As filed with the Securities  and Exchange  Commission on February 15, 2005
                                      An Exhibit List can be found on page II-7.
                                                           Registration No. 333-


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549
                          ----------------------------

                                    FORM SB-2
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933
                          -----------------------------

                           APPLIED DNA SCIENCES, INC.
                 (Name of small business issuer in its charter)

     Nevada                            2836                       59-2262718
(State or other Jurisdiction  (Primary Standard Industrial    (I.R.S. Employer
  of Incorporation or          Classification Code Number)   Identification No.)
   Organization)

                       9229 W. Sunset Boulevard, Suite 830
                          Los Angeles, California 90069
                                 (310) 860-1362
              (Address and telephone number of principal executive
                    offices and principal place of business)

                     Rob Hutchison, Chief Executive Officer
                           APPLIED DNA SCIENCES, INC.
                       9229 W. Sunset Boulevard, Suite 830
                          Los Angeles, California 90069
                                 (310) 860-1362
            (Name, address and telephone number of agent for service)

                                   Copies to:
                              Andrea Cataneo, Esq.
                       Sichenzia Ross Friedman Ference LLP
                     1065 Avenue of the Americas, 21st Flr.
                            New York, New York 10018
                                 (212) 930-9700
                              (212) 930-9725 (fax)

                APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
     From time to time after this Registration Statement becomes effective.

If any securities  being  registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than   securities   offered  only  in  connection   with  dividend  or  interest
reinvestment plans, check the following box: [X]


If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the  Securities  Act,  check the following box and list the
Securities  Act  registration   statement   number  of  the  earlier   effective
registration statement for the same offering. ________

If this Form is a  post-effective  amendment filed pursuant to Rule 462(c) under
the  Securities  Act,  check  the  following  box and  list the  Securities  Act
registration  statement number of the earlier effective  registration  statement
for the same offering. _________

If this Form is a  post-effective  amendment filed pursuant to Rule 462(d) under
the  Securities  Act,  check  the  following  box and  list the  Securities  Act
registration  statement number of the earlier effective  registration  statement
for the same offering. _________

If delivery  of the  prospectus  is  expected  to be made  pursuant to Rule 434,
please check the following box. _________

                                       2





                         CALCULATION OF REGISTRATION FEE

------------------------------- -------------------- ---------------- ------------------ --------------------
   Title of each class of          Amount to be         Proposed          Proposed           Amount of
 securities to be registered        registered          maximum           maximum         registration fee
                                                        offering         aggregate
                                                       price per       offering price
                                                       share (1)
------------------------------- -------------------- ---------------- ------------------ --------------------
                                                                                         
 Common Stock, $.50 par value           25,608,326       $1.215         $31,114,116.09            $3,662.13
------------------------------- -------------------- ---------------- ------------------ --------------------
 Common Stock, $.50 par value              285,000       $1.215               $346,275               $40.76
    issuable upon exercise of
      Warrants exercisable at
              $0.10 per share
------------------------------- -------------------- ---------------- ------------------ --------------------
 Common Stock, $.50 par value                5,000       $1.215                 $6,075                $0.72
    issuable upon exercise of
      Warrants exercisable at
              $0.20 per share
------------------------------- -------------------- ---------------- ------------------ --------------------
 Common Stock, $.50 par value            1,500,000       $1.215             $1,822,500              $214.51
    issuable upon exercise of
      Warrants exercisable at
              $0.60 per share
------------------------------- -------------------- ---------------- ------------------ --------------------
 Common Stock, $.50 par value              750,000       $1.215               $911,250              $107.25
    issuable upon exercise of
      Warrants exercisable at
              $0.70 per share
------------------------------- -------------------- ---------------- ------------------ --------------------
 Common Stock, $.50 par value           17,807,000       $1.215            $21,635,505            $2,546.50
    issuable upon exercise of
      Warrants exercisable at
              $0.75 per share
------------------------------- -------------------- ---------------- ------------------ --------------------
                        Total           45,955,326                      $55,835,721.09            $6,571.87
------------------------------- -------------------- ---------------- ------------------ --------------------

(1)  Estimated  solely for  purposes  of  calculating  the  registration  fee in
accordance  with Rule 457(c) and Rule 457(g) under the  Securities  Act of 1933,
using the average of the high and low price as reported on the  Over-The-Counter
Bulletin Board on February 14, 2005, which was $1.215 per share.


     The registrant  hereby amends this  registration  statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further  amendment  which  specifically  states  that  this  registration
statement shall  thereafter  become effective in accordance with Section 8(a) of
the  Securities  Act of 1933 or until the  registration  statement  shall become
effective  on such  date  as the  Securities  and  Exchange  Commission,  acting
pursuant to said Section 8(a), may determine.

                                       3

      PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED FEBRUARY 15, 2005

                           APPLIED DNA SCIENCES, INC.
                              45,955,326 SHARES OF
                                  COMMON STOCK

     This prospectus relates to the resale by the selling  stockholders of up to
45,955,326  shares  of our  common  stock,  including  up to  20,347,000  shares
issuable  upon the exercise of common  stock  purchase  warrants and  25,608,326
shares of common stock. The selling stockholders may sell common stock from time
to time in the principal  market on which the stock is traded at the  prevailing
market  price  or in  negotiated  transactions.  We  will  pay the  expenses  of
registering these shares.

     The following selling  stockholders are deemed an "underwriter"  within the
meaning  of the  Securities  Act of 1933 in  connection  with  the sale of their
common  stock  under  this  prospectus:   Vertical  Capital  Partners,  Inc.,  a
registered  broker-dealer;  Michael Morris,  Susan Diamond;  Ronald Heineman and
Michael Gochman;  all of whom are employees of Vertical Capital  Partners.  With
the exception of Vertical Capital Partners, Inc., Michael Morris, Susan Diamond,
Ronald  Heineman and Michael  Gochman,  no other  underwriter or person has been
engaged to facilitate the sale of shares of common stock in this offering.

     Our  common  stock is  registered  under  Section  12(g) of the  Securities
Exchange Act of 1934 and is listed on the Over-The-Counter  Bulletin Board under
the symbol  "APDN".  The last reported sales price per share of our common stock
as reported by the  Over-The-Counter  Bulletin  Board on February 14, 2005,  was
$1.21.

     Investing  in  these  securities  involves  significant  risks.  See  "Risk
Factors" beginning on page 4.

     Neither the  Securities and Exchange  Commission  nor any state  securities
commission has approved or disapproved of these securities or determined if this
Prospectus  is truthful or  complete.  Any  representation  to the contrary is a
criminal offense.

                The date of this prospectus is February 15, 2005.

     The information in this Prospectus is not complete and may be changed. This
Prospectus is included in the  Registration  Statement that was filed by Applied
DNA Sciences,  Inc. with the  Securities  and Exchange  Commission.  The selling
stockholders  may not sell these  securities  until the  registration  statement
becomes effective.  This Prospectus is not an offer to sell these securities and
is not  soliciting an offer to buy these  securities in any state where the sale
is not permitted.


                                       4


                               PROSPECTUS SUMMARY

     The following summary  highlights  selected  information  contained in this
prospectus.  This  summary  does not  contain  all the  information  you  should
consider  before  investing  in the  securities.  Before  making  an  investment
decision,  you should read the entire prospectus carefully,  including the "risk
factors" section,  the financial statements and the secured convertible notes to
the financial statements.

                           APPLIED DNA SCIENCES, INC.

     We  are a  provider  of  proprietary  DNA-embedded  biotechnology  security
products that protect corporate and intellectual  property from  counterfeiting,
fraud,  piracy,  product diversion and unauthorized  intrusion.  We offer a cost
effective  method to  detect,  deter,  interdict  and  prosecute  counterfeiting
enterprises.  We provide  proprietary  DNA-embedded  biotechnology  solutions to
companies to protect  corporate and intellectual  property from  counterfeiting,
fraud, piracy, product diversion and unauthorized  intrusion. We use segments of
naturally  occurring botanical DNA that have unique  characteristics,  which are
one-of-a-kind sequences.  Using various anti-counterfeit mediums, or substrates,
such as ink,  microchips,  glue,  paints and holograms,  we can authenticate the
unique DNA characters to ensure that the product has not been  counterfeited  or
tampered with.

     For the year ended September 30, 2004, we did not generate any revenues and
had a net loss of $19,358,259.  As a result of recurring  losses from operations
and a net  deficit  in  both  working  capital  and  stockholders'  equity,  our
auditors,  in their report dated January 11, 2005,  have  expressed  substantial
doubt about our ability to continue as going concern.

     Our principal offices are located at 9229 W. Sunset  Boulevard,  Suite 830,
Los Angeles,  California  90069, and our telephone number is (310) 860-1362.  We
are a Nevada corporation.


     The Offering
                                                                                                                   
     Common stock offered by selling stockholders...................... Up to 45,955,326 shares, including the following:
                                                                        

                                                                        - 25,608,326  shares of common  stock,   including 
                                                                          14,722,000   shares of common   stock  that  are 
                                                                          currently  underlying $7,361,000  in convertible 
                                                                          promissory   notes which shall  automatically be 
                                                                          converted   into  shares  of  common  stock at a
                                                                          price  of   $.50 per  share   upon the filing of 
                                                                          this registration statement;

                                                                        - up to  285,000  shares of common stock  issuable 
                                                                          upon  the  exercise  of  common  stock  purchase 
                                                                          warrants at an exercise price of $.10 per share;

                                                                        - up  to 5,000  shares  of  common  stock issuable 
                                                                          upon  the  exercise  of  common  stock  purchase 
                                                                          warrants at an exercise price of $.20 per share;

                                                                        - up  to 1,500,000 shares of common stock issuable 
                                                                          upon  the  exercise  of  common  stock  purchase 
                                                                          warrants at an exercise price of $.60 per share;

                                                                        - up  to  750,000  shares of common stock issuable 
                                                                          upon  the  exercise  of  common  stock  purchase 
                                                                          warrants at an exercise price of $.70 per share; 
                                                                          and

                                                                        - up to 17,807,000 shares of common stock issuable 
                                                                          upon  the  exercise  of  common  stock  purchase 
                                                                          warrants at an exercise price of $.75 per share.

                                                                          This  number  represents  55.80%  of our current 
                                                                          outstanding stock.

     Common stock to be outstanding after the offering................. Up to 82,349,993 shares

     Use  of   proceeds................................................ We will not receive any proceeds from the sale  of 
                                                                        the common  stock. However,  we  will  receive the 
                                                                        sale price of  any  common  stock  we  sell to the 
                                                                        selling stockholders upon exercise of the warrants. 
                                                                        We expect  to  use  the proceeds received from the
                                                                        exercise  of  the  warrants,  if any,  for general 
                                                                        working capital purposes.

     Over-The-Counter Bulletin Board Symbol............................ APDN

     The above  information  regarding common stock to be outstanding  after the
offering  is based on  47,280,993  shares  of  common  stock  outstanding  as of
February 8, 2005 and assumes the subsequent  exercise of warrants by our selling
stockholders.

                                       5

                                  RISK FACTORS

     This  investment  has a high  degree of risk.  Before you invest you should
carefully  consider the risks and  uncertainties  described  below and the other
information in this  prospectus.  If any of the following  risks actually occur,
our business,  operating results and financial condition could be harmed and the
value of our stock  could go down.  This  means you could  lose all or a part of
your investment.

Risks Relating to Our Business:

We Have a History Of Losses Which May Continue,  Which May Negatively Impact Our
Ability to Achieve Our Business Objectives.

     We incurred net losses of $19,358,259 for the year ended September 30, 2004
and  $3,445,164  for the year ended December 31, 2003. We cannot assure you that
we can achieve or sustain  profitability  on a quarterly  or annual basis in the
future. Our operations are subject to the risks and competition  inherent in the
establishment  of a business  enterprise.  There can be no assurance that future
operations  will be profitable.  Revenues and profits,  if any, will depend upon
various factors,  including whether we will be able to generate revenue.  We may
not achieve our business  objectives and the failure to achieve such goals would
have an adverse impact on us.

If We Are Unable to Obtain  Additional  Funding Our Business  Operations Will be
Harmed and If We Do Obtain Additional  Financing Our Then Existing  Shareholders
May Suffer Substantial Dilution.

     We will  require  additional  funds to sustain and expand our  research and
development  activities.  We anticipate that we will require up to approximately
$3,000,000 to fund our anticipated  research and development  operations for the
next twelve months,  depending on revenue from  operations.  Additional  capital
will  be  required  to  effectively  support  the  operations  and to  otherwise
implement  our  overall  business  strategy.  There  can  be no  assurance  that
financing will be available in amounts or on terms  acceptable to us, if at all.
The inability to obtain additional capital will restrict our ability to grow and
may reduce our  ability to continue to conduct  business  operations.  If we are
unable to obtain additional financing, we will likely be required to curtail our
research and  development  plans.  Any additional  equity  financing may involve
substantial dilution to our then existing shareholders.

Our Independent  Auditors Have Expressed  Substantial Doubt About Our Ability to
Continue  As a Going  Concern,  Which May  Hinder Our  Ability to Obtain  Future
Financing.

     In their report dated January 11, 2005,  our  independent  auditors  stated
that our financial statements for the year ended December 31, 2004 were prepared
assuming that we would continue as a going concern. Our ability to continue as a
going concern is an issue raised due to our incurring net losses of  $22,803,423
during the period September 16, 2002 through September 30, 2004. In addition, we
have a  deficiency  in  stockholder's  equity  of  $4,706,508.  We  continue  to
experience net operating  losses.  Our ability to continue as a going concern is
subject to our ability to generate a profit and/or obtain necessary funding from
outside sources,  including  obtaining  additional  funding from the sale of our
securities,  generating  sales  or  obtaining  loans  and  grants  from  various
financial  institutions  where  possible.  Our continued  net  operating  losses
increases  the  difficulty  in meeting such goals and there can be no assurances
that such methods will prove successful.

Our Research and Development Efforts for New Products May be Unsuccessful.

     We incur  significant  research  and  development  expenses  to develop new
products and technologies.  There can be no assurance that any of these products
or technologies will be successfully developed or that if developed they will be
commercially   successful.   In  the  event   that  we  are  unable  to  develop
commercialized  products  from our  research and  development  efforts or we are
unable or  unwilling  to  allocate  amounts  beyond  our  currently  anticipated
research and  development  investment,  we could lose our entire  investment  in
these new products and this may  materially  and  adversely  affect our business
operations.

                                       6


Failure to License New Technologies Could Impair Our New Product Development.

     To generate broad product lines, it is  advantageous  to sometimes  license
technologies  from third  parties  rather  than  depend  exclusively  on our own
employees.  As a result, we believe our ability to license new technologies from
third  parties is and will  continue to be important to our ability to offer new
products.

     In  addition,  from time to time we are notified or become aware of patents
held by third  parties  that are related to  technologies  we are selling or may
sell in the  future.  After a review of these  patents,  we may decide to seek a
license for these  technologies  from these  third  parties or  discontinue  our
products.  There  can be no  assurance  that we will  be  able  to  continue  to
successfully identify new technologies  developed by others. Even if we are able
to identify  new  technologies  of  interest,  we may not be able to negotiate a
license  on  favorable  terms,  or at all.  If we lose the  rights  to  patented
technology,  we may need to discontinue selling certain products or redesign our
products, and we may lose a competitive  advantage.  Potential competitors could
license  technologies  that we fail to license and potentially  erode our market
share for  certain  products.  Our  licenses  typically  subject  us to  various
commercialization,  sublicensing,  minimum payment, and other obligations. If we
fail to comply with these  requirements,  we could lose important rights under a
license. In addition, certain rights granted under the license could be lost for
reasons beyond our control. We may not receive significant  indemnification from
a licensor against third party claims of intellectual property infringement.

Our Future Success May Depend on the Timely Introduction of New Products and the
Acceptance of These New Products in the Marketplace.

     Our  ability to gain access to  technologies  needed for new  products  and
services  depends  in part on our  ability  to  convince  licensors  that we can
successfully  commercialize  their inventions.  We cannot assure that we will be
able to continue to identify new  technologies  developed by others.  Even if we
are  able  to  identify  new  technologies  of  interest,  we may not be able to
negotiate a license on favorable terms, or at all.

If We Fail to Introduce New Products,  or Our existing Products are not Accepted
by Potential Customers, We May Not Gain or May Lose Market Share.

     Rapid  technological  changes and  frequent new product  introductions  are
typical  for the  markets we serve.  Our future  success  will depend in part on
continuous,  timely  development  and  introduction of new products that address
evolving market  requirements.  We believe successful new product  introductions
provide a significant  competitive advantage because customers invest their time
in selecting and learning to use new products, and are often reluctant to switch
products. To the extent we fail to introduce new and innovative products, we may
lose market share to our  competitors,  which will be difficult or impossible to
regain.  Any inability,  for  technological  or other reasons,  to  successfully
develop and  introduce  new products  could reduce our growth rate or damage our
business.

     We may experience  delays in the development and  introduction of products.
We cannot  assure  that we will keep pace with the rapid  rate of change in life
sciences research or that our new products will adequately meet the requirements
of the marketplace or achieve market  acceptance.  Some of the factors affecting
market acceptance of new products include:

     o    Availability, quality and price relative to competitive products;
     o    The timing of  introduction  of the product  relative  to  competitive
          products;
     o    Customers' opinions of the products' utility;
     o    Ease of use;
     o    Consistency with prior practices;
     o    Scientists' opinions of the products' usefulness;
     o    Citation of the product in published research; and
     o    General trends in life sciences research.

     The expenses or losses associated with unsuccessful  product development or
lack of market acceptance of our new products could materially  adversely affect
our business, operating results and financial condition.

                                       7

The Failure To Manage Our Growth In Operations And  Acquisitions  Of New Product
Lines And New Businesses Could Have A Material Adverse Effect On Us.

     The expected growth of our operations (as to which no representation can be
made) will place a significant  strain on our current management  resources.  To
manage this expected growth, we will need to improve our:

     o    operations and financial systems;
     o    procedures and controls; and
     o    training and management of our employees.

     Our future growth may be  attributable  to  acquisitions of and new product
lines and new businesses.  We expect that future  acquisitions,  if successfully
consummated,  will create  increased  working capital  requirements,  which will
likely precede by several months any material  contribution of an acquisition to
our net income.

If We Are Unable to Retain the Services of Messrs. Hutchison, Brockelsby, Botash
or Klemm, or If We Are Unable to Successfully  Recruit Qualified  Managerial and
Sales Personnel  Having  Experience in Business,  We May Not Be Able to Continue
Our Operations.

     Our success depends to a significant  extent upon the continued  service of
Mr. Rob  Hutchison,  our Chief  Executive  Officer,  Mr. Peter  Brockelsby,  our
President,  Mr. Adrian Botash,  our Chief Marketing Officer and Ms. Karin Klemm,
our  Chief  Operating  Officer.  Loss  of the  services  of  Messrs.  Hutchison,
Brockelsby,  Botash or Klemm could have a material adverse effect on our growth,
revenues,  and prospective business. We do not maintain key-man insurance on the
life of Messrs. Hutchison, Brockelsby, Botash or Klemm. In addition, in order to
successfully  implement and manage our business plan, we will be dependent upon,
among other  things,  successfully  recruiting  qualified  managerial  and sales
personnel having experience in business.  Competition for qualified  individuals
is intense.  There can be no assurance that we will be able to find, attract and
retain  existing  employees or that we will be able to find,  attract and retain
qualified personnel on acceptable terms.

Failure to Attract and Retain Qualified Scientific or Production Personnel Could
Have a Material Adverse Effect On Us.

     Recruiting and retaining qualified  scientific and production  personnel to
perform research and development  work and product  manufacturing is critical to
our success.  Because the industry in which we compete is very  competitive,  we
face significant challenges attracting and retaining a qualified personnel base.
Although  we believe we have been and will be able to attract  and retain  these
personnel,  there  is  no  assurance  that  we  will  be  able  to  continue  to
successfully  attract qualified personnel.  In addition,  our anticipated growth
and expansion into areas and activities requiring additional expertise,  such as
clinical testing,  government approvals,  production, and marketing will require
the addition of new  management  personnel  and the  development  of  additional
expertise by existing  management  personnel.  The failure to attract and retain
these personnel or,  alternatively,  to develop this expertise  internally would
adversely  affect  our  business.  We  generally  do not enter  into  employment
agreements  requiring  these  employees  to continue in our  employment  for any
period of time.

We Need to  Expand  Our Sales  and  Support  Organizations  to  Increase  Market
Acceptance of Our Products.

     We currently have a small  customer  service and support  organization  and
will need to increase our staff to support new customers and the expanding needs
of existing customers.  The employment market for sales personnel,  and customer
service and support personnel in this industry is very  competitive,  and we may
not be able to hire the kind and number of sales personnel, customer service and
support  personnel we are  targeting.  Our  inability to hire  qualified  sales,
customer  service and support  personnel  may  materially  adversely  affect our
business, operating results and financial condition.


                                       8

The Biomedical  Research Products  Industry is Very  Competitive,  and We may be
Unable to Continue to Compete Effectively in this Industry in the Future.

     We are engaged in a segment of the biomedical  research  products  industry
that is highly  competitive.  We  compete  with  many  other  suppliers  and new
competitors  continue to enter the market. Many of our competitors,  both in the
United   States  and   elsewhere,   are  major   pharmaceutical,   chemical  and
biotechnology  companies,  and many of them have  substantially  greater capital
resources, marketing experience,  research and development staff, and facilities
than we do. Any of these companies could succeed in developing products that are
more  effective  than the  products  that we have or may develop and may be more
successful  than us in producing and marketing  their  products.  We expect this
competition to continue and intensify in the future.  Competition in our markets
is primarily driven by:

     o    Product performance, features and liability;
     o    Price;
     o    Timing of product introductions;
     o    Ability to develop,  maintain  and protect  proprietary  products  and
          technologies;
     o    Sales and distribution capabilities;
     o    Technical support and service;
     o    Brand loyalty;
     o    Applications support; and
     o    Breadth of product line.

     If a competitor develops superior technology or cost-effective alternatives
to our  products,  our business,  financial  condition and results of operations
could be materially adversely affected.

Our  Trademark  and Other  Intellectual  Property  Rights May not be  Adequately
Protected Outside the United States, Resulting in Loss of Revenue.

     We believe that our trademarks,  whether licensed or owned by us, and other
proprietary rights are important to our success and our competitive position. In
the course of our international expansion, we may, however,  experience conflict
with  various  third  parties who acquire or claim  ownership  rights in certain
trademarks.  We cannot  assure that the actions we have taken to  establish  and
protect  these  trademarks  and other  proprietary  rights  will be  adequate to
prevent imitation of our products by others or to prevent others from seeking to
block sales of our products as a violation  of the  trademarks  and  proprietary
rights of others.  Also, we cannot assure you that others will not assert rights
in, or ownership of, trademarks and other proprietary  rights of ours or that we
will  be  able  to  successfully   resolve  these  types  of  conflicts  to  our
satisfaction. In addition, the laws of certain foreign countries may not protect
proprietary rights to the same extent, as do the laws of the United States.

Intellectual Property Litigation Could Harm Our Business.

     Litigation  regarding  patents and other  intellectual  property  rights is
extensive  in the  biotechnology  industry.  In  the  event  of an  intellectual
property  dispute,  we may be forced to litigate.  This litigation could involve
proceedings   instituted  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  we not
prevail, could seriously harm our business.

     If a third party claims an  intellectual  property  right to  technology we
use, we might need to  discontinue an important  product or product line,  alter
our products  and  processes,  pay license  fees or cease our affected  business
activities.  Although  we might under  these  circumstances  attempt to obtain a
license to this intellectual  property, we may not be able to do so on favorable
terms, or at all.

Accidents Related to Hazardous Materials Could Adversely Affect Our Business.

     Some of our operations  require the controlled use of hazardous  materials.
Although we believe our safety procedures  comply with the standards  prescribed
by  federal,  state,  local  and  foreign  regulations,  the risk of  accidental
contamination  of property or injury to individuals  from these materials cannot
be completely  eliminated.  In the event of an accident,  we could be liable for
any damages that result,  which could seriously  damage our business and results
of operations.

                                       9


Potential  Product  Liability  Claims Could  Affect Our  Earnings and  Financial
Condition.

     We face a potential  risk of  liability  claims  based on our  products and
services,  and we have faced such claims in the past. We carry product liability
insurance  coverage which is limited in scope and amount but which we believe to
be adequate.  We cannot assure,  however,  that we will be able to maintain this
insurance at reasonable cost and on reasonable terms. We also cannot assure that
this insurance will be adequate to protect us against a product liability claim,
should one arise.

We Are Currently Subject to Governmental Regulation.

     Our business is currently subject to regulation,  supervision and licensing
by  federal,  state  and local  governmental  authorities.  We must also  expend
resources from time to time to comply with newly adopted regulations, as well as
changes in existing regulations. If we fail to comply with these regulations, we
could be subject to disciplinary actions or administrative  enforcement actions.
These actions could result in penalties, including fines.

New Corporate Governance  Requirements are Likely to Increase Our Costs and Make
it More Difficult to Attract Qualified Directors.

     We face new corporate governance  requirements under the Sarbanes-Oxley Act
of 2002, as well as rules adopted by the Securities and Exchange Commission.  We
expect  that these  laws,  rules and  regulations  will  increase  our legal and
financial   compliance   costs  and  make  some   activities   more   difficult,
time-consuming  and costly.  We also expect that these new requirements may make
it more  difficult  and more  expensive  for us to obtain  director  and officer
liability  insurance.  We may be  required to accept  reduced  coverage or incur
significantly  higher costs to obtain coverage.  These new requirements may also
make it more  difficult for us to attract and retain  qualified  individuals  to
serve as members of our board of directors or committees of the board.

Risks Relating to Our Common Stock:

There Are a Large Number of Shares Underlying Our Warrants That May be Available
for Future Sale and the Sale of These Shares May Depress the Market Price of Our
Common  Stock and Cause  Immediate  and  Substantial  Dilution  to Our  Existing
Stockholders.

     As of February 8, 2005, we had 47,280,993 shares of common stock issued and
outstanding,  14,722,000  shares of common stock that are  currently  underlying
$7,361,000  in  convertible   promissory  notes  which  shall  automatically  be
converted  into  shares  of common  stock at a price of $.50 per share  upon the
filing of this  registration  statement  and  outstanding  warrants  to purchase
20,347,000  shares of common stock.  All of the shares issuable upon exercise of
our  warrants  may be sold  without  restriction.  The sale of these  shares may
adversely  affect the market price of our common  stock.  The issuance of shares
upon exercise of warrants may result in substantial dilution to the interests of
other stockholders since the selling  stockholders may convert and sell the full
amount issuable on exercise.

If We Fail to Remain Current on Our Reporting Requirements,  We Could be Removed
From the OTC Bulletin Board Which Would Limit the Ability of  Broker-Dealers  to
Sell Our Securities and the Ability of Stockholders to Sell Their  Securities in
the Secondary Market.

     Companies  trading on the OTC Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports  under  Section 13, in order to maintain  price
quotation  privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements,  we could be removed from the OTC Bulletin Board. As
a result,  the market liquidity for our securities  could be severely  adversely
affected by limiting the ability of  broker-dealers  to sell our  securities and
the ability of stockholders to sell their securities in the secondary market.


                                       10

Our  Common  Stock is  Subject  to the  "Penny  Stock"  Rules of the SEC and the
Trading Market in Our  Securities is Limited,  Which Makes  Transactions  in Our
Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.

     The  Securities  and  Exchange  Commission  has  adopted  Rule 15g-9  which
establishes the definition of a "penny stock," for the purposes  relevant to us,
as any equity  security  that has a market price of less than $5.00 per share or
with an  exercise  price of less  than  $5.00  per  share,  subject  to  certain
exceptions.  For any  transaction  involving a penny stock,  unless exempt,  the
rules require:

     o    that a broker or dealer approve a person's account for transactions in
          penny stocks; and
     o    the broker or dealer receive from the investor a written  agreement to
          the transaction,  setting forth the identity and quantity of the penny
          stock to be purchased.

     In order to approve a person's  account for  transactions  in penny stocks,
the broker or dealer must:

     o    obtain financial  information and investment  experience objectives of
          the person; and
     o    make a reasonable  determination that the transactions in penny stocks
          are suitable for that person and the person has  sufficient  knowledge
          and  experience in financial  matters to be capable of evaluating  the
          risks of transactions in penny stocks.

     The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure  schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:

     o    sets  forth  the  basis  on  which  the  broker  or  dealer  made  the
          suitability determination; and
     o    that the broker or dealer  received a signed,  written  agreement from
          the investor prior to the transaction.

     Generally,   brokers  may  be  less  willing  to  execute  transactions  in
securities  subject to the "penny stock" rules.  This may make it more difficult
for  investors  to dispose of our common stock and cause a decline in the market
value of our stock.

     Disclosure also has to be made about the risks of investing in penny stocks
in both public  offerings  and in  secondary  trading and about the  commissions
payable to both the  broker-dealer  and the registered  representative,  current
quotations  for the  securities  and the rights  and  remedies  available  to an
investor  in  cases  of fraud in  penny  stock  transactions.  Finally,  monthly
statements  have to be sent  disclosing  recent price  information for the penny
stock held in the account and information on the limited market in penny stocks.


                                       11

                                 USE OF PROCEEDS

     This  prospectus  relates to shares of our common stock that may be offered
and sold from time to time by the selling stockholders.  We will not receive any
proceeds from the sale of shares of common stock in this offering.  However,  we
will  receive  the  sale  price  of any  common  stock  we sell  to the  selling
stockholders  upon  exercise  of the  warrants.  We expect  to use the  proceeds
received from the exercise of the warrants,  if any, for general working capital
purposes.

            MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our  Common  Stock is  traded  over-the-counter  on the  Over  the  Counter
Bulletin  Board  maintained by the National  Association  of Securities  Dealers
under the symbol "APDN".  There is no certainty  assurance that the Common Stock
will continue to be quoted or that any liquidity exists for our shareholders.

     The following table sets forth the quarterly  quotes of high and low prices
for our Common Stock on the OTC Bulletin Board during the fiscal years September
30, 2003 and September 30, 2004. In February of 2003, we changed our year end to
September 30.


         Year ended 9/30/03*       High       Low     
         
         December 31, 2002         $2.55     $0.02
         March 31, 2003            $2.85     $2.00
         June 30, 2003             $2.85     $2.25
         September 30, 2003        $2.80     $2.40
         
         Year ended 9/30/04         High     Low
         
         December 31, 2003         $3.54     $2.45
         March 31, 2004            $3.55     $1.51
         June 30, 2004             $2.55     $0.71
         September 30, 2004        $0.96     $0.43
         
         Year ended 9/30/05         High     Low
         
         December 31, 2004         $2.39     $0.42
         March 31, 2005 (1)        $1.83     $1.12

(1) As of February 14, 2005.

* We  have  disclosed  the  numbers  with  years  ending  on  September  30  for
comparative  purposes.  Effective  January 31, 2003,  we changed our fiscal year
from December 31 to September 30.

HOLDERS

     As of  February  8, 2005,  we had  approximately  527 holders of our common
stock.  The number of record  holders  was  determined  from the  records of our
transfer  agent and does not  include  beneficial  owners of common  stock whose
shares  are  held  in the  names  of  various  security  brokers,  dealers,  and
registered clearing agencies. The transfer agent of our common stock is American
Stock Transfer & Trust Company, 6201 15th Avenue, Brooklyn, New York 11219.

     We have never declared or paid any cash  dividends on our common stock.  We
do not anticipate  paying any cash dividends to  stockholders in the foreseeable
future. In addition,  any future  determination to pay cash dividends will be at
the  discretion  of the  Board  of  Directors  and  will be  dependent  upon our
financial condition, results of operations, capital requirements, and such other
factors as the Board of Directors deem relevant.

                                       12

EQUITY COMPENSATION PLAN INFORMATION

Stock Option Plan

     In  November  of 2002,  we created a special  compensation  plan to pay the
founders,  consultants and  professionals  that had been  contributing  valuable
services  to us  during  the  previous  nine  months.  The  plan is  called  the
Professional/Employee/Consultant  Compensation  Plan. Share and option issuances
from the Compensation  Plan were to be staggered over the following six to eight
months,  and consultants  that were to continue  providing  services  thereafter
either became employees or received  renewed  contracts from us in July of 2003,
which contracts  contained a more traditional cash compensation  component.  The
Compensation  Plan was designed by the Board to meet our important team building
objectives in our early stages, and to be temporary.  As of December 31, 2004, a
total of  1,440,003  shares  have been  issued  from the  Compensation  Plan and
560,000 options, 264,000 of which were exercised as of as of December 31, 2004.

     Each  qualified and eligible  recipient of shares and/or  options under the
Compensation Plan received securities in lieu of cash payment for services. Each
recipient agreed, in his or her respective  consulting contract with us, to sell
a limited  number  of shares  monthly.  We feel  that  this  carefully  designed
Compensation  Plan was successful in attracting and retaining a strong team at a
time  when we had no  established  revenue  stream  and  limited  or no  outside
financing.  Because  recipients  sold their  respective  shares in a  controlled
manner,  there was also no apparent  negative impact to the market from sales of
these  unrestricted  securities,  which was an important  objective of the Board
when the Compensation Plan was contemplated.

     In our  financial  statements,  shares that were issued from  November 2002
through  June 30, 2003 that were  valued at $0.065 per share were shares  issued
from  this  Compensation  Plan  created  in  November  of 2002 on the  basis  of
contracts executed at that time for previously  rendered services.  Common Stock
disclosed  as being  issued in exchange  for cash at $1.00 per share  represents
options that were  exercised  under this Plan.  In December of 2004, we adjusted
the exercise price to $0.60 per share.

     Any other unrestricted  shares that were issued either before or after July
1, 2003 were valued at the fair market value.



-----------------------    --------------------------    -------------------------       ---------------------
Plan Category              Number of Securities to be     Weighted Average Exercise       Number of Securities
                           Issued Upon Exercise of        Price of Outstanding            Remaining Available
                           Outstanding Options,           Options, Warrants and           for Future Issuance
                           Warrants and Rights            Rights 
-----------------------    --------------------------    -------------------------       ---------------------
                                 (a) (b) (c)
-----------------------    --------------------------    -------------------------       ---------------------
                                                                                          
Professional/Consultant/
Employee Stock and Stock
Option Compensation Plan     2,000,000                       $177,600                              -0-
-----------------------    --------------------------    -------------------------       ---------------------
Total                        2,000,000                       $177,600                              -0-
-----------------------    --------------------------    -------------------------       ---------------------


     As of December 31, 2004, a total of 1,440,000  shares have been issued from
the  Compensation  Plan and 560,000  options have been issued,  264,000 of which
were exercised as of that date.

     On January 26,  2005,  the  majority  stockholders  approved the 2005 Stock
Incentive Plan and authorized  16,000,000 shares of Common Stock for issuance of
stock awards and stock options  thereunder.  We filed a preliminary  information
statement  with the  Securities  and  Exchange  Commission  on  February 3, 2005
containing the information on the 2005 Stock Incentive Plan,  which shall become
effective 20 days after the mailing of the definitive information statement.


                                       13

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                             AND PLAN OF OPERATIONS

     Some  of  the  information  in  this  Form  SB-2  contains  forward-looking
statements that involve  substantial risks and  uncertainties.  You can identify
these  statements  by  forward-looking  words such as "may,"  "will,"  "expect,"
"anticipate," "believe," "estimate" and "continue," or similar words. You should
read statements that contain these words carefully because they:

     o    discuss our future expectations;
     o    contain  projections  of our future  results of  operations  or of our
          financial condition; and
     o    state other "forward-looking" information.

     We believe it is important to communicate our expectations.  However, there
may be events in the future that we are not able to  accurately  predict or over
which we have no control.  Our actual  results and the timing of certain  events
could  differ  materially  from  those  anticipated  in  these   forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors," "Business" and elsewhere in this prospectus. See "Risk Factors."

PLAN OF OPERATIONS

Business Strategy and Approach

     We have established integrated business operations addressing and servicing
the needs of the global  security  marketplace on the part of  corporations  and
governments for; anti-counterfeiting,  fraud prevention, product authentication,
brand protection, supply chain management and protection.

Intellectual Property Development, Product Operations & Partnerships

     We have proprietary DNA security technology, and develop security solutions
that protect  corporate and intellectual  property from  counterfeiting,  fraud,
piracy and product diversion using botanical DNA as an  encrypted/code  molecule
that can be embedded in inks,  paper,  substrates,  liquids,  textiles,  thread,
plastics, holograms and microchips.

     We produce security solutions customized to our customer's needs. We market
and sell DNA  anti-counterfeit  and fraud  prevention  solutions  that integrate
into, and layer with, existing security  solutions.  These DNA security features
are integrated at the OEM level with ink,  paper,  liquids,  thread and hologram
producers,  who in turn sell/supply  finished  security products such as primary
and secondary product packaging for pharmaceuticals,  beauty products, textiles,
currency,  passports,  ID cards,  etc. We have strict  protocols for specifying,
integrating,  testing,  shipping and confirming the presence of DNA in any given
product. We use highly reputable outside labs to provide independent third party
validation  testing to assure maximum  quality  control,  objectivity and strict
security  procedures  in handling  and  shipping.  No  compromise  can enter the
security chain of our product(s).

     We plan to  develop  new  product  lines  that will  address  specific  new
challenges  in the  security  marketplace,  and bring  these  advances to target
industries, customers and countries.

     Additionally,  we will identify  strategic  partnerships  and  co-marketing
ventures,  and  licensees  to work  with us to  develop,  market  and  sell  our
biotechnological   security  products.   This  will  include  sub-licensing  the
technology  to key  partners in specific  sectors  with an  established  base of
customers. These partners will be able to enhance their product lines and client
services  by adding our  technology  to the  existing  security  matrix in their
products, providing an enhanced solution to deter fraud and counterfeiting.

Consultant & Enforcement Operations

     We will consult with our clients on a total security service offering;  how
to protect their brands,  intellectual property,  products and physical security
access and how to reduce risk exposure,  product liability  exposure and product
recall liabilities.  We plan to offer worldwide DNA analysis services supporting
the authentication of products and the detection,  interdiction,  deterrence and
prosecution of counterfeiters  and related crimes,  through our  subcontractors,
sub-licensees and security industry collaborative partners.

                                       14

International Sub-License Operations

     This   division   will  oversee  the   activities   of  all   international
sub-licensees  and  partnerships.  This  division  will also develop a corporate
policy for all marketing and promotional activities.

     We intend to establish  alliances with existing  anti-counterfeit  experts,
agencies and companies in each market.  This collaborative  security  consortium
will employ DNA  technology to detect  illegal  activities,  counterfeiting  and
fraud,  and provide a high standard in security for  corporations and government
agencies.

     These   operations  will  provide   multiple   security   solutions.   Each
sub-licensee or collaborative  partnership will produce separate revenue streams
and be operational via integrated organizational structures.

     Our  management  and  advisory  board and  strategic  consultants  have the
knowledge,  experience,  contacts  and  skills to  provide a  comprehensive  DNA
security business,  with advanced  anti-counterfeit and fraud prevention systems
for the protection and tracking of currency,  documents,  consumer products, and
intellectual property.

     Strong Security  Knowledge Base -- Our executives and consultants  have the
requisite  experience to provide  solutions  that address the security  needs of
major  companies  in  such  diverse  markets  as  pharmaceuticals,   automotive,
cosmetics, apparel and accessories, aerospace, luxury goods, among others.

     Developing  Technology - We plan to acquire all rights,  title and interest
in all patents,  patents pending,  developing,  DNA anti-counterfeit,  and fraud
prevention   technologies   created  by  Biowell.   We  also  have  an  in-depth
understanding of DNA microchip design and applications.  We will jointly develop
DNA-holograms and DNA-Hologram-RFID devices, DNA-inks, DNA-dyes and DNA-security
labels with leading OEM's in these specialist fields.

     Strategic  Corporate  Relationships  -  Our  management  has  personal  and
corporate relationships with leaders in key industries such as: pharmaceuticals,
cosmetics/beauty,   fashion,  retail,  computers,  entertainment,   automobiles,
petroleum, fine arts and collectibles.

     We  will  utilize  our  existing  relationships  and  develop  new  ones to
introduce our anti-counterfeiting technology to generate business. Each industry
has unique requirements and needs for their anti-counterfeit  solutions,  and we
believe our DNA  technology  will provide  maximum  security  technologies.  For
example,  our smart packaging  solutions with DNA security markers in ink, paper
and  holograms has  widespread  application  in packaging  for  pharmaceuticals,
cosmetics,  automotive markets,  passports,  ID's and currency.  Our proprietary
technology  offers  immediate  and  affordable  detection and security for their
brands and products.

     Strong  Technology  Alliances - Our  technology  can also provide  advanced
security dimensions to:

     o    Electronics  security:  access and physical/plant  security (biometric
          security cards enhanced with DNA)
     o    Security Holograms (DNA enhanced)
     o    Radio Frequency Identification systems (DNA + RFID)
     o    Security papers and printing 
     o    Holograms (DNA holograms)
     o    Other security-related products and systems

     Law Enforcement Expertise - The resources of our collaborative  partners in
the security  industry  include former federal law  enforcement,  security,  and
intelligence  officers  who provide  the company  with  extensive  contacts  and
hands-on experience in:

     o    Intellectual property investigation
     o    Counter-intelligence
     o    Personal security services
     o    Anti-counterfeit technologies
     o    Secure communications and data management

                                       15

Critical Accounting Policies

     The preparation of our consolidated financial statements in conformity with
accounting  principles  generally  accepted in the United States  requires us to
make  estimates  and  judgments  that affect our reported  assets,  liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our  estimates and  judgments on  historical  experience  and on various
other  assumptions we believe to be reasonable under the  circumstances.  Future
events,   however,  may  differ  markedly  from  our  current  expectations  and
assumptions.  While  there  are a  number  of  significant  accounting  policies
affecting  our  consolidated  financial  statements;  we believe  the  following
critical  accounting  policy involve the most complex,  difficult and subjective
estimates and judgments:

     o    stock-based compensation

Stock-Based Compensation

     In December 2002, the FASB issued SFAS No. 148 - Accounting for Stock-Based
Compensation - Transition and Disclosure.  This statement  amends SFAS No. 123 -
Accounting  for  Stock-Based  Compensation,  providing  alternative  methods  of
voluntarily  transitioning  to the fair market value based method of  accounting
for stock based employee  compensation.  FAS 148 also requires disclosure of the
method used to account for stock-based  employee  compensation and the effect of
the method in both the annual and interim financial  statements.  The provisions
of this statement  related to transition  methods are effective for fiscal years
ending  after  December  15,  2002,  while  provisions   related  to  disclosure
requirements  are effective in financial  reports for interim periods  beginning
after December 31, 2003.

     We elected to continue to account for stock-based  compensation plans using
the  intrinsic  value-based  method  of  accounting  prescribed  by APB No.  25,
"Accounting for Stock Issued to Employees," and related  interpretations.  Under
the provisions of APB No. 25, compensation expense is measured at the grant date
for the difference between the fair value of the stock and the exercise price.

Revenues

     We have not generated any revenues from operations  from our inception.  We
believe we will begin earning  revenues from operations  during fiscal year 2005
as we transition  from a  development  stage company to that of an active growth
and acquisition stage company.

Costs and Expenses

     From our inception  through  September 30, 2004, we have incurred losses of
$22,803,423.  These  expenses  were  associated  principally  with  equity-based
compensation  to  employees  and  consultants,  product  development  costs  and
professional services.

Recent Accounting Pronouncements

     In April 2003, the FASB issued Statement of Financial  Accounting Standards
(SFAS) No. 149,  Amendment of Statement  No. 133 on Derivative  Instruments  and
Hedging Activities. SFAS 149 amends SFAS No. 133 to provide clarification on the
financial  accounting  and  reporting  of  derivative  instruments  and  hedging
activities and requires that contracts with similar characteristics be accounted
for on a  comparable  basis.  The  provisions  of  SFAS  149 are  effective  for
contracts  entered  into or  modified  after  June  30,  2003,  and for  hedging
relationships  designated  after June 30, 2003. The adoption of SFAS 149 did not
have a material  impact on the  Company's  results of  operations  or  financial
position.

                                       16


     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments  with  Characteristics  of Both  Liabilities  and  Equity.  SFAS 150
establishes standards on the classification and measurement of certain financial
instruments with  characteristics of both liabilities and equity. The provisions
of SFAS 150 are  effective for  financial  instruments  entered into or modified
after May 31, 2003 and to all other  instruments  that exist as of the beginning
of the first interim  financial  reporting period beginning after June 15, 2003.
The adoption of SFAS 150 did not have a material impact on the Company's results
of operations or financial position.

     In December 2003,  the FASB issued a revision of SFAS No. 132,  "Employers'
Disclosures   About   Pensions   And  Other   Postretirement   Benefits."   This
pronouncement,  SFAS No. 132-R,  expands  employers'  disclosures  about pension
plans and other post-retirement benefits, but does not change the measurement or
recognition of such plans required by SFAS No. 87, No. 88, and No. 106. SFAS No.
132-R retains the existing disclosure requirements of SFAS No. 132, and requires
certain  additional  disclosures  about defined benefit  post-retirement  plans.
Except as described in the following  sentence,  SFAS No. 132-R is effective for
foreign  plans for fiscal years ending after June 15, 2004;  after the effective
date, restatement for some of the new disclosures is required for earlier annual
periods. Some of the interim-period disclosures mandated by SFAS No. 132-R (such
as the components of net periodic benefit cost, and certain key assumptions) are
effective  for foreign  plans for quarters  beginning  after  December 15, 2003;
other interim-period  disclosures will not be required for the Company until the
first  quarter of 2005.  Since the  Company  does not have any  defined  benefit
post-retirement  plans,  the  adoption  of this  pronouncement  did not have any
impact on the Company's results of operations or financial condition.

     In November 2004, the Financial  Accounting  Standards  Board (FASB) issued
SFAS  151,  Inventory  Costs--  an  amendment  of ARB No.  43,  Chapter  4. This
Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory  Pricing," to
clarify the accounting for abnormal amounts of idle facility  expense,  freight,
handling costs, and wasted material  (spoilage).  Paragraph 5 of ARB 43, Chapter
4, previously  stated that ". . . under some  circumstances,  items such as idle
facility expense,  excessive spoilage,  double freight, and rehandling costs may
be so abnormal as to require  treatment as current period  charges.  . . ." This
Statement  requires  that those items be recognized  as  current-period  charges
regardless  of whether they meet the  criterion of "so  abnormal."  In addition,
this Statement  requires that  allocation of fixed  production  overheads to the
costs  of  conversion  be  based  on  the  normal  capacity  of  the  production
facilities.  This  Statement is effective for inventory  costs  incurred  during
fiscal  years  beginning  after June 15, 2005.  Management  does not believe the
adoption  of this  Statement  will  have any  immediate  material  impact on the
Company.

     In December 2004, the FASB issued SFAS No.152,  "Accounting for Real Estate
Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS
152) The amendments  made by Statement 152 This Statement  amends FASB Statement
No.  66,  Accounting  for  Sales of Real  Estate,  to  reference  the  financial
accounting and reporting guidance for real estate time-sharing transactions that
is  provided in AICPA  Statement  of Position  (SOP) 04-2,  Accounting  for Real
Estate Time-Sharing Transactions.  This Statement also amends FASB Statement No.
67,  Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental  operations and (b) costs incurred
to sell  real  estate  projects  does  not  apply  to real  estate  time-sharing
transactions.  The accounting  for those  operations and costs is subject to the
guidance in SOP 04-2.  This Statement is effective for financial  statements for
fiscal years beginning after June 15, 2005. with earlier application encouraged.
The Company does not anticipate  that the  implementation  of this standard will
have a material impact on its financial position,  results of operations or cash
flows.

     On December 16, 2004,  the Financial  Accounting  Standards  Board ("FASB")
published  Statement of Financial  Accounting  Standards No. 123 (Revised 2004),
Share-Based  Payment ("SFAS 123R").  SFAS 123R requires that  compensation  cost
related to  share-based  payment  transactions  be  recognized  in the financial
statements.  Share-based  payment  transactions  within  the  scope of SFAS 123R
include stock options,  restricted stock plans,  performance-based awards, stock
appreciation  rights,  and employee share purchase plans. The provisions of SFAS
123R are  effective  as of the first  interim  period that begins after June 15,
2005. Accordingly,  the Company will implement the revised standard in the third
quarter of fiscal year 2005. Currently, the Company accounts for its share-based
payment  transactions under the provisions of APB 25, which does not necessarily
require  the  recognition  of  compensation  cost in the  financial  statements.
Management is assessing the  implications  of this revised  standard,  which may
materially  impact the  Company's  results of operations in the third quarter of
fiscal year 2005 and thereafter.

                                       17

     On  December  16,  2004,  FASB issued  Statement  of  Financial  Accounting
Standards No. 153, Exchanges of Nonmonetary  Assets, an amendment of APB Opinion
No. 29,  Accounting for Nonmonetary  Transactions (" SFAS 153").  This statement
amends APB Opinion 29 to eliminate the exception  for  nonmonetary  exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance.  Under SFAS 153, if
a nonmonetary exchange of similar productive assets meets a commercial-substance
criterion and fair value is determinable,  the transaction must be accounted for
at fair  value  resulting  in  recognition  of any  gain or  loss.  SFAS  153 is
effective for  nonmonetary  transactions in fiscal periods that begin after June
15,  2005.  The Company  does not  anticipate  that the  implementation  of this
standard  will have a  material  impact on its  financial  position,  results of
operations or cash flows.

Liquidity and Capital Resources

     As of  December  31,  2004,  we had a  deficiency  in  working  capital  of
$5,942,000.  For the three  months ended  December 31, 2004,  we generated a net
cash  flow  deficit  from  operating  activities  of  ($1,587,000),   consisting
primarily  of year to date  losses  of  ($12,365,000),  $8,724,000  in net stock
issued  for  consulting  services,   $1,515,000  for  beneficial  conversion  of
convertible  notes  payable  and  warrants,  $395,000  for  warrants  issued  to
consultants  as well as a net  increase  in  current  liabilities  and  other of
$144,000.

     Cash used in investing  activities totaled $28,000,  which was utilized for
patent  filings  and,  facility  lease  deposits.  Cash  provided  by  financing
activities totaled  $1,676,000  consisting of $1,390,000 in proceeds from loans,
and  $250,000  and  $36,000  in common  stock and  exercised  options  proceeds,
respectively.

     We expect  capital  expenditures  to be  nominal  for  fiscal  2005.  These
anticipated expenditures are for continued investments in property and equipment
used in our business.

     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.

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

     Our registered  independent  certified  public  accountants  have stated in
their report dated January 11, 2005, that we have incurred  operating  losses in
the last two  years,  and that we are  dependent  upon  management's  ability to
develop profitable operations.  These factors among others may raise substantial
doubt about our ability to continue as a going concern.

     To  obtain  funding  for our  ongoing  operations,  we sold  $1,465,000  in
convertible  promissory  notes to 13 investors in December 2004. Each promissory
note was  automatically  convertible into shares of our common stock, at a price
of $0.50 per share,  upon the closing of a private  placement  for $1 million or
more. On January 28, 2005,  we closed upon a private  placement  transaction  in
excess of $1  million,  and on  February  2,  2005,  the  promissory  notes were
converted into an aggregate of 2,930,000 shares of common stock. This prospectus
includes the resale of the common stock issued upon conversion of the promissory
notes.  In connection  with the sale of the  convertible  promissory  notes,  we
issued  2,930,000  warrants to purchase shares of common stock. The warrants are
exercisable  until three years from the date of issuance at a purchase  price of
$0.75 per share.

     To obtain  funding  for our  ongoing  operations,  we  conducted  a private
placement  offering in January and February 2005, in which we sold $7,361,000 of
10%  Secured  Convertible  Promissory  Notes to 61  investors.  The 10%  Secured
Convertible  Promissory  Notes  automatically  convert into shares of our common
stock,  at a price of $0.50 per  share,  upon the  filing  of this  registration
statement.  This prospectus includes the resale of the common stock to be issued
upon conversion of the 10% Secured  Convertible  Promissory Notes. In connection
with the private placement  offering,  we have issued 15,222,000  warrants.  The
warrants  are  exercisable  until  five  years  from the date of  issuance  at a
purchase price of $0.75 per share.


                                       18

     Since the conversion price will be less than the market price of the common
stock at the time the  secured  convertible  notes  are  issued,  we  anticipate
recognizing  a charge  relating  to the  beneficial  conversion  feature  of the
secured convertible notes during the quarter in which they are issued, including
the fourth quarter of fiscal 2004 when $1,465,000 of secured  convertible  notes
were  issued and the first  quarter of fiscal  2005 when  $7,361,000  of secured
convertible notes were issued

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

Product Research and Development

     We anticipate continuing to incur research and development  expenditures in
connection  with the  development  of our DNA  embedded  biotechnology  security
products and solutions during the next twelve months. This includes,  but is not
limited to projects involving the following agencies and companies:

     o    Department of Energy;
     o    Department of Agriculture;
     o    Oakridge National Laboratories; and
     o    Holo-Mex.

     These projected expenditures are dependent upon our generating revenues and
obtaining  sources of  financing in excess of our  existing  capital  resources.
There is no guarantee  that we will be successful in raising the funds  required
or generating  revenues  sufficient to fund the projected  costs of research and
development during the next twelve months


                                       19


                                    BUSINESS

OVERVIEW

     We  are a  provider  of  proprietary  DNA-embedded  biotechnology  security
products that protect corporate and intellectual  property from  counterfeiting,
fraud,  piracy,  product diversion and unauthorized  intrusion.  We offer a cost
effective  method to  detect,  deter,  interdict  and  prosecute  counterfeiting
enterprises.  We provide  proprietary  DNA-embedded  biotechnology  solutions to
companies to protect  corporate and intellectual  property from  counterfeiting,
fraud, piracy, product diversion and unauthorized  intrusion. We use segments of
naturally  occurring botanical DNA that have unique  characteristics,  which are
one-of-a-kind sequences.  Using various anti-counterfeit mediums, or substrates,
such as ink,  microchips,  glue,  paints and holograms,  we can authenticate the
unique DNA characters to ensure that the product has not been  counterfeited  or
tampered with.

     Sectors of commerce  benefiting  from our products  include:  corporations,
federal government agencies, information technology,  security and surveillance,
entertainment media, the arts, cosmetics, pharmaceutical and biometrics, as well
as vertical  retail  markets.  Our  applications  also enhance  capabilities  of
product origination,  identification verification,  and validation of the source
of  components   for  critical   manufacturing,   defense,   medical  and  other
highly-integrity or secure products.

     Our  mission  is to become  the  recognized  standard  in  providing  total
security   solutions  to  protect  corporate  and  intellectual   property  from
counterfeiting  and fraud.  We intend to deliver our products to a global market
via  existing  and  emerging  strategic  business  development  agreements  with
recognized  leaders in the  security  industry and through  collaborations  with
leading security consultancy companies.

     We have acquired the exclusive license to sell, market, and sub-license all
of  Biowell's  DNA  anti-counterfeit  and  fraud  prevention  biotechnology  and
products in North  America  (U.S.  and Canada),  Latin  America and Europe.  The
exclusive  license  also gives us the initial  rights to future  biotechnologies
developed by Biowell and also new applications for the existing  technology that
may  be  developed  for  the  marketplace.  Biowell  has  selected  us to be its
marketing and licensing partner to introduce the DNA  biotechnology  products to
the world's largest consumer markets.  In addition to marketing the DNA products
in our  territories,  we will develop DNA production  laboratories in the United
States,  as well as develop  capabilities  in DNA  authentication,  analysis and
detection  products with ongoing  relationships  with the Department of Energy's
national laboratory system.

     We have a very seasoned and  experienced  management  team.  This was a key
factor in establishing the partnership with Biowell. Our combined executive team
has  professional  experience  totaling  more  than 100  years  in the  areas of
anti-counterfeiting  technology,  microchip  development,   security,  printing,
marketing, and corporate sub-licensing development. Our management team has also
been  active  in  the  International   Anti-Counterfeiting  Coalition,  Homeland
Security technology communities,  and the anti-fraud investigation industry. Our
executives have developed  strong links with major  international  corporations,
intellectual property and copyright holders, U.S. Government  affiliations,  and
international anti-fraud organizations.

License Agreement with Biowell Technology

     In consideration  for the granting of the exclusive  license to us, Biowell
received  1.5 million  shares of our common  stock,  with the option to purchase
another 500,000 shares.  In return,  we received the option to purchase  500,000
shares of Biowell common stock.

License Agreement with Biowell Technology

     In consideration  for the granting of the exclusive  license to us, Biowell
received  1.5 million  shares of our common  stock,  with the option to purchase
another 500,000 shares.  In return,  we received the option to purchase  500,000
shares of Biowell common stock.


                                       20

Biowell DNA Technologies

     Every living thing has a unique DNA code in its  cellular  composition.  By
taking the DNA from a plant  material,  Biowell is able to create a group of DNA
codes that can be turned into a unique and traceable marking for any product.

     In the early  1980's the primary  emphasis in DNA  research  was applied to
pharmaceutical  applications.   There  was  very  little  focus  in  the  living
biotechnology arena. During the l990's, a group of elite scientists,  led by Dr.
Sheu Jun-Jei of Taiwan,  focused on the first research and  development of a DNA
based anti-counterfeit  biotechnology. In the late 1990's, Dr. Sheu made a major
breakthrough in  biotechnology,  and patents with commercial  applications  were
filed.  Biowell  was formed in Taiwan in  October of 1999 to hold these  pending
patents  and  continues  to  advance  in the  areas  of DNA  anti-counterfeiting
biotechnology.

     The key to this  exclusive  biotechnology  is the  ability to mix or attach
scientifically selected and processed DNA to specific media such as paint, glue,
polymer,  and  ink.  In  doing  this,  the  characteristics  of DNA are  used to
distinguish genuine products from counterfeits. This technology can also be used
to  authenticate  microchips  and circuit  boards that contain them.  The DNA AC
(anti-counterfeit)  biochip is a Biowell product in which DNA is embedded into a
microchip. When biochips are embedded into circuitry, the biological data can be
read   electronically   and  the   component  can  be   authenticated.   Without
authentication, the device will not operate.

Intellectual Property

     Key to our success is ongoing research and development. Biowell has over 10
patents pending and we have filed two new patent applications. While patents are
an  important  asset,  they are not the only  instruments  used to  sequester  a
competitive  position  for us.  We are  developing  numerous  tools to  maintain
technical   superiority,   which   includes   licensing   other   component  and
complementary technologies that will keep pace with our speed to market efforts.

     We regard our patents,  trademarks,  trade  secrets and other  intellectual
property  as an  integral  component  of our  success.  We rely on  patent  law,
trademark  law,  trade secret  protection  and  confidentiality  and/or  license
agreements  with  employees,  customers,  partners  and  others to  protect  our
intellectual property.  Effective patent,  trademark and trade secret protection
may not be available in every  country in which our products are  available.  We
cannot be certain that we have taken adequate steps to protect our  intellectual
property,  especially in countries  where the laws may not protect our rights as
fully as in the United States. In addition,  if our third-party  confidentiality
agreements are breached there may not be an adequate remedy  available to us. If
our trade secrets become publicly known, we may lose our competitive position.

     Additionally,  litigation regarding patents and other intellectual property
rights  is  extensive  in  the  biotechnology  industry.  In  the  event  of  an
intellectual  property  dispute,  we may be forced to litigate.  This litigation
could involve proceedings  instituted 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  we not
prevail, could seriously harm our business.

     If a third party claims an  intellectual  property  right to  technology we
use, we might need to  discontinue an important  product or product line,  alter
our products  and  processes,  pay license  fees or cease our affected  business
activities.  Although  we might under  these  circumstances  attempt to obtain a
license to this intellectual  property, we may not be able to do so on favorable
terms, or at all.

Global Market Penetration

     We have  redirected our sales and marketing  strategy to place a premium on
business-to-business opportunities. In order to effectively service our products
globally, we may enter into both exclusive and non-exclusive agreements. Each of
these  agreements  will have time limits and have very specific  revenue targets
set against  them. In the case of an exclusive  agreement,  we may further limit
our  relationship  to certain  products  that are offered for sale in a specific
region. All exclusive agreements will have time limits with specific targets for
revenue  to be derived  out of a given  region.  Additionally,  we have and will
retain the right to allow  certain  global  partners  (as we decide from time to
time) to sell into a restricted  exclusive  market with the provision that a fee
be paid to the  exclusive  licensee in a given region for products  sold in that
region that are covered  under  their  exclusive  license.  This  provision  was
adopted to allow for certain Fortune 50 companies to pursue selling our products
and services  globally  without  restrictions  and  encumbrances  with  specific
geographical regions.

                                       21

Our Products

     With our  exclusive  licensing of Biowell's  DNA  technologies,  we will be
working to provide complete DNA anti-counterfeit and fraud prevention solutions.
We will offer comprehensive and  price-competitive  products and solutions.  The
key characteristics of the DNA biotechnology are as follows:

     Unique and  Impossible  to Replicate  DNA Codes -- specially  processed DNA
     fragments,  with unique  characteristics and one-of-a-kind  sequences,  are
     used. The embedded DNA  concentration  is extremely  small (3-5 micron) and
     cannot be analyzed unless  proprietary  biochemistry and reagents are used,
     along with our proprietary DNA reader systems.

     Easy to Customize  -- We can tailor the DNA tagging to meet the  customer's
     product requirements.  For example, the DNA codes can be generated based on
     one or more DNA sources and one or more anti-counterfeit technologies.

     Easy and Quick to Use -- With the DNA instant  verification kit or scanner,
     instant verification can be obtained at the  point-of-purchase.  Hence, the
     authentication    process   can   be   performed    quickly.    Traditional
     anti-counterfeit technology analysis requires anywhere from 24 to 48 hours.
     Our technology will achieve an effective and timesaving  deterrent  against
     counterfeiters.

     Broad Applications -- DNA anti-counterfeiting  technology can be applied to
     almost any product on the market.  The DNA ink is edible and can be used on
     tablets or capsules ensuring against counterfeiting pharmaceuticals.

DNA Marker

     Our first anti-counterfeiting  product is the DNA Marker, an agent that can
be used to authenticate  textile products.  The DNA Marker can be applied at any
point in the manufacturing  process,  from the freshly cut raw fibers through to
the finished garment. As the DNA Marker can be applied to any fabric from cotton
to wool, this will help textile vendors and governments  determine the origin of
thread, yarn and fabric through to the high-end garment manufacturers who suffer
lost sales at the hands of counterfeiters.  DNA Marker protection will also help
preserve jobs at the legitimate  textile and clothing  manufacturers  as well as
ensuring  that the proper taxes are  collected  on textiles  and  garments  from
authorities.

     The DNA Marker  will  remain  effective  into the 22nd  century and will be
detectable throughout the different  manufacturing stages without degrading.  It
can be detected in a variety of manners from inspection  under infrared light to
laboratory  forensic  analysis that  authenticates  it to a certainty of 99.9999
percent

     Driven  by market  needs,  this is the  first of what is  expected  to be a
number of products and services  based upon the DNA marker  technology.  We will
continuously  assess  the  anti-counterfeit  needs  of  markets,  companies  and
governmental organizations and will develop proprietary technologies,  solutions
and products for these opportunities.

Inks

     DNA anti-counterfeit ink has been developed as two major applications.  The
first ink is Biowell's  unique  anti-counterfeit  ink (covert ink), which can be
authenticated at a forensic-science level of certainty,  in a lab, with detailed
DNA  analysis.  The  second  application  is an  enhanced  version of the first,
integrating  into  the  original  anti-counterfeit  ink  an  additional  instant
detection function for on-site authentication (overt ink).

                                       22

     This instant  verification  process has been designed to allow  sampling at
any point in the product supply chain.  By swabbing  testing fluid  containing a
special  activation  buffer across the authentic DNA ink surface,  a biochemical
reaction  occurs  between  the coating of the DNA  molecules  in the ink and the
buffer fluid. This reaction manifests as a reversible color change, with the ink
changing color from blue to pink, and back to blue within  seconds.  Testing can
be repeated at various checkpoints throughout the product supply chain.

     Proprietary  production  techniques  are used to  manufacture  DNA with the
unique  property  for  integration  with  ink.  The  key to  utilizing  DNA  for
anti-counterfeit  purposes  lies in the  preservation  of  DNA.  The  system  of
production ensures that DNA can survive for over 100 years. In addition, special
materials are used to shield purified DNA from  environmental  variation,  which
allows  perpetual  preservation of DNA and permanent  proof of authenticity  for
genuine products.

     DNA ink can be applied to:

     o    General Company Use: trade marks,  patents,  company logos,  important
          documents
     o    Financial industry: currency, stocks, checks, bills, bonds, checks
     o    Retail: event tickets, VIP tickets, clothing labels
     o    Medicines: capsule and pill surface printing
     o    Inner package: foil blister packs
     o    Outer package: boxes, bottles
     o    Arts: paintings, artifacts, collectibles and memorabilia
     o    Others: lottery tickets, stamps, custom seals, passports, visas, etc.

     Virtually any item that can be duplicated  now can be protected with any of
these DNA ink applications.  These  applications are  cost-effective  and can be
adapted  to  any  company's  current  branding,   product  tracking,   or  other
anti-counterfeiting program.

DNA Labels

     DNA  anti-counterfeit  ink can be applied to garment labels. It can also be
printed  onto  logos  or on any  other  surface.  Labels  are  printed  with the
proprietary  ink  containing  the  specific   authentication   DNA  code  for  a
manufacturer. The labels can then be easily tested for authenticity.

     Knowledge that the labels are  DNA-imprinted  and can be quickly and easily
verified serves as a deterrent to counterfeiters. We believe this in itself will
create a demand for the proprietary DNA ink-impregnated label technology.

DNA Chip

     Computer and electronic  signals  constitute most of the corporate security
systems.  These systems are of similar function and design,  and are susceptible
to duplication and counterfeit.  The  polymorphism of DNA is significantly  more
complex than electronic signals, and better suited for security systems.

     The DNA  chip  card is  intended  for both  authentication  of the card and
identification of the individual.  For that purpose, a set of DNA chip cards are
assigned   with   specific   DNA  (group  ID),   along  with  the   individual's
identification information and recorded in the chip's memory. A reader module is
configured  to  recognize  (and  therefore  verify)  only the chip  carrying the
correct group ID. Any DNA chip card with different group ID, or indeed any other
chip card, will be rejected.

     The DNA chip uses artificially constructed DNA, with each user group having
the  same  DNA  code.   Individuals   are   differentiated   in  the  system  by
identification codes stored in the chip's memory. In addition,  the DNA chip can
be configured for the customer to have a particular person have their own DNA as
the source DNA for that user group.  The DNA chip  generates  unique signals and
will not function  properly once removed from the casing.  The empty chip is not
available anywhere else on the market, thus making it impossible to counterfeit.
Once  the  imbedded  DNA chip is  sabotaged  or  removed  the  chip  will  cease
functioning, thus preventing data on the chip from being duplicated.

                                       23

     The signal of a DNA chip is generated  through an  interaction  between DNA
and a specially  devised  mechanism known as a DNA chip reader.  A real DNA chip
will generate an analogical  signal and be received by the reader after the chip
is  stimulated.  An LCD display  screen  provides  immediate  authentication  by
reading the unique DNA signals embedded in the chip.

     The DNA chip function is versatile,  which allows it to be integrated  into
the form of slot  reader,  slide  through  reader,  or contact  point reader for
instant  authentication.  Biowell has also  developed  a portable,  lightweight,
hand-held  scanner that can be used to authenticate  the DNA chips.  The cost of
the DNA chip,  card,  and reader  system is  comparable  to existing  smart card
systems.  Above all,  the reader can be linked  externally  with  existing  card
readers to save replacement costs.

     We believe that the DNA chip system is more secure than all other  systems;
since it cannot  be  copied or  hacked,  and  works  with  specially  configured
readers.

     The DNA biochip can be applied to many products. For example:

     o    Security ID cards
     o    Passports
     o    Licenses
     o    Credit and ATM cards
     o    Debit cards
     o    Consumer  merchandise  (CDs, VCDs,  DVDs,  notebook  computers,  PDAs,
          handbags, etc.)
     o    Other  applications  where   authentication  is  required   (antiques,
          paintings, etc.,)

Demands for Security and Positive Identification

     As nations are  threatened  by terrorism  and  corporations  try to prevent
corporate  fraud and  espionage,  the need for  secure  anti-counterfeiting  and
identification  systems  increases.  Our  technology  can provide  important and
cost-effective  support for local,  state,  and federal  governments  as well as
corporations   doing   business   with   highly   sensitive   information.   Our
anti-counterfeiting   technology  can  be  used  for  the  following   types  of
identification and important government documents:

     o    Passports
     o    Green cards
     o    Visas
     o    Driver's licenses
     o    Social Security cards
     o    Student visas
     o    Military ID's
     o    Other important Identity cards and official documents

     We will explore  contracting  with consultants in Washington D.C. that will
assist with identifying and securing  potential  Government  contracts that will
utilize the DNA technology for identity and authentication.  In 2004, we won the
"Best of New technology" prize at the Security Industry  Association  conference
in  Washington  D.C.  in  competition   against  some  of  the  world's  largest
corporations.  Shortly thereafter, we were inducted into the InteGuard Alliance,
a consortium  of 29 major  companies  providing  security  services and security
technology to the US Government.

     We  intend  to  work in  collaboration  with  Biowell  and  other  security
organizations  in order to continue to  research  and develop new product  lines
derived from, but not limited to, DNA  technology.  Research and  development of
new product lines is an ongoing  commitment of our and is currently  underway in
the Biowell labs. Business Strategy and Approach

                                       24

     Our goal is to establish three integrated  business  operations  addressing
and  servicing  the  needs  of  the  marketplace  for  anti-counterfeit,   fraud
prevention, and homeland security solutions.

Intellectual Property Development, Product Operations & Partnerships

     We are a developer  of  security  solutions  that  protects  corporate  and
intellectual  property from counterfeiting,  fraud, piracy and product diversion
using a proprietary line of DNA embedded  biotechnology  products accompanied by
monitoring and enforcement  support,  we produce  solutions  customized to their
customer's  need.  We intend to market and sell DNA  anti-counterfeit  and fraud
prevention  products  and  oversee  laboratory  facilities  where  consumer  and
corporate  products  can  be  tested  for  authenticity.  We  will  oversee  the
development  of new product  lines that will  address  specific  and  individual
customer needs.  Additionally,  this division will identify strategic  licensees
and partnerships in multiple sectors that will license and sell our products and
biotechnologies.  This will include sub-licensing the technology to key partners
in each sector with an established base of customers. These new partners will be
able to enhance their client  services by adding our  technology to the existing
product line or current security methods to deter fraud and counterfeiting.

Consultant & Enforcement Operations

     As a  service  to our  clients,  we will  consult  with them on how to best
protect  their  intellectual  property  and  products.  We will offer  worldwide
investigative  and DNA analysis  services for the enforcement and prosecution of
counterfeiters and fraud itself and through our subcontractors or sub-licensees.

International Sub-License Operations

     This division will oversee the activities of all international  sub-license
alliances and  partnerships.  This division will also develop a corporate policy
for all marketing and promotional activities.

     We intend to seek alliances with existing anti-counterfeit networks in each
market. We will train these networks to use our technology to detect and monitor
counterfeit  and fraud,  and we will use our own  anti-counterfeit  and security
experts  to  help  detect  counterfeiting   attempts  against  corporations  and
government agencies.

     By  combining  our three  operations,  we will  provide  multiple  security
solutions.  Each division will produce  separate  revenue streams and integrated
organizational  structures that we believe will make us a leader in the field of
anti-counterfeit and fraud prevention services.

     Our management team and advisory board have a unique  combination of skills
for providing  integrated DNA  anti-counterfeit and fraud prevention systems for
the protection and tracking of documents, products, and intellectual property:

     --   Strong  Security  Knowledge  Base -- Our  team has the  experience  to
          analyze and provide  solutions  that  address  the  security  needs of
          companies in such diverse market segments as pharmaceuticals, designer
          clothing, luxury goods and cosmetics,  aerospace,  defense,  diamonds,
          automotive,  holography and chip  manufacturing.  Several team members
          are  published  authors  in the area of  security  and are  recognized
          globally as experts in their fields.

     --   Leading  Technology -- We have exclusive rights to all patent pending,
          leading  DNA  anti-counterfeit,   and  fraud  prevention  technologies
          created by Biowell.  We also have an agreement in place with  HoloMex,
          Inc.,   a   leading   security   hologram   manufacturer,   to  create
          DNA-holograms,  a new generation security product. Our management also
          hasan in-depth understanding of microchip design and applications.

     --   Strategic  Corporate  Relationships -- Our management has personal and
          corporate  relationships  with  leaders  in key  industries  such  as:
          high-end  fashion  retail,  computers,   entertainment,   automobiles,
          aerospace, defense and pharmaceuticals. We will utilize these existing
          relationships  to  introduce  our  anti-counterfeiting   products  and
          generate  contracts,  although no discussions have yet been held. Each
          industry has multiple facets for the  anti-counterfeit DNA technology.
          For example,  fashion retail can use our anti-counterfeit  chip in its
          high-end fashion  handbags,  while a company  producing fine wines can
          take advantage of our DNA-embedded label. Our proprietary technologies
          offer immediate and affordable detection and security for all of their
          trademarks and products.

                                       25

     --   Strong  Technology  Alliances  -- Our  products can also work with and
          supplement  products in key anti-fraud and security  industries,  such
          as:


          o    Electronics security
          o    Hologram manufacturing
          o    Radio Frequency Identification (RFID) systems
          o    Isotopic Markers
          o    Security papers and printing
          o    Other security-related products, systems, and services

     --   Law  Enforcement  Expertise -- Our management  includes former federal
          law enforcement,  security,  and intelligence  officers who provide us
          with extensive hands-on experience in:

          o    Intellectual property investigation
          o    Counter-intelligence
          o    Personal security services
          o    Anti-counterfeit technologies
          o    Secure communications and data management

     Patents Pending


------------------------------ --------------------------- --------------------------- --------------------------- -----------------
Patent Name                    Application No.             Filed by                    Date Filed                  Jurisdiction
------------------------------ --------------------------- --------------------------- --------------------------- -----------------
                                                                                                                     
------------------------------ --------------------------- --------------------------- --------------------------- -----------------
A Method of Utilizing          089108443                   Biowell                     March 17, 2000              Taiwan
Nucleic Acids as
Markers for Product            00107580.2                                              May 18, 2000                China
Anti-Counterfeit Labeling
and Verification               09/832,048;                                             April 9, 2001               United States
                               published 20020187263-A1
------------------------------ --------------------------- --------------------------- --------------------------- -----------------

------------------------------ --------------------------- --------------------------- --------------------------- -----------------
EppenLocker (A                 089204158                   Biowell                     March 10, 2000              Taiwan
Leakage-Prevention Apparatus
of Microcentrifuge)
------------------------------ --------------------------- --------------------------- --------------------------- -----------------

------------------------------ --------------------------- --------------------------- --------------------------- -----------------
Multiple Tube Structure for    089210575                   Biowell                     June 20, 2000               Taiwan
Multiple in a Closed
Container
------------------------------ --------------------------- --------------------------- --------------------------- -----------------

------------------------------ --------------------------- --------------------------- --------------------------- -----------------
Method for Processing          89111477                    Biowell                     June 12, 2000               Taiwan
Multi-PCR in Closed Vessel
------------------------------ --------------------------- --------------------------- --------------------------- -----------------

------------------------------ --------------------------- --------------------------- --------------------------- -----------------
Method for Mixing Nucleic      2002-294229                 Biowell                     August 31, 2002             Japan
Acid in
Water Insoluble Media and      03007023.9                                              March 27, 2003              European
Application Thereof                                                                                                Patent Office
                               92121973                                                August 11, 2003             Taiwan
------------------------------ --------------------------- --------------------------- --------------------------- -----------------


                                       26


------------------------------ --------------------------- --------------------------- --------------------------- -----------------
Method for Hiding Secret       92121490                    Biowell                     August 6, 2003              Taiwan
Message Carrying a DNA
Molecule and a Method for      pending                                                 August 6, 2003              China
Decoding the Secret Message
Hiding by thereof
------------------------------ --------------------------- --------------------------- --------------------------- -----------------

------------------------------ --------------------------- --------------------------- --------------------------- -----------------
Method for Transferring        92119302                    Biowell                     July 15, 2003               Taiwan
Giveback Funds by
Recognizing Plurality of       03150071.4                                              July 31, 2003               China
Objects
------------------------------ --------------------------- --------------------------- --------------------------- -----------------

------------------------------ --------------------------- --------------------------- --------------------------- -----------------
Anti-Counterfeit Chip          None                        Biowell                     To be filed                 Taiwan
Recognizing Device
                                                                                                                   China
------------------------------ --------------------------- --------------------------- --------------------------- -----------------

------------------------------ --------------------------- --------------------------- --------------------------- -----------------
A System and Method for        60/463215                   Biowell                     April 16, 2003              United States
Marking Textiles Using DNA
                               Applied DNA Sciences
------------------------------ --------------------------- --------------------------- --------------------------- -----------------
A System and Method for        2004/012031                 Applied DNA Sciences        April 15, 2004              United States
Marking Textiles Using
Nucleic Acids
------------------------------ --------------------------- --------------------------- --------------------------- -----------------
System and Method for          10/82596                    Applied DNA Sciences        January 21, 2004            United States
Authenticating Clients on a
Local Area Network Using
Nucleic Acids


Sales and Marketing

     We employ a multi-tier sales and marketing  strategy.  We develop strategic
alliances  and  marketing  partners,  by setting  up  alliances  with  Biowell's
technology partners,  granting licenses to existing  anti-counterfeit  suppliers
and partner with industry leaders for intellectual property development.

     We provide  anti-counterfeiting  and security  solutions  through our sales
force  covering  a  multitude  of  potential  clients  either  directly  or  via
resellers.

Customers

     We do not currently  have any  revenue-generating  customers at this point.
Our targeted client base includes major  corporations,  government  entities and
educational  institutions.   We  will  provide  DNA  chip  technology,  DNA  ink
technology as well as DNA profiling/tagging  technology through various types of
resale agreements.  We will apply these technologies to labels and security ink,
to a chip and reader as well as textile markers and agriculture profiling.

Competition

     The  anti-counterfeit and fraud prevention market is highly competitive and
diverse. Since we believe that other forms of  anti-counterfeiting  and security
measures can be easily  defeated,  we expect that  utilizing DNA which cannot be
replicated  will  garner  great  demand  from  the  market.   Some  examples  of
biotechnology and other security technologies include:

     FINGERPRINT-  a  systems  scans  fingerprints  before  granting  access  to
     computer files.

     VOICE- Off-the-shelf software authenticates users based on individual vocal
     patterns.

     CORNEA-  Scanners that scan the iris of a user's eye to match compared to a
     computer database.

     FACIAL SCAN-  Computers can use complex  algorithms to distinguish one face
     from another.

                                       27

     IC CHIP & MAGNETIC  STRIP-  Integrated  circuit  chip that runs an electric
current through a circuit and is verified by a IC card. Is used in many parts of
Europe and Asia.

     HOLOGRAPH- Optical security elements  ('holograms')  constitute a family of
optically  variable  microstructures,  which are difficult to copy. Most of them
are  difficult to  reproduce  using  advanced  color  photocopiers  and printing
techniques.  This is why they are so widely  used as  anti-counterfeit  devices.
Holograms  are only one member of a family of optically  variable  devices which
all have several features in common. These are:

          o    Highly  visible  to  the  naked  eye  under  good  or  reasonable
               conditions of illumination.
          o    Colorful and change their colors with viewing angle.
          o    They derive their colorful  effects from  microstructures  within
               the devices, which cause interference or diffraction of the light
               falling upon them.

     FLUORESCENCE-  X-ray Fluorescence (XRF) and elemental taggant  technologies
were developed as a unique method for assaying uranium ore. Later on was used as
a handheld alloy grade identification and spectral analysis instrument.  Its use
is limited to label/printing applications.

     RADIOACTIVITY&  RARE  MOLECULES-  a method of  Radiation  detection is very
effective but limited to use on crude oil.

     Some of the  bigger  competitors  in the field of  anti-counterfeiting  and
fraud protection include:

     o    DNA Technologies. Inc.
     o    Art Guard International
     o    Theft Protection Systems
     o    Cypher Science (United Kingdom) Mt. Sinai Hospital
     o    ChemTAG (Norway)
     o    NTT DATA Labs (Japan)
     o    November AG

Management Strategy

     In anticipation of internal  growth,  we will organize  resources to manage
our development effectively, minimizing organic growth, while optimizing our use
of  excess  capacity,  where  core  competency  in the  biotech  arena  is  made
available.  Our  Chief  Executive  Officer  is  responsible  for  the  strategic
direction,  coordinating with our overseas technology partner Biowell and others
as well as  operations.  Our  President is  responsible  for  government  entity
relations,  corporate  governance  and  building  shareholder  value.  Our Chief
Financial  Officer covers overall  financial  management,  financial  reporting,
corporate  administration,   investors  relations.  Our  Vice  President  covers
specific industries, such as the pharmaceutical, cosmetic and comestible sectors
and  acts as our  media  spokesperson,  clarifying  for the  pharmaceutical  and
nutraceutical   industries,   allied  health  professionals  and  consumers  the
advantages  of our  anti-counterfeit,  diversion  and  piracy  applications  and
products.

Giuliani Partners

     In August 2004, we engaged Giuliani Partners LLC as our strategic marketing
partner and advisor.  Giuliani  Partners has  extensive  experience  in advising
corporations  and  organizations  in various  business  sectors.  The engagement
agreement had an effective date of September 1, 2004.

     Giuliani  Partners has been engaged,  on a non-exclusive  basis, to provide
advice and assistance to us regarding issues associated with our proprietary DNA
embedded  security  solutions.  Giuliani  Partners will assist us with strategic
positioning  and  enhancement  of  our  business,  and  will  assist  us in  the
development  of domestic  and  international  marketing  strategies  for our DNA
products and services. The term of the engagement is one year from the effective
date,  with  automatic  one year  renewals  unless  either party  expresses,  in
writing, an intention not to renew within 60 days prior to the expiration of the
term.

                                       28

     As compensation for Giuliani  Partners'  performance,  we will pay Giuliani
Partners an aggregate  advisory fee of $2,000,000 payable in increments over the
term and  renewal  term.  The initial  payment of $500,000  was made by us on or
about September 7, 2004.  Additionally,  we will issue a net-exercisable warrant
to  purchase  shares of our common  stock at a later  date.  Fees were placed in
escrow during Giuliani Partners' completion of its due diligence review.

     All our  promotional  materials will be submitted to Giuliani  Partners for
its review, including all advertising,  written sales promotion, press releases,
news  clippings  and other  publicity  matters  relating to  Giuliani  Partners'
engagement and the strategic relationship created.

     We have agreed to maintain  confidentiality with regard to our relationship
with Giuliani  Partners,  wherever  appropriate,  and have indemnified  Giuliani
Partners, its controlling persons, respective partners, shareholders, directors,
officers,  employees,  agents, affiliates and representatives and will hold them
harmless against any actions, judgments, claims, etc.

                                    EMPLOYEES

     As of February 10, 2005, we employed 12 full-time  employees,  of which six
are in  management,  four in sales &  marketing  and two in  administration.  We
believe that our relations with our employees are good.

                            DESCRIPTION OF PROPERTIES

     Presently,  we maintain our principal  office at 9229 W. Sunset  Boulevard,
Suite 830, Los Angeles, California 90069. We signed a lease for our office space
in November 2003.  The office space,  which is provided to us for $11,312.70 per
month for the first twelve months of the lease, for $11,635.92 for the second 12
months and  $12,031.01  for the last 12 months of the lease,  has  approximately
5,387 square feet. We believe that our current  office space and  facilities are
sufficient  to meet our  present  needs  and do not  anticipate  any  difficulty
securing alternative or additional space, as needed, on terms acceptable to us.


                                       29


                                LEGAL PROCEEDINGS

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


                                       30

                                   MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

    Names:                  Ages       Titles:                Board of Directors
    -----                   ----       -------                ------------------
    Rob Hutchison            49        Chairman & CEO         Director
    Peter Brocklesby         52        President              Director
    Lawrence Lee             44        Chief Technology       Director
                                       Strategist 
    Michael Hill             44                               Director
    Ron Erickson             61                               Director
    Karin Klemm              38        Secretary

     Directors   are  elected  to  serve  until  the  next  annual   meeting  of
stockholders  and until their  successors are elected and  qualified.  Currently
there are three seats on our board of directors.

     Currently,  our Directors are not compensated for their services.  Officers
are  elected by the Board of  Directors  and serve until  their  successors  are
appointed by the Board of  Directors.  Biographical  resumes of each officer and
director are set forth below.

Chairman of the Board and Chief Executive Officer - Robin Hutchison

     In November 2003, Robin "Rob" Hutchison  joined our Board of Directors.  On
December 12, 2003, he was appointed  Chairman of the Board and on March 1, 2004,
he was appointed Chief Executive  Officer.  Previously,  Mr. Hutchison served on
Board of Directors of  PowerHouse  Technologies  Group,  Inc.,  the developer of
mobile computing solutions that enhance personal productivity. He is the founder
of several  companies,  including  eCharge  Corporation of Seattle,  Washington,
specialists  in  alternative  payment  methods for the Internet.  Mr.  Hutchison
served as eCharge's president and chief technical officer and played an integral
role in raising  in excess of $90  million in  private  funding.  Mr.  Hutchison
pioneered,   and  holds  the  patent  pending  on,  unique  digital  certificate
technology  using  Bio-metrics  that enabled  eCharge to provide secure Internet
commerce transactions.

     Prior to co-founding  eCharge,  Mr. Hutchison was president of Canada-based
SNI Corporation,  specialists in the integration of SUN Microsystems  UNIX-based
systems and Internet and computer firewall  security.  Mr. Hutchison also served
as the western regional  director of sales and operations for Everex Canada Inc.
and as vice president and co-founder of Vivox International Inc.

     Mr. Hutchison remains on the Board of Directors of eCharge. He retired from
that  company  in 2002 to assist in the  development  of several  start-ups  and
mature technology companies,  including Bit Learning, Via Vis Technologies Inc.,
One Person Health Inc. and Applied DNA Canada.  Mr. Hutchison is a member of the
Board  of  Directors  of  Golden   Goliath   Resources   and  Serebra   Learning
Corporations.

President - Peter Brockelsby

     Mr. Brocklesby graduated from Leeds University,  UK with a BA Honors degree
in  History  in 1970.  He  attended  the  Royal Air  Force  College,  UK and was
commissioned in the RAF. In 1977,  after 7 years service in the UK Armed Forces,
Mr.  Brocklesby left to become Director of Logistics for Air Asia (Air America),
a US defense  contractor  providing  support for the US  military  and for other
governments in Asia.

     Following  acquisition  of Air Asia by  E-Systems,  Inc.,  a  multi-billion
dollar  defense  contractor,  and  now  part of  Raytheon,  Mr.  Brocklesby  was
appointed VP Marketing. E-Systems specialized in the development and integration
of advanced  airborne  and  land-based  military and  government  communications
systems,  electronic  warfare  equipment,  electronic  surveillance and airborne
intelligence gathering systems.

                                       31

     As an  independent  businessman,  Mr.  Brocklesby  developed  sophisticated
electronics  systems for commercial  aircraft in a joint-venture with Plessey, a
multi-billion dollar defense contractor and avionics manufacturer.  The products
included satellite communication systems, on-board electronic management systems
and fully interactive video, audio and voice/data  communications  systems.  Mr.
Brocklesby has extensive  experience in the development,  commercialization  and
marketing of new technologies  and has many contacts in the aerospace,  defense,
electronics and telecommunications industries worldwide.

Chief Technology Strategist and Director - Larry Lee

     Larry Lee served as President,  CEO and Director from  September of 2002 to
March 1st, 2004, when he assumed the role of Chief  Technology  Strategist.  Lee
has over 20 years of leadership experience in technology and  telecommunications
with both  Fortune 500  companies  and  start-up  organizations.  His roles have
ranged  from  Senior  scientist  to  CEO,   managing  all  aspects  of  business
development including technical, financial, resource management and marketing.

     Prior to becoming president and CEO of the Company, Lee has held management
positions  at Hughes  Aircraft,  Boeing and  General  Motors  where he worked on
innovative and cutting-edge new technology.

     While working in the  environment of Fortune 500 companies,  he led the new
initiatives divisions where he mastered  entrepreneurial  skills by developing a
variety of new business ventures. His success was so notable that he was awarded
the coveted Six Sigma Black Belt training award for his accomplishments. This is
an award  that is given  after an  intensive  program  to groom  high  corporate
achievers to learn how to make companies successful.

He  recently   successfully   initiated   the   start-up   of  three   satellite
telecommunications  product  lines  for  wireless,   broadband  and  multi-media
applications  with sales  exceeding $200 million.  He was also  instrumental  in
directing  the  development  of  integrated  data and  software  systems for the
automotive industry, military and government security programs.

     Lee currently  serves on the board of advisors  and/or partners for several
U.S. and  international  companies  including:  Dery Resources Inc.; IMC, and VO
Management, LLC.

     Lee  has a  Master  of  Science  in  Computer/Electronic  Engineering  from
California State  University and a Bachelor of Science in  Mechanical/Biomedical
Engineering  from  Virginia  Tech.  He has also  received  advanced  training in
Business  Executive  Management and Finance from  University of California,  Los
Angeles and the Hughes Education Center.

Consultant and Director - Michael E. Hill

     Mr. Hill has 18 years of experience in venture capital finance,  investment
banking and  business  development  in North  America and Europe.  Hill has been
involved in the initial  funding and start-up of numerous  companies  including:
multi-media,  technology,  biotech and the resource sectors. He has successfully
completed transactions ranging as high as $200 million and has been an intricate
participant in many acquisition and merger strategies. Hill is currently a major
shareholder in a west coast  commercial real estate company and retail chain. He
is also serving as the trustee and governor for the Shawnigan Lake School, a top
ranked, international private school in Canada.

     Previous to joining the Applied DNA Sciences  team,  Hill was an Investment
Banker at Research Capital from 1997-2002 where he managed a portfolio exceeding
$300 million. At Research Capital Hill worked closely with senior executives and
Management in developing new product,  marketing,  recruiting, due diligence and
structuring  investment  banking deals.  Prior to working with Research Capital,
Hill performed  similar tasks with Scotia Capital  Markets and Burns Fry Ltd. He
was employed with these companies from 1987 until 1997.

                                       32

Director - Ronald P. Erickson

     Ronald Erickson has over thirty years of experience as a manager,  attorney
and senior level  executive.  In January 2004, Mr. Erickson was appointed to the
Company's Board of Directors. From 1997 through the present, Mr. Erickson served
as  Chairman  and Chief  Executive  Officer of eCharge  Corporation  in Seattle,
Washington where he played a major role in raising  approximately $90 Million in
equity capital from major  international  investors  including Deutsche Telkom's
venture arm, Korea Telecom,  National Data Corp.  and others.  Previously,  from
1995  through  1997,  he  served as  Chairman  and Chief  Executive  Officer  of
Globaltel  Resources,  Inc. where he co-founded and lead the worldwide financing
efforts and managed all aspects of growth of this privately  held  international
telecommunications  and  networking  company.  From 1992  through  1994,  he was
Chairman,  Interim  President and Chief Executive  Officer of Egghead  Software,
Inc. in Issaquah, Washington.

Secretary - Karin Klemm

     On August 2, 2004,  Applied DNA Sciences,  Inc. (the  "Company")  appointed
Karin Lise Klemm to the position of Chief  Operating  Officer and Secretary.  In
that capacity,  Ms. Klemm oversees the day-to-day operations of the Company. Ms.
Klemm  continues to serve as President of Poly Pacific  Entertainment,  Inc., an
entertainment company based in Beverly Hills, where she began her employ in that
role in August of 1999.  Since  August of 2003,  Ms.  Klemm has  served as Chief
Executive  Officer to Uncensored  Music  Network,  Inc.,  also an  entertainment
company.  Previously,  from 1997 through 2000, Ms. Klemm was a branch manager of
RH11, an executive search firm in Los Angeles, California.

                             EXECUTIVE COMPENSATION

     The following  tables set forth certain  information  regarding our CEO and
each of our most highly-compensated executive officers whose total annual salary
and bonus for the fiscal years ending September 30, 2004, 2003 and 2002 exceeded
$100,000:



                                                           Other
                                                           Annual      Restricted     Options       LTIP
  Name & Principal                Salary       Bonus       Compen-        Stock         SARs       Payouts      All Other
      Position          Year        ($)         ($)      sation ($)    Awards ($)      (#)(1)        ($)      Compensation
--------------------- --------- ------------ ----------- ------------ -------------- ----------- ------------ --------------
                                                                                             
Rob Hutchison,          2004    159,450           0            0       39,000            0             0             0
CEO                     2003          0           0            0            0            0             0             0
                        2002          0           0            0            0            0             0             0

--------------------- --------- ------------ ----------- ------------ -------------- ----------- ------------ --------------
Lawrence C. Lee,        2004    150,000           0            0    2,017,500            0             0             0
CEO                     2003    300,000           0            0            0            0             0             0
                        2002          0           0            0      182,000            0             0             0

--------------------- --------- ------------ ----------- ------------ -------------- ----------- ------------ --------------
Gerhard Wehr,           2004     58,328           0       22,489       54,000            0             0             0
CFO                     2003    180,000           0            0            0            0             0             0
                        2002          0           0            0       40,000            0             0             0
--------------------- --------- ------------ ----------- ------------ -------------- ----------- ------------ --------------

     Employment Agreements

     None.


                                       33

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In September of 2004, Larry Lee entered into a private transaction with Mr.
Chaim Stern,  selling a total of 2,500,000  shares to him, after which he loaned
all proceeds of $600,000 to us.

     We have no policy  regarding  entering into  transactions  with  affiliated
parties.



                                       34

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding beneficial
ownership of our common stock as of February 1, 2005:

     o    by each person who is known by us to beneficially  own more than 5% of
          our common stock;
     o    by each of our officers and directors; and
     o    by all of our officers and directors as a group.



                                                                    PERCENTAGE OF      PERCENTAGE OF
                                                                       CLASS               CLASS
NAME AND ADDRESS                                   NUMBER OF          PRIOR TO             AFTER
OF OWNER                        TITLE OF CLASS     SHARES OWNED(1)   OFFERING(2)         OFFERING(3)
-----------------------------------------------------------------------------------------------------
                                                                                
Rob Hutchison                   Common Stock        1,120,000 (4)       2.32%              1.34%
9229 Sunset Blvd., Suite 830
Los Angeles, CA 90069

Peter Brockelsby                Common Stock        1,000,000 (5)       2.07%              1.20%
9229 Sunset Blvd., Suite 830
Los Angeles, CA 90069

Lawrence Lee                    Common Stock        3,820,000 (6)       7.98%              4.61%
9229 Sunset Blvd., Suite 830
Los Angeles, CA 90069

Michael Hill                    Common Stock          552,000 (7)       1.16%                 *
9229 Sunset Blvd., Suite 830
Los Angeles, CA 90069

Ron Erickson                    Common Stock          550,000 (8)       1.15%                 *
9229 Sunset Blvd., Suite 830
Los Angeles, CA 90069

Karin Klemm                     Common Stock                0              0%                 0%
9229 Sunset Blvd., Suite 830
Los Angeles, CA 90069

All Officers and Directors      Common Stock        7,042,000 (9)      13.90%              8.22%
As a Group (6 persons)

RHL Management, Inc.            Common Stock        4,955,475          10.48%              6.02%
Roxbury Road
Los Angeles, CA 90069

Chaim Stern                     Common Stock        4,500,000           9.52%              5.46%
1880 East 26th Street
Brooklyn, NY 11229

     (1) Beneficial  Ownership is determined in accordance with the rules of the
     Securities  and  Exchange  Commission  and  generally  includes  voting  or
     investment power with respect to securities. Shares of common stock subject
     to options or warrants currently exercisable or convertible, or exercisable
     or  convertible  within 60 days of February 8, 2005 are deemed  outstanding
     for computing the  percentage of the person  holding such option or warrant
     but are not deemed  outstanding  for computing the  percentage of any other
     person.

     (2) Based upon  47,280,993  shares  issued and  outstanding  on February 8,
     2005.

     (3)  Percentage  based on  82,349,993  shares of common stock  outstanding,
     assuming all shares being registered in the offering are sold.

     (4) Includes 1,000,000 shares underlying currently exercisable options.

     (5) Includes 1,000,000 shares underlying currently exercisable options.

                                       35

     (6) Includes 600,000 shares underlying currently exercisable options.

     (7) Includes 315,000 shares underlying currently exercisable options.

     (8) Includes 400,000 shares underlying  currently  exercisable  options and
     50,000  shares  underlying  currently  exercisable  options  owned by Alpha
     Spectrum  Investments,  LLC, of which Mr.  Erickson is deemed a  beneficial
     owner.

     (9) Includes 3,365,000 shares underlying currently exercisable options.


                                       36

                            DESCRIPTION OF SECURITIES

COMMON STOCK

     We are  authorized to issue up to 100,000,000  shares of common stock,  par
value $.50. As of February 8, 2005, there were 47,280,993 shares of common stock
outstanding.  Holders of the common  stock are entitled to one vote per share on
all matters to be voted upon by the  stockholders.  Holders of common  stock are
entitled to receive  ratably such  dividends,  if any, as may be declared by the
Board  of  Directors  out  of  funds  legally  available   therefor.   Upon  the
liquidation,  dissolution,  or winding up of our company,  the holders of common
stock are  entitled  to share  ratably  in all of our assets  which are  legally
available for distribution  after payment of all debts and other liabilities and
liquidation  preference of any outstanding common stock. Holders of common stock
have  no  preemptive,   subscription,   redemption  or  conversion  rights.  The
outstanding  shares  of  common  stock  are  validly  issued,   fully  paid  and
nonassessable.

     We have  engaged  American  Stock  Transfer  & Trust  Company,  located  in
Brooklyn, New York, as independent transfer agent or registrar.

PREFERRED STOCK

     We are authorized to issue up to 10,000,000  shares of Preferred Stock, par
value  $.001.   The  10,000,000   shares  of  Preferred  Stock   authorized  are
undesignated as to preferences,  privileges and restrictions.  As the shares are
issued,  the Board of  Directors  must  establish a "series" of the shares to be
issued and designate the preferences,  privileges and restrictions applicable to
that series. To date, the Board has designated a Founders' Series of Convertible
Preferred  Stock,  which,  in six  months  from the date of  issuance,  shall be
convertible at the option of the holder and upon our reaching certain  financial
objectives,  into  shares of our  restricted  Common  Stock.  Each  share,  when
eligible,  is convertible  into 25 fully paid and  non-assessable  shares of our
Common Stock,  subject to a leak out agreement  that extends the Rule 144 period
to two years. Holders will be permitted to sell, after a one year holding period
through a three year holding period, 1% of the issued and outstanding  shares of
our common stock every 90 days.  This series has been authorized by the Board of
Directors. On or about February 1, 2005, the Founders' Series of Preferred Stock
was converted into 1,500,000 shares of our common stock. As of February 8, 2005,
there were no shares of preferred stock issued and outstanding.


OPTIONS

     There are  currently  options  outstanding  that  have  been  issued to our
officers and directors to purchase 3,365,000 shares of our common stock pursuant
to  our   Professional/Employee/Consultant   Compensation  Plan  and  employment
agreements.

WARRANTS

     In connection  with the sale of  convertible  promissory  notes in December
2004,  we issued  2,930,000  warrants to purchase  shares of common  stock.  The
warrants  are  exercisable  until  three  years from the date of  issuance  at a
purchase price of $0.75 per share.

     In addition, in connection with a private placement offering in January and
February  of  2005,  we  have  issued  14,722,000  warrants.  The  warrants  are
exercisable  until five years from the date of issuance  at a purchase  price of
$0.75 per share.

     We also have outstanding  285,000 warrants  exercisable at $0.10 per share,
5,000 warrants exercisable at $0.20 per share, 1,500,000 warrants exercisable at
$0.60 per share,  750,000  warrants  exercisable  at $0.70 per share and 155,000
warrants exercisable at $0.75 per share.

CONVERTIBLE SECURITIES

     To  obtain  funding  for our  ongoing  operations,  we sold  $1,465,000  in
convertible  promissory  notes to 13 investors in December 2004. Each promissory
note was  automatically  convertible into shares of our common stock, at a price
of $0.50 per share,  upon the closing of a private  placement  for $1 million or
more. On January 28, 2005,  we closed upon a private  placement  transaction  in
excess of $1  million,  and on  February  2,  2005,  the  promissory  notes were
converted into an aggregate of 2,930,000 shares of common stock. This prospectus
includes the resale of the common stock issued upon conversion of the promissory
notes.

                                       37

     To obtain  funding  for our  ongoing  operations,  we  conducted  a private
placement  offering in January and February 2005, in which we sold $7,361,000 of
10%  Secured  Convertible  Promissory  Notes to 61  investors.  The 10%  Secured
Convertible  Promissory  Notes  automatically  convert into shares of our common
stock,  at a price of $0.50 per  share,  upon the  filing  of this  registration
statement.  This prospectus includes the resale of the common stock to be issued
upon conversion of the 10% Secured Convertible Promissory Notes.

                 INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

     Our Articles of  Incorporation,  as amended,  provide to the fullest extent
permitted  by Nevada law,  our  directors  or officers  shall not be  personally
liable to us or our  shareholders  for damages for breach of such  director's or
officer's  fiduciary  duty.  The effect of this  provision  of our  Articles  of
Incorporation,  as  amended,  is to  eliminate  our rights and our  shareholders
(through  shareholders'  derivative  suits on behalf of our  company) to recover
damages  against a director or officer for breach of the fiduciary  duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent  behavior),  except under certain  situations  defined by statute.  We
believe that the indemnification provisions in our Articles of Incorporation, as
amended,  are necessary to attract and retain qualified persons as directors and
officers. In addition, we have entered into indemnification  agreements with our
officers and directors.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act" or "Securities Act") may be permitted to directors,  officers
or persons controlling us pursuant to the foregoing provisions, or otherwise, we
have been advised that in the opinion of the Securities and Exchange Commission,
such  indemnification  is against  public policy as expressed in the Act and is,
therefore, unenforceable.

                                       38


                              PLAN OF DISTRIBUTION

     The selling  stockholders  and any of their  respective  pledgees,  donees,
assignees and other  successors-in-interest  may, from time to time, sell any or
all of their  shares of common  stock on any stock  exchange,  market or trading
facility on which the shares are traded or in private transactions.  These sales
may be at fixed or negotiated prices.  The selling  stockholders may use any one
or more of the following methods when selling shares:

     o    ordinary   brokerage   transactions  and  transactions  in  which  the
          broker-dealer solicits the purchaser;
     o    block  trades  in which the  broker-dealer  will  attempt  to sell the
          shares as agent but may  position and resell a portion of the block as
          principal to facilitate the transaction;
     o    purchases  by  a   broker-dealer   as  principal  and  resale  by  the
          broker-dealer for its account;
     o    an  exchange   distribution  in  accordance  with  the  rules  of  the
          applicable exchange;
     o    privately-negotiated transactions;
     o    short sales that are not violations of the laws and regulations of any
          state or the United States;
     o    broker-dealers  may  agree  with the  selling  stockholders  to sell a
          specified number of such shares at a stipulated price per share;
     o    through the writing of options on the shares;
     o    a combination of any such methods of sale; and
     o    any other method permitted pursuant to applicable law.

     The  selling  stockholders  may also sell  shares  under Rule 144 under the
Securities  Act, if available,  rather than under this  prospectus.  The selling
stockholders  shall  have the sole and  absolute  discretion  not to accept  any
purchase  offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.

     The selling  stockholders  may also engage in short sales  against the box,
puts and calls and other  transactions  in our  securities or derivatives of our
securities and may sell or deliver shares in connection with these trades.

     The selling stockholders or their respective pledgees,  donees, transferees
or other  successors  in interest,  may also sell the shares  directly to market
makers  acting  as  principals  and/or   broker-dealers  acting  as  agents  for
themselves or their customers.  Such broker-dealers may receive  compensation in
the form of discounts,  concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such  broker-dealers  may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer  might be in excess of customary  commissions.  Market  makers and
block  purchasers  purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling  stockholder  will attempt to sell
shares  of  common  stock  in  block  transactions  to  market  makers  or other
purchasers  at a price per share which may be below the then market  price.  The
selling stockholders cannot assure that all or any of the shares offered in this
prospectus  will be issued to, or sold by, the  selling  stockholders.  Vertical
Capital  Partners,  Inc.,  a registered  broker-dealer;  Michael  Morris,  Susan
Diamond;  Ronald  Heineman  and Michael  Gochman;  all of whom are  employees of
Vertical Capital  Partners.,  are an "underwriter" as that term is defined under
the Securities Exchange Act of 1933, as amended,  the Securities Exchange Act of
1934, as amended, and the rules and regulations of such acts. Further, the other
selling stockholders and any brokers, dealers or agents, upon effecting the sale
of  any  of  the  shares  offered  in  this  prospectus,  may  be  deemed  to be
"underwriters." In such event, any commissions  received by such  broker-dealers
or agents and any profit on the  resale of the shares  purchased  by them may be
deemed to be underwriting commissions or discounts under the Securities Act.

     We are required to pay all fees and expenses  incident to the  registration
of the  shares,  including  fees and  disbursements  of counsel  to the  selling
stockholders, but excluding brokerage commissions or underwriter discounts.

     The selling  stockholders,  alternatively,  may sell all or any part of the
shares offered in this prospectus through an underwriter. No selling stockholder
has entered into any agreement  with a prospective  underwriter  and there is no
assurance that any such agreement will be entered into.

                                       39

     The selling stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a selling stockholder defaults on a
margin  loan,  the broker  may,  from time to time,  offer and sell the  pledged
shares. The selling stockholders and any other persons participating in the sale
or  distribution  of the shares will be subject to applicable  provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
such act,  including,  without  limitation,  Regulation M. These  provisions may
restrict  certain  activities of, and limit the timing of purchases and sales of
any of the shares by, the selling  stockholders or any other such person. In the
event  that  the  selling  stockholders  are  deemed  affiliated  purchasers  or
distribution  participants  within the meaning of Regulation M, then the selling
stockholders  will not be  permitted  to engage in short sales of common  stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from  simultaneously  engaging in market making and certain other
activities with respect to such securities for a specified  period of time prior
to the commencement of such  distributions,  subject to specified  exceptions or
exemptions.  In regards to short sells,  the selling  stockholder can only cover
its short position with the securities they receive from us upon conversion.  In
addition,  if such short sale is deemed to be a stabilizing  activity,  then the
selling  stockholder  will not be  permitted  to engage  in a short  sale of our
common  stock.  All of these  limitations  may affect the  marketability  of the
shares.

     We have agreed to indemnify the selling stockholders,  or their transferees
or assignees,  against  certain  liabilities,  including  liabilities  under the
Securities  Act of 1933,  as amended,  or to  contribute to payments the selling
stockholders  or  their  respective  pledgees,   donees,  transferees  or  other
successors in interest, may be required to make in respect of such liabilities.

     If the selling stockholders notify us that they have a material arrangement
with a  broker-dealer  for the  resale  of the  common  stock,  then we would be
required to amend the registration statement of which this prospectus is a part,
and file a prospectus  supplement to describe the agreements between the selling
stockholders and the broker-dealer.

                                   PENNY STOCK

     The  Securities  and  Exchange  Commission  has  adopted  Rule 15g-9  which
establishes the definition of a "penny stock," for the purposes  relevant to us,
as any equity  security  that has a market price of less than $5.00 per share or
with an  exercise  price of less  than  $5.00  per  share,  subject  to  certain
exceptions.  For any  transaction  involving a penny stock,  unless exempt,  the
rules require:

     o    that a broker or dealer approve a person's account for transactions in
          penny stocks; and
     o    the broker or dealer receive from the investor a written  agreement to
          the transaction,  setting forth the identity and quantity of the penny
          stock to be purchased.

     In order to approve a person's  account for  transactions  in penny stocks,
the broker or dealer must

     o    obtain financial  information and investment  experience objectives of
          the person; and
     o    make a reasonable  determination that the transactions in penny stocks
          are suitable for that person and the person has  sufficient  knowledge
          and  experience in financial  matters to be capable of evaluating  the
          risks of transactions in penny stocks.

     The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure  schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:

     o    sets  forth  the  basis  on  which  the  broker  or  dealer  made  the
          suitability determination; and
     o    that the broker or dealer  received a signed,  written  agreement from
          the investor prior to the transaction.

     Disclosure also has to be made about the risks of investing in penny stocks
in both public  offerings  and in  secondary  trading and about the  commissions
payable to both the  broker-dealer  and the registered  representative,  current
quotations  for the  securities  and the rights  and  remedies  available  to an
investor  in  cases  of fraud in  penny  stock  transactions.  Finally,  monthly
statements  have to be sent  disclosing  recent price  information for the penny
stock held in the account and information on the limited market in penny stocks.


                                       40

                              SELLING STOCKHOLDERS

     The table below sets forth information  concerning the resale of the shares
of common  stock by the selling  stockholder.  We will not receive any  proceeds
from the resale of the common stock by the selling stockholder.  We will receive
proceeds from the exercise of the warrants.  Assuming all the shares  registered
below are sold by the selling stockholder,  none of the selling stockholder will
continue to own any shares of our common stock.

     The following table also sets forth the name of each person who is offering
the resale of shares of common stock by this prospectus, the number of shares of
common stock  beneficially  owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the  offering,  assuming  they sell all of the shares
offered.

     For the table set forth below,  the following  persons have  investment and
voting control over the shares owned by the respective entities:

   -------------------------------------------- --------------------------------
   Entity                                       Control Person
   -------------------------------------------- --------------------------------

   -------------------------------------------- --------------------------------
   Allied International Fund                    Rosemarie DePalo
   -------------------------------------------- --------------------------------
   AS Capital Partners                          Michael Coughlan
   -------------------------------------------- --------------------------------
   Avonwoods Ltd.                               C. Rand
   -------------------------------------------- --------------------------------
   Basso Private Opportunity Holding Fund Ltd.  Howard I. Fischer
   -------------------------------------------- --------------------------------
   Basso Multi-Strategy Holding Fund Ltd.       Howard I. Fischer
   -------------------------------------------- --------------------------------
   F Berdon Comp.                               Frederick Berdon
   -------------------------------------------- --------------------------------
   Beston Worldwide Ltd                         Michael Ben-Jacob
   -------------------------------------------- --------------------------------
   Blumfield Investments                        M. Kraus
   -------------------------------------------- --------------------------------
   Brighton Capital                             Jeffery Wolin
   -------------------------------------------- --------------------------------
   Clear Mountain Holdings                      Raul Garrido Garibaldo
   -------------------------------------------- --------------------------------
   The Condor Group, LLC                        Robert Lowinger
   -------------------------------------------- --------------------------------
   Consultants and Advisors NJB, Inc.           Gary Schonwald
   -------------------------------------------- --------------------------------
   Cordilliera Funds                            Stephen J. Carter
   -------------------------------------------- --------------------------------
   DC Capital                                   Craig Kirsch
   -------------------------------------------- --------------------------------
   Double U Master Fund                         David Sims
   -------------------------------------------- --------------------------------
   Equilibrium Solutions                        Johnny Vage
   -------------------------------------------- --------------------------------
   First London Finance, Ltd.                   Moshe Grauman
   -------------------------------------------- --------------------------------
   Galileo Asset Management, SA                 Marie-Christine Wright, 
                                                John Sauickie and John Wright
   -------------------------------------------- --------------------------------
   Gemini Master Funds                          Steve Winters
   -------------------------------------------- --------------------------------
   Global Asset Management                      Robert Fallah
   -------------------------------------------- --------------------------------
   Goldenberg & Hirsch Properties               Leo Hirsch
   -------------------------------------------- --------------------------------
   GSSF Master Fund                             E.B. Lyon IV
   -------------------------------------------- --------------------------------
   Guerilla IRA L.P.                            Leigh Curry
   -------------------------------------------- --------------------------------
   Hirsch Family Foundation                     Leo Hirsch
   -------------------------------------------- --------------------------------
   ID Federman Holdings LTD                     Iris Federman
   -------------------------------------------- --------------------------------


                                       41

   -------------------------------------------- --------------------------------
   Ivelocity Fund                               Scott Parent
   -------------------------------------------- --------------------------------
   KA Steel Chemical                            Kenneth Steel Jr.
   -------------------------------------------- --------------------------------
   Livingston Ventures, LLC                     Ronald Heineman
   -------------------------------------------- --------------------------------
   Lone Star Equity                             Mark A. Bogina
   -------------------------------------------- --------------------------------
   Marina Ventures                              Michael Hartstein
   -------------------------------------------- --------------------------------
   Melton Management                            Yehuda Breitkops
   -------------------------------------------- --------------------------------
   Odin Partners LP                             John A. Gibbons
   -------------------------------------------- --------------------------------
   Omega Capital Small Cap                      Abraham Sylverin
   -------------------------------------------- --------------------------------
   P.R. Diamonds                                Pinkus Reisz       
   -------------------------------------------- --------------------------------
   Provident Master Fund                        Steven Winters
   -------------------------------------------- --------------------------------
   Rock Capital Partners, LLC                   Howard Chalfin
   -------------------------------------------- --------------------------------
   Salzwedel Financial Communications, Inc.     Jeff Salzwedel
   -------------------------------------------- --------------------------------
   San Rafael Consulting Group, LLC             Isabelle H. Wright and 
                                                John Wright
   -------------------------------------------- --------------------------------
   Rabbi Scheinerman KBY LLC                    Rabbi Schenerman
   -------------------------------------------- --------------------------------
   Sichenzia Ross Friedman Ference LLP          Greg  Sichenzia,   Marc  Ross,  
                                                Richard  Friedman  and
                                                Michael Ference
   -------------------------------------------- --------------------------------
   Spencer Edwards, Inc.                        Thomas Kaufman
   -------------------------------------------- --------------------------------
   Starboard Capital Markets, LLC               James Dotzman
   -------------------------------------------- --------------------------------
   Steel Harbor Holdings                        Mark Step
   -------------------------------------------- --------------------------------
   Stonestreet, LP                              Michael Finkelstein
   -------------------------------------------- --------------------------------
   Vertical Capital Partners, Inc.              Robert DePalo
   -------------------------------------------- --------------------------------
   Vestal Venture Capital                       Allan Lyons
   -------------------------------------------- --------------------------------
   Whalehaven                                   Evan Schemenauer
   -------------------------------------------- --------------------------------
   Wolfson Trust                                Franchesca Wolfson
   -------------------------------------------- --------------------------------


                                       42



                                                 Beneficial Ownership                                       Beneficial Ownership
                                                 Prior to Offering (1)                                         After Offering (1)
Name of Selling Security Holder               Shares         Percentage (2)       Shares Offered           Shares     Percentage (2)
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                   
Allied International Fund                      1,237,500              2.62%          1,237,500                     0             *
AS Capital Partners                              100,000                  *            100,000 (3)                 0             *
Avonwoods Ltd.                                   800,000              1.68%            800,000 (3)                 0             *
Evan B. Azriliant                                100,000                  *            100,000 (3)                 0             *
Mordechai Bank                                   200,000                  *            200,000 (3)                 0             *
Judith Barclay                                   400,000                  *            400,000 (3)                 0             *
Jack Basch                                       600,000              1.26%            600,000 (3)                 0             *
Basso Private Opportunity Holding                
Fund Ltd.                                        630,000              1.32%            630,000 (3)                 0             *
Basso Multi-Strategy Holding Fund              
Ltd.                                           2,370,000              4.89%          2,370,000 (3)                 0             *
Lon E Bell                                        60,000                  *             60,000 (4)                 0             *
F Berdon Comp.                                   200,000                  *            200,000 (3)                 0             *
Beston Worldwide Ltd                              67,500                  *             67,500 (4)                 0             *
Robert R. Blakely                                 33,334                  *             33,334                     0             *
Blumfield Investments                            400,000                  *            400,000 (3)                 0             *
Doug Bowen                                       138,750                  *            138,750 (5)                 0             *
Brighton Capital                                  46,750                  *             46,750                     0             *
Salvatore Cantatore                              112,500                  *            112,500 (6)                 0             *
Jaime Cardona                                    100,000                  *            100,000                     0             *
Andrea Cataneo                                   250,000                  *            250,000                     0             *
Notzer Chesed                                    400,000                  *            400,000 (3)                 0             *
Clear Mountain Holdings                          300,000                  *            300,000 (3)                 0             *
David Cohen                                      200,000                  *            200,000 (3)                 0             *
The Condor Group, LLC                              8,250                  *              8,250                     0             *
Consultant and Advisors NJB, Inc.                145,000                  *            145,000                     0             *
Cordilliera Funds                              1,000,000              2.09%          1,000,000 (3)                 0             *
Adrian Davidescu                                 400,000                  *            400,000 (3)                 0             *
Jacob and Linda Davidowitz JTWROS                800,000              1.68%            800,000 (3)                 0             *
DC Capital                                        60,000                  *             60,000 (4)                 0             *
David and Jeanette Defoto JTWROS                 200,000                  *            200,000 (3)                 0             *
Robert DePalo Jr.                                 20,000                  *             20,000                     0             *
Susan Diamond                                      5,000                  *              5,000                     0             *
Joseph Digiacamo                                  50,000                  *             50,000 (3)                 0             *
Double U Master Fund                             800,000              1.68%            800,000 (3)                 0             *
Richard Durkee                                    27,000                  *             27,000                     0             *
Asher Avishay Ephrathi                         1,040,230              2.19%          1,040,230 (7)                 0             *
Equilibrium Solutions                            100,000                  *            100,000 (3)                 0             *
Douglas Falkner                                  120,000                  *            120,000                     0             *
Jeanine Fehn                                     240,000                  *            240,000 (3)                 0             *
First London Finance, Ltd.                     1,250,000              2.64%          1,250,000                     0             *
Frederick Frank                                  110,000                  *            110,000 (8)                 0             *
Galileo Asset Management, SA                     157,000                  *            157,000                     0             *
Charles Gargano                                   62,500                  *             62,500 (7)                 0             *
Gemini Master Funds                              200,000                  *            200,000 (3)                 0             *
Nicholas Giustino                                133,750                  *            133,750 (8)                 0             *


                                       43

Michael Glazer                                    16,875                  *             16,875 (10)                0             *
Global Asset Management                        1,257,500              2.66%          1,257,500                     0             *
Michael Gochman                                   36,750                  *             36,750                     0             *
Rochelle Gold                                    600,000              1.26%            600,000 (3)                 0             *
Harold Goldenberg                                400,000                  *            400,000 (3)                 0             *
Goldenberg & Hirsch Properties                   400,000                  *            400,000 (3)                 0             *
Mary Anne Gray                                    60,000                  *             60,000 (11)                0             *
Scott R. Griffith                                 33,333                  *             33,333                     0             *
Eugene Gross                                     400,000                  *            400,000 (3)                 0             *
Wayne Grubb                                       67,500                  *             67,500 (4)                 0             *
GSSF Master Fund                               1,000,000              2.09%          1,000,000 (3)                 0             *
Guerilla IRA L.P.                                115,000                  *            115,000 (4)                 0             *
Paul Reyes-Guerra                                 31,250                  *             31,250 (12)                0             *
Michael Hamblett                                  84,060                  *             84,060                     0             *
Ronald Heineman                                   22,000                  *             22,000                     0             *
Joseph Henn                                       15,000                  *             15,000 (10)                0             *
Hirsch Family Foundation                         160,000                  *            160,000 (3)                 0             *
Leo Hirsch                                       240,000                  *            240,000 (3)                 0             *
ID Federman Holdings LTD                         600,000              1.26%            600,000 (3)                 0             *
Joseph Iorio                                     100,000                  *            100,000 (3)                 0             *
Thomas Iovino                                    200,000                  *            200,000 (3)                 0             *
Ivelocity Fund                                   135,000                  *            135,000 (13)                0             *
William L. Jiler                                  16,875                  *             16,875 (9)                 0             *
KA Steel Chemical                                 33,750                  *             33,750 (13)                0             *
Ahmed Kareem                                      10,500                  *             10,500                     0             *
Jeffery Kessler                                   33,750                  *             33,750 (14)                0             *
Tibor Klein                                      720,000              1.51%            720,000 (3)                 0             *
Yisreal Klein                                    200,000                  *            200,000 (3)                 0             *
Yossi Kraus                                      100,000                  *            100,000 (3)                 0             *
Alexander J. Lapatka                              67,500                  *             67,500 (4)                 0             *
Livingston Ventures, LLC                         170,000                  *            170,000                     0             *
Lone Star Equity                                 400,000                  *            400,000 (3)                 0             *
Jason Lyons                                       57,000                  *             57,000                     0             *
Michael Mangan                                   100,000                  *            100,000 (3)                 0             *
Tony Manual                                      200,000                  *            200,000 (3)                 0             *
Marina Ventures                                  195,000                  *            195,000                     0             *
Paul Masters IRA                                 200,000                  *            200,000 (3)                 0             *
Melton Management                                400,000                  *            400,000 (3)                 0             *
Linda Michaels                                   250,000                  *            250,000                     0             *
Raymond Mikulich                                 335,000                  *            335,000 (15)                0             *
Kyle Morgan                                      200,000                  *            200,000 (3)                 0             *
Michael Morris                                    75,000                  *             75,000                     0             *
Houston Muthart                                  267,500                  *            267,500 (16)                0             *
Richard Neslund                                1,000,000              2.09%          1,000,000 (3)                 0             *
Michael Nizza                                     50,000                  *             50,000 (3)                 0             *
Marvin Numeroff                                  267,500                  *            267,500 (16)                0             *
Odin Partners LP                                  67,500                  *             67,500 (4)                 0             *
Eric Okamoto                                     493,880                  *            493,880 (17)                0             *
Omega Capital Small Cap                        1,200,000              2.51%          1,200,000 (3)                 0             *
Eileen Patterson                                  38,750                  *             38,750 (18)                0             *
Platinum Partners                                400,000                  *            400,000 (3)                 0             *
P.R. Diamonds                                    240,000                  *            240,000 (3)                 0             *
Joseph Prezioso                                  400,000                  *            400,000 (3)                 0             *
Arthur Priver                                    228,750                  *            228,750 (18)                0             *
Provident Master Fund                          1,200,000              2.51%          1,200,000 (3)                 0             *
Robert & Claudia Quinn JTWROS                     28,750                  *             28,750 (9)                 0             *
Avindam Rapaport                                 100,000                  *            100,000 (3)                 0             *
Kenneth Reichelle                                116,875                  *            116,875 (19)                0             *
Rock Capital Partners, LLC                       600,000              1.26%            600,000 (3)                 0             *

                                       44

Joseph Rozehzadeh                                400,000                  *            400,000 (3)                 0             *
Edward M Rotter                                3,320,000              6.78%          3,320,000 (20)                0             *
Angela Chen Sabella                              120,000                  *            120,000 (21)                0             *
Salzwedel Financial                              
Communications, Inc.                             365,000                  *            365,000                     0             *
San Rafael Consulting Group, LLC                  67,236                  *             67,236                     0             *
Frederick Sandvick                               200,000                  *            200,000 (3)                 0             *
Rabbi Scheinerman KBY LLC                        100,000                  *            100,000 (3)                 0             *
Joel Schindler                                   100,000                  *            100,000 (3)                 0             *
Shatashvili Sharona                              200,000                  *            200,000 (3)                 0             *
Jesse B. Shelmire IV                              33,333                  *             33,333                     0             *
Sichenzia Ross Friedman Ference LLP              112,000                  *            112,000                     0             *
Jerry Silva                                    1,000,000              2.09%          1,000,000 (3)                 0             *
Jerry and Esther Soloman JTWROS                  800,000              1.68%            800,000 (3)                 0             *
Anthony Spatacco                                  42,030                  *             42,030                     0             *
Spencer Edwards, Inc.                              8,000                  *               8,00                     0             *
Starboard Capital Markets, LLC                    42,030                  *             42,030                     0             *
Steel Harbor Holdings                            170,000                  *            170,000                     0             *
Kenneth Steel Jr.                                 33,750                  *             33,750 (13)                0             *
Chaim Stern                                    3,000,000              6.15%          3,000,000 (3)                 0             *
Alexander Stolin                                 200,000                  *            200,000 (3)                 0             *
Stonestreet, LP                                  600,000              1.25%            600,000 (22)                0             *
Richard Swier Jr.                                 60,000                  *             60,000 (3)                 0             *
Stewart Taylor                                    33,750                  *             33,750 (13)                0             *
Marcovich Tibo                                   100,000                  *            100,000 (3)                 0             *
Doron Rafael Toledano                             56,735                  *             56,735                     0             *
Ester Tuman                                       67,500                  *             67,500 (4)                 0             *
Alex Verjovski                                   200,000                  *            200,000 (3)                 0             *
Vertical Capital Partners, Inc.                  165,750                  *            165,750                     0             *
Vestal Venture Capital                            67,500                  *             67,500 (4)                 0             *
Sem Victori                                      240,000                  *            240,000 (3)                 0             *
Whalehaven                                     1,150,000              2.40%          1,150,000 (23)                0             *
Phil Westridge                                    33,750                  *             33,750 (15)                0             *
Peter Wieser                                     200,000                  *            200,000 (3)                 0             *
Wolfson Trust                                     16,875                  *             16,875 (11)                0             *
Franchesca Wolfson                                16,875                  *             16,875 (11)                0             *
Eric Yaoz                                        320,000                  *            320,000 (3)                 0             *
Harry/Temy/Ark Zelcer                            200,000                  *            200,000 (3)                 0             *

     * Less than 1%

     (1) Beneficial  Ownership is determined in accordance with the rules of the
     Securities  and  Exchange  Commission  and  generally  includes  voting  or
     investment power with respect to securities. Shares of common stock subject
     to options or warrants currently exercisable or convertible, or exercisable
     or  convertible  within 60 days of February 8, 2005 are deemed  outstanding
     for computing the  percentage of the person  holding such option or warrant
     but are not deemed  outstanding  for computing the  percentage of any other
     person.

     (2)  Percentage  prior to offering is based on 47,280,993  shares of common
     stock outstanding;  percentage after offering is based on 82,349,993 shares
     of common stock  outstanding,  which assumes that all shares  registered in
     the offering will be sold.

     (3) Of which 50% of such  number of shares are  issuable  upon  exercise of
     currently exercisable warrants.

     (4) Includes 60,000 shares of common stock underlying warrants.

     (5) Includes 85,000 shares of common stock underlying warrants.

     (6) Includes 90,000 shares of common stock underlying warrants.

     (7) Includes 115,000 shares of common stock underlying warrants.

     (8) Includes 55,000 shares of common stock underlying warrants.

                                       45

     (9) Includes 80,000 shares of common stock underlying warrants.

     (10) Includes 15,000 shares of common stock underlying warrants.

     (11) Includes 52,500 shares of common stock underlying warrants.

     (12) Includes 27,500 shares of common stock underlying warrants.

     (13) Includes 120,000 shares of common stock underlying warrants.

     (14) Includes 30,000 shares of common stock underlying warrants.

     (15) Includes 220,000 shares of common stock underlying warrants.

     (16) Includes 160,000 shares of common stock underlying warrants.

     (17) Includes 232,000 shares of common stock underlying warrants.

     (18) Includes 35,000 shares of common stock underlying warrants.

     (19) Includes 65,000 shares of common stock underlying warrants.

     (20) Includes 1,720,000 shares of common stock underlying warrants.

     (21) Includes 120,000 shares of common stock underlying warrants.

     (22) Includes 600,000 shares of common stock underlying warrants.

     (23) Includes 650,000 shares of common stock underlying warrants.

                                  LEGAL MATTERS

     Sichenzia  Ross  Friedman  Ference  LLP,  New York,  New York will issue an
opinion with respect to the validity of the shares of common stock being offered
hereby.  Sichenzia Ross Friedman Ference LLP is also the owner of 112,000 shares
of our common stock, which are included in this registration  statement.  Andrea
Cataneo,  a partner  of  Sichenzia  Ross  Friedman  Ference  LLP is the owner of
250,000  shares of our common  stock,  which are  included in this  registration
statement.


                                     EXPERTS

     Russell Bedford Stefanou  Mirchandani LLP,  independent  registered  public
accounting  firm, have audited,  as set forth in their report thereon  appearing
elsewhere  herein,  our financial  statements at September 30, 2004 and 2003 and
for the years then ended that appear in the prospectus. The financial statements
referred  to above  are  included  in this  prospectus  with  reliance  upon the
independent registered public accounting firm's opinion based on their expertise
in accounting and auditing.

                              AVAILABLE INFORMATION

     We have filed a  registration  statement on Form SB-2 under the  Securities
Act of 1933, as amended, relating to the shares of common stock being offered by
this  prospectus,  and reference is made to such  registration  statement.  This
prospectus  constitutes the prospectus of Applied DNA Sciences,  Inc.,  filed as
part of the registration  statement,  and it does not contain all information in
the registration  statement, as certain portions have been omitted in accordance
with the rules and regulations of the Securities and Exchange Commission.

     We are subject to the informational requirements of the Securities Exchange
Act of 1934  which  requires  us to file  reports,  proxy  statements  and other
information  with the Securities and Exchange  Commission.  Such reports,  proxy
statements and other information may be inspected at public reference facilities
of the SEC at Judiciary  Plaza,  450 Fifth Street N.W.,  Washington  D.C. 20549.
Copies of such material can be obtained from the Public Reference Section of the
SEC at  Judiciary  Plaza,  450 Fifth  Street  N.W.,  Washington,  D.C.  20549 at
prescribed rates. Because we file documents electronically with the SEC, you may
also  obtain  this  information  by  visiting  the  SEC's  Internet  website  at
http://www.sec.gov.


                                       46

                          INDEX TO FINANCIAL STATEMENTS

                           APPLIED DNA SCIENCES, INC.
                          INDEX TO FINANCIAL STATEMENTS


For the Years Ended September 30, 2004 and September 30, 2003

                                                                                          
         Report of Independent Registered Public Accounting Firm......................... F-1
         Consolidated Balance Sheet...................................................... F-2
         Consolidated Statement of Losses for the year ended September
                  30, 2004 and 2003 and the period September 16, 2002
                  (date of inception) to September 30, 2004.............................. F-3
         Consolidated Statement of Deficiency in Stockholders' Equity
                  for the period September 16, 2002 (date of inception) to
                  September 30, 2004..................................................... F-4 to F-11
         Consolidated Statements of Cash Flows for the year ended
                  September 30, 2004 and 2003, and the period
                  September 16, 2002 (date of inception) to September 30, 2004........... F-12
         Notes to Consolidated Financial Statements...................................... F-13 to F-34

For the Three Months Ended December 31, 2004 and December 31, 2003

      Condensed Balance Sheets December 31, 2004 (Unaudited)
                  and December 31, 2003.................................................. F-35                                      
         Condensed Statements of Operations for the three months ended
                  December 31, 2004 and 2003 (Unaudited)................................. F-36                                   
         Condensed Statements of Deficiency in Stockholders' Equity
                  for the date of inception through December 31, 2004 (Unaudited)........ F-37 to F-46          
         Condensed Statements of Cash Flows For the three months
                  ended December 31, 2004 and 2003 (Unaudited)........................... F-47                             
         Notes to the Condensed Financial Statements (Unaudited)......................... F-48 to F-65




                    RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
                          CERTIFIED PUBLIC ACCOUNTANTS

          REPORT OF REGISTERED INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Applied DNA Sciences, Inc.
Los Angeles, California

     We have audited the accompanying consolidated balance sheets of Applied DNA
Sciences,  Inc. (a  development  stage company) as of September 30, 2004 and the
related consolidated  statements of losses,  deficiency in stockholders' equity,
and cash flows for the years  ended  September  30, 2004 and 2003 and the period
September  16,  2002 (date of  inception)  through  September  30,  2004.  These
financial  statements are the  responsibility of the company's  management.  Our
responsibility  is to express an opinion on the financial  statements based upon
our audits.

     We have conducted our audits in accordance  with auditing  standards of the
Public Company  Accounting  Oversight  Board (PCAOB) (United States of America).
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining on a test basis,  evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the financial position of Applied DNA Sciences , Inc.
(a  development  stage  company)  at  September  30, 2004 and the results of its
operations  and its cash flows for the years ended  September 30, 2004 and 2003,
and the period September 16, 2002 (date of inception) through September 30, 2004
in conformity with accounting principles generally accepted in the United States
of America.

     The  accompanying  financial  statements  have been  prepared  assuming the
Company  will  continue as a going  concern.  As  discussed in the Note K to the
accompanying  financial statements,  the Company is in the development stage and
has not established a source of revenues.  This raises  substantial  doubt about
the company's ability to continue as a going concern.  The financial  statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

                  /s/ RUSSELL BEDFORD Stefanou MIRCHANDANI LLP
                  --------------------------------------------
                      Russell Bedford Stefanou Mirchandani LLP
                      Certified Public Accountants
McLean, Virginia
January 11, 2005
                                       
                                      F-1


                           APPLIED DNA SCIENCES , INC
                          (A development stage company)
                           CONSOLIDATED BALANCE SHEET



                                                                                      September 30, 2004
                                       ASSETS
Current Assets:
                                                                                                    
Cash                                                                                              $  1,832
                                                                                               ------------ 
       Total Current Assets                                                                          1,832


Property, Plant and Equipment (Note A)                                                              29,507
Less: accumulated depreciation                                                                      (1,405)
                                                                                               ------------ 
       Total Property, Plant and Equipment                                                          28,102

Other Assets:
Deposits                                                                                            23,559
Intangible assets (net of accumulated amortization of $1,756) (Note A)                              28,154
                                                                                               ------------ 
       Total Other Assets                                                                           51,713
                                                                                                  $ 81,647
                                                                                               ============
                 LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable and accrued liabilities                                                       $ 1,770,379
Accrued expenses - related parties (Note D)                                                        117,333
Convertible notes payables  (Note F)                                                             1,625,000
Due to related parties (Note D)                                                                    111,943
Note payable -related parties  (Note C)                                                          1,163,500
                                                                                               ============
    Total  Current  Liabilities                                                                  4,788,155
                                                                                               ============

Commitments and contingencies (Note J)

DEFICIENCY IN STOCKHOLDERS' EQUITY: (Note E)
Convertible Preferred Stock, par value $0.001 per share; 10,000,000 shares
authorized; 60,000 shares issued and outstanding at September 30, 2004                                   6
Common Stock, par value $0.50 per share; 100,000,000 authorized;
23,981,054 shares issued and outstanding at September 30, 2004                                  11,990,527
Additional paid in capital                                                                       6,118,993
                                                                                               ============  
Common stock subscribed                                                                             (1,000)
Deficit accumulated during development stage                                                   (22,815,034)
                                                                                               ============
      Total deficiency in stockholders' equity                                                  (4,706,508)
                                                                                               $    81,647
                                                                                               ------------ 

           See accompanying notes to consolidated financial statements

                                      F-2

                           APPLIED DNA SCIENCES , INC.
                         ( A development stage company)
                        CONSOLIDATED STATEMENT OF LOSSES                        

                                                         

                                                                                



                                                                                                    For the Period
                                                                                                September 16, 2002
                                                     For the Year Ended  For the YearEnded      (Date Of Inception)
                                                          September 30,       September 30,   through September 30,
                                                                   2004               2003                     2004  
                                                         ---------------     --------------   ----------------------                
                                                                                               
Operating expenses:
                                                                                                       
    General and administrative                           $   17,580,098      $   3,468,363            $  21,060,073
                                                         ---------------     --------------   ----------------------
   Depreciation and Amortization                                  3,161                  -                    3,161
                                                         ---------------     --------------   ----------------------
      Total expenses                                         17,583,259          3,468,363               21,063,234
                                                         ---------------     --------------   ----------------------
Loss from operations                                        (17,583,259)        (3,468,363)             (21,063,234)
                                                         ---------------     --------------   ----------------------
Other income(expense)                                             1,385             25,000                   26,385

Interest (expense)                                           (1,776,385)            (1,801)              (1,778,186)
Income (taxes) benefit                                                -                  -                        -
                                                         ---------------     --------------   ----------------------
Net loss                                                 $  (19,358,259)     $  (3,445,164)          $  (22,815,035)
                                                         ===============     ==============   ======================
Basic and diluted loss per common share (Note H)         $        (0.93)     $       (0.27)                     n/a
                                                         ===============     ==============   ======================
Weighted average common shares outstanding                   20,819,700         12,955,358                      n/a
                                                         ---------------     --------------   ----------------------

           See accompanying notes to consolidated financial statements

                                      F-3

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
          CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                               SEPTEMBER 30, 2004


                                                                                                          Deficit
                                                                      Additional                          Accumulated
                                         Preferred                      Paid in    Common        Stock      During
                               Preferred  Shares   Common Common Stock  Capital    Stock      Subscription Development
                                Shares    Amount   Shares   Amount      Amount    Subscribed    Receivable   Stage          Total
                               --------  -------- -------- ---------   --------   ------------  ---------- ----------    -----------
                                                                                                    
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 1,018             -         -             -            -            1,000
Cancellation of Common
stock in connection with
merger with Prohealth
Medical Technologies ,
Inc on October
21, 2002                            -      -     (100,000)   10        (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)           -                -
Cancellation of  common
stock in January 2003
previously issued  in
exchange for consulting
services                            -      -     (836,000)  (84)      (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

           See accompanying notes to consolidated financial statements

                                       F-4

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
          CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                               SEPTEMBER 30, 2004
                                   (Continued)


                                                                                                             Deficit
                                                                      Additional                            Accumulated
                                         Preferred                      Paid in  Common         Stock         During
                               Preferred  Shares   Common Common Stock  Capital   Stock      Subscription   Development
                                Shares    Amount   Shares   Amount      Amount  Subscribed     Receivable     Stage        Total
                              ---------   -------  ---------- -------   --------   ----------   ----------    -------     --------
                                                                                                                 
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
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 subscribed
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
Common stock issued in
exchange for consulting
services at approximately
$2.01 per share, July 2003          -    -      213,060        21 428,797             -             -            -          428,818

           See accompanying notes to consolidated financial statements

                                       F-5

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
          CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                               SEPTEMBER 30, 2004
                                   (Continued)
                            


                                                                                                              Deficit
                                                                        Additional                            Accumulated
                                         Preferred            Common     Paid in    Common         Stock      During
                               Preferred  Shares   Common     Stock      Capital    Stock      Subscription   Development
                                Shares    Amount   Shares     Amount     Amount    Subscribed   Receivable    Stage          Total
                              ---------   -------  ---------- -------   --------   ----------   ----------    -------     --------
                                                                                                                 

Common stock canceled
in July 2003,
previously issued for
services rendered  at
$2.50 per share               -           -      (24,000)            (2)    (59,998)       -         -                -     (60,000)
Common stock issued
in exchange for
options exercised at
$1.00 in July 2003            -           -       20,000              2      19,998        -         -                -      20,000
Common stock issued
in exchange for
exercised of options
previously
subscribed at $1.00 in
July 2003                     -           -       10,000              1       9,999  (10,000)        -                -           -
Common stock issued in
exchange for
consulting services at
approximately
$2.38 per share,
August 2003                   -           -      172,500             17     410,913        -         -                -     410,931
Common stock issued in
exchange for
options exercised at
$1.00 in August 2003          -           -       29,000              3      28,997        -         -                -      29,000
Common stock issued
in exchange for
consulting services
at approximately
$2.42 per share,
September 2003                -           -      395,260             40     952,957        -         -                -     952,997
Common stock issued
in exchange  for
cash at $2.50 per
share-subscription
payable-September 2003        -           -       19,200              2      47,998  (48,000)        -                -           -
Common stock issued in
exchange for
cash at $2.50 per
share pursuant to
private placement
September 2003                -           -        6,400              1      15,999        -         -                -      16,000
Common stock issued in
exchange for
options exercised at
$1.00 in  September 2003      -           -       95,000             10      94,991        -         -                -      95,000
Common stock subscription
receivable reclassification
adjustment
Common Stock subscribed to
at $2.50 per share in
September 2003                                         -              -           -        -     2,600                -       2,600



Net Loss for the year
ended September 30, 200                                -              -           -  300,000         -                -     300,000

Balance at September 30,
2003                          -           -            -              -           -        -         -       (3,445,164) (3,445,164)
                         --------   --------  -----------      -------- ----------- --------- ---------   ------------- -----------
                              -         $ -   17,811,082       $  1,781  $2,577,568 $300,000   $     -      $(3,456,776)  $(577,427)
                         ========   ========  ===========      ======== =========== ========= =========   ============= ============

           See accompanying notes to consolidated financial statements

                                      F-6

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
          CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                               SEPTEMBER 30, 2004
                                   (Continued)



                                                                                                              Deficit
                                                                          Additional                         Accumulated
                                     Preferred                             Paid in    Common       Stock       During
                          Preferred   Shares     Common     Common Stock   Capital    Stock     Subscription  Development 
                            Shares     Amount    Shares        Amount       Amount   Subscribed   Receivable    Stage        Total
                          ---------   -------  ----------     -------       ------   ----------   ----------    -------     --------
                                                                                                                 
Preferred shares issues 
in exchange for services 
at $25.00 per share, 
October 2003                1500        15                                                                                       15
Common stock issued in 
exchange for consulting
services at 
approximately $2.85 per
share, October 2003                              287,439          29        820,389          -           -           -      820,418
Common stock issued in 
exchange  for cash at 
$2.50 per 
share-subscription
payable-October 2003                             120,000          12        299,988   (300,000)          -           -            -
Common stock canceled 
in October 2003,
previously issued for
services rendered  at
$2.50 per share                                 (100,000)        (10)      (249,990)          -          -           -     (250,000)
Common stock issued in 
exchange for consulting
services at approximately
$3 per share, 
November 2003                                    100,000          10        299,990           -          -           -      300,000
Common stock subscribed 
in exchange for cash at
$2.50 per share pursuant
to private placement, 
November, 2003                                   100,000          10        249,990           -          -           -      250,000
Common stock subscribed 
in exchange for cash at
$2.50 per share pursuant
to private placement, 
December, 2003                                     6,400           1         15,999           -          -           -       16,000
Common stock issued in 
exchange for consulting 
services at approximately
$2.59   per share, 
December 2003                                  2,125,500         213      5,504,737           -          -           -    5,504,950
Common Stock subscribed to
at $2.50 per share in 
December 2003                                          -           -              -     104,000          -           -      104,000
Beneficial conversion 
feature relating
to notes payable                                       -           -      1,168,474           -          -           -    1,168,474
Beneficial conversion 
feature relating
to warrants                                            -           -        206,526           -          -           -      206,526
Adjust common stock par 
value from $0.0001 to 
$0.50 per share, per
amendment of articles 
dated Dec 2003                                         -  10,223,166    (10,223,166)          -          -           -            -
Common Stock issued 
pursuant to subscription
at $2.50 share in Jan 2004                        41,600      20,800         83,200    (104,000)         -           -            -
Common stock issued in 
exchange for consulting 
services at $2.95 per
share, Jan 2004                                   13,040       6,520         31,948           -          -           -       38,468
Common stock issued in 
exchange for consulting 
services at $2.60 per
share, Jan 2004                                  123,000      61,500        258,300           -          -           -      319,800
Common stock issued in 
exchange for consulting
 services at $3.05 per
share, Jan 2004                                    1,000         500          2,550           -          -           -        3,050

           See accompanying notes to consolidated financial statements

                                       F-7

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
          CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                               SEPTEMBER 30, 2004
                                   (Continued)
                                     Deficit



                                                                                                              Deficit
                                                                          Additional                         Accumulated
                                     Preferred                             Paid in    Common       Stock       During
                          Preferred   Shares     Common     Common Stock   Capital    Stock     Subscription  Development 
                            Shares     Amount    Shares        Amount       Amount   Subscribed   Receivable    Stage        Total
                          ---------   -------  ----------     -------       ------   ----------   ----------    -------     --------
                                                                                                                 

Common stock issued in
exchange for employee 
services at $3.07 per 
share, Feb 2004                                    6,283       3,142         16,147           -          -           -       19,288
Common stock issued in
exchange for consulting
services at $3.04 per
share, Mar 2004                                   44,740      22,370        113,640           -          -           -      136,010
Common Stock issued for
options exercised at
$1.00 per share in Mar
2004                                              55,000      27,500         27,500           -          -           -       55,000
Common stock issued in
exchange for employee
services at $3.00 per 
share, Mar 2004                                    5,443       2,722         13,623           -          -           -       16,344

           See accompanying notes to consolidated financial statements


                                      F-8


                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
          CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                               SEPTEMBER 30, 2004
                                   (Continued)
                                     Deficit
                                                                          Additional                         Accumulated
                                     Preferred                             Paid in    Common       Stock       During
                          Preferred   Shares     Common     Common Stock   Capital    Stock     Subscription  Development 
                            Shares     Amount    Shares        Amount       Amount   Subscribed   Receivable    Stage        Total
                          ---------   -------  ----------     -------       ------   ----------   ----------    -------     --------
Common stock issued in
exchange for employee 
services at $3.15 per 
share, Mar 2004                                  5,769          2,885         15,293       -              -       -        18,177
Preferred shared 
converted to common
shares for consulting
services at $3.00per 
share, Mar 2004              5000      5       125,000         62,500        312,500       -              -       -       374,995
Common stock issued in 
exchange for employee 
services at $3.03 per
share, Mar 2004                                  8,806          4,403         22,236       -              -       -        26,639
Common Stock issued 
pursuant to 
subscription at $2.50
per share in Mar. 2004                          22,500         11,250         (9,000)      -              -       -         2,250
Beneficial Conversion 
Feature relating
to Notes Payable                                     -              -        122,362       -              -       -       122,362
Beneficial Conversion 
Feature relating
to Warrants                                          -              -        177,638       -              -       -       177,638
Common stock issued in
exchange for consulting
services at $2.58 per
share, Apr 2004                                  9,860          4,930         20,511       -              -       -        25,441
Common stock issued in
exchange for consulting 
services at $2.35 per
share, Apr 2004                                 11,712          5,856         21,667       -              -       -        27,523
Common stock issued in 
exchange for consulting 
services at $1.50 per
share, Apr 2004                                367,500        183,750        367,500       -              -       -       551,250
Common stock returned 
to treasury at
$0.065 per share,  
Apr 2004                                       (50,000)       (25,000)        21,750       -              -       -        (3,250)
Preferred stock 
converted to common
stock for consulting 
services at $1.01
per share in May 2004        4000      4       100,000         50,000         51,250       -              -       -       101,246
Common stock issued per 
subscription May 2004                           10,000          5,000         (4,000)      -         (1,000)      -             -
Common stock issued in 
exchange for consulting 
services at $0.86 per 
share in May 2004                              137,000         68,500         50,913       -              -       -       119,413
Common stock issued in
exchange for consulting 
services at $1.15 per 
share in May 2004                               26,380         13,190         17,147       -              -       -        30,337
Common stock returned to
treasury at $0.065 per 
share, Jun 2004                                 (5,000)        (2,500)         2,175       -              -       -          (325)

                                                              
           See accompanying notes to consolidated financial statements

                                      F-9

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
          CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                               SEPTEMBER 30, 2004
                                   (Continued)
                                     Deficit
                                                                          Additional                         Accumulated
                                     Preferred                             Paid in    Common       Stock       During
                          Preferred   Shares     Common     Common Stock   Capital    Stock     Subscription  Development 
                            Shares     Amount    Shares        Amount       Amount   Subscribed   Receivable    Stage        Total
                          ---------   -------  ----------     -------       ------   ----------   ----------    -------     --------
Common stock issued in 
exchange for consulting 
services at $0.67 per 
share in June 2004                              270,500         135,250      45,310           -         -            -      180,560
Common stock issued in 
exchange for consulting 
services at $0.89 per 
share in June 2004                                8,000           4,000       3,120           -         -            -        7,120
Common stock issued in 
exchange for consulting 
services at $0.65 per 
share in June 2004                               50,000          25,000       7,250           -         -            -       32,250
Common stock issued 
pursuant to private 
placement at $1.00 
per share in June 2004                          250,000         125,000     125,000           -         -            -      250,000
Common stock issued in 
exchange for consulting
services at $0.54 per 
share in July 2004                              100,000          50,000       4,000           -         -            -       54,000
Common stock issued in 
exchange for consulting
services at $0.72 per 
share in July 2004                                5,000           2,500       1,100           -         -            -        3,600
Common stock issued in 
exchange for consulting
services at $0.47 per 
share in July 2004                              100,000          50,000      (2,749)          -         -            -       47,251
Common stock issued in 
exchange for consulting 
services at $0.39 per 
share in August 2004                            100,000          50,000     (11,000)          -         -            -       39,500
Preferred stock converted
to common stock for 
consulting services at 
$0.39 per share in 
August 2004                  (2000)   (2)        50,000          25,000      (5,500)          -         -            -       19,498


           See accompanying notes to consolidated financial statements

                                      F-10

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
          CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                               SEPTEMBER 30, 2004
                                   (Continued)
                                     Deficit
                                                                          Additional                         Accumulated
                                     Preferred                             Paid in    Common       Stock       During
                          Preferred   Shares     Common     Common Stock   Capital    Stock     Subscription  Development 
                            Shares     Amount    Shares        Amount       Amount   Subscribed   Receivable    Stage        Total
                          ---------   -------  ----------     -------       ------   ----------   ----------    -------     --------



Common stock issued in 
exchange for consulting
services at $0.50 per 
share in August 2004                            100,000          50,000         250                                          50,250
Common stock issued in 
exchange for consulting 
services at $0.56 per 
share in August 2004                            200,000         100,000      12,500           -         -            -      112,500
Common stock issued in 
exchange for consulting 
services at $0.41 per 
share in August 2004                             92,500          46,250      (8,787)          -         -            -       37,463
Common stock issued in 
exchange for consulting 
services at $0.52 per 
share in September 2004                       1,000,000         500,000      17,500           -         -            -      517,500
Common stock issued in 
exchange for consulting 
services at $0.46 per 
share in September 2004                           5,000           2,500        (212)          -         -            -        2,288
Common stock issued 
pursuant to subscription 
at  $0.50 per share in
September 2004                                   40,000          20,000           -           -         -            -       20,000
Preferred shares 
converted to common
stock for consulting 
services at $0.41
per share in September 
2004                       (4000)   (4)         100,000          50,000       4,000           -         -            -       53,996
Preferred shares issued
in exchange for service
at $25 per share in
September 2004            60,000     6                                    1,499,994                                       1,500,000
Warrants issued to 
consultants in the 
fourth quarter 2004                                                       2,019,862                                       2,019,862

                                                                                                                                    
Net Loss                                              -               -           -           -         -  (19,358,259) (19,358,259)
                                      
Balance at 
September 30, 2004        60,000    $6       23,981,054      11,990,527   6,118,993           -    (1,000) (22,815,034)  (4,706,508)
                          ======    ==       ==========      ==========   =========      ========  ======= ============  ===========

                                      F-11

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                      CONSOLIDATED STATEMENT OF CASH FLOWS


                                                                                               For the Period
                                                                                           September 16, 2002
                                                 For the Year Ended    For the Year Ended  (Date of Inception)
                                                   September 30,       September 30,        through September 
                                                        2004                 2003                30, 2004
                                                     -------------     -------------         -------------
                                                                                              
Cash Flows from operating activities:

Net loss from operating activities                   $ (19,358,259)     $(3,445,164)         $(22,815,034)
Adjustments to reconcile net loss to net
cash (used in) operating
activities:

Depreciation and amortization                                3,161                -                 3,161

Organizational expenses                                          -           88,500                88,500
Preferred shares issued in exchange for
service at $25 per share in September 2004               1,500,000                -             1,500,000
Warrants issued to consultants in the
fourth quarter 2004                                      2,019,862                -             2,019,862
Amortization of beneficial conversion
feature                                                  1,625,000                -             1,625,000
Common stock issued in exchange for
consultant services rendered                            10,105,382        2,292,350            12,397,732
Common stock canceled-previously issued for
services rendered                                         (285,575)               -              (285,575)
Changes in assets and liabilities:
Prepaid Expenses and Deposits                                    -                -                     -
Increase in-Other Assets                                         -          (13,890)              (13,890)
Increase (decrease) in:                                                                                 -
Increase in due related parties                             20,000          132,696               152,696
Accounts payable and accrued liabilities                 1,301,560          454,000             1,755,560
Net cash (used in) operating activities                 (3,068,719)        (491,509)           (3,571,838)
                                                        
Cash flows from investing activities:
Payments for Patent Filing                                 (21,351)               -               (21,351)
Payments for security deposits                             (23,559)               -               (23,559)
Capital expenditures                                       (29,507)               -               (29,507)
Net cash (used in) investing activities                    (74,417)               -               (74,417)
Cash flows from financing activities:
Proceeds from sale of common stock, net of
cost                                                             -          432,000               432,000
Proceeds from subscription of common stock                 124,000                -               125,000
Proceeds from sale of options                               87,000          154,000               241,000
Net advances from shareholders                              (9,504)          98,980               100,088
Proceeds from loans                                      2,750,000                -             2,750,000
                                                     -------------     -------------         -------------
Net cash provided by financing activities                2,951,496          684,980             3,648,088
Increase (decrease) in cash and cash
equivalents                                               (191,640)         193,471                 1,832
Cash and cash equivalents, beginning of year               193,471                -                     -
Cash and cash equivalents, end of year                                              
                                                     $       1,832      $   193,471          $      1,832
                                                     ==============     ============         ============= 
Supplemental Information:
  Cash paid during the period for interest           $           -      $         -          $          -
  Cash paid during the year for taxes                            -                -                     -

  Non cash disclosures:
Common stock issued for services                                                                         
                                                     $  10,105,382      $ 2,292,350          $ 12,398,732
Amortization of beneficial conversion
feature                                              $   1,625,000      $         -          $  1,625,000
Common stock canceled-previously issued for
services rendered                                    $    (285,575)     $         -          $   (285,575)
Preferred shares issued in exchange for                  
service at $25 per share in September 2004               1,500,000                -             1,500,000 
                                                     --------------    -------------         -------------
Warrants issued to consultants in the                    
fourth quarter 2004                                      2,019,862                -             2,019,862
                                                     --------------    -------------         -------------
Acquisition:
Common stock retained                                $           -      $     1,015           $     1,015
Assets acquired                                      $           -      $      (135)          $      (135)
                                                     --------------    -------------         -------------
Total consideration paid                             $           -      $       880           $       880
                                                     --------------    -------------         -------------
Organization expenses- note  issued in
exchange of  shares retired                          $           -      $    88,500           $    88,500


           See accompanying notes to consolidated financial statements
                                      
                                      F-12

                           APPLIED DNA SCIENCES, Inc.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003

NOTE A - SUMMARY OF ACCOUNTING POLICIES

A summary of the significant  accounting  policies applied in the preparation of
the accompanying financial statements follows.

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.  The  Company  is in the
development  stage , as defined by Statement of Financial  Accounting  Standards
No. 7 ("SFAS No. 7") and its efforts have been principally devoted to developing
DNA embedded biotechnology security solutions in the United States. To date, the
Company has generated  nominal  sales  revenues,  has incurred  expenses and has
sustained  losses.  Consequently,  its  operations  are subject to all the risks
inherent in the establishment of a new business enterprise.  For the period from
inception  through  September 30, 2004,  the Company has  accumulated  losses of
$22,815,034.

Estimates

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

Revenue Recognition

The Company recognizes revenue in accordance with SEC Staff Accounting  Bulletin
No. 101,  "Revenue  Recognition in Financial  Statements"  ("SAB 101").  SAB 101
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)  collectibility  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  collectibility  of those  amounts.  Provisions  for
discounts and rebates to customers,  estimated returns and allowances, and other
adjustments are provided for in the same period the related sales are recorded.

On December 17, 2003, the SEC staff released Staff Accounting Bulletin (SAB) No.
104,  Revenue  Recognition.  The staff updated and revised the existing  revenue
recognition in Topic 13, Revenue Recognition,  to make its interpretive guidance
consistent with current accounting  guidance,  principally EITF Issue No. 00-21,
"Revenue  Arrangements with Multiple  Deliverables."  Also, SAB 104 incorporates
portions of the Revenue  Recognition in Financial  Statements - Frequently Asked
Questions  and  Answers  document  that the SEC staff  considered  relevant  and
rescinds  the  remainder.   The  company's  revenue  recognition   policies  are
consistent  with  this  guidance;  therefore,  this  guidance  will  not have an
immediate impact on the company's consolidated financial statements.

Cash Equivalents

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

Income Taxes

The Company has adopted Financial  Accounting  Standard No. 109 (SFAS 109) which
requires the recognition of deferred tax liabilities and assets for the expected
future tax  consequences  of events  that have been  included  in the  financial
statement or tax returns. Under this method, deferred tax liabilities and assets
are determined  based on the  difference  between  financial  statements and tax
basis of assets and  liabilities  using enacted tax rates in effect for the year
in which the differences are expected to reverse.  Temporary differences between
taxable income reported for financial reporting purposes and income tax purposes
are insignificant.

                                      F-13

                          APPLIED DNA SCIENCES , Inc.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2004 AND 2003

NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)

Property and Equipment 

Property and equipment are stated at cost and  depreciated  over their estimated
useful lives of 3 to 5 years using the straight  line method.  At September  30,
2004 property and equipment consist of:

                                               September 30, 2004 
                                               ------------------

Furniture                                            $   29,507
Accumulated depreciation                                  1,405
                                               ==================
Net                                                  $   28,102    
                          
Impairment of Long-Lived Assets

The Company has adopted  Statement of  Financial  Accounting  Standards  No. 144
(SFAS  144).  The  Statement   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.  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  undercounted cash flows. Should an 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.  SFAS No. 144 also  requires  assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to sell.

Comprehensive Income

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

Segment Information

The  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 131,
Disclosures  about  Segments of an  Enterprise  and Related  Information  ("SFAS
131"). SFAS 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.  SFAS 131 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 principal operating segment.

Net Loss Per Share

The Company has adopted  Statement  of  Financial  Accounting  Standard No. 128,
"Earnings Per Share,"  specifying the  computation,  presentation and disclosure
requirements  of earnings per share  information.  Basic  earnings per share has
been  calculated  based  upon the  weighted  average  number  of  common  shares
outstanding.  Stock  options and  warrants  have been  excluded as common  stock
equivalents  in  the  diluted   earnings  per  share  because  they  are  either
antidilutive, or their effect is not material.


                                      F-14

                           APPLIED DNA SCIENCES , Inc.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003

NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)

Stock Based Compensation

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS 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  SFAS  No.  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 Company has chosen to continue to account
for stock-based  compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related  interpretations.  Accordingly,  compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the  Company's  stock at the date of the grant  over the  exercise  price of the
related option. The Company has adopted the annual disclosure provisions of SFAS
No. 148 in its financial  reports for the year ended  September 30, 2004 and for
the subsequent periods.

Had compensation  costs for the Company's stock options been determined based on
the fair value at the grant dates for the  awards,  the  Company's  net loss and
losses  per share  would  have been as  follows  (transactions  involving  stock
options issued to employees and Black-Scholes model assumptions are presented in
Note E):



                                                                                     
                                                        For the Year Ended           For the Year Ended
                                                         September 30,2004           September 30, 2003
                                                        ------------------           -------------------
                                                                                              
Net loss - as reported                                      $ (19,358,259)               $  (3,445,164)
Add: Total stock based employee compensation                            -                            -
expense as reported under intrinsic value method
(APB. No. 25)
Deduct: Total stock based employee compensation
expense as reported under fair value based method
(SFAS No. 123)                                                          -                            -
                                                        ------------------           -------------------
Net loss - Pro Forma                                        $ (19,358,259)               $  (3,445,164)
Net loss attributable to common stockholders -
Pro forma                                                   $ (19,358,259)               $  (3,445,164)
Basic (and assuming dilution) loss per share - as
reported                                                    $       (0.93)               $       (0.27)
Basic (and assuming dilution) loss per share -
Pro forma                                                   $       (0.93)               $       (0.27)

                                      F-15



                           APPLIED DNA SCIENCES , Inc.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003

NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)

Liquidity

As shown in the accompanying  financial  statements,  the Company incurred a net
loss of  $22,815,034.  during the period  September 16, 2002 (date of inception)
through  September 30, 2004. The Company's current  liabilities  assets exceeded
its current assets by $4,786,323 as of September 30, 2004.


Concentrations of Credit Risk

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

Research and Development

The Company  accounts for research and development  costs in accordance with the
Financial   Accounting  Standards  Board's  Statement  of  Financial  Accounting
Standards  No. 2 ("SFAS 2"),  "Accounting  for Research and  Development  Costs.
Under SFAS 2, 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  developments  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 did not incur
any  research  and  development  expenses  from  September  16,  2002  (date  of
inception) through September 30, 2004.

Advertising

The  Company  will  follow a policy  of  charging  the costs of  advertising  to
expenses  incurred.  The Company incurred  advertising costs of $125,758 and $0,
respectively during the years ended September 30, 2004 and 2003, respectively.

Reclassifications

Certain reclassifications have been made in prior year's financial statements to
conform to classifications used in the current year.



                                      F-16

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003

NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)

Intangible Assets

Intangible  assets  are  amortized  using the  straight-line  method  over their
estimated  period of benefit,  ranging  from one to ten years.  We  periodically
evaluate the recoverability of intangible assets and take into account events or
circumstances  that warrant  revised  estimates of useful lives or that indicate
that  an  impairment  exists.  All of  our  intangible  assets  are  subject  to
amortization.

At September 30, 2004, intangible assets consist of:
                                                             September 30,
                                                                 2004

       Intangible assets                                        $ 29,910
       Accumulated amortization                                   (1,756)
                                                             -----------

       Net Intangible Assets                                    $ 28,154
                                                             ===========





                                      F-17


                           APPLIED DNA SCIENCES , Inc.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003



NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)

New Accounting Pronouncements

In April 2003,  the FASB issued  Statement  of  Financial  Accounting  Standards
(SFAS) No. 149,  Amendment of Statement  No. 133 on Derivative  Instruments  and
Hedging Activities. SFAS 149 amends SFAS No. 133 to provide clarification on the
financial  accounting  and  reporting  of  derivative  instruments  and  hedging
activities and requires that contracts with similar characteristics be accounted
for on a  comparable  basis.  The  provisions  of  SFAS  149 are  effective  for
contracts  entered  into or  modified  after  June  30,  2003,  and for  hedging
relationships  designated  after June 30, 2003. The adoption of SFAS 149 did not
have a material  impact on the  Company's  results of  operations  or  financial
position.
 
In May 2003,  the FASB  issued SFAS No. 150,  Accounting  for Certain  Financial
Instruments  with  Characteristics  of Both  Liabilities  and  Equity.  SFAS 150
establishes standards on the classification and measurement of certain financial
instruments with  characteristics of both liabilities and equity. The provisions
of SFAS 150 are  effective for  financial  instruments  entered into or modified
after May 31, 2003 and to all other  instruments  that exist as of the beginning
of the first interim  financial  reporting period beginning after June 15, 2003.
The adoption of SFAS 150 did not have a material impact on the Company's results
of operations or financial position.

In  December  2003,  the FASB  issued a revision  of SFAS No.  132,  "Employers'
Disclosures   About   Pensions   And  Other   Postretirement   Benefits."   This
pronouncement,  SFAS No. 132-R,  expands  employers'  disclosures  about pension
plans and other post-retirement benefits, but does not change the measurement or
recognition of such plans required by SFAS No. 87, No. 88, and No. 106. SFAS No.
132-R retains the existing disclosure requirements of SFAS No. 132, and requires
certain  additional  disclosures  about defined benefit  post-retirement  plans.
Except as described in the following  sentence,  SFAS No. 132-R is effective for
foreign  plans for fiscal years ending after June 15, 2004;  after the effective
date, restatement for some of the new disclosures is required for earlier annual
periods. Some of the interim-period disclosures mandated by SFAS No. 132-R (such
as the components of net periodic benefit cost, and certain key assumptions) are
effective  for foreign  plans for quarters  beginning  after  December 15, 2003;
other interim-period  disclosures will not be required for the Company until the
first  quarter of 2005.  Since the  Company  does not have any  defined  benefit
post-retirement  plans,  the  adoption  of this  pronouncement  did not have any
impact on the Company's results of operations or financial condition.


In November 2004, the Financial  Accounting  Standards  Board (FASB) issued SFAS
151,  Inventory  Costs-- an amendment of ARB No. 43,  Chapter 4. This  Statement
amends the guidance in ARB No. 43,  Chapter 4,  "Inventory  Pricing," to clarify
the accounting for abnormal amounts of idle facility expense,  freight, handling
costs,  and  wasted  material  (spoilage).  Paragraph  5 of ARB 43,  Chapter  4,
previously  stated  that ". . . under  some  circumstances,  items  such as idle
facility expense,  excessive spoilage,  double freight, and rehandling costs may
be so abnormal as to require  treatment as current period  charges.  . . ." This
Statement  requires  that those items be recognized  as  current-period  charges
regardless  of whether they meet the  criterion of "so  abnormal."  In addition,
this Statement  requires that  allocation of fixed  production  overheads to the
costs  of  conversion  be  based  on  the  normal  capacity  of  the  production
facilities.  This  Statement is effective for inventory  costs  incurred  during
fiscal  years  beginning  after June 15, 2005.  Management  does not believe the
adoption  of this  Statement  will  have any  immediate  material  impact on the
Company.


In  December  2004,  the FASB issued SFAS  No.152,  "Accounting  for Real Estate
Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS
152) The amendments  made by Statement 152 This Statement  amends FASB Statement
No.  66,  Accounting  for  Sales of Real  Estate,  to  reference  the  financial
accounting and reporting guidance for real estate time-sharing transactions that
is  provided in AICPA  Statement  of Position  (SOP) 04-2,  Accounting  for Real
Estate Time-Sharing Transactions.  This Statement also amends FASB Statement No.
67,  Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental  operations and (b) costs incurred
to sell  real  estate  projects  does  not  apply  to real  estate  time-sharing
transactions.  The accounting  for those  operations and costs is subject to the
guidance in SOP 04-2.  This Statement is effective for financial  statements for
fiscal years beginning after June 15, 2005. with earlier application encouraged.
The Company does not anticipate  that the  implementation  of this standard will
have a material impact on its financial position,  results of operations or cash
flows.

                                      F-18



                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003

NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)

On  December  16,  2004,  the  Financial  Accounting  Standards  Board  ("FASB")
published  Statement of Financial  Accounting  Standards No. 123 (Revised 2004),
Share-Based  Payment ("SFAS 123R").  SFAS 123R requires that  compensation  cost
related to  share-based  payment  transactions  be  recognized  in the financial
statements.  Share-based  payment  transactions  within  the  scope of SFAS 123R
include stock options,  restricted stock plans,  performance-based awards, stock
appreciation  rights,  and employee share purchase plans. The provisions of SFAS
123R are  effective  as of the first  interim  period that begins after June 15,
2005. Accordingly,  the Company will implement the revised standard in the third
quarter of fiscal year 2005. Currently, the Company accounts for its share-based
payment  transactions under the provisions of APB 25, which does not necessarily
require  the  recognition  of  compensation  cost in the  financial  statements.
Management is assessing the  implications  of this revised  standard,  which may
materially  impact the  Company's  results of operations in the third quarter of
fiscal year 2005 and thereafter.


     On  December  16,  2004,  FASB issued  Statement  of  Financial  Accounting
Standards No. 153, Exchanges of Nonmonetary  Assets, an amendment of APB Opinion
No. 29,  Accounting for Nonmonetary  Transactions (" SFAS 153").  This statement
amends APB Opinion 29 to eliminate the exception  for  nonmonetary  exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance.  Under SFAS 153, if
a nonmonetary exchange of similar productive assets meets a commercial-substance
criterion and fair value is determinable,  the transaction must be accounted for
at fair  value  resulting  in  recognition  of any  gain or  loss.  SFAS  153 is
effective for  nonmonetary  transactions in fiscal periods that begin after June
15,  2005.  The Company  does not  anticipate  that the  implementation  of this
standard  will have a  material  impact on its  financial  position,  results of
operations or cash flows.


NOTE B - MERGER

Acquisition

On  October  21,  2002,   the  Company   completed  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 entity 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 10,178,352  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 SFAS No. 141, the Company is the acquiring entity.

Effective with the Merger, ProHealth changed its name to Applied DNA Sciences,
Inc.

                                      F-19

                           APPLIED DNA SCIENCES , Inc.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003


NOTE B - MERGER (continued)

The total purchase price and carrying value of net assets  acquired of ProHealth
was $1. The net assets acquired were as follows:

       Common stock retained by  ProHealth shareholders               $ 1,015
       Assets acquired                                                   (135)
                                                                    ----------
       Total consideration paid                                        $  880
                                                                    ==========

In accordance with SOP 98-5, the Company expensed $880 as organization costs.


In connection with the Company's acquisition of ProHealth, the controlling owner
of ProHealth  granted the Company an option to acquire up to 8,500,000 shares of
the  Company's  common stock in exchange  for $100,000  (see Note E). The option
expires on December 10, 2004. On June 30, 2003, the Company exercised its option
and acquired  7,500,000  common  shares under this  agreement in exchange for an
$88,500 convertible promissory note payable to the former controlling owner.

The Company  accounted for the acquisition of the shares as an organization cost
and charged  $88,500 to  operations  and retired the 7,500,000  shares  acquired
common stock.

NOTE C - RELATED PARTY TRANSACTIONS



At September 30, 2004, notes payable are as follows:
                                                                                      September
                                                                                       30, 2004
                                                                                      ----------
                                                                          
  Note  payable  ,  related  party,  together  with  interest  at 8% per  annum,
  unsecured.  Should the Company default under the terms of the Note, Noteholder
  has the option to convert  the  unpaid  principal  at  maturity  to  7,500,000
  shares of the Company's common stock and receive  additional  common shares in
  exchange  for accrued and unpaid  interest at a  conversion  rate equal to the
  then fair market value of the Company's common stock. (refer to note J)               $88,500
                                                                                      ----------  
  Note payable, unsecured,  related party, payable from August 1, 2005, right to        
  convert to  restricted  stock in lieu of cash,  rate of interest  4%,  160,000
  shares prior to October 31, 2005 or 180,000 shares after that date.                   425,000
                                                                                      ----------  
  Due to  ex-president,  in September  2004,  note holder entered into a private
  transaction,  selling  a total of  2,500,000  shares  to him,  after  which he
  loaned all proceeds of $600,000 to us.                                                600,000
                                                                                      ----------                      
  Note payable,  ex-officer of the Company,  due $70,000 upon first funding, 20%   
  rate of interest, or 100,000 shares at par value of $0.001                             50,000
                                                                                      ----------        
                                                                                      1,163,500
                                                                                      ----------
  Less: current portion                                                               1,163,500
                                                                                      ----------
  Note payable - long-term                                                            $       -
                                                                                     ----------                                     
                                                                          
                                      F-20  


                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003


NOTE C - RELATED PARTY TRANSACTIONS (continued)

Included  in  current  liabilities  is  $111,943  at  September  30,  2004 which
represents  advances from the stockholders of the Company.  No formal agreements
or repayment terms exist.

Also,  the Company owed $117,333 at September 30, 2004 to the  stockholders  and
other related parties towards accrued expenses.

The  Company  leases  office  space under a sub lease  agreement  with an entity
controlled by a former  significant  former shareholder of the Company (see Note
H).

The Company has entered into long term employment and consulting agreements with
Company's ex- President and Chief Executive  Officer and an entity controlled by
a significant Company shareholder, respectively (see Note H).


NOTE D - CAPITAL STOCK

The Company is authorized to issue  10,000,000  shares of convertible  preferred
stock,  with  $0.001 par value per share.  The  Company is  authorized  to issue
100,000,000  shares of common stock,  with $0.50 par value per share. In January
2004,  the Company passed a resolution  authorizing  change in the par value per
common  shares from $0.0001 per share to $0.50 per share.  As of  September  30,
2004, the Company has issued and  outstanding  23,981,054  common share with par
value of $0.50 per share and 60,000 convertible  preferred shares with par value
of $0.0001.

During the period  September 16, 2002 through  September  30, 2003,  the Company
issued 100,000 shares of common stock in exchange for  reimbursement of services
provided by the founders of the Company. The Company valued the shares issued at
approximately  $1,000,  which represents the fair value of the services received
which did not differ materially from the value of the stock issued.

In  October,  2002,  the Company  issued  10,178,352  shares of common  stock in
exchange for the previously  issued 100,000 shares to the Company's  founders in
connection with the merger with Prohealth  Medical  Technologies,  Inc (see Note
B).

In October,  2002 the Company  canceled 100,000 shares of common stock issued to
the Company's founders.

In October 2002 the Company  issued  602,000  shares of common stock in exchange
for  services  valued at $ 0.065 per share.  In  accordance  with EITF 96-18 the
measurement  date to determine fair value was in October 2002. 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.

                                      F-21


                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003


NOTE D- CAPITAL STOCK (continued)


In November and December 2002, the Company issued 876,000 shares of common stock
in exchange for subscription at $ 0.065 per share. In accordance with EITF 96-18
the  measurement  date to determine fair value was in October 2002. 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.

In January 2003, the Company  canceled 836,000 shares of common stock previously
issued in exchange for consulting services.

In January 2003, the Company issued 1,500,000 shares of common stock in exchange
for a licensing  agreement (see Note H). The Company valued the shares issued at
approximately $ .065 per share,  which  represents the fair value of the license
received which did not differ materially from the value of the stock issued. The
Company charged the cost of the license to operations.

In January 2003,  the Company  issued 586,250 shares of common stock in exchange
for consulting  services.  In accordance with EITF 96-18 the measurement date to
determine  fair  value  was in  October  2002.  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  $0.13 per
share,  which  presents  the fair value of the services  received  which did not
differ materially from the value of the stock issued.

In February  2003,  the Company  issued 9,000 shares of common stock in exchange
for consulting  services.  In accordance with EITF 96-18 the measurement date to
determine  fair  value  was in  October  2002.  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.

In March 2003, the Company issued 10,140,000 shares of common stock to Company's
founders in exchange for services. In accordance with EITF 96-18 the measurement
date to determine fair value was in September 2002. 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  $0.0001 per
share,  which  presents  the fair value of the services  received  which did not
differ materially from the value of the stock issued.

In March 2003,  the Company issued 91,060 shares of common stock in exchange for
consulting services. The Company valued the shares issued at approximately $2.53
per share,  which  represents the fair value of the services  received which did
not differ materially from the value of the stock issued.


                                      F-22


                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003


NOTE D- CAPITAL STOCK (continued)


In March 2003,  the Company  issued 6,000 shares of common stock in exchange for
consulting  services.  The Company valued the shares issued at  approximately  $
0.065 per share,  which represents the fair value of the services received which
did not differ materially from the value of the stock issued.

In March 2003,  the Company  received  subscription  for 18,000 shares of common
stock in exchange for cash at $1 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 2002. 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 of 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 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 2002. 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 2002. 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.


                                      F-23

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003


NOTE D- CAPITAL STOCK (continued)

On June 30, 2003, the Company  received  $10,000 as subscription  for options to
purchase the Company's common stock at $1.00 per share.

In June, 2003, the Company received $48,000 in connection with a subscription to
purchase the Company's common stock pursuant to a private placement.

In connection with the Company's acquisition of ProHealth, the controlling owner
of ProHealth  granted the Company an option to acquire up to 8,500,000 shares of
the  Company's  common stock in exchange  for $100,000  (see Note B). The option
expires on December 10, 2004. On June 30, 2003, the Company exercised its option
and acquired  7,500,000  common  shares under this  agreement in exchange for an
$88,500 convertible promissory note payable to the former controlling owner. The
Company  has an option  through  December  10,  2004 to  acquire  the  remaining
1,000,000 shares from the former  controlling owner in exchange for $11,500.  On
June 30, 2003, the Company retired the 7,500,000 shares common acquired pursuant
to the option agreement.

In July 2003 the Company  issued  213,060  shares of common stock for consulting
services  provided  to the  Company.  The  Company  valued the shares  issued at
approximately $ 2.01 per share,  which represents the fair value of the services
received which did not differ materially from the value of the stock issued.

In July 2003,  the Company  canceled  24,000 shares of common stock,  previously
issued for services valued at $2.50 per share.

In July 2003, the Company  received  $20,000 in exchange for  previously  issued
options to purchase the Company's common stock at $1.00 per share.

In July  2003,  the  Company  issued  10,000  shares  of  common  stock for cash
previously subscribed at $1.00 per share.

In August 2003,  the Company  issued  172,500 shares of common stock in exchange
for consulting  services provided to the Company.  The Company valued the shares
issued at approximately $ 2.38 per share, which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued

In August 2003, the Company received  $29,000 in exchange for previously  issued
options to purchase the Company's common stock at $1.00 per share.

In September 2003, the Company issued 395,260 shares of common stock in exchange
for consulting  services provided to the Company.  The Company valued the shares
issued at approximately $ 2.42 per share, which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.


                                      F-24

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003



NOTE D- CAPITAL STOCK (continued)

In September  2003,  the Company  issued  19,200 shares of common stock for cash
previously subscribed at $2.50 per share.

In  September  2003,  the Company  issued 6,400 shares of common stock issued in
exchange for cash at $2.50 per share pursuant to private placement.

In September  2003,  the Company  received  $95,000 in exchange  for  previously
issued options to purchase the Company's common stock at $1.00 per share.

In  September  2003,  the  Company  received   $300,000  in  connection  with  a
subscription  to  purchase  the  Company's  common  stock  pursuant to a private
placement.

The Company valued the shares issued for  consulting  services at the rate which
represents  the  fair  value  of the  services  received  which  did not  differ
materially from the value of the stock issued.

In October 2003, the Company issued 15,000 shares of convertible preferred stock
in exchange for  services.  The Company  valued the shares issued at the $15 par
value and recorded the value for services  when the shares were  converted  into
common shares as identified below.

In October 2003,  the Company  issued 287,439 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$2.85 per share for a total of $820,418,  which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In October 2003,  the Company  issued  120,000 shares of common stock for shares
previously subscribed at $2.50 per share in September 2003.

In October 2003, the Company  canceled 100,000 shares of common stock previously
issued in exchange for services at $2.50 per share.

In November  2003, the Company issued 100,000 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$3.00 per share,  which represents the fair value of the services received which
did not differ materially from the value of the stock issued.

In November 2003, the Company sold 100,000 shares of common stock subscribed for
cash at $2.50 per share pursuant to private placement.

In December 2003,  the Company sold 6,400 shares of common stock  subscribed for
cash at $2.50 per share pursuant to private placement.

In  December  2003,  the  Company  issued  2,125,500  shares of common  stock in
exchange for  consulting  services.  . The Company  valued the shares  issued at
approximately  $2.59 per share,  which represents the fair value of the services
received which did not differ materially from the value of the stock issued.

In December 2003, the Company  received  $104,000 in exchange for a common stock
subscription at $2.50 per share pursuant to private placement.

In January 2004, the Company issued 41,600 shares of common stock at $2.50 share
pursuant to a subscription made on December 2003.

In January 2004,  the Company  issued 13,040 shares of common stock at $2.95 per
share in exchange for consulting services valued at $38,468.

In January 2004,  the Company issued 123,000 shares of common stock at $2.60 per
share in exchange for consulting services valued at $319,800.

In January  2004,  the Company  issued 1,000 shares of common stock at $3.05 per
share in exchange for consulting services valued at $3,050.

In February  2004,  the Company issued 6,283 shares of common stock at $3.07 per
share in exchange for employee services valued at $19,288.

In March 2004,  the Company  issued  44,740  shares of common stock at $3.04 per
share in exchange for consulting services valued at $136,010.

In March 2004, the Company  issued 55,000 of common stock for options  exercised
at $1.00 per share.

                                      F-25

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003

NOTE D- CAPITAL STOCK (continued)

In March 2004,  the Company  issued  5,443  shares of common  stock at $3.00 per
share in exchange for employee services valued at $16,344.

In March 2004,  the Company  issued  5,769  shares of common  stock at $3.15 per
share in exchange for employee services valued at $18,177.

In March 2004, the Company  converted 5,000 preferred shares into 125,000 shares
of common stock at $3.00 per share in exchange for employee  services  valued at
$375,000.

In March 2004,  the Company  issued  8,806  shares of common  stock at $3.03 per
share in exchange for employee services valued at $26,639.

In April 2004,  the Company  issued  22,500  shares of common stock at $0.10 for
subscription of warrants to be exercised.

In April 2004,  the Company  issued  9,860  shares of common  stock at $2.58 per
share in exchange for employee services valued at $25,441.

In April 2004,  the Company  issued  11,712  shares of common stock at $2.35 per
share in exchange for consulting services valued at $27,523.

In April 2004,  the Company  issued  367,500 shares of common stock at $1.50 per
share in exchange for consulting services valued at $551,250.

In April 2004,  the Company  retired  50,000  shares of common stock  previously
issued for consulting services at $0.065 per share or $3,250.

In May 2004, the Company converted 4,000 preferred shares into 100,000 shares of
common stock at $1.01 per share in exchange for  consulting  services  valued at
$101,250.

In May 2004, the Company issued 10,000 shares of common stock at $0.10 per share
in a stock subscription for $1,000.

In May 2004,  the Company  issued  137,000  shares of common  stock at $0.86 per
share in exchange for consulting services valued at $119,233.

In May 2004, the Company issued 26,380 shares of common stock at $1.15 per share
in exchange for consulting services valued at $30,337.

In June 2004, the Company retired 5,000 shares of common stock previously issued
for consulting services at $0.065 per share or $325.

In June 2004,  the Company  issued  270,500  shares of common stock at $0.67 per
share in exchange for consulting services valued at $180,560.

In June 2004, the Company issued 8,000 shares of common stock at $0.89 per share
in exchange for consulting services valued at $7,120.

In June 2004,  the Company  issued  50,000  shares of common stock at $0.645 per
share in exchange for consulting services valued at $32,250.

In June 2004, the Company sold 250,000 shares of common stock at $1.00 per share
for total proceeds of $250,000 pursuant to private placement.

In July 2004,  the Company  issued  100,000  shares of common stock at $0.54 per
share in exchange for consulting services valued at $54,000.

In July 2004, the Company issued 5,000 shares of common stock at $0.72 per share
in exchange for consulting services valued at $3,600.

In July 2004,  the Company  issued  100,000  shares of common stock at $0.47 per
share in exchange for consulting services valued at $47,250.

In August 2004, the Company  converted 2,000 preferred shares into 50,000 shares
of common stock at $0.39 in exchange for consulting services valued at $19,500.

In August 2004,  the Company  issued  100,000 shares of common stock at $0.39 in
exchange for consulting services valued at $39,000.

In August 2004,  the Company  issued  100,000 shares of common stock at $0.50 in
exchange for consulting services valued at $50,250.

                                      F-26

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003

NOTE D- CAPITAL STOCK (continued)

In August 2004,  the Company  issued  200,000 shares of common stock at $0.56 in
exchange for consulting services valued at $112,500.

In September 2004, the Company issued  1,000,000 shares of common stock at $0.52
in exchange for consulting services valued at $517,500.

In September  2004, the Company issued 45,000 shares of common stock at $0.50 in
exchange for consulting services valued at $22,288.

In September 2004, the Company  converted  4,000  preferred  shares into 100,000
shares of common stock at $0.41 in exchange for  consulting  services  valued at
$54,000.

In September  2004, the Company issued 60,000  convertible  preferred  shares at
$25.00, in exchange for consulting services valued at $1,500,000.

In accordance with EITF 96-18 the  measurement  date to determine fair value 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 for
consulting  services at the rate which represents the fair value of the services
received which did not differ materially from the value of the stock issued.

NOTE E - STOCK OPTIONS AND WARRANTS


Warrants

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



                                Warrants Outstanding                              Warrants Exercisable
                                          Weighted Average        Weighed                       Weighted
                          Number       Remaining Contractual      Average         Number        Average
   Exercise Prices     Outstanding          Life (Years)       Exercise Price  Exercisable   Exercise Price
   ---------------     -----------     ---------------------   --------------  -----------   -------------- 
                                                                                   
       $0.10             335,000                4.79              $ 0.10         335,000         $  0.10
       $0.60           3,472,750                4.01              $ 0.60       3,472,750         $  0.60
       $0.70             750,000                2.84              $ 0.70         750,000         $  0.70
       $1.00             250,000                1.61              $ 1.00         250,000         $  1.00
       $3.00              62,503                1.25              $ 3.00          62,503         $  3.00
                       4,870,253                                               4,870,253


                                      F-27

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003



NOTE E- STOCK OPTIONS AND WARRANTS (continued)

Transactions involving warrants are summarized as follows:


                                                     Number of Shares       Weighted Average
                                                                             Price Per Share
                                                     ----------------       -----------------
                                                                            
       Outstanding at September 30, 2003                     383,500                $   1.38
       Granted                                             4,574,753                    0.58
       Exercised                                             (88,000)                   1.00
       Canceled or expired                                         -                       -
       Outstanding at September 30, 2004                    4,870,253               $   0.63

The estimated value of the  compensatory  warrants  granted to  non-employees in
exchange  for  services  and  financing   expenses  was  determined   using  the
Black-Scholes pricing model and the following assumptions: contractual term of 2
to 5 years,  a risk free  interest  rate of 3.00%,  a  dividend  yield of 0% and
volatility  of  30%.  The  amount  of the  expense  charged  to  operations  for
compensatory  warrants  granted in exchange  for  services  was $0 for the years
ended September 30, 2004 and 2003.

The estimated value of the  compensatory  warrants  granted to  non-employees in
exchange  for  services  and  financing   expenses  was  determined   using  the
Black-Scholes pricing model and the following assumptions: contractual term of 2
to 5 years,  a risk free  interest  rate of 1.00%,  a  dividend  yield of 0% and
volatility  of 22.9%.  The  amount of the  expense  charged  to  operations  for
compensatory  warrants  granted in exchange for services was  $2,019,862 and $0,
respectively, for the years ended September 30, 2004 and 2003.

NOTE F - CONVERTIBLE PROMISSORY NOTES PAYABLE

A summary of  convertible  promissory  notes payable at September 30, 2004 is as
follows:

Convertible notes payable ("Bridge Unit Offering"), in quarterly installments of
interest only at 10% per annum,  secured by all assets of the Company and due on
the  earlier  of the 9- month  anniversary  date of the  initial  closing of the
Offering, or the completion of any equity financing of $3M or more; The Company,
in its sole discretion,  may prepay  principal at any time without penalty.  The
notes are  convertible  into shares of common stock of the Company at a price of
$2.50 per share.

                                                              September 30, 2004
                                                              ------------------

Convertible notes                                                 
payable                                                           $ 1,675,000
                                                              ------------------
Debt discount - beneficial conversion feature, net of
accumulated amortization of $1,270,444                                (20,393)
                                                              ------------------
Debt discount, net of accumulated amortization of
$354,556
                                                                      (29,607)
                                                              ------------------

Net balance                                                       $ 1,625,000
                                                              ------------------

During the three  months ended  December  31, 2003,  the Company sold 27.5 units
(the  "Units")  to  accredited  investors  at a price of  $50,000  per Unit (the
"Bridge  Offering")  for a total of  $1,375,000.  Each  Unit  consists  of (i) a
$50,000  Principal  Amount 10% Secured  Convertible  Promissory  Note ("Note" or
"Notes"),  (ii)  detachable  warrants  to purchase  50,000  shares of our common
stock,  exercisable  for a period  of five  years at a price of $3.20  per share
("$3.20 Warrant") and (iii) detachable warrants to purchase 10,000 shares of our
common  stock,  exercisable  for a period of five  years at a price of $0.10 per
share ("$0.10 Warrant" and together with the $3.20 Warrant, the "Warrants"). The
Notes are  convertible  into shares of our common  stock at a price of $2.50 per
share.

                                      F-28

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003

NOTE F - CONVERTIBLE PROMISSORY NOTES PAYABLE (continued)

The Company  accounted for the warrants and notes payable in accordance with APB
No. 14,  "Accounting  for  Convertible  Debt and Debt Issued with Stock Purchase
Warrants"  ("APB  14").  APB 14  requires  a portion  of the  proceeds  from the
issuance of debt securities  with detachable  stock warrants be allocated to the
warrants and treated as paid-in  capital.  Any resulting  discount or premium on
the notes payable  should be recorded and amortized  over the life of the notes.
The Company used the Black-Scholes  model to determine the value of the warrants
issued to the  noteholders.  Under  the  Black-Scholes  model,  the value of the
warrants are  determined by taking the  difference  between  acquiring the stock
outright and the present  value of paying the exercise  price on the  expiration
day. As a result,  the Company valued the warrants at $206,526.  This amount was
recorded as paid-in capital and the resulting  discount on the notes payable was
recorded and is being  amortized  using the interest method over the life of the
notes.  The debt  discount  attributed is amortized  over the Bridge  Offering's
earliest maturity period of 9 months from the date of issue as interest expense.

In  accordance  with  EMERGING  ISSUES  TASK FORCE ISSUE  98-5,  ACCOUNTING  FOR
CONVERTIBLE  SECURITIES  WITH A BENEFICIAL  CONVERSION  FEATURES OR CONTINGENTLY
ADJUSTABLE  CONVERSION RATIOS ("EITF 98-5"),  the Company recognized an imbedded
beneficial  conversion  feature present in the Bridge Offering note. The Company
allocated a portion of the proceeds equal to the intrinsic value of that feature
to additional paid in capital.  The Company recognized and measured an aggregate
of  $1,168,474 of the  proceeds,  which is equal to the  intrinsic  value of the
imbedded  beneficial  conversion  feature,  to additional  paid in capital and a
discount  against  the Bridge  Offering.  The debt  discount  attributed  to the
beneficial  conversion feature is amortized over the Bridge Offering's  earliest
maturity period of 9 months from the date of issue as interest expense.

The  Company  valued the  beneficial  conversion  of the notes and  warrants  in
accordance  with  EITF  00-27  using  the  Black-Scholes  pricing  model and the
following assumptions:

o    contractual terms of 5 years
o    an average risk free interest rate of 1.00%
o    a dividend yield of 0.00%
o    volatility of 22.9%.

During the three  months  ended March 31,  2004,  the Company  sold 6 units (the
"Units") to  accredited  investors  at a price of $50,000 per Unit (the  "Bridge
Offering")  for a  total  of  $300,000.  Each  Unit  consists  of (i) a  $50,000
Principal  Amount 10% Secured  Convertible  Promissory Note ("Note" or "Notes"),
(ii) warrants to purchase  50,000 shares of our common stock,  exercisable for a
period of five years at a price of $3.20 per share  ("$3.20  Warrant") and (iii)
warrants to purchase 10,000 shares of our common stock, exercisable for a period
of five years at a price of $0.10 per share  ("$0.10  Warrant" and together with
the $3.20 Warrant, the "Warrants"). The Notes are convertible into shares of our
common stock at a price of $2.50 per share.

The Company  accounted for the warrants and notes payable in accordance with APB
No. 14,  "Accounting  for  Convertible  Debt and Debt Issued with Stock Purchase
Warrants"  ("APB  14").  APB 14  requires  a portion  of the  proceeds  from the
issuance of debt securities  with detachable  stock warrants be allocated to the
warrants and treated as paid-in  capital.  Any resulting  discount or premium on
the notes payable  should be recorded and amortized  over the life of the notes.
The Company used the Black-Scholes  model to determine the value of the warrants
issued to the  noteholders.  Under  the  Black-Scholes  model,  the value of the
warrants are  determined by taking the  difference  between  acquiring the stock
outright and the present  value of paying the exercise  price on the  expiration
day. As a result,  the Company valued the warrants at $177,638.  This amount was
recorded as paid-in capital and the resulting  discount on the notes payable was
recorded and is being  amortized  using the interest method over the life of the
notes.  The debt  discount  attributed is amortized  over the Bridge  Offering's
earliest maturity period of 9 months from the date of issue as interest expense.

In  accordance  with  EMERGING  ISSUES  TASK FORCE ISSUE  98-5,  ACCOUNTING  FOR
CONVERTIBLE  SECURITIES  WITH A BENEFICIAL  CONVERSION  FEATURES OR CONTINGENTLY
ADJUSTABLE  CONVERSION RATIOS ("EITF 98-5"),  the Company recognized an imbedded
beneficial  conversion  feature present in the Bridge Offering note. The Company
allocated a portion of the proceeds equal to the intrinsic value of that feature
to additional paid in capital.  The Company recognized and measured an aggregate
of  $122,362  of the  proceeds,  which is equal  to the  intrinsic  value of the
imbedded  beneficial  conversion  feature,  to additional  paid in capital and a
discount  against  the Bridge  Offering.  The debt  discount  attributed  to the

                                      F-29

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003

NOTE F - CONVERTIBLE PROMISSORY NOTES PAYABLE (continued)

beneficial  conversion feature is amortized over the Bridge Offering's  earliest
maturity period of 9 months from the date of issue as interest expense.

The  Company  valued the  beneficial  conversion  of the notes and  warrants  in
accordance  with  EITF  00-27  using  the  Black-Scholes  pricing  model and the
following assumptions:

o    contractual terms of 5 years
o    an average risk free interest rate of 4.25%
o    a dividend yield of 0.00%
o    volatility of 42.0%.

In  September  2004,  the Company  re-priced  the $3.20  warrants to $0.60 as an
inducement  to  convertible  note  holders  as  the  Company  sought  additional
financing.  The  Company  recorded a charge of  $371,850 to earning for the year
ended September 30, 2004.


NOTE G- INCOME TAXES

The Company has adopted Financial Accounting Standard No. 109 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 bases of assets and
liabilities  using  enacted  tax  rates in  effect  for the  year in  which  the
differences  are  expected to reverse.  Temporary  differences  between  taxable
income  reported for  financial  reporting  purposes and income tax purposes are
insignificant.

At September 30, 2004, the Company has available for federal income tax purposes
a net operating loss carryforward of approximately $22,815,034,  expiring in the
year 2023,  that may be used to offset future  taxable  income.  The Company has
provided a valuation  reserve  against the full amount of the net operating loss
benefit,  since in the opinion of management  based upon the earnings history of
the Company,  it is more likely than not that the benefits will not be realized.
Due to  significant  changes in the Company's  ownership,  the future use of its
existing net operating losses may be limited.



                                      F-30

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003



NOTE G- INCOME TAXES (continued)

Components of deferred tax assets as of September 30, 2003 are as follows:

                Non current:
                Net operating loss carryforward
                                                                    $7,985,000
                Valuation allowance                                 (7,985,000)
                                                                   -----------
                Net deferred tax asset                              $        -
                                                                   ===========


NOTE H-LOSSES PER SHARE

The following table presents the computation of basic and diluted losses per
share:




                                                            For the Year Ended      For the Year Ended 
                                                            September 30, 2004      September 30, 2003
                                                             ------------------     ------------------
                                                                                              
Loss available for common shareholders                          $ (19,358,259)         $  (3,445,164)
                                                             ==================     ==================
Basic and fully diluted loss per share                          $       (0.93)         $       (0.27)
                                                             ==================     ==================
Weighted average common shares outstanding                         20,819,700             12,955,358



Net loss per share is based upon the weighted  average of shares of common stock
outstanding



NOTE  I- COMMITMENTS AND CONTINGENCIES

Licensing Agreement

In October  2002,  the Company  entered  into an exclusive  Licensing  Agreement
("License")  with Biowell  Technology,  Inc., a company formed under the laws of
Taiwan, Republic of Taiwan. The initial term of the License expires in 2007 with
renewal  options  under  certain terms and  conditions.  The License  grants the
Company the exclusive  use of certain  patented DNA  technology,  along with the
rights to future  technology,  in exchange  for an initial  payment of 1,500,000
shares of the  Company's  restricted  common  stock (see Note D). The Company is
obligated to order minimum purchase orders or make future certain minimum annual
royalty payments as follows:


    Year ending                   Minimum purchase orders    Alternative Minimum
     October 8,                                                Royalty Payable
       2004                                 $300,000              $100,000
       2005                                  360,000                     -
       2006                                  432,000                     -
       2007                                  518,400                     -

Consulting Agreement

GP has been engaged, on a non-exclusive  basis, to provide advice and assistance
to the Company  regarding issues  associated with Applied DNA's  proprietary DNA
embedded  security  solutions.   GP  will  assist  the  Company  with  strategic
positioning  and  enhancement  of the  Company's  business,  and will assist the
Company in the development of domestic and  international  marketing  strategies
for the Company's DNA products and services.  The term of the  engagement is one
year from the effective  date,  with  automatic one year renewals  unless either
party expresses,  in writing,  an intention not to renew within 60 days prior to
the expiration of the term.

                                      F-31

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003

NOTE  I- COMMITMENTS AND CONTINGENCIES (continued)

As  compensation  for GP's  performance,  the Company  will pay GP an  aggregate
advisory fee of Two Million Dollars  ($2,000,000) payable in increments over the
term and renewal term. Two payments of $500,000 each were made by the Company in
September 2004 and January 2005. Thereafter,  eight payments of $125,000 are due
monthly over the period  February  through  September  2005.  Additionally,  the
Company will issue a net-exercisable  warrant to purchase shares of Common Stock
of the  Company  at a later  date.  Fees  were  placed  in  escrow  during  GP's
completion of its due diligence review.

All  promotional  materials of the Company,  on a going forward  basis,  will be
submitted  to GP for  its  review,  including  all  advertising,  written  sales
promotion,  press releases,  news clippings and other publicity matters relating
to GP's engagement and the strategic relationship created.

The  Company  has  agreed  to  maintain   confidentiality  with  regard  to  its
relationship  with  GP,  wherever  appropriate,  and  has  indemnified  GP,  its
controlling persons,  respective partners,  shareholders,  directors,  officers,
employees,  agents,  affiliates and  representatives and will hold them harmless
against any actions,  judgments,  claims,  etc. The Agreement,  in its entirety,
will be filed  with the  Company's  10-KSB  in  accordance  with SEC  regulatory
requirements.


Franchising and Distribution Agreements

The  Company  has  entered  into  a  Distribution   and  Franchising   Agreement
("Franchise  Agreement")  in  July  2003.  Under  the  terms  of  the  Franchise
Agreement,  the  franchisee is obligated to pay the Company  $3,000,000  payable
$25,000 upon execution of the Franchise  Agreement and the balance of $2,975,000
payable  over five (5) years with  interest  accruing at 8% per annum.  Payments
under the  Franchise  Agreement  are subject to  franchisee's  net  profits,  as
defined, under the Franchise Agreement. During the year ended September 30, 2004
and 2003 the Company has received the initial $25,000 and $0, as installment and
has  recognized  the  receipt  as other  income  in the  accompanying  financial
statements.

                                      F-32

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003

NOTE I- COMMITMENTS AND CONTINGENCIES (continued)

Operating Lease Commitments

The Company leases office space under operating lease in Los Angeles, California
for  its  corporate  use  from  an  entity  controlled  by  significant   former
shareholder,  expiring in November  2006.  Total lease  rental  expenses for the
years  ended  on  September  30,  2004  and  2003,  was  $120,804  and  $38,725,
respectively.

Commitments for minimum rentals under non-cancelable lease at September 30, 2004
are as follows:

Year ended September 30,
2005                                            $ 139,308
2006                                              143,977
2007                                               12,031
                                              -----------
                                                $ 295,316


Employment and Consulting Agreements

The Company has employment  agreements  with the Company's  officers and certain
employees.  These  employment  agreements  provide for  salaries  and  benefits,
including  stock options and extend up to seven years. In addition to salary and
benefit  provisions,  the  agreements  include  defined  commitments  should the
employer terminate the employee with or without cause.

The Company has a consulting  agreement  with an entity  controlled  by a former
significant  shareholder of the Company.  The consulting  agreement provides for
compensation  and certain  benefits,  including  stock options and extends up to
seven years. In addition to compensation and benefit provisions,  the agreements
include defined commitments should the employer terminate the consultant with or
without cause.

The  Company has  consulting  agreements  with  outside  contractors  to provide
marketing and financial  advisory  services.  The Agreements are generally for a
term of 12 months from inception and renewable  automatically  from year to year
unless either the Company or consultant  terminates  such  engagement by written
notice.


                                      F-33


                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2004 AND 2003

NOTE J- SUBSEQUENT EVENTS

On October 31, 2004,  the Company  defaulted on a note held by a former  company
officer and  director in the amount of $88,500  (See Note C), and in  accordance
with the default,  the  noteholder  has the right,  at any time without  further
notice,  to demand that his  outstanding  note be converted  back into 7,500,000
shares. On December 28, 2004, the noteholder made his demand for the issuance of
7,500,000  shares of common  stock.  The  Company  is  currently  negotiating  a
settlement of this matter with the noteholder.

In October 2004,  the Company  granted  3,036,000  common stock  warrants to the
Company's  Directors  and  certain  advisors  as  additional   compensation  for
services.  The warrants have excise prices between $.50 and $1.00 per share and
expire in periods raging from 3 to 5 years.

In January  2005,  the Company  arranged a $6 million  private  placement  of 12
million shares at $0.50 per share along with 12 million  attached  warrants with
an exercise  price of $0.75 that expires in 5 years.  As of January 10, 2005, $4
million of the $6 million has been subscribed.

In January 2005,  holders of 1,625,000 of convertible  notes payable  elected to
convert their notes to common stock at $.33 per share (See Note F).


NOTE K - GOING CONCERN

The  accompanying  financial  statements  have been  prepared on a going concern
basis,  which  contemplates  the  realization of assets and the  satisfaction of
liabilities  in the  normal  course of  business.  As shown in the  accompanying
financial  statements during the period September 16, 2002 through September 30,
2004, the Company incurred a loss of $22,815,034. In addition, the Company has a
deficiency in stockholder's equity of $4,706,508. These factors among others may
indicate  that the Company  will be unable to continue as a going  concern for a
reasonable period of time.

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

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

                                      F-34


                          (A DEVELOPMENT STAGE COMPANY)
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

 ASSETS                                             (Unaudited)
                                                     December 31,  September 30,
                                                       2004             2004
                                                     -----------    -----------
Current assets:
Cash and Equivalents .............................   $    62,665    $     1,832
                                                     -----------    -----------
Total Current Assets .............................        62,665          1,832

Property, Plant and Equipment:
Furniture and Equipment ..........................        29,507         29,507
Less: Accumulated Depreciation ...................        (1,756)        (1,405)
                                                     -----------    -----------
                                                          27,751         28,102
Other Assets:
Deposits and Prepaid Expenses ....................        47,585         23,559


Patent Filing ....................................        34,257         29,910
Less: Accumulated Amortization ...................        (6,126)        (1,756)

                                                     -----------    -----------
Net Patents ......................................        28,131         28,154

Restricted Cash ..................................     1,065,318           --
                                                     -----------    -----------
Total Other Assets ...............................     1,141,034         51,713
                                                     -----------     ----------

Total Assets .....................................   $ 1,231,450    $    81,647
                                                     ===========    ===========

LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts Payable and Accrued Liabilities .........   $ 2,973,686    $ 1,770,379
Accrued Liabilities Due Related Parties ..........       168,857        117,333
Convertible Notes Payable ........................     1,675,000      1,625,000
Due to Related Parties ...........................        61,943        111,943
Note Payable .....................................     1,125,000      1,163,500
                                                     -----------    -----------
Total Current Liabilities ........................     6,004,486      4,788,156

Long Term Liabilities:
Note Payable .....................................          --             --
                                                     -----------    -----------
 Deficiency in Stockholders' Equity:
 Preferred Stock, par value $.0001 per share;
10,000,000 shares authorized;
60,000 issued at December 31, 2004 and
September 30, 2004 ...............................             6              6
 Common Stock, par value $.50 per share;
100,000,000 shares authorized; 40,848,239
shares and 23,981,054 shares issued and
outstanding at December 31, 2004 and
September 30, 2004, respectively .................    20,424,120     11,990,527
 Common Stock Subscription .......................      (880,000)        (1,000)
 Additional Paid-In-Capital ......................    10,863,008      6,118,993
 Accumulated Deficit .............................   (35,180,170)   (22,815,034)
                                                     -----------    -----------
                                                      (4,773,036) (4,706,508)
                                                     -----------    -----------

 Total Liabilities and Deficiency in
Stockholders' Equity                                 $ 1,231,450       $ 81,647
                                                     ===========    ===========

 See accompanying notes to unaudited condensed consolidated financial statements

                                      F-35

                           APPLIED DNA SCIENCES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   CONDENSED CONSOLIDATED STATEMENTS OF LOSSES
                                   (Unaudited)



                                                                     For the Period,
                                     For The Three  For The Three   September 16, 2002,  
                                      Months Ended   Months Ended  (Date of Inception)
                                      December 31,   December 31,       through
                                         2004              2003     December 31, 2004
                                         ----              ----       ----------
                                                                    
Revenues:
Sales .............................   $       --      $       --      $       --

COGS ..............................   $       --      $       --      $       --

Operating expenses:
Selling, general and administrative     10,792,921       7,407,750      31,852,994
Depreciation and amortization .....          4,721             351           7,882
                                      ------------    ------------    ------------
Total operating expenses ..........     10,797,642       7,408,101      31,860,876

Operating loss ....................    (10,797,642)     (7,408,101)    (31,860,876)

Other Income (expense) ............            315             685          26,700
Interest (expense) ................     (1,567,809)       (135,074)     (3,345,995)
Income (taxes) benefit ............           --              --              --
                                      ------------    ------------    ------------

Net loss ..........................   $(12,365,136)   $ (7,542,490)   $(35,180,171)
                                      ============    ============    ============
                                                                    
Loss per common share
(basic and assuming dilution) .....   $      (0.45)   $      (0.41)   $      (1.28)
                                      ============    ============    ============

Weighted average shares outstanding     27,402,160      18,503,162      27,402,160

See accompanying notes to unaudited condensed consolidated financial statements

                                      F-36


                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                                DECEMBER 31, 2004


                                                                                                          Deficit
                                                                      Additional                          Accumulated
                                         Preferred                      Paid in    Common        Stock      During
                               Preferred  Shares   Common Common Stock  Capital    Stock      Subscription Development
                                Shares    Amount   Shares   Amount      Amount    Subscribed    Receivable   Stage          Total
                               --------  -------- -------- ---------   --------   ------------  ---------- ----------    -----------
                                                                                                  
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 1,018             -         -             -            -            1,000
Cancellation of Common
stock in connection with
merger with Prohealth
Medical Technologies ,
Inc on October
21, 2002                            -      -     (100,000)   10        (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)           -                -
Cancellation of  common
stock in January 2003
previously issued  in
exchange for consulting
services                            -      -     (836,000)  (84)      (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

 See accompanying notes to unaudited condensed consolidated financial statements

                                      F-37

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                                DECEMBER 31, 2004
                                   (Continued)
                                                                                                             Deficit
                                                                      Additional                            Accumulated
                                         Preferred                      Paid in  Common         Stock         During
                               Preferred  Shares   Common Common Stock  Capital   Stock      Subscription   Development
                                Shares    Amount   Shares   Amount      Amount  Subscribed     Receivable     Stage        Total
                              ---------   -------  ---------- -------   --------   ----------   ----------    -------     --------
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
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 subscribed
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
Common stock issued in
exchange for consulting
services at approximately
$2.01 per share, July 2003          -    -      213,060        21 428,797             -             -            -          428,818

 See accompanying notes to unaudited condensed consolidated financial statements

                                      F-38

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                                DECEMBER 31, 2004
                                   (Continued)



                                                                                                              Deficit
                                                                        Additional                            Accumulated
                                         Preferred            Common     Paid in    Common         Stock      During
                               Preferred  Shares   Common     Stock      Capital    Stock      Subscription   Development
                                Shares    Amount   Shares     Amount     Amount    Subscribed   Receivable    Stage          Total
                              ---------   -------  ---------- -------   --------   ----------   ----------    -------     --------

Common stock canceled
in July 2003,
previously issued for
services rendered  at
$2.50 per share               -           -      (24,000)            (2)    (59,998)       -         -                -     (60,000)
Common stock issued
in exchange for
options exercised at
$1.00 in July 2003            -           -       20,000              2      19,998        -         -                -      20,000
Common stock issued
in exchange for
exercised of options
previously
subscribed at $1.00 in
July 2003                     -           -       10,000              1       9,999  (10,000)        -                -           -
Common stock issued in
exchange for
consulting services at
approximately
$2.38 per share,
August 2003                   -           -      172,500             17     410,913        -         -                -     410,931
Common stock issued in
exchange for
options exercised at
$1.00 in August 2003          -           -       29,000              3      28,997        -         -                -      29,000
Common stock issued
in exchange for
consulting services
at approximately
$2.42 per share,
September 2003                -           -      395,260             40     952,957        -         -                -     952,997
Common stock issued
in exchange  for
cash at $2.50 per
share-subscription
payable-September 2003        -           -       19,200              2      47,998  (48,000)        -                -           -
Common stock issued in
exchange for
cash at $2.50 per
share pursuant to
private placement
September 2003                -           -        6,400              1      15,999        -         -                -      16,000
Common stock issued in
exchange for
options exercised at
$1.00 in  September 2003      -           -       95,000             10      94,991        -         -                -      95,000
Common stock subscription
receivable reclassification
adjustment
Common Stock subscribed to
at $2.50 per share in
September 2003                                         -              -           -        -     2,600                -       2,600



Net Loss for the year
ended September 30, 200                                -              -           -  300,000         -                -     300,000

Balance at September 30,
2003                          -           -            -              -           -        -         -       (3,445,164) (3,445,164)
                         --------   --------  -----------      -------- ----------- --------- ---------   ------------- -----------
                              -         $ -   17,811,082       $  1,781  $2,577,568 $300,000   $     -      $(3,456,776)  $(577,427)
                         ========   ========  ===========      ======== =========== ========= =========   ============= ============

 See accompanying notes to unaudited condensed consolidated financial statements

                                      F-39

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                                DECEMBER 31, 2004
                                   (Continued)



                                                                                                              Deficit
                                                                          Additional                         Accumulated
                                     Preferred                             Paid in    Common       Stock       During
                          Preferred   Shares     Common     Common Stock   Capital    Stock     Subscription  Development
                            Shares     Amount    Shares        Amount       Amount   Subscribed   Receivable    Stage        Total
                          ---------   -------  ----------     -------       ------   ----------   ----------    -------     --------
Preferred shares issues
in exchange for services
at $25.00 per share,
October 2003                1500        15                                                                                       15
Common stock issued in
exchange for consulting
services at
approximately $2.85 per
share, October 2003                              287,439          29        820,389          -           -           -      820,418
Common stock issued in
exchange  for cash at
$2.50 per
share-subscription
payable-October 2003                             120,000          12        299,988   (300,000)          -           -            -
Common stock canceled
in October 2003,
previously issued for
services rendered  at
$2.50 per share                                 (100,000)        (10)      (249,990)          -          -           -     (250,000)
Common stock issued in
exchange for consulting
services at approximately
$3 per share,
November 2003                                    100,000          10        299,990           -          -           -      300,000
Common stock subscribed
in exchange for cash at
$2.50 per share pursuant
to private placement,
November, 2003                                   100,000          10        249,990           -          -           -      250,000
Common stock subscribed
in exchange for cash at
$2.50 per share pursuant
to private placement,
December, 2003                                     6,400           1         15,999           -          -           -       16,000
Common stock issued in
exchange for consulting
services at approximately
$2.59   per share,
December 2003                                  2,125,500         213      5,504,737           -          -           -    5,504,950
Common Stock subscribed to
at $2.50 per share in
December 2003                                          -           -              -     104,000          -           -      104,000
Beneficial conversion
feature relating
to notes payable                                       -           -      1,168,474           -          -           -    1,168,474
Beneficial conversion
feature relating
to warrants                                            -           -        206,526           -          -           -      206,526
Adjust common stock par
value from $0.0001 to
$0.50 per share, per
amendment of articles
dated Dec 2003                                         -  10,223,166    (10,223,166)          -          -           -            -
Common Stock issued
pursuant to subscription
at $2.50 share in Jan 2004                        41,600      20,800         83,200    (104,000)         -           -            -
Common stock issued in
exchange for consulting
services at $2.95 per
share, Jan 2004                                   13,040       6,520         31,948           -          -           -       38,468
Common stock issued in
exchange for consulting
services at $2.60 per
share, Jan 2004                                  123,000      61,500        258,300           -          -           -      319,800
Common stock issued in
exchange for consulting
 services at $3.05 per
share, Jan 2004                                    1,000         500          2,550           -          -           -        3,050

 See accompanying notes to unaudited condensed consolidated financial statements

                                      F-40

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                                DECEMBER 31, 2004
                                   (Continued)
                                                                        

                                                                                                              Deficit
                                                                          Additional                         Accumulated
                                     Preferred                             Paid in    Common       Stock       During
                          Preferred   Shares     Common     Common Stock   Capital    Stock     Subscription  Development
                            Shares     Amount    Shares        Amount       Amount   Subscribed   Receivable    Stage        Total
                          ---------   -------  ----------     -------       ------   ----------   ----------    -------     --------

Common stock issued in
exchange for employee
services at $3.07 per
share, Feb 2004                                    6,283       3,142         16,147           -          -           -       19,288
Common stock issued in
exchange for consulting
services at $3.04 per
share, Mar 2004                                   44,740      22,370        113,640           -          -           -      136,010
Common Stock issued for
options exercised at
$1.00 per share in Mar
2004                                              55,000      27,500         27,500           -          -           -       55,000
Common stock issued in
exchange for employee
services at $3.00 per
share, Mar 2004                                    5,443       2,722         13,623           -          -           -       16,344

 See accompanying notes to unaudited condensed consolidated financial statements


                                      F-41


                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                                DECEMBER 31, 2004
                                   (Continued)
                                                                           Deficit
                                                                          Additional                         Accumulated
                                     Preferred                             Paid in    Common       Stock       During
                          Preferred   Shares     Common     Common Stock   Capital    Stock     Subscription  Development
                            Shares     Amount    Shares        Amount       Amount   Subscribed   Receivable    Stage        Total
                          ---------   -------  ----------     -------       ------   ----------   ----------    -------     --------
Common stock issued in
exchange for employee
services at $3.15 per
share, Mar 2004                                  5,769          2,885         15,293       -              -       -        18,177
Preferred shared
converted to common
shares for consulting
services at $3.00per
share, Mar 2004              5000      5       125,000         62,500        312,500       -              -       -       374,995
Common stock issued in
exchange for employee
services at $3.03 per
share, Mar 2004                                  8,806          4,403         22,236       -              -       -        26,639
Common Stock issued
pursuant to
subscription at $2.50
per share in Mar. 2004                          22,500         11,250         (9,000)      -              -       -         2,250
Beneficial Conversion
Feature relating
to Notes Payable                                     -              -        122,362       -              -       -       122,362
Beneficial Conversion
Feature relating
to Warrants                                          -              -        177,638       -              -       -       177,638
Common stock issued in
exchange for consulting
services at $2.58 per
share, Apr 2004                                  9,860          4,930         20,511       -              -       -        25,441
Common stock issued in
exchange for consulting
services at $2.35 per
share, Apr 2004                                 11,712          5,856         21,667       -              -       -        27,523
Common stock issued in
exchange for consulting
services at $1.50 per
share, Apr 2004                                367,500        183,750        367,500       -              -       -       551,250
Common stock returned
to treasury at
$0.065 per share,
Apr 2004                                       (50,000)       (25,000)        21,750       -              -       -        (3,250)
Preferred stock
converted to common
stock for consulting
services at $1.01
per share in May 2004        4000      4       100,000         50,000         51,250       -              -       -       101,246
Common stock issued per
subscription May 2004                           10,000          5,000         (4,000)      -         (1,000)      -             -
Common stock issued in
exchange for consulting
services at $0.86 per
share in May 2004                              137,000         68,500         50,913       -              -       -       119,413
Common stock issued in
exchange for consulting
services at $1.15 per
share in May 2004                               26,380         13,190         17,147       -              -       -        30,337
Common stock returned to
treasury at $0.065 per
share, Jun 2004                                 (5,000)        (2,500)         2,175       -              -       -          (325)


 See accompanying notes to unaudited condensed consolidated financial statements

                                      F-42

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                                DECEMBER 31, 2004
                                   (Continued)
                                                                         Deficit
                                                                          Additional                         Accumulated
                                     Preferred                             Paid in    Common       Stock       During
                          Preferred   Shares     Common     Common Stock   Capital    Stock     Subscription  Development
                            Shares     Amount    Shares        Amount       Amount   Subscribed   Receivable    Stage        Total
                          ---------   -------  ----------     -------       ------   ----------   ----------    -------     --------
Common stock issued in
exchange for consulting
services at $0.67 per
share in June 2004                              270,500         135,250      45,310           -         -            -      180,560
Common stock issued in
exchange for consulting
services at $0.89 per
share in June 2004                                8,000           4,000       3,120           -         -            -        7,120
Common stock issued in
exchange for consulting
services at $0.65 per
share in June 2004                               50,000          25,000       7,250           -         -            -       32,250
Common stock issued
pursuant to private
placement at $1.00
per share in June 2004                          250,000         125,000     125,000           -         -            -      250,000
Common stock issued in
exchange for consulting
services at $0.54 per
share in July 2004                              100,000          50,000       4,000           -         -            -       54,000
Common stock issued in
exchange for consulting
services at $0.72 per
share in July 2004                                5,000           2,500       1,100           -         -            -        3,600
Common stock issued in
exchange for consulting
services at $0.47 per
share in July 2004                              100,000          50,000      (2,749)          -         -            -       47,251
Common stock issued in
exchange for consulting
services at $0.39 per
share in August 2004                            100,000          50,000     (11,000)          -         -            -       39,000
Preferred stock converted
to common stock for
consulting services at
$0.39 per share in
August 2004                  (2000)   (2)        50,000          25,000      (5,500)          -         -            -       19,498


 See accompanying notes to unaudited condensed consolidated financial statements

                                      F-43

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                                DECEMBER 31, 2004
                                   (Continued)
                                                                           Deficit
                                                                          Additional                         Accumulated
                                     Preferred                             Paid in    Common       Stock       During
                          Preferred   Shares     Common     Common Stock   Capital    Stock     Subscription  Development
                            Shares     Amount    Shares        Amount       Amount   Subscribed   Receivable    Stage        Total
                          ---------   -------  ----------     -------       ------   ----------   ----------    -------     --------



Common stock issued in
exchange for consulting
services at $0.50 per
share in August 2004                            100,000          50,000         250                                          50,250
Common stock issued in
exchange for consulting
services at $0.56 per
share in August 2004                            200,000         100,000      12,500           -         -            -      112,500
Common stock issued in
exchange for consulting
services at $0.41 per
share in August 2004                             92,500          46,250      (8,787)          -         -            -       37,463
Common stock issued in
exchange for consulting
services at $0.52 per
share in September 2004                       1,000,000         500,000      17,500           -         -            -      517,500
Common stock issued in
exchange for consulting
services at $0.46 per
share in September 2004                           5,000           2,500        (212)          -         -            -        2,288
Common stock issued
pursuant to subscription
at  $0.50 per share in
September 2004                                   40,000          20,000           -           -         -            -       20,000
Preferred shares
converted to common
stock for consulting
services at $0.41
per share in September
2004                       (4000)   (4)         100,000          50,000       4,000           -         -            -       53,996
Preferred shares issued
in exchange for service
at $25 per share in
September 2004            60,000     6                                    1,499,994                                       1,500,000
Warrants issued to
consultants in the
fourth quarter 2004                                                       2,019,862                                       2,019,862


Net Loss                                              -               -           -           -         -  (19,358,259) (19,358,259)

Balance at
September 30, 2004        60,000    $6       23,981,054      11,990,527   6,118,993           -    (1,000) (22,815,034)  (4,706,508)
                          ======    ==       ==========      ==========   =========      ========  ======= ============  ===========

 See accompanying notes to unaudited condensed consolidated financial statements

                                      F-44

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                                DECEMBER 31, 2004


                                                                                                              Deficit
                                                                          Additional                         Accumulated
                                     Preferred                             Paid in    Common       Stock       During
                          Preferred   Shares     Common     Common Stock   Capital    Stock     Subscription  Development
                            Shares     Amount    Shares        Amount       Amount   Subscribed   Receivable    Stage        Total
                          ---------   -------  ----------     -------       ------   ----------   ----------    -------     --------
Common stock issued 
in exchange for 
consulting services 
at $0.68 per share 
in October 2004                 -         -      200,000      100,000      36,000            -            -           -     136,000

Common stock returned
to treasury at $0.60 
per share, Oct 2004             -         -   (1,069,600)    (534,800)   (107,298)           -            -           -    (642,098)

Common stock issued 
in exchange for 
consulting services at 
$0.60 per share in 
October 2004                    -         -       82,500       41,250       8,250            -            -           -      49,500

Common Stock issued 
pursuant to subscription 
at $0.60 share in 
October 2004                    -         -      500,000      250,000      50,000     (300,000)           -           -           -

Common stock issued in 
exchange for consulting 
services by noteholders 
at $0.50 per share
in October 2004                 -         -      532,500      266,250           -            -            -           -     266,250

Common Stock issued 
pursuant to subscription 
at $0.50 share in 
October 2004                    -         -      500,000      250,000           -            -            -           -     250,000

Common Stock issued pursuant
to subscription at $0.45 
share in October 2004           -         -    1,000,000      500,000     (50,000)    (450,000)           -           -           -

Common stock issued in 
exchange for consulting 
services by noteholders
at $0.45 per share
in October 2004                 -         -      315,000      157,500     (15,750)           -            -           -     141,750

Common Stock issued in 
exchange for consulting 
services at $0.47 share 
in November 2004                -         -      100,000       50,000      (3,000)           -            -           -      47,000


Common Stock issued in 
exchange for consulting 
services at $0.80 share 
in November 2004                -         -      300,000      150,000      90,000            -            -           -     240,000

Common Stock issued in 
exchange for consulting 
services at $1.44 share 
in November 2004                -         -      115,000       57,500     108,100            -            -           -     165,600

Common Stock issued in 
exchange for employee 
services at $1.44 share 
in November 2004                -         -        5,000        2,500       4,700            -            -           -       7,200

 See accompanying notes to unaudited condensed consolidated financial statements

                                      F-45

                            APPLIED DNA SCIENCES, INC
                          (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
          FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
                                DECEMBER 31, 2004




Common Stock issued in 
exchange for employee 
services at $0.60 share 
in November 2004                -         -       60,000       30,000       6,000       (4,000)           -           -      32,000

Beneficial Conversion 
discount relating to 
Notes Payable                   -         -            -            -     936,541            -            -           -     936,541

Beneficial Conversion 
Feature relating to 
Warrants                        -         -            -            -     528,459            -            -           -     528,459

Common stock issued at 
$0.016 in exchange for 
note payable in December 
2004                                           5,500,000    2,750,000  (2,661,500)                                           88,500

Common Stock issued in 
exchange for consulting 
services at $1.44 share 
in December 2004                -         -    5,796,785    2,898,393   5,418,815            -            -           -   8,317,207
 
Common stock issued 
pursuant to subscription 
at  $0.50 per share in 
December 2004                   -         -    2,930,000    1,465,000           -     (125,000)           -           -   1,340,000

Warrants issued to 
consultants in 
Dec. 2004                       -         -                               394,698                                           394,698

Net Loss                        -         -            -            -           -            -            - (12,365,136)(12,365,136)
                          ---------   -------  ----------  ----------  ----------    -----------  --------- ------------ -----------
                           60,000         6   40,848,239   20,424,120  10,863,008     (879,000)      (1,000)(35,180,171) (4,773,035)
                          =========   ======= ===========  ==========  ==========    ===========  ========= ============ ===========


 See accompanying notes to unaudited condensed consolidated financial statements

                                      F-46


                           APPLIED DNA SCIENCES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)


                                                                                                                   For the period 
                                                                                                                    September 16,
                                                                                                                    2002 (date of 
                                                                                  For The Three Months Ended      inception) through
                                                                                         December 31,               December 31,    
                                                                                    2004               2003               2004
                                                                                    ----               ----               ----
                                                                                                                 
Cash flows from operating activities:
Net loss from operating activities ........................................      $(12,365,136)      $(7,542,490)    $(35,180,170) 
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation ..............................................................             4,721               351            7,882
Organizational Expenses ...................................................                                               88,500
Preferred Shares issued in exchange for service ...........................              --              --            1,500,000

Warrants issued to consultants .......................... .................           394,698            --            2,414,560

Amortization of beneficial conversion feature-convertible notes............         1,515,000           133,273        3,140,000
Common stock issued in exchange for consultant services rendered ..........         9,366,507         6,625,368       21,764,239
Common stock canceled-previously issued for services rendered .............          (642,605)         (282,000)        (928,180)

Changes in Assets and Liabilities:

Increase in-other assets ..................................................        (1,065,318)           --           (1,079,208)
Increase  in due related parties            ................................             1,523           --              154,219

Increase (decrease) in accounts payable and accrued liabilities ...........         1,203,816           (61,589)       2,959,525
                                                                                 ------------      ------------     ------------

Net cash used in operating activities .....................................        (1,586,794)       (1,127,087)      (5,158,633)
                                                                                                                    ------------
Cash flows from investing activities:

Payments for patent filing ................................................            (4,347)           --              (25,698)
Payments for security deposits ............................................           (24,026)          (23,559)         (47,585)
Capital expenditures ......................................................                (0)          (29,507)         (29,507)
                                                                                 ------------      ------------     ------------

Net cash used in investing activities .....................................           (28,373)          (53,066)        (102,790)
                                                                                                                    ------------
Cash flows from financing activities:
Proceeds from sale of common stock, net of cost ...........................              --             266,000          432,000
Proceeds from subscription of common stock ................................           250,000           104,000          375,000
Proceeds from sale of options .............................................            36,000            32,000          277,000
Advances from shareholders ................................................              --              34,004          100,088
Proceeds from notes payablele..............................................         1,390,000         1,175,030        4,140,000
                                                                                 ------------      ------------     ------------

Net cash provided by financing activities .................................         1,676,000         1,611,034        5,324,088
                                                                                                                    ------------ 

Net increase in cash and cash equivalents .................................            60,833           430,881           62,665
Cash and cash equivalents at beginning of period ..........................             1,832           193,471             --
Cash and cash equivalents at end of period ................................      $     62,665       $   624,352     $     62,665
                                                                                 ============      ============     ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest ......................................              --              --                 --
Cash paid during period for taxes .........................................              --              --                 --

Non-cash transaction
Common stock issued for services ..........................................         9,366,507         6,625,368       21,765,239
Common stock canceled-previously issued for services rendered .............          (642,605)         (282,000)        (928,180)
Common stock retired ......................................................              --              --                 --
Deferred financing  costs .................................................                          200,000.00             --
Beneficial conversion feature related to notes payable ....................           936,541      1,168,474.00        2,321,812
Beneficial conversion feature related to warrants .........................           528,459        206,526.00          818,188

Preferred Shares in exchange for services..................................                                            1,500,000
Warrants issued to consultants ............................................           394,698            --            2,414,560

Acquisition:
Common stock retained .....................................................                                                1,015
Assets acquired ...........................................................                                                 (135)
                                                                                                                    ------------
Total consideration paid ..................................................                                                  880
                                                                                                                    ------------
Organization expenses - note issued in excahnge of shares retired .........                                               88,500

Common stock issued in exchange for note payable ..........................            88,500            --               88,500

 See accompanying notes to unaudited condensed consolidated financial statements

                                       F-47

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)

            
NOTE A - SUMMARY OF ACCOUNTING POLICIES

General

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

In the opinion of management,  all adjustments  (consisting of normal  recurring
accruals)  considered  necessary  for a fair  presentation  have been  included.
Operating  results for the  three-month  period  ended  December 31, 2004 is not
necessarily  indicative  of the results  that may be expected for the year ended
September 30, 2005. The unaudited condensed  consolidated  financial  statements
should be read in conjunction with September 30, 2004 financial statements.

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.  The  Company  is in the
development  stage , as defined by Statement of Financial  Accounting  Standards
No. 7 ("SFAS No. 7") and its efforts have been principally devoted to developing
DNA embedded biotechnology security solutions in the United States. To date, the
Company has generated  nominal  sales  revenues,  has incurred  expenses and has
sustained  losses.  Consequently,  its  operations  are subject to all the risks
inherent in the establishment of a new business enterprise.  For the period from
inception  through  December 31,  2004,  the Company has  accumulated  losses of
$35,180,171

The consolidated  financial  statements include the accounts of the Company, and
its wholly-owned  subsidiary  ProHealth Medical  Technologies,  Inc. Significant
inter-company transactions have been eliminated in Consolidation.

Reclassification

Certain prior period amounts have been reclassified for comparative purposes.

Property and Equipment

Property and equipment are stated at cost and  depreciated  over their estimated
useful  lives of 3 to 5 years using the straight  line  method.  At December 31,
2004 property and equipment consist of:

                                               December 31, 2004
                                               -----------------

Furniture                                             $   29,507
Accumulated depreciation                                   1,756
                                               =================
Net                                                   $   27,751

Advertising

The  Company  will  follow a policy  of  charging  the costs of  advertising  to
expenses  incurred.  The Company  incurred  advertising  costs of $4,490 and $0,
respectively  during  the  three  months  ended  December  31,  2004.

Intangible Assets

Intangible  assets  are  amortized  using the  straight-line  method  over their
estimated  period of benefit,  ranging  from one to ten years.  We  periodically
evaluate the recoverability of intangible assets and take into account events or
circumstances  that warrant  revised  estimates of useful lives or that indicate
that  an  impairment  exists.  All of  our  intangible  assets  are  subject  to
amortization.

                                      F-48

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)


NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)

Intangible Assets (continued)


At December 31, 2004, intangible assets consist of:

                                                             December 31,
                                                                 2004

       Intangible assets                                        $ 34,257
       Accumulated amortization                                   (6,126)
                                                             -----------

       Net Intangible Assets                                    $ 28,131
                                                             ===========



Restricted Cash
Per terms of the December  Promissory Note Payable  agreement dated December 20,
2004,  all proceeds  received from note holders  remain in escrow subject to (1)
the filing of a Definitive  Information  Statement that increases the authorized
Common Stock and reduces par value,  and (2) the closing of a Private  Placement
for $1  million  or more and in the  event  of such  occurrence  the  Note  will
automatically  without  notice to the note  holder,  in to  Common  Stock of the
Company,  at any time at $0.50 per share plus 100%  warrant  coverage  with said
warrant  being  exerciseable  at $0.75 per share for a period of three years and
callable at $1.25 after the underlying  stock is registered if said stock trades
at above $1.25 per share for 10 days - See Note F.

Stock Based Compensation

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS 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  SFAS  No.  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 Company has chosen to continue to account
for stock-based  compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related  interpretations.  Accordingly,  compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the  Company's  stock at the date of the grant  over the  exercise  price of the
related option. The Company has adopted the annual disclosure provisions of SFAS
No. 148 in its financial  reports for the year ended  September 30, 2003 and for
the subsequent periods.

Had compensation  costs for the Company's stock options been determined based on
the fair value at the grant dates for the  awards,  the  Company's  net loss and
losses  per share  would  have been as  follows  (transactions  involving  stock
options issued to employees and Black-Scholes model assumptions are presented in
Note E):


                                      F-49

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)



 NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)

Stock Based Compensation (Continued)




                                                                                                   For the Period
                                                                                                    September 16,
                                                                                                    2002 (Date of
                                                                 For The Three     For The Three      Inception)
                                                                  Months ended     Months ended        through
                                                                  December 31,     December 31,      December 31,
                                                                      2004             2003              2004
                                                                                                       
Net loss - as reported                                             $ (12,365,136)    $(7,542,490)     $(35,180,171)

Add:   Total  stock  based   employee   compensation   expense
as reported under intrinsic value method (APB. No. 25)                         -               -                 -
Deduct:  Total stock based  employee  compensation  expense as
reported under fair value based method (SFAS No. 123)                          -               -                 -
                                                                               -               -                 -
Net loss - Pro Forma                                               $ (12,365,136)
                                                                                     $(7,542,490)    $ (35,180,171)
Net loss attributable to common stockholders - Pro forma
                                                                   $ (12,365,136)    $(7,542,490)    $ (35,180,171)
                                                                   ==============    ============    ==============
Basic (and assuming dilution) loss per share - as reported         $       (0.45)    $     (0.40)    $       (1.28)
                                                                   ==============    ============    ==============
Basic (and assuming dilution) loss per share - Pro forma           $       (0.45)    $     (0.40)    $       (1.28)
                                                                   ==============    ============    ==============

NOTE B - MERGER

Acquisition

On  October  21,  2002,   the  Company   completed  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 entity with no significant assets and liabilities


                                      F-50

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)

NOTE B - MERGER (Continued)

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 10,178,352  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 SFAS No. 141, the Company is the acquiring entity.

Effective with the Merger,  ProHealth  changed its name to Applied DNA Sciences,
Inc.

The total purchase price and carrying value of net assets  acquired of ProHealth
was $1. The net assets acquired were as follows:

       Common stock retained by  ProHealth shareholders          $1,015
       Assets acquired                                             (135)
       Total consideration paid                                    $880

In accordance with SOP 98-5, the Company expensed $880 as organization costs.


NOTE C - RELATED PARTY TRANSACTIONS

At December 31, 2004, notes payable are as follows:


                                                                                      December
                                                                                       31, 2004
                                                                                      ----------

                                                                                     
Note payable , related party, together with interest at 8% per annum, unsecured.
Upon default,  the Company issued noteholder 7.5 million shares of the Company's
common stock. The noteholder retained 2 million shares and set aside 3.5 million
in escrow as third party deferred compensation for a future transaction              $        -

Note payable,  unsecured,  related party,  payable from August 1, 2005, right to
convert to restricted stock in lieu of cash, rate of interest 4%, 160,000 shares
prior to October 31, 2005 or 180,000 shares after that date. 425,000

Due to  ex-president,  in  September  2004,  note holder  entered into a private
transaction,  selling a total of 2,500,000  shares to him, after which he loaned
all proceeds of $600,000 to us. 600,000

Note payable,  ex-officer of the Company,  due $100,000 upon first funding,  20%
rate of interest, or 100,000 shares at par value of $0.001                               100,000
                                                                                      ----------

                                                                                       1,125,000

Less: current portion                                                                  1,125,000
                                                                                      ----------
Note payable - long-term                                                              $        -
                                                                                      ----------


Included  in  current  liabilities  is  $61,943  at  December  31,  2004,  which
represents  advances from the stockholders of the Company.  No formal agreements
or repayment terms exist.

Also,  the Company owed  $168,857 at December 31, 2004 to the  stockholders  and
other related parties towards accrued expenses.

The  Company  leases  office  space under a sub lease  agreement  with an entity
controlled by a significant former shareholder of the Company.

                                      F-51

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)

NOTE C - RELATED PARTY TRANSACTIONS (Continued)

The Company has entered into long term employment and consulting agreements with
Company's  President and Chief Executive  Officer and an entity  controlled by a
former significant Company shareholder, respectively.

NOTE D - CAPITAL STOCK

The Company is authorized to issue  10,000,000  shares of preferred stock with a
$.001 par value per share. The Company is authorized to issue 100,000,000 shares
of common stock,  with a $0.50 par value per share. In January 2004, the Company
passed a resolution  authorizing  change in the par value per common shares from
$0.0001 per share to $0.50 per share.  As of December 31, 2004,  the Company has
issued and outstanding 40,848,239 common share with par value of $0.50 per share
and 60,000 convertible preferred shares with par value of $0.0001.

During the period  September 16, 2002 through  September  30, 2003,  the Company
issued 100,000 shares of common stock in exchange for  reimbursement of services
provided by the founders of the Company. The Company valued the shares issued at
approximately  $1,000,  which represents the fair value of the services received
which did not differ materially from the value of the stock issued.

In  October,  2002,  the Company  issued  10,178,352  shares of common  stock in
exchange for the previously  issued 100,000 shares to the Company's  founders in
connection with the merger with Prohealth  Medical  Technologies,  Inc (see Note
B).

In October,  2002 the Company  canceled 100,000 shares of common stock issued to
the Company's founders.

In October 2002 the Company  issued  602,000  shares of common stock in exchange
for  services  valued at $ 0.065 per share.  In  accordance  with EITF 96-18 the
measurement  date to determine fair value was in October 2002. 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.

In November and December 2002, the Company issued 876,000 shares of common stock
in exchange for subscription at $ 0.065 per share. In accordance with EITF 96-18
the  measurement  date to determine fair value was in October 2002. 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.

In January 2003, the Company  canceled 836,000 shares of common stock previously
issued in exchange for consulting services.

In January 2003, the Company issued 1,500,000 shares of common stock in exchange
for a licensing  agreement (see Note H). The Company valued the shares issued at
approximately $ .065 per share,  which  represents the fair value of the license
received which did not differ materially from the value of the stock issued. The
Company charged the cost of the license to operations.

In January 2003,  the Company  issued 586,250 shares of common stock in exchange
for consulting  services.  In accordance with EITF 96-18 the measurement date to
determine  fair  value  was in  October  2002.  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  $0.13 per
share,  which  presents  the fair value of the services  received  which did not
differ materially from the value of the stock issued.

In February  2003,  the Company  issued 9,000 shares of common stock in exchange
for consulting  services.  In accordance with EITF 96-18 the measurement date to
determine  fair  value  was in  October  2002.  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.

                                      F-52

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

In March 2003, the Company issued 10,140,000 shares of common stock to Company's
founders in exchange for services. In accordance with EITF 96-18 the measurement
date to determine fair value was in September 2002. 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  $0.0001 per
share,  which  presents  the fair value of the services  received  which did not
differ materially from the value of the stock issued.

In March 2003,  the Company issued 91,060 shares of common stock in exchange for
consulting services. The Company valued the shares issued at approximately $2.53
per share,  which  represents the fair value of the services  received which did
not differ materially from the value of the stock issued.

In March 2003,  the Company  issued 6,000 shares of common stock in exchange for
consulting  services.  The Company valued the shares issued at  approximately  $
0.065 per share,  which represents the fair value of the services received which
did not differ materially from the value of the stock issued.
In March 2003,  the Company  received  subscription  for 18,000 shares of common
stock in exchange for cash at $1 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 2002. 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 of 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 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 2002. 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 2002. 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.

                                      F-53

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

On June 30, 2003, the Company  received  $10,000 as subscription  for options to
purchase the Company's common stock at $1.00 per share.

In June, 2003, the Company received $48,000 in connection with a subscription to
purchase the Company's common stock pursuant to a private placement.

In connection with the Company's acquisition of ProHealth, the controlling owner
of ProHealth  granted the Company an option to acquire up to 8,500,000 shares of
the  Company's  common stock in exchange  for $100,000  (see Note B). The option
expires on December 10, 2004. On June 30, 2003, the Company exercised its option
and acquired  7,500,000  common  shares under this  agreement in exchange for an
$88,500 convertible promissory note payable to the former controlling owner. The
Company  has an option  through  December  10,  2004 to  acquire  the  remaining
1,000,000 shares from the former  controlling owner in exchange for $11,500.  On
June 30, 2003, the Company retired the 7,500,000 shares common acquired pursuant
to the option agreement.

In July 2003 the Company  issued  213,060  shares of common stock for consulting
services  provided  to the  Company.  The  Company  valued the shares  issued at
approximately $ 2.01 per share,  which represents the fair value of the services
received which did not differ materially from the value of the stock issued.

In July 2003,  the Company  canceled  24,000 shares of common stock,  previously
issued for services valued at $2.50 per share.

In July 2003, the Company  received  $20,000 in exchange for  previously  issued
options to purchase the Company's common stock at $1.00 per share.

In July  2003,  the  Company  issued  10,000  shares  of  common  stock for cash
previously subscribed at $1.00 per share.

In August 2003,  the Company  issued  172,500 shares of common stock in exchange
for consulting  services provided to the Company.  The Company valued the shares
issued at approximately $ 2.38 per share, which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued

In August 2003, the Company received  $29,000 in exchange for previously  issued
options to purchase the Company's common stock at $1.00 per share.

In September 2003, the Company issued 395,260 shares of common stock in exchange
for consulting  services provided to the Company.  The Company valued the shares
issued at approximately $ 2.42 per share, which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In September  2003,  the Company  issued  19,200 shares of common stock for cash
previously subscribed at $2.50 per share.

In  September  2003,  the Company  issued 6,400 shares of common stock issued in
exchange for cash at $2.50 per share pursuant to private placement.

In September  2003,  the Company  received  $95,000 in exchange  for  previously
issued options to purchase the Company's common stock at $1.00 per share.

In  September  2003,  the  Company  received   $300,000  in  connection  with  a
7subscription  to purchase  the  Company's  common  stock  pursuant to a private
placement.


                                      F-54

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)


NOTE D - CAPITAL STOCK (continued)

The Company valued the shares issued for  consulting  services at the rate which
represents  the  fair  value  of the  services  received  which  did not  differ
materially from the value of the stock issued.

In October 2003, the Company issued 15,000 shares of convertible preferred stock
in exchange for services. The Company valued the shares issued at the $15 par
value and recorded the value for services when the shares were converted into
common shares as identified below.

In October 2003,  the Company  issued 287,439 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$2.85 per share for a total of $820,418,  which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In October 2003,  the Company  issued  120,000 shares of common stock for shares
previously subscribed at $2.50 per share in September 2003.
In October 2003, the Company  canceled 100,000 shares of common stock previously
issued in exchange for services at $2.50 per share.

In November  2003, the Company issued 100,000 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$3.00 per share,  which represents the fair value of the services received which
did not differ materially from the value of the stock issued.

In November 2003, the Company sold 100,000 shares of common stock subscribed for
cash at $2.50 per share pursuant to private placement.

In December 2003,  the Company sold 6,400 shares of common stock  subscribed for
cash at $2.50 per share pursuant to private placement.

In  December  2003,  the  Company  issued  2,125,500  shares of common  stock in
exchange for  consulting  services.  . The Company  valued the shares  issued at
approximately  $2.59 per share,  which represents the fair value of the services
received which did not differ materially from the value of the stock issued.

In December 2003, the Company  received  $104,000 in exchange for a common stock
subscription at $2.50 per share pursuant to private placement.

In January 2004, the Company issued 41,600 shares of common stock at $2.50 share
pursuant to a subscription made on December 2003.

In January 2004,  the Company  issued 13,040 shares of common stock at $2.95 per
share in exchange for consulting services valued at $38,468.

In January 2004,  the Company issued 123,000 shares of common stock at $2.60 per
share in exchange for consulting services valued at $319,800.

In January  2004,  the Company  issued 1,000 shares of common stock at $3.05 per
share in exchange for consulting services valued at $3,050.

In February  2004,  the Company issued 6,283 shares of common stock at $3.07 per
share in exchange for employee services valued at $19,288.

In March 2004,  the Company  issued  44,740  shares of common stock at $3.04 per
share in exchange for consulting services valued at $136,010.

                                      F-55

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

In March 2004, the Company  issued 55,000 of common stock for options  exercised
at $1.00 per share.

In March 2004,  the Company  issued  5,443  shares of common  stock at $3.00 per
share in exchange for employee services valued at $16,344.

In March 2004,  the Company  issued  5,769  shares of common  stock at $3.15 per
share in exchange for employee services valued at $18,177.

In March 2004, the Company  converted 5,000 preferred shares into 125,000 shares
of common stock at $3.00 per share in exchange for employee  services  valued at
$375,000.

In March 2004,  the Company  issued  8,806  shares of common  stock at $3.03 per
share in exchange for employee services valued at $26,639.

In April 2004,  the Company  issued  22,500  shares of common stock at $0.10 for
subscription of warrants to be exercised.

In April 2004,  the Company  issued  9,860  shares of common  stock at $2.58 per
share in exchange for employee services valued at $25,441.

In April 2004,  the Company  issued  11,712  shares of common stock at $2.35 per
share in exchange for consulting services valued at $27,523.

In April 2004,  the Company  issued  367,500 shares of common stock at $1.50 per
share in exchange for consulting services valued at $551,250.

In April 2004,  the Company  retired  50,000  shares of common stock  previously
issued for consulting services at $0.065 per share or $3,250.

In May 2004, the Company converted 4,000 preferred shares into 100,000 shares of
common stock at $1.01 per share in exchange for  consulting  services  valued at
$101,250.

In May 2004, the Company issued 10,000 shares of common stock at $0.10 per share
in a stock subscription for $1,000.

In May 2004,  the Company  issued  137,000  shares of common  stock at $0.86 per
share in exchange for consulting services valued at $119,233.

In May 2004, the Company issued 26,380 shares of common stock at $1.15 per share
in exchange for consulting services valued at $30,337.

In June 2004, the Company retired 5,000 shares of common stock previously issued
for consulting services at $0.065 per share or $325.

In June 2004,  the Company  issued  270,500  shares of common stock at $0.67 per
share in exchange for consulting services valued at $180,560.

In June 2004, the Company issued 8,000 shares of common stock at $0.89 per share
in exchange for consulting services valued at $7,120.

In June 2004,  the Company  issued  50,000  shares of common stock at $0.645 per
share in exchange for consulting services valued at $32,250.

In June 2004, the Company sold 250,000 shares of common stock at $1.00 per share
for total proceeds of $250,000 pursuant to private placement.

                                      F-56

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)


NOTE D - CAPITAL STOCK (continued)

In July 2004,  the Company  issued  100,000  shares of common stock at $0.54 per
share in exchange for consulting services valued at $54,000.

In July 2004, the Company issued 5,000 shares of common stock at $0.72 per share
in exchange for consulting services valued at $3,600.

In July 2004,  the Company  issued  100,000  shares of common stock at $0.47 per
share in exchange for consulting services valued at $47,250.

In August 2004, the Company  converted 2,000 preferred shares into 50,000 shares
of common stock at $0.39 in exchange for consulting services valued at $19,500.

In August 2004,  the Company  issued  100,000 shares of common stock at $0.39 in
exchange for consulting services valued at $39,000.

In August 2004,  the Company  issued  100,000 shares of common stock at $0.50 in
exchange for consulting services valued at $50,250.

In August 2004,  the Company  issued  200,000 shares of common stock at $0.56 in
exchange for consulting services valued at $112,500.

In September 2004, the Company issued  1,000,000 shares of common stock at $0.52
in exchange for consulting services valued at $517,500.

In September  2004, the Company issued 45,000 shares of common stock at $0.50 in
exchange for consulting services valued at $22,288.

In September 2004, the Company  converted  4,000  preferred  shares into 100,000
shares of common stock at $0.41 in exchange for  consulting  services  valued at
$54,000.

In September  2004, the Company issued 60,000  convertible  preferred  shares at
$25.00, in exchange for consulting services valued at $1,500,000.

In October 2004,  the Company  issued 200,000 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$0.68 per share for a total of $136,000,  which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In October  2004,  shareholders  returned  1,069,600  shares to treasury  issued
earlier in exchange for services valued at $642,098.

In October  2004,  the Company  issued 82,500 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$0.60 per share for a total of $49,500,  which  represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In October 2004, the Company sold 500,000 shares of common stock  subscribed for
cash at $0.60 per share pursuant to private placement.

In October 2004,  the Company  issued 532,500 shares of common stock to existing
noteholders.  The Company  valued the shares issued at  approximately  $0.50 per
share for a total of $266,250.

                                      F-57

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)


NOTE D - CAPITAL STOCK (continued)


In October 2004, the Company sold 500,000 shares of common stock  subscribed for
cash at $0.50 per share pursuant to private placement.

In October 2004,  the Company sold 1,000,000  shares of common stock  subscribed
for cash at $0.45 per share pursuant to private placement.

In October 2004,  the Company  issued 315,000 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$0.45 per share for a total of $141,750,  which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In November  2004, the Company issued 100,000 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$0.47 per share for a total of $47,000,  which  represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In November  2004, the Company issued 300,000 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$0.80 per share for a total of $240,000,  which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In November  2004, the Company issued 115,000 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$1.44 per share for a total of $165,600,  which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In November  2004,  the Company  issued 5,000 shares of common stock in exchange
for employee  services.  The Company  valued the shares issued at  approximately
$1.44 per share for a total of $7,200,  which  represents  the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In November  2004,  the Company issued 60,000 shares of common stock in exchange
for employee  services.  The Company  valued the shares issued at  approximately
$0.60 per share for a total of $36,000,  which  represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In December 2004,  the Company  issued net 5,500,000  shares of common stock for
default  as per terms of notes  payable  for  $88,500.  Out of total,  3,500,000
shares were  retained in escrow on behalf of another  party for future  deferred
compensation.

In  December  2004,  the  Company  issued  5,796,785  shares of common  stock in
exchange  for  consulting  services.  The  Company  valued the shares  issued at
approximately  $1.44 per share for a total of $8,317,207,  which  represents the
fair value of the services  received  which did not differ  materially  from the
value of the stock issued.

In December 2004, the Company issued 2,930,000 shares of common stock subscribed
for cash at $0.50 per share pursuant to the exercise terms of a promissory  note
payable.

                                      F-58

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)



NOTE D - CAPITAL STOCK (Continued)


In accordance with EITF 96-18 the  measurement  date to determine fair value 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 for
consulting  services at the rate which represents the fair value of the services
received which did not differ materially from the value of the stock issued.


NOTE E - STOCK OPTIONS AND WARRANTS

Warrants

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


                                                                                       
                                    Warrants Outstanding                                      Exercisable
                                         Remaining          Weighted          Weighted          Weighted
                         Number         Contractual         Average           Average           Average
 Exercise Prices      Outstanding       Life (Years)     Exercise Price     Exercisable      Exercise Price
 ---------------      -----------                        --------------     -----------      --------------
                                                                                  
        $0.10           335,000              4.54             $0.10           335,000             $0.10
        $0.50            50,000              4.77             $0.50            50,000             $0.50
        $0.60         6,322,750              4.30             $0.60         6,322,750             $0.60
        $0.70           750,000              2.58             $0.70           750,000             $0.70
        $0.75         2,830,000              2.98             $0.75         2,830,000             $0.75
        $1.00           386,000              0.79             $1.00           386,000             $1.00
        $3.00            62,503              1.00             $3.00            62,503             $3.00
                     ----------                                            ----------
                     10,736,253                                            10,736,253
                     ==========                                            ==========
Transactions involving warrants are summarized as follows:
                                                       Number of Shares          Weighted Average
                                                                                  Price Per Share
       Outstanding at September 30, 2004                      4,870,253                 $   0.63
          Granted                                             5,866,000                     0.68
          Exercised                                                   -                        -
          Canceled or expired                                         -                        -
                                                   --------------------                        -
       Outstanding at December 31, 2004                      10,736,253                 $   0.66
                                                   ====================                 ========

The estimated value of the  compensatory  warrants  granted to  non-employees in
exchange  for  services  and  financing   expenses  was  determined   using  the
Black-Scholes pricing model and the following assumptions: contractual term of 2
to 5 years,  a risk free  interest  rate of 4.25%,  a  dividend  yield of 0% and
volatility  of 22.9%.  The  amount of the  expense  charged  to  operations  for
compensatory  warrants  granted in exchange  for  services was $ 394,698 for the
three months ended December 31, 2004.

                                      F-59

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)



NOTE F - CONVERTIBLE PROMISSORY NOTES PAYABLE

A  summary  of  convertible  promissory  notes  payable  at  December  31,  2004
(Unaudited) is as follows:


                                                                     December 31, 2004
                                                                      (Unaudited)
                                                                                                
A)  Convertible  notes  payable  ("Bridge  Unit  Offering"),   in
quarterly installments of interest only at 10% per annum, secured
by all  assets  of the  Company  and  due on the  earlier  of the
9-month  anniversary date of the initial closing of the Offering,
or the  completion  of any equity  financing of $3M or more;  The
Company, in its sole discretion, may prepay principal at any time
without penalty.  The Notes are convertible into shares of common
stock of the Company at a price of $2.50 per share.                       1,675,000

Debt Discount - beneficial conversion feature, net of accumulated
amortization of $1,290,837 as of December 31, 2004                                -

Debt Discount - value attributable to warrants attached to notes,
net of  accumulated  amortization  of $384,163 as of December 31,
2004                                                                              -

B)  Convertible  notes  payable  totaling  $1,465,000  ("December
Promissory  Notes"),  at the  earlier of  Definitive  Information
Statement that increases the authorized  Common Stock and reduces
par value or the  completion  of any equity  financing  of $1M or
more bearing  interest at 6% per annum. The Notes are convertible
into  shares of common  stock of the  Company at a price of $0.50
per share.At  December 31, 2004,  convertible notes are converted
into common shares of the Company as per the terms                                -

Debt Discount - beneficial  conversion feature, net of accumulated  
amortization of $936,541 as of December 31, 2004.                                 -

Debt Discount - value attributable to warrants attached to notes,
net of  accumulated  amortization  of $528,459 as of December 31,                 -  
2004.                                                                   -----------  

                                                                        $ 1,675,000  
                                                                        ===========  

Convertible Debentures

During 2004,  the Company sold 33.5 units (the "Units") to accredited  investors
at a  price  of  $50,000  per  Unit  (the  "Bridge  Offering")  for a  total  of
$1,675,000.  Each Unit  consists of (i) a $50,000  Principal  Amount 10% Secured
Convertible  Promissory  Note  ("Note" or  "Notes"),  (ii)  warrants to purchase
50,000 shares of our common stock,  exercisable  for a period of five years at a
price of $0.60 per share ("$0.60 Warrant") and (iii) warrants to purchase 10,000
shares of our common stock, exercisable for a period of five years at a price of
$0.10 per share  ("$0.10  Warrant"  and  together  with the $0.60  Warrant,  the
"Warrants").  The Notes are  convertible  into  shares of our common  stock at a
price of $0.33 per share. 


                                      F-60

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)


NOTE F - CONVERTIBLE PROMISSORY NOTES PAYABLE (continued)


In  accordance  with  EMERGING  ISSUES  TASK FORCE ISSUE  98-5,  ACCOUNTING  FOR
CONVERTIBLE  SECURITIES  WITH A BENEFICIAL  CONVERSION  FEATURES OR CONTINGENTLY
ADJUSTABLE  CONVERSION RATIOS ("EITF 98-5"),  the Company recognized an imbedded
beneficial  conversion  feature present in the Bridge Offering note. The Company
allocated a portion of the proceeds equal to the intrinsic value of that feature
to additional paid in capital.  The Company recognized and measured an aggregate
of  $1,290,837 of the  proceeds,  which is equal to the  intrinsic  value of the
imbedded  beneficial  conversion  feature,  to additional  paid in capital and a
discount  against  the Bridge  Offering.  The debt  discount  attributed  to the
beneficial  conversion feature is amortized over the Bridge Offering's  earliest
maturity period of 9 months from the date of issue as interest expense.

In  connection  with the  placement of the Bridge  Offering  notes,  the Company
offered 100% warrant  coverage for each dollar of promissory  note,  exercisable
for a period of three years at a price of $0.75 per share ("$0.75 Warrant").  In
accordance with EMERGING ISSUES TASK FORCE ISSUE 00-27, APPLICATION OF ISSUE NO.
98-5 TO CERTAIN CONVERTIBLE  INSTRUMENTS ("EITF - 0027"), the Company recognized
the value  attributable  to the warrants in the amount of $384,163 to additional
paid in capital and a discount against the Bridge  Offering.  The Company valued
the warrants in accordance with EITF 00-27 using the Black-Scholes pricing model
and the following  assumptions:  contractual  terms of 5 years,  an average risk
free interest rate of 4.25%, a dividend  yield of 0.00%,  and volatility of 42%.
The debt discount  attributed  to the value of the warrants  issued is amortized
over the Bridge Offering's earliest maturity period of 9 months from the date of
issue as interest expense.

In December 2004, the Company sold  convertible  promissory  notes to accredited
investors in the aggregate of $1,465,000.  Each $1.00 is convertible into common
stock at $0.50 and includes 100% warrant  coverage to purchase our common stock,
exercisable  for a period of three  years at a price of $0.75 per share  ("$0.75
Warrant") and callable at $1.25 after the underlying stock is registered if said
stock trades at above $1.25 per share for 10 days - See Note A, Restricted Cash.

In  accordance  with  EMERGING  ISSUES  TASK FORCE ISSUE  98-5,  ACCOUNTING  FOR
CONVERTIBLE  SECURITIES  WITH A BENEFICIAL  CONVERSION  FEATURES OR CONTINGENTLY
ADJUSTABLE  CONVERSION RATIOS ("EITF 98-5"),  the Company recognized an imbedded
beneficial  conversion  feature present in the Bridge Offering note. The Company
allocated a portion of the proceeds equal to the intrinsic value of that feature
to additional paid in capital.  The Company recognized and measured an aggregate
of  $936,541  of the  proceeds,  which is equal  to the  intrinsic  value of the
imbedded  beneficial  conversion  feature,  to additional  paid in capital and a
discount  against  the Bridge  Offering.  The debt  discount  attributed  to the
beneficial  conversion feature was fully amortized over the fiscal first quarter
period as interest expense.

In  connection  with the  placement of the Bridge  Offering  notes,  the Company
offered 100% warrant  coverage for each dollar of promissory  note,  exercisable
for a period of three years at a price of $0.75 per share ("$0.75 Warrant").  In
accordance with EMERGING ISSUES TASK FORCE ISSUE 00-27, APPLICATION OF ISSUE NO.
98-5 TO CERTAIN CONVERTIBLE  INSTRUMENTS ("EITF - 0027"), the Company recognized
the value  attributable  to the warrants in the amount of $528,459 to additional
paid in capital and a discount against the Bridge  Offering.  The Company valued
the warrants in accordance with EITF 00-27 using the Black-Scholes pricing model
and the following  assumptions:  contractual  terms of 3 years,  an average risk
free  interest  rate of 4.25%,  a dividend  yield of 0.00%,  and  volatility  of
26.72%.  The debt discount  attributed  to the value of the warrants  issued was
fully amortized over the fiscal first quarter period as interest expense.



                                      F-61

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)


NOTE G- INCOME TAXES


The Company has adopted Financial Accounting Standard No. 109 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 bases of assets and
liabilities  using  enacted  tax  rates in  effect  for the  year in  which  the
differences  are  expected to reverse.  Temporary  differences  between  taxable
income  reported for  financial  reporting  purposes and income tax purposes are
insignificant.

At December 31, 2004, the Company has available for federal income tax purposes
a net operating loss carryforward of approximately $35,000,000,  expiring in the
year 2023,  that may be used to offset future  taxable  income.  The Company has
provided a valuation  reserve  against the full amount of the net operating loss
benefit,  since in the opinion of management  based upon the earnings history of
the Company,  it is more likely than not that the benefits will not be realized.
Due to  significant  changes in the Company's  ownership,  the future use of its
existing net operating losses may be limited.

Components of deferred tax assets as of December 31, 2004 are as follows:

                Non current:
                Net operating loss carryforward
                                                                  $12,000,000
                Valuation allowance                               (12,000,000)
                                                                  -----------
                Net deferred tax asse                             $         -
                                                                  ===========



                                      F-62

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)


NOTE H-LOSSES PER SHARE

The following  table  presents the  computation  of basic and diluted losses per
share:





                                         For the Three Months Ended  For the Three Months Ended
                                             December 31, 2004           December 31, 2003
                                             -----------------           -----------------
                                                                       
Loss available for common shareholders        $ (12,365,136)              $ (7,542,590)
                                             =================           =================
Basic and fully diluted loss per share        $       (0.45)              $      (0.41)
                                             =================           =================
Weighted average common shares outstanding       27,402,160                 18,503,162



Net loss per share is based upon the weighted  average of shares of common stock
outstanding



NOTE  I- COMMITMENTS AND CONTINGENCIES

Licensing Agreement

In October  2002,  the Company  entered  into an exclusive  Licensing  Agreement
("License")  with Biowell  Technology,  Inc., a company formed under the laws of
Taiwan, Republic of Taiwan. The initial term of the License expires in 2007 with
renewal  options  under  certain terms and  conditions.  The License  grants the
Company the exclusive  use of certain  patented DNA  technology,  along with the
rights to future  technology,  in exchange  for an initial  payment of 1,500,000
shares of the  Company's  restricted  common  stock (see Note D). The Company is
obligated to order minimum purchase orders or make future certain minimum annual
royalty payments as follows:


    Year ending                   Minimum purchase orders    Alternative Minimum
     October 8,                                                Royalty Payable
       2005                                  360,000                     -
       2006                                  432,000                     -
       2007                                  518,400                     -

Consulting Agreement

GP has been engaged, on a non-exclusive  basis, to provide advice and assistance
to the Company  regarding issues  associated with Applied DNA's  proprietary DNA
embedded  security  solutions.   GP  will  assist  the  Company  with  strategic
positioning  and  enhancement  of the  Company's  business,  and will assist the
Company in the development of domestic and  international  marketing  strategies
for the Company's DNA products and services.  The term of the  engagement is one
year from the effective  date,  with  automatic one year renewals  unless either
party expresses,  in writing,  an intention not to renew within 60 days prior to
the expiration of the term.

                                      F-63

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)

NOTE  I- COMMITMENTS AND CONTINGENCIES (Continued)

Consulting Agreements (continued)

As  compensation  for GP's  performance,  the Company  will pay GP an  aggregate
advisory fee of Two Million Dollars  ($2,000,000) payable in increments over the
term and renewal term. Two payments of $500,000 each were made by the Company in
September 2004 and January 2005. Thereafter,  eight payments of $125,000 are due
monthly over the period  February  through  September  2005.  Additionally,  the
Company will issue a net-exercisable  warrant to purchase shares of Common Stock
of the  Company  at a later  date.  Fees  were  placed  in  escrow  during  GP's
completion of its due diligence review.

All  promotional  materials of the Company,  on a going forward  basis,  will be
submitted  to GP for  its  review,  including  all  advertising,  written  sales
promotion,  press releases,  news clippings and other publicity matters relating
to GP's engagement and the strategic relationship created.


Franchising and Distribution Agreements

The  Company  has  entered  into  a  Distribution   and  Franchising   Agreement
("Franchise  Agreement")  in  July  2003.  Under  the  terms  of  the  Franchise
Agreement,  the  franchisee is obligated to pay the Company  $3,000,000  payable
$25,000 upon execution of the Franchise  Agreement and the balance of $2,975,000
payable  over five (5) years with  interest  accruing at 8% per annum.  Payments
under the  Franchise  Agreement  are subject to  franchisee's  net  profits,  as
defined, under the Franchise Agreement.

Note Payable Settlement

In  October  2004,  the  Company  defaulted  on a note held by a former  company
officer and  director in the amount of $88,500  (See Note C), and in  accordance
with the default,  the noteholder  had the right to demand that his  outstanding
note be converted back into 7,500,000 shares. The Company  subsequently  settled
the  matter  for  5,500,000  shares  with the  noteholder.  Included  within the
5,500,000  shares are  3,500,000  shares  retained in escrow for  negotiated  on
behalf of another party for future deferred compensation.

Litigation

Ex-officer was named as a defendant in a lawsuit  brought by an outside party in
the United States District Court for the Central District of California,  and in
that action,  Applied DNA was named as a "nominal  defendant."  The plaintiff is
alleging that the ex-officer violated the short swing rule. The Company believes
it has meritorious defenses and will prevail in this matter.



                                      F-64

                           APPLIED DNA SCIENCES, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2004
                                   (UNAUDITED)


NOTE I- COMMITMENTS AND CONTINGENCIES (Continued)

Operating Lease Commitments

The Company leases office space under operating lease in Los Angeles, California
for  its  corporate  use  from  an  entity  controlled  by  significant   former
shareholder,  expiring in November  2006.  Total lease  rental  expenses for the
three months ended on December 31, 2004 was $47,194.

Commitments for minimum rentals under non-cancelable lease at September 30, 2004
were as follows:

Year ended September 30,
2005                                            $ 139,308
2006                                              143,977
2007                                               12,031
                                              -----------
                                                $ 295,316


Employment and Consulting Agreements

The Company has employment  agreements  with the Company's  officers and certain
employees.  These  employment  agreements  provide for  salaries  and  benefits,
including  stock options and extend up to seven years. In addition to salary and
benefit  provisions,  the  agreements  include  defined  commitments  should the
employer terminate the employee with or without cause.

The Company has a consulting  agreement  with an entity  controlled  by a former
significant  shareholder of the Company.  The consulting  agreement provides for
compensation  and certain  benefits,  including  stock options and extends up to
seven years. In addition to compensation and benefit provisions,  the agreements
include defined commitments should the employer terminate the consultant with or
without cause.

The  Company has  consulting  agreements  with  outside  contractors  to provide
marketing and financial  advisory  services.  The Agreements are generally for a
term of 12 months from inception and renewable  automatically  from year to year
unless either the Company or consultant  terminates  such  engagement by written
notice.

NOTE J- SUBSEQUENT EVENTS

In January 2005,  the Company  arranged a $5.970  million  private  placement of
11.940  million  shares at $0.50 per share  along with 11.940  million  attached
warrants with an exercise price of $0.75 that expires in 5 years.

In January 2005,  holders of 1,675,000 of convertible  notes payable  elected to
convert their notes to common stock at $0.33 per share (See Note F).

On January  2005,  the Company  entered  into a stock  purchase  agreement  with
Biowell Technology Inc.,a Taiwan corporation ("Biowell"), whereby a to-be-formed
wholly-  owned  subsidiary  of the Company  would acquire a company to be formed
which would own all of the  intellectual  property  of Biowell in  exchange  for
36,000,000 shares of the Company's common stock to be issued to the shareholders
of Biowell.  The Acquisition Shares represent 50% of the total shares issued and
outstanding  on a fully diluted basis on the date of execution of the Agreement.
In February  2005,  the Company in a private  placement,  sold an  aggregate  of
$1,391,000 in secured convertible  promissory notes and 2,782,000 warrants.  The
notes bear interest at 10% per annum, mature one year from the date of issuance,
and are  convertible:  into shares of common  stock of the Company at a price of
$0.50 per share  (i) at the  holder's  option;  or (ii)  automatically  upon the
Company's filing of a registration  statement  registering the shares underlying
the notes and Warrants.

                                      F-65


                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

     Our Articles of  Incorporation,  as amended,  provide to the fullest extent
permitted  by Nevada law,  our  directors  or officers  shall not be  personally
liable to us or our  shareholders  for damages for breach of such  director's or
officer's  fiduciary  duty.  The effect of this  provision  of our  Articles  of
Incorporation,  as  amended,  is to  eliminate  our right  and our  shareholders
(through  shareholders'  derivative  suits on behalf of our  company) to recover
damages  against a director or officer for breach of the fiduciary  duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent  behavior),  except under certain  situations  defined by statute.  We
believe that the indemnification provisions in its Articles of Incorporation, as
amended,  are necessary to attract and retain qualified persons as directors and
officers. In addition, we have entered into indemnification  agreements with our
officers and directors.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors,  officers and controlling  persons of the
registrant pursuant to the foregoing  provisions,  or otherwise,  the registrant
has been advised that in the opinion of the Securities  and Exchange  Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore,  unenforceable. In the event that a claim for indemnification
against such  liabilities  (other than the payment by the registrant of expenses
incurred or paid by a director,  officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director,  officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been  settled by  controlling  precedent,  submit to a court of  appropriate
jurisdiction the question whether such  indemnification  by it is against public
policy as  expressed  in the  Securities  Act and will be  governed by the final
adjudication of such issue.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

     The following  table sets forth an itemization  of all estimated  expenses,
all of which we will pay, in connection  with the issuance and  distribution  of
the securities being registered:

NATURE OF EXPENSE AMOUNT


SEC Registration fee                $  6,571.87
Accounting fees and expenses          10,000.00*
Legal fees and expenses               40,000.00*
Miscellaneous                          3,428.13
                                    -----------
                         TOTAL       $60,000.00*
                                    ===========

* Estimated.


                                      II-1

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

On September 16, 2002, our  predecessor  issued 100,000  unregistered  shares of
common stock to its founders in exchange for services rendered,  which we valued
at $1,000.

On October 21, 2002, we issued 10,178,352 unregistered shares of common stock in
connection with the merger with Applied DNA Sciences,  Inc. We valued the shares
at $1,018.  our  predecessor  cancelled the  previously  issued and  outstanding
100,000 shares of common stock in October, 2002.

In  October  2002,  we issued  602,000  unregistered  shares of common  stock to
consultants as consideration for services rendered, which we valued at $39,130.

In  October  2002,  we issued  876,000  unregistered  shares of common  stock in
connection with a subscription agreement, which we valued at $56,940.

In January  2003,  we issued  1,500,000  unregistered  shares of common stock to
Biowell Technology,  Inc. as consideration for technology  licensing  agreement,
which we valued at $97,500.

In  January  2003,  we issued  586,250  unregistered  shares of common  stock to
consultants as consideration for services rendered, which we valued at $76,213.

In  February  2003,  we issued  9,000  unregistered  shares  of common  stock to
consultants as consideration for services rendered, which we valued at $585.

In March 2003, we issued 10,140,000  unregistered  shares of common stock to its
Founders as consideration for services rendered, which we valued at $1,014.

In  March  2003,  we  issued  91,060  unregistered  shares  of  common  stock to
consultants as consideration for services rendered, which we valued at $230,634.

In  March  2003,  we  issued  6,000  unregistered  shares  of  common  stock  to
consultants as consideration for services rendered, which we valued at $390.

In March  2003,  we  issued  860,000  unregistered  shares  of  common  stock to
consultants as consideration for services rendered, which we valued at $55,900.

In April 2003, we issued 18,000  unregistered shares of common stock in exchange
for $18,000.

In  April  2003,  we  issued  9,000  unregistered  shares  of  common  stock  to
consultants as consideration for services rendered, which we valued at $585.

In  April  2003,  we  issued  5,000  unregistered  shares  of  common  stock  to
consultants as consideration for services rendered, which we valued at $12,500.

In  June  2003,  we  issued  10,000  unregistered  shares  of  common  stock  to
consultants as consideration for services rendered, which we valued at $25,000.

In June 2003, we issued 50,000  unregistered  shares of common stock in exchange
for $50,000.

In June  2003,  we  issued  270,000  unregistered  shares  of  common  stock  to
consultants as consideration for services rendered, which we valued at $17,550.

In July  2003,  we  issued  213,060  unregistered  shares  of  common  stock  to
consultants as consideration for services rendered, which we valued at $428,818.

In July 2003, we issued 20,000  unregistered  shares of common stock in exchange
for $20,000.

                                      II-2

In July 2003, we issued 10,000  unregistered  shares of common stock in exchange
for $10,000.

In  August  2003,  we issued  172,500  unregistered  shares  of common  stock to
consultants as consideration for services rendered, which we valued at $410,930.

In August 2003, we issued 29,000 unregistered shares of common stock in exchange
for $29,000.

In September  2003,  we issued  395,260  unregistered  shares of common stock to
consultants as consideration for services rendered, which we valued at $952,997.

In September  2003,  we sold 16 units at $4,000 a unit,  for a total of $64,000.
Each Unit  consisted  of 1,600  shares of our Common Stock plus 500 Common Stock
Purchase  Warrants,  exercisable for a period of two years at a price of $3.50 a
share.

The  Warrants  are  exercisable  on a one for one basis at an exercise  price of
$3.50 per share for a two year  exercise  period from the date of  issuance.  In
September,  2003,  we issued  95,000  unregistered  shares  of  common  stock in
exchange for $95,000.

Between  October and December 2003, we sold 167.5 units for a total of $670,000.
Each Unit  consisted  of 1,600  shares of our Common Stock plus 500 Common Stock
Purchase  Warrants,  exercisable for a period of two years at a price of $3.50 a
share.

From November through December 2003, we sold 23.25 units to accredited investors
at a price of $50,000 per Unit for a total of $1,162,500.  Each Unit consists of
(i) a $50,000  Principal  Amount 10% Secured  Convertible  Promissory Note, (ii)
warrants to purchase 50,000 shares of our common stock, exercisable for a period
of five  years at a price of $3.20  per share and  (iii)  warrants  to  purchase
10,000 shares of our common stock,  exercisable  for a period of five years at a
price of $0.10 per share.  The Notes are  convertible  into shares of our common
stock at a price of $2.50 per share.

From October 7 through to October 30, 2003, we issued a total of 255,439  shares
of our Common Stock to eight consultants for their marketing, investor relations
and advisory  services.  These issuances are considered exempt from registration
by reason of the Section 4(2) of the Securities Act of 1933.

On October 9, 2003, we issued  120,000 shares to an investor in our 2003 Private
Placement of Units for total  proceeds of $300,000.  This issuance is considered
exempt from registration by reason of Section 4(2) of the Securities Act of 1933
as well as Regulation D of the Act, and Rule 506 promulgated thereunder.

In October  2003,  the Company  issued 32,000 shares of common stock in exchange
for previously issued  non-compensatory  warrants  exercised at $1.00 per share.
This issuance is considered  exempt from  registration by reason of Section 4(2)
of the Securities Act of 1933.

On November 3, 2003, we issued  100,000 shares to an employee as a signing bonus
and for sales  and  marketing  services  in lieu of  salary.  This  issuance  is
considered  exempt from registration by reason of Section 4(2) of the Securities
Act of 1933.

From  November 18, 2003 through  December 5, 2003,  we issued a total of 106,400
shares of our Common Stock to two  investors  in our 2003  Private  Placement of
Units for total proceeds of $266,000. These issuances are considered exempt from
registration  by reason of Section 4(2) of the Securities Act of 1933 as well as
Regulation D of the Act, and Rule 506 promulgated thereunder.

From  December 5, 2003 through  December 24, 2004,  we issued a total of 275,500
shares of our Common  Stock to  consultants  and  employees  for their  investor
relations,   sales,  marketing  and  advisory  services.   These  issuances  are
considered  exempt  from  registration  by  reason  of the  Section  4(2) of the
Securities Act of 1933.

                                      II-3


On December 17, 2003, we issued a total of 1,850,000  shares to ten  consultants
in connection with our agreement with the company's investment bankers, Vertical
Capital Partners,  Inc.. These issuances are considered exempt from registration
by reason of the Section 4(2) of the Securities Act of 1933.

In January 2004,  the Company issued a total of 41,600 shares of Common Stock at
$2.50 per share in fulfillment of a stock  subscription made in December 2003 to
various  consultants  in  exchange  for  administrative,   marketing,  financial
advisory and legal consulting  services.  These issuances are considered  exempt
from registration by reason of Section 4(2) of the Securities Act of 1933.

To conserve capital, in February 2004, the Company issued 6,283 shares of Common
Stock  to  employees  in  lieu of  their  cash  salaries.  Such  issuances  were
considered  exempt from registration by reason of Section 4(2) of the Securities
Act of 1933.

In March 2004,  the Company issued 44,740 shares of Common Stock in exchange for
consulting services.  Such issuances were considered exempt from registration by
reason of Section 4(2) of the Securities Act of 1933.

In March 2004, the Company  issued 55,000 of common stock for options  exercised
at $1.00 per share.

In March 2004, the Company issued 125,018 shares of Common Stock in exchange for
employee  services.  Such issuances were considered  exempt from registration by
reason of Section 4(2) of the Securities Act of 1933.

In March  2004,  the  Company  issued  22,500  of  common  stock  at  $0.10  for
subscription  of warrants to be exercised.  This  issuance is considered  exempt
under  Regulation  D of the  Securities  Act of 1933 and  Rule  506  promulgated
thereunder, as well as Section 4(2) of the Act.

In March 2004,  the Company  issued  5,443 of common stock at $3.00 per share in
exchange for employee services valued at $16,344.

In March 2004,  the Company  issued  5,769 of common stock at $3.15 per share in
exchange for employee services valued at $18,177.

In March 2004,  the Company  issued  8,806 of common stock at $3.03 per share in
exchange for employee services valued at $26,639.

In April 2004,  the Company  issued  22,500  shares of common stock at $0.10 for
subscription of warrants to be exercised.

In April 2004,  the Company  issued  9,860  shares of common  stock at $2.58 per
share in exchange for employee services valued at $25,441.

In April 2004,  the Company  issued  11,712  shares of common stock at $2.35 per
share in exchange for consulting services valued at $27,523.

In April 2004,  the Company  issued  367,500 shares of common stock at $1.50 per
share in exchange for consulting services valued at $551,250.

In April 2004,  the Company  retired  50,000  shares of common stock  previously
issued for consulting services at $0.065 per share or $3,250.

In May 2004,  the Company  issued  100,000  shares of common  stock at $1.01 per
share in exchange for consulting services valued at $101,250.

In May 2004, the Company issued 10,000 shares of common stock at $0.10 per share
in a stock subscription for $1,000.

                                      II-3

In May 2004,  the Company  issued  137,000  shares of common  stock at $0.86 per
share in exchange for consulting services valued at $119,413.

In May 2004, the Company issued 26,380 shares of common stock at $1.15 per share
in exchange for consulting services valued at $30,337.

In June 2004, the Company retired 5,000 shares of common stock previously issued
for consulting services at $0.065 per share or $325.

In June 2004,  the Company  issued  270,500  shares of common stock at $0.67 per
share in exchange for consulting services valued at $180,560.

In June 2004, the Company issued 8,000 shares of common stock at $0.89 per share
in exchange for consulting services valued at $7,120.

In June 2004,  the Company issued 50,000 shares of common stock at $0.64 1/2 per
share in exchange for consulting services valued at $32,250.

In June 2004, the Company sold 250,000 shares of common stock at $1.00 per share
for total proceeds of $250,000 pursuant to private placement.

On June 30,  2004,  we issued  50,000  shares of our common stock to an investor
relations firm as compensation for services performed on our behalf.

On July 23, 2004 and August 2, 2004,  we issued an aggregate of 55,000 shares of
our  common  stock to our legal  counsel  as  compensation  for  legal  services
performed on our behalf.

From July through  September 2004, we issued an aggregate of 1,550,000 shares of
our  common  stock to  certain  of our  officers,  directors  and  employees  as
compensation for services performed on our behalf.

On September 21, 2004, we issued  100,000 shares of our common stock pursuant to
a conversion by one of the holders of our convertible preferred stock.

On October 1, 2004, we issued a total of 199,999 shares to parties related to an
investment banker with which we have a non-exclusive engagement.

On October 13, 2004, we issued a total of 257,500 shares to two  consultants for
financial advisory and marketing services.

On October 18, 2004, we issued a total of 347,500  shares to previous  investors
as consideration for our agreement to extend our registration commitment.

On October 19, 2004, we issued  1,000,000  shares to a single investor for total
proceeds of $500,000.

On October 26, 2004, we issued a total of 500,000  shares to parties  related to
our investment  banker in settlement for various  breaches made in our Placement
Agent Agreement.

On  November 4, 2004,  we issued  100,000 to an  employee  as  compensation  for
services previously rendered.

On November  15, 2004 through  December  17, 2004,  we issued a total of 415,000
shares to a consultant for financial advisory services.

On  December  17,  2004,  we issued  5,000  shares to an employee  for  services
previously rendered.

                                      II-4

To obtain funding for our ongoing operations,  we sold $1,465,000 in convertible
promissory  notes to 13 investors in December  2004.  Each  promissory  note was
automatically  convertible  into shares of our common stock, at a price of $0.50
per share,  upon the closing of a private  placement  for $1 million or more. In
connection  with  the  sale  of the  convertible  promissory  notes,  we  issued
2,930,000  warrants  to  purchase  shares  of common  stock.  The  warrants  are
exercisable  until three years from the date of issuance at a purchase  price of
$0.75 per share.  This issuance is considered  exempt under  Regulation D of the
Securities Act of 1933 and Rule 506 promulgated thereunder.

On  January  4,  2005,  we issued  12,500  shares  as a result of an  investor's
exercise  of his $0.10  warrants.  This  issuance  is  considered  exempt  under
Regulation D of the Securities Act of 1933 and Rule 506 promulgated thereunder.

Also on January  10,  2005,  we issued  additional  shares to our  investors  in
accordance with an adjustment  provision in our private  placement and placement
agent  agreement.  We issued a total of  3,249,750  shares of Common Stock to 24
investors.  This  issuance  is  considered  exempt  under  Regulation  D of  the
Securities Act of 1933 and Rule 506 promulgated thereunder.

On  January  13,  2005,  we  issued  additional  shares  to two  consultants  in
accordance with an adjustment provision in their consulting agreements.  A total
of 662,000  shares  were  issued.  This  issuance  is  considered  exempt  under
Regulation D of the Securities Act of 1933 and Rule 506 promulgated thereunder.

To obtain funding for our ongoing  operations,  we conducted a private placement
offering  in January  and  February  2005,  in which we sold  $7,361,000  of 10%
Secured  Convertible   Promissory  Notes  to  61  investors.   The  10%  Secured
Convertible  Promissory  Notes  automatically  convert into shares of our common
stock,  at a price of $0.50 per  share,  upon the  filing  of this  registration
statement.  In connection with the private  placement  offering,  we have issued
15,222,000 warrants. The warrants are exercisable until five years from the date
of issuance at a purchase price of $0.75 per share.  This issuance is considered
exempt under Regulation D of the Securities Act of 1933 and Rule 506 promulgated
thereunder.

On January 28, 2005, we closed upon a private placement transaction in excess of
$1 million,  and on February 2, 2005,  the  promissory  notes issued in December
2004 were converted into an aggregate of 2,930,000 shares of common stock.  This
issuance is considered  exempt under  Regulation D of the Securities Act of 1933
and Rule 506 promulgated thereunder.

     * All of the above  offerings and sales were deemed to be exempt under rule
506 of Regulation D and Section 4(2) of the  Securities Act of 1933, as amended.
No advertising or general  solicitation was employed in offering the securities.
The  offerings and sales were made to a limited  number of persons,  all of whom
were  accredited  investors,  business  associates  of Applied  DNA  Sciences or
executive  officers of Applied DNA  Sciences,  and  transfer was  restricted  by
Applied DNA Sciences in accordance  with the  requirements of the Securities Act
of 1933. In addition to representations by the above-referenced persons, we have
made independent  determinations that all of the  above-referenced  persons were
accredited or sophisticated  investors,  and that they were capable of analyzing
the  merits  and  risks  of  their  investment,  and that  they  understood  the
speculative nature of their investment. Furthermore, all of the above-referenced
persons were  provided  with access to our  Securities  and Exchange  Commission
filings.

     Except as expressly set forth above,  the  individuals and entities to whom
we issued securities as indicated in this section of the registration  statement
are unaffiliated with us.

                                      II-5


ITEM 27. EXHIBITS.

     The following  exhibits are included as part of this Form SB-2.  References
to "the Company" in this Exhibit List mean Applied DNA Sciences,  Inc., a Nevada
corporation.

Exhibit No.       Description

2.1            Articles of Merger of Foreign and  Domestic  Corporations,  filed
               December 19, 1998 with the Nevada Secretary of State, filed as an
               exhibit  to the  annual  report  on Form  10-KSB  filed  with the
               Commission  on  December  29,  2003 and  incorporated  herein  by
               reference.

3.1            Articles of Incorporation of DCC Acquisition  Corporation,  filed
               April 20, 1998 with the Nevada  Secretary  of State,  filed as an
               exhibit  to the  annual  report  on Form  10-KSB  filed  with the
               Commission  on  December  29,  2003 and  incorporated  herein  by
               reference.

3.2            Articles  of  Amendment  of  Articles  of  Incorporation  of  DCC
               Acquisition Corp. changing  corporation name to ProHealth Medical
               Technologies, Inc.

3.3            Certificate of  Designations,  Powers,  preferences and Rights of
               the Founders' Series of Convertible  Preferred Stock, filed as an
               exhibit  to the  annual  report  on Form  10-KSB  filed  with the
               Commission  on  December  29,  2003 and  incorporated  herein  by
               reference.

3.4            Articles of Amendment of Articles of Incorporation of Applied DNA
               Sciences,  Inc.  increasing the par value of the company's common
               stock,  filed on  December 3, 2003 with the Nevada  Secretary  of
               State,  filed as an exhibit to the annual  report on Form  10-KSB
               filed with the  Commission on December 29, 2003 and  incorporated
               herein by reference.

3.5            By-Laws of Applied DNA Sciences, Inc., filed as an exhibit to the
               annual  report  on Form  10-KSB  filed  with  the  Commission  on
               December 29, 2003 and incorporated herein by reference.

4.1            Form  of  Subscription  Agreement,  filed  as an  exhibit  to the
               current  report on Form 8-K filed with the  Commission on January
               28, 2005 and incorporated herein by reference.

4.2            Form of 10%  Secured  Convertible  Promissory  Note,  filed as an
               exhibit  to the  current  report  on  Form  8-K  filed  with  the
               Commission  on  January  28,  2005  and  incorporated  herein  by
               reference.

4.3            Form of Warrant  Agreement,  filed as an  exhibit to the  current
               report on Form 8-K filed with the  Commission on January 28, 2005
               and incorporated herein by reference.

4.4            Registration  Rights Agreement,  dated January 28, 2005,  between
               the Company and Vertical Capital Partners, Inc., on behalf of the
               investors,  filed as an exhibit to the current report on Form 8-K
               filed with the  Commission  on January 28, 2005 and  incorporated
               herein by reference.

4.5            Security  Agreement,  dated January 28, 2005, between the Company
               and Vertical Capital Partners,  Inc., on behalf of the investors,
               filed as an exhibit to the current  report on Form 8-K filed with
               the  Commission  on January 28, 2005 and  incorporated  herein by
               reference.

5.1            Sichenzia  Ross Friedman  Ference LLP Opinion and Consent  (filed
               herewith)

10.1           Exclusive License Agreement between Biowell  Technology Corp. and
               Applied DNA Sciences, Inc. executed on October 8, 2002.

10.2           Sub-License  Agreement with G. A. Corporate  Finance Ltd. Applied
               DNA Sciences,  Inc., executed on July 29, 2003, as amended, filed
               as an  exhibit to the  current  report on Form 8-K filed with the
               Commission  on  September  29,  2003 and  incorporated  herein by
               reference.

                                      II-6

10.3           Indemnification Agreement with Larry Lee.

10.4           Indemnification Agreement with Robin Hutchison.

10.5           Indemnification Agreement with Michael Hill.

10.6           Indemnification Agreement with Peter Brocklesby.

10.7           Indemnification Agreement with Adrian Botash.

10.8           Indemnification Agreement with Karin Klemm

10.9           Indemnification Agreement with Ron Erickson

10.10          Giuliani Partners Strategic Marketing Partnership Agreement

10.11          Stock  Purchase  Agreement,  dated as of January 28, 2005, by and
               between Applied DNA Sciences, Inc. and Biowell Technology,  Inc.,
               filed as an exhibit to the current  report on Form 8-K filed with
               the  Commission  on February 2, 2005 and  incorporated  herein by
               reference.

10.12          Investment Advisory Agreement,  dated as of February 14, 2005, by
               and between Applied DNA Sciences,  Inc. and First London Finance,
               Ltd.

23.1           Consent  of  Russell  Bedford  Stefanou  Mirchandani  LLP  (filed
               herewith).

23.2           Consent of legal counsel (see Exhibit 5.1).

ITEM 28. UNDERTAKINGS.

The undersigned registrant hereby undertakes to:

(1) File,  during  any  period  in which  offers  or sales  are  being  made,  a
post-effective amendment to this registration statement to:

(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");

(ii)  Reflect  in the  prospectus  any facts or events  which,  individually  or
together,  represent a fundamental change in the information in the registration
statement.  Notwithstanding the foregoing, any increase or decrease in volume of
securities  offered (if the total dollar value of the  securities  offered would
not exceed that which was registered) and any deviation from the low or high end
of the  estimated  maximum  offering  range  may be  reflected  in the  form  of
prospectus  filed  with  the  Commission  pursuant  to  Rule  424(b)  under  the
Securities Act if, in the aggregate,  the changes in volume and price  represent
no more than a 20% change in the maximum  aggregate  offering price set forth in
the  "Calculation  of  Registration  Fee"  table in the  effective  registration
statement, and

(iii) Include any  additional  or changed  material  information  on the plan of
distribution.

(2)  For   determining   liability   under  the   Securities   Act,  treat  each
post-effective  amendment  as a new  registration  statement  of the  securities
offered,  and the offering of the securities at that time to be the initial bona
fide offering.

(3) File a  post-effective  amendment  to remove  from  registration  any of the
securities that remain unsold at the end of the offering.

(4) For purposes of determining  any liability  under the Securities  Act, treat
the  information  omitted  from  the  form of  prospectus  filed as part of this
registration  statement  in reliance  upon Rule 430A and  contained in a form of
prospectus  filed by the registrant  pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this  registration  statement as of the time
it was declared effective.

(5)  For  determining  any  liability  under  the  Securities  Act,  treat  each
post-effective   amendment   that  contains  a  form  of  prospectus  as  a  new
registration statement for the securities offered in the registration statement,
and that  offering  of the  securities  at that  time as the  initial  bona fide
offering of those securities.

                                      II-7


     Insofar as indemnification for liabilities arising under the Securities Act
may  be  permitted  to  directors,  officers  and  controlling  persons  of  the
registrant pursuant to the foregoing  provisions,  or otherwise,  the registrant
has been advised that in the opinion of the Securities  and Exchange  Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.

     In the event  that a claim for  indemnification  against  such  liabilities
(other than the  payment by the  registrant  of  expenses  incurred or paid by a
director,  officer or  controlling  person of the  registrant in the  successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling  person in connection with the securities being  registered,  the
registrant  will,  unless in the  opinion  of its  counsel  the  matter has been
settled by controlling precedent,  submit to a court of appropriate jurisdiction
the question  whether such  indemnification  by it is against  public  policy as
expressed in the Securities  Act and will be governed by the final  adjudication
of such issue.


                                      II-8

                                   SIGNATURES

     In accordance  with the  requirements  of the  Securities  Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the  requirements  of filing on Form SB-2 and  authorizes  this  registration
statement  to be signed on its  behalf  by the  undersigned,  in the City of Los
Angeles, State of California, on February 15, 2005.

                           APPLIED DNA SCIENCES, INC.




                  By:/s/ ROB HUTCHISON
                     ------------------
                     Rob Hutchison, Chief Executive Officer, Principal Executive
                     Officer, Principal Financial Officer, Principal  Accounting
                     Officer and Chairman of the Board of Directors


     In accordance  with the  requirements  of the Securities Act of 1933,  this
registration statement was signed by the following persons in the capacities and
on the dates stated.



SIGNATURE                 TITLE                                DATE

/s/ ROB HUTCHISON         Chief Executive Officer and          February 15, 2005
---------------------     Chairman of the Board of Directors
    Rob Hutchison

/s/ PETER BROCKELSBY      President and Director               February 15, 2005
---------------------
    Peter Brockelsby

/s/ LAWRENCE LEE          Chief Technology Strategist          February 15, 2005
---------------------     and Director
    Lawrence Lee

/s/ MICHAEL HILL          Director                             February 15, 2005
---------------------
    Michael Hill

/s/ RON ERICKSON          Director                             February 15, 2005
---------------------
    Ron Erickson

                                      II-9