UNITED
        STATES
  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]
  2
  **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 - TruSeqTM, SNiPscanTM and TruSpinTM. 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.
 
 3
 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
        (mtDNATM) testing for the direct maternal line. Trace also maintains one of the
        largest Native American mtDNATM 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.
 4
 In
        2004,
        we conducted research for enhancements to DNAWitnessTM. 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, DNAWitnessTM. During the third quarter of 2004, we
        completed work on our eye color service, RETINOMETM, and EURO-DNATM, 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 STATINOMETM and ace inhibitor projects.
        We also, in conjunction with researchers at the Moffitt Cancer Center, continue
        work on OVANOMETM 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 OVANOMETM 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.
 
 5
 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.
  6
 **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. 4.
            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.
 
 7
 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
              PreclinicalPT-501
              ADHD
              PreclinicalPT-502
              Drug
                  Addiction
              PreclinicalPT-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 IISTATINOME
              Safety
                  of Statins
              Diagnostic
                  Ph IIDIABETES-CD59
              Diabetic
                  Complications
              Preclinical
  **Ovanome:** During
        2005, we began a study with Genomics Collaborative Division of Seracare
        Life Sciences Inc. S amples
        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.
 
 8
 **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 OVANOMETM 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 DNAWitnessTM 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 TM is the
        first forensic product that provides predictive capability.
        DNAWitness TM 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 TM 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
        DNAWitnessTM 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:
  DNAWitnessTM
        2.5 -- Tests crime scene DNA to assist detectives, forensic scientists and
        medical examiners in corroborating eyewitness reports and confirming suspect
        identities. DNAWitnessTM 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. RETINOMETM 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-WitnessTM 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-YTM 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-MitoTM can be used as an identification tool when other DNA testing
        fails to yield results or the DNA sample is too deteriorated.
 
 9
 **Growth
        Strategy in Forensics**
 
 We
        are
        investigating avenues to encourage federal, state and local governments,
        crime
        laboratories and law enforcement agencies to use DNAWitnessTM to help solve cold
        cases, current serial killer cases and other violent crimes. By using
        DNAWitnessTM on a routine basis, witness information can be corroborated, and
        where no witness is present, DNAWitnessTM 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 TM 2.5,
        provides an inference of an individual’s genetic ancestry or heritage. 
ANCESTRYbyDNA TM 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 TM 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 TM 1.0 in
        the marketplace in late 2004. The EURO-DNA TM 1.0 product
        measures European sub-ancestry.  “European” ancestry, as determined by
        ANCESTRYbyDNA TM 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 TM 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. 3.
            “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. 
 10
 **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.
 
 11
 **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
              US2003/0171875A1Methods
                  for the Identification of Genetic
              US2003/0171878A1Features
                  for Complex Genetics Classifiers
              WO
                  03/048318Methods
                  and Apparatus for use in Genetics Classification Including Classification
                  Tree
              WO
                  03/048999AnalysisMethods
                  and Apparatus for use in Complex Genetics Classification
              WO
                  03/048372Based
                  on Correspondence Analysis and Linear-Quadratic AnalysisComposition
                  and Methods for the Inference
              US10/156,995Of
                  Pigmentation Traits
              US60/346,303PCT/US02/16789AU2002/312112CA2,448,569EP02739467.5hk04109585.8JP2003/500216Compositions
                  and Methods for Inferring
              US10/188,359A
                  Response to a Statin
              PCT/US02/20847AU2002/316485CA2,486,789EP02746794.3JP2003/509083Single
                  Nucleotide Polymorphisms and Combinations Thereof Predictive
                  of
              PCT/US02/38345Paclitaxel
                  Responsiveness in Cancer Patients
              AU2002360452CA2,468,312EP02795709.1HK05102575.4JP2003-546736US60/334,310US60/410,363US10/496,605Compositions
                  and Methods for Inferring Ancestry
              US10/644,594PCT/US03/26229US11/356,729US60/654,672Methylphenidate
                  Analogs and Methods of Use Thereof
              US11/256063PCT/US2005/038030Methods,
                  Products and Treatments for Diabetes
              US09/835752
                  (Granted)US10/833,581US10/870,342Anti-Glycated
                  CD59 Antibodies and Uses Thereof
              US2004/019392Multiplex
                  Assays for Inferring Ancestry
              331832-000045/WOCompositions
                  and Methods for Inferring an Adverse Effect in Response to a
                  Drug
              US05/41326Markers
                  and Methods for Accurate Estimates of Human Ancestry
              AU2003265572CA2,496,155EP03788685.0JP2005-502072US60/404,357US60/467,613US10/644,594US03/26229Methods
                  and Compositions for Inferring Eye Color
              US60/544,788US60,548,370PCTUS05/04513
 
 12
 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. 
 13
 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, ANCESTRYbyDNATM, 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-DNATM 1.0. However, sales have not improved as dramatically as expected
        perhaps due to an increase in pricing from $199 to $219 for ANCESTRYbyDNATM and a
        combined price of $399 for inclusion of a EURO-DNATM test along with the
        ANCESTRYbyDNATM 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.
 
 14
 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.
 
 15
 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.
 
 16
 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.
 
 17
 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.
 
 18
 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.
 
 19
 **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
                  BID1st
                  Quarter 2004
              1.400
              0.7202nd
                  Quarter 2004
              1.000
              0.5003rd
                  Quarter 2004
              0.600
              0.2604th
                  Quarter 2004
              0.400
              0.1001st
                  Quarter 2005
              0.260
              0.0202nd
                  Quarter 2005
              0.510
              0.0343rd
                  Quarter 2005
              0.202
              0.0134th
                  Quarter 2005
              0.044
              0.002
  *
        Restated for a 20:1 reverse stock split on July 12, 2005.
 
 20
 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.
  21
 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 ANCESTRYbyDNATM increasing
        approximately $284,000, our paternity testing increasing approximately $79,000.
        Our EURO-DNATM 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 mtDNATM 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 DNAWitnessTM 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.
 
 22
 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
        mtDNATM and Y-chromosome product. These products contributed to $63,000 of sales
        during 2005. These consumer products are sold in similar markets as
        ANCESTRYbyDNA TM and
        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
        ANCESTRYbyDNATM and DNAWitnessTM 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 DNAWitnessTM 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,
        DNAWitnessTM 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 DNAWitnessTM.
        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 DNAWitnessTM 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 TM which
        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.
 
 23
 
  **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:
 
 DutchessDerivatives
              
              Convertible
                  Preferred Stock
              
              Outstanding
                  Warrants
              
              La
                  Jolla convertible debt
              
              TotalFair
                  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.
 
 24
 **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.
 
 25
 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.
 
 26
 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.
 
 27
 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.
 28
 **Item 7.
        Financial Statements.**











**DNAPrint
      Genomics, Inc.**


**(A
      Development Stage Enterprise)**





**Consolidated**


**Financial
      Statements as of and**


**for
      various periods ended December 31, 2005**


**and
      2004 and Independent Auditor’s Report**



















**DNAPrint
      Genomics, Inc.**


**(A
      Development Stage Enterprise)**





**TABLE
      OF CONTENTS**








**Page**Report
                of Independent Registered Public Accounting Firm
            
            
            F-1Consolidated
              Financial StatementsConsolidated
                Balance Sheet as of December 31, 2005
            
            
            F-2Consolidated
                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-3Consolidated
                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-4Consolidated
                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-13Notes
                to Consolidated Financial Statements
            
            
            F-15











Report
      of
      Independent Registered Public Accounting Firm


Board
      of
      Directors


DNAPrint
      Genomics, Inc. and Subsidiaries


(A
      Development Stage Enterprise)


Sarasota,
      Florida




We
      have
      audited the accompanying consolidated balance sheet of DNAPrint Genomics, Inc.
      and subsidiaries (a development stage enterprise) as of December 31, 2005 and
      the related consolidated statements of operations, changes in stockholders'
      deficit, and cash flows for the years ended December 31, 2005 and 2004 and
      the
      period from December
      10, 1998 (Date of
      Inception) through December 31, 2005. These consolidated financial statements
      are the responsibility of the management of DNAPrint
      Genomics, Inc. and Subsidiaries. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits. The
      consolidated financial statements as of December 31, 2002 and for the period
      December 10, 1998 (date of inception) through December 31, 2002 were audited
      by
      other auditors whose report dated April 11, 2003 included an explanatory
      paragraph regarding substantial doubt about the Company's ability to continue
      as
      a going concern. The consolidated financial statements for the period December
      10, 1998 (date of inception) through December 31, 2002 include total sales
      and
      net loss of $270,938 and $6,849,650, respectively. Our opinion on the
      consolidated statements of operations, changes in stockholders' equity, and
      cash
      flows for the period December 10, 1998 (date of inception) through December
      31,
      2005 insofar as it relates to amounts for periods through December 31, 2002
      is
      based solely on the report of other auditors.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. The Company is not
      required to have, nor were we engaged to perform, an audit of its internal
      control over financial reporting. Our audit included consideration of internal
      control over financial reporting as a basis for designing audit procedures
      that
      are appropriate in the circumstances, but not for the purpose of expressing
      an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we expressed no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, based
      on
      the audit and the report of other auditors on the previous years' consolidated
      financial statements, the
      financial statements referred to above present fairly, in all material respects,
      the consolidated financial
      position of DNAPrint Genomics, Inc. and subsidiaries as of December 31, 2005
      and
      the consolidated results of its operations and its cash flows for the years
      ended December 31, 2005 and 2004 and the period from December
      10, 1998 ( Date
      of
      Inception) through December 31, 2005 in conformity with accounting principles
      generally accepted in the United States of America.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note B, the Company incurred
      a
      net loss of $8,715,852 during the year ended December 31, 2005 and has an
      accumulated deficit of $29,078,617 from inception to December 31, 2005. These
      factors, among others, raise substantial doubt about the Company’s ability to
      continue as a going concern. Management’s plans in regard to these matters are
      also described in Note B. The financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.





/s/
      Pender Newkirk & Company





Pender
      Newkirk & Company LLP


Certified
      Public Accountants


Tampa,
      Florida


February
      24, 2006




F-1




**DNAPrint
      Genomics, Inc.**


**(A
      Development Stage Enterprise)**


**CONSOLIDATED
      BALANCE SHEET AS OF DECEMBER 31, 2005**


**ASSETS****CURRENT
                ASSETS:**Cash
                and cash equivalents
            $
            1,806,646Accounts
                receivable (net of allowance for doubtful accounts of
                $8,740)
            
            101,852Inventory,
                raw material
            
            298,685Deferred
                financing costs
            
            118,335Prepaid
                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
            
            2,274,702Goodwill
                and other intangibles
            
            325,958Other
                assets
            
            9,703**Total
                Other Assets**
            
            **2,610,363****TOTAL**
            $
            **6,310,109****LIABILITIES
                AND STOCKHOLDERS’ DEFICIT****CURRENT
                LIABILITIES:**Accounts
                Payable
            $
            1,152,711Accrued
                Expenses
            
            198,889Deferred
                Revenue
            
            195,018Accrued
                compensation expense
            
            749,654Notes
                payable (net of discount of $3,332,374)
            
            267,635Notes
                payable to related parties
            
            238,381Capital
                lease obligation - current
            
            264,936Derivative
                liability
            
            6,981,306Total
                current liabilities
            
            10,048,530Capital
                lease obligation - long-term
            
            172,505Convertible
                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 ASeries
                A convertible preferred stock, 50,000 shares authorized; 40,000 shares
                issued, 14,722 outstanding; $147,000 liquidation value
            
            147Common
                stock, $.01 par value, 1,500,000,000 shares authorized; 236,213,848
                shares
                issued and outstanding
            
            2,362,140Common
                stock subscribed (559,876 shares)
            
            5,599Additional
                paid-in capital
            
            30,022,934Accumulated
                other comprehensive loss
            
            (541)Prepaid
                warrant exercises
            
            120,000Deferred
                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**





See
      notes
      to consolidated financial statements




F-2


**DNAPrint
      Genomics, Inc.**


**(A
      Development Stage Enterprise)**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


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,
                2005SALES
            $
            1,275,503
            $
            785,632
            $
            3,041,711COST
                OF SALES
            
            950,472
            
            507,927
            
            2,063,499GROSS
                PROFIT
            
            325,031
            
            277,705
            
            978,212OTHER
                OPERATING EXPENSES:Research
                and development
            
            2,122,383
            
            1,561,142
            
            10,768,050General
                and administrative
            
            2,864,548
            
            2,050,981
            
            10,764,484Total
                other operating expenses
            
            4,986,931
            
            3,612,123
            
            21,532,534LOSS
                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
            
            
            
            15,974Amortization
                of deferred financing fees
            
            (333,255)
            
            (22,954)
            
            (356,209)Sale
                of option to Orchid Biosciences
            
            -
            
            -
            
            353,090Loss
                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





See
      notes
      to consolidated financial statements








F-3


**DNAPrint
      Genomics, Inc.**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)**


**(A
      Development Stage Enterprise)**





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


F-4


(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
            
            -
            
            -
            
            -
            
            -
            
            219,530Net
                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
            
            -
            
            -
            
            -
            
            -
            
            269,694Net
                loss for the year ended December 31, 2002
            
            -
            
            -
            
            -
            
            -
            
            -BALANCES,
                DECEMBER 31, 2002
            
            15,371,041
            
            -
            
            -
            
            -
            
            (436,126)





(Continued)


F-5





(Continued)**Deficit**
            
            **Deficit****incurred**
            
            **accumulated**
            
            **Accumulated****prior**
            
            **during
                the**
            
            **Other****development**
            
            **Comprehensive**
            
            **Comprehensive****stage**
            
            **stage**
            
            **Income**
            
            TotalBALANCES,
                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
            -
            
            -
            
            -
            
            2,937,480Adjustment
                due to subsidiaries liquation in bankruptcy
            
            -
            
            63,355,809
            
            -
            
            63,355,809Net
                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
            
            53,561Stock
                issued for advertising and marketing services at $0.40 per share
            -
            
            -
            
            -
            
            160,000Increases
                in stock issued for acquisition of land at $1.33 per share
            -
            
            -
            
            -
            
            2,000,000Net
                loss for the year ended December 31, 2000
            
            -
            
            (191,789)
            
            -
            
            (191,789)Unrealized
                loss on securities
            
            -
            
            -
            
            (197,298)
            
            (197,298)Subscription
                receivable payments
            
            -
            
            -
            
            -
            
            539,500Deferred
                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
            
            375,746Common
                stock issuances:Via
                506 Private Placement at $1.00 per share
            
            -
            
            -
            
            -
            
            716,200For
                consulting services at $1.00 per share
            
            -
            
            -
            
            -
            
            40,000Through
                funding agreement with TBFI at $1.00 per share
            -
            
            -
            
            -
            
            390,831From
                exercise of nonqualified stock options at $1.22 per share
            -
            
            -
            
            -
            
            686,875For
                bankruptcy settlements at $0.40 per share
            
            -
            
            -
            
            -
            
            213,916Loss
                on investment
            
            -
            
            -
            
            (25,145)
            
            (25,145)Recovery
                of subscription receivables
            
            -
            
            -
            
            -
            
            460,500Deferred
                stock compensation related to stock option grants
            -
            
            -
            
            -
            
            -Amortization
                of deferred stock compensation
            
            -
            
            -
            
            -
            
            219,530Net
                loss for the year ended December 31, 2001
            
            -
            
            (2,593,906)
            
            -
            
            (2,593,906)BALANCES,
                DECEMBER 31, 2001
            
            (7,427,422)
            
            (5,724,254)
            
            -
            
            484,547Common
                stock issuances:Via
                506 Private Placement at $0.36 per share
            
            -
            
            -
            
            -
            
            25,000For
                consulting services at $0.80 per share
            
            -
            
            -
            
            -
            
            2,000For
                consulting services at $1.26 per share
            
            -
            
            -
            
            -
            
            2,649For
                consulting services at $1.34 per share
            
            -
            
            -
            
            -
            
            3,350From
                exercise of nonqualified stock options at $0.97 per share
            -
            
            -
            
            -
            
            123,499From
                exercise of nonqualified stock options at $1.18 per share
            -
            
            -
            
            -
            
            147,500From
                exercise of employee stock options
            
            -
            
            -
            
            -
            
            -For
                settlement of related party notes payable at $1.26 per share
            -
            
            -
            
            -
            
            916,483Per
                settlement agreement with TBFI
            
            -
            
            -
            
            -
            
            34,200Deferred
                stock compensation related to stock option grants
            -
            
            -
            
            -
            
            -Amortization
                of deferred stock compensation
            
            -
            
            -
            
            -
            
            269,694Net
                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)








(Continued)





F-6





(Continued)**Preferred
                Stock**
            
            **Common
                Stock****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**Common
                stock issuances:For
                settlement of related party notes payable and interest at $0.64
            -
            
            -
            
            865,399
            
            8,654For
                settlement of related party notes payable and interest at $0.64
            -
            
            -
            
            403,362
            
            4,034For
                settlement of related party notes payable and interest at $1.48
            -
            
            -
            
            135,502
            
            1,355For
                settlement of related party notes payable and interest at $1.44
            -
            
            -
            
            404,630
            
            4,046For
                consulting services at $0.60 per share
            -
            
            -
            
            139,043
            
            1,391For
                consulting services at $.096 per share
            -
            
            -
            
            16,686
            
            167For
                consulting and scientific advisory board services at $1.47 per share
            -
            
            -
            
            13,497
            
            135For
                scientific advisory board services at $.095 per share
            -
            
            -
            
            5,000
            
            50For
                accounting services at $0.52 per share
            -
            
            -
            
            4,208
            
            42For
                legal services at $1.35 per share
            -
            
            -
            
            2,917
            
            29For
                legal services at $1.54 per share
            -
            
            -
            
            3,539
            
            35For
                legal services at $1.28 per share
            -
            
            -
            
            3,180
            
            32For
                legal services at $1.01 per share
            -
            
            -
            
            2,990
            
            30For
                legal services at $0.97 per share
            -
            
            -
            
            6,404
            
            64For
                consulting services at $0.63 per share
            -
            
            -
            
            6,729
            
            67For
                legal services at $0.55 per share
            -
            
            -
            
            42,196
            
            422For
                consulting services at $0.99
            -
            
            -
            
            32,608
            
            326From
                exercise of nonqualified stock options at $.058 per share
            -
            
            -
            
            294,118
            
            2,941From
                exercise of nonqualified stock options at $2.70 per share
            -
            
            -
            
            208,333
            
            2,083From
                exercise of nonqualified stock options at $2.20 per share
            -
            
            -
            
            208,333
            
            2,083From
                exercise of nonqualified stock options at $1.44 per share
            -
            
            -
            
            151,515
            
            1,515From
                exercise of nonqualified stock options at $1.22 per share
            -
            
            -
            
            161,290
            
            1,613Via
                506 private placement at $0.30 per share
            -
            
            -
            
            33,333
            
            333Via
                506 private placement at $0.29 per share
            -
            
            -
            
            138,889
            
            1,389For
                settlement with TBFI. at $1.64 per share
            -
            
            -
            
            238,183
            
            2,382Conversion
                of debt to common stock and exercise of non-detachable warrants
            -
            
            -
            
            104,737
            
            1,048Amortization
                of deferred stock compensation
            -
            
            -
            
            -
            
            -Deferred
                stock compensation costs
            -
            
            -
            
            -
            
            -Stock
                options cancelled
            -
            
            -
            
            -
            
            -Common
                stock subscribed
            -
            
            -
            
            -
            
            -Intrinsic
                value of convertible debt and warrants
            -
            
            -
            
            -
            
            -Stock
                issuance costs
            -
            
            -
            
            -
            
            -Warrants
                issued for stock issuance costs
            -
            
            -
            
            -
            
            -Net
                loss for the year ended December 31, 2003
            -
            
            -
            
            -
            
            -BALANCES,
                DECEMBER 31, 2003
            -
            
            -
            
            26,194,932
            
            261,949Common
                stock issuances:Stock
                issued that was subscribed in the prior year
            -
            
            -
            
            5,768,315
            
            57,683For
                accrued expenses at $0.55 per share
            -
            
            -
            
            76,118
            
            761For
                consulting services and accrued expenses at $1.12 per share
            -
            
            -
            
            250,000
            
            2,500For
                consulting services at $0.60 per share
            -
            
            -
            
            2,500
            
            25For
                consulting services at $0.84 per share
            -
            
            -
            
            2,500
            
            25For
                consulting services at $0.20 per share
            -
            
            -
            
            -
            
            -For
                consulting services at $0.40 per share
            -
            
            -
            
            -
            
            -For
                consulting services at $0.40 per share
            -
            
            -
            
            9,771
            
            98Conversion
                of debt to common stock and exercise of $20.00 per share non-detachable
                warrants
            -
            
            -
            
            14,642,827
            
            146,428Exercise
                of options
            -
            
            -
            
            9,250
            
            93Prepaid
                monies for future exercise of warrants
            -
            
            -
            
            -
            
            -Preferred
                stock Series A issued to investors
            40,000
            
            400
            
            -
            
            -Stock
                options cancelled
            -
            
            -
            
            -
            
            -Amortization
                of deferred stock compensation
            -
            
            -
            
            -
            
            -Stock
                issuance costs
            -
            
            -
            
            -
            
            -Warrants
                issued for stock issuance costs
            -
            
            -
            
            -
            
            -Net
                loss for the year ended December 31, 2004
            -
            
            -
            
            -
            
            -BALANCE
                DECEMBER 31, 2004
            40,000
            
            400
            
            46,956,213
            
            469,562





(Continued)


F-7








(Continued)
            **Additional**
            **Common**
            **Stock**
            
            **Deferred****Paid
                in**
            **Stock**
            **Subscription**
            **Prepaid**
            **Stock****Capital**
            **Subscribed**
            **Receivable**
            **Warrants**
            **Compensation**Common
                stock issuances:For
                settlement of related party notes payable and interest at $064
            545,201
            -
            -
            -
            -For
                settlement of related party notes payable and interest at $0.64
            254,117
            -
            -
            -
            -For
                settlement of related party notes payable and interest at $1.48
            199,188
            -
            -
            -
            -For
                settlement of related party notes payable and interest at $1.44
            578,621
            -
            -
            -
            -For
                consulting services at $0.60 per share
            82,035
            -
            -
            -
            -For
                consulting services at $0.95 per share
            15,835
            -
            -
            -
            -For
                consulting and scientific advisory board services at $1.47 per share
            19,697
            -
            -
            -
            -For
                scientific advisory board services at $0.95 per share
            4,700
            -
            -
            -
            -For
                accounting services at $0.52 per share
            2,157
            -
            -
            -
            -For
                legal services at $1.35 per share
            3,914
            -
            -
            -
            -For
                legal services at $1.54 per share
            5,429
            -
            -
            -
            -For
                legal services at $1.28 per share
            4,051
            -
            -
            -
            -For
                legal services at $1.01 per share
            2,990
            -
            -
            -
            -For
                legal services at $0.97 per share
            6,135
            -
            -
            -
            -For
                consulting services at $0.63 per share
            4,155
            -
            -
            -
            -For
                legal services at $0..55 per share
            22,583
            -
            -
            -
            -For
                consulting services at $0.99
            31,977
            -
            -
            -
            -From
                exercise of nonqualified stock options at $0.58 per share
            167,647
            -
            -
            -
            -From
                exercise of nonqualified stock options at $2.70 per share
            560,417
            -
            -
            -
            -From
                exercise of nonqualified stock options at $2.20 per share
            456,250
            -
            -
            -
            -From
                exercise of nonqualified stock options at $1.44 per share
            216,667
            -
            -
            -
            -From
                exercise of nonqualified stock options at $1.22 per share
            195,161
            -
            -
            -
            -Via
                506 private placement at $0.30 per share
            9,667
            -
            -
            -
            -Via
                506 private placement at $0.29 per share
            38,611
            -
            -
            -
            -For
                settlement with TBFI. at $1.64 per share
            388,238
            -
            -
            -
            -Conversion
                of debt to common stock and exercise of non-detachable warrants
            78,952
            -
            -
            -
            -Amortization
                of deferred stock compensation
            -
            -
            -
            -
            1,378,637Deferred
                stock compensation costs
            -
            -
            -
            -
            (1,848,750)Stock
                options cancelled
            (170,883)
            -
            -
            -
            170,883Common
                stock subscribed
            2,932,804
            57,683
            -
            -
            -Intrinsic
                value of convertible debt and warrants
            500,000
            -
            -
            -
            -Stock
                issuance costs
            (173,523)
            -
            -
            -
            -Warrants
                issued for stock issuance costs
            80,000
            -
            -
            -
            -Net
                loss for the year ended December 31, 2003
            -
            -
            -
            -
            -BALANCES,
                DECEMBER 31, 2003
            22,433,834
            57,683
            -
            -
            (735,356)Common
                stock issuances:
            
            
            -
            -Stock
                issued that was subscribed in the prior year
            -
            (57,683)
            -
            -
            -For
                accrued expenses at $0.55 per share
            41,104
            -
            -
            -
            -For
                consulting services and accrued expenses at $1.12 per share
            277,500
            -
            -
            -
            -For
                consulting services at $0.60 per share
            1,475
            -
            -
            -
            -For
                consulting services at $0.84 per share
            2,075
            -
            -
            -
            -For
                consulting services at $0.20 per share
            2,381
            125
            -
            -
            -For
                consulting services at $0.40 per share
            3,053
            78
            -
            -
            -For
                consulting services at $0.40 per share
            3,779
            -
            -
            -
            -Conversion
                of debt to common stock and exercise of $20.00 per share non-detachable
                warrants
            4,329,067
            4,505
            -
            (90,000)
            -Exercise
                of options
            (93)
            -
            -
            -
            -Prepaid
                monies for future exercise of warrants
            -
            -
            -
            345,000
            -Preferred
                stock Series A issued to investors
            399,600
            -
            -
            -
            -Stock
                options cancelled
            (19,950)
            -
            -
            -
            19,950Amortization
                of deferred stock compensation
            -
            -
            -
            -
            689,335Stock
                issuance costs
            (489,335)
            -
            -
            -
            -Warrants
                issued for stock issuance costs
            197,633
            -
            -
            -
            -Net
                loss for the year ended December 31, 2004
            -
            -
            -
            -
            -BALANCE
                DECEMBER 31, 2004
            27,182,123
            4,708
            -
            255,000
            (26,071)





(Continued)


F-8





(Continued)
            **Deficit**
            **Deficit****incurred**
            **accumulated**
            **Accumulated****prior**
            **during
                the**
            **Other****development**
            **Comprehensive**
            **Comprehensive****stage**
            **stage**
            **Income**
            TotalCommon
                stock issuances:For
                settlement of related party notes payable and interest at $064
            -
            -
            -
            553,855For
                settlement of related party notes payable and interest at $0.64
            -
            -
            -
            258,151For
                settlement of related party notes payable and interest at $1.48
            -
            -
            -
            200,543For
                settlement of related party notes payable and interest at $1.44
            -
            -
            -
            582,667For
                consulting services at $0.60 per share
            -
            -
            -
            83,426For
                consulting services at $0.96 per share
            -
            -
            -
            16,002For
                consulting and scientific advisory board services at $1.47 per share
            -
            -
            -
            19,832For
                scientific advisory board services at $0.95 per share
            -
            -
            -
            4,750For
                accounting services at $0.52 per share
            -
            -
            -
            2,199For
                legal services at $1.35 per share
            -
            -
            -
            3,943For
                legal services at $1.54 per share
            -
            -
            -
            5,464For
                legal services at $1.28 per share
            -
            -
            -
            4,083For
                legal services at $1.01 per share
            -
            -
            -
            3,020For
                legal services at $0.97 per share
            -
            -
            -
            6,199For
                consulting services at $0.63 per share
            -
            -
            -
            4,222For
                legal services at $0.55 per share
            -
            -
            -
            23,005For
                consulting services at $0.99
            -
            -
            -
            32,303From
                exercise of nonqualified stock options at $0.58 per share
            -
            -
            -
            170,588From
                exercise of nonqualified stock options at $2.70 per share
            -
            -
            -
            562,500From
                exercise of nonqualified stock options at $2.20 per share
            -
            -
            -
            458,333From
                exercise of nonqualified stock options at $1.44 per share
            -
            -
            -
            218,182From
                exercise of nonqualified stock options at $1.22 per share
            -
            -
            -
            196,774Via
                506 private placement at $0.30 per share
            -
            -
            -
            10,000Via
                506 private placement at $0.29 per share
            -
            -
            -
            40,000For
                settlement with TBFI. at $1.64 per share
            -
            -
            -
            390,620Conversion
                of debt to common stock and exercise of non-detachable warrants
            -
            -
            -
            80,000Amortization
                of deferred stock compensation
            -
            -
            -
            1,378,637Deferred
                stock compensation costs
            -
            -
            -
            (1,848,750)Stock
                options cancelled
            -
            -
            -
            -Common
                stock subscribed
            -
            -
            -
            2,990,487Intrinsic
                value of convertible debt and warrants
            -
            -
            -
            500,000Stock
                issuance costs
            -
            -
            -
            (173,523)Warrants
                issued for stock issuance costs
            -
            -
            -
            80,000Net
                loss for the year ended December 31, 2003
            -
            (7,789,905)
            -
            (7,789,905)BALANCES,
                DECEMBER 31, 2003
            (7,427,422)
            (16,627,783)
            -
            (2,037,095)Common
                stock issuances:Stock
                issued that was subscribed in the prior year
            -
            -
            -
            -For
                accrued expenses at $0.55 per share
            -
            -
            -
            41,865For
                consulting services and accrued expenses at $1.12 per share
            -
            -
            -
            280,000For
                consulting services at $0.60 per share
            -
            -
            -
            1,500For
                consulting services at $0.84 per share
            -
            -
            -
            2,100For
                consulting services at $0.20 per share
            -
            -
            -
            2,506For
                consulting services at $0.40 per share
            -
            -
            -
            3,131For
                consulting services at $0.40 per share
            -
            -
            -
            3,877Conversion
                of debt to common stock and exercise of 20.00 per share non-detachable
                warrants
            -
            -
            -
            4,390,000Exercise
                of options
            -
            -
            -
            -Prepaid
                monies for future exercise of warrants
            -
            -
            -
            345,000Preferred
                stock Series A issued to investors
            -
            -
            -
            400,000Stock
                options cancelled
            -
            -
            -
            -Amortization
                of deferred stock compensation
            -
            -
            -
            689,335Stock
                issuance costs
            -
            -
            -
            (489,335)Warrants
                issued for stock issuance costs
            -
            -
            -
            197,633Net
                loss for the year ended December 31, 2004
            -
            (3,734,982)
            -
            (3,734,982)BALANCE
                DECEMBER 31, 2004
            (7,427,422)
            (20,362,765)
            -
            95,535


(Continued)


F-9





(Continued)**Preferred
                Stock**
            
            **Common
                Stock****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**Net
                loss for the year ended December 31, 2005
            -
            
            -
            
            -
            
            -Foreign
                currency translation losses
            -
            
            -
            
            -
            
            -Comprehensive
                lossCommon
                stock issuances:For
                stock that was issuable at prior yearend
            -
            
            -
            
            470,815
            
            4,709For
                shares issued for compensation at $.014 per share
            -
            
            -
            
            2,928,043
            
            29,280For
                shares issued for investor relations services at $.017 per share
            -
            
            -
            
            2,000,000
            
            20,000For
                shares issued for consulting at $.018 per share
            -
            
            -
            
            -
            
            -For
                shares issued for consulting at $.021 per share
            -
            
            -
            
            254,788
            
            2,548For
                shares issued for consulting at $.022 per share
            -
            
            -
            
            454,966
            
            4,550For
                shares issued for investor relations services at $.060 per share
            -
            
            -
            
            2,000,000
            
            20,000For
                shares issued for consulting at $.120 per share
            -
            
            -
            
            24,315
            
            243For
                shares issued for consulting at $.203 per share
            -
            
            -
            
            26,394
            
            264For
                Kenna Technologies, Inc. acquisition at $.015
            -
            
            -
            
            1,499,998
            
            15,000For
                assets acquired from Ellipsis Biotherapeutics, Inc. at $0.023
            -
            
            -
            
            6,500,000
            
            65,000For
                Trace Genetics, Inc. acquisition at $0.216
            -
            
            -
            
            1,250,000
            
            12,500For
                the conversion of preferred stock
            (25,278)
            
            (253)
            
            2,499,364
            
            24,994Conversion
                of debt to common stock and exercise of $1.00 per share non-detachable
                warrants
            -
            
            -
            
            86,686,596
            
            866,866Dutchess
                shares issued through put agreement
            -
            
            -
            
            78,912,356
            
            789,124Dutchess
                shares issued in conjunction with note
            -
            
            -
            
            3,750,000
            
            37,500Amortization
                of deferred stock compensation and consulting -
            
            -
            
            -
            
            -Stock
                issuance costs
            
            
            
            
            -
            
            -Intrinsic
                value of convertible debt and warrants
            -
            
            -
            
            -
            
            -Warrants
                issued for stock issuance costs
            -
            
            -
            
            -
            
            -Warrants
                issued for Trace Genetics, Inc. acquisition
            -
            
            -
            
            -
            
            -Warrants
                issued for consulting
            -
            
            -
            
            -
            
            -Conversion
                feature of preferred stock reclassified to a liability due to
                indeterminate shares from a derivative
            -
            
            -
            
            -
            
            -Conversion
                feature of convertible debt reclassified to a liability due to
                indeterminate shares from a derivative
            -
            
            -
            
            -
            
            -Warrants
                outstanding classified as a liability due to indeterminate shares
                from a
                derivative
            -
            
            -
            
            -
            
            -BALANCE
                DECEMBER 31, 2005
            14,722
            $
            147
            
            236,213,848
            $
            2,362,140


(Continued)


F-10





(Continued)**Additional**
            
            **Common**
            
            **Stock**
            
            
            
            **Deferred****Paid
                in**
            
            **Stock**
            
            **Subscription**
            
            **Prepaid**
            
            **Stock****Capital**
            
            **Subscribed**
            
            **Receivable**
            
            **Warrants**
            
            **Compensation**Net
                loss for the year ended December 31, 2005
            
            -
            
            -
            
            -
            
            -
            
            -Foreign
                currency translation losses
            
            -
            
            -
            
            -
            
            -
            
            -Comprehensive
                loss
            
            -
            
            -
            
            -
            
            -
            
            --
            
            -
            
            -
            
            -
            
            -Common
                stock issuances:
            
            -
            
            -
            
            -
            
            -
            
            -For
                stock that was issuable at prior yearend
            
            -
            
            (4,709)
            
            -
            
            -
            
            -For
                shares issued for compensation at $.014 per share
            
            12,590
            
            -
            
            -
            
            -
            
            -For
                shares issued for investor relations services at $.017 per share
            
            14,000
            
            -
            
            -
            
            -
            
            (34,000)For
                shares issued for consulting at $.018 per share
            
            19
            
            25
            
            -
            
            -
            
            -For
                shares issued for consulting at $.021 per share
            
            2,856
            
            25
            
            -
            
            -
            
            -For
                shares issued for consulting at $.022 per share
            
            11,198
            
            4,972
            
            -
            
            -
            
            -For
                shares issued for investor relations services at $.060 per share
            
            100,000
            
            -
            
            -
            
            -
            
            (120,000)For
                shares issued for consulting at $.120 per share
            
            2,674
            
            -
            
            -
            
            -
            
            -For
                shares issued for consulting at $.203 per share
            
            5,090
            
            -
            
            -
            
            -
            
            -For
                Kenna Technologies, Inc. acquisition at $.015
            
            7,500
            
            -
            
            -
            
            -
            
            -For
                assets acquired from Ellipsis Biotherapeutics, Inc. at $0.023
            
            84,500
            
            -
            
            -
            
            -
            
            -For
                Trace Genetics, Inc. acquisition at $0.216
            
            257,500
            
            -
            
            -
            
            -
            
            -For
                the conversion of preferred stock
            
            (24,741)
            
            -
            
            -
            
            -
            
            -Conversion
                of debt to common stock and exercise of $1.00 per share non-detachable
                warrants
            
            2,156,556
            
            578
            
            -
            
            (135,000)
            
            -Dutchess
                shares issued through put agreement
            
            1,023,636
            
            -
            
            -
            
            -
            
            -Dutchess
                shares issued in conjunction with note
            
            (37,500)
            
            -
            
            -
            
            -
            
            -Amortization
                of deferred stock compensation and consulting-
            
            -
            
            -
            
            -
            
            320,033Stock
                issuance costs
            
            (404,246)
            
            -
            
            -
            
            -
            
            -Intrinsic
                value of convertible debt and warrants
            
            250,000
            
            -
            
            -
            
            -
            
            -Warrants
                issued for stock issuance costs
            
            108,371
            
            -
            
            -
            
            -
            
            -Warrants
                issued for Trace Genetics, Inc. acquisition
            
            48,283
            
            -
            
            -
            
            -
            
            -Warrants
                issued for consulting
            
            139,030
            
            -
            
            -
            
            -
            
            (234,336)Conversion
                feature of preferred stock reclassified to a liability due to
                indeterminate shares from a derivative
            
            (513,347)
            
            -
            
            -
            
            -
            
            -Conversion
                feature of convertible debt reclassified to a liability due to
                indeterminate shares from a derivative
            
            (54,590)
            
            -
            
            -
            
            -
            
            -Warrants
                outstanding classified as a liability due to indeterminate shares
                from a
                derivative
            
            (348,568)
            
            -
            
            -
            
            -
            
            -BALANCE
                DECEMBER 31, 2005
            $
            30,022,934
            $
            5,599
            $
            -
            $
            120,000
            $
            (94,374)





(Continued)


F-11





(Continued)
            
            **Deficit**
            
            **Deficit****incurred**
            
            **accumulated**
            
            **Accumulated****prior**
            
            **during
                the**
            
            **Other****development**
            
            **Comprehensive**
            
            **Comprehensive****stage**
            
            **stage**
            
            **Income**
            
            TotalNet
                loss for the year ended December 31, 2005
            
            
            
            (8,715,852)
            
            
            
            (8,715,852)Foreign
                currency translation losses
            
            -
            
            -
            
            (541)
            
            (541)Comprehensive
                loss
            
            -
            
            -
            
            
            
            (8,716,393)Common
                stock issuances:
            
            -
            
            -For
                stock that was issuable at prior yearend
            
            -
            
            -
            
            -
            
            -For
                shares issued for compensation at $.014 per share
            
            -
            
            -
            
            -
            
            41,870For
                shares issued for investor relations services at $.017 per share
            
            -
            
            -
            
            -
            
            -For
                shares issued for consulting at $.018 per share
            
            -
            
            -
            
            -
            
            44For
                shares issued for consulting at $.021 per share
            
            -
            
            -
            
            -
            
            5,429For
                shares issued for consulting at $.022 per share
            
            -
            
            -
            
            -
            
            20,720For
                shares issued for investor relations services at $.060 per share
            
            -
            
            -
            
            -
            
            -For
                shares issued for consulting at $.120 per share
            
            -
            
            -
            
            -
            
            2,917For
                shares issued for consulting at $.203 per share
            
            -
            
            -
            
            -
            
            5,354For
                Kenna Technologies, Inc. acquisition at $.015
            
            -
            
            -
            
            -
            
            22,500For
                assets acquired from Ellipsis Biotherapeutics, Inc. at $0.023
            
            -
            
            -
            
            -
            
            149,500For
                Trace Genetics, Inc. acquisition at $0.216
            
            -
            
            -
            
            -
            
            270,000For
                the conversion of preferred stock
            
            -
            
            -
            
            -
            
            -Conversion
                of debt to common stock and exercise of $1.00 per share non-detachable
                warrants
            
            -
            
            -
            
            -
            
            2,889,000Dutchess
                shares issued through put agreement
            
            -
            
            -
            
            -
            
            1,812,760Dutchess
                shares issued in conjunction with note
            
            -
            
            -
            
            -
            
            -Amortization
                of deferred stock compensation and consulting
            
            -
            
            -
            
            320,033Stock
                issuance costs
            
            -
            
            -
            
            -
            
            (404,246)Intrinsic
                value of convertible debt and warrants
            
            -
            
            -
            
            -
            
            250,000Warrants
                issued for stock issuance costs
            
            -
            
            -
            
            -
            
            108,371Warrants
                issued for Trace Genetics, Inc. acquisition
            
            -
            
            -
            
            -
            
            48,283Warrants
                issued for consulting
            
            -
            
            -
            
            -
            
            (95,306)Conversion
                feature of preferred stock reclassified to a liability due to
                indeterminate shares from a derivative
            
            -
            
            -
            
            -
            
            (513,347)Conversion
                feature of convertible debt reclassified to a liability due to
                indeterminate shares from a derivative
            
            -
            
            -
            
            -
            
            (54,590)Warrants
                outstanding classified as a liability due to indeterminate shares
                from a
                derivative
            
            -
            
            -
            
            -
            
            (348,568)BALANCE
                DECEMBER 31, 2005
            $
            (7,427,422)
            $
            (29,078,617)
            $
            (541)
            $
            (4,090,134)





See
      notes
      to consolidated financial statement


F-12


**DNAPrint
      Genomics, Inc.**


**(A
      Development Stage Enterprise)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**For
                the Year Ended December 31, 2005**
            
            **For
                the Year Ended December 31, 2004**
            
            **For
                the Period December 10, 1998 (Date of Inception) through December
                31,
                2005**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            $
            (8,715,852)
            $
            (3,734,982)
            $
            (27,090,389)Adjustments
                to reconcile net loss to net cash used in operating activities:Depreciation
                and amortization
            
            224,077
            
            182,774
            
            895,768Provision
                for bad debts
            
            -
            
            -
            
            11,738Impairment
                of assets
            
            -
            
            -
            
            254,434Loss
                on disposal of investments
            
            -
            
            -
            
            11,772Loss
                on disposal of property and equipment
            
            -
            
            -
            
            5,039Loss
                on foreign currency transaction
            
            7,060
            
            -
            
            7,060Loss
                on derivative contracts, net
            
            1,610,905
            
            -
            
            1,610,905Amortization
                of deferred stock compensation and consulting
            
            320,033
            
            689,335
            
            1,672,823Amortization
                of deferred compensation
            
            -
            
            179,691
            
            919,792Amortization
                of deferred financing fees
            
            333,255
            
            22,954
            
            356,209Common
                stock issued for interest expense on related party notes payable
            
            -
            
            -
            
            1,300,378Common
                stock issued for reorganization/court order
            
            -
            
            -
            
            343,000Common
                stock issued for services
            
            76,334
            
            27,114
            
            2,340,116Common
                stock issued for bankruptcy settlement
            
            -
            
            -
            
            28,080Stock
                issued for settlement
            
            -
            
            -
            
            152,437Intrinsic
                value of convertible debt and non-detachable warrants and amortization
                of
                debt discount
            
            1,953,084
            
            -
            
            2,453,084Stock-based
                compensation
            
            -
            
            -
            
            1,943,906Changes
                in operating assets and liabilities, net of effect of
                acquisitions:(Increase)
                decrease in receivables
            
            (10,651)
            
            (34,263)
            
            259,736(Increase)
                decrease in inventory
            
            (222,858)
            
            (65,279)
            
            (288,137)Decrease
                (increase) in prepaid expenses and other assets
            
            41,094
            
            (65,009)
            
            (1,072,093)Increase
                in accounts payable, deferred revenues and accrued liabilities
            
            777,642
            
            (966,760)
            
            2,138,861NET
                CASH USED IN OPERATING ACTIVITIES
            
            (3,605,877)
            
            (3,764,425)
            
            (11,745,481)CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchases
                of property and equipment
            
            (123,596)
            
            (56,969)
            
            (956,094)Loan
                to Biofrontera
            
            -
            
            (193,683)
            
            (193,683)Investment
                in Biofrontera
            
            (2,274,702)
            
            -
            
            (2,274,702)Payoff
                of Biofrontera loan
            
            202,380
            
            -
            
            202,380Proceeds
                from disposal of property and equipment
            
            -
            
            -
            
            10,100Net
                bankruptcy adjustment
            
            -
            
            -
            
            511,274NET
                CASH USED IN INVESTING ACTIVITIES
            
            (2,195,918)
            
            (250,652)
            
            (2,700,725)CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from notes payable - related party
            
            -
            
            -
            
            1,487,036Proceeds
                from settlement with Tampa Bay Financial
            
            -
            
            -
            
            272,383Advances
                from Tampa Bay Financial, net
            
            -
            
            -
            
            384,581Proceeds
                from issuance of common stock, net of issuance costs
            
            4,463,225
            
            4,348,718
            
            10,782,415Proceeds
                from issuance of Series A preferred stock, net of stock issuance
                costs
            
            -
            
            272,535
            
            272,535Prepayment
                for future warrant exercises
            
            (135,000)
            
            255,000
            
            120,000Proceeds
                from convertible debenture and notes payable, net of costs
            
            4,102,995
            
            -
            
            4,602,995Repayment
                of notes payable
            
            (1,559,991)
            
            -
            
            (1,559,991)Repayment
                of notes payable, related parties
            
            (33,634)
            
            (83,009)
            
            (467,443)Collections
                from stock subscriptions
            
            -
            
            -
            
            836,960Principal
                payments on capital lease obligations
            
            (207,629)
            
            (65,553)
            
            (478,559)NET
                CASH PROVIDED BY FINANCING ACTIVITIES
            
            6,629,966
            
            4,727,691
            
            16,252,912Effect
                of exchange rate changes on cash
            
            (60)
            
            -
            
            (60)NET
                INCREASE IN CASH AND CASH EQUIVALENTS
            
            828,111
            
            712,614
            
            1,806,646CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            978,535
            
            265,921
            
            -CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            $
            1,806,646
            $
            978,535
            $
            1,806,646


(Continued)


F-13





**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********SUPPLEMENTAL
              DISCLOSURE OF CASH FLOW INFORMATION:Approximate
                Interest Paid
            
            $
            34,104
            
            $
            40,366
            
            $
            127,770Income
                taxes paid
            
            $
            -
            
            $
            -
            
            $
            -SUPPLEMENTAL
                DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Stock
                subscription receivable arising from acquisition of DNAPrint Genomics,
                Inc. (Florida)
            
            $
            -
            
            $
            -
            
            $
            1,000,000Common
              stock issued for related party notes payable
            
            $
            -
            
            $
            -
            
            $
            1,211,322Unrealized
              loss on long-term investments
            
            $
            -
            
            $
            -
            
            $
            (222,443)Common stock issued for land subsequently
              swapped for investment in Heroes, Inc
            
            $
            -
            
            $
            -
            
            $
            2,000,000Dividend
                paid in stock of Heroes, Inc.
            
            $
            -
            
            $
            -
            
            $
            (1,988,228)Common
                stock issued for reorganization /court order arising from conversion
                of
                claim to stock
            
            $
            -
            
            $
            -
            
            $
            (2,905,500)Conversion
                of Tampa Bay Financial advances to stock
            
            $
            -
            
            $
            -
            
            $
            453,331Equipment
                leased under capital lease
            
            $
            217,500
            
            $
            223,762
            
            $
            701,167Deferred
                compensation on grants of stock options
            
            $
            -
            
            $
            -
            
            $
            925,350Deferred
                compensation reduced for stock options cancelled
            
            $
            -
            
            $
            (19,950)
            
            $
            (190,833)Stock
                to be issued for deferred compensation
            
            $
            -
            
            $
            -
            
            $
            2,588,250Common
                stock issued for satisfaction of accrued expenses
            
            $
            -
            
            $
            307,865
            
            $
            307,865Warrants
                issued for stock issuance costs, notes payable fees and
                consulting
            
            $
            1,083,047
            
            $
            197,633
            
            $
            1,360,680Debenture
                converted into common stock
            
            $
            189,000
            
            $
            280,000
            
            $
            499,000Intrinsic
                value of convertible debt and non-detachable warrants and debt
                discount
            
            $
            6,070,000
            
            $
            -
            
            $
            6,070,000Acquisition
                of Trace Genetics, Inc, Kenna Technologies, Inc. and the assets of
                Ellipsis Biotherapeutics, Inc. for common stock and
                warrants
            
            $
            490,283
            
            $
            -
            
            $
            490,283Preferred
                stock issued for satisfaction of accrued expenses
            
            $
            253
            
            $
            -
            
            $
            253Preferred
                stock issued for satisfaction of accrued expenses
            
            $
            
            
            $
            110,000
            
            $
            110,000Derivative
                liability for warrants, convertible feature of preferred stock and
                convertible feature for certain convertible debt reclassed from equity
                due
                to SFAS 133 derivative indeterminate shares
            
            $
            916,505
            
            $
            -
            
            $
            916,505


See
      notes
      to consolidated financial statements








F-14


**DNAPrint
      Genomics, Inc.**


**(A
      Development Stage Enterprise)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Nature
      of Operations**





DNAPrint
      Genomics, Inc. (“DNAP Utah”), which was organized for the purpose of investing
      in all forms of investments, was initially incorporated under the laws of the
      State of Utah on January 3, 1983 as Lexington Energy, Inc, and subsequently
      changed its focus to human genome sciences. In connection with this change
      in
      focus, on July 15, 2000, DNAP Utah acquired DNAPrint Genomics, Inc. a
      Florida corporation (“DNAP Florida”) through the issuance of 9,600,000 shares of
      its common stock which was accounted for as a pooling of interests. DNAP Florida
      specializes in the research and development of genomic products and provides
      scientific services and tests to the genealogy, forensic, pharmaceutical and
      genetics markets. On June 17, 2005, we acquired Trace Genetics, Inc. (“Trace
      Genetics”). DNAP Florida and Trace Genetics specialize in the research and
      development of genomic products and provide scientific services and tests to
      the
      genealogy, forensic, pharmaceutical and genetics markets. 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”). Kenna develops software and related
      technologies for building computational models that mimic complex biological
      systems. On November 30, 2005, we acquired certain assets of a Canadian company
      which are used in our drug and diagnostic discovery business. We formed Ellipsis
      Biotherapeutics Corporation (“Ellipsis”) a Toronto-based corporation to acquire
      these assets. As a result of these acquisitions, the accompanying consolidated
      financial statements include the accounts of DNAP Utah and all of its
      wholly-owned operating subsidiaries (collectively referred to as “we”, “us”,
“our”). All significant intercompany accounts and balances have been eliminated
      in consolidation.





DNAPrint
      Genomics, Inc. has been and continues to be a development stage company as
      described in Financial Accounting Standards Board Statement No. 7. We
      continue to devote substantially all of our efforts in initiating and developing
      our planned principal operations. While sales of our ancestry, forensic,
      paternity services and our genotyping services are increasing, our
      pharmacogenomics products are still in development.





**Revenue
      Recognition** ****





In
      accordance with SEC Staff Accounting Bulletin Topic 13, revenues are recognized
      when we have persuasive evidence an arrangement exists including a fixed price,
      collection is reasonably assured, the services have been provided and delivered
      to the customer and no additional performance is required by us. We are
      currently providing ancestry, forensic, paternity and genotyping services.
      Deferred revenue represents the unearned portion of payments received in advance
      of our tests being completed and delivered to our customers. Our services are
      performed at the request of our customers and after the agreement/arrangement
      has been entered into, we do not generally give refunds to our customer as
      we
      have begun to incur or incurred the costs associated with that service. Our
      software program ADMIXMAP is currently for internal use solely by our scientists
      and we do not generate revenue from any sales thereof.





**Use
      of Estimates**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      certain estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and the disclosure of contingent assets and liabilities at the
      date
      of the financial statements and the reported amounts of revenues and expenses
      during the reporting period.





**Financial
      Instruments**





Our
      financial instruments include cash, receivables, current assets, current
      liabilities and notes payables. We believe the estimated fair value of such
      financial instruments at December 31, 2005 approximate their carrying value
      as reflected in the consolidated balance sheets due to their short-term nature.
      It is not practicable for us to estimate the fair value of our convertible
      debentures as there are not currently any quoted market prices available. We
      are
      in development stage and it is difficult to get debt financing. In addition,
      these debentures have a convertible feature. Thus it is difficult to determine
      the fair value. The carrying amount for these convertible debentures at
      December 31, 2005 is $911,000.





**Accounts
      Receivable** ****





Accounts
      receivable consist of ancestry, forensic, and genotyping services to our
      distributors and genotyping customers. We generally require prepayment for
      ancestry services, and perform ongoing credit evaluations of our customers.
      We
      record an allowance for doubtful accounts to allow for any amounts that may
      not
      be recoverable, which is based on an analysis of our prior collection
      experience, customer credit worthiness, and current economic trends. Based
      on
      management’s review of accounts receivable, an allowance for doubtful accounts
      of $8,740 at December 31, 2005 is considered adequate. We determine receivables
      to be past due based on the payment terms of original invoices.





F-15


**Concentrations
      of Credit Risk** ****





Financial
      instruments, which potentially subject us to significant concentrations of
      credit risk, consist primarily of cash and receivables. With respect to cash
      and
      cash equivalents, we maintained all of our cash and cash equivalents in deposit
      accounts with three financial institutions in the United States, which deposit
      accounts at times may exceed federally insured limits. Generally, these deposits
      may be redeemed upon demand and, therefore, bear minimal risk. At December
      31,
      2005, we had a receivable from a distributor which was 18% and another
      receivable from a customer of 12% of our outstanding accounts receivable
      balance. We also had sales of 21% and 12% to two customers during
      2005.





**Inventory**





Inventories
      are stated at the lower of cost (first-in, first-out basis) or market. At
      December 31, 2005, inventory consisted of $298,685 of raw material.





**Property
      and Equipment**





Property
      and equipment are recorded at historical cost. Major additions are capitalized,
      while minor additions and maintenance and repairs, which do not extend the
      useful life of an asset, are charged to operations when incurred. When property
      and equipment are sold or otherwise disposed of, the asset account and related
      accumulated depreciation account are relieved, and any gain or loss is included
      in operations. Depreciation is provided primarily using the straight-line method
      over the assets’ estimated useful lives of two to five years. Amortization of
      leasehold improvements, included with depreciation, is computed using the
      straight-line method over the estimated useful life of the asset or the term
      of
      the lease, whichever is shorter. Estimated useful lives are periodically
      reviewed and, where appropriate, changes are made prospectively.





**Long
      Lived Assets** ****





We
      periodically review our long-lived assets for indications of impairment whenever
      circumstances and situations change such that there is an indication that the
      carrying amounts may not be recoverable. If the non-discounted future cash
      flows
      of the enterprise are less than their carrying amount, their carrying amounts
      are reduced to fair value and an impairment loss is recognized. There was no
      impairment of long-lived assets during the year ended December 31, 2005 and
      2004.





**Research
      & Development**





Research
      and Development (“R&D”) expenses are fully charged to the consolidated
      statements of operations when incurred. We do not perform R&D for other
      entities. We do have consulting arrangements which provides added depth to
      our
      team. These arrangements are typically based upon a fee paid monthly or
      quarterly. We also purchase samples that we use in our testing, and these
      samples are expensed when purchased. Direct materials and laboratory supplies
      are charged to R&D at the time they are used in R&D. Our R&D costs
      also include salaries and related personnel expenses, equipment expenses and
      administrative expenses that are allocated to R&D based upon personnel
      costs.





**Income
      Taxes**





Deferred
      tax assets and liabilities are recognized for the estimated future tax
      consequences attributable to differences between the financial statements
      carrying amounts of existing assets and liabilities and their respective income
      tax basis. Deferred tax assets and liabilities are measured using enacted tax
      rates expected to apply to taxable income in the years in which those temporary
      differences are expected to be recovered or settled. The effect on deferred
      tax
      assets and liabilities of a change in tax rates is recognized as income in
      the
      period that included the enactment date.





Valuation
      allowances have been established against our deferred tax assets due to
      uncertainties in our ability to generate sufficient taxable income in future
      periods to make realization of such assets more likely than not. We have not
      recognized an income tax benefit for our operating losses generated during
      2005
      and 2004 based on uncertainties concerning our ability to generate taxable
      income in future periods. There was no income tax receivable or payable at
      December 31, 2005 and 2004. In future periods, tax benefits and related
      deferred tax assets will be recognized when management considers realization
      of
      such amounts to be more likely than not.





**Statement
      of Cash Flows**





For
      purposes of the statement of cash flows, we consider all highly liquid
      investments purchased with an original maturity of three months or less to
      be
      cash equivalents.





**Advertising**





Advertising
      costs, which approximated $202,105 and $24,585, respectively, for the years
      ended December 31, 2005 and 2004, are expensed as they are incurred.





F-16


**Stock-Based
      Compensation**





We
      account for equity instruments (except stock options) issued to employees for
      services based on the fair value of the equity instruments issued and account
      for equity instruments issued to non-employees based on the fair value of the
      consideration received or the fair value of the equity instruments, whichever
      is
      more reliably measurable. We recognize as expense the fair value of all
      stock-based awards to employees on the date of grant and to non-employees based
      upon the measurement date. The amount related to the value of the stock awards
      is amortized on a straight-line basis over the required service periods.





For
      all
      stock option awards to employees and board of directors, we have elected to
      apply the intrinsic value based method of accounting as prescribed by Accounting
      Principles Board Opinion (“APB”) No. 25 “ *Accounting
      for Stock Issued to Employees”* and
      related Interpretations. Under the intrinsic value based method, compensation
      cost is the excess of the quoted market price of the stock at grant date or
      other measurement date over the amount an employee must pay to acquire the
      stock. The following table illustrates the effect on net loss and loss per
      share
      as if the fair value based method of accounting had been applied to stock-based
      employee compensation, as required by Statement of Financial Accounting
      Standards (“SFAS”) No. 123, “ *Accounting
      for Stock-Based Compensation” and SFAS 148 “Accounting for Stock-Based
      Compensation - transition and disclosure* ”,
      an
      amendment of SFAS No. 123 for the years ended December 31, 2005 and 2004:




**2005**
            **2004**Net
                loss as reported
            
            $
            8,715,852
            
            $
            3,734,982Total
                stock-based employee compensation expenses determined under fair
                value
                based method for all awards, net of related tax effects
            
            
            1,942,225
            
            
            211,777Pro
                forma net loss
            
            $
            10,658,077
            
            $
            3,946,759Loss
                per share basic and diluted:As
                reported
            
            $
            0.09
            
            $
            0.11Pro
                forma
            
            $
            0.11
            
            $
            0.11


See
      Note
      I, for additional disclosure and discussion of our option plan and option
      activity.





**Derivative
      Financial Instruments**





We
      do not
      use derivative financial instruments to hedge exposures to cash flow or market
      risks. However, our notes outstanding with Dutchess have certain derivatives
      such as:





·
            embedded
                conversion features that are indexed to our common stock (if we were
                to
                default on the notes)


·
            shares
                that were issued as incentive shares which are classified as liabilities
                when physical or net-share settlement is not within our control
                and


·
            embedded
                conversion features in the convertible debentures that areindexed
                to our common stock





In
      such
      instances, net-cash settlement is assumed for financial accounting and
      reporting, even when the terms of the underlying contracts do not provide for
      net-cash settlement. Such financial instruments are initially recorded at fair
      value and subsequently adjusted to fair value at the close of each reporting
      period with any difference recorded as a gain or loss on derivatives in our
      Statement of Operations. If any of the derivatives could potentially result
      in
      our having indeterminable shares (i.e. from a conversion price that is indexed
      to our stock), we then are required per Emerging Issues Task Force (“EITF”)
      00-19 *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock* to
      classify all other convertible preferred stock, convertible debt and outstanding
      warrants (that by their own contract terms were not considered to be a
      derivative) at fair value as a derivative liability. The initial entry to record
      the derivative liability for these other convertible preferred stock,
      convertible debt and outstanding warrants is offset to paid-in capital. At
      each
      subsequent reporting period, we continue to record these instruments at fair
      value with any difference recorded as a gain or loss on derivatives in our
      Statement of Operations until such time as we do not have an instrument with
      indeterminate shares. Then these other convertible preferred stock, convertible
      debt and warrants are reclassified at fair value back to paid-in
      capital.





**Redeemable
      Instruments**





For
      any
      shares that were issued under an agreement whereby there are criteria that
      potentially require net-cash settlement, those shares are recorded at fair
      value
      as redeemable instruments. Each reporting period these redeemable instruments
      are recorded at fair value with any differences being recorded as a gain or
      loss
      on derivatives in our Statement of Operations.





**Intangible
      Assets**





Intangible
      assets are comprised of goodwill and other intangibles arising from the Trace
      Genetics, Inc. acquisition and technology rights from Ellipsis and Kenna
      acquisitions. We apply SFAS No. 142, *Goodwill
      and Other Intangible Assets* .
      SFAS
      142 addresses financial accounting and reporting for acquired goodwill and
      other
      intangible assets. Goodwill
      consists of the excess of cost over the fair value of net assets acquired in
      business combinations. SFAS
      142
      requires, among other things, an
      annual
      impairment test for goodwill and intangible assets with indefinite lives.
      Goodwill is not amortized; however the technology rights we acquired are
      amortized using the straight-line method over their estimated useful
      lives.





F-17


**Investments**





We
      have
      an investment with less than a 20% ownership interest in a private company
      over
      which we do not have the ability to exercise significant influence, and the
      fair
      value of which is not readily determinable. This investment is accounted for
      under the cost method.





**Foreign
      Currency Translation**





We
      have
      one subsidiary whose functional currency is the Canadian dollar. The translation
      adjustments (which are based upon the exchange rate at the balance sheet date
      for assets and liabilities and the weighted average rate for the income
      statement) are recorded on our balance sheet in the accumulated comprehensive
      loss section of our Stockholders’ Deficit.





We
      had a
      loan receivable that was in Euros. This loan was paid in full during 2005.
      This
      loan was translated at the exchange rate in effect at each reporting date.
      Any
      gain or loss from this foreign currency translation was included in our
      Statement of Operations for that period.





**Patent
      Costs**





We
      incur
      costs to file and prosecute patent applications to protect our intellectual
      property. Given that we are in our research and development stage, currently
      the
      future benefit is unknown, and we are unable to discern if there will be a
      future benefit related to the patents. Given that the future benefit is unknown,
      the costs associated with the patent applications are typically expensed in
      the
      periods incurred.





**Recent
      Pronouncements** ****





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      123 (revised 2004) (“SFAS 123(R)”), “Share-Based Payment.” This statement
      replaces SFAS No. 123 “Accounting for Stock-Based Compensation,” and supersedes
      APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) will
      require the fair value of all stock option awards issued to employees to be
      recorded as an expense over the related vesting period. The statement also
      requires the recognition of compensation expense for the fair value of any
      unvested stock option awards outstanding at the date of adoption. The adoption
      of SFAS 123(R) will impact us by requiring us to use the fair-value based method
      of accounting for future and unvested employee stock transactions rather than
      the intrinsic method we currently use. We adopted this SFAS as of January 1,
      2006. The adoption of this SFAS does not have an impact on our financial
      statements through December 31, 2005, but will increase the cost of equity
      compensation by approximately $12,000 during 2006 related to 600,000 options
      that are not vested at December 31, 2005. During 2006 the options will be valued
      at fair value instead of the intrinsic value.





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”
(“SFAS 154”). This statement replaces APB Opinion No. 20 “Accounting Changes”
and FASB Statement No. 3 “Reporting Accounting Changes in Interim Financial
      Statements”. SFAS 154 applies to all voluntary changes in accounting principle
      and to changes required by an accounting pronouncement in the unusual instance
      that the pronouncement does not include specific transition provisions. SFAS
      154
      requires retrospective application to prior periods’ financial statements of
      changes in accounting principle, unless it is impracticable to determine either
      the period-specific effects or the cumulative effect of the change. When it
      is
      impracticable to determine the period-specific effects of an accounting change
      on one or more individual prior periods presented, this SFAS requires that
      the
      new accounting principle be applied to the balances of assets and liabilities
      as
      of the beginning of the earliest period for which retrospective application
      is
      practicable and that a corresponding adjustment be made to the opening balance
      of equity or net assets for that period rather than being reported in an income
      statement. When it is impracticable to determine the cumulative effect of
      applying a change in accounting principle to all prior periods, this SFAS
      requires that the new accounting principle be applied as if it were adopted
      prospectively from the earliest date practicable. We adopted this SFAS as of
      January 1, 2006. There is no current impact on our financial statements with
      the
      adoption of this SFAS.





In
      February 2005, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments”. This statement improves financial reporting by
      eliminating the exemption from applying SFAS 133 to interests in securitized
      financial assets so that similar instruments are accounted for similarly
      regardless of the form of the instruments. This statement also improves
      financial reporting by allowing a preparer to elect fair value measurement
      at
      acquisition, at issuance, or when a previously recognized financial instrument
      is subject to a remeasurement event, on an instrument-by-instrument basis,
      in
      cases in which a derivative would otherwise have to be bifurcated. We are
      required to adopt this SFAS 155 for all financial instruments acquired or issued
      beginning January 1, 2007. We are reviewing this SFAS to determine the impact
      on
      our hybrid financial instruments.





**Net
      Loss Per Common Share**





Basic
      net
      loss per share is computed by dividing the net loss available to common
      stockholders by the weighted average number of common shares outstanding during
      the period. Diluted net loss per share is computed by dividing the net loss
      for
      the period by the weighted average number of common stock and common stock
      equivalent shares outstanding during the period. Common stock equivalent shares
      outstanding as of December 31, 2005 and 2004, which consist of employee
      stock options, warrants, convertible debenture as well as the issuance of common
      stock under compensation agreements, have been excluded from diluted net loss
      per common share calculations because they are anti-dilutive. Accordingly,
      basic
      and diluted net loss per share is identical as of December 31, 2005 and
      2004 and for the period December 10, 1998 to December 31, 2005. The
      shares used in computing the net loss per share have been adjusted for
      the
      20 for one reverse stock split.





F-18


The
      following table summarizes our potential common stock equivalents outstanding
      at
      December 31, 2005 which may dilute future earnings per share.





Convertible
                notes **
            
            417,045,130Convertible
                preferred stock **
            
            8,959,348Warrants
                and options
            
            82,575,889508,580,367





**The
      amount of shares the convertible notes and convertible preferred stock was
      estimated using the conversion price at December 31, 2005. The conversion price
      varies based upon the price of our common stock. The convertible notes include
      the conversion of the Dutchess notes in accordance with SFAS 133 for derivative
      instruments.





**Reclassifications**





Certain
      minor reclassifications have been made in the 2004 financial statements to
      conform to the classifications used in 2005.





**NOTE
      B - GOING CONCERN**





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 is from a derivative liability)
      and deficit accumulated during the development stage of $29,078,617 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 and preferred stock, the issuance of
      notes, put notices to Dutchess Private Equities Fund, II, L.P (“Dutchess”), the
      issuance of convertible debentures and the conversion of the debenture into
      common stock and the related 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 immediate future. We anticipate that the funding we expect to receive
      from the put notices to Dutchess, the Dutchess notes which are paid with the
      puts and the minimum conversions of the outstanding debenture into common stock
      and the related exercise of the non-detachable warrants will fund our operating
      activities through 2006. However, there can be no assurance the minimum
      conversions of the outstanding debenture into common stock and the related
      exercise of the non-detachable warrants will continue, and the put notices
      to
      Dutchess will be funded or that we will have the cash flow to meet our operating
      requirements. These factors, among others, indicate that we may be unable to
      continue as a going concern for a reasonable period of time.





**NOTE
      C - PROPERTY AND EQUIPMENT - NET**





Property
      and equipment consists of the following at December 31, 2005:





Leased
                equipment under capital lease
            
            $
            721,838Furniture,
                fixtures and other equipment
            
            
            1,062,252Leasehold
                improvements
            
            
            171,727Subtotal
            
            
            1,955,817Less
                accumulated depreciation and amortization
            
            
            (726,684
            )Property
                and equipment - net
            
            $
            1,229,133





Accumulated
      depreciation and amortization includes $67,455 of accumulated depreciation
      of
      leased equipment as of December 31, 2005.





Depreciation
      and amortization expense for the years ended December 31, 2005 and 2004 amounted
      to $222,626 and $182,774, respectively.





**NOTE
      D - IDENTIFIABLE INTANGIBLE ASSETS**





As
      of
      December 31, 2005, we had capitalized $57,582 of costs related to technology
      rights we had acquired in conjunction with the Ellipsis and Kenna acquisitions.
      We are amortizing the remaining unamortized technology rights over a five-year
      life.





The
      technology rights at December 31, 2005 were as follows:





Technology
      Rights $57,582


Accumulated
      Amortization   (1,451)


$56,131





F-19


The
      amortization of the technology rights during 2005 was $1,451. The estimated
      annual amortization expense is $11,516 for each for the next four years and
      $10,067 for the fifth year. We have evaluated the technology rights for
      impairment and believe there is no impairment of these technology rights at
      December 31, 2005.





We
      have
      $269,827 of goodwill and intangibles recorded related to our acquisition of
      Trace Genetics, Inc. As
      of
      December 31, 2005, we are in the
      process of evaluating the intangibles acquired in the Trace Genetics, Inc.
      acquisition, thus the purchase price allocation between goodwill and other
      intangibles has not been finalized and is subject to change.





**NOTE
      E - INCOME TAXES**





We
      recognized losses for both financial and tax reporting purposes during each
      of
      the periods in the accompanying statements of operations. Accordingly, no
      provision for income taxes and/or deferred income taxes payable has been
      provided for in the accompanying financial statements.





Since
      our
      acquisition of DNAP Florida, we have incurred net operating losses for income
      tax purposes of approximately $26 million. These net operating loss carry
      forwards expire in various years through the year ended December 31, 2025,
      however because we have experienced changes in control and have incurred
      significant operating losses, utilization of the income tax loss carry forwards
      is not assured. As a result, the non-current deferred income tax asset arising
      from these net operating loss carry forwards and from other temporary
      differences is not recorded in the accompanying balance sheets because we
      established a valuation allowance to fully reserve such assets due to the
      uncertainty of our realization of this benefit.





It
      will
      be very difficult for the Company to use the $6.4 million net operating loss
      related to 1999 because of our bankruptcy proceedings and changes in
      control, and various other matters.  It is included in the net operating
      loss above and in the deferred tax asset recorded on our balance sheet
      with a full valuation against it.





At
      December 31, 2005, our non-current net deferred income tax assets (assuming
      an effective income tax rate of approximately 38%) consisted of the following:





Non-current
                deferred income tax asset:Net
                operating loss carry forwards
            $9,606,000Bonus
                and deferred compensation accrual
            264,000Option expense
            275,000Research
              credit unused
            208,000Impairment
              of assets and fixed assets depreciation
            121,000Other
            2,000Total
              deferred income tax asset
            10,476,000Less
              valuation allowance
            (10,476,000)Net deferred income tax asset
            $              —





Differences
      between the federal benefit computed at a statutory rate and our effective
      tax
      rate and provision are as follows for the years ended December 31, 2005 and
      2004:





**2005**
            
            **2004**Statutory
                benefit
            $
            (2,962,000)
            $
            (1,269,000)State
                tax benefit, net of federal effect
            
            (316,000)
            
            (136,000)Increase
                in deferred income tax valuation allowance
            
            2,002,000
            
            1,398,000Intrinsic
                value of convertible debt and non-detachable warrants and discount
                on
                convertible debt
            
            
            735,000
            
            
            -Derivative
                losses, net
            
            
            602,000
            
            
            -Non-deductible
                expenses
            
            
            38,000
            
            
            -Other
            
            
            (99,000)
            
            
            700$
            
            -
            $








**NOTE
      F - CONVERTIBLE DEBENTURE**





**La
      Jolla Convertible Debenture**





On
      November 25, 2003, we closed on a $500,000, 8% convertible debenture with
      non-detachable warrants with La Jolla Cove Investors, Inc. (“La Jolla”). 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 common
      shares of the Company. 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.





F-20


Per
      the
      agreement, if La Jolla would be deemed the beneficial owner of more than 4.99%
      of the then outstanding share of our common stock, then La Jolla shall not
      have
      the right to convert any portion of this debenture that would exceed 4.99%





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. In accordance with EITF 00-19 “Accounting for
      Derivative Financial Instruments Indexed to and Potentially Settled in a
      Company’s Own Stock” the conversion feature of this debenture is classified as
      equity. We recorded $250,000 for the intrinsic value associated with the
      convertible debt and non-detachable warrants which was recorded as a discount
      to
      the debt and capitalized $15,000 of deferred financing costs. The debt discount
      and the deferred financing costs will be amortized to interest expense over
      the
      two-year term of the 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.





During
      December 2004, La Jolla converted $280,000 of convertible debentures into
      our common stock and exercised non-detachable warrants to purchase 210,000
      shares of our common stock. During 2005, La Jolla converted $189,000 of
      convertible debentures into our common stock and exercised non-detachable
      warrants to purchase 1,467,000 shares of our common stock. See Note I below
      for
      a further discussion of this conversion.




La
      Jolla
      converted additional debentures into common stock after yearend. See Note N
      below for additional information on these conversions.





**Dutchess
      June Note**





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. The note is due and payable in full on
      January 30, 2006. Other than the $260,000 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 (see Note L below). The required repayments under the
      note
      increase if we raise additional capital during the term of the note (other
      than
      capital raised under facilities in existence as of the date of the note).





In
      connection with the note, we paid Dutchess a facility fee of $65,000 and issued
      to Dutchess 1,250,000 shares of restricted common stock as incentive shares,
      which were registered in July. The value recorded for these shares was $250,000
      at June 30, 2005. These shares have been sold by Dutchess during the fourth
      quarter. The $65,000 fee was expensed as there was no basis to record as a
      discount. We also paid $52,000 of fees to Athena which were recorded as deferred
      financing fees and are being amortized to interest expense over the term of
      the
      note.





In
      accordance with EITF 00-19 “Accounting for Derivative Financial Instruments
      Indexed to, and Potentially Settled in a Company’s Own Stock”, the proceeds from
      this note were allocated to embedded derivative features indexed to the
      Company’s common stock which were the convertible feature if the note is in
      default and the common stock issued as an incentive debenture. See Derivative
      Liabilities and Redeemable Instruments, below. The resulting discount of
      $1,560,000 to the debt instrument is being amortized to interest expense over
      the term of this note using the effective method. Amortization during the year
      ended December 31, 2005 amounted to $1,560,000 on this note. This note was
      paid
      in full at December 31, 2005.





F-21


**Dutchess
      August Note**





On
      August
      1, 2005, we issued to Dutchess a promissory note in the amount of $840,000
      for a
      purchase price of $700,000. The difference of $140,000 was recorded as a
      discount on debt and will be amortized to interest expense over the one-year
      term of the note. The note is due and payable in full on August 1, 2006. Other
      than the $140,000 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
      (see Note L below). The required repayments under the note increase if we raise
      additional capital during the term of the note (other than capital raised under
      facilities in existence as of the date of the note).





In
      connection with the note, we paid Dutchess a facility fee of $65,000 and issued
      2.5 million shares of restricted common stock as incentive shares. The value
      recorded for these shares was $225,000 at August 1, 2005 and $52,750 at December
      31, 2005 and is recorded as a Redeemable Instrument on our Balance Sheet. The
      difference of $172,250 was recorded as a gain on derivative contracts. The
      $65,000 fee was expensed to interest expense as there was no basis to record
      as
      a discount. We also paid $28,000 of fees to Athena which were recorded as
      deferred financing fees and are being amortized to interest expense over the
      term of the note.





In
      accordance with EITF 00-19 “Accounting for Derivative Financial Instruments
      Indexed to, and Potentially Settled in a Company’s Own Stock”, the proceeds from
      this note were allocated to embedded derivative features indexed to the
      Company’s common stock which were the convertible feature if the note is in
      default and the common stock issued as an incentive debenture. See Derivative
      Liabilities and Redeemable Instruments, below. The resulting discount of
      $840,000 to the debt instrument is being amortized to interest expense over
      the
      term of this note using the effective method. Amortization during the year
      ended
      December 31, 2005 amounted to $209,066 on this note.





We
      are
      required to register the 2.5 million shares of common stock issued to Dutchess
      in conjunction with the August note in the next registration statement that
      we
      file. If we do not, then we must issue 1.5 million additional shares for each
      time we file a registration statement and do not register the initial 2.5
      million shares.





If
      there
      is an event of default with either promissory note to Dutchess, Dutchess has
      the
      right to convert the remaining principal at the lesser of (i) fifty percent
      of
      the lowest closing bid price during the fifteen trading days immediately
      preceding the maturity date or (ii) 100% of the lowest bid price for the twenty
      trading days immediately preceding the maturity date. At December 31, 2005,
      there was no event of default.





**Dutchess
      October Note**





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 difference of $230,000 was
      recorded as a discount on debt and will be amortized to interest expense over
      the one-year term of the note. 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 (see Note L below). The required repayments under the note increase
      if
      we raise additional capital during the term of the note (other than capital
      raised under facilities in existence as of the date of the note).





In
      connection with the note, we paid Dutchess a facility fee of $65,000 and 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. The $65,000 fee was expensed to interest expense as there was no basis
      to record as a discount. We also paid $43,200 of fees to Athena which were
      recorded as deferred financing fees and are being amortized to interest expense
      over the term of the note.





In
      accordance with EITF 00-19 “Accounting for Derivative Financial Instruments
      Indexed to, and Potentially Settled in a Company’s Own Stock”, the proceeds from
      this note were allocated to embedded derivative features indexed to the
      Company’s common stock which were the convertible feature if the note is in
      default and the convertible feature of the convertible debenture. See Derivative
      Liabilities and Redeemable Instruments, below. The resulting discount of
      $1,380,000 to the debt instrument and the $330,000 to the convertible debenture
      is being amortized to interest expense over the term of this note using the
      effective method. Amortization during the year ended December 31, 2005 amounted
      to $47,275 on this note and $149 on the convertible debenture.





If
      there
      is an event of default with either promissory note to Dutchess, Dutchess has
      the
      right to convert the remaining principal at the lesser of (i) fifty percent
      of
      the lowest closing bid price during the fifteen trading days immediately
      preceding the conversion date or (ii) 100% of the lowest bid price for the
      twenty trading days immediately preceding the default date. At December 31,
      2005, there was no event of default.





F-22


**Dutchess
      December Note**





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 difference of $230,000 was
      recorded as a discount on debt and will be amortized to interest expense over
      the one-year term of the note. 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 (see Note L below). The required repayments under the note increase
      if
      we raise additional capital during the term of the note (other than capital
      raised under facilities in existence as of the date of the note).





In
      connection with the note, we paid Dutchess a facility fee of $65,000 and 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. The $65,000 fee was expensed to interest expense as there was no basis
      to record as a discount. We also paid $43,400 of fees to Athena which were
      recorded as deferred financing fees and are being amortized to interest expense
      over the term of the note.





In
      accordance with EITF 00-19 “Accounting for Derivative Financial Instruments
      Indexed to, and Potentially Settled in a Company’s Own Stock”, the proceeds from
      this note were allocated to embedded derivative features indexed to the
      Company’s common stock which were the convertible feature if the note is in
      default and the convertible feature of the convertible debenture. See Derivative
      Liabilities and Redeemable Instruments, below. The resulting discount of
      $1,380,000 to the debt instrument and the $330,000 to the convertible debenture
      is being amortized to interest expense over the term of this note using the
      effective method. Amortization during the year ended December 31, 2005 amounted
      to $11,285 on this note and $114 on the convertible debenture.





If
      there
      is an event of default with either promissory note to Dutchess, Dutchess has
      the
      right to convert the remaining principal at the lesser of (i) fifty percent
      of
      the lowest closing bid price during the fifteen trading days immediately
      preceding the maturity date or (ii) 100% of the lowest bid price for the twenty
      trading days immediately preceding the conversion date. At December 31, 2005,
      there was no event of default.





**Dutchess
      Security Agreement**





All
      of
      the Dutchess notes are secured by a security interest in substantially all
      of
      our assets. In each of the Dutchess note agreements, at maturity, if there
      is
      any unpaid amounts, Dutchess can exercise its right to increase the outstanding
      amount by ten percent and an additional two and one-half percent per
      month.





**Line
      of Credit**





During
      May 2005, we renewed our $50,000 line of credit for an additional year. The
      interest rate is two percent over the Bank of America prime rate. At December
      31, 2005, we did not have any outstanding balance on this line of
      credit.





**Debt
      Maturities**





The
      following is the debt maturities for the next five years for non-related party
      debt:





2006
            $3,600,0092007
            251,0002008
            -2009
            -2010
            660,000Total
                debt
            4,511,009Less
                discounts on debt
            (4,116,916)Current
                portion
            (267,635)Long
                term portion of debt
            $ 
                 126,458








**NOTE
      G - NOTES PAYABLE TO RELATED PARTIES**





At
      December 31, 2005, our notes payable to related parties is $238,381 owed to
      our Chief Scientific Officer. The annual interest rate is 8% and is accrued
      throughout the loan term. At December 31, 2005, we entered into a new note
      with
      him whereby the accrued interest of $56,981 was included in the principal of
      the
      note. Interest during 2006 will accrue at 8% and the accrued interest and note
      is due in a lump sum payment on December 31, 2006. During 2005 and 2004, this
      note was reduced by $33,634 and $38,068, respectively for payments made on
      his
      behalf to third parties.





During
      2004, the Company 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.





**NOTE
      H - DERIVATIVE LIABILITIES AND REDEEMABLE INSTRUMENTS**





The
      balance sheet caption derivative liabilities consists of (a) embedded conversion
      features bifurcated from the Dutchess notes and convertible debentures and
      (b)
      the classification of all other convertible preferred stock, convertible debt
      and outstanding warrants that on their own contract terms were not considered
      to
      be a derivative but are required under EITF 00-19 to be recorded at fair value
      as a derivative liability because the embedded conversion feature of the
      Dutchess notes may potentially result in our having indeterminable shares.
      At
      June 30, 2005, we reduced additional paid-in-capital by $916,505 to reclass
      the
      other convertible preferred stock, convertible debt and outstanding warrants
      from equity to a derivative liability based upon fair value. At December 31,
      2005, these embedded derivative financial instruments are indexed to an
      aggregate of 410,770,130 shares of our common stock and the other convertible
      preferred stock, convertible debt and outstanding warrants are convertible
      into
      31,144,125 shares of our common stock at December 31, 2005 and are carried
      at
      fair value.





F-23


Each
      Dutchess note has a conversion feature that can be triggered only if we default
      on the note. This is because one of the default criteria in the notes is that
      the registration statement for shares issued under the Dutchess Investment
      Agreement does not remain effective for any reason. Under EITF 00-19, it is
      deemed out of our control to maintain an effective registration statement;
      therefore we have to assume that we could possibly default on these notes.
      At
      the point of a default there is a conversion feature in the notes which then
      results in our recording a derivative liability.





The
      incentive debentures as a part of the October and December Dutchess notes
      agreements contain a conversion feature which indexes the exercise price to
      our
      common stock. This results in indeterminate shares which require us to record
      this conversion feature as a derivative liability.




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





DutchessDerivatives
            
            Convertible
                Preferred Stock
            
            Outstanding
                Warrants
            
            La
                Jolla convertible debt
            
            TotalFair
                value
            $
            6,442,820
            $
            189,042
            $
            272,873
            $
            76,571
            $
            6,981,306Fair
                value adjustments, income (loss)
            $
            (2,595,695)
            $
            313,851
            $
            292,794
            $
            (21,980)
            $
            (2,011,030)





Fair
      value for option-based financial instruments is determined using the
      Black-Scholes Valuation Model. Significant assumptions that were used for the
      embedded conversion features on the Dutchess notes, other convertible debt
      and
      warrants, included: conversion or strike prices ranging from $0.0045 - $0.52;
      volatility factors ranging from 112% to 271%; terms remaining for all
      instruments ranging from four months to five years; and risk free rates ranging
      from 3.35% to 4.38%.





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 fair value
      the 1,250,000 and 2,500,000 shares of common stock issued as incentive shares
      under two of the Dutchess notes and record them as Redeemable Instruments.
      At
      December 31, 2005, the 1,250,000 shares had been sold by Dutchess and the
      2,500,000 shares which were retained by Dutchess were valued at $52,750. A
      gain
      on derivatives was recorded of $400,125 for the year ended December 31, 2005
      as
      the shares are fair valued at each reporting period and any difference is
      recorded as a gain (or loss) on derivatives.





**NOTE
      I - CERTAIN EQUITY TRANSACTIONS**





**Series
      A Convertible Stock**





During
      2004, we amended our articles of incorporation to designate 50,000 shares of
      our
      preferred stock as Series A preferred stock, $0.01 par value. The liquidation
      value is $10 per share. Each share of Series A preferred stock shall have the
      right to one vote for each share of common stock into which such holder’s shares
      of Series A preferred stock could then be converted. The Series A preferred
      stock holders shall have the right to convert on the first day of the month
      after the month in which a registration statement (other than a registration
      statement on Form S-4, Form S-8 or any successor form thereto) filed by us
      with
      the Securities and Exchange Commission becomes effective. The other conversion
      dates shall be the first day of the fourth, seventh and tenth months after
      the
      month in which such registration statement becomes effective. If on any
      conversion date, the conversion price would be less than $0.025 per share,
      we
      may elect to defer the conversion date to the first day of the next month.
      If,
      on such deferred conversion date, the conversion price would be less than $0.025
      per share, we may again defer the conversion date to the first day of the next
      month. Upon such second deferred conversion date, the Series A preferred stock
      shall be converted without further deferral. Such conversion shall be effected
      at our office or any transfer agent for such stock, into such number of fully
      paid and nonassessable shares of common stock as is determined by dividing
      the
      original Series A preferred stock issue price by the conversion price applicable
      to such share, determined as hereafter provided, in effect on the date the
      certificate is surrendered for conversion. The conversion price is the lesser
      of
      (i) eighty percent (80%) of the average of the five lowest daily volume weighted
      average prices of our common stock during the twenty (20) trading days prior
      to
      the conversion date, or (ii) eighty percent (80%) of the closing price of our
      common stock on the trading day prior to the conversion date. Each share of
      Series A preferred stock not previously converted shall automatically be
      converted, without the payment of additional consideration, into shares of
      common stock at the conversion price, as applicable, in effect on the date
      of
      and immediately prior to the last conversion date described above.





During
      2004, we issued 40,000 shares of Series A preferred stock. We received $272,535
      of cash (net of $17,465 of stock issuance costs) and reduced an accrued
      liability for $110,000 related to the issuance of these 40,000
      shares.





During
      July 2005, preferred stock shareholders converted 24,000 shares of our preferred
      stock into 1,538,462 shares of our common stock and on October 10, 2005,
      preferred stock shareholders converted 1,278 shares of our preferred stock
      outstanding to 960,902 shares of our common stock.





F-24


**Common
      Stock**





**Reverse
      Stock Split**





At
      the
      2005 annual shareholder meeting, the shareholders approved an amendment to
      our
      Articles of Incorporation. Pursuant to this approval, the Board of Directors
      amended our Articles of Incorporation so that each twenty shares of our common
      stock issued and outstanding on July 12, 2005 were combined into one share
      (or
      fraction thereof) of our common stock. A ll
      share
      data in these financial statements have been restated to reflect this reverse
      stock split. We
      continue to have 1,500,000,000 shares of authorized common stock.





**Common
      Stock Issued for Stock Subscribed**





During
      2005, we issued the 470,815 shares of our common stock that was issuable at
      December 31, 2004. This included: 450,460 shares of our common stock issued
      to
      La Jolla as part of our agreement with them; and 20,355 shares of our common
      stock issued to a service provider in return for the services provided to
      us.





During
      2004, we issued the 5,768,315 shares of our common stock that was issuable
      at
      December 31, 2003. This included: 5,250,000 shares of our common stock issued
      to
      four of our executive management in accordance with their agreements with us;
      515,456 shares of our common stock issued to La Jolla as part of our agreement
      with them; and, 2,859 shares of our common stock issued to two service providers
      in return for their services to us.





**Conversion
      of Debenture and Exercise of Warrants**





During
      2005, La Jolla converted $189,000 of convertible debentures into our common
      stock and exercised non-detachable warrants to purchase 1,467,000 shares of
      our
      common stock. The combined transactions resulted in us receiving cash of
      $2,537,580, net of $162,420 of cash stock issuance costs, decreasing the prepaid
      warrant exercise amount by $135,000 and issuing 86,686,596 shares of our common
      stock.





During
      2004, La Jolla converted $280,000 of convertible debentures into our common
      stock and exercised non-detachable warrants to purchase 4.2 million shares
      of
      our common stock. The combined transaction resulted in us receiving cash of
      $3,925,763 (net of $274,237 of cash stock issuance costs) and issuing 15,093,287
      shares of our common stock of which 14,642,827 shares were issued at December
      31, 2004 and 450,460 shares were issued in early 2005.





**Prepayment
      for Future Warrant Exercises**





At
      December 31, 2005, La Jolla had not converted at least 5% of the face value
      of
      the debenture and exercised at least 5% of the warrants for the month of
      September. In accordance with the La Jolla agreement, at December 31, 2005,
      we
      had $120,000 recorded as prepaid warrant exercises for the future exercise
      of
      warrants. We mutually agreed with La Jolla to waive the minimum exercise of
      at
      least 5% of the warrants for the months of October - December 2005. During
      February 2006, the prepaid warrant amount was reduced by $30,000 to
      $90,000.





At
      December 31, 2004, La Jolla had not converted at least 5% of the face value
      of
      the debenture and exercised at least 5% of the warrants for the month of
      December. In accordance with the La Jolla amended agreement, during December
      La
      Jolla prepaid $255,000 for the future exercise of warrants.





**Consulting
      Agreement with Scientific Advisory Board Member**





During
      2004, we issued 14,771 shares of our common stock in accordance with an
      agreement with a consultant. Based upon the date the services were completed,
      2,500 shares were valued at the quoted market price of $0.60, 2,500 shares
      were
      valued at the quoted market price of $0.84 and 9,771 shares were valued at
      the
      quoted market price of $0.40. As a result of this transaction, we recorded
      approximately $14,000 of expense during the year 2004 for these shares. At
      December 31, 2004, we had not issued additional 20,355 shares of our common
      stock to this consultant. 7,827 of these shares were valued at the quoted market
      price of $0.40 and 12,528 shares were valued at the quoted market price of
      $0.20
      based upon the date the services were completed which resulted in us recording
      $5,637 of expense during the third and fourth quarter of 2004 for these shares.
      The 20,355 shares were issued during 2005.





During
      2005, we recorded $8,368 of expense for shares of our common stock in accordance
      with an agreement with a consultant. We paid this consultant a total of 55,709
      shares of which 50,709 shares were issued and 5,000 shares are recorded in
      the
      stock subscribed equity account at December 31, 2005. This was comprised of
      2,500 shares at a quoted market price of $0.018 per share, 2,500 shares at
      a
      quoted market price of $0.021 per share, 24,315 shares at a quoted market price
      of $0.12 per share and 26,394 shares at a quoted market price of $0.203 per
      share.





**Consulting
      Agreement with Marketing and Administrative Consultant**





During
      2005, we recorded $20,720 of consulting expense for a total of 952,019 shares
      of
      our common stock of which 454,966 were issued during 2005 and 497,053 were
      recorded in the stock subscribed equity account at December 31, 2005. These
      shares had a quoted market price of $0.022 per share.





F-25


**Stock
      Bonus**





During
      2005, we issued 2,928,043 shares of our common stock to an employee as a sign
      on
      bonus. These shares were valued at $41,870 based upon the quoted fair market
      value at the date of grant. The $41,870 was recorded as compensation expense
      during 2005.





**Dutchess
      Put Notices**





On
      September 28, 2004, we entered into an investment agreement with Dutchess,
      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 put notice to
      Dutchess, and Dutchess is obliged to purchase the dollar amount of common stock
      set forth in the notice. 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.





**Investor
      Relations Agreement**





On
      August
      19, 2005, we entered into an investor relations agreement with an investor
      relations firm to increase investor awareness of our Company. For these
      services, we paid $75,000 and issued 2 million shares of our common stock.
      The 2
      million shares of common stock was valued at quoted market price for a value
      of
      $120,000 which will be expensed to administrative expense over the three-month
      term of the agreement. On November 21, 2005, we entered into another three-month
      agreement with this firm. For these services, we paid $75,000 and issued 2
      million shares of our common stock. The 2 million shares of common stock was
      valued at quoted market price for a value of $34,000 which will be expensed
      to
      administrative expense over the three-month term of the agreement. At December
      31, 2005, $134,355 had been expensed with $19,645 recorded as deferred
      consulting.





**Warrants**





At
      December 31, 2005 we had warrants outstanding to purchase our common stock
      with
      the following terms:





#
                of Shares
            
            Exercise
                Price
            
            Expiration
                Date3,765,000
            
            $1.0000
            
            11/24/2007181,819
            
            $0.4400
            
            4/9/200817,075
            
            $0.6560
            
            3/31/200992,751
            
            $0.5180
            
            6/30/200921,029
            
            $0.3340
            
            9/30/2009129,264
            
            $0.2420
            
            12/31/2009313,079
            
            $0.1920
            
            12/31/2009370,370
            
            $0.2700
            
            9/30/2010232,883
            
            $0.1380
            
            3/31/2010250,002
            
            $0.4000
            
            6/16/2010546,427
            
            $0.0878
            
            6/30/20105,714,286
            
            $0.0175
            
            9/24/20102,697,545
            
            $0.0159
            
            12/31/2010314,380
            
            $0.0444
            
            9/30/20101,263,867
            
            $0.0176
            
            12/31/201015,909,777





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





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.





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.





During
      2004, warrants to purchase 573,198 shares of common stock were granted to Athena
      as a fee for their services at a range of exercise prices from $0.192 to $0.656.
      The warrants expire five years from the grant date. These warrants were valued
      at $197,633 based upon the Black-Scholes model. As of December 31, 2005, none
      of
      these warrants were exercised. These were recorded as stock issuance
      costs.





F-26


**Employee
      Stock Options and Awards**





We
      have a
      stock option plan that provides for the granting of stock options and awards
      to
      officers, and employees. The objectives of this plan include attracting and
      retaining the best personnel, providing for additional performance incentives,
      and promoting our success by providing employees the opportunity to acquire
      common stock. On November 11, 2005, the Board of Directors voted to amend the
      2001 Scientist Stock Option Plan to increase the options available under the
      plan to 77,630,000. Options are typically granted at the fair market value
      of
      the stock price on the date of grant. The vesting of each grant is determined
      by
      the Board of Directors at the time the options are granted. The vesting period
      typically ranges from immediate vesting to vesting over a four-year period
      and
      the options typically have an expiration term of ten years.





A
      summary
      of the options granted to employees as of December 31, 2005 and 2004 and changes
      during the year are presented below:





**Weighted****Number of**
            
            **Average****Shares**
            
            **Exercise
                Price**Outstanding
                at December 31, 2003
            
            447,500
            
            
            
            $0.300Granted
            
            —
            
            
            
            —Exercised
            
            (12,500)
            
            
            
            $0.260Cancelled
            
            —
            
            
            
            —Outstanding
                at December 31, 2004
            
            435,000
            
            
            
            $0.300Granted
            
            67,242,362
            
            
            
            0.046Exercised
            
            
            
            -Cancelled
            
            
            
            (1,011,250)
            
            
            
            
            
            $0.436Outstanding
                at December 31, 2005
            
            
            
            66,666,112
            
            
            
            
            
            $0.041Options
                exercisable at December 31, 2005
            
            
            
            66,066,112
            
            
            
            
            
            $0.042Options
                available for grant at December 31, 2005
            
            
            
            12,493,535





The
      weighted average fair value of options granted during 2005 was
      $0.032.





The
      fair
      value of options granted during 2005 was estimated on the dates of the grants
      using the following approximate assumptions: dividend yield of 0%, expected
      volatilities of 173% - 182%, risk-free interest rates of 2.71% - 4.46%, and
      expected lives of four to 5 years. There were no options granted during
      2004.





The
      following table summarizes the information about our stock options outstanding
      at December 31, 2005:


**Options
                Outstanding**
            
            **Options
                Exercisable****Exercise**
              **Price**
            
            **Number
                Outstanding**
            
            **Weighted
                Average Remaining ontractual life (years)**
            
            
            **Weighted
                average exercisable price**
            
            Number
                Exercisable
            
            
            
            **Weighted**
              **Average**
              **Exercise
                Price**$
            0.014-0.017
            
            51,392,362
            
            
            9.9
            
            
            $
            0.017
            
            51,392,362
            
            
            $
            0.017$
            0.021-0.120
            
            14,118,750
            
            
            9.9
            
            
            $
            0.091
            
            13,518,750
            
            
            $
            0.094$
            0.400-0.600
            
            1,155,000
            
            
            8.8
            
            
            $
            0.509
            
            1,155,000
            
            
            $
            0.50966,666,112
            
            
            9.8
            
            
            $
            0.041
            
            66,066,112
            
            
            $
            0.042








**NOTE
      J - OTHER COMMITMENTS AND CONTINGENCIES**





**Agreement
      with Investment Banking Firm**





In
      April 2003, we engaged an investment-banking firm to assist us in our
      long-term financial planning efforts, including our efforts to raise debt and/or
      equity capital. Pursuant to the agreement, we have granted this firm, exclusive
      authorization to act as our agent (on a best efforts basis) in substantially
      all
      of our investment banking activities, which may include efforts to place various
      securities (potentially through private and/or public transactions), and to
      assist us in obtaining grant money from various governmental entities. As
      consideration for such services, we have agreed to compensate this entity as
      follows:




F-27





•
            Upon
              closing of a transaction a fee of 6% of the aggregate dollar value
              of the
              aggregate consideration paid by investors. The Dutchess deal has a
              fee of
              4%.•
            Upon
              closing of a transaction, warrants to purchase (at a nominal price)
              shares
              of our common stock having a value equal to 4% of the aggregate
              consideration paid by investors.•
            Upon
              the receipt of any grant money, warrants to purchase (at a nominal
              price)
              such number of shares of our common stock having a value of
              $35,000





In
      addition, we have agreed to compensate this entity for any merger and
      acquisition services provided. In addition to billings on a time and expense
      basis, this compensation shall include a success fee equal to a percentage
      of
      any transaction value.





**Beth
      Israel Deaconess Medical Center License Agreemen** t





Effective
      April 4, 2005, we entered into a license agreement with Beth Israel Deaconess
      Medical Center (“Beth Israel”), a Massachusetts nonprofit corporation to develop
      a new, more potent and longer acting form of the anemia drug Erythropoietin
      (“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. At December 31,
      2005, we had recorded the $25,000 as research and development
      costs.





**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 June 7, 2005 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. At December 31, 2005,
      we
      had recorded $70,000 as research and development costs.





**Collaborative
      Research Agreement with Beth Israel**





During
      late June, 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 have paid $176,096 and the remaining
      $176,096 is due 180 days after the execution of the amendment.





**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.




F-28


**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 methylphenidate analogs or Ritalin-like
      compounds targeting the clinical development of enhanced pharmaceuticals for
      the
      treatment of drug addiction, attention deficit hyperactivity disorder ("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 (2%) 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 (5) year term is supplemented by options capable of extending the license
      term for up to twenty years.




**Operating
      Lease Commitments**





Our
      operating facility lease for our Sarasota, Florida location expires on
      May 31, 2006 with an option to extend for three months and if we relocate
      by the end of the extended term which is September 1, 2006 to anywhere in
      Sarasota or Manatee counties, the landlord will pay up to $65,000 of our tenant
      relocation expenses.





Our
      operating facility lease for our Richmond, California location expires August
      1,
      2006.





Our
      operating facility lease for Toronto, Canada expires April 30, 2008. The
      payments are $26,187 Canadian dollars plus common area maintenance amounts
      for
      the next two years and $8,729 Canadian dollars plus common area maintenance
      amounts during 2008. The conversion rate from Canadian dollars to US dollars
      at
      December 31, 2005 is 0.858.




Rent
      expense amounted to $104,850 and $64,653 for the years ended December 31,
      2005 and 2004, respectively.





**Obligations
      under Capital Leases**





We
      have
      capitalized rental obligations under leases of equipment. The obligations,
      which
      mature in 2006 through 2008, represent the total present value of future rental
      payments discounted at the interest rates implicit in the leases. Future minimum
      lease payments under capital leases are:


2006
            
            $                                295,2342007
            
            168,6572008
            
            
            13,167Total
                minimum lease payments
            
            
            477,058Less
                amount representing interest
            
            
            (39,617)Present
                value of net minimum lease payments
            
            
            437,441Less
                current portion
            
            
            (264,936)$
            172,505





During
      2004, we purchased, through a capital lease, computer equipment. In order to
      qualify for the lease; the financing company required a letter of credit. Our
      bank issued a letter of credit of approximately $20,000 and required that we
      purchase a certificate of deposit in the amount of the letter of credit. We
      recorded the restricted certificate of deposit in other current assets at
      December 31, 2005.





**Scientific
      Advisory Board**





Currently
      we have one Scientific Advisory Board member. For the services performed by
      this
      member, we are committed to issue 2,500 shares of our common stock each year
      through 2007. The other Scientific Advisory Board member resigned during
      2004.





During
      June 2002, we entered into a two-year agreement with this Scientific
      Advisory Board member, to collaborate with us to develop a kit product that
      could be used to infer Ancestry Admixture Ratios in human beings. We have agreed
      to compensate the consultant with quarterly payments of $4,000 and 2,500 shares
      of our common stock for the term of this contract. We have also 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 developed with his help. The term
      of
      this agreement is two years, and the parties may agree to renew it for
      consecutive two-year terms.





**Consulting
      Agreements**





Effective
      September 28, 2004, we have entered into a letter agreement with The Wall Street
      Group, Inc. (“WSG”). Pursuant to the letter agreement, we have retained WSG as
      financial public relations counsel. Under the letter agreement, we will pay
      WSG
      a cash fee of $7,500 per month and will reimburse them for reasonable and
      customary out-of-pocket expenses. In addition, we will grant an affiliate of
      WSG
      a five-year option to purchase as many shares of our common stock as could
      be
      purchased on the open market for $100,000 at the closing bid price on September
      24, 2004. Either party may terminate the agreement on 90 days written notice.
      Unless terminated, the agreement will continue in force, and on each anniversary
      of the agreement, we will grant WSG or its affiliate a similar option to
      purchase our common stock at our then-current trading price.





F-29


During
      2005, we had 254,788 shares remaining in escrow with a consulting firm. These
      shares were valued at $0.021 per share and the $5,376 was expensed to consulting
      expense during 2005.





**Litigation**





We
      are
      involved in certain legal action arising in the ordinary course of business.
      We
      are defending these proceedings. While it is not feasible to predict or
      determine the outcome of these matters, we do not anticipate that these matters
      will have a material adverse effect on our business or on our consolidated
      financial position or on our results of operations.





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.





**NOTE
      K - OTHER RELATED PARTY TRANSACTIONS**





**Rent
      negotiations**





During
      the third quarter of 2004, we issued 1,522,364 shares of our common stock to
      the
      father of a shareholder as payment for the $41,865 accrual we had recorded
      at
      December 31, 2003 for renegotiating our lease during 2003.





**Ellipsis**





At
      December 31, 2005, Ellipsis had a receivable of $5,727 from a company that
      is
      owned by a director of Ellipsis. Also at December 31, 2005, we recorded a
      receivable from a company owned by a director of Ellipsis for $47,333 and
      processed all of our cash disbursements and receipts through that company.
      Once
      we had established a cash account for Ellipsis in 2006, this receivable was
      paid
      off during 2006.





**NOTE
      L - ACQUISITIONS AND INVESTMENTS**





**Dutchess
      Agreement**





Effective
      September 28, 2004, entered into an Investment Agreement (the “Dutchess
      Agreement”) and a Registration Rights Agreement with Dutchess
      Private Equities Fund, II, L.P., a Delaware limited partnership (the
      "Investor") .
      Pursuant to the Dutchess Agreement, the Investor 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. Such notices 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, the Investor 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.





The
      obligation of the Investor to purchase under the Dutchess Agreement is
      contingent upon our filing and having declared effective a registration
      statement registering the resale of the shares by the Investor. Simultaneously,
      the parties entered into a Registration Rights Agreement requiring us to file
      such a registration statement. In addition, we are not permitted to provide
      a
      notice, and the Investor is not obliged to purchase any shares, in the event
      that we do not have sufficient authorized shares available for purchase to
      fulfill such commitment. Although it is dependent on the trading price of our
      stock, it is very likely that we would have to obtain shareholder approval
      for
      an increase in capitalization in order to take advantage of the full $35 million
      facility.





**Biofrontera
      Agreement**





On
      July
      8, 2005, we entered into an agreement to purchase, and simultaneously closed
      upon the purchase of, up to an 18% equity interest in Biofrontera AG
      ("Biofrontera"), a German company in the pharmaceutical business. 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 357,179 common stock shares
      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.





F-30


In
      addition, to induce the shareholders of Biofrontera to consent to the
      transaction, we entered into a put agreement with another Biofrontera
      shareholder, Heidelberg Innovation. Pursuant to this agreement, if by December
      31, 2005 Biofrontera does not complete its current offering of debt securities
      for at least 10 million Euro, Heidelberg Innovation may require us to purchase
      Heidelberg Innovation's ownership interest in Biofrontera of approximately
      49%
      for 1.6 million Euro (approximately $1.96 million). Biofrontera completed the
      debt security offering during September 2005 raising 20 million Euros.
      Therefore, the put obligation to Heidelberg Innovation has terminated. Each
      Biofrontera bond may be converted into 6.1 shares of Biofrontera common stock
      if
      Biofrontera completes a public offering, converting all the outstanding bonds
      to
      shares. The Biofrontera bond is now trading at the Frankfurt exchange under
      the
      symbol: http://deutsche-boerse.com/dbag/dispatch/de/isg/gdb_navigation/home?module=I nOverview_Bond&wp=DE000A0E9649&foldertype=_Bond&wplist=DE000A0E9649&active=overview×pan=3m).





**Trace
      Genetics Acquisition**





On
      June
      17, 2005, we entered into a stock purchase agreement to acquire all of the
      stock
      of Trace Genetics, a California corporation that specializes in genetic ancestry
      testing. Under the agreement, we issued 1,250,000 shares of our common stock
      and
      granted warrants to purchase 250,000 shares of our common stock to the prior
      Trace Genetics shareholders. The 1,250,000 shares were valued at $270,000 based
      on quoted market price, and the warrants were valued at $48,283 based upon
      the
      Black Scholes option pricing model.





We
      included the results of Trace Genetics in our financial statements beginning
      June 17, 2005 (the closing date of the transaction). The following table
      summarizes the estimated fair values of the assets acquired and liabilities
      assumed at the date of acquisition. We are in the process of evaluating the
      intangibles purchased, thus the purchase price allocation has not been finalized
      and is subject to change. The goodwill acquired is not deductible on our tax
      return.





Accounts
                receivable
            $
            19,650Other
                current assets
            
            15,760Fixed
                assets
            
            140,629Goodwill
                and other intangibles
            
            269,827Total
                assets acquired
            
            445,866Accrued
                expenses and payables
            
            (85,326)Capital
                lease obligation
            
            (42,257)Total
                liabilities assumed
            
            (127,583)Total
                purchase price
            $
            318,283





**DNAPrint
      Pharmaceuticals, Inc. Formation**





On
      October 12, 2005 we formed DNAPrint Pharmaceuticals, Inc., a new wholly-owned
      pharmaceutical subsidiary focused on personalized medicine. This wholly-owned
      subsidiary is consolidated in our financial statements.





**Kenna
      Technologies, Inc. Acquisition**





On
      October 25, 2005, we acquired all of the stock of Kenna Technologies, Inc.
      (“Kenna”). 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 1,499,998 shares of our common
      stock for all the outstanding shares of Kenna. The shares were valued at
      $22,500.





We
      included the results of Kenna Technologies in our financial statements beginning
      October 25, 2005 (the closing date of the transaction). The following table
      summarizes the estimated fair values of the assets acquired and liabilities
      assumed at the date of acquisition.


Other
                assets
            $
            4,533Technology
                rights
            
            32,638Total
                assets acquired
            
            37,171Accrued
                expenses and payables
            
            (14,671)Total
                purchase price
            $
            22,500




F-31


**Ellipsis
      Biotherapeutics Corporation**





On
      November 30, 2005, we acquired the assets of Ellipsis Biotherapeutics
      Corporation (we also acquired the right to the name, so the seller has renamed
      their company) and formed a company Ellipsis Biotherapeutics Corporation
      (“Ellipsis”) where we placed these assets. Ellipsis is a Toronto-based company
      that performs contract SNP genotyping for academic centers, hospitals, human
      health care corporations and biotech companies. We exchanged 6,500,000 shares
      of
      our common stock for all the assets acquired. The shares were valued at
      $149,500.





We
      included the results of Ellipsis in our financial statements beginning November
      30, 2005 (the closing date of the transaction). The following table summarizes
      the estimated fair values of the assets acquired and liabilities assumed at
      the
      date of acquisition.





Accounts
                receivable
            $
            27,895Other
                current assets
            
            76,835Fixed
                assets
            
            588,014Technology
                rights
            
            24,872Total
                assets acquired
            
            717,616Accrued
                expenses and payables
            
            (376,522)Deferred
                revenue
            
            (30,172)Capital
                lease obligations
            
            (161,422)Total
                liabilities assumed
            
            (568,116)Total
                purchase price
            $
            149,500





**NOTE
      M - UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION FOR
      ACQUISITION**





The
      following unaudited pro forma consolidated financial information presents the
      combined results of our operations as if the acquisition had occurred on January
      1, 2004. The unaudited pro forma consolidated financial information is not
      intended to represent or be indicative of the consolidated results of operations
      that we would have reported had the acquisition been completed as of the dates
      presented, and should not be taken as representative of our future consolidated
      results of operations. Summarized unaudited pro forma consolidated results
      were
      as follows:





For
                the year ended December 31,
            For
                the Period December 10, 1998
              (Date
                of Inception) to2005
            
            2004
            December
                31, 2005Revenues
            $
            1,690,202
            $
            1,437,240
            $
                4,108,018Net
                loss
            $
            (9,290,003)
            $
            (4,696,973)
            $(28,626,531)Basic
                and Diluted loss per share
            $
            (0.10)
            $
            (0.11)
            $
                (0.88)








For
      the
      year ended 2004, we excluded a $5,201,455 gain on assets that was unrelated
      to
      our business that was included in the Ellipsis Biotherapeutics, Corporation
      income statement.





**NOTE
      N- SUBSEQUENT EVENTS**





**Conversion
      of Debenture and Exercise of Warrants**





From
      year
      end to February 24, 2006, La Jolla converted $2,000 of convertible debentures
      into our common stock and exercised non-detachable warrants to purchase 30,000
      shares of our common stock. This combined transaction resulted in our reducing
      the prepayment for future exercises of warrants by $30,000. We issued 2,909,090
      shares of our common stock.





**Dutchess
      Put Notices**





From
      January 1 to February 24, 2006, we exercised put notices in accordance with
      our
      agreement with Dutchess and received $856,401 of cash proceeds for which we
      issued 44,005,010 shares of our common stock to Dutchess. We used all of these
      proceeds as principal payments on our note payable with Dutchess.





**Conversion
      of Preferred Stock to Common Stock**





On
      January 11, 2006, 14,700 shares of our preferred stock outstanding were
      converted to 11,651,761 shares of our common stock.





F-32


**License
      Agreement with Harvard Medical School**





On
      January 24, 2006, we entered into an exclusive license agreement with Harvard
      College. The 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 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
      license we have the exclusive right to develop market and sell products and
      services derived from the research. We will owe royalties of six percent on
      the
      net sales of products and services covered by this 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 license term, but, beginning January 1, 2013, the annual license
      fee
      of $250,000 is credited against royalty payments. Additionally, we are obligated
      to pay a fee of approximately $100,000 for previously incurred patent costs
      and
      are responsible for paying the costs associated with patent expenses during
      the
      license term.





**Research
      Sponsorship Agreement**





Effective
      January 1, 2006, we entered into a research sponsorship agreement with the
      Massachusetts College of Pharmacy and Health Sciences for sponsored research
      in
      connection with the synthesis and testing of certain compounds as possible
      human
      medications for drug abuse, attention deficit hyperactivity disorder, and
      depression. We had previously licensed exclusive rights to the compounds from
      a
      researcher on October 19, 2005 under an exclusive licensing agreement. The
      sponsored research payments total $300,000 and will be paid in monthly
      installments of $25,000 over one year. We will acquire all intellectual property
      associated with the research results.





**Investor
      Relations Agreement**





On
      February 22, 2006, we entered into an investor relations agreement with an
      investor relations firm to increase investor awareness of our Company. For
      these
      services, we paid $75,000 and issued 2 million shares of our common stock.
      The 2
      million shares of common stock was valued at quoted market price for a value
      of
      $53,600 which will be expensed to administrative expense over the three-month
      term of the agreement.





F-33




**ITEM
        8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE**
 
 None.
 
 **ITEM
        8A. CONTROLS AND PROCEDURES**
 
 As
        of the
        end of the period covered by this Annual Report on Form 10-KSB, an evaluation
        was performed under the supervision and with the participation of our
        management, including the Chief Executive Officer and Chief Financial Officer,
        of the effectiveness of the design and operation of our disclosure controls
        and
        procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange
        Act
        of 1934). Based on that evaluation, our Chief Executive Officer and Chief
        Financial Officer concluded that our disclosure controls and procedures are effective
        to ensure that information we are required to disclose in reports that we
        file
        or submit under the Securities Exchange Act of 1934 (i) is recorded, processed,
        summarized and reported within the time periods specified in Securities and
        Exchange Commission rules and forms, and (ii) is accumulated and communicated
        to
        our management, including our Chief Executive Officer and Chief Financial
        Officer, as appropriate, to allow timely decisions regarding required
        disclosure. Our disclosure controls and procedures are designed to provide
        reasonable assurance that such information is accumulated and communicated
        to
        our management. Our disclosure controls and procedures include components
        of our
        internal control over financial reporting. Management's assessment of the
        effectiveness of our internal control over financial reporting is expressed
        at
        the level of reasonable assurance that the control system, no matter how
        well
        designed and operated, can provide only reasonable, but not absolute, assurance
        that the control system's objectives will be met.
 
 There
        were no significant changes in our internal control over financial reporting
        that could significantly affect these controls during the fourth quarter.
         We have not identified any significant deficiency or material weaknesses
        in our internal controls, and therefore, there were no corrective actions
        taken.
 
 **ITEM
        8B. OTHER INFORMATION**
 
 None.
 
 61
 **PART
        III**
 
 **Item
        9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With
        Section 16(a) of the Exchange Act.**
 
 Our
        directors are elected at our annual meetings by a plurality of the shares
        represented, and our officers serve at the pleasure of the Board of Directors.
        Our current officers and directors are:
 
 Name
              Age
              PositionTony
                Frudakis
              38
              Director,
                Secretary, Chief Scientific OfficerRichard
                Gabriel(1)
              57
              Director,
                Chief Executive Officer, PresidentHector
                Gomez
              66
              Director,
                Chief Medical OfficerMonica
                Tamborini(1)
              49
              Chief
                Financial Officer, Chief Operating
                Officer
 (1)
        Monica Tamborini and Richard Gabriel are married
 
 Dr.
        Frudakis has served on our board and has been an officer since our inception.
        Dr. Gomez has served as a director since 2002 and as an officer since May
        of
        2003. Mr. Gabriel has served as a director since 2002 and as an officer since
        March of 2003. Ms. Tamborini has been an officer since May of 2003.
 
 Tony
        Frudakis, Ph.D. Dr. Frudakis, our founder, has been with us since our inception.
        He has served in many capacities, including Chief Executive Officer and
        President. Dr. Frudakis now serves as Chief Scientific Officer and is
        responsible for executing research and development goals and objectives,
        under
        the direction of the Board of Directors. As a member of the Board of Directors,
        Dr. Frudakis also participates in strategic planning, concentrating on his
        field
        of expertise, biologic and genomics science and innovation.
 
 Prior
        to
        joining us, Dr. Frudakis founded GAFF biologic, our predecessor in interest,
        in
        1998. He served as its President and Chief Executive Officer. Early in his
        career, Dr. Frudakis was a research scientist for Corixa Corporation. While
        at
        Corixa he developed several new techniques for RNA fingerprinting, managed
        and
        executed high-throughput gene discovery programs for various cancers and
        was
        instrumental in the company's early success in attracting research and
        development partners. In all, his work has resulted in a patent portfolio
        for
        over 350 unique genes and 2 products.
 
 Richard
        Gabriel .
        Mr.
        Gabriel joined us in 2002 as a member of our Board of Directors. He continues
        in
        that capacity and in addition, in March of 2003, he agreed to accept the
        position of Chief Executive officer and President. In this role, Mr.
        Gabriel is responsible for and oversees all aspects of the organization and
        formulates and communicates strategic direction.
 
 Prior
        to
        joining us, Mr. Gabriel consulted for several start-up companies while working
        as a partner at Genbiomics, LLC and as head of Life Sciences Practice at
        Semaphore, Inc. From 1998 until 2001, Mr. Gabriel served as Chief Executive
        Officer and President of Calix Corporation, parent company to Pharm-Eco
        Laboratories, Inc. He was one of five Core Team Members that set the overall
        strategic direction for Pharm-Eco Laboratories, Inc. and helped guide
        Pharm-Eco's high performance self-directed organization. He obtained his
        MBA
        from Suffolk University's Executive MBA Program, Boston, Massachusetts in
        1985
        and his B.S. in Chemistry from Ohio Dominican College, Columbus, Ohio in
        1978.
 
 Hector
        Gomez MD, Ph.D. Dr. Gomez has served on our board of directors since March
        1,
        2002 and serves as Chairman of the Board. In addition, in May of 2003, Dr.
        Gomez
        agreed to join us as Chief Medical Officer. In this capacity, he is responsible
        for overseeing and managing our efforts to commercialize our pharmacogenomic
        products. Mr. Gomez is Chairman of the Audit Committee.
 
 From
        2001
        to 2002, he was Chief Executive Officer of Zengen, Inc., a biotechnology
        company. From 2000 to 2001, he was Chief Executive Officer of Nutri Logics,
        Inc., a consumer products company. Prior to joining Nutri Logics, from 1994
        to
        1999, he was Chief Executive Officer of Transcend Therapeutics, a biotechnology
        company. Concurrent with these positions, since 1999, Dr. Gomez has served
        as a
        Clinical Associate Professor of Pharmacology and Medicine at the University
        of
        South Florida, College of Medicine (voluntary faculty). His research career
        to
        date has focused on the clinical pharmacology of Hypertension, Hypokalemia,
        Hyperglycemia, Hyperuricemia and Hypercholesteremia drugs.
 
 62
 Monica
        Tamborini. In May of 2003, Ms. Tamborini joined us as Chief Financial Officer
        and Chief Operating Officer. As our Chief Financial Officer, Ms. Tamborini
        oversees and manages all accounting functions, including financial reporting,
        as
        well as helping to obtain outside capital to fund our operations. As Chief
        Operating Officer, she is responsible for seeing that operations run efficiently
        and effectively and that we have the necessary personnel and infrastructure
        required to execute the Board's strategic plan of operations.
 
 Prior
        to
        joining us, Ms. Tamborini had served in controller and Chief Financial Officer
        positions since 1988. From 1992 to 2001, she was Chief Financial Officer
        for
        Calix Corp and its subsidiary Pharm-eco Laboratories. Ms. Tamborini was also
        one
        of the five core team members for Pharm-eco Laboratories that set the overall
        strategic direction of the company. Her main focus was operations and finance.
        From 2001 through 2003, Ms. Tamborini was not employed.
 
 Audit
        Committee
 
 We
        do not
        have a separate Audit Committee. Our full board performs the functions normally
        designated to an Audit Committee. Although we do not have an Audit Committee,
        Ms. Tamborini has been designated by our Board of Directors as our Audit
        Committee Financial Expert. Ms Tamborini, in the Board of Directors’ opinion,
        has the required experience to serve in this capacity. She has an understanding
        of generally accepted accounting principles and financial statements and
        has the
        ability to assess the general application of such principles in connection
        with
        the accounting for estimates, accruals and reserves. She also has over 20
        years
        experience preparing and evaluating financial statements that had a breadth
        and
        level of complexity of accounting issues that are generally comparable to
        the
        breadth and complexity of issues that can reasonably be expected to be raised
        by
        our financial statements. She has an understanding of internal controls and
        procedures for financial reporting and an understanding of audit committee
        functions. Because of her positions as Chief Operating Officer and Chief
        Financial Officer, Ms. Tamborini is not "independent" with respect to the
        Company.
 
 Code
        of
        Ethics
 
 We
        have
        adopted a code of ethics that applies to our principal executive officer,
        principal financial officer and our accountant. The text of the code of ethics
        is available for public viewing at our website at www.dnaprint.com.
 
 **Item
        10. Executive Compensation.**
 
 The
        compensation and awards that have been earned by our executives are listed
        below.
 
 **SUMMARY
        COMPENSATION TABLE**
  Name
                and Principal Capacity
              Year
              Salary
              RestrictedStock  Awards(1)
              All
                  OtherCompensation(2)Richard Gabriel(3)
                Director, Chief Executive Officer , President
              2003
                2004
                2005
              $       
  --148,615(10)
                205,203(10)
              $870,000(4)
                --
                --
              $444,808
                (56,646)
                --Hector Gomez, M.D., Ph.D.(11)Director,
                Chairman of the Board, Chief Medical Officer
              2003
                2004
                2005
              $       
  --
                74,678(10)
                229,664(10)
              $725,000(5)
                --
                --
              $277,988
                28,664
                20,000Tony Frudakis, Ph.D.(6) Chief
                Scientific Officer, Director, Secretary
              2003
                2004
                2005
              $130,000
                183,010(10)
                200,203(10)
              $870,000(7)
                --
                --
              $307,888
                (8,488)
                --Monica Tamborini(8) Chief Financial
                Officer, Chief Operations Officer
              2003
                2004
                2005
              $       
                    --
                130,132(10)
                63,606(10)
              $580,000(9)
                --
                --
              $257,372
                9,280
                --
 
 (1)
        The
        dollar value of the restricted stock is calculated by multiplying the closing
        market price of our unrestricted stock on the date of grant, May 16, 2003,
        by
        the number of shares awarded as required in instructions to Item
        402(b)(2)(iii)(C). For book purposes, the value is calculated by applying
        a 15%
        discount on the closing price.
 
 (2)
        Because the grantees can not sell their stock for cash to cover the tax
        liability that will be due, we agreed to cover the tax liability associated
        with
        the stock grant in cash by the date that the tax will be due by the grantee.
        The
        table reflects amounts that were earned in 2003 and 2004, but paid in 2004
        and
        2005, respectively. The 2004 amounts also reflect an adjustment to this tax
        liability for these executives. Dr. Gomez's 2003, 2004 and 2005 amounts include
        $20,000 of additional compensation.
 
 (3)
        Mr.
        Gabriel joined our Board of Directors during 2002 and became our Chief Executive
        Officer and President in 2003.
 
 (4)
        Calculated on 1,500,000 shares at a price of $0.58 ,
        the
        close price of the stock on May 16, 2003, the date the award was granted
        by the
        Board of Directors.
 
 (5)
        Calculated on 1,250,000 shares at a price of $0.58, the close price of the
        stock
        on May 16, 2003, the date the award was granted by the Board of Directors.
 
 (6)
        Dr.
        Frudakis has been with us since inception and has held many titles and positions
        during that time including Chief Executive Officer, President and Chief
        Financial Officer. Dr. Frudakis is currently our Chief Scientific Officer.
 
 (7)
        Calculated on 1,500,000 shares at a price of $0.58, the close price of the
        stock
        on May 16, 2003, the date the award was granted by the Board of Directors.
 
 (8)
        Ms.
        Tamborini joined us in 2003.
 
 (9)
        Calculated on 1,000,000 shares at a price of $0.58, the close price of the
        stock
        on May 16, 2003, the date the award was granted by the Board of Directors.
 
 (10)
        The
        executives deferred part of their 2004 salary. The deferred salary amounts
        included in the 2004 amounts above were $54,170 for Mr.
        Gabriel, $29,231 for Mr. Gomez, $48,346 for Mr. Frudakis and $50,763 for
        Ms.
        Tamborini. The
        executives deferred part of their 2005 salary. The deferred salary amounts
        included in the 2005 amounts above were $75,000 for Mr. Gabriel, $66,000
        for Mr.
        Gomez, $60,000 for Mr. Frudakis and $18,375 for Ms. Tamborini.
 
 (11)
        Dr.
        Gomez joined our Board of Directors during 2002 and became our Chief Medical
        Officer in 2003.
 
 63
 **Employment
        Agreements**
 
 On
        May 8,
        2001, we entered into an Employment Agreement with Tony Frudakis, our Chief
        Scientific Officer. The Agreement runs for a term that commenced August 22,
        2001
        and expires August 22, 2005, subject to extension from year to year by mutual
        agreement. Our Board of Directors may increase the salary from time to time
        in
        its discretion. At January 1, 2006, his salary was increased to $240,000
        with
        $168,000 paid in cash and $72,000 deferred. The Employment Agreement also
        permits the Board of Directors to pay discretionary bonuses or other benefits
        to
        Dr. Frudakis. Upon termination of employment, the Agreement prohibits Dr.
        Frudakis from competing with the Company for a period of two years in the
        state
        of Florida. On November 30, 2001, we also entered into a Performance Stock
        Agreement with Dr. Frudakis that requires us to grant him 1.5 million shares
        of
        our restricted stock upon achieving certain milestones. The Board of Directors
        renegotiated the milestones in light of changes in our operational strategy.
        Thereafter, Dr. Frudakis met the milestone and we granted the stock in 2003.
 
 In
        May
        2003, we entered into one-year employment agreements with Richard Gabriel,
        Hector Gomez, and Monica Tamborini. These agreements automatically extend
        for
        unlimited successive one-year periods unless terminated in accordance with
        the
        agreement. As consideration for the first year of employment, we agreed to
        issue, at no cost to the executives, a total of 3,750,000 shares of our common
        stock, and to pay the related federal and state income taxes they will incur
        as
        a result of these stock grants. The Agreements prohibit them from competing
        with
        us for a period of two years from the date of termination or leaving our
        employ.
        At January 1, 2006, Richard Gabriel's annual salary is $300,000 with $210,000
        paid in cash and $90,000 deferred; Hector Gomez's annual salary is $288,000
        with
        $201,600 paid in cash and $86,400 deferred; and Monica Tamborini's annual
        salary
        is $210,000 with $147,000 paid in cash and $63,000 deferred.
 
 **Compensation
        of Directors**
 
 On
        February 22, 2002, we entered into an agreement with Dr. Gomez when he joined
        our board of directors. In consideration of Dr. Gomez' agreement to serve
        on the
        Board of Directors, we granted him options to purchase 130,000 shares of
        our
        stock at an exercise price of $0.60 per share. All of the options are vested
        at
        December 31, 2005. In addition, we agreed to pay him a cash director's fee
        of
        $20,000 per year through December 31, 2005. Other than described in this
        paragraph, no other director receives any compensation for services as a
        director. Directors are reimbursed for expenses to attend board meetings.
 
 **FISCAL
        2005 YEAR-END OPTION VALUES**
 
 Number
                  of Securities Underlying Unexercised Options at December 31,
                  2005
              
              Value
                of Unexercised In-The-Money Options at December 31, 2005 (1)Name
              
              Exercisable
              
              Unexercisable
              
              Exercisable
              
              UnexercisableRichard
                  Gabriel
              
              18,500,000
              
              -
              
              $
                  61,500
              
              -Tony
                  Frudakis
              
              18,500,000
              
              -
              
              $
                  61,500
              
              -Hector
                  Gomez
              
              18,630,000
              
              -
              
              $
                  61,500
              
              -Monica
                  Tamborini
              
              2,000,000
              
              -
              
              -
              
              -
 
 There
        were no options exercised during fiscal year 2005.
 
 (1)
        The
        market price of our stock was $0.0211 at December 31, 2005.
 
 64
 **Item
        11. Security Ownership of Certain Beneficial Owners and Management and Related
        Stockholder Matters.**
 
 The
        following table sets forth, as of February 28, 2006 certain information
        concerning beneficial ownership of shares of our stock and the approximate
        percentage of shares of our stock owned by (i) each person known to us to
        own 5%
        or more of the outstanding shares of stock, (ii) each director and executive
        officer, and (iii) all directors and executive officers as a group.
 
  Title
                  of Class
              Name
                  and Address of Beneficial Owner (1)
              Amount
                  of Beneficial Ownership
              Percentage
                  of Class (2)Common
              Tony
                  Frudakis (3)
              21,562,829
              6.71%Common
              Monica
                  Tamborini (4)
              23,000,000
              7.11%Common
              Richard
                  Gabriel (4)
              23,000,000
              7.11%Common
              Hector
                  Gomez (5)
              19,890,200
              6.18%Common
              Directors
                  and Officers as a Group (4 persons)
              64,453,029
              17.87%
 
 
 (1)
        Unless otherwise noted, c/o DNAPrint Genomics, Inc., 900 Cocoanut Avenue,
        Sarasota, FL 34236.
 
 (2)
        Percentage of ownership is based on 303,076,509 shares of common stock
        outstanding on February 28, 2006.
 
 (3)
        Represents 3,062,829 shares directly owned by Dr. Frudakis and 18,500,000
        shares
        which may be acquired within 60 days by exercise of options.
 
 (4)
        Represents 1,500,000 shares directly owned by Mr. Gabriel, 18,500,000 shares
        which Mr. Gabriel may acquire within 60 days by exercise of options, 1,000,000
        shares directly owned by Ms. Tamborini, and 2,000,000 shares which Ms. Tamborini
        may acquire within 60 days by exercise of options.
 
 (5)
        Represents 1,260,200 shares directly owned by Dr. Gomez, and 18,630,000 shares
        which may be acquired within 60 days by exercise of options.
  **Securities
        Authorized for Issuance Under Equity Compensation Plans**
 
 The
        following table sets forth certain information, as of December 31, 2005,
        with
        respect to compensation plans (including individual compensation arrangements)
        under which our equity securities of the registrant are authorized for issuance.
 
 Number
                  of securities to be issued upon exercise
                  of outstanding options, warrants and rights
              Weighted-average exercise
                  price of
                  outstanding options, warrants and rights
              Number
                  of securities remaining available for
                  future issuance under equity compensation plans  (excluding
                  securities reflected in column
                  (a))Equity compensation plans approved
                by securityholders
              0
              N/A
              0Equity compensation plans not
                approved by securityholders
              66,666,112
              $
                  0.041
              12,493,535Total
              66,666,112
              $
                  0.041
              12,493,535
  65
 **Item
        12. Certain Relationships and Related Transactions.**
 
 Until
        August 2003, we leased our principal office from Pacific Atlantic Corporation,
        a
        corporation controlled by George Frudakis, the father of Tony Frudakis. On
        October 15, 2001, we signed a lease for this space. The lease ran for 10
        years
        at $5,333 per month plus increases annually based on increases in the Consumer
        Price Index. In June of 2003, we renegotiated the lease. The new two year
        operating lease expired on May 31, 2005 with an option to extend the lease
        for
        one year and then an additional three months. The building was sold to JSD
        Sarasota, LLC on August 26, 2003.
 
 In
        connection with the renegotiation of the lease, we agreed to pay Mr. Frudakis
        an
        amount equal to 6 months rent, payable in our common stock. On July 28, 2004,
        we
        issued 76,118 shares of our common stock in exchange for a charge valued
        at
        $41,900 for renegotiating our building lease. These shares were issued to
        Mr.
        Frudakis.
 
 In
        February 2002, we entered into a funding agreement with 4 shareholders, one
        of
        whom is Dr. Tony Frudakis, our Chief Scientific Officer and one of our
        directors, and another of whom is George Frudakis, Dr. Frudakis' father.
        These
        shareholders initially agreed to loan us $2,000,000 between March 2002 and
        December 2002. These loans were to be repaid along with all accrued interest
        at
        8% on January 31, 2003. In June 2002, we elected to satisfy $509,160 of these
        notes through the issuance of 727,368 shares of our common stock.
 
 During
        October 2002 the terms of this agreement were modified, effectively terminating
        the participation of two of the shareholders. Pursuant to the amended agreement,
        the remaining two shareholders (including Dr. Frudakis and Mr. Frudakis)
        agreed
        to loan us $1,000,000 between December 2002 and December 2003. These loans
        were
        scheduled to mature, along with all accrued interest at 8%, on December 31,
        2003. In the event of our default, the lenders' only remedy is to require
        us to
        issue shares of our stock as consideration for satisfaction of the debt.
        The
        number of shares to be issued for satisfaction of the debt will be based
        on a
        price of $0.70 per share if the weighted average price of our stock is $1.00
        per
        share or above; alternatively if the weighted average price of our shares
        is
        less than $1.00, the number of shares due will be calculated using a 40%
        discount to the market price. Notwithstanding this, in no event will the
        shares
        to be issued under this arrangement be based on a price of less than $0.20
        per
        share.
 
 During
        2004, we paid $75,000 to George Frudakis to pay the principal of approximately
        $45,000, accrued interest of approximately $4,000 and approximately $26,000
        was
        recorded as other expense to satisfy in full any other claims related to
        his
        note and funding agreement.
 
 Also,
        during 2004, the note to Tony Frudakis was reduced by a $38,068 payment made
        to
        him by making payments on his behalf to third parties. During late 2004,
        Tony
        Frudakis and we agreed to extend the funding agreement with him under the
        same
        terms until December 31, 2005 with an additional provision that if we are
        in
        default of the note, then the only recourse to pay the note is with our stock.
        During 2005, we reduced the note by $33,634 by making payments on his behalf
        to
        third parties. This agreement was replaced by a notes payable agreement with
        8%
        annual interest and the interest and principal due on December 31, 2006.
        The
        provision permitting repayment of the note with our stock was deleted. At
        December 31, 2005, our notes payable to Tony Frudakis have a balance of
        $238,381.
 
 On
        April
        1, 2003, we terminated a consulting agreement with GenBiomics, LLC, a company
        in
        which Mr. Gabriel and Dr. Gomez were members. The original consulting agreement
        was signed on May 17, 2002. Since that time, Mr. Gabriel and Dr. Gomez agreed
        to
        become officers and directors of the Company. As a result, the prior consulting
        agreement was terminated. During 2003, we recorded consulting expense related
        to
        this agreement of $10,000.
 
 On
        December 28, 2004, we entered into a loan agreement with Biofrontera AG,
        a
        German corporation whereby we loaned 140,000 euros to Biofrontera. This
        converted to 193,426 US dollars at year end. At December 31, 2004 we recorded
        the loan of $193,426 and accrued interest of $257 for a total receivable
        of
        $193,683. This note has a 12 % annual interest rate. The Interest and principal
        payments are due by December 31, 2005. During 2004, we had an investment
        agreement with Biofrontera to acquire a portion of their company. During
        February 2005, this investment agreement was terminated, however the loan
        remains outstanding and the terms of the loan agreement remain in effect.
        During
        the fourth quarter of 2005, this loan was paid in full.
 
 66
 **Item
        13. Exhibits.**
 
 NUMBER                                                                                                       
        DESCRIPTION
  3.1
        Articles of Restatement of the Articles of Incorporation.
  3.2
        Bylaws.
 
 4.1
        Form
        of Warrant agreement between the Company and Athena Capital Partners, Inc.
        and
        certain partners (included as exhibit 10.33 to the Form 10-KSB filed March
        30,
        2004, and incorporated herein by reference).
 
 4.2
        Securities Purchase Agreement between the Company and La Jolla Cove Investors
        Inc. (included as Exhibit 10.29 to Form S-2, filed December 15, 2003, and
        incorporated herein by reference).
 
 4.3
        Registration Rights Agreement between the Company and La Jolla Cove Investors
        Inc. (included as Exhibit 10.29 to Form S-2, filed December 15, 2003, and
        incorporated herein by reference).
 
 4.4
        Convertible Debenture Agreement between the Company and La Jolla Cove Investors
        Inc. (included as Exhibit 10.29 to Form S-2, filed December 15, 2003, and
        incorporated herein by reference).
 
 4.5
        Warrant Agreement between the Company and La Jolla Cove Investors Inc. (included
        as Exhibit 10.29 to Form S-2, filed December 15, 2003, and incorporated herein
        by reference).
 
 4.6
        Addendum to convertible debenture and warrant agreement between the Company
        and
        La Jolla Cove Investors, Inc. (included as Exhibit 10.43 to Form 10-QSB filed
        May 14, 2004, and incorporated herein by reference).
 
 4.7
        Investment Agreement between the Company and Dutchess Private Equities Fund,
        II,
        L.P., dated September 28, 2004 (included as Exhibit 10.49 to Form 8-K, filed
        October 4, 2004, and incorporated herein by reference).
 
 4.8
        Registration Rights Agreement between the Company and Dutchess Private Equities
        Fund, II, L.P., dated September 28, 2004 (included as Exhibit 10.50 to Form
        8-K,
        filed October 4, 2004, and incorporated herein by reference).
 
 4.9
        Investment Agreement between the Company and Biofrontera Pharmaceutical GmbH,
        dated September 28, 2004 (included as Exhibit 10.47 to Form 8-K, filed October
        4, 2004, and incorporated herein by reference).
 
 4.10
        Stock Purchase Agreement between the Company and Trace Genetics, Inc, dated
        June
        17, 2005 (included as Exhibit 10.49 to Form S-2, filed July l5, 2005, and
        incorporated herein by reference).
 
 4.11
        Purchase Agreement between the Company, tbg
        Technologie-Beteiligungs-Gesellschaft mbH and Biofrontera AG (included as
        Exhibit 10.50 to Form S-2, filed July 15, 2005, and incorporated herein by
        reference).
 
 4.12
        Put
        Option Agreement between the Company, Heidelberg Innovation BioScience Venture
        II GmbH & Co. KG and Heidelberg Innovation Parallel-Beteiligungs GmbH &
Co. KG a.A. (included as Exhibit 10.51 to Form S-2, filed July 15, 2005 and
        incorporated herein by reference).
 
 4.13
        Asset Purchase Agreement dated November 8, 2005 between the Company and Ellipsis
        Biotherapeutics Corporation. (included as Exhibit 10.1 to Amendment to Form
        8-K
        filed March 6, 2006, and incorporated herein by reference).
 
 10.1
        Supply & License Agreement (included as Exhibit 10.4 to the Form S-2 filed
        December 15,2003, and incorporated herein by reference).
 
 10.2
        Agreement & Plan of exchange between the Company, Catalyst Communications,
        Inc. and Shareholders, dated November 6, 2000 (included as exhibit 10.5 to
        the
        Form 8-K filed November 6, 2000, and incorporated herein by
        reference).
 
 10.3
        Equipment Agreement between the company and Orchid Biosciences, Inc., dated
        September 19, 2001 (included as Exhibit 10.6 to the Form 10-KSB, filed April
        2,
        2001, and incorporated herein by reference).
 
 10.4
        Purchase Agreement between the Company and Orchid Biosciences, Inc., dated
        September 19, 2001 (included as Exhibit 10.7 to the Form 10-KSB, filed April
        2,
        2001, and incorporated herein by reference).
 
 10.5
        Option Agreement between the Company and Orchid Biosciences, Inc., dated
        September 19, 2001 (included as Exhibit 10.10 to the Form 10-KSB, filed April
        2,
        2001, and incorporated herein by reference).
 
 10.6
        Equipment Lease Agreement between the Company and Orchid Biosciences, Inc.,
        dated May 18, 2001 (included as Exhibit 10.11 to the Form 10-QSB, filed August
        14, 2001, and incorporated herein by reference).
 
 10.7
        Funding Agreement dated February 22, 2002 among the Company Tony Frudakis,
        George Frudakis, Carl Smith III, and Richard Craig Hall, dated February 22,2002
        (included as Exhibit 10.16 to the Form 10-KSB, filed April 9, 2002, and
        incorporated herein by reference).
 
 10.8
        Performance Stock Agreement between the Company and Tony Frudakis dated November
        30, 2001 (included as Exhibit 10.17 to the Form 10-KSB, filed April 9, 2002,
        and
        incorporated herein by reference)
 
 10.9
        Consulting Agreement between the Company and Mark Shriver dated June 12,
        2002
        (included as Exhibit 10.20 to the Form 10-QSB, filed August 14,2002, and
        incorporated herein by reference).
 
 10.10
        Letter of Commitment from Mark Shriver to the Company's Scientific Advisory
        Board (included as Exhibit 10.21 to the Form 10-QSB, filed August 14, 2002,
        and
        incorporated herein by reference).
 
 10.11
        Service Agreement between the Company and Altura LLC, dated April 15, 2002
        (included as Exhibit 10.23 to the Form 10-QSB, filed August 14, 2002, and
        incorporated herein by reference).
 
 10.12
        License Agreement between the Company and Penn State Research Foundation
        (included as Exhibit 10.24 to the Form 10-QSB, filed August 14, 2002, and
        incorporated herein by reference).
 
 10.13
        Amendment to Consulting Agreement between the Company and Genbiomics LLC
        dated
        May 31, 2002, (included as Exhibit 10.27 to Form 10-QSB, filed August 14,
        2002,
        and incorporated herein by reference).
 
 10.14
        Amendment to Consulting Agreement between the Company and Mark Shriver (included
        as Exhibit 10.28 to Form 10-QSB, filed August 14, 2002, and incorporated
        herein
        by reference).
 
 10.15
        Employment Agreement between the Company and Richard Gabriel, dated May 16,
        2003
        (included as Exhibit 10.1 to Form 10-QSB, filed August 14, 2003, and
        incorporated herein by reference).
 
 10.16
        Employment Agreement between the Company and Monica Tamborini, dated May
        16,
        2003 (included as Exhibit 10.2 to Form 10-QSB, filed August 14, 2003, and
        incorporated herein by reference).
 
 10.17
        Employment Agreement between the Company and Hector Gomez, dated May 16,
        2003
        (included as Exhibit 10.3 to Form 10-QSB, filed August 14, 2003, and
        incorporated herein by reference).
 
 10.18
        Amendment to Funding Agreement between the Company and Tony Frudakis, dated
        December 30, 2003 (included as Exhibit 10.42 to Form 10-KSB, filed March
        30,
        2004, and incorporated herein by reference).
 
 10.19
        Research Collaboration Agreement between the Company and the H. Lee Moffit
        Cancer Center and Research Institute, Inc. (included as Exhibit 10.44 to
        Form
        10-QSB file May 14, 2004, and incorporated herein by reference).
 
 10.20
        Joint Venture Framework Agreement between the Company and Biofrontera
        Pharmaceutical GmbH (included as Exhibit 10.48 to Form 8-K, filed October
        4,
        2004, and incorporated herein by reference).
 
 10.22
        Letter Agreements between the Company and La Jolla Cove Investors Inc. (included
        as Exhibit 10.29 to Form S-2, filed December 15, 2003, and incorporated herein
        by reference).
 
 10.23
        Letter Agreement between the Company and The Wall Street Group, Inc., dated
        September 30, 2004 (included as Exhibit 10.44 to Form S-2/A, filed December
        30,
        2004, and incorporated herein by reference).
 
 10.24
        Loan Agreement between the Company and Biofrontera AG (included as Exhibit
        4.1
        to Form 8-K date January 5, 2005, and incorporated herein by reference).
 
 10.25
        License Agreement between the Company and Beth Israel Deaconess Medical Center,
        dated April 4, 2005 (included as Exhibit 10.1 to Form 8-K/A, filed May 5,
        2005,
        and incorporated herein by reference).
 
 10.26
        Consulting Services Agreement between the Company and Dr. Arthur Sytkowski,
        dated June 7, 2005 (included as Exhibit 10.1 to Form 8-K, filed June 13,
        2005,
        and incorporated herein by reference).
 
 10.27
        Promissory Note issued by the Company to Dutchess Private Equities Fund II,
        L.P.
        (included as Exhibit 10.51 to Form S-2, filed July 15, 2005, and incorporated
        herein by reference).
 
 10.28
        Promissory Note issued by the Company to Dutchess Private Equities Fund II,
        L.P.
        (included as Exhibit 10.1 to Form 10-QSB, filed August 15, 2005, and
        incorporated herein by reference).
 
 10.29
        Financial Consulting Agreement between the Company and Market Pulse LLC
        (included as Exhibit 10.1 to Form 10-QSB, filed November 14, 2005, and
        incorporated herein by reference).
 
 10.30
        Consulting Services Agreement between the Company and Dr. Arthur J. Sytkowski,
        dated September 1, 2005 (included as Exhibit 10.2 to Form 10-QSB filed November
        14, 2005, and incorporated herein by reference).
 
 10.31
        Stock Purchase Agreement between the Company and certain shareholders of
        Kenna
        Technologies, Inc., dated October 25, 2005 (included as Exhibit 10.3 to Form
        10-QSB filed November 14, 2005, and incorporated herein by reference).
 
 10.32
        License Agreement between the Company and Mark Froimowitz, dated October
        25,
        2005 (included as Exhibit 10.4 to Form 10-QSB filed November 14, 2005, and
        incorporated herein by reference).
 
 10.33
        Promissory Note dated November 18, 2005 issued by the Company to Dutchess
        Private Equities Fund, L.P.
 
 10.34
        Financial Consulting Agreement dated November 21, 2005 between the Company
        and
        Market Pulse LLC.
 
 10.35
        Promissory Note dated December 22, 2005 issued by the Company to Dutchess
        Private Equities Fund II, L.P.
 
 10.36
        Research Sponsorship and License Agreement between the Company and Harvard
        College dated January 19, 2006 (included as Exhibit 10.1 to Form 8-K filed
        January 27, 2006, and incorporated herein by reference).
 
 10.37
        Research Sponsorship Agreement between the Company and Massachusetts College
        of
        Pharmacy and Health Sciences dated January 31, 2006
 
 10.38
        Financial Consulting Agreement dated February 22, 2006 between the Company
        and
        Market Pulse LLC.
 
 10.39
        Promissory Note dated March 13, 2006 issued by the Company to Dutchess Private
        Equities Fund, L.P.
 
 10.40
        Security Agreement dated March 13, 2006 given by the Company in favor of
        Dutchess Private Equities Fund, L.P.
 
 31.1
        Rule
        13a-14(a)/15d-14(a) Certification of Chief Executive Officer, Richard
        Gabriel
 
 31.2
        Rule
        13a-14(a)/15d-14(a) Certification of Chief Financial Officer,
        MonicaTamborini
 
 32.1
        Section 1350 Certification, Richard Gabriel
 
 32.2
        Section 1350 Certification, Monica Tamborini
  67
 **Item
        14. Principal Accountant Fees and Services.**
 
 The
        board
        of directors approved Pender, Newkirk and Company to render the audit for
        the
        2005 fiscal year and to prepare the 2004 tax returns.
 
 **Audit
        Fees**
 
 During
        2004, we were billed by Kingery, Crouse and Hohl, approximately $1,000 and
        Pender, Newkirk and Company billed $59,000 for audit and review fees associated
        with our 10-QSBs and 10-KSB. During 2005, we were billed by Pender, Newkirk
        and
        Company approximately $98,477 for audit and review fees associated with our
        10-QSBs and 10-KSB.
 
 **Audit
        related fees**
 
 None.
 
 **Tax
        Fees**
 
 During
        2004, we were billed approximately $3,945 by our accountants Pender, Newkirk
        and
        Company for preparing 2002 and 2003 tax returns. During 2005, we were billed
        approximately $3,610 by our accountants Pender, Newkirk and Company for
        preparing our 2004 tax return.
 
 
 **All
        Other Fees**
 
 None.
 
 **Pre-Approval
        Policy And Procedures**
 
 We
        do not
        have a separate Audit Committee. Our full Board of Directors performs the
        functions of an Audit Committee. During fiscal year 2004, the Board of Directors
        adopted policies and procedures for the pre-approval of audit and non-audit
        services for the purpose of maintaining the independence of our independent
        auditors. We may not engage our independent auditors to render any audit
        or
        non-audit service unless either the service is approved in advance by the
        Board
        of Directors or the engagement to render the service is entered into pursuant
        to
        the Board of Director's pre-approval policies and procedures. On an annual
        basis, the Board of Directors may pre-approve services that are expected
        to be
        provided to us by the independent auditors during the following 12 months.
        At
        the time such pre-approval is granted, the Board of Directors must (1) identify
        the particular pre-approved services in a sufficient level of detail so that
        management will not be called upon to make judgment as to whether a proposed
        service fits within the pre-approved services and (2) establish a monetary
        limit
        with respect to each particular pre-approved service, which limit may not
        be
        exceeded without obtaining further pre-approval under the policy.
 
 The
        Board
        has considered whether the provision of the services described above under
        the
        caption "All Other Fees" is compatible with maintaining the auditor's
        independence.
 
 68
 **SIGNATURES**
 
 In
        accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 DNAPrint
        Genomics, Inc.
 
 *By:
                  /s/ Richard Gabriel*
                *----------------------------------*
                *Richard
                  Gabriel, CEO, Director*
                *Date:
                  March 28**,
                  2006*
 
 
 In
        accordance with the Exchange Act, this report has been signed below by the
        following persons on behalf of the registrant and in the capacities and on
        the
        dates indicated.
 
 SIGNATURE
              TITLE
              DATE*/s/
                Richard Gabriel*
              *CEO/President,
                  Director*
              *March
                  28,
                  2006*Richard
                Gabriel*/s/
                Monica Tamborini*
              *CFO/Principal
                  Accounting
                  Officer*
              *March
                  28,
                  2006*Monica Tamborini*/s/
                Hector Gomez*
              *Director*
              *March
                  28,
                  2006*Hector Gomez*/s/
                Tony Frudakis*
              *Director*
              *March
                  28,
                  2006*Tony Frudakis


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