Via Facsimile and U.S. Mail
Mail Stop 03-09
March 15, 2005
Mr. Rob Hutchison
Chief Executive Officer
Applied DNA Sciences, Inc.
9229 W. Sunset Boulevard, Suite 830
Los Angeles, California 90069
Re: Applied DNA Sciences, Inc.
Registration Statement on Form SB-2
Filed February 15, 2005
File Number 333-122848
Dear Mr. Hutchison:
We have reviewed your filing and have the following comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
FORM SB-2
General
1. Please note that where we provide examples to illustrate what
we
mean by our comments, they are examples and not complete lists.
If
our comments are applicable to portions of the filing that we have
not cited as examples, please make the appropriate changes in
accordance with our comments.
2. The first and third sentences in the first paragraph under
"Applied DNA Sciences, Inc. substantially repeat themselves,
please
revise.
3. Please provide a "Plain English" explanation or substitute for
the
terms "botanical DNA" and "substrates".
4. Where applicable, please amend your Form 10-KSB for the year
ended
September 30, 2004 and your Form 10-Q for the quarter ended
December
31, 2004 to comply with our comments on your Form SB-2.
5. Where our comments address and call for revisions to the
audited
financial statements and related notes for the two years ended
September 30, 2004, please apply those same comments, as
applicable,
to your unaudited financial statements for the periods ended
December
31, 2004 and 2003, respectively, and revise them accordingly.
Risk Factors
General
6. Please revise the risk factors where appropriate to replace
generic language with specific disclosure of exactly how these
risks
have affected and will affect your operations, financial condition
or
business, and if practicable to quantify, the specific and
immediate
effects to investors of each risk that you have identified. For
example, you use general phrases such as "materially adversely
affect" throughout the risk factor section. These generic phrases
are subject to varying interpretations and, therefore, do not
adequately explain the risk or concern to which you refer. Please
revise to describe the adverse effect(s) in greater detail.
7. Please include a separate risk factor disclosing the risks
presented by the fact that you presently have no or limited
manufacturing, sales, marketing or distribution capabilities.
8. To the extent applicable, please include a risk factor, which
discusses risks associated with reliance and use of third-party
manufacturers and suppliers.
9. Please include a separate risk factor discussing your reliance
on
your relationship with Biowell and its technology, proprietary,
and
licensing rights.
We Have a History of Loses Which may Continue, Which May
Negatively
...., page 7
10. Please revise the disclosure to indicate that as a result of
continuing losses, you may exhaust your resources and be unable to
complete the development of your products. Additionally, clearly
state that your accumulated deficit will continue to increase as
you
continue to incur losses.
If We Are Unable to Obtain Additional Funding Our Business
Operations
...., page 7
11. Please revise your disclosure to state that even if you
receive
additional financing, you may not be able to sustain and expand
research and development activities or continue to conduct
business
operations.
Our Future Success May Depend on the Timely Introduction of New
Products ..., page 8
12. The disclosure in this risk factor is substantially similar
and
related to the preceding one, please revise to combine the two
factors, eliminating any duplicative information.
If We Fail to Introduce New Products, or Our existing Products are
not ..., page 8
13. If you have experienced any of the difficulties described in
the
bullet points, please revise to describe the difficulties you have
experienced and the actual or expected consequences.
The Failure To Manage Our Growth In Operations And Acquisitions Of
New ..., page 9
14. Describe with more specificity the potential effects if you
are
unable to manage your growth.
If We Are Unable to Retain the Services of Messrs. Hutchison,
Brockelsby, Botash ..., page 9
15. Please disclose which if any of the named executives you have
employment agreements with, if none, please so state.
16. Please disclose whether Messrs. Huthchison, Brockelsby, Botash
or
Klemm has plans to leave the company or retire in the near term.
Failure to Attract and Retain Qualified Scientific or Production
Personnel ..., page 9
17. Please discuss any difficulty you have had attracting and
retaining qualified scientific or production personnel since your
inception.
The Biomedical Research Products Industry is Very Competitive, and
We
...., page 10
18. Please revise to provide an estimate of the number of
competitors
and your competitive position. If a small number of competitors
are
dominant in the industry, then identify them.
19. To the extent easily obtainable please disclose your
competitors`
respective shares of your target market.
Intellectual Property Litigation Could Harm Our Business, page 10
20. To the extent you are aware of any intellectual proprietary
rights that are being infringed upon or that you have been
notified a
third party`s belief that you are infringing on their patent(s),
please revise to disclose the situation and potential
consequences.
21. Please also disclose that even an unsuccessful infringement
action against you would be expensive to defend.
Potential Product Liability Claims Could Affect Our Earnings and
Financial Condition, page 11
22. Please disclose the amount of your product liability insurance
coverage.
We Are Currently Subject to Governmental Regulation, page 11
23. Please make this risk factor more specific by identifying the
laws that are of particular concern. For example, which laws are
especially difficult for your business to comply with.
Additionally,
include the names of the agencies which have regulatory oversight
over the company.
New Corporate Governance Requirements are Likely to Increase ...,
page 11
24. As currently worded, this risk factor could apply to any
issuer
or any offering. Unless there is unique or company specific
reason
for including this type of disclosure, please remove it from this
section. In the alternative, please specify the provisions of the
Sarbanes-Oxley Act or of reporting obligations that are of
particular
concern. Please revise or advise.
There Are a Large Number of Shares Underlying Our Warrants That
May
...., page 11
25. Please revise the words "may cause" in the heading and
subsequent
paragraph to state "will cause immediate and substantial
dilution."
If We Fail to Remain Current on Our Reporting Requirements, We
could
...., page 11
26. Please revise the disclosure to highlight that your common
stock
being designated a penny stock on the OTC Bulletin Board, may not
only affect adversely your common stock`s liquidity, but also its
price.
27. Please revise to disclose whether you have ever failed to
remain
current on your reporting obligations under the Exchange Act,
provide
the dates and forms for which you were not current.
Use of Proceeds, page 13
28. Please identify with more specificity the uses that you
currently
categorize as "general corporate purposes," and state how much of
the
proceeds you plan to put toward each such use.
29. Please add disclosure which states you will amend the
registration statement by post-effective amendment if there are
any
material changes to application of your net proceeds.
Market for Common Equity and Related Stockholder Matters, page 13
30. Please explain why in February 2003 you changed from a
December
31 to September 30 year end.
Equity Compensation Plan Information, page 14
31. Please discuss or explain why you believe there was no
negative
impact in the market from sales of your unrestricted securities.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations and Plan of Operation
Intellectual Property Development, Product Operations &
Partnerships,
page 15
32. Please provide the term that is represented by the acronym
OEM.
33. Please provide the basis for your belief that you "use highly
reputable outside labs."
Critical Accounting Policies, page 17
34. Please revise your disclosure herein, giving consideration to
Commission Release No. 33-8350: "Interpretation- Commission
Guidance
Regarding Management`s Discussion and Analysis of Financial
Condition
and Results of Operations," which you can find on our website at
www.sec.gov/rules/interp/33-8350.htm. Specifically, please address
the nature of the uncertainty surrounding your accounting policy
for
stock-based compensation and the impact of the assumptions and
estimates that may materially impact your financial condition or
operating performance. In particular, please address these factors
as
they relate to your issuance of warrants and stock to non-
employees,
which appear significant to your operations.
Liquidity and Capital Resources, page 19
35. Please indicate if you expect to raise additional funds in the
next 12 months. If you are unable to determine whether you will
or
not, please disclose the reasons.
36. Please disclose whether you will have sufficient funding to
conduct your operations on a short and long-term basis. We
consider
long-term to be in excess of 12 months.
37. Please include a discussion and analysis of your operating
cash
flows to address the underlying reasons for the comparative
changes
in your working capital components for the year ended September
30,
2004 as compared to the year ended September 30, 2003, to the
extent
material.
38. Please expand your disclosure herein to discuss your
arrangement
with Biowell Technology, specifically with respect to the amount
and
timing of minimum purchase orders and alternative minimum royalty
payments to which you are obligated in future periods, inclusive
of
their impact on your results of operations and cash flows.
Product Research and Development, page 20
39. Please refer to the Division of Corporation Finance "Current
Issues and Rulemaking Projects Quarterly Update" under section
VIII -
Industry Specific Issues - Accounting and Disclosure by Companies
Engaged in Research and Development Activities. You can find it
at
the following website address:
http://www.sec.gov/divisions/corpfin/cfcrq032001.htm#secviii.
Please disclose the following information for each of your major
research and development projects:
* The costs incurred during each period presented and to date on
the
project;
* The nature, timing and estimated costs of the efforts necessary
to
complete the project;
* The anticipated completion dates;
* The risks and uncertainties associated with completing
development
on schedule, and the consequences to operations, financial
position
and liquidity if the project is not completed timely; and finally
* The period in which material net cash inflows from significant
projects are expected to commence.
To the extent that information requested above is not known or
estimable, disclose that fact and the reason why it is not known.
Business
40. Please expand the discussion to include the information
requested
by Item 101( a ) of Regulation S-B to the extent applicable. For
example, include a discussion of the development of your business
for
the past three years.
41. We note the January 2005 stock purchase agreement with Biowell
and the absence of discussion of the ramifications of this
agreement
in the risk factor, business, management, related parties, and
stock
ownership sections of the prospectus. Please advise or revise.
We
may have additional comments.
42. Please include the company`s website address. See Item
101(c)(3)
of Regulation S-B.
Overview, page 21
43. Please identify Biowell the first time you refer to this
entity.
For example, what is it, when was it formed, where is it located,
who
owns the company, etc.
44. We note you have an exclusive license for North America, Latin
America and Europe. Please expand the discussion to describe the
extent of sales of Biowell`s products in areas where you do not
have
an exclusive license, i.e. to what extent have Biowell`s markets
been
developed.
45. We note the reference in Note I to the minimum purchase
requirements under the licensing agreement and the absence of any
reference to this in the risk factors or business sections.
Please
advise or revise.
46. We note the reference to a franchise and distribution
agreement
in Note I and the absence of any discussion of this agreement, its
status, or the receipt of revenues pursuant to this agreement in
the
business section. Please advise or revise. We may have
additional
comments.
47. We note your reference to sectors of commerce benefiting from
your products and the reference in the summary that you are a
provider of certain products. We also note that you have not
generated any revenues. Have you provided your products without
charge? To what extent and for what purpose? Have the recipients
of
these products determined their efficacy? Please advise or revise.
We may have additional comments.
48. Please expand the discussion in the business section to
address
the projects referred to in "Product research and development" on
page 20. We may have additional comments.
49. Please explain why the company believes its executives have
developed strong links with major international corporations,
intellectual property and copyright holders, U.S. Government
affiliations, and international anti-fraud organizations.
License Agreement with Biowell Technology, page 21
50. The first and second paragraphs of this subsection repeat
themselves. Please revise.
51. Please expand the discussion to indicate when you entered into
the license agreement with Biowell and whether you have exercised
the
option to purchase Biowell`s shares.
Biowell DNA Techologies, page 22
52. Please describe with more specificity the material terms of
your
agreement with Biowell. Please be comprehensive and consistent in
your description for all material agreements to which you are a
party. Your discussion should include:
? All material rights and obligations of the parties to the
agreement;
? Duration of the agreement;
?????Payment terms;
?????Termination provisions, including consequences of early
termination; and
?????Any other terms that may be considered material.
Intellectual Property, page 22
53. Please revise to indicate that you have pending patents and no
current patents issued. We note your statement, "[w]e regard our
patents ..." Please revise or advise.
Management, page 32
54. Please revise to include 5-year chronological employment
histories for the named officers and directors under this section.
Executive Compensation, page 34
55. We note that Messrs. Hutchison, Lee, and Wehr receive stock
option awards as part of their compensation. Please describe how
these individuals` performance is determined and what factors are
considered in evaluating it. For example, if the grants are based
on
company performance, please describe how company performance is
measured.
Certain Relationships and Related Transactions, page 35
56. Please revise to disclose the material terms of the loan by
Larry
Lee to the company. This should include the maturity of the loan
and
interest rate.
Security Ownership of Certain Beneficial Owners and Management,
page
36
57. Please identify the natural persons who have voting and
dispositive power for the common stock held by RHL Management,
Inc.
Plan of Distribution, page 40
58. Please refer to your statement that the selling stockholders
may
pledge or grant a security interest in some or all of the shares
of
common stock owned by him and that the pledgees or secured parties
may offer and sell the shares of common stock from time to time
under
this prospectus, supplement, or an amendment to this prospectus
amending the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders
under this prospectus. Please confirm your understanding that the
Company may substitute new names for the name of the selling
stockholders by means of a Rule 424(b) prospectus only if:
a. the change is not material;
b. the number of securities or dollar amount registered does not
change; and
c. the new owners` securities can be traced to those covered by
the
original registration statement.
59. Please be advised that you may not use a prospectus supplement
to
add selling stockholders to the registration statement if their
ownership cannot be traced to securities registered in the
original
registration statement.
60. We note that some of the selling security holders may be
broker-
dealers. If any of the selling share holders are broker-dealers
revise to identify them as underwriters. The only exception to
this
position is if these entities obtained these securities as
compensation for underwriting services.
61. If any of the selling security holders are affiliates of
broker-
dealers, they should be so identified. In addition, please revise
your disclosure to include the following representations:
* The selling security holder purchased in the ordinary course of
business; and
* At the time of the purchase, the selling security holder had no
agreements or understanding to distribute the securities.
If you are unable to make these statements in the prospectus,
please
revise the prospectus to state the seller is an underwriter.
Selling Stockholders, page 42
62. Please confirm that none of the selling shareholders have had
any
position, office, or other material relationship with the Company
its
predecessors or affiliates within the past three years.
63. Please identify the natural persons who have voting and
dispositive power for the common stock held by named entities in
the
Selling Stockholder`s table on pages 42- 46.
Notes to Consolidated Financial Statements (Audited)
Note A- Summary of Accounting Policies, pages F-14, F-16 and F-17
64. Please describe the nature and type of costs that you include
in
general and administrative expense and your accounting policies as
they relate to those costs, referencing supporting literature as
applicable. It does not appear that consulting expense or the cost
of
the license should be included within general and administrative
expenses on the statements of operations. Additionally, please
expand your discussion of "Costs and Expenses" in Management`s
Discussion and Analysis to quantify and analyze the reasons for
significant fluctuations in each type of expenditure from period
to
period.
65. It appears, based on "Product Research and Development" on
page
20 and "Risk Factors-"Our research and development efforts for new
products may be unsuccessful" on page 7, that you incur research
and
development expenses, which conflicts with your discussion in
"Research and Development" on page F-17. Please revise your
disclosures to clarify. In addition, if you incur research and
development expenses, please revise your statements of operations
to
separately disclose those costs.
Note D- Capital Stock, page F-21
66. Please clarify for us, supplementally, why you believe the
fair
value of the consulting services is more reliably measurable than
the
fair value of the common stock. In so doing, please present
additional information, for your material transactions, to
demonstrate, as you state, that the fair value of services
received
did not differ materially from the stock issued, as we noted that
the
fair values varied within similar time periods.
Note E- Stock Options and Warrants, page F-28
67. Please revise your disclosure to clarify the assumptions used
in
valuing your compensatory warrants issued to non-employees, as
well
as the amount recognized in your statements of losses for the
financial statement periods presented, as you appear to have
represented two conflicting sets of assumptions/amounts.
Note F- Convertible Promissory Notes Payable, page F-62
68. Please provide us, supplementally, with a calculation of the
beneficial conversion feature recorded in the interim period and
for
convertible securities issued up until the date of your response
letter.
Note I- Commitments and Contingencies, page F-32
69. Please clarify for us, supplementally, your valuation of the
common stock issued as the initial license fee upon entry into
your
agreement with Biowell Technology. Please tell us how you
determined
the fair value of the license received and why you do not believe
it
differs materially from the fair value of the stock issued.
Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Cash Flows, page F-48
70. Please tell us, supplementally, why you have classified the
increase in other assets as an operating activity, given that the
amount relates to your restricted cash balance, which cannot be
utilized for general operating purposes. Please reference the
authoritative literature under U.S. GAAP that supports your
treatment.
71. Please clarify for us, supplementally, your accounting
treatment
with respect to the $642,605 in "stock cancelled- previously
issued
for services rendered," citing the authoritative literature under
U.S. GAAP that supports your treatment.
Notes to Condensed Consolidated Financial Statements
Note I- Commitments and Contingencies, page F-66
72. Please clarify for us, supplementally and in the filing, the
accounting treatment for the consulting agreement and amount
payable
to GP.
73. Please clarify for us, supplementally and in the filing, your
accounting treatment with respect to the extinguishment of the
note
payable to your former officer, citing the authoritative
literature
under U.S. GAAP that supports your treatment. In doing so, please
address the related adjustment amounts presented on your statement
of
stockholders` deficit on page F-47.
Note J- Subsequent Events, page F-67
74. Please clarify, both to us and in the filing, your accounting
treatment for the stock purchase agreement with Biowell in January
2005 and your GAAP basis thereof. We note that Biowell
shareholders
will receive 50% of the total shares issued and outstanding shares
on
the date of the acquisition. Please specifically tell us your
consideration of the transaction being accounted for as reverse
acquisition pursuant to paragraph 17 of SFAS No. 141. Tell us the
composition of the board of directors and management after the
transaction as well as any other factors that you considered.
75. Please disclose the amount of any imbedded beneficial
conversion
feature as a result of issuing the convertible notes in February
2005
and provide us a calculation.
Exhibit 23- Consent of Russell Bedford Stefanou Mirchandani LLP
76. Please provide us with an explanation from your independent
accountants discussing why their consent is from New York, New
York,
while their audit opinion was from McLean, VA. In so doing,
please
have them explain the extent to which the audit engagement team
participated in providing its consent.
* * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
You may contact Amy Bruckner (202) 824-5548 or Mary Mast at
(202) 942-1858 if you have questions regarding comments on the
financial statements and related matters. Please contact Albert
Lee
at (202) 824-5522 or me at (202) 942-1840 with any other
questions.
Sincerely,
Jeffrey Riedler
Assistant Director
cc: Andrea Cataneo
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Floor
New York, New York 10018
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Rob Hutchison
Applied DNA Sciences, Inc.
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