x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
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59-2262718
|
|
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
|
50 Health Sciences Drive
Stony Brook, New York
|
11790
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Large accelerated filer o
|
Accelerated filer o
|
|
Non-accelerated filer o
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Smaller reporting company x
|
|
(Do not check if a smaller reporting company)
|
Page
|
|
PART I - FINANCIAL INFORMATION
|
|
1
|
|
19
|
|
27
|
|
27
|
|
28
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28
|
|
29
|
|
APPLIED DNA SCIENCES, INC.
|
||||||||
June 30,
|
September 30,
|
|||||||
2013
|
2012
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
1,831,791
|
$
|
724,782
|
||||
Accounts receivable, net of allowance of $70,000 and $0, respectively
|
587,655
|
296,994
|
||||||
Prepaid expenses
|
141,563
|
80,037
|
||||||
Total current assets
|
2,561,009
|
1,101,813
|
||||||
Property, plant and equipment-net of accumulated depreciation of $337,593 and $251,958 respectively
|
664,106
|
210,845
|
||||||
Other assets:
|
||||||||
Deposits
|
51,260
|
36,276
|
||||||
Intangible assets:
|
||||||||
Intellectual property, net of accumulated amortization of $19,470 and $0, respectively
|
564,610
|
—
|
||||||
Total Assets
|
$
|
3,840,985
|
$
|
1,348,934
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable and accrued liabilities
|
$
|
1,533,478
|
$
|
592,009
|
||||
Total Liabilities
|
1,533,478
|
592,009
|
||||||
Commitments and Contingencies
|
||||||||
Stockholders’ Equity
|
||||||||
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; -0- issued and outstanding as of June 30, 2013 and September 30, 2012
|
—
|
—
|
||||||
Series A Preferred stock, par value $0.001 per share; 5,500 shares designated; -0- issued and outstanding as of June 30, 2013 and September 30, 2012
|
—
|
—
|
||||||
Common stock, par value $0.001 per share; 1,350,000,000 shares authorized; 733,524,076 and 646,182,550 shares issued and outstanding as of June 30, 2013 and September 30, 2012, respectively
|
733,524
|
646,183
|
||||||
Additional paid in capital
|
184,549,123
|
169,117,881
|
||||||
Accumulated deficit
|
(182,975,140
|
)
|
(169,007,139
|
)
|
||||
Total stockholders’ equity
|
2,307,507
|
756,925
|
||||||
Total Liabilities and Stockholders’ Equity
|
$
|
3,840,985
|
$
|
1,348,934
|
||||
See the accompanying notes to the unaudited condensed consolidated financial statements
|
1 |
APPLIED DNA SCIENCES, INC.
|
||||||||||||||||
(unaudited)
|
||||||||||||||||
Three Months Ended June 30,
|
Nine Months Ended June 30,
|
|||||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
Revenues
|
$
|
644,842
|
$
|
528,574
|
$
|
1,307,117
|
$
|
1,563,880
|
||||||||
Operating expenses:
|
||||||||||||||||
Selling, general and administrative
|
3,240,815
|
1,752,501
|
8,516,390
|
5,729,575
|
||||||||||||
Research and development
|
184,981
|
99,958
|
509,132
|
274,528
|
||||||||||||
Depreciation and amortization
|
62,280
|
103,338
|
105,105
|
300,419
|
||||||||||||
Total operating expenses
|
3,488,076
|
1,955,797
|
9,130,627
|
6,304,522
|
||||||||||||
LOSS FROM OPERATIONS
|
(2,843,234
|
) |
(1,427,223
|
)
|
(7,823,510
|
) |
(4,740,642
|
)
|
||||||||
Other income (expense):
|
||||||||||||||||
Interest, net
|
333
|
(2,422
|
)
|
738
|
(642,790
|
)
|
||||||||||
Gain (loss) on change in fair value of warrant liability
|
707,289
|
—
|
(6,145,229
|
) |
—
|
|||||||||||
Net loss before provision for income taxes
|
(2,135,612
|
) |
(1,429,645
|
)
|
(13,968,001
|
)
|
(5,383,432
|
)
|
||||||||
Income taxes (benefit)
|
—
|
—
|
—
|
—
|
||||||||||||
NET LOSS
|
$
|
(2,135,612
|
) |
$
|
(1,429,645
|
) |
$
|
(13,968,001
|
) |
$
|
(5,383,432
|
) | ||||
Net loss per share-basic and diluted
|
$
|
(0.00
|
) |
$
|
(0.00
|
) |
$
|
(0.02
|
) |
$
|
(0.01
|
) | ||||
Weighted average shares outstanding-
|
||||||||||||||||
Basic and diluted
|
721,142,161
|
594,931,878
|
683,709,950
|
556,036,906
|
||||||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements
|
2 |
APPLIED DNA SCIENCES, INC.
|
||||||||
(unaudited)
|
||||||||
Nine months ended June 30,
|
||||||||
2013
|
2012
|
|||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$
|
(13,968,001
|
)
|
$
|
(5,383,432
|
) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
105,105
|
300,419
|
||||||
Fair value of vested options issued to officers, directors and employees
|
1,334,993
|
1,564,311
|
||||||
Change in fair value of warrant liability
|
6,145,229
|
—
|
||||||
Amortization of capitalized financing costs
|
—
|
85,975
|
||||||
Amortization of debt discount attributable to convertible debentures
|
—
|
541,120
|
||||||
Fair value change from employee option modification
|
408,605
|
—
|
||||||
Fair value of vested warrants issued for service
|
28,256
|
58,238
|
||||||
Common stock issued in settlement of interest
|
—
|
507,939
|
||||||
Bad debt expense
|
70,000
|
—
|
||||||
Change in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(360,661
|
) |
(234,180
|
) | ||||
Prepaid expenses and deposits
|
(76,510
|
) |
(44,247
|
) | ||||
Accounts payable and accrued liabilities
|
616,067
|
(389,151
|
) | |||||
Deferred revenue
|
—
|
25,000
|
||||||
Net cash used in operating activities
|
(5,696,917
|
) |
(2,968,008
|
) | ||||
Cash flows from investing activities:
|
||||||||
Purchase of assets under RedWeb asset purchase agreement
|
(584,080
|
) |
—
|
|||||
Purchase of property and equipment
|
(213,494
|
) |
(65,792
|
) | ||||
Net cash used in investing activities
|
(797,574
|
) |
(65,792
|
) | ||||
Cash flows from financing activities:
|
||||||||
Net proceeds from sale of common stock
|
2,000,000
|
1,542,600
|
||||||
Proceeds from sale of Series A preferred stock
|
5,500,000
|
—
|
||||||
Proceeds from exercise of warrants
|
150,000
|
—
|
||||||
Proceeds from exercise of options
|
1,500
|
—
|
||||||
Purchase
and cancellation of previously issued warrants
|
(50,000
|
) |
—
|
|||||
Net cash provided by financing activities
|
7,601,500
|
1,542,600
|
||||||
Net increase (decrease) in cash and cash equivalents
|
1,107,009
|
(1,491,200
|
) | |||||
Cash and cash equivalents at beginning of period
|
724,782
|
2,747,294
|
||||||
Cash and cash equivalents at end of period
|
$
|
1,831,791
|
$
|
1,256,094
|
||||
Supplemental Disclosures of Cash Flow Information:
|
||||||||
Cash paid during period for interest
|
$
|
—
|
$
|
—
|
||||
Cash paid during period for taxes
|
$
|
—
|
$
|
—
|
||||
Non-cash investing and financing activities:
|
||||||||
Common stock issued in exchange for previously incurred debt
|
$
|
—
|
$
|
4,022,000
|
||||
Property, plant and equipment acquired, included in accounts payable
|
$
|
325,402
|
$
|
—
|
||||
See the accompanying notes to the unaudited condensed consolidated financial statements
|
3 |
4 |
5 |
June 30,
2013
(unaudited)
|
September 30,
2012
|
|||||||
Computer equipment
|
$
|
38,640
|
$
|
33,464
|
||||
Lab equipment
|
589,737
|
296,904
|
||||||
Furniture
|
151,039
|
132,435
|
||||||
Leasehold improvements
|
222,283
|
—
|
||||||
Total
|
1,001,699
|
462,803
|
||||||
Accumulated depreciation
|
(337,593
|
) |
(251,958
|
) | ||||
Property and equipment, net
|
$
|
664,106
|
$
|
210,845
|
6 |
7 |
8 |
June 30,
|
||||||||
2013
|
September 30,
|
|||||||
(unaudited)
|
2012
|
|||||||
Accounts payable
|
$ | 1,248,944 | $ | 473,060 | ||||
Accrued consulting & legal fees
|
148,622 | 102,500 | ||||||
Accrued salaries payable
|
135,912 | 16,449 | ||||||
Total
|
$ | 1,533,478 | $ | 592,009 |
9 |
10 |
Warrants
|
||||||||||||||||
Outstanding
|
Weighted
|
Exercisable
|
||||||||||||||
Remaining
|
Average
|
Weighted
|
Weighted
|
|||||||||||||
Exercise |
Number
|
Contractual
|
Exercise
|
Average
|
Average
|
|||||||||||
Prices |
Outstanding
|
Life (Years)
|
Price
|
Exercisable
|
Exercise Price
|
|||||||||||
$
|
0.04000
|
3,000,000
|
2.17
|
$
|
0.04000
|
3,000,000
|
$
|
0.04000
|
||||||||
$
|
0.04405
|
510,784
|
4.04
|
$
|
0.04405
|
510,784
|
$
|
0.04405
|
||||||||
$
|
0.04750
|
3,789,489
|
5.04
|
$
|
0.04750
|
3,789,489
|
$
|
0.04750
|
||||||||
$
|
0.05529
|
226,081
|
4.53
|
$
|
0.05529
|
226,081
|
$
|
0.05529
|
||||||||
$
|
0.06000
|
2,000,000
|
0.64
|
$
|
0.06000
|
2,000,000
|
$
|
0.06000
|
||||||||
$
|
0.07100
|
1,000,000
|
1.57
|
$
|
0.07100
|
1,000,000
|
$
|
0.07100
|
||||||||
$
|
0.09000
|
6,900,000
|
3.18
|
$
|
0.09000
|
6,900,000
|
$
|
0.09000
|
||||||||
$
|
0.17900
|
100,000
|
2.35
|
$
|
0.17900
|
100,000
|
$
|
0.17900
|
||||||||
$
|
0.21400
|
100,000
|
2.85
|
$
|
0.21400
|
—
|
—
|
|||||||||
$
|
0.50000
|
1,600,000
|
0.32
|
$
|
0.50000
|
1,600,000
|
$
|
0.50000
|
||||||||
19,226,354
|
2.83
|
$
|
0.10331
|
19,126,354
|
$
|
0.10273
|
11 |
Number of
Shares
|
Weighted Average
Price Per Share
|
|||||||
Balance, October 1, 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
|
$
|
0.145
|
|||||
Granted
|
67,404,300
|
0.223
|
||||||
Exercised
|
(60,236,873
|
)
|
(0.170
|
)
|
||||
Cancelled or expired
|
(33,781,720
|
)
|
(0.280
|
)
|
||||
Balance, June 30, 2013
|
19,226,354
|
$
|
0.103
|
12 |
Options Outstanding
|
Options Exercisable
|
||||||||||||||||
Exercise
Prices
|
Number
Outstanding
|
Weighted Average
Remaining Contractual
Life (Years)
|
Weighted Average
Exercise Price
|
Number
Exercisable
|
Weighted Average
Exercise Price
|
||||||||||||
$
|
0.0500
|
24,000,000
|
1.91
|
$
|
0.0500
|
24,000,000
|
$
|
0.0500
|
|||||||||
$
|
0.0585
|
50,000,000
|
5.04
|
$
|
0.0585
|
31,250,000
|
$
|
0.0585
|
|||||||||
$
|
0.0600
|
30,000,000
|
2.00
|
$
|
0.0600
|
22,500,000
|
$
|
0.0600
|
|||||||||
$
|
0.0650
|
634,825
|
3.43
|
$
|
0.6500
|
634,825
|
$
|
0.0650
|
|||||||||
$
|
0.0680
|
4,770,000
|
3.42
|
$
|
0.0680
|
4,770,000
|
$
|
0.0680
|
|||||||||
$
|
0.0700
|
2,850,000
|
1.86
|
$
|
0.0700
|
1,837,500
|
$
|
0.0700
|
|||||||||
$
|
0.0900
|
1,500,000
|
3.17
|
$
|
0.0900
|
1,500,000
|
$
|
0.0900
|
|||||||||
$
|
0.1100
|
5,400,000
|
4.96
|
$
|
0.1100
|
5,400,000
|
$
|
0.1100
|
|||||||||
$
|
0.1799
|
2,099,367
|
4.42
|
$
|
0.1799
|
—
|
$
|
—
|
|||||||||
$
|
0.2000
|
100,000
|
4.88
|
$ |
0.2000
|
—
|
$
|
—
|
|||||||||
121,354,192
|
3.49
|
$
|
0.0628
|
91,892,325
|
$
|
0.0610
|
13 |
Number of
Shares
|
Weighted Average
Exercise Price Per Share |
Aggregate Intrinsic Value |
|||||||||
Outstanding at October 1, 2011
|
120,650,000
|
$
|
0.060
|
||||||||
Granted
|
6,558,825
|
0.070
|
|||||||||
Exercised
|
(500,000
|
)
|
(0.080
|
)
|
|||||||
Cancelled or expired
|
(1,500,000
|
)
|
(0.080
|
)
|
|||||||
Outstanding at September 30, 2012
|
125,208,825
|
$
|
0.060
|
||||||||
Granted
|
7,599,367
|
0.131
|
|||||||||
Exercised
|
(5,979,000
|
)
|
(0.042
|
)
|
|||||||
Canceled or expired
|
(5,475,000
|
)
|
(0.109
|
)
|
|||||||
Outstanding at June 30, 2013
|
121,354,192
|
$
|
0.063
|
||||||||
Vested at June 30, 2013
|
91,892,325
|
$
|
0.061
|
$ |
0.138
|
||||||
Non-vested at June 30, 2013
|
29,461,867
|
$
|
0.068
|
$ |
0.131
|
14 |
15 |
Fair Value Measurements of Common Stock Warrants Using Significant Unobservable Inputs (Level 3)
|
Nine Months Ended June 30,
|
||||||||
2013
|
2012
|
||||||||
Balance at October 1,
|
$ | — | $ | — | |||||
Issuance of Series A and B Warrants
|
1,181,324 | — | |||||||
Adjustment resulting from change in value recognized in earnings (a)
|
6,145,229 | — | |||||||
Reclassification to equity upon exercise
|
(7,326,553 | ) | — | ||||||
Balance at June 30,
|
$ | — | $ | — |
16 |
NOTE K – SUBSEQUENT EVENTS
|
17 |
18 |
●
|
discuss our future expectations;
|
●
|
contain projections of our future results of operations or of our financial condition; and
|
●
|
state other “forward-looking” information.
|
19 |
Plan of Operations
|
General
|
Critical Accounting Policies
|
20 |
21 |
22 |
23 |
24 |
25 |
26 |
27 |
28 |
10.1*
|
Asset Purchase Agreement, dated May 10, 2013, between Applied DNA Sciences, Inc. and RedWeb Technologies Limited
|
10.2*
|
Agreement of Lease, dated June 14, 2013, between Applied DNA Sciences, Inc. and Long Island High Technology Incubator, Inc.
|
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
|
29 |
Applied DNA Sciences, Inc.
|
|
Dated: August 13, 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)
|
30 |
Page
|
||
ARTICLE I PURCHASE AND SALE
|
1
|
|
Section 1.01
|
Purchase and Sale of Assets
|
1
|
Section 1.02
|
No Liabilities
|
1
|
Section 1.03
|
Purchase Price
|
1
|
Section 1.04
|
Inventory
|
2
|
Section 1.05
|
Passing of Title and Risk
|
2
|
ARTICLE II CLOSING
|
2
|
|
Section 2.01
|
Closing
|
2
|
Section 2.02
|
Closing Deliverables
|
3
|
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER
|
4
|
|
Section 3.01
|
Organization and Authority of Seller; Enforceability
|
4
|
Section 3.02
|
No Conflicts; Consents
|
4
|
Section 3.03
|
Title to Purchased Assets
|
4
|
Section 3.04
|
Condition of Assets
|
4
|
Section 3.05
|
Inventory
|
5
|
Section 3.06
|
Intellectual Property
|
5
|
Section 3.07
|
Compliance With Laws
|
6
|
Section 3.08
|
Legal Proceedings
|
6
|
Section 3.09
|
Brokers
|
6
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER
|
6
|
|
Section 4.01
|
Organization and Authority of Buyer; Enforceability
|
6
|
Section 4.02
|
No Conflicts; Consents
|
7
|
Section 4.03
|
Legal Proceedings
|
7
|
Section 4.04
|
Brokers
|
7
|
ARTICLE V COVENANTS
|
7
|
|
Section 5.01
|
Intellectual Property Transfer
|
7
|
Section 5.02
|
Public Announcements
|
7
|
Section 5.03
|
Bulk Sales Laws
|
8
|
Section 5.04
|
Transfer Taxes
|
8
|
Section 5.05
|
Further Assurances
|
8
|
-i- |
Page | ||
Section 5.06
|
Non-Competition
|
8
|
Section 5.07
|
Use of Name
|
8
|
Section 5.08
|
Transition and Cooperation
|
9
|
ARTICLE VI INDEMNIFICATION
|
9
|
|
Section 6.01
|
Survival
|
9
|
Section 6.02
|
Indemnification By Seller
|
9
|
Section 6.03
|
Indemnification By Buyer
|
11
|
Section 6.04
|
Indemnification Procedures
|
11
|
Section 6.05
|
Escrow Fund
|
11
|
Section 6.06
|
Tax Treatment of Indemnification Payments
|
12
|
Section 6.07
|
Effect of Investigation
|
12
|
Section 6.08
|
Cumulative Remedies
|
12
|
ARTICLE VII MISCELLANEOUS
|
12
|
|
Section 7.01
|
Expenses
|
12
|
Section 7.02
|
Notices
|
13
|
Section 7.03
|
Interpretation
|
13
|
Section 7.04
|
Severability
|
13
|
Section 7.05
|
Entire Agreement
|
14
|
Section 7.06
|
Successors and Assigns
|
14
|
Section 7.07
|
No Third-party Beneficiaries
|
14
|
Section 7.08
|
Amendment and Modification
|
14
|
Section 7.09
|
Waiver
|
14
|
Section 7.10
|
Governing Law
|
14
|
Section 7.11
|
Submission to Jurisdiction
|
14
|
Section 7.12
|
Specific Performance
|
15
|
Section 7.13
|
Counterparts
|
15
|
-ii- |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
12 |
If to Seller:
|
Redweb Technologies Limited
Venture Point, Towers Business Park
Wheelhouse Rd., Rugeley
Staffordshire WS15 1UZ
Facsimile: 0871 508 1229
E-mail: duncan@valhallinvestmentsinc.com
Attention: Duncan Cheadle
|
with a copy to:
|
Everyman Legal Limited, Unit 1G Network Point,
Range Road, Windrush Park, Witney, Oxfordshire,
United Kingdom OX29 YN
Facsimile: +44 845 868 0961
E-mail: stephen.evans @everymanlegal.com
Attention: Stephen Evans
|
If to Buyer:
|
Applied DNA Sciences, Inc.
25 Health Sciences Drive
Suite 215
Stony Brook, New York 11790
Facsimile: 631-444-8848
E-mail: Kurt.Jensen@adnas.com
Attention: Kurt Jensen, Chief Financial Officer
|
with a copy to:
|
Fulbright & Jaworski L.L.P.
Facsimile: 212-318-3400
E-mail: mkraines@fulbright.com
Attention: Merrill M. Kraines
|
13 |
14 |
15 |
REDWEB TECHNOLOGIES LIMITED
|
|||
|
By
|
||
Name:
|
|||
Title: |
APPLIED DNA SCIENCES, INC.
|
|||
|
By
|
||
Name:
|
|||
Title: |
VALHALLA INVESTMENTS, INC. | ||
By: | ||
Name:
|
||
Title: |
16 |
2 |
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TO LANDLORD:
|
TO TENANT:
|
Long Island High Technology Incubator, Inc.
|
Prior to the Commencement Date:
|
25 Health Sciences Drive
|
Applied DNA Sciences, Inc.
|
Stony Brook, New York 11790
|
25 Health Sciences Drive
|
Stony Brook, New York 11790;
|
|
Attn: Anilkumar- Dhundale, PhD
|
Attn: Chief Financial Officer
|
thereafter:
|
|
Applied DNA Sciences, Inc.
|
|
50 Health Sciences Drive
|
|
Stony Brook, New York 11790
|
|
Attn: Chief Financial Officer
|
WITH A COPY TO:
|
WITH A COPY TO:
|
Farrell Fritz, P.C.
|
Fulbright & Jaworski L.L.P.
|
1320 RXR Plaza
|
666 Fifth Avenue
|
Uniondale, NY 11556
|
New York, NY 10103
|
Attn: Robert E. Sandler, Esq.
|
Attn.: Merrill M. Kraines, Esq.
|
Page 11 of 28 |
|
(a)
|
The term “Consumer Price Index” or “CPI” shall mean the Consumer Price Index published by the Bureau of Labor Statistics of the United States Department of Labor, all items, relating to New York, New York - Northeastern New Jersey, for Urban Wage Earners and Clerical Workers with 1982/1984=100, as the basis of calculation.
|
|
(b)
|
The term “Base Price Index” shall mean the CPI for the month of May, 2013.
|
|
(c)
|
The Rent for a renewal term shall be calculated by increasing the Rent in effect during the initial term of this Lease by that amount derived by multiplying $449,142 by a percentage equal to a fraction, the numerator of which shall be the excess, if any, of the CPI for the month immediately preceding the commencement date of the renewal term over the Base Price Index, and the denominator of which shall be the Base Price Index.
|
|
(d)
|
In the event that the Consumer Price Index ceases to use 1982/1984=100 as the basis of calculation or if a substantial change is made in the terms or number of items contained in the CPI or if the CPI is altered, modified, converted or revised in any other substantial way, then Landlord and Tenant shall agree upon the use of an alternative and reliable governmental publication evaluating substantially all the information used in determining the CPI and which most closely resembles the CPI in order to effectuate the intent of the parties as set forth above.
|
(a)
|
General institutional services provided to the Tenant by SBU at the request of Tenant must be paid for promptly after receipt by Tenant of a bill for the same.
|
|
(b) Tenant may provide employment opportunities for SBU students during the academic year subject to student employment policies.
|
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LANDLORD: | TENANT: | |||
Long Island High Technology Incubator, Inc. | Applied DNA Sciences, Inc. | |||
By: | /s/ Anilkumar Dhundale | By: | /s/ Kurt Jensen | |
Name: | Anilkumar Dhundale | Name: | Kurt Jensen | |
Title: | EXECUTIVE DIRECTOR | Title: | CFO | |
Date: | June 14, 2013 | Date: | 6/14/13 |
Page 28 of 28 |
LANDLORD:
|
|||
LONG ISLAND HIGH TECHNOLOGY INCUBATOR, INC. | |||
By: | /s/ Anilkumar Dhundale | ||
Name: Anilkumar Dhundale | |||
Title: EXEC. DIRECTOR | |||
TENANT:
|
|||
APPLIED DNA SCIENCES, INC. | |||
By: | /s/ Kurt Jensen | ||
Name: | |||
Title:
|
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: August 13, 2013
|
By:
|
/s/ JAMES A. HAYWARD
|
|
James A. Hayward
|
||
Chief Executive Officer
|
||
Applied DNA Sciences, Inc.
|
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:
August 13, 2013
|
By:
|
/s/ KURT H. JENSEN
|
|
Kurt H. Jensen
|
||
Chief Financial Officer
|
||
Applied DNA Sciences, Inc.
|
●
|
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.
|
By:
|
/s/ JAMES A. HAYWARD
|
|
James A. Hayward
|
||
Chief Executive Officer
|
||
Applied DNA Sciences, Inc.
|
||
August
13, 2013
|
●
|
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.
|
By:
|
/s/ KURT H. JENSEN
|
|
Kurt H. Jensen
|
||
Chief Financial Officer
|
||
Applied DNA Sciences, Inc.
|
||
August
13, 2013
|
SUMMARY OF ACCOUNTING POLICIES (Policies)
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Use of Estimates | Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The most complex and subjective estimates include: recoverability of long-lived assets, including the value assigned to intangible assets and property and equipment, fair value calculations for warrants, contingencies and allowance for doubtful accounts. Management reviews its estimates on a regular basis and the effects of any material revisions are reflected in the condensed consolidated interim financial statements in the period they are deemed to be necessary. Accordingly, actual results could differ from those estimates. |
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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.
For revenue from product sales, the Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”). ASC 605 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 June 30, 2013 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 interim 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 June 30, 2013 and September 30, 2012, the Company had an allowance for doubtful accounts of $70,000 and $0, respectively. The Company writes-off receivables that are deemed uncollectible. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”) 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, warrants, equity based compensation and depreciation and amortization.
The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. During the three and nine months ended June 30, 2013 and 2012, the Company incurred losses from operations. Based upon these results, and trends in the Company’s performance projected through 2013, it is more likely than not that the Company will not realize any benefit from the deferred tax assets recorded by the Company in previous periods. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. The Company has identified its federal tax return and its state tax return in New York as “major” tax jurisdictions. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s condensed consolidated interim financial statements. The Company’s evaluation was performed for tax years 2009 through 2012. The Company believes that its income tax positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. It is the Company’s policy to accrue interest and penalties on unrecognized tax benefits as components of income tax provision. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property Plant and Equipment | Property Plant and Equipment
Property plant and equipment are stated at cost and are depreciated using the straight line method over their estimated useful lives. The estimated useful lives for computer equipment, lab equipment and furniture is 3 to 5 years and leasehold improvements are amortized over the shorter of their useful life or the lease term. Property plant and equipment consist of:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets
The Company accounts for its long-lived assets in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”) for purposes of determining and measuring impairment of its long-lived assets other than goodwill. ASC 360 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 whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. 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 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 follows the provisions of ASC 280, Segment Reporting (“ASC 280”). ASC 280 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 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. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss Per Share | Loss per Share
The Company presents loss per share utilizing a dual presentation of basic and diluted loss per share. Basic loss per share includes no dilution and has been calculated based upon the weighted average number of common shares outstanding during the period. Dilutive common stock equivalents consist of shares issuable upon the exercise of the Company’s stock options and warrants. For the three and nine months ended June 30, 2013 and 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 835,560,840 and 798,128,629 for the three and nine months ended June 30, 2013, respectively. Fully diluted shares outstanding were 646,110,663 and 641,715,691 for the three and nine months ended June 30, 2012, respectively. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Based Compensation | Stock Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, Stock Compensation. ASC 718 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. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s common stock options are estimated using the Black Scholes option-pricing model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life. The Company expenses stock-based compensation by using the straight-line method. In accordance with ASC 718, excess tax benefits realized from the exercise of stock-based awards are classified in cash flows from financing activities. The future realization of the reserved deferred tax assets related to these tax benefits associated with the exercise of stock options will result in a credit to additional paid in capital if the related tax deduction reduces taxes payable. The Company has elected the “with and without approach” regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current year. Under this approach, the windfall tax benefit would be recognized in additional paid-in-capital only if an incremental tax benefit is realized after considering all other benefits presently available. Stock-based compensation expense recognized under ASC 718 for the three and nine months ended June 30, 2013 were $870,576 and $1,743,598 (including the stock option modification, see Note F), respectively, and for the three and nine months ended June 30, 2012 were $389,533 and $1,564,311, respectively.
As of June 30, 2013, 121,354,192 employee stock options were outstanding with 91,892,325 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 nine months ended June 30, 2013 included an aggregate of 14% from one customer of the Company’s total revenues. No customers represented greater than 10% of the Company’s total revenues for the three months ended June 30, 2013.
Two and one customer(s) accounted for 59% and 46% of the Company’s revenues earned from sale of products and services for the three and nine months ended June 30, 2012, respectively.
One and two customer(s) accounted for 10% and 54% of the Company’s total accounts receivable at June 30, 2013 and September 30, 2012, respectively. |
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Research and Development | Research and Development
The Company accounts for research and development costs in accordance with the ASC 730, Research and Development (“ASC 730”). Under ASC 730, 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 $184,981 and $99,958 for the three month periods ended June 30, 2013 and 2012, respectively, and $509,132 and $274,528 for the nine month periods ended June 30, 2013 and 2012, respectively. |
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Advertising | Advertising
The Company follows the policy of charging the costs of advertising to expense as incurred. The Company charged to operations $21,825 and $158,636 as advertising costs for the three and nine month periods ended June 30, 2013 and $13,244 and $68,148 for the three and nine month periods ended June 30, 2012, respectively. |
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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. |
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Fair Value of Financial Instruments | Fair Value of Financial Instruments
The Company’s financial instruments are primarily composed of cash, accounts receivable, accounts payable and accrued liabilities, and warrants. The fair value of cash, accounts receivable, accounts payable and accrued liabilities, as reflected in the condensed consolidated balance sheet, approximate its fair value due to the short-term maturity of these instruments.
The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related asset or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.
The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.
For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, who report to the Chief Financial Officer, determine its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department and are approved by the Chief Financial Officer.
As of June 30, 2013, there were no transfers in or out of Level 3 from other levels.
The fair value of each warrant is estimated using the Binomial Lattice option valuation model. Significant observable and unobservable inputs include stock price, exercise price, annual risk free rate, term, and expected volatility, and are classified within Level 3 of the valuation hierarchy. An increase or decrease in volatility, in isolation, can significantly increase or decrease the fair value of the warrant. See Note I. |
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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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Subsequent Events | Subsequent Events
The Company has evaluated events that occurred subsequent to the balance sheet date and through the date the financial statements were available to be issued. Other than those events disclosed in the notes to these financial statements, management concluded that no additional subsequent events required disclosure in these financial statements. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (USD $)
|
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Income Statement [Abstract] | ||||
Revenues | $ 644,842 | $ 528,574 | $ 1,307,117 | $ 1,563,880 |
Operating expenses: | ||||
Selling, general and administrative | 3,240,815 | 1,752,501 | 8,516,390 | 5,729,575 |
Research and development | 184,981 | 99,958 | 509,132 | 274,528 |
Depreciation and amortization | 62,280 | 103,338 | 105,105 | 300,419 |
Total operating expenses | 3,488,076 | 1,955,797 | 9,130,627 | 6,304,522 |
LOSS FROM OPERATIONS | (2,843,234) | (1,427,223) | (7,823,510) | (4,740,642) |
Other income (expense): | ||||
Interest, net | 333 | (2,422) | 738 | (642,790) |
Gain (loss) on change in fair value of warrant liability | 707,289 | (6,145,229) | ||
Net loss before provision for income taxes | (2,135,612) | (1,429,645) | (13,968,001) | (5,383,432) |
Income taxes (benefit) | ||||
NET LOSS | $ (2,135,612) | $ (1,429,645) | $ (13,968,001) | $ (5,383,432) |
Net loss per share-basic and diluted (in dollars per share) | $ 0.00 | $ 0.00 | $ (0.02) | $ (0.01) |
Weighted average shares outstanding- | ||||
Basic and diluted (in shares) | 721,142,161 | 594,931,878 | 683,709,950 | 556,036,906 |
CAPITAL STOCK
|
9 Months Ended |
---|---|
Jun. 30, 2013
|
|
Stockholders' Equity Note [Abstract] | |
CAPITAL STOCK | NOTE E - CAPITAL STOCK
The Company is authorized to issue 1,350,000,000 shares of Common Stock with a par value of $0.001, 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 to 1,350,000,000. 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 June 30, 2013 and September 30, 2012, there were 733,524,076 and 646,182,550 shares of Common Stock issued and outstanding, respectively, and no shares of Preferred Stock issued and outstanding.
During the three months ended June 30, 2013 and 2012, the Company expensed $15,018 and $0 related to stock based compensation, respectively. During the nine month periods ended June 30, 2013 and 2012, the Company has expensed $28,256 and $58,238 related to stock based compensation, respectively.
Preferred and Common Stock Transactions during the Nine Months Ended June 30, 2013:
On January 7, 2013, the Company completed the Second Closing of its transaction with Crede pursuant to the Purchase Agreement with Crede. The Company sold 5,500 shares of Series A Preferred Stock (“Series A Preferred”) to Crede at a price of $1,000 per share. The Company received gross proceeds of $5,500,000. The Company exercised its option on January 8, 2013 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.
The Series A Preferred was 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 was equal to $0.186, which was the purchase price for the Common Stock at the Initial Closing. The Non-Fixed Conversion Price was 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 was 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 were met and the Company was not in breach of certain conditions. The Series A Preferred would have been 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 contained weighted average anti-dilution protection. The Series A Preferred did not accrue dividends except to the extent dividends are paid on the Common Stock. The Company’s Common Stock was 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 generally had no voting rights except as required by law.
Pursuant to the Purchase Agreement, 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, was 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 per share 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.
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. On April 25, 2013, Crede effected the cashless exercise of 10,752,688 Series A Warrants and 29,569,892 Series B Warrants, and the Company thereupon issued to Crede an aggregate of 31,257,045 shares of its Common Stock.
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 went 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 was 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.”
On July 19, 2013, the Company entered into another securities purchase agreement (“Purchase Agreement”) with an affiliate of Crede; see Note K, Subsequent Events, for further details on the new financing. |
SUMMARY OF ACCOUNTING POLICIES (Detail Textuals 1)
|
3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | 9 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
Total Revenues
|
Jun. 30, 2012
Total Revenues
Customer One
|
Jun. 30, 2013
Total Revenues
Customer One
|
Jun. 30, 2012
Total Revenues
Customer One
|
Jun. 30, 2012
Total Revenues
Customer Two
|
Jun. 30, 2012
Total Revenues
Customer Two
|
Jun. 30, 2013
Accounts Receivable
Customer One
|
Sep. 30, 2012
Accounts Receivable
Customer One
|
Jun. 30, 2013
Accounts Receivable
Customer Two
|
Sep. 30, 2012
Accounts Receivable
Customer Two
|
|
Concentration Risk [Line Items] | ||||||||||
Percentage of total revenue and accounts receivable from various customers | 46.00% | 14.00% | 46.00% | 59.00% | 59.00% | 10.00% | 10.00% | 54.00% | 54.00% | |
Total revenues, benchmark description | No customers represented greater than 10% of the Company’s total revenues |
SUMMARY OF ACCOUNTING POLICIES (Tables)
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
|
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of property and equipment |
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STOCK OPTIONS AND WARRANTS -Employee Stock Options (Detail Textuals 3) (USD $)
|
0 Months Ended | 1 Months Ended | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | 0 Months Ended | 9 Months Ended | 12 Months Ended | 1 Months Ended | ||
---|---|---|---|---|---|---|---|---|---|---|---|---|
May 15, 2013
|
May 31, 2013
|
Apr. 30, 2013
|
Jun. 30, 2013
|
Jun. 30, 2013
|
Jun. 30, 2013
Employee Stock Options
|
Jun. 30, 2012
Employee Stock Options
|
May 12, 2013
Employee Stock Options
|
May 12, 2013
Employee Stock Options
Incentive Stock Plan 2005
|
Jun. 30, 2013
Employee Stock Options
Incentive Stock Plan 2005
|
Sep. 30, 2012
Employee Stock Options
Incentive Stock Plan 2005
|
Nov. 30, 2012
Non-employee Stock Option
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 common stock (in shares) | 100,000 | 7,599,367 | 6,558,825 | 2,099,367 | ||||||||
Dividend yield assumed as per black scholes option pricing model | 0.00% | 0.00% | ||||||||||
Volatility assumed as per black scholes option pricing model | 117.57% | 146.33% | ||||||||||
Risk free interest rate | 0.60% | 0.82% | ||||||||||
Method used to calculate fair value of warrants | Black Scholes Option Pricing Model | Black Scholes Option Pricing Model | ||||||||||
Number of years for exercisable of options | 5 years | 5 years | ||||||||||
Stock option vesting period from the date of issuance | 4 years | 1 year | ||||||||||
Options, exercise prices | $ 0.20 | $ 0.1799 | ||||||||||
Common stock issued in connection with the cashless exercise | 2,418,971 | 11,285,376 | 4,639,483 | |||||||||
Number of stock in connection with the cashless exercise of options (in shares) | 2,975,956 | 15,438,337 | 5,954,000 | |||||||||
Stock option exercise price (in dollars per share) | $ 0.042 | $ 0.053 | ||||||||||
Number of common stock issued in connection with exercise of options | 25,000 | |||||||||||
Number of stock options (in shares) | 25,000 | 5,979,000 | 500,000 | |||||||||
Stock option exercise price (in dollars per share) | $ 0.06 | $ (0.042) | $ (0.080) | |||||||||
Number of options set to expire to June 16, 2018 | 5,400,000 | |||||||||||
Incremental stock compensation expense connection with modification | $ 870,576 | $ 1,743,598 | $ 408,605 | $ 408,605 |
CAPITAL STOCK (Detail Textuals) (USD $)
|
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Sep. 30, 2012
|
Jan. 27, 2012
|
|
Stockholders' Equity Note [Abstract] | ||||||
Common stock, shares authorized | 1,350,000,000 | 1,350,000,000 | 1,350,000,000 | 800,000,000 | ||
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 | $ 0.001 | |||
Preferred stock, shares authorized | 10,000,000 | 10,000,000 | 10,000,000 | |||
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 | $ 0.001 | |||
Common stock, shares issued | 733,524,076 | 733,524,076 | 646,182,550 | |||
Common stock, shares outstanding | 733,524,076 | 733,524,076 | 646,182,550 | |||
Stock-based compensation expense | $ 15,018 | $ 0 | $ 28,256 | $ 58,238 |
WARRANT LIABILITY (Detail Textuals) (USD $)
|
3 Months Ended | 9 Months Ended | 1 Months Ended | 0 Months Ended | 1 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2013
|
Jan. 22, 2013
Series C Warrants
|
May 07, 2013
Warrants
|
Nov. 07, 2012
Warrants
|
Nov. 29, 2012
Warrants
|
Nov. 29, 2012
Securities Purchase Agreement With Crede CG II Ltd
Series A Warrants
|
Nov. 28, 2012
Securities Purchase Agreement With Crede CG II Ltd
Series A Warrants
|
Nov. 29, 2012
Securities Purchase Agreement With Crede CG II Ltd
Series B 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
|
Apr. 25, 2013
Securities Purchase Agreement With Crede CG II Ltd
Warrants
|
Nov. 28, 2012
Securities Purchase Agreement With Crede CG II Ltd
Warrants
|
|
Agreement [Line Items] | |||||||||||||
Fair value of warrants | $ 15,018 | $ 13,238 | $ 7,326,553 | $ 1,181,324 | |||||||||
Number of common stock called by warrants | 10,752,688 | 29,569,892 | 26,881,720 | ||||||||||
Payments for repurchase of warrants | 50,000 | 50,000 | |||||||||||
Method used to calculate fair value of warrants | Black Scholes Option Pricing Model | Black Scholes Option Pricing Model | Binomial Lattice model | Binomial Lattice model | |||||||||
Fair value of company common stock (in dollars per share) | $ 0.221 | $ 0.20 | |||||||||||
Dividend yield (in percent) | 0.00% | 0.00% | 0.00% | 0.00% | |||||||||
Number of expected term (in years) | 3 years | 4 years 6 months 14 days | 5 years | ||||||||||
Risk free interest rate (in percent) | 0.35% | 0.36% | 0.71% | 0.64% | |||||||||
Expected volatility (in percent) | 119.72% | 129.56% | 125.97% | 146.32% | |||||||||
Exercise price of warrants (in dollars per warrant) | 0.214 | 0.179 | 0.2232 | 0.2232 | 0.2232 | 0.2232 | 0.2232 | ||||||
Change in fair value of warrant liability | $ (707,289) | $ 6,145,229 |
SUBSEQUENT EVENTS (Detail Textuals 3) (USD $)
|
1 Months Ended | 9 Months Ended | 1 Months Ended | ||||
---|---|---|---|---|---|---|---|
May 31, 2013
|
Apr. 30, 2013
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jul. 31, 2013
Subsequent Event
Initial Closing
Crede CG II Ltd
Securities Purchase Agreement
|
Jul. 31, 2013
Subsequent Event
Second Closing
Crede CG II Ltd
Securities Purchase Agreement
|
Jul. 31, 2013
Subsequent Event
Second Closing
Crede CG II Ltd
Securities Purchase Agreement
Series B Preferred Stock
|
|
Subsequent Event [Line Items] | |||||||
Investment Fee | $ 100,000 | $ 265,000 | |||||
Number of stock issued (in shares) | 2,418,971 | 11,285,376 | 4,639,583 | 5,500 | |||
Share price | $ 1,000 | ||||||
Gross proceeds from issuance of preferred stock | $ 5,500,000 | $ 5,500,000 |
LIQUIDITY (Detail Textuals) (USD $)
|
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Liquidity [Abstract] | ||||
Net loss | $ (2,135,612) | $ (1,429,645) | $ (13,968,001) | $ (5,383,432) |
Operating cash flow | (5,696,917) | (2,968,008) | ||
Positive working capital | $ 1,027,531 | $ 1,027,531 |
SUBSEQUENT EVENTS (Detail Textuals) (USD $)
|
1 Months Ended | 9 Months Ended | 1 Months Ended | 0 Months Ended | 1 Months Ended | 1 Months Ended | ||||
---|---|---|---|---|---|---|---|---|---|---|
May 31, 2013
|
Apr. 30, 2013
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jan. 22, 2013
Securities Purchase Agreement With Crede CG II Ltd
|
Jan. 08, 2013
Securities Purchase Agreement With Crede CG II Ltd
Common Stock
|
Nov. 29, 2012
Securities Purchase Agreement With Crede CG II Ltd
Common Stock
|
Jul. 19, 2013
Subsequent Event
Securities Purchase Agreement With Crede CG II Ltd
Common Stock
Initial Closing
|
Jul. 19, 2013
Subsequent Event
Securities Purchase Agreement With Crede CG II Ltd
Series B Convertible Preferred Stock
Initial Closing
|
Jul. 19, 2013
Subsequent Event
Securities Purchase Agreement With Crede CG II Ltd
Series B Convertible Preferred Stock
Second Closing
|
|
Subsequent Event [Line Items] | ||||||||||
Number of stock issued (in shares) | 2,418,971 | 11,285,376 | 4,639,583 | 25,462,963 | 10,752,688 | 10,695,187 | 5,500,000 | |||
Gross proceeds from issuance of preferred stock | $ 5,500,000 | |||||||||
Issuance price of stock issued (in dollars per share) | $ 0.186 | $ 0.186 | $ 0.187 | $ 1,000 | ||||||
Gross proceeds from sale of common stock | $ 2,000,000 | $ 1,542,600 | $ 2,000,000 | $ 2,000,000 | ||||||
Fixed conversion price (in dollars per share) | $ 0.216 | $ 0.187 |
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - Summary of accounts payable and accrued liabilities (Details) (USD $)
|
Jun. 30, 2013
|
Sep. 30, 2012
|
---|---|---|
Payables and Accruals [Abstract] | ||
Accounts payable | $ 1,248,944 | $ 473,060 |
Accrued consulting & legal fees | 148,622 | 102,500 |
Accrued salaries payable | 135,912 | 16,449 |
Total | $ 1,533,478 | $ 592,009 |
SUMMARY OF ACCOUNTING POLICIES
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
|
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF ACCOUNTING POLICIES | NOTE A — SUMMARY OF ACCOUNTING POLICIES
General
The accompanying unaudited condensed consolidated interim financial statements as of June 30, 2013 and for the three and nine months ended June 30, 2013 and 2012 are unaudited. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements of 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 GAAP 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 and nine month periods ended June 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2013. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended September 30, 2012 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC.
The condensed consolidated balance sheet as of September 30, 2012 contained herein has been derived from the audited consolidated financial statements as of September 30, 2012, but do not include all disclosures required by GAAP.
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 June 30, 2013, the Company has accumulated losses of $182,975,140.
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.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The most complex and subjective estimates include: recoverability of long-lived assets, including the value assigned to intangible assets and property and equipment, fair value calculations for warrants, contingencies and allowance for doubtful accounts. Management reviews its estimates on a regular basis and the effects of any material revisions are reflected in the condensed consolidated interim financial statements in the period they are deemed to be necessary. 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.
For revenue from product sales, the Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”). ASC 605 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 June 30, 2013 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 interim 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 June 30, 2013 and September 30, 2012, the Company had an allowance for doubtful accounts of $70,000 and $0, respectively. The Company writes-off receivables that are deemed uncollectible.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”) 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, warrants, equity based compensation and depreciation and amortization.
The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. During the three and nine months ended June 30, 2013 and 2012, the Company incurred losses from operations. Based upon these results, and trends in the Company’s performance projected through 2013, it is more likely than not that the Company will not realize any benefit from the deferred tax assets recorded by the Company in previous periods. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. The Company has identified its federal tax return and its state tax return in New York as “major” tax jurisdictions. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s condensed consolidated interim financial statements. The Company’s evaluation was performed for tax years 2009 through 2012. The Company believes that its income tax positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. It is the Company’s policy to accrue interest and penalties on unrecognized tax benefits as components of income tax provision.
Property Plant and Equipment
Property plant and equipment are stated at cost and are depreciated using the straight line method over their estimated useful lives. The estimated useful lives for computer equipment, lab equipment and furniture is 3 to 5 years and leasehold improvements are amortized over the shorter of their useful life or the lease term. Property plant and equipment consist of:
Impairment of Long-Lived Assets
The Company accounts for its long-lived assets in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”) for purposes of determining and measuring impairment of its long-lived assets other than goodwill. ASC 360 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 whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. 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 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 follows the provisions of ASC 280, Segment Reporting (“ASC 280”). ASC 280 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 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.
Loss per Share
The Company presents loss per share utilizing a dual presentation of basic and diluted loss per share. Basic loss per share includes no dilution and has been calculated based upon the weighted average number of common shares outstanding during the period. Dilutive common stock equivalents consist of shares issuable upon the exercise of the Company’s stock options and warrants. For the three and nine months ended June 30, 2013 and 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 835,560,840 and 798,128,629 for the three and nine months ended June 30, 2013, respectively. Fully diluted shares outstanding were 646,110,663 and 641,715,691 for the three and nine months ended June 30, 2012, respectively.
Stock Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, Stock Compensation. ASC 718 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. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s common stock options are estimated using the Black Scholes option-pricing model with the following assumptions: expected volatility, dividend rate, risk free interest rate and the expected life. The Company expenses stock-based compensation by using the straight-line method. In accordance with ASC 718, excess tax benefits realized from the exercise of stock-based awards are classified in cash flows from financing activities. The future realization of the reserved deferred tax assets related to these tax benefits associated with the exercise of stock options will result in a credit to additional paid in capital if the related tax deduction reduces taxes payable. The Company has elected the “with and without approach” regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current year. Under this approach, the windfall tax benefit would be recognized in additional paid-in-capital only if an incremental tax benefit is realized after considering all other benefits presently available. Stock-based compensation expense recognized under ASC 718 for the three and nine months ended June 30, 2013 were $870,576 and $1,743,598 (including the stock option modification, see Note F), respectively, and for the three and nine months ended June 30, 2012 were $389,533 and $1,564,311, respectively.
As of June 30, 2013, 121,354,192 employee stock options were outstanding with 91,892,325 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 nine months ended June 30, 2013 included an aggregate of 14% from one customer of the Company’s total revenues. No customers represented greater than 10% of the Company’s total revenues for the three months ended June 30, 2013.
Two and one customer(s) accounted for 59% and 46% of the Company’s revenues earned from sale of products and services for the three and nine months ended June 30, 2012, respectively.
One and two customer(s) accounted for 10% and 54% of the Company’s total accounts receivable at June 30, 2013 and September 30, 2012, respectively.
Research and Development
The Company accounts for research and development costs in accordance with the ASC 730, Research and Development (“ASC 730”). Under ASC 730, 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 $184,981 and $99,958 for the three month periods ended June 30, 2013 and 2012, respectively, and $509,132 and $274,528 for the nine month periods ended June 30, 2013 and 2012, respectively.
Advertising
The Company follows the policy of charging the costs of advertising to expense as incurred. The Company charged to operations $21,825 and $158,636 as advertising costs for the three and nine month periods ended June 30, 2013 and $13,244 and $68,148 for the three and nine month periods ended June 30, 2012, 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.
Fair Value of Financial Instruments
The Company’s financial instruments are primarily composed of cash, accounts receivable, accounts payable and accrued liabilities, and warrants. The fair value of cash, accounts receivable, accounts payable and accrued liabilities, as reflected in the condensed consolidated balance sheet, approximate its fair value due to the short-term maturity of these instruments.
The valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related asset or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities.
The Company utilizes observable market inputs (quoted market prices) when measuring fair value whenever possible.
For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, who report to the Chief Financial Officer, determine its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department and are approved by the Chief Financial Officer.
As of June 30, 2013, there were no transfers in or out of Level 3 from other levels.
The fair value of each warrant is estimated using the Binomial Lattice option valuation model. Significant observable and unobservable inputs include stock price, exercise price, annual risk free rate, term, and expected volatility, and are classified within Level 3 of the valuation hierarchy. An increase or decrease in volatility, in isolation, can significantly increase or decrease the fair value of the warrant. See Note I.
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.
Subsequent Events
The Company has evaluated events that occurred subsequent to the balance sheet date and through the date the financial statements were available to be issued. Other than those events disclosed in the notes to these financial statements, management concluded that no additional subsequent events required disclosure in these financial statements. |
WARRANT LIABILITY
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9 Months Ended |
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Jun. 30, 2013
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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. The Series C Warrants were repurchased by the Company for $50,000 on January 22, 2013. 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.
On April 25, 2013, Crede effected the cashless exercise of the Series A and Series B Warrants (see Note E). At April 25, 2013 (date of exercise), the Company determined the fair value of the Warrants to be $7,326,553 using the Binomial Lattice model with the following assumptions: fair value of the Company’s Common Stock $0.221 per share; dividend yield 0%; expected term: 4.54 years; risk free interest rate: 0.71%; expected volatility of: 125.97%; and an exercise price of $0.2232. The change in fair value of the warrant liability amounted to a (gain) loss of $(707,289) and $6,145,229 for the three months and nine months ended June 30, 2013, respectively and was included in the results of operations. Upon exercise, the fair value of the Series A and Series B Warrants were reclassified to equity. |
STOCK OPTIONS AND WARRANTS
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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.
Transactions involving warrants are summarized as follows:
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.
In March 2013, the Company issued an aggregate of 1,500,000 shares of its common stock in connection with the exercise of warrants at an exercise price of $0.10 per share; net proceeds of $150,000.
In April 2013, the Company issued 11,285,376 shares of its common stock in connection with the cashless exercise of 15,438,337 warrants to acquire the Company’s stock at a weighted average exercise price of $0.063 per share.
In May 2013, the Company issued 2,418,971 shares of its common stock in connection with the cashless exercise of 2,975,956 warrants to acquire the Company’s stock at a weighted average exercise price of $0.042 per share.
On May 7, 2013, 100,000 warrants were issued in connection with services. The warrants are exercisable on or after November 7, 2013 for three years at an exercise price of $0.214 per share. The fair value of the warrants of $15,018 was determined using the Black Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 119.72% and risk free rate from 0.35% and were charged to current period operations.
As described in Note E above, on January 22, 2013, the Company exercised its option to repurchase 26,881,720 Series C Warrants issued to Crede for $50,000. On April 25, 2013, Crede effected the cashless exercise of 10,752,688 Series A Warrants and 29,569,892 Series B Warrants, and the Company thereupon issued to Crede an aggregate of 31,257,045 shares of its Common Stock.
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 there under. 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 there under 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 the Company’s success with an award of options to purchase shares of Common Stock. As of June 30, 2013, a total of 137,583,192 shares have been issued and options to purchase 121,354,192 shares are outstanding 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:
Transactions involving stock options issued to employees are summarized as follows:
Transactions involving stock options granted to employees are summarized as follows:
On November 30, 2012, the Company granted 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%.
On May 12, 2013, the Company granted an aggregate of 100,000 options to an employee under the 2005 Incentive Stock Plan. The options are exercisable at $0.20 per share for five years, vesting at 25% each anniversary for the next four years. The fair value of the options was determined using the Black Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 117.57% and risk free rate of 0.60%.
During the nine months ended June 30, 2013, the Company issued 4,639,483 shares of its Common Stock in connection with the cashless exercise of 5,954,000 options to acquire the Company stock at weighted average $.053 per share. The Company also issued 25,000 shares of its Common Stock in connection with the exercise of 25,000 options at $0.06 per share.
On May 15, 2013 the Company extended the term of 5,400,000 options that were set to expire to June 16, 2018. The Company recorded $408,605 of stock compensation expense for the three and nine months ended June 30, 2013 in connection with this modification as the incremental difference between the fair value of the stock options immediately before and after the modification.
The Company recorded $870,576 and $1,743,598 (including the stock option modification) as stock compensation expense for the three and nine month periods ended June 30, 2013, respectively, and $389,533 and $1,564,311 for the three and nine month periods ended June 30, 2012, respectively, for the vesting portion of all employee options outstanding. As of June 30, 2013, unrecorded compensation cost related to non-vested awards was $289,106, which is expected to be recognized through 2018.
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RELATED PARTY TRANSACTIONS
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Jun. 30, 2013
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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. |
FAIR VALUE - Fair Value Measurements of Common Stock Warrants Using Significant Unobservable Inputs (Level 3) (Details) (Common Stock Warrants, USD $)
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9 Months Ended | |||||
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Jun. 30, 2013
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Jun. 30, 2012
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Common Stock Warrants
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Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||||||
Balance at October 1, | ||||||
Issuance of Series A and B Warrants | 1,181,324 | |||||
Adjustment resulting from change in value recognized in earnings | 6,145,229 | [1] | [1] | |||
Reclassification to equity upon exercise | (7,326,553) | |||||
Balance at June 30, | ||||||
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CAPITAL STOCK (Detail Textuals 1) (USD $)
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1 Months Ended | 9 Months Ended | 1 Months Ended | 0 Months Ended | 1 Months Ended | 0 Months Ended | ||
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May 31, 2013
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Apr. 30, 2013
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Jun. 30, 2013
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Jun. 30, 2012
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Jan. 22, 2013
Securities Purchase Agreement With Crede CG II Ltd
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Jan. 08, 2013
Securities Purchase Agreement With Crede CG II Ltd
Common Stock
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Nov. 29, 2012
Securities Purchase Agreement With Crede CG II Ltd
Common Stock
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Jan. 07, 2013
Securities Purchase Agreement With Crede CG II Ltd
Series A Convertible Preferred Stock
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Agreement [Line Items] | ||||||||
Number of stock issued (in shares) | 2,418,971 | 11,285,376 | 4,639,583 | 25,462,963 | 10,752,688 | 5,500 | ||
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 | $ 1,542,600 | $ 2,000,000 | $ 5,500,000 | ||||
Fixed conversion price (in dollars per share) | $ 0.216 | $ 0.186 |
STOCK OPTIONS AND WARRANTS - Transactions involving warrants (Details 1) (USD $)
|
1 Months Ended | 9 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Mar. 31, 2013
|
Jun. 30, 2013
Warrants
|
Sep. 30, 2012
Warrants
|
Nov. 29, 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 | |
Granted | 67,404,300 | 1,075,000 | ||
Exercised | (60,236,873) | (5,039,633) | ||
Cancelled or expired | (33,781,720) | (8,400,000) | ||
Ending Balance, Number of Shares | 19,226,354 | 45,840,647 | 67,204,300 | |
Class Of Warrant Or Right, Weighted Average Price Per Share [Roll Forward] | ||||
Beginning Balance, Weighted Average Price Per Share | $ 0.145 | $ 0.140 | ||
Granted | $ 0.223 | $ 0.071 | ||
Exercised | $ 0.10 | $ (0.170) | $ (0.045) | |
Cancelled or expired | $ (0.280) | $ (0.161) | ||
Ending Balance, Weighted Average Price Per Share | $ 0.103 | $ 0.145 |
STOCK OPTIONS AND WARRANTS -Employee Stock Options (Detail Textuals 2) (USD $)
|
3 Months Ended | 9 Months Ended | 1 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jan. 27, 2012
Employee Stock Options
Incentive Stock Plan 2005
|
Jun. 30, 2013
Employee Stock Options
Incentive Stock Plan 2005
|
Sep. 30, 2012
Employee Stock Options
Incentive Stock Plan 2005
|
Nov. 30, 2011
Employee Stock Options
Incentive Stock Plan 2005
|
Sep. 30, 2011
Employee Stock Options
Incentive Stock Plan 2005
|
Jun. 17, 2008
Employee Stock Options
Incentive Stock Plan 2005
|
May 16, 2007
Employee Stock Options
Incentive Stock Plan 2005
|
Feb. 15, 2005
Employee Stock Options
Incentive Stock Plan 2005
|
Jan. 26, 2005
Employee 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 | 137,583,192 | |||||||||||
Options outstanding under the 2005 Incentive Stock Plan | 121,354,192 | 125,208,825 | 120,650,000 | |||||||||
Equity based compensation | $ 389,533 | $ 1,334,993 | $ 1,564,311 | |||||||||
Exercise price per share (in dollars per share) | $ 0.063 | $ 0.06 | $ 0.06 | |||||||||
Unrecorded compensation cost related to non-vested awards | $ 289,106 |