UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 Or 15(D) Of The Securities Act Of 1934
For the quarterly period ended June 30, 2003
Commission file number: 2 90 519
APPLIED DNA SCIENCES, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 59-2262718
(State or other jurisdiction of (IRS Employee
incorporation or organization) Identification No.)
9255 West Sunset Boulevard, Suite 805, Los Angeles, CA 90069
(Address of principal executive offices)
(310) 860-1362
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No -
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $0.0001 par value 16,874,662
(Class) (Outstanding as of June 30, 2003)
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis or Plan of Operation
Item 3. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I. FINANCIAL INFORMATION (UNAUDITED)
---------------------------------------------
Page No.
--------
Condensed Consolidated Balance Sheets at June 30, 2003 F-3
and September 30, 2002
Condensed Consolidated Statements of Losses for the three F-4
months ended June 30,2003,
nine months ended June 30, 2003 and for the period
September 16, 2002 (Date of Inception)
through June 30, 2003.
Condensed Consolidated Statement of Deficiency in F-8
Stockholders' Equity for the period September 16, 2002
(date of inception) through June 30, 2003 F-5-7
Condensed Consolidated Statements of Cash Flows for the
three months ended June 30, 2003, nine months Ended
June 30, 2003 and for the period September 16, 2002
(Date of Inception) through June 30, 2003.
Notes to Condensed Consolidated Financial Statements. F-9-12
F-2
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2003 September 30, 2002
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and Equivalents $ 78,642 $ -
------------- ------------
Total Current Assets 78,642 -
Property and Equipment-at Cost - -
OTHER ASSETS
Deposits and Prepaid Expenses 15,275 -
Patent Filing 4,220 -
------------- ------------
19,495 -
TOTAL ASSETS $ 98,137 $ -
===================== =====================
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses $ 155,551 $ -
Due Related Parties 104,592 10,612
------------- ------------
Total Current Liabilities 260,143 -
Note Payable 88,500 -
Commitments and Contingencies
Deficiency in Stockholders' Equity: - -
Preferred Stock, par value $0.0001
per share; 10,000,000 shares
authorized; none issued at
June 30, 2003 - -
Common Stock, par value $0.0001 per
share; authorized 100,000,000 shares;
16,874,662 and 100,000 shares issued
and outstanding at June 30, 2003 and
September 30, 2002, respectively 1,687 10
Additional Paid in Capital 626,916 990
Common Stock Subscribed 58,000
Subscription Receivable (2,600) -
Deficiency accumulated during
development stage (934,509) (11,612)
------------- ------------
Total Deficiency in Stockholders'
Equity (250,507) (10,612)
------------- ------------
Total Liabilities and Stockholder's Equity $ 98,137 $ -
==================== =====================
-
F-3
(See accompanying notes to unaudited condensed consolidated financial
statements)
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF LOSSES
(UNAUDITED)
For the Period
For the Three For the Three For the Nine Months For the Nine Months September 16,
Months ended months ended months ended months ended 2002 (Date of
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002 Inception) thru
June 30, 2003
Revenues $ - $ - $ - $ - $ -
---------- ---------- ---------- ---------- ----------
Costs and Expenses:
General and Administrative 325,881 - 922,897 - 934,509
TOTAL OPERATING EXPENSES 325,881 - 922,897 - 934,509
Other Income and (Expenses): - - - - -
Loss from Operations (325,881) - (922,897) - (934,509)
Income (taxes) benefit - - - - -
Net Loss $ (325,881) $ - $ (922,897) - $ (934,509)
=========== ========== ============ ========== ===========
Loss per common share (basic
and assuming dilution) $ (0.02) $ - $ (0.05) $ - $ (0.06)
=========== ========== ============ ========== ===========
Weighted average common
shares outstanding 16,796,442 - 16,796,442 - 16,796,442
F-4
The accompanying notes to unaudited condensed consolidated financial statements
Applied DNA Sciences, Inc.
(A Development Stage Company)
CONDENSED CONSOLDIATED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
For the period September 16, 2002 (Date of Incorporation) through June 30, 2003
(Unaudited)
Common Common Stock Adtl Stock Stock Deficit Total
Shares Amount Paid in Subs. Subs Accum During Stock
Capital Payable Rec. Develop Stage
------- ---------- --------- ------- ------- -------------- --------
Issuance of common stock to
Founders in exchange for
Services on September 16, 2002
at $.01 per share 100,000 $ 10 $ 990 - $ - $ - $ 1,000
Net Loss - - - - - (11,612) (11,612)
------- ---------- --------- ------- ------- -------------- --------
BALANCE AT SEPTEMBER 30, 2002 100,000 10 990 - - (11,612) (10,612)
------- ---------- --------- ------- ------- -------------- --------
Issuance of common stock in
connection with merger with
Prohealth Medical
Technologies, Inc on
October 1, 2002 10,178,352 1,000 - - - - 1,000
Cancellation of Common stock
in connection with merger with
Prohealth Medical
Technologies , Inc on
October 21, 2002 (100,000) (1,000) - - - (1,000)
Issuance of common stock in
exchange for services in
October 2002 at $ 0.65 per
share 602,000 60 39,070 - - - 39,130
Issuance of common stock in
exchange for subscription in
November and December 2002
at $ 0.065 per share 876,000 88 56,852 - (56,940) - 0
Cancellation of common stock
in January 2003 previously
issued in exchange for
consulting services (836,000) (76) (54,264) - 54,340 - -
Issuance of common stock in
exchange for licensing services
valued at $ 0.065 per share in
January 2003 1,500,000 150 97,350 - - - 97,500
Issuance of common stock in
exchange for consulting services
valued at $ 0.13 per share in
January 2003 586,250 58 76,155 - - - 76,213
Issuance of common stock in
exchange for consulting services
at $ 0.065 per share in
February 2003 9,000 1 584 - - - 585
Issuance of common stock to
Founders 1in exchange for
Services valued at $0.0001
per share in March 2003 10,140,000 1,014 - - - - 1,014
Issuance of common stock in
exchange for consulting
services valued at $2.50 per
share in March 2003 91,060 9 230,625 - - - 230,634
Issuance of common stock in
exchange for consulting services
valued at $ 0.065 per share in
March 2003 6,000 1 389 - - - 390
Common stock subscribed in
exchange for cash at
$1 per share in March 2003 - - 18,000 - - - 18,000
Common stock issued in exchange
for consulting services at
$ 0.065 per share on
April 1, 2003 860,000 86 55,814 55,900
Common stock issued in
exchange for cash at
$ 1.00 per share on
April 9, 2003 18,000 2 - - - - 2
Common stock issued in exchange
for consulting services
at $ 0.065 per share on
April 9, 2003 9,000 1 584 - - - 585
Common stock issued in
exchange for consulting
services at $ 2.50 per share on
April 23, 2003 5,000 1 12,499 - - - 12,500
Common stock issued in exchange
for consulting services at
$ 2.50 per share, on
June 12, 2003 10,000 1 24,999 - - - 25,000
F-6
(See accompanying notes to financial statements)
Common stock issued in
exchange for cash at
$ 1.00 per share on
June 17, 2003 50,000 5 49,995 - - - 50,000
Common stock issued in
exchange for cash at
$ 2.50 per share pursuant
to private placement on
June 27, 2003 - - - 24,000 - - 24,000
Common stock retired in
exchange for note payable
at $0.0118 per share,
on June 30, 2003 (7,500,000) (750) 750 - - - -
Common stock issued in
exchange for consulting
services at $0.065 per share,
on June 30, 2003 270,000 27 17,523 - - - 17,550
Common stock subscribed in
exchange for cash at $ 1.00
per share pursuant to
private placement on
June 30, 2003 - - - 10,000 - - 10,000
Common stock subscribed
in exchange for cash at
$ 2.50 per share pursuant to
private placement on
June 30, 2003 - - - 24,000 - - 24,000
Net Loss for the period
ended June 30, 2003 - - - - - (922,897) (922,897)
------- ---------- --------- ------- ------- -------------- --------
BALANCE AT JUNE 30, 2003 16,874,662 $ 1,687 $ 626,916 $ 58,000 $ (2,600) $ (934,509) $ (250,507)
========== ======= ========= ======== ========= ========== ===========
F-7
The accompanying notes to unaudited condensed consolidated financial statements
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period September 16,
For the nine months ended 2002 (Date of Inception)
June 30, 2003 through June 30,
2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (922,897) $ (934,509)
Adjustments to reconcile net loss
to net cash used in operating activities:
Common stock issued in exchange for
services rendered 557,003 558,003
COMMON STOCK RETIRED 88,500 88,500
CHANGES IN ASSETS AND LIABILITIES:
Prepaid Expenses and Deposits (15,275) (15,275)
Increase in Other Assets (4,220) (4,220)
Increase in Accounts payable
and accrued liabilities 155,551 155,551
693,059 (694,059)
NET CASH USED IN OPERATING ACTIVITIES (141,338) (151,950)
CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from sale of common stock 116,000 116,000
Proceeds from sale of options 10,000 10,000
Advances from shareholders 93,980 104,592
NET CASH PROVIDED BY FINANCING
ACTIVITIES 219,980 230,592
INCREASE IN CASH AND CASH EQUIVALENTS 78,642 78,642
Cash and cash equivalents, beginning
of year/period - -
Cash and cash equivalents, end
of year/period $ 78,642 $ 78,642
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest - -
Cash paid during the year for taxes - -
NON CASH DISCLOSURES:
Common stock issued for services $557,003 $558,003
Common stock retired in exchange
for note payable $ 88,500 $ 88,500
F-8
(See accompanying notes to financial statements)
APPLIED DNA SCIENCES , INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE - SUMMARY OF ACCOUNTING POLICIES
GENERAL
-------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Accordingly, the results from operations for the nine months period ended June
30, 2003, are not necessarily indicative of the results that may be expected for
the year ending September 30, 2003. The unaudited condensed financial statements
should be read in conjunction with the September 30, 2002 financial statements
and footnotes thereto included in the Company's SEC Form 8-K dated October 21,
2002 as amended.
BUSINESS AND BASIS OF PRESENTATION
--------------------------------------
Applied DNA Sciences Inc. ("Company") was formed on September 16, 2002 under the
laws of the state of Nevada. The Company is a development stage enterprise, as
defined by Statement of Financial Accounting Standards No. 7 ("SFAS No. 7") and
its efforts have been principally devoted to seeking profitable business
opportunitiesFrom its inception through the date of these financial statements
the Company has recognized no revenues and has incurred significant operating
expenses. Consequently, its operations are subject to all risks inherent in the
establishment of a new business enterprise. For the period from inception
through June 30, 2003, the Company has accumulated losses of $934,509.
RECLASSIFICATION
----------------
Certain prior period amounts have been reclassified for comparative purposes.
NEW ACCOUNTING PRONOUNCEMENTS
-------------------------------
Effective January 1, 2002, the Company adopted SFAS No.142. Under the new rules,
the Company will no longer amortize goodwill and other intangible assets with
definitive lives, but such assets will be subject to periodic testing for
impairment. On an annual basis, and when there is reason to suspect that their
values have been diminished or impaired, these assets must be tested for
impairment, and write downs to be included in results from operations may be
necessary. SFAS No.142 also requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. Any goodwill
impairment loss recognized as a result of the transitional goodwill impairment
test is recorded as a cumulative effect of a change in accounting principle. The
adoption of SFAS 142 had no material impact on the Company's condensed financial
statements.
F-8
APPLIED DNA SCIENCES , INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NEW ACCOUNTING PRONOUNCEMENTS ( CONTINUED)
---------------------------------------------
SFAS No. 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. SFAS No. 143 is
effective in fiscal years beginning after June 15, 2002, with early adoption
permitted. The Company expects that the provisions of SFAS No. 143 will not have
a material impact on its consolidated results of operations and financial
position upon adoption. The Company has adopted SFAS No. 143 effective January
1, 2003.
SFAS No. 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS No. 144
superseded Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No. 121), and APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions". The Company adopted
SFAS No. 144 effective January 1, 2002. The adoption of SFAS No. 144 had no
material impact on Company's consolidated financial statements.
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of
Motor Carriers". This Statement amends FASB Statement No. 13, "Accounting for
Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that a similar to sale-leaseback
transactions. The Company does not expect the adoption to have a material impact
to the Company's financial position or results of operations.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The provisions
of this Statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. The
Company does not expect the adoption to have a material impact to the Company's
financial position or results of operations.
F-9
APPLIED DNA SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NEW ACCOUNTING PRONOUNCEMENTS ( CONTINUED )
------------------------------------------------
In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain
Financial Institutions-an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9", which removes acquisitions of financial institutions from
the scope of both Statement 72 and Interpretation 9 and requires that those
transactions be accounted for in accordance with Statements No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition,
this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, to include in its scope long-term customer relationship
intangible assets of financial institutions such as depositor- and
borrower-relationship intangible assets and credit cardholder intangible assets.
The requirements relating to acquisitions of financial institutions are
effective for acquisitions for which the date of acquisition is on or after
October 1, 2002. The provisions related to accounting for the impairment or
disposal of certain long-term customer-relationship intangible assets are
effective on October 1, 2002. The adoption of this Statement did not have a
material impact to the Company's financial position or results of operations as
the Company has not engaged in either of these activities.
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure", which amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of Statement
148 are effective for fiscal years ending after December 15, 2002, with earlier
application permitted in certain circumstances. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The adoption of this
statement did not have a material impact on the Company's financial position or
results of operations as the Company has not elected to change to the fair value
based method of accounting for stock-based employee compensation.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company includes another entity in its consolidated financial statements.
Previously, the criteria were based on control through voting interest.
Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to older entities in the first fiscal year or interim period beginning
after June 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Company does not expect the
adoption to have a material impact to the Company's financial position or
results of operations.
F-10
APPLIED DNA SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NEW ACCOUNTING PRONOUNCEMENTS ( CONTINUED )
------------------------------------------------
In April 2003, the FASB issued Statement No.149, " Amendment of Statement of 133
on Derivative Instruments and Hedging Activities ", which amends Statement 133,
Accounting for Derivative Instruments and Hedging Activities. The adoption of
this statement did not have a material impact on the Company's financial
position.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. The
adoption of this statement did not have a material impact on the Company's
financial position.
ACQUISITION
-----------
On October 21, 2002, the Company entered into a Plan and Agreement of
Reorganization ("Merger") with ProHealth Medical Technologies, Inc.
("ProHealth") an inactive publicly registered shell corporation with no
significant assets or operations. For accounting purposes, the Company shall be
the surviving entity. The transaction is accounted for using the purchase method
of accounting. The total purchase price and carrying value of net assets
acquired of was $880. From November 1988 until the date of the merger, ProHealth
was an inactive corporation with no significant assets and liabilities.
Effective with the Merger, all previously outstanding common stock, preferred
stock, options and warrants owned by the Company's shareholders were exchanged
for an aggregate of 11,000,000 shares of ProHealth common stock. The value of
the stock that was issued was the historical cost of the ProHealth's net
tangible assets, which did not differ materially from their fair value. In
accordance with Accounting Principles Board Opinion No. 16, the Company is the
acquiring entity.
Also effective with the Merger, ProHealth changed its name to Applied DNA
Sciences, Inc.
OTHER ASSETS
-------------
During the quarter ended June 30, 2003, the Company incurred Patent filing
expenses of $4,220.
CONVERTIBLE PROMISSORY NOTE PAYABLE
--------------------------------------
On June 17, 2003, the Company partially exercised its option with Glenn Little,
the Company's former president and principal shareholder, to acquire up to
8,500,000 shares of the Company's common stock for $100,000 for the purpose of
returning the shares to authorized capital and canceling the shares. The partial
exercise was made for 7,500,000 shares of common stock in exchange for $88,500 ,
evidenced by an 8% convertible unsecured promissory note. The note including all
accrued interest is due and payable on October 31, 2004. In case of default in
repayment of the note , the holder has right to convert the principal amount of
the note into 7,500,000 shares of the Company's common stock plus additional
shares of common stock for unpaid interest. at a conversion rate equal to the
then fair market value of the Company's common stock, The indebtness of the
Company evidenced by this note, including interest thereon, shall not be
subordinate to right of payment of its obligations to its other creditors. On
June 30, 2003 the Company cancelled the 7,500,000 shares of common stock
acquired in connection with this transaction
DUE TO RELATED PARTIES
-------------------------
On May 29, 2003, and June 30, 2003, the Company obtained advances from
shareholders $25,000 and $7,500 respectively. At June 30, 2003, the balance due
to related parties was $104,592.
F-11
APPLIED DNA SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
COMMON STOCK
-------------
All issuances described below that are valued at $0.065 per share were issued
from a registered stock and stock option compensation plan for employees,
professionals and consultants filed with the Securities and Exchange Commission
in December of 2002 and amended in January of 2003. That plan registered
compensation shares for employees, professionals and consultants and stock
options exercisable at $1.00 per share.
On April 1, 2003, the Company issued 860,000 shares of common stock in exchange
for consulting services provided to the Company In accordance with EITF 96-18
the measurement date to determine fair value was in October 2001. This was the
date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued at
approximately $0.065 per share, which presents the fair value of the services
received which did not differ materially from the value of the stock issued.
On April 9, 2003, the Company issued 18,000 shares common stock in exchange for
previously issued options to purchase the Company's common stock at $1.00 per
share.
On April 9, 2003, the Company issued 9,000 shares common stock in exchange for
consulting services provided to the Company . In accordance with EITF 96-18 the
measurement date to determine fair value was in October 2001. This was the date
at which a commitment for performance by the counter party to earn the equity
instrument was reached. The Company valued the shares issued at approximately
$0.065 per share, which presents the fair value of the services received which
did not differ materially from the value of the stock issued.
On April 23, 2003, the Company issued 5,000 shares of common stock in exchange
for consulting services provided to the Company The Company valued the shares
issued at approximately $2.50 per share, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
On June 12, 2003, the Company issued 10,000 shares common stock in exchange for
consulting services provided to the Company The Company valued the shares issued
at approximately $ 2.50 per share, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
On June 17 2003, the Company issued 50,000 shares of common stock in exchange
for cash at $1.00 per share
On June 30, 2003, the Company issued 270,000 shares of common stock in exchange
for consulting services provided to the Company . In accordance with EITF 96-18
the measurement date to determine fair value was in October 2001. This was the
date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued at
approximately $0.065 per share, which presents the fair value of the services
received which did not differ materially from the value of the stock issued.
On June 27 and June 30, 2003, the Company received $10,000 in exchange for
previously issued options to purchase the Company's common stock at $1.00 per
share.
During the quarter ended June 30, 2003 , the Company received $48,000 in
connection with a private placement of 48,000 shares of the Company's common
stock .
On June 30, 2003, the Company retired 7,500,000 common stock in exchange for a
convertible promissory note payable at $0.0118 per share for $88,500.
F-12
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS FOR THE NINE
--------------------------------------------------------------------------------
MONTHS ENDED JUNE 30, 2003
------------------------------
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, included elsewhere within
this report. The quarterly report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, including statements using
terminology such as "can", "may", "believe", "designated to", "will", "expect",
"plan", "anticipate", "estimate", "potential" or "continue", or the negative
thereof or other comparable terminology regarding beliefs, plans, expectations
or intentions regarding the future. Forward looking statements involve risks and
uncertainties and actual results could differ materially from those discussed in
forward-looking statements. All forward looking statements and risk factors
included in this document are made as of the date hereof, based on information
available to the Company as of the date thereof, and the Company assumes no
obligations to update any forward-looking statement or risk factor, unless the
Company is required to do so by law.
Plan of Operation
-------------------
The Company presently does not have any available credit, bank financing or
other external sources of liquidity. Due to its brief history and historical
operating losses, the Company's operations have not been a source of liquidity.
The Company will need to obtain additional capital in order to expand operations
and become profitable. The Company intends to pursue the granting of
sub-licenses outside the United States, and if successful, the granting of
sub-licenses would constitute a substantial additional source of liquidity and
capital over timeIn order to obtain capital, the Company may need to sell
additional shares of its common stock or borrow funds from private lenders.
There can be no assurance that the Company will be successful in obtaining
additional funding and granting of sub-licenses outside the Unites States.
During the nine months ended June 30, 2003, the Company's priorities were to
recruit and build its team, organize its new infrastructure and to develop a
successful strategy how best to exploit its exclusive Biowell license agreement,
therefore no revenues were anticipated, planned or received, expenses of
$922,897 were incurred stemming from general, selling, and administrative
expenses; $557,003 of these expenses were paid with 2,486,310 shares of the
Company's common stock to consultants for management services rendered. Although
the management of the Company is of the opinion that continuing to develop and
finance the Company's present business of providing DNA anti-counterfeit
technology may ultimately be successful, management nevertheless expects that
the Company will need substantial additional capital before the Company's
operations can be fully implemented.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
As of June 30, 2003, we had a working capital deficit of $181,501 . As a result
of our operating losses from our inception through June 30, 2003, we generated a
cash flow deficit of $141,338 from operating activities. We met our cash
requirements during this period from advances of $93,980 from the Company's
officer and principal shareholders, cash proceeds received of $68,000 for shares
sold, and $48,000 received for shares to be issued pursuant to a private
placement offering and $10,000 received as a result of registered options
exercised at $1.00 per shares.
While we have raised capital to meet our working capital and financing needs in
the past, additional financing is required in order to meet our current and
projected cash flow deficits from operations and development. We are seeking
financing in the form of equity through a Private Placement Memorandum in order
to provide the necessary working capital. We currently have no commitments for
financing. There is no guarantee that we will be successful in raising the funds
required.
By adjusting its operations and development to the level of capitalization ,
management believes it has sufficient capital resources to meet projected cash
flow deficits through the next twelve months. However, if thereafter, we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations, liquidity and
financial condition.
The effect of inflation on the Company's operating results was not significant.
The Company's operations are located in North America with a wholly-owned
subsidiary located in London, United Kingdom, and there are no seasonal aspects
that would have a material effect on the Company's financial condition or
results of operations.
The Company's independent certified public accountant has stated in his report
included in the Company's October 21, 2002 Form 8-K, as amended, that the
Company has incurred operating losses from its inception , and that the Company
is dependent upon management's ability to develop profitable operations. These
factors among others may raise substantial doubt about the Company's ability to
continue as a going concern.
PRODUCT RESEARCH AND DEVELOPMENT
-----------------------------------
Without substantial financial resources we do not anticipate incurring material
research and development costs during the next twelve months.
ACQUISITION OF PLANT AND EQUIPMENT AND OTHER ASSETS
----------------------------------------------------------
We do not anticipate the sale of any material property , plant or equipment
during the next 12 months. Without substantial financial resources we do not
anticipate the acquisition of any material property, plant or equipment during
the next 12 months.
NUMBER OF EMPLOYEES
---------------------
From our inception through the period ended June 30, 2003 , we have relied on
the services of outside consultants for services and have no employees. In order
for us to attract and retain quality personnel, we anticipate we will have to
offer competitive salaries to future employees. We anticipate that it may become
desirable to add additional full and or part time employees to discharge certain
critical functions during the next 12 months. This projected increase in
personnel is dependent upon our ability to generate revenues and obtain sources
of financing. There is no guarantee that we will be successful in raising the
funds required or generating revenues sufficient to fund the projected increase
in the number of employees. As we continue to expand, we will incur additional
cost for personnel.
TRENDS, RISKS AND UNCERTAINTIES
----------------------------------
We have sought to identify what we believe to be the most significant risks to
our business, but we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to the Company's
Common Stock.
RISKS
Applied DNA Sciences, Inc. is a small company entering a technical and
specialized scientific industry. The Company's growth will depend upon the
working capital and financial support, which we are in the process of seeking.
The Company will need substantial additional capital to expand and to exploit
its potential. While the management team has strong contacts in the geographic
and product territories, the Company is small with limited assets and a limited
operating history and may, as a result, have difficulties securing large enough
and increasing financial commitments from potential investors. Thus the Company
may be subject to the high risks associated with start-up companies and small
business.
The Company relies on a small number of key individuals to implement plans and
operations. Although the Company may obtain key person life insurance coverage
on the Company's key individuals once substantial financial resources are
obtained, the Company has not done so at this time. Should for some reason their
services become unavailable, the Company will be required to retain other
qualified personnel.
Reductions or delays in research and development budgets and in government
funding may negatively impact the Company's sales. Future clients may include
researchers at pharmaceutical and biotechnology companies as well as other
industrial sectors, academic institutions and government and private
laboratories. Fluctuations in the research and development budgets of these
researchers and their organizations could have a significant effect on demand
for the Company's products. Research and development budgets fluctuate due to
numerous factors that are outside the Company's control and are difficult to
predict, including changes in available resources, spending priorities and
institutional budgetary policies. The Company's business could be seriously
damaged by any decrease in life science research and development expenditures by
pharmaceutical, biotechnological and other industrial sector companies, academic
institutions or government and private laboratories. Although the level of
research funding has increased during the past several years, we cannot assure
that this trend will continue. Government funding of research and development is
subject to the political process, which is inherently fluid and unpredictable.
Also government proposals to reduce or eliminate budgetary deficits have
sometimes included reduced allocations to the US National Institute of Health
and other government agencies that fund research and development activities.
Also, our potential customers receive funds from approved grants at particular
times of the year, as determined by the federal government. Grants have, in the
past, been frozen for extended periods or have otherwise become unavailable to
various institutions without advance notice. The timing of receipt of grant
funds affects the timing of purchase decisions by our customers and, as a
result, can cause fluctuations in our sales and operating results.
The Company regards trademarks, trade secrets and other intellectual property as
a component of its success, The Company relies on trademark law and trade secret
protection and confidentiality and /or license agreements with consultants,
customers, partners and others to protect our intellectual property. Effective
trademark and trade secret protection may not be available in every country in
which the Company's products are available. The Company cannot be certain that
the Company has taken adequate steps to protect its intellectual property,
especially in countries where the laws may not protect the Company's rights as
fully as in the United States. In addition, the Company's third party
confidentiality agreements can be breached and, if they are, there may not be
adequate remedy available to the Company. If the Company's trade secrets become
known, the Company may lose its competitive edge.
The Company may be unable to protect its trademarks, trade secrets and other
intellectual property rights that are important to its business. The Company
regards its trademarks, trade secrets and other intellectual property as a
component of its success. The Company relies on trademark law and trade secret
protection and confidentiality and/or license agreements with consultants,
employees, customers, partners and others to protect our intellectual property.
Litigation as regards the Company intellectual property or other subject matters
could harm the Company's business. Litigation regarding patents and other
intellectual property rights is extensive in the biotechnology industry. The
Company is aware that patents have been applied for, and in some cases issued to
others, claiming technologies that are closely related to Applied DNA Sciences,
Inc. As a result, and in part due to the ambiguities and evolving nature of
intellectual property law, the Company periodically receives notices of
potential infringements of patents held by others. Although to date the Company
has successfully resolved these types of claims, the Company may not be able to
do so in the future. In the event of an intellectual property dispute, the
Company may be forced to litigate. This litigation could involve proceedings
declared by the U.S. Patent and Trademark Office or the International Trade
Commission, as well as proceedings brought directly by affected third parties.
Intellectual property litigation can be extremely expensive, and these expenses,
as well as the consequences should the Company not prevail, could seriously harm
the Company's business, If a third party claimed an intellectual property right
to technology the Company uses, the Company might need to discontinue an
important product or product line, alter its products and processes, pay license
fees or cease its affected business activities, Although the Company might under
these circumstances attempt to obtain a license to this intellectual property,
it may not be able to do so on favorable terms, or at all.
In addition to intellectual property rights litigation, other substantial,
complex or extended litigation could result in large expenditures for the
Company and distraction of its management. For example, law suits by employees,
shareholders, collaborators, distributors or sublicensees could be very costly
and substantially disrupt the Company's business. Disputes from time to time
with companies or individuals are not uncommon in the industry and the Company
cannot assure that it will always be able to resolve them out of court.
The Company's growth depends upon the ability to undertake sales in current
markets and to expand sales nationally to additional market segments and to
Europe, South America, Australia and parts of the Middle East. There can be no
certainty that the Company's efforts to increase and expand sales can be
accomplished on a profitable basis. The expansion to other delivery methods and
to other venues will depend on a number of factors, most notably the timely and
successful promotion and sale of the Company's products and related services
directly or via sublicensing agreements. The Company's inability to expand
sales, in a timely manner, would have a material adverse effect on its business,
operating results and its financial condition.
ITEM 3. CONTROLS AND PROCEDURES
-----------------------------------
The Company's management including the Chief Executive Officer, President and
Chief Financial Officer, have evaluated, within 90 days prior to the filing of
this quarterly report, the effectiveness of the design, maintenance and
operation of the Company's disclosure controls and procedures. Management
determined that the Company's disclosure controls and procedures were effective
in ensuring that the information required to be disclosed by the Company in the
reports that it files under the Exchange Act is accurate and is recorded,
processed , summarized and reported within the time periods specified in the
Commission's rules and regulations.
Disclosure controls and procedures, no matter how well designed and implemented,
can provide only reasonable assurance of achieving an entity's disclosure
objectives. The likelihood of achieving such objectives is affected by
limitations inherent in disclosure controls and procedures. These include the
fact that human judgment in decision making can be fully faulty and that
breakdowns in internal control can occur because of human failures such as
errors or mistakes or intentional circumvention of the established process.
There have been no significant changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of the
evaluation thereof, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) During the quarter ended June 30, 2003, we issued a total of 160,000
shares of the Company's Common Stock to three consultants for their
licensing-liaison, security access and management consulting services. These
issuances are considered exempt from registration by reason of Section 4(2) of
the Securities Act of 1933.
(b) Also, in June of 2003, we issued 19,200 shares of Common Stock and 6,000
Common Stock Purchase Warrants to two investors in a private offering made in
accordance with Regulation D of the Securities Act of 1933. In total, twelve
(12) Units were sold during the quarter in that offering, with each Unit
consisting of 1,600 shares of Common Stock and 500 Warrants exercisable at $3.50
per share, for total proceeds of $48,000. These issuances are considered exempt
from registration by reason of Regulation D of the Securities Act of 1933, and
Rule 506 promulgated thereunder.
(c) The proceeds received by the Company during the quarter ended June 30, 2003
consisted of $48,000 in cash proceeds from our Rule 506 private offering, and
$10,000 from the exercise of consultant's stock options that were exercisable at
$1.00 per share. The $58,000 in gross proceeds have been and will be utilized
for general operating expenses, marketing and trade show expenses and working
capital.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On April 17, 2003 we filed a current report on 8-K disclosing, under item 5, an
announcement made to the public, and in July, we filed an 8-K disclosing the
company's partial exercise of its option with Glenn Little, and as a result of
that exercise, 7,500,000 shares of our Common Stock were returned on June 30,
2003 to our authorized capital and were then cancelled.
31.1 Principal Executive Officer certification pursuant to Rule 13a-14
and 15d-14 under the Securities Exchange Act of 1934, as amended,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. Filed herein.
31.2 Principal Financial Officer certification pursuant to Rule 13a-14
and 15d-14 under the Securities Exchange Act of 1934, as amended,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. Filed herein.
32.1 Chief Executive Officer certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. Filed herein.
32.2 Chief Financial Officer certification pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Filed herein.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 14, 2003. Applied DNA Sciences, Inc.
/s/ Lawrence Lee
------------------
Lawrence Lee
Chief Executive Officer
/s/Gerhard Wehr
----------------
Gerhard Wehr
Chief Financial Officer