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

                                   FORM 10QSB

              [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 ______ No ___X___

<PAGE>

                            APPLIED DNA SCIENCES, INC

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

                                Table of Contents
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION

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

                Condensed Consolidated Statements of Losses:
                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                                                                         21-42

     Item 2.    Management Discussion and Analysis                                                           43

     Item 3.    Controls and Procedures                                                                      59

PART II.  OTHER INFORMATION

     Item 1.    Legal Proceedings                                                                            60

     Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds                                  60

     Item 3.    Defaults Upon Senior Securities                                                              60

     Item 4.    Submission of Matters to a Vote of Security Holders                                          60

     Item 5.    Other Information                                                                            60

     Item 6.    Exhibits                                                                                     60

Signatures                                                                                                   61
</TABLE>

                                       2
<PAGE>

                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

                           APPLIED DNA SCIENCES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          CONSOLIDATED BALANCE SHEET
                                   (Unaudited)
<TABLE>
<CAPTION>

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

 Cash and cash equivalents                                                                    $        164,526
 Current other receivables, related party (Note F)                                                      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 STOCKHOLDERS' EQUITY

 Current liabilities:
 Accounts payable and accrued liabilities                                                     $      3,144,078
 Accrued liabilities due related parties (Note F)                                                       53,805
 Note payable (Note C)                                                                                 960,429
                                                                                             ------------------
 Total current liabilities                                                                           4,158,312


 Commitments and contingencies(Note G)

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 D)                                                                   (200,000)
 Additional said-in-capital                                                                         82,785,842
 Deficit accumulated during development stage                                                      (77,869,903)
                                                                                              ------------------
 Total stockholders' equity                                                                          4,828,871
                                                                                              ------------------
 Total liabilities and stockholders' equity                                                    $     8,987,183
                                                                                              ==================

     See accompanying notes to unaudited condensed consolidated financial statements
</TABLE>
                                       3
<PAGE>

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

<TABLE>
<CAPTION>

                                           For The Three Months Ended     September 16, 2002,
                                                   December 31            (Date of Inception)
                                                                               through
                                              2005              2004       December 31, 2005
                                         --------------    --------------   --------------
<S>                                            <C>               <C>             <C>
Operating expenses:
Selling, general and administrative      $   2,078,727     $  10,754,248     $ 65,562,416
Research and development                         16,270             38,673          893,678
Depreciation and amortization                  342,699             4,721          702,126
                                         --------------    --------------   --------------
Total operating expenses                     2,437,696        10,797,642       67,158,220

Operating loss                              (2,437,696)      (10,797,642)     (67,158,220)

Other income (expense)                          13,013               315           44,355
Interest (expense)                             (19,806)       (1,567,809)     (10,756,038)
Income (taxes) benefit                               -                 -               -
                                         --------------    --------------   --------------

Net loss                                 $  (2,444,489)    $ (12,365,136)   $ (77,869,903)
                                         ==============    ==============   ==============
                                                                                                                                -
Loss per common share
(basic and assuming dilution)            $       (0.02)    $       (0.45)   $       (1.94)
                                         ==============    ==============   ==============

Weighted average shares outstanding        112,535,514        27,402,160       40,068,155
                                         ==============    ==============   ==============
</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)

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

<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 unaudited condensed consolidated 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)
                                   (Continued)
<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                                        Additional                            Accumulated
                                     Preferred                           Paid in       Common    Stock        During
                          Preferred    Shares   Common Common   Stock    Capital       Stock     Subscription Development
                            Shares     Amount       Shares     Amount    Amount       Subscribed Receivable   Stage        Total
                           --------- ----------- ----------- ----------- -----------  ---------- ----------- ----------- -----------
<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 unaudited condensed consolidated 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)
                                   (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 unaudited condensed consolidated 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)
                                   (Continued)
<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                                          Additional                          Accumulated
                                      Preferred                             Paid in  Common      Stock        During
                           Preferred   Shares     Common     Common Stock   Capital  Stock       Subscription Development
                           Shares      Amount    Shares        Amount       Amount   Subscribed  Receivable   Stage        Total
                           --------- ----------- ----------- ----------- -----------  ---------- ----------- ----------- -----------
<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
December 2003                                             -           -           -      104,000          -           -     104,000
Beneficial conversion
feature relating
to notes payable                                          -           -   1,168,474            -          -           -   1,168,474
Beneficial conversion
feature relating
to warrants                                               -           -     206,526            -          -           -     206,526
Adjust common stock par
value from $0.0001 to
$0.50 per share, per
amendment of articles
dated Dec 2003                                            -  10,223,166 (10,223,166)           -          -           -           -
Common Stock issued
pursuant to subscription
at $2.50 share in Jan 2004                           41,600      20,800      83,200     (104,000)         -           -           -
Common stock issued in
exchange for consulting
services at $2.95 per
share, Jan 2004                                      13,040       6,520      31,948            -          -           -      38,468
Common stock issued in
exchange for consulting
services at $2.60 per
share, Jan 2004                                     123,000      61,500     258,300            -          -           -     319,800

 See accompanying notes to unaudited condensed consolidated financial statements
</TABLE>
                                       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)
                                   (Continued)
<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                                          Additional                          Accumulated
                                      Preferred                             Paid in  Common      Stock        During
                           Preferred   Shares     Common     Common Stock   Capital  Stock       Subscription Development
                           Shares      Amount    Shares        Amount       Amount   Subscribed  Receivable   Stage        Total
                           --------- ----------- ----------- ----------- -----------  ---------- ----------- ----------- -----------
<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            -          -           -      26,639
Common Stock issued
pursuant to
subscription at $2.50
per share in Mar. 2004                               22,500      11,250      (9,000)           -          -           -       2,250
Beneficial Conversion
Feature relating
to Notes Payable                                          -           -     122,362            -          -           -     122,362
Beneficial Conversion
Feature relating
to Warrants                                               -           -     177,638            -          -           -     177,638
Common stock issued in
exchange for consulting
services at $2.58 per
share, Apr 2004                                       9,860       4,930      20,511            -          -           -      25,441
Common stock issued in
exchange for consulting
services at $2.35 per
share, Apr 2004                                      11,712       5,856      21,667            -          -           -      27,523
Common stock issued in
exchange for consulting
services at $1.50 per
share, Apr 2004                                     367,500     183,750     367,500            -          -           -     551,250
Common stock returned
to treasury at
$0.065 per share,
Apr 2004                                            (50,000)    (25,000)     21,750            -          -           -      (3,250)
Preferred stock
converted to common
stock for consulting
services at $1.01
per share in May 2004       (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)          -           -

 See accompanying notes to unaudited condensed consolidated financial statements
</TABLE>
                                       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)
                                   (Continued)
<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                                          Additional                          Accumulated
                                      Preferred                             Paid in  Common      Stock        During
                           Preferred   Shares     Common     Common Stock   Capital  Stock       Subscription Development
                           Shares      Amount    Shares        Amount       Amount   Subscribed  Receivable   Stage        Total
                           --------- ----------- ----------- ----------- -----------  ---------- ----------- ----------- -----------
<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

 See accompanying notes to unaudited condensed consolidated financial statements
</TABLE>
                                       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)
                                   (Continued)
<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                                          Additional                          Accumulated
                                      Preferred                             Paid in  Common      Stock        During
                           Preferred   Shares     Common     Common Stock   Capital  Stock       Subscription Development
                           Shares      Amount    Shares        Amount       Amount   Subscribed  Receivable   Stage        Total
                           --------- ----------- ----------- ----------- -----------  ---------- ----------- ----------- -----------
<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
Warrants issued to
consultants in the
fourth quarter 2004                                                       2,019,862                                       2,019,862
Net Loss                                                  -           -           -            -          - (19,358,259)(19,358,259)
                           --------- ----------- ----------- ----------- -----------  ---------- ----------- ----------- -----------
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 unaudited condensed consolidated 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)
                                   (Continued)
<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                                          Additional                          Accumulated
                                      Preferred                           Paid in     Common       Stock      During
                           Preferred  Shares      Common     Common Stock Capital     Stock     Subscription  Development
                            Shares    Amount      Shares        Amount    Amount      Subscribed  Receivable  Stage        Total
                           --------- ----------- ----------- ----------- -----------  ---------- ----------- ----------- -----------
<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)   (107,298)           -          -           -    (642,098)

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

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

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

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

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

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

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


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

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

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

 See accompanying notes to unaudited condensed consolidated 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)
                                   (Continued)
<TABLE>
<CAPTION>

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

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

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

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

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

Common Stock issued in
exchange for consulting
services at $1.44 share
in December 2004                  -           -   5,796,785   2,898,393    5,418,814           -          -           -   8,317,207

Common stock issued
pursuant to subscription
at  $0.50 per share in
December 2004                     -           -   2,930,000   1,465,000            -    (125,000)         -           -   1,340,000

Warrants issued to
consultants in
December 2004                     -           -                              394,698                                        394,698

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

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   1,199,503     (407,830)          -          -            -     791,673

Common Stock issued in
exchange for consulting
services at $1.30 per share
in January 2005                   -           -     315,636     157,818      252,509           -          -                  410,327

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 unaudited condensed consolidated 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)
                                   (Continued)
<TABLE>
<CAPTION>

                                                                                                              Deficit
                                                                          Additional                          Accumulated
                                      Preferred                           Paid in     Common     Stock        During
                           Preferred  Shares      Common    Common Stock  Capital     Stock      Subscription Development
                           Shares     Amount      Shares        Amount    Amount      Subscribed Receivable   Stage        Total
                           --------- ----------- ----------- ----------- -----------  ---------- ----------- ----------- -----------
<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
settlement of debt at
$0.40 per share in February
2005                              -           -   1,500,000     750,000     (150,000)          -          -            -     600,000

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
pursuant to subscription
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
pursuant to subscription
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 unaudited condensed consolidated 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)
                                   (Continued)
<TABLE>
<CAPTION>

                                                                                                              Deficit
                                                                          Additional                          Accumulated
                                      Preferred                           Paid in     Common     Stock        During
                           Preferred  Shares      Common    Common Stock  Capital     Stock      Subscription Development
                           Shares     Amount      Shares        Amount    Amount      Subscribed Receivable   Stage        Total
                           --------- ----------- ----------- ----------- -----------  ---------- ----------- ----------- -----------
<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
pursuant to subscription
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                             -           -           -           -    4,179,554           -          -            -   4,179,554

Beneficial Conversion
Feature relating to
Warrants in March 2005           -           -           -           -    3,191,446           -          -            -   3,191,446

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 unaudited condensed consolidated 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)
                                   (Continued)
<TABLE>
<CAPTION>

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

Warrants issued to consultants
and Employees during the quarter
ended June 30, 2005               -           -           -           -       849,046         -           -           -     849,046

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 unaudited condensed consolidated 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)
                                   (Continued)
<TABLE>
<CAPTION>

                                                                                                              Deficit
                                                                          Additional                          Accumulated
                                      Preferred                           Paid in     Common     Stock        During
                           Preferred  Shares      Common    Common Stock  Capital     Stock      Subscription Development
                           Shares     Amount      Shares        Amount    Amount      Subscribed Receivable   Stage        Total
                           --------- ----------- ----------- ----------- -----------  ---------- ----------- ----------- -----------
<S>                           <C>       <C>           <C>         <C>        <C>         <C>        <C>           <C>        <C>
Common Stock issued in
exchange for consulting
services at $0.94 per share
in September 2005                 -           -     121,985         122       168,217          -          -            -    168,339

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)    (353,232)   56,000       1,000            -    (296,972)

Adjustment to
warrants previously issued
and canceled during the year
ended Sept 30, 2005               -           -          -           -     (287,440)        -           -           -     (287,440)

Net Loss                          -           -          -           -            -         -           -  (52,610,380)(52,610,380)
                           --------- ----------- ----------- ----------- -----------  ---------- ----------- ----------- -----------
Balance as of September
30, 2005                     60,000  $       6  112,230,392   $ 112,230  $81,879,801 $ 20,000    $      - $(75,425,414)$ 6,586,623
                           ========= =========== =========== =========== ===========  ========== =========== =========== ===========
</TABLE>

 See accompanying notes to unaudited condensed consolidated 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)
                                   (Continued)
<TABLE>
<CAPTION>

                                                                                                              Deficit
                                                                          Additional                          Accumulated
                                      Preferred                           Paid in     Common     Stock        During
                           Preferred  Shares      Common    Common Stock  Capital     Stock      Subscription Development
                           Shares     Amount      Shares        Amount    Amount      Subscribed Receivable   Stage        Total
                           --------- ----------- ----------- ----------- -----------  ---------- ----------- ----------- -----------
<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 penalty shares
issued pursuant to pending
SB-2 registration
at $0.51 per share in
December 2005                    -           -      505,854         506      257,481          -          -            -     257,987

Fair value related to
warrants issued in
November 2005                    -           -            -           -      563,750          -          -            -     563,750

Net Loss                         -           -            -           -            -          -          -   (2,444,489) (2,444,489)
                           --------- ---------- ------------ ----------- -----------  ---------- ----------- ----------- -----------
Balance as of December
31, 2005                     60,000  $       6  112,926,246   $ 112,926  $82,785,842   $(200,000)  $      - $(77,869,903)$ 4,828,871
                           ========= ========== ============ =========== ===========  ========== =========== =========== ===========
</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)
                                   (Continued)
<TABLE>
<CAPTION>
                                                                                                                    For the period
                                                                                                                     September 16,
                                                                                                                     2002 (date of
                                                                                                                       inception)
                                                                                  For The Three Months Ended             through
                                                                                        December 31,                   December 31,
                                                                                    2005               2004               2005
                                                                                    ----               ----               ----
<S>                                                                              <C>                   <C>                <C>
Cash flows from operating activities:
Net loss from operating activities ........................................      $ (2,444,489)     $(12,365,136)    $(77,869,903)
Adjustments to reconcile net loss to net cash used in Operating activities:
Depreciation ..............................................................           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............................           563,750           394,698        3,539,916
Amortization of beneficial conversion feature-convertible notes............               --          1,515,000       10,461,000
Common stock issued:
 in exchange for consultant services rendered .............................            75,000         9,366,507       30,681,373
 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)        (973,845)

Changes in Assets and Liabilities:
 Other current receivables.................................................            (4,975)              --           (17,404)
 Other assets..............................................................               --                --           (13,890)

Increase (decrease) in:
 Restricted cash related to stock subscription escrow......................               --         (1,065,318)            --
 Increase in due related parties ..........................................            53,805             1,523           94,558
 Accounts payable and accrued liabilities .................................           958,611         1,203,816        2,993,416
                                                                                 ------------      ------------     ------------
Net cash used in operating activities .....................................          (413,370)       (1,586,794)     (13,102,454)


Cash flows from investing activities:
 Security deposits ........................................................            (9,397)          (24,026)         (23,659)
 Capital expenditures .....................................................             6,103               --            (6,647)
 Payments for patent filing ...............................................               --             (4,347)         (25,698)
                                                                                 ------------      ------------     ------------
Net cash used in investing activities .....................................            (3,294)          (28,373)         (56,004)

Cash flows from financing activities:
Proceeds from sale of common stock, net of cost ...........................               --                --           432,000
Proceeds from subscription of common stock ................................               --            250,000        9,204,000
Proceeds from sale of options .............................................               --             36,000          311,750
Proceeds from loans .......................................................           550,000         1,390,000        3,300,000
Repayment of note payable..................................................               --                --           (24,854)
Advances from shareholders ................................................                                 --           100,088
                                                                                 ------------      ------------      ------------
Net cash provided by financing activities .................................           550,000         1,676,000       13,322,984


Net increase in cash and cash equivalents .................................           133,336            60,833          164,526
Cash and cash equivalents at beginning of period ..........................            31,190             1,832              --
Cash and cash equivalents at end of period ................................      $    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         9,366,507       30,681,373
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


                                       19
<PAGE>
Common stock canceled-previously issued for services rendered .............          (210,000)         (642,605)      (973,845)
Common stock retired ......................................................               --                --               --
Amortization of beneficial conversion feature..............................               --          1,515,000       10,461,000
Preferred Shares in exchange for services..................................               --                --         1,500,000
Warrants issued to consultants ............................................           563,750           394,698        3,539,916

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
                                   (UNAUDITED)

NOTE A - SUMMARY OF ACCOUNTING POLICIES

General

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

In the opinion of management,  all adjustments  (consisting of normal  recurring
accruals)  considered  necessary  for a fair  presentation  have been  included.
Operating  results for the three month  period  ended  December  31, 2005 is not
necessarily  indicative  of the results  that may be expected for the year ended
September 30, 2006. The unaudited condensed  consolidated  financial  statements
should be read in conjunction with 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
$77,869,903.

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.

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.


                                       21
<PAGE>
                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)

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                       $ (2,444,489)  $ (12,365,136)   $ (77,869,903)
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                         $ (2,444,489)  $ (12,365,136)   $ (79,706,125)
                                           ================ =============== ===================
Net loss attributable to common
stockholders - Pro Forma                     $ (2,444,489)  $ (12,365,136)   $ (79,706,125)
                                           ================ =============== ===================

Basic (and assuming dilution) loss

per share - as reported                      $      (0.02)  $       (0.45)   $       (1.94)
                                           ================ =============== ===================
Basic (and assuming dilution) loss

per share - Pro Forma                        $      (0.02)  $       (0.45)   $       (1.99)
                                           ================ =============== ===================

</TABLE>

                                       22
<PAGE>
                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (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

In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, "Accounting for
Conditional  Asset Retirement  Obligations,  an interpretation of FASB Statement
No. 143," which  requires an entity to recognize a liability  for the fair value
of a conditional  asset  retirement  obligation when incurred if the liability's
fair value can be  reasonably  estimated.  The  Company is required to adopt the
provisions of FIN 47 no later than the first quarter of fiscal 2006. The Company
does not expect the adoption of this Interpretation to have a material impact on
its consolidated financial position, results of operations or cash flows.

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


                                       23
<PAGE>

                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)

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

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.

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


                                       24
<PAGE>
                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)

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 - INTANGIBLE ASSET AMORTIZATION

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.

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 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.

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


                                                                     Weighted
                                                                      Average
                   Gross                                            Amortization
                 Carrying      Accumulated                Residual     Period
                  Amount       Amortization    Net         Value      (Years)
               ------------- --------------- ------------ ---------- ----------
 Amortizable
 Intangible
 Assets:
 Trade secrets
 and developed
 technologies   $9,430,900       $673,636      $8,757,264         -     7

 Patents            34,257         13,490          20,767         -     5
                ----------     ----------      ----------
 Total
 Amortized
 Identifiable
 Intangible     $9,465,157       $687,126      $8,778,031         -     6.99
                ==========      =========      ==========         -
 Assets


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 September 30, 2005 is as follows:
         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
                                    ============


                                       25
<PAGE>
                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE C - NOTES PAYABLE
<TABLE>
<CAPTION>
At December 31, 2005, notes payable are as follows:
                                                                                                 (Unaudited)
                                                                                                 -----------
<C>                                                                                              <C>
Note payable, unsecured, currently in default, payable from August 1, 2005,
right to convert to 180,000 shares of restricted stock in lieu of cash, rate of
interest
4%.                                                                                              $   410,429

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 (see Note E)%.                                                        550,000
                                                                                                 -----------
                                                                                                     960,429
Less: current portion                                                                                960,429
                                                                                                 -----------
Note Payable - long-term                                                                         $         -
                                                                                                 ===========
</TABLE>
NOTE D - CAPITAL STOCK

The Company is authorized to issue  10,000,000  shares of preferred stock with a
$.001 par value per share. The Company is authorized to issue 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 14, 2005.  Prior to the February 14,
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 (see Note
B).

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

In October 2002 the Company  issued  602,000  shares of common stock in exchange
for  services  valued at $0.065 per  share.  In  accordance  with EITF 96-18 the
measurement  date to determine fair value was in October 2002. This was the date
at which a commitment  for  performance  by the counter party to earn the equity
instrument was reached.  The Company  valued the shares issued at  approximately
$0.065 per share,  which presents the fair value of the services  received which
did not differ materially from the value of the stock issued.


                                       26
<PAGE>
                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

In November and December 2002, the Company issued 876,000 shares of common stock
in exchange for  subscription at $0.065 per share. In accordance with EITF 96-18
the  measurement  date to determine fair value was in October 2002. This was the
date at which a  commitment  for  performance  by the counter  party to earn the
equity  instrument  was  reached.  The  Company  valued  the  shares  issued  at
approximately  $0.065 per share,  which  presents the fair value of the services
received which did not differ materially from the value of the stock issued.

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

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

In January 2003,  the Company  issued 586,250 shares of common stock in exchange
for consulting  services.  In accordance with EITF 96-18 the measurement date to
determine  fair  value  was in  October  2002.  This  was the  date  at  which a
commitment for  performance  by the counter party to earn the equity  instrument
was reached.  The Company  valued the shares issued at  approximately  $0.13 per
share,  which  presents  the fair value of the services  received  which did not
differ materially from the value of the stock issued.

In February  2003,  the Company  issued 9,000 shares of common stock in exchange
for consulting  services.  In accordance with EITF 96-18 the measurement date to
determine  fair  value  was in  October  2002.  This  was the  date  at  which a
commitment for  performance  by the counter party to earn the equity  instrument
was reached.  The Company valued the shares issued at  approximately  $0.065 per
share,  which  presents  the fair value of the services  received  which did not
differ materially from the value of the stock issued.

In March 2003, the Company issued 10,140,000 shares of common stock to Company's
founders in exchange for services. In accordance with EITF 96-18 the measurement
date to determine fair value was in September 2002. This was the date at which a
commitment for  performance  by the counter party to earn the equity  instrument
was reached.  The Company valued the shares issued at approximately  $0.0001 per
share,  which  presents  the fair value of the services  received  which did not
differ materially from the value of the stock issued.

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

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

On April 1, 2003,  the Company issued 860,000 shares of common stock in exchange
for consulting  services provided to the Company.  In accordance with EITF 96-18
the  measurement  date to determine fair value was in October 2002. This was the
date at which a  commitment  for  performance  by the counter  party to earn the
equity instrument was

                                       27
<PAGE>
                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

reached. The Company valued the shares issued at approximately $0.065 per share,
which  presents  the fair value of the  services  received  which did not differ
materially from the value of the stock issued.

On April 9, 2003,  the Company  issued 18,000 shares of common stock in exchange
for previously  issued  options to purchase the Company's  common stock at $1.00
per share.

On April 9, 2003,  the Company  issued  9,000 shares of common stock in exchange
for consulting  services provided to the Company.  In accordance with EITF 96-18
the  measurement  date to determine fair value was in October 2002. This was the
date at which a  commitment  for  performance  by the counter  party to earn the
equity  instrument  was  reached.  The  Company  valued  the  shares  issued  at
approximately  $0.065 per share,  which  presents the fair value of the services
received which did not differ materially from the value of the stock issued.

On April 23, 2003,  the Company  issued 5,000 shares of common stock in exchange
for consulting  services provided to the Company.  The Company valued the shares
issued at approximately  $2.50 per share, which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

On June 12, 2003,  the Company issued 10,000 shares common stock in exchange for
consulting  services  provided to the  Company.  The  Company  valued the shares
issued at approximately  $2.50 per share, which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

On June 17 2003,  the Company  issued  50,000 shares of common stock in exchange
for cash at $1.00 per share.

On June 30, 2003,  the Company issued 270,000 shares of common stock in exchange
for consulting  services provided to the Company.  In accordance with EITF 96-18
the  measurement  date to determine fair value was in October 2002. This was the
date at which a  commitment  for  performance  by the counter  party to earn the
equity  instrument  was  reached.  The  Company  valued  the  shares  issued  at
approximately  $0.065 per share,  which  presents the fair value of the services
received which did not differ materially from the value of the stock issued.

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

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

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

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

                                       28
<PAGE>
                           APPLIED DNA SCIENCES, INC
                         (A DEVELOPMENT STAGE COMPANY)
                               NOTES TO CONDENSED
                       CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

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

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

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

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

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

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

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

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

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

In September 2003, the Company received $2,600 in connection with a subscription
to purchase the Company's common stock pursuant to a private placement.

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

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

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

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

                                       29
<PAGE>
                           APPLIED DNA SCIENCES, INC
                               NOTES TO CONDENSED
                       CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                  (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       30
<PAGE>

                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       31
<PAGE>

                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

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

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

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

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

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

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

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

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

In August 2004,  the Company  issued  92,500  shares of common stock at $0.41 in
exchange for consulting services valued at $37,645

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

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

In September 2004, the Company  converted  4,000  preferred  shares into 100,000
shares of common stock at $0.54 in exchange for  consulting  services  valued at
$54,000.

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

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

                                       32
<PAGE>

                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

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

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

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

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

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

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

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

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

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

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

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

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


                                       33
<PAGE>
                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

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

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

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

During the three months ended March 31, 2005, we issued 107,500 shares of common
stock for warrants  exercised at $0.10 share. This issuance is considered exempt
under  Regulation  D of the  Securities  Act of 1933 and  Rule  506  promulgated
thereunder.

In January 2005, we issued 25,000 shares of common stock for warrants  exercised
at $0.10 share.  This  issuance is considered  exempt under  Regulation D of the
Securities Act of 1933 and Rule 506 promulgated thereunder.

In January 2005, we retired $537,500 of convertible  notes payable for 1,628,789
shares of common  stock.  The Notes are  convertible  into  shares of our common
stock at a price of $0.33 per share.

In January 2005, we issued 17,500 shares of common stock for warrants  exercised
at $0.10 share.  This  issuance is considered  exempt under  Regulation D of the
Securities Act of 1933 and Rule 506 promulgated thereunder.

In January 2005, we retired $791,673 of convertible  notes payable for 2,399,012
shares of common  stock.  The Notes are  convertible  into  shares of our common
stock at a price of $0.33 per share.

In January,  2005, the Company issued 315,636 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$1.30 per share for a total of $410,327,  which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In February  2005, we retired  $25,000 of  convertible  notes payable for 75,757
shares of common  stock.  The Notes are  convertible  into  shares of our common
stock at a price of $0.33 per share.

In February 2005, we issued 20,000 shares of common stock for warrants exercised
at $0.10 share.  This  issuance is considered  exempt under  Regulation D of the
Securities Act of 1933 and Rule 506 promulgated thereunder.

In February 2005, we retired  $200,000 of convertible  notes payable for 606,060
shares of common  stock.  The Notes are  convertible  into  shares of our common
stock at a price of $0.33 per share.

In February 2005, we issued 45,000 shares of common stock for warrants exercised
at $0.10 share.  This  issuance is considered  exempt under  Regulation D of the
Securities Act of 1933 and Rule 506 promulgated thereunder.

                                       34
<PAGE>

                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

In February 2005, we retired $600,000 of convertible notes payable for 1,500,000
shares of common  stock.  The Notes are  convertible  into  shares of our common
stock at a price of $0.40 per share.

In February 2005, we retired  $91,883 of  convertible  notes payable for 278,433
shares of common  stock.  The Notes are  convertible  into  shares of our common
stock at a price of $0.33 per share.

In February,  2005, the Company issued 17,236 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$1.17 per share for a total of $20,166,  which  represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In February,  2005, the Company issued 300,000 shares of common stock subscribed
for cash at $0.50 per share for a total of  $150,000  pursuant  to the  exercise
terms of a promissory  note payable.  This  issuance is considered  exempt under
Regulation D of the Securities Act of 1933 and Rule 506 promulgated thereunder.

In February, 2005, the Company issued 716,500 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$0.95 per share for a total of $680,675,  which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In February,  2005, the Company issued 10,500 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$0.95 per share for a total of $9,975,  which  represents  the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In March,  2005, the Company issued 13,202,000 shares of common stock subscribed
for cash at $0.50 per share for a total of  $6,601,000  pursuant to the exercise
terms of a promissory  note payable.  This  issuance is considered  exempt under
Regulation D of the Securities Act of 1933 and Rule 506 promulgated thereunder.

In March,  2005,  the Company  issued 185,000 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$1.19 per share for a total of $220,150,  which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In March 2005, we issued 100,000 shares of common stock for options exercised at
$0.60  share.  This  issuance is  considered  exempt  under  Regulation D of the
Securities Act of 1933 and Rule 506 promulgated thereunder.

In March,  2005, the Company issued 1,675,272 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$0.98 per share for a total of  $1,641,767,  which  represents the fair value of
the  services  received  which did not differ  materially  from the value of the
stock issued.

In March, 2005, the Company issued 24,333 shares of common stock in exchange for
consulting services. The Company valued the shares issued at approximately $0.92
per  share  for a total of  $22,386,  which  represents  the  fair  value of the
services  received which did not differ  materially  from the value of the stock
issued.

In March, 2005, the Company issued 15,000 shares of common stock in exchange for
consulting services. The Company valued the shares issued at approximately $0.99
per  share  for a total of  $14,850,  which  represents  the  fair  value of the
services  received which did not differ  materially  from the value of the stock
issued.

                                       35
<PAGE>
                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

In March,  2005, the Company issued  1,240,000 shares of common stock subscribed
for cash at $0.50 per share for a total of  $620,000  pursuant  to the  exercise
terms of a promissory  note payable.  This  issuance is considered  exempt under
Regulation D of the Securities Act of 1933 and Rule 506 promulgated thereunder.

In March, 2005, the Company canceled shares previously issued within the quarter
for exchange of debt valued at $250,000.

In March, 2005, the Company issued 10,000 shares of common stock in exchange for
consulting services. The Company valued the shares issued at approximately $0.89
per share for a total of $8,900, which represents the fair value of the services
received which did not differ materially from the value of the stock issued.

The Company recognized an imbedded beneficial  conversion feature present in the
January/February Offering note ("January/February PPM"). 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
4,179,554 of the proceeds, which is equal to the intrinsic value of the imbedded
beneficial  conversion  feature,  to  additional  paid in capital and a discount
against the Bridge  Offering.  The debt discount  attributed  to the  beneficial
conversion  feature was fully  amortized over the fiscal first quarter period as
interest expense.

The Company  recognized the value  attributable to the warrants in the amount of
$3,191,446   to  additional   paid  in  capital  and  a  discount   against  the
January/February 2005 PPM.

In March,  2005,  the Company  granted an aggregate of 300,000  stock options 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 April,  2005,  the Company  issued 160,000 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$0.80 per share for a total of $128,000,  which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In April, 2005, the Company issued 40,000 shares of common stock in exchange for
consulting services. The Company valued the shares issued at approximately $0.80
per  share  for a total of  $32,000,  which  represents  the  fair  value of the
services  received which did not differ  materially  from the value of the stock
issued.

In April,  2005,  the Company  issued 850,000 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 $637,500,  which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In April 2005,  we retired  $165,000 of  convertible  notes  payable for 500,000
shares of common  stock.  The Notes are  convertible  into  shares of our common
stock at a price of $0.33 per share.

In April,  2005, a  shareholder  returned  10,000 shares  previously  issued for
services valued at $34,200 in exchange for a cash settlement.

                                       36
<PAGE>
                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

In April 2005, we retired  convertible notes payable for 75,758 shares of common
stock.  The Notes are convertible  into shares of our common stock at a price of
$0.33 per share.

In April 2005,  the Company issued 50,000 shares of common stock in exchange for
consulting services. The Company valued the shares issued at approximately $0.68
per  share  for a total of  $34,000,  which  represents  the  fair  value of the
services  received which did not differ  materially  from the value of the stock
issued.

In June  2005,  a  shareholder  returned  10,000  shares  previously  issued for
services valued at $5,000.

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 157,000 shares of common stock in exchange for
consulting services. The Company valued the shares issued at approximately $0.60
per  share  for a total of  $94,200,  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.

In July 2005,  the Company issued 640,000 shares of common stock in exchange for
consulting services. The Company valued the shares issued at approximately $0.60
per  share  for a total of  $384,000,  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  8,000,000  shares of its common stock without
restriction to employees in exchange for services rendered. . The Company valued
the shares issued at  approximately  $0.48 per share for a total of  $3,840,000,
which  represents  the fair value of the services  received which did not differ
materially  from the value of the stock  issued.  Since the  Company  issued the
shares  without  restriction , the Company may have  violated  federal and state
securities laws in connection with the issuance of those shares (see Note G).

In July 2005,  the Company issued 121,985 shares of common stock in exchange for
consulting services. The Company valued the shares issued at approximately $0.94
per  share  for a total of  $168,339,  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  250,000  shares of its common stock  without
restriction to consultants in exchange for services rendered. The Company valued
the  shares  issued at  approximately  $0.48 per share for a total of  $120,000,
which  represents  the fair value of the services  received which did not differ
materially  from the value of the stock  issued.  Since the  Company  issued the
shares  without  restriction , the Company may have  violated  federal and state
securities laws in connection with the issuance of those shares (see Note G).

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

                                       37
<PAGE>

                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE D - CAPITAL STOCK (continued)

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 September 2005, the Company issued 185,000 shares of common stock in exchange
for consulting  services.  The Company valued the shares issued at approximately
$0.94 per share for a total of $173,900,  which represents the fair value of the
services  received which did not differ  materially  from the value of the stock
issued.

In September,  2005, the Company  cancelled 740,000 shares previously issued for
services valued at $296,972.

In September,  2005, the Company cancelled warrants  previously issued valued at
$287,440.

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  September  2005.  The
Company valued the shares issued at approximately $0.51 per share for a total of
$257,985.  Upon the one year anniversary of the investor  proceeds receipt date,
all penalty  shares will  terminate.  No additional  penalty shares shall accrue
subsequent to February 15, 2006.


In December 2005, the Company  recognized the value attributable to the warrants
in the amount of $563,750 to additional  paid in capital related to the November
2005 Note Payable (see Note C).


                                       38
<PAGE>
                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE E - STOCK OPTIONS AND WARRANTS

Warrants

The  following  table  summarizes  the changes in warrants  outstanding  and the
related  prices  for  the  shares  of  the  Company's  common  stock  issued  to
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 and placement of convertible debentures..
<TABLE>
<CAPTION>

                                     Warrants Outstanding                                        Warrants Exercisable
                                                  Weighted Average             Weighted          Weighted
                              Number          Remaining Contractual           Average            Number         Average
    Exercise Prices         Outstanding             Life (Years)          Exercise Price     Exercisable   Exercise Price
<S>       <C>                   <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                    4.85       $          0.50          5,550,000     $         0.50
          $0.60               9,132,000                    3.38       $          0.60          9,132,000     $         0.60

          $0.70                 750,000                    1.58       $          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
                                -------                                                          -------
                             33,369,464                                                 33,369,46429,464

</TABLE>

                                       39
<PAGE>

                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE E - STOCK OPTIONS AND WARRANTS (continued)

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                                                          24,453,000                 0.71
Exercised                                                          (207,500)                0.34
Canceled or expired                                              (1,033,786)                0.65
                                                               ------------                 ----
Balance, September 30, 2005                                      28,081,967        $        0.70
                                                                                            ----
Granted                                                           5,500,000                 0.50
Exercised                                                                 -                                -
Canceled or expired                                                (212,503)                1.31
                                                                -----------                 ----
Balance, December 31, 2005                                       33,369,464        $        0.67
                                                                                            ----
</TABLE>

In the quarter ended December 31, 2005, the Company issued 5,500,000 warrants to
the holders of the  Company's  $550,000  notes payable (see Note C) with a $0.50
exercise  price and a five year  life.  For the first 36  months,  the  warrants
include anti dilution  protection  assuming no adjustment in the exercise  price
per share of Common Stock upon any reverse split of the Company's  common stock.
The estimated value of the warrants granted to Note holders was determined using
the Black-Scholes pricing model and the following assumptions:  contractual term
of 5 years,  a risk free  interest  rate of 4.55%,  a  dividend  yield of 0% and
volatility  of 42.8%.  The  amount of the  expense  charged  to  operations  for
warrants  was $563,750 and  $394,698,  respectively,  for the three months ended
December 31, 2005 and 2004.



Employee Stock Options

The  following  table  summarizes  the  changes in options  outstanding  and the
related prices for the shares of the Company's  common stock issued to employees
of the Company under a non-qualified employee stock option plan.
<TABLE>
<CAPTION>

                                Options Outstanding                                     Options Exercisable
                                -------------------                                     -------------------
                                            Weighted Average         Weighted                        Weighted
    Exercise Prices        Number        Remaining Contractual        Average         Number          Average
    ---------------
                        Outstanding           Life (Years)        Exercise Price    Exercisable   Exercise Price
                        -----------           ------------        --------------    -----------   --------------
<S>         <C>           <C>                    <C>                  <C>             <C>                 <C>
            $ .68         3,660,000              3.75                 $ .68           3,660,000           $.68



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

                                                                                            Weighted Average
                                                                    Number of Shares         Price Per Share
       Outstanding at October 1, 2003                                              -                    $  -
          Granted                                                          3,660,000                     .68
          Exercised                                                                -                       -
          Cancelled or expired                                                     -                       -
                                                                   -----------------        ----------------
       Outstanding at September 30, 2005                                   3,660,000                    $.68
                                                                   =================        ================
          Granted                                                                  -                       -
          Exercised                                                                -                       -
          Cancelled or expired                                                     -                       -
                                                                   -----------------        ----------------
       Outstanding at September 30, 2005                                   3,660,000                    $.68
                                                                   =================        ================

</TABLE>

                                       40
<PAGE>
                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE F- RELATED PARTY TRANSACTIONS

As part of the  Biowell  acquisition,  the  Company  entered  into a  consulting
agreement with Timpix International Limited for the consulting services of three
former  Biowell  employees,  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.  Such  consulting  agreement  shall
automatically  renew for one year  periods  until  terminated.  Pursuant  to the
consulting  agreement,  the  Company  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 October 2005,  Biowell waived all accrued
and future consulting  charges and receive only travel  reimbursements  from the
company.  Messrs.  Sheu, Liang or Chen anticipate  becoming employees at a later
date in 2006.  Travel costs totaled  $39,000 for the three months ended December
31, 2005.

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.


NOTE G- COMMITMENTS AND CONTINGENCIES


EMPLOYMENT AND CONSULTING AGREEMENTS

The Company has employment  agreements  with some of the Company's  officers and
certain  employees.   These  employment  agreements  provide  for  salaries  and
benefits,  including  stock  options.  In June of 2005,  an Addendum was made to
several employment  agreements  providing defined commitments should the Company
terminate the employee with or without cause. It is the Company's  position that
the  form of  Addendum  was not  approved  by the  Board  of  Directors,  and is
therefore null and void, ab initio, as of the date that each one was executed by
an officer of the Company.

The Company has consulting  agreements  with two outside  contractors to provide
marketing and financial  advisory  services.  The Agreements are generally for a
term of 12 months from inception and renewable


                                       41
<PAGE>

                            APPLIED DNA SCIENCES, INC
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
                                DECEMBER 31, 2005
                                   (UNAUDITED)

NOTE G- COMMITMENTS AND CONTINGENCIES (continued)

automatically  from  year  to year  unless  either  the  Company  or  consultant
terminates such engagement by written notice.

Litigation

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.  We  answered  the
complaint on May 12, 2005,  denying Stern & Co.'s  allegations and we asserted a
number of defenses.  In January 2006, the Company  settled the action by issuing
100,000 options with a three year life and with a $0.70 exercise price.

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

Plaintiff Oceanic  Consulting,  S.A.  commenced this action on or about November
24, 2004 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.  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.  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.

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 for $13,000 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.

Franchising and  Distribution Agreements

On July 15, 2005,  Applied DNA Sciences,  Inc. (the  "Company")  closed upon the
stock  purchase  agreement (the  "Agreement")  with Biowell  Technology  Inc., a
Taiwan corporation  ("Biowell") that was executed on January 28, 2005.  Pursuant
to the  Agreement,  the  Company,  through  its  wholly-owned  subsidiary,  APDN
(B.V.I.) Inc., a British Virgin Islands company,  acquired all of the issued and
outstanding shares of Rixflex Holdings Limited, a British Virgin Islands company
("Rixflex"). Pursuant to an asset purchase agreement, Biowell transferred all of
its  intellectual  property (the "Biowell  Technology")  to Rixflex prior to the
Company's  acquisition  of  Rixflex.  In  exchange  for  all of the  issued  and
outstanding  shares of  Rixflex,  we issued to the  shareholders  of  Rixflex 36
million shares of our common stock.

In  connection  with the closing of , the Company  terminated  the October  2002
license  agreement  with  Biowell,  replacing  it  with  a new  Biowell  license
agreement  granting an  exclusive  license in selected  Asian  countries  for an
initial  period  through  December 31, 2010.  If Biowell  meets its  performance
goals,  the  license  agreement  extends  for  an  additional  five  year  term.
Sub-license  payments  due to the  Company  are 50% for all fees,  payments  and
consideration  received.  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.

The  Company  has  entered  into  a  Distribution   and  Franchising   Agreement
("Franchise  Agreement")  in  July  2003.  Under  the  terms  of  the  Franchise
Agreement,  the  franchisee is obligated to pay the Company  $3,000,000  payable
$25,000 upon execution of the Franchise  Agreement and the balance of $2,975,000
payable  over five (5) years with  interest  accruing at 8% per annum.  Payments
under the  Franchise  Agreement  are subject to  franchisee's  net  profits,  as
defined, under the Franchise Agreement.

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 SB-2  registration,  the
Company is subject to liquidated  damages (see note D). 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  anticipates
paying  required  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  period  ended
January  15, 2006 and  February  15,  2006,  the  Company  anticipates  accruing
approximately $257,985 and $228,725, respectively, in penalty share damages (see
Note H). Upon the one year  anniversary of the investor  proceeds  receipt date,
all penalty  shares will  terminate.  No additional  penalty shares shall accrue
subsequent to February 15, 2006.

NOTE H- SUBSEQUENT EVENTS

In January 2006, an  ex-employee  filed a $230,000  employment  agreement  claim
against the  Company.  This action is in the early  stages of  discovery  and we
intend to  vigorously  defend this  matter.  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.

Until the Company  successfully  completes  its pending SB-2  registration,  the
Company is subject to liquidated  damages (see note D). 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  anticipates
paying  required  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  period  ended
January  15, 2006 and  February  15,  2006,  the  Company  anticipates  accruing
approximately $257,985 and $228,725, respectively, in penalty share damages (see
Note G). Upon the one year  anniversary of the investor  proceeds  receipt date,
all penalty  shares will  terminate.  No additional  penalty shares shall accrue
subsequent to February 15, 2006.


                                       42
<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 the
point 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.


                                       43
<PAGE>
Intellectual Property Development, Product Operations & Partnerships

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

     We produce security solutions customized to our customer's needs. We market
and sell DNA  anti-counterfeit  and fraud  prevention  solutions  that integrate
into, and layer with, existing security  solutions.  These DNA security features
are integrated at the 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.



                                       44
<PAGE>
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
         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.

                                       45
<PAGE>
     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


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.

                                       46
<PAGE>

     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.

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 $8.676 million or 86% to $2.078
million from $10.754 million in the prior period. Included within the $8.676
million decrease compared to the three months ended December 31, 2005 was $9.807
million in lower expenses consisting of $9.292 million in fund raising and
consultant costs, $465,000 in royalties and $50,000 in lower travel costs.
Offsetting the decreases was $1.131 million in higher costs consisting of
$774,000 in accrued penalty shares pursuant to the pending SB-2 registration and
$357,000 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 months 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.

                                       47
<PAGE>
Total operating expenses decreased to $2.438 million from $10.798 million,  or a
decrease  of $8.360  million as a result of the  combination  of factors  listed
above.

Interest  expense,  for the three  months ended  December 31, 2005  decreased to
$20,000  from $1.568  million in the same  period of 2004,  a decrease of $1.548
million.  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.

Net loss for the three  months ended  December  31, 2005  decreased to a loss of
$2.444 million from a loss of $12.365 million in the prior period as a result of
the combination of factors described above.

Liquidity and Capital Resources

     Our  liquidity   needs  will  come  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.  As of
December 31, 2005, we had $960,429 in  outstanding  notes  payables.  Please see
Note C in our Form  10-QSB  for the  quarter  ended  December  31,  2005 for the
agreement terms.

     For the three months  ended  December  31,  2005,  we obtained  $550,000 in
bridge  financing and we used the proceeds to fund financing  fees,  consultants
and public  reporting  costs,  salaries  and wages,  research  and  development,
facility costs as well as and general working capital needs.

     As of December 31, 2005, we had a working  capital  deficit of  $3,976,382.
For the year ended  December 31, 2005, we generated a net cash flow deficit from
operating  activities of $413,000 consisting primarily of year to date losses of
$2,444,000.  Non  cash  equity  adjustments  totaling  a net  $687,000  included
$564,000  in expensed  warrants  issued in  connection  with the  November  2005
financing,  $75,000 in net stock  issued for  consulting  services,  $258,000 in
penalty stock issued pursuant to the pending SB-2 registration and ($210,000) in
cancelled  shares  for  services   previously   rendered.   Finally,   non  cash
depreciation and  amortization  totaled $337,000 while net liabilities and other
increased by $1.008 million.  Cash used in investing  activities  totaled $3,000
primarily for increased security deposits. Cash provided by financing activities
for the  year  ended  December  31,  2005  resulted  from  the  $550,000  bridge
financing.

     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.

                                       48
<PAGE>
     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.

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

                                       49
<PAGE>
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  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  $52,610,380  for the year ended  September  30,
2005.  For the three months ended  December 31, 2005,  we incurred a net loss of
$2,444,489. 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

                                       50
<PAGE>
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 $75,425,414  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  increases the  difficulty in meeting such
goals and there can be no assurances that such methods will prove successful.


                                       51
<PAGE>

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  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

                                       51
<PAGE>
in selecting and learning to use new products, and are often reluctant to switch
products. To the extent we fail to introduce new and innovative products, we may
lose market share to our  competitors,  which will be difficult or impossible to
regain.  Any inability,  for  technological  or other reasons,  to  successfully
develop and  introduce  new products  could reduce our growth rate or damage our
business.

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

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

     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.

                                       52
<PAGE>
     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.

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

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

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

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

     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
          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.

                                       53
<PAGE>
     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 is critical to
our success.  Because the industry in which we compete is very  competitive,  we
face significant challenges attracting and retaining a qualified personnel base.
Although  we believe we have been and will be able to attract  and retain  these
personnel,  there  is  no  assurance  that  we  will  be  able  to  continue  to
successfully  attract qualified personnel.  In addition,  our anticipated growth
and expansion into areas and activities requiring additional expertise,  such as
clinical testing,  government approvals,  production, and marketing will require
the addition of new  management  personnel  and the  development  of  additional
expertise by existing  management  personnel.  The failure to attract and retain
these personnel or,  alternatively,  to develop this expertise  internally would
adversely affect our business as our ability to conduct research and development
will be reduced or  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

                                       54
<PAGE>
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.

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

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

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


Intellectual Property Litigation Could Harm Our Business.

     Litigation  regarding  patents and other  intellectual  property  rights is
extensive  in the  biotechnology  industry.  In  the  event  of an  intellectual
property  dispute,  we may be forced to litigate.  This litigation could involve
proceedings   instituted  by  the  U.S.  Patent  and  Trademark  Office  or  the
International  Trade  Commission,  as well as  proceedings  brought  directly by
affected  third  parties.  Intellectual  property  litigation  can be  extremely
expensive,  and  these  expenses,  as well  as the  consequences  should  we not
prevail, could seriously harm our business.

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

                                       55
<PAGE>
     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.

     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.


                                       56
<PAGE>

We are  Obligated to Pay  Liquidated  Damages As a Result of Our Failure to Have
this 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.

Liquidated  damages  will  be  paid  through  the one  year  anniversary  of the
investment, ranging in time from December of 2005 through February 21, 2006. All
underlying  shares being registered in the pending SB-2 become eligible for sale
under Rule 144, and issuance of further liquidated damages shares will cease.

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  37,029,464
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  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  has  adopted  Rule 15g-9  which
establishes the definition of a "penny stock," for the purposes  relevant to us,
as any equity  security  that has a market price of less than $5.00 per share or
with an  exercise  price of less  than  $5.00  per  share,  subject  to  certain
exceptions.  For any  transaction  involving a penny stock,  unless exempt,  the
rules require:

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

                                       57
<PAGE>

     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.

                                       58
<PAGE>
Item 3. Controls and Procedures

     a)   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.

     b)   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

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.


                                       59
<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.,  Docket No.:

In January 2006, an  ex-employee  filed a $230,000  employment  agreement  claim
against the  Company.  This action is in the early  stages of  discovery  and we
intend to  vigorously  defend this  matter.  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.


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

10.2           Letter  dated  February 3, 2006  amending  Promissory  Note dated
               November 3, 2005,  between  Applied DNA Sciences  Inc. and Allied
               International Fund

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)

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<PAGE>
                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

                           APPLIED DNA SCIENCES, INC.


Date:  February 21, 2006               By: /s/ Dr. James Hayward
                                          ----------------------
                                        Chief Executive Officer
                                        Principal Executive Officer,
                                        Principal Financial Officer
                                        and Principal Accounting Officer).



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