UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                  FORM 10-QSB/A
                                 Amendment No. 3


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

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

                For the Quarterly period ended December 31, 2005

                        Commission file number 002-90519

                            APPLIED DNA SCIENCES, INC.
             (Exact name of registrant as specified in its charter)


                   Nevada                               59-2262718
                   ------                               ----------
      (State or other jurisdiction of                (I.R.S. Employer
       incorporation or organization)             Identification Number)


     25 Health Sciences Drive, Suite 113 Stony Brook, New York          11790
     ---------------------------------------------------------          -----
             (Address of Principal Executive Offices)                 (Zip Code)

                          (631) 444-6862
       (Registrant's telephone number, including area code)

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

                                 Yes [X] No [_]

The number of shares of Common Stock, $0.001 par value,  outstanding on February
14 2006, was 114,772,385 shares, held by approximately 1,380 shareholders.

Transitional Small Business Disclosure Format (check one):

                                 Yes [X] No [_]


<PAGE>


                                EXPLANATORY NOTE

This  Amendment  No. 3 to Form 10-QSB/A  ("Amendment  No. 3") amends the amended
Quarterly Report of Applied DNA Sciences,  Inc. (the "Company") on Form 10-QSB/A
for the quarter  ended  December  31,  2005,  as filed with the  Securities  and
Exchange Commission on March 2, 2006 (the "Original Filing"). This Amendment No.
3 is being  filed for the purpose of  correcting  errors in  accounting  for and
disclosing  the  issuance by the  Company of  warrants to acquire the  Company's
common stock, revising compensation expense and adjusting shareholder equity. In
addition the Company is correcting certain errors in accounting for the exchange
of its common stock for previously incurred debt owed to a Company Director.


We have not  updated  the  information  contained  herein for  events  occurring
subsequent to March 2, 2006, the filing date of the Original Filing.

                            APPLIED DNA SCIENCES, INC

                    Quarterly Report on Form 10-QSB/A for the
                    Quarterly Period Ending December 31, 2005

                                Table of Contents

Part I. FINANCIAL INFORMATION

Item 1.  Financial Statements
Condensed Consolidated Balance Sheet:
December 31, 2005 (Unaudited)                                                  3

Condensed Consolidated Statements of Operations :
Three Months Ended December 31, 2005 and 2004 (Unaudited) and
the Period from September 16, 2002 (Date of Inception) Through December
31, 2005 (Unaudited)                                                           4

Condensed Consolidated Statement of Stockholder's Equity (Deficiency):
For the Period from September 16, 2002 (Date) of Inception Through
December 31 2005 (Unaudited)                                                   5

Condensed Consolidated Statements of Cash Flows:
Three Months Ended December 31, 2005 and 2004 (Unaudited) and
the Period from September 16, 2002 (Date of Inception) Through December
31, 2005 (Unaudited)                                                          19

Notes to Unaudited Condensed Consolidated Financial Information:
December 31, 2005                                                          21-40

Item 2.    Management Discussion and Analysis                                 41

Item 3.    Controls and Procedures                                            56

Part II.  OTHER INFORMATION

Item 1.    Legal Proceedings                                                  58

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds        59

Item 3.    Defaults Upon Senior Securities                                    59


<PAGE>


Item 4.    Submission of Matters to a Vote of Security Holders                59

Item 5.    Other Information                                                  59

Item 6.    Exhibits                                                           59

Signatures                                                                    60


<PAGE>


                          Part I. FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

                            APPLIED DNA SCIENCES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEET
                                    RESTATED
                                   (Unaudited)

<TABLE>
<CAPTION>
                                ASSETS
                                                           December 31, 2005
<S>                                                     <C>
Current assets:

Cash and cash equivalents                               $           164,526
Current other receivables, related party (Note D)                    17,404
                                                        --------------------
                                                        --------------------
Total current assets                                                181,930

Property, plant and equipment - Net of accumulated
depreciation of $3,084                                                3,563

Other Assets:
Deposits and prepaid expenses                                        23,659

Intangible assets:
Patents (net of accumulated amortization of $13,490)
(Note B)                                                             20,767
Intellectual Property (net of accumulated amortization
of $673,636) (Note B)                                             8,757,264
                                                        --------------------
Total Other Assets                                                8,801,690
                                                        --------------------
Total Assets                                            $         8,987,183
                                                        ====================

          LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities                $         3,858,429
Accrued liabilities due related parties                              53,805
Note payable-related party (Note D)                                 410,429
Note payable (Note C)                                               550,000
                                                         -------------------
Total current liabilities                                         4,872,663

Warrant Liability (Note G)                                        8,643,685

Commitments and contingencies (Note I)

Deficiency in Stockholders' equity:
Preferred stock, par value $.001 per share; 10,000,000
shares
authorized; 60,000 issued and outstanding                                 6
Common stock, par value $.001 per share; 250,000,000
shares
authorized; 112,926,246 shares
  issued and outstanding                                            112,926
Common stock subscription (Note H)                                (200,000)
Additional said-in-capital                                       82,663,005
Deficit accumulated during development stage                   (87,105,102)
                                                        --------------------
Total  deficiency in stockholders' equity                       (4,529,165)
                                                        --------------------
Total liabilities and deficiency in stockholders'       $         8,987,183
equity
                                                        ====================
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements

                                      3


<PAGE>


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

<TABLE>
<CAPTION>
                                                              For The Three Months Ended                       September 16, 2002,
                                                                     December 31                                (Date of Inception)
                                                                                                                      through
                                                          2005                         2004                       December 31, 2005
                                                   -------------------          -----------------              --------------------
                                                        RESTATED                     RESTATED                        RESTATED
<S>                                                <C>                          <C>                            <C>
Operating expenses:
Selling, general and administrative                $         1,844,477          $       5,375,068              $         73,380,081
Research and development                                        16,270                     38,673                           893,678
Depreciation and amortization                                  342,699                      4,721                           702,126
                                                   -------------------          -----------------              --------------------
Total operating expenses                                     2,203,446                  5,379,789                        74,975,885

Operating loss                                              (2,203,446)                (5,379,789)                      (74,975,885)

Net gain/(loss) on revaluation of warrant liability          6,788,790                         --                        23,489,780

Other income (expense)                                          13,013                        315                            44,355
Interest (expense)                                          (1,778,906)                (1,567,809)                      (35,663,352)
Income (taxes) benefit                                              --                         --                                --
                                                   -------------------          -----------------              --------------------
Net income (loss)                                  $         2,819,451          $      (6,947,283)             $        (87,105,102)
                                                   ===================          =================              ====================

Income (loss) per common share-basic               $              0.03          $           (0.37)             $              (2,18)
                                                   ===================          =================              ====================
Income per common share-fully diluted              $              0.02                         --
                                                   ===================

Weighted average shares outstanding-basic                  112,535,514                 18,972,160                        40,068,155
                                                   ===================          =================              ====================
Weighted average shares outstanding-fully diluted          163,392,948                    N/A
                                                   ===================
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements

                                      4


<PAGE>


                         APPLIED DNA SCIENCES, INC
                      (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY, (DEFICIENCY)
 FOR THE PERIOD SEPTEMBER 16, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2005
                                (Unaudited)
                                 RESTATED

<TABLE>
<CAPTION>
                                                                                                               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
                              --------- --------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S>                                 <C> <C>       <C>        <C>         <C>         <C>        <C>          <C>         <C>
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       1,015        -           -            -           -       1,015

Cancellation of Common stock
in connection with merger with
Prohealth Medical
Technologies, Inc on October
21, 2002                            -         -     (100,000)        (10)     (1,000)       -            -           -      (1,010)

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         -          (8)

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 in 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          10     230,624        -            -           -     230,634
</TABLE>

See accompanying notes to the financial statements

                                      5


<PAGE>


                          APPLIED DNA SCIENCES, INC
                       (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY, (DEFICIENCY)
 FOR THE PERIOD SEPTEMBER 16, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2005
                                 (Unaudited)
                                  RESTATED
                                 (Continued)

<TABLE>
<CAPTION>
                                                                                                               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
                              --------- --------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S>                                 <C>       <C> <C>               <C>      <C>         <C>             <C>         <C>   <C>
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     428,798        -            -           -     428,819
</TABLE>

See accompanying notes to the financial statements

                                      6


<PAGE>


                          APPLIED DNA SCIENCES, INC
                       (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY, (DEFICIENCY)
 FOR THE PERIOD SEPTEMBER 16, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2005
                                (Unaudited)
                                 RESTATED
                                (Continued)

<TABLE>
<CAPTION>
                                                                                                               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
                              --------- --------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S>                                 <C> <C>       <C>        <C>         <C>         <C>        <C>          <C>         <C>
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     410,915        -            -           -     410,932

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        -            -           -      95,001

Common stock subscription
receivable reclassification
adjustment                          -         -         -           -           -           -          2,600         -       2,600

Common Stock subscribed to
at $2.50 per share in September
2003                                -         -         -           -           -       300,000          -           -     300,000

Net Loss for the year
ended September 30, 2003            -         -         -           -           -           -            -    (3,445,164)(3,445,164)
                              --------- --------- ---------- ----------- ----------- ---------- ------------ -----------  ---------

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

See accompanying notes to the financial statements


                                      7


<PAGE>


                          APPLIED DNA SCIENCES, INC
                       (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY, (DEFICIENCY)
 FOR THE PERIOD SEPTEMBER 16, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2005
                                 (Unaudited)
                                  RESTATED
                                 (Continued)

<TABLE>
<CAPTION>
                                                                                                               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
                              --------- --------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S>                              <C>          <C>  <C>        <C>        <C>           <C>               <C>         <C> <C>
Preferred shares issues in
exchange for services at $25.00
per share, October 2003          15,000        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 Dec 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
</TABLE>

See accompanying notes to the financial statements

                                      8


<PAGE>


                          APPLIED DNA SCIENCES, INC
                       (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY, (DEFICIENCY)
 FOR THE PERIOD SEPTEMBER 16, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2005
                                 (Unaudited)
                                  RESTATED
                                 (Continued)

<TABLE>
<CAPTION>
                                                                                                               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
                              --------- --------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S>                              <C>          <C>    <C>         <C>         <C>            <C>       <C>        <C>       <C>
Common stock issued in
exchange for consulting services
at $3.05 per share, Jan 2004        -         -        1,000         500       2,550        -            -           -       3,050

Common stock issued in
exchange for employee services
at $3.07 per share, Feb 2004        -         -        6,283       3,142      16,147        -            -           -      19,289

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        -            -           -      16,345

Common stock issued in
exchange for employee services
at $3.15 per share, Mar 2004        -         -        5,769       2,885      15,292        -            -           -      18,177

Preferred shared converted to
common shares for consulting
services at $3.00 per share,
Mar 2004                         (5,000)      (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       4,400      22,238        -            -           -      26,638

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,
April 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                         (4,000)      (4)    100,000      50,000      51,250        -            -           -     101,246

Common stock issued per
subscription May 2004               -         -       10,000       5,000      (4,000)       -         (1,000)        -          -
</TABLE>

See accompanying notes to the financial statements

                                      9


<PAGE>


                          APPLIED DNA SCIENCES, INC
                       (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY, (DEFICIENCY)
 FOR THE PERIOD SEPTEMBER 16, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2005
                                (Unaudited)
                                 RESTATED
                                (Continued)

<TABLE>
<CAPTION>
                                                                                                               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
                              --------- --------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S>                              <C>          <C>  <C>           <C>         <C>            <C>          <C>         <C>   <C>
Common stock issued in
exchange for consulting
services at $0.86 per
share in May 2004                   -         -      137,000      68,500      50,730        -            -           -     119,230

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)

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   (2,000)      (2)     50,000      25,000      (5,500)       -            -           -      19,498

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      (8,605)       -            -           -      37,645

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
</TABLE>

See accompanying notes to the financial statements

                                      10


<PAGE>


                          APPLIED DNA SCIENCES, INC
                       (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY, (DEFICIENCY)
 FOR THE PERIOD SEPTEMBER 16, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2005
                                (Unaudited)
                                 RESTATED
                                (Continued)

<TABLE>
<CAPTION>
                                                                                                               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
                              --------- --------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S>                              <C>    <C>       <C>        <C>         <C>         <C>       <C>        <C>           <C>
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                   (4,000)      (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

Fair value of 2,841,000 warrants
issued to non-employees and
consultants for services rendered
at approximately $.71 per warrant
in September 2004                   -         -         -           -      2,019,862       -           -            -     2,019,862


Net Loss                            -         -         -           -           -          -           -   (19,358,258) (19,358,258)
                              --------- --------- ---------- ----------- ----------- --------- ---------- ------------  -----------
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)
                              ========= ========= ========== =========== =========== ========= ========== ============  ===========
</TABLE>

See accompanying notes to the financial statements

                                      11


<PAGE>


                          APPLIED DNA SCIENCES, INC
                       (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY, (DEFICIENCY)
 FOR THE PERIOD SEPTEMBER 16, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2005
                                (Unaudited)
                                 RESTATED
                                (Continued)

<TABLE>
<CAPTION>
                                                                                                               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
                              --------- --------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S>                                 <C>       <C> <C>           <C>         <C>        <C>               <C>         <C>   <C>
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)   (107,297)       -            -           -    (642,097)

Common stock issued in
exchange for consulting services
at $0.60 per share in Oct 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
at $0.50 per share in October 2004  -         -      532,500     266,250        -           -            -           -     266,250

Common Stock issued in
exchange for debt 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
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
</TABLE>

See accompanying notes to the financial statements

                                      12


<PAGE>


                          APPLIED DNA SCIENCES, INC
                       (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY, (DEFICIENCY)
 FOR THE PERIOD SEPTEMBER 16, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2005
                                (Unaudited)
                                 RESTATED
                                (Continued)

<TABLE>
<CAPTION>
                                                                                                               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
                              --------- --------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S>                              <C>          <C>  <C>         <C>        <C>           <C>            <C>    <C>        <C>
Warrants exercised
at $0.60 per share
in November 2004                    -         -       60,000      30,000       6,000      (4,000)        -           -      32,000

Beneficial Conversion discount
relating to Notes Payable           -         -         -           -      1,465,000        -            -           -   1,465,000

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

Common stock issued in
settlement of debt at  $0.50 per
share in December 2004              -         -    2,930,000   1,465,000        -       (125,000)        -           -   1,340,000

Fair value of 6,063,500 warrants
issued to non employees and
consultants for services rendered
at $.52 per warrant in
October and December 2004           -         -         -           -      3,169,052        -            -           -   3,169,052

Warrants exercised at $0.10 per
share in January 2005               -         -       25,000      12,500     (10,000)       -            -           -       2,500

Common Stock issued in
settlement of debt at $0.33 per
share in January 2005               -         -    1,628,789     814,395    (276,895)       -            -           -     537,500

Fair value of warant liability
reclassed due to registration
rights granted in January 2005      -         -         -           -     (3,108,851)       -            -           -   (3,108,851)

Warrants exercised at $0.10 per
share in January 2005               -         -       17,500       8,750      (7,000)       -            -           -       1,750

Common Stock issued in
settlement of debt at $0.33 per
share in January 2005               -         -    2,399,012   1,199,504    (407,830)       -            -           -     791,674

Common Stock issued in
exchange for consulting
services at $1.30 per share         -         -      315,636     157,818     252,508        -            -           -     410,326
in January 2005

Common Stock issued in
exchange for consulting
services at $1.44 per share
in February  2005                   -         -    5,796,785   2,898,393   5,418,814        -            -           -   8,317,207

Fair value of 55,000 warrants
issued to consultants for
services at $1.31 per warrant in
February 2005                       -         -         -           -         72,017        -            -           -      72,017

Common Stock issued in
settlement of debt at $0.33 per
share in February 2005              -         -       75,757      37,879     (12,879)       -            -           -      25,000
</TABLE>

See accompanying notes to the financial statements

                                      13


<PAGE>


                          APPLIED DNA SCIENCES, INC
                       (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY, (DEFICIENCY)
 FOR THE PERIOD SEPTEMBER 16, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2005
                                (Unaudited)
                                 RESTATED
                                (Continued)

<TABLE>
<CAPTION>
                                                                                                               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
                              --------- --------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S>                                 <C>       <C> <C>          <C>         <C>              <C>          <C>         <C> <C>
Warrants exercised at $0.10 per
share in February 2005              -         -       20,000      10,000      (8,000)       -            -           -       2,000

Common Stock issued in
settlement of debt at $0.33 per
share in February 2005              -         -      606,060     303,030    (103,030)       -            -           -     200,000

Warrants exercised at $0.10 per
share in February 2005              -         -       45,000      22,500     (18,000)       -            -           -       4,500

Common Stock issued in
exchange for related party debt
at $1.31 per share in February
2005                                -         -    1,500,000     750,000   1,215,000        -            -           -   1,965,000

Common Stock issued in
settlement of debt at $0.33 per
share in February 2005              -         -      278,433     139,217     (47,334)       -            -           -      91,883

Common Stock issued in
exchange for consulting services
at $1.17 per share in February
2005                                -         -       17,236       8,618      11,548        -            -           -      20,166

Common stock issued in
exchange for debt at $0.50 per
share in February 2005              -         -      300,000     150,000        -           -            -           -     150,000

Common Stock issued in
exchange for consulting
services at $0.95 per share
in February 2005                    -         -      716,500     358,250     322,425        -            -           -     680,675

Common Stock issued in
exchange for consulting
services at $0.95 per share
in February 2005                    -         -       10,500       5,250       4,725        -            -           -       9,975

Common stock issued in
exchange for debt at $0.50 per
share in March 2005                 -         -   13,202,000   6,601,000        -           -            -           -   6,601,000

Common Stock issued in
exchange for consulting
services at $1.19 per share
in March 2005                       -         -      185,000      92,500     127,650        -            -           -     220,150

Options exercised at $0.60 per
share in March 2005                 -         -      100,000      50,000      10,000        -            -           -      60,000

Common Stock issued in
exchange for consulting
services at $0.98 per share
in March 2005                       -         -    1,675,272     837,636     804,131        -            -           -   1,641,767
</TABLE>

See accompanying notes to the financial statements

                                      14


<PAGE>


                          APPLIED DNA SCIENCES, INC
                       (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY, (DEFICIENCY)
 FOR THE PERIOD SEPTEMBER 16, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2005
                                (Unaudited)
                                 RESTATED
                                (Continued)

<TABLE>
<CAPTION>
                                                                                                               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
                              --------- --------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S>                              <C>          <C>  <C>       <C>          <C>           <C>              <C>         <C> <C>
Common Stock issued in
exchange for consulting
services at $0.92 per share
in March 2005                       -         -       24,333      12,167      10,219        -            -           -      22,386

Common Stock issued in
exchange for consulting
services at $0.99 per share
in March 2005                       -         -       15,000       7,500       7,350        -            -           -      14,850

Common stock issued in exchange
for debt at $0.50 per share
in March 2005                       -         -    1,240,000     620,000        -           -            -           -     620,000

Common stock canceled for
shares issued in exchange of
debt in March 2005                  -         -     (500,000)   (250,000)       -           -            -           -    (250,000)

Common stock subscribed
Canceled in March 2005              -         -         -           -           -       750,000          -           -     750,000

Common Stock issued in
exchange for consulting
services at $0.89 per share
in March 2005                       -         -       10,000       5,000       3,900        -            -           -       8,900

Adjust common stock par value
from $0.50 to $0.001 per share,
per amendment of articles dated
March 2005                          -         -         -    (32,312,879) 32,312,879        -            -           -          -

Beneficial Conversion discount
relating to Notes Payable in
March 2005                          -         -         -           -      7,371,000        -            -           -   7,371,000

Stock options granted to
employees in exchange for
services rendered, at exercise
price below fair value of common
stock in March 2005                 -         -         -           -        180,000        -            -           -     180,000

Common Stock issued in
exchange for consulting services
at $0.80 per share in April 2005    -         -      160,000         160     127,840        -            -           -     128,000

Common Stock issued in
exchange for consulting services
at $0.80 per share in April 2005    -         -       40,000          40      31,960        -            -           -      32,000
</TABLE>

See accompanying notes to the financial statements

                                      15


<PAGE>


                          APPLIED DNA SCIENCES, INC
                       (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY, (DEFICIENCY)
 FOR THE PERIOD SEPTEMBER 16, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2005
                                (Unaudited)
                                 RESTATED
                                (Continued)

<TABLE>
<CAPTION>
                                                                                                               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
                              --------- --------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S>                                 <C>       <C> <C>             <C>     <C>           <C>             <C>         <C> <C>
Common Stock issued in
exchange for consulting services
at $0.75 per share in April 2005    -         -      850,000         850     636,650        -            -           -     637,500

Common Stock issued in
exchange for consulting services
at $0.33 per share in April 2005    -         -      500,000         500     164,500        -            -           -     165,000

Common Stock canceled during
April 2005, previously issued for
services rendered at $3.42 per
share                               -         -      (10,000)        (10)    (34,190)       -            -           -     (34,200)

Common Stock issued in
settlement of debt at $0.33 per
share in April 2005                 -         -       75,758          77      24,923    (25,000)         -           -          -

Common Stock issued in
exchange for consulting services
at $0.68 per share in April 2005    -         -       50,000          50      33,950        -            -           -      34,000

Proceeds received against
subscription Payable in June
2005                                -         -           -            -         -      118,000          -           -     118,000

Common Stock canceled in
June 2005, previously issued for
services rendered at $0.50 per
share                               -         -      (10,000)        (10)     (4,990)       -            -           -      (5,000)

Cancellation of previously
granted stock options granted
to employees for services
rendered, at exercise price
below fair value of common stock    -         -            -           -    (180,000)       -            -           -    (180,000)

Common Stock issued in
exchange for consulting services
at $0.60 per share in July 2005     -         -      157,000         157      94,043        -            -           -      94,200

Common Stock issued in
exchange for intellectual property
at $0.67 per share in July 2005     -         -   36,000,000      36,000  24,084,000        -            -           -  24,120,000

Common Stock issued in
exchange for consulting
services at $0.60 per share
in July 2005                        -         -      640,000         640     383,360        -            -           -     384,000

Common Stock issued in
exchange for employee services
at $0.48 per share in July 2005     -         -    8,000,000       8,000   3,832,000        -            -           -   3,840,000
</TABLE>

See accompanying notes to the financial statements

                                      16


<PAGE>


                          APPLIED DNA SCIENCES, INC
                       (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY, (DEFICIENCY)
 FOR THE PERIOD SEPTEMBER 16, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2005
                                (Unaudited)
                                 RESTATED
                                (Continued)

<TABLE>
<CAPTION>
                                                                                                               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
                              --------- --------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S>                              <C>    <C>      <C>         <C>         <C>         <C>        <C>       <C>           <C>
Common Stock issued in
exchange for consulting
services at $0.94 per share
in July 2005                        -         -      121,985         121     168,217        -           -           -       168,338

Common Stock issued in
exchange for consulting
services at $0.48 per share
in August 2005                      -         -      250,000         250     119,750        -           -           -       120,000

Common Stock penalty shares
issued pursuant to pending SB-2
registration at $0.62 per share in
September 2005                      -         -      814,158         814     501,858        -           -           -       502,672

Common Stock penalty shares
issued pursuant to pending SB-2
registration at $0.70 per share in
September 2005                      -         -      391,224         391     273,466        -           -           -       273,857

Common Stock issued in
exchange for consulting
services at $0.94 per share
in September 2005                   -         -      185,000         185     173,715        -           -           -       173,900

Common Stock returned in
September 2005, previously
issued for services rendered at
$0.40 per share                     -         -     (740,000)       (740)   (453,232)    56,000     1,000           -      (396,972)

Net Loss                                                                                                   (67,109,519) (67,109,519)
                              --------- --------- ---------- ----------- ----------- ---------- --------- ------------  -----------
Balance as of September
30, 2005                         60,000 $     6  112,230,392 $   112,230  82,320,715 $   20,000 $      -  $(89,924,553) $(7,471,602)
                              ========= ======== =========== =========== =========== ========== ========= ============  ===========
</TABLE>

See accompanying notes to the financial statements

                                      17


<PAGE>


                          APPLIED DNA SCIENCES, INC
                       (A development stage company)
     CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY, (DEFICIENCY)
 FOR THE PERIOD SEPTEMBER 16, 2002 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2005
                                (Unaudited)
                                 RESTATED
                                (Continued)

<TABLE>
<CAPTION>
                                                                                                               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
                              --------- --------- ---------- ----------- ----------- ---------- ------------ ----------- ----------
<S>                              <C>        <C>  <C>            <C>     <C>           <C>               <C> <C>         <C>
Common stock issued pursuant
to subscription at $0.50 per
share in October 2005               -         -      400,000         400     199,600   (200,000)         -            -         -

Common Stock issued in
exchange for consulting
services at $0.75 per share
in October 2005                     -         -      100,000         100      74,900        -            -            -     75,000

Common Stock returned in
October 2005, previously
issued for services
rendered at $0.60 per share         -         -     (350,000)       (350)   (209,650)       -            -            -   (210,000)

Common stock issued pursuant
to subscription at $0.50 per
share in December 2005              -         -       40,000          40      19,960    (20,000)         -            -         -

Common Stock issued to investors
persuant to registration rights
agreement at $0.51 per share in
December 2005                       -         -      505,854         506     257,480        -            -            -    257,986

Net Income                          -         -          -            -           -         -            -     2,819,451 2,819,451
                              --------- -------  ----------- ----------- ----------- ---------- ------------ ----------- ----------
Balance as of
December 31, 2005                60,000       6  112,926,246     112,926  82,663,005   (200,000)         -   (87,105,102)(4,529,165)
                              ========= =======  =========== =========== =========== ========== ============ =========== ==========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements

                                      18


<PAGE>


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

<TABLE>
<CAPTION>
                                                                                                                      For the period
                                                                                                                      September 16,
                                                                                                                      2002 (date of
                                                                                                                        inception)
                                                                                     For The Three Months Ended          through
                                                                                            December 31,               December 31,
                                                                                        2005            2004              2005
                                                                                    ------------    -------------   ----------------
                                                                                      RESTATED        RESTATED           RESTATED
<S>                                                                                  <C>            <C>                <C>
Cash flows from operating activities:
Net Income ( loss)                                                                   $2,819,451      $(6,947,283)      $(87,105,102)
Adjustments to reconcile net loss to net cash used in Operating activities:
Depreciation and amortization                                                           336,942            4,721            690,210
Organizational Expenses                                                                                                      88,500
Preferred Shares issued in exchange for service                                             --               --           1,500,000
Warrants issued to consultants and note holders                                             --         3,169,052          9,378,430
Income attributable to re-pricing of warrants                                       (6,788,790)                         (23,489,780)
Financing costs attributable to issuance of warrants                                 1,758,900               --          24,907,115
Amortization of beneficial conversion feature-convertible notes                             --         1,515,000         10,461,000
Debt in exchange for common stock at fair market price                                      --               --           1,365,000
Common stock issued:
    in exchange for consultant services rendered                                         75,000        1,174,300         30,649,373
    in exchange for intellectual property in connection with costs of
    acquiring intangible assets                                                                                          14,689,100
    in connection with issuance of penalty shares pursuant to pending SB-2
    registration                                                                        257,986                           1,034,515
Common stock canceled-previously issued for services rendered                         (210,000)        (642,605)         (1,073,845)
    Other assets                                                                        (4,975)         (24,026)            (17,404)
   Restricted cash related to stock subscription escrow                                     --               --             (13,890)
   Increase in due related parties                                                          --       (1,065,318)                 --
   Accounts payable and accrued liabilities                                              53,805            1,523             94,558
Net cash used in operating activities                                                 1,288,311        1,203,816          3,707,766
                                                                                    ------------    -------------      -------------
                                                                                      (413,370)      (1,610,820)        (13,134,454)
Cash flows from investing activities:
   Capital expenditures                                                                 (9,397)              --             (23,659)
   Payments for patent filing                                                             6,103              --              (6,647)
Net cash used in investing activities                                                       --           (4,347)            (25,698)
                                                                                    ------------    -------------      -------------
                                                                                        (3,294)          (4,347)            (56,004)
Cash flows from financing activities:

   Proceeds from sale of common stock, net of cost                                          --               --             432,000
   Proceeds from issuance of convertible debt                                               --           250,000          9,204,000
    Proceeds from sale of options                                                           --            36,000            343,750
   Repayment of debt                                                                                                        (24,854)
   Proceeds from loans                                                                  550,000        1,390,000          3,300,000
Advances from shareholders                                                                                   --             100,088
                                                                                    ------------    -------------      -------------
Net cash provided by financing activities                                               550,000        1,676,000         13,354,984
                                                                                    ------------    -------------      -------------
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period                                        133,336           60,833            164,526
Cash and cash equivalents at end of period                                               31,190            1,832                --
                                                                                    ------------    -------------      -------------
                                                                                      $ 164,526         $ 62,665          $ 164,526
                                                                                    ============    =============      =============
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                                                         75,000        1,174,300         30,649,373
Common stock issued in exchange for intellectual property                                   --               --           9,430,900
Common stock issued in exchange for previously incurred debt                                --               --           3,109,533
Common stock penalty shares issued pursuant to pending SB-2 registration                257,986              --           1,034,515
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements

                                      19


<PAGE>


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

<TABLE>
<CAPTION>
<S>                                                                                    <C>               <C>           <C>
Common stock canceled-previously issued for services
rendered                                                                                 (210,000)         (642,605)     (1,073,845)

Warrants issued in exchange for financing costs                                         1,758,900                --      24,907,115

Amortization of beneficial conversion feature                                                  --         1,515,000      10,461,000
Preferred Shares in exchange for services                                                      --                --       1,500,000
Warrants issued to consultants                                                                 --         3,169,052       5,260,930

Acquisition:
Common stock retained                                                                                            --           1,015
Assets acquired                                                                                                  --            (135)
Total consideration paid                                                                                         --             880

Organization expenses - note issued in exchange of shares retired                                                --          88,500

Common stock issued in exchange for note payable                                               --            88,500          88,500
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements

                                      20


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (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/A, 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, 2005 are not
necessarily  indicative  of the results that may be expected for the fiscal year
ended  September  30,  2006.  The  unaudited  condensed  consolidated  financial
statements  should be read in conjunction  with the September 30, 2005 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,  2005,  the Company has  accumulated  losses of
$87,105,102.

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,
2005 property and equipment consist of:

                                    December 31,
                                       2005
<TABLE>
<CAPTION>
<S>                             <C>
Furniture                       $         6,647
Accumulated  depreciation                (3,084)
                                ---------------
Net                             $         3,563
</TABLE>

                                      21


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

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, 2003 and for
the subsequent periods.

The Company did not grant any stock options to employees during the period ended
December 31, 2005. 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:

<TABLE>
<CAPTION>
                                                                                                                      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,
                                                                                    2005               2004               2005
                                                                               ===============     ==============     ==============
<S>                                                                          <C>                 <C>                <C>
Net loss - as reported
                                                                             $       2,819,451   $    (6,947,283)   $   (87,105,102)
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 method ( APB No. 123)                                                           --                --          (1,836,222)
                                                                               ---------------     --------------     --------------
Net loss - Pro Forma                                                        $       2,819,451   $    (6,947,283)   $    (88,941,324)
                                                                               ===============     ==============     ==============
Net loss attributable to common
stockholders - Pro Forma                                                    $       2,819,451   $    (6,947,283)   $    (88,941,324)
                                                                               ===============     ==============     ==============

Basic income (loss) per share - as reported                                 $            0.03   $         (0.37)   $          (2.18)
                                                                                         ====             ======             ======
Basic (and assuming dilution) loss
per share - Pro Forma                                                       $            0.03   $         (0.37)   $          (2.22)
                                                                                         ====             ======             ======
Fully diluted income per share-as reported                                  $            0.02
                                                                                         ====
Fully diluted income per share-Pro Forma                                    $            0.02
                                                                                         ====
</TABLE>

                                      22


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)

On December 16, 2004,  the Financial  Accounting  Standards  Board (FASB) issued
FASB  Statement  No.  123R  (revised  2004),  "Share-Based  Payment"  which is a
revision of FASB Statement No. 123,  "Accounting for Stock-Based  Compensation".
Statement 123R  supersedes APB opinion No. 25,  "Accounting  for Stock Issued to
Employees",  and amends  FASB  Statement  No.  95,  "Statement  of Cash  Flows".
Generally,  the approach in Statement 123R is similar to the approach  described
in Statement 123. However,  Statement 123R requires all share-based  payments to
employees,  including grants of employee stock options,  to be recognized in the
income statement based on their fair values.  Pro-forma  disclosure is no longer
an  alternative.  On April 14, 2005,  the SEC amended the effective  date of the
provisions of this  statement.  The effect of this  amendment by the SEC is that
the Company will have to comply with Statement 123R and use the Fair Value based
method of accounting no later than the first quarter of 2006. Management has not
determined the impact that this  statement  will have on Company's  consolidated
financial statements.

New Accounting Pronouncements

SFAS 123R. On March 31, 2004 the Financial  Accounting  Standards Board ("FASB")
issued its exposure draft, "Share-Based Payments", which is a proposed amendment
to SFAS 123.  The  exposure  draft  would  require all  share-based  payments to
employees,  including  grants of  employee  stock  options and  purchases  under
employee stock purchase  plans,  to be recognized in the statement of operations
based on their fair value.  The FASB issued the final  standard in December 2004
that is effective for small business issuers for annual periods  beginning after
December 15, 2005.  The Company has not yet assessed the impact of adopting this
new standard.

SFAS 151. 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. 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.

SFAS 152. 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 SFAS 153. 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.

                                      23


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)

In May 2005 the FASB issued Statement of Financial  Accounting  Standards (SFAS)
No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion
No. 20 and FASB Statement No. 3." SFAS 154 requires retrospective application to
prior periods' financial statements for changes in accounting principle,  unless
it is  impracticable  to  determine  either the  period-specific  effects or the
cumulative  effect of the  change.  SFAS 154 also  requires  that  retrospective
application of a change in accounting principle be limited to the direct effects
of the change.  Indirect effects of a change in accounting principle,  such as a
change in non-discretionary profit-sharing payments resulting from an accounting
change,  should be recognized in the period of the accounting  change.  SFAS 154
also requires that a change in depreciation,  amortization,  or depletion method
for long-lived,  non-financial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle. SFAS 154 is effective for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after December 15, 2005. Early adoption is permitted for accounting  changes and
corrections  of  errors  made in  fiscal  years  beginning  after  the date this
Statement  is issued.  The Company  does not expect the adoption of this SFAS to
have a  material  impact on its  consolidated  financial  position,  results  of
operations or cash flows.

NOTE B - ACQUISITION OF INTANGIBLE ASSETS

The Company has adopted  SFAS No. 142,  Goodwill  and Other  Intangible  Assets,
whereby the Company  periodically test its intangible assets for impairment.  On
an annual basis, and when there is reason to suspect that their values have been
diminished or impaired, these assets are tested for impairment,  and write-downs
will be included in results from operations.

Biowell Technology, Inc.

On July 12, 2005, the Company  acquired  certain  intellectual  properties  from
Biowell  Technology,  Inc.  ("Biowell")  through  an  Asset  Purchase  Agreement
("Agreement")  in exchange  for 36 million  shares of the  Company's  restricted
common  stock  having  an  aggregate  fair  value  at the  date of  issuance  of
$24,120,000.   The  intangible   assets  acquired  consist  of  proprietary  DNA
anti-counterfeit  trade secrets  created by Biowell that are intended to protect
intellectual property from counterfeiting,  fraud, piracy, product diversion and
unauthorized intrusion.

The purchase price has been allocated as follows:

Amortizable intangible assets acquired are comprised of:

<TABLE>
<CAPTION>
<S>                                                      <C>
Developed core technologies                              $ 2,260,900
Developed product technologies                             7,170,000
                                                         -----------
Total amortizable intangible assets                        9,430,900
Transaction costs                                         14,869,100
                                                         -----------
Total purchase price                                     $24,120,000
                                                         ===========
</TABLE>

In Process Research & Development

The Company  concluded as of the date of  acquisition,  the acquired  intangible
assets,  consisting of developed core and product  technologies had reached full
development  and that it was not the  intention of the  Company's  management to
utilize the asset in specific research and development  activities as defined in
SFAS No. 2 Accounting for Research & Development Costs, As a result, the Company
determined there was no in-process  research and development ("IPR& D") projects
in place  related  to the  technology  acquired , nor any  future  research  and
development  activities planned.  Accordingly,  there is no charge to operations
during  the year  ended  September  30,  2005 for IPR&D in  connection  with the
acquisition of the assets.

                                      24


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE B - ACQUISITION OF INTANGIBLE ASSETS (continued)

Transaction costs

The  amount of the  purchase  price  that  could not be  allocated  to  acquired
identifiable  intangible  assets or IPR & D was  $14,689,100  and was charged to
operations  as a cost of the  transaction  during the year ended  September  30,
2005.

The identifiable intangible assets acquired and their carrying value at December
31, 2005 are:

<TABLE>
<CAPTION>
                                                                                                                          Weighted
                                                       Gross                                                              Average
                                                      Carrying             Accumulated                    Residual      Amortization
                                                       Amount              Amortization         Net         Value          Period
                                                                                                                           (Years)
<S>                                                 <C>                   <C>               <C>            <C>              <C>
Amortizable
 Intangible
 Assets:
Trade secrets  and
developed technologies
                                                    $ 9,430,900           $ 673,636         $ 8,757,264            -              7
Patents                                                  34,237              13,490              20,767            -              5
                                                    -----------           ---------         -----------    ---------        --------
Total
 Amortized
Identifiable
Intangible Assets                                   $9,465,137            $687,126          $8,778,031             -           6.99
</TABLE>


Total amortization  expense charged to  operations for the  three  months  ended
December 31, 2005 and 2004 were $338,545 and $4,370 respectively.

Estimated amortization expense as of December 31, 2005 is as follows:

<TABLE>
<CAPTION>
         <S>                         <C>
         2006                        $ 1,357,279
         2007                          1,357,279
         2008                          1,349,748
         2009                          1,349,271
         2010 and after                3,704,998
                                    ------------
         Total                      $  9,116,575
                                    ============
</TABLE>

                                      25


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE C - NOTES PAYABLE

<TABLE>
<CAPTION>
<S>                                                                                             <C>
Note payable, secured by all Company assets, payable from November 3, 2005,
repayment due upon the earlier of $750,000 in new financing or by April 1, 2006,
rate of interest 16% per annum.                                                                           550,000
                                                                                                -----------------
                                                                                                          550,000
Less: current portion                                                                                     550,000
                                                                                                -----------------
Note Payable - long-term                                                                         $             --
                                                                                                =================
</TABLE>

NOTE D- RELATED PARTY TRANSACTIONS

At December 31, 2005, related party note payable is as follows:

<TABLE>
<CAPTION>
   <S>                                                                                        <C>
   4%  Convertible  Note  Payable,  unsecured,  to related party and due August 1,
   2005;  currently  in  default.  Note  holder  has the  option to covert  unpaid
   principal  together with any accrued and unpaid  interest to 180,000  shares of
   the Company's common stock.                                                                $ 410,429
</TABLE>

On October 18, 2005, Maureen Huppe, a Company shareholder obtained a judgment in
Los Angeles County,  California  against Lawrence Lee,  director of the Company,
for short swing profits as a result of trading Company shares. Per the judgment,
Mr. Lee is  obligated to  reimburse  the Company  $245,911 in damages plus legal
fees.  In  addition,  the Company  owes Mr. Lee $35,162 in  outstanding  accrued
liabilities.  In  offsetting  the  outstanding  liability  against  the  pending
reimbursement,  the Company anticipates proceeds of approximately  $211,000 from
Mr. Lee.

The Company issued 1,500,000 shares of its restricted  common stock to a Company
officer and Director in exchange for $600,000 of previously  incurred  debt. The
debt was in the form of a promissory note.

The  Company  valued  the  shares at $1.31 per share for a total of  $1,965,000,
which represents the fair value of the common stock on the date of the exchange.
The difference  between the fair value of the common stock of $1,965,000 and the
face value of the debt of $600,000  or  $1,365,000  has been  charged to current
period interest expense.

The Company's  current and former officers and shareholders  have advanced funds
to the  Company  for travel  related and  working  capital  purposes.  No formal
repayment  terms or  arrangements  exist.  The  amount  of the  advances  due at
December  31, 2005 was  $53,805 and is included in accounts  payable and accrued
expenses

On July 15, 2005,  the Company  entered into a consulting  agreement with Timpix
International  Limited  ("Timpix") for the  consulting  services of three former
Biowell employees, Drs. Jun-Jei Sheu, Ben Liang and Johnson Chen. The consulting
agreement is for the shorter of two years, or until all of the consultants  have
obtained a visa to work in the United States and execute  employment  agreements
with the Company.  The consulting  agreement shall  automatically  renew for one
year periods until terminated. Pursuant to the consulting agreement, the Company
is obligated to pay $47,000 per month, which is apportioned at $20,000 per month
for Mr.  Sheu,  $15,000  per month for Mr.  Liang and  $12,000 per month for Mr.
Chen. In the event that either of Messrs.  Sheu,  Liang or Chen becomes employed
by us,  the  monthly  consulting  fee  shall  be  reduced  accordingly.  We have
negotiated an agreement in principle to restructure  the  Consulting  Agreement,
whereby,  fees owed to  Timpix  from July  2005  through  December  2005 will be
waived,  and salaries for each of the three consultants will be reduced starting
January 1,  2006.  Travel  costs  totaled  $39,000  for the three  months  ended
December 31, 2005.

                                      26


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE D- RELATED PARTY TRANSACTIONS (continued)

The Company owes Biowell  Technology, Inc., $15,000 for unpaid previous research
and development costs.

In July 2005, the Company entered into a license agreement with Biowell, whereby
the  Company  granted  Biowell  an  exclusive  license  to  sell,   market,  and
sub-license the Company's  products in selected Asian  countries.  The exclusive
license for such selected territories is for an initial period of until December
31, 2010, and if Biowell meets its performance goals, the license agreement will
extend for an additional five year term. The license agreement gives Biowell the
initial rights to future anti-fraud biotechnologies developed by the Company and
also new applications for the existing  technology that may be developed for the
marketplace  as long as the license  agreement  remains in effect.  In the event
that Biowell shall  sub-license  the products  within its  territories,  Biowell
shall pay the Company 50% of all fees,  payments  or  consideration  or any kind
received in connection with the grant of the sublicense.  Biowell is required to
pay a  royalty  of 10% on all net sales  made and is  required  to meet  certain
minimum annual net sales in its various territories. Cumulative royalties earned
from the period July 2005 through December 31, 2005 totaled $17,404 with $14,274
occurring in the three  months ended  December 31, 2005 and is included in other
income.

NOTE E - PRIVATE PLACEMENT OF CONVERTIBLE NOTES

$ 1,675,000 Convertible Notes

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 $3,000,000 or more;  the
Company,  at its sole  discretion  may  prepay  principal  at any  time  without
penalty.  The Bridge Unit Offering Notes unpaid principal and accrued and unpaid
interest  were  converted to an aggregate of 4,988,051  shares of the  Company's
common  shares at a price  equal to  approximately  $. 33 per share  during  the
quarter ended March 31, 2005 .

$ 1,465,000 Convertible Notes

Beginning in December, 2004, the Company sold a 10% convertible debenture in the
aggregate  amount of $1,465,000 in a private  placement and exempt  offerings to
sophisticated investors, net of costs and fees.

The  Convertible  Note's terms called for the debt to  automatically  convert at
$.50 per share upon the filing a of a registration statement with the Securities
and Exchange Commission.

The  Company  filed the  registration  statement  on  February  15, 2005 and the
Convertible  Notes were  converted to an  aggregate  of 2,930,000  shares of the
Company's common stock.

As  additional  consideration  for the purchase of the  Convertible  Notes,  the
Company  granted to the holders  warrants  entitling  it to  purchase  2,930,000
common  shares of the  Company's  common  stock at the price of $ .75 per share.
These  warrants  were  issued  in  February,  2005 and lapse if  unexercised  by
February,  2010. A registration  rights  agreement was executed in December 2004
and  consummated in February,  2005 requiring the Company to register the shares
of its common  stock  underlying  the  Convertible  Notes and  warrants so as to
permit the public resale thereof. The registration rights agreement provided for
the payment of  liquidated  damages of 3.5% of the  aggregate  Convertible  Note
financing per month if the stipulated  registration  deadlines were not met. The
liquidated  damages,  which  approximate $ 51,275 per month, may be paid, at the
Company's option, in cash or unregistered shares of the Company's common stock.

                                      27


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE E - PRIVATE PLACEMENT OF CONVERTIBLE NOTES (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 Convertible  Notes.  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  $1,465,000 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  Convertible  Notes.  Since the  Convertible  Notes  were
converted to the  Company's  common stock in December  2004,  the debt  discount
attributed to the  beneficial  conversion  feature of $ 1,465,000 was charged to
interest expense in its entirety during the six months ended March 31, 2005.

In conjunction  with raising capital through the issuance of Convertible  Notes,
the Company has issued a warrant in February,  2005 that has registration rights
for the  underlying  shares.  As the contract must be settled by the delivery of
registered shares and the delivery of the registered shares is not controlled by
the  Company,  pursuant  to EITF 00-19,  "Accounting  for  Derivative  Financial
Instruments  Indexed to, and Potentially Settled in, a Company's Own Stock", the
net value of the  warrants  at the date of  issuance  was  recorded as a warrant
liability on the balance sheet $23,148,214 and charged to operations as interest
expense.  Upon the  registration  statement being declared  effective,  the fair
value of the warrant on that date will be  reclassified  to equity.  The Company
initially  valued the warrants  using the  Black-Scholes  pricing model with the
following  assumptions:  (1) dividend  yield of 0%; (2) expected  volatility  of
152.59%, (3) risk-free interest rate of 3.67%, and (4) expected life of 5 years.

In connection  with the  placement of the  $1,465,000  of  convertible  notes as
described above, the Company agreed to registered shares of the Company's common
stock underlying  certain  previously issued and outstanding  warrants that were
not subject to a  registration  rights  agreement at the time the warrants  were
issued. These warrants consist of following:

         o        105,464  warrants  entitling  the  holder to  purchase 105,464
                  shares of the Company's common stock at the price of $ .10 per
                  share.  These warrants were issued in July, 2004  and lapse if
                  unexercised by July, 2009.

         o        1,602,500 warrants entitling the holder to purchase  1,602,500
                  shares of the Company's common stock at the price of $ .60 per
                  share. These warrants were issued in October,  2003 and  lapse
                  if unexercised by October, 2008.

As a result,  the Company is required to  classify  the  warrants as  derivative
liabilities  and mark then to market at each  reporting  date. The fair value of
the warrants that were subject to registration  reclassified as liabilities from
additional  paid in  capital  at March 31,  2005  totaled  $3,108,851.  Upon the
registration statement being declared effective,  the fair value of the warrants
on that date will be reclassified to equity.  The Company  initially  valued the
warrants using the Black-Scholes  pricing model with the following  assumptions:
(1) dividend  yield of 0%; (2) expected  volatility  of 148.66%,  (3)  risk-free
interest rate of 3.21%, and (4) expected life of 3 years.

$ 7,371,000 Convertible Notes

In January and February,  2005, the Company sold an 10% convertible debenture in
the aggregate  amount of $7,371,000 in a private  placement and exempt offerings
to sophisticated investors, net of costs and fees.

The  Convertible  Note's terms called for the debt to  automatically  convert at
$.50 per share upon the filing a of a registration statement with the Securities
and Exchange Commission.

The  Company  filed the  registration  statement  on  February  15, 2005 and the
Convertible  Notes were  converted to an aggregate of  14,742,000  shares of the
Company's common stock.

                                      28


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE E - PRIVATE PLACEMENT OF CONVERTIBLE NOTES (continued)

As  additional  consideration  for the purchase of the  Convertible  Notes,  the
Company  granted to the holders  warrants  entitling  it to purchase  14,742,000
common  shares of the  Company's  common  stock at the price of $ .75 per share.
These warrants lapse if  unexercised  by February,  2010. A registration  rights
agreement was executed and consummated in January, 2005 requiring the Company to
register the shares of its common stock  underlying  the  Convertible  Notes and
warrants so as to permit the public  resale  thereof.  The  registration  rights
agreement  provided  for  the  payment  of  liquidated  damages  of  3.5% of the
aggregate  Convertible  Note financing per month if the stipulated  registration
deadlines were not met. The liquidated damages,  which approximate  $257,985 per
month, may be paid, at the Company's option,  in cash or unregistered  shares of
the Company's common stock.

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 Convertible  Notes.  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  $7,731,000 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  Convertible  Notes.  Since the  Convertible  Notes  were
converted to the  Company's  common stock in February,  2005,  the debt discount
attributed to the  beneficial  conversion  feature of $7,371,000  was charged to
interest expense in its entirety during the six months ended March 31, 2005.

In conjunction  with raising capital through the issuance of Convertible  Notes,
the Company has issued warrants that have registration rights for the underlying
shares. As the contract must be settled by the delivery of registered shares and
the delivery of the registered shares is not controlled by the Company, pursuant
to EITF 00-19,  "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock", the net value of the warrants at
the date of issuance  was recorded as a warrant  liability on the balance  sheet
$23,148,214 and charged to operations as interest expense. Upon the registration
statement being declared  effective,  the fair value of the warrant on that date
will be reclassified to equity.  The Company initially valued the warrants using
the  Black-Scholes  pricing model with the following  assumptions:  (1) dividend
yield of 0%; (2) expected volatility of 152.59%,  (3) risk-free interest rate of
3.67%, and (4) expected life of 5 years.

NOTE F - STOCK OPTIONS AND WARRANTS

Warrants

The Company  issued  options and warrants  during the years ended  September 30,
2005 and 2004 for  consulting  and employee  services,  fees in connection  with
obtaining  financing and various other services.  The following table summarizes
the changes in options and warrants  outstanding  and the related prices for the
shares of the  Company's  common  stock issued to  shareholders  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.

                                      29


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE F - STOCK OPTIONS AND WARRANTS (continued)

<TABLE>
<CAPTION>
                                                   Warrants                                                              Warrants
                                                  Outstanding                                                           Exercisable
                                                Weighted Average              Weighed                                    Weighted
                                                   Remaining
                        Number                    Contractual                 Average            Number                  Average
Exercise                                                                      Exercise                                   Exercise
Prices                Outstanding                 Life (Years)                 Price             Exercisable               Price
-------------        --------------         -------------------------        -----------         --------------         ------------
 <S>                   <C>                          <C>                    <C>                    <C>                 <C>
   $0.10                   105,464                    3.54                   $     0.10                105,464          $       0.10
   $0.20                     5,000                    2.88                   $     0.20                  5,000          $       0.20
   $0.50                 5,550,000                    3.77                   $     0.50              5,550,000          $       0.50
   $0.55                 9,000,000                    2.47                   $     0.55              9,000,000          $       0.55
   $0.60                 9,182,000                    3.38                   $     0.60              9,182,000          $       0.60
   $0.70                   750,000                    1.59                   $     0.70                750,000          $       0.70
   $0.75                17,727,000                    3.75                   $     0.75             17,727,000          $       0.75
   $1.00                   100,000                    0.79                   $     1.00                100,000          $       1.00
                        ----------                                                                  ----------
                        42,369,464                                                                  42,369,464
</TABLE>

Transactions involving warrants are summarized as follows:

<TABLE>
<CAPTION>
                                                                      Weighted Average Price
                                               Number of Shares             Per Share
<S>                                           <C>                     <C>
Balance, September 30, 2003                             383,500          $              1.38
                                              ------------------         --------------------
Granted                                               4,574,753                         0.58
Exercised                                              (88,000)                         1.00
Canceled or expired                                          --                           --
                                              ------------------         --------------------
Balance,  September 30, 2004                          4,870,253          $              0.63
                                              ------------------         --------------------
Granted                                              32,873,000                         0.67
Exercised                                             (142,500)                         0.34
Canceled or expired                                   (731,289)                         0.65
                                              ------------------         --------------------
Balance, September 30, 2005                          36,869,464          $              0.67
                                              ------------------         --------------------
Granted                                               5,500,000                         0.50
Exercised                                                    --                           --
Canceled or expired                                          --          $                --
                                              ------------------         --------------------
Balance, December 31, 2005                           42,369,464          $              0.67
                                              ------------------         --------------------
</TABLE>

During the quarter  ended  December  31,  2005,  the Company  granted  5,500,000
warrants  with an exercise  price of $.50 per share to non employees in exchange
for  financing  expenses.  As the  contract  must be settled by the  delivery of
registered shares and the delivery of the registered shares is not controlled by
the  Company,  pursuant  to EITF 00-19,  "Accounting  for  Derivative  Financial
Instruments  Indexed to, and Potentially Settled in, a Company's Own Stock", the
fair value of the  warrants  at the date of issuance  was  recorded as a warrant
liability of $1,758,900 and charged to operations as interest expense.  Upon the
registration statement being declared effective,  the fair value of the warrants
on that date will be reclassified to equity.  The Company  initially  valued the
warrants using the Black-Scholes  pricing model with the following  assumptions:
(1) dividends  yield of 0%; (2) expected  volatility  of 156.19%,  (3) risk-free
interest rate of 4.35%, and (4) expected life of 5 years.

                                       30


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE G - WARRANT LIABILITIES

In accordance with SFAS 133  "Accounting for Derivative  Instruments and Hedging
Activities  and EITF 00-19  "Accounting  for  Derivative  Financial  Instruments
Indexed to, and Potentially  Settled in, a Company's Own Stock", the Company has
accounted  warrants to purchase its common stock that provide for the payment of
liquidated  damages if the  stipulated  registration  deadlines  were not met as
liabilities.

As of the  date of this  filing,  the  registration  statement  has not yet been
declared  effective  by the SEC.  The  Company  valued  the  warrants  using the
Black-Scholes  option  pricing  model.  The Company  revalued the warrants as of
December 31, 2005 using the  Black-Scholes  option  pricing  model.  Assumptions
regarding the life were one to five years, expected dividend yield of 0%, a risk
free rate of 4.18 %, and a volatility  of 155.91%.  The  determined  value as of
December 31, 2005 of $8,643,685. The net change in the fair value of the warrant
liability  value from  September 30, 2005 of  $6,788,790  has been recorded as a
gain from change in warrant liabilities in the consolidated  condensed statement
of losses.

NOTE H - 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 250,000,000 shares
of  common  stock,  with a  $0.001  par  value  per  share  as the  result  of a
shareholder  meeting  conducted on February 15, 2005.  Prior to the February 15,
2005 share increase and par value change, the Company had 100,000,000 authorized
shares  with a par  value of $0.50.  In  February  2005,  the  Company  passed a
resolution  authorizing change in the par value per common shares from $0.50 per
share to $0.001 per share.

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.

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

During the fiscal year ended  September 30, 2003, the Company  issued  2,369,130
shares of common stock,  net of  cancellation  of 860,000 shares in exchange for
consulting services. The Company valued the shares issued at $2,191,227,  net of
cancellation  of  $60,008,  which  represents  the fair  value  of the  services
received which did not differ materially from the value of the stock issued.

During the fiscal year ended  September  30, 2003,  the Company  issued  895,200
shares of common stock in exchange for  subscription at approximately $ 0.12 per
share.

In January 2003, the Company issued 1,500,000 shares of common stock in exchange
for a licensing  agreement (see Note I). 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 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.

                                      31


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE H - CAPITAL STOCK (continued)

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 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 C). The option
expired 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  had 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  10,000  shares  of  common  stock for cash
previously subscribed at $1.00 per share.

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

During the fiscal year ended  September  30, 2003,  the Company  issued  154,000
shares of common stock in exchange for previously issued options to purchase the
Company's common stock at $1.00 per share.

During the fiscal year ended  September  30, 2003,  the Company  issued  132,000
shares of common stock in exchange for cash at approximately $0.50 per share.

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.

During the fiscal year ended  September 30, 2004, the Company  issued  5,149,472
shares of common stock,  net of cancellation of 155,000 shares,  in exchange for
consulting services. The Company valued the shares issued at $8,787,315,  net of
cancellation  of  $408,575,  which  represents  the fair  value of the  services
received which did not differ materially from the value of the stock issued

During the fiscal year ended  September  30, 2004,  the Company  issued  340,500
shares of common stock for shares previously  subscribed at approximately  $2.04
per share.

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

During the fiscal year ended  September 30 2004,  the Company  converted  15,000
preferred  shares  into  375,000  shares of  common  stock at $1.47 per share in
exchange for employee services valued at $549,750.

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

During the fiscal year ended  September 30, 2005, the Company issued  11,040,647
shares of common stock, net of cancellation of 2,329,600 shares, in exchange for
consulting  and  employee  services.  The  Company  valued the shares  issued at
$13,008,371,  net of cancellation of $1,328,269, which represents the fair value
of the services  received which did not differ  materially from the value of the
stock issued

                                      32


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE H - CAPITAL STOCK (continued)

During the fiscal year ended  September 30, 2005, the Company  issued  1,500,000
shares of common stock for shares  previously  subscribed at approximately  $.54
per share.

During the fiscal year ended  September  30, 2005,  the Company  issued  222,500
shares of common stock for warrants and options exercised at approximately $0.48
per share

During the fiscal year ended September 30, 2005, the Company retired  $1,836,057
of convertible notes payable for 5,563,809 shares of common stock. The Notes are
convertible into shares of common stock at a price of $0.33 per share.

During the fiscal year ended  September 30, 2005, the Company issued  17,672,000
shares of common  stock at $0.50 per share  pursuant  to the  exercise  terms of
notes  payable.  This  issuance is considered  exempt under  Regulation D of the
Securities Act of 1933 and Rule 506 promulgated thereunder.

In October 2004,  the Company  issued 500,000 shares of common stock in exchange
for debt at $0.50 per share.

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  February  2005,  the  Company in  exchange  for a related  party note in the
outstanding  principal  amount of $600,000 and as settlement  for certain claims
related thereto issued  1,500,000  shares of common stock using a price of $1.31
per share. (See note D)

In March,  2005,  the Company  granted  stock options to purchase a aggregate of
300,000  shares  of common  stock to  employees  that  vested  immediately.  The
exercise  prices of the stock  options  granted were below the fair value of the
Company's common stock at the grant date.  Compensation  expense of $180,000 and
$0 was charged to  operations  during the period  ended March 31, 2005 and 2004,
respectively.

In June 2005, the Company  cancelled  300,000 stock options  previously  granted
valued at  $180,000.  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.

In July 2005, the Company issued 36 million shares in exchange for  intellectual
property at approximately $0.67 per share for a total of $24,120,000.  The value
of the  acquired  intangible  assets was  established  at  $9,430,900,  with the
balance of the purchase price,  or $14,689,100,  charged to operations as a cost
of the transaction. (See Note B)

In 2005,  the  Company  issued  8,550,000  shares of its  common  stock  without
restriction to employees in exchange for services  rendered.  The Company valued
the  shares  issued at market  value and  charged  operations  in the period the
shares were issued.  The Company is investigating the circumstances  surrounding
the issuance of the shares and the possible  subsequent resale of certain of the
shares on the open market and the  possibility of violations of securities  laws
(see Note H).

                                      33


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE H - CAPITAL STOCK (continued)

In September  2005, the Company issued  814,158  penalty shares  pursuant to the
pending SB-2  registration  terms.  In  connection  with the  7,371,000  million
convertible  debt financing in the quarter ended March 30, 2005, the Company was
obligated to complete a stock  registration by July 2005. Since the registration
was not  effective  by July 2005,  the  Company  paid the  required  $257,985 of
liquidated  damages in shares of Company stock  accruing at the rate of 3.5% per
month on the face value of the Notes for the month of July and August 2005.  The
Company valued the shares issued at approximately $0.62 per share for a total of
$502,672.

In September  2005, the Company issued  391,224  penalty shares  pursuant to the
pending SB-2  registration  terms.  In  connection  with the  7,371,000  million
convertible  debt financing in the quarter ended March 30, 2005, the Company was
obligated to complete a stock  registration by July 2005. Since the registration
was not  effective  by July 2005,  the  Company  paid the  required  $257,985 of
liquidated  damages in shares of Company stock  accruing at the rate of 3.5% per
month on the face  value of the  Notes  for the  month of  September  2005.  The
Company valued the shares issued at approximately $0.70 per share for a total of
$273,857.

In October,  2005, the Company issued 400,000 shares of common stock  subscribed
for cash at $0.50 per share for a total of  $200,000  pursuant to the terms of a
subscription  payable.  This issuance is considered exempt under Regulation D of
the Securities Act of 1933 and Rule 506 promulgated thereunder.

In October 2005,  the Company  issued 100,000 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$0.75 per share for a total of $75,000,  which  represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In October 2005,  the Company  cancelled  350,000 shares  previously  issued for
services valued at $210,000.

In December,  2005, the Company issued 40,000 shares of common stock  subscribed
for cash at $0.50 per share for a total of  $20,000  pursuant  to the terms of a
subscription  payable.  This issuance is considered exempt under Regulation D of
the Securities Act of 1933 and Rule 506 promulgated thereunder.

In December  2005, the Company  issued  505,854  penalty shares  pursuant to the
pending SB-2  registration  terms.  In  connection  with the  7,371,000  million
convertible  debt financing in the quarter ended March 31, 2005, the Company was
obligated to complete a stock  registration by July 2005. Since the registration
was not  effective  by July 2005,  the  Company  paid the  required  $257,985 of
liquidated  damages in shares of Company stock  accruing at the rate of 3.5% per
month on the face value of the Notes for the month of October 2005.  The Company
valued  the  shares  issued  at  approximately  $0.51  per  share for a total of
$257,985.  The Company continues to accrue the penalties relating to the pending
SB-2 registration.

In  December  2005,  in  connection  with debt  financing,  the  Company  issued
5,500,000  warrants to purchase the Company's  common stock at an exercise price
of $0.50  for five  years.  The  fair  value  attributable  to the  warrants  of
$1,758,900  was charged to  operations  in the three months  ended  December 31,
2005.

NOTE I- COMMITMENTS AND CONTINGENCIES

Employment and Consulting Agreements

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

                                      34


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE I- COMMITMENTS AND CONTINGENCIES (continued)

On July 15, 2005,  we entered into a  consulting  agreement  with Timpix for the
consulting  services of three former Biowell  employees,  Drs. Jun-Jei Sheu, Ben
Liang and  Johnson  Chen.  The  consulting  agreement  is for the shorter of two
years,  or until  all of the  consultants  have  obtained  a visa to work in the
United  States  and  execute  employment  agreements  with us.  Such  consulting
agreement  shall  automatically  renew for one year  periods  until  terminated.
Pursuant to the consulting  agreement,  we shall pay $47,000 per month, which is
apportioned  at $20,000 per month for Mr. Sheu,  $15,000 per month for Mr. Liang
and $12,000 per month for Mr.  Chen.  In the event that either of Messrs.  Sheu,
Liang or Chen  becomes  employed  by us,  the  monthly  consulting  fee shall be
reduced accordingly. We have negotiated an agreement in principle to restructure
the Consulting  Agreement,  whereby,  fees owed to Timpix from July 2005 through
December  2005 will be waived,  and salaries  for each of the three  consultants
will be reduced starting January 1, 2006.

Litigation

On or about  November  24,  2004,  Oceanic  Consulting,  S.A.  filed a complaint
against  the  Company  in the  Superior  Court  of the  State of New  York.  The
Complaint  alleges a breach of contract.  The Company and the Plaintiff  settled
the dispute subsequent to the date of the financial statements.

On or about January 10, 2005, Stern & Co. filed a complaint  against the Company
in the United States  District Court for the Southern  District of New York. The
Complaint alleges a breach of contract.  Subsequent to the date of the financial
statements, the Company and the Plaintiff settled the dispute.

On April 29, 2005, Crystal Research Associates,  LLC obtained a default judgment
against us for $13,000 in the Superior  Court of New Jersey,  Middlesex  County.
The  Company  settled  this  matter  subsequent  to the  date  of the  financial
statements.

On or about  January 12,  2006,  James Paul Brown,  a former  consultant  to the
Company filed a complaint against the Company in the Superior Court of the State
of  California.  The Complaint  alleges a breach of contract.  Subsequent to the
date of the  financial  statements,  the Company and the  Plaintiff  settled the
dispute.

In January  2006, a former  employee of the Company  filed a complaint  alleging
wrongful  termination  against  the  Company.  The  former  employee  is seeking
$230,000 in damages.  The Company  believes that it has meritorious  defenses to
the  plaintiff's  claims and intends to  vigorously  defend  itself  against the
Plaintiff's claims. Management believes the ultimate outcome of this matter will
not have a  material  adverse  effect on the  Company's  consolidated  financial
position or results of operations.

On or about April 4, 2006,  the Company  filed a  complaint  against  Paul Reep,
Adrian  Butash,  John Barnett,  Chanty  Cheang,  Jaime Cardona  (former  Company
employees  and  officers),  and  Angela  Wiggins  ( a former  consultant  to the
Company)  in the  United  States  District  Court for the  Central  District  of
California  . The Company  has asked the court to make a judicial  determination
that an agreement, which the Company did not authorize and which is the basis of
previously  disclosed  litigation  against  the  Company by Paul Reep,  a former
employee  of the  Company,  and a new action  filed by former  employees  of the
Company as set forth in the subsequent paragraph,  is invalid and unenforceable.
This matter is in its early stages.

                                      35


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE I- COMMITMENTS AND CONTINGENCIES (continued)

On or about April 17, 2006,  former  employees of the Company  filed a complaint
against the Company and certain of its current  officers  and  Directors  in Los
Angeles  County  Superior  Court.  The  Complaint  alleges a breach of contract,
violations  of  California  Labor Code and wrongful  termination  and is seeking
$950,000 in specified  damages,  plus fees and costs.  The  complaint  alleges a
breach of contract. The Company believes that it has meritorious defenses to the
plaintiff's   claims  and  intends  to  vigorously  defend  itself  against  the
Plaintiff's claims. Management believes the ultimate outcome of this matter will
not have a  material  adverse  effect on the  Company's  consolidated  financial
position or results of operations.

The Company is subject to other legal proceedings and claims, which arise in the
ordinary  course of its  business.  Although  occasional  adverse  decisions  or
settlements may occur, the Company  believes that the final  disposition of such
matters  should not have a material  adverse  effect on its financial  position,
results of operations or liquidity.

Operating Lease Commitment

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. In November 2005, the Company closed its
Los Angeles facility and relocated to Stony Brook, New York.

Registration of Company's Shares of Common Stock

Until the Company successfully  completes its pending registration  statement on
SEC Form SB-2,  the Company is subject to  liquidated  damages  (see Note F). In
connection  with  the $  1,465,000  and $  7,371,000  million  convertible  debt
financing  during the  quarters  ended  December  31,  2004 and March 31,  2005,
respectively  (see Note E), the  Company  was  obligated  to deliver  registered
shares  underlying the  convertible  notes and warrants by July 2005.  Since the
registration  was not effective by July 2005,  the Company has been accruing and
charging to operations  the stipulated  liquidated  damages in shares of Company
stock accruing at the rate of 3.5% per month on the face value of the previously
issued convertible  notes.  During the three months ended December 31, 2005, the
Company has paid and charged to operations  penalties of $257,985 in the form of
unregistered  shares of its  common  stock to the  former  noteholders,  and has
accrued and charged to  operations an additional  $329,700  representing  unpaid
penalties as of December 31, 2005

                                      36


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE I- COMMITMENTS AND CONTINGENCIES (continued)

Matters Voluntarily Reported to the SEC and Securities Act Violations

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

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

NOTE J - RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS

The  accompanying  financial  statements for the three months ended December 31,
2005 have been restated for the purpose of correcting  errors in accounting  for
and  disclosing the issuance by the Company of warrants to acquire the Company's
common stock, revising compensation expense and adjusting shareholder equity. In
addition the Company is correcting certain errors in accounting for the exchange
of its common stock for previously incurred debt owed to a Company Director.

Accordingly, the Company has restated the financial statements as of and for the
three months ended December 31, 2005 by disclosing the effect of these errors in
this amended Form 10-QSB/A.

The  result of the  December  31,  2005  Condensed  Consolidated  Balance  Sheet
restatement is to:
  -    Reflect  the   reclassification  of  warrants  from  equity to  liability
       resulting n an $8,643,685 increase to  Warrant Liability  compared to the
       previous filing.
  -    Adjust for warrant valuations for issuance to non employees of $2,284,764
       to Additional  Paid in Capital.
  -    Increase in  liabilities for accrual of penalties relating to convertible
       notes of $714,351.
  -    $1,265,300 additional  compensation recorded in the restatement
  -    Net Shareholder Equity  decreased  by  $9,357,736  as  a  result  of  the
       combination of factors described above

                                      37


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

The changes in reported amounts are summarized in the following  reconciliations
of the Company's  restatement of the Condensed  Consolidated Balance Sheet as of
December 31, 2005.

<TABLE>
<CAPTION>

                                                         For the Period Ended December 31, 2005
                                                         --------------------------------------
                                                            (As Restated)       (As Reported)
                                                            ------------        -----------

   <S>                                                      <C>                 <C>
   ASSETS                                                   $  8,987,183           8,987,183
                                                            ------------        ------------

   LIABILITIES AND STOCKHOLDERS' EQUITY

    Total Current Liabilities                                  4,872,663           4,158,312

   Warrant Liability                                           8,643,685                  --

    Stockholders' Equity:
    Preferred Stock                                                    6                   6
    Common Stock                                                 112,926             112,926
    Common Stock Subscription                                   (200,000)           (200,000)
    Additional Paid-In-Capital                                82,663,005          82,785,842
    Deficit Accumulated During Development Stage             (87,105,102)        (77,869,903)
                                                            ------------        ------------
    Total Stockholders' Equity                                (4,529,165)          4,828,571
                                                            ------------        ------------
    Total Liabilities and Stockholders' Equity              $  8,987,183          8,987,183

</TABLE>

For both the three  months ended  December 31, 2005,  the result of the December
31,  2005  Condensed  Consolidated  Statement  of  Losses  restatement  is to:
  -    Increase  Selling,   General  and  Administrative for penalties relating
       to convertible notes of $329,700.
  -    Reflect gain on the revaluation of warrants of $6,788,790 as a result of
       reclassifying  warrants from  equity  to  a liability  net  with initial
       warrant valuation of $1,758,900 charged to interest expense.
  -    Net loss  decreased by  $4,700,190  the three months ended  December 31,
       2005 and  increased  by $7,514,385 for  the period  September  16,  2002
       through  December  31, 2005  as a result of the  combination  of factors
       described above

                                      38


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)

NOTE J - RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS (continued)

The changes in reported amounts are summarized in the following  reconciliations
of the Company's  restatement of the Condensed  Consolidated Income Statement as
of December 31, 2005.
<TABLE>
<CAPTION>

                                                                                       For the Period September 16, 2002
                                          For the Three Months Ended December        (Date of Inception) Through December
                                                        31, 2005                                   31, 2005
                                              (As Restated)     (As Reported)           (As Restated)         (As Reported)
<S>                                      <C>                   <C>                     <C>                         <C>

Operating Expenses:
Selling general and
administrative                              $     1,844,477    $    2,078,727          $    73,380,081        $  65,562,416
Research and development                            342,699           342,699                  893,678              893,678
Depreciation and
amortization                                         16,270            16,270                  702,126              702,126
                                            ---------------    --------------          ---------------        -------------


Total Operating Expenses                          2,203,446         2,437,696               74,975,885           67,158,220
Operating Loss                                   (2,203,446)       (2,437,696)             (74,975,885)         (67,158,220)

Net gain/(loss) on
revaluation of warrant
liability                                         6,788,790                --               23,489,780                   --
Other income (expense)                               13,013            13,013                   44,355               44,355
Interest income
(expense)                                        (1,778,906)          (19,806)             (35,663,352)         (10,756,038)

Net Income (Loss)                           $     2,819,451    $   (2,444,489)         $   (87,105,102)         (77,869,903)
Income (Loss) per
common share-basic                          $          0.03    $        (0.02)         $         (2.18)               (1.94)
 Income per common
share-fully diluted)                        $          0.02
Weighted average shares
outstanding-basic                               112,535,514       112,535,514               40,061,781           40,068,155
Weighted average shares
outstanding-fully
diluted                                         163,392,948

</TABLE>

The result of the Condensed Consolidated Income Statement restatement is to:
-     Decrease  the loss for the three months  December  31, 2005 by  $4,700,190
      within  operating  activities  as a result of the net  $5,029,890  warrant
      liability  reclassification  and the $329,700 penalties accrued related to
      convertible debt.

The changes in reported amounts are summarized in the following  reconciliations
of the Company's  restatement  of the Condensed  Consolidated  Statement of Cash
Flows for the periods ended December 31, 2005.

                                      39


<PAGE>


                            APPLIED DNA SCIENCES, INC
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                    RESTATED
                                   (Unaudited)


NOTE J - RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS (continued)

Consistent with the original summary presentation, following is a reconciliation
of the Company's  restatement  of the Condensed  Consolidated  Statement of Cash
Flows for the three months  ended  December  31,  2005.  See the full  Condensed
Consolidated Statement of Cash Flows for the periods ended December 31, 2005 for
additional details.

<TABLE>
<CAPTION>
                                                                                           For the Period September 16, 2002
                                                   For the Three Months Ended December       (Date of Inception) Through
                                                                31, 2005                          December 31, 2005
                                                   (As Restated)        (As Reported)      (As Restated)     (As Reported)
<S>                                                 <C>                <C>                 <C>                <C>
Cash Flows from operating
activities:

Net income (loss) from operating
activities                                          $ 2,819,451        $ (2,444,489)       $ (87,668,852)     $ (87,105,102)
Summary of adjustments to
reconcile net loss to net cash
(used in) operating activities:

Warrant revaluation                                   (6,788,790)                --           23,489,780                 --
Other operating activities - see
Cash Flow statement for full
details                                                3,555,969          2,031,119           98,024,178         65,331,199
Net cash (used in) operating
activities                                              (413,370)          (413,370)         (13,134,454)       (13,102,454)

Cash flows from investing activities:
- see Cash Flow statement for full
details
Net cash (used in) investing
activities                                                (3,294)            (3,294)             (56,004)           (56,004)

Cash flows from financing activities:
- see Cash Flow statement for full
details                                                       --                 --           10,054,984         10,022,984
Proceeds from loans                                      550,000            550,000            3,300,000          3,300,000
Net cash provided by financing
activities                                               550,000            550,000           13,354,984         13,322,984
Net increase (decrease) in cash
and cash equivalents                                     133,336            133,336              164,526            164,526
Cash and cash equivalents at
beginning of period                                       31,190             31,190                   --                 --
Cash and cash equivalents at end
of period                                                164,526            164,526              164,526            164,526

</TABLE>


NOTE J- SUBSEQUENT EVENTS

On March 29, 2006,  and April 13,  2006,  the Company  borrowed  $200,000 in the
aggregate, at a rate of 7.5% per annum, from BioCogent, Ltd., ("BioCogent"),  an
entity controlled by the Company's President and Chief Executive Officer.  These
loans are due and payable upon the earlier to occur of (1) the close of business
on June 30, 2006,  or (2) the closing of the issuance and sale by the Company of
its securities for gross proceeds of at least $250,000. These loans were paid in
full as of June 30, 2006.

                                      40


<PAGE>


Item 2. Management's Discussion and Analysis

Forward-Looking Statements

The  following  discussion  should  be read in  conjunction  with the  Company's
Consolidated  Financial Statements and Notes thereto,  included elsewhere within
this report. The quarterly report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended,  including  statements using
terminology such as "can", "may", "believe",  "designated to", "will", "expect",
"plan",  "anticipate",  "estimate",  "potential" or "continue",  or the negative
thereof or other comparable terminology regarding beliefs,  plans,  expectations
or intentions regarding the future. Forward looking statements involve risks and
uncertainties and actual results could differ materially from those discussed in
forward-looking  statements.  All forward  looking  statements  and risk factors
included in this document are made as of the date hereof,  based on  information
available  to the Company as of the date  thereof,  and the  Company  assumes no
obligations to update any forward-looking  statement or risk factor,  unless the
Company is required to do so by law.

Plan of Operations

Sales and Marketing

         Our revenues will come from three sources:

         1)  direct   sales  to   manufacturer,
         2)  sales   through   our  OEM relationships, and,
         3) authentication (laboratory) services.

We employ a multi-tier sales and marketing  strategy involving our marketing and
sales staff working together with high-level  contacts in target  industries and
our OEM base.  We are  attempting to 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 are cognizant that no technology exists today to enable someone in the street
to  ascertain,  at the point of  purchase,  whether an expensive  product,  or a
child's foodstuff,  or pharmaceutical  product is genuine, worth the money being
paid and safe to use or  ingest.  No brand  owner is able to  rapidly  determine
whether a product is real of fake.  Many  multi-billion  dollar  brands  have no
technology to protect  against  counterfeiting,  to detect its occurrence and to
interdict or  prosecute  the  counterfeiter.  No company has the  capability  to
determine with forensic  certainty that it is subject to attack.  Such companies
remain seriously exposed to product liability,  loss of consumer  confidence and
loss of revenues.  Governments  have no rapid  detection  system to determine at
thepoint of entry,  inspection or seizure  whether  products are real or fake. A
major thrust of our marketing  efforts is to work with consumer  groups,  media,
corporate  officers,  government  departments,  Customs,  insurers and others to
bring home the message that, in a world of criminality and terrorism,  no-one is
safe.

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.

                                      41


<PAGE>


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  original  equipment  manufacturer  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 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.

Management Strategy

We  anticipate  a period of rapid  change as we begin  commercialization  of the
products  now  available  subsequent  to: (a) the signing of our  licenses  with
Biowell,  (b) the  establishment of our prototyping labs at Stony Brook, and (c)
the availability of products that have recently been  commercialized  in Asia by
Biowell.

We have  organized  our resources to manage our  commercialization  effectively,
optimizing  the  delivery  of  new   prototypes  for  customers,   and  managing
outsourcing  especially  through  our  OEMs.  Our  Chief  Executive  Officer  is
responsible  for  the  strategic  direction,   coordinating  with  our  overseas
technology  partner  Biowell and  scientific  development  as well as  corporate
governance  and   operations.   Our  President  is   responsible   for  business
development,  including  relations  with  US and  foreign  government  agencies,
developing  business  relationships  with  target  corporations  and OEM's,  and
securing  revenues.   Our  Chief  Financial  Officer  covers  overall  financial
management, financial reporting, corporate administration,  investors relations.
Our marketing department develops strategic awareness of our technologies across
target  industry  sectors,  their  associated  media and lobbying  companies and
liaises with regulatory bodies (EPA, FDA, etc) and industry  Associations (CTFA,
PHARMA,  etc). Our sales  department  covers  specific  industries,  such as the
pharmaceutical,  packaging, ink, 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.  Our Chairman
oversees  the  Biowell  and Stony  Brook  DNA  production  Laboratories  and the
development  of core DNA  sciences  for  current  and future  applications.  Our
Strategic   Technology   Development  Officer  is  principally  engaged  in  the
productization  of DNA  markers  for  specific  industry  applications,  and for
liaison with  corresponding  scientists  from our principal OEM partners,  e.g.,
petroleum markers, chemical markers, markers for precious stones,  DNA-encrypted
inks, DNA markers for the pharmaceutical industry, etc.

Consultant & Enforcement Operations

As nations are threatened by terrorism and corporations try to prevent corporate
fraud, counterfeiting,  product diversion and industrial 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 or products  susceptible  to  counterfeit.  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

                                      42


<PAGE>



         o        Other important Identity cards and official documents

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  and is  currently  underway in the Biowell labs and will
continue in the U.S. at our new facilities being  established at the Long Island
High  Technology  Incubator  (LIHTI)  at Stony  Brook  University  in New  York.
Research and  development  objectives  include the  development of a new line of
detection  technologies  that will provide  faster and more  convenient  ways to
authenticate DNA,  continuous effort to incorporate our DNA markers with various
products for new applications, and establishment of a leading DNA authentication
service  lab.  We believe  that we will  obtain  commercial  revenues  for these
efforts  within 12-24 months,  although no assurances  can be given that we will
ever   generate   revenues.    Our   prototyping   laboratory   will   customize
"off-the-shelf"  products for new customers on a case-by-case  basis.  These new
products are typically newly configured  labels,  inks or packing  elements.  We
have  identified  several  options  for remote  detection  and faster  detection
methodologies.

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.

International Sub-License Operations

Developing  Technology  - We 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 original equipment manufacturers in these specialist fields.

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

                                      43


<PAGE>


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 policies involve the most complex,  difficult and subjective
estimates and judgments:

         o        stock-based compensation
         o        fair value of intangible assets

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.

From its  inception,  the Company has incurred  significant  costs in connection
with the issuance of equity- based compensation, which is comprised primarily of
our common stock and warrants to acquire our common stock, to non-employees. The
Company  anticipates  continuing  to incur such costs in order to  conserve  its
limited financial resources. The determination of the volatility,  expected term
and  other  assumptions  used to  determine  the  fair  value  of  equity  based
compensation issued to non-employees under SFAS 123 involves subjective judgment
and the  consideration  of a variety of factors,  including our historical stock
price,  option exercise  activity to date and the review of assumptions  used by
comparable enterprises.

We account for equity based  compensation,  issued to  non-employees in exchange
for goods or services , in  accordance  with the  provisions of SFAS No. 123 and
EITF No. 96-18, "Accounting for Equity Instruments That are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services".

Fair Value of Intangible Assets

We have adopted SFAS No. 142, Goodwill and Other Intangible  Assets,  whereby we
periodically test our intangible assets for impairment.  On an annual basis, and
when  there is reason to suspect  that  their  values  have been  diminished  or
impaired,  these  assets are  tested for  impairment,  and  write-downs  will be
included in results from operations.

On July 12,  2005,  we acquired  certain  intellectual  properties  from Biowell
through an Asset  Purchase  Agreement in exchange  for 36 million  shares of our
restricted  common stock having an aggregate  fair value at the date of issuance
of $24,120,000. The value of the acquired intangible assets was $9,430,900, with
the balance of the purchase price,  or  $14,689,100,  charged to operations as a
cost of the transaction.

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Revenues

From our inception on September  16, 2002,  we have not generated  revenues from
operations.  We believe we will begin generating revenues from operations in the
fiscal year as we transition from a development  stage  enterprise to that of an
active growth stage  company,  although no assurances  can be given that we will
generate any revenues from operations.

Costs and Expenses

Selling, general and administrative expenses for the three months ended December
31, 2005 compared to December 31, 2004 decreased $3.531 million or 66% to $1.844
million  from $5.375  million in the prior  period.  For the three  months ended
December 31, 2005, we incurred lower fund raising and consultant costs, $465,000
lower royalties and $50,000 in lower travel costs as compared to the same period
ended  December 31, 2004.  Offsetting the decreases was $1.461 million in higher
costs such as $774,000 in accrued  penalty  shares  pursuant to the pending SB-2
registration and $687,000 in relocation, restructuring charges and other items.

Research and development  expenses  decreased $22,000 for the three months ended
December  31, 2005  compared to the same period in 2004 from  $38,000 to $16,000
primarily due to lower development and testing costs.

In the three month period ended December 31, 2005, depreciation and amortization
increased  $338,000  for the  period  compared  to the same  period in 2004 from
$5,000  to  $343,000.  In  the  year  ended  September  30,  2005,  the  Company
capitalized   $9.431  million   related  to  an   intellectual   property  asset
acquisition.  As a result,  the Company recorded  amortization  expense totaling
$336,000 for the quarter ended December 31, 2005 compared to no intangible asset
amortization in the three months ended December 31, 2004. The Company  estimates
a seven year  useful life that  commenced  during the fourth  fiscal  quarter of
2005.

Other Income/Loss

The  Company  realized  a gain on  revaluation  of warrant  liability  of $6.789
million,  which represents an increase of $6.789 million from zero for the three
month period ended December 31, 2005 and 2004, respectively.

Total operating expenses  decreased to $2.203 million from $5.380 million,  or a
decrease  of $3.177  million as a result of the  combination  of factors  listed
above.

Interest  expense,  for the three  months ended  December 31, 2005  increased to
$1.779  million from $1.568  million in the same period of 2004,  an increase of
$211,097.  In the three months ended December 2004, the Company  expensed $1.515
million in beneficial conversion feature related to the sale of convertible debt
and attached  warrants in the year ended  December 31, 2005.  In the three month
period ended December 31, 2005, we charged  $1.465  million to interest  expense
related  to the  excess  of mark to market  compared  to  beneficial  conversion
feature and zero to the three months ended December 31, 2004.

As a result of the  revaluation  our warrant  liability,  our net profit for the
three months ended  December 31, 2005 increased to $2.819 million from a loss of
$6.947  million in the prior  period as a result of the  combination  of factors
described above.

Liquidity and Capital Resources

Our liquidity needs originate from working  capital  requirements,  indebtedness
payments and research and development expenditure funding. Historically, we have
financed our operations  through the sale of equity and convertible debt as well
as borrowings from various credit sources.

In November,  2005, we issued and sold a promissory note in principal  amount of
$550,000.  We issued  warrants  to purchase a total of  5,500,000  shares of our
common  stock at an  exercise  price  of $0.50  per  share  to  certain  persons
designated by  International  Allied Fund, and paid $55,000 in cash to VC Arjent
for its services as the placement agent for this placement.

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<PAGE>


As of December 31, 2005,  we had a working  capital  deficit of  $4,690,733 as a
result of our operating losses from our inception  through December 31, 2005. We
generated a cash flow deficit of $13,134,454 from operating  activities from our
inception on September  16, 2002 through  December 31, 2005.  Cash flows used in
investing   activities  was  $56,004  during  this  period.   We  met  our  cash
requirements  during this period  through the receipt of $13,354,984 in the form
of private placement of our common stock, the issuance of convertible notes (net
of repayments and costs),  and advances from the Company's  officers,  principal
shareholders and third parties.

We expect capital expenditures to be less than $500,000 fiscal 2006. Our primary
investments  will be in  laboratory  equipment  to support  prototyping  and our
authentication services.

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

While we have raised capital to meet our working  capital and financing needs in
the past, additional financing is required within the next 12 months in order to
meet  our  current  and  projected  cash  flow  deficits  from   operations  and
development.  We have  sufficient  funds to conduct our  operations  for several
months,  but not for 12 months or more. There can be no assurance that financing
will be available in amounts or on terms acceptable to us, if at all.

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

Our registered  independent  certified  public  accountants have stated in their
report dated  October 21, 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.

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.

Potential Liability Resulting From Issuance and Resale of Stock

During  the  months  of July and  August  2005,  the  Company  issued a total of
8,550,000  shares  (the  "Shares")  of its common  stock to nine  employees  and
consultants.  These shares were not registered under the Securities Act of 1933,
as amended ("Securities Act"), or the securities laws of any state. Further, the
Shares were issued without a restrictive  legend prohibiting their resale except
in compliance with the Securities Act. The Company  believes that certain of the
Shares  were  subsequently  sold on the  open  market  but has  been  unable  to
determine the magnitude of the sales. The Company is currently investigating the
circumstances surrounding the issuance of the Shares and the possible subsequent
resale of  certain  of the  Shares on the open  market  and the  possibility  of
violations of securities laws.

The above described actions may lead to civil lawsuits and governmental  actions
against the Company for  violations of federal  securities  laws. The Company is
unable to predict the extent, if any, of its ultimate  liability if such actions
were brought. The costs and other effects of any governmental investigations and
proceedings,  litigation,  claims and damages,  and settlements and judgments in
this matter  could have a material  adverse  effect on the  Company's

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<PAGE>


financial condition and  operating  results.  The Company is taking  actions to
insure its compliance with securities laws.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Product Research and Development

As a result of the recent financings, the Company anticipates expending $500,000
of available cash towards  research and development  activities  during the next
twelve (12) months.

Acquisition of Plant and Equipment and Other Assets

We do not  anticipate  the sale of any  material  property,  plant or  equipment
during the next 12 months.  We do not anticipate the acquisition of any material
property, plant or equipment during the next 12 months.

Number of Employees

From our  inception  through the period ended  December 31, 2005, we have mainly
relied on the services of outside  consultants  for services.  We currently have
eight  employees.  In order for us to attract and retain quality  personnel,  we
anticipate we will have to offer competitive  salaries to future  employees.  We
anticipate that it may become  desirable to add additional full and or part time
employees to discharge  certain  critical  functions  during the next 12 months.
This  projected  increase in personnel is dependent upon our ability to generate
revenues and obtain sources of financing.  There is no guarantee that we will be
successful in raising the funds  required or generating  revenues  sufficient to
fund the  projected  increase  in the number of  employees.  As we  continue  to
expand, we will incur additional cost for personnel.

Going Concern

The  financial  statements  included  in  this  filing  have  been  prepared  in
conformity with generally  accepted  accounting  principles that contemplate the
continuance of the Company as a going  concern.  The Company's cash position may
be inadequate to pay all of the costs  associated  with testing,  production and
marketing of products.  Management  intends to use borrowings and security sales
to mitigate the effects of its cash position,  however no assurance can be given
that debt or equity  financing,  if and when  required  will be  available.  The
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  classification  of recorded  assets and  classification  of
liabilities  that might be  necessary  should the  Company be unable to continue
existence.

Trends, Risks and Uncertainties

We have sought to identify what we believe to be the most  significant  risks to
our business,  but we cannot  predict  whether,  or to what extent,  any of such
risks may be realized nor can we guarantee that we have  identified all possible
risks that might arise.  Investors  should  carefully  consider all of such risk
factors  before  making an  investment  decision  with respect to the  Company's
Common Stock.

                                  RISK FACTORS

Much of the information  included in this quarterly  report includes or is based
upon  estimates,   projections  or  other  "forward-looking   statements".  Such
forward-looking  statements  include any projections or estimates made by us and
our  management  in  connection  with  our  business  operations.   While  these
forward-looking  statements,  and any assumptions upon which they are based, are
made in good faith and reflect our current  judgment  regarding the direction of
our business, actual results will almost always vary, sometimes materially, from
any estimates, predictions, projections, assumptions or other future performance
suggested herein.

Such  estimates,  projections  or  other  "forward-looking  statements"  involve
various risks and  uncertainties  as outlined  below. We caution the reader that
important  factors  in some  cases  have  affected  and,  in the  future,  could
materially

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<PAGE>


affect actual results  and cause  actual results to differ  materially  from the
results expressed in any such estimates, projections  or  other "forward-looking
statements".

Our common  shares are  considered  speculative.  Prospective  investors  should
consider carefully the risk factors set out below.

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 $67,109,519 for the year ended September 30, 2005. For
the  three  months  ended  December  31,  2005,  we  recorded  a net  income  of
$2,819,451. 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.  As a result of continuing  losses, we may exhaust
all of our  resources  prior to  completing  the  development  of our  products.
Additionally,  as we continue to incur  losses,  our  accumulated  deficit  will
continue to increase,  which might make it harder for us to obtain  financing in
the  future.  We may not  achieve  our  business  objectives  and the failure to
achieve  such goals would have an adverse  impact on us,  which could  result in
reducing or terminating our operations.

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
$500,000 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.  Even if we do  receive  additional
financing,  it may not be  sufficient  to  sustain or expand  our  research  and
development operations or continue our business operations.

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 October 21, 2005, our independent auditors stated that our
financial  statements  for the year  ended  September  30,  2005  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  $87,924,553
during the period September 16, 2002 (date of inception)  through  September 30,
2005. 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  increase  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 will 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

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<PAGE>


materially  and  adversely  affect our business operations, which  would  result
in loss of  revenues  and  greater  operating expenses.

Our Acquired Technology Has Yet to be Independently Validated

In July 2005,  we acquired  certain  intellectual  property.  Such  intellectual
property relating to the botanical DNA, encapsulation methods,  integrity of the
technology  and all other stated  claims by the seller need to be  independently
validated  by  a  third  party.  Satisfactory  completion  of  this  independent
validation will be required prior to their being available for commercial  sale.
In  the  event  that  some  or all of the  technology  cannot  be  independently
validated,  we will be unable to commercially  develop  products  utilizing such
technology,  which could have a  materially  adverse  effect on our business and
results of operations.

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  commercializations,  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.

We Currently Have no or Limited Manufacturing, Sales, Marketing or Distribution
Capabilities.

We currently have no in-house manufacturing  capability.  We rely on third-party
vendors for this service.  We do not currently  have any  arrangements  with any
distributors  and we may not be able to enter into  arrangements  with qualified
distributors  on acceptable  terms or at all. We currently  have a limited sales
and marketing  team. If we are not able to develop  greater sales,  marketing or
distribution  capacity,  we may not be able to  generate  revenue or  sufficient
revenue to support our operations.

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;

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<PAGE>


         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.

We have not experienced any difficulties  with the preceding  factors,  however,
there  can be no  assurance  that we will  not  experience  difficulties  in the
future. 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.

A  Manufacturer's   Inability   to  Produce  Our  Goods  on  Time   and  to  Our
Specifications  Could Result in Lost Revenue and Net Losses

We do not own or operate any manufacturing  facilities and therefore depend upon
independent  third  parties  for the  manufacture  of all of our  products.  Our
products are manufactured to our specifications. The inability of a manufacturer
to ship  orders  of our  products  in a timely  manner  or to meet  our  quality
standards could cause us to miss the delivery date requirements of our customers
for those items, which could result in cancellation of orders, refusal to accept
deliveries or a reduction in purchase prices, any of which could have a material
adverse effect as our revenues would decrease and we would incur net losses as a
result of sales of the  product,  if any  sales  could be made.  Because  of our
business,  the  dates  on which  customers  need and  require  shipments  of our
security products from us are critical.

If We Need to Replace  Manufacturers,  Our Expenses Could  Increase Resulting in
Smaller Profit Margins

We compete with other companies for the production capacity of our manufacturers
and import quota capacity.  Some of these competitors have greater financial and
other  resources than we have, and thus may have an advantage in the competition
for  production  and import  quota  capacity.  If we  experience  a  significant
increase in demand, or if an existing  manufacturer of ours must be replaced, we
may have to expand our third-party  manufacturing capacity. We cannot assure you
that this additional  capacity will be available when required on terms that are
acceptable  to  us  or  similar  to  existing  terms  which  we  have  with  our
manufacturers, either from a production standpoint or a financial standpoint. We
do not have long-term contracts with any manufacturer. None of the manufacturers
we use produces our products exclusively.

Should  we be  forced  to  replace  one or  more  of our  manufacturers,  we may
experience an adverse financial impact, or an adverse  operational  impact, such
as being forced to pay increased  costs for such  replacement  manufacturing  or
delays upon  distribution  and delivery of our products to our customers,  which
could cause us to lose customers or lose revenues because of late shipments.

If a Manufacturer of  Ours  Fails  to   Use   Acceptable  Labor   Practices,  We
Might Have Delays in Shipments or Face Joint Liability for Violations, Resulting
in Decreased Revenue and Increased Expenses

While we require our  independent  manufacturers  to operate in compliance  with
applicable laws and regulations, we have no control over the ultimate actions of
our  independent   manufacturers.   While  our  internal  and  vendor  operating
guidelines  promote ethical  business  practices and our staff and buying agents
periodically visit and monitor the operations of our independent  manufacturers,
we do not control these manufacturers or their labor practices. The violation of
labor or other laws by an  independent  manufacturer  of ours,  or by one of our
licensing  partners,  or the  divergence  of an  independent  manufacturer's  or
licensing  partner's labor practices from those generally accepted as ethical in
the United  States,  could  interrupt,  or  otherwise  disrupt  the  shipment of
finished  products to us or damage our reputation.  Any of these, in turn, could
have a  material  adverse  effect on our  financial  condition  and  results  of
operations,  such as the loss of  potential  revenue  and  incurring  additional
expenses.

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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.
         o

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.

Our failure to manage growth or future acquisitions successfully could seriously
harm our operating  results.  Also,  acquisition costs could cause our quarterly
operating results to vary significantly.  Furthermore, our stockholders would be
diluted if we financed the acquisitions by incurring convertible debt or issuing
securities.

Although we currently only have operations  within the United States, if we were
to acquire an international operation; we will face additional risks, including:

         o difficulties in staffing,  managing and integrating international
         o operations due to  language,  cultural or other  differences;
         o Different  or  conflicting regulatory  or  legal  requirements;
         o  foreign  currency  fluctuations;  and
         o diversion of significant time and attention of our management.

If We Are Unable to Retain the Services of Messrs. Sheu, Hayward or Liang, 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.
Jun-Jei Sheu,  our Chairman of the Board of Directors,  Dr. James  Hayward,  our
Chief  Executive,  Dr.  Benjamin Liang,  our Secretary and Strategic  Technology
Development  Officer.  We do not have  employment  agreements  with  Drs.  Sheu,
Hayward or Liang Loss of the services of Drs. Sheu,  Hayward or Liang could have
a material adverse effect on our growth,  revenues, and prospective business. We
do not maintain key-man insurance on the life of Drs. Sheu,  Hayward or Liang We
are not aware of any other named executive  officer or director who has plans to
leave us or retire. 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 are 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 as our ability to conduct research and development
will be reduced or

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eliminated,  resulting  in fewer or no products for sale and lower revenues.  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.

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.  It is impossible to quantify the
number of  competitors  since they include both the companies we attempt to sell
our products and services to through their use of internal  security and various
other security  product  companies.  Some of the  anti-counterfeiting  and fraud
protection  competitors that we are aware of include:  Authentix,  InkSure,  DNA
Technologies, Inc., Art Guard International,  Theft Protection Systems, Tracetag
and November AG.  Although it is  impossible  to determine the total market size
and market data information  because companies are secretive about what security
methods  they  utilize  and  how  much  they  spend  on such  measures,  we have
determined that annual sales by some of our competitors have been as follows:

         Inksure - $1.0 million
         DNA Technologies, Inc. - $22.6 million
         November AG - $5.8 million

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.
         o

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

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<PAGE>


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. We are currently not aware of any intellectual property rights
that are being  infringed nor have we received notice from a third party that we
may be infringing on any of their patents.


Furthermore, a third party may claim that we are using inventions covered by the
third party's  patent rights and may go to court to stop us from engaging in our
normal  operations  and  activities,  including  making or selling  our  product
candidates. These lawsuits are costly and could affect our results of operations
and divert the attention of managerial and technical personnel.  There is a risk
that a court would decide that we are infringing  the third party's  patents and
would order us to stop the activities covered by the patents. In addition, there
is a risk that a court will order us to pay the other  party  damages for having
violated the other party's patents.  The  biotechnology  industry has produced a
proliferation of patents,  and it is not always clear to industry  participants,
including  us, which  patents cover various types of products or methods of use.
The  coverage of patents is subject to  interpretation  by the  courts,  and the
interpretation is not always uniform. If we are sued for patent infringement, we
would  need to  demonstrate  that our  products  or methods of use either do not
infringe the patent claims of the relevant  patent and/or that the patent claims
are  invalid,  and we  may  not be  able  to do  this.  Proving  invalidity,  in
particular,  is  difficult  since it requires a showing of clear and  convincing
evidence to overcome the presumption of validity enjoyed by issued patents.

Because  some patent  applications  in the United  States may be  maintained  in
secrecy until the patents are issued,  because patent applications in the United
States and many foreign jurisdictions are typically not published until eighteen
months after filing, and because publications in the scientific literature often
lag behind actual  discoveries,  we cannot be certain that others have not filed
patent  applications for technology  covered by our licensors' issued patents or
our pending  applications or our licensors'  pending  applications or that we or
our licensors were the first to invent the technology.  Our competitors may have
filed,  and may in the future  file,  patent  applications  covering  technology
similar to ours. Any such patent  application  may have priority over our or our
licensors' patent  applications and could further require us to obtain rights to
issued patents covering such  technologies.  If another party has filed a United
States  patent  application  on  inventions  similar  to  ours,  we may  have to
participate in an interference  proceeding  declared by the United States Patent
and Trademark  Office to determine  priority of invention in the United  States.
The costs of these  proceedings  could be  substantial,  and it is possible that
such efforts  would be  unsuccessful,  resulting in a loss of our United  States
patent position with respect to such inventions.

Some of our  competitors  may be able to  sustain  the costs of  complex  patent
litigation more effectively than we can because they have substantially  greater
resources.  In addition,  any  uncertainties  resulting  from the initiation and
continuation  of any  litigation  could  have a material  adverse  effect on our
ability to raise the funds necessary to continue our operations.

Accidents Related to Hazardous Materials Could Adversely Affect Our Business.

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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.

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 currently do not have any product
liability  coverage but are attempting to obtain  coverage which we will believe
to be adequate.  We cannot  assure,  however,  that we will be able to obtain or
maintain this  insurance at reasonable  cost and on  reasonable  terms.  We also
cannot assure that this insurance,  if obtained,  will be adequate to protect us
against a product liability claim, should one arise. In the event that a product
liability  claim is  successfully  brought  against  us,  it could  result  in a
significant  decrease in our  liquidity  or assets,  which  could  result in the
reduction or termination of our business.

We are Obligated to Pay Liquidated  Damages As a Result of Our Failure to Have a
Registration  Statement  Declared  Effective  Prior  to July 15,  2005,  and the
Payment of  Liquidated  Damages  Will  Either  Result in  Depleting  Our Working
Capital or Issuance of Shares of Common Stock Which Would Cause  Dilution to Our
Existing Shareholders.

Pursuant  to the terms of our  private  placement  that  closed in  January  and
February  2005,  if we did not have a  registration  statement  registering  the
shares underlying the convertible  notes and warrants  declared  effective on or
before July 15, 2005, we are obligated to pay  liquidated  damages in the amount
of 3.5% per month of the face amount of the notes, which equals $257,985,  until
the  registration  statement  is  declared  effective.   At  our  option,  these
liquidated damages can be paid in cash or restricted shares of our common stock.
We have  currently  decided to pay the  liquidated  damages due at this point in
common stock,  although any future payments of liquidated  damages could be made
in cash.  If we  decide  to pay the  liquidated  damages  in  cash,  we would be
required to use our limited  working capital and  potentially  raise  additional
funds. If we decide to pay the liquidated damages in shares of common stock, the
number of shares issued would depend on our stock price at the time that payment
is due. Based on closing market prices of $0.66,  $0.58, $0.70, $0.49, $0.32 and
$0.20 for our common stock on July 15,  2005,  August 15,  2005,  September  15,
2005, October 17, 2005,  November 15, 2005 and December 15, 2005,  respectively,
we  issued  approximately  390,887,   444,802,  368,550,  526,500,  806,204  and
1,289,927 shares of common stock per month, respectively, in liquidated damages.
The issuance of shares upon payment of  liquidated  damages will have the effect
of further  diluting  the  proportionate  equity  interest  and voting  power of
holders of our common stock, including investors in this offering.

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 Will Cause Immediate and  Substantial  Dilution to Our Existing
Stockholders.

As of February 14, 2006,  we had  114,772,385  shares of common stock issued and
outstanding and outstanding  options and warrants to purchase  42,369,464 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 will cause immediate and 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

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<PAGE>


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.  Prior   to  May  2001 and new  management,  we were
delinquent  in our  reporting requirements, having failed to file our  quarterly
and annual reports for the years ended 1998 - 2000 (except the quarterly reports
for  the first two  quarters of 1999). We  have been  current  in our  reporting
requirements for the last three years,  however,  there can be no assurance that
in the future we will always be current in our reporting requirements.

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 h as 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 o 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.

The  issuance  and  resale of certain  shares of common  stock may lead to civil
lawsuits and governmental actions against the Company.

During  the  months  of July and  August  2005,  the  Company  issued a total of
8,250,000  shares  (the  "Shares")  of its common  stock to nine  employees  and
consultants.  These shares were not registered under the Securities Act of 1933,
as amended ("Securities Act"), or the securities laws of any state. Further, the
Shares were issued without a restrictive  legend prohibiting their resale except
in compliance with the Securities Act. The Company  believes that certain of the
Shares  were  subsequently  sold on the  open  market  but has  been  unable  to
determine the magnitude of the sales. The Company is currently investigating the
circumstances surrounding the issuance of the Shares and the possible subsequent
resale of  certain  of the  Shares on the open  market  and the  possibility  of
violations of securities laws.

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<PAGE>


The above described actions may lead to civil lawsuits and governmental  actions
against the Company for  violations of federal  securities  laws. The Company is
unable to predict the extent, if any, of its ultimate  liability if such actions
were brought. The costs and other effects of any governmental investigations and
proceedings,  litigation,  claims and damages,  and settlements and judgments in
this matter  could have a material  adverse  effect on the  Company's  financial
condition and  operating  results.  The Company is taking  actions to insure its
compliance with securities laws.


Item 3. Controls and Procedures

Evaluation of Disclosure  Controls and Procedures:  As of December 31, 2005, our
management  carried  out an  evaluation,  under  the  supervision  of our  Chief
Executive Officer and Chief Financial Officer of the effectiveness of the design
and operation of our system of disclosure  controls and  procedures  pursuant to
the Securities and Exchange Act, Rule 13a-15(e) and 15d-15(e) under the Exchange
Act). Based on that evaluation,  our chief executive officer and chief financial
officer concluded that our disclosure  controls and procedures are not effective
to provide reasonable  assurance that information we are required to disclose in
reports that we file or submit  under the  Exchange Act is recorded,  processed,
summarized  and reported  within the time periods  specified in  Securities  and
Exchange   Commission  rules  and  forms,  and  that  such  information  is  not
accumulated and  communicated  to our management,  including our chief executive
officer and chief financial officer,  as appropriate,  to allow timely decisions
regarding   required   disclosure.   Please  see  the  subsection   "Significant
Deficiencies In Disclosure Controls And Procedures Or Internal Controls" below.

Changes in internal  controls:  Except as described below, there were no changes
in internal  controls over financial  reporting that occurred  during the period
covered by this report that have materially  affected,  or are reasonably likely
to  materially  effect,  our  internal  control  over  financial  reporting.  As
described  below,  as a result of our evaluation of our disclosure  controls and
procedures  as of  December  31,  2005,  we  determined  that our  controls  and
procedures are not effective and subsequent to the period of this report,  began
to implement changes to our internal controls.

Significant  Deficiencies  In  Disclosure  Controls  And  Procedures Or Internal
Controls

As previously  reported,  on July 11, 2005,  we determined  there were errors in
accounting for the valuation of equity consulting  service  transactions  during
the  January  through  March 2005 time  period.  The  valuation  resulted in the
overstatement of  approximately  $2.9 million in services  provided.  The errors
were  discovered  in  connection  with a comment  raised by the  Securities  and
Exchange  Commission  ("SEC") in their  review and  comment on our  registration
statement on Form SB-2. The SEC requested that we provided additional disclosure
regarding  issuances of common stock to  non-employees in exchange for services.
Upon reviewing and updating our disclosure, we discovered our errors. During the
quarter ended  December 31, 2005, we  implemented  the following  changes in our
internal controls to resolve these weaknesses and deficiencies:

    1)   Establish  and  maintain  a  separate  binder of all  board  authorized
         activities and a binder with forward looking "budget" of anticipated or
         contemplated activity for each of the following:

         a)       shares  issued for  services;
         b)       shares  issued for  employees;
         c)       warrant  exercises;
         d)       option  exercises;
         e)       authorized  shares  and warrant  re-pricing;
         f)       shares  issued in  exchange  for debt;  and
         g)       upcoming ESOP grants and exercises;

2) Require the signature of the principal  executive and accounting officers for
all issuances of securities;

3) Require monthly review of share issuances compared to binders; and

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<PAGE>


4)  Authorize  our  transfer  agent to handle  and track all  warrants  and ESOP
grants.

We believe  that these  actions  will  correct  the  material  deficiencies  and
significant weaknesses in our controls and procedures.

In addition to the foregoing,  as disclosed  elsewhere in this Quarterly Report,
during the months of July and August 2005, we issued a total of 8,250,000 shares
(the  "Shares") of our common stock to certain  employees and  consultants  that
were not registered  under the  Securities Act of 1933, as amended  ("Securities
Act"),  or the  securities  laws of any state.  Further,  the Shares were issued
without a restrictive  legend prohibiting their resale except in compliance with
the  Securities  Act. In addition,  we did not  previously  disclose  that these
issuances were  unregistered in accordance with the provisions of the Securities
Exchange Act of 1934, as amended.

We are currently investigating the circumstances surrounding the issuance of the
Shares and the possible  subsequent  resale of certain of the Shares on the open
market and the possibility of violations of securities  laws.  Since the date of
the issuance of the Shares,  we have hired a new Chief Executive  Officer and we
are currently  searching for a new Chief Financial Officer.  We believe that the
retention  of these  new  persons,  together  with the  actions  being  taken in
response to the accounting errors reported above, should be sufficient to insure
that future  issuances of securities are made in compliance with securities laws
and are properly reported.

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<PAGE>


PART II--OTHER INFORMATION

Item 1. Legal Proceedings

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


Stern & Co. v. Applied DNA Sciences, Inc., Case No.: 05 CV 00202

Plaintiff  Stern & Co.  commenced  this action  against us in the United  States
District  Court for the  Southern  District of New York on or about  January 10,
2005. In this action,  Stern & Co.  alleges that it entered into a contract with
us to perform media and investor relations for a monthly fee of $5,000 and stock
options.  Stern & Co. claims that we failed to make certain payments pursuant to
the contract and seeks damages in the amount of $96,042.00.  In January 2006, we
settled the action by issuing  options to purchase  100,000 shares of our common
stock,  exercisable  for a period of three years  after  issuance at an exercise
price of $0.70 per share.

Oceanic Consulting, S.A. v. Applied DNA Sciences, Inc., Index No.: 603974/04

Plaintiff  Oceanic  Consulting,  S.A.  commenced  this action  against us in the
Supreme  Court of the State of New York, County of New York. Oceanic Consulting,
S.A.  asserts a cause of action for breach of contract based upon the allegation
that  we  failed  to  make payments  pursuant to a consulting agreement. Oceanic
Consulting, S.A. also asserts a causes of action in which it seeks reimbursement
of its  expenses  and  attorneys' fees. Oceanic Consulting,  S.A. seeks  damages
in the  amount of  $137,500.00.  Oceanic  Consulting,  S.A.  moved for a default
judgment,  which we have opposed based upon Oceanic  Consulting,  S.A.'s failure
to properly serve the complaint as well as our meritorious defenses. Thereafter,
Oceanic  Consulting,  S.A.  agreed to withdraw its motion for a default judgment
and accepted  service of our answer on May 23, 2005. We dispute  the allegations
of the complaint. This action is in the early stages of discovery  and we intend
to vigorously defend this matter.

Crystal Research Associates, LLC v. Applied  DNA  Sciences,  Inc.,  Docket  No.:
L-7947-04

On April 29, 2005, Crystal Research Associates,  LLC obtained a default judgment
against us in the Superior Court of New Jersey,  Middlesex  County. We intend to
move to  vacate  the  default  judgment  on  various  grounds.  We  dispute  the
allegations of the complaint and we intend to vigorously defend this matter.

Paul Reep v. Applied DNA Sciences, Inc., Case No. BC 345702

Plaintiff,  Paul Reep, a former employee,  filed this action against Applied DNA
Sciences,  Inc.  in the  Superior  Court of Los  Angeles,  Los  Angeles  County,
California,  on January 10, 2006. The complaint  asserts eight causes of action,
including breach of contract, negligent  misrepresentation,  fraud, interference
with economic  advantage and  defamation.  The relief sought  includes  monetary
damages and  attorneys'  fees.  The Company  intends to  vigorously  defend this
matter.

James Paul Brown v. Applied DNA Case No. BC 3457814

Plaintiff, James Paul Brown filed this action against Applied DNA Sciences, Inc.
in the Superior Court of Los Angeles, Los Angeles County,  California on January
12,  2006.  The  complaint  asserts a single  cause of action  for  breach of an
alleged oral consulting  agreement.  The relief sought includes monetary damages
and attorneys'  fees. The parties have reached a settlement in principle,  which
the Company expects to execute shortly.

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<PAGE>


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

In  December,  2005,  we issued  40,000  shares of common stock  subscribed  for
$200,000.  This  issuance  is  considered  exempt  under  Regulation  D  of  the
Securities Act of 1933 and Rule 506 promulgated thereunder.

In December 2005, we issued 505,854  penalty shares pursuant to the pending SB-2
registration  statement.  In connection with the 7,371,000  million  convertible
debt financing in the quarter ended March 30, 2005, we were obligated to have an
effective  resale  registration  statement by July 2005.  Since the registration
statement  was not  effective  by July 2005,  we paid the  required  $257,985 of
liquidated  damages in shares of our common  stock  accruing at the rate of 3.5%
per month on the face value of the outstanding  notes for the month of September
2005. The Company valued the shares issued at approximately  $0.51 per share for
a total of $257,985.

Item 3. Defaults Upon Senior Securities

         None.

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

         None.

Item 5. Other Information

         None.

Item 6. Exhibits

10.1     Promissory  Note dated November 3, 2005,  between  Applied DNA Sciences
         Inc.  and  Allied  International  Fund,  filed  as an  exhibit  to  the
         quarterly  report on Form 10-QSB filed with the Securities and Exchange
         Commission on February 21, 2006 and incorporated herein by reference.

10.2     Letter dated February 3, 2006 amending  Promissory  Note dated November
         3, 2005,  between  Applied DNA Sciences  Inc. and Allied  International
         Fund,  filed as an exhibit to the quarterly report on Form 10-QSB filed
         with the  Securities  and Exchange  Commission on February 21, 2006 and
         incorporated herein by reference.

31.1     Certification  of Chief Executive  Officer  pursuant to Rule 13a-14 and
         Rule  15d-14(a),  promulgated  under the Securities and Exchange Act of
         1934, as amended

31.2     Certification  of Chief Financial  Officer  pursuant to Rule 13a-14 and
         Rule 15d 14(a),  promulgated  under the  Securities and Exchange Act of
         1934, as amended

32.1     Certification   pursuant  to  18   U.S.C.  Section  1350,   as  adopted
         pursuant   to  Section  906  of  the  Sarbanes-Oxley Act of 2002 (Chief
         Executive Officer)

32.2     Certification   pursuant  to  18  U.S.C.  Section  1350,  as  adopted
         pursuant  to  Section  906  of  the Sarbanes-Oxley Act  of  2002 (Chief
         Financial Officer)

                                      59


<PAGE>


                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant has duly caused this Amendment No. 3 to Form 10-QSB/A to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                              APPLIED DNA SCIENCES, INC.


Date: October 10, 2006                      By:  /s/ Dr. James Hayward
                                                 ---------------------

                                              Chief Executive Officer
                                              Principal Executive Officer,
                                              Principal Financial Officer
                                              and Principal Accounting Officer).

                                      60