APPLIED DNA SCIENCES INC - SB-2 - 20050215 - MANAGEMENT
Management Strategy
In anticipation of internal growth, we will organize resources to manage
our development effectively, minimizing organic growth, while optimizing our use
of excess capacity, where core competency in the biotech arena is made
available. Our Chief Executive Officer is responsible for the strategic
direction, coordinating with our overseas technology partner Biowell and others
as well as operations. Our President is responsible for government entity
relations, corporate governance and building shareholder value. Our Chief
Financial Officer covers overall financial management, financial reporting,
corporate administration, investors relations. Our Vice President covers
specific industries, such as the pharmaceutical, cosmetic and comestible sectors
and acts as our media spokesperson, clarifying for the pharmaceutical and
nutraceutical industries, allied health professionals and consumers the
advantages of our anti-counterfeit, diversion and piracy applications and
products.
Giuliani Partners
In August 2004, we engaged Giuliani Partners LLC as our strategic marketing
partner and advisor. Giuliani Partners has extensive experience in advising
corporations and organizations in various business sectors. The engagement
agreement had an effective date of September 1, 2004.
Giuliani Partners has been engaged, on a non-exclusive basis, to provide
advice and assistance to us regarding issues associated with our proprietary DNA
embedded security solutions. Giuliani Partners will assist us with strategic
positioning and enhancement of our business, and will assist us in the
development of domestic and international marketing strategies for our DNA
products and services. The term of the engagement is one year from the effective
date, with automatic one year renewals unless either party expresses, in
writing, an intention not to renew within 60 days prior to the expiration of the
term.
28
As compensation for Giuliani Partners' performance, we will pay Giuliani
Partners an aggregate advisory fee of $2,000,000 payable in increments over the
term and renewal term. The initial payment of $500,000 was made by us on or
about September 7, 2004. Additionally, we will issue a net-exercisable warrant
to purchase shares of our common stock at a later date. Fees were placed in
escrow during Giuliani Partners' completion of its due diligence review.
All our promotional materials will be submitted to Giuliani Partners for
its review, including all advertising, written sales promotion, press releases,
news clippings and other publicity matters relating to Giuliani Partners'
engagement and the strategic relationship created.
We have agreed to maintain confidentiality with regard to our relationship
with Giuliani Partners, wherever appropriate, and have indemnified Giuliani
Partners, its controlling persons, respective partners, shareholders, directors,
officers, employees, agents, affiliates and representatives and will hold them
harmless against any actions, judgments, claims, etc.
EMPLOYEES
As of February 10, 2005, we employed 12 full-time employees, of which six
are in management, four in sales & marketing and two in administration. We
believe that our relations with our employees are good.
DESCRIPTION OF PROPERTIES
Presently, we maintain our principal office at 9229 W. Sunset Boulevard,
Suite 830, Los Angeles, California 90069. We signed a lease for our office space
in November 2003. The office space, which is provided to us for $11,312.70 per
month for the first twelve months of the lease, for $11,635.92 for the second 12
months and $12,031.01 for the last 12 months of the lease, has approximately
5,387 square feet. We believe that our current office space and facilities are
sufficient to meet our present needs and do not anticipate any difficulty
securing alternative or additional space, as needed, on terms acceptable to us.
29
LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm our business. We are currently
not aware of any such legal proceedings or claims that we believe will have,
individually or in the aggregate, a material adverse affect on our business,
financial condition or operating results.
30
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Names: Ages Titles: Board of Directors
----- ---- ------- ------------------
Rob Hutchison 49 Chairman & CEO Director
Peter Brocklesby 52 President Director
Lawrence Lee 44 Chief Technology Director
Strategist
Michael Hill 44 Director
Ron Erickson 61 Director
Karin Klemm 38 Secretary
Directors are elected to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Currently
there are three seats on our board of directors.
Currently, our Directors are not compensated for their services. Officers
are elected by the Board of Directors and serve until their successors are
appointed by the Board of Directors. Biographical resumes of each officer and
director are set forth below.
Chairman of the Board and Chief Executive Officer - Robin Hutchison
In November 2003, Robin "Rob" Hutchison joined our Board of Directors. On
December 12, 2003, he was appointed Chairman of the Board and on March 1, 2004,
he was appointed Chief Executive Officer. Previously, Mr. Hutchison served on
Board of Directors of PowerHouse Technologies Group, Inc., the developer of
mobile computing solutions that enhance personal productivity. He is the founder
of several companies, including eCharge Corporation of Seattle, Washington,
specialists in alternative payment methods for the Internet. Mr. Hutchison
served as eCharge's president and chief technical officer and played an integral
role in raising in excess of $90 million in private funding. Mr. Hutchison
pioneered, and holds the patent pending on, unique digital certificate
technology using Bio-metrics that enabled eCharge to provide secure Internet
commerce transactions.
Prior to co-founding eCharge, Mr. Hutchison was president of Canada-based
SNI Corporation, specialists in the integration of SUN Microsystems UNIX-based
systems and Internet and computer firewall security. Mr. Hutchison also served
as the western regional director of sales and operations for Everex Canada Inc.
and as vice president and co-founder of Vivox International Inc.
Mr. Hutchison remains on the Board of Directors of eCharge. He retired from
that company in 2002 to assist in the development of several start-ups and
mature technology companies, including Bit Learning, Via Vis Technologies Inc.,
One Person Health Inc. and Applied DNA Canada. Mr. Hutchison is a member of the
Board of Directors of Golden Goliath Resources and Serebra Learning
Corporations.
President - Peter Brockelsby
Mr. Brocklesby graduated from Leeds University, UK with a BA Honors degree
in History in 1970. He attended the Royal Air Force College, UK and was
commissioned in the RAF. In 1977, after 7 years service in the UK Armed Forces,
Mr. Brocklesby left to become Director of Logistics for Air Asia (Air America),
a US defense contractor providing support for the US military and for other
governments in Asia.
Following acquisition of Air Asia by E-Systems, Inc., a multi-billion
dollar defense contractor, and now part of Raytheon, Mr. Brocklesby was
appointed VP Marketing. E-Systems specialized in the development and integration
of advanced airborne and land-based military and government communications
systems, electronic warfare equipment, electronic surveillance and airborne
intelligence gathering systems.
31
As an independent businessman, Mr. Brocklesby developed sophisticated
electronics systems for commercial aircraft in a joint-venture with Plessey, a
multi-billion dollar defense contractor and avionics manufacturer. The products
included satellite communication systems, on-board electronic management systems
and fully interactive video, audio and voice/data communications systems. Mr.
Brocklesby has extensive experience in the development, commercialization and
marketing of new technologies and has many contacts in the aerospace, defense,
electronics and telecommunications industries worldwide.
Chief Technology Strategist and Director - Larry Lee
Larry Lee served as President, CEO and Director from September of 2002 to
March 1st, 2004, when he assumed the role of Chief Technology Strategist. Lee
has over 20 years of leadership experience in technology and telecommunications
with both Fortune 500 companies and start-up organizations. His roles have
ranged from Senior scientist to CEO, managing all aspects of business
development including technical, financial, resource management and marketing.
Prior to becoming president and CEO of the Company, Lee has held management
positions at Hughes Aircraft, Boeing and General Motors where he worked on
innovative and cutting-edge new technology.
While working in the environment of Fortune 500 companies, he led the new
initiatives divisions where he mastered entrepreneurial skills by developing a
variety of new business ventures. His success was so notable that he was awarded
the coveted Six Sigma Black Belt training award for his accomplishments. This is
an award that is given after an intensive program to groom high corporate
achievers to learn how to make companies successful.
He recently successfully initiated the start-up of three satellite
telecommunications product lines for wireless, broadband and multi-media
applications with sales exceeding $200 million. He was also instrumental in
directing the development of integrated data and software systems for the
automotive industry, military and government security programs.
Lee currently serves on the board of advisors and/or partners for several
U.S. and international companies including: Dery Resources Inc.; IMC, and VO
Management, LLC.
Lee has a Master of Science in Computer/Electronic Engineering from
California State University and a Bachelor of Science in Mechanical/Biomedical
Engineering from Virginia Tech. He has also received advanced training in
Business Executive Management and Finance from University of California, Los
Angeles and the Hughes Education Center.
Consultant and Director - Michael E. Hill
Mr. Hill has 18 years of experience in venture capital finance, investment
banking and business development in North America and Europe. Hill has been
involved in the initial funding and start-up of numerous companies including:
multi-media, technology, biotech and the resource sectors. He has successfully
completed transactions ranging as high as $200 million and has been an intricate
participant in many acquisition and merger strategies. Hill is currently a major
shareholder in a west coast commercial real estate company and retail chain. He
is also serving as the trustee and governor for the Shawnigan Lake School, a top
ranked, international private school in Canada.
Previous to joining the Applied DNA Sciences team, Hill was an Investment
Banker at Research Capital from 1997-2002 where he managed a portfolio exceeding
$300 million. At Research Capital Hill worked closely with senior executives and
Management in developing new product, marketing, recruiting, due diligence and
structuring investment banking deals. Prior to working with Research Capital,
Hill performed similar tasks with Scotia Capital Markets and Burns Fry Ltd. He
was employed with these companies from 1987 until 1997.
32
Director - Ronald P. Erickson
Ronald Erickson has over thirty years of experience as a manager, attorney
and senior level executive. In January 2004, Mr. Erickson was appointed to the
Company's Board of Directors. From 1997 through the present, Mr. Erickson served
as Chairman and Chief Executive Officer of eCharge Corporation in Seattle,
Washington where he played a major role in raising approximately $90 Million in
equity capital from major international investors including Deutsche Telkom's
venture arm, Korea Telecom, National Data Corp. and others. Previously, from
1995 through 1997, he served as Chairman and Chief Executive Officer of
Globaltel Resources, Inc. where he co-founded and lead the worldwide financing
efforts and managed all aspects of growth of this privately held international
telecommunications and networking company. From 1992 through 1994, he was
Chairman, Interim President and Chief Executive Officer of Egghead Software,
Inc. in Issaquah, Washington.
Secretary - Karin Klemm
On August 2, 2004, Applied DNA Sciences, Inc. (the "Company") appointed
Karin Lise Klemm to the position of Chief Operating Officer and Secretary. In
that capacity, Ms. Klemm oversees the day-to-day operations of the Company. Ms.
Klemm continues to serve as President of Poly Pacific Entertainment, Inc., an
entertainment company based in Beverly Hills, where she began her employ in that
role in August of 1999. Since August of 2003, Ms. Klemm has served as Chief
Executive Officer to Uncensored Music Network, Inc., also an entertainment
company. Previously, from 1997 through 2000, Ms. Klemm was a branch manager of
RH11, an executive search firm in Los Angeles, California.
EXECUTIVE COMPENSATION
The following tables set forth certain information regarding our CEO and
each of our most highly-compensated executive officers whose total annual salary
and bonus for the fiscal years ending September 30, 2004, 2003 and 2002 exceeded
$100,000:
In September of 2004, Larry Lee entered into a private transaction with Mr.
Chaim Stern, selling a total of 2,500,000 shares to him, after which he loaned
all proceeds of $600,000 to us.
We have no policy regarding entering into transactions with affiliated
parties.
34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of February 1, 2005:
o by each person who is known by us to beneficially own more than 5% of
our common stock;
o by each of our officers and directors; and
o by all of our officers and directors as a group.
PERCENTAGE OF PERCENTAGE OF
CLASS CLASS
NAME AND ADDRESS NUMBER OF PRIOR TO AFTER
OF OWNER TITLE OF CLASS SHARES OWNED(1) OFFERING(2) OFFERING(3)
-----------------------------------------------------------------------------------------------------
Rob Hutchison Common Stock 1,120,000 (4) 2.32% 1.34%
9229 Sunset Blvd., Suite 830
Los Angeles, CA 90069
Peter Brockelsby Common Stock 1,000,000 (5) 2.07% 1.20%
9229 Sunset Blvd., Suite 830
Los Angeles, CA 90069
Lawrence Lee Common Stock 3,820,000 (6) 7.98% 4.61%
9229 Sunset Blvd., Suite 830
Los Angeles, CA 90069
Michael Hill Common Stock 552,000 (7) 1.16% *
9229 Sunset Blvd., Suite 830
Los Angeles, CA 90069
Ron Erickson Common Stock 550,000 (8) 1.15% *
9229 Sunset Blvd., Suite 830
Los Angeles, CA 90069
Karin Klemm Common Stock 0 0% 0%
9229 Sunset Blvd., Suite 830
Los Angeles, CA 90069
All Officers and Directors Common Stock 7,042,000 (9) 13.90% 8.22%
As a Group (6 persons)
RHL Management, Inc. Common Stock 4,955,475 10.48% 6.02%
Roxbury Road
Los Angeles, CA 90069
Chaim Stern Common Stock 4,500,000 9.52% 5.46%
1880 East 26th Street
Brooklyn, NY 11229
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to options or warrants currently exercisable or convertible, or exercisable
or convertible within 60 days of February 8, 2005 are deemed outstanding
for computing the percentage of the person holding such option or warrant
but are not deemed outstanding for computing the percentage of any other
person.
(2) Based upon 47,280,993 shares issued and outstanding on February 8,
2005.
(3) Percentage based on 82,349,993 shares of common stock outstanding,
assuming all shares being registered in the offering are sold.
(4) Includes 1,000,000 shares underlying currently exercisable options.
(5) Includes 1,000,000 shares underlying currently exercisable options.
35
(6) Includes 600,000 shares underlying currently exercisable options.
(7) Includes 315,000 shares underlying currently exercisable options.
(8) Includes 400,000 shares underlying currently exercisable options and
50,000 shares underlying currently exercisable options owned by Alpha
Spectrum Investments, LLC, of which Mr. Erickson is deemed a beneficial
owner.
(9) Includes 3,365,000 shares underlying currently exercisable options.
36
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue up to 100,000,000 shares of common stock, par
value $.50. As of February 8, 2005, there were 47,280,993 shares of common stock
outstanding. Holders of the common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution, or winding up of our company, the holders of common
stock are entitled to share ratably in all of our assets which are legally
available for distribution after payment of all debts and other liabilities and
liquidation preference of any outstanding common stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are validly issued, fully paid and
nonassessable.
We have engaged American Stock Transfer & Trust Company, located in
Brooklyn, New York, as independent transfer agent or registrar.
PREFERRED STOCK
We are authorized to issue up to 10,000,000 shares of Preferred Stock, par
value $.001. The 10,000,000 shares of Preferred Stock authorized are
undesignated as to preferences, privileges and restrictions. As the shares are
issued, the Board of Directors must establish a "series" of the shares to be
issued and designate the preferences, privileges and restrictions applicable to
that series. To date, the Board has designated a Founders' Series of Convertible
Preferred Stock, which, in six months from the date of issuance, shall be
convertible at the option of the holder and upon our reaching certain financial
objectives, into shares of our restricted Common Stock. Each share, when
eligible, is convertible into 25 fully paid and non-assessable shares of our
Common Stock, subject to a leak out agreement that extends the Rule 144 period
to two years. Holders will be permitted to sell, after a one year holding period
through a three year holding period, 1% of the issued and outstanding shares of
our common stock every 90 days. This series has been authorized by the Board of
Directors. On or about February 1, 2005, the Founders' Series of Preferred Stock
was converted into 1,500,000 shares of our common stock. As of February 8, 2005,
there were no shares of preferred stock issued and outstanding.
OPTIONS
There are currently options outstanding that have been issued to our
officers and directors to purchase 3,365,000 shares of our common stock pursuant
to our Professional/Employee/Consultant Compensation Plan and employment
agreements.
WARRANTS
In connection with the sale of convertible promissory notes in December
2004, we issued 2,930,000 warrants to purchase shares of common stock. The
warrants are exercisable until three years from the date of issuance at a
purchase price of $0.75 per share.
In addition, in connection with a private placement offering in January and
February of 2005, we have issued 14,722,000 warrants. The warrants are
exercisable until five years from the date of issuance at a purchase price of
$0.75 per share.
We also have outstanding 285,000 warrants exercisable at $0.10 per share,
5,000 warrants exercisable at $0.20 per share, 1,500,000 warrants exercisable at
$0.60 per share, 750,000 warrants exercisable at $0.70 per share and 155,000
warrants exercisable at $0.75 per share.
CONVERTIBLE SECURITIES
To obtain funding for our ongoing operations, we sold $1,465,000 in
convertible promissory notes to 13 investors in December 2004. Each promissory
note was automatically convertible into shares of our common stock, at a price
of $0.50 per share, upon the closing of a private placement for $1 million or
more. On January 28, 2005, we closed upon a private placement transaction in
excess of $1 million, and on February 2, 2005, the promissory notes were
converted into an aggregate of 2,930,000 shares of common stock. This prospectus
includes the resale of the common stock issued upon conversion of the promissory
notes.
37
To obtain funding for our ongoing operations, we conducted a private
placement offering in January and February 2005, in which we sold $7,361,000 of
10% Secured Convertible Promissory Notes to 61 investors. The 10% Secured
Convertible Promissory Notes automatically convert into shares of our common
stock, at a price of $0.50 per share, upon the filing of this registration
statement. This prospectus includes the resale of the common stock to be issued
upon conversion of the 10% Secured Convertible Promissory Notes.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation, as amended, provide to the fullest extent
permitted by Nevada law, our directors or officers shall not be personally
liable to us or our shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our Articles of
Incorporation, as amended, is to eliminate our rights and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers. In addition, we have entered into indemnification agreements with our
officers and directors.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act" or "Securities Act") may be permitted to directors, officers
or persons controlling us pursuant to the foregoing provisions, or otherwise, we
have been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
38
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective pledgees, donees,
assignees and other successors-in-interest may, from time to time, sell any or
all of their shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. The selling stockholders may use any one
or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately-negotiated transactions;
o short sales that are not violations of the laws and regulations of any
state or the United States;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o through the writing of options on the shares;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
The selling stockholders may also engage in short sales against the box,
puts and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades.
The selling stockholders or their respective pledgees, donees, transferees
or other successors in interest, may also sell the shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholders. Vertical
Capital Partners, Inc., a registered broker-dealer; Michael Morris, Susan
Diamond; Ronald Heineman and Michael Gochman; all of whom are employees of
Vertical Capital Partners., are an "underwriter" as that term is defined under
the Securities Exchange Act of 1933, as amended, the Securities Exchange Act of
1934, as amended, and the rules and regulations of such acts. Further, the other
selling stockholders and any brokers, dealers or agents, upon effecting the sale
of any of the shares offered in this prospectus, may be deemed to be
"underwriters." In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares, including fees and disbursements of counsel to the selling
stockholders, but excluding brokerage commissions or underwriter discounts.
The selling stockholders, alternatively, may sell all or any part of the
shares offered in this prospectus through an underwriter. No selling stockholder
has entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
39
The selling stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a selling stockholder defaults on a
margin loan, the broker may, from time to time, offer and sell the pledged
shares. The selling stockholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
such act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales of
any of the shares by, the selling stockholders or any other such person. In the
event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. In regards to short sells, the selling stockholder can only cover
its short position with the securities they receive from us upon conversion. In
addition, if such short sale is deemed to be a stabilizing activity, then the
selling stockholder will not be permitted to engage in a short sale of our
common stock. All of these limitations may affect the marketability of the
shares.
We have agreed to indemnify the selling stockholders, or their transferees
or assignees, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the selling
stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of such liabilities.
If the selling stockholders notify us that they have a material arrangement
with a broker-dealer for the resale of the common stock, then we would be
required to amend the registration statement of which this prospectus is a part,
and file a prospectus supplement to describe the agreements between the selling
stockholders and the broker-dealer.
PENNY STOCK
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions in
penny stocks; and
o the broker or dealer receive from the investor a written agreement to
the transaction, setting forth the identity and quantity of the penny
stock to be purchased.
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny stocks
are suitable for that person and the person has sufficient knowledge
and experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stocks
in both public offerings and in secondary trading and about the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and the rights and remedies available to an
investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
40
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of the shares
of common stock by the selling stockholder. We will not receive any proceeds
from the resale of the common stock by the selling stockholder. We will receive
proceeds from the exercise of the warrants. Assuming all the shares registered
below are sold by the selling stockholder, none of the selling stockholder will
continue to own any shares of our common stock.
The following table also sets forth the name of each person who is offering
the resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the offering, assuming they sell all of the shares
offered.
For the table set forth below, the following persons have investment and
voting control over the shares owned by the respective entities:
-------------------------------------------- --------------------------------
Entity Control Person
-------------------------------------------- --------------------------------
-------------------------------------------- --------------------------------
Allied International Fund Rosemarie DePalo
-------------------------------------------- --------------------------------
AS Capital Partners Michael Coughlan
-------------------------------------------- --------------------------------
Avonwoods Ltd. C. Rand
-------------------------------------------- --------------------------------
Basso Private Opportunity Holding Fund Ltd. Howard I. Fischer
-------------------------------------------- --------------------------------
Basso Multi-Strategy Holding Fund Ltd. Howard I. Fischer
-------------------------------------------- --------------------------------
F Berdon Comp. Frederick Berdon
-------------------------------------------- --------------------------------
Beston Worldwide Ltd Michael Ben-Jacob
-------------------------------------------- --------------------------------
Blumfield Investments M. Kraus
-------------------------------------------- --------------------------------
Brighton Capital Jeffery Wolin
-------------------------------------------- --------------------------------
Clear Mountain Holdings Raul Garrido Garibaldo
-------------------------------------------- --------------------------------
The Condor Group, LLC Robert Lowinger
-------------------------------------------- --------------------------------
Consultants and Advisors NJB, Inc. Gary Schonwald
-------------------------------------------- --------------------------------
Cordilliera Funds Stephen J. Carter
-------------------------------------------- --------------------------------
DC Capital Craig Kirsch
-------------------------------------------- --------------------------------
Double U Master Fund David Sims
-------------------------------------------- --------------------------------
Equilibrium Solutions Johnny Vage
-------------------------------------------- --------------------------------
First London Finance, Ltd. Moshe Grauman
-------------------------------------------- --------------------------------
Galileo Asset Management, SA Marie-Christine Wright,
John Sauickie and John Wright
-------------------------------------------- --------------------------------
Gemini Master Funds Steve Winters
-------------------------------------------- --------------------------------
Global Asset Management Robert Fallah
-------------------------------------------- --------------------------------
Goldenberg & Hirsch Properties Leo Hirsch
-------------------------------------------- --------------------------------
GSSF Master Fund E.B. Lyon IV
-------------------------------------------- --------------------------------
Guerilla IRA L.P. Leigh Curry
-------------------------------------------- --------------------------------
Hirsch Family Foundation Leo Hirsch
-------------------------------------------- --------------------------------
ID Federman Holdings LTD Iris Federman
-------------------------------------------- --------------------------------
41
-------------------------------------------- --------------------------------
Ivelocity Fund Scott Parent
-------------------------------------------- --------------------------------
KA Steel Chemical Kenneth Steel Jr.
-------------------------------------------- --------------------------------
Livingston Ventures, LLC Ronald Heineman
-------------------------------------------- --------------------------------
Lone Star Equity Mark A. Bogina
-------------------------------------------- --------------------------------
Marina Ventures Michael Hartstein
-------------------------------------------- --------------------------------
Melton Management Yehuda Breitkops
-------------------------------------------- --------------------------------
Odin Partners LP John A. Gibbons
-------------------------------------------- --------------------------------
Omega Capital Small Cap Abraham Sylverin
-------------------------------------------- --------------------------------
P.R. Diamonds Pinkus Reisz
-------------------------------------------- --------------------------------
Provident Master Fund Steven Winters
-------------------------------------------- --------------------------------
Rock Capital Partners, LLC Howard Chalfin
-------------------------------------------- --------------------------------
Salzwedel Financial Communications, Inc. Jeff Salzwedel
-------------------------------------------- --------------------------------
San Rafael Consulting Group, LLC Isabelle H. Wright and
John Wright
-------------------------------------------- --------------------------------
Rabbi Scheinerman KBY LLC Rabbi Schenerman
-------------------------------------------- --------------------------------
Sichenzia Ross Friedman Ference LLP Greg Sichenzia, Marc Ross,
Richard Friedman and
Michael Ference
-------------------------------------------- --------------------------------
Spencer Edwards, Inc. Thomas Kaufman
-------------------------------------------- --------------------------------
Starboard Capital Markets, LLC James Dotzman
-------------------------------------------- --------------------------------
Steel Harbor Holdings Mark Step
-------------------------------------------- --------------------------------
Stonestreet, LP Michael Finkelstein
-------------------------------------------- --------------------------------
Vertical Capital Partners, Inc. Robert DePalo
-------------------------------------------- --------------------------------
Vestal Venture Capital Allan Lyons
-------------------------------------------- --------------------------------
Whalehaven Evan Schemenauer
-------------------------------------------- --------------------------------
Wolfson Trust Franchesca Wolfson
-------------------------------------------- --------------------------------
42
Beneficial Ownership Beneficial Ownership
Prior to Offering (1) After Offering (1)
Name of Selling Security Holder Shares Percentage (2) Shares Offered Shares Percentage (2)
-----------------------------------------------------------------------------------------------------------------------------------
Allied International Fund 1,237,500 2.62% 1,237,500 0 *
AS Capital Partners 100,000 * 100,000 (3) 0 *
Avonwoods Ltd. 800,000 1.68% 800,000 (3) 0 *
Evan B. Azriliant 100,000 * 100,000 (3) 0 *
Mordechai Bank 200,000 * 200,000 (3) 0 *
Judith Barclay 400,000 * 400,000 (3) 0 *
Jack Basch 600,000 1.26% 600,000 (3) 0 *
Basso Private Opportunity Holding
Fund Ltd. 630,000 1.32% 630,000 (3) 0 *
Basso Multi-Strategy Holding Fund
Ltd. 2,370,000 4.89% 2,370,000 (3) 0 *
Lon E Bell 60,000 * 60,000 (4) 0 *
F Berdon Comp. 200,000 * 200,000 (3) 0 *
Beston Worldwide Ltd 67,500 * 67,500 (4) 0 *
Robert R. Blakely 33,334 * 33,334 0 *
Blumfield Investments 400,000 * 400,000 (3) 0 *
Doug Bowen 138,750 * 138,750 (5) 0 *
Brighton Capital 46,750 * 46,750 0 *
Salvatore Cantatore 112,500 * 112,500 (6) 0 *
Jaime Cardona 100,000 * 100,000 0 *
Andrea Cataneo 250,000 * 250,000 0 *
Notzer Chesed 400,000 * 400,000 (3) 0 *
Clear Mountain Holdings 300,000 * 300,000 (3) 0 *
David Cohen 200,000 * 200,000 (3) 0 *
The Condor Group, LLC 8,250 * 8,250 0 *
Consultant and Advisors NJB, Inc. 145,000 * 145,000 0 *
Cordilliera Funds 1,000,000 2.09% 1,000,000 (3) 0 *
Adrian Davidescu 400,000 * 400,000 (3) 0 *
Jacob and Linda Davidowitz JTWROS 800,000 1.68% 800,000 (3) 0 *
DC Capital 60,000 * 60,000 (4) 0 *
David and Jeanette Defoto JTWROS 200,000 * 200,000 (3) 0 *
Robert DePalo Jr. 20,000 * 20,000 0 *
Susan Diamond 5,000 * 5,000 0 *
Joseph Digiacamo 50,000 * 50,000 (3) 0 *
Double U Master Fund 800,000 1.68% 800,000 (3) 0 *
Richard Durkee 27,000 * 27,000 0 *
Asher Avishay Ephrathi 1,040,230 2.19% 1,040,230 (7) 0 *
Equilibrium Solutions 100,000 * 100,000 (3) 0 *
Douglas Falkner 120,000 * 120,000 0 *
Jeanine Fehn 240,000 * 240,000 (3) 0 *
First London Finance, Ltd. 1,250,000 2.64% 1,250,000 0 *
Frederick Frank 110,000 * 110,000 (8) 0 *
Galileo Asset Management, SA 157,000 * 157,000 0 *
Charles Gargano 62,500 * 62,500 (7) 0 *
Gemini Master Funds 200,000 * 200,000 (3) 0 *
Nicholas Giustino 133,750 * 133,750 (8) 0 *
43
Michael Glazer 16,875 * 16,875 (10) 0 *
Global Asset Management 1,257,500 2.66% 1,257,500 0 *
Michael Gochman 36,750 * 36,750 0 *
Rochelle Gold 600,000 1.26% 600,000 (3) 0 *
Harold Goldenberg 400,000 * 400,000 (3) 0 *
Goldenberg & Hirsch Properties 400,000 * 400,000 (3) 0 *
Mary Anne Gray 60,000 * 60,000 (11) 0 *
Scott R. Griffith 33,333 * 33,333 0 *
Eugene Gross 400,000 * 400,000 (3) 0 *
Wayne Grubb 67,500 * 67,500 (4) 0 *
GSSF Master Fund 1,000,000 2.09% 1,000,000 (3) 0 *
Guerilla IRA L.P. 115,000 * 115,000 (4) 0 *
Paul Reyes-Guerra 31,250 * 31,250 (12) 0 *
Michael Hamblett 84,060 * 84,060 0 *
Ronald Heineman 22,000 * 22,000 0 *
Joseph Henn 15,000 * 15,000 (10) 0 *
Hirsch Family Foundation 160,000 * 160,000 (3) 0 *
Leo Hirsch 240,000 * 240,000 (3) 0 *
ID Federman Holdings LTD 600,000 1.26% 600,000 (3) 0 *
Joseph Iorio 100,000 * 100,000 (3) 0 *
Thomas Iovino 200,000 * 200,000 (3) 0 *
Ivelocity Fund 135,000 * 135,000 (13) 0 *
William L. Jiler 16,875 * 16,875 (9) 0 *
KA Steel Chemical 33,750 * 33,750 (13) 0 *
Ahmed Kareem 10,500 * 10,500 0 *
Jeffery Kessler 33,750 * 33,750 (14) 0 *
Tibor Klein 720,000 1.51% 720,000 (3) 0 *
Yisreal Klein 200,000 * 200,000 (3) 0 *
Yossi Kraus 100,000 * 100,000 (3) 0 *
Alexander J. Lapatka 67,500 * 67,500 (4) 0 *
Livingston Ventures, LLC 170,000 * 170,000 0 *
Lone Star Equity 400,000 * 400,000 (3) 0 *
Jason Lyons 57,000 * 57,000 0 *
Michael Mangan 100,000 * 100,000 (3) 0 *
Tony Manual 200,000 * 200,000 (3) 0 *
Marina Ventures 195,000 * 195,000 0 *
Paul Masters IRA 200,000 * 200,000 (3) 0 *
Melton Management 400,000 * 400,000 (3) 0 *
Linda Michaels 250,000 * 250,000 0 *
Raymond Mikulich 335,000 * 335,000 (15) 0 *
Kyle Morgan 200,000 * 200,000 (3) 0 *
Michael Morris 75,000 * 75,000 0 *
Houston Muthart 267,500 * 267,500 (16) 0 *
Richard Neslund 1,000,000 2.09% 1,000,000 (3) 0 *
Michael Nizza 50,000 * 50,000 (3) 0 *
Marvin Numeroff 267,500 * 267,500 (16) 0 *
Odin Partners LP 67,500 * 67,500 (4) 0 *
Eric Okamoto 493,880 * 493,880 (17) 0 *
Omega Capital Small Cap 1,200,000 2.51% 1,200,000 (3) 0 *
Eileen Patterson 38,750 * 38,750 (18) 0 *
Platinum Partners 400,000 * 400,000 (3) 0 *
P.R. Diamonds 240,000 * 240,000 (3) 0 *
Joseph Prezioso 400,000 * 400,000 (3) 0 *
Arthur Priver 228,750 * 228,750 (18) 0 *
Provident Master Fund 1,200,000 2.51% 1,200,000 (3) 0 *
Robert & Claudia Quinn JTWROS 28,750 * 28,750 (9) 0 *
Avindam Rapaport 100,000 * 100,000 (3) 0 *
Kenneth Reichelle 116,875 * 116,875 (19) 0 *
Rock Capital Partners, LLC 600,000 1.26% 600,000 (3) 0 *
44
Joseph Rozehzadeh 400,000 * 400,000 (3) 0 *
Edward M Rotter 3,320,000 6.78% 3,320,000 (20) 0 *
Angela Chen Sabella 120,000 * 120,000 (21) 0 *
Salzwedel Financial
Communications, Inc. 365,000 * 365,000 0 *
San Rafael Consulting Group, LLC 67,236 * 67,236 0 *
Frederick Sandvick 200,000 * 200,000 (3) 0 *
Rabbi Scheinerman KBY LLC 100,000 * 100,000 (3) 0 *
Joel Schindler 100,000 * 100,000 (3) 0 *
Shatashvili Sharona 200,000 * 200,000 (3) 0 *
Jesse B. Shelmire IV 33,333 * 33,333 0 *
Sichenzia Ross Friedman Ference LLP 112,000 * 112,000 0 *
Jerry Silva 1,000,000 2.09% 1,000,000 (3) 0 *
Jerry and Esther Soloman JTWROS 800,000 1.68% 800,000 (3) 0 *
Anthony Spatacco 42,030 * 42,030 0 *
Spencer Edwards, Inc. 8,000 * 8,00 0 *
Starboard Capital Markets, LLC 42,030 * 42,030 0 *
Steel Harbor Holdings 170,000 * 170,000 0 *
Kenneth Steel Jr. 33,750 * 33,750 (13) 0 *
Chaim Stern 3,000,000 6.15% 3,000,000 (3) 0 *
Alexander Stolin 200,000 * 200,000 (3) 0 *
Stonestreet, LP 600,000 1.25% 600,000 (22) 0 *
Richard Swier Jr. 60,000 * 60,000 (3) 0 *
Stewart Taylor 33,750 * 33,750 (13) 0 *
Marcovich Tibo 100,000 * 100,000 (3) 0 *
Doron Rafael Toledano 56,735 * 56,735 0 *
Ester Tuman 67,500 * 67,500 (4) 0 *
Alex Verjovski 200,000 * 200,000 (3) 0 *
Vertical Capital Partners, Inc. 165,750 * 165,750 0 *
Vestal Venture Capital 67,500 * 67,500 (4) 0 *
Sem Victori 240,000 * 240,000 (3) 0 *
Whalehaven 1,150,000 2.40% 1,150,000 (23) 0 *
Phil Westridge 33,750 * 33,750 (15) 0 *
Peter Wieser 200,000 * 200,000 (3) 0 *
Wolfson Trust 16,875 * 16,875 (11) 0 *
Franchesca Wolfson 16,875 * 16,875 (11) 0 *
Eric Yaoz 320,000 * 320,000 (3) 0 *
Harry/Temy/Ark Zelcer 200,000 * 200,000 (3) 0 *
* Less than 1%
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to options or warrants currently exercisable or convertible, or exercisable
or convertible within 60 days of February 8, 2005 are deemed outstanding
for computing the percentage of the person holding such option or warrant
but are not deemed outstanding for computing the percentage of any other
person.
(2) Percentage prior to offering is based on 47,280,993 shares of common
stock outstanding; percentage after offering is based on 82,349,993 shares
of common stock outstanding, which assumes that all shares registered in
the offering will be sold.
(3) Of which 50% of such number of shares are issuable upon exercise of
currently exercisable warrants.
(4) Includes 60,000 shares of common stock underlying warrants.
(5) Includes 85,000 shares of common stock underlying warrants.
(6) Includes 90,000 shares of common stock underlying warrants.
(7) Includes 115,000 shares of common stock underlying warrants.
(8) Includes 55,000 shares of common stock underlying warrants.
45
(9) Includes 80,000 shares of common stock underlying warrants.
(10) Includes 15,000 shares of common stock underlying warrants.
(11) Includes 52,500 shares of common stock underlying warrants.
(12) Includes 27,500 shares of common stock underlying warrants.
(13) Includes 120,000 shares of common stock underlying warrants.
(14) Includes 30,000 shares of common stock underlying warrants.
(15) Includes 220,000 shares of common stock underlying warrants.
(16) Includes 160,000 shares of common stock underlying warrants.
(17) Includes 232,000 shares of common stock underlying warrants.
(18) Includes 35,000 shares of common stock underlying warrants.
(19) Includes 65,000 shares of common stock underlying warrants.
(20) Includes 1,720,000 shares of common stock underlying warrants.
(21) Includes 120,000 shares of common stock underlying warrants.
(22) Includes 600,000 shares of common stock underlying warrants.
(23) Includes 650,000 shares of common stock underlying warrants.
LEGAL MATTERS
Sichenzia Ross Friedman Ference LLP, New York, New York will issue an
opinion with respect to the validity of the shares of common stock being offered
hereby. Sichenzia Ross Friedman Ference LLP is also the owner of 112,000 shares
of our common stock, which are included in this registration statement. Andrea
Cataneo, a partner of Sichenzia Ross Friedman Ference LLP is the owner of
250,000 shares of our common stock, which are included in this registration
statement.
EXPERTS
Russell Bedford Stefanou Mirchandani LLP, independent registered public
accounting firm, have audited, as set forth in their report thereon appearing
elsewhere herein, our financial statements at September 30, 2004 and 2003 and
for the years then ended that appear in the prospectus. The financial statements
referred to above are included in this prospectus with reliance upon the
independent registered public accounting firm's opinion based on their expertise
in accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933, as amended, relating to the shares of common stock being offered by
this prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of Applied DNA Sciences, Inc., filed as
part of the registration statement, and it does not contain all information in
the registration statement, as certain portions have been omitted in accordance
with the rules and regulations of the Securities and Exchange Commission.
We are subject to the informational requirements of the Securities Exchange
Act of 1934 which requires us to file reports, proxy statements and other
information with the Securities and Exchange Commission. Such reports, proxy
statements and other information may be inspected at public reference facilities
of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549.
Copies of such material can be obtained from the Public Reference Section of the
SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at
prescribed rates. Because we file documents electronically with the SEC, you may
also obtain this information by visiting the SEC's Internet website at
http://www.sec.gov.
46
INDEX TO FINANCIAL STATEMENTS
APPLIED DNA SCIENCES, INC.
INDEX TO FINANCIAL STATEMENTS
For the Years Ended September 30, 2004 and September 30, 2003
Report of Independent Registered Public Accounting Firm......................... F-1
Consolidated Balance Sheet...................................................... F-2
Consolidated Statement of Losses for the year ended September
30, 2004 and 2003 and the period September 16, 2002
(date of inception) to September 30, 2004.............................. F-3
Consolidated Statement of Deficiency in Stockholders' Equity
for the period September 16, 2002 (date of inception) to
September 30, 2004..................................................... F-4 to F-11
Consolidated Statements of Cash Flows for the year ended
September 30, 2004 and 2003, and the period
September 16, 2002 (date of inception) to September 30, 2004........... F-12
Notes to Consolidated Financial Statements...................................... F-13 to F-34
For the Three Months Ended December 31, 2004 and December 31, 2003
Condensed Balance Sheets December 31, 2004 (Unaudited)
and December 31, 2003.................................................. F-35
Condensed Statements of Operations for the three months ended
December 31, 2004 and 2003 (Unaudited)................................. F-36
Condensed Statements of Deficiency in Stockholders' Equity
for the date of inception through December 31, 2004 (Unaudited)........ F-37 to F-46
Condensed Statements of Cash Flows For the three months
ended December 31, 2004 and 2003 (Unaudited)........................... F-47
Notes to the Condensed Financial Statements (Unaudited)......................... F-48 to F-65
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF REGISTERED INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Applied DNA Sciences, Inc.
Los Angeles, California
We have audited the accompanying consolidated balance sheets of Applied DNA
Sciences, Inc. (a development stage company) as of September 30, 2004 and the
related consolidated statements of losses, deficiency in stockholders' equity,
and cash flows for the years ended September 30, 2004 and 2003 and the period
September 16, 2002 (date of inception) through September 30, 2004. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on the financial statements based upon
our audits.
We have conducted our audits in accordance with auditing standards of the
Public Company Accounting Oversight Board (PCAOB) (United States of America).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Applied DNA Sciences , Inc.
(a development stage company) at September 30, 2004 and the results of its
operations and its cash flows for the years ended September 30, 2004 and 2003,
and the period September 16, 2002 (date of inception) through September 30, 2004
in conformity with accounting principles generally accepted in the United States
of America.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in the Note K to the
accompanying financial statements, the Company is in the development stage and
has not established a source of revenues. This raises substantial doubt about
the company's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ RUSSELL BEDFORD Stefanou MIRCHANDANI LLP
--------------------------------------------
Russell Bedford Stefanou Mirchandani LLP
Certified Public Accountants
McLean, Virginia
January 11, 2005
F-1
APPLIED DNA SCIENCES , INC
(A development stage company)
CONSOLIDATED BALANCE SHEET
September 30, 2004
ASSETS
Current Assets:
Cash $ 1,832
------------
Total Current Assets 1,832
Property, Plant and Equipment (Note A) 29,507
Less: accumulated depreciation (1,405)
------------
Total Property, Plant and Equipment 28,102
Other Assets:
Deposits 23,559
Intangible assets (net of accumulated amortization of $1,756) (Note A) 28,154
------------
Total Other Assets 51,713
$ 81,647
============
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,770,379
Accrued expenses - related parties (Note D) 117,333
Convertible notes payables (Note F) 1,625,000
Due to related parties (Note D) 111,943
Note payable -related parties (Note C) 1,163,500
============
Total Current Liabilities 4,788,155
============
Commitments and contingencies (Note J)
DEFICIENCY IN STOCKHOLDERS' EQUITY: (Note E)
Convertible Preferred Stock, par value $0.001 per share; 10,000,000 shares
authorized; 60,000 shares issued and outstanding at September 30, 2004 6
Common Stock, par value $0.50 per share; 100,000,000 authorized;
23,981,054 shares issued and outstanding at September 30, 2004 11,990,527
Additional paid in capital 6,118,993
============
Common stock subscribed (1,000)
Deficit accumulated during development stage (22,815,034)
============
Total deficiency in stockholders' equity (4,706,508)
$ 81,647
------------
See accompanying notes to consolidated financial statements
F-2
APPLIED DNA SCIENCES , INC.
( A development stage company)
CONSOLIDATED STATEMENT OF LOSSES
For the Period
September 16, 2002
For the Year Ended For the YearEnded (Date Of Inception)
September 30, September 30, through September 30,
2004 2003 2004
--------------- -------------- ----------------------
Operating expenses:
General and administrative $ 17,580,098 $ 3,468,363 $ 21,060,073
--------------- -------------- ----------------------
Depreciation and Amortization 3,161 - 3,161
--------------- -------------- ----------------------
Total expenses 17,583,259 3,468,363 21,063,234
--------------- -------------- ----------------------
Loss from operations (17,583,259) (3,468,363) (21,063,234)
--------------- -------------- ----------------------
Other income(expense) 1,385 25,000 26,385
Interest (expense) (1,776,385) (1,801) (1,778,186)
Income (taxes) benefit - - -
--------------- -------------- ----------------------
Net loss $ (19,358,259) $ (3,445,164) $ (22,815,035)
=============== ============== ======================
Basic and diluted loss per common share (Note H) $ (0.93) $ (0.27) n/a
=============== ============== ======================
Weighted average common shares outstanding 20,819,700 12,955,358 n/a
--------------- -------------- ----------------------
See accompanying notes to consolidated financial statements
F-3
APPLIED DNA SCIENCES, INC
(A development stage company)
CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
SEPTEMBER 30, 2004
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
-------- -------- -------- --------- -------- ------------ ---------- ---------- -----------
Issuance of common stock
to Founders in exchange
for services on September
16, 2002 at $.01 per share - $ - 100,000 $ 10 $ 990 - $ - $ - $ 1,000
Net Loss - - - - - - - (11,612) (11,612)
-------- -------- -------- --------- -------- ------------ ---------- ---------- -----------
Balance at September 30,
2002 - - 100,000 10 990 - - (11,612) (10,612)
Issuance of common stock
in connection with merger
with Prohealth Medical
Technologies , Inc on
October 1, 2002 - - 10,178,352 1,018 - - - - 1,000
Cancellation of Common
stock in connection with
merger with Prohealth
Medical Technologies ,
Inc on October
21, 2002 - - (100,000) 10 (1,000) - - - (1,000)
Issuance of common stock
in exchange for services
in October 2002 at $ 0.65
per share - - 602,000 60 39,070 - - - 39,130
Issuance of common stock in
exchange for subscription
in November and December
2002 at $ 0.065 per share - - 876,000 88 56,852 - (56,940) - -
Cancellation of common
stock in January 2003
previously issued in
exchange for consulting
services - - (836,000) (84) (54,264) - 54,340 - -
Issuance of common stock
in exchange for licensing
services valued
at $ 0.065 per share in
January 2003 - - 1,500,000 150 97,350 - - - 97,500
Issuance of common stock
in exchange
for consulting services
valued at $ 0.13 per share
in January 2003 - - 586,250 58 76,155 - - - 76,213
Issuance of common stock
in exchange
for consulting services
at $ 0.065 per
share in February 2003 - - 9,000 1 584 - - - 585
Issuance of common stock
to Founders 1in exchange
for services valued at
$0.0001 per share in
March 2003 - - 10,140,000 1,014 - - - - 1,014
Issuance of common stock
in exchange for consulting
services valued at
$2.50 per share in March 2003 - - 91,060 9 230,625 - - - 230,634
See accompanying notes to consolidated financial statements
F-4
APPLIED DNA SCIENCES, INC
(A development stage company)
CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
SEPTEMBER 30, 2004
(Continued)
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- -------- ---------- ---------- ------- --------
Issuance of common stock in
exchange for consulting
services valued at $
0.065 per share in March 2003 - - 6,000 1 389 - - - 390
Common stock subscribed in
exchange for cash at $1 per
share in March 2003 - - - - 18,000 - - - 18,000
Common stock issued in
exchange for consulting
services at $ 0.065 per
share on April 1, 2003 - - 860,000 86 55,814 - - - 55,900
Common stock issued in
exchange for
cash at $ 1.00 per share
on April 9, 2003 - - 18,000 2 - - - - 2
Common stock issued in
exchange for
consulting services at $
0.065 per
share on April 9, 2003 - - 9,000 1 584 - - - 585
Common stock issued in
exchange for
consulting services at
$ 2.50 per
share on April 23, 2003 - - 5,000 1 12,499 - - - 12,500
Common stock issued in
exchange for
consulting services at
$ 2.50 per
share, on June 12, 2003 - - 10,000 1 24,999 - - - 25,000
Common stock issued in
exchange for
cash at $ 1.00 per share
on June 17, 2003 - - 50,000 5 49,995 - - - 50,000
Common stock subscribed
in exchange
for cash at $ 2.50 per
share pursuant
to private placement
on June 27, 2003 - - - - - - 24,000 - 24,000
Common stock retired in
exchange for note payable
at $0.0118 per share,
on June 30, 2003 - - (7,500,000) (750) 750 - - - -
Common stock issued in
exchange for
consulting services at
$0.065 per
share, on June 30, 2003 - - 270,000 27 17,523 - - - 17,550
Common stock subscribed
in exchange for cash at
$ 1.00 per share pursuant
to private placement on
June 30, 2003 - - - - - 10,000 - - 10,000
Common stock subscribed
in exchange for cash at
$ 2.50 per share pursuant
to private placement on
June 30, 2003 - - - - - 24,000 - - 24,000
Common stock issued in
exchange for consulting
services at approximately
$2.01 per share, July 2003 - - 213,060 21 428,797 - - - 428,818
See accompanying notes to consolidated financial statements
F-5
APPLIED DNA SCIENCES, INC
(A development stage company)
CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
SEPTEMBER 30, 2004
(Continued)
Deficit
Additional Accumulated
Preferred Common Paid in Common Stock During
Preferred Shares Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- -------- ---------- ---------- ------- --------
Common stock canceled
in July 2003,
previously issued for
services rendered at
$2.50 per share - - (24,000) (2) (59,998) - - - (60,000)
Common stock issued
in exchange for
options exercised at
$1.00 in July 2003 - - 20,000 2 19,998 - - - 20,000
Common stock issued
in exchange for
exercised of options
previously
subscribed at $1.00 in
July 2003 - - 10,000 1 9,999 (10,000) - - -
Common stock issued in
exchange for
consulting services at
approximately
$2.38 per share,
August 2003 - - 172,500 17 410,913 - - - 410,931
Common stock issued in
exchange for
options exercised at
$1.00 in August 2003 - - 29,000 3 28,997 - - - 29,000
Common stock issued
in exchange for
consulting services
at approximately
$2.42 per share,
September 2003 - - 395,260 40 952,957 - - - 952,997
Common stock issued
in exchange for
cash at $2.50 per
share-subscription
payable-September 2003 - - 19,200 2 47,998 (48,000) - - -
Common stock issued in
exchange for
cash at $2.50 per
share pursuant to
private placement
September 2003 - - 6,400 1 15,999 - - - 16,000
Common stock issued in
exchange for
options exercised at
$1.00 in September 2003 - - 95,000 10 94,991 - - - 95,000
Common stock subscription
receivable reclassification
adjustment
Common Stock subscribed to
at $2.50 per share in
September 2003 - - - - 2,600 - 2,600
Net Loss for the year
ended September 30, 200 - - - 300,000 - - 300,000
Balance at September 30,
2003 - - - - - - - (3,445,164) (3,445,164)
-------- -------- ----------- -------- ----------- --------- --------- ------------- -----------
- $ - 17,811,082 $ 1,781 $2,577,568 $300,000 $ - $(3,456,776) $(577,427)
======== ======== =========== ======== =========== ========= ========= ============= ============
See accompanying notes to consolidated financial statements
F-6
APPLIED DNA SCIENCES, INC
(A development stage company)
CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
SEPTEMBER 30, 2004
(Continued)
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- ------ ---------- ---------- ------- --------
Preferred shares issues
in exchange for services
at $25.00 per share,
October 2003 1500 15 15
Common stock issued in
exchange for consulting
services at
approximately $2.85 per
share, October 2003 287,439 29 820,389 - - - 820,418
Common stock issued in
exchange for cash at
$2.50 per
share-subscription
payable-October 2003 120,000 12 299,988 (300,000) - - -
Common stock canceled
in October 2003,
previously issued for
services rendered at
$2.50 per share (100,000) (10) (249,990) - - - (250,000)
Common stock issued in
exchange for consulting
services at approximately
$3 per share,
November 2003 100,000 10 299,990 - - - 300,000
Common stock subscribed
in exchange for cash at
$2.50 per share pursuant
to private placement,
November, 2003 100,000 10 249,990 - - - 250,000
Common stock subscribed
in exchange for cash at
$2.50 per share pursuant
to private placement,
December, 2003 6,400 1 15,999 - - - 16,000
Common stock issued in
exchange for consulting
services at approximately
$2.59 per share,
December 2003 2,125,500 213 5,504,737 - - - 5,504,950
Common Stock subscribed to
at $2.50 per share in
December 2003 - - - 104,000 - - 104,000
Beneficial conversion
feature relating
to notes payable - - 1,168,474 - - - 1,168,474
Beneficial conversion
feature relating
to warrants - - 206,526 - - - 206,526
Adjust common stock par
value from $0.0001 to
$0.50 per share, per
amendment of articles
dated Dec 2003 - 10,223,166 (10,223,166) - - - -
Common Stock issued
pursuant to subscription
at $2.50 share in Jan 2004 41,600 20,800 83,200 (104,000) - - -
Common stock issued in
exchange for consulting
services at $2.95 per
share, Jan 2004 13,040 6,520 31,948 - - - 38,468
Common stock issued in
exchange for consulting
services at $2.60 per
share, Jan 2004 123,000 61,500 258,300 - - - 319,800
Common stock issued in
exchange for consulting
services at $3.05 per
share, Jan 2004 1,000 500 2,550 - - - 3,050
See accompanying notes to consolidated financial statements
F-7
APPLIED DNA SCIENCES, INC
(A development stage company)
CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
SEPTEMBER 30, 2004
(Continued)
Deficit
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- ------ ---------- ---------- ------- --------
Common stock issued in
exchange for employee
services at $3.07 per
share, Feb 2004 6,283 3,142 16,147 - - - 19,288
Common stock issued in
exchange for consulting
services at $3.04 per
share, Mar 2004 44,740 22,370 113,640 - - - 136,010
Common Stock issued for
options exercised at
$1.00 per share in Mar
2004 55,000 27,500 27,500 - - - 55,000
Common stock issued in
exchange for employee
services at $3.00 per
share, Mar 2004 5,443 2,722 13,623 - - - 16,344
See accompanying notes to consolidated financial statements
F-8
APPLIED DNA SCIENCES, INC
(A development stage company)
CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
SEPTEMBER 30, 2004
(Continued)
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- ------ ---------- ---------- ------- --------
Common stock issued in
exchange for employee
services at $3.15 per
share, Mar 2004 5,769 2,885 15,293 - - - 18,177
Preferred shared
converted to common
shares for consulting
services at $3.00per
share, Mar 2004 5000 5 125,000 62,500 312,500 - - - 374,995
Common stock issued in
exchange for employee
services at $3.03 per
share, Mar 2004 8,806 4,403 22,236 - - - 26,639
Common Stock issued
pursuant to
subscription at $2.50
per share in Mar. 2004 22,500 11,250 (9,000) - - - 2,250
Beneficial Conversion
Feature relating
to Notes Payable - - 122,362 - - - 122,362
Beneficial Conversion
Feature relating
to Warrants - - 177,638 - - - 177,638
Common stock issued in
exchange for consulting
services at $2.58 per
share, Apr 2004 9,860 4,930 20,511 - - - 25,441
Common stock issued in
exchange for consulting
services at $2.35 per
share, Apr 2004 11,712 5,856 21,667 - - - 27,523
Common stock issued in
exchange for consulting
services at $1.50 per
share, Apr 2004 367,500 183,750 367,500 - - - 551,250
Common stock returned
to treasury at
$0.065 per share,
Apr 2004 (50,000) (25,000) 21,750 - - - (3,250)
Preferred stock
converted to common
stock for consulting
services at $1.01
per share in May 2004 4000 4 100,000 50,000 51,250 - - - 101,246
Common stock issued per
subscription May 2004 10,000 5,000 (4,000) - (1,000) - -
Common stock issued in
exchange for consulting
services at $0.86 per
share in May 2004 137,000 68,500 50,913 - - - 119,413
Common stock issued in
exchange for consulting
services at $1.15 per
share in May 2004 26,380 13,190 17,147 - - - 30,337
Common stock returned to
treasury at $0.065 per
share, Jun 2004 (5,000) (2,500) 2,175 - - - (325)
See accompanying notes to consolidated financial statements
F-9
APPLIED DNA SCIENCES, INC
(A development stage company)
CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
SEPTEMBER 30, 2004
(Continued)
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- ------ ---------- ---------- ------- --------
Common stock issued in
exchange for consulting
services at $0.67 per
share in June 2004 270,500 135,250 45,310 - - - 180,560
Common stock issued in
exchange for consulting
services at $0.89 per
share in June 2004 8,000 4,000 3,120 - - - 7,120
Common stock issued in
exchange for consulting
services at $0.65 per
share in June 2004 50,000 25,000 7,250 - - - 32,250
Common stock issued
pursuant to private
placement at $1.00
per share in June 2004 250,000 125,000 125,000 - - - 250,000
Common stock issued in
exchange for consulting
services at $0.54 per
share in July 2004 100,000 50,000 4,000 - - - 54,000
Common stock issued in
exchange for consulting
services at $0.72 per
share in July 2004 5,000 2,500 1,100 - - - 3,600
Common stock issued in
exchange for consulting
services at $0.47 per
share in July 2004 100,000 50,000 (2,749) - - - 47,251
Common stock issued in
exchange for consulting
services at $0.39 per
share in August 2004 100,000 50,000 (11,000) - - - 39,500
Preferred stock converted
to common stock for
consulting services at
$0.39 per share in
August 2004 (2000) (2) 50,000 25,000 (5,500) - - - 19,498
See accompanying notes to consolidated financial statements
F-10
APPLIED DNA SCIENCES, INC
(A development stage company)
CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
SEPTEMBER 30, 2004
(Continued)
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- ------ ---------- ---------- ------- --------
Common stock issued in
exchange for consulting
services at $0.50 per
share in August 2004 100,000 50,000 250 50,250
Common stock issued in
exchange for consulting
services at $0.56 per
share in August 2004 200,000 100,000 12,500 - - - 112,500
Common stock issued in
exchange for consulting
services at $0.41 per
share in August 2004 92,500 46,250 (8,787) - - - 37,463
Common stock issued in
exchange for consulting
services at $0.52 per
share in September 2004 1,000,000 500,000 17,500 - - - 517,500
Common stock issued in
exchange for consulting
services at $0.46 per
share in September 2004 5,000 2,500 (212) - - - 2,288
Common stock issued
pursuant to subscription
at $0.50 per share in
September 2004 40,000 20,000 - - - - 20,000
Preferred shares
converted to common
stock for consulting
services at $0.41
per share in September
2004 (4000) (4) 100,000 50,000 4,000 - - - 53,996
Preferred shares issued
in exchange for service
at $25 per share in
September 2004 60,000 6 1,499,994 1,500,000
Warrants issued to
consultants in the
fourth quarter 2004 2,019,862 2,019,862
Net Loss - - - - - (19,358,259) (19,358,259)
Balance at
September 30, 2004 60,000 $6 23,981,054 11,990,527 6,118,993 - (1,000) (22,815,034) (4,706,508)
====== == ========== ========== ========= ======== ======= ============ ===========
F-11
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period
September 16, 2002
For the Year Ended For the Year Ended (Date of Inception)
September 30, September 30, through September
2004 2003 30, 2004
------------- ------------- -------------
Cash Flows from operating activities:
Net loss from operating activities $ (19,358,259) $(3,445,164) $(22,815,034)
Adjustments to reconcile net loss to net
cash (used in) operating
activities:
Depreciation and amortization 3,161 - 3,161
Organizational expenses - 88,500 88,500
Preferred shares issued in exchange for
service at $25 per share in September 2004 1,500,000 - 1,500,000
Warrants issued to consultants in the
fourth quarter 2004 2,019,862 - 2,019,862
Amortization of beneficial conversion
feature 1,625,000 - 1,625,000
Common stock issued in exchange for
consultant services rendered 10,105,382 2,292,350 12,397,732
Common stock canceled-previously issued for
services rendered (285,575) - (285,575)
Changes in assets and liabilities:
Prepaid Expenses and Deposits - - -
Increase in-Other Assets - (13,890) (13,890)
Increase (decrease) in: -
Increase in due related parties 20,000 132,696 152,696
Accounts payable and accrued liabilities 1,301,560 454,000 1,755,560
Net cash (used in) operating activities (3,068,719) (491,509) (3,571,838)
Cash flows from investing activities:
Payments for Patent Filing (21,351) - (21,351)
Payments for security deposits (23,559) - (23,559)
Capital expenditures (29,507) - (29,507)
Net cash (used in) investing activities (74,417) - (74,417)
Cash flows from financing activities:
Proceeds from sale of common stock, net of
cost - 432,000 432,000
Proceeds from subscription of common stock 124,000 - 125,000
Proceeds from sale of options 87,000 154,000 241,000
Net advances from shareholders (9,504) 98,980 100,088
Proceeds from loans 2,750,000 - 2,750,000
------------- ------------- -------------
Net cash provided by financing activities 2,951,496 684,980 3,648,088
Increase (decrease) in cash and cash
equivalents (191,640) 193,471 1,832
Cash and cash equivalents, beginning of year 193,471 - -
Cash and cash equivalents, end of year
$ 1,832 $ 193,471 $ 1,832
============== ============ =============
Supplemental Information:
Cash paid during the period for interest $ - $ - $ -
Cash paid during the year for taxes - - -
Non cash disclosures:
Common stock issued for services
$ 10,105,382 $ 2,292,350 $ 12,398,732
Amortization of beneficial conversion
feature $ 1,625,000 $ - $ 1,625,000
Common stock canceled-previously issued for
services rendered $ (285,575) $ - $ (285,575)
Preferred shares issued in exchange for
service at $25 per share in September 2004 1,500,000 - 1,500,000
-------------- ------------- -------------
Warrants issued to consultants in the
fourth quarter 2004 2,019,862 - 2,019,862
-------------- ------------- -------------
Acquisition:
Common stock retained $ - $ 1,015 $ 1,015
Assets acquired $ - $ (135) $ (135)
-------------- ------------- -------------
Total consideration paid $ - $ 880 $ 880
-------------- ------------- -------------
Organization expenses- note issued in
exchange of shares retired $ - $ 88,500 $ 88,500
See accompanying notes to consolidated financial statements
F-12
APPLIED DNA SCIENCES, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.
Business and Basis of Presentation
On September 16, 2002, Applied DNA Sciences, Inc. (the "Company") was
incorporated under the laws of the State of Nevada. The Company is in the
development stage , as defined by Statement of Financial Accounting Standards
No. 7 ("SFAS No. 7") and its efforts have been principally devoted to developing
DNA embedded biotechnology security solutions in the United States. To date, the
Company has generated nominal sales revenues, has incurred expenses and has
sustained losses. Consequently, its operations are subject to all the risks
inherent in the establishment of a new business enterprise. For the period from
inception through September 30, 2004, the Company has accumulated losses of
$22,815,034.
Estimates
The preparation of the financial statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
requires that four basic criteria must be met before revenue can be recognized
:(1) persuasive evidence of an arrangement exists; (2) delivery has occurred;
(3) the selling price is fixed and determinable; and (4) collectibility is
reasonably assured. Determination of criteria (3) and (4) are based on
management's judgments regarding the fixed nature of the selling prices of the
products delivered and the collectibility of those amounts. Provisions for
discounts and rebates to customers, estimated returns and allowances, and other
adjustments are provided for in the same period the related sales are recorded.
On December 17, 2003, the SEC staff released Staff Accounting Bulletin (SAB) No.
104, Revenue Recognition. The staff updated and revised the existing revenue
recognition in Topic 13, Revenue Recognition, to make its interpretive guidance
consistent with current accounting guidance, principally EITF Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables." Also, SAB 104 incorporates
portions of the Revenue Recognition in Financial Statements - Frequently Asked
Questions and Answers document that the SEC staff considered relevant and
rescinds the remainder. The company's revenue recognition policies are
consistent with this guidance; therefore, this guidance will not have an
immediate impact on the company's consolidated financial statements.
Cash Equivalents
For the purpose of the accompanying financial statements, all highly liquid
investments with a maturity of three months or less are considered to be cash
equivalents.
Income Taxes
The Company has adopted Financial Accounting Standard No. 109 (SFAS 109) which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statement or tax returns. Under this method, deferred tax liabilities and assets
are determined based on the difference between financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Temporary differences between
taxable income reported for financial reporting purposes and income tax purposes
are insignificant.
F-13
APPLIED DNA SCIENCES , Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
Property and Equipment
Property and equipment are stated at cost and depreciated over their estimated
useful lives of 3 to 5 years using the straight line method. At September 30,
2004 property and equipment consist of:
September 30, 2004
------------------
Furniture $ 29,507
Accumulated depreciation 1,405
==================
Net $ 28,102
Impairment of Long-Lived Assets
The Company has adopted Statement of Financial Accounting Standards No. 144
(SFAS 144). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undercounted cash flows. Should an impairment in value be indicated,
the carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to sell.
Comprehensive Income
The Company does not have any items of comprehensive income in any of the
periods presented.
Segment Information
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS 131 also establishes standards for related disclosures about
products and services and geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete financial information
is available for evaluation by the chief operating decision maker, or decision
making group, in making decisions how to allocate resources and assess
performance. The information disclosed herein, materially represents all of the
financial information related to the Company's principal operating segment.
Net Loss Per Share
The Company has adopted Statement of Financial Accounting Standard No. 128,
"Earnings Per Share," specifying the computation, presentation and disclosure
requirements of earnings per share information. Basic earnings per share has
been calculated based upon the weighted average number of common shares
outstanding. Stock options and warrants have been excluded as common stock
equivalents in the diluted earnings per share because they are either
antidilutive, or their effect is not material.
F-14
APPLIED DNA SCIENCES , Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
Stock Based Compensation
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise price of the
related option. The Company has adopted the annual disclosure provisions of SFAS
No. 148 in its financial reports for the year ended September 30, 2004 and for
the subsequent periods.
Had compensation costs for the Company's stock options been determined based on
the fair value at the grant dates for the awards, the Company's net loss and
losses per share would have been as follows (transactions involving stock
options issued to employees and Black-Scholes model assumptions are presented in
Note E):
For the Year Ended For the Year Ended
September 30,2004 September 30, 2003
------------------ -------------------
Net loss - as reported $ (19,358,259) $ (3,445,164)
Add: Total stock based employee compensation - -
expense as reported under intrinsic value method
(APB. No. 25)
Deduct: Total stock based employee compensation
expense as reported under fair value based method
(SFAS No. 123) - -
------------------ -------------------
Net loss - Pro Forma $ (19,358,259) $ (3,445,164)
Net loss attributable to common stockholders -
Pro forma $ (19,358,259) $ (3,445,164)
Basic (and assuming dilution) loss per share - as
reported $ (0.93) $ (0.27)
Basic (and assuming dilution) loss per share -
Pro forma $ (0.93) $ (0.27)
F-15
APPLIED DNA SCIENCES , Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
Liquidity
As shown in the accompanying financial statements, the Company incurred a net
loss of $22,815,034. during the period September 16, 2002 (date of inception)
through September 30, 2004. The Company's current liabilities assets exceeded
its current assets by $4,786,323 as of September 30, 2004.
Concentrations of Credit Risk
Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash, cash equivalents
and trade receivables. The Company places its cash and temporary cash
investments with high credit quality institutions. At times, such investments
may be in excess of the FDIC insurance limit.
Research and Development
The Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs.
Under SFAS 2, all research and development costs must be charged to expense as
incurred. Accordingly, internal research and development costs are expensed as
incurred. Third-party research and developments costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Company-sponsored research and development costs related to both present and
future products are expensed in the period incurred. The Company did not incur
any research and development expenses from September 16, 2002 (date of
inception) through September 30, 2004.
Advertising
The Company will follow a policy of charging the costs of advertising to
expenses incurred. The Company incurred advertising costs of $125,758 and $0,
respectively during the years ended September 30, 2004 and 2003, respectively.
Reclassifications
Certain reclassifications have been made in prior year's financial statements to
conform to classifications used in the current year.
F-16
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
Intangible Assets
Intangible assets are amortized using the straight-line method over their
estimated period of benefit, ranging from one to ten years. We periodically
evaluate the recoverability of intangible assets and take into account events or
circumstances that warrant revised estimates of useful lives or that indicate
that an impairment exists. All of our intangible assets are subject to
amortization.
At September 30, 2004, intangible assets consist of:
September 30,
2004
Intangible assets $ 29,910
Accumulated amortization (1,756)
-----------
Net Intangible Assets $ 28,154
===========
F-17
APPLIED DNA SCIENCES , Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
New Accounting Pronouncements
In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, Amendment of Statement No. 133 on Derivative Instruments and
Hedging Activities. SFAS 149 amends SFAS No. 133 to provide clarification on the
financial accounting and reporting of derivative instruments and hedging
activities and requires that contracts with similar characteristics be accounted
for on a comparable basis. The provisions of SFAS 149 are effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 did not
have a material impact on the Company's results of operations or financial
position.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. SFAS 150
establishes standards on the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The provisions
of SFAS 150 are effective for financial instruments entered into or modified
after May 31, 2003 and to all other instruments that exist as of the beginning
of the first interim financial reporting period beginning after June 15, 2003.
The adoption of SFAS 150 did not have a material impact on the Company's results
of operations or financial position.
In December 2003, the FASB issued a revision of SFAS No. 132, "Employers'
Disclosures About Pensions And Other Postretirement Benefits." This
pronouncement, SFAS No. 132-R, expands employers' disclosures about pension
plans and other post-retirement benefits, but does not change the measurement or
recognition of such plans required by SFAS No. 87, No. 88, and No. 106. SFAS No.
132-R retains the existing disclosure requirements of SFAS No. 132, and requires
certain additional disclosures about defined benefit post-retirement plans.
Except as described in the following sentence, SFAS No. 132-R is effective for
foreign plans for fiscal years ending after June 15, 2004; after the effective
date, restatement for some of the new disclosures is required for earlier annual
periods. Some of the interim-period disclosures mandated by SFAS No. 132-R (such
as the components of net periodic benefit cost, and certain key assumptions) are
effective for foreign plans for quarters beginning after December 15, 2003;
other interim-period disclosures will not be required for the Company until the
first quarter of 2005. Since the Company does not have any defined benefit
post-retirement plans, the adoption of this pronouncement did not have any
impact on the Company's results of operations or financial condition.
In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
151, Inventory Costs-- an amendment of ARB No. 43, Chapter 4. This Statement
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that ". . . under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs may
be so abnormal as to require treatment as current period charges. . . ." This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition,
this Statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This Statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Management does not believe the
adoption of this Statement will have any immediate material impact on the
Company.
In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS
152) The amendments made by Statement 152 This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. with earlier application encouraged.
The Company does not anticipate that the implementation of this standard will
have a material impact on its financial position, results of operations or cash
flows.
F-18
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of SFAS
123R are effective as of the first interim period that begins after June 15,
2005. Accordingly, the Company will implement the revised standard in the third
quarter of fiscal year 2005. Currently, the Company accounts for its share-based
payment transactions under the provisions of APB 25, which does not necessarily
require the recognition of compensation cost in the financial statements.
Management is assessing the implications of this revised standard, which may
materially impact the Company's results of operations in the third quarter of
fiscal year 2005 and thereafter.
On December 16, 2004, FASB issued Statement of Financial Accounting
Standards No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions (" SFAS 153"). This statement
amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. Under SFAS 153, if
a nonmonetary exchange of similar productive assets meets a commercial-substance
criterion and fair value is determinable, the transaction must be accounted for
at fair value resulting in recognition of any gain or loss. SFAS 153 is
effective for nonmonetary transactions in fiscal periods that begin after June
15, 2005. The Company does not anticipate that the implementation of this
standard will have a material impact on its financial position, results of
operations or cash flows.
NOTE B - MERGER
Acquisition
On October 21, 2002, the Company completed a Plan and Agreement of
Reorganization ("Merger") with ProHealth Medical Technologies, Inc.
("ProHealth") an inactive publicly registered shell corporation with no
significant assets or operations. For accounting purposes, the Company shall be
the surviving entity. The transaction is accounted for using the purchase method
of accounting. The total purchase price and carrying value of net assets
acquired of was $ 880. From November 1988 until the date of the merger,
ProHealth was an inactive entity with no significant assets and liabilities
Effective with the Merger , all previously outstanding common stock, preferred
stock, options and warrants owned by the Company's shareholders were exchanged
for an aggregate of 10,178,352 shares of ProHealth common stock. The value of
the stock that was issued was the historical cost of the ProHealth's net
tangible assets, which did not differ materially from their fair value. In
accordance with SFAS No. 141, the Company is the acquiring entity.
Effective with the Merger, ProHealth changed its name to Applied DNA Sciences,
Inc.
F-19
APPLIED DNA SCIENCES , Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE B - MERGER (continued)
The total purchase price and carrying value of net assets acquired of ProHealth
was $1. The net assets acquired were as follows:
Common stock retained by ProHealth shareholders $ 1,015
Assets acquired (135)
----------
Total consideration paid $ 880
==========
In accordance with SOP 98-5, the Company expensed $880 as organization costs.
In connection with the Company's acquisition of ProHealth, the controlling owner
of ProHealth granted the Company an option to acquire up to 8,500,000 shares of
the Company's common stock in exchange for $100,000 (see Note E). The option
expires on December 10, 2004. On June 30, 2003, the Company exercised its option
and acquired 7,500,000 common shares under this agreement in exchange for an
$88,500 convertible promissory note payable to the former controlling owner.
The Company accounted for the acquisition of the shares as an organization cost
and charged $88,500 to operations and retired the 7,500,000 shares acquired
common stock.
NOTE C - RELATED PARTY TRANSACTIONS
At September 30, 2004, notes payable are as follows:
September
30, 2004
----------
Note payable , related party, together with interest at 8% per annum,
unsecured. Should the Company default under the terms of the Note, Noteholder
has the option to convert the unpaid principal at maturity to 7,500,000
shares of the Company's common stock and receive additional common shares in
exchange for accrued and unpaid interest at a conversion rate equal to the
then fair market value of the Company's common stock. (refer to note J) $88,500
----------
Note payable, unsecured, related party, payable from August 1, 2005, right to
convert to restricted stock in lieu of cash, rate of interest 4%, 160,000
shares prior to October 31, 2005 or 180,000 shares after that date. 425,000
----------
Due to ex-president, in September 2004, note holder entered into a private
transaction, selling a total of 2,500,000 shares to him, after which he
loaned all proceeds of $600,000 to us. 600,000
----------
Note payable, ex-officer of the Company, due $70,000 upon first funding, 20%
rate of interest, or 100,000 shares at par value of $0.001 50,000
----------
1,163,500
----------
Less: current portion 1,163,500
----------
Note payable - long-term $ -
----------
F-20
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE C - RELATED PARTY TRANSACTIONS (continued)
Included in current liabilities is $111,943 at September 30, 2004 which
represents advances from the stockholders of the Company. No formal agreements
or repayment terms exist.
Also, the Company owed $117,333 at September 30, 2004 to the stockholders and
other related parties towards accrued expenses.
The Company leases office space under a sub lease agreement with an entity
controlled by a former significant former shareholder of the Company (see Note
H).
The Company has entered into long term employment and consulting agreements with
Company's ex- President and Chief Executive Officer and an entity controlled by
a significant Company shareholder, respectively (see Note H).
NOTE D - CAPITAL STOCK
The Company is authorized to issue 10,000,000 shares of convertible preferred
stock, with $0.001 par value per share. The Company is authorized to issue
100,000,000 shares of common stock, with $0.50 par value per share. In January
2004, the Company passed a resolution authorizing change in the par value per
common shares from $0.0001 per share to $0.50 per share. As of September 30,
2004, the Company has issued and outstanding 23,981,054 common share with par
value of $0.50 per share and 60,000 convertible preferred shares with par value
of $0.0001.
During the period September 16, 2002 through September 30, 2003, the Company
issued 100,000 shares of common stock in exchange for reimbursement of services
provided by the founders of the Company. The Company valued the shares issued at
approximately $1,000, which represents the fair value of the services received
which did not differ materially from the value of the stock issued.
In October, 2002, the Company issued 10,178,352 shares of common stock in
exchange for the previously issued 100,000 shares to the Company's founders in
connection with the merger with Prohealth Medical Technologies, Inc (see Note
B).
In October, 2002 the Company canceled 100,000 shares of common stock issued to
the Company's founders.
In October 2002 the Company issued 602,000 shares of common stock in exchange
for services valued at $ 0.065 per share. In accordance with EITF 96-18 the
measurement date to determine fair value was in October 2002. This was the date
at which a commitment for performance by the counter party to earn the equity
instrument was reached. The Company valued the shares issued at approximately
$0.065 per share, which presents the fair value of the services received which
did not differ materially from the value of the stock issued.
F-21
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE D- CAPITAL STOCK (continued)
In November and December 2002, the Company issued 876,000 shares of common stock
in exchange for subscription at $ 0.065 per share. In accordance with EITF 96-18
the measurement date to determine fair value was in October 2002. This was the
date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued at
approximately $0.065 per share, which presents the fair value of the services
received which did not differ materially from the value of the stock issued.
In January 2003, the Company canceled 836,000 shares of common stock previously
issued in exchange for consulting services.
In January 2003, the Company issued 1,500,000 shares of common stock in exchange
for a licensing agreement (see Note H). The Company valued the shares issued at
approximately $ .065 per share, which represents the fair value of the license
received which did not differ materially from the value of the stock issued. The
Company charged the cost of the license to operations.
In January 2003, the Company issued 586,250 shares of common stock in exchange
for consulting services. In accordance with EITF 96-18 the measurement date to
determine fair value was in October 2002. This was the date at which a
commitment for performance by the counter party to earn the equity instrument
was reached. The Company valued the shares issued at approximately $0.13 per
share, which presents the fair value of the services received which did not
differ materially from the value of the stock issued.
In February 2003, the Company issued 9,000 shares of common stock in exchange
for consulting services. In accordance with EITF 96-18 the measurement date to
determine fair value was in October 2002. This was the date at which a
commitment for performance by the counter party to earn the equity instrument
was reached. The Company valued the shares issued at approximately $0.065 per
share, which presents the fair value of the services received which did not
differ materially from the value of the stock issued.
In March 2003, the Company issued 10,140,000 shares of common stock to Company's
founders in exchange for services. In accordance with EITF 96-18 the measurement
date to determine fair value was in September 2002. This was the date at which a
commitment for performance by the counter party to earn the equity instrument
was reached. The Company valued the shares issued at approximately $0.0001 per
share, which presents the fair value of the services received which did not
differ materially from the value of the stock issued.
In March 2003, the Company issued 91,060 shares of common stock in exchange for
consulting services. The Company valued the shares issued at approximately $2.53
per share, which represents the fair value of the services received which did
not differ materially from the value of the stock issued.
F-22
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE D- CAPITAL STOCK (continued)
In March 2003, the Company issued 6,000 shares of common stock in exchange for
consulting services. The Company valued the shares issued at approximately $
0.065 per share, which represents the fair value of the services received which
did not differ materially from the value of the stock issued.
In March 2003, the Company received subscription for 18,000 shares of common
stock in exchange for cash at $1 per share.
On April 1, 2003, the Company issued 860,000 shares of common stock in exchange
for consulting services provided to the Company. In accordance with EITF 96-18
the measurement date to determine fair value was in October 2002. This was the
date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued at
approximately $0.065 per share, which presents the fair value of the services
received which did not differ materially from the value of the stock issued.
On April 9, 2003, the Company issued 18,000 shares of common stock in exchange
for previously issued options to purchase the Company's common stock at $1.00
per share.
On April 9, 2003, the Company issued 9,000 shares of common stock in exchange
for consulting services provided to the Company. In accordance with EITF 96-18
the measurement date to determine fair value was in October 2002. This was the
date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued at
approximately $0.065 per share, which presents the fair value of the services
received which did not differ materially from the value of the stock issued.
On April 23, 2003, the Company issued 5,000 shares of common stock in exchange
for consulting services provided to the Company. The Company valued the shares
issued at approximately $2.50 per share, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
On June 12, 2003, the Company issued 10,000 shares common stock in exchange for
consulting services provided to the Company. The Company valued the shares
issued at approximately $ 2.50 per share, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
On June 17 2003, the Company issued 50,000 shares of common stock in exchange
for cash at $1.00 per share
On June 30, 2003, the Company issued 270,000 shares of common stock in exchange
for consulting services provided to the Company. In accordance with EITF 96-18
the measurement date to determine fair value was in October 2002. This was the
date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued at
approximately $0.065 per share, which presents the fair value of the services
received which did not differ materially from the value of the stock issued.
F-23
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE D- CAPITAL STOCK (continued)
On June 30, 2003, the Company received $10,000 as subscription for options to
purchase the Company's common stock at $1.00 per share.
In June, 2003, the Company received $48,000 in connection with a subscription to
purchase the Company's common stock pursuant to a private placement.
In connection with the Company's acquisition of ProHealth, the controlling owner
of ProHealth granted the Company an option to acquire up to 8,500,000 shares of
the Company's common stock in exchange for $100,000 (see Note B). The option
expires on December 10, 2004. On June 30, 2003, the Company exercised its option
and acquired 7,500,000 common shares under this agreement in exchange for an
$88,500 convertible promissory note payable to the former controlling owner. The
Company has an option through December 10, 2004 to acquire the remaining
1,000,000 shares from the former controlling owner in exchange for $11,500. On
June 30, 2003, the Company retired the 7,500,000 shares common acquired pursuant
to the option agreement.
In July 2003 the Company issued 213,060 shares of common stock for consulting
services provided to the Company. The Company valued the shares issued at
approximately $ 2.01 per share, which represents the fair value of the services
received which did not differ materially from the value of the stock issued.
In July 2003, the Company canceled 24,000 shares of common stock, previously
issued for services valued at $2.50 per share.
In July 2003, the Company received $20,000 in exchange for previously issued
options to purchase the Company's common stock at $1.00 per share.
In July 2003, the Company issued 10,000 shares of common stock for cash
previously subscribed at $1.00 per share.
In August 2003, the Company issued 172,500 shares of common stock in exchange
for consulting services provided to the Company. The Company valued the shares
issued at approximately $ 2.38 per share, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued
In August 2003, the Company received $29,000 in exchange for previously issued
options to purchase the Company's common stock at $1.00 per share.
In September 2003, the Company issued 395,260 shares of common stock in exchange
for consulting services provided to the Company. The Company valued the shares
issued at approximately $ 2.42 per share, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
F-24
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE D- CAPITAL STOCK (continued)
In September 2003, the Company issued 19,200 shares of common stock for cash
previously subscribed at $2.50 per share.
In September 2003, the Company issued 6,400 shares of common stock issued in
exchange for cash at $2.50 per share pursuant to private placement.
In September 2003, the Company received $95,000 in exchange for previously
issued options to purchase the Company's common stock at $1.00 per share.
In September 2003, the Company received $300,000 in connection with a
subscription to purchase the Company's common stock pursuant to a private
placement.
The Company valued the shares issued for consulting services at the rate which
represents the fair value of the services received which did not differ
materially from the value of the stock issued.
In October 2003, the Company issued 15,000 shares of convertible preferred stock
in exchange for services. The Company valued the shares issued at the $15 par
value and recorded the value for services when the shares were converted into
common shares as identified below.
In October 2003, the Company issued 287,439 shares of common stock in exchange
for consulting services. The Company valued the shares issued at approximately
$2.85 per share for a total of $820,418, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
In October 2003, the Company issued 120,000 shares of common stock for shares
previously subscribed at $2.50 per share in September 2003.
In October 2003, the Company canceled 100,000 shares of common stock previously
issued in exchange for services at $2.50 per share.
In November 2003, the Company issued 100,000 shares of common stock in exchange
for consulting services. The Company valued the shares issued at approximately
$3.00 per share, which represents the fair value of the services received which
did not differ materially from the value of the stock issued.
In November 2003, the Company sold 100,000 shares of common stock subscribed for
cash at $2.50 per share pursuant to private placement.
In December 2003, the Company sold 6,400 shares of common stock subscribed for
cash at $2.50 per share pursuant to private placement.
In December 2003, the Company issued 2,125,500 shares of common stock in
exchange for consulting services. . The Company valued the shares issued at
approximately $2.59 per share, which represents the fair value of the services
received which did not differ materially from the value of the stock issued.
In December 2003, the Company received $104,000 in exchange for a common stock
subscription at $2.50 per share pursuant to private placement.
In January 2004, the Company issued 41,600 shares of common stock at $2.50 share
pursuant to a subscription made on December 2003.
In January 2004, the Company issued 13,040 shares of common stock at $2.95 per
share in exchange for consulting services valued at $38,468.
In January 2004, the Company issued 123,000 shares of common stock at $2.60 per
share in exchange for consulting services valued at $319,800.
In January 2004, the Company issued 1,000 shares of common stock at $3.05 per
share in exchange for consulting services valued at $3,050.
In February 2004, the Company issued 6,283 shares of common stock at $3.07 per
share in exchange for employee services valued at $19,288.
In March 2004, the Company issued 44,740 shares of common stock at $3.04 per
share in exchange for consulting services valued at $136,010.
In March 2004, the Company issued 55,000 of common stock for options exercised
at $1.00 per share.
F-25
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE D- CAPITAL STOCK (continued)
In March 2004, the Company issued 5,443 shares of common stock at $3.00 per
share in exchange for employee services valued at $16,344.
In March 2004, the Company issued 5,769 shares of common stock at $3.15 per
share in exchange for employee services valued at $18,177.
In March 2004, the Company converted 5,000 preferred shares into 125,000 shares
of common stock at $3.00 per share in exchange for employee services valued at
$375,000.
In March 2004, the Company issued 8,806 shares of common stock at $3.03 per
share in exchange for employee services valued at $26,639.
In April 2004, the Company issued 22,500 shares of common stock at $0.10 for
subscription of warrants to be exercised.
In April 2004, the Company issued 9,860 shares of common stock at $2.58 per
share in exchange for employee services valued at $25,441.
In April 2004, the Company issued 11,712 shares of common stock at $2.35 per
share in exchange for consulting services valued at $27,523.
In April 2004, the Company issued 367,500 shares of common stock at $1.50 per
share in exchange for consulting services valued at $551,250.
In April 2004, the Company retired 50,000 shares of common stock previously
issued for consulting services at $0.065 per share or $3,250.
In May 2004, the Company converted 4,000 preferred shares into 100,000 shares of
common stock at $1.01 per share in exchange for consulting services valued at
$101,250.
In May 2004, the Company issued 10,000 shares of common stock at $0.10 per share
in a stock subscription for $1,000.
In May 2004, the Company issued 137,000 shares of common stock at $0.86 per
share in exchange for consulting services valued at $119,233.
In May 2004, the Company issued 26,380 shares of common stock at $1.15 per share
in exchange for consulting services valued at $30,337.
In June 2004, the Company retired 5,000 shares of common stock previously issued
for consulting services at $0.065 per share or $325.
In June 2004, the Company issued 270,500 shares of common stock at $0.67 per
share in exchange for consulting services valued at $180,560.
In June 2004, the Company issued 8,000 shares of common stock at $0.89 per share
in exchange for consulting services valued at $7,120.
In June 2004, the Company issued 50,000 shares of common stock at $0.645 per
share in exchange for consulting services valued at $32,250.
In June 2004, the Company sold 250,000 shares of common stock at $1.00 per share
for total proceeds of $250,000 pursuant to private placement.
In July 2004, the Company issued 100,000 shares of common stock at $0.54 per
share in exchange for consulting services valued at $54,000.
In July 2004, the Company issued 5,000 shares of common stock at $0.72 per share
in exchange for consulting services valued at $3,600.
In July 2004, the Company issued 100,000 shares of common stock at $0.47 per
share in exchange for consulting services valued at $47,250.
In August 2004, the Company converted 2,000 preferred shares into 50,000 shares
of common stock at $0.39 in exchange for consulting services valued at $19,500.
In August 2004, the Company issued 100,000 shares of common stock at $0.39 in
exchange for consulting services valued at $39,000.
In August 2004, the Company issued 100,000 shares of common stock at $0.50 in
exchange for consulting services valued at $50,250.
F-26
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE D- CAPITAL STOCK (continued)
In August 2004, the Company issued 200,000 shares of common stock at $0.56 in
exchange for consulting services valued at $112,500.
In September 2004, the Company issued 1,000,000 shares of common stock at $0.52
in exchange for consulting services valued at $517,500.
In September 2004, the Company issued 45,000 shares of common stock at $0.50 in
exchange for consulting services valued at $22,288.
In September 2004, the Company converted 4,000 preferred shares into 100,000
shares of common stock at $0.41 in exchange for consulting services valued at
$54,000.
In September 2004, the Company issued 60,000 convertible preferred shares at
$25.00, in exchange for consulting services valued at $1,500,000.
In accordance with EITF 96-18 the measurement date to determine fair value was
the date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued for
consulting services at the rate which represents the fair value of the services
received which did not differ materially from the value of the stock issued.
NOTE E - STOCK OPTIONS AND WARRANTS
Warrants
The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to
non-employees of the Company. These warrants were granted in lieu of cash
compensation for services performed or financing expenses in connection with the
sale of the Company's common stock.
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE E- STOCK OPTIONS AND WARRANTS (continued)
Transactions involving warrants are summarized as follows:
Number of Shares Weighted Average
Price Per Share
---------------- -----------------
Outstanding at September 30, 2003 383,500 $ 1.38
Granted 4,574,753 0.58
Exercised (88,000) 1.00
Canceled or expired - -
Outstanding at September 30, 2004 4,870,253 $ 0.63
The estimated value of the compensatory warrants granted to non-employees in
exchange for services and financing expenses was determined using the
Black-Scholes pricing model and the following assumptions: contractual term of 2
to 5 years, a risk free interest rate of 3.00%, a dividend yield of 0% and
volatility of 30%. The amount of the expense charged to operations for
compensatory warrants granted in exchange for services was $0 for the years
ended September 30, 2004 and 2003.
The estimated value of the compensatory warrants granted to non-employees in
exchange for services and financing expenses was determined using the
Black-Scholes pricing model and the following assumptions: contractual term of 2
to 5 years, a risk free interest rate of 1.00%, a dividend yield of 0% and
volatility of 22.9%. The amount of the expense charged to operations for
compensatory warrants granted in exchange for services was $2,019,862 and $0,
respectively, for the years ended September 30, 2004 and 2003.
NOTE F - CONVERTIBLE PROMISSORY NOTES PAYABLE
A summary of convertible promissory notes payable at September 30, 2004 is as
follows:
Convertible notes payable ("Bridge Unit Offering"), in quarterly installments of
interest only at 10% per annum, secured by all assets of the Company and due on
the earlier of the 9- month anniversary date of the initial closing of the
Offering, or the completion of any equity financing of $3M or more; The Company,
in its sole discretion, may prepay principal at any time without penalty. The
notes are convertible into shares of common stock of the Company at a price of
$2.50 per share.
September 30, 2004
------------------
Convertible notes
payable $ 1,675,000
------------------
Debt discount - beneficial conversion feature, net of
accumulated amortization of $1,270,444 (20,393)
------------------
Debt discount, net of accumulated amortization of
$354,556
(29,607)
------------------
Net balance $ 1,625,000
------------------
During the three months ended December 31, 2003, the Company sold 27.5 units
(the "Units") to accredited investors at a price of $50,000 per Unit (the
"Bridge Offering") for a total of $1,375,000. Each Unit consists of (i) a
$50,000 Principal Amount 10% Secured Convertible Promissory Note ("Note" or
"Notes"), (ii) detachable warrants to purchase 50,000 shares of our common
stock, exercisable for a period of five years at a price of $3.20 per share
("$3.20 Warrant") and (iii) detachable warrants to purchase 10,000 shares of our
common stock, exercisable for a period of five years at a price of $0.10 per
share ("$0.10 Warrant" and together with the $3.20 Warrant, the "Warrants"). The
Notes are convertible into shares of our common stock at a price of $2.50 per
share.
F-28
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE F - CONVERTIBLE PROMISSORY NOTES PAYABLE (continued)
The Company accounted for the warrants and notes payable in accordance with APB
No. 14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants" ("APB 14"). APB 14 requires a portion of the proceeds from the
issuance of debt securities with detachable stock warrants be allocated to the
warrants and treated as paid-in capital. Any resulting discount or premium on
the notes payable should be recorded and amortized over the life of the notes.
The Company used the Black-Scholes model to determine the value of the warrants
issued to the noteholders. Under the Black-Scholes model, the value of the
warrants are determined by taking the difference between acquiring the stock
outright and the present value of paying the exercise price on the expiration
day. As a result, the Company valued the warrants at $206,526. This amount was
recorded as paid-in capital and the resulting discount on the notes payable was
recorded and is being amortized using the interest method over the life of the
notes. The debt discount attributed is amortized over the Bridge Offering's
earliest maturity period of 9 months from the date of issue as interest expense.
In accordance with EMERGING ISSUES TASK FORCE ISSUE 98-5, ACCOUNTING FOR
CONVERTIBLE SECURITIES WITH A BENEFICIAL CONVERSION FEATURES OR CONTINGENTLY
ADJUSTABLE CONVERSION RATIOS ("EITF 98-5"), the Company recognized an imbedded
beneficial conversion feature present in the Bridge Offering note. The Company
allocated a portion of the proceeds equal to the intrinsic value of that feature
to additional paid in capital. The Company recognized and measured an aggregate
of $1,168,474 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid in capital and a
discount against the Bridge Offering. The debt discount attributed to the
beneficial conversion feature is amortized over the Bridge Offering's earliest
maturity period of 9 months from the date of issue as interest expense.
The Company valued the beneficial conversion of the notes and warrants in
accordance with EITF 00-27 using the Black-Scholes pricing model and the
following assumptions:
o contractual terms of 5 years
o an average risk free interest rate of 1.00%
o a dividend yield of 0.00%
o volatility of 22.9%.
During the three months ended March 31, 2004, the Company sold 6 units (the
"Units") to accredited investors at a price of $50,000 per Unit (the "Bridge
Offering") for a total of $300,000. Each Unit consists of (i) a $50,000
Principal Amount 10% Secured Convertible Promissory Note ("Note" or "Notes"),
(ii) warrants to purchase 50,000 shares of our common stock, exercisable for a
period of five years at a price of $3.20 per share ("$3.20 Warrant") and (iii)
warrants to purchase 10,000 shares of our common stock, exercisable for a period
of five years at a price of $0.10 per share ("$0.10 Warrant" and together with
the $3.20 Warrant, the "Warrants"). The Notes are convertible into shares of our
common stock at a price of $2.50 per share.
The Company accounted for the warrants and notes payable in accordance with APB
No. 14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants" ("APB 14"). APB 14 requires a portion of the proceeds from the
issuance of debt securities with detachable stock warrants be allocated to the
warrants and treated as paid-in capital. Any resulting discount or premium on
the notes payable should be recorded and amortized over the life of the notes.
The Company used the Black-Scholes model to determine the value of the warrants
issued to the noteholders. Under the Black-Scholes model, the value of the
warrants are determined by taking the difference between acquiring the stock
outright and the present value of paying the exercise price on the expiration
day. As a result, the Company valued the warrants at $177,638. This amount was
recorded as paid-in capital and the resulting discount on the notes payable was
recorded and is being amortized using the interest method over the life of the
notes. The debt discount attributed is amortized over the Bridge Offering's
earliest maturity period of 9 months from the date of issue as interest expense.
In accordance with EMERGING ISSUES TASK FORCE ISSUE 98-5, ACCOUNTING FOR
CONVERTIBLE SECURITIES WITH A BENEFICIAL CONVERSION FEATURES OR CONTINGENTLY
ADJUSTABLE CONVERSION RATIOS ("EITF 98-5"), the Company recognized an imbedded
beneficial conversion feature present in the Bridge Offering note. The Company
allocated a portion of the proceeds equal to the intrinsic value of that feature
to additional paid in capital. The Company recognized and measured an aggregate
of $122,362 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid in capital and a
discount against the Bridge Offering. The debt discount attributed to the
F-29
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE F - CONVERTIBLE PROMISSORY NOTES PAYABLE (continued)
beneficial conversion feature is amortized over the Bridge Offering's earliest
maturity period of 9 months from the date of issue as interest expense.
The Company valued the beneficial conversion of the notes and warrants in
accordance with EITF 00-27 using the Black-Scholes pricing model and the
following assumptions:
o contractual terms of 5 years
o an average risk free interest rate of 4.25%
o a dividend yield of 0.00%
o volatility of 42.0%.
In September 2004, the Company re-priced the $3.20 warrants to $0.60 as an
inducement to convertible note holders as the Company sought additional
financing. The Company recorded a charge of $371,850 to earning for the year
ended September 30, 2004.
NOTE G- INCOME TAXES
The Company has adopted Financial Accounting Standard No. 109 which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statement or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes are
insignificant.
At September 30, 2004, the Company has available for federal income tax purposes
a net operating loss carryforward of approximately $22,815,034, expiring in the
year 2023, that may be used to offset future taxable income. The Company has
provided a valuation reserve against the full amount of the net operating loss
benefit, since in the opinion of management based upon the earnings history of
the Company, it is more likely than not that the benefits will not be realized.
Due to significant changes in the Company's ownership, the future use of its
existing net operating losses may be limited.
F-30
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE G- INCOME TAXES (continued)
Components of deferred tax assets as of September 30, 2003 are as follows:
Non current:
Net operating loss carryforward
$7,985,000
Valuation allowance (7,985,000)
-----------
Net deferred tax asset $ -
===========
NOTE H-LOSSES PER SHARE
The following table presents the computation of basic and diluted losses per
share:
For the Year Ended For the Year Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Loss available for common shareholders $ (19,358,259) $ (3,445,164)
================== ==================
Basic and fully diluted loss per share $ (0.93) $ (0.27)
================== ==================
Weighted average common shares outstanding 20,819,700 12,955,358
Net loss per share is based upon the weighted average of shares of common stock
outstanding
NOTE I- COMMITMENTS AND CONTINGENCIES
Licensing Agreement
In October 2002, the Company entered into an exclusive Licensing Agreement
("License") with Biowell Technology, Inc., a company formed under the laws of
Taiwan, Republic of Taiwan. The initial term of the License expires in 2007 with
renewal options under certain terms and conditions. The License grants the
Company the exclusive use of certain patented DNA technology, along with the
rights to future technology, in exchange for an initial payment of 1,500,000
shares of the Company's restricted common stock (see Note D). The Company is
obligated to order minimum purchase orders or make future certain minimum annual
royalty payments as follows:
Year ending Minimum purchase orders Alternative Minimum
October 8, Royalty Payable
2004 $300,000 $100,000
2005 360,000 -
2006 432,000 -
2007 518,400 -
Consulting Agreement
GP has been engaged, on a non-exclusive basis, to provide advice and assistance
to the Company regarding issues associated with Applied DNA's proprietary DNA
embedded security solutions. GP will assist the Company with strategic
positioning and enhancement of the Company's business, and will assist the
Company in the development of domestic and international marketing strategies
for the Company's DNA products and services. The term of the engagement is one
year from the effective date, with automatic one year renewals unless either
party expresses, in writing, an intention not to renew within 60 days prior to
the expiration of the term.
F-31
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE I- COMMITMENTS AND CONTINGENCIES (continued)
As compensation for GP's performance, the Company will pay GP an aggregate
advisory fee of Two Million Dollars ($2,000,000) payable in increments over the
term and renewal term. Two payments of $500,000 each were made by the Company in
September 2004 and January 2005. Thereafter, eight payments of $125,000 are due
monthly over the period February through September 2005. Additionally, the
Company will issue a net-exercisable warrant to purchase shares of Common Stock
of the Company at a later date. Fees were placed in escrow during GP's
completion of its due diligence review.
All promotional materials of the Company, on a going forward basis, will be
submitted to GP for its review, including all advertising, written sales
promotion, press releases, news clippings and other publicity matters relating
to GP's engagement and the strategic relationship created.
The Company has agreed to maintain confidentiality with regard to its
relationship with GP, wherever appropriate, and has indemnified GP, its
controlling persons, respective partners, shareholders, directors, officers,
employees, agents, affiliates and representatives and will hold them harmless
against any actions, judgments, claims, etc. The Agreement, in its entirety,
will be filed with the Company's 10-KSB in accordance with SEC regulatory
requirements.
Franchising and Distribution Agreements
The Company has entered into a Distribution and Franchising Agreement
("Franchise Agreement") in July 2003. Under the terms of the Franchise
Agreement, the franchisee is obligated to pay the Company $3,000,000 payable
$25,000 upon execution of the Franchise Agreement and the balance of $2,975,000
payable over five (5) years with interest accruing at 8% per annum. Payments
under the Franchise Agreement are subject to franchisee's net profits, as
defined, under the Franchise Agreement. During the year ended September 30, 2004
and 2003 the Company has received the initial $25,000 and $0, as installment and
has recognized the receipt as other income in the accompanying financial
statements.
F-32
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE I- COMMITMENTS AND CONTINGENCIES (continued)
Operating Lease Commitments
The Company leases office space under operating lease in Los Angeles, California
for its corporate use from an entity controlled by significant former
shareholder, expiring in November 2006. Total lease rental expenses for the
years ended on September 30, 2004 and 2003, was $120,804 and $38,725,
respectively.
Commitments for minimum rentals under non-cancelable lease at September 30, 2004
are as follows:
Year ended September 30,
2005 $ 139,308
2006 143,977
2007 12,031
-----------
$ 295,316
Employment and Consulting Agreements
The Company has employment agreements with the Company's officers and certain
employees. These employment agreements provide for salaries and benefits,
including stock options and extend up to seven years. In addition to salary and
benefit provisions, the agreements include defined commitments should the
employer terminate the employee with or without cause.
The Company has a consulting agreement with an entity controlled by a former
significant shareholder of the Company. The consulting agreement provides for
compensation and certain benefits, including stock options and extends up to
seven years. In addition to compensation and benefit provisions, the agreements
include defined commitments should the employer terminate the consultant with or
without cause.
The Company has consulting agreements with outside contractors to provide
marketing and financial advisory services. The Agreements are generally for a
term of 12 months from inception and renewable automatically from year to year
unless either the Company or consultant terminates such engagement by written
notice.
F-33
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
NOTE J- SUBSEQUENT EVENTS
On October 31, 2004, the Company defaulted on a note held by a former company
officer and director in the amount of $88,500 (See Note C), and in accordance
with the default, the noteholder has the right, at any time without further
notice, to demand that his outstanding note be converted back into 7,500,000
shares. On December 28, 2004, the noteholder made his demand for the issuance of
7,500,000 shares of common stock. The Company is currently negotiating a
settlement of this matter with the noteholder.
In October 2004, the Company granted 3,036,000 common stock warrants to the
Company's Directors and certain advisors as additional compensation for
services. The warrants have excise prices between $.50 and $1.00 per share and
expire in periods raging from 3 to 5 years.
In January 2005, the Company arranged a $6 million private placement of 12
million shares at $0.50 per share along with 12 million attached warrants with
an exercise price of $0.75 that expires in 5 years. As of January 10, 2005, $4
million of the $6 million has been subscribed.
In January 2005, holders of 1,625,000 of convertible notes payable elected to
convert their notes to common stock at $.33 per share (See Note F).
NOTE K - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the accompanying
financial statements during the period September 16, 2002 through September 30,
2004, the Company incurred a loss of $22,815,034. In addition, the Company has a
deficiency in stockholder's equity of $4,706,508. These factors among others may
indicate that the Company will be unable to continue as a going concern for a
reasonable period of time.
The Company's existence is dependent upon management's ability to develop
profitable operations. Management is devoting substantially all of its efforts
to developing DNA embedded biotechnology security solutions in the United States
and there can be no assurance that the Company's efforts will be successful.
However, the planned principal operations have not commenced and no assurance
can be given that management's actions will result in profitable operations or
the resolution of its liquidity problems. The accompanying statements do not
include any adjustments that might result should the Company be unable to
continue as a going concern.
In order to improve the Company's liquidity, the Company's management is
actively pursing additional equity financing through discussions with investment
bankers and private investors. There can be no assurance the Company will be
successful in its effort to secure additional equity financing.
F-34
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS (Unaudited)
December 31, September 30,
2004 2004
----------- -----------
Current assets:
Cash and Equivalents ............................. $ 62,665 $ 1,832
----------- -----------
Total Current Assets ............................. 62,665 1,832
Property, Plant and Equipment:
Furniture and Equipment .......................... 29,507 29,507
Less: Accumulated Depreciation ................... (1,756) (1,405)
----------- -----------
27,751 28,102
Other Assets:
Deposits and Prepaid Expenses .................... 47,585 23,559
Patent Filing .................................... 34,257 29,910
Less: Accumulated Amortization ................... (6,126) (1,756)
----------- -----------
Net Patents ...................................... 28,131 28,154
Restricted Cash .................................. 1,065,318 --
----------- -----------
Total Other Assets ............................... 1,141,034 51,713
----------- ----------
Total Assets ..................................... $ 1,231,450 $ 81,647
=========== ===========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities ......... $ 2,973,686 $ 1,770,379
Accrued Liabilities Due Related Parties .......... 168,857 117,333
Convertible Notes Payable ........................ 1,675,000 1,625,000
Due to Related Parties ........................... 61,943 111,943
Note Payable ..................................... 1,125,000 1,163,500
----------- -----------
Total Current Liabilities ........................ 6,004,486 4,788,156
Long Term Liabilities:
Note Payable ..................................... -- --
----------- -----------
Deficiency in Stockholders' Equity:
Preferred Stock, par value $.0001 per share;
10,000,000 shares authorized;
60,000 issued at December 31, 2004 and
September 30, 2004 ............................... 6 6
Common Stock, par value $.50 per share;
100,000,000 shares authorized; 40,848,239
shares and 23,981,054 shares issued and
outstanding at December 31, 2004 and
September 30, 2004, respectively ................. 20,424,120 11,990,527
Common Stock Subscription ....................... (880,000) (1,000)
Additional Paid-In-Capital ...................... 10,863,008 6,118,993
Accumulated Deficit ............................. (35,180,170) (22,815,034)
----------- -----------
(4,773,036) (4,706,508)
----------- -----------
Total Liabilities and Deficiency in
Stockholders' Equity $ 1,231,450 $ 81,647
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements
F-35
APPLIED DNA SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF LOSSES
(Unaudited)
For the Period,
For The Three For The Three September 16, 2002,
Months Ended Months Ended (Date of Inception)
December 31, December 31, through
2004 2003 December 31, 2004
---- ---- ----------
Revenues:
Sales ............................. $ -- $ -- $ --
COGS .............................. $ -- $ -- $ --
Operating expenses:
Selling, general and administrative 10,792,921 7,407,750 31,852,994
Depreciation and amortization ..... 4,721 351 7,882
------------ ------------ ------------
Total operating expenses .......... 10,797,642 7,408,101 31,860,876
Operating loss .................... (10,797,642) (7,408,101) (31,860,876)
Other Income (expense) ............ 315 685 26,700
Interest (expense) ................ (1,567,809) (135,074) (3,345,995)
Income (taxes) benefit ............ -- -- --
------------ ------------ ------------
Net loss .......................... $(12,365,136) $ (7,542,490) $(35,180,171)
============ ============ ============
Loss per common share
(basic and assuming dilution) ..... $ (0.45) $ (0.41) $ (1.28)
============ ============ ============
Weighted average shares outstanding 27,402,160 18,503,162 27,402,160
See accompanying notes to unaudited condensed consolidated financial statements
F-36
APPLIED DNA SCIENCES, INC
(A development stage company)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
DECEMBER 31, 2004
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
-------- -------- -------- --------- -------- ------------ ---------- ---------- -----------
Issuance of common stock
to Founders in exchange
for services on September
16, 2002 at $.01 per share - $ - 100,000 $ 10 $ 990 - $ - $ - $ 1,000
Net Loss - - - - - - - (11,612) (11,612)
-------- -------- -------- --------- -------- ------------ ---------- ---------- -----------
Balance at September 30,
2002 - - 100,000 10 990 - - (11,612) (10,612)
Issuance of common stock
in connection with merger
with Prohealth Medical
Technologies , Inc on
October 1, 2002 - - 10,178,352 1,018 - - - - 1,000
Cancellation of Common
stock in connection with
merger with Prohealth
Medical Technologies ,
Inc on October
21, 2002 - - (100,000) 10 (1,000) - - - (1,000)
Issuance of common stock
in exchange for services
in October 2002 at $ 0.65
per share - - 602,000 60 39,070 - - - 39,130
Issuance of common stock in
exchange for subscription
in November and December
2002 at $ 0.065 per share - - 876,000 88 56,852 - (56,940) - -
Cancellation of common
stock in January 2003
previously issued in
exchange for consulting
services - - (836,000) (84) (54,264) - 54,340 - -
Issuance of common stock
in exchange for licensing
services valued
at $ 0.065 per share in
January 2003 - - 1,500,000 150 97,350 - - - 97,500
Issuance of common stock
in exchange
for consulting services
valued at $ 0.13 per share
in January 2003 - - 586,250 58 76,155 - - - 76,213
Issuance of common stock
in exchange
for consulting services
at $ 0.065 per
share in February 2003 - - 9,000 1 584 - - - 585
Issuance of common stock
to Founders 1in exchange
for services valued at
$0.0001 per share in
March 2003 - - 10,140,000 1,014 - - - - 1,014
Issuance of common stock
in exchange for consulting
services valued at
$2.50 per share in March 2003 - - 91,060 9 230,625 - - - 230,634
See accompanying notes to unaudited condensed consolidated financial statements
F-37
APPLIED DNA SCIENCES, INC
(A development stage company)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
DECEMBER 31, 2004
(Continued)
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- -------- ---------- ---------- ------- --------
Issuance of common stock in
exchange for consulting
services valued at $
0.065 per share in March 2003 - - 6,000 1 389 - - - 390
Common stock subscribed in
exchange for cash at $1 per
share in March 2003 - - - - 18,000 - - - 18,000
Common stock issued in
exchange for consulting
services at $ 0.065 per
share on April 1, 2003 - - 860,000 86 55,814 - - - 55,900
Common stock issued in
exchange for
cash at $ 1.00 per share
on April 9, 2003 - - 18,000 2 - - - - 2
Common stock issued in
exchange for
consulting services at $
0.065 per
share on April 9, 2003 - - 9,000 1 584 - - - 585
Common stock issued in
exchange for
consulting services at
$ 2.50 per
share on April 23, 2003 - - 5,000 1 12,499 - - - 12,500
Common stock issued in
exchange for
consulting services at
$ 2.50 per
share, on June 12, 2003 - - 10,000 1 24,999 - - - 25,000
Common stock issued in
exchange for
cash at $ 1.00 per share
on June 17, 2003 - - 50,000 5 49,995 - - - 50,000
Common stock subscribed
in exchange
for cash at $ 2.50 per
share pursuant
to private placement
on June 27, 2003 - - - - - - 24,000 - 24,000
Common stock retired in
exchange for note payable
at $0.0118 per share,
on June 30, 2003 - - (7,500,000) (750) 750 - - - -
Common stock issued in
exchange for
consulting services at
$0.065 per
share, on June 30, 2003 - - 270,000 27 17,523 - - - 17,550
Common stock subscribed
in exchange for cash at
$ 1.00 per share pursuant
to private placement on
June 30, 2003 - - - - - 10,000 - - 10,000
Common stock subscribed
in exchange for cash at
$ 2.50 per share pursuant
to private placement on
June 30, 2003 - - - - - 24,000 - - 24,000
Common stock issued in
exchange for consulting
services at approximately
$2.01 per share, July 2003 - - 213,060 21 428,797 - - - 428,818
See accompanying notes to unaudited condensed consolidated financial statements
F-38
APPLIED DNA SCIENCES, INC
(A development stage company)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
DECEMBER 31, 2004
(Continued)
Deficit
Additional Accumulated
Preferred Common Paid in Common Stock During
Preferred Shares Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- -------- ---------- ---------- ------- --------
Common stock canceled
in July 2003,
previously issued for
services rendered at
$2.50 per share - - (24,000) (2) (59,998) - - - (60,000)
Common stock issued
in exchange for
options exercised at
$1.00 in July 2003 - - 20,000 2 19,998 - - - 20,000
Common stock issued
in exchange for
exercised of options
previously
subscribed at $1.00 in
July 2003 - - 10,000 1 9,999 (10,000) - - -
Common stock issued in
exchange for
consulting services at
approximately
$2.38 per share,
August 2003 - - 172,500 17 410,913 - - - 410,931
Common stock issued in
exchange for
options exercised at
$1.00 in August 2003 - - 29,000 3 28,997 - - - 29,000
Common stock issued
in exchange for
consulting services
at approximately
$2.42 per share,
September 2003 - - 395,260 40 952,957 - - - 952,997
Common stock issued
in exchange for
cash at $2.50 per
share-subscription
payable-September 2003 - - 19,200 2 47,998 (48,000) - - -
Common stock issued in
exchange for
cash at $2.50 per
share pursuant to
private placement
September 2003 - - 6,400 1 15,999 - - - 16,000
Common stock issued in
exchange for
options exercised at
$1.00 in September 2003 - - 95,000 10 94,991 - - - 95,000
Common stock subscription
receivable reclassification
adjustment
Common Stock subscribed to
at $2.50 per share in
September 2003 - - - - 2,600 - 2,600
Net Loss for the year
ended September 30, 200 - - - 300,000 - - 300,000
Balance at September 30,
2003 - - - - - - - (3,445,164) (3,445,164)
-------- -------- ----------- -------- ----------- --------- --------- ------------- -----------
- $ - 17,811,082 $ 1,781 $2,577,568 $300,000 $ - $(3,456,776) $(577,427)
======== ======== =========== ======== =========== ========= ========= ============= ============
See accompanying notes to unaudited condensed consolidated financial statements
F-39
APPLIED DNA SCIENCES, INC
(A development stage company)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
DECEMBER 31, 2004
(Continued)
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- ------ ---------- ---------- ------- --------
Preferred shares issues
in exchange for services
at $25.00 per share,
October 2003 1500 15 15
Common stock issued in
exchange for consulting
services at
approximately $2.85 per
share, October 2003 287,439 29 820,389 - - - 820,418
Common stock issued in
exchange for cash at
$2.50 per
share-subscription
payable-October 2003 120,000 12 299,988 (300,000) - - -
Common stock canceled
in October 2003,
previously issued for
services rendered at
$2.50 per share (100,000) (10) (249,990) - - - (250,000)
Common stock issued in
exchange for consulting
services at approximately
$3 per share,
November 2003 100,000 10 299,990 - - - 300,000
Common stock subscribed
in exchange for cash at
$2.50 per share pursuant
to private placement,
November, 2003 100,000 10 249,990 - - - 250,000
Common stock subscribed
in exchange for cash at
$2.50 per share pursuant
to private placement,
December, 2003 6,400 1 15,999 - - - 16,000
Common stock issued in
exchange for consulting
services at approximately
$2.59 per share,
December 2003 2,125,500 213 5,504,737 - - - 5,504,950
Common Stock subscribed to
at $2.50 per share in
December 2003 - - - 104,000 - - 104,000
Beneficial conversion
feature relating
to notes payable - - 1,168,474 - - - 1,168,474
Beneficial conversion
feature relating
to warrants - - 206,526 - - - 206,526
Adjust common stock par
value from $0.0001 to
$0.50 per share, per
amendment of articles
dated Dec 2003 - 10,223,166 (10,223,166) - - - -
Common Stock issued
pursuant to subscription
at $2.50 share in Jan 2004 41,600 20,800 83,200 (104,000) - - -
Common stock issued in
exchange for consulting
services at $2.95 per
share, Jan 2004 13,040 6,520 31,948 - - - 38,468
Common stock issued in
exchange for consulting
services at $2.60 per
share, Jan 2004 123,000 61,500 258,300 - - - 319,800
Common stock issued in
exchange for consulting
services at $3.05 per
share, Jan 2004 1,000 500 2,550 - - - 3,050
See accompanying notes to unaudited condensed consolidated financial statements
F-40
APPLIED DNA SCIENCES, INC
(A development stage company)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
DECEMBER 31, 2004
(Continued)
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- ------ ---------- ---------- ------- --------
Common stock issued in
exchange for employee
services at $3.07 per
share, Feb 2004 6,283 3,142 16,147 - - - 19,288
Common stock issued in
exchange for consulting
services at $3.04 per
share, Mar 2004 44,740 22,370 113,640 - - - 136,010
Common Stock issued for
options exercised at
$1.00 per share in Mar
2004 55,000 27,500 27,500 - - - 55,000
Common stock issued in
exchange for employee
services at $3.00 per
share, Mar 2004 5,443 2,722 13,623 - - - 16,344
See accompanying notes to unaudited condensed consolidated financial statements
F-41
APPLIED DNA SCIENCES, INC
(A development stage company)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
DECEMBER 31, 2004
(Continued)
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- ------ ---------- ---------- ------- --------
Common stock issued in
exchange for employee
services at $3.15 per
share, Mar 2004 5,769 2,885 15,293 - - - 18,177
Preferred shared
converted to common
shares for consulting
services at $3.00per
share, Mar 2004 5000 5 125,000 62,500 312,500 - - - 374,995
Common stock issued in
exchange for employee
services at $3.03 per
share, Mar 2004 8,806 4,403 22,236 - - - 26,639
Common Stock issued
pursuant to
subscription at $2.50
per share in Mar. 2004 22,500 11,250 (9,000) - - - 2,250
Beneficial Conversion
Feature relating
to Notes Payable - - 122,362 - - - 122,362
Beneficial Conversion
Feature relating
to Warrants - - 177,638 - - - 177,638
Common stock issued in
exchange for consulting
services at $2.58 per
share, Apr 2004 9,860 4,930 20,511 - - - 25,441
Common stock issued in
exchange for consulting
services at $2.35 per
share, Apr 2004 11,712 5,856 21,667 - - - 27,523
Common stock issued in
exchange for consulting
services at $1.50 per
share, Apr 2004 367,500 183,750 367,500 - - - 551,250
Common stock returned
to treasury at
$0.065 per share,
Apr 2004 (50,000) (25,000) 21,750 - - - (3,250)
Preferred stock
converted to common
stock for consulting
services at $1.01
per share in May 2004 4000 4 100,000 50,000 51,250 - - - 101,246
Common stock issued per
subscription May 2004 10,000 5,000 (4,000) - (1,000) - -
Common stock issued in
exchange for consulting
services at $0.86 per
share in May 2004 137,000 68,500 50,913 - - - 119,413
Common stock issued in
exchange for consulting
services at $1.15 per
share in May 2004 26,380 13,190 17,147 - - - 30,337
Common stock returned to
treasury at $0.065 per
share, Jun 2004 (5,000) (2,500) 2,175 - - - (325)
See accompanying notes to unaudited condensed consolidated financial statements
F-42
APPLIED DNA SCIENCES, INC
(A development stage company)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
DECEMBER 31, 2004
(Continued)
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- ------ ---------- ---------- ------- --------
Common stock issued in
exchange for consulting
services at $0.67 per
share in June 2004 270,500 135,250 45,310 - - - 180,560
Common stock issued in
exchange for consulting
services at $0.89 per
share in June 2004 8,000 4,000 3,120 - - - 7,120
Common stock issued in
exchange for consulting
services at $0.65 per
share in June 2004 50,000 25,000 7,250 - - - 32,250
Common stock issued
pursuant to private
placement at $1.00
per share in June 2004 250,000 125,000 125,000 - - - 250,000
Common stock issued in
exchange for consulting
services at $0.54 per
share in July 2004 100,000 50,000 4,000 - - - 54,000
Common stock issued in
exchange for consulting
services at $0.72 per
share in July 2004 5,000 2,500 1,100 - - - 3,600
Common stock issued in
exchange for consulting
services at $0.47 per
share in July 2004 100,000 50,000 (2,749) - - - 47,251
Common stock issued in
exchange for consulting
services at $0.39 per
share in August 2004 100,000 50,000 (11,000) - - - 39,000
Preferred stock converted
to common stock for
consulting services at
$0.39 per share in
August 2004 (2000) (2) 50,000 25,000 (5,500) - - - 19,498
See accompanying notes to unaudited condensed consolidated financial statements
F-43
APPLIED DNA SCIENCES, INC
(A development stage company)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
DECEMBER 31, 2004
(Continued)
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- ------ ---------- ---------- ------- --------
Common stock issued in
exchange for consulting
services at $0.50 per
share in August 2004 100,000 50,000 250 50,250
Common stock issued in
exchange for consulting
services at $0.56 per
share in August 2004 200,000 100,000 12,500 - - - 112,500
Common stock issued in
exchange for consulting
services at $0.41 per
share in August 2004 92,500 46,250 (8,787) - - - 37,463
Common stock issued in
exchange for consulting
services at $0.52 per
share in September 2004 1,000,000 500,000 17,500 - - - 517,500
Common stock issued in
exchange for consulting
services at $0.46 per
share in September 2004 5,000 2,500 (212) - - - 2,288
Common stock issued
pursuant to subscription
at $0.50 per share in
September 2004 40,000 20,000 - - - - 20,000
Preferred shares
converted to common
stock for consulting
services at $0.41
per share in September
2004 (4000) (4) 100,000 50,000 4,000 - - - 53,996
Preferred shares issued
in exchange for service
at $25 per share in
September 2004 60,000 6 1,499,994 1,500,000
Warrants issued to
consultants in the
fourth quarter 2004 2,019,862 2,019,862
Net Loss - - - - - (19,358,259) (19,358,259)
Balance at
September 30, 2004 60,000 $6 23,981,054 11,990,527 6,118,993 - (1,000) (22,815,034) (4,706,508)
====== == ========== ========== ========= ======== ======= ============ ===========
See accompanying notes to unaudited condensed consolidated financial statements
F-44
APPLIED DNA SCIENCES, INC
(A development stage company)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
DECEMBER 31, 2004
Deficit
Additional Accumulated
Preferred Paid in Common Stock During
Preferred Shares Common Common Stock Capital Stock Subscription Development
Shares Amount Shares Amount Amount Subscribed Receivable Stage Total
--------- ------- ---------- ------- ------ ---------- ---------- ------- --------
Common stock issued
in exchange for
consulting services
at $0.68 per share
in October 2004 - - 200,000 100,000 36,000 - - - 136,000
Common stock returned
to treasury at $0.60
per share, Oct 2004 - - (1,069,600) (534,800) (107,298) - - - (642,098)
Common stock issued
in exchange for
consulting services at
$0.60 per share in
October 2004 - - 82,500 41,250 8,250 - - - 49,500
Common Stock issued
pursuant to subscription
at $0.60 share in
October 2004 - - 500,000 250,000 50,000 (300,000) - - -
Common stock issued in
exchange for consulting
services by noteholders
at $0.50 per share
in October 2004 - - 532,500 266,250 - - - - 266,250
Common Stock issued
pursuant to subscription
at $0.50 share in
October 2004 - - 500,000 250,000 - - - - 250,000
Common Stock issued pursuant
to subscription at $0.45
share in October 2004 - - 1,000,000 500,000 (50,000) (450,000) - - -
Common stock issued in
exchange for consulting
services by noteholders
at $0.45 per share
in October 2004 - - 315,000 157,500 (15,750) - - - 141,750
Common Stock issued in
exchange for consulting
services at $0.47 share
in November 2004 - - 100,000 50,000 (3,000) - - - 47,000
Common Stock issued in
exchange for consulting
services at $0.80 share
in November 2004 - - 300,000 150,000 90,000 - - - 240,000
Common Stock issued in
exchange for consulting
services at $1.44 share
in November 2004 - - 115,000 57,500 108,100 - - - 165,600
Common Stock issued in
exchange for employee
services at $1.44 share
in November 2004 - - 5,000 2,500 4,700 - - - 7,200
See accompanying notes to unaudited condensed consolidated financial statements
F-45
APPLIED DNA SCIENCES, INC
(A development stage company)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY
FOR THE PERIOD SEPTEMBER 16, 2002 (Date of Inception) THROUGH
DECEMBER 31, 2004
Common Stock issued in
exchange for employee
services at $0.60 share
in November 2004 - - 60,000 30,000 6,000 (4,000) - - 32,000
Beneficial Conversion
discount relating to
Notes Payable - - - - 936,541 - - - 936,541
Beneficial Conversion
Feature relating to
Warrants - - - - 528,459 - - - 528,459
Common stock issued at
$0.016 in exchange for
note payable in December
2004 5,500,000 2,750,000 (2,661,500) 88,500
Common Stock issued in
exchange for consulting
services at $1.44 share
in December 2004 - - 5,796,785 2,898,393 5,418,815 - - - 8,317,207
Common stock issued
pursuant to subscription
at $0.50 per share in
December 2004 - - 2,930,000 1,465,000 - (125,000) - - 1,340,000
Warrants issued to
consultants in
Dec. 2004 - - 394,698 394,698
Net Loss - - - - - - - (12,365,136)(12,365,136)
--------- ------- ---------- ---------- ---------- ----------- --------- ------------ -----------
60,000 6 40,848,239 20,424,120 10,863,008 (879,000) (1,000)(35,180,171) (4,773,035)
========= ======= =========== ========== ========== =========== ========= ============ ===========
See accompanying notes to unaudited condensed consolidated financial statements
F-46
APPLIED DNA SCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the period
September 16,
2002 (date of
For The Three Months Ended inception) through
December 31, December 31,
2004 2003 2004
---- ---- ----
Cash flows from operating activities:
Net loss from operating activities ........................................ $(12,365,136) $(7,542,490) $(35,180,170)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation .............................................................. 4,721 351 7,882
Organizational Expenses ................................................... 88,500
Preferred Shares issued in exchange for service ........................... -- -- 1,500,000
Warrants issued to consultants .......................... ................. 394,698 -- 2,414,560
Amortization of beneficial conversion feature-convertible notes............ 1,515,000 133,273 3,140,000
Common stock issued in exchange for consultant services rendered .......... 9,366,507 6,625,368 21,764,239
Common stock canceled-previously issued for services rendered ............. (642,605) (282,000) (928,180)
Changes in Assets and Liabilities:
Increase in-other assets .................................................. (1,065,318) -- (1,079,208)
Increase in due related parties ................................ 1,523 -- 154,219
Increase (decrease) in accounts payable and accrued liabilities ........... 1,203,816 (61,589) 2,959,525
------------ ------------ ------------
Net cash used in operating activities ..................................... (1,586,794) (1,127,087) (5,158,633)
------------
Cash flows from investing activities:
Payments for patent filing ................................................ (4,347) -- (25,698)
Payments for security deposits ............................................ (24,026) (23,559) (47,585)
Capital expenditures ...................................................... (0) (29,507) (29,507)
------------ ------------ ------------
Net cash used in investing activities ..................................... (28,373) (53,066) (102,790)
------------
Cash flows from financing activities:
Proceeds from sale of common stock, net of cost ........................... -- 266,000 432,000
Proceeds from subscription of common stock ................................ 250,000 104,000 375,000
Proceeds from sale of options ............................................. 36,000 32,000 277,000
Advances from shareholders ................................................ -- 34,004 100,088
Proceeds from notes payablele.............................................. 1,390,000 1,175,030 4,140,000
------------ ------------ ------------
Net cash provided by financing activities ................................. 1,676,000 1,611,034 5,324,088
------------
Net increase in cash and cash equivalents ................................. 60,833 430,881 62,665
Cash and cash equivalents at beginning of period .......................... 1,832 193,471 --
Cash and cash equivalents at end of period ................................ $ 62,665 $ 624,352 $ 62,665
============ ============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest ...................................... -- -- --
Cash paid during period for taxes ......................................... -- -- --
Non-cash transaction
Common stock issued for services .......................................... 9,366,507 6,625,368 21,765,239
Common stock canceled-previously issued for services rendered ............. (642,605) (282,000) (928,180)
Common stock retired ...................................................... -- -- --
Deferred financing costs ................................................. 200,000.00 --
Beneficial conversion feature related to notes payable .................... 936,541 1,168,474.00 2,321,812
Beneficial conversion feature related to warrants ......................... 528,459 206,526.00 818,188
Preferred Shares in exchange for services.................................. 1,500,000
Warrants issued to consultants ............................................ 394,698 -- 2,414,560
Acquisition:
Common stock retained ..................................................... 1,015
Assets acquired ........................................................... (135)
------------
Total consideration paid .................................................. 880
------------
Organization expenses - note issued in excahnge of shares retired ......... 88,500
Common stock issued in exchange for note payable .......................... 88,500 -- 88,500
See accompanying notes to unaudited condensed consolidated financial statements
F-47
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
General
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB, and therefore, do
not include all the information necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended December 31, 2004 is not
necessarily indicative of the results that may be expected for the year ended
September 30, 2005. The unaudited condensed consolidated financial statements
should be read in conjunction with September 30, 2004 financial statements.
Business and Basis of Presentation
On September 16, 2002, Applied DNA Sciences, Inc. (the "Company") was
incorporated under the laws of the State of Nevada. The Company is in the
development stage , as defined by Statement of Financial Accounting Standards
No. 7 ("SFAS No. 7") and its efforts have been principally devoted to developing
DNA embedded biotechnology security solutions in the United States. To date, the
Company has generated nominal sales revenues, has incurred expenses and has
sustained losses. Consequently, its operations are subject to all the risks
inherent in the establishment of a new business enterprise. For the period from
inception through December 31, 2004, the Company has accumulated losses of
$35,180,171
The consolidated financial statements include the accounts of the Company, and
its wholly-owned subsidiary ProHealth Medical Technologies, Inc. Significant
inter-company transactions have been eliminated in Consolidation.
Reclassification
Certain prior period amounts have been reclassified for comparative purposes.
Property and Equipment
Property and equipment are stated at cost and depreciated over their estimated
useful lives of 3 to 5 years using the straight line method. At December 31,
2004 property and equipment consist of:
December 31, 2004
-----------------
Furniture $ 29,507
Accumulated depreciation 1,756
=================
Net $ 27,751
Advertising
The Company will follow a policy of charging the costs of advertising to
expenses incurred. The Company incurred advertising costs of $4,490 and $0,
respectively during the three months ended December 31, 2004.
Intangible Assets
Intangible assets are amortized using the straight-line method over their
estimated period of benefit, ranging from one to ten years. We periodically
evaluate the recoverability of intangible assets and take into account events or
circumstances that warrant revised estimates of useful lives or that indicate
that an impairment exists. All of our intangible assets are subject to
amortization.
F-48
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
Intangible Assets (continued)
At December 31, 2004, intangible assets consist of:
December 31,
2004
Intangible assets $ 34,257
Accumulated amortization (6,126)
-----------
Net Intangible Assets $ 28,131
===========
Restricted Cash
Per terms of the December Promissory Note Payable agreement dated December 20,
2004, all proceeds received from note holders remain in escrow subject to (1)
the filing of a Definitive Information Statement that increases the authorized
Common Stock and reduces par value, and (2) the closing of a Private Placement
for $1 million or more and in the event of such occurrence the Note will
automatically without notice to the note holder, in to Common Stock of the
Company, at any time at $0.50 per share plus 100% warrant coverage with said
warrant being exerciseable at $0.75 per share for a period of three years and
callable at $1.25 after the underlying stock is registered if said stock trades
at above $1.25 per share for 10 days - See Note F.
Stock Based Compensation
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise price of the
related option. The Company has adopted the annual disclosure provisions of SFAS
No. 148 in its financial reports for the year ended September 30, 2003 and for
the subsequent periods.
Had compensation costs for the Company's stock options been determined based on
the fair value at the grant dates for the awards, the Company's net loss and
losses per share would have been as follows (transactions involving stock
options issued to employees and Black-Scholes model assumptions are presented in
Note E):
F-49
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
Stock Based Compensation (Continued)
For the Period
September 16,
2002 (Date of
For The Three For The Three Inception)
Months ended Months ended through
December 31, December 31, December 31,
2004 2003 2004
Net loss - as reported $ (12,365,136) $(7,542,490) $(35,180,171)
Add: Total stock based employee compensation expense
as reported under intrinsic value method (APB. No. 25) - - -
Deduct: Total stock based employee compensation expense as
reported under fair value based method (SFAS No. 123) - - -
- - -
Net loss - Pro Forma $ (12,365,136)
$(7,542,490) $ (35,180,171)
Net loss attributable to common stockholders - Pro forma
$ (12,365,136) $(7,542,490) $ (35,180,171)
============== ============ ==============
Basic (and assuming dilution) loss per share - as reported $ (0.45) $ (0.40) $ (1.28)
============== ============ ==============
Basic (and assuming dilution) loss per share - Pro forma $ (0.45) $ (0.40) $ (1.28)
============== ============ ==============
NOTE B - MERGER
Acquisition
On October 21, 2002, the Company completed a Plan and Agreement of
Reorganization ("Merger") with ProHealth Medical Technologies, Inc.
("ProHealth") an inactive publicly registered shell corporation with no
significant assets or operations. For accounting purposes, the Company shall be
the surviving entity. The transaction is accounted for using the purchase method
of accounting. The total purchase price and carrying value of net assets
acquired of was $ 880. From November 1988 until the date of the merger,
ProHealth was an inactive entity with no significant assets and liabilities
F-50
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE B - MERGER (Continued)
Effective with the Merger, all previously outstanding common stock, preferred
stock, options and warrants owned by the Company's shareholders were exchanged
for an aggregate of 10,178,352 shares of ProHealth common stock. The value of
the stock that was issued was the historical cost of the ProHealth's net
tangible assets, which did not differ materially from their fair value. In
accordance with SFAS No. 141, the Company is the acquiring entity.
Effective with the Merger, ProHealth changed its name to Applied DNA Sciences,
Inc.
The total purchase price and carrying value of net assets acquired of ProHealth
was $1. The net assets acquired were as follows:
Common stock retained by ProHealth shareholders $1,015
Assets acquired (135)
Total consideration paid $880
In accordance with SOP 98-5, the Company expensed $880 as organization costs.
NOTE C - RELATED PARTY TRANSACTIONS
At December 31, 2004, notes payable are as follows:
December
31, 2004
----------
Note payable , related party, together with interest at 8% per annum, unsecured.
Upon default, the Company issued noteholder 7.5 million shares of the Company's
common stock. The noteholder retained 2 million shares and set aside 3.5 million
in escrow as third party deferred compensation for a future transaction $ -
Note payable, unsecured, related party, payable from August 1, 2005, right to
convert to restricted stock in lieu of cash, rate of interest 4%, 160,000 shares
prior to October 31, 2005 or 180,000 shares after that date. 425,000
Due to ex-president, in September 2004, note holder entered into a private
transaction, selling a total of 2,500,000 shares to him, after which he loaned
all proceeds of $600,000 to us. 600,000
Note payable, ex-officer of the Company, due $100,000 upon first funding, 20%
rate of interest, or 100,000 shares at par value of $0.001 100,000
----------
1,125,000
Less: current portion 1,125,000
----------
Note payable - long-term $ -
----------
Included in current liabilities is $61,943 at December 31, 2004, which
represents advances from the stockholders of the Company. No formal agreements
or repayment terms exist.
Also, the Company owed $168,857 at December 31, 2004 to the stockholders and
other related parties towards accrued expenses.
The Company leases office space under a sub lease agreement with an entity
controlled by a significant former shareholder of the Company.
F-51
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
The Company has entered into long term employment and consulting agreements with
Company's President and Chief Executive Officer and an entity controlled by a
former significant Company shareholder, respectively.
NOTE D - CAPITAL STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock with a
$.001 par value per share. The Company is authorized to issue 100,000,000 shares
of common stock, with a $0.50 par value per share. In January 2004, the Company
passed a resolution authorizing change in the par value per common shares from
$0.0001 per share to $0.50 per share. As of December 31, 2004, the Company has
issued and outstanding 40,848,239 common share with par value of $0.50 per share
and 60,000 convertible preferred shares with par value of $0.0001.
During the period September 16, 2002 through September 30, 2003, the Company
issued 100,000 shares of common stock in exchange for reimbursement of services
provided by the founders of the Company. The Company valued the shares issued at
approximately $1,000, which represents the fair value of the services received
which did not differ materially from the value of the stock issued.
In October, 2002, the Company issued 10,178,352 shares of common stock in
exchange for the previously issued 100,000 shares to the Company's founders in
connection with the merger with Prohealth Medical Technologies, Inc (see Note
B).
In October, 2002 the Company canceled 100,000 shares of common stock issued to
the Company's founders.
In October 2002 the Company issued 602,000 shares of common stock in exchange
for services valued at $ 0.065 per share. In accordance with EITF 96-18 the
measurement date to determine fair value was in October 2002. This was the date
at which a commitment for performance by the counter party to earn the equity
instrument was reached. The Company valued the shares issued at approximately
$0.065 per share, which presents the fair value of the services received which
did not differ materially from the value of the stock issued.
In November and December 2002, the Company issued 876,000 shares of common stock
in exchange for subscription at $ 0.065 per share. In accordance with EITF 96-18
the measurement date to determine fair value was in October 2002. This was the
date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued at
approximately $0.065 per share, which presents the fair value of the services
received which did not differ materially from the value of the stock issued.
In January 2003, the Company canceled 836,000 shares of common stock previously
issued in exchange for consulting services.
In January 2003, the Company issued 1,500,000 shares of common stock in exchange
for a licensing agreement (see Note H). The Company valued the shares issued at
approximately $ .065 per share, which represents the fair value of the license
received which did not differ materially from the value of the stock issued. The
Company charged the cost of the license to operations.
In January 2003, the Company issued 586,250 shares of common stock in exchange
for consulting services. In accordance with EITF 96-18 the measurement date to
determine fair value was in October 2002. This was the date at which a
commitment for performance by the counter party to earn the equity instrument
was reached. The Company valued the shares issued at approximately $0.13 per
share, which presents the fair value of the services received which did not
differ materially from the value of the stock issued.
In February 2003, the Company issued 9,000 shares of common stock in exchange
for consulting services. In accordance with EITF 96-18 the measurement date to
determine fair value was in October 2002. This was the date at which a
commitment for performance by the counter party to earn the equity instrument
was reached. The Company valued the shares issued at approximately $0.065 per
share, which presents the fair value of the services received which did not
differ materially from the value of the stock issued.
F-52
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE D - CAPITAL STOCK (continued)
In March 2003, the Company issued 10,140,000 shares of common stock to Company's
founders in exchange for services. In accordance with EITF 96-18 the measurement
date to determine fair value was in September 2002. This was the date at which a
commitment for performance by the counter party to earn the equity instrument
was reached. The Company valued the shares issued at approximately $0.0001 per
share, which presents the fair value of the services received which did not
differ materially from the value of the stock issued.
In March 2003, the Company issued 91,060 shares of common stock in exchange for
consulting services. The Company valued the shares issued at approximately $2.53
per share, which represents the fair value of the services received which did
not differ materially from the value of the stock issued.
In March 2003, the Company issued 6,000 shares of common stock in exchange for
consulting services. The Company valued the shares issued at approximately $
0.065 per share, which represents the fair value of the services received which
did not differ materially from the value of the stock issued.
In March 2003, the Company received subscription for 18,000 shares of common
stock in exchange for cash at $1 per share.
On April 1, 2003, the Company issued 860,000 shares of common stock in exchange
for consulting services provided to the Company. In accordance with EITF 96-18
the measurement date to determine fair value was in October 2002. This was the
date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued at
approximately $0.065 per share, which presents the fair value of the services
received which did not differ materially from the value of the stock issued.
On April 9, 2003, the Company issued 18,000 shares of common stock in exchange
for previously issued options to purchase the Company's common stock at $1.00
per share.
On April 9, 2003, the Company issued 9,000 shares of common stock in exchange
for consulting services provided to the Company. In accordance with EITF 96-18
the measurement date to determine fair value was in October 2002. This was the
date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued at
approximately $0.065 per share, which presents the fair value of the services
received which did not differ materially from the value of the stock issued.
On April 23, 2003, the Company issued 5,000 shares of common stock in exchange
for consulting services provided to the Company. The Company valued the shares
issued at approximately $2.50 per share, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
On June 12, 2003, the Company issued 10,000 shares common stock in exchange for
consulting services provided to the Company. The Company valued the shares
issued at approximately $ 2.50 per share, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
On June 17 2003, the Company issued 50,000 shares of common stock in exchange
for cash at $1.00 per share
On June 30, 2003, the Company issued 270,000 shares of common stock in exchange
for consulting services provided to the Company. In accordance with EITF 96-18
the measurement date to determine fair value was in October 2002. This was the
date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued at
approximately $0.065 per share, which presents the fair value of the services
received which did not differ materially from the value of the stock issued.
F-53
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE D - CAPITAL STOCK (continued)
On June 30, 2003, the Company received $10,000 as subscription for options to
purchase the Company's common stock at $1.00 per share.
In June, 2003, the Company received $48,000 in connection with a subscription to
purchase the Company's common stock pursuant to a private placement.
In connection with the Company's acquisition of ProHealth, the controlling owner
of ProHealth granted the Company an option to acquire up to 8,500,000 shares of
the Company's common stock in exchange for $100,000 (see Note B). The option
expires on December 10, 2004. On June 30, 2003, the Company exercised its option
and acquired 7,500,000 common shares under this agreement in exchange for an
$88,500 convertible promissory note payable to the former controlling owner. The
Company has an option through December 10, 2004 to acquire the remaining
1,000,000 shares from the former controlling owner in exchange for $11,500. On
June 30, 2003, the Company retired the 7,500,000 shares common acquired pursuant
to the option agreement.
In July 2003 the Company issued 213,060 shares of common stock for consulting
services provided to the Company. The Company valued the shares issued at
approximately $ 2.01 per share, which represents the fair value of the services
received which did not differ materially from the value of the stock issued.
In July 2003, the Company canceled 24,000 shares of common stock, previously
issued for services valued at $2.50 per share.
In July 2003, the Company received $20,000 in exchange for previously issued
options to purchase the Company's common stock at $1.00 per share.
In July 2003, the Company issued 10,000 shares of common stock for cash
previously subscribed at $1.00 per share.
In August 2003, the Company issued 172,500 shares of common stock in exchange
for consulting services provided to the Company. The Company valued the shares
issued at approximately $ 2.38 per share, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued
In August 2003, the Company received $29,000 in exchange for previously issued
options to purchase the Company's common stock at $1.00 per share.
In September 2003, the Company issued 395,260 shares of common stock in exchange
for consulting services provided to the Company. The Company valued the shares
issued at approximately $ 2.42 per share, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
In September 2003, the Company issued 19,200 shares of common stock for cash
previously subscribed at $2.50 per share.
In September 2003, the Company issued 6,400 shares of common stock issued in
exchange for cash at $2.50 per share pursuant to private placement.
In September 2003, the Company received $95,000 in exchange for previously
issued options to purchase the Company's common stock at $1.00 per share.
In September 2003, the Company received $300,000 in connection with a
7subscription to purchase the Company's common stock pursuant to a private
placement.
F-54
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE D - CAPITAL STOCK (continued)
The Company valued the shares issued for consulting services at the rate which
represents the fair value of the services received which did not differ
materially from the value of the stock issued.
In October 2003, the Company issued 15,000 shares of convertible preferred stock
in exchange for services. The Company valued the shares issued at the $15 par
value and recorded the value for services when the shares were converted into
common shares as identified below.
In October 2003, the Company issued 287,439 shares of common stock in exchange
for consulting services. The Company valued the shares issued at approximately
$2.85 per share for a total of $820,418, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
In October 2003, the Company issued 120,000 shares of common stock for shares
previously subscribed at $2.50 per share in September 2003.
In October 2003, the Company canceled 100,000 shares of common stock previously
issued in exchange for services at $2.50 per share.
In November 2003, the Company issued 100,000 shares of common stock in exchange
for consulting services. The Company valued the shares issued at approximately
$3.00 per share, which represents the fair value of the services received which
did not differ materially from the value of the stock issued.
In November 2003, the Company sold 100,000 shares of common stock subscribed for
cash at $2.50 per share pursuant to private placement.
In December 2003, the Company sold 6,400 shares of common stock subscribed for
cash at $2.50 per share pursuant to private placement.
In December 2003, the Company issued 2,125,500 shares of common stock in
exchange for consulting services. . The Company valued the shares issued at
approximately $2.59 per share, which represents the fair value of the services
received which did not differ materially from the value of the stock issued.
In December 2003, the Company received $104,000 in exchange for a common stock
subscription at $2.50 per share pursuant to private placement.
In January 2004, the Company issued 41,600 shares of common stock at $2.50 share
pursuant to a subscription made on December 2003.
In January 2004, the Company issued 13,040 shares of common stock at $2.95 per
share in exchange for consulting services valued at $38,468.
In January 2004, the Company issued 123,000 shares of common stock at $2.60 per
share in exchange for consulting services valued at $319,800.
In January 2004, the Company issued 1,000 shares of common stock at $3.05 per
share in exchange for consulting services valued at $3,050.
In February 2004, the Company issued 6,283 shares of common stock at $3.07 per
share in exchange for employee services valued at $19,288.
In March 2004, the Company issued 44,740 shares of common stock at $3.04 per
share in exchange for consulting services valued at $136,010.
F-55
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE D - CAPITAL STOCK (continued)
In March 2004, the Company issued 55,000 of common stock for options exercised
at $1.00 per share.
In March 2004, the Company issued 5,443 shares of common stock at $3.00 per
share in exchange for employee services valued at $16,344.
In March 2004, the Company issued 5,769 shares of common stock at $3.15 per
share in exchange for employee services valued at $18,177.
In March 2004, the Company converted 5,000 preferred shares into 125,000 shares
of common stock at $3.00 per share in exchange for employee services valued at
$375,000.
In March 2004, the Company issued 8,806 shares of common stock at $3.03 per
share in exchange for employee services valued at $26,639.
In April 2004, the Company issued 22,500 shares of common stock at $0.10 for
subscription of warrants to be exercised.
In April 2004, the Company issued 9,860 shares of common stock at $2.58 per
share in exchange for employee services valued at $25,441.
In April 2004, the Company issued 11,712 shares of common stock at $2.35 per
share in exchange for consulting services valued at $27,523.
In April 2004, the Company issued 367,500 shares of common stock at $1.50 per
share in exchange for consulting services valued at $551,250.
In April 2004, the Company retired 50,000 shares of common stock previously
issued for consulting services at $0.065 per share or $3,250.
In May 2004, the Company converted 4,000 preferred shares into 100,000 shares of
common stock at $1.01 per share in exchange for consulting services valued at
$101,250.
In May 2004, the Company issued 10,000 shares of common stock at $0.10 per share
in a stock subscription for $1,000.
In May 2004, the Company issued 137,000 shares of common stock at $0.86 per
share in exchange for consulting services valued at $119,233.
In May 2004, the Company issued 26,380 shares of common stock at $1.15 per share
in exchange for consulting services valued at $30,337.
In June 2004, the Company retired 5,000 shares of common stock previously issued
for consulting services at $0.065 per share or $325.
In June 2004, the Company issued 270,500 shares of common stock at $0.67 per
share in exchange for consulting services valued at $180,560.
In June 2004, the Company issued 8,000 shares of common stock at $0.89 per share
in exchange for consulting services valued at $7,120.
In June 2004, the Company issued 50,000 shares of common stock at $0.645 per
share in exchange for consulting services valued at $32,250.
In June 2004, the Company sold 250,000 shares of common stock at $1.00 per share
for total proceeds of $250,000 pursuant to private placement.
F-56
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE D - CAPITAL STOCK (continued)
In July 2004, the Company issued 100,000 shares of common stock at $0.54 per
share in exchange for consulting services valued at $54,000.
In July 2004, the Company issued 5,000 shares of common stock at $0.72 per share
in exchange for consulting services valued at $3,600.
In July 2004, the Company issued 100,000 shares of common stock at $0.47 per
share in exchange for consulting services valued at $47,250.
In August 2004, the Company converted 2,000 preferred shares into 50,000 shares
of common stock at $0.39 in exchange for consulting services valued at $19,500.
In August 2004, the Company issued 100,000 shares of common stock at $0.39 in
exchange for consulting services valued at $39,000.
In August 2004, the Company issued 100,000 shares of common stock at $0.50 in
exchange for consulting services valued at $50,250.
In August 2004, the Company issued 200,000 shares of common stock at $0.56 in
exchange for consulting services valued at $112,500.
In September 2004, the Company issued 1,000,000 shares of common stock at $0.52
in exchange for consulting services valued at $517,500.
In September 2004, the Company issued 45,000 shares of common stock at $0.50 in
exchange for consulting services valued at $22,288.
In September 2004, the Company converted 4,000 preferred shares into 100,000
shares of common stock at $0.41 in exchange for consulting services valued at
$54,000.
In September 2004, the Company issued 60,000 convertible preferred shares at
$25.00, in exchange for consulting services valued at $1,500,000.
In October 2004, the Company issued 200,000 shares of common stock in exchange
for consulting services. The Company valued the shares issued at approximately
$0.68 per share for a total of $136,000, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
In October 2004, shareholders returned 1,069,600 shares to treasury issued
earlier in exchange for services valued at $642,098.
In October 2004, the Company issued 82,500 shares of common stock in exchange
for consulting services. The Company valued the shares issued at approximately
$0.60 per share for a total of $49,500, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
In October 2004, the Company sold 500,000 shares of common stock subscribed for
cash at $0.60 per share pursuant to private placement.
In October 2004, the Company issued 532,500 shares of common stock to existing
noteholders. The Company valued the shares issued at approximately $0.50 per
share for a total of $266,250.
F-57
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE D - CAPITAL STOCK (continued)
In October 2004, the Company sold 500,000 shares of common stock subscribed for
cash at $0.50 per share pursuant to private placement.
In October 2004, the Company sold 1,000,000 shares of common stock subscribed
for cash at $0.45 per share pursuant to private placement.
In October 2004, the Company issued 315,000 shares of common stock in exchange
for consulting services. The Company valued the shares issued at approximately
$0.45 per share for a total of $141,750, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
In November 2004, the Company issued 100,000 shares of common stock in exchange
for consulting services. The Company valued the shares issued at approximately
$0.47 per share for a total of $47,000, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
In November 2004, the Company issued 300,000 shares of common stock in exchange
for consulting services. The Company valued the shares issued at approximately
$0.80 per share for a total of $240,000, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
In November 2004, the Company issued 115,000 shares of common stock in exchange
for consulting services. The Company valued the shares issued at approximately
$1.44 per share for a total of $165,600, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
In November 2004, the Company issued 5,000 shares of common stock in exchange
for employee services. The Company valued the shares issued at approximately
$1.44 per share for a total of $7,200, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
In November 2004, the Company issued 60,000 shares of common stock in exchange
for employee services. The Company valued the shares issued at approximately
$0.60 per share for a total of $36,000, which represents the fair value of the
services received which did not differ materially from the value of the stock
issued.
In December 2004, the Company issued net 5,500,000 shares of common stock for
default as per terms of notes payable for $88,500. Out of total, 3,500,000
shares were retained in escrow on behalf of another party for future deferred
compensation.
In December 2004, the Company issued 5,796,785 shares of common stock in
exchange for consulting services. The Company valued the shares issued at
approximately $1.44 per share for a total of $8,317,207, which represents the
fair value of the services received which did not differ materially from the
value of the stock issued.
In December 2004, the Company issued 2,930,000 shares of common stock subscribed
for cash at $0.50 per share pursuant to the exercise terms of a promissory note
payable.
F-58
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE D - CAPITAL STOCK (Continued)
In accordance with EITF 96-18 the measurement date to determine fair value was
the date at which a commitment for performance by the counter party to earn the
equity instrument was reached. The Company valued the shares issued for
consulting services at the rate which represents the fair value of the services
received which did not differ materially from the value of the stock issued.
NOTE E - STOCK OPTIONS AND WARRANTS
Warrants
The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to
non-employees of the Company. These warrants were granted in lieu of cash
compensation for services performed or financing expenses in connection with the
sale of the Company's common stock.
Warrants Outstanding Exercisable
Remaining Weighted Weighted Weighted
Number Contractual Average Average Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
--------------- ----------- -------------- ----------- --------------
$0.10 335,000 4.54 $0.10 335,000 $0.10
$0.50 50,000 4.77 $0.50 50,000 $0.50
$0.60 6,322,750 4.30 $0.60 6,322,750 $0.60
$0.70 750,000 2.58 $0.70 750,000 $0.70
$0.75 2,830,000 2.98 $0.75 2,830,000 $0.75
$1.00 386,000 0.79 $1.00 386,000 $1.00
$3.00 62,503 1.00 $3.00 62,503 $3.00
---------- ----------
10,736,253 10,736,253
========== ==========
Transactions involving warrants are summarized as follows:
Number of Shares Weighted Average
Price Per Share
Outstanding at September 30, 2004 4,870,253 $ 0.63
Granted 5,866,000 0.68
Exercised - -
Canceled or expired - -
-------------------- -
Outstanding at December 31, 2004 10,736,253 $ 0.66
==================== ========
The estimated value of the compensatory warrants granted to non-employees in
exchange for services and financing expenses was determined using the
Black-Scholes pricing model and the following assumptions: contractual term of 2
to 5 years, a risk free interest rate of 4.25%, a dividend yield of 0% and
volatility of 22.9%. The amount of the expense charged to operations for
compensatory warrants granted in exchange for services was $ 394,698 for the
three months ended December 31, 2004.
F-59
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE F - CONVERTIBLE PROMISSORY NOTES PAYABLE
A summary of convertible promissory notes payable at December 31, 2004
(Unaudited) is as follows:
December 31, 2004
(Unaudited)
A) Convertible notes payable ("Bridge Unit Offering"), in
quarterly installments of interest only at 10% per annum, secured
by all assets of the Company and due on the earlier of the
9-month anniversary date of the initial closing of the Offering,
or the completion of any equity financing of $3M or more; The
Company, in its sole discretion, may prepay principal at any time
without penalty. The Notes are convertible into shares of common
stock of the Company at a price of $2.50 per share. 1,675,000
Debt Discount - beneficial conversion feature, net of accumulated
amortization of $1,290,837 as of December 31, 2004 -
Debt Discount - value attributable to warrants attached to notes,
net of accumulated amortization of $384,163 as of December 31,
2004 -
B) Convertible notes payable totaling $1,465,000 ("December
Promissory Notes"), at the earlier of Definitive Information
Statement that increases the authorized Common Stock and reduces
par value or the completion of any equity financing of $1M or
more bearing interest at 6% per annum. The Notes are convertible
into shares of common stock of the Company at a price of $0.50
per share.At December 31, 2004, convertible notes are converted
into common shares of the Company as per the terms -
Debt Discount - beneficial conversion feature, net of accumulated
amortization of $936,541 as of December 31, 2004. -
Debt Discount - value attributable to warrants attached to notes,
net of accumulated amortization of $528,459 as of December 31, -
2004. -----------
$ 1,675,000
===========
Convertible Debentures
During 2004, the Company sold 33.5 units (the "Units") to accredited investors
at a price of $50,000 per Unit (the "Bridge Offering") for a total of
$1,675,000. Each Unit consists of (i) a $50,000 Principal Amount 10% Secured
Convertible Promissory Note ("Note" or "Notes"), (ii) warrants to purchase
50,000 shares of our common stock, exercisable for a period of five years at a
price of $0.60 per share ("$0.60 Warrant") and (iii) warrants to purchase 10,000
shares of our common stock, exercisable for a period of five years at a price of
$0.10 per share ("$0.10 Warrant" and together with the $0.60 Warrant, the
"Warrants"). The Notes are convertible into shares of our common stock at a
price of $0.33 per share.
F-60
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE F - CONVERTIBLE PROMISSORY NOTES PAYABLE (continued)
In accordance with EMERGING ISSUES TASK FORCE ISSUE 98-5, ACCOUNTING FOR
CONVERTIBLE SECURITIES WITH A BENEFICIAL CONVERSION FEATURES OR CONTINGENTLY
ADJUSTABLE CONVERSION RATIOS ("EITF 98-5"), the Company recognized an imbedded
beneficial conversion feature present in the Bridge Offering note. The Company
allocated a portion of the proceeds equal to the intrinsic value of that feature
to additional paid in capital. The Company recognized and measured an aggregate
of $1,290,837 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid in capital and a
discount against the Bridge Offering. The debt discount attributed to the
beneficial conversion feature is amortized over the Bridge Offering's earliest
maturity period of 9 months from the date of issue as interest expense.
In connection with the placement of the Bridge Offering notes, the Company
offered 100% warrant coverage for each dollar of promissory note, exercisable
for a period of three years at a price of $0.75 per share ("$0.75 Warrant"). In
accordance with EMERGING ISSUES TASK FORCE ISSUE 00-27, APPLICATION OF ISSUE NO.
98-5 TO CERTAIN CONVERTIBLE INSTRUMENTS ("EITF - 0027"), the Company recognized
the value attributable to the warrants in the amount of $384,163 to additional
paid in capital and a discount against the Bridge Offering. The Company valued
the warrants in accordance with EITF 00-27 using the Black-Scholes pricing model
and the following assumptions: contractual terms of 5 years, an average risk
free interest rate of 4.25%, a dividend yield of 0.00%, and volatility of 42%.
The debt discount attributed to the value of the warrants issued is amortized
over the Bridge Offering's earliest maturity period of 9 months from the date of
issue as interest expense.
In December 2004, the Company sold convertible promissory notes to accredited
investors in the aggregate of $1,465,000. Each $1.00 is convertible into common
stock at $0.50 and includes 100% warrant coverage to purchase our common stock,
exercisable for a period of three years at a price of $0.75 per share ("$0.75
Warrant") and callable at $1.25 after the underlying stock is registered if said
stock trades at above $1.25 per share for 10 days - See Note A, Restricted Cash.
In accordance with EMERGING ISSUES TASK FORCE ISSUE 98-5, ACCOUNTING FOR
CONVERTIBLE SECURITIES WITH A BENEFICIAL CONVERSION FEATURES OR CONTINGENTLY
ADJUSTABLE CONVERSION RATIOS ("EITF 98-5"), the Company recognized an imbedded
beneficial conversion feature present in the Bridge Offering note. The Company
allocated a portion of the proceeds equal to the intrinsic value of that feature
to additional paid in capital. The Company recognized and measured an aggregate
of $936,541 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid in capital and a
discount against the Bridge Offering. The debt discount attributed to the
beneficial conversion feature was fully amortized over the fiscal first quarter
period as interest expense.
In connection with the placement of the Bridge Offering notes, the Company
offered 100% warrant coverage for each dollar of promissory note, exercisable
for a period of three years at a price of $0.75 per share ("$0.75 Warrant"). In
accordance with EMERGING ISSUES TASK FORCE ISSUE 00-27, APPLICATION OF ISSUE NO.
98-5 TO CERTAIN CONVERTIBLE INSTRUMENTS ("EITF - 0027"), the Company recognized
the value attributable to the warrants in the amount of $528,459 to additional
paid in capital and a discount against the Bridge Offering. The Company valued
the warrants in accordance with EITF 00-27 using the Black-Scholes pricing model
and the following assumptions: contractual terms of 3 years, an average risk
free interest rate of 4.25%, a dividend yield of 0.00%, and volatility of
26.72%. The debt discount attributed to the value of the warrants issued was
fully amortized over the fiscal first quarter period as interest expense.
F-61
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE G- INCOME TAXES
The Company has adopted Financial Accounting Standard No. 109 which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statement or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes are
insignificant.
At December 31, 2004, the Company has available for federal income tax purposes
a net operating loss carryforward of approximately $35,000,000, expiring in the
year 2023, that may be used to offset future taxable income. The Company has
provided a valuation reserve against the full amount of the net operating loss
benefit, since in the opinion of management based upon the earnings history of
the Company, it is more likely than not that the benefits will not be realized.
Due to significant changes in the Company's ownership, the future use of its
existing net operating losses may be limited.
Components of deferred tax assets as of December 31, 2004 are as follows:
Non current:
Net operating loss carryforward
$12,000,000
Valuation allowance (12,000,000)
-----------
Net deferred tax asse $ -
===========
F-62
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE H-LOSSES PER SHARE
The following table presents the computation of basic and diluted losses per
share:
For the Three Months Ended For the Three Months Ended
December 31, 2004 December 31, 2003
----------------- -----------------
Loss available for common shareholders $ (12,365,136) $ (7,542,590)
================= =================
Basic and fully diluted loss per share $ (0.45) $ (0.41)
================= =================
Weighted average common shares outstanding 27,402,160 18,503,162
Net loss per share is based upon the weighted average of shares of common stock
outstanding
NOTE I- COMMITMENTS AND CONTINGENCIES
Licensing Agreement
In October 2002, the Company entered into an exclusive Licensing Agreement
("License") with Biowell Technology, Inc., a company formed under the laws of
Taiwan, Republic of Taiwan. The initial term of the License expires in 2007 with
renewal options under certain terms and conditions. The License grants the
Company the exclusive use of certain patented DNA technology, along with the
rights to future technology, in exchange for an initial payment of 1,500,000
shares of the Company's restricted common stock (see Note D). The Company is
obligated to order minimum purchase orders or make future certain minimum annual
royalty payments as follows:
Year ending Minimum purchase orders Alternative Minimum
October 8, Royalty Payable
2005 360,000 -
2006 432,000 -
2007 518,400 -
Consulting Agreement
GP has been engaged, on a non-exclusive basis, to provide advice and assistance
to the Company regarding issues associated with Applied DNA's proprietary DNA
embedded security solutions. GP will assist the Company with strategic
positioning and enhancement of the Company's business, and will assist the
Company in the development of domestic and international marketing strategies
for the Company's DNA products and services. The term of the engagement is one
year from the effective date, with automatic one year renewals unless either
party expresses, in writing, an intention not to renew within 60 days prior to
the expiration of the term.
F-63
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE I- COMMITMENTS AND CONTINGENCIES (Continued)
Consulting Agreements (continued)
As compensation for GP's performance, the Company will pay GP an aggregate
advisory fee of Two Million Dollars ($2,000,000) payable in increments over the
term and renewal term. Two payments of $500,000 each were made by the Company in
September 2004 and January 2005. Thereafter, eight payments of $125,000 are due
monthly over the period February through September 2005. Additionally, the
Company will issue a net-exercisable warrant to purchase shares of Common Stock
of the Company at a later date. Fees were placed in escrow during GP's
completion of its due diligence review.
All promotional materials of the Company, on a going forward basis, will be
submitted to GP for its review, including all advertising, written sales
promotion, press releases, news clippings and other publicity matters relating
to GP's engagement and the strategic relationship created.
Franchising and Distribution Agreements
The Company has entered into a Distribution and Franchising Agreement
("Franchise Agreement") in July 2003. Under the terms of the Franchise
Agreement, the franchisee is obligated to pay the Company $3,000,000 payable
$25,000 upon execution of the Franchise Agreement and the balance of $2,975,000
payable over five (5) years with interest accruing at 8% per annum. Payments
under the Franchise Agreement are subject to franchisee's net profits, as
defined, under the Franchise Agreement.
Note Payable Settlement
In October 2004, the Company defaulted on a note held by a former company
officer and director in the amount of $88,500 (See Note C), and in accordance
with the default, the noteholder had the right to demand that his outstanding
note be converted back into 7,500,000 shares. The Company subsequently settled
the matter for 5,500,000 shares with the noteholder. Included within the
5,500,000 shares are 3,500,000 shares retained in escrow for negotiated on
behalf of another party for future deferred compensation.
Litigation
Ex-officer was named as a defendant in a lawsuit brought by an outside party in
the United States District Court for the Central District of California, and in
that action, Applied DNA was named as a "nominal defendant." The plaintiff is
alleging that the ex-officer violated the short swing rule. The Company believes
it has meritorious defenses and will prevail in this matter.
F-64
APPLIED DNA SCIENCES, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2004
(UNAUDITED)
NOTE I- COMMITMENTS AND CONTINGENCIES (Continued)
Operating Lease Commitments
The Company leases office space under operating lease in Los Angeles, California
for its corporate use from an entity controlled by significant former
shareholder, expiring in November 2006. Total lease rental expenses for the
three months ended on December 31, 2004 was $47,194.
Commitments for minimum rentals under non-cancelable lease at September 30, 2004
were as follows:
Year ended September 30,
2005 $ 139,308
2006 143,977
2007 12,031
-----------
$ 295,316
Employment and Consulting Agreements
The Company has employment agreements with the Company's officers and certain
employees. These employment agreements provide for salaries and benefits,
including stock options and extend up to seven years. In addition to salary and
benefit provisions, the agreements include defined commitments should the
employer terminate the employee with or without cause.
The Company has a consulting agreement with an entity controlled by a former
significant shareholder of the Company. The consulting agreement provides for
compensation and certain benefits, including stock options and extends up to
seven years. In addition to compensation and benefit provisions, the agreements
include defined commitments should the employer terminate the consultant with or
without cause.
The Company has consulting agreements with outside contractors to provide
marketing and financial advisory services. The Agreements are generally for a
term of 12 months from inception and renewable automatically from year to year
unless either the Company or consultant terminates such engagement by written
notice.
NOTE J- SUBSEQUENT EVENTS
In January 2005, the Company arranged a $5.970 million private placement of
11.940 million shares at $0.50 per share along with 11.940 million attached
warrants with an exercise price of $0.75 that expires in 5 years.
In January 2005, holders of 1,675,000 of convertible notes payable elected to
convert their notes to common stock at $0.33 per share (See Note F).
On January 2005, the Company entered into a stock purchase agreement with
Biowell Technology Inc.,a Taiwan corporation ("Biowell"), whereby a to-be-formed
wholly- owned subsidiary of the Company would acquire a company to be formed
which would own all of the intellectual property of Biowell in exchange for
36,000,000 shares of the Company's common stock to be issued to the shareholders
of Biowell. The Acquisition Shares represent 50% of the total shares issued and
outstanding on a fully diluted basis on the date of execution of the Agreement.
In February 2005, the Company in a private placement, sold an aggregate of
$1,391,000 in secured convertible promissory notes and 2,782,000 warrants. The
notes bear interest at 10% per annum, mature one year from the date of issuance,
and are convertible: into shares of common stock of the Company at a price of
$0.50 per share (i) at the holder's option; or (ii) automatically upon the
Company's filing of a registration statement registering the shares underlying
the notes and Warrants.
F-65
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation, as amended, provide to the fullest extent
permitted by Nevada law, our directors or officers shall not be personally
liable to us or our shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our Articles of
Incorporation, as amended, is to eliminate our right and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in its Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers. In addition, we have entered into indemnification agreements with our
officers and directors.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:
NATURE OF EXPENSE AMOUNT
SEC Registration fee $ 6,571.87
Accounting fees and expenses 10,000.00*
Legal fees and expenses 40,000.00*
Miscellaneous 3,428.13
-----------
TOTAL $60,000.00*
===========
* Estimated.
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On September 16, 2002, our predecessor issued 100,000 unregistered shares of
common stock to its founders in exchange for services rendered, which we valued
at $1,000.
On October 21, 2002, we issued 10,178,352 unregistered shares of common stock in
connection with the merger with Applied DNA Sciences, Inc. We valued the shares
at $1,018. our predecessor cancelled the previously issued and outstanding
100,000 shares of common stock in October, 2002.
In October 2002, we issued 602,000 unregistered shares of common stock to
consultants as consideration for services rendered, which we valued at $39,130.
In October 2002, we issued 876,000 unregistered shares of common stock in
connection with a subscription agreement, which we valued at $56,940.
In January 2003, we issued 1,500,000 unregistered shares of common stock to
Biowell Technology, Inc. as consideration for technology licensing agreement,
which we valued at $97,500.
In January 2003, we issued 586,250 unregistered shares of common stock to
consultants as consideration for services rendered, which we valued at $76,213.
In February 2003, we issued 9,000 unregistered shares of common stock to
consultants as consideration for services rendered, which we valued at $585.
In March 2003, we issued 10,140,000 unregistered shares of common stock to its
Founders as consideration for services rendered, which we valued at $1,014.
In March 2003, we issued 91,060 unregistered shares of common stock to
consultants as consideration for services rendered, which we valued at $230,634.
In March 2003, we issued 6,000 unregistered shares of common stock to
consultants as consideration for services rendered, which we valued at $390.
In March 2003, we issued 860,000 unregistered shares of common stock to
consultants as consideration for services rendered, which we valued at $55,900.
In April 2003, we issued 18,000 unregistered shares of common stock in exchange
for $18,000.
In April 2003, we issued 9,000 unregistered shares of common stock to
consultants as consideration for services rendered, which we valued at $585.
In April 2003, we issued 5,000 unregistered shares of common stock to
consultants as consideration for services rendered, which we valued at $12,500.
In June 2003, we issued 10,000 unregistered shares of common stock to
consultants as consideration for services rendered, which we valued at $25,000.
In June 2003, we issued 50,000 unregistered shares of common stock in exchange
for $50,000.
In June 2003, we issued 270,000 unregistered shares of common stock to
consultants as consideration for services rendered, which we valued at $17,550.
In July 2003, we issued 213,060 unregistered shares of common stock to
consultants as consideration for services rendered, which we valued at $428,818.
In July 2003, we issued 20,000 unregistered shares of common stock in exchange
for $20,000.
II-2
In July 2003, we issued 10,000 unregistered shares of common stock in exchange
for $10,000.
In August 2003, we issued 172,500 unregistered shares of common stock to
consultants as consideration for services rendered, which we valued at $410,930.
In August 2003, we issued 29,000 unregistered shares of common stock in exchange
for $29,000.
In September 2003, we issued 395,260 unregistered shares of common stock to
consultants as consideration for services rendered, which we valued at $952,997.
In September 2003, we sold 16 units at $4,000 a unit, for a total of $64,000.
Each Unit consisted of 1,600 shares of our Common Stock plus 500 Common Stock
Purchase Warrants, exercisable for a period of two years at a price of $3.50 a
share.
The Warrants are exercisable on a one for one basis at an exercise price of
$3.50 per share for a two year exercise period from the date of issuance. In
September, 2003, we issued 95,000 unregistered shares of common stock in
exchange for $95,000.
Between October and December 2003, we sold 167.5 units for a total of $670,000.
Each Unit consisted of 1,600 shares of our Common Stock plus 500 Common Stock
Purchase Warrants, exercisable for a period of two years at a price of $3.50 a
share.
From November through December 2003, we sold 23.25 units to accredited investors
at a price of $50,000 per Unit for a total of $1,162,500. Each Unit consists of
(i) a $50,000 Principal Amount 10% Secured Convertible Promissory Note, (ii)
warrants to purchase 50,000 shares of our common stock, exercisable for a period
of five years at a price of $3.20 per share and (iii) warrants to purchase
10,000 shares of our common stock, exercisable for a period of five years at a
price of $0.10 per share. The Notes are convertible into shares of our common
stock at a price of $2.50 per share.
From October 7 through to October 30, 2003, we issued a total of 255,439 shares
of our Common Stock to eight consultants for their marketing, investor relations
and advisory services. These issuances are considered exempt from registration
by reason of the Section 4(2) of the Securities Act of 1933.
On October 9, 2003, we issued 120,000 shares to an investor in our 2003 Private
Placement of Units for total proceeds of $300,000. This issuance is considered
exempt from registration by reason of Section 4(2) of the Securities Act of 1933
as well as Regulation D of the Act, and Rule 506 promulgated thereunder.
In October 2003, the Company issued 32,000 shares of common stock in exchange
for previously issued non-compensatory warrants exercised at $1.00 per share.
This issuance is considered exempt from registration by reason of Section 4(2)
of the Securities Act of 1933.
On November 3, 2003, we issued 100,000 shares to an employee as a signing bonus
and for sales and marketing services in lieu of salary. This issuance is
considered exempt from registration by reason of Section 4(2) of the Securities
Act of 1933.
From November 18, 2003 through December 5, 2003, we issued a total of 106,400
shares of our Common Stock to two investors in our 2003 Private Placement of
Units for total proceeds of $266,000. These issuances are considered exempt from
registration by reason of Section 4(2) of the Securities Act of 1933 as well as
Regulation D of the Act, and Rule 506 promulgated thereunder.
From December 5, 2003 through December 24, 2004, we issued a total of 275,500
shares of our Common Stock to consultants and employees for their investor
relations, sales, marketing and advisory services. These issuances are
considered exempt from registration by reason of the Section 4(2) of the
Securities Act of 1933.
II-3
On December 17, 2003, we issued a total of 1,850,000 shares to ten consultants
in connection with our agreement with the company's investment bankers, Vertical
Capital Partners, Inc.. These issuances are considered exempt from registration
by reason of the Section 4(2) of the Securities Act of 1933.
In January 2004, the Company issued a total of 41,600 shares of Common Stock at
$2.50 per share in fulfillment of a stock subscription made in December 2003 to
various consultants in exchange for administrative, marketing, financial
advisory and legal consulting services. These issuances are considered exempt
from registration by reason of Section 4(2) of the Securities Act of 1933.
To conserve capital, in February 2004, the Company issued 6,283 shares of Common
Stock to employees in lieu of their cash salaries. Such issuances were
considered exempt from registration by reason of Section 4(2) of the Securities
Act of 1933.
In March 2004, the Company issued 44,740 shares of Common Stock in exchange for
consulting services. Such issuances were considered exempt from registration by
reason of Section 4(2) of the Securities Act of 1933.
In March 2004, the Company issued 55,000 of common stock for options exercised
at $1.00 per share.
In March 2004, the Company issued 125,018 shares of Common Stock in exchange for
employee services. Such issuances were considered exempt from registration by
reason of Section 4(2) of the Securities Act of 1933.
In March 2004, the Company issued 22,500 of common stock at $0.10 for
subscription of warrants to be exercised. This issuance is considered exempt
under Regulation D of the Securities Act of 1933 and Rule 506 promulgated
thereunder, as well as Section 4(2) of the Act.
In March 2004, the Company issued 5,443 of common stock at $3.00 per share in
exchange for employee services valued at $16,344.
In March 2004, the Company issued 5,769 of common stock at $3.15 per share in
exchange for employee services valued at $18,177.
In March 2004, the Company issued 8,806 of common stock at $3.03 per share in
exchange for employee services valued at $26,639.
In April 2004, the Company issued 22,500 shares of common stock at $0.10 for
subscription of warrants to be exercised.
In April 2004, the Company issued 9,860 shares of common stock at $2.58 per
share in exchange for employee services valued at $25,441.
In April 2004, the Company issued 11,712 shares of common stock at $2.35 per
share in exchange for consulting services valued at $27,523.
In April 2004, the Company issued 367,500 shares of common stock at $1.50 per
share in exchange for consulting services valued at $551,250.
In April 2004, the Company retired 50,000 shares of common stock previously
issued for consulting services at $0.065 per share or $3,250.
In May 2004, the Company issued 100,000 shares of common stock at $1.01 per
share in exchange for consulting services valued at $101,250.
In May 2004, the Company issued 10,000 shares of common stock at $0.10 per share
in a stock subscription for $1,000.
II-3
In May 2004, the Company issued 137,000 shares of common stock at $0.86 per
share in exchange for consulting services valued at $119,413.
In May 2004, the Company issued 26,380 shares of common stock at $1.15 per share
in exchange for consulting services valued at $30,337.
In June 2004, the Company retired 5,000 shares of common stock previously issued
for consulting services at $0.065 per share or $325.
In June 2004, the Company issued 270,500 shares of common stock at $0.67 per
share in exchange for consulting services valued at $180,560.
In June 2004, the Company issued 8,000 shares of common stock at $0.89 per share
in exchange for consulting services valued at $7,120.
In June 2004, the Company issued 50,000 shares of common stock at $0.64 1/2 per
share in exchange for consulting services valued at $32,250.
In June 2004, the Company sold 250,000 shares of common stock at $1.00 per share
for total proceeds of $250,000 pursuant to private placement.
On June 30, 2004, we issued 50,000 shares of our common stock to an investor
relations firm as compensation for services performed on our behalf.
On July 23, 2004 and August 2, 2004, we issued an aggregate of 55,000 shares of
our common stock to our legal counsel as compensation for legal services
performed on our behalf.
From July through September 2004, we issued an aggregate of 1,550,000 shares of
our common stock to certain of our officers, directors and employees as
compensation for services performed on our behalf.
On September 21, 2004, we issued 100,000 shares of our common stock pursuant to
a conversion by one of the holders of our convertible preferred stock.
On October 1, 2004, we issued a total of 199,999 shares to parties related to an
investment banker with which we have a non-exclusive engagement.
On October 13, 2004, we issued a total of 257,500 shares to two consultants for
financial advisory and marketing services.
On October 18, 2004, we issued a total of 347,500 shares to previous investors
as consideration for our agreement to extend our registration commitment.
On October 19, 2004, we issued 1,000,000 shares to a single investor for total
proceeds of $500,000.
On October 26, 2004, we issued a total of 500,000 shares to parties related to
our investment banker in settlement for various breaches made in our Placement
Agent Agreement.
On November 4, 2004, we issued 100,000 to an employee as compensation for
services previously rendered.
On November 15, 2004 through December 17, 2004, we issued a total of 415,000
shares to a consultant for financial advisory services.
On December 17, 2004, we issued 5,000 shares to an employee for services
previously rendered.
II-4
To obtain funding for our ongoing operations, we sold $1,465,000 in convertible
promissory notes to 13 investors in December 2004. Each promissory note was
automatically convertible into shares of our common stock, at a price of $0.50
per share, upon the closing of a private placement for $1 million or more. In
connection with the sale of the convertible promissory notes, we issued
2,930,000 warrants to purchase shares of common stock. The warrants are
exercisable until three years from the date of issuance at a purchase price of
$0.75 per share. This issuance is considered exempt under Regulation D of the
Securities Act of 1933 and Rule 506 promulgated thereunder.
On January 4, 2005, we issued 12,500 shares as a result of an investor's
exercise of his $0.10 warrants. This issuance is considered exempt under
Regulation D of the Securities Act of 1933 and Rule 506 promulgated thereunder.
Also on January 10, 2005, we issued additional shares to our investors in
accordance with an adjustment provision in our private placement and placement
agent agreement. We issued a total of 3,249,750 shares of Common Stock to 24
investors. This issuance is considered exempt under Regulation D of the
Securities Act of 1933 and Rule 506 promulgated thereunder.
On January 13, 2005, we issued additional shares to two consultants in
accordance with an adjustment provision in their consulting agreements. A total
of 662,000 shares were issued. This issuance is considered exempt under
Regulation D of the Securities Act of 1933 and Rule 506 promulgated thereunder.
To obtain funding for our ongoing operations, we conducted a private placement
offering in January and February 2005, in which we sold $7,361,000 of 10%
Secured Convertible Promissory Notes to 61 investors. The 10% Secured
Convertible Promissory Notes automatically convert into shares of our common
stock, at a price of $0.50 per share, upon the filing of this registration
statement. In connection with the private placement offering, we have issued
15,222,000 warrants. The warrants are exercisable until five years from the date
of issuance at a purchase price of $0.75 per share. This issuance is considered
exempt under Regulation D of the Securities Act of 1933 and Rule 506 promulgated
thereunder.
On January 28, 2005, we closed upon a private placement transaction in excess of
$1 million, and on February 2, 2005, the promissory notes issued in December
2004 were converted into an aggregate of 2,930,000 shares of common stock. This
issuance is considered exempt under Regulation D of the Securities Act of 1933
and Rule 506 promulgated thereunder.
* All of the above offerings and sales were deemed to be exempt under rule
506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended.
No advertising or general solicitation was employed in offering the securities.
The offerings and sales were made to a limited number of persons, all of whom
were accredited investors, business associates of Applied DNA Sciences or
executive officers of Applied DNA Sciences, and transfer was restricted by
Applied DNA Sciences in accordance with the requirements of the Securities Act
of 1933. In addition to representations by the above-referenced persons, we have
made independent determinations that all of the above-referenced persons were
accredited or sophisticated investors, and that they were capable of analyzing
the merits and risks of their investment, and that they understood the
speculative nature of their investment. Furthermore, all of the above-referenced
persons were provided with access to our Securities and Exchange Commission
filings.
Except as expressly set forth above, the individuals and entities to whom
we issued securities as indicated in this section of the registration statement
are unaffiliated with us.
II-5
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2. References
to "the Company" in this Exhibit List mean Applied DNA Sciences, Inc., a Nevada
corporation.
Exhibit No. Description
2.1 Articles of Merger of Foreign and Domestic Corporations, filed
December 19, 1998 with the Nevada Secretary of State, filed as an
exhibit to the annual report on Form 10-KSB filed with the
Commission on December 29, 2003 and incorporated herein by
reference.
3.1 Articles of Incorporation of DCC Acquisition Corporation, filed
April 20, 1998 with the Nevada Secretary of State, filed as an
exhibit to the annual report on Form 10-KSB filed with the
Commission on December 29, 2003 and incorporated herein by
reference.
3.2 Articles of Amendment of Articles of Incorporation of DCC
Acquisition Corp. changing corporation name to ProHealth Medical
Technologies, Inc.
3.3 Certificate of Designations, Powers, preferences and Rights of
the Founders' Series of Convertible Preferred Stock, filed as an
exhibit to the annual report on Form 10-KSB filed with the
Commission on December 29, 2003 and incorporated herein by
reference.
3.4 Articles of Amendment of Articles of Incorporation of Applied DNA
Sciences, Inc. increasing the par value of the company's common
stock, filed on December 3, 2003 with the Nevada Secretary of
State, filed as an exhibit to the annual report on Form 10-KSB
filed with the Commission on December 29, 2003 and incorporated
herein by reference.
3.5 By-Laws of Applied DNA Sciences, Inc., filed as an exhibit to the
annual report on Form 10-KSB filed with the Commission on
December 29, 2003 and incorporated herein by reference.
4.1 Form of Subscription Agreement, filed as an exhibit to the
current report on Form 8-K filed with the Commission on January
28, 2005 and incorporated herein by reference.
4.2 Form of 10% Secured Convertible Promissory Note, filed as an
exhibit to the current report on Form 8-K filed with the
Commission on January 28, 2005 and incorporated herein by
reference.
4.3 Form of Warrant Agreement, filed as an exhibit to the current
report on Form 8-K filed with the Commission on January 28, 2005
and incorporated herein by reference.
4.4 Registration Rights Agreement, dated January 28, 2005, between
the Company and Vertical Capital Partners, Inc., on behalf of the
investors, filed as an exhibit to the current report on Form 8-K
filed with the Commission on January 28, 2005 and incorporated
herein by reference.
4.5 Security Agreement, dated January 28, 2005, between the Company
and Vertical Capital Partners, Inc., on behalf of the investors,
filed as an exhibit to the current report on Form 8-K filed with
the Commission on January 28, 2005 and incorporated herein by
reference.
5.1 Sichenzia Ross Friedman Ference LLP Opinion and Consent (filed
herewith)
10.1 Exclusive License Agreement between Biowell Technology Corp. and
Applied DNA Sciences, Inc. executed on October 8, 2002.
10.2 Sub-License Agreement with G. A. Corporate Finance Ltd. Applied
DNA Sciences, Inc., executed on July 29, 2003, as amended, filed
as an exhibit to the current report on Form 8-K filed with the
Commission on September 29, 2003 and incorporated herein by
reference.
II-6
10.3 Indemnification Agreement with Larry Lee.
10.4 Indemnification Agreement with Robin Hutchison.
10.5 Indemnification Agreement with Michael Hill.
10.6 Indemnification Agreement with Peter Brocklesby.
10.7 Indemnification Agreement with Adrian Botash.
10.8 Indemnification Agreement with Karin Klemm
10.9 Indemnification Agreement with Ron Erickson
10.10 Giuliani Partners Strategic Marketing Partnership Agreement
10.11 Stock Purchase Agreement, dated as of January 28, 2005, by and
between Applied DNA Sciences, Inc. and Biowell Technology, Inc.,
filed as an exhibit to the current report on Form 8-K filed with
the Commission on February 2, 2005 and incorporated herein by
reference.
10.12 Investment Advisory Agreement, dated as of February 14, 2005, by
and between Applied DNA Sciences, Inc. and First London Finance,
Ltd.
23.1 Consent of Russell Bedford Stefanou Mirchandani LLP (filed
herewith).
23.2 Consent of legal counsel (see Exhibit 5.1).
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-7
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-8
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of Los
Angeles, State of California, on February 15, 2005.
APPLIED DNA SCIENCES, INC.
By:/s/ ROB HUTCHISON
------------------
Rob Hutchison, Chief Executive Officer, Principal Executive
Officer, Principal Financial Officer, Principal Accounting
Officer and Chairman of the Board of Directors
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
/s/ ROB HUTCHISON Chief Executive Officer and February 15, 2005
--------------------- Chairman of the Board of Directors
Rob Hutchison
/s/ PETER BROCKELSBY President and Director February 15, 2005
---------------------
Peter Brockelsby
/s/ LAWRENCE LEE Chief Technology Strategist February 15, 2005
--------------------- and Director
Lawrence Lee
/s/ MICHAEL HILL Director February 15, 2005
---------------------
Michael Hill
/s/ RON ERICKSON Director February 15, 2005
---------------------
Ron Erickson
II-9
EXHIBIT 5.1
SICHENZIA ROSS FRIEDMAN FERENCE LLP
1065 Avenue of the Americas, 21st Flr.
New York, NY 10018
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: Applied DNA Sciences, Inc.
Form SB-2 Registration Statement (File No. 333-)
Ladies and Gentlemen:
We refer to the above-captioned registration statement on Form SB-2 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), filed by Applied DNA Sciences, Inc., a Nevada corporation (the
"Company"), with the Securities and Exchange Commission.
We have examined the originals, photocopies, certified copies or other evidence
of such records of the Company, certificates of officers of the Company and
public officials, and other documents as we have deemed relevant and necessary
as a basis for the opinion hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as certified copies or photocopies and the authenticity of the
originals of such latter documents.
Based on our examination mentioned above, we are of the opinion that the
securities being sold pursuant to the Registration Statement are duly authorized
and will be, when issued in the manner described in the Registration Statement,
legally and validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under "Legal Matters" in
the related Prospectus. In giving the foregoing consent, we do not hereby admit
that we are in the category of persons whose consent is required under Section 7
of the Act, or the rules and regulations of the Securities and Exchange
Commission.
/s/ Sichenzia Ross Friedman Ference LLP
---------------------------------------
Sichenzia Ross Friedman Ference LLP
Exhibit 10.1
EXCLUSIVE LICENSING AGREEMENT
This Exclusive Licensing Agreement ("Agreement") is made as of Oct. 8, 2002 by
and between Biowell Technology Inc., a company duly incorporated and organized
under the laws of Taiwan, Republic of China, ("ROC), having its principal office
at 18F, No. 959, Chung-Cheng Rd., Chung-Ho City, Taipei County, Taiwan, 235 ROC,
(hereinafter referred to as "Biowell") and Applied DNA Sciences, Inc., a
corporation duly incorporated under the laws of the State of Nevada, United
States of America with principal office at 9255 West Sunset Blvd. Suite 805, Los
Angeles, California 90069, USA ("Licensee"), either or both of which is referred
to as a "party" or the "parties.
RECITALS
A. Biowell has developed various technologies and know-how including, without
limitation, various DNA based anti-counterfeiting technologies
("Technology"), and owns the rights to patents and patent applications
covering several aspects of this Technology. In addition Biowell possesses
proprietary knowledge of the Technology. Biowell desires to license the
right to manufacture Licensed Products for Licensee to manufacture Licensed
Products in the Territory as defined in Exhibit 1 attached hereto using
materials purchased from Biowell. Biowell also desires to sell various
parts and components related to the Products to Licensee for Licensee to
manufacture the Licensed Products. Biowell also desires to sell finished
Biowell Products to Licensee.
B. Licensee desires to: (a) purchase materials to manufacture the Licensed
Products itself for sale in the Territory; or (b) purchase finished Biowell
Products from Biowell for resale in the Territory.
DEFINITIONS
Unless the context requires otherwise, whenever used in this Agreement the
following terms and expressions shall have the following meaning:
"Agreement" shall mean this agreement including its Exhibits, as it may be
amended from time to time by written agreement of both parties.
"Average Biowell Share Price" means the average closing price of Biowell
common shares as reported on the relevant national market exchange for each of
the [fifteen (15)] trading days immediately preceding the date of exercising the
Biowell Option.
1
"Average Licensee Share Price" means the average closing price of Licensee
common shares as reported on the relevant national market exchange for each of
the [fifteen (15)] trading days immediately preceding the date of exercising the
Licensee Option.
"Biowell Option" means the option issued to Licensee or its lawful
successor-in-interest by Biowell as further described in Section 4.
"Biowell Option Shares" means the number of shares of common stock in
Biowell deliverable upon exercise of the Biowell Option, as adjusted from time
to time.
"Biowell Products" means Products manufactured by Biowell.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the city of Taipei and New York are authorized by law
to close.
"Business Methods" mean business methods developed, licensed to, and/or
owned by Biowell relating to the Technology and Products.
"Company" shall mean either Licensee or Biowell where relevant.
"Confidential Information" includes all information, whether written or
oral, in whatever form disclosed, concerning any technologies, products,
developments, business methods, business plans, marketing, investment,
management, financial and other business affairs in connection with all matters
relating to or arising out of this Agreement, including without limitation the
Technology, the Business Methods and Know How.
"Customers" means any natural or legal person(s) or entities primarily
solicited by Licensee under this Agreement in the Territory.
"Delivery Date" shall mean the date specified by Licensee in a Purchase
Order on which a Product or Product Material is required to be delivered by
Biowell to Licensee.
"Exercise Period" means the three calendar years immediately following the
Effective Date of this Agreement.
"Holder" means Licensee where Licensee is the holder of the Biowell Option
or is offering to exercise the Biowell Option; and means Biowell where Biowell
is the holder of the Licensee Option or is offering to exercise the Licensee
Option.
"Intellectual Property Rights" shall mean:
(a) patents, designs, utility models, design rights, copyrights, database
rights, topography rights, trade or service marks (whether or not
registered) or any similar rights in brands;
(b) applications for any of the foregoing and the right to apply therefor
in any jurisdiction;
2
(c) Know-How, trade secrets and other Confidential Information; and
(d) domain name registrations;
(e) and all or any similar or equivalent rights arising or subsisting in
any jurisdiction.
"Know-How" means all technical, operational and commercial Confidential
Information (including but not limited to Confidential Information relating to
product development, business plans, business models, marketing, and other
business affairs of the disclosing party) required for the exploitation of
Technology or related to the Products, and including such Confidential
Information as may relate to any Intellectual Property therein.
"Maximum Licensee Shares" means 500,000 common shares in Licensee or
Licensee's successor-in-interest.
"Maximum Biowell Shares" means 500,000 common shares in Biowell.
"Minimum Guarantee" shall mean the minimum quantity of business volume to
be generated by Licensee on behalf of Biowell as further described in the
attached Exhibit 2.
"Product" means either Licensed Product or Biowell Product as the context
requires, as specified in Exhibit 3 attached hereto.
"Product Materials" means any and all raw materials required to manufacture
the Licensed Products for resale in the Territory.
"Purchase Order" shall mean an order for Biowell Products that Licensee
submits and Biowell accepts. All Purchase Orders will be gathered and controlled
by the terms of this Agreement unless otherwise agreed to in writing by Licensee
and Biowell.
"Licensee Option" means the option issued to Biowell by Licensee as further
described in Section 4.
"Licensee Option Shares" means the number of shares of common shares in
Licensee or Licensee's successor-in-interest deliverable upon exercise of the
Licensee Option, as adjusted from time to time.
"Licensed Products" means Products as described in Exhibit 3 manufactured
by Licensee incorporating Product Materials.
"Territory" means the territories specified in Exhibit 1.
3
1. Grant of Exclusive Right
1.1 Subject to the terms and conditions of this Agreement and for so long as
Licensee is in compliance with all of its obligations hereunder, Biowell
hereby grants an exclusive right for Licensee to: (a) manufacture the
Products using only Product Materials purchased from Biowell or its
authorized designees for resale in the Territory; and (b) resell the
Products, either purchased from Biowell directly or manufactured by
Licensee using Product Materials purchased from Biowell, in the Territory
(collectively, "Exclusive License"). Licensee shall purchase Product
Materials only from Biowell or its authorized designees. The parties
understand that the exclusivity of the manufacturing arrangement requires
that Licensee give an undivided priority of the highest loyalty to the
Products in all business endeavours. No express or implied licenses of any
type for the Technology shall be granted to Licensee.
1.2 Licensee may also purchase finished completed Biowell Products from Biowell
for resell in the Territory under the procedures set forth in this
Agreement.
1.3 Upon the terms specified in this section, Biowell shall license any new
improvements, modifications or alterations related to the Products in this
Agreement to Licensee ("New Improvement License"). Subject to the terms of
this Agreement, Biowell shall also grant an exclusive license to market
every new anti-fraud products developed by Biowell while this Agreement
remains in effect ("New Product License"), Such New Product License shall
remain exclusive for 365 calendar days after the date Licensee can actually
sell the New Products in the Territory. In order to maintain the
exclusivity of such New Product License in Licensee's Territory for the
second calendar year, Licensee must provide Biowell with received gross
order for such every New Products amounting to US$100,000.00 ("Minimum
Guarantee for New Products") during the first calendar year. Licensee will
need to increase its sales by 20% annually in years 2, 3, 4, and 5 in order
to keep its exclusive license for any new products at which point these
products will fall into the same category and conditions placed on the
original licensed product line.
1.4 Support. Biowell shall provide reasonable telephonic and electronic mail
("e-mail") support to Licensee on an as needed basis, during Biowell's
regular business hours. Biowell shall appoint a liaison to communicate with
Licensee, and Licensee shall funnel its inquiries through such appointed
liaison so as to minimize any disruption to the staff of Biowell. Licensee
agrees to provide Biowell with timely written notification containing
specific details of problems to enable Biowell to diagnose such problems.
4
1.5 Professional Guidance Licensee wishes to build lab(s) in its Territory, at
its own cost, for the purpose of analyzing, testing and/or manufacturing
Licensed products, and Biowell agrees at its own discretion and at
Licensee's cost, to assist Licensee by providing Licensee with reasonable
professional guidance, technical support and training; the terms and
conditions of which guidance, support and training will be subject to the
written agreement of the parties.
2. Term
2.1 Unless terminated in accordance with the terms of this Agreement, this
Agreement shall be effective as of the date of execution of this Agreement,
and shall remain in effect for five calendar years following the execution
of this Agreement ("Initial Term"). In the event that Licensee complies
with all of the Minimum Guarantee targets described in Exhibit 2, this
Agreement shall be automatically renewed for five calendar years following
the Initial Term ("Second Term"). If during the Second Term, Licensee fails
to fully comply with the Minimum Guarantee target set forth on paragraph
(e) of Exhibit 2 in any calendar year during such Second Term, then
Licensee shall forfeit its Exclusive License and Biowell reserves the right
to terminate this Agreement with immediate effect by giving written notice
to Licensee. Licensee reserves the right to remain as the non-exclusive
Licensee with the term and conditions to be determined by both parties.
2.2 Biowell can not sell Products to Customers of the Licensee without
Licensee's prior consent and without paying licensee its fee and without
written consent by the licensee for the term of this agreement and for 1
(one) year following the expiration or termination of this Agreement, on
condition that non-exclusive License Agreement is in effect. Introducing
any new Products to these Customers may only be done with written consent
by the Licensee and shall be done on such terms as are mutually agreed by
both Licensee and Biowell.
2.3 NON CIRCUMVENTION. In the event of circumvention of this agreement by
either party directly or indirectly; the circumvented party shall be
entitled to a legal monetary penalty equal to the maximum benefit it should
realize from such a transaction affected by such breach plus any and all
expenses including but not limited to all legal costs and expenses incurred
to recover the lost revenue.
2.4 In the event of termination not attributable to Licensee Biowell will have
the responsibility to continue to honor this Agreement with Licensee in
respect of assisting Licensee to fulfill any outstanding agreements with
Customers of the Licensee. In the event of termination, Biowell will have
the responsibility to continue to honor any outstanding agreements with
customers of the Licensee and must pay Licensee or designee it's fees for
the life of the relationship with this customer as the non-exclusive
Licensee unless the parties have mutually agreed to end this relationship
at which time Biowell will not be required to pay Licensee a fee to service
the customers. Biowell only has a right to work with customers of Licensee
that are under contract all others on the contact list provided by Licensee
may not be contacted for a period of one year following any termination of
this agreement.
5
3. Price and Payment
3.1 In consideration for receiving the Exclusive License for the Initial Term,
Licensee shall issue or cause to be issued to Biowell one million five
hundred thousand shares (1,500,000 shares) of the new publicly listed
company following the proposed merger with ADNAS. This consideration will
satisfy the royalty for the Initial Term of the Exclusive License and will
be rendered to Biowell within 60 days after the closing of the proposed
merger with a public company and such shares shall be non-refundable by
Biowell under any circumstances. If for any reason, such as inability to
obtain necessary government or third party approvals for the issuance
contemplated in this Section, Biowell is unable to obtain such share
issuance or is only able to obtain a portion of such share issuance within
six (6) months following the execution of this Agreement, Biowell may
terminate this Agreement. Full and timely fulfillment of its obligation
concerning the above mentioned consideration shall entitle Licensee to
receive such training sessions and written materials from Biowell related
to Biowell Products, as Biowell in its sole discretion shall decide to
provide. Biowell reserves all Intellectual Property Rights in any materials
provided in such training.
3.2 Biowell agrees to negotiate the terms and to abide by a leak out agreement
and conditions of a standstill agreement with Licensee. Upon acceptance of
such terms and conditions by both Parties, Biowell shall execute such
standstill agreement and shall agree not to sell its shares obtained under
this agreement for a period of one calendar year after the expiration of
the standstill period. Biowell agrees that if it decides to sell such
shares, then each such transaction shall be subject to Rule 144 until
Biowell's position is outside of Rule 144 and Biowell has decreased it's
ownership in ADNAS below 10% at which time Biowell agrees to abide by a
leak out not to exceed gross selling of 5% of the previous months trading
volume. This stand still /leak out agreement will apply to any designee,
assignee or successor that may gain ownership of said shares secured by
Biowell under the terms or conditions of this Agreement.
6
3.3 The prices charged by Biowell for the Biowell Products and Product
Materials shall be those set forth as Exhibit 4. All prices are FOB
(Taiwan, ROC) and payment to Biowell from Licensee shall be due thirty
calendar days after delivery of the relevant Biowell Products and Product
Material to the carrier for shipment to Licensee. Prices are exclusive of
costs of transportation, insurance, taxes, customs, duties, landing,
storage and handling fees, and/or documents or certificates required for
exportation or importation, which will be separately itemized and billed to
Licensee in accordance with this Section 3.3. Both Parties agree to
negotiate a fee for Biowell Product and Product Materials that will make
the Licensee very competitive in the Territory with any other potential
competition that may arise over the period. This competitive rate should
not be increased more than the previous calendar years published inflation
rate in the United States or 10 percent, whichever is higher without the
consent by the Licensee.
3.4 No amounts payable to Biowell pursuant to the Agreement may be reduced due
to counterclaim, set-off, adjustment or other right which Licensee may have
against Biowell unless the Licensee has received defective product at which
time Biowell will be obligated to rectify this situation in accordance with
the relevant terms of this Agreement. Any payment not made within the due
date specified in each relevant Purchase Order shall bear interest at a
rate equal to the rate specified in the relevant Purchase Order affected by
the late payment.
3.5 Security. Biowell reserves the right to request from the Licensee a cash
deposit or letter of credit in a form to be approved by Biowell and issued
by a bank acceptable to it in an amount not exceeding the total credit
extended by Biowell for each Purchase Order, provided that Biowell reserves
the right to obtain an increase in the amount of the letter of credit in
its sole discretion (the "Letter of Credit"). Licensee agrees to
continuously renew or replace the Letter of Credit, as necessary, to keep
it in effect during the term of Biowell's extension of credit to Licensee
under any Purchase Order and shall within ten (10) Business Days of any
draw down on the Letter of Credit by Biowell, replenish any amounts drawn
down so that the amount of the Letter of Credit never falls below the
amount set forth in this Section, as the same may be increased pursuant to
this Section. Nothing contained herein shall limit or be interpreted to
limit Biowell's right.
7
4 Option and Subscription of Shares
4.1 Subject to obtaining the necessary corporate, third party and government
approvals, including without limitation, the approval by the Securities and
Futures Commission and the Investment Commission of the ROC, Licensee may
subscribe for new shares of common stock issued by Biowell in an amount up
to the Maximum Biowell Shares under the Biowell Option granted to Licensee
under this Section 4. Biowell agrees to make such shares available to
Licensee by any lawful means possible.
8
4.2 Grant of Licensee Option. For value received in the form of the mutual
grant of warrants between the parties, Licensee hereby irrevocably grants
to Biowell the Licensee Option as of the Effective Date of this Agreement
(the "Option Issue Date"). Subject to the terms and conditions hereinafter
set forth, Biowell is entitled, upon delivery of the Licensee Option at the
principal office of Licensee (or at such other place as Licensee shall
notify the Holder hereof in writing) in accordance with this Section 4, to
purchase from Licensee such number of Licensee Option Shares up to the
Maximum Licensee Shares at the strike price of US$ 2 per share or 20% below
the Average Licensee Share Price, which ever is lower. The number of shares
of Licensee Option Shares issuable pursuant to this Section 4.2 shall be
subject to adjustment pursuant to this Agreement.
4.3 Grant of Biowell Option. For value received in the form of the mutual grant
of warrants between the parties, Biowell hereby irrevocably grants to
Licensee or its lawful successor-in-interest the Biowell Option as of the
Effective Date of this Agreement (the "Option Issue Date"). Subject to the
terms and conditions hereinafter set forth, Licensee is entitled, upon
delivery of the Biowell Option at the principal office of Biowell (or at
such other place as Biowell shall notify the Holder hereof in writing) in
accordance with this Section 4, to purchase from Biowell such number of
Biowell Option Shares up to the Maximum Biowell Shares at the strike price
of US$ 3 per share or 20% below the Average Biowell Share Price, which ever
is lower. The number of shares of Biowell Option Shares issuable pursuant
to this Section 4.2 shall be subject to adjustment pursuant to this
Agreement.
4.4 Both Biowell and Licensee shall use good faith and fair dealing to
negotiate the standard industry terms and conditions for piggy back
registration rights relating to their respective Option shares and the
underlying shares, where permitted under the local laws.
4.5 Exercise Period of Option. The Licensee Option and Biowell Option shall be
exercisable, in whole or in part, from their respective Option Issue Date
and shall terminate at 5:00 p.m. Taipei time on the Business Day
immediately following the end of the Exercise Period.
4.6 Method of Exercise of Option. While the option of either Parties remain
outstanding and exercisable in accordance with this Section 4, the
respective Holder of such Option may exercise, in whole or in part, the
purchase rights evidenced hereby. Such exercise shall be effected by:
9
(a) the surrender of the respective Option, together with a duly
executed copy of the form of Notice of Election attached hereto
as Exhibit 5, to the secretary of the relevant company at its
principal office ("Exercise Notice") at the address listed in
this Agreement; and
(b) the payment to the relevant company of an amount equal to the
relevant exercise price for the relevant shares being purchased.
4.6 Upon such delivery and payment, the Holder shall be deemed to be the Holder
of record of the relevant Licensee Option Shares or Biowell Option Shares,
as the case may be, notwithstanding that the stock transfer books of the
relevant company shall then be closed or that certificates representing
such shares shall not then be actually delivered to the Holder or that, to
the extent permitted by law, the covenants undertaken in Exhibit 6 have not
all been performed.
4.7 Covenants of Both Parties. Each Party hereby covenants to the other Party
to undertake the activities listed in Exhibit 6, attached and made a part
of this Agreement.
4.8 Representations & Warranties of Both Parties. Each Party hereby warrants
and represents to the other Party that the matters stated in Exhibit 7 are
substantially true and correct as of the date of this Agreement. In
addition, Licensee represents and warrants to Biowell that it has the
necessary ability and experience to carry out the obligations assumed by it
under this Agreement with the highest standards of the industry. Licensee
further warrants that by entering into this Agreement, it is not and will
not be in breach of any express or implied obligation to any third party.
4.9 Adjustment of Shares. The number of and kind of shares purchasable upon
exercise of the relevant option and the relevant option exercise price
shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the Company
shall at any time prior to the expiration of the Exercise Period
subdivide its common shares, by split-up or otherwise, or combine
its common shares, or issue additional shares of its common
shares as a dividend, the number of Shares issuable on the
exercise of the relevant option shall forthwith be
proportionately increased in the case of a subdivision or stock
dividend, or proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the
purchase price payable per share, but the aggregate purchase
price payable for the total number of the relevant option shares
purchasable under the relevant option (as adjusted) shall remain
the same. Any adjustment under this Section 4.9(a) shall become
effective at the close of business on the date the subdivision or
combination becomes effective, or as of the record date of such
dividend, or in the event that no record date is fixed, upon the
making of such dividend.
10
(b) Reclassification, Reorganization and Consolidation. In case of
any reclassification, capital reorganization, or change in the
common shares of the relevant Company (other than as a result of
a subdivision, combination, or stock dividend provided for in
Section 4.9(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision
shall be made, and duly executed documents evidencing the same
from the Company or its successor shall be delivered to the
Holder, so that the Holder shall have the right at any time prior
to the expiration of the relevant option to purchase, at a total
price equal to that payable upon the exercise of the relevant
option, the kind and amount of shares of stock and other
securities and property receivable in connection with such
reclassification, reorganization, or change by a Holder of the
same number of shares of common stock as were purchasable by the
Holder immediately prior to such reclassification,
reorganization, or change. In any such case appropriate
provisions shall be made with respect to the rights and interest
of the Holder so that the provisions hereof shall thereafter be
applicable with respect to any shares of stock or other
securities and property deliverable upon exercise hereof, and
appropriate adjustments shall be made to the purchase price per
share payable hereunder, provided the aggregate relevant exercise
price shall remain the same.
(c) Notice of Adjustment. When any adjustment is required to be made
in the number or kind of shares purchasable upon exercise of the
relevant option, or in the relevant option exercise price, the
Company shall promptly notify the Holder of such event and of the
number of shares of the relevant option shares or other
securities or property thereafter purchasable upon exercise of
the relevant option.
(d) No Impairment. The Company and the relevant Holder will not, by
any voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed
hereunder by the Company or the Holder, respectively, but will at
all times in good faith assist in the carrying out of all the
provisions of this Section 4.9 and in the taking of all such
action as may be necessary or appropriate in order to protect the
rights of the Company and the Holder against impairment.
11
4.10 Issuance of Shares. The Company shall ensure that the relevant shares, when
issued pursuant to the exercise of the relevant option, will be duly and
validly issued, fully paid and nonassessable and free from all taxes,
liens, and charges with respect to the issuance thereof.
4.11 Transfer of Option. Subject to compliance with applicable securities laws,
the options granted hereunder and all rights (but only with all related
obligations) hereunder are transferable in whole or in part by the Holder
upon the prior written consent of the Company. The transfer shall be
recorded on the books of the Company upon (i) the surrender of the relevant
option, properly endorsed, to the Company at its principal offices, (ii)
the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer and (iii) such transferee's agreement in
writing to be bound by and subject to the terms and conditions of the
relevant option. In the event of a partial transfer, the Company shall
issue to the holders one or more appropriate new options.
5. Board of Advisor and Consultant
5.1 Dr. Sheu or his authorized nominee or Biowell will have the right to serve
as Board of Advisor in Licensee, who will have right to receive notice of
and participate in the meetings of the board of director of Licensee
without voting powers.
5.2 Biowell will invite a nominee of Licensee as a consultant to participate
meetings of the board of directors of Biowell without voting powers.
6. Licensee Obligations
6.1 Licensee will source, solicit, and attract potential customers in the
Territory for purchasing Products either made by Licensee using Product
Materials or purchased directly from Biowell and Licensee shall promote,
market, and extend the sale of the Products in the Territory to potential
customers in the Territory. Licensee shall not bind Biowell to any express
or implied legal obligation with any third parties, including Licensee's
customers, while Licensee is executing this Agreement. Licensee shall
market, promote, and resell the Products on its own behalf and not as an
agent or representative of Biowell.
6.2 Licensee will perform any and all post-sale servicing of any type for
customers. Biowell shall not perform any support services to Licensee's
customers unless both parties agree otherwise in writing.
12
6.3 If any dispute arises in the Territory involving Biowell under this
Agreement, Licensee will use its best endeavors to limit the potential
damages to Biowell that could be caused by the dispute. Further, Licensee
will inform Biowell without undue delay of the nature of the dispute and
comply with all reasonable directions of Biowell in relation thereto.
6.4 Licensee shall have the right to sub-license in its Territory in accordance
with this Section 6.4. Specifically, Licensee shall have the right to
authorize any third party to receive or utilize any benefit derived by
Licensee under this Agreement. Each, such authorization or sub-licensing
must be approved by Biowell and any resulting agreement must be co-signed
by Biowell. Biowell shall be reasonable with any such request. Any new sub
licensee shall comply in all respects with the same restrictions placed on
Licensee by Biowell in the original license.
7. Indemnity
7.1 Indemnity against any Third Party Claims. Each Party ("Indemnifying Party")
will indemnify, defend, and hold the other Party, its officers, directors,
agents, employees, and affiliates, ("Indemnity Parties") harmless from and
against any and all liabilities, damages, losses, expenses, claims,
demands, suits, fines or judgments, including reasonable attorney fees,
costs and expenses incidental thereto, which may be suffered by, accrued
against, charged to or recoverable from the Indemnity Parties, arising out
of any third party claim. Promptly after receipt by the Indemnity Parties
of a threat of any action, or a notice of the commencement or filing of any
action against which the Indemnity Party may be indemnified hereunder, the
Indemnity Party shall give written notice thereof to Indemnifying Party.
Indemnifying Party shall have sole control of the defense and of all
negotiations for settlement of such action. The indemnity provided herein
shall not apply if the alleged claim arises from any action or inaction
however attributable to Indemnity Parties.
8.1 Biowell, within the limitations contained in this Agreement, agrees to use
best efforts to sell to Licensee, respectively, such quantities of Product
and Product Materials as Licensee may order in accordance herewith.
8.2 Purchase of Products. Subject to the terms and conditions of this
Agreement, Biowell hereby agrees to sell and Licensee agrees to purchase
the Products and Product Materials during the term of this Agreement.
8.3 Licensee agrees to meet the relevant Minimum Guarantee as set forth in
Exhibit 2 attached to this Agreement for each relevant sales period
described in Exhibit 2. Failure to meet the Minimum Guarantee on any single
occasion constitutes a material breach of this Agreement permitting Biowell
to terminate this Agreement after written notice has been given to the
Licensee and the Licensee has been given 60 days to comply with the
relevant Minimum Guarantee not met by Licensee by either making up the
shortfall in cash payable to Biowell or new Purchase Orders in order to
rectify any potential breach of this agreement.
8.4 Forecast. Approximately thirty (30) Business Days prior to the first
calendar day of each calendar month during the term of this Agreement,
Licensee will provide Biowell with a [six (6)] month binding
forward-looking rolling forecast for internal planning requirements (the
"Forecast"). Licensee shall provide the first of such Forecast three (3)
months after the signing date of this Agreement.
8.5 Purchase Orders. Purchases shall be initiated by Licensee's written or
electronically dispatched Purchase Orders referencing the quantity, the
Product, applicable price, shipping instructions and requested Delivery
Dates. All Purchase Orders for Products and Product Materials placed by
Licensee hereunder shall be governed by the terms and conditions of this
Agreement. In the event of a conflict between the provisions of this
Agreement and the terms and conditions of Licensee's Purchase Order or
Biowell's acknowledgement or other written or oral communications, the
provisions of this Agreement shall prevail and any such conflicting terms
and conditions are hereby rejected. Biowell shall use reasonable efforts to
fill orders promptly, but shall not be liable for any damage to Licensee or
any third party for failure to fill any orders, or for any delay in
delivery or error in filling any orders. Biowell will use its best efforts
to accept each Purchase Order issued by Licensee. Biowell will ship all
Product within the Lead Time unless Licensee's Purchase Order specifically
states a delivery schedule for Product different from such lead time and
such delivery schedule is accepted in writing by Biowell.
8.6 Purchase Order Information. Purchase Orders issued by Licensee shall, to
the extent necessary for Biowell to fulfill the terms thereof, include: (i)
description of Products and Product Materials, (ii) quantity of Products
and/or Product Materials, (iii) price per unit of Products and Product
14
Materials (iv) total order price, (v) Delivery Date, and (vi) delivery
location. Except as otherwise explicitly provided in this Agreement, any
changes to or rescheduling of an accepted Purchase Order must be mutually
agreed and incorporated into a written Change Order referencing the
original Purchase Order.
8.7 Confirmation. Within five calendar days of its receipt of the Purchase
Order, Licensor must send written notice to LICENSEE for acceptance of the
order ("Confirmation");
8.8 Delivery Terms. All Products delivered to Licensee shall be FOB (Taipei,
Taiwan, ROC) or other place of shipment as specified in writing by Licensee
and agreed to by Biowell. Biowell may ship partial orders provided Biowell
notifies Licensee and Licensee agrees prior to shipment. Licensee's
Purchase Order shall specify the carrier or means of transportation or
routing, and Biowell will comply with Licensee's instructions. If Licensee
fails to provide shipping instructions, Biowell shall select the best
available carrier, on a commercially reasonable basis.
8.9 Change Orders and Rescheduling. Any modification to a Purchase Order shall
be made in writing by an authorized representative of Licensee ("Change
Order") and sent to Biowell, and such Change Order shall be subject to
acceptance in writing by Biowell and shall not be binding until such
acceptance.
9. Non-competition & Non-solicitation
9.1 During the term of this Agreement, Biowell shall not solicit Customers
solely developed by Licensee. Upon any termination of this Agreement, the
above restriction shall apply for a period of one year with the exception
of customers under contract to receive Product from Biowell. Biowell shall
be entitled to a detailed and exhaustive list of all contact information
for any and all Customers under contract to receive Biowell Products. This
is due to Biowell within five Business Days of the date of termination of
this Agreement and will follow provisions as described in section 2 (2.4).
9.2 Customers of the Licensee are the sole property of the licensee and are not
under any restraints or conditions implied by Biowell and will not be
contacted or solicited by Biowell for a period of one year following any
termination or dissolution of this agreement with the exception of 2 (2.4).
9.3 Licensee and Biowell shall not, without the prior written consent from the
other party directly or indirectly (including without limitation, through
any Affiliate of either party), (i) solicit or request any person who is at
the time an employee of or a consultant of the other party to leave the
employment of or terminate such person's relationship with that party or
(ii) employ, hire, engage or be associated with, or endeavor to entice away
from the respected party any such person.
15
9.4 Licensee or Biowell shall not, directly or indirectly (including without
limitation, through any Affiliate of either party) (i) solicit any existing
customer of either party or any entity that shall have been a customer of
that party at any time within twelve (12) months of terminating this
agreement to cease doing business in whole or in part with that party
(ii)?intentionally attempt to limit or interfere with any business
agreement or relationship existing between either party and/or its
Affiliates with any third party; or (iii) disparage the business reputation
of the party (or its management team) or take any actions that are harmful
to the parties goodwill with its customers, providers, vendors, employees,
the media or the public.
10. Confidentiality
10.1 Licensee shall not use or divulge or communicate to any person (other than
those whose province it is to know the same or as permitted or contemplated
by this Agreement or with the written approval of the other party or as may
be required by law):
(i) any Confidential Information ; or
(ii) any of the terms of this Agreement
10.2 Licensee shall prevent the unauthorised publication or disclosure of any
such information, materials or documents and ensure that any person,
subject to the written approval of Biowell, to whom the information,
materials or documents are disclosed is aware that the same is confidential
and is covered by a similar duty to maintain confidentiality.
10.3 Licensee shall ensure that its employees are aware of and comply with the
confidentiality and non-disclosure provisions contained in this Section and
shall indemnify Biowell against any loss or damage which Biowell may
sustain or incur as a result of any breach of confidence by Licensee's
employees.
10.4 The provisions of this section 10 shall survive the termination of this
Agreement with 10 years.
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11. Reservation of Rights
11.1 Biowell reserves the right at any time:
( i ) to make modifications or additions to the Technology, Product
Materials, and Products in respect to any designs as Biowell may in its
discretion determine; and such modifications or additions will be automatically
granted to the licensee and will be considered an improvement to the licensed
product line;
(ii) to discontinue selling Product Materials and Products if those
products or parts therefor are discontinued or replaced except for those
Products and Product Materials accepted to be delivered under a confirmed
purchase order; and
(iii) to require Licensee either not to use or to cease to use any
advertising or promotional material in respect to the Product Materials and
Products which Biowell considers not to be in Biowell's best interests, upon 30
days written notice to licensee.
12. Legal Relationship
12.1 Nothing herein shall contain any facts as to suggest that Biowell and
Licensee are engaging in a joint venture or partnership. Licensee shall
have no authority to bind Biowell in any legal obligation. Licensee shall
only contract with customers on its own behalf.
13. Termination
Notwithstanding anything else contained herein, this Agreement may be
terminated.
13.1 Biowell may terminate this agreement if the Licensee: (a) sells, assigns,
attempts to sell or assign, or ceases to carry on, its main business or the
business related to this Agreement unless parties mutually agree otherwise;
(b) fails to meet any Minimum Guarantee target (not including the relevant
Minimum Guarantee for New Products under Section 1.3, which shall be
subject to Section 13.6) during the then current term of the Agreement; or
(c) fails to comply with any of its obligations under this Agreement;
13.2 Immediately by Biowell if the control of Licensee has been transferred
without the prior written approval of Biowell which approval shall not be
unreasonably denied;
13.3 Immediately by either if the other party becomes insolvent or starts
negotiations about re-composition with its creditors or a petition in
bankruptcy is filed by or against it or it makes an assignment for the
benefit of its creditors;
17
13.4 by either party after having given 60 days notice in writing to the other
party if the other party breach any of its material obligations under this
Agreement and such breach is not cured within the above-mentioned period;
13.5 Licensee shall not be entitled to any compensation (whether for loss of
distribution rights, goodwill or otherwise) as a result of the termination
of this Agreement in accordance with its terms.
13.6 Except as otherwise stated herein, in case Biowell has ground(s) to
terminate this Agreement because Licensee had failed to meet any Minimum
Guarantee target (not including the relevant Minimum Guarantee for New
Products under Section 1.3) during the then current term of the Agreement,
Biowell (in addition to asserting any legal right and remedy at law or in
equity) shall have the right to terminate the Exclusive License granted in
this Agreement in which case such Agreement shall remain effective to the
extent that Licensee shall remain as a non-exclusive Licensee, with the
same shipping terms and conditions and the same price for Products for
existing Customers as of the date of termination, but price for the
Products may be increased by up to 10% for new Customer orders only. All
other terms and conditions shall be subjected to the Parties' agreement.
For the avoidance of any doubt, such right to remain as a non-exclusive
Licensee shall not be available to Licensee in case Biowell terminates this
Agreement for any other reason specified in this agreement.
13.7 Remedy of Breach and Alternative to Termination: Licensee shall have 60
days to remedy/cure any potential breach or violation of terms in this
agreement from the date it receives written notification by courier or US
mail. Biowell hereby grants to Licensee a special termination-option to
convert its Licensee designation to that of a non-exclusive manufacturer in
the event of a non-curable breach. As an alternative to forced termination,
Licensee may, at its own discretion, exercise this option prior to the
initiation of termination. Licensee shall have this option available, in
lieu of termination for any reason and at its sole discretion, to become a
non-exclusive manufacturer of Biowell and/or a Licensee for the Products
and Technology in the Territory on such terms and conditions to be
determined by the parties.
14. Effect of Termination
On the termination of this Agreement:
14.1 All rights and obligations of the parties hereunder shall automatically
terminate except for such rights of action as shall have accrued prior to
such termination and any obligation which expressly or by implication are
intended to come into or continue in force on or after such termination;
18
14.2 Licensee shall, at its own expense, return to Biowell or otherwise dispose
of as Biowell may instruct, all technical and promotional materials and
other documents and papers whatsoever sent to Licensee and relating to the
Technology, Product Materials and Products or the business of Biowell
(other than correspondence between the parties) and all property of Biowell
in Licensee's possession or under its control.
15. Exclusion of Liability
15.1 Except as set out in this Agreement or to the extent prohibited by law, all
conditions, warranties and representations, expressed or implied by (i)
statute, (ii) civil code or (iii) otherwise, in relation to any Technology,
Product Materials and Products, are excluded by Biowell.
15.2 Except as otherwise provided in this Agreement, Biowell shall not be liable
to Licensee, whether for negligence, breach of contract, misrepresentation
or otherwise, for:
(a) loss or damage incurred by Licensee as a result of third party
claims (whether in relation to Intellectual Property Rights or
otherwise); or
(b) indirect or consequential damage suffered by Licensee, including,
without limitation, loss of profits, goodwill, business opportunity or
anticipated saving.
15.3 Biowell shall not be liable for any loss, damages, expenses or liabilities
arising from an infringement or claim of infringement of third party rights
in the Intellectual Property Rights subsisting in the Technology, Product
Materials and Products howsoever arising in connection with this Agreement.
15.4 Limited Warranty.
Biowell warrants that all Products and Product Materials sold by Biowell to
Licensee under the terms of this Agreement will be materially free from
defects in workmanship and materials and substantially conform to the
relevant Specifications under normal use and service for a period of [
twelve 12 ] months after delivery to the carrier for shipment to Licensee.
Within five Business Days of Licensee's receipt of the relevant Product
Materials and Products, Licensee shall notify Biowell if any Product
Materials or Products contains a material defect in materials or
workmanship, or otherwise fails to materially conform to the Specifications
during the warranty period. Biowell shall at its expense correct any such
defect by repairing such defective Product Materials and Products or, at
Biowell's option, by delivering to Licensee an equivalent Product Materials
and Products replacing such defective Product Materials and Products.
Biowell may inspect and verify such alleged defect in the Territory and
Licensee will not need to ship the alleged defective items to Taiwan. Such
remedies for any breach of warranty as listed in this Section 15.4 shall be
the sole and exclusive remedies available to Licensee at law or in equity.
19
15.5 WARRANTY EXCLUSIONS. BIOWELL SHALL NOT BE LIABLE UNDER ANY WARRANTY IF ITS
TESTING AND EXAMINATION DISCLOSES THAT THE ALLEGED DEFECT IN THE PRODUCT OR
PRODUCT MATERIAL DOES NOT EXIST OR WAS CAUSED BY LICENSEE'S OR ITS END
USER'S MISUSE, NEGLECT, IMPROPER INSTALLATION OR TESTING, UNAUTHORIZED
ATTEMPTS TO REPAIR, OR BY ACCIDENT, FIRE, LIGHTNING OR OTHER HAZARD.
15.6 Biowell will be liable for the product manufactured by Biowell. Biowell
will cause such action to take place as necessary that will grant the
representative the rights to handle product liability for clients in the
territory. Licensee's customers are not required to go to licensor directly
to file a claim against product liability. Licensee will handle the
liability on behalf of the licensor. All expenses in this matter shall be
paid by licensor or licensor's insure.
15.7 EXCEPT FOR THE EXPRESS WARRANTIES CREATED UNDER THIS AGREEMENT AND EXCEPT
AS SET FORTH OTHERWISE IN THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE
DAMAGES OF ANY KIND OR NATURE ARISING OUT OF THIS AGREEMENT OR THE SALE OF
PRODUCTS, WHETHER SUCH LIABILITY IS ASSERTED ON THE BASIS OF CONTRACT, TORT
(INCLUDING THE POSSIBILITY OF NEGLIGENCE OR STRICT LIABILITY), OR
OTHERWISE, EVEN IF THE PARTY HAS BEEN WARNED OF THE POSSIBILITY OF ANY SUCH
LOSS OR DAMAGE, AND EVEN IF ANY OF THE LIMITED REMEDIES IN THIS AGREEMENT
FAIL OF THEIR ESSENTIAL PURPOSE.
In no event shall the aggregate liability of Biowell in connection with
this Agreement, or any other materials or services provided under this
Agreement, whether arising in contract, tort or under any other legal
theory (including, without limitation, negligence or strict liability),
exceed the total value of the relevant Purchase Order.
15.7 Licensee will not pass through to its retailers or customers or any other
third party any warranties made by Biowell hereunder and will expressly
indicate to its retailers or customers that they must look solely to
Licensee in connection with any problems, warranty claims or other matters
concerning the Product.
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16. Intellectual Property Rights
16.1 All Intellectual Property Rights, including without limitation patents,
designs, utility models, copyrights trade or service marks, Know-How, trade
secrets and other proprietary information, in or relating to the
Technology, Product Materials and Products and any other products and
services related thereto are and shall remain the sole and exclusive
property of Biowell. Licensee shall have no right to obtain or grant any
licenses with respect to the Technology, Products, Product Materials, or
any other related products or services or any of the Intellectual Property
Rights therein or relating thereto.
16.2 Licensee shall notify Biowell as soon as it receives any knowledge of any
illegal or unauthorized use of any of the Technology and Products or any of
the Intellectual Property Rights therein or relating thereto and will
assist Biowell (at Biowell's expense) in taking all steps necessary to
defend Biowell's rights therein.
16.3 Licensee shall not in any way: (a) modify, disassemble, decompile, or
reverse engineer the Technology, Product Materials, and Products and any
related products supplied hereunder; (b) transfer possession of any
Technology, Product Materials, and Products and any related products
supplied hereunder to another party, except as expressly permitted herein;
or (c) use the Technology, Product Materials, and Products and any related
products supplied hereunder in any way not expressly provided for this
Agreement. There will be no implied licenses.
16.4 Subject to the express prior written approval of Biowell, Licensee may use
the trademarks and logos of Biowell for the sole purpose of marketing,
reselling and promoting the Products in the Territory under, and during the
term of, this Agreement.
16.5 The provisions of this section 16 will survive the termination of this
Agreement.
17. General
17.1 Governing Law and Dispute Resolution. This Agreement shall be governed by,
construed and take effect in accordance with ROC law without regard to the
choice of law principles thereof. Any dispute, controversy, or claims
arising out of or relating to this Agreement which cannot be resolved
within sixty (60) business days shall be exclusively submitted to final
resolution by arbitration pursuant to the Arbitration Law in Hong Kong.
17.2 Counterparts and Facsimile Execution. This Agreement may be executed in any
number of counterparts, each of which will be an original but all of which
together will form one agreement. Delivery of an executed copy of this
Agreement by facsimile transmission will have the same effect as delivery
of an original signed counterpart.
21
17.3 Waiver. The failure of either party hereto to insist upon the strict
adherence to any term of this Agreement on any occasion shall not be
considered as a waiver of any right hereunder nor shall it deprive that
party of the right to insist upon the strict adherence to that term or any
other term of this Agreement at some other time.
17.4 Taxes & Fees. Licensee, and not Biowell, will be responsible for all taxes
and expenses incurred in Licensee's business, including Licensee's business
with Biowell. If Licensee is required by law to make any deduction or
withholding from any payment due hereunder to Biowell, then,
notwithstanding anything in this agreement to the contrary, the gross
amount payable by Licensee to Biowell, will be increased so that, after any
such deduction or withholding for taxes, the net amount received by Biowell
will not be less than the amount that would have received had such
deduction or withholding not been required.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in two
copies of which each has received one.
Biowell Technology Inc. Applied DNA Sciences, Inc.
By: /s/ JUN-JEI SHEU By: /s/ LARRY LEE
---------------- -------------
Name: Jun-Jei Sheu Name: Larry Lee
Title: Chairman & CEO Title: President
Date: 08 Oct. 2002 Date: 07 Oct. 2002
22
Exhibit 10.3
INDEMNITY AGREEMENT
This Indemnity Agreement ("Agreement") is made as of November 8, 2002, by
and between Applied DNA Sciences, Inc., a Nevada corporation (the "Company"),
and Larry Lee ("Indemnitee"), a director and/or officer or key executive,
employee or consultant of the Company, or a person serving at the request of the
Company as a director, officer, employee or agent of another enterprise.
RECITALS
A. The Indemnitee is currently serving or has agreed to serve as a director
and/or officer of the Company and in such capacity has rendered and/or will
render valuable services to the Company.
B. The Company has investigated the availability and sufficiency of
liability insurance and applicable statutory indemnification provisions to
provide its directors and officers with adequate protection against various
legal risks and potential liabilities to which such individuals are subject due
to their positions with the Company and has concluded that such insurance may be
unavailable or too costly, and even if purchased it, and the statutory
provisions, may provide inadequate and unacceptable protection to certain
individuals requested to serve as its directors and/or officers.
C. It is essential to the Company that it attract and retain as officers
and directors the most capable persons available and in order to induce and
encourage highly experienced and capable persons such as the Indemnitee to serve
or continue to serve as a director and/or officer of the Company, the Board of
Directors has determined, after due consideration and investigation of the terms
and provisions of the Agreement and the various other options available to the
Company and the Indemnitee in lieu hereof, that this Agreement is not only
reasonable and prudent but necessary to promote and ensure the best interests of
the Company and its stockholders.
NOW, THEREFORE, in consideration of the services or continued services of
the Indemnitee and in order to induce the Indemnitee to serve or continue to
serve as director and/or officer, the Company and the Indemnitee do hereby agree
as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending or
completed inquiry, hearing, investigation, action, suit, arbitration or other
alternative dispute resolution mechanism or proceeding, formal or informal,
whether brought in the name of the Company or otherwise and whether of a civil,
1
criminal or administrative or investigative nature, by reason of the fact that
the Indemnitee is or was a director and/or officer of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another enterprise, whether or not he/she is serving in such capacity at the
time any liability or expense is incurred for which indemnification or
reimbursement is to be provided under this Agreement.
(b) The term "Expenses" includes, without limitation: attorneys' fees,
costs, disbursements and retainers; accounting and witness fees; fees of
experts; travel and deposition costs; transcript costs, filing fees, telephone
charges, postage, copying costs, delivery service fees and other expenses and
obligations of any nature whatsoever paid or incurred in connection with any
investigations, judicial or administrative proceedings and appeals, amounts paid
in settlement by or on behalf of Indemnitee, and any expenses of establishing a
right to indemnification, pursuant to this Agreement or otherwise, including
reasonable compensation for time spent by the Indemnitee in connection with the
investigation, defense or appeal of a Proceeding or action for indemnification
for which he/she is not otherwise compensated by the Company or any third party.
The term "Expenses" does not include the amount of judgments, fines, penalties
or ERISA excise taxes actually levied against the Indemnitee.
2. Agreement to Serve. The Indemnitee agrees to serve or to continue to
serve as a director and/or officer of the Company for so long as he/she is duly
elected or appointed or until such time as he/she tenders his/her resignation in
writing or is removed as a director and/or officer. However, nothing contained
in this Agreement shall be construed as giving Indemnitee any right to be
retained in the employ of the Company, any subsidiary or any other person.
3. Indemnification in Third Party Actions. The Company shall indemnify the
Indemnitee if the Indemnitee is a party to or threatened to be made a party to
or is otherwise involved in any Proceeding (other that a Proceeding by or in the
name of the Company to procure a judgment in its favor), by reason of the fact
that the Indemnitee is or was a director and/or officer of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another enterprise, against all Expenses, judgments, fines, penalties
and ERISA excise taxes actually and reasonably incurred by the Indemnitee in
connection with the defense or settlement of such a Proceeding, to the fullest
extent permitted by applicable corporate law and the Company's Articles of
2
Incorporation; provided that any settlement of a Proceeding be approved in
writing by the Company.
4. Indemnification in Proceedings by or In the Name of the Company. The
Company shall indemnify the Indemnitee if the Indemnitee is a party to or
threatened to be made a party to or is otherwise involved in any Proceeding by
or in the name of the Company to procure a judgment in its favor by reason of
the fact that the Indemnitee was or is a director and/or officer of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or agent of another enterprise, against all Expenses, judgments, fines
penalties and ERISA excise taxes actually and reasonably incurred by the
Indemnitee in connection with the defense or settlement of such a Proceeding, to
the fullest extent permitted by applicable corporate law and the Company's
Articles of Incorporation.
5. Conclusive Presumption Regarding Standards of Conduct. The Indemnitee
shall be conclusively presumed to have met the relevant standards of conduct, if
any, as defined by applicable corporate law, for indemnification pursuant to
this Agreement, unless a determination is made that the Indemnitee has not met
such standards (i) by the Board of Directors by a majority vote of a quorum
thereof consisting of directors who were not parties to the Proceeding due to
which a claim is made under this Agreement, (ii) by the shareholders of the
Company by majority vote of a quorum thereof consisting of shareholders who are
not parties to the Proceeding due to which a claim is made under this Agreement,
(iii) in a written opinion by independent counsel, selection of whom has been
approved by the Indemnitee in writing, or (iv) by a court of competent
jurisdiction.
6. Indemnification of Expenses of Successful Party. Notwithstanding any
other provision of the Agreement, to the extent that the Indemnitee has been
successful in defense of any Proceeding or in defense of any claim, issue or
matter therein, on the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without an
admission of liability, the Indemnitee shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by applicable
corporate law.
7. Advances of Expenses. The Expenses incurred by the Indemnitee in any
3
Proceeding shall be paid promptly by the Company in advance of the final
disposition of the Proceeding at the written request of the Indemnitee to the
fullest extent permitted by applicable corporate law; provided that the
Indemnitee shall undertake in writing to repay any advances if it is ultimately
determined that the Indemnitee is not entitled to indemnification.
8. Partial Indemnification. If the Indemnitee is entitled under any
provision of the Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties or ERISA excise taxes actually and
reasonably incurred by him/her in the investigation, defense, appeal or
settlement of any Proceeding but not, however, for the total amount of his/her
Expenses, judgments, fines, penalties or ERISA excise taxes, the Company shall
nevertheless indemnify the Indemnitee for the portion of Expenses, judgments,
fines, penalties or ERISA excise taxes to which the Indemnitee is entitled.
9. Indemnification Procedure; Determination of Right to
Indemnification.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of any Proceeding, the Indemnitee shall, if a claim in respect
thereof is to be made against the Company under this Agreement, notify the
Company of the commencement thereof in writing. The omission to so notify the
Company, however, shall not relieve it from any liability which it may have to
the Indemnitee otherwise than under this Agreement.
(b) If a claim for indemnification or advances under this Agreement is
not paid by the Company within thirty (30) days of receipt of written notice,
the rights provided by this Agreement shall be enforceable by the Indemnitee in
any court of competent jurisdiction. The burden of proving by clear and
convincing evidence that indemnification or advances are not appropriate shall
be on the Company. Neither the failure of the directors or stockholders of the
Company or its independent legal counsel to have made a determination prior to
the commencement of such action that indemnification or advances are proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct, if any, nor an actual determination by the directors or shareholders of
the Company or independent legal counsel that the Indemnitee has not met the
applicable standard of conduct, shall be a defense to the action or create a
presumption for the purpose of an action that the Indemnitee has not been the
applicable standard of conduct.
(c) The Indemnitee's Expenses incurred in connection with any
4
Proceeding concerning his/her right to indemnification or advances in whole or
part pursuant to this Agreement shall also be indemnified by the Company
regardless of the outcome of such Proceeding.
(d) With respect to any Proceeding for which indemnification is
requested, the Company will be entitled to participate therein at its own
expense and, except as otherwise provided below, to the extent that it may wish,
the Company may assume the defense thereof, with counsel satisfactory to the
Indemnitee. After notice from the Company to the Indemnitee of its election to
assume the defense of a Proceeding, the Company will not be liable to the
Indemnitee for any Expenses subsequently incurred by the Indemnitee in
connection with the defense thereof, other than as provided below. The Company
shall not settle any Proceeding in any manner which would impose any penalty or
limitation on the Indemnitee without the Indemnitee's written consent. The
Indemnitee shall have the right to employee his/her counsel in any Proceeding,
but the fees and expenses of such counsel incurred after notice from the Company
of its assumption of the defense of the Proceeding shall be at the expense of
the Indemnitee, unless (i) the employment of counsel by the Indemnitee has been
authorized by the Company, (ii) the Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and the Indemnitee
in the conduct of the defense of a Proceeding, in each of which cases the fees
and expenses of the Indemnitee's counsel shall be advances by the Company. The
Company shall not be entitled to assume the defense of any Proceeding brought by
or on behalf of the Company or as to which the Indemnitee has concluded that
there may be a conflict of interest between the Company and the Indemnitee.
10. Limitations on Indemnification. No payments pursuant to this Agreement
shall be made by the Company:
(a) To indemnify or advance funds to the Indemnitee expenses with
respect to Proceeding initiated or brought voluntarily by the Indemnitee and not
by way of defense, except with respect to Proceedings brought to establish or
enforce a right to indemnification under this Agreement or any other statute or
law or otherwise as required under applicable corporate law, but such
indemnification or advancement of expenses may be provided by the Company in
specific cases if the Board of Directors finds it to be appropriate;
(b) To indemnify the Indemnitee for any Expenses, judgment, fines,
penalties or ERISA excise taxes sustained in any Proceeding for which payment is
actually made to the Indemnitee under a valid and collectible insurance policy,
except in respect of any excess beyond the amount of payment under such
insurance;
5
(c) To indemnify the Indemnitee for any Expenses, judgment, fines,
and/or penalties sustained in any Proceeding for an accounting of profits made
from the purchase or sale by the Indemnitee of securities of the Company
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934, the rules and regulations promulgated thereunder and amendments thereto or
similar provisions of any federal, state or local statutory law; and (d) If a
court of competent jurisdiction finally determines that any indemnification
hereunder is unlawful.
11. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees that, as long as the
Indemnitee continues to serve as a director and/or officer of the Company and
thereafter as long as the Indemnitee may be subject to any possible Proceeding,
the Company, subject to subsection (c), shall promptly obtain and maintain in
full force and effect directors' and officers' liability insurance ("D&O
Insurance") in reasonable amounts from established and reputable insurers.
(b) In all D&O insurance policies, the Indemnitee shall be named as an
insured in such a manner as to provide the Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors and/or officers.
(c) Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines, in its
sole discretion, that such insurance is not reasonably available, the premium
costs for such insurance is so limited by exclusions that it provides an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.
12. Indemnification Hereunder Not Exclusive. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which the
Indemnitee may be entitled under the Articles of Incorporation, Bylaws, any
agreement, vote of shareholders or disinterested directors, provision of
applicable corporate law, or otherwise, both as to action in his/her official
capacity and as to action in another capacity on behalf of the Company while
holding such office.
13. Successors and Assigns. This Agreement shall be binding upon, and shall
6
inure to the benefit of the Indemnitee and his/her heirs, executors,
administrators and assigns, whether or not Indemnitee has ceased to be a
director or officer, and the Company and its successors and assigns.
14. Severability. Each and every paragraph, sentence, term and provision
hereof is separate and distinct so that if any paragraph, sentence, term or
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of any other paragraph, sentence, term or provision hereof. To
the extent required, any paragraph, sentence, term or provision of this
Agreement shall be modified by a court of competent jurisdiction to preserve its
validity and to provide the Indemnitee with the broadest possible
indemnification permitted under applicable corporate law.
15. Savings Clause. If this Agreement or any paragraph, sentence, term or
provision hereof is invalidated on any ground by any court of competent
jurisdiction, the Company shall nevertheless indemnify the Indemnitee as to any
Expenses, judgments, fines, penalties for ERISA excise taxes incurred with
respect to any Proceeding to the full extent permitted by any applicable
paragraph, sentence, term or provision of this Agreement that has not been
invalidated or by any other applicable provision of applicable corporate law.
16. Interpretation; Governing Law. This Agreement shall be construed as a
whole and in accordance with its fair meaning. Headings are for convenience only
and shall not be used in construing meaning. This Agreement shall be governed
and interpreted in accordance with the laws of the State of Delaware.
17. Amendments. No amendment, waiver, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
the party against whom enforcement is sought. The indemnification rights
afforded to the Indemnitee hereby are contract rights and may not be diminished,
eliminated or otherwise affected by amendments to the Articles of Incorporation,
Bylaws, or by other agreements, including D&O Insurance policies.
18. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
7
shall become effective when one or more counterparts have been signed by each
party and delivered to the other.
19. Notices. Any notice required to be given under this Agreement shall be
directed: TO: Applied DNA Sciences, Inc.
With a copy to:
Andrea Cataneo, Esq.
81 Meadowbrook Road
Randolph, NJ 07869
TO: Lawrence Lee
(Insert home address)
or to such other address as either shall designate in writing.
IN WITNESS WHEREOF, the parties have executed this Indemnity Agreement as
of the date first written above.
This Indemnity Agreement ("Agreement") is made as of November 13, 2003, by
and between Applied DNA Sciences, Inc. a Nevada corporation ("Company"), and
Robin B. Hutchison ("Indemnitee"), a director and/or officer or key executive,
employee or consultant of the Company, or a person serving at the request of the
Company as a director, officer, employee or agent of another enterprise.
RECITALS
A. The Indemnitee is currently serving or has agreed to serve as a director
and/or officer of the Company and in such capacity has rendered and/or will
render valuable services to the Company.
B. The Company has investigated the availability and sufficiency of
liability insurance and applicable statutory indemnification provisions to
provide its directors and officers with adequate protection against various
legal risks and potential liabilities to which such individuals are subject due
to their positions with the Company and has concluded that such insurance may be
unavailable or too costly, and even if purchased it, and the statutory
provisions, may provide inadequate and unacceptable protection to certain
individuals requested to serve as its directors and/or officers.
C. It is essential to the Company that it attract and retain as officers
and directors the most capable persons available and in order to induce and
encourage highly experienced and capable persons such as the Indemnitee to serve
or continue to serve as a director and/or officer of the Company, the Board of
Directors has determined, after due consideration and investigation of the terms
and provisions of the Agreement and the various other options available to the
Company and the Indemnitee in lieu hereof, that this Agreement is not only
reasonable and prudent but necessary to promote and ensure the best interests of
the Company and its stockholders.
NOW, THEREFORE, in consideration of the services or continued services
of the Indemnitee and in order to induce the Indemnitee to serve or continue to
serve as director and/or officer, the Company and the Indemnitee do hereby agree
as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending or
completed inquiry, hearing, investigation, action, suit, arbitration or other
alternative dispute resolution mechanism or proceeding, formal or informal,
1
whether brought in the name of the Company or otherwise and whether of a civil,
criminal or administrative or investigative nature, by reason of the fact that
the Indemnitee is or was a director and/or officer of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another enterprise, whether or not he/she is serving in such capacity at the
time any liability or expense is incurred for which indemnification or
reimbursement is to be provided under this Agreement.
(b) The term "Expenses" includes, without limitation: attorneys' fees,
costs, disbursements and retainers; accounting and witness fees; fees of
experts; travel and deposition costs; transcript costs, filing fees, telephone
charges, postage, copying costs, delivery service fees and other expenses and
obligations of any nature whatsoever paid or incurred in connection with any
investigations, judicial or administrative proceedings and appeals, amounts paid
in settlement by or on behalf of Indemnitee, and any expenses of establishing a
right to indemnification, pursuant to this Agreement or otherwise, including
reasonable compensation for time spent by the Indemnitee in connection with the
investigation, defense or appeal of a Proceeding or action for indemnification
for which he/she is not otherwise compensated by the Company or any third party.
The term "Expenses" does not include the amount of judgments, fines, penalties
or ERISA excise taxes actually levied against the Indemnitee.
2. Agreement to Serve. The Indemnitee agrees to serve or to continue to
serve as a director and/or officer of the Company for so long as he/she is duly
elected or appointed or until such time as he/she tenders his/her resignation in
writing or is removed as a director and/or officer. However, nothing contained
in this Agreement shall be construed as giving Indemnitee any right to be
retained in the employ of the Company, any subsidiary or any other person.
3. Indemnification in Third Party Actions. The Company shall indemnify the
Indemnitee if the Indemnitee is a party to or threatened to be made a party to
or is otherwise involved in any Proceeding (other that a Proceeding by or in the
name of the Company to procure a judgment in its favor), by reason of the fact
that the Indemnitee is or was a director and/or officer of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another enterprise, against all Expenses, judgments, fines, penalties
and ERISA excise taxes actually and reasonably incurred by the Indemnitee in
2
connection with the defense or settlement of such a Proceeding, to the fullest
extent permitted by applicable corporate law and the Company's Articles of
Incorporation; provided that any settlement of a Proceeding be approved in
writing by the Company.
4. Indemnification in Proceedings by or In the Name of the Company. The
Company shall indemnify the Indemnitee if the Indemnitee is a party to or
threatened to be made a party to or is otherwise involved in any Proceeding by
or in the name of the Company to procure a judgment in its favor by reason of
the fact that the Indemnitee was or is a director and/or officer of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or agent of another enterprise, against all Expenses, judgments, fines
penalties and ERISA excise taxes actually and reasonably incurred by the
Indemnitee in connection with the defense or settlement of such a Proceeding, to
the fullest extent permitted by applicable corporate law and the Company's
Articles of Incorporation.
5. Conclusive Presumption Regarding Standards of Conduct. The Indemnitee
shall be conclusively presumed to have met the relevant standards of conduct, if
any, as defined by applicable corporate law, for indemnification pursuant to
this Agreement, unless a determination is made that the Indemnitee has not met
such standards (i) by the Board of Directors by a majority vote of a quorum
thereof consisting of directors who were not parties to the Proceeding due to
which a claim is made under this Agreement, (ii) by the shareholders of the
Company by majority vote of a quorum thereof consisting of shareholders who are
not parties to the Proceeding due to which a claim is made under this Agreement,
(iii) in a written opinion by independent counsel, selection of whom has been
approved by the Indemnitee in writing, or (iv) by a court of competent
jurisdiction.
6. Indemnification of Expenses of Successful Party. Notwithstanding any
other provision of the Agreement, to the extent that the Indemnitee has been
successful in defense of any Proceeding or in defense of any claim, issue or
matter therein, on the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without an
admission of liability, the Indemnitee shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by applicable
corporate law.
3
7. Advances of Expenses. The Expenses incurred by the Indemnitee in any
Proceeding shall be paid promptly by the Company in advance of the final
disposition of the Proceeding at the written request of the Indemnitee to the
fullest extent permitted by applicable corporate law; provided that the
Indemnitee shall undertake in writing to repay any advances if it is ultimately
determined that the Indemnitee is not entitled to indemnification.
8. Partial Indemnification. If the Indemnitee is entitled under any
provision of the Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties or ERISA excise taxes actually and
reasonably incurred by him/her in the investigation, defense, appeal or
settlement of any Proceeding but not, however, for the total amount of his/her
Expenses, judgments, fines, penalties or ERISA excise taxes, the Company shall
nevertheless indemnify the Indemnitee for the portion of Expenses, judgments,
fines, penalties or ERISA excise taxes to which the Indemnitee is entitled.
9. Indemnification Procedure; Determination of Right to Indemnification.
(a) Promptly after receipt by the Indemnitee of notice of the commencement
of any Proceeding, the Indemnitee shall, if a claim in respect thereof is to be
made against the Company under this Agreement, notify the Company of the
commencement thereof in writing. The omission to so notify the Company, however,
shall not relieve it from any liability which it may have to the Indemnitee
otherwise than under this Agreement.
(b) If a claim for indemnification or advances under this Agreement is not
paid by the Company within thirty (30) days of receipt of written notice, the
rights provided by this Agreement shall be enforceable by the Indemnitee in any
court of competent jurisdiction. The burden of proving by clear and convincing
evidence that indemnification or advances are not appropriate shall be on the
Company. Neither the failure of the directors or stockholders of the Company or
its independent legal counsel to have made a determination prior to the
commencement of such action that indemnification or advances are proper in the
circumstances because the Indemnitee has met the applicable standard of conduct,
if any, nor an actual determination by the directors or shareholders of the
Company or independent legal counsel that the Indemnitee has not met the
applicable standard of conduct, shall be a defense to the action or create a
presumption for the purpose of an action that the Indemnitee has not been the
applicable standard of conduct.
4
(c) The Indemnitee's Expenses incurred in connection with any Proceeding
concerning his/her right to indemnification or advances in whole or part
pursuant to this Agreement shall also be indemnified by the Company regardless
of the outcome of such Proceeding.
(d) With respect to any Proceeding for which indemnification is requested,
the Company will be entitled to participate therein at its own expense and,
except as otherwise provided below, to the extent that it may wish, the Company
may assume the defense thereof, with counsel satisfactory to the Indemnitee.
After notice from the Company to the Indemnitee of its election to assume the
defense of a Proceeding, the Company will not be liable to the Indemnitee for
any Expenses subsequently incurred by the Indemnitee in connection with the
defense thereof, other than as provided below. The Company shall not settle any
Proceeding in any manner which would impose any penalty or limitation on the
Indemnitee without the Indemnitee's written consent. The Indemnitee shall have
the right to employee his/her counsel in any Proceeding, but the fees and
expenses of such counsel incurred after notice from the Company of its
assumption of the defense of the Proceeding shall be at the expense of the
Indemnitee, unless (i) the employment of counsel by the Indemnitee has been
authorized by the Company, (ii) the Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and the Indemnitee
in the conduct of the defense of a Proceeding, in each of which cases the fees
and expenses of the Indemnitee's counsel shall be advances by the Company. The
Company shall not be entitled to assume the defense of any Proceeding brought by
or on behalf of the Company or as to which the Indemnitee has concluded that
there may be a conflict of interest between the Company and the Indemnitee.
10. Limitations on Indemnification. No payments pursuant to this Agreement
shall be made by the Company:
(a) To indemnify or advance funds to the Indemnitee expenses with respect
to Proceeding initiated or brought voluntarily by the Indemnitee and not by way
of defense, except with respect to Proceedings brought to establish or enforce a
right to indemnification under this Agreement or any other statute or law or
otherwise as required under applicable corporate law, but such indemnification
or advancement of expenses may be provided by the Company in specific cases if
the Board of Directors finds it to be appropriate;
(b) To indemnify the Indemnitee for any Expenses, judgment, fines,
penalties or ERISA excise taxes sustained in any Proceeding for which payment is
5
actually made to the Indemnitee under a valid and collectible insurance policy,
except in respect of any excess beyond the amount of payment under such
insurance;
(c) To indemnify the Indemnitee for any Expenses, judgment, fines, and/or
penalties sustained in any Proceeding for an accounting of profits made from the
purchase or sale by the Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, the rules
and regulations promulgated thereunder and amendments thereto or similar
provisions of any federal, state or local statutory law; and (d) If a court of
competent jurisdiction finally determines that any indemnification hereunder is
unlawful.
11. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees that, as long as the Indemnitee
continues to serve as a director and/or officer of the Company and thereafter as
long as the Indemnitee may be subject to any possible Proceeding, the Company,
subject to subsection (c), shall promptly obtain and maintain in full force and
effect directors' and officers' liability insurance ("D&O Insurance") in
reasonable amounts from established and reputable insurers.
(b) In all D&O insurance policies, the Indemnitee shall be named as an
insured in such a manner as to provide the Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors and/or officers.
(c) Notwithstanding the foregoing, the Company shall have no obligation to
obtain or maintain D&O Insurance if the Company determines, in its sole
discretion, that such insurance is not reasonably available, the premium costs
for such insurance is so limited by exclusions that it provides an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
12. Indemnification Hereunder Not Exclusive. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which the
Indemnitee may be entitled under the Articles of Incorporation, Bylaws, any
agreement, vote of shareholders or disinterested directors, provision of
applicable corporate law, or otherwise, both as to action in his/her official
capacity and as to action in another capacity on behalf of the Company while
holding such office.
6
13. Successors and Assigns. This Agreement shall be binding upon, and shall
inure to the benefit of the Indemnitee and his/her heirs, executors,
administrators and assigns, whether or not Indemnitee has ceased to be a
director or officer, and the Company and its successors and assigns.
14. Severability. Each and every paragraph, sentence, term and provision
hereof is separate and distinct so that if any paragraph, sentence, term or
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of any other paragraph, sentence, term or provision hereof. To
the extent required, any paragraph, sentence, term or provision of this
Agreement shall be modified by a court of competent jurisdiction to preserve its
validity and to provide the Indemnitee with the broadest possible
indemnification permitted under applicable corporate law.
15. Savings Clause. If this Agreement or any paragraph, sentence, term or
provision hereof is invalidated on any ground by any court of competent
jurisdiction, the Company shall nevertheless indemnify the Indemnitee as to any
Expenses, judgments, fines, penalties for ERISA excise taxes incurred with
respect to any Proceeding to the full extent permitted by any applicable
paragraph, sentence, term or provision of this Agreement that has not been
invalidated or by any other applicable provision of applicable corporate law.
16. Interpretation; Governing Law. This Agreement shall be construed as a
whole and in accordance with its fair meaning. Headings are for convenience only
and shall not be used in construing meaning. This Agreement shall be governed
and interpreted in accordance with the laws of the State of Nevada.
17. Amendments. No amendment, waiver, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
the party against whom enforcement is sought. The indemnification rights
afforded to the Indemnitee hereby are contract rights and may not be diminished,
eliminated or otherwise affected by amendments to the Articles of Incorporation,
Bylaws, or by other agreements, including D&O Insurance policies.
18. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
party and delivered to the other.
7
19. Notices. Any notice required to be given under this Agreement shall be
directed:
TO: ADNAS, Inc.
With a copy to:
Andrea Cataneo, Esq.
81 Meadowbrook Road
Randolph, NJ 07869
TO: Robin B. Hutchison
(please insert address)
or to such other address as either shall designate in writing.
8
IN WITNESS WHEREOF, the parties have executed this Indemnity Agreement as
of the date first written above.
INDEMNITEE:
/s/ ROBIN B. HUTCHISON
----------------------
Robin B. Hutchison
APPLIED DNA SCIENCES, INC.
/s/ LARRY LEE
--------------
Larry Lee, President
Exhibit 10.5
INDEMNITY AGREEMENT
This Indemnity Agreement ("Agreement") is made as of November 8, 2002, by
and between Applied DNA Sciences, Inc., a Nevada corporation (the "Company"),
and Michael Hill ("Indemnitee"), a director and/or officer or key executive,
employee or consultant of the Company, or a person serving at the request of the
Company as a director, officer, employee or agent of another enterprise.
RECITALS
A. The Indemnitee is currently serving or has agreed to serve as a director
and/or officer of the Company and in such capacity has rendered and/or will
render valuable services to the Company.
B. The Company has investigated the availability and sufficiency of
liability insurance and applicable statutory indemnification provisions to
provide its directors and officers with adequate protection against various
legal risks and potential liabilities to which such individuals are subject due
to their positions with the Company and has concluded that such insurance may be
unavailable or too costly, and even if purchased it, and the statutory
provisions, may provide inadequate and unacceptable protection to certain
individuals requested to serve as its directors and/or officers.
C. It is essential to the Company that it attract and retain as officers
and directors the most capable persons available and in order to induce and
encourage highly experienced and capable persons such as the Indemnitee to serve
or continue to serve as a director and/or officer of the Company, the Board of
Directors has determined, after due consideration and investigation of the terms
and provisions of the Agreement and the various other options available to the
Company and the Indemnitee in lieu hereof, that this Agreement is not only
reasonable and prudent but necessary to promote and ensure the best interests of
the Company and its stockholders.
NOW, THEREFORE, in consideration of the services or continued services of
the Indemnitee and in order to induce the Indemnitee to serve or continue to
serve as director and/or officer, the Company and the Indemnitee do hereby agree
as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending or
completed inquiry, hearing, investigation, action, suit, arbitration or other
1
alternative dispute resolution mechanism or proceeding, formal or informal,
whether brought in the name of the Company or otherwise and whether of a civil,
criminal or administrative or investigative nature, by reason of the fact that
the Indemnitee is or was a director and/or officer of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another enterprise, whether or not he/she is serving in such capacity at the
time any liability or expense is incurred for which indemnification or
reimbursement is to be provided under this Agreement.
(b) The term "Expenses" includes, without limitation: attorneys' fees,
costs, disbursements and retainers; accounting and witness fees; fees of
experts; travel and deposition costs; transcript costs, filing fees, telephone
charges, postage, copying costs, delivery service fees and other expenses and
obligations of any nature whatsoever paid or incurred in connection with any
investigations, judicial or administrative proceedings and appeals, amounts paid
in settlement by or on behalf of Indemnitee, and any expenses of establishing a
right to indemnification, pursuant to this Agreement or otherwise, including
reasonable compensation for time spent by the Indemnitee in connection with the
investigation, defense or appeal of a Proceeding or action for indemnification
for which he/she is not otherwise compensated by the Company or any third party.
The term "Expenses" does not include the amount of judgments, fines, penalties
or ERISA excise taxes actually levied against the Indemnitee.
2. Agreement to Serve. The Indemnitee agrees to serve or to continue to
serve as a director and/or officer of the Company for so long as he/she is duly
elected or appointed or until such time as he/she tenders his/her resignation in
writing or is removed as a director and/or officer. However, nothing contained
in this Agreement shall be construed as giving Indemnitee any right to be
retained in the employ of the Company, any subsidiary or any other person.
3. Indemnification in Third Party Actions. The Company shall indemnify the
Indemnitee if the Indemnitee is a party to or threatened to be made a party to
or is otherwise involved in any Proceeding (other that a Proceeding by or in the
name of the Company to procure a judgment in its favor), by reason of the fact
that the Indemnitee is or was a director and/or officer of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another enterprise, against all Expenses, judgments, fines, penalties
and ERISA excise taxes actually and reasonably incurred by the Indemnitee in
connection with the defense or settlement of such a Proceeding, to the fullest
extent permitted by applicable corporate law and the Company's Articles of
Incorporation; provided that any settlement of a Proceeding be approved in
writing by the Company.
2
4. Indemnification in Proceedings by or In the Name of the Company. The
Company shall indemnify the Indemnitee if the Indemnitee is a party to or
threatened to be made a party to or is otherwise involved in any Proceeding by
or in the name of the Company to procure a judgment in its favor by reason of
the fact that the Indemnitee was or is a director and/or officer of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or agent of another enterprise, against all Expenses, judgments, fines
penalties and ERISA excise taxes actually and reasonably incurred by the
Indemnitee in connection with the defense or settlement of such a Proceeding, to
the fullest extent permitted by applicable corporate law and the Company's
Articles of Incorporation.
5. Conclusive Presumption Regarding Standards of Conduct. The Indemnitee
shall be conclusively presumed to have met the relevant standards of conduct, if
any, as defined by applicable corporate law, for indemnification pursuant to
this Agreement, unless a determination is made that the Indemnitee has not met
such standards (i) by the Board of Directors by a majority vote of a quorum
thereof consisting of directors who were not parties to the Proceeding due to
which a claim is made under this Agreement, (ii) by the shareholders of the
Company by majority vote of a quorum thereof consisting of shareholders who are
not parties to the Proceeding due to which a claim is made under this Agreement,
(iii) in a written opinion by independent counsel, selection of whom has been
approved by the Indemnitee in writing, or (iv) by a court of competent
jurisdiction.
6. Indemnification of Expenses of Successful Party. Notwithstanding any
other provision of the Agreement, to the extent that the Indemnitee has been
successful in defense of any Proceeding or in defense of any claim, issue or
matter therein, on the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without an
admission of liability, the Indemnitee shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by applicable
corporate law.
3
7. Advances of Expenses. The Expenses incurred by the Indemnitee in any
Proceeding shall be paid promptly by the Company in advance of the final
disposition of the Proceeding at the written request of the Indemnitee to the
fullest extent permitted by applicable corporate law; provided that the
Indemnitee shall undertake in writing to repay any advances if it is ultimately
determined that the Indemnitee is not entitled to indemnification.
8. Partial Indemnification. If the Indemnitee is entitled under any
provision of the Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties or ERISA excise taxes actually and
reasonably incurred by him/her in the investigation, defense, appeal or
settlement of any Proceeding but not, however, for the total amount of his/her
Expenses, judgments, fines, penalties or ERISA excise taxes, the Company shall
nevertheless indemnify the Indemnitee for the portion of Expenses, judgments,
fines, penalties or ERISA excise taxes to which the Indemnitee is entitled.
9. Indemnification Procedure; Determination of Right to Indemnification.
(a) Promptly after receipt by the Indemnitee of notice of the commencement
of any Proceeding, the Indemnitee shall, if a claim in respect thereof is to be
made against the Company under this Agreement, notify the Company of the
commencement thereof in writing. The omission to so notify the Company, however,
shall not relieve it from any liability which it may have to the Indemnitee
otherwise than under this Agreement.
(b) If a claim for indemnification or advances under this Agreement is not
paid by the Company within thirty (30) days of receipt of written notice, the
rights provided by this Agreement shall be enforceable by the Indemnitee in any
court of competent jurisdiction. The burden of proving by clear and convincing
evidence that indemnification or advances are not appropriate shall be on the
Company. Neither the failure of the directors or stockholders of the Company or
its independent legal counsel to have made a determination prior to the
commencement of such action that indemnification or advances are proper in the
circumstances because the Indemnitee has met the applicable standard of conduct,
if any, nor an actual determination by the directors or shareholders of the
Company or independent legal counsel that the Indemnitee has not met the
applicable standard of conduct, shall be a defense to the action or create a
presumption for the purpose of an action that the Indemnitee has not been the
applicable standard of conduct.
4
(c) The Indemnitee's Expenses incurred in connection with any Proceeding
concerning his/her right to indemnification or advances in whole or part
pursuant to this Agreement shall also be indemnified by the Company regardless
of the outcome of such Proceeding.
(d) With respect to any Proceeding for which indemnification is requested,
the Company will be entitled to participate therein at its own expense and,
except as otherwise provided below, to the extent that it may wish, the Company
may assume the defense thereof, with counsel satisfactory to the Indemnitee.
After notice from the Company to the Indemnitee of its election to assume the
defense of a Proceeding, the Company will not be liable to the Indemnitee for
any Expenses subsequently incurred by the Indemnitee in connection with the
defense thereof, other than as provided below. The Company shall not settle any
Proceeding in any manner which would impose any penalty or limitation on the
Indemnitee without the Indemnitee's written consent. The Indemnitee shall have
the right to employee his/her counsel in any Proceeding, but the fees and
expenses of such counsel incurred after notice from the Company of its
assumption of the defense of the Proceeding shall be at the expense of the
Indemnitee, unless (i) the employment of counsel by the Indemnitee has been
authorized by the Company, (ii) the Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and the Indemnitee
in the conduct of the defense of a Proceeding, in each of which cases the fees
and expenses of the Indemnitee's counsel shall be advances by the Company. The
Company shall not be entitled to assume the defense of any Proceeding brought by
or on behalf of the Company or as to which the Indemnitee has concluded that
there may be a conflict of interest between the Company and the Indemnitee.
10. Limitations on Indemnification. No payments pursuant to this Agreement
shall be made by the Company:
(a) To indemnify or advance funds to the Indemnitee expenses with respect
to Proceeding initiated or brought voluntarily by the Indemnitee and not by way
of defense, except with respect to Proceedings brought to establish or enforce a
right to indemnification under this Agreement or any other statute or law or
otherwise as required under applicable corporate law, but such indemnification
or advancement of expenses may be provided by the Company in specific cases if
the Board of Directors finds it to be appropriate;
(b) To indemnify the Indemnitee for any Expenses, judgment, fines,
penalties or ERISA excise taxes sustained in any Proceeding for which payment is
actually made to the Indemnitee under a valid and collectible insurance policy,
5
except in respect of any excess beyond the amount of payment under such
insurance; (c) To indemnify the Indemnitee for any Expenses, judgment, fines,
and/or penalties sustained in any Proceeding for an accounting of profits made
from the purchase or sale by the Indemnitee of securities of the Company
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934, the rules and regulations promulgated thereunder and amendments thereto or
similar provisions of any federal, state or local statutory law; and
(d) If a court of competent jurisdiction finally determines that any
indemnification hereunder is unlawful.
11. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees that, as long as the Indemnitee
continues to serve as a director and/or officer of the Company and thereafter as
long as the Indemnitee may be subject to any possible Proceeding, the Company,
subject to subsection (c), shall promptly obtain and maintain in full force and
effect directors' and officers' liability insurance ("D&O Insurance") in
reasonable amounts from established and reputable insurers.
(b) In all D&O insurance policies, the Indemnitee shall be named as an
insured in such a manner as to provide the Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors and/or officers.
(c) Notwithstanding the foregoing, the Company shall have no obligation to
obtain or maintain D&O Insurance if the Company determines, in its sole
discretion, that such insurance is not reasonably available, the premium costs
for such insurance is so limited by exclusions that it provides an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
12. Indemnification Hereunder Not Exclusive. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which the
Indemnitee may be entitled under the Articles of Incorporation, Bylaws, any
agreement, vote of shareholders or disinterested directors, provision of
applicable corporate law, or otherwise, both as to action in his/her official
capacity and as to action in another capacity on behalf of the Company while
holding such office.
6
13. Successors and Assigns. This Agreement shall be binding upon, and shall
inure to the benefit of the Indemnitee and his/her heirs, executors,
administrators and assigns, whether or not Indemnitee has ceased to be a
director or officer, and the Company and its successors and assigns.
14. Severability. Each and every paragraph, sentence, term and provision
hereof is separate and distinct so that if any paragraph, sentence, term or
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of any other paragraph, sentence, term or provision hereof. To
the extent required, any paragraph, sentence, term or provision of this
Agreement shall be modified by a court of competent jurisdiction to preserve its
validity and to provide the Indemnitee with the broadest possible
indemnification permitted under applicable corporate law.
15. Savings Clause. If this Agreement or any paragraph, sentence, term or
provision hereof is invalidated on any ground by any court of competent
jurisdiction, the Company shall nevertheless indemnify the Indemnitee as to any
Expenses, judgments, fines, penalties for ERISA excise taxes incurred with
respect to any Proceeding to the full extent permitted by any applicable
paragraph, sentence, term or provision of this Agreement that has not been
invalidated or by any other applicable provision of applicable corporate law.
16. Interpretation; Governing Law. This Agreement shall be construed as a
whole and in accordance with its fair meaning. Headings are for convenience only
and shall not be used in construing meaning. This Agreement shall be governed
and interpreted in accordance with the laws of the State of Delaware.
17. Amendments. No amendment, waiver, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
the party against whom enforcement is sought. The indemnification rights
afforded to the Indemnitee hereby are contract rights and may not be diminished,
eliminated or otherwise affected by amendments to the Articles of Incorporation,
Bylaws, or by other agreements, including D&O Insurance policies.
18. Counterparts. This Agreement may be executed in one or more
7
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
party and delivered to the other.
19. Notices. Any notice required to be given under this Agreement shall be
directed: TO: Applied DNA Sciences, Inc.
With a copy to:
Andrea Cataneo, Esq.
81 Meadowbrook Road
Randolph, NJ 07869
TO: Michael Hill
(Insert home address)
or to such other address as either shall designate in writing.
IN WITNESS WHEREOF, the parties have executed this Indemnity Agreement as
of the date first written above.
INDEMNITEE:
/s/ MICHAEL HILL
----------------
Michael Hill
APPLIED DNA SCIENCES, INC.
/s/ LARRY LEE
-------------
Larry Lee, President
Exhibit 10.6
INDEMNITY AGREEMENT
This Indemnity Agreement ("Agreement") is made as of 2004, by and between
Applied DNA Sciences, Inc., a Nevada corporation (the "Company"), and Peter
Brockelsby ("Indemnitee"), a director and/or officer or key executive, employee
or consultant of the Company, or a person serving at the request of the Company
as a director, officer, employee or agent of another enterprise.
RECITALS
A. The Indemnitee is currently serving or has agreed to serve as a director
and/or officer of the Company and in such capacity has rendered and/or will
render valuable services to the Company.
B. The Company has investigated the availability and sufficiency of
liability insurance and applicable statutory indemnification provisions to
provide its directors and officers with adequate protection against various
legal risks and potential liabilities to which such individuals are subject due
to their positions with the Company and has concluded that such insurance may be
unavailable or too costly, and even if purchased it, and the statutory
provisions, may provide inadequate and unacceptable protection to certain
individuals requested to serve as its directors and/or officers.
C. It is essential to the Company that it attract and retain as officers
and directors the most capable persons available and in order to induce and
encourage highly experienced and capable persons such as the Indemnitee to serve
or continue to serve as a director and/or officer of the Company, the Board of
Directors has determined, after due consideration and investigation of the terms
and provisions of the Agreement and the various other options available to the
Company and the Indemnitee in lieu hereof, that this Agreement is not only
reasonable and prudent but necessary to promote and ensure the best interests of
the Company and its stockholders.
NOW, THEREFORE, in consideration of the services or continued services of
the Indemnitee and in order to induce the Indemnitee to serve or continue to
serve as director and/or officer, the Company and the Indemnitee do hereby agree
as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending or
completed inquiry, hearing, investigation, action, suit, arbitration or other
alternative dispute resolution mechanism or proceeding, formal or informal,
1
whether brought in the name of the Company or otherwise and whether of a civil,
criminal or administrative or investigative nature, by reason of the fact that
the Indemnitee is or was a director and/or officer of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another enterprise, whether or not he/she is serving in such capacity at the
time any liability or expense is incurred for which indemnification or
reimbursement is to be provided under this Agreement.
(b) The term "Expenses" includes, without limitation: attorneys' fees,
costs, disbursements and retainers; accounting and witness fees; fees of
experts; travel and deposition costs; transcript costs, filing fees, telephone
charges, postage, copying costs, delivery service fees and other expenses and
obligations of any nature whatsoever paid or incurred in connection with any
investigations, judicial or administrative proceedings and appeals, amounts paid
in settlement by or on behalf of Indemnitee, and any expenses of establishing a
right to indemnification, pursuant to this Agreement or otherwise, including
reasonable compensation for time spent by the Indemnitee in connection with the
investigation, defense or appeal of a Proceeding or action for indemnification
for which he/she is not otherwise compensated by the Company or any third party.
The term "Expenses" does not include the amount of judgments, fines, penalties
or ERISA excise taxes actually levied against the Indemnitee.
2. Agreement to Serve. The Indemnitee agrees to serve or to continue to
serve as a director and/or officer of the Company for so long as he/she is duly
elected or appointed or until such time as he/she tenders his/her resignation in
writing or is removed as a director and/or officer. However, nothing contained
in this Agreement shall be construed as giving Indemnitee any right to be
retained in the employ of the Company, any subsidiary or any other person.
3. Indemnification in Third Party Actions. The Company shall indemnify the
Indemnitee if the Indemnitee is a party to or threatened to be made a party to
or is otherwise involved in any Proceeding (other that a Proceeding by or in the
name of the Company to procure a judgment in its favor), by reason of the fact
that the Indemnitee is or was a director and/or officer of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another enterprise, against all Expenses, judgments, fines, penalties
and ERISA excise taxes actually and reasonably incurred by the Indemnitee in
connection with the defense or settlement of such a Proceeding, to the fullest
extent permitted by applicable corporate law and the Company's Articles of
Incorporation; provided that any settlement of a Proceeding be approved in
writing by the Company.
2
4. Indemnification in Proceedings by or In the Name of the Company. The
Company shall indemnify the Indemnitee if the Indemnitee is a party to or
threatened to be made a party to or is otherwise involved in any Proceeding by
or in the name of the Company to procure a judgment in its favor by reason of
the fact that the Indemnitee was or is a director and/or officer of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or agent of another enterprise, against all Expenses, judgments, fines
penalties and ERISA excise taxes actually and reasonably incurred by the
Indemnitee in connection with the defense or settlement of such a Proceeding, to
the fullest extent permitted by applicable corporate law and the Company's
Articles of Incorporation.
5. Conclusive Presumption Regarding Standards of Conduct. The Indemnitee
shall be conclusively presumed to have met the relevant standards of conduct, if
any, as defined by applicable corporate law, for indemnification pursuant to
this Agreement, unless a determination is made that the Indemnitee has not met
such standards (i) by the Board of Directors by a majority vote of a quorum
thereof consisting of directors who were not parties to the Proceeding due to
which a claim is made under this Agreement, (ii) by the shareholders of the
Company by majority vote of a quorum thereof consisting of shareholders who are
not parties to the Proceeding due to which a claim is made under this Agreement,
(iii) in a written opinion by independent counsel, selection of whom has been
approved by the Indemnitee in writing, or (iv) by a court of competent
jurisdiction.
6. Indemnification of Expenses of Successful Party. Notwithstanding any
other provision of the Agreement, to the extent that the Indemnitee has been
successful in defense of any Proceeding or in defense of any claim, issue or
matter therein, on the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without an
admission of liability, the Indemnitee shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by applicable
corporate law.
7. Advances of Expenses. The Expenses incurred by the Indemnitee in any
3
Proceeding shall be paid promptly by the Company in advance of the final
disposition of the Proceeding at the written request of the Indemnitee to the
fullest extent permitted by applicable corporate law; provided that the
Indemnitee shall undertake in writing to repay any advances if it is ultimately
determined that the Indemnitee is not entitled to indemnification.
8. Partial Indemnification. If the Indemnitee is entitled under any
provision of the Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties or ERISA excise taxes actually and
reasonably incurred by him/her in the investigation, defense, appeal or
settlement of any Proceeding but not, however, for the total amount of his/her
Expenses, judgments, fines, penalties or ERISA excise taxes, the Company shall
nevertheless indemnify the Indemnitee for the portion of Expenses, judgments,
fines, penalties or ERISA excise taxes to which the Indemnitee is entitled.
9. Indemnification Procedure; Determination of Right to Indemnification.
(a) Promptly after receipt by the Indemnitee of notice of the commencement
of any Proceeding, the Indemnitee shall, if a claim in respect thereof is to be
made against the Company under this Agreement, notify the Company of the
commencement thereof in writing. The omission to so notify the Company, however,
shall not relieve it from any liability which it may have to the Indemnitee
otherwise than under this Agreement.
(b) If a claim for indemnification or advances under this Agreement is not
paid by the Company within thirty (30) days of receipt of written notice, the
rights provided by this Agreement shall be enforceable by the Indemnitee in any
court of competent jurisdiction. The burden of proving by clear and convincing
evidence that indemnification or advances are not appropriate shall be on the
Company. Neither the failure of the directors or stockholders of the Company or
its independent legal counsel to have made a determination prior to the
commencement of such action that indemnification or advances are proper in the
circumstances because the Indemnitee has met the applicable standard of conduct,
if any, nor an actual determination by the directors or shareholders of the
Company or independent legal counsel that the Indemnitee has not met the
applicable standard of conduct, shall be a defense to the action or create a
presumption for the purpose of an action that the Indemnitee has not been the
applicable standard of conduct.
(c) The Indemnitee's Expenses incurred in connection with any Proceeding
4
concerning his/her right to indemnification or advances in whole or part
pursuant to this Agreement shall also be indemnified by the Company regardless
of the outcome of such Proceeding.
(d) With respect to any Proceeding for which indemnification is requested,
the Company will be entitled to participate therein at its own expense and,
except as otherwise provided below, to the extent that it may wish, the Company
may assume the defense thereof, with counsel satisfactory to the Indemnitee.
After notice from the Company to the Indemnitee of its election to assume the
defense of a Proceeding, the Company will not be liable to the Indemnitee for
any Expenses subsequently incurred by the Indemnitee in connection with the
defense thereof, other than as provided below. The Company shall not settle any
Proceeding in any manner which would impose any penalty or limitation on the
Indemnitee without the Indemnitee's written consent. The Indemnitee shall have
the right to employee his/her counsel in any Proceeding, but the fees and
expenses of such counsel incurred after notice from the Company of its
assumption of the defense of the Proceeding shall be at the expense of the
Indemnitee, unless (i) the employment of counsel by the Indemnitee has been
authorized by the Company, (ii) the Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and the Indemnitee
in the conduct of the defense of a Proceeding, in each of which cases the fees
and expenses of the Indemnitee's counsel shall be advances by the Company. The
Company shall not be entitled to assume the defense of any Proceeding brought by
or on behalf of the Company or as to which the Indemnitee has concluded that
there may be a conflict of interest between the Company and the Indemnitee.
10. Limitations on Indemnification. No payments pursuant to this Agreement
shall be made by the Company:
(a) To indemnify or advance funds to the Indemnitee expenses with respect
to Proceeding initiated or brought voluntarily by the Indemnitee and not by way
of defense, except with respect to Proceedings brought to establish or enforce a
right to indemnification under this Agreement or any other statute or law or
otherwise as required under applicable corporate law, but such indemnification
or advancement of expenses may be provided by the Company in specific cases if
the Board of Directors finds it to be appropriate;
(b) To indemnify the Indemnitee for any Expenses, judgment, fines,
penalties or ERISA excise taxes sustained in any Proceeding for which payment is
actually made to the Indemnitee under a valid and collectible insurance policy,
except in respect of any excess beyond the amount of payment under such
insurance;
5
(c) To indemnify the Indemnitee for any Expenses, judgment, fines, and/or
penalties sustained in any Proceeding for an accounting of profits made from the
purchase or sale by the Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, the rules
and regulations promulgated thereunder and amendments thereto or similar
provisions of any federal, state or local statutory law; and
(d) If a court of competent jurisdiction finally determines that any
indemnification hereunder is unlawful.
11. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees that, as long as the Indemnitee
continues to serve as a director and/or officer of the Company and thereafter as
long as the Indemnitee may be subject to any possible Proceeding, the Company,
subject to subsection (c), shall promptly obtain and maintain in full force and
effect directors' and officers' liability insurance ("D&O Insurance") in
reasonable amounts from established and reputable insurers.
(b) In all D&O insurance policies, the Indemnitee shall be named as an
insured in such a manner as to provide the Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors and/or officers.
(c) Notwithstanding the foregoing, the Company shall have no obligation to
obtain or maintain D&O Insurance if the Company determines, in its sole
discretion, that such insurance is not reasonably available, the premium costs
for such insurance is so limited by exclusions that it provides an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
12. Indemnification Hereunder Not Exclusive. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which the
Indemnitee may be entitled under the Articles of Incorporation, Bylaws, any
agreement, vote of shareholders or disinterested directors, provision of
applicable corporate law, or otherwise, both as to action in his/her official
capacity and as to action in another capacity on behalf of the Company while
holding such office.
13. Successors and Assigns. This Agreement shall be binding upon, and shall
inure to the benefit of the Indemnitee and his/her heirs, executors,
administrators and assigns, whether or not Indemnitee has ceased to be a
director or officer, and the Company and its successors and assigns.
6
14. Severability. Each and every paragraph, sentence, term and provision
hereof is separate and distinct so that if any paragraph, sentence, term or
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of any other paragraph, sentence, term or provision hereof. To
the extent required, any paragraph, sentence, term or provision of this
Agreement shall be modified by a court of competent jurisdiction to preserve its
validity and to provide the Indemnitee with the broadest possible
indemnification permitted under applicable corporate law.
15. Savings Clause. If this Agreement or any paragraph, sentence, term or
provision hereof is invalidated on any ground by any court of competent
jurisdiction, the Company shall nevertheless indemnify the Indemnitee as to any
Expenses, judgments, fines, penalties for ERISA excise taxes incurred with
respect to any Proceeding to the full extent permitted by any applicable
paragraph, sentence, term or provision of this Agreement that has not been
invalidated or by any other applicable provision of applicable corporate law.
16. Interpretation; Governing Law. This Agreement shall be construed as a
whole and in accordance with its fair meaning. Headings are for convenience only
and shall not be used in construing meaning. This Agreement shall be governed
and interpreted in accordance with the laws of the State of Delaware.
17. Amendments. No amendment, waiver, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
the party against whom enforcement is sought. The indemnification rights
afforded to the Indemnitee hereby are contract rights and may not be diminished,
eliminated or otherwise affected by amendments to the Articles of Incorporation,
Bylaws, or by other agreements, including D&O Insurance policies.
18. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
7
shall become effective when one or more counterparts have been signed by each
party and delivered to the other.
19. Notices. Any notice required to be given under this Agreement shall be
directed: TO: Applied DNA Sciences, Inc.
With a copy to:
Andrea Cataneo, Esq.
SICHENZIA ROSS FRIEDMAN FERRENCE LLP
81 Meadowbrook Road
Randolph, NJ 07869
TO: Peter Brockelsby
(Insert home address)
or to such other address as either shall designate in writing.
IN WITNESS WHEREOF, the parties have executed this Indemnity Agreement as
of the date first written above.
INDEMNITEE:
/s/ PETER BROCKELSBY
----------------
Peter Brockelsby
APPLIED DNA SCIENCES, INC.
/s/ ROBIN B. HUTCHISON
----------------------
Robin B. Hutchison, CEO
8
Exhibit 10.7
INDEMNITY AGREEMENT
This Indemnity Agreement ("Agreement") is made as of March 31, 2004, by and
between Applied DNA Sciences, Inc., a Nevada corporation (the "Company"), and
Adrian Butash ("Indemnitee"), a director and/or officer or key executive,
employee or consultant of the Company, or a person serving at the request of the
Company as a director, officer, employee or agent of another enterprise.
RECITALS
A. The Indemnitee is currently serving or has agreed to serve as a director
and/or officer of the Company and in such capacity has rendered and/or will
render valuable services to the Company.
B. The Company has investigated the availability and sufficiency of
liability insurance and applicable statutory indemnification provisions to
provide its directors and officers with adequate protection against various
legal risks and potential liabilities to which such individuals are subject due
to their positions with the Company and has concluded that such insurance may be
unavailable or too costly, and even if purchased it, and the statutory
provisions, may provide inadequate and unacceptable protection to certain
individuals requested to serve as its directors and/or officers.
C. It is essential to the Company that it attract and retain as officers
and directors the most capable persons available and in order to induce and
encourage highly experienced and capable persons such as the Indemnitee to serve
or continue to serve as a director and/or officer of the Company, the Board of
Directors has determined, after due consideration and investigation of the terms
and provisions of the Agreement and the various other options available to the
Company and the Indemnitee in lieu hereof, that this Agreement is not only
reasonable and prudent but necessary to promote and ensure the best interests of
the Company and its stockholders.
NOW, THEREFORE, in consideration of the services or continued services of
the Indemnitee and in order to induce the Indemnitee to serve or continue to
serve as director and/or officer, the Company and the Indemnitee do hereby agree
as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending or
completed inquiry, hearing, investigation, action, suit, arbitration or other
alternative dispute resolution mechanism or proceeding, formal or informal,
1
whether brought in the name of the Company or otherwise and whether of a civil,
criminal or administrative or investigative nature, by reason of the fact that
the Indemnitee is or was a director and/or officer of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another enterprise, whether or not he/she is serving in such capacity at the
time any liability or expense is incurred for which indemnification or
reimbursement is to be provided under this Agreement.
(b) The term "Expenses" includes, without limitation: attorneys' fees,
costs, disbursements and retainers; accounting and witness fees; fees of
experts; travel and deposition costs; transcript costs, filing fees, telephone
charges, postage, copying costs, delivery service fees and other expenses and
obligations of any nature whatsoever paid or incurred in connection with any
investigations, judicial or administrative proceedings and appeals, amounts paid
in settlement by or on behalf of Indemnitee, and any expenses of establishing a
right to indemnification, pursuant to this Agreement or otherwise, including
reasonable compensation for time spent by the Indemnitee in connection with the
investigation, defense or appeal of a Proceeding or action for indemnification
for which he/she is not otherwise compensated by the Company or any third party.
The term "Expenses" does not include the amount of judgments, fines, penalties
or ERISA excise taxes actually levied against the Indemnitee.
2. Agreement to Serve. The Indemnitee agrees to serve or to continue to
serve as a director and/or officer of the Company for so long as he/she is duly
elected or appointed or until such time as he/she tenders his/her resignation in
writing or is removed as a director and/or officer. However, nothing contained
in this Agreement shall be construed as giving Indemnitee any right to be
retained in the employ of the Company, any subsidiary or any other person.
3. Indemnification in Third Party Actions. The Company shall indemnify the
Indemnitee if the Indemnitee is a party to or threatened to be made a party to
or is otherwise involved in any Proceeding (other that a Proceeding by or in the
name of the Company to procure a judgment in its favor), by reason of the fact
that the Indemnitee is or was a director and/or officer of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another enterprise, against all Expenses, judgments, fines, penalties
and ERISA excise taxes actually and reasonably incurred by the Indemnitee in
2
connection with the defense or settlement of such a Proceeding, to the fullest
extent permitted by applicable corporate law and the Company's Articles of
Incorporation; provided that any settlement of a Proceeding be approved in
writing by the Company.
4. Indemnification in Proceedings by or In the Name of the Company. The
Company shall indemnify the Indemnitee if the Indemnitee is a party to or
threatened to be made a party to or is otherwise involved in any Proceeding by
or in the name of the Company to procure a judgment in its favor by reason of
the fact that the Indemnitee was or is a director and/or officer of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or agent of another enterprise, against all Expenses, judgments, fines
penalties and ERISA excise taxes actually and reasonably incurred by the
Indemnitee in connection with the defense or settlement of such a Proceeding, to
the fullest extent permitted by applicable corporate law and the Company's
Articles of Incorporation.
5. Conclusive Presumption Regarding Standards of Conduct. The Indemnitee
shall be conclusively presumed to have met the relevant standards of conduct, if
any, as defined by applicable corporate law, for indemnification pursuant to
this Agreement, unless a determination is made that the Indemnitee has not met
such standards (i) by the Board of Directors by a majority vote of a quorum
thereof consisting of directors who were not parties to the Proceeding due to
which a claim is made under this Agreement, (ii) by the shareholders of the
Company by majority vote of a quorum thereof consisting of shareholders who are
not parties to the Proceeding due to which a claim is made under this Agreement,
(iii) in a written opinion by independent counsel, selection of whom has been
approved by the Indemnitee in writing, or (iv) by a court of competent
jurisdiction.
6. Indemnification of Expenses of Successful Party. Notwithstanding any
other provision of the Agreement, to the extent that the Indemnitee has been
successful in defense of any Proceeding or in defense of any claim, issue or
matter therein, on the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without an
admission of liability, the Indemnitee shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by applicable
corporate law.
3
7. Advances of Expenses. The Expenses incurred by the Indemnitee in any
Proceeding shall be paid promptly by the Company in advance of the final
disposition of the Proceeding at the written request of the Indemnitee to the
fullest extent permitted by applicable corporate law; provided that the
Indemnitee shall undertake in writing to repay any advances if it is ultimately
determined that the Indemnitee is not entitled to indemnification.
8. Partial Indemnification. If the Indemnitee is entitled under any
provision of the Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties or ERISA excise taxes actually and
reasonably incurred by him/her in the investigation, defense, appeal or
settlement of any Proceeding but not, however, for the total amount of his/her
Expenses, judgments, fines, penalties or ERISA excise taxes, the Company shall
nevertheless indemnify the Indemnitee for the portion of Expenses, judgments,
fines, penalties or ERISA excise taxes to which the Indemnitee is entitled.
9. Indemnification Procedure; Determination of Right to Indemnification.
(a) Promptly after receipt by the Indemnitee of notice of the commencement
of any Proceeding, the Indemnitee shall, if a claim in respect thereof is to be
made against the Company under this Agreement, notify the Company of the
commencement thereof in writing. The omission to so notify the Company, however,
shall not relieve it from any liability which it may have to the Indemnitee
otherwise than under this Agreement.
(b) If a claim for indemnification or advances under this Agreement is not
paid by the Company within thirty (30) days of receipt of written notice, the
rights provided by this Agreement shall be enforceable by the Indemnitee in any
court of competent jurisdiction. The burden of proving by clear and convincing
evidence that indemnification or advances are not appropriate shall be on the
Company. Neither the failure of the directors or stockholders of the Company or
its independent legal counsel to have made a determination prior to the
commencement of such action that indemnification or advances are proper in the
circumstances because the Indemnitee has met the applicable standard of conduct,
if any, nor an actual determination by the directors or shareholders of the
Company or independent legal counsel that the Indemnitee has not met the
applicable standard of conduct, shall be a defense to the action or create a
presumption for the purpose of an action that the Indemnitee has not been the
applicable standard of conduct.
4
(c) The Indemnitee's Expenses incurred in connection with any Proceeding
concerning his/her right to indemnification or advances in whole or part
pursuant to this Agreement shall also be indemnified by the Company regardless
of the outcome of such Proceeding.
(d) With respect to any Proceeding for which indemnification is requested,
the Company will be entitled to participate therein at its own expense and,
except as otherwise provided below, to the extent that it may wish, the Company
may assume the defense thereof, with counsel satisfactory to the Indemnitee.
After notice from the Company to the Indemnitee of its election to assume the
defense of a Proceeding, the Company will not be liable to the Indemnitee for
any Expenses subsequently incurred by the Indemnitee in connection with the
defense thereof, other than as provided below. The Company shall not settle any
Proceeding in any manner which would impose any penalty or limitation on the
Indemnitee without the Indemnitee's written consent. The Indemnitee shall have
the right to employee his/her counsel in any Proceeding, but the fees and
expenses of such counsel incurred after notice from the Company of its
assumption of the defense of the Proceeding shall be at the expense of the
Indemnitee, unless (i) the employment of counsel by the Indemnitee has been
authorized by the Company, (ii) the Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and the Indemnitee
in the conduct of the defense of a Proceeding, in each of which cases the fees
and expenses of the Indemnitee's counsel shall be advances by the Company. The
Company shall not be entitled to assume the defense of any Proceeding brought by
or on behalf of the Company or as to which the Indemnitee has concluded that
there may be a conflict of interest between the Company and the Indemnitee.
10. Limitations on Indemnification. No payments pursuant to this Agreement
shall be made by the Company:
(a) To indemnify or advance funds to the Indemnitee expenses with respect
to Proceeding initiated or brought voluntarily by the Indemnitee and not by way
of defense, except with respect to Proceedings brought to establish or enforce a
right to indemnification under this Agreement or any other statute or law or
otherwise as required under applicable corporate law, but such indemnification
or advancement of expenses may be provided by the Company in specific cases if
the Board of Directors finds it to be appropriate;
(b) To indemnify the Indemnitee for any Expenses, judgment, fines,
penalties or ERISA excise taxes sustained in any Proceeding for which payment is
actually made to the Indemnitee under a valid and collectible insurance policy,
5
except in respect of any excess beyond the amount of payment under such
insurance;
(c) To indemnify the Indemnitee for any Expenses, judgment, fines, and/or
penalties sustained in any Proceeding for an accounting of profits made from the
purchase or sale by the Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, the rules
and regulations promulgated thereunder and amendments thereto or similar
provisions of any federal, state or local statutory law; and
(d) If a court of competent jurisdiction finally determines that any
indemnification hereunder is unlawful.
11. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees that, as long as the Indemnitee
continues to serve as a director and/or officer of the Company and thereafter as
long as the Indemnitee may be subject to any possible Proceeding, the Company,
subject to subsection (c), shall promptly obtain and maintain in full force and
effect directors' and officers' liability insurance ("D&O Insurance") in
reasonable amounts from established and reputable insurers.
(b) In all D&O insurance policies, the Indemnitee shall be named as an
insured in such a manner as to provide the Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors and/or officers.
(c) Notwithstanding the foregoing, the Company shall have no obligation to
obtain or maintain D&O Insurance if the Company determines, in its sole
discretion, that such insurance is not reasonably available, the premium costs
for such insurance is so limited by exclusions that it provides an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
12. Indemnification Hereunder Not Exclusive. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which the
Indemnitee may be entitled under the Articles of Incorporation, Bylaws, any
agreement, vote of shareholders or disinterested directors, provision of
applicable corporate law, or otherwise, both as to action in his/her official
capacity and as to action in another capacity on behalf of the Company while
holding such office.
6
13. Successors and Assigns. This Agreement shall be binding upon, and shall
inure to the benefit of the Indemnitee and his/her heirs, executors,
administrators and assigns, whether or not Indemnitee has ceased to be a
director or officer, and the Company and its successors and assigns.
14. Severability. Each and every paragraph, sentence, term and provision
hereof is separate and distinct so that if any paragraph, sentence, term or
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of any other paragraph, sentence, term or provision hereof. To
the extent required, any paragraph, sentence, term or provision of this
Agreement shall be modified by a court of competent jurisdiction to preserve its
validity and to provide the Indemnitee with the broadest possible
indemnification permitted under applicable corporate law.
15. Savings Clause. If this Agreement or any paragraph, sentence, term or
provision hereof is invalidated on any ground by any court of competent
jurisdiction, the Company shall nevertheless indemnify the Indemnitee as to any
Expenses, judgments, fines, penalties for ERISA excise taxes incurred with
respect to any Proceeding to the full extent permitted by any applicable
paragraph, sentence, term or provision of this Agreement that has not been
invalidated or by any other applicable provision of applicable corporate law.
16. Interpretation; Governing Law. This Agreement shall be construed as a
whole and in accordance with its fair meaning. Headings are for convenience only
and shall not be used in construing meaning. This Agreement shall be governed
and interpreted in accordance with the laws of the State of Delaware.
17. Amendments. No amendment, waiver, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
the party against whom enforcement is sought. The indemnification rights
afforded to the Indemnitee hereby are contract rights and may not be diminished,
eliminated or otherwise affected by amendments to the Articles of Incorporation,
Bylaws, or by other agreements, including D&O Insurance policies.
18. Counterparts. This Agreement may be executed in one or more
7
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
party and delivered to the other.
19. Notices. Any notice required to be given under this Agreement shall be
directed: TO: Applied DNA Sciences, Inc.
With a copy to:
Andrea Cataneo, Esq.
81 Meadowbrook Road
Randolph, NJ 07869
TO: Adrian Butash
(Insert home address)
or to such other address as either shall designate in writing.
IN WITNESS WHEREOF, the parties have executed this Indemnity Agreement as
of the date first written above.
INDEMNITEE:
/s/ ADRIAN BUTASH
-----------------
Adrian Butash
APPLIED DNA SCIENCES, INC.
/s/ PETER BROCKELSBY
--------------------
Peter Brockelsby, President
8
Exhibit 10.8
INDEMNITY AGREEMENT
This Indemnity Agreement ("Agreement") is made as of June 30, 2004, by and
between Applied DNA Sciences, Inc., a Nevada corporation (the "Company"), and
Karin Klemm ("Indemnitee"), a director and/or officer or key executive, employee
or consultant of the Company, or a person serving at the request of the Company
as a director, officer, employee or agent of another enterprise.
RECITALS
A. The Indemnitee is currently serving or has agreed to serve as a director
and/or officer of the Company and in such capacity has rendered and/or will
render valuable services to the Company.
B. The Company has investigated the availability and sufficiency of
liability insurance and applicable statutory indemnification provisions to
provide its directors and officers with adequate protection against various
legal risks and potential liabilities to which such individuals are subject due
to their positions with the Company and has concluded that such insurance may be
unavailable or too costly, and even if purchased it, and the statutory
provisions, may provide inadequate and unacceptable protection to certain
individuals requested to serve as its directors and/or officers.
C. It is essential to the Company that it attract and retain as officers
and directors the most capable persons available and in order to induce and
encourage highly experienced and capable persons such as the Indemnitee to serve
or continue to serve as a director and/or officer of the Company, the Board of
Directors has determined, after due consideration and investigation of the terms
and provisions of the Agreement and the various other options available to the
Company and the Indemnitee in lieu hereof, that this Agreement is not only
reasonable and prudent but necessary to promote and ensure the best interests of
the Company and its stockholders.
NOW, THEREFORE, in consideration of the services or continued services of
the Indemnitee and in order to induce the Indemnitee to serve or continue to
serve as director and/or officer, the Company and the Indemnitee do hereby agree
as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending or
completed inquiry, hearing, investigation, action, suit, arbitration or other
alternative dispute resolution mechanism or proceeding, formal or informal,
whether brought in the name of the Company or otherwise and whether of a civil,
criminal or administrative or investigative nature, by reason of the fact that
the Indemnitee is or was a director and/or officer of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another enterprise, whether or not he/she is serving in such capacity at the
time any liability or expense is incurred for which indemnification or
reimbursement is to be provided under this Agreement.
1
(b) The term "Expenses" includes, without limitation: attorneys' fees,
costs, disbursements and retainers; accounting and witness fees; fees of
experts; travel and deposition costs; transcript costs, filing fees, telephone
charges, postage, copying costs, delivery service fees and other expenses and
obligations of any nature whatsoever paid or incurred in connection with any
investigations, judicial or administrative proceedings and appeals, amounts paid
in settlement by or on behalf of Indemnitee, and any expenses of establishing a
right to indemnification, pursuant to this Agreement or otherwise, including
reasonable compensation for time spent by the Indemnitee in connection with the
investigation, defense or appeal of a Proceeding or action for indemnification
for which he/she is not otherwise compensated by the Company or any third party.
The term "Expenses" does not include the amount of judgments, fines, penalties
or ERISA excise taxes actually levied against the Indemnitee.
2. Agreement to Serve. The Indemnitee agrees to serve or to continue to
serve as a director and/or officer of the Company for so long as he/she is duly
elected or appointed or until such time as he/she tenders his/her resignation in
writing or is removed as a director and/or officer. However, nothing contained
in this Agreement shall be construed as giving Indemnitee any right to be
retained in the employ of the Company, any subsidiary or any other person.
3. Indemnification in Third Party Actions. The Company shall indemnify the
Indemnitee if the Indemnitee is a party to or threatened to be made a party to
or is otherwise involved in any Proceeding (other that a Proceeding by or in the
name of the Company to procure a judgment in its favor), by reason of the fact
that the Indemnitee is or was a director and/or officer of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another enterprise, against all Expenses, judgments, fines, penalties
and ERISA excise taxes actually and reasonably incurred by the Indemnitee in
connection with the defense or settlement of such a Proceeding, to the fullest
extent permitted by applicable corporate law and the Company's Articles of
Incorporation; provided that any settlement of a Proceeding be approved in
writing by the Company.
2
4. Indemnification in Proceedings by or In the Name of the Company. The
Company shall indemnify the Indemnitee if the Indemnitee is a party to or
threatened to be made a party to or is otherwise involved in any Proceeding by
or in the name of the Company to procure a judgment in its favor by reason of
the fact that the Indemnitee was or is a director and/or officer of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or agent of another enterprise, against all Expenses, judgments, fines
penalties and ERISA excise taxes actually and reasonably incurred by the
Indemnitee in connection with the defense or settlement of such a Proceeding, to
the fullest extent permitted by applicable corporate law and the Company's
Articles of Incorporation.
5. Conclusive Presumption Regarding Standards of Conduct. The Indemnitee
shall be conclusively presumed to have met the relevant standards of conduct, if
any, as defined by applicable corporate law, for indemnification pursuant to
this Agreement, unless a determination is made that the Indemnitee has not met
such standards (i) by the Board of Directors by a majority vote of a quorum
thereof consisting of directors who were not parties to the Proceeding due to
which a claim is made under this Agreement, (ii) by the shareholders of the
Company by majority vote of a quorum thereof consisting of shareholders who are
not parties to the Proceeding due to which a claim is made under this Agreement,
(iii) in a written opinion by independent counsel, selection of whom has been
approved by the Indemnitee in writing, or (iv) by a court of competent
jurisdiction.
6. Indemnification of Expenses of Successful Party. Notwithstanding any
other provision of the Agreement, to the extent that the Indemnitee has been
successful in defense of any Proceeding or in defense of any claim, issue or
matter therein, on the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without an
admission of liability, the Indemnitee shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by applicable
corporate law.
3
7. Advances of Expenses. The Expenses incurred by the Indemnitee in any
Proceeding shall be paid promptly by the Company in advance of the final
disposition of the Proceeding at the written request of the Indemnitee to the
fullest extent permitted by applicable corporate law; provided that the
Indemnitee shall undertake in writing to repay any advances if it is ultimately
determined that the Indemnitee is not entitled to indemnification.
8. Partial Indemnification. If the Indemnitee is entitled under any
provision of the Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties or ERISA excise taxes actually and
reasonably incurred by him/her in the investigation, defense, appeal or
settlement of any Proceeding but not, however, for the total amount of his/her
Expenses, judgments, fines, penalties or ERISA excise taxes, the Company shall
nevertheless indemnify the Indemnitee for the portion of Expenses, judgments,
fines, penalties or ERISA excise taxes to which the Indemnitee is entitled.
9. Indemnification Procedure; Determination of Right to Indemnification.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of any Proceeding, the Indemnitee shall, if a claim in respect
thereof is to be made against the Company under this Agreement, notify the
Company of the commencement thereof in writing. The omission to so notify the
Company, however, shall not relieve it from any liability which it may have to
the Indemnitee otherwise than under this Agreement.
(b) If a claim for indemnification or advances under this Agreement is
not paid by the Company within thirty (30) days of receipt of written notice,
the rights provided by this Agreement shall be enforceable by the Indemnitee in
any court of competent jurisdiction. The burden of proving by clear and
convincing evidence that indemnification or advances are not appropriate shall
be on the Company. Neither the failure of the directors or stockholders of the
Company or its independent legal counsel to have made a determination prior to
the commencement of such action that indemnification or advances are proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct, if any, nor an actual determination by the directors or shareholders of
the Company or independent legal counsel that the Indemnitee has not met the
applicable standard of conduct, shall be a defense to the action or create a
presumption for the purpose of an action that the Indemnitee has not been the
applicable standard of conduct.
4
(c) The Indemnitee's Expenses incurred in connection with any
Proceeding concerning his/her right to indemnification or advances in whole or
part pursuant to this Agreement shall also be indemnified by the Company
regardless of the outcome of such Proceeding.
(d) With respect to any Proceeding for which indemnification is
requested, the Company will be entitled to participate therein at its own
expense and, except as otherwise provided below, to the extent that it may wish,
the Company may assume the defense thereof, with counsel satisfactory to the
Indemnitee. After notice from the Company to the Indemnitee of its election to
assume the defense of a Proceeding, the Company will not be liable to the
Indemnitee for any Expenses subsequently incurred by the Indemnitee in
connection with the defense thereof, other than as provided below. The Company
shall not settle any Proceeding in any manner which would impose any penalty or
limitation on the Indemnitee without the Indemnitee's written consent. The
Indemnitee shall have the right to employee his/her counsel in any Proceeding,
but the fees and expenses of such counsel incurred after notice from the Company
of its assumption of the defense of the Proceeding shall be at the expense of
the Indemnitee, unless (i) the employment of counsel by the Indemnitee has been
authorized by the Company, (ii) the Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and the Indemnitee
in the conduct of the defense of a Proceeding, in each of which cases the fees
and expenses of the Indemnitee's counsel shall be advances by the Company. The
Company shall not be entitled to assume the defense of any Proceeding brought by
or on behalf of the Company or as to which the Indemnitee has concluded that
there may be a conflict of interest between the Company and the Indemnitee.
10. Limitations on Indemnification. No payments pursuant to this Agreement
shall be made by the Company:
(a) To indemnify or advance funds to the Indemnitee expenses with
respect to Proceeding initiated or brought voluntarily by the Indemnitee and not
by way of defense, except with respect to Proceedings brought to establish or
enforce a right to indemnification under this Agreement or any other statute or
law or otherwise as required under applicable corporate law, but such
indemnification or advancement of expenses may be provided by the Company in
specific cases if the Board of Directors finds it to be appropriate;
(b) To indemnify the Indemnitee for any Expenses, judgment, fines,
penalties or ERISA excise taxes sustained in any Proceeding for which payment is
actually made to the Indemnitee under a valid and collectible insurance policy,
except in respect of any excess beyond the amount of payment under such
insurance;
5
(c) To indemnify the Indemnitee for any Expenses, judgment, fines,
and/or penalties sustained in any Proceeding for an accounting of profits made
from the purchase or sale by the Indemnitee of securities of the Company
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934, the rules and regulations promulgated thereunder and amendments thereto or
similar provisions of any federal, state or local statutory law; and
(d) If a court of competent jurisdiction finally determines that any
indemnification hereunder is unlawful.
11. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees that, as long as the
Indemnitee continues to serve as a director and/or officer of the Company and
thereafter as long as the Indemnitee may be subject to any possible Proceeding,
the Company, subject to subsection (c), shall promptly obtain and maintain in
full force and effect directors' and officers' liability insurance ("D&O
Insurance") in reasonable amounts from established and reputable insurers.
(b) In all D&O insurance policies, the Indemnitee shall be named as an
insured in such a manner as to provide the Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors and/or officers.
(c) Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines, in its
sole discretion, that such insurance is not reasonably available, the premium
costs for such insurance is so limited by exclusions that it provides an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.
12. Indemnification Hereunder Not Exclusive. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which the
Indemnitee may be entitled under the Articles of Incorporation, Bylaws, any
agreement, vote of shareholders or disinterested directors, provision of
applicable corporate law, or otherwise, both as to action in his/her official
capacity and as to action in another capacity on behalf of the Company while
holding such office.
6
13. Successors and Assigns. This Agreement shall be binding upon, and shall
inure to the benefit of the Indemnitee and his/her heirs, executors,
administrators and assigns, whether or not Indemnitee has ceased to be a
director or officer, and the Company and its successors and assigns.
14. Severability. Each and every paragraph, sentence, term and provision
hereof is separate and distinct so that if any paragraph, sentence, term or
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of any other paragraph, sentence, term or provision hereof. To
the extent required, any paragraph, sentence, term or provision of this
Agreement shall be modified by a court of competent jurisdiction to preserve its
validity and to provide the Indemnitee with the broadest possible
indemnification permitted under applicable corporate law.
15. Savings Clause. If this Agreement or any paragraph, sentence, term or
provision hereof is invalidated on any ground by any court of competent
jurisdiction, the Company shall nevertheless indemnify the Indemnitee as to any
Expenses, judgments, fines, penalties for ERISA excise taxes incurred with
respect to any Proceeding to the full extent permitted by any applicable
paragraph, sentence, term or provision of this Agreement that has not been
invalidated or by any other applicable provision of applicable corporate law.
16. Interpretation; Governing Law. This Agreement shall be construed as a
whole and in accordance with its fair meaning. Headings are for convenience only
and shall not be used in construing meaning. This Agreement shall be governed
and interpreted in accordance with the laws of the State of Delaware.
17. Amendments. No amendment, waiver, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
the party against whom enforcement is sought. The indemnification rights
afforded to the Indemnitee hereby are contract rights and may not be diminished,
eliminated or otherwise affected by amendments to the Articles of Incorporation,
Bylaws, or by other agreements, including D&O Insurance policies.
7
18. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
party and delivered to the other.
19. Notices. Any notice required to be given under this Agreement shall be
directed: TO: Applied DNA Sciences, Inc.
With a copy to:
Andrea Cataneo, Esq.
Sichenzia Ross Friedman Ference, LLP
81 Meadowbrook Road
Randolph, NJ 07869
TO: Karin Klemm
(Insert home address)
or to such other address as either shall designate in writing.
IN WITNESS WHEREOF, the parties have executed this Indemnity Agreement as
of the date first written above.
INDEMNITEE:
/s/ Karin Klemm
---------------
Karin Klemm
APPLIED DNA SCIENCES, INC.
/s/ PETER BROCKELSBY
--------------------
Peter Brockelsby, President
8
Exhibit 10.9
INDEMNITY AGREEMENT
This Indemnity Agreement ("Agreement") is made as of January 21, 2004, by
and between Applied DNA Sciences, Inc. a Nevada corporation ("Company"), and Ron
Erickson ("Indemnitee"), a director and/or officer or key executive, employee or
consultant of the Company, or a person serving at the request of the Company as
a director, officer, employee or agent of another enterprise.
RECITALS
A. The Indemnitee is currently serving or has agreed to serve as a director
and/or officer of the Company and in such capacity has rendered and/or will
render valuable services to the Company.
B. The Company has investigated the availability and sufficiency of
liability insurance and applicable statutory indemnification provisions to
provide its directors and officers with adequate protection against various
legal risks and potential liabilities to which such individuals are subject due
to their positions with the Company and has concluded that such insurance may be
unavailable or too costly, and even if purchased it, and the statutory
provisions, may provide inadequate and unacceptable protection to certain
individuals requested to serve as its directors and/or officers.
C. It is essential to the Company that it attract and retain as officers
and directors the most capable persons available and in order to induce and
encourage highly experienced and capable persons such as the Indemnitee to serve
or continue to serve as a director and/or officer of the Company, the Board of
Directors has determined, after due consideration and investigation of the terms
and provisions of the Agreement and the various other options available to the
Company and the Indemnitee in lieu hereof, that this Agreement is not only
reasonable and prudent but necessary to promote and ensure the best interests of
the Company and its stockholders.
NOW, THEREFORE, in consideration of the services or continued services of
the Indemnitee and in order to induce the Indemnitee to serve or continue to
serve as director and/or officer, the Company and the Indemnitee do hereby agree
as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending or
completed inquiry, hearing, investigation, action, suit, arbitration or other
alternative dispute resolution mechanism or proceeding, formal or informal,
whether brought in the name of the Company or otherwise and whether of a civil,
1
criminal or administrative or investigative nature, by reason of the fact that
the Indemnitee is or was a director and/or officer of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another enterprise, whether or not he/she is serving in such capacity at the
time any liability or expense is incurred for which indemnification or
reimbursement is to be provided under this Agreement.
(b) The term "Expenses" includes, without limitation: attorneys' fees,
costs, disbursements and retainers; accounting and witness fees; fees of
experts; travel and deposition costs; transcript costs, filing fees, telephone
charges, postage, copying costs, delivery service fees and other expenses and
obligations of any nature whatsoever paid or incurred in connection with any
investigations, judicial or administrative proceedings and appeals, amounts paid
in settlement by or on behalf of Indemnitee, and any expenses of establishing a
right to indemnification, pursuant to this Agreement or otherwise, including
reasonable compensation for time spent by the Indemnitee in connection with the
investigation, defense or appeal of a Proceeding or action for indemnification
for which he/she is not otherwise compensated by the Company or any third party.
The term "Expenses" does not include the amount of judgments, fines, penalties
or ERISA excise taxes actually levied against the Indemnitee.
2. Agreement to Serve. The Indemnitee agrees to serve or to continue to
serve as a director and/or officer of the Company for so long as he/she is duly
elected or appointed or until such time as he/she tenders his/her resignation in
writing or is removed as a director and/or officer. However, nothing contained
in this Agreement shall be construed as giving Indemnitee any right to be
retained in the employ of the Company, any subsidiary or any other person.
3. Indemnification in Third Party Actions. The Company shall indemnify the
Indemnitee if the Indemnitee is a party to or threatened to be made a party to
or is otherwise involved in any Proceeding (other that a Proceeding by or in the
name of the Company to procure a judgment in its favor), by reason of the fact
that the Indemnitee is or was a director and/or officer of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another enterprise, against all Expenses, judgments, fines, penalties
and ERISA excise taxes actually and reasonably incurred by the Indemnitee in
connection with the defense or settlement of such a Proceeding, to the fullest
extent permitted by applicable corporate law and the Company's Articles of
2
Incorporation; provided that any settlement of a Proceeding be approved in
writing by the Company.
4. Indemnification in Proceedings by or In the Name of the Company. The
Company shall indemnify the Indemnitee if the Indemnitee is a party to or
threatened to be made a party to or is otherwise involved in any Proceeding by
or in the name of the Company to procure a judgment in its favor by reason of
the fact that the Indemnitee was or is a director and/or officer of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or agent of another enterprise, against all Expenses, judgments, fines
penalties and ERISA excise taxes actually and reasonably incurred by the
Indemnitee in connection with the defense or settlement of such a Proceeding, to
the fullest extent permitted by applicable corporate law and the Company's
Articles of Incorporation.
5. Conclusive Presumption Regarding Standards of Conduct. The Indemnitee
shall be conclusively presumed to have met the relevant standards of conduct, if
any, as defined by applicable corporate law, for indemnification pursuant to
this Agreement, unless a determination is made that the Indemnitee has not met
such standards (i) by the Board of Directors by a majority vote of a quorum
thereof consisting of directors who were not parties to the Proceeding due to
which a claim is made under this Agreement, (ii) by the shareholders of the
Company by majority vote of a quorum thereof consisting of shareholders who are
not parties to the Proceeding due to which a claim is made under this Agreement,
(iii) in a written opinion by independent counsel, selection of whom has been
approved by the Indemnitee in writing, or (iv) by a court of competent
jurisdiction.
6. Indemnification of Expenses of Successful Party. Notwithstanding any
other provision of the Agreement, to the extent that the Indemnitee has been
successful in defense of any Proceeding or in defense of any claim, issue or
matter therein, on the merits or otherwise, including the dismissal of a
Proceeding without prejudice or the settlement of a Proceeding without an
admission of liability, the Indemnitee shall be indemnified against all Expenses
incurred in connection therewith to the fullest extent permitted by applicable
corporate law.
7. Advances of Expenses. The Expenses incurred by the Indemnitee in any
Proceeding shall be paid promptly by the Company in advance of the final
3
disposition of the Proceeding at the written request of the Indemnitee to the
fullest extent permitted by applicable corporate law; provided that the
Indemnitee shall undertake in writing to repay any advances if it is ultimately
determined that the Indemnitee is not entitled to indemnification.
8. Partial Indemnification. If the Indemnitee is entitled under any
provision of the Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties or ERISA excise taxes actually and
reasonably incurred by him/her in the investigation, defense, appeal or
settlement of any Proceeding but not, however, for the total amount of his/her
Expenses, judgments, fines, penalties or ERISA excise taxes, the Company shall
nevertheless indemnify the Indemnitee for the portion of Expenses, judgments,
fines, penalties or ERISA excise taxes to which the Indemnitee is entitled.
9. Indemnification Procedure; Determination of Right to Indemnification.
(a) Promptly after receipt by the Indemnitee of notice of the commencement
of any Proceeding, the Indemnitee shall, if a claim in respect thereof is to be
made against the Company under this Agreement, notify the Company of the
commencement thereof in writing. The omission to so notify the Company, however,
shall not relieve it from any liability which it may have to the Indemnitee
otherwise than under this Agreement.
(b) If a claim for indemnification or advances under this Agreement is not
paid by the Company within thirty (30) days of receipt of written notice, the
rights provided by this Agreement shall be enforceable by the Indemnitee in any
court of competent jurisdiction. The burden of proving by clear and convincing
evidence that indemnification or advances are not appropriate shall be on the
Company. Neither the failure of the directors or stockholders of the Company or
its independent legal counsel to have made a determination prior to the
commencement of such action that indemnification or advances are proper in the
circumstances because the Indemnitee has met the applicable standard of conduct,
if any, nor an actual determination by the directors or shareholders of the
Company or independent legal counsel that the Indemnitee has not met the
applicable standard of conduct, shall be a defense to the action or create a
presumption for the purpose of an action that the Indemnitee has not been the
applicable standard of conduct.
(c) The Indemnitee's Expenses incurred in connection with any Proceeding
concerning his/her right to indemnification or advances in whole or part
4
pursuant to this Agreement shall also be indemnified by the Company regardless
of the outcome of such Proceeding.
(d) With respect to any Proceeding for which indemnification is requested,
the Company will be entitled to participate therein at its own expense and,
except as otherwise provided below, to the extent that it may wish, the Company
may assume the defense thereof, with counsel satisfactory to the Indemnitee.
After notice from the Company to the Indemnitee of its election to assume the
defense of a Proceeding, the Company will not be liable to the Indemnitee for
any Expenses subsequently incurred by the Indemnitee in connection with the
defense thereof, other than as provided below. The Company shall not settle any
Proceeding in any manner which would impose any penalty or limitation on the
Indemnitee without the Indemnitee's written consent. The Indemnitee shall have
the right to employee his/her counsel in any Proceeding, but the fees and
expenses of such counsel incurred after notice from the Company of its
assumption of the defense of the Proceeding shall be at the expense of the
Indemnitee, unless (i) the employment of counsel by the Indemnitee has been
authorized by the Company, (ii) the Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and the Indemnitee
in the conduct of the defense of a Proceeding, in each of which cases the fees
and expenses of the Indemnitee's counsel shall be advances by the Company. The
Company shall not be entitled to assume the defense of any Proceeding brought by
or on behalf of the Company or as to which the Indemnitee has concluded that
there may be a conflict of interest between the Company and the Indemnitee.
10. Limitations on Indemnification. No payments pursuant to this Agreement
shall be made by the Company:
(a) To indemnify or advance funds to the Indemnitee expenses with respect
to Proceeding initiated or brought voluntarily by the Indemnitee and not by way
of defense, except with respect to Proceedings brought to establish or enforce a
right to indemnification under this Agreement or any other statute or law or
otherwise as required under applicable corporate law, but such indemnification
or advancement of expenses may be provided by the Company in specific cases if
the Board of Directors finds it to be appropriate;
(b) To indemnify the Indemnitee for any Expenses, judgment, fines,
penalties or ERISA excise taxes sustained in any Proceeding for which payment is
actually made to the Indemnitee under a valid and collectible insurance policy,
except in respect of any excess beyond the amount of payment under such
insurance;
5
(c) To indemnify the Indemnitee for any Expenses, judgment, fines, and/or
penalties sustained in any Proceeding for an accounting of profits made from the
purchase or sale by the Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, the rules
and regulations promulgated thereunder and amendments thereto or similar
provisions of any federal, state or local statutory law; and
(d) If a court of competent jurisdiction finally determines that any
indemnification hereunder is unlawful.
11. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees that, as long as the Indemnitee
continues to serve as a director and/or officer of the Company and thereafter as
long as the Indemnitee may be subject to any possible Proceeding, the Company,
subject to subsection (c), shall promptly obtain and maintain in full force and
effect directors' and officers' liability insurance ("D&O Insurance") in
reasonable amounts from established and reputable insurers.
(b) In all D&O insurance policies, the Indemnitee shall be named as an
insured in such a manner as to provide the Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors and/or officers.
(c) Notwithstanding the foregoing, the Company shall have no obligation to
obtain or maintain D&O Insurance if the Company determines, in its sole
discretion, that such insurance is not reasonably available, the premium costs
for such insurance is so limited by exclusions that it provides an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
12. Indemnification Hereunder Not Exclusive. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which the
Indemnitee may be entitled under the Articles of Incorporation, Bylaws, any
agreement, vote of shareholders or disinterested directors, provision of
applicable corporate law, or otherwise, both as to action in his/her official
capacity and as to action in another capacity on behalf of the Company while
holding such office.
13. Successors and Assigns. This Agreement shall be binding upon, and shall
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inure to the benefit of the Indemnitee and his/her heirs, executors,
administrators and assigns, whether or not Indemnitee has ceased to be a
director or officer, and the Company and its successors and assigns.
14. Severability. Each and every paragraph, sentence, term and provision
hereof is separate and distinct so that if any paragraph, sentence, term or
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of any other paragraph, sentence, term or provision hereof. To
the extent required, any paragraph, sentence, term or provision of this
Agreement shall be modified by a court of competent jurisdiction to preserve its
validity and to provide the Indemnitee with the broadest possible
indemnification permitted under applicable corporate law.
15. Savings Clause. If this Agreement or any paragraph, sentence, term or
provision hereof is invalidated on any ground by any court of competent
jurisdiction, the Company shall nevertheless indemnify the Indemnitee as to any
Expenses, judgments, fines, penalties for ERISA excise taxes incurred with
respect to any Proceeding to the full extent permitted by any applicable
paragraph, sentence, term or provision of this Agreement that has not been
invalidated or by any other applicable provision of applicable corporate law.
16. Interpretation; Governing Law. This Agreement shall be construed as a
whole and in accordance with its fair meaning. Headings are for convenience only
and shall not be used in construing meaning. This Agreement shall be governed
and interpreted in accordance with the laws of the State of Nevada.
17. Amendments. No amendment, waiver, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
the party against whom enforcement is sought. The indemnification rights
afforded to the Indemnitee hereby are contract rights and may not be diminished,
eliminated or otherwise affected by amendments to the Articles of Incorporation,
Bylaws, or by other agreements, including D&O Insurance policies.
18. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
7
shall become effective when one or more counterparts have been signed by each
party and delivered to the other.
19. Notices. Any notice required to be given under this Agreement shall be
directed: TO: ADNAS, Inc. 8229 West Sunset Boulevard Los Angeles, CA 90069
With a copy to:
Andrea Cataneo, Esq.
81 Meadowbrook Road
Randolph, NJ 07869
TO: Indemnitee
Ron Erickson
(insert address where you would like this sent)
or to such other address as either shall designate in writing.
IN WITNESS WHEREOF, the parties have executed this Indemnity Agreement
as of the date first written above.
INDEMNITEE:
/s/ RON ERICKSON
----------------
Ron Erickson
APPLIED DNA SCIENCES, INC.
/s/ ROBIN B. HUTCHISON
----------------------
Robin B. Hutchison, CEO
8
Exhibit 10.10
[GUILIANI PARTNERS LETTERHEAD]
August 6, 2004
Peter Brocklesby
President and Chief Executive Officer
Applied DNA Sciences, Inc.
9229 W. Sunset Boulevard, Suite 830
Los Angeles, CA 90069
Dear Mr. Brocklesby:
Engagement Agreement
1. Engagement
(a) This letter (this "Letter Agreement") confirms our agreement pursuant
to which you retained Giuliani Partner, LLC (together with its affiliates,
employees and agents, "GP") to provide certain professional services described
below (the "Engagement") to, and to enter into a strategic relationship with
Applied DNA Sciences, Inc. ("ADNAS").
(b) Pursuant to the Engagement, GP shall make itself reasonably available
to provide advise and assistance to ADNAS regarding issues associated with
ADNAS's proprietary DNA-embedded security solutions business (the "ADNAS
Business") in the following ways: (i) assisting ADNAS with strategic positioning
and enhancement of the ADNAS Business and (ii) assisting ADNAS in the
development domestic and international marketing strategies for the products and
services of the ADNAS Business.
(c) GP initially shall assign Eric Hatzimemos (the "Team Leader") to
coordinate GP's obligations hereunder and shall make reasonably available
personnel resources to perform the Engagement and to assist the Team Leader. GP
shall reasonably accommodate ADNAS's requests for the services described herein
consistent with GP's other commitments and obligations; provided, however, that
in no event shall GP be required to perform any services that might reasonably
be deemed to constitute "lobbying" (or any analogous regulated activity) under
applicable law or regulations.
2. Term of the Engagement; Due Diligence; Termination
(a) Term of Engagement. The Engagement shall commence on September 1, 2004
(the "Effective Date") and end of the first anniversary of the Effective Date,
or such earlier date, if terminated by GP pursuant to Section 2(c) hereunder
(the "Term"); provided, however, that the Term will be automatically extended
without further action of either party for additional one-year periods (the
"Renewal Term"), unless written notice of either party's intention not to extend
has been given at least 60 days prior to expiration of the effective term.
Except as expressly provided herein, the agreements, terms and understandings
set forth in this Letter Agreement shall survive the termination of any and all
work performed pursuant to the Engagement.
(b) Due Diligence. ADNAS acknowledges that, as of the Effective Date, GP
has not had the opportunity to conduct a complete due diligence review (the
"Diligence Review") of ADNAS and Biowell Technology, Inc. ("Biowell"), a
Taiwanese company that ADNAS has agreed to acquire the assets of in a pending
transaction (the "Transaction"). Accordingly, ADNAS agrees to make available to
GP on or immediately after the Effective Date, but in no event later than 5
business days thereafter, at a location and in matter as mutually agreed to by
the parties, certain information concerning the business and affairs of ADNAS
and, in connection with the Transaction, Biowell (the "Diligence Information")
in order for GP to conduct the Diligence Review.
(c) Termination. (i) ADNAS agrees that, for the 30-day period following the
Effective Date (the "Option Period"), GP shall have the option, which it may
exercise in its sole discretion, to terminate this Engagement as a result of
GP's findings in connection with the Diligence Review; provided, however, that
in the event that ADNAS does not make available to GP the Diligence Information
within the time period specified in Section 2(b), the Option Period shall
automatically be extended by the number of days that the Diligence Information
was delinquent.
(ii) In the event that GP exercises its option to terminate this Engagement
pursuant to Section 2(c)(i), (A) GP shall return to ADNAS the full amount of any
payments heretofore received by GP pursuant to this Letter Agreement and (B)
following the payment of such aforementioned amount by GP, this Letter Agreement
and the Warrant (as hereinafter defined) shall be null and void and shall have
no force and effect.
3. Fees and Warrants
As compensation for GP's performance of its obligations pursuant to Section
1 hereof:
(a) Advisory Fee Payments. During the Term and the Renewal Term, if
applicable, ADNAS agrees to pay GP an aggregate advisory fee of Two Million
Dollars ($2,000,000) payable as follows: (i) for the Term, (A) a lump sum cash
fee of Five Hundred Thousand Dollars ($500,000) on September 1, 2004, and (B) a
monthly cash fee in the amount of One Hundred Twenty Five Thousand Dollars
($125,000) beginning on September 15, 2004 and continuing thereafter on the
fifteenth day of each month occurring during the Term and (ii) for the Renewal
Term, a monthly cash fee in the amount of One Hundred Sixty Six Thousand Six
Hundred and Sixty-Six Dollars ($166,666) on the fifteenth day of each month
occurring during the Renewal Term.
(b) Issuance of Warrant. As additional consideration to GP, ADNAS shall
issue, upon execution of, and as a condition to, signing this Letter Agreement,
a net-exercisable warrant relating to 21,430,000 shares of common stock of
ADNAS, par value, $0.50 per share (the "Common Stock"), at an exercise price of
$0.15 per share (the "Warrant"). The Warrant shall be immediately exercisable
with respect to all shares of the Common Stock subject thereto as of the date
hereof. The form of Warrant is attached hereto as Exhibit A. If and to the
extent that ADNAS issues any other person warrants, stock options or shares of
capital stock with demand registration rights or any other liquidity rights, GP
shall be entitled, with respect to the shares issued or issuable pursuant to the
Warrant to such registration or other rights that are at least as favorable as
those ADNAS grants to any other holders of warrants, stock options, or shares of
capital stock ADNAS.
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4. Expenses
ADNAS agrees to promptly reimburse GP for all out-of-pocket expenses
reasonably incurred by GP and its representatives in connections with the
Engagement.
5. Confidentiality: Use of Mr. Giuliani's Name
(a) GP shall (i) treat and maintain as confidential and/or privileged all
information, documents, materials and work product, including, without
limitation, the Diligence Information, that are, have been or shall be generated
or created by or communicated or provided to GP by ADNAS relating to any
activity undertaken as part of this Letter Agreement and shall not reveal any
such information, document, material or work product to any person or utilize
any affiliates, officers, directors and shareholders to maintain confidentiality
of such information; provided, however, that GP may reveal such information,
documents, materials or work product if required by law pursuant to subpoena or
other government process after prior notice to ADNAS when possible and to the
extent permitted under the circumstances to afford ADNAS an opportunity to
challenge such process at ADNAS's sole discretion and expense. In the
alternative, should ADNAS so direct, GP shall undertake to challenge such
process at ADNAS's sole expense, provided, that such challenge is permitted by
law under the circumstances.
(b) The parties shall keep the terms of this Letter Agreement strictly
confidential at all times and neither party shall make any statement regarding
the Engagement or this Letter Agreement without the advance consent of the
other.
(c) The trade names and trademarks "Rudolph Giuliani," "Giuliani Partners
LLC," or any similar mark on variations or derivations thereof (collectively,
the "Giuliani Marks"), shall not be used by ADNAS without GP's prior written
consent, and upon any termination of the Engagement, ADNAS shall have no further
right to use or exploit the Giuliani Marks in any fashion. ADNAS shall not by
act or omission use the Giuliani Marks or perform any services hereunder in any
manner that tarnishes, degrades, disparages or reflects adversely on the
Giuliani Marks, GP, its affiliates, or their business or reputation. Except as
expressly provided herein, nothing in this Letter Agreement shall be deemed to
give ADNAS any right, title or interest in or to any of GP's trade names,
trademarks or service marks.
6. Promotional Materials
ADNAS agrees that it shall submit to GP for its review, all advertising,
written sales promotion, press releases, news clippings and other publicity
matters relating to the Engagement and the strategic relationship created hereby
or containing language from which the Engagement or such relationship may be
inferred or implied ("Promotional Materials") and not publish, disseminate or
use any such GP Promotional Materials without GP's prior written consent, which
consent shall not be unreasonably withheld or delayed.
3
7. Indemnification and Related Matters
(a) ADNAS agrees to indemnify GP, any controlling person of GP and each of
their respective partners, shareholders, directors, officers, employees, agents,
affiliates and representatives (each, an "Indemnified Party") and hold each of
them harmless against any actions, judgments, claims, losses, damages, expenses,
liabilities, joint or several, to which any Indemnified Party may become liable,
directly or indirectly, arising out of, or relating to, this Letter Agreement or
the Engagement, including but not limited to reimbursement for all GP fees,
costs, attorney's fees and disbursements and defense or other costs associated
with any such actions, judgments or claims, unless and until it were to be
finally adjudicated that such liabilities resulted from the gross negligence or
willful misconduct of any Indemnified Party. ADNAS further agrees to reimburse
each Indemnified Party immediately upon request for all expenses (including
reasonable attorneys' fees and expenses) as they are incurred in connection with
the investigation of, preparation for, defense of, or providing evidence in, any
action, claim, suit proceeding or investigation, directly or indirectly, arising
out of, or relating to, this Letter Agreement or GP's services hereunder,
whether or not pending or threatened and whether or not any Indemnified Party is
a party to such proceeding. ADNAS also agrees that no Indemnified Party shall
have any liability (whether direct or indirect, in contract or tort or
otherwise) to ADNAS or any person asserting claims on behalf of or in right of
ADNAS, directly or indirectly, arising out of, or relating to, this Letter
Agreement or GP's services thereunder, unless it is finally judicially
determined that such liability resulted from the gross negligence or willful
misconduct of such Indemnified Party. Moreover, in no event, regardless of the
legal theory advanced, shall any Indemnified Party be liable for any
consequential, indirect, incidental or special damages of any nature. In no
event shall the Indemnified Parties' liability (whether direct, indirect,
contract or otherwise) directly or indirectly relating to or in connection with
this Letter Agreement exceed the advisory fees received by GP during the months
that any such liability of the Indemnified Parties arose. In the event that an
indemnified Party is requested or required to appear as a witness in any action
brought by or on behalf of or against ADNAS or any affiliate of ADNAS in which
such Indemnified Party is not named as a defendant. ADNAS agrees to reimburse GP
for all expenses incurred by it in connection with such Indemnified Party's
appearing and preparing to appear as such a witness, including, without
limitation, the reasonable fees and disbursements of its legal counsel.
(b) ADNAS agrees that, without GP's prior written consent, it will not
settle, compromise or consent to the entry of any judgment in or otherwise seek
to terminate any claim, action, suit, proceeding or investigation in respect of
which indemnification could be sought hereunder (whether or not GP or any other
Indemnified Party is an actual or potential party to such claim, action, suite,
proceeding or investigation), unless (i) such settlement, compromise, consent or
termination includes an unconditional release of each Indemnified Party from any
liabilities arising out of such claim action, suite, proceeding or investigation
and (ii) the parties agree that the terms of such settlement shall remain
confidential.
(c) The rights of the Indemnified Parties referred to above shall be in
addition to any rights that any Indemnified Party may otherwise have.
(d) ADNAS shall be solely responsible for the performance and safety of any
of the products and services of the ADNAS Business. Any representation or
covenant, whether express or implied, given by ADNAS to any customer or third
party regarding the products and services of the ADNAS Business shall be the
sole responsibility of ADNAS, and GP shall not be liable for, and shall be
indemnified against in accordance with Section 7(a), (i) any failure to comply
with such representation or covenant and (ii) any product liability, tort or
other claims relating to the ADNAS Business.
4
(e) Each of the parties hereto represents and warrants that its execution
of, and performance of its obligations under, this Letter Agreement shall not
constitute or result in a breach or event of default under any agreement to
which it is a party, or contravene any applicable law, regulation or fiduciary
obligation.
8. Non-Exclusivity
Nothing in this Letter Agreement shall prevent GP from entering into
consulting agreements or arrangements with other parties for any purpose;
provided that GP shall not enter into such consulting agreements or arrangements
with any other party in which the majority of such party's business is related
to DNA-embedded technologies.
9. Modification of Agreement; Non-Assignability; Entire Agreement
(a) This Letter Agreement may not be changed or altered except in a writing
duly executed by an authorized agent of both parties hereto.
(b) Neither party may assign any of its rights or obligations under this
Letter Agreement without the prior written consent of the other party.
(c) There have been no representations, inducements, promises or agreements
of any kind that have been made by either party, or by any person acting on
behalf of wither party, which are not embodied within this Letter Agreement.
This letter Agreement constitutes the entire understanding and agreement between
the parties with respect to the subject matter hereof and supersedes all prior
agreements and undertakings, both written and oral, between the parties with
respect to the subject matter hereof.
10. Independent Contractor Status; Governing Law
In connection with the Engagement, GP is acting as an independent
contractor and not in any other capacity, and does not have any authority to act
as an agent for, or otherwise bind ADNAS. All aspects of the relationship
created by this Letter Agreement shall be governed by and construed in
accordance with the laws of the State of New York, United States of America,
applicable to contracts made and to be performed therein.
11. Arbitration
(a) Any dispute, controversy or claim arising out of or relating to this
Letter Agreement or the breach, termination, enforceability or validity hereof
shall be heard and determined by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA"). The
number of arbitrators shall be three. Each party shall select an arbitrator from
5
the list of names submitted to the parties by the AAA, and such two arbitrators
shall be appoint the third arbitrator. The place of arbitration shall be the
City of New York. (b) No provision of or the exercise of any rights under this
Section 11 shall limit the right of any party to request and obtain from a court
of competent jurisdiction in the City of New York (which shall have exclusive
jurisdiction for purposes of this Section 11
(b)) provisional remedies and relief. Each of the parties hereby submits
unconditionally to the exclusive jurisdiction of the state and federal courts
located in the City of New York for purposes of this provision, waives and
agrees not to assert objection to the venue of any proceeding in any such court
or that any such court provides an inconvenient forum and consents to the
service of the process upon it in connection with any proceeding instituted
under this Section 11 (b) in the same manner as provided for the giving of
notice hereunder.
12. Execution of the Letter Agreement and Signatures
Your signature below on the indicated enclosed copy of this Letter
Agreement is your representation that you are authorized to enter into the
Engagement and to agree to the terms of this Letter Agreement on behalf of
ADNAS. This Letter Agreement shall be binding on all parties and their
respective heirs, successors and permitted assigns. Please execute and return
the indicated copy of this Letter Agreement to GP.
6
* * * *
If the foregoing correctly reflects our mutual understanding and agreement
with respect to the terms of the Engagement set forth herein, please so confirm
by executing and delivering the enclosed copy of this Letter Agreement to the
undersigned, and upon the Effective Date, this Letter Agreement shall become a
binding agreement upon ADNAS and GP in accordance with its terms.
Very truly yours,
GIULIANI PARTNERS LLC
By:/s/ ERIC HATZIMEMOS
----------------------
Eric Hatzimemos
Managing Director
The above sets forth the terms of the Engagement and is agreed to on behalf
of ADNAS, as indicated below:
APPLIED DNA SCIENCES, INC.
Dated: August 6, 2004 By:/s/ PETER BROCKELSBY
--------------------
Peter Brockelsby
President
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Exhibit 10.12
INVESTMENT ADVISORY AGREEMENT
This Investment Advisory Agreement made this 14th day of February 2005 is
between Applied DNA Sciences, Inc., a Nevada corporation located at 9229 West
Sunset Blvd., Suite 830, Los Angeles, CA 9009 ("APDNAS"), and First London
Finance, Ltd. ("FLF"), located at The Akara Building, 24 De Castro St., Wickhams
Cay I, Road Town, Tortola, British Virgin Islands and supersedes the previous
Investment Advisory Agreement between APDNAS and FLF of 8th December 2004.
APDNAS and FLF agree as follows:
I. ENGAGEMENT
APDNAS hereby engages and retains FLF as its non-exclusive Investment
Adviser to perform the services (as that term is defined in III. Below,
hereafter referred to as the "Services") and FLF accepts such appointment
on the terms and subject to the conditions hereinafter set forth and agrees
to use its best efforts in providing such Services.
II. INDEPENDENT CONTRACTOR
A. FLF shall be, and in all respects be deemed to be, an independent
contractor in the performance of its duties hereunder, any law of any
jurisdiction to the contrary.
B. FLF shall not, by reason of this Agreement or the performance of the
Services, be or be deemed to be, an employee, agent, partner,
co-venture or controlling person of APDNAS, and FLF shall not have any
power to enter into any agreement on behalf of or otherwise bind
APDNAS.
C. FLF shall not have or be deemed to have fiduciary obligations or
duties to APDNAS and shall be free to pursue for their own account (or
for the account of others) such activities, employments, ventures,
businesses and other pursuits as they at their sole discretion, may
elect.
D. Notwithstanding the above provision, FLF shall not pursue for its own
account (or for the account of others) such activities, employments,
ventures, businesses, financing, debt/equity funding, investment
advisory and/or brokerage services that are or may be perceived to be
a conflict with FLF's obligations under this Agreement or be adverse
to APDNAS' interests or the proposed business plans of APDNAS.
1
III. SERVICES
A. Advise and assist APDNAS to raise up to Twenty-Seven Million U.S.
dollars ($27,000,000.00) through the sale of units ("Units") and
exercise of warrants.
B. Assist APDNAS in efforts to seek additional business/business
relationships that will be of benefit to APDNAS.
C. Advise APDNAS and/or any of its affiliates in its negotiations with
one or more individuals, broker-dealers, placement agents, firms or
entities (the "Candidate(s)") who may have an interest in providing
capital or in pursuing a "Business Combination" with APDNAS. As used
in this Agreement, the term "Business Combination" shall be deemed to
mean any form of merger, acquisition (of assets or Intellectual
Property), joint venture, licensing agreement, product sales and/or
marketing, distribution, combination and/or consolidation, etc.
involving APDNAS and/or any of its affiliates and any other entity. As
used herein, the term "investment" shall include the contribution of
anything of value by a candidate introduced by FLF to APDNAS its
subsidiaries or affiliates.
D. Devote such time and best effort to the affairs of APDNAS as is
reasonable and adequate to render the consulting services contemplated
by this agreement as well as may reasonably be requested by APDNAS.
FLF is not responsible for the performance of any services, which may
be rendered hereunder without APDNAS providing the necessary
information in writing prior thereto, nor shall FLF include any
services that constitute the rendering of any legal opinions or
performance of work that is in the ordinary purview of the Certified
Public Accountant. FLF cannot guarantee results on behalf of APDNAS
but shall pursue all reasonable avenues available through its network
of contacts that FLF hereby represents it has established and that are
capable of providing the funding levels and types contemplated by this
agreement. At such time as an interest is expressed by a third party
in APDNAS' needs, FLF shall notify APDNAS and advise it as to the
source of such interest and any terms and conditions of such interest.
The acceptance and consumption of any transaction is subject to
acceptance of the terms and conditions by APDNAS. It is understood
that a portion of the compensation paid hereunder is being paid by
APDNAS to retain FLF to remain available to advise it on transactions
on an as-needed basis. Further FLF shall advise APDNAS prior to making
any and all contacts it intends to make in performance of this
agreement in order to assure full coordination with APDNAS and
approval by APDNAS of such potential funding source.
E. APDNAS and FLF hereby confirm their express written intent that FLF
shall only be required to devote such time to the performance of the
Services as is reasonable to properly discharge its responsibilities
under this Agreement.
2
F. FLF will advise APDNAS in structuring, seeking and issuing the
documents related to the financing.
G. FLF shall act as a non-exclusive Investor Relations Advisor to APDNAS
for as long as this Agreement remains in force
H. In conjunction with the Services, FLF agrees to:
1. Be available to the officers of APDNAS at such mutually agreed
upon place during normal business hours for reasonable periods of
time, subject to reasonable advance notice and mutually
convenient scheduling, for the purpose of advising and assisting
APDNAS in the preparation of such reports, summaries, corporate
and/or transaction profiles, due diligence packages and/or other
material and documentation as shall be necessary, in the opinion
of FLF, to properly present APDNAS to other entities and
individuals that could be of benefit to APDNAS; 2. Make itself
available for telephone conferences with the principal financial
sales and/or operating officer(s) of APDNAS during normal
business hours; 3. Advise APDNAS' management in corporate
finance, structuring the nature, extent and other parameters of
any private or other offer(s) to be made to Candidate(s); 4.
Advise APDNAS' management in evaluating proposals and
participating in negotiations with Candidate(s); 5. Advise APDNAS
regarding company operations, staffing, strategy, and other
issues related to building shareholder value as APDNAS may
reasonably request, consistent with the provisions of this
Agreement; 6. Introduce APDNAS to banking and investment firms
qualified, capable and interested in finding funding for the
APDNAS; 7. Introduce APDNAS to investor relations firms that may
assist APDNAS in communicating with its shareholders, the media
and other interested parties. 8. Introduce the APDNAS to firms
qualified, capable and interested in converting the APDNAS' SEC
filings and proxy statements into an Edgar(R) format for
submission.
IV. EXPENSES
It is expressly agreed and understood that FLF's compensation as provided
in this Agreement does include normal and reasonable out-of-pocket
expenses. FLF will be entitled to reimbursement of its business expenses,
as described herein APDNAS shall reimburse the pre-approved expenses of FLF
and such amounts shall not be deducted from any fees described in Section V
below titled, "COMPENSATION."
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A. The disbursements of expense money to FLF, and its affiliates will be
paid by APDNAS for the prior approved expenses. It is agreed that
APDNAS will pay all out-of-pocket pre-approved expenses incurred in
connection with this engagement.
B. FLF shall not incur any expense exceeding Five Hundred US Dollars (US
$500.00) without prior written consent from APDNAS.
C. APDNAS hereby agrees to compensate FLF promptly upon receipt of an
approved expense invoice from FLF. Whenever feasible, FLF will request
advance payment of previously approved expenses.
D. APDNAS hereby agrees that FLF's employees may:
1. Travel in business class on all international flights and either
business class or first class on U.S. domestic flights of more
than two hours duration;
2. Stay at Hyatt, Marriott, Sheraton, Hilton or equivalent hotel for
overnight stays.
V. COMPENSATION
In consideration for Financial Consulting and Investor relations services
provided to the APDNAS (the " Services"), as set forth at Section III A
through H, above), APDNAS agrees that FLF shall be entitled to compensation
as follows:
A. A monthly Investment Advisory Fee of Ten Thousand US Dollars (US
$10,000.00) USD ("Investment Advisory Fee") shall be paid for a period
of one (1) year to FLF for the SERVICES described in III. above. The
period may be extended in annual increments, as mutually agreed in
writing by the parties. The Investment Advisory Fee shall be paid on
the first of each month, commencing 1 December, 2004. The fee shall
continue to be paid monthly in advance until this Agreement expires. .
4
B. In addition, APDNAS agrees to issue to FLF Eight Hundred and Fifty
Thousand (850,000) shares of APDNAS' common stock to be issued on or
about 1st February 2005 and Four Hundred Thousand shares of APDNAS'
common stock to be issued on 31st December 2005 (hereinafter referred
to as the "Company Shares"). APDNAS hereby agrees to review the
Services performed by FLF every six (6) months for the duration of
this contract and may issue additional shares to FLF, as may be deemed
appropriate by the parities to this Agreement.
C. The Company Shares issued shall be Registered in the SB-2 Registration
to be filed by APDNAS on 15th February, 2005. FLF agrees to a "Lock-up
Agreement" under which the registered Company Shares shall not be
eligible for sale until 31st December, 2005.
VI. REPRESENTATIONS, WARRANTIES AND COVENANTS
The parties hereby represent, warrant and covenant that:
A. The execution, delivery and performance of this Agreement, in the time
and manner herein specified, will not conflict with, result in a
breach of, or constitute a default under any existing agreement,
indenture, or other instrument to which either APDNAS or FLF is a
party or by which either entity may be bound or affected.
B. APDNAS hereby irrevocably agrees not to circumvent, directly or
indirectly, the intent of this Agreement, to avoid payment of fees in
any transaction with any corporation, partnership, entity, or
individual, introduced by FLF to APDNAS, in connection with any
project, any loans or collateral, or other transaction involving any
products, transfers or services, or addition, renewal extension,
rollover, amendment, renegotiations, new contracts, parallel
contracts/agreements, or third party assignments thereof.
C. FLF agrees to adhere to an understanding of Confidentiality,
Non-Circumvention and Non-Competition and be bound thereby as
expressed in a separate written agreement delivered concurrently
herewith.
D. APDNAS and FLF have full legal authority to enter into this Agreement
and to perform the same in the time and manner contemplated.
E. The individuals whose signatures appear below are authorized to sign
this Agreement on behalf of their respective organizations.
F. APDNAS will co-operate with FLF, and will promptly provide FLF with
all reasonably requested information in order for FLF to perform its
Services pursuant to this Agreement.
5
VII TERM AND TERMINATION
A. The term of this Agreement shall expire on 7th December 2006, unless
extended in writing by both APDNAS and FLF.
VIII CONFIDENTIAL DATA
A. FLF shall not divulge to others, any trade secret or confidential
information, knowledge, or data concerning or pertaining to the
business and affairs of APDNAS, obtained by FLF as a result of its
engagement hereunder, unless authorized, in writing by APDNAS. Upon
termination of this Agreement for any reason FLF agrees to return all
information to APDNAS.
B. APDNAS shall not divulge to others, any trade secret or confidential
information, knowledge, or data concerning or pertaining to the
business and affairs of FLF, obtained by APDNAS as a result of its
engagement hereunder, unless authorized, in writing, by FLF.
C. FLF shall be required in the performance of its duties to divulge to
APDNAS or any officer, director, agent or employee of APDNAS, any
secret or confidential information, knowledge, or data concerning any
other person, firm or entity (including, but not limited to, any such
persons, firm or entity which may be a competitor or potential
competitor of APDNAS), which FLF may have or be able to obtain
otherwise than as a result of the relationship established by this
Agreement.
6
IX OTHER MATERIAL TERMS AND CONDITIONS
D. Piggy-Back Registration Rights. If, at any time commencing after the
date hereof, the APDNAS proposes to register any shares of common
stock of the APDNAS under the Securities Act of 1933, as amended,
(other than pursuant to a Form S-4, Form S-8 or any other successor
form of limited purpose), the APDNAS shall include the FLF Shares
under such registration statement and pay for all such registration
costs and expenses of FLF.
E. Provisions. Neither termination nor completion of the assignment shall
affect the provisions of this Agreement, and the Indemnification
Provisions, attached at Schedule "A" and hereby made part of this
Agreement, which shall remain operative and in full force and effect.
F. Additional Instruments. Each of the parties shall from time to time,
at the request of others, execute, acknowledge and deliver to the
other party any and all further instruments that may be reasonably
required to give full effect and force to the provisions of this
Agreement.
G. Entire Agreement. Each of the parties hereby covenants that this
Agreement is intended to and does contain and embody herein all of the
understandings and Agreements, both written or oral, of the parties
with respect to the subject matter of this Agreement, and that there
exists no oral agreement or understanding expressed or implied
liability, where the absolute, final and unconditional character and
nature of this Agreement shall be in any way invalidated, empowered or
affected. There are no representations, warranties or covenants other
than those set forth herein.
H. Laws of Nevada. This Agreement shall be deemed to be made in, governed
by and interpreted under and construed in all respects in accordance
with the laws of Nevada, irrespective of the country or place of
domicile or residence of either party. The FLF and APDNAS hereby agree
that any legal proceedings, suits or arbitrations filed by either
party must be filed and adjudicated in Nevada, USA.
I. Assignments. The benefits of the Agreement shall inure to the
respective successors and assigns of the parties hereto and of the
indemnified parties hereunder and their successors and assigns and
representatives, and the obligations and liabilities assumed in this
Agreement by the parties hereto shall be binding upon their respective
successors and assigns; provided that the rights and obligations of
APDNAS and FLF under this Agreement may not be assigned or delegated
without the prior written consent of APDNAS or FLF, as the case may
be, and any such purported assignment shall be null and void.
J. Originals. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed an original
and constitute one and the same agreement. Facsimile copies with
signatures shall be given the same legal effect as an original.
K. Addresses of Parties. Each party shall at all times keep the other
informed of its principal place of business if different from that
stated herein, and shall promptly notify the other of any change,
giving the address of the new place of business or residence.
L. Notices. All notices that are required to be or may be sent pursuant
to the provision of this Agreement shall be sent by certified mail,
return receipt requested, by facsimile or by overnight package
delivery service to each of the parties at the address appearing
herein, and shall count from the date of receipt of the delivery
service or confirmation of facsimile receipt or by a validated air
bill. Addresses for facsimile are as follows: For FLF: attention Jack
Wright, Agent, 941-346-9230. For APDNAS : attention Peter Brocklesby,
President and Karin Klemm, COO, 310-860-1303.
M. Modification and Waiver. A modification or waiver of any of the
provisions of this Agreement shall be effective only if made in
writing and executed with the same formality as this Agreement. The
failure of any party to insist upon strict performance of any of the
7
provisions of this Agreement shall not be construed as a waiver of any
subsequent default of the same or similar nature or of any other
nature.
X. Attorney's Fees If any arbitration, litigation, action, suit, or other
proceeding is instituted to remedy, prevent or obtain relief from a breach
of this Agreement, in relation to a breach of this Agreement or pertaining
to a declaration of rights under this Agreement, the prevailing party will
recover all such party's reasonable attorneys' fees incurred in each and
every such action, suit or other proceeding, including any and all appeals
or petitions there from. As used in this Agreement, attorneys' fees will be
deemed to be the reasonable legal fees and services performed in connection
with the matters involved, including those related to any appeal or the
enforcement of any judgment calculated on the basis of the reasonable fee
charged by attorneys performing such services.
WHEREOF, on the dates of their respective signatures, each party has executed
this Agreement.
APPROVED AND AGREED: APPROVED AND AGREED:
First London Finance, Ltd. Applied DNA Sciences, Inc.
/s/ M. MARECHAL /s/ PETER BROCKLESBY
--------------- ---------------------
By: M. Marechal By: Peter Brocklesby
President
/s/ C. BRASEY
-------------
By: C. Brasey 14th February, 2005
General Attorneys Date of execution
14th February, 2005
Date of execution
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CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTANTS
TO: Applied DNA Sciences, Inc.
As independent registered certified public accountants, we hereby consent
to the incorporation by reference in this Registration Statement on Form SB-2,
of our report, which includes an explanatory paragraph regarding the substantial
doubt about the Company's ability to continue as a going concern, dated January
11, 2005 relating to the financial statements of Applied DNA Sciences, Inc. and
to the reference to our Firm under the caption "Experts" appearing in the
Prospectus.
/s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
--------------------------------------------
Russell Bedford Stefanou Mirchandani LLP
New York, New York
February 15, 2005
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