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, 2012

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 215 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).

   x  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 company x
(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 14, 2013, the registrant had 682,398,201 shares of common stock outstanding.

Applied DNA Sciences, Inc.

Form 10-Q for the Quarter Ended December 31, 2012

Table of Contents

	Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements	1
Condensed Consolidated Balance Sheets as of December 31, 2012 (Unaudited) and September 30, 2012	1
Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2012 and 2011	2
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2012 and 2011	3
Notes to Unaudited Condensed Consolidated Financial Statements	4
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3 - Quantitative and Qualitative Disclosures About Market Risk	21
Item 4 - Controls and Procedures	21
PART II - OTHER INFORMATION
Item 1 – Legal Proceedings	21
Item 6 - Exhibits	22

Part I

Item 1 - Financial Statements

APPLIED DNA SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
	December 31,			September 30,
	2012			2012
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	984,410		$	724,782
Accounts receivable		361,782			296,994
Prepaid expenses		52,355			80,037
Total current assets		1,398,547			1,101,813
Property, plant and equipment-net of accumulated depreciation of $272,953 and $251,958 respectively		189,850			210,845
Other assets:
Deposits		36,276			36,276
Total Assets	$	1,624,673		$	1,348,934
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities	$	808,803		$	592,009
Total current liabilities		808,803			592,009
Warrant liability		7,513,922			—
Stockholders’ Equity (Deficit)
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of December 31, 2012 and September 30, 2012		—			—
Common stock, par value $0.001 per share; 1,350,000,000 shares authorized; 656,935,238 and 646,182,550 shares issued and outstanding as of December 31, 2012 and September 30, 2012, respectively		656,935			646,183
Additional paid in capital		170,356,909			169,117,881
Accumulated deficit		(177,711,896	)		(169,007,139	)
Total stockholders’ equity (deficit)		(6,698,052	)		756,925
Total Liabilities and Stockholders’ Equity (Deficit)	$	1,624,673		$	1,348,934
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,
	2012			2011
Revenues	$	317,670		$	516,904
Operating expenses:
Selling, general and administrative		2,521,167			2,152,428
Research and development		147,666			78,473
Depreciation and amortization		20,995			98,373
Total operating expenses		2,689,828			2,329,274
LOSS FROM OPERATIONS		(2,372,158	)		(1,812,370	)
Other income (expense):
Interest expense, net		—			(597,535	)
Loss from change in fair value of warrant liability		(6,332,599	)		—
Net loss before provision for income taxes		(8,704,757	)		(2,409,905	)
Income taxes (benefit)		—			—
NET LOSS	$	(8,704,757	)	$	(2,409,905	)
Net loss per share-basic and diluted	$	(0.01	)	$	(0.00	)
Weighted average shares outstanding-
Basic and diluted		649,922,615			490,282,252
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,
	2012			2011
Cash flows from operating activities:
Net loss	$	(8,704,757	)	$	(2,409,905	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		20,995			98,374
Fair value of vested options issued to officers, directors and employees		417,866			785,719
Loss from change in fair value of warrant liability		6,332,599			—
Amortization of capitalized financing costs		—			82,084
Amortization of debt discount attributable to convertible debentures		—			507,478
Equity based compensation		13,238			1,363
Common stock issued in settlement of interest		—			114,411
Change in operating assets and liabilities:
Increase in accounts receivable		(64,788	)		(24,024	)
Decrease in prepaid expenses and deposits		27,682			13,868
Increase in accounts payable and accrued liabilities		216,793			19,117
Net cash used in operating activities		(1,740,372	)		(811,515	)
Cash flows from investing activities:		—			—
Cash flows from financing activities:
Net proceeds from sale of common stock		2,000,000			—
Net cash provided by financing activities		2,000,000			—
Net increase (decrease) in cash and cash equivalents		259,628			(811,515	)
Cash and cash equivalents at beginning of period		724,782			2,747,294
Cash and cash equivalents at end of period	$	984,410		$	1,935,779
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest	$	—		$	—
Cash paid during period for income taxes	$	—		$	—
Non-cash investing and financing activities:
Common stock issued in exchange for previously incurred debt	$	—		$	1,150,000
See the accompanying notes to the unaudited condensed consolidated financial statements

3

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(unaudited)

NOTE A — SUMMARY OF ACCOUNTING POLICIES

General

The accompanying unaudited condensed consolidated financial statements as of December 31, 2012 and for the three months ended December 31, 2012 and 2011 are unaudited. These unaudited condensed consolidated financial statements have been prepared in accordance with Rule S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

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, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2013. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated September 30, 2012 financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC.

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.  The Company is principally devoted to developing DNA embedded biotechnology security solutions in the United States and Europe.  To date, the Company has generated limited 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 an early stage operating company. For the period from inception through December 31, 2012, the Company has accumulated losses of $177,711,896.

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 statements 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, 2012

(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, 2012 and September 30, 2012, the Company did not record any deferred revenue for the respective periods.

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, 2012 and September 30, 2012, the Company has deemed that no allowance for doubtful accounts was necessary. The Company writes-off receivables that are deemed uncollectible.

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 include, but are not limited to, accounting for intangibles, debt discounts associated with convertible debt, equity based compensation and depreciation and amortization. The adoption of ASC 740-10 did not have a material impact on the Company’s consolidated results of operations or financial condition.

 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, 2012 and September 30, 2012, property and equipment consist of:

	December 31, 2012 (unaudited)		September 30, 2012
Computer equipment	$	33,464	$	33,464
Lab equipment		296,904		296,904
Furniture		132,435		132,435
Total		462,803		462,803
Accumulated depreciation		272,953		251,958
Property and equipment, net	$	189,850	$	210,845

5

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(unaudited)

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

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 periods 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.

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. Dilutive common stock equivalents consist of shares issuable upon the exercise of the Company’s stock options and warrants. For the three months ended December 31, 2012, common stock 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 783,834,587 and 645,163,955 for the three months ended December 31, 2012 and 2011, respectively.

Stock Based Compensation

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.   Stock-based compensation expense recognized under ASC 718-10 for the three months ended December 31, 2012 and 2011 was $417,866 and $785,719, respectively.

6

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(unaudited)

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

As of December 31, 2012, 127,308,192 employee stock options were outstanding with 97,571,325 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.

The Company’s revenues earned from sale of products and services for the three months ended December 31, 2012 and 2011 included an aggregate of 65% and 75% from two and four customers of the Company’s total revenues, respectively. Two customers accounted for 64% and 54% of the Company’s total accounts receivable at December 31, 2012 and September 30, 2012, respectively.

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 $147,666 and $78,473 for the three month periods ended December 31, 2012 and 2011, respectively.

Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred.  The Company charged to operations $37,459 and $19,608 as advertising costs for the three month periods ended December 31, 2012 and 2011, respectively.

Intangible Assets

The Company amortizes its intangible assets using the straight-line method over their estimated period of benefit.  The estimated useful life for patents is five years while other intellectual property uses a seven year useful life. The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.  All of the Company’s intangible assets are subject to amortization.  As of December 31, 2012 and September 30, 2012, all intangible assets have been amortized to -0- carrying value.

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 delayed, 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.

7

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(unaudited)

NOTE A — SUMMARY OF ACCOUNTING POLICIES (continued)

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 consolidated financial position, results of operations or cash flows. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments.

Recent Accounting Pronouncements

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s unaudited condensed consolidated financial position, results of operations or cash flows.

NOTE B – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at December 31, 2012 and September 30, 2012 are as follows:

	December 31,
	2012 (unaudited)		September 30, 2012
Accounts payable	$	602,671	$	473,060
Accrued consulting fees		102,500		102,500
Accrued salaries payable		103,632		16,449
Total	$	808,803	$	592,009

NOTE C – WARRANT LIABILITY

As more fully described in Note E below, on November 28, 2012, the Company entered into a securities purchase agreement (“Purchase Agreement”) with Crede CG II, Ltd. (“Crede”).  In connection with the Purchase Agreement, the Company issued Series A, B and C Warrants allowing Crede to purchase 10,752,688, 29,569,892 and 26,881,720 shares of Common Stock, respectively.

The Company determined that the Series A and B Warrants described above should be classified as a liability due to transactions which may cause an adjustment to the conversion rate (reset provisions) contained in the warrant agreements and remeasured at each reporting date at their fair value with the changes reported in earnings (loss).  Due to a callable provision of the Series C Warrants, the Company deemed such as an equity instrument.  Liability classification of the Series A and B Warrants will end upon expiration of reset provisions, at which time the Warrants will be reclassified to equity based on their then fair value. The Company determined the allocated fair value of the Warrants to be $1,181,324 on the issuance date using the Binomial Lattice model with the following assumptions: fair value of the Company’s Common Stock $0.20 per share; dividend yield 0%; expected terms 5 years; risk free interest rate: 0.64%; expected volatility of: 146.32%; and the expected price at which holders are likely to exercise their Warrants of $0.2232.

At December 31, 2012, the Company determined the fair value of the Warrants to be $7,513,922 using the Binomial Lattice model with the following assumptions: fair value of the Company’s Common Stock $0.21 per share; dividend yield 0%; expected term: 4.91 years; risk free interest rate: 0.72%; expected volatility of: 146.54%; and the expected price at which holders are likely to exercise their Warrants of $0.2232. The increase from the initial allocated fair value on November 29, 2012 to December 31, 2012 of $6,332,599 of warrants liability was included in results of operations for the three months ended December 31, 2012.

The Company believes an event under the contract that would create an obligation to settle in cash or other current assets is remote and therefore has classified the obligation as a long term liability.

8

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(unaudited)

Pursuant to a registration rights agreement between the Company and Crede, the Company agreed to file a registration statement within 30 days of the Initial Closing and to use its best efforts to get such registration statement effective within 90 days.  The registration statement will cover the resale of all shares of Common Stock issuable pursuant to the Purchase Agreement, including the shares of Common Stock underlying the Series A Preferred and Series A, B and C Warrants.  The Company has also agreed to prepare and file amendments and supplements to the registration statement to the extent necessary to keep the registration statement effective for the period of time required under the Purchase Agreement.  

NOTE D - RELATED PARTY TRANSACTIONS

The Company has consulting agreements with outside contractors, certain of whom are also Company stockholders. The agreements are generally month to month.

NOTE E - CAPITAL STOCK

The Company is authorized to issue 1,350,000,000 shares of Common Stock as the result of a vote of stockholders conducted on January 27, 2012 which effected an increase in the authorized shares of Common Stock from 800,000,000 shares to 1,350,000,000 shares.  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, 2012 and September 30, 2012, there were 656,935,238 and 646,182,550 shares of Common Stock issued and outstanding, respectively.

During the three month periods ended December 31, 2012 and 2011, the Company has expensed $13,238 and $1,363 related to stock based compensation, respectively. 

Preferred and Common Stock Transactions during the Three Months Ended December 31, 2012:

Securities Purchase Agreement

On November 28, 2012, the Company entered into a securities purchase agreement (“Purchase Agreement”) with Crede. Pursuant to the Purchase Agreement, at the initial closing on November 29, 2012 (“Initial Closing”), Crede purchased 10,752,688 shares of the Company’s Common Stock at a price of $0.186 per share which was the consolidated closing bid price of the Common Stock on the day prior to the signing of the Purchase Agreement. The Company received gross proceeds of $2,000,000. Pursuant to the Purchase Agreement, Crede agreed to purchase an additional $5,500,000 of the Company’s Series A Convertible Preferred Stock (“Series A Preferred”) at a purchase price of $1,000 per share on the first business day following the date a registration statement (as described below) is declared effective by the Securities and Exchange Commission (“Second Closing”).

The Series A Preferred is convertible at the option of the holder thereof, in whole or in part, from time to time and at any time, at the lesser of (i) the Fixed Conversion Price and (ii) the Non-Fixed Conversion Price. The Fixed Conversion Price is equal to $0.186, which is the purchase price for the Common Stock at the Initial Closing. The Non-Fixed Conversion Price is equal to the consolidated closing bid price of the Company’s Common Stock for the most recently completed trading day as of the time of conversion. The Series A Preferred will be convertible into Common Stock at the Company’s option, in whole or in part, from time to time during the ten trading day period beginning one trading day following the effectiveness of the registration statement (as described below) through the eleventh trading day following effectiveness of such registration statement, at the Non-Fixed Conversion Price, provided that certain equity conditions are met and the Company is not in breach of certain conditions. The Series A Preferred will be automatically converted into Common Stock on the one year anniversary of the issuance of the Series A Preferred at the then applicable Non-Fixed Conversion Price, provided that certain equity conditions are met and the Company is not in breach of certain conditions. The Series A Preferred contains weighted average anti-dilution protection. The Series A Preferred will not accrue dividends except to the extent dividends are paid on the Common Stock. The Company’s Common Stock will be junior in rank to the Series A Preferred with respect to preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company. The Series A Preferred will generally have no voting rights except as required by law.

9

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(unaudited)

The Company also issued Crede at the Initial Closing Warrants with a term of five years (though such term may be extended in certain instances) (“Series A Warrants”) allowing it to purchase 10,752,688 shares of Common Stock at a price of $0.2232 per share which is equal to a 20% premium to the consolidated closing bid price of the Common Stock on the day prior to the signing of the Purchase Agreement. At the Initial Closing, the Company also issued Crede a second set of Warrants (“Series B Warrants”) allowing it to purchase 29,569,892 shares of Common Stock, which is equal to one share of Common Stock for every share of Common Stock which would be issuable to it if it fully converted the Series A Preferred into Common Stock at the Fixed Conversion Price. The exercise price of the Series B Warrants is $0.2232 per share, which is equal to a 20% premium to the consolidated closing bid price of the Common Stock on the day prior to the signing of the Purchase Agreement. The Series B Warrants are not exercisable until the earlier of (i) March 16, 2013 and (ii) the Second Closing, and have a term of five years (though such term may be extended in certain instances).

In addition, at the Initial Closing, the Company issued to Crede a third set of Warrants (“Series C Warrants”) which is only exercisable for six months from the earlier of (i) March 16, 2013 and (ii) after the eleventh trading day following the Second Closing. The Series C Warrants will allow Crede to purchase, at a price of $0.2232 per share (equal to a 20% premium to the consolidated closing bid price of the Common Stock on the day prior to the signing of the Purchase Agreement), 26,881,720 shares of Common Stock, which is equal to one-third the sum of (i) the number of shares of Common Stock issued at the Initial Closing, (ii) the number of shares of Common Stock which would be issuable to it if it fully converted the Series A Preferred into Common Stock at the Fixed Conversion Price, (iii) the number of shares of Common Stock subject to the Series A Warrants and (iv) the number of shares of Common Stock subject to the Series B Warrants.

The Series B and Series C Warrants provide the Company with an option to repurchase any remaining unexercised portion of such Warrants for a repurchase price equal to $50,000, if the Second Closing is terminated pursuant to the Purchase Agreement. The Series C Warrants are also subject to the Company’s repurchase at an aggregate repurchase price equal to $50,000 at the close of trading on the tenth trading day immediately following the Second Closing but only if the registration statement (described below) is effective and covers and is available for use for the resale of (i) all shares of Common Stock issued at the First Closing, (ii) all shares of Common Stock issued upon conversion of the Series A Preferred, (iii) all shares of Common Stock which would then be issuable if the full then unconverted portion of the Series A Preferred were then fully converted into Common Stock at the then applicable conversion price, (iv) all shares of Common Stock subject to the Series A Warrants and (v) all shares of Common Stock subject to the Series B Warrants.

Crede may exercise Series A and Series B Warrants by paying in cash or on a cashless basis by exchanging such Warrants for Common Stock using the Black-Scholes value. In the event that the Common Stock trades at a price 25% or more above the exercise price of the Series A and Series B Warrants for a period of 20 consecutive days (with average daily dollar volume of Common Stock on the OTC Bulletin Board at least equal to $300,000), the Company may obligate Crede to exercise such Warrants for cash.

Pursuant to a registration rights agreement between the Company and Crede, the Company agreed to file a registration statement within 30 days of the Initial Closing and to use its best efforts to get such registration statement effective within 90 days. The registration statement will cover the resale of all shares of Common Stock issuable pursuant to the Purchase Agreement, including the shares of Common Stock underlying the Series A Preferred and Series A, B and C Warrants. The Company has also agreed to prepare and file amendments and supplements to the registration statement to the extent necessary to keep the registration statement effective for the period of time required under the Purchase Agreement. In the event the registration statement fails to be declared effective within the 90 day period, the Company will be subject to monthly penalties which will expire six months after the Initial Closing.

The Series A Preferred and the Series A, B and C Warrants each contain a 9.9% “blocker” so that in no event shall the Series A Preferred or any of the Series A, B and C Warrants be convertible or exercisable (including through the cashless exercise exchange provision) into or for Common Stock to the extent that such conversion or exercise would result in Crede having “beneficial ownership” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) of more than 9.9% of the Common Stock. Crede would, however, have the right from time to time to convert, exercise or exchange for shares of Common Stock, which over time would aggregate to greater than 9.9% beneficial ownership if all such shares of Common Stock so acquired had been held at one time by Crede.

Crede has the right to participate in other equity or equity-linked financings completed by the Company for a period of 180 days from the later of the Initial Closing or the date the registration statement goes effective.

10

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(unaudited)

In addition, the Company has agreed not to issue additional Common Stock or securities convertible into Common Stock at a price below $0.186 per share or the market price of the Common Stock on the date the registration statement is declared effective, for a period of 180 days from the effective date of the registration statement, except for issuances (i) pursuant to acquisitions, joint ventures, license arrangements, leasing arrangements and other similar arrangements, (ii) to employees, consultants, directors and officers approved by the Board or pursuant to a plan approved by the Board, (iii) pursuant to one or more contracts entered into by the Company with third parties which would result in revenues to the Company during a three-month period equal to an annual run rate of $15 Million in revenues and (iv) pursuant to a contract entered into by the Company with a third party which would reasonably be expected to result in more than $3 Million in annual receivables.

Until one year after the Second Closing, the Company is prohibited from entering into any transaction to (i) sell any convertible securities at a conversion rate or other price that is generally based on and/or varies with the trading prices of the Company’s Common Stock at any time after the initial issuance of such convertible securities or (ii) sell securities at a future determined price, including, without limitation, an “equity line of credit” or an “at the market offering.”

NOTE F - STOCK OPTIONS AND WARRANTS

Warrants

The following table summarizes the changes in warrants outstanding and the related prices for the shares of 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 Common Stock.

				Warrants
				Outstanding		Weighted				Exercisable
				Remaining		Average		Weighted		Weighted
	Exercise	Number		Contractual		Exercise		Average		Average
	Prices	Outstanding		Life (Years)		Price		Exercisable		Exercise Price
$	0.03088		1,619,171		4.92	$	0.03088		1,619,171	$	0.03088
$	0.03283		355,421		4.89	$	0.03283		355,421	$	0.03283
$	0.04		3,000,000		2.66	$	0.04		3,000,000	$	0.04
$	0.04405		2,009,081		4.54	$	0.04405		2,009,081	$	0.04405
$	0.04750		5,052,652		5.54	$	0.04750		5,052,652	$	0.04750
$	0.05529		904,322		5.02	$	0.05529		904,322	$	0.05529
$	0.06		12,000,000		2.13	$	0.06		12,000,000	$	0.06
$	0.071		1,000,000		2.07	$	0.071		—	$	0.071
$	0.09		9,900,000		3.67	$	0.09		9,900,000	$	0.09
$	0.10		1,500,000		0.23	$	0.10		1,500,000	$	0.10
$	0.176		100,000		2.85	$	0.176		—	$	0.176
$	0.2232		67,204,300		3.17	$	0.2232		—	$	0.2232
$	0.50		3,200,000		0.47	$	0.50		3,200,000	$	0.50
			107,844,947		1.99	$	0.18		39,540,647	$	0.099

Transactions involving warrants are summarized as follows:

	Number of Shares			Weighted Average Price Per Share
Balance, September 30, 2011		58,205,280		$	0.140
Granted		1,075,000			0.071
Exercised		(5,039,633	)		(0.045	)
Cancelled or expired		(8,400,000	)		(0.161	)
Balance at September 30, 2012		45,840,647		$	0.0145
Granted		67,304,300			0.2231
Exercised		—
Cancelled or expired		(5,300,000	)		(0.50	)
Balance,  December 31, 2012		107,844,947		$	0.18

11

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(unaudited)

Transactions involving warrants are summarized as follows:

On November 7, 2012, 100,000 warrants were issued in connection with services. The warrants are exercisable on or after May 7, 2013 for three years at an exercise price of $0.179 per share. The fair value of the warrants of $13,238 was determined using the Black Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 129.56% and risk free rate from 0.36% and were charged to current period operations.

On November 29, 2012, in connection with a securities purchase agreement as described in Note E above, the Company issued an aggregate of 67,204,300 warrants to purchase the Company’s common stock exercisable for one to five years after defined date or events, at an exercise price of $0.2232.

Employee Stock Options

On January 26, 2005, the Board of Directors, and on February 15, 2005, the holders of a majority of the outstanding shares of Common Stock 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. On May 16, 2007, at the annual meeting of stockholders, the holders of a majority of the outstanding shares of Common Stock approved an increase in the number of shares subject to the 2005 Incentive Stock Plan to 20,000,000 shares of Common Stock.  On June 17, 2008, the Board of Directors unanimously adopted an amendment to the 2005 Incentive Stock Plan that increased the total number of shares of Common Stock issuable pursuant to the 2005 Incentive Stock Plan from a total of 20,000,000 shares to a total of 100,000,000 shares, which was approved by our stockholders at the 2008 annual meeting of stockholders held on December 16, 2008.  On November 30, 2011, the Board of Directors unanimously adopted an amendment to the 2005 Incentive Stock Plan that increased the total number of shares of Common Stock issuable thereunder to 350,000,000 and the number of shares of Common Stock that can be covered by awards made to any participant in any calendar year to 50,000,000, which was approved by our stockholders at the 2012 annual meeting of stockholders held on January 27, 2012.

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 Common Stock.  As of December 31, 2012, a total of 10,175,000 shares have been issued and options to purchase 127,308,192 shares have been granted under the 2005 Incentive Stock Plan.

The following table summarizes the changes in options outstanding and the related prices for the shares of Common Stock issued to employees of the Company under the 2005 Incentive Stock 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
$	0.05		29,000,000		2.40	$	0.05		29,000,000	$	0.05
$	0.0585		50,000,000		5.54	$	0.0585		31,250,000	$	0.0585
$	0.06		30,100,000		2.51	$	0.06		22,500,000	$	0.06
$	0.065		634,825		3.93	$	0.065		634,825	$	0.065
$	0.068		5,724,000		3.92	$	0.068		5,724,000	$	0.068
$	0.07		2,850,000		2.42	$	0.07		1,562,500	$	0.07
$	0.09		1,500,000		3.67	$	0.09		1,500,000	$	0.09
$	0.11		5,400,000		0.46	$	0.11		5,400,000	$	0.11
$	0.1799		2,099,367		4.92	$	0.1766		—		0.1766
			127,308,192		3.71	$	0.06		97,571,325	$	0.06

12

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(unaudited)

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

	Number of Shares			Weighted Average Exercise Price Per Share
Outstanding at October 1, 2011		120,650,000		$	0.060
Granted		6,558,825			0.067
Exercised		(500,000	)		(0.08	)
Expired		(1,500,000	)		(0.08	)
Outstanding at September 30, 2012		125,208,825		$	0.060
Granted		2,099,367			0.1799
Exercised		—
Expired		—
Outstanding at December 31, 2012		127,308,192		$	0.060

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

On November 30, 2012, the Company issued an aggregate of 2,099,367 options to non-employee board of director members (except Mr. Catenacci) under the 2005 Incentive Stock Plan. The options are exercisable at $0.1799 per share for five years, vesting one year from the date of issuance. The fair value of options was determined using the Black Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 146.33% and risk free rate of 0.82%.

The Company recorded $417,866 and $785,719 as stock compensation expense for the three month periods ended December 31, 2012  and 2011, respectively, for the vesting portion of all employee options outstanding. 

NOTE G - COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space under operating lease in Stony Brook, New York for its corporate use, which expired in October 2012 renewable annually thereafter.  Total lease rental expenses for the three months ended December 31, 2012 and 2011 were $71,585 and $45,767, respectively.

Employment and Consulting Agreements

The Company has employment agreements with the Chief Executive Officer and Chief Financial Officer as disclosed in its September 30, 2012 notes to consolidated financial statements included in its Form 10K filed with the SEC.

Also, the Company has consulting agreements with outside contractors, certain of whom are also Company stockholders.  The Agreements are generally month to month.

Litigation

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.

Demodulation, Inc. v. Applied DNA Sciences, Inc., et al. (Civil Action No. - 2:11-cv-00296-WJM-MF, District of New Jersey):

On May 18, 2011, the Company was served with a complaint in a lawsuit brought by Demodulation, Inc. against the Company, Corning Incorporated, Alfred University, and Alfred Technology Resources, Inc.  On July 8, 2011, the Company filed a motion to dismiss the complaint.  In response, on August 3, 2011, Demodulation, Inc. filed an amended complaint.  Demodulation, Inc. alleges that it was unable to bring its microwire technology to market due to the wrongful acts of defendants, who allegedly conspired to steal Demodulation, Inc.’s trade secrets and other intellectual property and to interfere in its business opportunities.  Of the 17 claims alleged in the amended complaint, five are asserted against the Company, including alleged misappropriation of trade secrets, antitrust violations, civil RICO, and patent infringement.  Demodulation, Inc. seeks damages and injunctive relief against the Company.  The Company believes these claims are without merit.  On September 10, 2011, Alfred University filed a motion to transfer the action from the District of New Jersey to the Western District of New York.  On December 22, 2011, the Court denied the motion.  On January 27, 2012, the Company filed a motion to dismiss the amended complaint for failure to state a claim and on other grounds.  On May 4, 2012, the Company filed a reply memorandum in further support of its motion to dismiss the amended complaint. On December 12, 2012, the Court entered an order on the Company’s motion to dismiss the amended complaint. The Court granted in part and denied in part the Company’s motion to dismiss. The Court dismissed four out of the five claims asserted against the Company without prejudice, permitting plaintiff the right to amend if it is able to and so chooses. The only claim currently remaining against the Company is that for patent infringement. An initial conference is scheduled with the Court on February 22, 2013. The Company intends to vigorously defend the action. The ultimate outcome of this claim cannot be determined at the date of this report.

13

Smartwater, Ltd. v. Applied DNA Sciences, Inc. (No. 12-CV-05731-JS-AKT (E.D.N.Y.))

On June 6, 2012, a complaint for patent infringement was filed against the Company by Smartwater, Ltd. in the United States District Court for the District of Massachusetts in an action entitled Smartwater, Ltd. v. Applied DNA Sciences, Inc., No. 1:12-cv-11009-PBS.  The complaint alleged that the Company infringed one or more claims under two of plaintiff’s patents by selling or offering for sale, manufacturing and using certain of the Company’s products, by inducing others to infringe and by contributing to infringement by others.  The plaintiff sought injunctive relief with respect to the patents as well as awards of damages and attorneys’ fees.  The Company had not been served with the complaint and on August 24, 2012 the plaintiff voluntarily dismissed the complaint and refiled a similar complaint in the United States District Court for the Southern District of Florida, No. 12-61660-DMM (S.D. Fla.).  On August 30, 2012, plaintiff served the Company with the complaint.  The refiled complaint seeks injunctive relief with respect to one of the patents as well as awards of damages and attorneys’ fees.  The Company filed a motion to dismiss and a motion to transfer the action to the Eastern District of New York.  On November 19, 2012, the Court granted the Company’s motion to transfer the action to the Eastern District of New York.  The Company’s motion to dismiss is pending before the Court in the Eastern District of New York.  An initial conference with the Court is scheduled for February 21, 2013 at which time a discovery schedule will be set.  The Company believes that none of its products infringed any claims under either of plaintiff’s patents and moreover notes that one of plaintiff’s patents has expired.  The Company denies the allegations in the complaint, believes they are without merit and intends to defend the action vigorously. The ultimate outcome of this claim cannot be determined at the date of this report.

NOTE H - LIQUIDITY

The Company incurred a net loss of $8,704,757 and generated negative operating cash flow of $1,740,372 for the three months ended December 31, 2012. However, the Company has attained positive working capital of $589,744 as of December 31, 2012. Subsequent to the balance sheet date, the Company completed the second closing of its transaction with Crede and raised an additional $5.5 million.  Management believes that the positive cash balance and working capital as of December 31, 2012 plus the subsequent funds raised along with the current customer base, the projected cash flow and the minimum guaranteed revenues for the next fiscal year will allow the Company to continue to improve its working capital and will have sufficient capital resources to meet projected cash flow requirements for at least one year plus a day from the date of this report.

NOTE I - FAIR VALUE

The carrying value of cash, accounts receivable, accounts payable and accrued expenses approximate estimated fair values because of short maturities.

The carrying value of the warrant liability is determined using the Binomial Lattice model option pricing model as described in Note C. Certain assumptions used in the calculation of the warrants liability represent level-3 unobservable inputs.

NOTE J – SUBSEQUENT EVENTS

Second Closing of Private Placement:

On January 7, 2013, the Company completed the Second Closing of its transaction with Crede and sold 5,500 shares of the Series A Preferred to Crede at a price of $1,000 per share. The Company received gross proceeds of $5,500,000. On January 8, 2012, the Company exercised its option and converted the Series A Preferred held by Crede into 25,462,963 shares of the Company’s Common Stock at a conversion price of $0.216 per share.

14

APPLIED DNA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(unaudited)

As previously reported on the Current Report on Form 8-K filed by the Company on November 29, 2012, the Company entered into a securities purchase agreement (“Purchase Agreement”) with Crede dated November 28, 2012, pursuant to which Crede agreed to purchase the Series A Preferred on the first business day following the date a registration statement covering the resale of all shares of Common Stock issuable pursuant to the Purchase Agreement, including those underlying the Series A Preferred and Series A, B and C Warrants, is declared effective by the SEC. The Company’s registration statement on Form S-3 was declared effective by the SEC on January 4, 2013.

Pursuant to the Purchase Agreement, Crede purchased at the Initial Closing, held on November 29, 2012, 10,752,688 shares of the Company’s Common Stock at a price of $0.186 per share, resulting in gross proceeds to the Company of $2,000,000. In addition, at the Initial Closing, Crede was issued (i) five year Series A Warrants allowing it to initially purchase 10,752,688 shares of Common Stock at a price of $0.2232 per share, (ii) five year Series B Warrants allowing it to initially purchase 29,569,892 shares of Common Stock at a price of $0.2232 which became exercisable at the Second Closing and (iii) Series C Warrants to initially purchase 26,881,720 shares of Common Stock which became exercisable for six months after the eleventh trading day following the Second Closing.. Crede may also exchange the Warrants for Common Stock pursuant to a Black-Scholes formula. The Series A, B and C Warrants each contain a 9.9% “blocker” so that in no event shall any of the Warrants be exercisable or exchangeable into or for Common Stock to the extent that such exercise or exchange would result in Crede having “beneficial ownership” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) of more than 9.9% of the Company’s Common Stock.

On January 22, 2013, the Company exercised its option to repurchase the Series C Warrants issued to Crede for $50,000.

15

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, including statements using terminology such as “can”, “may”, “believe”, “designed 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 our Annual Report on Form 10-K for the fiscal year ended September 30, 2012.  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, SmartDNA®, DNANet®, BioMaterial Genotyping™, digitalDNA™, and Cashield®, our principal anti-counterfeiting and product authentication solutions, can be used in numerous industries, including cash-in-transit (transport and storage of banknotes), microcircuits and other electronics, homeland security, textiles and apparel, identity cards and other secure documents, law enforcement, 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, microcircuits and other electronics, 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.

SmartDNA. SmartDNA is a unique and patented security system based on botanical DNA, a new and effective crime protection system for stores, warehouses, banks, pharmacies, ATMs and the protection of valuables. The system contains a water-based, non-toxic spray which may be triggered during a crime, marking the perpetrator and remaining on their person for weeks after the crime. Each SmartDNA product is designed to be unique to each store, warehouse or sting operation allowing the police and prosecutors to link criminals to the crimes.

DNANet. We have recently developed DNANet tactical DNA products for law enforcement, in the form of DNA-marked sprays and liquids. These products, which are being marketed to global police forces, were created to help link criminals to crimes. DNANet is a tactical forensic system providing unique DNA codes for covert operations that require absolute proof of authentication. DNANet is now included in the SmartDNA family of products.

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 textile industry with what we believe to be the first authentication tools that can be applied throughout the U.S. and global textile industry by cotton growers, mills, wholesalers, distributors, manufacturers and retailers through trade groups and government agencies.

digitalDNA. digitalDNA is a DNA-secured form of the QR (“quick read”) code. digitalDNA is a new security tool that utilizes the flexibility of mobile communications, the instant accessibility of secure, cloud-based data, and the absolute certainty of DNA to make item tracking and authentication fast, easy and definitive, while providing the opportunity to create a new and exciting customer interface. The product uses forensic authentication of a botanical DNA marker, sequence-encrypted within a secure QR code, and physically included within the ink used to digitally print the code. The resulting pattern or “rune” can be scanned via an Apple-approved app with an iPhone to assure originality. These mobile scans can be performed anywhere along the supply chain without limit. Tracking information is fed into “tunable algorithms” that use pattern recognition to automatically identify supply-chain risks, for counterfeits or product diversion. Rapid-reading reporters, associated with the DNA marker, are also embedded in the ink, and prevent the secure code from being digitally copied.

16

The digitalDNA platform is designed to meet compliance specifications defined by the PCI (Payment Card Industry) Security Standards Council, the new and strict standards developed for handling credit card transactions, and HIPAA (Health Insurance Portability and Accountability Act), the stringent requirements for protecting personal health information.

Cashield. Cashield is a family of cash degradation inks that permanently stain banknotes stolen from cash-handling or ATM systems. Cashield extends our offering beyond our prior singular product, AzSure®, to a family of security inks that include Red, Violet, Green, Teal, Indigo, and the original AzSure® Blue. Current degradation dyes suffer from a critical technical weakness, as the dyes may be removed by the use of solvents. We initiated the development of Cashield in response to demand for a more effective carrier for our SigNature DNA markers. Cashield has been certified for use in the European Union by the Laboratoire National de Métrologie et d’Essais (LNE) and passed all 47 individual dye penetration and wash-out-resistance tests. Additionally, a CViT study presented by the University of Leeds cited Cashield AzSure Blue ink as having improved performance versus staining inks from other suppliers. In this study, the AzSure Blue ink was tested across a range of currencies, including British pounds, Euros, and U.S. dollars. The evaluation involved exposure to numerous industrial solvents. Final analysis of the results concluded that the AzSure Blue ink was bound strongly in five seconds or less to a variety of banknotes, and could not be removed with any solvent.

Plan of Operations

General

To date, the substantial portion of our revenues have been generated from sales of our Signature DNA and BioMaterial Genotyping, our principal anti-counterfeiting and product authentication solutions (“authentication services”). We have continued to incur expenses in expanding our laboratory and office facilities and increasing our personnel to meet anticipated future demand. We expect to grow revenues from sales of our SigNature Program, Cashield, DNANet, SmartDNA, digitalDNA and BioMaterial Genotyping offerings. We have developed or are currently attempting to develop business in the following target markets: homeland security, cash-in-transit, textile and apparel authentication, secure documents, pharmaceuticals, consumer products, law enforcement, fine wine, art and collectibles, and digital and recording media. Our developments in the cash-in-transit, semiconductor authentication and textile and apparel authentication have contributed to our revenues. We intend to pursue both domestic and international sales opportunities in each of these vertical markets.

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

● Equity based compensation.

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.

17

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 ASC05-25 on our financial position and results of operations are 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. The Company writes-off receivables that are deemed uncollectible.

 Equity Based Compensation

The Company follows 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 statement of operations based on their fair values.

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, 2012 and 2011

Revenues

For the three months ended December 31, 2012, we generated $317,670 in revenues from operations principally from the sales of authentication services. For the three months ended December 31, 2011, we generated $516,904 in revenues from operations. The decrease in sales for the three months ended December 31, 2012 compared to the three months ended December 31, 2011 was primarily caused by the expiration of certain contracts and delays in our transition to new contracts with products in our target markets.

 Costs and Expenses

Selling, General and Administrative

Selling, general and administrative expenses increased from $2,152,428 for the three months ended December 31, 2011 to $2,521,167 for the three months ended December 31, 2012. The increase of $368,739, or 17.1%, is primarily attributable to higher professional and service fees incurred.

Research and Development

Research and development expenses increased from $78,473 for the three months ended December 31, 2011 to $147,666 for the three months ended December 31, 2012. The increase of $69,193 is attributable to additional research and development activity needed with current operations.

18

Depreciation and Amortization

In the three months ended December 31, 2012, depreciation and amortization decreased by $77,378 from $98,373 for the three months ended December 31, 2011 to $20,995 for the three months ended December 31, 2012.  The decrease is attributable to completion of the amortization of our intangible property.

Total Operating Expenses

Total operating expenses increased to $2,689,828 for the three months ended December 31, 2012 from $2,329,274 for the three months ended December 31, 2011, or an increase of $360,554 primarily attributable to an increase in professional fees paid and in R&D expenditures, which was offset by a decrease in depreciation and amortization expense.

Interest Expenses

Interest expense for the three months ended December 31, 2012 decreased to $-0- from $597,535 for the three months ended December 31, 2011. The decrease in interest expense was due to no outstanding notes payable as of December 31, 2012.

Loss from Change in Fair Value of Warrant Liability

During the three months ended December 31, 2012, we issued warrants containing certain reset provisions which required us classify as a liability, to fair value each reporting period and mark to market as a non cash adjustment to our current period operations.  This resulted in a $6,332,599 charge to current period operations as compared to $-0- for the same period last year.

Net Loss

Net loss for the three months ended December 31, 2012 increased to $8,704,757 from a net loss of $2,409,905 for the three months ended December 31, 2011 primarily attributable to factors described above.

Liquidity and Capital Resources

Our liquidity needs consist of our working capital requirements and research and development expenditure funding. As of December 31, 2012, we had working capital of $589,744. For the three months ended December 31, 2012, we generated a net cash flow deficit from operating activities of $1,740,372 consisting primarily of our loss of $8,704,757, net with non-cash adjustments of $20,995 in depreciation and amortization charges, $431,104 for equity based compensation and $6,332,599 change in fair value of warrant liability. Additionally, we had a net increase in operating assets of $37,106 and a net increase in operating liabilities of $216,793. Cash used in investing activities was $-0-. Cash provided by financing activities for the three months ended December 31, 2012 totaled $2,000,000 consisting of proceeds from the sale of our common stock.

On November 28, 2012, we entered into a securities purchase agreement with Crede CG II, Ltd. (“Crede”) to sell $7.5 million of our securities of which we have received gross proceeds of $2 million through December 31, 2012. On January 7, 2013, Crede purchased $5.5 million of our Series A Preferred Stock which was converted by us into common stock. See “Subsequent Events” below. In connection with this securities purchase agreement, we also issued warrants to Crede to purchase additional shares of our common stock.

Management believes that our positive cash balance and working capital as of December 31, 2012 in addition to the subsequent funds raised from Crede subsequent to December 31, 2012 along with our current customer base, projected cash flow and the minimum guaranteed revenues for the next fiscal year will allow us to continue to improve our working capital and to have sufficient capital resources to meet projected cash flow requirements through December 31, 2013.

We expect capital expenditures to be less than $1,000,000 in fiscal 2013. Our primary investments will be in laboratory equipment to support prototyping, manufacturing and our authentication services.

Subsequent to December 31, 2013, we may be required to seek additional capital.  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 could restrict our ability to grow.  Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. 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.

19

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

Subsequent Events

Second Closing of Private Placement:

On January 7, 2013, the Company completed the second closing (“Second Closing”) of its transaction with Crede CG II, Ltd. (“Crede”) and sold 5,500 shares of Series A Convertible Preferred Stock (“Series A Preferred”) to Crede at a price of $1,000 per share. The Company received gross proceeds of $5,500,000. On January 8, 2013, the Company exercised its option and converted the Series A Preferred held by Crede into 25,462,963 shares of the Company’s Common Stock at a conversion price of $0.216 per share.

As previously reported, the Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with Crede dated November 28, 2012 pursuant to which Crede agreed to purchase the Series A Preferred on the first business day following the date a registration statement covering the resale of all shares of Common Stock issuable pursuant to the Purchase Agreement, including those underlying the Series A Preferred and Series A, B and C Warrants, is declared effective by the SEC. The Company’s registration statement on Form S-3 was declared effective by the SEC on January 4, 2013.

Pursuant to the Purchase Agreement, Crede purchased at the initial closing held on November 29, 2012 (“Initial Closing”) 10,752,688 shares of the Company’s Common Stock at a price of $0.186 per share, resulting in gross proceeds to the Company of $2,000,000. In addition, at the Initial Closing, Crede was issued (i) five year Series A Warrants allowing it to initially purchase 10,752,688 shares of Common Stock at a price of $0.2232 per share, (ii) five year Series B Warrants allowing it to initially purchase 29,569,892 shares of Common Stock at a price of $0.2232 which became exercisable at the Second Closing and (iii) Series C Warrants to initially purchase 26,881,720 shares of Common Stock which became exercisable for six months after the eleventh trading day following the Second Closing. Crede may also exchange the Warrants for Common Stock pursuant to a Black-Scholes formula. The Series A, B and C Warrants each contain a 9.9% “blocker” so that in no event shall any of the Warrants be exercisable or exchangeable into or for Common Stock to the extent that such exercise or exchange would result in Crede having “beneficial ownership” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) of more than 9.9% of the Company’s Common Stock.

On January 22, 2013, the Company exercised its option to repurchase the Series C Warrants issued to Crede for $50,000.

Product Research and Development

We anticipate spending approximately $500,000 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.  To manage our expected growth, if any, over the next 2 to 3 years, we anticipate seeking additional space at our current location in the next few months.

Number of Employees

We currently have 26 full-time employees and three part-time employees, including two in management, seventeen in operations, nine in sales and marketing and one in investor relations.  We expect to increase our 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.  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. As of June 23, 2012, we began working with Insperity Inc. to help us manage many of our back-end administrative human resources responsibilities. This change is being done to provide Fortune 500 type benefits to our current employees, making us more attractive to new hires as well as saving us money by not having to build out an internal HR department at this point in time. Insperity Inc. is a publicly traded company (NYSE: NSP) that supports businesses with payroll, medical benefits, online-training, and human resources services and support.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

20

Inflation

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

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

We are a smaller reporting company as defined by Rule 12b-2 under the Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information required under this item.

Item 4. - 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 Chief Executive Officer and Chief  Financial Officer, 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, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2012, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended December 31, 2012, 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.

“Item 3. Legal Proceedings” of our most recent Annual Report on Form 10-K filed on December 20, 2012 includes a discussion of our legal proceedings.  There have been no material changes from the legal proceedings described in our Form 10-K.

21

Item 6 – Exhibits

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)
101 INS***	XBRL Instance Document
101 SCH***	XBRL Taxonomy Extension Schema Document
101 CAL***	XBRL Taxonomy Extension Calculation Linkbase Document
101 LAB***	XBRL Extension Label Linkbase Document
101 PRE***	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

** Furnished herewith.

*** In accordance with Rule 406T of Regulation S-T, the information in Exhibit 101 is furnished and deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

22

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 14, 2013	/s/ JAMES A. HAYWARD, PH. D.
	James A. Hayward, Ph. D.
	Chief Executive Officer  (Duly authorized officer)

/s/ KURT H. JENSEN

Kurt H. Jensen

Chief Financial Officer

 (Duly authorized officer and

 principal financial officer)

23

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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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 the 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 14, 2013

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  (the registrant’s fourth fiscal quarter in the case of an annual report) 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 the 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 14, 2013

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, 2012 (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 14, 2013

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, 2012 (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 14, 2013

XML

SUBSEQUENT EVENTS (Detail Textuals 1) (SUBSEQUENT EVENTS, Crede CG II Ltd, USD $)	1 Months Ended
	Nov. 29, 2012
Series A Warrants
Subsequent Event [Line Items]
Term of warrants (in years)	5 years
Number of common stock called by warrants	10,752,688
Exercise price of warrants (in dollars per warrant)	0.2232
Percentage of blocker	9.90%
Maximum threshold for beneficial ownership	9.90%
Series B Warrants
Subsequent Event [Line Items]
Term of warrants (in years)	5 years
Number of common stock called by warrants	29,569,892
Exercise price of warrants (in dollars per warrant)	0.2232
Percentage of blocker	9.90%
Maximum threshold for beneficial ownership	9.90%
Series C Warrants
Subsequent Event [Line Items]
Term of warrants (in years)	6 months
Number of common stock called by warrants	26,881,720
Exercise price of warrants (in dollars per warrant)	0.2232
Repurchase price	$ 50,000
Percentage of blocker	9.90%
Maximum threshold for beneficial ownership	9.90%

XML

STOCK OPTIONS AND WARRANTS - Transactions involving warrants (Detail Textuals) (Warrants, USD $)	0 Months Ended						1 Months Ended
	Nov. 07, 2012	Dec. 31, 2012	Nov. 29, 2012	Nov. 28, 2012	Sep. 30, 2012	Sep. 30, 2011	Nov. 29, 2012 Maximum	Nov. 29, 2012 Minimum
Class of Warrant or Right [Line Items]
Number of Warrants issued in Connection with service	100,000
Exercise price of warrants (in dollars per warrant)	0.179		0.2232
Fair value of warrants	$ 13,238
Number of expected term (in years)	3 years
Dividend yield assumed (in percent)	0.00%
Volatility assumed (in percent)	129.56%
Risk free rate (in percent)	0.36%
Method used to calculate fair value of warrants	Black Scholes Option Pricing Model
Number of warrants outstanding		107,844,947	67,204,300	67,204,300	45,840,647	58,205,280
Number of years for exercisable of warrants							5 years	1 year

XML

CAPITAL STOCK (Detail Textuals) (USD $)	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Sep. 30, 2012
Stockholders' Equity Note [Abstract]
Common stock, shares authorized	1,350,000,000	800,000,000	1,350,000,000
Preferred stock, shares authorized	10,000,000		10,000,000
Preferred stock, par value (in dollars per share)	$ 0.001		$ 0.001
Common stock, shares issued	656,935,238		646,182,550
Common stock, shares outstanding	656,935,238		646,182,550
Equity based compensation	$ 13,238	$ 1,363

XML

LIQUIDITY (Detail Textuals) (USD $)	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Agreement [Line Items]
Net loss	$ (8,704,757)	$ (2,409,905)
Net cash used in operating activities	(1,740,372)	(811,515)
Positive working capital	589,744
Securities Purchase Agreement With Crede CG II Ltd
Agreement [Line Items]
Capital raised	$ 5,500,000

XML

RELATED PARTY TRANSACTIONS

3 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE D - RELATED PARTY TRANSACTIONS

The Company has consulting agreements with outside contractors, certain of whom are also Company stockholders. The agreements are generally month to month.

XML

STOCK OPTIONS AND WARRANTS - Changes in warrants outstanding and related prices (Details) (Warrants)	3 Months Ended
	Dec. 31, 2012	Nov. 29, 2012	Nov. 28, 2012	Nov. 07, 2012	Sep. 30, 2012	Sep. 30, 2011
Class of Warrant or Right [Line Items]
Exercise price of warrants		0.2232		0.179
Number of warrants outstanding	107,844,947	67,204,300	67,204,300		45,840,647	58,205,280
Warrants Outstanding Remaining Contractual Life (Years)	1 year 11 months 26 days
Weighted Average Exercise Price	0.18
Weighted Average Exercisable	39,540,647
Exercisable Weighted Average Exercise Price	0.099
Exercise price $0.03088
Class of Warrant or Right [Line Items]
Exercise price of warrants	0.03088
Number of warrants outstanding	1,619,171
Warrants Outstanding Remaining Contractual Life (Years)	4 years 11 months 1 day
Weighted Average Exercise Price	0.03088
Weighted Average Exercisable	1,619,171
Exercisable Weighted Average Exercise Price	0.03088
Exercise price $0.03283
Class of Warrant or Right [Line Items]
Exercise price of warrants	0.03283
Number of warrants outstanding	355,421
Warrants Outstanding Remaining Contractual Life (Years)	4 years 10 months 20 days
Weighted Average Exercise Price	0.03283
Weighted Average Exercisable	355,421
Exercisable Weighted Average Exercise Price	0.03283
Exercise price $0.04
Class of Warrant or Right [Line Items]
Exercise price of warrants	0.04
Number of warrants outstanding	3,000,000
Warrants Outstanding Remaining Contractual Life (Years)	2 years 7 months 28 days
Weighted Average Exercise Price	0.04
Weighted Average Exercisable	3,000,000
Exercisable Weighted Average Exercise Price	0.04
Exercise price $0.04405
Class of Warrant or Right [Line Items]
Exercise price of warrants	0.04405
Number of warrants outstanding	2,009,081
Warrants Outstanding Remaining Contractual Life (Years)	4 years 6 months 14 days
Weighted Average Exercise Price	0.04405
Weighted Average Exercisable	2,009,081
Exercisable Weighted Average Exercise Price	0.04405
Exercise price $0.04750
Class of Warrant or Right [Line Items]
Exercise price of warrants	0.04750
Number of warrants outstanding	5,052,652
Warrants Outstanding Remaining Contractual Life (Years)	5 years 6 months 14 days
Weighted Average Exercise Price	0.04750
Weighted Average Exercisable	5,052,652
Exercisable Weighted Average Exercise Price	0.0475
Exercise price $0.05529
Class of Warrant or Right [Line Items]
Exercise price of warrants	0.05529
Number of warrants outstanding	904,322
Warrants Outstanding Remaining Contractual Life (Years)	5 years 7 days
Weighted Average Exercise Price	0.05529
Weighted Average Exercisable	904,322
Exercisable Weighted Average Exercise Price	0.05529
Exercise price $0.06
Class of Warrant or Right [Line Items]
Exercise price of warrants	0.06
Number of warrants outstanding	12,000,000
Warrants Outstanding Remaining Contractual Life (Years)	2 years 1 month 17 days
Weighted Average Exercise Price	0.06
Weighted Average Exercisable	12,000,000
Exercisable Weighted Average Exercise Price	0.06
Exercise price $0.071
Class of Warrant or Right [Line Items]
Exercise price of warrants	0.071
Number of warrants outstanding	1,000,000
Warrants Outstanding Remaining Contractual Life (Years)	2 years 23 days
Weighted Average Exercise Price	0.071
Exercisable Weighted Average Exercise Price	0.071
Exercise price $0.09
Class of Warrant or Right [Line Items]
Exercise price of warrants	0.09
Number of warrants outstanding	9,900,000
Warrants Outstanding Remaining Contractual Life (Years)	3 years 8 months 1 day
Weighted Average Exercise Price	0.09
Weighted Average Exercisable	9,900,000
Exercisable Weighted Average Exercise Price	0.09
Exercise price $0.10
Class of Warrant or Right [Line Items]
Exercise price of warrants	0.10
Number of warrants outstanding	1,500,000
Warrants Outstanding Remaining Contractual Life (Years)	2 months 22 days
Weighted Average Exercise Price	0.10
Weighted Average Exercisable	1,500,000
Exercisable Weighted Average Exercise Price	0.10
Exercise price $0.176
Class of Warrant or Right [Line Items]
Exercise price of warrants	0.176
Number of warrants outstanding	100,000
Warrants Outstanding Remaining Contractual Life (Years)	2 years 10 months 6 days
Weighted Average Exercise Price	0.176
Exercisable Weighted Average Exercise Price	0.176
Exercise price $0.2232
Class of Warrant or Right [Line Items]
Exercise price of warrants	0.2232
Number of warrants outstanding	67,204,300
Warrants Outstanding Remaining Contractual Life (Years)	3 years 2 months 1 day
Weighted Average Exercise Price	0.2232
Exercisable Weighted Average Exercise Price	0.2232
Exercise price $0.50
Class of Warrant or Right [Line Items]
Exercise price of warrants	0.50
Number of warrants outstanding	3,200,000
Warrants Outstanding Remaining Contractual Life (Years)	5 months 19 days
Weighted Average Exercise Price	0.50
Weighted Average Exercisable	3,200,000
Exercisable Weighted Average Exercise Price	0.50

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CAPITAL STOCK (Details Textuals 3) (Securities Purchase Agreement With Crede CG II Ltd, USD $)	1 Months Ended
	Nov. 28, 2012
Securities Purchase Agreement With Crede CG II Ltd
Exercise Of Warrants For Cash [Abstract]
Exercise of warrants for cash, Description	Crede may exercise Series A and Series B Warrants by paying in cash or on a cashless basis by exchanging such Warrants for Common Stock using the Black-Scholes value. In the event that the Common Stock trades at a price 25% or more above the exercise price of the Series A and Series B Warrants for a period of 20 consecutive days (with average daily dollar volume of Common Stock on the OTC Bulletin Board at least equal to $300,000), the Company may obligate Crede to exercise such Warrants for cash.
Number of average daily dollar volume of common stock	$ 300,000
Percentage of common stock trade	25.00%
Number of trading days	20 days
Registration Rights Agreement [Abstract]
Number of days of initial closing to file registration statement	30 days
Number of days for registration statement to be effective	90 days
Number of days of registration statement fails to be declared effective subject to monthly penalties	90 days
Term of expiration of monthly penalties	6 months
Beneficial Ownership Blocker [Abstract]
Beneficial ownership blocker, Description	The Series A Preferred and the Series A, B and C Warrants each contain a 9.9% "blocker" so that in no event shall the Series A Preferred or any of the Series A, B and C Warrants be convertible or exercisable (including through the cashless exercise exchange provision) into or for Common Stock to the extent that such conversion or exercise would result in Crede having "beneficial ownership" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) of more than 9.9% of the Common Stock. Crede would, however, have the right from time to time to convert, exercise or exchange for shares of Common Stock, which over time would aggregate to greater than 9.9% beneficial ownership if all such shares of Common Stock so acquired had been held at one time by Crede.
Percentage of blocker	9.90%
Maximum threshold for beneficial ownership	9.90%
Term for participation in other equity or equity linked financing's completed	180 days
Additional Condition [Abstract]
Condition of additional issuance of common stock, Description	In addition, the Company has agreed not to issue additional Common Stock or securities convertible into Common Stock at a price below $0.186 per share or the market price of the Common Stock on the date the registration statement is declared effective, for a period of 180 days from the effective date of the registration statement, except for issuances (i) pursuant to acquisitions, joint ventures, license arrangements, leasing arrangements and other similar arrangements, (ii) to employees, consultants, directors and officers approved by the Board or pursuant to a plan approved by the Board, (iii) pursuant to one or more contracts entered into by the Company with third parties which would result in revenues to the Company during a three-month period equal to an annual run rate of $15 Million in revenues and (iv) pursuant to a contract entered into by the Company with a third party which would reasonably be expected to result in more than $3 Million in annual receivables.
Issuance price of stock issued (in dollars per share)	$ 0.186
Amount of annual run rate	15,000,000
Amount of annual receivables	$ 3,000,000

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STOCK OPTIONS AND WARRANTS - Transactions involving warrants (Details 1) (Warrants, USD $)	3 Months Ended	12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Nov. 29, 2012	Nov. 28, 2012
Warrants
Class Of Warrant Or Right, Number Of Shares [Roll Forward]
Beginning Balance, Number of Shares	45,840,647	58,205,280	67,204,300	67,204,300
Granted	67,304,300	1,075,000
Exercised		(5,039,633)
Canceled or expired	(5,300,000)	(8,400,000)
Ending Balance, Number of Shares	107,844,947	45,840,647	67,204,300	67,204,300
Class Of Warrant Or Right, Weighted Average Price Per Share [Roll Forward]
Beginning Balance, Weighted Average Price Per Share	$ 0.0145	$ 0.140
Granted	$ 0.2231	$ 0.071
Exercised		$ (0.045)
Canceled or expired	$ (0.50)	$ (0.161)
Ending Balance, Weighted Average Price Per Share	$ 0.18	$ 0.0145

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STOCK OPTIONS AND WARRANTS - Changes in options outstanding and related prices (Details 2) (USD $)	3 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Sep. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options to purchase Shares under the 2005 Incentive Stock Plan	127,308,192	125,208,825
Stock Options | Incentive Stock Plan 2005
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options to purchase Shares under the 2005 Incentive Stock Plan	127,308,192	125,208,825	120,650,000
Weighted Average Remaining Contractual Life of Options Outstanding (Years)	3 years 8 months 15 days
Weighted Average Exercise Price of Options Outstanding	$ 0.06	$ 0.06	$ 0.060
Number of Options Exercisable	97,571,325
Weighted Average Exercise Price of Options	$ 0.06
Stock Options | Incentive Stock Plan 2005 | Exercise price $0.05
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, exercise prices	$ 0.05
Options to purchase Shares under the 2005 Incentive Stock Plan	29,000,000
Weighted Average Remaining Contractual Life of Options Outstanding (Years)	2 years 4 months 24 days
Weighted Average Exercise Price of Options Outstanding	$ 0.05
Number of Options Exercisable	29,000,000
Weighted Average Exercise Price of Options	$ 0.05
Stock Options | Incentive Stock Plan 2005 | Exercise price $0.0585
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, exercise prices	$ 0.0585
Options to purchase Shares under the 2005 Incentive Stock Plan	50,000,000
Weighted Average Remaining Contractual Life of Options Outstanding (Years)	5 years 6 months 14 days
Weighted Average Exercise Price of Options Outstanding	$ 0.0585
Number of Options Exercisable	31,250,000
Weighted Average Exercise Price of Options	$ 0.0585
Stock Options | Incentive Stock Plan 2005 | Exercise price $0.06
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, exercise prices	$ 0.06
Options to purchase Shares under the 2005 Incentive Stock Plan	30,100,000
Weighted Average Remaining Contractual Life of Options Outstanding (Years)	2 years 6 months 4 days
Weighted Average Exercise Price of Options Outstanding	$ 0.06
Number of Options Exercisable	22,500,000
Weighted Average Exercise Price of Options	$ 0.06
Stock Options | Incentive Stock Plan 2005 | Exercise price $0.065
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, exercise prices	$ 0.065
Options to purchase Shares under the 2005 Incentive Stock Plan	634,825
Weighted Average Remaining Contractual Life of Options Outstanding (Years)	3 years 11 months 5 days
Weighted Average Exercise Price of Options Outstanding	$ 0.065
Number of Options Exercisable	634,825
Weighted Average Exercise Price of Options	$ 0.065
Stock Options | Incentive Stock Plan 2005 | Exercise price $0.068
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, exercise prices	$ 0.068
Options to purchase Shares under the 2005 Incentive Stock Plan	5,724,000
Weighted Average Remaining Contractual Life of Options Outstanding (Years)	3 years 11 months 1 day
Weighted Average Exercise Price of Options Outstanding	$ 0.068
Number of Options Exercisable	5,724,000
Weighted Average Exercise Price of Options	$ 0.068
Stock Options | Incentive Stock Plan 2005 | Exercise price $0.07
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, exercise prices	$ 0.07
Options to purchase Shares under the 2005 Incentive Stock Plan	2,850,000
Weighted Average Remaining Contractual Life of Options Outstanding (Years)	2 years 5 months 1 day
Weighted Average Exercise Price of Options Outstanding	$ 0.07
Number of Options Exercisable	1,562,500
Weighted Average Exercise Price of Options	$ 0.07
Stock Options | Incentive Stock Plan 2005 | Exercise price $0.09
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, exercise prices	$ 0.09
Options to purchase Shares under the 2005 Incentive Stock Plan	1,500,000
Weighted Average Remaining Contractual Life of Options Outstanding (Years)	3 years 8 months 1 day
Weighted Average Exercise Price of Options Outstanding	$ 0.09
Number of Options Exercisable	1,500,000
Weighted Average Exercise Price of Options	$ 0.09
Stock Options | Incentive Stock Plan 2005 | Exercise price $0.11
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, exercise prices	$ 0.11
Options to purchase Shares under the 2005 Incentive Stock Plan	5,400,000
Weighted Average Remaining Contractual Life of Options Outstanding (Years)	5 months 16 days
Weighted Average Exercise Price of Options Outstanding	$ 0.11
Number of Options Exercisable	5,400,000
Weighted Average Exercise Price of Options	$ 0.11
Stock Options | Incentive Stock Plan 2005 | Exercise price $0.1799
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, exercise prices	$ 0.1799
Options to purchase Shares under the 2005 Incentive Stock Plan	2,099,367
Weighted Average Remaining Contractual Life of Options Outstanding (Years)	4 years 11 months 1 day
Weighted Average Exercise Price of Options Outstanding	$ 0.1766
Number of Options Exercisable
Weighted Average Exercise Price of Options	$ 0.1766

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WARRANT LIABILITY

3 Months Ended

Dec. 31, 2012

Warrant Liability [Abstract]

WARRANT LIABILITY

NOTE C – WARRANT LIABILITY

As more fully described in Note E below, on November 28, 2012, the Company entered into a securities purchase agreement (“Purchase Agreement”) with Crede CG II, Ltd. (“Crede”).  In connection with the Purchase Agreement, the Company issued Series A, B and C Warrants allowing Crede to purchase 10,752,688, 29,569,892 and 26,881,720 shares of Common Stock, respectively.

The Company determined that the Series A and B Warrants described above should be classified as a liability due to transactions which may cause an adjustment to the conversion rate (reset provisions) contained in the warrant agreements and remeasured at each reporting date at their fair value with the changes reported in earnings (loss).  Due to a callable provision of the Series C Warrants, the Company deemed such as an equity instrument.  Liability classification of the Series A and B Warrants will end upon expiration of reset provisions, at which time the Warrants will be reclassified to equity based on their then fair value. The Company determined the allocated fair value of the Warrants to be $1,181,324 on the issuance date using the Binomial Lattice model with the following assumptions: fair value of the Company’s Common Stock $0.20 per share; dividend yield 0%; expected terms 5 years; risk free interest rate: 0.64%; expected volatility of: 146.32%; and the expected price at which holders are likely to exercise their Warrants of $0.2232.

At December 31, 2012, the Company determined the fair value of the Warrants to be $7,513,922 using the Binomial Lattice model with the following assumptions: fair value of the Company’s Common Stock $0.21 per share; dividend yield 0%; expected term: 4.91 years; risk free interest rate: 0.72%; expected volatility of: 146.54%; and the expected price at which holders are likely to exercise their Warrants of $0.2232. The increase from the initial allocated fair value on November 29, 2012 to December 31, 2012 of $6,332,599 of warrants liability was included in results of operations for the three months ended December 31, 2012.

The Company believes an event under the contract that would create an obligation to settle in cash or other current assets is remote and therefore has classified the obligation as a long term liability.

Pursuant to a registration rights agreement between the Company and Crede, the Company agreed to file a registration statement within 30 days of the Initial Closing and to use its best efforts to get such registration statement effective within 90 days.  The registration statement will cover the resale of all shares of Common Stock issuable pursuant to the Purchase Agreement, including the shares of Common Stock underlying the Series A Preferred and Series A, B and C Warrants.  The Company has also agreed to prepare and file amendments and supplements to the registration statement to the extent necessary to keep the registration statement effective for the period of time required under the Purchase Agreement. 

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STOCK OPTIONS AND WARRANTS - Transactions involving stock options issued to employees (Details 3) (USD $)	3 Months Ended	12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Outstanding Ending Balance, Number of Shares	127,308,192	125,208,825
Stock Options | Incentive Stock Plan 2005
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Outstanding Beginning balance, Number of Shares	125,208,825	120,650,000
Granted	2,099,367	6,558,825
Exercised		(500,000)
Canceled or expired		(1,500,000)
Outstanding Ending Balance, Number of Shares	127,308,192	125,208,825
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Outstanding Beginning Balance, Weighted Average Exercise Price Per Share	$ 0.06	$ 0.060
Granted	$ 0.1799	$ 0.067
Exercised		$ (0.08)
Canceled or expired		$ (0.08)
Outstanding Ending Balance, Weighted Average Exercise Price Per Share	$ 0.06	$ 0.06

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Dec. 31, 2012	Sep. 30, 2012
Current assets:
Cash and cash equivalents	$ 984,410	$ 724,782
Accounts receivable	361,782	296,994
Prepaid expenses	52,355	80,037
Total current assets	1,398,547	1,101,813
Property, plant and equipment-net of accumulated depreciation of $272,953 and $251,958 respectively	189,850	210,845
Other assets:
Deposits	36,276	36,276
Total Assets	1,624,673	1,348,934
Current liabilities:
Accounts payable and accrued liabilities	808,803	592,009
Total current liabilities	808,803	592,009
Warrant liability	7,513,922
Stockholders' Equity (Deficit)
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- shares issued and outstanding as of December 31, 2012 and September 30, 2012
Common stock, par value $0.001 per share; 1,350,000,000 shares authorized; 656,935,238 and 646,182,550 shares issued and outstanding as of December 31, 2012 and September 30, 2012, respectively	656,935	646,183
Additional paid in capital	170,356,909	169,117,881
Accumulated deficit	(177,711,896)	(169,007,139)
Total stockholders' equity (deficit)	(6,698,052)	756,925
Total Liabilities and Stockholders' Equity (Deficit)	$ 1,624,673	$ 1,348,934

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SUMMARY OF ACCOUNTING POLICIES

3 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

SUMMARY OF ACCOUNTING POLICIES

NOTE A — SUMMARY OF ACCOUNTING POLICIES

General

The accompanying unaudited condensed consolidated financial statements as of December 31, 2012 and for the three months ended December 31, 2012 and 2011 are unaudited. These unaudited condensed consolidated financial statements have been prepared in accordance with Rule S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

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, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2013. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated September 30, 2012 financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC.

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.  The Company is principally devoted to developing DNA embedded biotechnology security solutions in the United States and Europe.  To date, the Company has generated limited 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 an early stage operating company. For the period from inception through December 31, 2012, the Company has accumulated losses of $177,711,896.

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 statements 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.

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, 2012 and September 30, 2012, the Company did not record any deferred revenue for the respective periods.

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, 2012 and September 30, 2012, the Company has deemed that no allowance for doubtful accounts was necessary. The Company writes-off receivables that are deemed uncollectible.

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 include, but are not limited to, accounting for intangibles, debt discounts associated with convertible debt, equity based compensation and depreciation and amortization. The adoption of ASC 740-10 did not have a material impact on the Company’s consolidated results of operations or financial condition.

 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, 2012 and September 30, 2012, property and equipment consist of:

	December 31, 2012 (unaudited)		September 30, 2012
Computer equipment	$	33,464	$	33,464
Lab equipment		296,904		296,904
Furniture		132,435		132,435
Total		462,803		462,803
Accumulated depreciation		272,953		251,958
Property and equipment, net	$	189,850	$	210,845

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 periods 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.

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. Dilutive common stock equivalents consist of shares issuable upon the exercise of the Company’s stock options and warrants. For the three months ended December 31, 2012, common stock 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 783,834,587 and 645,163,955 for the three months ended December 31, 2012 and 2011, respectively.

Stock Based Compensation

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.   Stock-based compensation expense recognized under ASC 718-10 for the three months ended December 31, 2012 and 2011 was $417,866 and $785,719, respectively.

As of December 31, 2012, 127,308,192 employee stock options were outstanding with 97,571,325 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.

The Company’s revenues earned from sale of products and services for the three months ended December 31, 2012 and 2011 included an aggregate of 65% and 75% from two and four customers of the Company’s total revenues, respectively. Two customers accounted for 64% and 54% of the Company’s total accounts receivable at December 31, 2012 and September 30, 2012, respectively.

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 $147,666 and $78,473 for the three month periods ended December 31, 2012 and 2011, respectively.

Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred.  The Company charged to operations $37,459 and $19,608 as advertising costs for the three month periods ended December 31, 2012 and 2011, respectively.

Intangible Assets

The Company amortizes its intangible assets using the straight-line method over their estimated period of benefit.  The estimated useful life for patents is five years while other intellectual property uses a seven year useful life. The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.  All of the Company’s intangible assets are subject to amortization.  As of December 31, 2012 and September 30, 2012, all intangible assets have been amortized to -0- carrying value.

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 delayed, 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.

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 consolidated financial position, results of operations or cash flows. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments.

Recent Accounting Pronouncements

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s unaudited condensed consolidated financial position, results of operations or cash flows.

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STOCK OPTIONS AND WARRANTS -Employee Stock Options (Detail Textuals 2) (Stock Options, Board of director members (except Mr. Catenacci))	1 Months Ended
	Nov. 30, 2012
Stock Options | Board of director members (except Mr. Catenacci)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of stock options granted to purchase the Company's common stock (in shares)	2,099,367
Dividend yield assumed as per black scholes option pricing model	0.00%
Volatility assumed as per black scholes option pricing model	146.33%
Risk free interest rate	0.82%
Method used to calculate fair value of warrants	Black Scholes Option Pricing Model
Number of years for exercisable of options	5 years

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SUMMARY OF ACCOUNTING POLICIES (Detail Textuals1)	3 Months Ended			12 Months Ended
	Dec. 31, 2012 Total Revenues Customer Two	Dec. 31, 2011 Total Revenues Customer Four	Dec. 31, 2012 Accounts Receivable Customer Two	Sep. 30, 2012 Accounts Receivable Customer Two
Concentration Risk [Line Items]
Percentage of total revenue from various customers	65.00%	75.00%	64.00%	54.00%

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COMMITMENTS AND CONTINGENCIES (Detail Textuals) (USD $)	3 Months Ended
	Dec. 31, 2012 Claim	Dec. 31, 2011
Commitments and Contingencies Disclosure [Abstract]
Total lease rental expenses	$ 71,585	$ 45,767
Number of claims alleged in the amended complaint	17
Number of claims asserted against the company	5
Number of claims dismissed against asserted claims	4

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WARRANT LIABILITY (Details) (USD $)	0 Months Ended					1 Months Ended	3 Months Ended
	Nov. 07, 2012 Warrants	Nov. 29, 2012 Warrants	Nov. 28, 2012 Securities Purchase Agreement With Crede CG II Ltd Series A Warrants	Nov. 28, 2012 Securities Purchase Agreement With Crede CG II Ltd Series B Warrants	Nov. 28, 2012 Securities Purchase Agreement With Crede CG II Ltd Series C Warrants	Nov. 28, 2012 Securities Purchase Agreement With Crede CG II Ltd Warrants	Dec. 31, 2012 Securities Purchase Agreement With Crede CG II Ltd Warrants
Agreement [Line Items]
Fair value of warrants	$ 13,238					$ 1,181,324	$ 7,513,922
Number of common stock called by warrants			10,752,688	29,569,892	26,881,720
Number of expected term (in years)	3 years					5 years	4 years 10 months 28 days
Method used to calculate fair value of warrants	Black Scholes Option Pricing Model					Binomial Lattice model	Binomial Lattice model
Dividend yield assumed (in percent)	0.00%					0.00%	0.00%
Volatility assumed (in percent)	129.56%					146.32%	146.54%
Risk free rate (in percent)	0.36%					0.64%	0.72%
Exercise price of warrants (in dollars per warrant)	0.179	0.2232	0.2232	0.2232	0.2232	0.2232	0.2232
Fair value of company common stock (in dollars per share)						$ 0.20	$ 0.21
Increase in allocated fair value							6,332,599

XML

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

3 Months Ended

Dec. 31, 2012

Payables and Accruals [Abstract]

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

NOTE B – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at December 31, 2012 and September 30, 2012 are as follows:

	December 31,
	2012 (unaudited)		September 30, 2012
Accounts payable	$	602,671	$	473,060
Accrued consulting fees		102,500		102,500
Accrued salaries payable		103,632		16,449
Total	$	808,803	$	592,009

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $)	Dec. 31, 2012	Sep. 30, 2012
Statement Of Financial Position [Abstract]
Accumulated depreciation on property, plant and equipment (in dollars)	$ 272,953	$ 251,958
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	1,350,000,000	1,350,000,000
Common stock, shares issued	656,935,238	646,182,550
Common stock, shares outstanding	656,935,238	646,182,550

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SUMMARY OF ACCOUNTING POLICIES (Tables)

3 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

Schedule of property and equipment

	December 31, 2012 (unaudited)		September 30, 2012
Computer equipment	$	33,464	$	33,464
Lab equipment		296,904		296,904
Furniture		132,435		132,435
Total		462,803		462,803
Accumulated depreciation		272,953		251,958
Property and equipment, net	$	189,850	$	210,845

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Document and Entity Information	3 Months Ended
	Dec. 31, 2012	Feb. 14, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	APPLIED DNA SCIENCES INC
Entity Central Index Key	0000744452
Trading Symbol	apdn
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Current Fiscal Year End Date	--09-30
Entity Filer Category	Smaller Reporting Company
Entity Well-Known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding		682,398,201
Document Type	10-Q
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1

XML

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Tables)

3 Months Ended

Dec. 31, 2012

Payables and Accruals [Abstract]

Schedule of accounts payable and accrued liabilities

	December 31,
	2012 (unaudited)		September 30, 2012
Accounts payable	$	602,671	$	473,060
Accrued consulting fees		102,500		102,500
Accrued salaries payable		103,632		16,449
Total	$	808,803	$	592,009

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (USD $)	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Income Statement [Abstract]
Revenues	$ 317,670	$ 516,904
Operating expenses:
Selling, general and administrative	2,521,167	2,152,428
Research and development	147,666	78,473
Depreciation and amortization	20,995	98,373
Total operating expenses	2,689,828	2,329,274
LOSS FROM OPERATIONS	(2,372,158)	(1,812,370)
Other income (expense):
Interest expense, net		(597,535)
Loss from change in fair value of warrant liability	(6,332,599)
Net loss before provision for income taxes	(8,704,757)	(2,409,905)
Income taxes (benefit)
NET LOSS	$ (8,704,757)	$ (2,409,905)
Net loss per share-basic and diluted (in dollars)	$ (0.01)	$ 0.00
Weighted average shares outstanding - Basic and diluted (in shares)	649,922,615	490,282,252

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE G - COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space under operating lease in Stony Brook, New York for its corporate use, which expired in October 2012 renewable annually thereafter.  Total lease rental expenses for the three months ended December 31, 2012 and 2011 were $71,585 and $45,767, respectively.

Employment and Consulting Agreements

The Company has employment agreements with the Chief Executive Officer and Chief Financial Officer as disclosed in its September 30, 2012 notes to consolidated financial statements included in its Form 10K filed with the SEC.

Also, the Company has consulting agreements with outside contractors, certain of whom are also Company stockholders.  The Agreements are generally month to month.

Litigation

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.

Demodulation, Inc. v. Applied DNA Sciences, Inc., et al. (Civil Action No. - 2:11-cv-00296-WJM-MF, District of New Jersey):

On May 18, 2011, the Company was served with a complaint in a lawsuit brought by Demodulation, Inc. against the Company, Corning Incorporated, Alfred University, and Alfred Technology Resources, Inc.  On July 8, 2011, the Company filed a motion to dismiss the complaint.  In response, on August 3, 2011, Demodulation, Inc. filed an amended complaint.  Demodulation, Inc. alleges that it was unable to bring its microwire technology to market due to the wrongful acts of defendants, who allegedly conspired to steal Demodulation, Inc.’s trade secrets and other intellectual property and to interfere in its business opportunities.  Of the 17 claims alleged in the amended complaint, five are asserted against the Company, including alleged misappropriation of trade secrets, antitrust violations, civil RICO, and patent infringement.  Demodulation, Inc. seeks damages and injunctive relief against the Company.  The Company believes these claims are without merit.  On September 10, 2011, Alfred University filed a motion to transfer the action from the District of New Jersey to the Western District of New York.  On December 22, 2011, the Court denied the motion.  On January 27, 2012, the Company filed a motion to dismiss the amended complaint for failure to state a claim and on other grounds.  On May 4, 2012, the Company filed a reply memorandum in further support of its motion to dismiss the amended complaint. On December 12, 2012, the Court entered an order on the Company’s motion to dismiss the amended complaint. The Court granted in part and denied in part the Company’s motion to dismiss. The Court dismissed four out of the five claims asserted against the Company without prejudice, permitting plaintiff the right to amend if it is able to and so chooses. The only claim currently remaining against the Company is that for patent infringement. An initial conference is scheduled with the Court on February 22, 2013. The Company intends to vigorously defend the action. The ultimate outcome of this claim cannot be determined at the date of this report.

Smartwater, Ltd. v. Applied DNA Sciences, Inc. (No. 12-CV-05731-JS-AKT (E.D.N.Y.))

On June 6, 2012, a complaint for patent infringement was filed against the Company by Smartwater, Ltd. in the United States District Court for the District of Massachusetts in an action entitled Smartwater, Ltd. v. Applied DNA Sciences, Inc., No. 1:12-cv-11009-PBS.  The complaint alleged that the Company infringed one or more claims under two of plaintiff’s patents by selling or offering for sale, manufacturing and using certain of the Company’s products, by inducing others to infringe and by contributing to infringement by others.  The plaintiff sought injunctive relief with respect to the patents as well as awards of damages and attorneys’ fees.  The Company had not been served with the complaint and on August 24, 2012 the plaintiff voluntarily dismissed the complaint and refiled a similar complaint in the United States District Court for the Southern District of Florida, No. 12-61660-DMM (S.D. Fla.).  On August 30, 2012, plaintiff served the Company with the complaint.  The refiled complaint seeks injunctive relief with respect to one of the patents as well as awards of damages and attorneys’ fees.  The Company filed a motion to dismiss and a motion to transfer the action to the Eastern District of New York.  On November 19, 2012, the Court granted the Company’s motion to transfer the action to the Eastern District of New York.  The Company’s motion to dismiss is pending before the Court in the Eastern District of New York.  An initial conference with the Court is scheduled for February 21, 2013 at which time a discovery schedule will be set.  The Company believes that none of its products infringed any claims under either of plaintiff’s patents and moreover notes that one of plaintiff’s patents has expired.  The Company denies the allegations in the complaint, believes they are without merit and intends to defend the action vigorously. The ultimate outcome of this claim cannot be determined at the date of this report.

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STOCK OPTIONS AND WARRANTS

3 Months Ended

Dec. 31, 2012

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

STOCK OPTIONS AND WARRANTS

NOTE F - STOCK OPTIONS AND WARRANTS

Warrants

The following table summarizes the changes in warrants outstanding and the related prices for the shares of 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 Common Stock.

				Warrants
				Outstanding		Weighted				Exercisable
				Remaining		Average		Weighted		Weighted
	Exercise	Number		Contractual		Exercise		Average		Average
	Prices	Outstanding		Life (Years)		Price		Exercisable		Exercise Price
$	0.03088		1,619,171		4.92	$	0.03088		1,619,171	$	0.03088
$	0.03283		355,421		4.89	$	0.03283		355,421	$	0.03283
$	0.04		3,000,000		2.66	$	0.04		3,000,000	$	0.04
$	0.04405		2,009,081		4.54	$	0.04405		2,009,081	$	0.04405
$	0.04750		5,052,652		5.54	$	0.04750		5,052,652	$	0.04750
$	0.05529		904,322		5.02	$	0.05529		904,322	$	0.05529
$	0.06		12,000,000		2.13	$	0.06		12,000,000	$	0.06
$	0.071		1,000,000		2.07	$	0.071		—	$	0.071
$	0.09		9,900,000		3.67	$	0.09		9,900,000	$	0.09
$	0.10		1,500,000		0.23	$	0.10		1,500,000	$	0.10
$	0.176		100,000		2.85	$	0.176		—	$	0.176
$	0.2232		67,204,300		3.17	$	0.2232		—	$	0.2232
$	0.50		3,200,000		0.47	$	0.50		3,200,000	$	0.50
			107,844,947		1.99	$	0.18		39,540,647	$	0.099

Transactions involving warrants are summarized as follows:

	Number of Shares			Weighted Average Price Per Share
Balance, September 30, 2011		58,205,280		$	0.140
Granted		1,075,000			0.071
Exercised		(5,039,633	)		(0.045	)
Cancelled or expired		(8,400,000	)		(0.161	)
Balance at September 30, 2012		45,840,647		$	0.0145
Granted		67,304,300			0.2231
Exercised		—
Cancelled or expired		(5,300,000	)		(0.50	)
Balance,  December 31, 2012		107,844,947		$	0.18

Transactions involving warrants are summarized as follows:

On November 7, 2012, 100,000 warrants were issued in connection with services. The warrants are exercisable on or after May 7, 2013 for three years at an exercise price of $0.179 per share. The fair value of the warrants of $13,238 was determined using the Black Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 129.56% and risk free rate from 0.36% and were charged to current period operations.

On November 29, 2012, in connection with a securities purchase agreement as described in Note E above, the Company issued an aggregate of 67,204,300 warrants to purchase the Company’s common stock exercisable for one to five years after defined date or events, at an exercise price of $0.2232.

Employee Stock Options

On January 26, 2005, the Board of Directors, and on February 15, 2005, the holders of a majority of the outstanding shares of Common Stock 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. On May 16, 2007, at the annual meeting of stockholders, the holders of a majority of the outstanding shares of Common Stock approved an increase in the number of shares subject to the 2005 Incentive Stock Plan to 20,000,000 shares of Common Stock.  On June 17, 2008, the Board of Directors unanimously adopted an amendment to the 2005 Incentive Stock Plan that increased the total number of shares of Common Stock issuable pursuant to the 2005 Incentive Stock Plan from a total of 20,000,000 shares to a total of 100,000,000 shares, which was approved by our stockholders at the 2008 annual meeting of stockholders held on December 16, 2008.  On November 30, 2011, the Board of Directors unanimously adopted an amendment to the 2005 Incentive Stock Plan that increased the total number of shares of Common Stock issuable thereunder to 350,000,000 and the number of shares of Common Stock that can be covered by awards made to any participant in any calendar year to 50,000,000, which was approved by our stockholders at the 2012 annual meeting of stockholders held on January 27, 2012.

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 Common Stock.  As of December 31, 2012, a total of 10,175,000 shares have been issued and options to purchase 127,308,192 shares have been granted under the 2005 Incentive Stock Plan.

The following table summarizes the changes in options outstanding and the related prices for the shares of Common Stock issued to employees of the Company under the 2005 Incentive Stock 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
$	0.05		29,000,000		2.40	$	0.05		29,000,000	$	0.05
$	0.0585		50,000,000		5.54	$	0.0585		31,250,000	$	0.0585
$	0.06		30,100,000		2.51	$	0.06		22,500,000	$	0.06
$	0.065		634,825		3.93	$	0.065		634,825	$	0.065
$	0.068		5,724,000		3.92	$	0.068		5,724,000	$	0.068
$	0.07		2,850,000		2.42	$	0.07		1,562,500	$	0.07
$	0.09		1,500,000		3.67	$	0.09		1,500,000	$	0.09
$	0.11		5,400,000		0.46	$	0.11		5,400,000	$	0.11
$	0.1799		2,099,367		4.92	$	0.1766		—		0.1766
			127,308,192		3.71	$	0.06		97,571,325	$	0.06

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

	Number of Shares			Weighted Average Exercise Price Per Share
Outstanding at October 1, 2011		120,650,000		$	0.060
Granted		6,558,825			0.067
Exercised		(500,000	)		(0.08	)
Expired		(1,500,000	)		(0.08	)
Outstanding at September 30, 2012		125,208,825		$	0.060
Granted		2,099,367			0.1799
Exercised		—
Expired		—
Outstanding at December 31, 2012		127,308,192		$	0.060

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

On November 30, 2012, the Company issued an aggregate of 2,099,367 options to non-employee board of director members (except Mr. Catenacci) under the 2005 Incentive Stock Plan. The options are exercisable at $0.1799 per share for five years, vesting one year from the date of issuance. The fair value of options was determined using the Black Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 146.33% and risk free rate of 0.82%.

The Company recorded $417,866 and $785,719 as stock compensation expense for the three month periods ended December 31, 2012  and 2011, respectively, for the vesting portion of all employee options outstanding. 

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ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Details) (USD $)	Dec. 31, 2012	Sep. 30, 2012
Payables and Accruals [Abstract]
Accounts payable	$ 602,671	$ 473,060
Accrued consulting fees	102,500	102,500
Accrued salaries payable	103,632	16,449
Total	$ 808,803	$ 592,009

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STOCK OPTIONS AND WARRANTS (Tables)

3 Months Ended

Dec. 31, 2012

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Schedule of summary of the changes in warrants outstanding and the related prices for the shares of common Stock issued to non-employees of the company

				Warrants
				Outstanding		Weighted				Exercisable
				Remaining		Average		Weighted		Weighted
	Exercise	Number		Contractual		Exercise		Average		Average
	Prices	Outstanding		Life (Years)		Price		Exercisable		Exercise Price
$	0.03088		1,619,171		4.92	$	0.03088		1,619,171	$	0.03088
$	0.03283		355,421		4.89	$	0.03283		355,421	$	0.03283
$	0.04		3,000,000		2.66	$	0.04		3,000,000	$	0.04
$	0.04405		2,009,081		4.54	$	0.04405		2,009,081	$	0.04405
$	0.04750		5,052,652		5.54	$	0.04750		5,052,652	$	0.04750
$	0.05529		904,322		5.02	$	0.05529		904,322	$	0.05529
$	0.06		12,000,000		2.13	$	0.06		12,000,000	$	0.06
$	0.071		1,000,000		2.07	$	0.071		—	$	0.071
$	0.09		9,900,000		3.67	$	0.09		9,900,000	$	0.09
$	0.10		1,500,000		0.23	$	0.10		1,500,000	$	0.10
$	0.176		100,000		2.85	$	0.176		—	$	0.176
$	0.2232		67,204,300		3.17	$	0.2232		—	$	0.2232
$	0.50		3,200,000		0.47	$	0.50		3,200,000	$	0.50
			107,844,947		1.99	$	0.18		39,540,647	$	0.099

Schedule of transactions involving warrants

	Number of Shares			Weighted Average Price Per Share
Balance, September 30, 2011		58,205,280		$	0.140
Granted		1,075,000			0.071
Exercised		(5,039,633	)		(0.045	)
Cancelled or expired		(8,400,000	)		(0.161	)
Balance at September 30, 2012		45,840,647		$	0.0145
Granted		67,304,300			0.2231
Exercised		—
Cancelled or expired		(5,300,000	)		(0.50	)
Balance,  December 31, 2012		107,844,947		$	0.18

Schedule of summary of the changes in options outstanding and the related prices for the shares of common Stock issued to employees of the company under the 2005 Incentive Stock 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
$	0.05		29,000,000		2.40	$	0.05		29,000,000	$	0.05
$	0.0585		50,000,000		5.54	$	0.0585		31,250,000	$	0.0585
$	0.06		30,100,000		2.51	$	0.06		22,500,000	$	0.06
$	0.065		634,825		3.93	$	0.065		634,825	$	0.065
$	0.068		5,724,000		3.92	$	0.068		5,724,000	$	0.068
$	0.07		2,850,000		2.42	$	0.07		1,562,500	$	0.07
$	0.09		1,500,000		3.67	$	0.09		1,500,000	$	0.09
$	0.11		5,400,000		0.46	$	0.11		5,400,000	$	0.11
$	0.1799		2,099,367		4.92	$	0.1766		—		0.1766
			127,308,192		3.71	$	0.06		97,571,325	$	0.06

Schedule of summary of transactions involving stock options issued to employees

	Number of Shares			Weighted Average Exercise Price Per Share
Outstanding at October 1, 2011		120,650,000		$	0.060
Granted		6,558,825			0.067
Exercised		(500,000	)		(0.08	)
Expired		(1,500,000	)		(0.08	)
Outstanding at September 30, 2012		125,208,825		$	0.060
Granted		2,099,367			0.1799
Exercised		—
Expired		—
Outstanding at December 31, 2012		127,308,192		$	0.060

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SUBSEQUENT EVENTS

3 Months Ended

Dec. 31, 2012

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE J – SUBSEQUENT EVENTS

Second Closing of Private Placement:

On January 7, 2013, the Company completed the Second Closing of its transaction with Crede and sold 5,500 shares of the Series A Preferred to Crede at a price of $1,000 per share. The Company received gross proceeds of $5,500,000. On January 8, 2012, the Company exercised its option and converted the Series A Preferred held by Crede into 25,462,963 shares of the Company’s Common Stock at a conversion price of $0.216 per share.

As previously reported on the Current Report on Form 8-K filed by the Company on November 29, 2012, the Company entered into a securities purchase agreement (“Purchase Agreement”) with Crede dated November 28, 2012, pursuant to which Crede agreed to purchase the Series A Preferred on the first business day following the date a registration statement covering the resale of all shares of Common Stock issuable pursuant to the Purchase Agreement, including those underlying the Series A Preferred and Series A, B and C Warrants, is declared effective by the SEC. The Company’s registration statement on Form S-3 was declared effective by the SEC on January 4, 2013.

Pursuant to the Purchase Agreement, Crede purchased at the Initial Closing, held on November 29, 2012, 10,752,688 shares of the Company’s Common Stock at a price of $0.186 per share, resulting in gross proceeds to the Company of $2,000,000. In addition, at the Initial Closing, Crede was issued (i) five year Series A Warrants allowing it to initially purchase 10,752,688 shares of Common Stock at a price of $0.2232 per share, (ii) five year Series B Warrants allowing it to initially purchase 29,569,892 shares of Common Stock at a price of $0.2232 which became exercisable at the Second Closing and (iii) Series C Warrants to initially purchase 26,881,720 shares of Common Stock which became exercisable for six months after the eleventh trading day following the Second Closing.. Crede may also exchange the Warrants for Common Stock pursuant to a Black-Scholes formula. The Series A, B and C Warrants each contain a 9.9% “blocker” so that in no event shall any of the Warrants be exercisable or exchangeable into or for Common Stock to the extent that such exercise or exchange would result in Crede having “beneficial ownership” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) of more than 9.9% of the Company’s Common Stock.

On January 22, 2013, the Company exercised its option to repurchase the Series C Warrants issued to Crede for $50,000.

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LIQUIDITY

3 Months Ended

Dec. 31, 2012

Liquidity [Abstract]

LIQUIDITY

NOTE H - LIQUIDITY

The Company incurred a net loss of $8,704,757 and generated negative operating cash flow of $1,740,372 for the three months ended December 31, 2012. However, the Company has attained positive working capital of $589,744 as of December 31, 2012. Subsequent to the balance sheet date, the Company completed the second closing of its transaction with Crede and raised an additional $5.5 million.  Management believes that the positive cash balance and working capital as of December 31, 2012 plus the subsequent funds raised along with the current customer base, the projected cash flow and the minimum guaranteed revenues for the next fiscal year will allow the Company to continue to improve its working capital and will have sufficient capital resources to meet projected cash flow requirements for at least one year plus a day from the date of this report.

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FAIR VALUE

3 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Abstract]

FAIR VALUE

NOTE I - FAIR VALUE

The carrying value of cash, accounts receivable, accounts payable and accrued expenses approximate estimated fair values because of short maturities.

The carrying value of the warrant liability is determined using the Binomial Lattice model option pricing model as described in Note C. Certain assumptions used in the calculation of the warrants liability represent level-3 unobservable inputs.

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SUMMARY OF ACCOUNTING POLICIES (Policies)

3 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

Estimates

 Estimates

The preparation of the financial statements 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

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.

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, 2012 and September 30, 2012, the Company did not record any deferred revenue for the respective periods.

Cash Equivalents

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

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, 2012 and September 30, 2012, the Company has deemed that no allowance for doubtful accounts was necessary. The Company writes-off receivables that are deemed uncollectible.

Income Taxes

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 include, but are not limited to, accounting for intangibles, debt discounts associated with convertible debt, equity based compensation and depreciation and amortization. The adoption of ASC 740-10 did not have a material impact on the Company’s consolidated results of operations or financial condition.

Property and Equipment

 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, 2012 and September 30, 2012, property and equipment consist of:

	December 31, 2012 (unaudited)		September 30, 2012
Computer equipment	$	33,464	$	33,464
Lab equipment		296,904		296,904
Furniture		132,435		132,435
Total		462,803		462,803
Accumulated depreciation		272,953		251,958
Property and equipment, net	$	189,850	$	210,845

Impairment of Long-Lived Assets

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

Comprehensive Income

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

Segment Information

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.

Net Loss Per Share

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. Dilutive common stock equivalents consist of shares issuable upon the exercise of the Company’s stock options and warrants. For the three months ended December 31, 2012, common stock 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 783,834,587 and 645,163,955 for the three months ended December 31, 2012 and 2011, respectively.

Stock Based Compensation

Stock Based Compensation

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.   Stock-based compensation expense recognized under ASC 718-10 for the three months ended December 31, 2012 and 2011 was $417,866 and $785,719, respectively.

As of December 31, 2012, 127,308,192 employee stock options were outstanding with 97,571,325 shares vested and exercisable.

Concentrations

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.

The Company’s revenues earned from sale of products and services for the three months ended December 31, 2012 and 2011 included an aggregate of 65% and 75% from two and four customers of the Company’s total revenues, respectively. Two customers accounted for 64% and 54% of the Company’s total accounts receivable at December 31, 2012 and September 30, 2012, respectively.

Research and Development

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 $147,666 and $78,473 for the three month periods ended December 31, 2012 and 2011, respectively.

Advertising

Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred.  The Company charged to operations $37,459 and $19,608 as advertising costs for the three month periods ended December 31, 2012 and 2011, respectively.

Intangible Assets

Intangible Assets

The Company amortizes its intangible assets using the straight-line method over their estimated period of benefit.  The estimated useful life for patents is five years while other intellectual property uses a seven year useful life. The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.  All of the Company’s intangible assets are subject to amortization.  As of December 31, 2012 and September 30, 2012, all intangible assets have been amortized to -0- carrying value.

Fair Value of Financial Instruments

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 delayed, 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.

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 consolidated financial position, results of operations or cash flows. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s unaudited condensed consolidated financial position, results of operations or cash flows.

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STOCK OPTIONS AND WARRANTS -Employee Stock Options (Detail Textuals 1) (USD $)	3 Months Ended			3 Months Ended		1 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Sep. 30, 2012	Dec. 31, 2012 Stock Options	Dec. 31, 2011 Stock Options	Jan. 27, 2012 Stock Options Incentive Stock Plan 2005	Dec. 31, 2012 Stock Options Incentive Stock Plan 2005	Sep. 30, 2012 Stock Options Incentive Stock Plan 2005	Nov. 30, 2011 Stock Options Incentive Stock Plan 2005	Sep. 30, 2011 Stock Options Incentive Stock Plan 2005	Jun. 17, 2008 Stock Options Incentive Stock Plan 2005	May 16, 2007 Stock Options Incentive Stock Plan 2005	Feb. 15, 2005 Stock Options Incentive Stock Plan 2005	Jan. 26, 2005 Stock Options Incentive Stock Plan 2005
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Authorized to issue of common stock as stock awards and stock options									350,000,000		100,000,000	20,000,000	16,000,000	16,000,000
Issuance of additional common Stock as stock awards and stock options						50,000,000
Cumulative number of shares issued							10,175,000
Options to purchase Shares under the 2005 Incentive Stock Plan	127,308,192		125,208,825				127,308,192	125,208,825		120,650,000
Stock-based compensation expense	$ 417,866	$ 785,719		$ 417,866	$ 785,719
Exercise price per share (in dollars per share)							$ 0.06	$ 0.06		$ 0.060

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SUMMARY OF ACCOUNTING POLICIES (Detail Textuals) (USD $)	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Sep. 30, 2012
Net Loss Per Share
Fully diluted shares outstanding (in shares)	783,834,587	645,163,955
Stock Based Compensation
Stock-based compensation expense	$ 417,866	$ 785,719
Employee stock options outstanding (in shares)	127,308,192		125,208,825
Number of shares vested and exercisable (in shares)	97,571,325
Research and Development
Research and development	147,666	78,473
Advertising
Advertising Expense	37,459	19,608
Accumulated deficit	(177,711,896)		(169,007,139)
Amortization on intangible assets	$ 0		$ 0
Patents
Acquired Finite-Lived Intangible Assets [Line Items]
Estimated useful life (in years)	5 years
Intellectual property
Acquired Finite-Lived Intangible Assets [Line Items]
Estimated useful life (in years)	7 years

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CAPITAL STOCK (Details Textuals 1) (USD $)	3 Months Ended	1 Months Ended
	Dec. 31, 2012	Nov. 28, 2012 Securities Purchase Agreement With Crede CG II Ltd	Nov. 28, 2012 Securities Purchase Agreement With Crede CG II Ltd Common Stock	Nov. 28, 2012 Securities Purchase Agreement With Crede CG II Ltd Series A Convertible Preferred Stock
Agreement [Line Items]
Number of stock issued (in shares)			10,752,688	5,500,000
Issuance price of stock issued (in dollars per share)		$ 0.186	$ 0.186	$ 1,000
Gross proceeds from sale of common stock	$ 2,000,000		$ 2,000,000
Fixed conversion price (in dollars per share)				$ 0.186

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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) (USD $)	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities:
Net loss	$ (8,704,757)	$ (2,409,905)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	20,995	98,374
Fair value of vested options issued to officers, directors and employees	417,866	785,719
Loss from change in fair value of warrant liability	6,332,599
Amortization of capitalized financing costs		82,084
Amortization of debt discount attributable to convertible debentures		507,478
Equity based compensation	13,238	1,363
Common stock issued in settlement of interest		114,411
Change in operating assets and liabilities:
Increase in accounts receivable	(64,788)	(24,024)
Decrease in prepaid expenses and deposits	27,682	13,868
Increase in accounts payable and accrued liabilities	216,793	19,117
Net cash used in operating activities	(1,740,372)	(811,515)
Cash flows from investing activities:
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from sale of common stock	2,000,000
Net cash provided by financing activities	2,000,000
Net increase (decrease) in cash and cash equivalents	259,628	(811,515)
Cash and cash equivalents at beginning of period	724,782	2,747,294
Cash and cash equivalents at end of period	984,410	1,935,779
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest
Cash paid during period for income taxes
Non-cash investing and financing activities:
Common stock issued in exchange for previously incurred debt		$ 1,150,000

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CAPITAL STOCK

3 Months Ended

Dec. 31, 2012

Stockholders' Equity Note [Abstract]

CAPITAL STOCK

NOTE E - CAPITAL STOCK

The Company is authorized to issue 1,350,000,000 shares of Common Stock as the result of a vote of stockholders conducted on January 27, 2012 which effected an increase in the authorized shares of Common Stock from 800,000,000 shares to 1,350,000,000 shares.  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, 2012 and September 30, 2012, there were 656,935,238 and 646,182,550 shares of Common Stock issued and outstanding, respectively.

During the three month periods ended December 31, 2012 and 2011, the Company has expensed $13,238 and $1,363 related to stock based compensation, respectively. 

Preferred and Common Stock Transactions during the Three Months Ended December 31, 2012:

Securities Purchase Agreement

On November 28, 2012, the Company entered into a securities purchase agreement (“Purchase Agreement”) with Crede. Pursuant to the Purchase Agreement, at the initial closing on November 29, 2012 (“Initial Closing”), Crede purchased 10,752,688 shares of the Company’s Common Stock at a price of $0.186 per share which was the consolidated closing bid price of the Common Stock on the day prior to the signing of the Purchase Agreement. The Company received gross proceeds of $2,000,000. Pursuant to the Purchase Agreement, Crede agreed to purchase an additional $5,500,000 of the Company’s Series A Convertible Preferred Stock (“Series A Preferred”) at a purchase price of $1,000 per share on the first business day following the date a registration statement (as described below) is declared effective by the Securities and Exchange Commission (“Second Closing”).

The Series A Preferred is convertible at the option of the holder thereof, in whole or in part, from time to time and at any time, at the lesser of (i) the Fixed Conversion Price and (ii) the Non-Fixed Conversion Price. The Fixed Conversion Price is equal to $0.186, which is the purchase price for the Common Stock at the Initial Closing. The Non-Fixed Conversion Price is equal to the consolidated closing bid price of the Company’s Common Stock for the most recently completed trading day as of the time of conversion. The Series A Preferred will be convertible into Common Stock at the Company’s option, in whole or in part, from time to time during the ten trading day period beginning one trading day following the effectiveness of the registration statement (as described below) through the eleventh trading day following effectiveness of such registration statement, at the Non-Fixed Conversion Price, provided that certain equity conditions are met and the Company is not in breach of certain conditions. The Series A Preferred will be automatically converted into Common Stock on the one year anniversary of the issuance of the Series A Preferred at the then applicable Non-Fixed Conversion Price, provided that certain equity conditions are met and the Company is not in breach of certain conditions. The Series A Preferred contains weighted average anti-dilution protection. The Series A Preferred will not accrue dividends except to the extent dividends are paid on the Common Stock. The Company’s Common Stock will be junior in rank to the Series A Preferred with respect to preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company. The Series A Preferred will generally have no voting rights except as required by law.

The Company also issued Crede at the Initial Closing Warrants with a term of five years (though such term may be extended in certain instances) (“Series A Warrants”) allowing it to purchase 10,752,688 shares of Common Stock at a price of $0.2232 per share which is equal to a 20% premium to the consolidated closing bid price of the Common Stock on the day prior to the signing of the Purchase Agreement. At the Initial Closing, the Company also issued Crede a second set of Warrants (“Series B Warrants”) allowing it to purchase 29,569,892 shares of Common Stock, which is equal to one share of Common Stock for every share of Common Stock which would be issuable to it if it fully converted the Series A Preferred into Common Stock at the Fixed Conversion Price. The exercise price of the Series B Warrants is $0.2232 per share, which is equal to a 20% premium to the consolidated closing bid price of the Common Stock on the day prior to the signing of the Purchase Agreement. The Series B Warrants are not exercisable until the earlier of (i) March 16, 2013 and (ii) the Second Closing, and have a term of five years (though such term may be extended in certain instances).

In addition, at the Initial Closing, the Company issued to Crede a third set of Warrants (“Series C Warrants”) which is only exercisable for six months from the earlier of (i) March 16, 2013 and (ii) after the eleventh trading day following the Second Closing. The Series C Warrants will allow Crede to purchase, at a price of $0.2232 per share (equal to a 20% premium to the consolidated closing bid price of the Common Stock on the day prior to the signing of the Purchase Agreement), 26,881,720 shares of Common Stock, which is equal to one-third the sum of (i) the number of shares of Common Stock issued at the Initial Closing, (ii) the number of shares of Common Stock which would be issuable to it if it fully converted the Series A Preferred into Common Stock at the Fixed Conversion Price, (iii) the number of shares of Common Stock subject to the Series A Warrants and (iv) the number of shares of Common Stock subject to the Series B Warrants.

The Series B and Series C Warrants provide the Company with an option to repurchase any remaining unexercised portion of such Warrants for a repurchase price equal to $50,000, if the Second Closing is terminated pursuant to the Purchase Agreement. The Series C Warrants are also subject to the Company’s repurchase at an aggregate repurchase price equal to $50,000 at the close of trading on the tenth trading day immediately following the Second Closing but only if the registration statement (described below) is effective and covers and is available for use for the resale of (i) all shares of Common Stock issued at the First Closing, (ii) all shares of Common Stock issued upon conversion of the Series A Preferred, (iii) all shares of Common Stock which would then be issuable if the full then unconverted portion of the Series A Preferred were then fully converted into Common Stock at the then applicable conversion price, (iv) all shares of Common Stock subject to the Series A Warrants and (v) all shares of Common Stock subject to the Series B Warrants.

Crede may exercise Series A and Series B Warrants by paying in cash or on a cashless basis by exchanging such Warrants for Common Stock using the Black-Scholes value. In the event that the Common Stock trades at a price 25% or more above the exercise price of the Series A and Series B Warrants for a period of 20 consecutive days (with average daily dollar volume of Common Stock on the OTC Bulletin Board at least equal to $300,000), the Company may obligate Crede to exercise such Warrants for cash.

Pursuant to a registration rights agreement between the Company and Crede, the Company agreed to file a registration statement within 30 days of the Initial Closing and to use its best efforts to get such registration statement effective within 90 days. The registration statement will cover the resale of all shares of Common Stock issuable pursuant to the Purchase Agreement, including the shares of Common Stock underlying the Series A Preferred and Series A, B and C Warrants. The Company has also agreed to prepare and file amendments and supplements to the registration statement to the extent necessary to keep the registration statement effective for the period of time required under the Purchase Agreement. In the event the registration statement fails to be declared effective within the 90 day period, the Company will be subject to monthly penalties which will expire six months after the Initial Closing.

The Series A Preferred and the Series A, B and C Warrants each contain a 9.9% “blocker” so that in no event shall the Series A Preferred or any of the Series A, B and C Warrants be convertible or exercisable (including through the cashless exercise exchange provision) into or for Common Stock to the extent that such conversion or exercise would result in Crede having “beneficial ownership” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) of more than 9.9% of the Common Stock. Crede would, however, have the right from time to time to convert, exercise or exchange for shares of Common Stock, which over time would aggregate to greater than 9.9% beneficial ownership if all such shares of Common Stock so acquired had been held at one time by Crede.

Crede has the right to participate in other equity or equity-linked financings completed by the Company for a period of 180 days from the later of the Initial Closing or the date the registration statement goes effective.

In addition, the Company has agreed not to issue additional Common Stock or securities convertible into Common Stock at a price below $0.186 per share or the market price of the Common Stock on the date the registration statement is declared effective, for a period of 180 days from the effective date of the registration statement, except for issuances (i) pursuant to acquisitions, joint ventures, license arrangements, leasing arrangements and other similar arrangements, (ii) to employees, consultants, directors and officers approved by the Board or pursuant to a plan approved by the Board, (iii) pursuant to one or more contracts entered into by the Company with third parties which would result in revenues to the Company during a three-month period equal to an annual run rate of $15 Million in revenues and (iv) pursuant to a contract entered into by the Company with a third party which would reasonably be expected to result in more than $3 Million in annual receivables.

Until one year after the Second Closing, the Company is prohibited from entering into any transaction to (i) sell any convertible securities at a conversion rate or other price that is generally based on and/or varies with the trading prices of the Company’s Common Stock at any time after the initial issuance of such convertible securities or (ii) sell securities at a future determined price, including, without limitation, an “equity line of credit” or an “at the market offering.”

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CAPITAL STOCK (Details Textuals 2) (Securities Purchase Agreement With Crede CG II Ltd, USD $)	1 Months Ended
	Nov. 28, 2012
Series A Warrants
Agreement [Line Items]
Term of warrants (in years)	5 years
Number of common stock called by warrants	10,752,688
Exercise price of warrants	0.2232
Percentage of premium	20.00%
Series B Warrants
Agreement [Line Items]
Term of warrants (in years)	5 years
Number of common stock called by warrants	29,569,892
Exercise price of warrants	0.2232
Percentage of premium	20.00%
Series C Warrants
Agreement [Line Items]
Term of warrants (in years)	6 months
Number of common stock called by warrants	26,881,720
Exercise price of warrants	0.2232
Percentage of premium	20.00%
Repurchase price	$ 50,000

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SUBSEQUENT EVENTS (Detail Textuals) (USD $)	3 Months Ended	1 Months Ended			0 Months Ended
	Dec. 31, 2012	Nov. 28, 2012 Securities Purchase Agreement With Crede CG II Ltd	Nov. 28, 2012 Securities Purchase Agreement With Crede CG II Ltd Common Stock	Nov. 28, 2012 Securities Purchase Agreement With Crede CG II Ltd Series A Convertible Preferred Stock	Jan. 08, 2012 SUBSEQUENT EVENTS Securities Purchase Agreement With Crede CG II Ltd Common Stock	Jan. 07, 2013 SUBSEQUENT EVENTS Securities Purchase Agreement With Crede CG II Ltd Series A Convertible Preferred Stock
Subsequent Event [Line Items]
Number of stock issued (in shares)			10,752,688	5,500,000	25,462,963	5,500
Issuance price of stock issued (in dollars per share)		$ 0.186	$ 0.186	$ 1,000		$ 1,000
Gross proceeds from sale of common stock	$ 2,000,000		$ 2,000,000			$ 5,500,000
Fixed conversion price (in dollars per share)				$ 0.186	$ 0.216

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SUMMARY OF ACCOUNTING POLICIES (Details) (USD $)	3 Months Ended
	Dec. 31, 2012	Sep. 30, 2012
Property, Plant and Equipment [Line Items]
Total	$ 462,803	$ 462,803
Accumulated depreciation	272,953	251,958
Property and equipment, net	189,850	210,845
Estimated Useful Lives (in years)	3 to 5 years
Depreciation Method	Straight line method
Computer equipment
Property, Plant and Equipment [Line Items]
Total	33,464	33,464
Lab equipment
Property, Plant and Equipment [Line Items]
Total	296,904	296,904
Furniture
Property, Plant and Equipment [Line Items]
Total	$ 132,435	$ 132,435