SEC Info - Dnaprint Genomics Inc - 10KSB

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB

(Mark One)

xANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005.

oTRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ________

Commission file number 0-30119

DNAPrint Genomics, Inc.

(Name of small business issuer in its charter)

Utah

(State or other jurisdiction of

incorporation or organization)

59-2780520

(I.R.S. Employer Identification No.)

900 Cocoanut Avenue, Sarasota, FL 34236 (941) 366-3400

(Address of principal executive offices) (Zip Code) (Issuer's telephone number)

Securities registered under Section 12(b) of the Exchange Act:

NONE

Securities registered under Section 12(g) of the Exchange Act:

(Title of class)

Common Stock, par value $.01

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [_]

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [_]

State issuer's revenues for its most recent fiscal year. $1,275,503

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) As of February 28, 2006, the aggregate market value of the voting and non-voting common equity held by non-affiliates was $5,488,340.

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. As of February 28, 2006: 303,076,509.

DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The list documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990). NONE.

Transitional Small Business Disclosure Format (check one): Yes [_] No [X]

PART I

FORWARD-LOOKING STATEMENTS

Statements in this Form 10-KSB Annual Report may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on our current expectations, estimates and projections about our business based, in part, on assumptions made by our management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those risks discussed in this Form 10-KSB Annual Report, under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other documents which we file with the Securities and Exchange Commission.

In addition, such statements could be affected by risks and uncertainties related to our financial condition, factors that affect our industry, market and customer acceptance, changes in technology, fluctuations in our quarterly results, our ability to continue and manage our growth, liquidity and other capital resources issues, competition, fulfillment of contractual obligations by other parties and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-KSB Annual Report, except as required by law.

Item 1. Description of Business.

HISTORY

We initially incorporated under the laws of the State of Utah on January 3, 1983 as Lexington Energy, Inc. and subsequently changed our focus to human genome sciences. In connection with this change in focus, on July 15, 2000, we acquired DNAPrint Genomics, Inc. through the issuance of 9,600,000 shares of our common stock. After the acquisition, we focused on the discovery and development of our TruLine products - TruSeq™, SNiPscan™ and TruSpin™. We actively engaged in human identification analysis and used our proprietary TruLine products to reduce the cost of producing a genetic profile to less than 50% of the standard price. Our strategy was to sell our proprietary reagent to geneticists at universities, hospitals and commercial laboratories working on genotyping projects. The reagent kit was designed to save researchers money in reagent costs. Companies that sold the reagents, however, made advances in their own reagents, which lowered the cost and ultimately negated the benefit of using our products. The technology was thus abandoned.

In 2001, Dr. Tony Frudakis, our founder, teamed with other scientists to conduct research to develop new genomics products with consumer, forensic and pharmacogenomics applications. However, lack of funding limited the amount of research conducted. We implemented cost cutting measures to conserve cash. In spite of these hardships; we were able to continue our research and development efforts on a reduced and limited basis throughout most of 2002 and 2003.

During 2002, our Board of Directors began a search for new leadership. After a search for a new CEO/President, Mr. Richard Gabriel agreed to accept the position without requiring immediate cash compensation. Because we did not have cash available to pay Mr. Gabriel's salary, he agreed to enter into an employment contract for one year that granted him 1,500,000 shares of our stock in lieu of immediate cash compensation.

As CEO /President, Mr. Gabriel agreed to seek additional executive management, particularly a Chief Financial Officer, a Chief Operating Officer and a Chief Medical Officer and to locate a firm to represent us in raising investment capital sufficient to build and sustain the business over the next 2-3 years. Mr. Gabriel and the new management team successfully completed these goals.

Mr. Gabriel hired our Chief Financial Officer and Chief Operating Officer, Monica Tamborini, and our Chief Medical Officer, Dr. Hector J. Gomez. In May of 2003, Mr. Gabriel also convinced Ms. Tamborini and Dr. Gomez to agree to work initially without requiring immediate cash compensation. They agreed to enter into employment contracts with us for one year in return for stock grants of 1,000,000 and 1,250,000 shares respectively.

With executive management in place, we next developed a strategic plan to achieve our short term goal of securing financing and our longer term goals of growth and stability. Where prior management saw partnering and licensing arrangements as the way to success, new management's view was that growth would occur with proven success. Management has emphasized demonstrating that our current products are viable, and management believes the shortest path to that goal is through concentrating our initial sales efforts on the consumer and forensic markets. While we expect pharmacogenomics products to outperform other market products in the long run, their introduction to market has a longer time horizon and requires larger investments of time, personnel and capital before they produce revenue and generate cash flow.

Management sought investment bankers to represent us in our search for financing. In April 2003, we engaged an investment banking firm to assist us in our efforts to raise debt and/or equity capital. In December 2003, we successfully agreed to place $8,000,000 of our securities over approximately a 20-month period. Prior to completing this transaction, we had received funds from earlier private offerings. Together, these transactions gave us the critically required capital to fund our ongoing operations until our new financing was in place. In addition to the previously raised capital, management sought additional capital to fund expansion and acquisitions. Along with our investment bankers, we secured a commitment from Dutchess Private Equity Partners, LLC for the sum of $35 Million over a 24-month period. We also negotiated to acquire a stake in Biofrontera, a privately held German Biotechnology company. Mr. Richard Gabriel and Ms. Monica Tamborini are common, non-voting shareholders of less than 1% combined ownership in Biofrontera AG. Mr. Gabriel was made aware of the opportunity to invest in Biofrontera AG and presented it to our Board of Directors and was given instructions to proceed with the investment opportunity.

Effective September 28, 2004, we agreed to acquire a majority interest in Biofrontera AG over a 24-month period for a purchase price of 20 million Euros. Prior to the closing of the transaction, however, we concluded that proceeding with the proposed acquisition was not in our best interest. Therefore, we terminated the Biofrontera agreement on February 18, 2005.

On July 8, 2005, we entered into an agreement to purchase, and simultaneously closed upon the purchase of, an equity interest in Biofrontera. We purchased the interest in Biofrontera from Technologie-Beteiligungs-Gesellschaft mbH, an instrumentality of the German government. The securities purchased were shares of Biofrontera’s series A Preferred Stock, as well as certain debt instruments. On August 8, 2005, we converted the securities purchased into Biofrontera’s common stock. We paid approximately 1.8 million Euros ($2.1 million) for our interest in Biofrontera. On September 19, 2005, we paid an additional 98,245 Euros ($121,000) for an additional 98,145 shares of Biofrontera common stock increasing our ownership of Biofrontera to approximately 18%. In connection with the transaction, two of the members of our Board of Directors, Richard Gabriel and Hector Gomez, were retained on the Biofrontera board. In addition, to induce the shareholders of Biofrontera to consent to our investment in Biofrontera, we entered into a put agreement with another Biofrontera shareholder, Heidelberg Innovation. Pursuant to this agreement, if by December 31, 2005 Biofrontera had not completed an offering of debt securities for at least 10 million Euro, Heidelberg Innovation could have required us to purchase its ownership interest in Biofrontera of approximately 49% for 1.6 million Euro (approximately $1.96 million). During September 2005, Biofrontera completed its debt securities offering. Therefore, our put obligation to Heidelberg Innovation was terminated. At that time, the board seat previously held by Hector Gomez was filled by a representative of the debt securities group. In March 2006, Biofrontera announced that it intends to undertake a public offering of equity securities during 2006-2007.

We acquired Trace Genetics late in the second quarter of 2005. Trace Genetics brought two new complementary technologies to our autosomal testing for determining the percentage of a person's ancestry: Y-chromosome testing for tracing ancestry by following the direct paternal line and mitochondrial (mtDNA™) testing for the direct maternal line. Trace also maintains one of the largest Native American mtDNA™ databanks in North America. Other similarly large databases are controlled by groups such as the Sorensen foundation, various Native American foundations and tribes, and some Universities.

On October 12, 2005, we formed DNAPrint Pharmaceuticals, Inc., a wholly-owned pharmaceutical subsidiary focused on personalized medicine.

On October 25, 2005, we acquired all of the stock of Kenna Technologies, Inc. Kenna develops software and related technologies for building computational models that mimic complex biological systems. We expect that Kenna’s computational models will become key components for our development of more effective therapies and diagnostic products. In acquiring Kenna, we also gain access to Kenna’s BoneFusion and CellCycleFusion models, which simulate bone remodeling processes and molecular pathways. These pathways are common targets of current cancer therapies. We exchanged 1,500,000 shares of our common stock for all the outstanding shares of Kenna. In addition, we hired certain key employees of Kenna, including Drs. Barbara Handelin and Tandy Herren, who will support the clinical development of our pharmacogenomics products with simulations to help design optimal clinical trials.

On November 30, 2005, we acquired certain assets used in the drug and diagnostic discovery business of Toronto-based Ellipsis Biotherapeutics Corporation. We formed a wholly-owned Canadian company, also named Ellipsis Biotherapeutics Corporation to operate these assets. Ellipsis performed contract SNP genotyping for academic centers, hospitals, human health care corporations and biotech companies. Its diverse services include human, plant and animal analyses.

The acquired assets consist of Ellipsis’ operating assets, including genotyping equipment, automated sample preparation devices, DNA preparation, measurement and amplification technologies, laboratory equipment, computers and office supplies related to these activities, the corporate premises, name and logo and certain intellectual property and committed contracts. We anticipate that the Ellipsis assets will assist with clinical genomics and genotyping. In consideration for the Ellipsis assets, we issued 6,500,000 shares of our common stock and assumed certain liabilities in the approximate amount of $600,000. Dr. Laurence Rubin has agreed to continue managing the operations in Toronto.

RESEARCH AND DEVELOPMENT

The primary objective of our near term research and development efforts in pharmacogenomics will be to expand our library of predictive drug response tests to include multiple therapeutic areas including commonly used FDA approved drug therapies. Although our products are diverse and address different market areas and needs, the base technology is the same. Research in one area often provides benefit to our other products.

In 2004, we conducted research for enhancements to DNAWitness™. The research included much needed sample collection for our eye and hair color studies. As a result of our past research, in early June of 2004, we introduced a new tool to our forensic customers. We compiled a volunteer photo database that we can use to help investigators visualize the DNA donor. This new tool augments the effectiveness of our product, DNAWitness™. During the third quarter of 2004, we completed work on our eye color service, RETINOME™, and EURO-DNA™, a service that allows customers to determine their Northern European, Mediterranean, Middle Eastern and Indo European ancestry and introduced them to the market.

We continue our research work on STATINOME^TM and ace inhibitor projects. We also, in conjunction with researchers at the Moffitt Cancer Center, continue work on OVANOME^TM and other identified cancer projects. We continue to evaluate and analyze our preliminary results and to extend those results to other patients’ samples for Taxol, Statins, and Ace inhibitor work.

Our work in forensics is continuing to expand the physical descriptors that can be derived from crime scene DNA samples. Our research also continued in hair color, skin shade, and we carried on work to improve our recently introduced eye color predictor model. Additionally, we continue to collect volunteer photo database samples and will incorporate those new samples into our forensic photo database array in the near future.

During 2005, we began our work on EPO with Beth Israel Deaconess Medical Center and Dr. Arthur Sytkowski a director at Beth Israel. EPO is a glycoprotein naturally made by the body to stimulate red blood cell production; the currently marketed forms are manufactured using recombinant DNA technology and are used to treat anemia or low blood cell count.

Also during 2005, we entered into an agreement with Dr. Mark Froimowitz to develop a series of methylphenidate analogs or Ritalin-like compounds targeting the clinical development of enhanced pharmaceuticals for the treatment of drug addiction, attention deficit hyperactivity disorder and depression.

STRATEGIC ALLIANCES

Moffitt Cancer Center

During 2006, our OVANOME™ technology is under development with researchers at the Moffitt Cancer Center in Tampa, Florida, and we are in the midst of completing an initial 80 person trial under an approved Internal Review Board, or IRB, which approves all clinical trial related work at the center. We are also enrolling an additional 200 subjects to further validate and support the data we obtained in our earlier trial.

Beth Israel Deaconess Medical Center License Agreement

Effective April 4, 2005, we entered into a license agreement with Beth Israel Deaconess Medical Center, a Massachusetts nonprofit corporation, to develop a new, more potent and longer acting form of the anemia drug Erythropoietin, or EPO.

EPO is a glycoprotein naturally made by the body to stimulate red blood cell production. The currently marketed forms are manufactured using recombinant DNA technology and are used to treat anemia or low blood cell count. Under the agreement, Beth Israel has granted us an exclusive license to United States and foreign patents related to certain forms of EPO. We have the right to develop, use, market and sell products derived from the licensed patents.

In exchange for the license, we paid Beth Israel a $25,000 signing fee and agreed to make certain milestone payments linked to their progress in developing marketable products from the licensed technology. The total of payments, if all milestones are reached, is $2,150,000. The milestone payments are nonrefundable. Up to $200,000 of this amount is creditable against future royalties. In addition to the milestone payments, we must also pay Beth Israel an annual royalty of 4% of the net sales of all products developed from the licensed technology. A minimum royalty payment of $100,000 a year is due upon the commencement of commercial sales in any territory worldwide.

Consulting Agreement with Dr. Arthur Sytkowski

On June 7, 2005, we entered into a consulting agreement with Dr. Arthur Sytkowski, the Director of Beth Israel, to consult on the development of a new, more potent and longer acting form of EPO. On September 1, 2005, we entered into a new consulting agreement amending and restating the existing consulting agreement. Under the amended consulting agreement, Dr. Sytkowski has agreed to perform certain consulting services, including advising on medical, regulatory and patent issues, training personnel and providing assistance with EPO research and development. In exchange for the services, we will pay Dr. Sytkowski $10,000 a month for twelve months, five annual incentive payments of $25,000 each, and certain milestone payments linked to our progress under the Beth Israel license in developing marketable products from the licensed EPO technology. The total of all payments to Dr. Sytkowski under the agreement, assuming all milestones are reached, is $370,000. The milestone payments will be reduced - dollar for dollar - to the extent Dr. Sytkowski receives payments from Beth Israel relating to the same milestone events under the Beth Israel license.

Collaborative Research Agreement with Beth Israel

During late June 2005, we entered into a collaborative research agreement with Beth Israel to provide three researchers to us to conduct certain research work related to our EPO research. On August 15, 2005, this agreement was amended. The total cost per the amended agreement is $352,192. We paid $176,096 during 2005 and the remaining $176,096 is due in 2006.

Consultant Agreement with Member of Our Scientific Advisory Board

During May 2005, we entered into a one-year agreement with our Scientific Advisory Board member, to continue collaboration with us to develop commercial tests for genetic ancestry and particular physical phenotypes. We have agreed to compensate this consultant with quarterly payments of $4,000 and 2,500 shares of our common stock. The term of this agreement is one year with automatic renewals each year unless either party provides written notice of its intent not to renew within thirty days prior to the annual anniversaries of this agreement. During May 2005, we also entered into a license agreement with this consultant. This license will remain in force in perpetuity as long as we are not in default of the agreement. We agreed to provide the consultant with a number of shares of our common stock equal to 2.5% of the net revenues derived from a product and any subsequent versions of the products developed with his help.

License Agreement with Dr. Mark Froimowitz

On October 25, 2005, we entered into an exclusive licensing agreement with Dr. Mark Froimowitz to develop a series of compounds targeting the clinical development of enhanced pharmaceuticals for the treatment of drug addiction, attention deficit hyperactivity disorder, or ADHD, and depression. The licensed compounds are analogs of Ritalin, a well-known drug used for treatment of ADHD. The analogs are designed specifically to have a slow onset and increased half-life in the bloodstream, thus reducing a patient’s required daily dosage and the potential for drug abuse. We have the exclusive right to develop, use, market and sell products derived from the licensed compounds. We are obligated to pay the licensor a two percent quarterly royalty fee on the net sales of products covered by the license. Minimum annual maintenance fees of $25,000 are required for the license term, but will be deducted from royalties. Additionally, the license requires progress payments of up to $275,000 upon the successful development and approval of licensed products. The license’s initial five year term is supplemented by options capable of extending the license term for up to twenty years.

License Agreement with Harvard Medical School

On January 24, 2006, we entered into an exclusive license agreement with Harvard College through the Laboratory for Translational Research at Harvard Medical School. The Harvard License provides for sponsored research and the clinical development and commercialization of a diagnostic test targeting early identification of the population at risk of developing vascular diabetic complications. The research will be conducted under the supervision of Dr. Jose Halperin. The sponsored research payments total approximately $2.5 million and will be paid in quarterly installments of approximately $208,333 over approximately three years.

Under the Harvard License, we have the exclusive right to develop, market and sell products and services derived from the research. We must pay the Licensor a six percent royalty on the net sales of products and services covered by the License and thirty percent of all non-royalty sublicense income. We are also required to pay escalating minimum annual license maintenance fees totaling $850,000 through January 1, 2012. We are obligated to make annual license maintenance fees of $250,000 through the Harvard License term, but, beginning January 1, 2013, the annual license fee of $250,000 is credited against royalty payments. Additionally, we paid the Licensor previously incurred patent costs of approximately $100,000 upon the execution of the License, and are responsible for paying the costs associated with patent application, maintenance and prosecution during the License term.

Research Sponsorship Agreement with Massachusetts College of Pharmacy and Health Sciences

In January 2006, we entered into a research sponsorship agreement with the Massachusetts College of Pharmacy and Health Sciences, under which Dr. Mark Froimowitz will lead a research project that relates to the compounds that we license from him. The area of research is the synthesis and testing of monoamine transporter inhibitors as possible human medications for drug abuse, for attention deficit hyperactivity disorder, and for depression. The specific research covered by this agreement is the synthesis of quantities of compounds sufficient for animal testing, including developing methods for the resolution or chiral synthesis of compounds. We will pay a total of $300,000 to Massachusetts College of Pharmacy and Health Sciences for this research work which will be paid in monthly installments of $25,000 over one year. We will acquire all intellectual property associated with the research results.

THE PHARMACOGENOMICS MARKET

A 1998 study of hospitalized patients published in the Journal of the American Medical Association reported that in 1994, adverse drug reactions accounted for more than 2.2 million serious cases and over 100,000 deaths, making adverse drug reactions (ADRs) one of the leading causes of hospitalization and death in the United States. As noted by Ross and Ginsburg in the American Journal of Clinical Pathology,“As many as 20% to 40% of people receiving pharmaceutical agents may be receiving the wrong drug.”

Currently, there is no simple way to determine whether people will respond well, badly, or not at all to a medication; therefore, pharmaceutical companies are limited to developing drugs using a "one size fits all" system. This system allows for the development of drugs to which the "average" patient will respond. However, as the statistics above show, one size does not fit all, sometimes with devastating results. As discussed at the March 11, 2006 American Society for Clinical Phamacology and Therapeutics Conference by Janet Woodcock, M.D. Deputy Director of the FDA, the American medical system cannot afford to continue to ignore the obvious variability in how individuals respond to most drugs. There is increasing obligation for the pharmaceutical industry - and the regulatory oversight agencies - to use all available knowledge and technologies to accelerate the development of drugs that can be prescribed with better understanding of which patients can safely take which medicines that also will be effective treatment from them. Dr. Woodcock also said:

“At the FDA, we currently see only a trickle of applications containing pharmacogenomic information, but we expect this trickle to become a flood over the next five years. And this is only good news for patients and their families. For the first time, physicians will have a chance to treat people as individuals, not as members of a "population." We will also be able to treat patients based on the actual biology of the disease--not just according to their symptoms. People often have similar symptoms, but actually have very different underlying diseases that need different treatments. The pharmacogenomics revolution gives us a chance to sort this out and to treat people with the kind of therapy that's appropriate for them, personally. This gives all of us the chance to fulfill the promise of all the discovery and all the investment in biological science that's been going on during the last 30 years. And it will really help and enhance the health of all Americans.”

Testing individuals to predict their genetic pre-disposition to drug response is known as pharmacogenomics. The term comes from the words pharmacology and genomics and is thus the intersection of pharmaceuticals and genetics. Pharmacogenomics enables physicians to tailor drug therapies (formulation and dosage) for individuals based on their genetic composition. By using predictive response genetic testing, rates of therapeutic success (known as treatment efficacy) are increased, and ADRs are decreased. Pharmacogenomics combines traditional pharmaceutical sciences such as biochemistry with annotated knowledge of genes, proteins and single nucleotide polymorphisms known as SNPs. According to Human Genome Project Information, Pharmcogenomics (www.ornl.gov/sci/techresources.Human_Genome/medicine/pharma.shtml), Pharmacogenomics is anticipated to provide the following benefits:

1.	More powerful medicines that are targeted to specific diseases. This will maximize therapeutic effects and decrease damage to nearby healthy cells.

2.	Better, safer drugs the first time by analyzing a patient’s genetic code or important segments of the patient’s code versus trial and error prescribing based on reviewing the impact of a drug after a patient takes it.

3.	More accurate methods of determining appropriate drug doses not based only on a patient’s weight or body mass but also based on the patient’s metabolism. This will maximize the therapy’s value and minimize the chance for overdose.

Improvements in the drug discovery and approval process because trials are targeted for specific genetic population groups providing a higher chance of success. This can reduce costs of trials and risk of poor side effects. Previously failed drug candidates might be revived if they can be matched appropriately with a specific population.

5.	Decreases in overall cost of health care because of reduced ADRs, reduced failed drug trials, shortened FDA drug approval timeframes, limited treatment duration because the drug is more effective, linked to early detection and resulting in better preventative care.

The major barrier to pharmacogenomics progress is complexity of the research efforts that are still in early stages of finding gene variations that affect drug response. Millions of SNPs must be potentially identified and analyzed to see if they affect drug responsiveness. Additionally, many genes work in combination and thus, understanding the impact of combinations of SNPs will be critical. Unfortunately, this effort is also time consuming and expensive.

In November 2003, the FDA issued "Guidance for Industry Pharmacogenomic Data Submissions.” We believe that, in this guidance, the FDA offers support for pharmaceutical companies developing drugs using genetic testing and genomic research for drug approvals. Under the guidelines, if a genetic test is new or is not widely accepted, then its use is `voluntary' to the drug's submission. If a test is `validated and accepted' then the guidelines suggest its inclusion in the submission. In both cases, our products and services can provide a valuable tool for drug development. We can help identify patients who might not respond favorably to a new medication, either by failure to gain the intended treatment objective or by expression of an adverse reaction, and thus eliminate those patients from the treatment or clinical trial. This testing could improve the drug's efficacy statistics because there may be fewer non-responders in the trial and reduce its toxicity profile because there would be fewer individuals who have an adverse drug reaction. This testing may increase the likelihood that the drug meets FDA requirements and gains market approval.

Our Pharmacogenomics Products

At the annual shareholder meeting in June 2005, Dr Hector J. Gomez, the Chairman of our Board of Directors, announced that we will focus on leveraging our expertise in DNA technology into the development of particular test/drug combinations, called theranostics. Theranostics is defined as the clinically-targeted integration of diagnostics and therapeutics according to Current Drug discovery September 2002. We believe theranostics adds value to the clinical trial process, improves the real-time treatment of disease, and makes treatment more cost-effective.

In October 2005, we created a new subsidiary, DNAPrint Pharmaceuticals, to focus on delivering diagnostic and theranostic products to the market in support of pharmacogenomic opportunities. We are developing several Theranostics Projects. The following table contains certain information on the status for our diagnostic products that are in development as of February 28, 2006:

*THERANOSTICS*	*INDICATION*	*DEVELOPMENT STAGE*
PT-401	Anemia - Renal Failure	Preclinical
PT-501	ADHD	Preclinical
PT-502	Drug Addiction	Preclinical
PT-503	Depression	Preclinical

PT-401 Anemia - Renal Failure: As announced on March 14, 2006, tests of our Super EPO dimer in animal models of anemia showed that it was several times more effective and longer acting than the currently available erythropoietin. In vitro testing in cell cultures revealed significant positive biological activity. In addition, in vivo testing in mice demonstrated robust stimulation of red blood cell production. Further analytical testing showed unique biochemical properties that distinguish it from currently marketed red blood cell growth stimulating drugs.

PT-501 ADHD, PT-502 Drug Addiction, PT-501 Depression: In January 2006, we entered into a Research Sponsorship Agreement with the Massachusetts College of Pharmacy and Health Sciences for the potential development of compounds as possible medications for drug abuse, attention deficit hyperactivity disorder and depression.

Our Diagnostic Projects

We currently have several diagnostic projects under development. The status as of February 2006 is as follows:

*DIAGNOSTICS*	*INDICATION*	*DEVELOPMENT STAGE*
OVANOME	Ovarian Cancer	Diagnostic Ph II
STATINOME	Safety of Statins	Diagnostic Ph II
DIABETES-CD59	Diabetic Complications	Preclinical

Ovanome: During 2005, we began a study with Genomics Collaborative Division of Seracare Life Sciences Inc. Samples have been received from them and used to conduct a validation of the test. This has advanced the development and improved the quality of the diagnostic test.

Statinome: During 2005, we began a study with Genomics Collaborative Division of Seracare Life Sciences Inc. that also included the statinome program. Samples have been received from them and used to conduct a validation of the test. An abstract was presented at the last meeting of the American Society of Clinical Pharmacology and Therapeutics (March, 10, 2006 in Baltimore). Also, a paper has been prepared and submitted for publication.

Diabetes C59: On January 24, 2006, we entered into an exclusive license agreement with Harvard College through the Laboratory for Translational Research at Harvard Medical School. The Harvard License provides for sponsored research and the clinical development and commercialization of a diagnostic test targeting early identification of the population at risk of developing vascular diabetic complications. The research will be conducted under the supervision of Dr. Jose Halperin.

Our Growth Strategies in the Pharmacogenomic Market

By leveraging our proprietary technologies, we believe we are positioned to serve the growing compliance and operational needs of pharmaceutical companies and institutional researchers. We will continue to seek product and market relationships that expand and enhance our ability to apply our technology to existing medications or new medications, improving drug efficacy and reducing patient side effects by better understanding the genetic makeup of individuals. We believe the future of drug development and drug approval as outlined by recent FDA writings will force the industry to recognize smaller market opportunities with higher efficacy profiles and significantly reduced or diminished side effects.

We will continue work on OVANOME^(TM), a Taxol screening diagnostic test, and STATINOME^(TM), a test for the cardiac drug market, which are both currently under development. Our OVANOME™ technology is under development with researchers at the Moffitt Cancer Center in Tampa, Florida, and we are in the midst of completing an initial 80 person trial under an approved Internal Review Board, or IRB, which approves all clinical trial related work at the center. We are also enrolling an additional 200 subjects to further validate and support the data we obtained in our earlier trial. We will continue to explore joint venture opportunities, particularly within the pharmacogenomic segment, in order to potentially expand our position within the pharmaceutical market. A major goal of our joint venture program is to seek opportunities for a drug pipeline acquisition. Our recent licensing of a ‘Super’ Erythropoietin (EPO) molecule from Beth Israel Deaconess Hospital is a step forward in that direction. We plan to combine our ability to screen patients and track patient response to the standard form of EPO when compared to our newer, ‘Super EPO’. We believe this will improve our clinical efficacy and reduce the unwanted side-effects of standard EPO treatment for anemia.

THE FORENSICS MARKET

Testing DNA from a crime scene to create a physical profile is a new market based on evolving technologies. Common hereditary traits such as skin pigmentation, eye color, hair color, earlobe attachment and height can theoretically be predicted through analysis of DNA sequences. We believe that we are the first to use DNA gathered as evidence from a crime scene to successfully predict the donor's continental genetic origin and linking that to our photo-database gallery, providing law enforcement officers with a general description of the donor.

There are approximately 1,200,000 reported incidents of violent crime (rape, robbery, and aggravated assault) in the U.S. each year. In the vast majority of violent crimes, DNA evidence is left at a crime scene or on a victim's body. Of these 1.2 million reported incidents, only about 600,000 cases result in arrests. Forensic DNA tests can enable a greater degree of success in prosecuting violent criminals.

Our Products for the Forensics Market

We created DNAWitness™ 2.5 for the forensics market. Law enforcement officers use this testing service to determine genetic heritage from DNA samples obtained from crime scenes, saving time and money by narrowing the list of potential suspects. Current forensic DNA products in the market act like a fingerprint and can only be used to match DNA specimens. To our knowledge, DNAWitness™ is the first forensic product that provides predictive capability. DNAWitness™ provides the percentage of genetic make up amongst the four possible groups of Sub-Saharan African, Native American, East Asian, and European. When appropriate, DNAWitness™ allows for a breakdown of the European ancestry into four components: Northwestern European, Southeastern European, Middle Eastern and South Asian. The results of these tests can be very useful for inferring certain elements of physical appearance.

In 2005, DNAWitness was used in approximately 100 cases. The Louisiana Serial Killer Case was one case where the use of DNA Witness was considered a major contributor to identifying the killer who has since been convicted and sentenced. This case was featured at an educational workshop for law enforcement at the American Academy of Forensic Scientists in February 2006. Additionally, DNAWitness received national attention when police made an arrest in a case involving the double murder of two women in Napa, California, after narrowing down a list of potential suspects. The test eliminated an entire group of individuals who worked and lived in the Napa Valley area as potential suspects.

Initial DNAWitness™ 2.5 customers include medical examiner's offices, special task forces, sheriffs' departments, and district attorney's offices from various cities. Initial response from preliminary application of this forensics version to various high profile criminal cases has been promising.

During July 2005, we expanded our DNAWitness^TM product suite which now includes:

DNAWitness™ 2.5 -- Tests crime scene DNA to assist detectives, forensic scientists and medical examiners in corroborating eyewitness reports and confirming suspect identities. DNAWitness™ 2.5 provides a BioGeographical Ancestry report that includes a photo database for reference samples of individuals. Reported ancestral origins are Sub-Saharan African, Native American, East Asian and Indo-European.

EUROWitness^TM 1.0 -- Tests crime scene DNA to determine more specific geographic origins if the test sample ancestry is 50% or more Indo-European. EUROWitness 1.0 provides a BioGeographical Ancestry report that includes relative percentages of Northwest European, Southeast European, Middle Eastern or South Asian.

Retinome^TM -- A predictive test for individual eye color from DNA. RETINOME™ predicts eye color if the sample is 50% or greater European ancestry as to whether eye color is blue, mostly blue, brown or mostly brown. A representative eye photo database is also provided along with relevant photo database pictures of the individual references.

STR-Witness^TM -- A genetic "matching" used as a bar code to track and report the samples. STR-Witness™ is the same test used for determining an individual's identity from an available DNA sample. Crime labs run this test to screen the Federal Bureau of Investigation's Combined DNA Index System (CODIS) database for possible matches.

DNAWitness-Y^TM -- A Y-chromosome test that determines the direct paternal ancestral lineage from the male sex chromosome. DNAWitness-Y™ can be used as an identification tool in cases where a mixture of male and female samples exists.

DNAWitness-Mito^TM -- A mitochondrial DNA test that examines ancestral lineages along the maternal line. DNAWitness-Mito™ can be used as an identification tool when other DNA testing fails to yield results or the DNA sample is too deteriorated.

Growth Strategy in Forensics

We are investigating avenues to encourage federal, state and local governments, crime laboratories and law enforcement agencies to use DNAWitness™ to help solve cold cases, current serial killer cases and other violent crimes. By using DNAWitness™ on a routine basis, witness information can be corroborated, and where no witness is present, DNAWitness™ can provide a "fuzzy sketch" of the persons who left evidence at a crime scene, possibly reducing the cost and delay inherent to unguided investigation of a large pool of potential suspects..

Our 2006 and 2007 plans include seeking American Society of Crime Laboratory Directors or "ASCLD" accreditation of our laboratory for forensics work tied to court testimony. Once accredited, either through acquisition of another forensic operation or development of our own operation, we will also be able to offer conventional DNA testing to our clients. Accreditation would allow us to capture a greater portion of this market and to offer a full range of services to our clients. We continue to go to trade shows to increase the awareness of our products with the law enforcement community.

THE CONSUMER PRODUCTS MARKET

The consumer genealogy market is fueled by a natural desire to understand our family lineage and our genetic heritage. The total world market is currently estimated at $75 million and is expected to grow 5% annually. There is also a market for paternity and other tests related to family lineage. We serve both of these consumer markets through direct sales and independent distributors.

Our Products for the Consumer Product Market

We were one of the first companies to offer DNA tests that predict genetic heritage for this market. Additionally, to the best of our knowledge, we offer the only pan-chromosomal assay for genetic ancestry which provides information on a person’s maternal and paternal lineages.

Our genealogy product, ANCESTRYbyDNA™ 2.5, provides an inference of an individual’s genetic ancestry or heritage. ANCESTRYbyDNA™ 2.5 carefully selects and analyzes certain genetic markers from the human genome which are more prevalent in people from one continent versus another. Using complex statistical algorithms, ANCESTRYbyDNA™ 2.5 can determine which of the major bio-geographical ancestry groups, Sub-Saharan African, European, East Asian or Native American, a person belongs. The genetic test can also determine the relative percentages of these ancestry groups which are present in cases of people of mixed background. We market this product to individuals or groups interested in understanding their lineage or learning more about their genetic ancestry.

We introduced EURO-DNA™ 1.0 in the marketplace in late 2004. The EURO-DNA™ 1.0 product measures European sub-ancestry. “European” ancestry, as determined by ANCESTRYbyDNA™ 2.5, refers to a type of ancestry shared by people who derived from the Middle East some 50,000 years ago and spread to occupy Europe, the Middle East, parts of Eurasia and South Asia. EURO-DNA™ 1.0 breaks the European ancestry into 4 groups, reporting individuals’ ancestral percentages for each of the following: Northwestern European, Southeastern European, Middle Eastern and South Asian.

In June 2005, we acquired Trace Genetics, an identity genomics company located in Richmond California. The company had three ancestry tests that were added to our family of tests. They include:

1.	“Ancestry Mito” mtDNA Test which traces the origin of the customer’s direct maternal line (mother’s mother’s mother). There are 30 major maternal lineages (haplogroups) that have been identified worldwide.

2.	Native American mtDNA test which tests the customer’s mtDNA sequence against the Native American mtDNA database to see if we can make any tribal matches when the customer is one of 5 haplogroups that are Native American in origin.

“Ancestry-Y” SNP which traces the origin of the customer’s direct paternal line (father’s father’s father). There are 18 major paternal lineages (haplogroups) that have been identified worldwide. Two of the 18 haplogroups are found in Native American populations (Q, C). This test includes these two haplogroups.

Growth Strategy in Consumer Products

We currently have seven distributors that sell our consumer products. We use our distributors as well as Internet and paper-based publication advertising (i.e. through Google and Family Tree magazine) to grow sales of our consumer products. Our consumer sales volumes seem to increase when we are featured in articles and television spots. We have been featured in multiple local and national publications and television programs. We will continue to strive to get the article and television spot coverage as well as pursue other avenues of marketing. Our consistent sales come through our distributors. We will also continue to pursue adding distributors to increase our sales volume of our consumer products.

THE CONTRACT SERVICE OUTSOURCING MARKET

Contract genotyping is the process of reading a genetic sequence and identifying differences in the sequence letters. This information helps researchers understand how human differences are expressed at the gene level. We provide universities and drug discovery companies the ability to outsource some or all of their research needs for genotyping. The pharmaceutical and drug discovery segments of the outsourcing market continue to grow.

Our Genotyping Services

We provide services that range from sequencing and genotyping to the entire process of SNP discovery to large industrial customers. Contract genotyping is the process of reading a genetic sequence and identifying differences in the sequence letters. For example, in comparing diseased tissue with normal tissue, we are able to see the differences in the sequence letters. This information helps researchers understand how human differences are expressed at the gene level. They can then search for and develop preventative treatment and effective therapeutic courses to alleviate disease symptoms.

A critical factor to the success of research and development of pharmacogenomics assays is the ability to do high through-put genotyping. To this end, we acquired certain assets from a Canadian company and formed our subsidiary Ellipsis. Ellipsis has a Beckman-Coulter SNPstream that is capable of using a new 48-plex system, which allows for greater capacity of SNP testing at less cost. We currently have a total of three SNPstream machines enabling us to offer testing services that can validate markers at high volumes, which is especially useful in the later stages of drug and diagnostics development during large clinical trials.

Ellipsis also has an Illumina Beadstation 500G system, which also runs very high capacity analysis. The Illumina system is 50 to 100 times higher capacity but is not as efficient from an expense perspective at lower numbers of SNPs making the Illumina a more ideal research tool in screening whole genomes across hundreds of thousands of SNPs.

These platforms enable us to do a variety of testing of DNA samples for pharmacogenomic efforts as well as generating revenue from projects for academic and business organizations. Ellipsis has extensive experience working with DNA samples from a variety of sources and projects, including agricultural to human disease applications.

In October 2005, we acquired Kenna Technologies. Kenna develops software and related technologies for building computational models that mimic complex biological systems. By acquiring Kenna, we also gained access to Kenna’s BoneFusion and CellCycleFusion models, which simulate bone remodeling processes and molecular pathways. These pathways are common targets of current cancer therapies. Utilizing these models may lead to shorter drug development timelines and thus reduced costs as they help in the design of optimal clinical trials. Computational models, developed with our proprietary methods test multiple complex scenarios of dosing, patient factors, disease progression over time, genetic variation in drug response and can provide insight into the potential outcomes of long term treatments which are too costly to test in human studies. We are currently using these models with respect to the PT-401 Super EPO project and will use these and other models in our research and development of our products. We also hired certain key employees of Kenna, including Drs. Barbara Handelin and Tandy Herrin, who will support the clinical development of our PT-401 with simulations to help design optimal clinical trials.

Growth Strategy for Contract Genotyping

We continue to pursue customers within the contract genotyping market. To date, our customers have come to us either through client referrals or our general website. In the future, we plan to concentrate our genotyping services on specific diseases, including cancer, neurological disorders, and heart disease. By concentrating on specific diseases, we hope to develop an expertise that will attract customers in those areas requiring external assistance and additional research capacity. Through this strategy, we will continue to build our reputation as a reliable and cost effective supplier of high quality data.

INTELLECTUAL PROPERTY

Trademarks

We regard our trademarks, copyrights, domain names, trade dress, trade secrets, proprietary technologies, and similar intellectual property as important to our success, and we rely on trademark, and copyright law, trade-secret protection, and confidentiality and/or license agreements with our employees, customers, partners, and others to protect our proprietary rights. We have licensed in the past, and expect that we may license in the future, certain of proprietary rights, technologies or copyrighted materials, from third parties and we rely on those third parties to defend their proprietary rights, copyrights and technologies.

We claim common law trademark rights to the marks DNA Print, DNA Witness, EURO-DNA and Ancestry by DNA.

Patent Applications

We have filed claims for international and domestic patent protection. The patents, if issued, will help ensure protection of our bioinformatics platforms, analytical software, genome maps and genetic classifiers in forensic, consumer products, and pharmacogenomics applications. The most significant patent applications cover the bioinformatics platforms and genome maps. Other applications describe the mathematical process of finding complex genetic information and the actual processes that find the gene variants responsible for specific complex genetic traits.

Four of our patent applications, 'Compositions...Pigmentation', Single…..Patients, Markers….Ancestry and 'Compositions...Statin', have entered National Phases and are pending review and we believe, approval in the U.S. and designated countries. The pigmentation patent is important because it includes the methods and compositions for determining skin shade, eye color or any other pigmentation application. Our Statin patent application includes the use of method for determining a person's ability to respond favorably to a particular statin drug, not the class as a whole. We may also obtain data to support our claim for all statins and the use of our AIMs in in the development of the assay.

As discoveries warrant, we will continue to apply for future additional patents. Listed below are our current patent pending applications.

Pending Patent Applications

Efficient Methods and Apparatus for High-Throughput Processing of Gene Sequence Data	US2003/0171875A1

Methods for the Identification of Genetic	US2003/0171878A1
Features for Complex Genetics Classifiers	WO 03/048318

Methods and Apparatus for use in Genetics Classification Including Classification Tree	WO 03/048999
Analysis

Methods and Apparatus for use in Complex Genetics Classification	WO 03/048372
Based on Correspondence Analysis and Linear-Quadratic Analysis

Composition and Methods for the Inference	US10/156,995
Of Pigmentation Traits	US60/346,303
	PCT/US02/16789
	AU2002/312112
	CA2,448,569
	EP02739467.5
	hk04109585.8
	JP2003/500216

Compositions and Methods for Inferring	US10/188,359
A Response to a Statin	PCT/US02/20847
	AU2002/316485
	CA2,486,789
	EP02746794.3
	JP2003/509083

Single Nucleotide Polymorphisms and Combinations Thereof Predictive of	PCT/US02/38345
Paclitaxel Responsiveness in Cancer Patients	AU2002360452
	CA2,468,312
	EP02795709.1
	HK05102575.4
	JP2003-546736
	US60/334,310
	US60/410,363
	US10/496,605

Compositions and Methods for Inferring Ancestry	US10/644,594
	PCT/US03/26229
	US11/356,729
	US60/654,672

Methylphenidate Analogs and Methods of Use Thereof	US11/256063
	PCT/US2005/038030

Methods, Products and Treatments for Diabetes	US09/835752 (Granted)
	US10/833,581
	US10/870,342

Anti-Glycated CD59 Antibodies and Uses Thereof	US2004/019392

Multiplex Assays for Inferring Ancestry	331832-000045/WO

Compositions and Methods for Inferring an Adverse Effect in Response to a Drug	US05/41326

Markers and Methods for Accurate Estimates of Human Ancestry	AU2003265572
	CA2,496,155
	EP03788685.0
	JP2005-502072
	US60/404,357
	US60/467,613
	US10/644,594
	US03/26229

Methods and Compositions for Inferring Eye Color	US60/544,788
	US60,548,370
	PCTUS05/04513

COMPETITION

Numerous entities are attempting to identify genomic variation predictive of specific diseases and drug response and to develop products and services based on these discoveries. We face competition in these areas from pharmaceutical, biotechnology and diagnostic companies, academic and research institutions and government and other publicly-funded agencies, both in the United States and abroad, most of which have substantially greater capital resources, research and development staffs, facilities, manufacturing and marketing experience, distribution channels and human resources than do we. Our key competitors include, but are not limited to, PPGx, Inc., a leading international developer and supplier of research-based pharmacogenomics services and products which recently announced the launch of its GeneTrials(TM) Bioinformatics Platform. Also, large pharmaceutical companies have their own internal research and development efforts that could surpass or eliminate our technology from the market.

These competitors may discover, characterize or develop important technologies applying genomics before us or develop proprietary products and services that are more effective than those technologies that we develop. Additionally, these competitors may obtain regulatory approvals for their drugs and diagnostics more rapidly than we or our customers do, any of which could limit our ability to market effectively our products and services. If our patent applications are not awarded or if our competitors in the field of genetic research develop and receive approval of patents that supersede our applications, we could be forced to cease the development of our products, services and technologies.

Some companies and governments are marketing or developing databases and informatics tools to assist participants in the healthcare industry and academic researchers in the management and analysis of genomic data. "Informatics tools" is a term used by scientists to describe software, computer programs or mathematical programs that analyze data sets or collected information that is stored in data files. Such computer programs can take an apparently meaningless block of numbers from a laboratory experiment and evaluate trends, look for statistical relationships and group or segregate the numbers according to their levels of importance to the scientist. They are tools to evaluate information. Our competitors have developed or plan to develop databases containing gene sequence, genomic variation or other genomic information and are marketing or plan to market their data to pharmaceutical and biotechnology companies or plan to make freely available their databases. These entities include, but are not limited to:

·	Genaissance Pharmaceuticals: a provider of pharmacogenomic support services, including high-throughput sequencing, this company was recently acquired by another company called Clinical Data, Inc.

·	Evolutionary Bioinformatics: Bioinformatics and genomics consulting, specializing in comparative genomics, functional genomics and model organisms.

·	deCODE Genetics: Advanced bioinformatics and high throughput genotyping facility

·	Celera Genomics: Drug discovery systems and services.

·	Cellular Genomics: A biotechnology company focused on the discovery and validation of novel drug targets.

·	Correlogic Systems: Developing tools and processes for proteomic and genomic-based clinical diagnostic systems and new drug discovery.

·	Epoch Biosciences: Technologies useful in genetic research, diagnostics, drug development, infectious disease detection, prenatal testing and population screening to assess risk of disease or to predict response to drugs.

·	Eragen Biosciences: Designs, develops, and markets functional genomic and drug/diagnostic discovery platform products, and technologies to the pharmaceutical, biotechnology and agro-biology industries.

In addition, numerous pharmaceutical and biotechnology companies, either alone or in collaboration with our competitors, are developing genomic research programs that involve the use of information that can be found in these databases.

Genomic technologies have undergone, and are expected to continue to undergo, rapid and significant change. Our future success will depend in large part on maintaining a competitive position in the genomics field. Others may rapidly develop new technologies that may result in our test or technologies becoming obsolete before we recover the expenses that we incur in connection with the development of these products. Our developed proprietary products and services could become obsolete if our competitors offer less expensive or more effective drug discovery and development technologies, including technologies that may be unrelated to genomics.

We also compete in the forensic DNA testing market, consumer DNA products market and contract services outsourcing market. We have introduced new products in the last year and improved our flagship product, ANCESTRYbyDNA™, part of the consumer DNA market, by upgrading it from 76 marker sets to 175 marker sets. Additionally, we have increased our ability to include DNA sampling from Northern European, Middle Eastern, Mediterranean and IndoEuropean by introducing EURO-DNA™ 1.0. However, sales have not improved as dramatically as expected perhaps due to an increase in pricing from $199 to $219 for ANCESTRYbyDNA™ and a combined price of $399 for inclusion of a EURO-DNA™ test along with the ANCESTRYbyDNA™ test.

In the consumer market, which is mainly supported by genealogy enthusiasts, we remain concerned that our potential reward from developing products will be limited by a sudden lack of interest. Our competitors include companies like:

o Sorenson Genetics- One of the larger suppliers of paternity and ancestry testing.

o DNA Testing Center, Inc. - A testing service for mitochondrial, paternity and y chromosome testing for the consumer market and forensics market as well.

Either of these firms or other companies could create a product that is competitive to our products, and reduce our current sales volumes.

Similarly, we have competitors in the field of forensics that includes the following companies and agencies:

o Orchid- The original inventors of Single Nucleotide Polymorphismanalysis machines and SNP technologies through its Orchid Cellmark division is considered one of the premier independent DNA testing laboratories in forensics. This competitor not only has the scientific background but the financial means and expertise to create a product that directly competes with ours in the forensics market.

o FSS- A United Kingdom based firm that processes nearly 85% of the UK's criminal DNA samples also has the ability to create a product that is competitive to our products and is exploring entering the U.S. market.

o Bode Systems, A division of Choicepoint- A significant competitor that, like FSS and Orchid has the ability to create and market a similar product to ours and eliminate us from the forensics market.

o FBI, Quantico Laboratories- The Federal Bureau of Investigation (FBI) has significant development resources and we believe they are contracting with Orchid and others to develop identity tests that will help them identify potential DNA donors from crime scene DNA. The bureau also invests federal research money on its own research to develop testing processes and procedures that it would approve for law enforcement.

o The National Institutes of Justice regularly provides grants to local and state police crime laboratories and University researchers that are competitive to our technology. We have applied for two grants and will continue to apply but have been rejected. In each application, despite the rejection, we have developed the proposed technology and brought it to the forensics market.

Forensic DNA and consumer DNA technologies have undergone, and are expected to continue to undergo, rapid and significant change. Our future success will depend in large part on maintaining a competitive position in these fields. Others may rapidly develop new technologies that may result in our tests or technologies becoming obsolete before we recover the expenses that we incur in connection with the development of these products. Our products and services could become obsolete if our competitors offer less expensive or more effective discovery and development technologies, including technologies that may be unrelated to genomics.

Employees

As of December 31, 2005, we had twenty full-time employees. None of our employees are represented by a labor union. We consider our relations with our employees to be good. We plan to add additional staff as needed to handle all phases of our business.

RISKS

Before deciding to invest in us or to maintain or increase your investment, you should carefully consider the risks described below, in addition to other available information. Each of the following risks could harm our business, financial condition and results of operations. These risks could cause the trading price of our common stock to decline and you could lose all or part of your investment.

RISKS RELATED TO OUR FINANCIAL CONDITION AND BUSINESS

REGULATORY OVERSIGHT OF OUR PRODUCTS AND SERVICES MAY INCREASE OUR COSTS TO MARKET OUR PRODUCTS AND SERVICES AND ADVERSELY AFFECT OUR ABILITY TO MARKET OUR PRODUCTS AND SERVICES.

Currently, there is limited Food and Drug Administration, or FDA, regulation of genetic tests. Within the field of personalized health and medicine, governmental and other entities may enact patient privacy and healthcare laws and regulations that may limit the generation and use of genomic variation data. "Genomic variation data" is the information obtained when scientists search the gene for differences across the entire human genome for changes and variations.

To the extent that FDA laws and regulations limit the use of our products and services or impose additional costs on our customers, we may be unable to market effectively our products and services and we may not generate sufficient revenue to sustain our operations. Furthermore, we may be directly subject to regulations as a provider of diagnostic information. A diagnosis is the evaluation of a patient or a sample to determine what the status of the patient might be. The information that results from this evaluation is called `diagnostic information' and would include such information as height, weight, sex, age, blood pressure, sugar levels and many other pieces of data.

The Secretary's Advisory Committee on Genetic Testing, an advisory panel to the Secretary of the U.S. Department of Health and Human Services, has recommended that the FDA expand its regulation of genetic testing to require FDA approval for all new genetic tests and labeling of genetic tests. If the FDA adopts this recommendation, it may require us, or our customers, to apply for FDA approval as a prerequisite to marketing genetic tests that incorporate our intellectual property. If the FDA were to deny any application of this kind, it could adversely affect our business, and we may be unable to generate sufficient revenue to sustain our operations.

To the extent that government regulations restrict the sale of our products and services or impose other costs, we may be unable to provide our products and services to our customers on terms sufficient to recover our expenses.

OUR SUCCESS WILL DEPEND, IN PART, ON HOW RAPIDLY THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRY IMPLEMENTS GUIDANCE FROM THE U.S. DEPARTMENT OF HEALTH AND THE FDA REGARDING A POTENTIAL EXPANSION OF REGULATION OF OUR INDUSTRY. WITHOUT THIS IMPLEMENTATION BY THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRY, WE MAY BE UNABLE TO MARKET EFFECTIVELY OUR TESTS AND SERVICES, AND WE MAY NOT GENERATE SUFFICIENT REVENUE TO SUSTAIN OUR OPERATIONS.

On November 3, 2003, the FDA issued draft guidance that encouraged drug and biologic developers to conduct pharmacogenomic tests during drug development and clarified how the FDA will evaluate the resulting data. "Pharmacogenomic tests" are clinical laboratory tests of all kinds to determine whether a drug is working or not working on a patient that is experiencing a particular illness or expressing a disease. It has only been recently that genetic scientists have been able to link genetic testing to the performance of a drug. The term is often used within the pharmaceutical industry to describe the testing of individuals for their genetic influences on the effectiveness of a drug, or more precisely, whether something in a person's genes that would either enhance or prevent the treatment of that individual's disease with a particular drug.

The FDA guidance provides specific criteria and recommendations on the submission of pharmacogenomic data in connection with Investigational New Drug Applications, New Drug Applications and Biological License Applications. Before any company or individual can treat a single human patient with a new chemical entity, often referred to as a NCE, or a new biological entity, referred to as a NBE, scientists must first prove that the potential drug is safe within existing treatment regimes. For example, new chemical entities used to treat cancer might be allowed to be much more toxic to other cells in the body than would a treatment for other less lethal diseases. Scientists file for permission to the FDA to treat human patients and package all the information into an application with the FDA called the `Investigational New Drug Application' or IND.

The draft FDA guidance includes information on the type of data needed and how the FDA will or will not use such data in regulatory decisions. The FDA asked for voluntary submissions of research information in order to gain experience as the field of pharmacogenomics evolves. In addition, the FDA held a workshop in November 2003 to discuss its draft guidance and stated that the agency plans in the near future to issue final guidance on the co-development of a pharmacogenomic test and drug. Our success will depend, in part, on how rapidly the pharmaceutical and biotechnology industry implements the guidance and, accordingly, the validity of our test and services as a basis for identifying genomic variation and for correlating drug response with genomic variation. Without this implementation by the pharmaceutical and biotechnology industry, we may be unable to market effectively any test we may have as well as any of our services, and we may not generate sufficient revenue to sustain our operations.

PUBLIC OPINION ON ETHICAL ISSUES RELATED TO THE CONFIDENTIALITY AND APPROPRIATE USE OF GENETIC TESTING COULD REDUCE THE POTENTIAL MARKETS FOR OUR PRODUCTS AND SERVICES, WHICH COULD PREVENT US FROM GENERATING SUFFICIENT REVENUE TO SUSTAIN OUR OPERATIONS.

Public opinion on ethical issues related to the confidentiality and appropriate use of genetic testing results may influence governmental authorities to call for limits on, or regulation of the use of, genetic testing. In addition, governmental authorities or other entities may call for limits on, or regulation of the use of genetic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. The occurrence of any of these events could reduce the potential markets for our products and services, which could prevent us from generating sufficient revenue to sustain our operations.

For example, the FDA has approved a medication for use in African Americans called BilDil that was developed by a pharmaceutical company called NitroMed. Recently, articles have appeared accusing the FDA and NitroMed of `racial discrimination' and claiming that no drugs should be developed using genetic testing that might separate out individuals by `race, color or creed' without regard to the benefit which might be caused for the African American patient. According to such critics, the potential harm in the form of increased discrimination far outweighs the benefits. Several noteworthy genetic scientists have also voiced their opinions that our technology and technologies similar to those developed by NitroMed and others are discriminating and should not be developed or approved by the Federal, State or local governments.

IF WE DO NOT SUCCESSFULLY DISTINGUISH AND COMMERCIALIZE OUR PRODUCTS AND SERVICES, WE WILL NOT ATTRACT A SUFFICIENT NUMBER OF CUSTOMERS. ACCORDINGLY, WE MAY BE UNABLE TO COMPETE SUCCESSFULLY WITH OUR COMPETITORS OR GENERATE REVENUE SIGNIFICANT ENOUGH TO SUSTAIN OUR OPERATIONS.

Numerous entities are attempting to identify genomic variation predictive of specific diseases and drug response and to develop products and services based on these discoveries. We face competition in these areas from pharmaceutical, biotechnology and diagnostic companies, academic and research institutions and government and other publicly-funded agencies, both in the United States and abroad, most of which have substantially greater capital resources, research and development staffs, facilities, manufacturing and marketing experience, distribution channels and human resources than do we. Also, large pharmaceutical companies have their own internal research and development efforts that could surpass or eliminate our technology from the market. One of our key competitors is PPGx, Inc., a leading international developer and supplier of research-based pharmacogenomics services and products which recently announced the launch of its GeneTrials(TM) Bioinformatics Platform.

Our competitors may discover, characterize or develop important technologies applying genomics that are more effective than those technologies which we develop. Additionally, these competitors may obtain regulatory approvals for their drugs and diagnostics more rapidly than we do, which could limit our ability to market effectively our products and services. If our patent applications are not awarded or if our competitors in the field of genetic research develop and receive approval of patents that supersede our applications, we could be forced to cease the development of our products, services and technologies.

Some companies and governments are marketing or developing a number of databases and informatics tools to assist participants in the healthcare industry and academic researchers in the management and analysis of genomic data. "Informatics tools" is a term used by scientists to describe software, computer programs or mathematical programs that analyze data sets or collected information that is stored in data files. Such computer programs can take an apparently meaningless block of numbers that are recorded from a laboratory experiment and evaluate trends, look for statistical relationships and group or segregate the numbers according to their levels of importance to the scientist. Our competitors have developed or plan to develop databases containing gene sequence, genomic variation or other genomic information and are marketing or plan to market their data to pharmaceutical and biotechnology companies or plan to make freely available their databases.

WE ALSO FACE SERIOUS COMPETITION FROM COMPETITORS IN THE FORENSIC DNA TESTING MARKET, CONSUMER DNA PRODUCTS MARKET AND THE CONTRACT SERVICES OUTSOURCING MARKETS. AND IF WE ARE UNABLE TO COMPETE IN THESE MARKETS, WE WILL NOT GENERATE REVENUES SIGNIFICANT ENOUGH TO SUSTAIN OUR OPERATIONS.

We remain skeptical that the consumer market for our products, which is mainly supported by genealogy enthusiasts, will remain strong enough to justify significant expenditures to develop new products. It is possible that the application of genetic testing to genealogy is a passing fad and that public interest in genetic genealogy testing will substantially decrease.

ALTHOUGH MANY OF OUR COMPETITORS USE SIMILAR TECHNOLOGIES, THEIR APPROACH TO DATA ANALYSIS MIGHT BE COMPLETELY DIFFERENT AND MORE EFFICIENT THAN OURS. THIS MAY CAUSE CONSUMERS TO CHOOSE OUR COMPETITOR'S PRODUCTS AND SERVICES OVER OURS AND FORCE US TO CHANGE OUR PRODUCTS AND SERVICES TO THE MORE EFFICIENT FORM OF DATA ANALYSIS OF OUR COMPETITORS.

We evaluate the mixture of genetic inheritance within individuals and relate that information to biological information. Another approach to finding similar information is to evaluate large groups of individuals in `pools' of DNA and look for differences or similarities amongst the data. Our approach may prove to be too cumbersome for the industry to adopt, and the industry may not want to accept it because it is `too personal', meaning that overall `generic' descriptors might be more immediately valuable to the industry than knowing whether or not a single individual will respond favorably to a medication treatment. The `pooled' approach is more often the approach that many pharmaceutical companies and our competitors practice. Additionally, our technology depends upon looking at individuals within a population pool and therefore projecting the results of many individual samples upon a general population that may not be clearly identified. Our competitors rely upon self-reporting descriptors such as `African American', `Caucasian' or `Hispanic' to pool their DNA samples. We do not presuppose the reported identity of an individual but rather look at their inherited genetic markers that tell us what group to associate them with. This approach may not be accepted by the industry and a pooled method, although not as accurate, may become the standard. This would significantly impact our ability to promote, sell, license of further develop our products, services or technologies within any of our current markets.

WE HAVE HAD LOSSES SINCE OUR INCEPTION WHICH MAY NEGATIVELY IMPACT OUR ABILITY TO ACHIEVE OUR BUSINESS OBJECTIVES. WE MAY NEVER BE ABLE TO REDUCE THESE LOSSES, WHICH WILL REQUIRE US TO SEEK ADDITIONAL DEBT OR EQUITY FINANCING THAT MAY NOT BE AVAILABLE TO US.

We incorporated under the laws of the State of Utah on January 3, 1983 as Lexington Energy, Inc. We have incurred losses and experienced negative operating cash flow since our formation. For the year ended December 31, 2005, we had a net loss of $8,715,852 and a working capital deficit of $7,577,917. We expect to continue to incur significant expenses. Our operating expenses have been and are expected to continue to outpace revenues and result in significant losses in the near term. We may never be able to reduce these losses, which will require us to seek additional debt or equity financing. If such financing is available, you may experience significant additional dilution.

WE CONTINUE TO BE A DEVELOPMENTAL STAGE ENTERPRISE COMPANY AND WE DO NOT KNOW WHEN OUR PHARMACOGENOMICS PRODUCTS WILL FINISH THEIR DEVELOPMENT.

We continue to devote substantially all of our efforts to establishing our business products, and our principal operations have not commenced yet. We are still in the research and development phase of our pharmacogenomics product/services and have a few years prior to any of these products being developed.

OUR INDEPENDENT AUDITORS HAVE EXPRESSED DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN, WHICH MAY HINDER OUR ABILITY TO OBTAIN FUTURE FINANCING.

In their report dated February 24, 2006, our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern in our financial statements for the years ended December 31, 2005 and 2004. The auditors raised concerns about our ability to continue as a going concern as a result of recurring losses from operations, a working capital deficit, and our need for a significant amount of capital financing to proceed with our business plan. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loans and grants from various financial institutions where possible.

WE NEED IMMEDIATE FUNDS AND MAY NOT BE ABLE TO OBTAIN ANY ADDITIONAL FINANCING IN THE AMOUNTS OR AT THE TIMES THAT WE MAY REQUIRE THE FINANCING. ADDITIONALLY IF WE OBTAIN FINANCING, IT MAY NOT BE ON ACCEPTABLE TERMS. WE WILL HAVE TO CURTAIL OUR BUSINESS IF WE CANNOT FIND ADEQUATE FUNDING.

We may need immediate funds and may not be able to obtain any additional financing in the amounts or at the times that we may require the financing or, if we do obtain any financing, that it would be on acceptable terms because of the following:

- we have limited assets to pledge as security for the loan;

- we are in poor financial condition; and

- we may be viewed as a high market risk.

In addition, we have entered into an Investment Agreement with Dutchess Private Equities Fund, II, L.P. Dutchess has committed to purchase our common stock on a monthly basis up to an aggregate purchase price of $35 million over a two-year period. The Dutchess Agreement requires us to put stock to Dutchess each time we raise funds. If Dutchess were to sell the stock we put to them, it will likely have a depressive effect on the market price of our common stock. This decrease in our market price may hinder our ability to obtain necessary funding from certain sources, including obtaining additional funding from the sale of our securities or obtaining loans and grants from various financial institutions where possible.

Our failure to obtain sufficient additional financing could result in the delay or abandonment of some or all of our development, expansion and expenditures, which could harm our business and the value of our common stock.

WE MAY NOT HAVE ADEQUATE PATENT PROTECTION AND CONFIDENTIALITY AGREEMENTS FOR OUR PROPRIETARY TECHNOLOGY. IF WE DO NOT PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, THERE IS A RISK THAT THEY WILL BE INFRINGED UPON OR THAT OUR TECHNOLOGY INFRINGES UPON ONE OF OUR COMPETITOR'S PATENTS. AS A RESULT, WE MAY EXPERIENCE A LOSS OF REVENUE AND OUR OPERATIONS MAY BE MATERIALLY HARMED.

To the extent possible, we anticipate filing patent applications for protection on future products that we develop. It is possible that patents we apply for may not be issued and that any current or future patents will not afford us commercially significant protection of our products or that we will not have adequate resources to enforce our patents. Inasmuch as we intend to sell our products in foreign markets, we also intend to seek foreign patent protection for our products and technologies. The patent laws of other countries may differ from those of the United States as to patentability of our products and technologies, and the degree of protection afforded. Our products may infringe on the patents of others, and we may not have the financial or other resources necessary to successfully defend a claim of violation of proprietary rights. We also rely on confidentiality and nondisclosure arrangements with our employees and entities we do business with. These agreements may not provide us with meaningful protection.

IF WE ARE UNABLE TO RETAIN THE SERVICES OF MESSRS. RICHARD GABRIEL, TONY FRUDAKIS AND HECTOR GOMEZ, WE MAY NOT BE ABLE TO CONTINUE OPERATIONS.

Our success depends to a significant extent upon the continued service of Mr. Richard Gabriel, our President and Chief Executive Officer, Dr. Tony Frudakis, our Founder and Chief Scientific Officer, and Dr. Hector Gomez, our Chairman of the Board and Chief Medical Officer. We have employment agreements in place with Messrs. Gabriel, Frudakis, and Gomez. We do not maintain key-man insurance on the lives of Messrs. Gabriel, Frudakis, and Gomez. If Messrs. Gabriel, Frudakis, and Gomez were to resign, the loss could result in loss of sales, delays in new product development and diversion of management resources, and we could face high costs and substantial difficulty in hiring qualified successors and could experience a loss in productivity while any such successor obtains the necessary training and experience. In addition, in order to successfully implement and manage our business plan, we are dependent upon, among other things, successfully recruiting qualified personnel who are familiar with the specific issues facing the deciphering of complex genetic traits. In particular, we must hire and retain experienced management personnel to help us continue to grow and manage our business, and skilled genetic technicians to further our research and development efforts. Competition for qualified personnel is intense. If we do not succeed in attracting new personnel or in retaining and motivating our current personnel, our business could be harmed.

RISKS RELATED TO OUR COMMON STOCK

OUR COMMON STOCK IS SUBJECT TO "PENNY STOCK" RULES OF THE SEC, AND THE TRADING MARKET IN OUR STOCK IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.

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

- that a broker or dealer approve a person's account for transactions in penny stocks; and

- the broker or dealer receives 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:

- obtain financial information and investment experience objectives of the person; and

- 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 prepared by the Commission relating to the penny stock market, which, in highlight form:

- sets forth the basis on which the broker or dealer made the suitability determination; and

- that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

In addition, unless you have had an account with your brokerage firm for more than one year, or you have previously bought three different penny stocks from that firm, your brokerage firm must send you a written statement for you to sign that accurately describes your financial situation, your investment experience, and your investment goals, and that contains a statement of why your firm decided that penny stocks are a suitable investment for you. The firm also must get your written consent to buy the penny stock.

If penny stocks are sold to you in violation of federal or state securities laws, you may be able to cancel your purchase and get your money back. If the stocks are sold in a fraudulent manner, you may be able to sue the persons and firms that caused the fraud for damages. If you have signed an arbitration agreement, however, you may have to pursue your claim through arbitration.

WE MAY NOT HAVE SUFFICIENT SHARES AVAILABLE TO FULLY ACCESS THE EQUITY LINE WITH DUTCHESS AND MAY NEED TO SEEK ADDITIONAL CAPITAL TO MEET OUR WORKING CAPITAL NEEDS.

We may only issue a put to Dutchess if we have registered the shares of common stock. During March 2006, we intend to file a prospectus to register 600,000,000 shares of common stock that we may issue pursuant to the equity line if the Registration Statement is declared effective by the SEC. As of February 28, 2006 we have already issued 129,214,167 shares pursuant to prior registration statements. We have assumed that we will not issue more than 600,000,000 shares in addition to the 233,285,833 we already registered pursuant to the exercise of our put right under the Investment Agreement, although the number of shares that we will actually issue pursuant to that put right may be more than or less than 600,000,000, depending on the trading price of our common stock. We currently have no intent to exercise the put right in a manner that would result in our issuance of more than 600,000,000 shares, but if we were to exercise the put right in that manner, we would be required to file a subsequent registration statement with the Securities and Exchange Commission and for that registration statement to be deemed effective prior to the issuance of any such additional shares.

If we can not raise sufficient funds pursuant to our Investment Agreement with Dutchess, for our capital requirements, we will need to seek additional funding which may not be available on terms acceptable to us or at all.

DUTCHESS MAY SHORT SELL OUR STOCK DURING THE PERIODS WE ISSUE A PUT WHICH MAY CAUSE OUR STOCK PRICE TO DECREASE.

Pursuant to the Investment Agreement, Dutchess has the right to short sell the amount of stock we expect to issue to them during the period we issue a put. If Dutchess actually sells our stock short, our stock price may decrease. If our stock price decreases, you may lose some or all of your investment.

EXISTING STOCKHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION FROM THE SALE OF SECURITIES PURSUANT TO OUR INVESTMENT AGREEMENT WITH DUTCHESS.

The sale of shares pursuant to our Investment Agreement with Dutchess will have a dilutive impact on our stockholders. As a result, our net income per share, if any, could decrease in future periods, and the market price of our common stock could decline. In addition, the lower our stock price at the time we exercise our put option, the more shares we will have to issue to Dutchess to draw down on the full equity line with Dutchess. If our stock price decreases, then our existing stockholders would experience greater dilution.

DUTCHESS WILL PAY LESS THAN THE THEN-PREVAILING MARKET PRICE OF OUR COMMON STOCK, WHICH MAY CAUSE OUR STOCK PRICE TO DECLINE.

The common stock to be issued under our agreement with Dutchess will be purchased at a 4% discount to the average of the two lowest closing bid prices of our common stock during the five trading days after our notice to Dutchess of our election to exercise our put right. These discounted sales could cause the price of our common stock to decline and you may not be able to sell our stock for more than you paid for it.

OUR STOCK PRICES HAVE BEEN VOLATILE, AND THE FUTURE MARKET PRICE FOR OUR COMMON STOCK IS LIKELY TO CONTINUE TO BE VOLATILE. FURTHER, THE LIMITED MARKET FOR OUR SHARES WILL MAKE OUR PRICE MORE VOLATILE. THIS MAY MAKE IT DIFFICULT FOR YOU TO SELL OUR COMMON STOCK FOR A POSITIVE RETURN ON YOUR INVESTMENT.

The public market for our common stock has historically been very volatile. Any future market price for our shares is likely to continue to be very volatile. This price volatility may make it more difficult for you to sell shares when you want at prices you find attractive. We do not know of any one particular factor that has caused volatility in our stock price. However, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies. Broad market factors and the investing public's negative perception of our business may reduce our stock price, regardless of our operating performance. Further, the market for our common stock is limited, and a larger market may never develop or be maintained. Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price. As a result, this may make it difficult or impossible for you to sell our common stock.

Item 2. Description of Property.

We currently lease an operating facility at 900 Cocoanut Avenue, Sarasota, Florida. This lease expires May 31, 2006 with a three-month renewal option. The lease requires monthly rent of approximately $5,765. The building consists of approximately 4,000 square feet of laboratory and office space. We also lease an operating facility at 4655 Meade St., Suite 300, Richmond, California. This lease expires August 1, 2006. The lease requires monthly rent of approximately $5,547 for approximately 3,000 square feet of laboratory and office space. We also lease an operating facility at 700 Bay Street, Suite 2101, Toronto, Canada. This lease expires April 30, 2008 and has a three-year renewal option. The lease requires a monthly rent of approximately $6,300 CDN (approximately $5,355 USD) for approximately 2,800 square feet of laboratory and office space. All of these facilities are in good condition.

Item 3. Legal Proceedings.

On October 27, 2003, we filed suit in the Circuit Court of the Twelfth Judicial Circuit of Florida in and for Sarasota County, Florida, Civil Division moving for an emergency order requiring impoundment of any and all computers and associated materials of one of our former employees. On October 28, 2003, the Circuit Court Judge granted the order. The order was carried out on the same day.

Our Complaint alleges that a former employee inappropriately took confidential company materials and then disclosed or threatened to disclose the information. The Complaint seeks return of the property, a permanent injunction against further and future disclosures by the former employee, attorney's fees and related costs.

On December 19, 2003, the former employee filed an Answer, Affirmative Defenses, and Counterclaim with the Court generally denying the allegations of our claim. In addition, the Defendant counterclaimed and sued us for breach of an Employment Agreement, based on a purported failure to pay certain health benefits, and stock options.

On January 9, 2004, the Court granted our Motion to Inspect, Examine and Download Information from the Impounded Computer, subject to certain limitations designed to protect the confidentiality of any information contained on the computer.

The Defendant withdrew his objection to our review of documents downloaded from his seized home computer. Based upon our review of the documents and report, we advised the Court that we believed these documents contained our confidential, proprietary and trade secret information. At that time the Court ordered a preliminary mediation to discuss resolution of the matter. We participated in the mediation, but did not reach a resolution with the Defendant. Therefore, we are proceeding with discovery.

On July 8, 2005, a former consultant of ours, Lonnie Bookbinder, filed suit in the Circuit Court of the Twelfth Judicial Circuit of Florida in and for Sarasota County, Florida, Civil Division. The complaint, styled Bookbinder v. DNAPrint Genomics, Inc., Richard Gabriel, Hector Gomez and GenBiomics, LLC, names as defendants us, along with two of our directors and a dissolved limited liability company in which two of our directors were members. The complaint sought damages arising out of services Mr. Bookbinder claims to have provided on our behalf. We deny any liability to Mr. Bookbinder. We filed and prevailed on a Motion to Dismiss the complaint because we believed it did not state a claim. Plaintiff then filed an Amended Complaint. We have a Motion to Dismiss pending on the same grounds as that previously filed. If our Motion to Dismiss is unsuccessful, we intend to defend the litigation vigorously.

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

None.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

Our common stock is eligible for quotation on the OTC Bulletin Board. Set forth below is a table summarizing the high and low bid quotations for our common stock during its last two fiscal years.

Summary of Quarterly High & Low Price of Common Stock*

QUARTER	HIGH BID	LOW BID
1st Quarter 2004	1.400	0.720
2nd Quarter 2004	1.000	0.500
3rd Quarter 2004	0.600	0.260
4th Quarter 2004	0.400	0.100
1st Quarter 2005	0.260	0.020
2nd Quarter 2005	0.510	0.034
3rd Quarter 2005	0.202	0.013
4th Quarter 2005	0.044	0.002

* Restated for a 20:1 reverse stock split on July 12, 2005.

The above table is based on Over-The-Counter quotations. These quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions, and may not represent actual transaction.

As January 24, 2006 there were 1,006 owners of record of our common stock.

We have never paid any cash dividends. The payment of dividends, if any, in the future is within the discretion of our Board of Directors, and will depend upon our earnings, capital requirements and financial condition, and other relevant factors. Management does not expect to declare dividends in the foreseeable future.

Sales of Unregistered Securities

During the fourth quarter of 2005, we issued a total of 709,754 shares of our common stock in exchange for services valued at approximately $15,201. These shares were issued to consultants, who are sophisticated investors. We believe the transaction was exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. The offering was not underwritten.

During the fourth quarter of 2005, we issued a total of 2,928,043 shares of our common stock in exchange for compensation valued at approximately $41,870. These shares were issued to an employee, who is a sophisticated investor. We believe the transaction was exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. The offering was not underwritten.

During the fourth quarter of 2005, we issued a total of 1,499,998 shares of our common stock in exchange for all of the outstanding stock of Kenna. These shares were valued at approximately $22,500. These shares were issued to Kenna shareholders, who are sophisticated investors. We believe the transaction was exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. The offering was not underwritten.

During the fourth quarter of 2005, we issued a total of 6,500,000 shares of our common stock in exchange for certain assets of a Canadian company formerly named Ellipsis Biotherapeutics Corporation. These shares were valued at approximately $149,500. These shares were issued to the shareholder of a Canadian company formerly named Ellipsis Biotherapeutics Corporation, who is a sophisticated investor. We believe the transaction was exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. The offering was not underwritten.

During the fourth quarter of 2005, we issued 2,000,000 shares of our common stock as in exchange for services valued at approximately $34,000. These shares were issued to an investor relations firm, who is a sophisticated investor. We believe the transaction was exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. The offering was not underwritten.

During the fourth quarter of 2005, we exercised put notices in accordance with our Investment Agreement with Dutchess and received $1,114,971 of cash proceeds for which we have issued 63,193,359 shares of our common stock to Dutchess. We believe the transaction was exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. The offering was not underwritten.

During the fourth quarter of 2005, we issued a total of 35,940,814 shares of our common stock in conjunction with the convertible debenture and warrants with La Jolla who is a “sophisticated investor”. We believe the transaction was exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. The offering was not underwritten.

During the fourth quarter of 2005, we issued a total of 960,902 shares of our common stock for the conversion of 1,278 of preferred stock by a “sophisticated investor”. We believe the transaction was exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. The offering was not underwritten.

On October 21, 2005, we issued to Dutchess a promissory note in the amount of $1,380,000 for a purchase price of $1,150,000. In connection with the promissory note we issued to Dutchess a non-interest bearing convertible debenture in the amount of $330,000 payable on October 21, 2010. The shares of common stock underlying the debenture carry piggyback registration rights. The debenture may be converted at Dutchess’ option at a conversion price equal to the lesser of 75% of the lowest closing bid price during the 15 trading days prior to the conversion date or $0.013. We believe the transaction was exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. The offering was not underwritten.

On December 22, 2005, we issued to Dutchess a promissory note in the amount of $1,380,000 for a purchase price of $1,150,000. In connection with the promissory note we issued to Dutchess a non-interest bearing convertible debenture in the amount of $330,000 payable on December 15, 2010. The shares of common stock underlying the debenture carry piggyback registration rights. The debenture may be converted at Dutchess’ option at a conversion price equal to the lesser of 75% of the lowest closing bid price during the 15 trading days prior to the conversion date or $0.022. We believe the transaction was exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. The offering was not underwritten.

During 2005, we granted a five-year warrant for 5,714,286 shares of our common stock for consulting services performed. This warrant has an exercise price of $0.0175 and was valued at $95,306 based upon the Black-Scholes model. This will be expensed over the service period of the agreement. During 2005, we recorded $23,827 of expense related to this warrant. We believe the transaction was exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. The offering was not underwritten.

During 2005, we granted a five-year warrant for 370,370 shares of our common stock for consulting services performed. This warrant has an exercise price of $0.27 and was valued at $139,030 based upon the Black-Scholes model. This was expensed over the service period of the agreement. During 2005, we recorded $139,030 of expense related to this warrant. We believe the transaction was exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. The offering was not underwritten.

During 2005, warrants to purchase 5,055,102 shares of common stock were granted to Athena as a fee for their services at a range of exercise prices from $0.0159 to 0.138 and expire five years from the grant date. These warrants were valued at $108,371 based upon the Black-Scholes model. As of December 31, 2005, none of these warrants were exercised. These were recorded as stock issuance costs. We believe the transaction was exempt from registration under Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. The offering was not underwritten.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The following discussion and analysis should be read in conjunction with the balance sheet as of December 31, 2005 and the financial statements as of and for the years ended December 31, 2005 and 2004 included with this Form 10-KSB.

SUMMARY

Although we have been in existence for a number of years, management's efforts to develop our business have not yet resulted in significant revenues. We have chosen to focus on increasing sales volume in the consumer and forensic markets while continuing to develop products for introduction to the pharmacogenomics market. We intend to support research and development as a vital component of our overall growth strategy. Until (i) potential customers are familiar with our technology and products, which will come from continued research and development and proven market use, and (ii) we introduce our pharmacogenomics products, it is unlikely that we will generate significant revenue.

The following discussion of our historical financial results should be read against this background.

REVENUES AND COST OF SALES

For the years ended December 31, 2005 and 2004, revenues were $1,275,503 and $785,632, respectively. A $489,871 increase in revenues from the prior year is a 62% increase that was a result of the sales of our ANCESTRYbyDNA™ increasing approximately $284,000, our paternity testing increasing approximately $79,000. Our EURO-DNA™ 1.0 was introduced to the general public in the fourth quarter of 2004 and contributed approximately $127,000 of revenue over 2004. Additionally, we recorded approximately $40,000 of revenues from our mtDNA™ product, $9,000 of revenues from our DNAWitness-Mito^TM and $23,000 of revenues from our Y-chromosome products which were added to our product line when we acquired Trace Genetics. We also had $17,000 of other revenue during 2005. These increases in revenue were offset by a decrease in genotyping of $76,000 and DNAWitness™ of $13,000.

In addition to the revenues recognized in the accompanying statement of operations, we also have recorded deferred revenues of $195,018 as of December 31 2005. Deferred revenue resulted mainly from our ancestry client testing that was not complete as of December 31, 2005. These amounts will be recognized as revenue during 2006.

During 2005 compared to 2004, our sales of ANCESTRYbyDNA^TM increased approximately $284,000. This is due to increased awareness and interest in genealogy, increased advertising in several markets and increased press coverage during 2005. When we introduced our version 2.5 of ANCESTRYbyDNA^TM during 2004, we increased the pricing which has resulted in a lower volume of product sold, but at a higher margin. The product is relatively new to the market, and we believe sales will continue to fluctuate from period to period until we can better determine through continued market research and time how and where to best market and sell this product. We have found that news articles produce a spike in volume, and we will continue to pursue this avenue of marketing during 2006. We introduced another ancestry product, EURO-DNA^TM 1.0, during late 2004, which resulted in an increase in sales of approximately $127,000. Sales of our ancestry products were generated through advertising in Family Tree, a genealogy periodical, and through public exposure that we received during the year in newspapers, magazines and television. In addition, sales were generated through our various distributors and from our website www.ancestrybydna.com. During 2005, we entered into agreements with seven new distributors to sell our ancestry products. One of our new distributors accounted for approximately $234,000 of sales during 2005. During 2005, we acquired Trace Genetics, Inc. which allowed us to introduce their products mtDNA™ and Y-chromosome product. These products contributed to $63,000 of sales during 2005. These consumer products are sold in similar markets as ANCESTRYbyDNA^TMand EURO-DNA^TM, therefore our advertising campaigns for these products are similar to those for our other consumer products.

Paternity testing sales are generated primarily through our various distributors and from our website www.ancestrybydna.com. The majority of the $79,000 increase in sales during 2005 compared to 2004 was from a distributor that was added during the second quarter of 2004. Paternity testing is an add-on service, and we expect revenues to continue to fluctuate in this market. While we have not yet implemented a formal marketing and sales plan for this service, we continue to perform market research and gather information in order to define and implement a formal marketing strategy. One distributor accounted for approximately $110,000 of our paternity sales during 2005. We do not expect these revenues to continue during 2006 and are seeking to replace the potential short-fall. We have been increasing our direct marketing and mail campaign for our ANCESTRYbyDNA™ and DNAWitness™ products and services as well as the Trace Genetics products and services to offset this potential decrease in paternity sales.

Genotyping sales were generated primarily through work with universities, with one university being our major client of this service. The decrease of genotyping services of approximately $76,000 during 2005 compared to the same period in 2004 was the result of decreased service provided to one university. To date, our genotyping service customers have come to us either through client referrals or our general website. In the future, we plan to concentrate our genotyping services on specific diseases, including cancer, neurological disorders, and heart disease. By concentrating on specific diseases, we hope to develop an expertise that will attract customers in those areas requiring external assistance and additional research capacity. One university accounted for approximately $159,000 of our genotyping sales during 2005.

As part of our on-going genotyping contract services work for one of our new customers, we have offered to perform ANCESTRYbyDNA testing services on 284 children suffering from a disease known as ALL or Acute Lymphocyte Leukemia. We expect to submit a manuscript for publication during 2006 under a joint publication agreement. Following this early pre-screening, the ALL program will test nearly 3,000 children afflicted with this disease in hopes that we will be better able to help the research hospital determine the genetic markers that are inherited and that may play a role in disease formation, advancement or remission. Treatment protocols or treatment regimes include multiple drug therapies and include, Taxol and Taxol like derivatives as well as other chemotherapy treatments and protocols. It is too early to determine the potential benefits to us, but we believe that the donation of our technology and services is crucial to the development of better and improved treatments for ALL. Currently, nearly 10-20% of the children afflicted with this disorder do not survive beyond 18-24 months after diagnosis. We believe that our technology, combined with the research hospital’s other work and including the contracted genotyping work performed by us for them, may help in reducing this dreadful statistic.

We continue to market our DNAWitness™ products through marketing to various agencies, our attendance at trade shows and through our relationships with Lynn Peavey catalog, Orchid Biosciences, and ReliaGene Technologies. We continue to seek to develop other distributors of our services and products. Our products, DNAWitness™ 2.0, RETINOME, and EURO-Witness 1.0 have been featured in the Lynn Peavey Company catalog and the Lynn Peavey Web site. We trained Lynn Peavey Company personnel to establish and conduct seminars and training programs for detectives, crime laboratory personnel and crime scene personnel on DNAWitness™. Similarly, we have trained nearly 2,000 forensic personnel that include detectives, prosecutors and forensic scientists about our technology and its use. We anticipate continuing to train personnel on the use of our technology and products throughout 2006. The sales of our DNAWitness™ products decreased by $13,000 during 2005. We believe that our forensic revenues will continue to fluctuate because these are new products, and there are no similar products being marketed. We intend to continue to research the markets and refine our sales and marketing strategy for our forensic products. We have identified and applied for several grants and submitted our technology for federal review for applications that include human identification and terrorist tracking. We have not had any grant funding of our research and development or deployment of our technology into any of these applications during 2005. We believe that the restraint of our sales in the forensics market does not originate from a lack of desire to use the technology by the detective or the prosecutor but rather a lack of funding for the increased staff that will be required to review cold case files, open new investigations or identify missing persons from stored human remains. We believe that the bulk of our investigative support will come through local and regional police, fire and detective agencies that do not require any federal funding to use our services and technology. We will however, continue to pursue much larger applications for our technologies on a global basis and will participate in several forensic and biometric venues during 2006 that offer us a broad platform exposure to the world market. We are also seeking distributors of our products and services on a global basis applying our technology wherever the need could arise. During 2005, we acquired Trace Genetics, Inc. which allowed us to introduce DNAWitness-Mito^TMwhich contributed approximately $9,000 of sales during 2005.

In order to build consistent sales, we have begun to implement formal sales and marketing plans, including advertising and promotional campaigns. Implementing these plans results in increased expenses for personnel, advertising, promotion, and the collateral materials associated with these programs. We plan to continue to add to our advertising and presentation campaign during 2006, as cash flow permits. Overall, our goal is to focus on increasing market awareness of all of our products, particularly within the consumer and forensic markets.

Cost of sales increased $442,545 during 2005 compared to 2004. This was a result of increased revenues during 2005 compared to 2004. The cost of sales as a percentage of revenue was 75% for 2005 compared to 65% for 2004. The increase in cost of sales as a percent of revenues is due to our refinement of our estimate and allocation of research and development costs. Because of our small sales volume, these results are not indicative of the margins that we expect to attain if our long-term goals are achieved. We anticipate that as we gain experience and can begin to take advantage of economies of scale through increased revenues; our margins will stabilize and begin to track in line with other companies in similar industries. However, in the near term, while we continue to be a development stage enterprise, we expect that our margins will continue to fluctuate.

RESEARCH AND DEVELOPMENT EXPENSES

Our research and development costs consist of raw materials, laboratory supplies, equipment expense, facilities costs and employment-related costs. These R&D expenses were incurred in support of our currently available consumer and forensics products and genotyping services and for our anticipated pharmacogenomics products.

Research and development costs increased from $1,561,142 in 2004 to $2,122,383 in 2005, an increase of $561,241, or 36%. R&D costs on EPO; which began during 2005 was approximately $289,000 of costs during 2005. Also, we had an increase spending of approximately $195,000 for R&D materials and approximately $259,000 for direct labor costs during 2005 compared to 2004. These increases in R&D were offset by a decrease of approximately $200,000 of allocated costs to R&D as a result from our refinement in estimates and allocation of research and development costs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Another significant component of our operating expenses is selling, general and administrative expenses. These expenses resulted from (i) accounting and other fees associated with being a public company and other regulatory compliance activities, (ii) legal fees associated with our patent filings and maintenance, a lawsuit against a former employee and preparation of our securities law filings, (iii) selling and marketing costs to promote our products and (iv) administrative and other salaries and expenses.

For the year ended December 31, 2005, selling, general and administrative expenses increased $813,567, from $2,050,981 in 2004 to $2,864,548, in 2005. Compared to 2004, compensation cost for our three top executives during 2005 declined by approximately $824,000. This decline occurred primarily because the 2004 amount included amortization of stock-based compensation costs for these executives from a grant in a previous year. Because the relevant amortization period ended in May 2004, the 2005 amount did not include any expense related to the previous grants. This was offset by an increase of $46,000 for the annual shareholders meeting costs, increase of $381,000 for legal expenses, increase of approximately $260,000 for consulting services, increase of approximately $82,000 for accounting fees and services and an increase of approximately $628,000 of advertising, marketing materials and investor relations expense. Additionally, we allocated approximately $200,000 less selling, general and administrative costs to research and development during 2005 compared to 2004 which in effect increased our selling, general and administrative expenses.

INTEREST EXPENSE

During 2005, we recognized a decrease of $8,105 compared to 2004 in interest expense. The decrease in interest expense is a result of a lower convertible debenture balance during 2005 compared to 2004 as La Jolla exercised its conversion rights during 2005.

INTEREST INCOME

During December 2004, we made a loan in Euros to a German company. We record the interest on this loan each period, and any adjustments for the foreign currency translation are included in foreign currency loss included on our condensed consolidated statements of operations. This loan was paid off during 2005. We did not have any such loans during 2004.

INTRINSIC VALUE OF CONVERTIBLE DEBT AND NON-DETACHABLE WARRANTS AND DEBT DISCOUNT AMORTIZATION

We recorded $250,000 related to the intrinsic value of the convertible feature of the La Jolla debt. We also recorded a discount on notes payable of $5,820,000 related to the four Dutchess notes including the two incentive debentures. This $6,070,000 of debt discount is being amortized to interest expense over the life of the notes and convertible debentures. During 2005, we recorded $1,953,084 of expense. The majority of the remaining debt discount will be expensed during 2006.

AMORTIZATION OF DEFERRED FINANCING FEES

During 2005, we recorded $187,005 of deferred financing fees related to the La Jolla debenture and the four Dutchess notes. These deferred financing fees are being amortized over the life of the notes. We also expensed $260,000 of financing fees paid to Dutchess that did not have any basis allocable to the fees, thus they were expensed. During 2005, we recorded an increase over the same periods in 2004 of $310,301 of amortization which included the $260,000 of directly expensed fees.

LOSS ON DERIVATIVE CONTRACTS, NET

The balance sheet caption derivative liabilities consists of (a) embedded conversion features bifurcated from the Dutchess notes and convertible debentures and (b) all other convertible preferred stock, convertible debt and outstanding warrants. Based on their own contract terms, the instruments described in clause (b) are not considered to be derivatives, but because of the embedded conversion feature of the Dutchess notes, we are required to record such instruments at fair value as a derivative liability.

The following tabular presentation set forth information about the derivative instruments at and for the year ended December 31, 2005:

		Dutchess Derivatives		Convertible Preferred Stock		Outstanding Warrants		La Jolla convertible debt		Total
Fair value adjustments, income (loss):	$	(2,595,695)	$	313,851	$	292,794	$	(21,980)	$	(2,011,030)

These fair value adjustments affect our computation of income or loss, but they are non-cash items.

The shares that were issued as incentive shares and are outstanding also fall under the derivative criteria in accordance with EITF 00-19 and we had to record at fair value the 1,250,000 and 2,500,000 shares of common stock issued as incentive shares in the two Dutchess notes and record them as Redeemable Instruments. At December 31, 2005, the 1,250,000 shares had been sold by Dutchess, the 2,500,000 shares which were retained by Dutchess were valued at $52,750, and a gain on derivatives was recorded of $400,125.

There were no such derivatives during 2004.

FOREIGN CURRENCY LOSS

During 2005, we recorded a foreign currency loss of $7,060 on a loan we made in Euros. This loan was repaid during 2005. We did not have any foreign currency transactions during 2004.

OTHER EXPENSES

Effective September 28, 2004, we entered into an Investment Agreement with Biofrontera and the shareholders of Biofrontera to purchase certain Series B preferred shares of Biofrontera. After discussions with Biofrontera, on February 18, 2005, we exercised our right to terminate the Biofrontera agreement. We expensed $105,252 of costs that related to this transaction during 2005 and $10,000 of costs for the same period related to another transaction that was not completed. We expensed $293,007 of costs related to the Biofrontera transaction during 2004.

Also during 2004, we paid $75,000 to George Frudakis (father of our Chief Scientific Officer and a shareholder of the Company) to pay the principal of approximately $45,000, accrued interest of approximately $4,000 and approximately $26,000 was recorded as other expense on our Consolidated Statements of Operations to satisfy in full any other claims related to his note and funding agreement.

LIQUIDITY AND CAPITAL RESOURCES

General

During 2005, our operating requirements generated negative cash flow from operations as we continued to engage in testing and development of our products. Our cash used by operating activities during 2005 was $3,605,877. We also had principal payments on capital lease obligations of approximately $208,000 and purchases of computers and equipment of approximately $124,000. The resulting cash shortfall was financed primarily through the exercise of non-detachable warrants and prepayment for future warrant exercises, a $250,000 ($235,000 of cash after fee) convertible debenture from La Jolla, puts under our agreement with Dutchess and $5,160,000 ($3,867,995 of cash after discount and fees) in notes issued to Dutchess.

Our consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred losses since our inception, and have experienced and continue to experience negative cash flows from operations. In addition, we have a working capital deficiency of approximately $7,577,917 (of which $6,981,306 was a derivative liability) at December 31, 2005, and will continue to have ongoing requirements for substantial additional capital investment to accomplish our business plan over the next several years. Over the past few years, our operations have been funded through related party funding, sales of common stock and preferred stock, issuance of notes, put notices with Dutchess and the issuance of convertible debentures and the exercise of non-detachable warrants. We continue to experience some success generating operating revenues; however, we do not expect our revenue stream to be sufficient to cover costs of operations in the foreseeable future.

In the foreseeable future, we expect to receive funding from the minimum conversions of the outstanding debenture into common stock, the related exercise of the non-detachable warrants and the Dutchess agreement. We believe this funding will be sufficient to cover our operating activities through 2006. If our share price continues to remain weak, or if any number of adverse factors or events occur, we will not have enough equity to complete future acquisitions or possibly to continue operations beyond 2006. Management is adequately confident that equity financing or debt will be available to fund our operations until revenue streams are sufficient to fund operations; however, the terms and timing of such equity or debt cannot be predicted.

We have issued securities, including convertible debentures and convertible preferred stock, that convert into our common stock at a continuously adjustable conversion price based on a discount on the trading price of our common stock. In addition, our Investment Agreement with Dutchess requires us to sell our common stock at a continuously adjustable conversion price at a discount to the trading price of our common stock. As we draw down advances under the Investment Agreement with Dutchess and more of our common stock is sold pursuant thereto, the market price of our common stock could decrease significantly and make further advances impractical or impossible during time periods in which we may need to raise capital to fund our operations and market and sell our products and services. In addition, the issuance of our common stock upon exercise or conversion of our other securities may create a downward pressure on the market price of our common stock.

FINANCINGS

La Jolla Cove Convertible Debenture and Warrants

On November 25, 2003, we closed on a $500,000, 8% convertible debenture with non-detachable warrants with La Jolla Cove Investors, Inc. We pay interest on a monthly basis with a principal balloon payment due on the extended maturity date of November 25, 2007. Per the agreement, La Jolla shall convert at least 5% of the face value of the debenture each calendar month into our common stock. The number of common stock shares into which this debenture may be converted is equal to the dollar amount of the debenture being converted multiplied by sixteen, minus the product of the conversion price multiplied by fifteen times the dollar amount of the debenture being converted, and the entire foregoing result shall be divided by the conversion price. The conversion price is equal to the lesser of (i) $0.20 or (ii) 80% of the average of the five lowest daily value weighted average price of our common stock during the twenty trading days prior to La Jolla’s election to convert. We have the right to reject a conversion if the stock price is below $0.50 per share. If we exercise this right, we then are obligated to pay the portion of the debenture the conversion notice was for plus applicable unpaid accrued interest and a premium equal to 10% of those amounts.

The non-detachable warrants must be exercised concurrently with the conversion of debt to common stock by La Jolla. La Jolla has the right to exercise warrants equaling fifteen times the dollar amount of the debenture being converted at an exercise price of $1.00. If La Jolla does not convert at least 5% of the warrants per month, then La Jolla will not be able to collect interest on the debenture for that month. The warrants issued to La Jolla expire on November 25, 2007.

On February 18, 2004, the Convertible debenture and Warrant to Purchase Common Stock agreements were amended. If La Jolla does not convert at least 5% of the face value of the debenture and exercise at least 5% of the warrants in any particular calendar month, La Jolla may wire to us $375,000 less the dollar amount of warrants exercised in that month within five business days of the end of the month. Should La Jolla fail to wire us such funds, La Jolla shall not be entitled to collect interest on the debenture for that month. If breached more than once, then we may terminate the agreements with La Jolla and the debenture becomes due six months thereafter with accrued interest. For any month the minimum payment was required to be paid and was not paid, La Jolla and we agreed in writing for them to not fund the payment.

On June 28, 2005, La Jolla exercised its right to increase its note by $250,000 with the same terms as the previous convertible debenture except the annual interest rate is two percent. This convertible debenture has the same terms and conditions as the initial La Jolla note.

On October 20, 2005, we amended the La Jolla convertible debenture and the warrant granted to La Jolla to confirm that the warrant exercise price remained at $1 per share after the twenty-to-one reverse stock split, the maturity date of the debenture and the expiration date of the warrant was extended to November 25, 2007 and that when La Jolla exercised its option to add $250,000 in principal to the convertible debenture that we granted to La Jolla the right to purchase an additional 3,750,000 shares of our common stock under the warrant.

Dutchess Investment Agreement

On September 28, 2004, we entered into an Investment Agreement with Dutchess Private Equities Fund, pursuant to which Dutchess has committed to purchase our common stock up to an aggregate purchase price of $35 million over a two-year period. The Dutchess Agreement provides that we from time to time may deliver a notice to the Investor that will state the dollar amount of common stock that we desire the Investor to purchase. The maximum amount permitted pursuant to any such notice is $600,000, and we can give approximately three such notices per month. Upon receipt of the notice, Dutchess is obliged to purchase the dollar amount of common stock set forth in the notice at a purchase price equal to 96% of the average of the two lowest closing bid prices of the common stock during the five trading days after the notice. We are not permitted to provide a notice to Dutchess, and Duchess is not obliged to purchase any of our shares, in the event that we do not have sufficient authorized shares available for purchase to fulfill such commitment. In accordance with the two outstanding notes we issued to Dutchess, we are required to use 100% of the proceeds from these puts as payment on the notes.

In order to use our $35 million funding facility with Dutchess Equity Partners to fund our operations and complete future acquisitions, we had to restructure our capital. During our 2005 annual shareholders meeting, we received shareholder approval for a reverse stock split. Pursuant to the reverse split, every 20 shares of common stock issued and outstanding on July 12, 2005 was combined into one share of our common stock. The number of shares outstanding at July 12, 2005 after this reverse stock split was 63,442,890, and the number of authorized shares remained at 1,500,000,000. During July 2005, we registered 350,000,000 shares to be used in conjunction with this Dutchess facility. During March 2006, we expect to file a registration statement to register additional shares for this Dutchess facility.

During 2005, we exercised put notices in accordance with our agreement and received $1,802,651 of cash proceeds, net of $10,109 of cash stock issuance costs for which we issued 78,912,356 shares of our common stock to Dutchess. During 2005, proceeds totaling $1,559,991 from these puts were used to reduce the notes payable outstanding with Dutchess.

Dutchess Notes

To fund the acquisition of the 18% equity interest in Biofrontera in 2005, we entered into two notes with Dutchess. On June 30, 2005, we issued to Dutchess a promissory note in the amount of $1,560,000 for a purchase price of $1,300,000. This note was paid in full by the end of January 2006.

On August 1, 2005, we issued to Dutchess a second promissory note in the amount of $840,000 for a purchase price of $700,000. This note was paid in full by the end of February 2006.

In order to fund our current operations, we entered into two more notes with Dutchess during October and December 2005. On October 21, 2005, we issued to Dutchess a promissory note in the amount of $1,380,000 for a purchase price of $1,150,000. The note is due and payable in full on December 31, 2006. Other than the $230,000 discount inherent in the purchase price, the note is non-interest-bearing. The note will be repaid using the proceeds of each put notice delivered by us to Dutchess under the September 2004 Investment Agreement.

On December 22, 2005, we issued to Dutchess a promissory note in the amount of $1,380,000 for a purchase price of $1,150,000. The note is due and payable in full on December 15, 2006. Other than the $230,000 discount inherent in the purchase price, the note is non-interest-bearing. The note will be repaid using the proceeds of each put notice delivered by us to Dutchess under the September 2004 Investment Agreement.

In connection with the notes, we paid Dutchess a facility fee of $260,000 and issued to Dutchess 3,750,000 shares of our common stock and convertible debentures totaling $660,000. We also paid approximately $167,000 of fees to Athena.

Capital Expenditures

During 2006, we anticipate continuing to develop the required infrastructure to realize our 2006 operational growth plan, including acquiring or leasing property, equipment and other operating assets.

We are actively seeking to acquire or lease a new building that has 5,000 to 10,000 square feet with additional expansion potential. We estimate that lease costs will be between $15 and $25 per square foot. This does not include leasehold improvements or other associated costs such as utilities, taxes and maintenance. The initial build out of 7,000 square feet is estimated at approximately $780,000, which includes laboratory, office and warehouse space. Additional costs for equipment, furniture and fixtures are estimated at approximately $257,000. Timing of the incurrence of the expense will depend upon the length of time required to find the appropriate facility.

In addition, we anticipate that new laboratory and computer equipment will be purchased during 2006. Computer purchases for programming, modeling and business use are estimated at approximately $100,000 and scientific and business programs and software at approximately $50,000. Capital expenditures for laboratory equipment are estimated at approximately $250,000 during 2006.

It is our intent, during 2006, to increase our marketing and sales personnel. Current plans are to add up to two personnel in these areas. As cash flow permits, we plan on increasing our research staff through the addition of up to two post doctors. The post doctors would be responsible for internal research projects that will be directed by our Chief Scientific Officer. In addition, we are considering increasing our programming staff in order to expedite our research projects. Costs associated with the hiring process would include normal expenditures including advertising costs and possible search fees from outside consultants. For higher-level positions, additional interviews, sign on bonuses and relocation expenses may also be incurred. Although this is our current personnel hiring plan, conditions and other unforeseen factors could impact the decision making process and as a result plans may change.

2006 Commitments

Our significant cash commitments for 2006 and future years include:

·	Payments of approximately $2,150,000 under the Beth Israel License Agreement.

·	Payments of approximately $176,096 under our collaborative research agreement with Beth Israel.

·	Payments of approximately $3,350,000 and annual payments of $250,000 under our License Agreement with Harvard Medical School.

·	Payments of approximately $300,000 under our Research Sponsorship Agreement with Massachusetts College of Pharmacy and Health Sciences.

·	Payments of approximately $300,000 under our consulting agreement with Dr. Arthur Sytkowski.

·	Payments of approximately $375,000 under our License Agreement with Dr. Mark Froimowitz.

Our ability to make these payments is dependent upon our continued ability to raise capital under our Investment Agreement with Dutchess.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2005, we have no off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES AND RESULTS OF OPERATIONS

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that have a significant impact on the results we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Actual results may differ from these estimates under different assumptions or conditions. Below, we discuss this further, as well as the estimates and judgments involved.

Asset Impairment

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. In performing the review for recoverability, we estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Otherwise, an impairment loss is not recognized. Management estimates the fair value and the estimated future cash flows expected. Any changes in these estimates could impact whether there was impairment and the amount of the impairment. Since we are in the development stage, we do not have much history to determine our estimated cash flows. If we do not meet our targeted cash flows for our services and if the estimated disposition of the equipment is lower, this could result in a write-down of our equipment. Our equipment is very specialized equipment related to genomics research, and there probably will not be a large demand for our used equipment. The amount of our net fixed assets is the amount of the maximum risk if our assumptions were not correct. Each year the assets will have higher depreciation and the maximum risk will decrease correspondingly.

Allocation of Research and Development Costs

Prior to 2004, our research and development costs were derived by allocating certain costs based on total labor effort. The percentage of total labor effort expended on research and development was an estimate by management. During 2004, we refined our process of allocating costs by identifying and directly expensing certain costs related to research and development and allocating certain other costs based on total labor effort that is estimated by management and employees. With some of these costs, a percentage of a total purchase order price is allocated to research and development. Also during 2004, we implemented a time card process that gives us a more refined estimate of certain employees' time. During 2005, as raw materials became significant, we began recording inventory for our raw materials. As the raw materials are used, they are charged to research and development expense based upon actual usage for research and development. We continue to refine our process of identifying time associated with research and development. These refinements to estimates could increase or decrease our income statement expense categories of research and development, cost of sales and selling, general and administrative. Over time we believe this change in allocating costs will result in a lower allocation of administrative costs to research and development. Also, as we hire employees, the department in which the employee is hired will have a direct impact on the allocation of administrative costs to research and development. For example if a person is hired in research and development, the allocation to research and development for other administrative costs will increase because labor effort percentage for research and development will have increased. If a person is hired in administration, the allocation to research and development for other administrative costs will decrease because the labor effort percentage for research and development will have decreased. Changes to these estimates could have a significant impact on the accrual and related compensation expense and/or deferred compensation.

Valuation of Intangible Assets

Our intangible assets are reviewed annually for impairment or more frequently if impairment indicators arise. This annual impairment test is performed in the last quarter of each fiscal year. The impairment test requires a comparison of the fair value of the Company to the amount of intangible assets recorded. If this comparison reflects impairment, then the loss would be measured as the excess of recorded intangible asset amount over its implied fair value. Although management believes that the estimates and assumptions used are reasonable, actual results could differ.

Estimation of Fair Market Value

We use the Black Scholes Option Model to determine fair market value in certain instances (i.e. to value warrants and the intrinsic value of the convertible debt and non-detachable warrants). The Black Scholes Option Model requires estimated assumptions in its computation. We estimate the assumptions used in each calculation based upon the transaction term and what we believe most appropriately reflects the transaction. If different estimates of the assumptions were used, it could result in different fair market value amounts being calculated. Additionally, various methods can be used to determine the fair market value of the warrant. If a different model were used besides the Black Scholes Option Model, it could result in different fair market value amounts being calculated.

Derivatives

We have reviewed our contracts and financial instruments to determine what derivatives and embedded derivatives we may have. We have then reviewed these derivatives and embedded derivatives to determine if they should be recorded as equity or a derivative liability valued at fair value. Judgment is used to apply the criteria of Statement of Financial Accounting Standards No. 133 and Emerging Issues Task Force 00-19 to the derivatives. Also judgment and estimates are required to determine the fair value of the derivative liabilities. Although management believes that the estimates and assumptions used are reasonable, actual results may differ from these estimates under different assumptions or conditions.

Item 7. Financial Statements.

	Page
Report of Independent Registered Public Accounting Firm		F-1
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Financial Statements
Consolidated Balance Sheet as of December 31, 2005		F-2
Consolidated Statements of Operations for the years ended December 31, 2005 and 2004, and for the period December 10, 1998 (date of inception) to December 31, 2005		F-3
Consolidated Statements of Stockholders’ Equity (Deficit) for the period ended December 10, 1998 to December 31, 1999 and for the years ended December 31, 2000, 2001, 2002, 2003, 2004 and 2005		F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2005 and 2004 and for the period December 10, 1998 (date of inception) to December 31, 2005		F-13
Notes to Consolidated Financial Statements		F-15



ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,806,646
Accounts receivable (net of allowance for doubtful accounts of $8,740)		101,852
Inventory, raw material		298,685
Deferred financing costs		118,335
Prepaid expenses and other current assets		145,095
Total current assets		2,470,613
PROPERTY AND EQUIPMENT (net of accumulated depreciation and amortization of $726,684)		1,229,133
OTHER ASSETS:
Investment in Biofrontera		2,274,702
Goodwill and other intangibles		325,958
Other assets		9,703
Total Other Assets		2,610,363
TOTAL	$	6,310,109
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts Payable	$	1,152,711
Accrued Expenses		198,889
Deferred Revenue		195,018
Accrued compensation expense		749,654
Notes payable (net of discount of $3,332,374)		267,635
Notes payable to related parties		238,381
Capital lease obligation - current		264,936
Derivative liability		6,981,306
Total current liabilities		10,048,530
Capital lease obligation - long-term		172,505
Convertible debentures - long-term (net of discount of $784,542)		126,458
Total liabilities		10,347,493

Redeemable instruments		52,750

Commitments (See Note J below)		-

STOCKHOLDERS’ DEFICIT
Preferred stock, $.01 par value, 10,000,000 shares authorized, of which 50,000 shares are designated as Series A
Series A convertible preferred stock, 50,000 shares authorized; 40,000 shares issued, 14,722 outstanding; $147,000 liquidation value		147
Common stock, $.01 par value, 1,500,000,000 shares authorized; 236,213,848 shares issued and outstanding		2,362,140
Common stock subscribed (559,876 shares)		5,599
Additional paid-in capital		30,022,934
Accumulated other comprehensive loss		(541)
Prepaid warrant exercises		120,000
Deferred stock compensation and consulting		(94,374)
Deficit incurred prior to development stage		(7,427,422)
Deficit accumulated during the development stage		(29,078,617)
Total stockholders’ deficit		(4,090,134)
TOTAL	$	6,310,109

		For the Year Ended December 31, 2005		For the Year Ended December 31, 2004		For the Period December 10, 1998 (date of inception) to December 31, 2005

SALES	$	1,275,503	$	785,632	$	3,041,711

COST OF SALES		950,472		507,927		2,063,499

GROSS PROFIT		325,031		277,705		978,212

OTHER OPERATING EXPENSES:
Research and development		2,122,383		1,561,142		10,768,050
General and administrative		2,864,548		2,050,981		10,764,484
Total other operating expenses		4,986,931		3,612,123		21,532,534

LOSS FROM OPERATIONS		(4,661,900)		(3,334,418)		(20,554,322)

OTHER INCOME (EXPENSES):
Interest expense		(50,370)		(58,475)		(1,495,273)
Intrinsic value of convertible debt and non-detachable warrants and debt discount amortization		(1,953,084)		-		(2,453,084)
Interest income		15,974				15,974
Amortization of deferred financing fees		(333,255)		(22,954)		(356,209)
Sale of option to Orchid Biosciences		-		-		353,090
Loss on disposal of investments		-		-		(349,006)
Loss on derivative contracts, net		(1,610,905)		-		(1,610,905)
Stock based settlement expense		-		-		(152,437)
Foreign currency loss		(7,060)		-		(7,060)
Other expenses		(115,252)		(319,135)		(481,157)
Total other income (expenses) - net		(4,053,952)		(400,564)		(6,536,067)

NET LOSS	$	(8,715,852)	$	(3,734,982)	$	(27,090,389)

NET LOSS PER SHARE - Basic and Diluted	$	(0.09)	$	(0.11)	$	(0.84)

SHARES USED IN COMPUTING NET LOSS PER SHARE - Basic and Diluted		93,531,222		35,373,731		32,353,028





		Preferred Stock			Common Stock
		Shares		Amount	Shares		Amount
BALANCES, DECEMBER 10, 1998		-	$	-	1,470,050	$	14,701
Stock issued for acquisition of DNAPrint Genomics, Inc. (FL) in Pooling of Interests		-		-	9,600,000		96,000
Common stock issued for reorganization/court order at $0.47 per share		-		-	6,250,000		62,500
Adjustment due to subsidiaries liquation in bankruptcy		-		-	-		-
Net loss for the year ended December 31, 1999		-		-	-		-
BALANCES, DECEMBER 31, 1999		-		-	17,320,050		173,201
Stock issued for advertising and marketing services at $0.40 per share		-		-	400,000		4,000
Increases in stock issued for acquisition of land at $1.33 per share		-		-	1,500,000		15,000
Net loss for the year ended December 31, 2000		-		-	-		-
Unrealized loss on securities		-		-	-		-
Subscription receivable payments		-		-	-		-
Deferred stock compensation related to stock option grants		-		-	-		-
Dividend paid in common stock of Heroes, Inc.		-		-	-		-
BALANCES, DECEMBER 31, 2000		-		-	19,220,050		192,201
Common stock issuances:		-		-	-		-
	Via 506 Private Placement at $1.00 per share	-		-	716,200		7,162
	For consulting services at $1.00 per share	-		-	40,000		400
	Through funding agreement with TBFI at $1.00 per share	-		-	390,831		3,908
	From exercise of nonqualified stock options at $1.22 per share	-		-	562,500		5,625
	For bankruptcy settlements at $0..40 per share	-		-	534,788		5,348
Loss on investment		-		-	-		-
Recovery of subscription receivables		-		-	-		-
Deferred stock compensation related to stock option grants		-		-	-		-
Amortization of deferred stock compensation		-		-	-		-
Net loss for the year ended December 31, 2001		-		-	-		-
BALANCES, DECEMBER 31, 2001		-		-	21,464,369		214,644
Common stock issuances:
Via 506 Private Placement at $0.36 per share		-		-	69,444		694
For consulting services at $0.80 per share		-		-	2,500		25
For consulting services at $1.26 per share		-		-	2,103		21
For consulting services at $1.34 per share		-		-	2,500		25
From exercise of nonqualified stock options at $0.97 per share		-		-	127,778		1,278
From exercise of nonqualified stock options at $1.18 per share		-		-	125,000		1,250
From exercise of employee stock options		-		-	47,249		472
For settlement of related party notes payable at $1.26 per share		-		-	727,368		7,274
Per settlement agreement with TBFI		-		-	-		-
Deferred stock compensation related to stock option grants		-		-	-		-
Amortization of deferred stock compensation		-		-	-		-
Net loss for the year ended December 31, 2002		-		-	-		-
BALANCES, DECEMBER 31, 2002		-		-	22,568,311		225,683

(Continued)
			Additional		Common		Stock				Deferred
			Paid in		Stock		Subscription		Prepaid		Stock
			Capital		Subscribed		Receivable		Warrants		Compensation
BALANCES, DECEMBER 10, 1998		$	5,256,690	$	-	$	-	$	-	$	-
Stock issued for acquisition of DNAPrint Genomics, Inc. (FL) in Pooling of Interests			904,000		-		(1,000,000)		-		-
Common stock issued for reorganization/court order at $0.47 per share			2,874,980		-		-		-		-
Adjustment due to subsidiaries liquation in bankruptcy			-		-		-		-		-
Net loss for the year ended December 31, 1999			-		-		-		-		-
BALANCES, DECEMBER 31, 1999			9,035,670		-		(1,000,000)		-		-
Stock issued for advertising and marketing services at $0.40 per share			156,000		-		-		-		-
Increases in stock issued for acquisition of land at $1.33 per share			1,985,000		-		-		-		-
Net loss for the year ended December 31, 2000			-		-		-		-		-
Unrealized loss on securities			-		-		-		-		-
Subscription receivable payments			-		-		539,500		-		-
Deferred stock compensation related to stock option grants			731,450		-		-		-		(731,450)
Dividend paid in common stock of Heroes, Inc.			-		-		-		-		-
BALANCES, DECEMBER 31, 2000			11,908,120		-		(460,500)		-		(731,450)
Common stock issuances:			-		-		-		-		-
	Via 506 Private Placement at $1.00 per share		709,038		-		-		-		-
	For consulting services at $1.00 per share		39,600		-		-		-		-
	Through funding agreement with TBFI at $1.00 per share		386,923		-		-		-		-
	From exercise of nonqualified stock options at $1.22 per share		681,250		-		-		-		-
	For bankruptcy settlements at $0.40 per share		208,568		-		-		-		-
Loss on investment			-		-		-		-		-
Recovery of subscription receivables			-		-		460,500		-		-
Deferred stock compensation related to stock option grants			22,100		-		-		-		(22,100)
Amortization of deferred stock compensation			-		-		-		-		219,530
Net loss for the year ended December 31, 2001			-		-		-		-		-
BALANCES, DECEMBER 31, 2001			13,955,599		-		-		-		(534,020)
Common stock issuances:
Via 506 Private Placement at $0.36 per share			24,306		-		-		-		-
For consulting services at $0.80 per share			1,975		-		-		-		-
For consulting services at $1.26 per share			2,628		-		-		-		-
For consulting services at $1.34 per share			3,325		-		-		-		-
From exercise of nonqualified stock options at $0.97 per share			122,221		-		-		-		-
From exercise of nonqualified stock options at $1.18 per share			146,250		-		-		-		-
From exercise of employee stock options			(472)		-		-		-		-
For settlement of related party notes payable at $1.26 per share			909,209		-		-		-		-
Per settlement agreement with TBFI			34,200		-		-		-		-
Deferred stock compensation related to stock option grants			171,800		-		-		-		(171,800)
Amortization of deferred stock compensation			-		-		-		-		269,694
Net loss for the year ended December 31, 2002			-		-		-		-		-
BALANCES, DECEMBER 31, 2002			15,371,041		-		-		-		(436,126)

Dnaprint Genomics Inc · 10KSB · For 12/31/05

Filed On 3/29/06 4:08pm ET · SEC File 0-31905 · Accession Number 1231742-6-203

Annual Report -- Small Business · Form 10-KSB
Filing Table of Contents

10KSB · Annual Report -- Small Business

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(Continued)
			Deficit		Deficit
			incurred		accumulated		Accumulated
			prior		during the		Other
			development		Comprehensive		Comprehensive
			stage		stage		Income		Total
BALANCES, DECEMBER 10, 1998		$	(7,427,422)	$	(44,244,627)	$	222,443	$	(46,178,215)
Stock issued for acquisition of DNAPrint Genomics, Inc. (FL) in Pooling of Interests			-		-		-		-
Common stock issued for reorganization/court order at $0.47 per share			-		-		-		2,937,480
Adjustment due to subsidiaries liquation in bankruptcy			-		63,355,809		-		63,355,809
Net loss for the year ended December 31, 1999			-		(20,061,513)		-		(20,061,513)
BALANCES, DECEMBER 31, 1999			(7,427,422)		(950,331)		222,443		53,561
Stock issued for advertising and marketing services at $0.40 per share			-		-		-		160,000
Increases in stock issued for acquisition of land at $1.33 per share			-		-		-		2,000,000
Net loss for the year ended December 31, 2000			-		(191,789)		-		(191,789)
Unrealized loss on securities			-		-		(197,298)		(197,298)
Subscription receivable payments			-		-		-		539,500
Deferred stock compensation related to stock option grants			-		-		-		-
Dividend paid in common stock of Heroes, Inc.			-		(1,988,228)		-		(1,988,228)
BALANCES, DECEMBER 31, 2000			(7,427,422)		(3,130,348)		25,145		375,746
Common stock issuances:
	Via 506 Private Placement at $1.00 per share		-		-		-		716,200
	For consulting services at $1.00 per share		-		-		-		40,000
	Through funding agreement with TBFI at $1.00 per share		-		-		-		390,831
	From exercise of nonqualified stock options at $1.22 per share		-		-		-		686,875
	For bankruptcy settlements at $0.40 per share		-		-		-		213,916
Loss on investment			-		-		(25,145)		(25,145)
Recovery of subscription receivables			-		-		-		460,500
Deferred stock compensation related to stock option grants			-		-		-		-
Amortization of deferred stock compensation			-		-		-		219,530
Net loss for the year ended December 31, 2001			-		(2,593,906)		-		(2,593,906)
BALANCES, DECEMBER 31, 2001			(7,427,422)		(5,724,254)		-		484,547
Common stock issuances:
Via 506 Private Placement at $0.36 per share			-		-		-		25,000
For consulting services at $0.80 per share			-		-		-		2,000
For consulting services at $1.26 per share			-		-		-		2,649
For consulting services at $1.34 per share			-		-		-		3,350
From exercise of nonqualified stock options at $0.97 per share			-		-		-		123,499
From exercise of nonqualified stock options at $1.18 per share			-		-		-		147,500
From exercise of employee stock options			-		-		-		-
For settlement of related party notes payable at $1.26 per share			-		-		-		916,483
Per settlement agreement with TBFI			-		-		-		34,200
Deferred stock compensation related to stock option grants			-		-		-		-
Amortization of deferred stock compensation			-		-		-		269,694
Net loss for the year ended December 31, 2002			-		(3,113,624)		-		(3,113,624)
BALANCES, DECEMBER 31, 2002			(7,427,422)		(8,837,878)		-		(1,104,702)

Dnaprint Genomics Inc · 10KSB · For 12/31/05

Filed On 3/29/06 4:08pm ET · SEC File 0-31905 · Accession Number 1231742-6-203

Annual Report -- Small Business · Form 10-KSBFiling Table of Contents

10KSB · Annual Report -- Small Business

This is an EDGAR HTML document rendered as filed. [ Alternative Formats ]

Annual Report -- Small Business · Form 10-KSB
Filing Table of Contents