008, common equivalent shares are excluded from the computation of the diluted loss per share as their effect would be anti-dilutive. Fully diluted shares outstanding were 336,290,914 and 253,851,073 for the three month periods ended December 31, 2009 and 2008, respectively.

Stock Based Compensation

Effective for the year beginning January 1, 2006, the Company has adopted Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”) which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.  Pro-forma disclosure is no longer an alternative. The Company implemented ASC 718-10 on January 1, 2006 using the modified prospective method. Stock-based compensation expense recognized under ASC 718-10 for the three months  ended December 31, 2009 and 2008 were $296,844 and $-0-, respectively.

As of December 31, 2009, 38,920,000 employee stock options were outstanding with 25,874,205 shares vested and exercisable.

Concentrations

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables.  The Company places its cash and temporary cash investments with high credit quality institutions.  At times, such investments may be in excess of the FDIC insurance limit.

Research and Development

The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”).  Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred.  Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred.  The Company incurred research and development expenses of $6,148 and $62,529 for the three month periods ended December 31, 2009 and 2008, respectively.

Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred.  The Company charged to operations $13,055 and $14,337 as advertising costs for the three month periods ended December 31, 2009 and 2008, respectively.

7

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

Intangible Assets

The Company amortized its intangible assets using the straight-line method over their estimated period of benefit.  The estimated useful life for patents is five years while intellectual property uses a seven year useful life. We periodically evaluate the recoverability of intangible assets and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.  All of our intangible assets are subject to amortization.

Fair Value of Financial Instruments

In the first quarter of fiscal year 2008, the Company adopted Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”).  ASC 820-10 defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement disclosure. ASC 820-10 delays, until the first quarter of fiscal year 2009, the effective date for ASC 820-10 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of ASC 820-10 did not have a material impact on the Company’s financial position or operations. Refer to Footnote I for further discussion regarding fair valuation.

Effective October 1, 2008, the Company adopted Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value. Neither of these statements had an impact on the Company’s unaudited condensed consolidated financial position, results of operations or cash flows. The carrying value of cash and cash equivalents, accounts payable and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments.

Recently Adopted Accounting Principles

Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.

In April 2008, the FASB issued ASC 350-10, “Determination of the Useful Life of Intangible Assets”. ASC 350-10 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under ASC 350-10, “Goodwill and Other Intangible Assets.” ASC No. 350-10 is effective for fiscal years beginning after December 15, 2008. The adoption of this ASC did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

8

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

In March 2008, the FASB issued ASC 815-10, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133”. ASC 815-10 requires enhanced disclosures regarding derivatives and hedging activities, including: (a) the manner in which an entity uses derivative instruments; (b) the manner in which derivative instruments and related hedged items are accounted for under Accounting Standards Codification 815-10, “Accounting for Derivative Instruments and Hedging Activities”; and (c) the effect of derivative instruments and related hedged items on an entity’s financial position, financial performance, and cash flows. ASC 815-10 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. As ASC 815-10 relates specifically to disclosures, it currently has no impact on the Company’s unaudited condensed consolidated financial statements.

In June 2008, the FASB ratified ASC 815-40-15, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”. ASC 815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.  It also clarifies the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation.  ASC 815-40-15 is effective for fiscal years beginning after December 15, 2008.  The adoption of this ASC did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

In April 2009, the FASB issued ASC 805-10, “Accounting for Assets Acquired and Liabilities assumed in a Business Combination That Arise from Contingencies —an amendment of FASB Statement No. 141 (Revised December 2007), Business Combinations”. ASC 805-10 addresses application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. ASC 805-10 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. ASC 805-10 will have an impact on the Company’s accounting for any future acquisitions and its unaudited condensed consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, which is included in ASC Topic 855, Subsequent Events. ASC Topic 855 established principles and requirements for evaluating and reporting subsequent events and distinguishes which subsequent events should be recognized in the financial statements versus which subsequent events should be disclosed in the financial statements. ASC Topic 855 also required disclosure of the date through which subsequent events are evaluated by management.  ASC Topic 855 was effective for interim periods ending after June 15, 2009 and applies prospectively.  Because ASC Topic 855 impacted the disclosure requirements, and not the accounting treatment for subsequent events, the adoption of ASC Topic 855 did not impact our results of operations or financial condition.  See Note K for disclosures regarding our subsequent events.

In August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value, which provides additional guidance on how companies should measure liabilities at fair value under ASC 820. The ASU clarifies that the quoted price for an identical liability should be used. However, if such information is not available, an entity may use, the quoted price of an identical liability when traded as an asset, quoted prices for similar liabilities or similar liabilities traded as assets, or another valuation technique (such as the market or income approach). The ASU also indicates that the fair value of a liability is not adjusted to reflect the impact of contractual restrictions that prevent its transfer and indicates circumstances in which quoted prices for an identical liability or quoted price for an identical liability traded as an asset may be considered level 1 fair value measurements. This ASU is effective October 1, 2009. The adoption of this ASC did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

9

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force, that provides amendments to the criteria for separating consideration in multiple-deliverable arrangements. As a result of these amendments, multiple-deliverable revenue arrangements will be separated in more circumstances than under existing U.S. GAAP. The ASU does this by establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. A vendor will be required to determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis. This ASU also eliminates the residual method of allocation and will require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the overall arrangement proportionally to each deliverable based on its relative selling price. Expanded disclosures of qualitative and quantitative information regarding the application of the multiple-deliverable revenue arrangement guidance are also required under the ASU. The ASU does not apply to arrangements for which industry specific allocation and measurement guidance exists, such as long-term construction contracts and software transactions. ASU No. 2009-13 is effective beginning January 1, 2011. The Company is currently evaluating the impact of this standard on its consolidated results of operations and financial condition.

NOTE B - ACQUISITION OF INTANGIBLE ASSETS

The identifiable intangible assets acquired and their carrying values at December 31, 2009 and September 30, 2009, respectively, are as follows:

	December 31, 2009 (unaudited)			September 30, 2009
Trade secrets and developed technologies (Weighted average life of 7 years)	$	9,430,900		$	9,430,900
Patents (Weighted average life of 5 years)		34,257			34,257
Total Amortized identifiable intangible assets- Gross carrying value:		9,465,157			9,465,157
Less:
Accumulated Amortization		(2,900,668	)		(2,809,575	)
Impairment (See below)		(5,655,011	)		(5,655,011	)
Net:	$	909,478			1,000,571
Residual value:	$	0			0

During the year ended September 30, 2006 the Company management performed an evaluation of its intangible assets (intellectual property) for purposes of determining the implied fair value of the assets at September 30, 2006. The test indicated that the recorded remaining book value of its intellectual property exceeded its fair value for the year ended September 30, 2006, as determined by discounted future cash flows.  As a result, upon completion of the assessment, management recorded a non-cash impairment charge of $5,655,011, net of tax, or $0.05 per share during the year ended September 30, 2006 to reduce the carrying value of the patents to $2,091,800. Considerable management judgment is necessary to estimate the fair value.  Accordingly, actual results could vary significantly from management’s estimates.

Total amortization expense charged to operations for the three month periods ended December 31, 2009 and 2008 were $91,093 and $91,966, respectively.

10

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE C – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at December 31, 2009 and September 30, 2009 are as follows:

	December 31, 2009 (unaudited)		September 30, 2009
Accounts payable	$	749,871	$	593,025
Accrued consulting fees		102,500		102,500
Accrued interest payable		185,348		110,767
Accrued salaries payable		20,599		37,199
Total	$	1,058,318	$	843,491

Registration Rights Liquidated Damages

In private placements in November and December, 2003, December, 2004, and January and February, 2005, the Company issued secured convertible promissory notes and warrants to purchase the Company’s common stock. Pursuant to the terms of a registration rights agreement, the Company agreed to file a registration statement to be declared effective by the SEC for the common stock underlying the notes and warrants in order to permit public resale thereof. The registration rights agreement provided for the payment of liquidated damages if the stipulated registration deadlines were not met. The liquidated damages are equal to 3.5% per month of the face amount of the notes, which equals $367,885, with no limitations. During the year ended September 30, 2008, the SEC declared effective the Company’s registration statement with respect to the common stock underlying the notes and warrants. As of September 30, 2009, the Company concluded that the payment of liquidated damages under these commitments was not probable. Accordingly, the Company reversed the accrued expenses for the potential liquidated damages of $12,023,888 as other income in the statement of operations during the year ended September 30, 2009.

11

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE D – PRIVATE PLACEMENT OF CONVERTIBLE NOTES

Convertible notes payable as of December 31, 2009 and September 30, 2009:

	December 31, 2009			September 30, 2009
Secured Convertible Note Payable dated October 21, 2008, net of unamortized debt discount of  $-0- and $14,591, respectively (see below)		500,000			485,409
Secured Convertible Note Payable dated January 29, 2009, net of unamortized debt discount of $5,679 and $23,693, respectively (see below)		144,321			126,307
Secured Convertible Note Payable dated February 27, 2009, net of unamortized debt discount of $8,883 and $22,975,  respectively (see below)		191,117			177,025
Secured Convertible Note Payable dated March 30, 2009, net of unamortized debt discount of $23,629 and $48,054, respectively (see below)		226,371			201,946
Secured Convertible Note Payable dated April 14, 2009, net of unamortized debt discount of $35,329 and  $66,581, respectively (see below)		264,671			233,419
Secured Convertible Note Payable dated June 22, 2009, net of unamortized debt discount of $21,189 and $32,457, respectively (see below)		228,811			217,543
Secured Convertible Note Payable dated June 30, 2009, net of unamortized debt discount of $12,159 and $18,374, respectively (see below)		137,841			131,626
Secured Convertible Note Payable dated August 21, 2009, net of unamortized debt discount of $42,299 and  $59,000, respectively (see below)		387,701			371,000
Secured Convertible Note Payable dated September 30, 2009, net of unamortized debt discount of $12,652 and $16,932, respectively (see below)		237,348			233,068
Secured Convertible Note Payable dated September 30, 2009, net of unamortized debt discount of $12,652 and $16,932, respectively (see below)		237,348			233,068
Secured Convertible Note Payable dated October 14, 2009, net of unamortized debt discount of $16,782 (see below)		253,218
		2,808,747			2,410,411
Less: current portion		(2,808,747	)		(2,410,411	)
	$	-		$	-

10% Secured Convertible Promissory Note dated October 21, 2008

On October 21, 2008, the Company issued a $500,000 related party convertible promissory note to a related party due October 21, 2009 with interest at 10% per annum due upon maturity. The date of maturity of the note was extended to a future date. The note is convertible at any time prior to maturity, at the holder’s option, into shares of our common stock at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion or (ii) at $0.02617152 per share, which is equal to a 30% discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance. At maturity, the note, including any accrued and unpaid interest, is automatically convertible at $0.02617152 per share. The Company has granted the noteholder a security interest in all the Company’s assets.

In accordance ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $279,188 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (one year) as interest expense.

12

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE D — PRIVATE PLACEMENT OF CONVERTIBLE NOTES (continued)

In connection with the placement of the note the Company issued non-detachable warrants granting the holder the right to acquire 1,000,000 shares of the Company’s common stock at $0.50 per share. The warrants expire five years from the issuance. In accordance with ASC 470-20, the Company recognized the value attributable to the warrants in the amount of $34,104 to additional paid in capital and a discount against the note. The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 1.86%, a dividend yield of 0%, and volatility of 207.46%. The debt discount attributed to the value of the warrants issued is amortized over the note’s maturity period (one year) as interest expense.

The Company recorded the intrinsic value of the embedded beneficial conversion feature ($279,188) and warrants ($34,104) to debt discount, aggregating $313,292, which will be amortized to interest expense over the term of the Notes. Amortization of $14,591 and $64,375 was recorded for the three month periods ended December 31, 2009 and 2008, respectively.

10% Secured Convertible Promissory Note dated January 29, 2009

On January 29, 2009, the Company issued a $150,000 related party convertible promissory note to a related party due January 29, 2010 with interest at 10% per annum due upon maturity. The note is convertible at any time prior to maturity, at the holder’s option, into shares of our common stock at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion or (ii) at $0.033337264 per share, which is equal to a 20% discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance. At maturity, the note, including any accrued and unpaid interest, is automatically convertible at $0.033337264 per share. The Company has granted the noteholder a security interest in all the Company’s assets.

In accordance with ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $61,974 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (one year) as interest expense.

In connection with the placement of the note the Company issued non-detachable warrants granting the holder the right to acquire 300,000 shares of the Company’s common stock at $0.50 per share. The warrants expire five years from the issuance. In accordance with ASC 470-20, the Company recognized the value attributable to the warrants in the amount of $9,498 to additional paid in capital and a discount against the note. The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 1.87%, a dividend yield of 0%, and volatility of 150.55%. The debt discount attributed to the value of the warrants issued is amortized over the note’s maturity period (one year) as interest expense.

The Company recorded the intrinsic value of the embedded beneficial conversion feature ($61,974) and warrants ($9,498) to debt discount, aggregating $71,472, which will be amortized to interest expense over the term of the Notes. Amortization of $18,015 was recorded for the three month period ended December 31, 2009.

13

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE D — PRIVATE PLACEMENT OF CONVERTIBLE NOTES (continued)

 10% Secured Convertible Promissory Note dated February 27, 2009

On February 27, 2009, the Company issued a $200,000 related party convertible promissory note to a related party due February 27, 2010 with interest at 10% per annum due upon maturity. The note is convertible at any time prior to maturity, at the holder’s option, into shares of our common stock at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion or (ii) at $0.046892438 per share, which is equal to a 20% discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance. At maturity, the note, including any accrued and unpaid interest, is automatically convertible at $0.046892438 per share. The Company has granted the noteholder a security interest in all the Company’s assets.

In accordance with ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $55,905 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (one year) as interest expense.

The Company recorded the intrinsic value of the embedded beneficial conversion feature ($55,905) will be amortized to interest expense over the term of the Notes. Amortization of $14,091 was recorded for the three month period ended December 31, 2009.

10% Secured Convertible Promissory Note dated March 30, 2009

On March 30, 2009, the Company issued a $250,000 related party convertible promissory note to a related party due March 30, 2010 with interest at 10% per annum due upon maturity. The note is convertible at any time prior to maturity, at the holder’s option, into shares of our common stock at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion or (ii) at $0.043239467 per share, which is equal to a 20% discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance. At maturity, the note, including any accrued and unpaid interest, is automatically convertible at $0.043239467 per share. The Company has granted the noteholder a security interest in all the Company’s assets.

In accordance with ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $96,905 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (one year) as interest expense.

The Company recorded the intrinsic value of the embedded beneficial conversion feature ($96,905) will be amortized to interest expense over the term of the Notes. Amortization of $24,425 was recorded for the three month period ended December 31, 2009.

14

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE D — PRIVATE PLACEMENT OF CONVERTIBLE NOTES (continued)

10% Secured Convertible Promissory Note dated April 14, 2009

On April 14, 2009, the Company issued a $300,000 convertible promissory note due April 14, 2010 with interest at 10% per annum due upon maturity. The note is convertible at any time prior to maturity, at the holder’s option, into shares of our common stock at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion or (ii) at $0.070756456 per share, which is equal to a 20% discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance. At maturity, the note, including any accrued and unpaid interest, is automatically convertible at $0.070756456 per share. The Company has granted the noteholder a security interest in all the Company’s assets.

In accordance with ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $123,990 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (one year) as interest expense.

The Company recorded the intrinsic value of the embedded beneficial conversion feature ($123,990) will be amortized to interest expense over the term of the Notes. Amortization of $31,252 was recorded for the three month period ended December 31, 2009.

10% Secured Convertible Promissory Note dated June 22, 2009

On June 22, 2009, the Company issued a $250,000 convertible promissory note due June 22, 2010 with interest at 10% per annum due upon maturity. The note is convertible at any time prior to maturity, at the holder’s option, into shares of our common stock at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion or (ii) at $0.110279774, which is equal to a 20% discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance. At maturity, the note, including any accrued and unpaid interest, is automatically convertible at $0.110279774 per share. The Company has granted the noteholder a security interest in all the Company’s assets.

In accordance with ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $44,705 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (one year) as interest expense.

The Company recorded the intrinsic value of the embedded beneficial conversion feature ($44,705) will be amortized to interest expense over the term of the Notes. Amortization of $11,268 was recorded for the three month period ended December 31, 2009.

15

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE D — PRIVATE PLACEMENT OF CONVERTIBLE NOTES (continued)

10% Secured Convertible Promissory Note dated June 30, 2009

On June 30, 2009, the Company issued a $150,000 related party convertible promissory note to a related party due June 30, 2010 with interest at 10% per annum due upon maturity. The note is convertible at any time prior to maturity, at the holder’s option, into shares of our common stock at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion or (ii) at $0.103059299 per share, which is equal to a 20% discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance. At maturity, the note, including any accrued and unpaid interest, is automatically convertible at $0.103059299 per share. The Company has granted the noteholder a security interest in all the Company’s assets.

In accordance with ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $24,657 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (one year) as interest expense.

The Company recorded the intrinsic value of the embedded beneficial conversion feature ($24,657) will be amortized to interest expense over the term of the Notes. Amortization of $6,215 was recorded for the three month period ended December 31, 2009.

10% Secured Convertible Promissory Notes dated August 21, 2009

On August 21, 2009, the Company issued an aggregate of $430,000 convertible promissory notes due August 21, 2010 with interest at 10% per annum due upon maturity. The note is convertible at any time prior to maturity, at the holder’s option, into shares of our common stock at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion or (ii) at $0.095312615 per share, which is equal to a 20% discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance. At maturity, the note, including any accrued and unpaid interest, is automatically convertible at $0.095312615 per share. The Company has granted the noteholder a security interest in all the Company’s assets.

In accordance with ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $66,262 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (one year) as interest expense.

The Company recorded the intrinsic value of the embedded beneficial conversion feature ($66,262) will be amortized to interest expense over the term of the Notes. Amortization of $16,702 was recorded for the three month period ended December 31, 2009.

16

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE D — PRIVATE PLACEMENT OF CONVERTIBLE NOTES (continued)

10% Secured Convertible Promissory Notes dated September 30, 2009

On September 30, 2009, the Company issued an aggregate of $250,000 convertible promissory notes due September 30, 2010 with interest at 10% per annum due upon maturity. The note is convertible at any time prior to maturity, at the holder’s option, into shares of our common stock at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion or (ii) at $0.121732857 per share, which is equal to a 20% discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance. At maturity, the note, including any accrued and unpaid interest, is automatically convertible at $0.121732857 per share. The Company has granted the noteholder a security interest in all the Company’s assets.

In accordance with ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $16,978 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (one year) as interest expense.

The Company recorded the intrinsic value of the embedded beneficial conversion feature ($16,978) will be amortized to interest expense over the term of the Notes. Amortization of $4,279 was recorded for the three month period ended December 31, 2009.

10% Secured Convertible Promissory Note dated September 30, 2009

On September 30, 2009, the Company issued a $250,000 related party convertible promissory note due September 30, 2010 with interest at 10% per annum due upon maturity. The note is convertible at any time prior to maturity, at the holder’s option, into shares of our common stock at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion or (ii) at $0.121732857 per share, which is equal to a 20% discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance. At maturity, the note, including any accrued and unpaid interest, is automatically convertible at $0.121732857 per share. The Company has granted the noteholder a security interest in all the Company’s assets.

In accordance with ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $16,978 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (one year) as interest expense.

The Company recorded the intrinsic value of the embedded beneficial conversion feature ($16,978) will be amortized to interest expense over the term of the Notes. Amortization of $4,279 was recorded for the three month period ended December 31, 2009.

17

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE D — PRIVATE PLACEMENT OF CONVERTIBLE NOTES (continued)

10% Secured Convertible Promissory Notes dated October 14, 2009

On October 14, 2009, the Company issued an aggregate of $270,000 convertible promissory note due October 14, 2010 with interest at 10% per annum due upon maturity. The note is convertible at any time prior to maturity, at the holder’s option, into shares of our common stock at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion or (ii) at $0.092674218 per share, which is equal to a 20% discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance. At maturity, the note, including any accrued and unpaid interest, is automatically convertible at $0.092674218 per share. The Company has granted the noteholder a security interest in all the Company’s assets.

In accordance with ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $21,343 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (one year) as interest expense.

The Company recorded the intrinsic value of the embedded beneficial conversion feature ($21,343) will be amortized to interest expense over the term of the Notes. Amortization of $4,561 was recorded for the three month period ended December 31, 2009.

NOTE E - RELATED PARTY TRANSACTIONS

The Company’s current and former officers and shareholders have advanced funds to the Company for travel related and working capital purposes.  The Company has not entered into any agreement on the repayment terms for these advances. As of December 31, 2009 and September 30, 2009,there were $150,000 and $-0- advances outstanding, respectively.

NOTE F - CAPITAL STOCK

The Company is authorized to issue 410,000,000 shares of common stock, with a $0.001 par value per share as the result of a shareholder meeting conducted on May 16, 2007. In addition, the Company is authorized to issue 10,000,000 shares of preferred stock with a $0.001 par value per share. As of December 31, 2009, there were 275,204,070 shares of common stock issued and outstanding.

NOTE G - STOCK OPTIONS AND WARRANTS

Warrants

The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company. These warrants were granted in lieu of cash compensation for services performed or financing expenses in connection with the sale of the Company’s common stock.

18

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE G — STOCK OPTIONS AND WARRANTS (continued)

Exercise Prices	Number Outstanding		Warrants Outstanding Remaining Contractual Life (Years)	Weighted Average Exercise Price		Weighted Average Exercisable	Exercisable Weighted Average Exercise Price
$0.06		2,000,000	4.14	$	0.06	2,000,000	$	0.06
$0.07		200,000	2.21	$	0.07	200,000	$	0.07
$0.09		16,400,000	1.67	$	0.09	16,400,000	$	0.09
$0.10		1,500,000	3.24	$	0.10	1,500,000	$	0.10
$0.50		27,100,000	1.83	$	0.50	27,100,000	$	0.50
$0.75		14,797,000	0.10	$	0.75	14,797,000	$	0.75
		61,997,000				61,997,000

Transactions involving warrants are summarized as follows:

	Number of Shares			Weighted Average Price Per Share
Balance, September 30, 2008		63,980,964		$	0.46
Granted		5,000,000			0.20
Exercised		—
Canceled or expired		(4,160,464	)		(0.69	)
Outstanding at September 30, 2009		64,820,500		$	0.43
Granted		—			—
Exercised		—			—
Canceled or expired		(2,823,500	)		(0.60	)
Balance, December 31, 2009		61,997,000		$	0.43

Aggregate intrinsic value of warrants outstanding and exercisable at December 31, 2009 was $-0-.  Aggregate intrinsic value represents the difference between the Company’s closing price on the last trading day of the fiscal period, which was $0.06 as of December 31, 2009, and the exercise price multiplied by the number of warrants outstanding.

Employee Stock Options

On January 26, 2005, the Board of Directors, and on February 15, 2005, the holders of a majority of the outstanding common stock of the Company approved the 2005 Incentive Stock Plan and authorized the issuance of 16,000,000 shares of common stock as stock awards and stock options thereunder. The 2005 Incentive Stock Plan is designed to retain directors, executives, and selected employees and consultants by rewarding them for making contributions to our success with an award of options to purchase shares of our common stock.

19

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE G — STOCK OPTIONS AND WARRANTS (continued)

The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees of the Company under a non-qualified employee stock option plan:

Options Outstanding						Options Exercisable
Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	0.07		1,000,000		4.40	$	0.07		—	$	0.07
	0.09		1,500,000		1.92		0.09		1,500,000		0.09
	0.11		36,420,000		3.72		0.11		18,210,000		0.11
			38,920,000			$	0.11		19,710,000	$	0.11

Transactions involving stock options issued to employees are summarized as follows:

	Number of Shares			Weighted Average Exercise Price Per Share
Outstanding at October 1, 2008		5,660,000		$	0.47
Granted		38,670,000			0.11
Exercised		(1,125,000	)		0.10
Cancelled or expired		(4,285,000	)		0.60
Outstanding at September 30, 2009		38,920,000		$	0.11
Granted		-
Exercised		-
Canceled or expired		-
Outstanding at December 31, 2009		38,920,000		$	0.11

Aggregate intrinsic value of options outstanding and exercisable at December 31, 2009 was $-0-.  Aggregate intrinsic value represents the difference between the Company’s closing price on the last trading day of the fiscal period, which was $0.06 as of December 31, 2009, and the exercise price multiplied by the number of options outstanding.

The Company recorded $296,844 as stock compensation expense for the three month period ended December 31, 2009 for the vesting portion of all employee options outstanding.

20

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE H- COMMITMENTS AND CONTINGENCIES

The Company leases office space under operating lease in Stony Brook, New York for its corporate use, expiring in October 2010. In November 2005, the Company vacated the Los Angeles facility to relocated to the new Stony Brook New York address  Total lease rental expenses for the three month periods ended December 31, 2009 and 2008, was $20,275 and $18,638, respectively.

Employment and Consulting Agreements

The Company has consulting agreement with an outside contractor, who is also a Company stockholder. The agreement is generally month to month. The Company recorded $25,000 of consulting expenses for the three month period ended December 31, 2009 related to this agreement.

Litigation

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as described below, we are currently not aware of any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

Intervex, Inc. v. Applied DNA Sciences, Inc. (Supreme Court of the State of New York Index No.08-601219):

Intervex, Inc., or Intervex, the plaintiff, filed a complaint on or about April 23, 2008 related to a claim for breach of contract. In March 2005, the Company entered into a consulting agreement with Intervex, which provided for, among other things, a payment of $6,000 per month for a period of 24 months, or an aggregate of $144,000. In addition, the consulting agreement provided for the issuance by the Company to Intervex of a five-year warrant to purchase 250,000 shares of the Company’s common stock with an exercise price of $.75. Intervex asserts that the Company owes them 17 payments of $6,000, or an aggregate of $102,000, plus accrued interest thereon, and a warrant to purchase 250,000 shares of the Company’s common stock. The Company has counterclaimed for compensatory and punitive damages, restitution, attorneys’ fees and costs, interest and other relief the court deems proper. The Company filed a motion for summary judgment and Intervex filed a cross-motion for summary judgment.  Oral arguments were heard on January 28, 2010 on both motions. This matter is in the early stages of discovery. We intend to vigorously defend against the claims asserted against us.

21

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE H- COMMITMENTS AND CONTINGENCIES (continued)

Matters Voluntarily Reported to the SEC and Securities Act Violations

The Company previously disclosed that we investigated the circumstances surrounding certain issuances of 8,550,000 shares to employees and consultants in July 2005, and engaged outside counsel to conduct this investigation. The Company has voluntarily reported its current findings from the investigation to the SEC, and it has agreed to provide the SEC with further information arising from the investigation. The Company believes that the issuance of 8,000,000 shares to employees in July 2005 was effectuated by both its former President and its former Chief Financial Officer/Chief Operating Officer without approval of the Board of Directors. These former officers received a total of 3,000,000 of these shares. In addition, it appears that the 8,000,000 shares issued in July 2005, as well as an additional 550,000 shares issued to employees and consultants in March, May and August 2005, were improperly issued without a restrictive legend stating that the shares could not be resold legally except in compliance with the Securities Act of 1933, as amended. The members of the Company’s management who effectuated the stock issuances that are being examined in the investigation no longer work for the Company. In the event that any of the exemptions from registration with respect to the issuance of the Company’s common stock under federal and applicable state securities laws were not available, the Company may be subject to claims by federal and state regulators for any such violations. In addition, if any purchaser of the Company’s common stock were to prevail in a suit resulting from a violation of federal or applicable state securities laws, the Company could be liable to return the amount paid for such securities with interest thereon, less the amount of any income received thereon, upon tender of such securities, or for damages if the purchaser no longer owns the securities. As of the date of these financial statements, the Company is not aware of any alleged specific violation or the likelihood of any claim. There can be no assurance that litigation asserting such claims will not be initiated, or that the Company would prevail in any such litigation.

The Company is unable to predict the extent of its ultimate liability with respect to any and all future securities matters. The costs and other effects of any future litigation, government investigations, legal and administrative cases and proceedings, settlements, judgments and investigations, claims and changes in this matter could have a material adverse effect on the Company’s financial condition and operating results.

NOTE I - FAIR VALUE MEASUREMENT

The Company adopted the provisions of ASC 825-10 on October 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

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APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE I —FAIR VALUE MEASUREMENT (continued)

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

Upon adoption of ASC 825-10, there was no cumulative effect adjustment to the beginning retained earnings and no impact on the consolidated financial statements.

The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.  All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.

The following table sets forth the Company’s short and long-term investments as of December 31, 2009 which are measured at fair value on a recurring basis by level within the fair value hierarchy.  As required by ASC 825-10, these are classified based on the lowest level of input that is significant to the fair value measurement:

	Quoted Prices in Active Markets for Identical Instruments Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Assets and liabilities at fair Value
Assets:
Cash	$	6,022	$	-	$	-	$	6,022
Liabilities:
Convertible notes payable	$	-	$	2,808,747	$	-	$	2,808,747

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APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

 (unaudited)

NOTE J - GOING CONCERN

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed consolidated financial statements during the three month period ended December 31, 2009, the Company incurred a loss of $1,808,008.  Additionally, the Company has a negative working capital of $3,943,075 and $2,913,857 as of December 31, 2009 and September 30, 2009, respectively. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.

The Company’s existence is dependent upon management’s ability to develop profitable operations. Management is devoting substantially all of its efforts to developing DNA embedded biotechnology security solutions in the United States and Europe and there can be no assurance that the Company’s efforts will be successful and no assurance can be given that management’s actions will result in profitable operations or the resolution of its liquidity problems. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

In order to improve the Company’s liquidity, the Company’s management is actively pursuing additional equity financing through discussions with investment bankers and private investors. There can be no assurance the Company will be successful in its effort to secure additional equity financing.

NOTE K – SUBSEQUENT EVENTS

In accordance with FASB ASC 855, “Subsequent Events,” the Company has evaluated subsequent events through the date of filing, February 11, 2010.

10% Secured Convertible Promissory Notes dated January 7, 2010

On January 7, 2010, the Company issued a $50,000 convertible promissory note due January 7, 2011 with interest at 10% per annum due upon maturity. The note is convertible at any time prior to maturity, at the holder’s option, into shares of our common stock at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion or (ii) at $0.052877384 per share, which is equal to a 20% discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance. At maturity, the note, including any accrued and unpaid interest, is automatically convertible at $0.052877384 per share. The Company has granted the noteholder a security interest in all the Company’s assets.

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Item 2. - Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and Notes thereto, included elsewhere within this report.  The Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including statements using terminology such as “can”, “may”, “believe”, “designated to”, “will”, “expect”, “plan”, “anticipate”, “estimate”, “potential” or “continue”, or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. You should read statements that contain these words carefully because they:

● discuss our future expectations;

● contain projections of our future results of operations or of our financial condition; and

● state other “forward-looking” information.

We believe it is important to communicate our expectations. However, forward looking statements involve risks and uncertainties and our actual results and the timing of certain events could differ materially from those discussed in forward-looking statements as a result of certain factors, including those set forth under “Risk Factors,” “Business” and elsewhere in this report. All forward-looking statements and risk factors included in this document are made as of the date hereof, based on information available to us as of the date thereof, and we assume no obligations to update any forward-looking statement or risk factor, unless we are required to do so by law.

Introduction

We are 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 BioMaterial™ Genotyping, our principal anti-counterfeiting and product authentication solutions, can be used in numerous industries, including cash-in-transit (transport and storage of banknotes), textiles and apparel, identity cards and other secure documents, pharmaceuticals, wine, and luxury consumer goods.

SigNature DNA. We use the DNA of plants to manufacture highly customized and encrypted botanical DNA markers, or SigNature DNA Markers, which we believe are virtually impossible to replicate. We have embedded SigNature DNA Markers into a range of our customers’ products, including various inks, dyes, textile treatments, thermal ribbon, thread, varnishes and adhesives. These items can then be tested for the presence of SigNature DNA Markers through an instant field detection or a forensic level authentication. Our SigNature DNA solution provides a secure, accurate and cost-effective means for users to incorporate our SigNature DNA Markers in, and then quickly and reliably authenticate and identify, a broad range of items, such as recovered banknotes, branded textiles and apparel products, pharmaceuticals and cosmetic products, identity cards and other secure documents, digital media, artwork and collectibles and fine wine. Having the ability to reliably authenticate and identify counterfeit versions of such items enables companies and governments to detect, deter, interdict and prosecute counterfeiting enterprises and individuals.

BioMaterial GenoTyping. Our BioMaterial GenoTyping solution refers to the development of genetic assays to distinguish between varieties or strains of biomaterials, such as cotton, wool, tobacco, fermented beverages, natural drugs and foods, that contain their own source DNA. We have developed two proprietary genetic tests (FiberTyping™ and PimaTyping™) to track American Pima cotton from the field to finished garments. These genetic assays provide the cotton industry with what we believe to be the first authentication tools that can be applied throughout the U.S. and worldwide cotton industry from cotton growers, mills, wholesalers, distributors, manufacturers and retailers through trade groups and government agencies.

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In 2009, we discontinued our BioActive Ingredients program, which we began in 2007.  We developed BioActive Ingredients for personal care products, such as skin care products, based on the biofermentation expertise developed during the manufacturing of DNA for our SigNature DNA and BioMaterial Genotyping solutions, and we have decided to focus our business on these security and authentication solutions.

Plan of Operations

General

To date, our operations have produced insignificant revenues.  We have continued to incur expenses and have limited sources of liquidity. We expect to generate revenues principally from sales of our SigNature Program, and BioMaterial Genotyping.  We are currently attempting to develop business in the following target markets: cash-in-transit, textile and apparel authentication, secure documents, pharmaceuticals, consumer products, fine wine, art and collectibles, and digital and recording media.  We intend to pursue both domestic and international sales opportunities in each of these vertical markets. We currently have sufficient funds to conduct our operations until approximately March 2010.

Critical Accounting Policies

Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.

We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

The accounting policies identified as critical are as follows:

● Revenue recognition;

● Allowance for doubtful accounts; and

● Fair value of intangible asset.

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Revenue Recognition

Revenues are derived from research, development, qualification and production testing for certain commercial products.

Revenue from fixed price testing contracts is generally recorded upon completion of the contracts, which are generally short-term, or upon completion of identifiable contractual tasks. At the time we enter into a contract that includes multiple tasks, we estimate the amount of actual labor and other costs that will be required to complete each task based on historical experience. Revenues are recognized which provide for a profit margin relative to the testing performed. Revenue relative to each task and from contracts which are time and materials based is recorded as effort is expended. Billings in excess of amounts earned are deferred. Any anticipated losses on contracts are charged to income when identified. To the extent management does not accurately forecast the level of effort required to complete a contract, or individual tasks within a contract, and we are unable to negotiate additional billings with a customer for cost over-runs, we may incur losses on individual contracts. All selling, general and administrative costs are treated as period costs and expensed as incurred.

For revenue from product sales, we recognize revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”). ASC 605-10 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. We defer any revenue for which the product has not been delivered or is subject to refund until such time that we and the customer jointly determine that the product has been delivered or no refund will be required.

ASC 605-10 incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arraignments (“ASC 605-25”). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.  The effect of implementing ASC 605-25 on our financial position and results of operations was not significant.

Allowance for Uncollectible Receivables

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. We use a combination of write-off history, aging analysis and any specific known troubled accounts in determining the allowance. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required.

Fair Value of Intangible Assets

We have adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). The Statement requires that long-lived assets and certain identifiable intangibles held and used by us be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period.

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We evaluate the recoverability of long-lived assets annually or more often if events and circumstances warrant. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset.  ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. Actual results could differ from those estimates.

Comparison of Results of Operations for the Three Months Ended December 31, 2009 and 2008

Revenues

For the three months ended December 31, 2009, we generated $72,715 in revenues from operations, principally from the sales of Authentication Services and sales of our Signature DNA, and our cost of sales for the three months ended December 31, 2009 was $14,434, netting us a gross profit of $58,281. For the three months ended December 31, 2008, we generated $146,575 in revenues from operations and our cost of sales for the three months ended December 31, 2009 was $43,741, netting us a gross profit of $102,834. The decrease in sales for the three months ended December 31, 2009 compared to the three months ended December 31, 2009, was primarily caused by the general economic slowdown, especially in the BioActive ingredients market.

Costs and Expenses

Selling, General and Administrative

Selling, general and administrative expenses decreased from $2,764,009 for the three months ended December 31, 2008 to $1,542,135 for the three months ended December 31, 2009. The decrease of $1,221,874, or 44.2%, is primarily attributable to the fair value of vested options granted to officers and employees in 2008, net with a decrease in cost incurred in connection with professional services.

Research and Development

Research and development expenses decreased from $62,529 for the three months ended December 31, 2008 to $6,148 for the three months ended December 31, 2009. The decrease of $56,381 is attributed to less research and development activity needed with current operations.

Depreciation and Amortization

In the three months ended December 31, 2009, depreciation and amortization decreased by $15,538 from $108,984 for the three months ended December 31, 2008 to $93,446 for the three months ended December 31, 2009.  The decrease is attributable to the aging of our property and equipment.

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Total Operating Expenses

Total operating expenses decreased to $1,641,729 for the three months ended December 31, 2009 from $2,935,522 for the three months ended December 31, 2008, or a decrease of $1,293,793 primarily attributable to the fair value of vested options granted to officers and employees in 2008 and less R&D expenditures, net with a decrease in costs incurred in connection with professional services.

Interest Expenses

Interest expense for the three months ended December 31, 2009 decreased by $258,569 to $224,260 from $482,829 for the three months ended December 31, 2008. The decrease in interest expense was due to lower borrowing costs during the year 2009.

Net Income (Loss)

Net loss for the three months ended December 31, 2009 decreased to $1,808,008 from a net loss of $3,316,014 or the three months ended December 31, 2008 primarily attributable to factors described above.

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Liquidity and Capital Resources

Our liquidity needs consist of our working capital requirements, indebtedness payments and research and development expenditure funding.  Historically, we have financed our operations through the sale of equity and convertible debt as well as borrowings from various credit sources. In fiscal 2009, and in prior fiscal years, we have been relying in part on cash infusions from our President, Chairman and Chief Executive Officer, James A. Hayward, in order to fund our operations.  During fiscal 2009, Dr. Hayward provided $1,500,000 in new loans.  Curtailment of cash investments by Dr. Hayward could harm our cash availability and our ability to fund our operations, including our ability to meet our payroll and accounts payable obligations.

As of December 31, 2009, we had a working capital deficit of $3,943,075.  For the three months ended December 31, 2009, we generated a net cash flow deficit from operating activities of $586,785 consisting primarily of year to date loss of $1,808,008.  Non cash adjustments included $297,905 in depreciation and amortization charges and $649,721 for equity based compensation.  Additionally, we had a net decrease in assets of $58,770 and a net increase in current liabilities of $214,827.  Cash provided by financing activities for the three months ended December 31, 2009 totaled $379,500 consisting of proceeds from the issuance of convertible debt, net of the capitalized financing costs and related party advances.

We expect capital expenditures to be less than $200,000 in fiscal 2010.  Our primary investments will be in laboratory equipment to support prototyping and our authentication services.

Exploitation of potential revenue sources will be financed primarily through the sale of securities and convertible debt, exercise of outstanding warrants, issuance of notes payable and other debt or a combination thereof, depending upon the transaction size, market conditions and other factors.

While we have raised capital to meet our working capital and financing needs in the past, additional financing is required within the next three months in order to meet our current and projected cash flow deficits from operations and development. We have sufficient funds to conduct our operations until approximately March 2010.  There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.

By adjusting our operations and development to the level of capitalization, we believe we have sufficient capital resources to meet projected cash flow deficits. However, if during that period or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations liquidity and financial condition.

Our registered independent certified public accountants have stated in their report dated December 23, 2009, that we have incurred operating losses in the last two years, and that we are dependent upon management’s ability to develop profitable operations and raise additional capital. These factors among others may raise substantial doubt about our ability to continue as a going concern.

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Recent Debt and Equity Financing Transactions

Fiscal 2009

During the year ended September 30, 2009, we issued and sold an aggregate principal amount of $1,500,000 in secured convertible promissory notes bearing interest at 10% per annum and warrants to purchase an aggregate of 1,300,000 shares of our common stock to James A. Hayward, our President, Chairman, Chief Executive Officer and a director.  Form more information related to the secured convertible promissory notes and notes issued and sold to Dr. Hayward, please see “Item 13—Certain Relationships and Related Transactions, and Director Independence.”

In addition, during the year ended September 30, 2009, we sold an aggregate principal amount of $1,230,000 in secured convertible promissory notes bearing interest at 10% per annum to “accredited investors,” as defined in regulations promulgated under the Securities Act.  The promissory notes and accrued but unpaid interest thereon automatically convert one year after issuance at a conversion price equal to a discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance, and are convertible into shares of our common stock at the option of the holder at any time prior to such automatic conversion at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion and (ii) the automatic conversion price.  In addition, any time prior to conversion, we have the irrevocable right to repay the unpaid principal and accrued but unpaid interest under the notes on three days notice.  The promissory notes bear interest at the rate of 10% per annum and are due and payable in full on the one year anniversary of their issuance.  The warrants are exercisable for cash or on a cashless basis for a period of four years commencing one year after issuance at a price of $0.50 per share.  Each warrant may be redeemed at our option at a redemption price of $0.01 upon the earlier of (i) three years after the issuance, and (ii) the date our common stock has traded on The Over the Counter Bulletin Board at or above $1.00 per share for 20 consecutive trading days.

Fiscal 2010 (through January 31, 2010)

Since October 1, 2009, we issued and sold an aggregate principal amount of $320,000 in secured convertible promissory notes bearing interest at 10% per annum to “accredited investors,” as defined in regulations promulgated under the Securities Act.  The promissory notes and accrued but unpaid interest thereon automatically convert one year after issuance at a conversion price equal to a discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance, and are convertible into shares of our common stock at the option of the holder at any time prior to such automatic conversion at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion and (ii) the automatic conversion price.  In addition, any time prior to conversion, we have the irrevocable right to repay the unpaid principal and accrued but unpaid interest under the notes on three days notice.  The promissory notes bear interest at the rate of 10% per annum and are due and payable in full on the one year anniversary of their issuance.

We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our brief history and historical operating losses, our operations have not been a material source of liquidity. We will need to obtain additional capital in order to expand operations and become profitable. We intend to pursue the building of a re-seller network outside the United States, and if successful, the re-seller agreements would constitute a source of liquidity and capital over time. In order to obtain capital, we may need to sell additional shares of our common stock for which we may not have enough authorized shares or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding and execution of re-seller agreements outside the Unites States.

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We need to seek additional capital to sustain or expand our prototype and sample manufacturing, and sales and marketing activities, and to otherwise continue our business operations beyond February 2010.  We have no commitments for any future funding, and may not be able to obtain additional financing or grants on terms acceptable to us, if at all, in the future.  If we are unable to obtain additional capital this would restrict our ability to grow and may require us to curtail or discontinue our business operations.  Additionally, while a reduction in our business operations may prolong our ability to operate, that reduction would harm our ability to implement our business strategy.  If we can obtain any equity financing, it may involve substantial dilution to our then existing stockholders.

Additional investments are being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and the downturn in the U.S. stock and debt markets have made it more difficult to obtain financing through the issuance of equity or debt securities. In addition, we may not have sufficient authorized shares of Common Stock under our certificate of incorporation to raise additional funds through the issuance of equity or convertible debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.

Substantially all of the real property used in our business is leased under operating lease agreements.

Product Research and Development

We anticipate spending approximately $150,000 for product research and development activities during the next twelve months.

Acquisition of Plant and Equipment and Other Assets

We do not anticipate the sale of any material property, plant or equipment during the next 12 months.  We do anticipate spending approximately $50,000 on the acquisition of leasehold improvements during the next 12 months.  We believe our current leased space as well as the facility from which we lease space has adequate capacity to manage our growth, if any, over the next 2 to 3 years.

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Number of Employees

We currently have 13 full-time employees and two part-time employees, including two in management, nine in operations, three in sales and marketing and one in investor relations.  We expect to increase its staffing dedicated to sales, product prototyping, manufacturing of DNA markers and forensic authentication services.  Expenses related to travel, marketing, salaries, and general overhead will be increased as necessary to support our growth in revenue.  In order for us to attract and retain quality personnel, we anticipate we will have to offer competitive salaries to future employees.  We anticipate that it may become desirable to add additional full and or part time employees to discharge certain critical functions during the next 12 months.  This projected increase in personnel is dependent upon our ability to generate revenues and obtain sources of financing.  There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected increase in the number of employees.  As we continue to expand, we will incur additional costs for personnel.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Inflation

The effect of inflation on our revenue and operating results was not significant.

Going Concern

The accompanying unaudited condensed consolidated financial statements included in this filing have been prepared in conformity with generally accepted accounting principles in the United States of America that contemplate our continuance as a going concern. Our auditors, in their report dated December 23, 2009, have expressed substantial doubt about our ability to continue as going concern. Our cash position may be inadequate to pay all of the costs associated with the testing, production and marketing of our products. Management intends to use borrowings and the sale of equity or convertible debt to mitigate the effects of its cash position, however no assurance can be given that debt or equity financing, if and when required will be available. The accompanying unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should we be unable to continue existence.

Item 3. - Quantitative and Qualitative Disclosures About Market Risk.

The Company is a smaller reporting company as defined by Rule 12b-2 under the Exchange Act and is not required to provide the information required under this item.

Item 4T. - Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officers, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).  Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses previously found in our internal controls, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.

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Changes in Internal Control over Financial Reporting

During the fiscal quarter ended December 31, 2009, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II - Other Information

Item 1 - Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as described below, we are currently not aware of any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

Intervex, Inc. v. Applied DNA Sciences, Inc. (Supreme Court of the State of New York Index No.08-601219):

Intervex, Inc., or Intervex, the plaintiff, filed a complaint on or about April 23, 2008 related to a claim for breach of contract. In March 2005, we entered into a consulting agreement with Intervex, which provided for, among other things, a payment of $6,000 per month for a period of 24 months, or an aggregate of $144,000. In addition, the consulting agreement provided for the issuance by us to Intervex of a five-year warrant to purchase 250,000 shares of our common stock with an exercise price of $.75. Intervex asserts that we owe it 17 payments of $6,000, or an aggregate of $102,000, plus accrued interest thereon, and a warrant to purchase 250,000 shares of our common stock. We have counterclaimed for compensatory and punitive damages, restitution, attorneys’ fees and costs, interest and other relief the court deems proper. We filed a motion for summary judgment and Intervex filed a cross-motion for summary judgment.  Oral arguments were heard on January 28, 2010 on both motions. This matter is in the early stages of discovery. We intend to vigorously defend against the claims asserted against us.

Item 1A - Risk Factors

There are many risks and uncertainties that can affect our future business, financial performance or share price. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2009. Below are new or updated risk factors from those appearing in our Annual Report on Form 10-K. In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition or future results. The risks described below are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

On October 14, 2009, we issued and sold an aggregate of $270,000 principal amount secured promissory notes bearing interest at a rate of 10% per annum to “accredited investors,” as defined in regulations promulgated under the Securities Act of 1933, as amended. The promissory notes and accrued but unpaid interest thereon shall automatically convert into shares of our common stock on October 14, 2010 at a conversion price of $0.092674218 per share, which is equal to a 20% discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance, and are convertible into shares of our common stock at the option of the noteholders at any time prior to such automatic conversion at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion and (ii) the Automatic Conversion Price.  In addition, any time prior to conversion, we have the irrevocable right to repay the unpaid principal and accrued but unpaid interest under the promissory notes on three days written notice (during which period the holders can elect to convert the promissory notes).  The promissory notes bear interest at the rate of 10% per annum and are due and payable in full on October 14, 2010.  Until the principal and accrued but unpaid interest under the promissory notes are paid in full, or converted into shares of our common stock, the promissory notes will be secured by a security interest in all of our assets. Arjent Services LLC, a registered broker dealer firm, (the “Placement Agent”), acted as our placement agent. In connection with the sale of promissory notes, we paid the Placement Agent commissions and discounts aggregating $40,500. We claim an exemption from the registration requirements of the Securities Act, for the private placement of the promissory notes pursuant to Regulation D of the Securities Act because each of the promissory notes was made in a sale by the issuer not involving a public offering.

On January 7, 2010, we issued and sold a $50,000 principal amount secured promissory note bearing interest at a rate of 10% per annum to Glenn A. Little.  The promissory note and accrued but unpaid interest thereon shall automatically convert into shares of our common stock on January 7, 2011 at a conversion price of $0.052877384 per share, which is equal to a 20% discount to the average volume, weighted average price of our common stock for the ten trading days prior to issuance, and is convertible into shares of our common stock at the option of the noteholder at any time prior to such automatic conversion at a price equal to the greater of (i) 50% of the average price of our common stock for the ten trading days prior to the date of the notice of conversion and (ii) the automatic conversion price.  In addition, any time prior to conversion, we have the irrevocable right to repay the unpaid principal and accrued but unpaid interest under the notes on three days written notice (during which period the holder can elect to convert the note).  The promissory note bears interest at the rate of 10% per annum and is due and payable in full on January 7, 2011.  Until the principal and accrued but unpaid interest under the promissory note are paid in full, or converted into shares of our common stock, the promissory note will be secured by a security interest in all of our assets.  We issued the securities to Glenn A. Little in a private placement exempt from registration pursuant to Regulation D of the Securities Act of 1933, as amended.

For additional information concerning our sales of unregistered securities during the period covered by this report and subsequent to the period covered by this report, please refer to Note D and Note K, respectively, to our Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report, which are incorporated herein by reference.

Item 3 - Defaults on Senior Securities

None.

Item 4 - Submission of Matters to a Vote of Security Holders

As a company that reports under Section 15(d) of the Securities Exchange Act, we are not subject to the proxy rules of Section 14.  In accordance with Delaware law and pursuant to our bylaws, we sought the approval of the matters described below through the solicitation of proxies.  Our annual meeting of stockholders was held on December 14, 2009.  At the meeting, the stockholders:

35

(1) voted to reelect the existing members of the board of directors, James A. Hayward, Yacov Shamash, and Sanford R. Simon, each for a one-year term or until their successors are duly elected and qualified;

(2) to ratify the appointment of RBSM LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2009.

The number of votes cast for, against or withheld, and the number of abstentions with respect to each such matter is set forth below.

MATTER	FOR	AGAINST/ WITHHELD	ABSTAINED
(1)   Election of Directors:
James A. Hayward;	189,642,040	1,305,170
Yacov Shamash; and	189,470,236	1,476,974
Sanford R. Simon.	189,419,657	1,527,563
(2)  Ratification of the appointment of RBSM LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2009.	189,805,651	1,044,273	97,286

Item 5 - Other Information

None

Item 6 – Exhibits

10.1*#	Authentication Mark Agreement, dated December 14, 2009 by and between Applied DNA Sciences, Inc. and Nissha Printing Co., Ltd.
10.2*#	Authentication Mark Agreement, dated December 21, 2009 by and between Applied DNA Sciences, Inc. and ***
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended
32.1*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)
32.2*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)

* Filed herewith.

# A request for confidentiality has been filed for certain portions of the indicated document. Confidential portions have been omitted and filed separately with the Securities and Exchange Commission as required by Rule 24b-2 promulgated under the Securities Exchange Act of 1934.

36

Signatures

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Applied DNA Sciences, Inc.
Dated: February 11, 2010	/s/ James A. Hayward, Ph. D.
	James A. Hayward, Ph. D.
	Chief Executive Officer (Duly authorized officer)

Dated: February 11, 2010	/s/ Kurt H. Jensen
	Kurt H. Jensen
	Chief Financial Officer (Duly authorized officer and principal financial officer)

37

EX-10.1

EXHIBIT 10.1

Confidential Treatment

NISSHA AUTHENTICATION MARK Agreement

This Agreement, effective as of the 14 day of December, 2009, is by and between Applied DNA Sciences, Inc., a company incorporated in the State of Delaware and having its place of business at 25 Health Sciences Drive, Suite 213, Stony Brook, NY 11790 (hereinafter referred to as “APDN”) and Nissha Printing Co., Ltd., a company incorporated and existing under the laws of Japan and having its principle office at 3 Mibu Hanai-cho, Nakagyo-ku, Kyoto-shi, Kyoto, Zip:6048551, Japan (hereinafter referred to as “NISSHA”).

RECITALS

Whereas, APDN has the right to manufacture and sell Authentication Marks;

Whereas, NISSHA is desirous of having APDN make or manufacture Authentication Mark(s) exclusively for NISSHA, for use and sale in products throughout the world upon the terms and conditions set forth herein;

Now, therefore, in consideration of the covenants and obligations hereinafter set forth, the parties agree as follows:

1. DEFINITIONS. As used in this Agreement, the following terms shall be defined as set forth below:

“Authentication Mark” shall mean the specific covert and forensic DNA based authentication marker taggant combined with authentication, analysis, and consulting services for use and resale.

“Effective Date” shall mean the date of execution by the last party to sign this Agreement, which date shall be written above and which shall be the Effective Date of this Agreement.

“NISSHA Authentication Mark” shall mean the custom Authentication Mark customized and manufactured using NISSHA’s INK exclusively for NISSHA.

“NISSHA’s INK” shall mean the ink which NISSHA will designate and send to APDN and in which APDN will customize and manufacture NISSHA Authentication Mark.

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Confidential Treatment

2. CUSTOMIZATION OF AUTHENTICATION MARKS. APDN shall customize and manufacture Authentication Marks for NISSHA using the ink provided by NISSHA on the following terms and conditions.

Procedure: The customization of NISSHA Authentication Marks shall be conducted using following steps.

1.	NISSHA will provide to APDN the number of kilograms NISSHA will be marking with NISSHA’s INK both for the customization and for the production run. As well, NISSHA will provide to APDN the number of batches or runs in which the NISSHA Authentication Marks will be used;
2.	APDN will determine the quantity of Authentication Mark concentrateAPDN will manufacture based on the step1 above.
3.	NISSHA will send APDN a purchase order for the Initial Fee for customization;
4.	NISSHA will send APDN *** of the NISSHA’s INK to be marked, solely for the purpose of customization. NISSHA will specify the quantity of NISSHA Ink to be used in the NISSHA Authentication Mark for customization purposes;
5.	APDN will customize an Authentication Mark concentrate in the *** of NISSHA’s INK;
6.	NISSHA will receive the custom Authentication Mark concentrate and will make NISSHA Authentication Mark for the customization of the Authentication Mark by diluting this to the volume specified by APDN;
7.	NISSHA will print NISSHA Authentication Mark onto product and make sample (hereinafter referred to as “Printing Sample”). Printing Samples for authentication will be taken at beginning and end of printing run;
8.	NISSHA will send Printing Sample to APDN to authenticate. The detail of Printing Sample, criteria of judgment and process of authentication shall be as specified in Exhibit B;
9.	APDN will authenticate Printing Sample and send report to NISSHA.
10.	NISSHA Authentication Marks made for customization purposes can only be used to make Printing Samples and cannot be sold for commercial purposes

Customization Period:

APDN shall customize NISSHA Authentication Marks using NISSHA’s INK and finalize the procedure of step 3, 4, 5 and 6 within two (2) weeks after the receipt of NISSHA’s INK. During said period, APDN shall report the progress to NISSHA weekly.

Authentication Period:

APDN shall authenticate Printing Sample and finalize the procedure of steps 8 and 9 within two (2) weeks after the receipt of said Printing Samples.The first five (5) authentications shall be conducted as part of   the Initial Fee. Beginning with the sixth (6th) authentication in the customization process, NISSHA shall pay to APDN *** for each authentication in the customization process thereafter.

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Confidential Treatment

Completion: The customization shall be deemed completed when NISSHA confirms the report sent by APDN in step 9 of the procedure that the NISSHA Authentication Marks conform to NISSHA’s requirements specified in Exhibit B.

3. PURCHASE. After the completion of the customization, NISSHA will submit a separate purchase order (“Purchase Order”)for the Authentication Mark Fee and will send *** of NISSHA’s INK /kg of NISSHA Authentication Mark to be made by NISSHA to APDN for each order of NISSHA Authentication Mark.

4. CONSIDERATION.

Fee: NISSHA shall pay APDN an Initial Fee, an Annual Fee and an Authentication Mark Fee as described in Exhibit A and as described below. Unless otherwise agreed by both parties, the payment term shall be by T/T remittance within 30 days after invoice date.

The Initial Fee shall be due and payable upon initiation of Authentication Mark customization. The Authentication Mark Fee shall be due and payable upon submission of a Purchase Order and receipt of an invoice from APDN upon completion of the customization or upon additional orders of Authentication Marks. The initial Annual Fee shall be due and payable upon submission of a Purchase Order and receipt of an invoice upon completion of the customization of the Authentication Mark and annually thereafter.

Currency: All payments to APDN by NISSHA are to be made in US dollars.

Late Payments: Payments which are delayed beyond sixty (60) days after the end of the date for which they are due shall be subject to a per annum interest charge of the lesser of (a) twenty percent (20%) or the highest rate allowed under the laws of the State of New York.

Material Breach: Failure of NISSHA to comply with this Section shall be a breach of this Agreement.

5. SHIPPING.In each order, NISSHA’s INK for customization and manufacture of NISSHA Authentication Mark, Printing Samples and products printed with Authentication Mark for authentication test shall be shipped to APDN at NISSHA’s cost.

APDN shall ship Authentication Mark(s) to NISSHA CFR Stony Brook.

Confidential 3

Confidential Treatment

6. CONFIDENTIALITY.In the course of the performance of this Agreement, the parties may furnish each other with confidential and proprietary information and trade secrets (collectively, “Confidential Information”).  Confidential Information of a party is deemed to include, among other things, customer lists, proposed or planned products or services, product designs or improvements, marketing plans, financial and accounting records, cost and profit figures, forecasts, projections, the existence of this Agreement and Confidential Information of third parties, that are observed, identified or disclosed under or as a result of this Agreement.  Unless prior written consent by the other party is obtained, the parties will not disclose the Confidential Information, must immediately return it upon expiration or termination of this Agreement, and must keep it in strict confidence and not use it for any purpose other than the purpose of pursuing this Agreement. The disclosing party will use reasonable efforts to mark or cause to be marked all materials containing its Confidential Information to clearly indicate ownership of the materials and their confidential status; however, failure to mark does not by itself disqualify information from being Confidential Information if other factors or circumstances, or a party’s course of performance, clearly indicate to the receiving party at the time of disclosure or the receiving party acknowledges that the information is confidential. The parties recognize that the Confidential Information of each of the parties (1) was designed and developed by such party at great expense and over lengthy periods of time; (2) is secret, confidential and unique; (3) constitutes the exclusive property and/or trade secrets of such party; and (4) that any use of the Confidential Information by the other of them for any purpose other than in accordance with this Agreement and in furtherance of obligations hereunder would be wrongful and would cause irreparable injury to the aggrieved party for which damages are not an adequate remedy.  The restrictions and obligations in this Section concerning confidentiality will survive the expiration or termination of this Agreement for a period of three (3) years. The obligations of the parties herein will not apply to information which:  (i)  was known to the receiving party  prior to receipt thereof from the disclosing party, as evidenced by the written records of the receiving party; (ii) was disclosed to the receiving party  in good faith by a third party who is in lawful possession thereof and who had the right to make such disclosures; (iii) became part of the public domain, by publication or otherwise, through no fault of the receiving party; or, (iv) was independently developed by the receiving party as evidenced by the receiving party’s written records.

7. INTELLECTUAL PROPERTY RIGHTS. Inventorship shall be determined in accordance with US Law.  NISSHA shall own any inventions solely invented by employees of NISSHA.  NISSHA shall manage and bear all costs of filing, prosecution and maintenance of patents and patent applications related to inventions that are solely owned by NISSHA. APDN shall own any inventions that are solely invented by employees of APDN. APDN shall manage and bear all costs of filing, prosecution and maintenance of patents and patent applications related to any such inventions that are solely owned by APDN. Any invention made jointly by NISSHA and APDN (“Joint Invention”) shall be the joint property of NISSHA and APDN and each party shall have a one-half (1/2) undivided interest in the whole of any such Joint Invention. The inventing parties shall promptly and confidentially disclose any such Joint Invention to each other in writing, which disclosure shall include all information and data relating to such Joint Invention to enable the parties to evaluate such invention for patentability and commercial value. APDN shall manage patent activities related to Joint Inventions and the preparation of a Joint Ownership Agreement between the parties. NISSHA will reimburse APDN for expenditures made for patent filing, filing and maintenance activities related to Joint Inventions.

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Confidential Treatment

8. EXCLUSIVITY OF NISSHA AUTHENTICATION MARKS. APDN shall customize and manufacture Authentication Marks using NISSHA’s INK exclusively for NISSHA.

APDN shall not

(i)

manufacture and/or sell the NISSHA Authentication Marks sold to NISSHA and using NISSHA’s INK and/or the same ink thereof for any other third party

(ii)

reverse-engineer, decompose, analyze, decompile or disassemble NISSHA’s INK for any purpose other than the purpose of customization and manufacture of NISSHA Authentication Marks. In the case where APDN reverse-engineers, decomposes, analyzes, decompiles or disassembles NISSHA’s INK for the purpose above, APDN shall treat the result as Confidential Information and shall not disclose and/or leak to any third party and shall not use it for any purpose other than the customization and manufacturing of NISSHA Authentication Mark.

9. TERM AND TERMINATION.  This Agreement will commence on the Effective Date and continue for an initial term of one (1) year.  The term shall automatically renew thereafter for one (1) year terms, unless terminated by either party with written notice at least 30 days prior to the end of any term.

Beginning on the first anniversary of the Effective Date, APDN shall be entitled to propose changes in the Initial Fee, Annual Fee and/or Authentication Mark Fee; provided, however, such change to the prices shall occur no more frequently than once every six (6) months.

The initial term and any subsequent renewal term will be subject to the following:

(a) This Agreement may be terminated at any time by mutual written agreement of the both parties.

(b) Notwithstanding the foregoing, NISSHA may terminate this Agreement in the event that (ⅰ) Dr. James A. Hayward has ceased to be involved in the performance of this Agreement in APDN or has left APDN. (ⅱ) the ownership or control of APDN has changed or fifty percent (50%) of APDN’s assets or stock has been acquired by any business entity which develops, manufactures or distributes products or renders services, competing with the business activities of NISSHA’s Industrial Materials and Input Devices Business Unit.

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Confidential Treatment

(c) This Agreement will terminate immediately and without notice upon the commencement of a voluntary or involuntary proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution, or similar law, or the appointment of a trustee, custodian, sequestrator, liquidator, receiver, or similar official with respect to either party, or the winding-up or liquidation of either party; and

(d) Termination of this Agreement caused by (a) or (b) above will not release any party from any liability that has already accrued at the time of termination or that thereafter may accrue with respect to any act or omission arising either prior to such termination or after such termination when there is a continuing obligation under this Agreement.

10. ASSIGNMENT.  Neither party may assign this Agreement or delegate any duties provided herein.  Notwithstanding the foregoing, either party may make an assignment to an affiliate, subsidiary or parent company or may assign the Agreement to a successor-in-interest through a merger or sale of assets or stock upon notice to the other party but without that party’s consent.

11. REPRESENTATIONS AND WARRANTIES BY APDN. APDN represents and warrants to NISSHA that the execution, delivery and performance of this Agreement by APDN has been duly authorized and approved by all necessary powers and that APDN’s right to manufacture and sell Authentication Marks does not infringe any third party’s intellectual property rights.

12. REPRESENTATIONS AND WARRANTIES BY NISSHA. The execution, delivery and performance of this Agreement by NISSHA have been duly authorized and approved by all necessary corporate action, and the Agreement is binding upon and enforceable against NISSHA in accordance with its terms.

DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION, THE NISSHA AUTHENTICATION MARKS AND ANY OTHER MATERIALS PROVIDED BY APDN ARE PROVIDED “AS IS” WITHOUT ANY WARRANTIES OF ANY KIND, AND APDN SPECIFICALLY DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE. Notwithstanding the foregoing, APDN shall make an adequate effort to indemnify and hold NISSHA harmless against any claim or dispute which may arise in connection with infringement of any intellectual property rights in connection with production, use and/or selling of NISSHA Authentication Mark.

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Confidential Treatment

13. INDEMNIFICATION. APDN hereby agrees to indemnify, defend, and hold NISSHA harmless from any and all third party claims, losses, liabilities, causes of action and costs (including reasonable attorneys’ fees) arising from, or on account of, or related to any breach by APDN of any of its obligations, representations and warranties hereunder.

NISSHA hereby agrees to indemnify, defend, and hold APDN harmless from any and all third party claims, losses, liabilities, causes of action and costs (including reasonable attorneys’ fees) arising from, or on account of, or related to any breach by NISSHA of any of its obligations, representations and warranties hereunder.

NISSHA agrees to protect, defend, indemnify and hold harmless from and against, and to pay any and all losses, liabilities, claims, demands, causes of action, lawsuits, or other proceedings (whether in contract, tort, strict liability or otherwise), fines, assessments, damages or any other amounts of whatever nature which APDN and its employees, directors, agents, representatives and Affiliates may sustain or incur, including all reasonable attorneys fees and court costs, as a consequence of any Person’s (including, but not limited to, NISSHA, NISSHA’s principal, agent, employee and approved sub-contractor and suppliers) claims and demands arising, directly or indirectly, from NISSHA’s exercise of its rights hereunder and any other use and sale of the Authentication Marks.

NISSHA shall indemnify APDN against any loss, damage, claims and expenses suffered or incurred by APDN as a result of the unauthorized use or disclosure of APDN’s Confidential Information by NISSHA or NISSHA’S principal, agent, employee, or approved assign and sub-contractor.

APDN shall indemnify NISSHA against any loss, damage, claims and expenses suffered or incurred by NISSHA as a result of the unauthorized use or disclosure of NISSHA’s Confidential Information by APDN or APDN’s agent or employee.

NISSHA shall be solely responsible and liable that the use of Authentication Marks conform to all applicable laws, regulations, standards, such as consumer protection laws, toy safety acts applicable in Japan or other countries.

The Parties expressly agree that APDN shall not be responsible and liable in any respect for the design, manufacture, sale or distribution of the Authentication Marks, or the services provided except to the extent of the gross negligent or intentional misconduct of APDN in complying with its services obligations of performing under generally accepted professional practices.

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Confidential Treatment

Procedure. The affected Indemnified Party will (a) promptly notify Indemnifying Party in writing of any such claim, provided, however, that a delay in notifying Indemnifying Party shall not avoid Indemnifying Party’s indemnity obligations hereunder unless, and only to the extent that, Indemnifying Party’s ability to defend the claim has been materially prejudiced thereby; and (b) provide to Indemnifying Party, at Indemnifying Party’s expense, all available information, assistance and authority reasonably necessary to defend.  Indemnifying Party shall, at its own expense, assume the defense of any such claim or suit.  In no event, however, shall Indemnifying Party settle any such claim without the written consent of Indemnified Party, which consent shall not be unreasonably withheld.  Indemnifying Party shall reimburse Indemnified Party for any costs and expenses (including without limitation reasonable attorney’s fees) incurred by Indemnified Party in enforcing the aforesaid indemnification.

Exclusion and Limitation on Damages.

DISCLAIMER. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL, OR PUNITIVE DAMAGES (INCLUDING WITHOUT LIMITATION, LOSS OF PRODUCTION, LOSS OF PROFITS OR OF CONTRACTS, LOSS OF REVENUE, LOSS OF OPERATION TIME OR ANTICIPATED SAVINGS, WASTED MANAGEMENT OR STAFF TIME) ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY MATERIALS PROVIDED BY APDN PURSUANT HERETO, WHETHER IN AN ACTION IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, OR ITS TERMINATION.  THE FOREGOING EXCLUSION SHALL NOT APPLY TO LIMIT EITHER PARTY’S LIABILITY WITH RESPECT TO (A) A THIRD PARTY CLAIM, (B) VIOLATIONS OF THE CONFIDENTIALITY PROVISIONS OF THIS AGREEMENT (C) FRAUD OR FRAUDULENT MISREPRESENTATION(S) OR (D) CRIMINAL ACTS.

14. INDEPENDENT CONTRACTOR.  NISSHA is in business independent from that of APDN and is to be regarded as an independent contractor.  Both parties acknowledge and agree that no fiduciary relationship exists or will arise as a result of this Agreement.  NISSHA agrees that it is not an agent of APDN and APDN agrees that it is not an agent of NISSHA. Both parties further agree that neither can bind the other.

15. GOVERNING LAW.  This Agreement shall be construed and interpreted in accordance with the laws of the State of New York (without regard to principles of conflicts of laws that might apply the laws of any other jurisdiction).  Any disputes between parties relating to or arising in connection with this Agreement shall be finally settled by arbitration in accordance with the rules of Conciliation and Arbitration of the International Chamber of Commerce. The place of arbitration shall be Osaka, Japan, in case NISSHA is the respondent, and New York, U.S.A., in case APDN is the respondent. The language of the proceeding shall be English and the award shall be final and binding upon all parties and Judgment upon the award may be entered in any court having jurisdiction thereof.

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Confidential Treatment

16. ENTIRE AGREEMENT. This document constitutes the entire agreement made between the parties with regard to the subject matter of this Agreement, and no representations or promises have been made that are not set forth herein.  This Agreement may not be changed, amended or modified orally and, to be effective, any change, amendment or modification of the Agreement must be expressly made in writing and signed by authorized representatives of the parties.

17. NO WAIVER.  Waiver of breach or failure to strictly enforce the terms of this Agreement shall not preclude a party from asserting a subsequent or continuing breach or from otherwise requiring strict conformance with the terms of this Agreement.

18. SEVERABILITY

(a)           If for any reason any provision of this Agreement, including without limitation any provision relating to the termination of this Agreement, shall be deemed by a court of competent jurisdiction, to be legally invalid or unenforceable in any jurisdiction to which it applies, the validity of the remainder of the Agreement will not be affected and that provision will be deemed modified to the minimum extent necessary to make that provision consistent with applicable law, and in its modified form, that provision will then be enforceable.

(b)           All notices, requests, offers and other communications required or permitted to be made under this Agreement shall be in writing and shall be deemed to have been duly given (i) when received if personally delivered; (ii) the delivery date specified on the shipping manifest if sent by a recognized overnight delivery service (e.g., Federal Express); or (iii) upon receipt, if sent by certified or registered mail, return receipt requested.  In each case notice shall be sent to the address below or such other address as either party most recently may have designated in writing to the other party in accordance with this Section.

NISSHA: Nissha Printing Co.,Ltd. Attn: Shinya Takeuchi 3 Mibu Hanai-cho,
Nakagyo-ku, Kyoto
Zip:6048551, Japan APDN: Applied DNA Sciences Inc. Attn: Kurt Jensen 25 Health Sciences Drive Suite
113, Stony Brook, New York
11790

19. EXECUTION IN COUNTERPARTS.  This Agreement may be executed in counterparts, each of which may be deemed an original, but all of which together will constitute one and the same agreement.

20. SECTION HEADINGS.  The headings of the sections, paragraphs and exhibits herein are for the parties’ convenient reference only and do not define or limit any of the terms or provisions hereof.  Exhibits and other documents referred to in this Agreement are an integral part hereof, unless the context of such reference indicates otherwise.

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Confidential Treatment

IN WITNESS WHEREOF, the parties have executed this Agreement by and through their authorized representatives as of the date written above.

APPLIED DNA SCIENCES INC.		NISSHA
By:	/s/ Kurt Jensen	By:	/s/ Keiji Kishi
Name: Kurt Jensen		Name: Keiji Kishi
Title: Chief Financial Officer		Title:  Senior Vice President

Confidential 10

Confidential Treatment

Exhibit A

Basic Authentication Mark

● Initial Fee - One time cost to customize an exclusive “Nissha Basic Authentication Mark” consisting of one authentication mark= $*** (includes 5 Up-converter Phosphor (UCP) detectors

● Annual fee - for 10 sample authentication tests and to store and maintain a library of the “Nissha Basic Authentication Mark” = $***

● Authentication Mark Fee - to mark 1kg of ink or varnish = $***

● If additional unique marks are needed, cost per marker would be as per above. However if more than 5 are needed we would be willing to lower the “one time” cost as well as the annual fee by 10%

● Other Prices/Fee:

o  $*** per additional authentication sample test

o $*** per additional Up-converter Phosphor (UCP) detector

Premium Authentication Mark

● Initial Fee - One time cost to customize an exclusive “Nissha Premium Authentication Mark” consisting of 3 individual complex marks = $*** (includes 5 Up-converter Phosphor (UCP) detectors

● Annual fee - for 10 sample authentication tests and to store and maintain a library of the “Nissha Premium Authentication Mark” = $***

● Authentication Mark Fee - to mark 1kg of ink or varnish = $***

● If additional unique markers are needed, cost per marker would be as per above. However if more than 5 are needed we would be willing to lower the “one time” cost as well as the annual fee by 10%

● Other Prices/Fee:

o  $*** per additional authentication sample test

o $*** per additional Up-converter Phosphor (UCP) detector

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Confidential Treatment

Exhibit B

Confirmation Item of authentication

The items APDN shall confirm in authentication are;

  A:   Dispersity of DNA in NISSHA Authentication Mark

 Acceptable criteria:  Original DNA must be detected in all the printing samples sent by NISSHA.

  B:   DNA sequence of DNA in NISSHA’s Authentication Mark
         Acceptable criteria:  the sequence of DNA in NISSHA’s Authentication Mark shall be the same and match the sequence of the original.

Process of authentication

NISSHA and APDN shall conduct authentication (steps 8 and 9 of customization process in Article 2) as stated below:

1. Nissha will send Printing samples

i)	Printed on paper (100 square mm x 8pcs)
ii)	Printed on film  (100 square mm x 8pcs)
iii)	Molding sample using ii)’s film (70 square mm x 8pcs)

2.	APDN will cut 1 square cm strips in 4 corners on the printing surface and extract DNA.
3.	APDN will do PCR and confirm that original DNA exists in each extracted samples.
4.	APDN will perform genotyping to confirm extracted DNA is the same as the original.

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EX-10.2

EXHIBIT 10.2

Confidential Treatment

*** AUTHENTICATION MARK Agreement

DRAFT

This Agreement, effective as of the 21 day of December, 2009, is by and between Applied DNA Sciences, Inc., a company incorporated in the State of Delaware and having its place of business at 25 Health Sciences Drive, Suite 213, Stony Brook, NY 11790 (hereinafter referred to as “APDN”) and ***, a company registered under the laws of *** and having its offices at *** (hereinafter referred to as “***”).

RECITALS

Whereas, APDN owns all the intellectual property rights pertaining to the Authentication Marks (as defined hereunder), and is thus fully entitled to manufacture and sell Authentication Marks to *** as contemplated in this Agreement;

Whereas, *** is desirous of having APDN make or manufacture Authentication Mark(s) exclusively for ***, for use and sale in unique personalized ink upon the terms and conditions set forth herein;

NOW, THEREFORE, IN CONSIDERATION OF THE COVENANTS AND OBLIGATIONS HEREINAFTER SET FORTH, THE PARTIES AGREE AS FOLLOWS:

1. DEFINITIONS. As used in this Agreement, the following terms shall be defined as set forth below:

“Agreement Year” shall mean each twelve (12) month period beginning on April 1st of any year and ending on March 31st of the following year. The first Agreement Year shall start on the Effective Date and end on March 31st, 2011;

“Authentication Mark” shall mean the specific covert and forensic DNA based authentication marker taggant combined with authentication, analysis, and consulting services for use and resale made exclusively for ***.

“Effective Date” shall mean the date of execution by the last party to sign this Agreement, which date shall be written above and which shall be the Effective Date of this Agreement.

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“Printing Sample” shall mean any paper based document sent to APDN by *** and which presumably bears handwriting made using the DNA Ink.

2.	SCOPE OF AGREEMENT / CUSTOMIZATION, MANUFACTURE & SUPPLY OF AUTHENTICATION MARKS TO ***
2.1	APDN hereby agrees to customize, manufacture and embed the Authentication Marks into ink provided by *** and to supply such Authentication Marks to *** pursuant to the terms and conditions of this Agreement.
2.2	*** and APDN agree to comply with the following procedure:
2.2.1	*** shall supply and ship ink in maximum one (1) liter quantities to APDN at *** expense;
2.2.2	*** shall send a purchase order to APDN detailing the number of Authentication Marks being ordered; APDN shall not accept any purchase order which does not originate from ***;
2.2.3	APDN will supply the customized Authentication Marks to *** embedded only in the maximum one (1) liter ink bottles supplied by *** (hereinafter referred to as “*** DNA Ink”), to the exclusion of any other ink;
2.2.4	APDN will supply and ship Authentication Marks to *** within four (4) weeks of receipt of the *** Ink. *** shall bear the shipping charges. APDN agrees to comply with ***’s alternative shipping instructions, if any.
2.2.5	APDN undertakes to authenticate any Printing Sample sent by *** and return said Printing Sample with a report to *** (to the exclusion of any other party) within two (2) weeks of receipt of said Printing Sample. In any event, APDN undertakes to return any Printing Sample to *** upon the latter’s first demand. APDN shall not be entitled to make and/or retain any copy of a Printing Sample. APDN undertakes to authenticate Printing Samples sent in by *** during the term of this Agreement and a period of 10 years after its expiry and/or termination for whatever reason.
3.	PURCHASE
3.1	*** will submit a written purchase order (“Purchase Order”) to APDN for each Authentication Mark ordered. APDN acknowledges that *** must be able to cross reference each *** DNA Ink delivered by APDN with the related purchase order, in order to be able to link each Authentication Mark to a *** customer. The Parties agree to implement the required cross referencing system. APDN shall not be entitled to receive any information regarding the customers to which *** sells or provides in any other manner the DNA Ink.

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4.	CONSIDERATION
4.1	Authentication Mark Fee: *** shall pay APDN an all-inclusive Authentication Mark Fee as set forth in Exhibit A. Additional authentications shall be done for an additional fee as set forth in Exhibit A.
	Storage Fee: Upon termination of the Agreement, and provided *** wishes to continue offering the Authentication Service to its Customers after termination of this Agreement, *** shall pay to APDN an annual Storage Fee as set forth in Exhibit A for each Agreement Year during which *** wishes to offer the Authentication Service to enable APDN to maintain the Authentication Marks in order to authenticate Printing Samples for ***.
	APDN agrees not to increase the Authentication Mark Fee by more than 5% from one Agreement Year to the other. Unless otherwise agreed by both parties, the payment term shall be by wire transfer remittance within thirty (30) days from the invoice receipt date, which shall not be earlier than the delivery date of the corresponding DNA Ink to ***.
4.2	Currency: All payments to APDN by *** are to be made in US dollars.
4.3	Late Payments: Payments which are delayed beyond sixty (60) days after the end of the date for which they are due shall be subject to a per annum interest charge of 10%.
4.4	Material Breach: Failure of *** to comply with this Section shall be a breach of this Agreement.
5.	SHIPPING
5.1	***’s ink for customization and manufacture of the Authentication Mark by APDN shall be shipped to APDN at ***’s cost.
5.2	APDN shall ship *** DNA ink to *** FOB Stony Brook.

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6.	EXCLUSIVITY
6.1	APDN agrees that during the term of this Agreement and for a period of twelve (12) months after its expiry and/or termination for whatever reason, APDN shall not supply DNA Ink for writing to any competitor of *** in the field of luxury writing instruments, such as ***.
6.2	In order to maintain the exclusivity as set forth in paragraph  6.1 above, *** must purchase a minimum volume of DNA Ink as detailed in Exhibit B beginning in the second Agreement Year(i.e. on April 1st, 2011). In the event that *** did not place purchase orders pertaining to the minimum volume set forth in Exhibit B by March 31st of any Agreement Year, the parties agree that APDN shall be released from the exclusivity set forth in section 6.1 above beginning on April 1st of the next Agreement Year.
7.	CONFIDENTIALITY.
7.1	In the course of the performance of this Agreement, the parties may furnish each other with confidential and proprietary information and trade secrets (collectively, “Confidential Information”).  Confidential Information of a party is deemed to include, among other things, customer lists, proposed or planned products or services, product designs or improvements, marketing plans, financial and accounting records, cost and profit figures, forecasts, projections, Printing Samples (including their content, author, recipient as defined herein) and Confidential Information of third parties, that are observed, identified or disclosed under or as a result of this Agreement.  The parties will not disclose the Confidential Information, must immediately return it upon expiration or termination of this Agreement, and must keep it in strict confidence and not use it for any purpose other than the parties’ respective performance under this Agreement.  The disclosing party will use reasonable efforts to mark or cause to be marked all materials containing its Confidential Information to clearly indicate ownership of the materials and their confidential status; however, failure to mark does not by itself disqualify information from being Confidential Information if other factors or circumstances, or a party’s course of performance, clearly indicate to the receiving party at the time of disclosure or the receiving party acknowledges that the information is confidential. The parties recognize that the Confidential Information of each of the parties (1) was designed and developed by such party at great expense and over lengthy periods of time; (2) is secret, confidential and unique; (3) constitutes the exclusive property and/or trade secrets of such party; and (4) that any use of the Confidential Information by the other of them for any purpose other than in accordance with this Agreement and in furtherance of obligations hereunder would be wrongful and would cause irreparable injury to the aggrieved party for which damages are not an adequate remedy.  The restrictions and obligations in this Section concerning confidentiality will survive the expiration or termination of this Agreement for a period of three (3) years. The obligations of the parties herein will not apply to information which:  (i)  was known to the receiving party  prior to receipt thereof from the disclosing party, as evidenced by the written records of the receiving party; (ii) was disclosed to the receiving party  in good faith by a third party who is in lawful possession thereof and who had the right to make such disclosures; (iii) became part of the public domain, by publication or otherwise, through no fault of the receiving party; or, (iv) was independently developed by the receiving party as evidenced by the receiving party’s written records.

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7.2	The Parties further undertake not to disclose the existence and/or content of this Agreement to third parties, unless as required by law. Both parties agree to not refer to the other party and/or the scope of this Agreement for any purpose whatsoever, including but not limited to reference purposes without the prior written consent of the other party.
8.	TERM AND TERMINATION
8.1	This Agreement will commence on the Effective Date and continue for an initial term expiring on March 31st 2015.  The term shall automatically renew thereafter for one (1) year terms, unless terminated by either party with written notice at least one hundred eighty (180) days prior to the end of any Agreement Year.  Beginning on the end of the first Agreement Year (i.e. March 31st, 2011), APDN, upon thirty (30) days written notice, shall be entitled to change the prices it charges for Authentication Marks, subject to section 4.1 3rd paragraph above; provided, however, such change to the prices shall occur no more frequently than once every Agreement Year. The initial term and any subsequent renewal term will be subject to the following:

(a)	With cause, either party may terminate this Agreement upon providing 30 days’ prior written notice, provided that such termination shall not take effect if the breach is cured within such thirty (30) day period.  The notice required by this Section will describe in reasonable detail the reason for termination;
(b)	This Agreement will terminate immediately and without notice upon the commencement of a voluntary or involuntary proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution, or similar law, or the appointment of a trustee, custodian, sequestrator, liquidator, receiver, or similar official with respect to either party, or the winding-up or liquidation of either party; and

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(c)

Termination of this Agreement will not release any party from any liability that has already accrued at the time of termination or that thereafter may accrue with respect to any act or omission arising either prior to such termination or after such termination when there is a continuing obligation under this Agreement.

(d)

Termination or expiration of this Agreement shall not release *** from the obligation to make payment to APDN of all amounts then and thereafter due and payable under this Agreement within thirty (30) days of termination or expiration, as the case may be. Termination or expiration of this Agreement shall not release APDN from its obligation to authenticate Printing Samples submitted by *** as set forth in this Agreement nor shall it release *** from its obligations to pay for such services as set forth in Exhibit A.

9. ASSIGNMENT

Neither party may assign this Agreement or delegate part or all rights and/or duties provided herein.  Notwithstanding the foregoing, either party may make an assignment to an affiliate, subsidiary or parent company or may assign the Agreement to a successor-in-interest through a merger or sale of assets or stock upon notice to the other party but without that party’s consent.

10. REPRESENTATIONS AND WARRANTIES BY APDN

APDN represents and warrants to *** that the execution, delivery and performance of this Agreement by APDN has been duly authorized and approved by all necessary powers.

11. REPRESENTATIONS AND WARRANTIES BY ***

The execution, delivery and performance of this Agreement by *** have been duly authorized and approved by all necessary corporate action, and the Agreement is binding upon and enforceable against *** in accordance with its terms.

DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION, THE AUTHENTICATION MARKS AND ANY OTHER MATERIALS PROVIDED BY APDN ARE PROVIDED “AS IS” WITHOUT ANY WARRANTIES OF ANY KIND, AND APDN SPECIFICALLY DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

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12.	INDEMNIFICATION
12.1	APDN hereby agrees to indemnify, defend, and hold *** harmless from any and all third party claims, losses, liabilities, causes of action and costs (including reasonable attorneys’ fees) arising from, or on account of, or related to any breach by APDN of any of its obligations, representations and warranties hereunder.
12.2	*** hereby agrees to indemnify, defend, and hold APDN harmless from any and all third party claims, losses, liabilities, causes of action and costs (including reasonable attorneys’ fees) arising from, or on account of, or related to any breach by *** of any of its obligations, representations and warranties hereunder.
12.3	*** shall indemnify APDN against any loss, damage, claims and expenses suffered or incurred by APDN as a result of the unauthorized use or disclosure of APDN’s Confidential Information by *** or ***’S principal, agent, employee, or approved assign and sub-contractor.
12.4	APDN shall indemnify *** against any loss, damage, claims and expenses suffered or incurred by *** as a result of the unauthorized use or disclosure of ***’s Confidential Information by APDN or APDN’s agent or employee.
12.5	*** shall be solely responsible and liable that the use of Authentication Marks conform to all applicable laws, regulations, standards, such as consumer protection laws, toy safety acts applicable in *** or other countries, except that APDN shall be responsible for ensuring that the Authentication Marks embedded into the ink supplied by *** comply with all and any applicable laws and regulations, such as but not limited to the US CPSIA. APDN confirms that the Authentication Marks do not contain any lead.
12.6	The Parties expressly agree that APDN shall not be responsible and liable in any respect for the sale or distribution of the Authentication Marks, or the services provided except to the extent of the gross negligent or intentional misconduct of APDN in complying with its services obligations of performing under generally accepted professional practices.
12.7	Procedure. The affected Indemnified Party will (a) promptly notify Indemnifying Party in writing of any such claim, provided, however, that a delay in notifying Indemnifying Party shall not avoid Indemnifying Party’s indemnity obligations hereunder unless, and only to the extent that, Indemnifying Party’s ability to defend the claim has been materially prejudiced thereby; and (b) provide to Indemnifying Party, at Indemnifying Party’s expense, all available information, assistance and authority reasonably necessary to defend.  Indemnifying Party shall, at its own expense, assume the defense of any such claim or suit.  In no event, however, shall Indemnifying Party settle any such claim without the written consent of Indemnified Party, which consent shall not be unreasonably withheld.  Indemnifying Party shall reimburse Indemnified Party for any costs and expenses (including without limitation reasonable attorney’s fees) incurred by Indemnified Party in enforcing the aforesaid indemnification.

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12.8  Exclusion and Limitation on Damages. 

DISCLAIMER. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL, OR PUNITIVE DAMAGES (INCLUDING WITHOUT LIMITATION, LOSS OF PRODUCTION, LOSS OF PROFITS OR OF CONTRACTS, LOSS OF REVENUE, LOSS OF OPERATION TIME OR ANTICIPATED SAVINGS, WASTED MANAGEMENT OR STAFF TIME) ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY MATERIALS PROVIDED BY APDN PURSUANT HERETO, WHETHER IN AN ACTION IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, OR ITS TERMINATION, AND IRRESPECTIVE OF WHETHER INDEMNIFYING PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH DAMAGES.  THE FOREGOING EXCLUSION SHALL NOT APPLY TO LIMIT EITHER PARTY’S LIABILITY WITH RESPECT TO (A) A THIRD PARTY CLAIM, (B) VIOLATIONS OF THE CONFIDENTIALITY PROVISIONS OF THIS AGREEMENT (C) FRAUD OR FRAUDULENT MISREPRESENTATION(S) OR (D) CRIMINAL ACTS.

13. INDEPENDENT CONTRACTOR

13.1	*** is in business independent from that of APDN and is to be regarded as an independent contractor.  Both parties acknowledge and agree that no fiduciary relationship exists or will arise as a result of this Agreement.  *** agrees that it is not an agent of APDN and APDN agrees that it is not an agent of ***. Both parties further agree that neither can bind the other.
14.	GOVERNING LAW
14.1	This Agreement shall be construed and interpreted in accordance with the laws of the State of New York (without regard to principles of conflicts of laws that might apply the laws of any other jurisdiction).
15.	ENTIRE AGREEMENT
	This document constitutes the entire agreement made between the parties with regard to the subject matter of this Agreement, and no representations or promises have been made that are not set forth herein.  This Agreement may not be changed, amended or modified orally and, to be effective, any change, amendment or modification of the Agreement must be expressly made in writing and signed in advance by authorized representatives of the parties.

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16.	NO WAIVER
	Waiver of breach or failure to strictly enforce the terms of this Agreement shall not preclude a party from asserting a subsequent or continuing breach or from otherwise requiring strict conformance with the terms of this Agreement.
17.	SEVERABILITY
(a)	If for any reason any provision of this Agreement, including without limitation any provision relating to the termination of this Agreement, shall be deemed by a court of competent jurisdiction, to be legally invalid or unenforceable in any jurisdiction to which it applies, the validity of the remainder of the Agreement will not be affected and that provision will be deemed modified to the minimum extent necessary to make that provision consistent with applicable law, and in its modified form, that provision will then be enforceable.
(b)	All notices, requests, offers and other communications required or permitted to be made under this Agreement shall be in writing and shall be deemed to have been duly given (i) when received if personally delivered; (ii) the delivery date specified on the shipping manifest if sent by a recognized overnight delivery service (e.g., Federal Express); or (iii) upon receipt, if sent by certified or registered mail, return receipt requested.  In each case notice shall be sent to the address below or such other address as either party most recently may have designated in writing to the other party in accordance with this Section.

***: *** *** APDN: Applied DNA Sciences Inc. Attn: Kurt Jensen 25 Health Sciences Drive Suite
113, Stony Brook, New York
11790

18.	EXECUTION IN COUNTERPARTS
	This Agreement may be executed in counterparts, each of which may be deemed an original, but all of which together will constitute one and the same agreement.

19.	SECTION HEADINGS
	The headings of the sections, paragraphs and exhibits herein are for the parties’ convenient reference only and do not define or limit any of the terms or provisions hereof.  Exhibits and other documents referred to in this Agreement are an integral part hereof, unless the context of such reference indicates otherwise.

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IN WITNESS WHEREOF, the parties have executed this Agreement by and through their authorized representatives as of the date written above.

APPLIED DNA SCIENCES INC.		***
By:	Kurt Jensen	By:	/s/ ***
	Kurt Jensen		***
Printed Name		Printed Name
	CFO		***
Title		Title

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Exhibit A

All Inclusive Authentication Mark Fee per Year: $*** per Authentication Mark during the Term of the Agreement

Shipping FOB Stony Brook, New York

Fee Includes:

Creation of unique Authentication Mark

Storage of Authentication Mark,

Protection of Authentication Mark,

Encryption of Authentication Mark

Stabilization of Authentication Mark

Embedment of Authentication Mark in Ink (*** liter maximum)

Up to three Authentications of Printing samples per Mark per customer per year.

Additional Authentications of Printing Samples will be done at a price of $*** per authentication.

Upon termination of the agreement, and provided *** wishes to continue offering the Authentication Service to its Customers after termination of this Agreement, *** will pay APDN an Annual Storage Fee per Mark per year of $***.

Upon termination of this Agreement, Authentications of Printing Samples will be done at a price of $*** per authentication.

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EXHIBIT B

Annual Minimum purchase volumes to retain exclusivity as set forth under section 6.1:

Second Agreement Year:	*** Litres of DNA Ink/Year
Third Agreement Year:	*** Litres of DNA Ink/Year
Fourth Agreement Year:	*** Litres of DNA Ink/Year
Fifth Agreement Year:	*** Litres of DNA Ink/Year
All Years after the fifth AgreementYear:	*** Litres of DNA Ink/Year

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EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13A-14(a) OR 15D-14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, James A. Hayward, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Applied DNA Sciences, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 11, 2010

By:	/s/ JAMES A. HAYWARD
	James A. Hayward Chief Executive Officer Applied DNA Sciences, Inc.

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13A-14(a) OR 15D-14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Kurt H. Jensen, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Applied DNA Sciences, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 11, 2010

By:	/s/ KURT H. JENSEN
	Kurt H. Jensen Chief Financial Officer Applied DNA Sciences, Inc.

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, James A. Hayward, Chief Executive Officer of Applied DNA Sciences, Inc. (the “Company”), in connection with the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2009 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, hereby certifies pursuant to the requirements of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

●   the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and

● the information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification is being provided pursuant to 18 U.S.C. 1350 and is not to be deemed a part of the Report, nor is it to be deemed to be “filed” for any purpose whatsoever.

By:	/s/ JAMES A. HAYWARD
	James A. Hayward Chief Executive Officer Applied DNA Sciences, Inc. February 11, 2010

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Kurt H. Jensen, Chief Financial Officer of Applied DNA Sciences, Inc. (the “Company”), in connection with the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2009 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, hereby certifies pursuant to the requirements of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

●   the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and

●   the information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification is being provided pursuant to 18 U.S.C. 1350 and is not to be deemed a part of the Report, nor is it to be deemed to be “filed” for any purpose whatsoever.

By:	/s/ KURT H. JENSEN
	Kurt H. Jensen Chief Financial Officer Applied DNA Sciences, Inc. February 11, 2010