##### Table of Contents



U.S. SECURITIES AND
EXCHANGE COMMISSION  FORM 10-KSB (Mark One) [ X ] ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934  [   ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934  Commission file number 0-30119 DNAPrint genomics, Inc.  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  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 (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 regis-




---



##### Table of Contents



trant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [  ] 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.     $709,638 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 20, 2004, the aggregate market
value of the voting and non-voting common equity held by non-affiliates was
$25,418,000. 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 20, 2004,
547,238,171. 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




---



TABLE OF CONTENTS  PART IItem 1. Description of BusinessItem 2. Description of PropertyItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Common Equity and Related Stockholder MattersItem 6. Managements Discussion and Analysis or Plan of OperationItem 7. Financial StatementsIndependent Auditors ReportCONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2003CONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)CONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSItem 8. Changes In and Disagreements With Accountants on Accounting and Financial DisclosureItem 8A. Controls and ProceduresPART IIIItem 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange ActItem 10. Executive CompensationItem 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 12. Certain Relationships and Related TransactionsItem 13. Exhibits and Reports on Form 8-KItem 14. Principal Accountant Fees and ServicesSIGNATURESEX-10.42 Amendment to Funding AgreementEX-23 Consent of Pender Newkirk & CompanyEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO    Table of Contents  
 PART I FORWARD-LOOKING STATEMENTS Certain statements contained in this filing are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
such as statements relating to financial results and plans for future business
development activities, and are thus prospective. These statements appear in a
number of places in this Annual Report and include all statements that are not
statements of historical fact regarding intent, belief or current expectations
of the Company, its directors or its officers with respect to, among other
things: (i) the Companys financing plans; (ii) trends affecting the Companys
financial condition or results of operations; (iii) the Companys growth
strategy and operating strategy; and (iv) the declaration and payment of
dividends. The words may, would, could, expect, estimate,
anticipate, believe, intend, plans, and similar expressions and
variations thereof are intended to identify forward-looking statements.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, many of
which are beyond the Companys ability to control. Actual results may differ
materially from those projected in the forward-looking statements as a result
of various factors. Among the key risks, assumptions and factors that may
affect operating results, performance and financial condition are changes in
technology, fluctuations in the Companys quarterly results, ability to
continue and manage its growth, liquidity and other capital resources issues,
competition, fulfillment of contractual obligations by other parties and the
other factors. 
 Item 1. Description of Business. Business Description DNAPrint genomics, Inc. (we or the Company) is a genomics based
science company focused on the sale of unique, proprietary, genetic testing
products and services. Our products are targeted toward three distinct markets:
pharmacogenomics, forensics and consumer products. We currently have three
products available for sale, ANCESTRYbyDNA 2.0 and 2.5, in the consumer
products market and DNAWitness 2.0 in the forensic market. We have no currently
available products for the pharmacogenomics market. We are currently
developing products for all three markets, which are in various stages of
progress. We also provide contract genotyping services to the contract service
outsourcing market. We have established a technology platform, named ADMIXMAP, for the identification
of functional human genes through the measurement of population structure. This
platform of products allows us to measure population structure as it was
inherited from our ancestors. We can also measure certain effects of an
individuals inherited traits in relationship to the general population of
people such as Native American, East 3




---



##### Table of Contents



Asian, sub-Saharan African and
Indo-European and any combination of those four major population groups. We
have identified characteristic markers for these population groups and they are
called Ancestry Information Markers or AIMS. We believe we are the first to search the human genome and identify these AIMs and
associate them to specific traits that can be linked to an individual. For
example, an inherited trait is eye color, hair color or skin color as is the
ability of an individuals body metabolism to respond to a particular
medication. By linking a drugs measurable response in an individual to our
AIMs, we are able to predict whether or not an individual may or may not
respond to a medication. There are many complex mathematical formulas involved
in this analysis and we plan to keep this technology and information closely
guarded, patented when appropriate and to sell our products and services to
consumers, physicians and law enforcement. Currently, we have 12 full time employees and we expect to increase our
personnel in accordance with our operating plan. In addition to our full time
employees, composed of scientific and production staff, sales, administrative
and executive management, we outsource employees for specific services on an as
needed basis. These services include additional statistical geneticists,
mathematicians, and programmers, an advisory committee in medical and
population genetics, and general business and administrative support. We continue to devote substantially all of our efforts to initiating and
developing our planned principal operations. While sales of our genealogy
product, ANCESTRYbyDNA, are increasing, our forensic product, DNAWitness, has
just been introduced in the marketplace. Our pharmacogenomics products are
still in development, and genotyping services are in the initial introductory
stage. In addition, although we discuss distinct markets for our products,
management does not manage or make decisions regarding allocation of our assets
and resources or in assessing our performance based on segments. At this time,
our resources, including assets and personnel, are commingled among all areas
of our business. History and Development of the Business 2001-2003 We began with the discovery and development of our TruLine products 
TruSeqTM, SNiPscanTM and TruSpinTM. We were 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. 4




---



##### Table of Contents



In 2001, Dr. Tony Frudakis, our founder, teamed with other newly hired
scientists to conduct research to develop new genomics products with consumer,
forensic and pharmacogenomics applications. Lack of funding required a
reduction in 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 an exhaustive and difficult search for a new CEO/President, Mr. Richard
Gabriel finally 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 30,000,000 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 have 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 20,000,000 and 25,000,000 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. Concurrently with building our new business plan, 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. 5




---



##### Table of Contents



During 2003, we continued to evolve from a research based company to a
revenue generating genomic products company. Management continues to review
investment opportunities for our consumer products, and the forensic and
pharmacogenomics markets. Should opportunities mature, management will bring
them before our Board for investment consideration. We continue to seek new
products, technologies and relationships that can help build the markets and
revenues we seek to capture. The Pharmacogenomics Market Testing individuals to predict their genetic pre-disposition to drug
response is known as pharmacogenomics. 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 are increased and rates of adverse side effects are
decreased. Historically, drugs have been developed and approved by the FDA for the
overall population only. Drug discovery companies are now beginning to use
pharmacogenomics technologies to develop drugs that are suitable for
individuals or groups of individuals based upon their overall genetic
composition. The advent of genomics and genomic based diagnostic testing has
brought about the possibility of personalized medicine. In fact, over the next
10 years, the worldwide pharmaceutical market is expected to grow from $320
billion to $2 trillion. We believe the increase will be driven primarily by
the flood of new drug targets identified through genomics and through the
co-development of drugs and accompanying genomics response tests. It is anticipated that genomics spending at pharmaceutical companies will
increase to a level of $13 billion by 2010 from nearly $2.5 billion in 2000.
Current spending is largely concentrated in the discovery phase. By the end of
the decade, however, spending in discovery and clinical development will be
roughly equivalent. Analysts have suggested that over 50% of clinical trials
will use genomic testing in the near future. According to Data Monitor (Reuters
Business Insight Report), the global market for genomics based diagnostic
products will reach $3.3 billion by 2005. The current market is valued at $1.5
billion (2002). Genome Technology Magazine predicted in July of 2002 that the
DNA-based diagnostics market will grow by 50% and reach $3.7 billion in four
years (2006). The molecular diagnostics market will expand to $12 billion by
2010. About half of this ($6 billion) will be attributed to knowledge gained
from genomics according to K.K. Jain, M.D., author of Molecular Diagnostics,
a current market research report. In a recent release, the FDA announced that pharmaceutical and
bio-pharmaceutical companies should consider genetic testing during clinical
trials and for post approval drug monitoring. Pharmaceutical and bio
pharmaceutical companies will 6




---



##### Table of Contents



need to incorporate genetic testing in their drug
discovery, clinical development as well as post drug approval monitoring in the
very near future. The FDA estimates that 2.4 million patients had adverse drug reactions in
2000, leading to the deaths of more than 125,000 patients. Adverse drug
reactions represent the fourth leading cause of death in the United States. As
part of the FDAs mandate to reduce the number of deaths caused by adverse drug
reactions, on January 31, 2003 the FDA released an initial statement of
initiatives related to pharmacogenomics. Within the next 12 months there will likely be a clearer path to market
for pharmacogenomic tests linked to drugs. Moreover, with greater FDA
recognition of pharmacogenomics, we believe the pharmaceutical industry is likely to accelerate
its rate of adoption for pharmacogenomics tests1. After its initial statement in January 2003, the FDA issued a more recent
guideline in November 2003. Titled Guidance for Industry Pharmacogenomic Data
Submissions, we believe this guideline offers FDA support for pharmaceutical
companies developing drugs using genetic testing and genomic research for drug
approvals. Under the guideline, 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 and drug discovery management. We help identify
patients that might not respond favorably to a new medication, and thus
eliminate those patients from the treatment or clinical trial. This testing
will improve the drugs efficacy and reduce its toxicity, increasing the drugs
chances for meeting FDA requirements and ultimate approval. The FDA continues to have an overriding influence in the pharmacology
market and its movements. Healthcare payers and government officials, however,
including Congress (on behalf of patients), are recognized forces in the
market. Increasingly, pharmaceutical companies must validate a drugs efficacy
and cost effectiveness in order for it to remain on lists of approved,
reimbursable drugs of healthcare payers (pharmacy benefit managers, managed
care, Medicaid, Medicare, and commercial insurers). For example, Pfizer
recently agreed to provide disease management, (defined as all secondary
activities involved in the diagnosis, prevention and treatment of diseases,
beyond primary therapeutic treatments), services to Florida Medicaid recipients
in order to have its full slate of drugs on the State Medicaid programs
formulary. This deal is likely the forerunner of similar initiatives by payers
and pharmaceutical companies to increase drug response rates and reduce drug
costs through increased diagnostic accuracy. Using a genomics test to
determine the most appropriate drug and dosage can lead to reduced health plan
costs, while genomics testing can predict a patients drug response and
minimize the high cost related to adverse drug reactions. 1 Excerpts taken from Legg Mason equity research.
 7




---



##### Table of Contents



Growth Strategies for the Pharmacogenomic Market By leveraging our proprietary technologies, we are positioned to serve the
growing compliance and operational needs of pharmaceutical companies. A recent article in MedAd News in June 2003 titled, >From Blockbusters
to Multibusters highlighted the first successful use of pharmacogenomics to
obtain the approval of a drug. Genetechs Herceptin, according to IMS Health
sources, would not have made it to the market had not the companys scientists
discovered the HER-2 receptor which is found in 15-20% of the population. The
overall success rate of the drug in metastatic breast cancer in combination
with Taxol is just 6%. But with the HER-2 test to identify the patient, the
drugs efficacy is now 100%. Sales of the drug are projected to approach $400
million in 2003. This article highlights the potential explosion of pharmacogenomics and
drug approval within the pharmaceutical industry. If drugs are approved faster,
the current 400 drug targets that represent about $380 billion in sales could
leap to 4,000 targets with sales approaching $3 trillion by 2020. We can, through research and development, and over time, identify the
genes involved with a patients positive response to a drug. Once the genes
have been identified, researchers are then able to find the receptors coupled
to those genes; thereby providing a predictive test to determine those patients
who will respond positively to the drug. In addition, we can identify the
genes that are involved with the rejection of the drug and from that find the
receptors coupled to those genes. Both choices open new opportunities for drug
development and the treatment of existing diseases. To date, best estimates put
the time somewhere between one and two years and at a cost of $500,000 to
$750,000 per gene set. Additional benefits and future growth potential can result from: Enhanced Drug Marketing-By using our products and services,
pharmaceutical companies may enhance the effectiveness of their marketing
campaign resulting in improved profitability. The overlap of demographic
segments and genetic predispositions offers a compelling opportunity for
focused drug marketing. Armed with studies that indicate a drug is most
effective within certain demographic segments, pharmaceutical companies can
more effectively engage in target marketing. Expanded Drug Patent Life-There is also potential that packaging a drug
with a genomic diagnostic test may extend the drugs patent life.
Pharmaceutical companies that are struggling to find replacements for their
aging drugs could benefit from a patent extension. Our current technologies
and services could be utilized by a pharmaceutical company to identify and
develop a genomic diagnostic test. Alternatively, we could work with generic
drug manufacturers and assist them in developing a genetic diagnostic test for
off patent drugs. Our greatest, and possibly the most immediate, market
potential is 8




---



##### Table of Contents



to create a testing service for physicians and patients that will
allow them to determine if a particular medicine is right for the disease that
has been diagnosed. Increased Drug Development Success Rates- By incorporating genomic
variation, clinical trials can be designed to include those patients most
likely to benefit from the proposed therapeutic product. The use of a genomics
strategy has the potential to yield improved response rates. While the number
of clinical trial participants may not be reduced, drug trial efficacy would be
greatly enhanced. Rescue
Failed Drugs -A pharmaceutical company may choose to initiate new
clinical trials on drug candidates that previously failed. The failure of the
earlier trial could have been because the earlier trial was conducted on a
broad patient population. We could design a genetic test to predict patient
response which would allow a smaller, more clearly defined group of patients to
be identified for the new clinical trial; thereby enhancing the drugs efficacy
and compliance and improving the likelihood of approval within a targeted
group. Approval may require a physician to use the test to determine if a
patient would be within the response group prior to prescribing the drug. We
believe that this strategy will lead to more drug approvals and longer product
life cycles, improving the return on capital for the pharmaceutical company and
increasing the use of our tests. The Forensics Market Testing DNA to create a physical profile from crime scene DNA 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 evidence to successfully profile crime scene DNA by
predicting 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. The forensic market is expected to grow to $500 million in annual sales by
2005 according to Data Monitor. 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. In addition, on March 11, 2003 Attorney General John Ashcroft announced
that the administration plans to commit $1 billion to DNA testing within the
criminal justice system over the next five years. The money will be used to
develop better genetics testing techniques, to eliminate DNA backlog of nearly
360,000 cases and to provide funds for police departments to use DNA testing
more frequently in their investigations, reducing the likelihood of wrongful
prosecution and imprisonment. 9




---



##### Table of Contents



There is a recent trend in the legal system to test DNA evidence left at
crime scenes to confirm or invalidate the previous conviction of incarcerated
defendants. Our technology could be used to screen the DNA samples and
categorize them. For example, if test results shows that DNA from the crime
scene belongs to a an Indo European individual and the incarcerated individual
is an African American, that DNA would have priority for conventional testing
because the likelihood of vindication is high. In recent years there have been
more than 130 exonerations of previously convicted individuals based on DNA
evidence. With the use of DNAWitnessTM, the length of wrongful incarceration
for innocent individuals could be shortened, and, in some case, perhaps
eliminated. Forensic Products DNAWitnessTM 2.0 Law enforcement officers use this testing service to determine genetic
heritage from DNA samples obtained from crime scenes, narrowing the potential
DNA donor pool to a more focused group of likely donor candidates. This test
reduces the cost and time needed to process potential leads and ultimately, to apprehend
suspects. Current forensic DNA products in the market act like a fingerprint;
they can only be used to match DNA specimens. We have the first forensic
product that provides predictive or presumptive testing capability. Current DNAWitnessTM customers include medical examiners offices, special
task forces, sheriffs departments, and district attorneys offices and
detectives from various cities. These cities include the three largest U.S.
metropolitan areas: New York City, Los Angeles, and Chicago. To date, our
product is being used in nearly 20 crime scene investigations and cold cases.
Because of the sensitive nature and potential court proceedings associated with
investigations, we can only comment on our participation in cases once law
enforcement and prosecutors have approved the release of such information,
usually following the arrest and incarceration of a suspect. Growth Strategy in Forensics We provide a potential suspects genetic heritage with DNAWitnessTM2.0. 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. We
believe DNAWitnessTM could help revolutionize investigative procedures. By
using DNAWitnessTM on a regular basis, witness information can be corroborated,
and where no witness is present, DNAWitnessTMcan provide a fuzzy sketch of
the donor, possibly reducing the cost of examining a large donor pool and
shortening the investigation. 10




---



##### Table of Contents



Recently, we entered into a contract with the Lynn Peavey Company. Lynn
Peavey Company is a well recognized and highly respected supplier of crime
scene support materials to over 17,000 police and crime laboratories around the
world. Our product, DNAWitnessTM 2.0, is now featured in the Lynn Peavey
Company catalog. It will be available in kit form to law enforcement and crime
laboratories to use whenever and wherever witnesses to a crime do not exist or
require confirmation. The test kit is presumptive and provides detectives with
clues to the physical description of the DNA donor from the crime scene. We
also plan to work with Lynn Peavey Company personnel to establish and conduct
seminars and training programs for detectives, crime laboratory personnel and
crime scene personnel on DNAWitnessTM. We anticipate an increase in marketing and sales costs throughout 2004 as
we implement our marketing and sales plan to increase product awareness. We
expect to incur costs for additional sales personnel, the expenses associated
with trade shows and promotions, and our planned seminars and training
programs. Our future plans also include seeking ASCLD accreditation of our
laboratory for forensics work tied to court testimony. Once accredited, we will
also be able to offer conventional DNA testing to our clients. The current
market for conventional DNA testing is approaching $600 million. Accreditation
would allow us to capture a portion of this market and to offer a full range of
services to our clients. It is our intention, over time, to broaden our forensics product line.
Additional tests that we hope to add to our product line include eye and hair
color, and skin shade. Other tests that we could develop in the future include
bone mass, to predict body size, height, and detached and attached ear lobes. The Consumer Products Market There is an established market of consumers who research their genealogy
and ancestral origin. 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. 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. We are
one of the first companies to offer DNA tests that predict genetic heritage for
this market. Consumer Products ANCESTRYbyDNATM 2.0 11




---



##### Table of Contents



We introduced our first product in the genealogy market in late 2002.
ANCESTRYbyDNATM2.0 determines genetic heritage and is marketed to consumers
interested in determining their Biogeographical Ancestry (BGA). We have
identified DNA sequences that are more prevalent in people from one continental
region or regions than another. Using complex statistical algorithms, the test
can determine, with confidence, to which of the major continental regions
sub-Saharan African, Indo-European, East Asian or Native American  a person
belongs, as well as the relative proportions of each. ANCESTRYbyDNATM 2.5 We introduced the newest version of our genealogy product line in
February, 2004. ANCESTRYbyDNATM 2.5 increases the 71 marker assay of version
2.0 to 175 markers, improving accuracy over version 2.0. During its first
month of production, we have sold 100 ANCESTRYbyDNATM 2.5 tests. Growth Strategy in Consumer Products Without a significant investment in sales or marketing, we have generated
considerable interest in ANCESTRYbyDNATM2.0. We have sold, on average, 13
ANCESTRYbyDNATM tests per day during 2003. An average of 9.5 of those test
sales have come from our website and 4 tests per day from our distributors. Promotional efforts to date have been fruitful but sporadic. We have been
featured on or in ABCs Prime Time Thursday, the CBS Evening News with Dan
Rather, The New York Times, Miami Channel 10 WPLG, UPI, US News and World
Report, Popular Science Magazine, Tampas Fox Channel 13 News, Germanys ZDF
News Channel, The Australian Broadcasting Corporation and The
Sarasota-Bradenton Herald Tribune KTTV Fox 11 in LA, ABC Tampa, Howard Sterns
radio show, PBS WEDU Sarasota, USA Today, and Dallas Morning News. 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 have entered into a license agreement with Pearl Street Software. It
will provide a link within their new release of Family Tree Legends software
allowing our customers to upload their ANCESTRYbyDNATM results to a secure web
page. Other family members will have the ability to add their test results,
too. Together, family members can pool their results and create and
construct a genetic family tree. Beta site tests are being conducted, and we
anticipate launch of the service in late 2004. 12




---



##### Table of Contents



The Contract Service Outsourcing Market We provide universities and drug discovery companies the ability to screen
for genes responsible for certain disease states and to incorporate genetic
targeting in their drug discovery or disease pathology studies. The
pharmaceutical and drug discovery segments of the outsourcing market continue
to grow. In 1999, the US drug outsourcing market stood at $5 billion and was
expected to grow to $20 billion by 2002. Actual market value for 2002 was $18
billion, slightly lower than original expectations. As more researchers look to genotyping as a means of studying disease
progression and patients reaction to medications, our outsourcing
opportunities should increase. We have one of approximately a dozen known
Ultra High Throughput SNP machines in the world. Eight machines are solely
dedicated to internal research at pharmaceutical companies and universities;
one works exclusively on veterinary applications; and two are believed to be
owned by Orchid, the original inventor and producer of the equipment. Contract Genotyping 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. We use our laboratory capacity to provide university research laboratories
and other private companies with contract genotyping services. We perform all
of the work in our facilities to protect our customers intellectual property
and trade secrets. We retain no intellectual property and do not contribute our
intellectual property to this screening service. 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 strat- 13




---



##### Table of Contents



egy, we will continue to build
our reputation as a reliable and cost effective supplier of high quality data
using our UHT SNP machine. 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. We currently have two pharmacogenomic tests in
development, OvanomeTM and StatinomeTM. In addition, it is our goal to continue
to expand, improve and broaden our current products, ANCESTRYbyDNATM and
DNAWitnessTM through research and development. 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.
Research spending in 2001 was approximately $1.9 million and for 2002 was
approximately $2.2 million, increasing to $2.7 million in 2003. We will
continue to support research and development because it is a vital component of
our overall strategy for sustained growth. OvanomeTM Our scientists are working on a genomic-based diagnostic tool to match
ovarian cancer patients with the most suitable form and dose of chemotherapy,
particularly, Taxol treated patients. Currently, cancer patients, especially
women with breast and uterine cancer are treated with anti-cancer drugs whose
efficacy is known in terms of population averages. In reality, individual
cancer patients exhibit unpredictable and unique responses to virtually all
commonly used chemotherapeutic compounds. Individual genetic differences have
long been suspected to play a role in this variable drug response. For cancer
patients, decisions about treatment regimes are often fateful, and second
chances at treatment are usually unsuccessful. A better understanding of the
relationship between genes and related chemistries and drug response can
replace the current trial and error process of chemotherapy treatment. This new
drug prescription strategy can help guide physicians and patients toward the optimal
treatments at the outset of therapy. We have completed our initial phase of research and development on a test
to determine genetic predisposition for response to the Taxol-Carboplatin drug
combination. The Taxol-Carboplatin drug combination therapy is a treatment for
breast, ovarian, prostate and other cancers. In FDA clinical trials the
Taxol-Carboplatin drug combination therapy demonstrated efficacy in only 60-70%
of patients. In preliminary trials, our therapeutic response tests were 95%
effective in distinguishing Taxol-Carboplatin responders from non-responders. We had previously identified a number of SNPs and certain AIMs associated
with variable Taxol/Carboplatin response in ovarian cancer patients. The
markers were use- 14




---



##### Table of Contents



ful for stratifying ovarian cancer patients into two groups:
patients that will respond to Taxol as intended, with essentially no risk of
non-response, and patients that carried a 50/50 risk of not responding. Since
these results were obtained, we have expanded our screen by an additional
11,000 AIMs/SNPs, and we are still evaluating this data. After this data is
evaluated and integrated with our previous data, the next step is to blindly
challenge the predictive power of the markers and methods on other ovarian
cancer patients that have been treated or are being treated with
Taxol/Carboplatin. We intend to extend these trials to other Taxol derivatives
and combinations to improve the overall market penetration of our test. We are identifying the next clinical group to establish a data set of
patients whose test information can be reviewed by the FDA either in a filing
for a 510K device application or as laboratory testing service provided to
physicians. A 510K is an approval from the FDA that allows the sale of a
diagnostic test in the United States. FDAs review and approval process
normally takes one to two years from the start of the clinical trials to final
approval. The length of a clinical trial averages a year or more. The data
obtained from the trial will form the basis for a 510K filing. Once trials are
completed, the data is compiled, the report is written and finally the 510K is
submitted for FDA review and approval. FDA rules regarding pharmacogenomics
testing are evolving, and management believes that a 510K filing may not be
required in order to perform the service. We are seeking additional guidance
from the FDA on this issue. Initial research results will be the basis for our continued development.
We must expand our studies and address other aspects of drug treatment
performance that will likely be required before OvanomeTM could be used in the
clinic to assist chemotherapy decisions. We are developing a clinical trial for OvanomeTM. We must validate our
research findings further through a clinical trial in order to commercialize
OvanomeTM. The trial will use our test to predict trial participants
responses to the Taxol and Carboplatin drug therapy. Our Chief Medical Officer,
Dr. Hector Gomez, will lead the clinical development process and expects to
enroll 250 patients in the trial. Statins and Ace Inhibitors We are developing a test, Statinome, for the cardiac drug market. Statins
are drugs used to treat patients at increased risk of heart disease.
Approximately 50% of the U.S. population is at risk of heart disease as a
result of high cholesterol and related hormonal and other chemical imbalances.
While Statins have demonstrated effectiveness at cholesterol reduction,
reportedly decreasing incidence of heart disease by 10.3% from 1990 to 1994,
adverse reactions from statins can include liver damage, kidney failure and a
form of advanced muscular degeneration. Approximately 2-5% of patients must
discontinue statin use due to these adverse side effects. If accepted for 15




---



##### Table of Contents



commercial use, we believe StatinomeTM will reduce substantially, the risks
associated with adverse response. Our current study includes two adverse side effects associated with
statins, liver and adverse muscular response. These two side effects comprise
most of the side effects associated with statins. We have identified numerous
markers associated with these potentially life-threatening responses. We have
performed initial research in conjunction with a group of physicians to study
and classify patients taking statins. The research combined liver toxicity
studies with our AIMs to determine and identify patient response. After the liver studies, we conducted research on the second adverse side
effect, adverse muscular response. We have obtained hundreds of DNA samples
from individuals who have experienced adverse muscular (myopathological)
response to the two statin drugs currently on the market, Lipitor and Zocor. We
screened these samples at over 12,000 AIMs spread throughout the human genome.
The 12,000 AIMs represents an increase of 11,000 over our original screenings. We will continue to evaluate the data we have already received and seek
clinical patients to develop a comprehensive retrospective test. Our goals are
to broaden our products reach across all statins, not just Lipitor and Zocor,
and to evaluate all potential toxic side effects relating to AIMs/SNPs. In addition to statins, we are focusing on coronary diseases and cardiac
disorders and the associated drugs to treat those diseases. Among the most
widely used treatment protocols are a set of compounds known as ACE Inhibitors.
These compounds along with other medications are used to treat cardiac
patients. While statins are used to treat patients before they express a
cardiac problem, ACE inhibitors are used to treat patients after they express a
cardiac problem, including a heart attack or angina. ACE inhibitors show a wide
range of toxicities among patient groups, and we suspect their application to a
broad patient group can be stratified, providing patients a higher rate of
efficacy in treatment at reduced toxicities. DNAWitness In forensics, it is our intent to offer our products as a suite that
includes genetic heritage, eye and hair color tests. The tests will also be
sold separately as Heritage (genetic heritage), RetinomeTM (eye color) and Retinome-HATM (hair color).
Although hair and eye color remain the most challenging research areas in
genomics, we have successfully predicted, with 85% accuracy, the eye color of
individuals based on a donor DNA sample. Our goal is to reach an accuracy rate
of 95% or higher before commercializing this test. 16




---



##### Table of Contents



We have filed a patent application for RetinomeTM, a test for the
inference of eye color from DNA. The SNP based method for testing eye color is
the first of its kind. The method employs complex math and human pigmentation
gene SNP combinations to predict human eye color accurately and sensitively.
We have been working over the past year to update the RetinomeTM panel of SNPs
in order to predict eye color shade and actual eye colors with greater
accuracy. Currently, we have the ability to determine the first three distinctions,
blue, brown or some other color. Validation experiments necessary to define
precise accuracy continue. If test performance is satisfactory, we will begin
selling the test to the forensics community as an integrated component of the
DNAWitnessTM 3.0 suite. Once we have reached this objective, our focus will
turn to increasing the bands of color from 2 to 3 or 4 distinct colors. We are attempting to accomplish for human hair color what has been
accomplished for eye color, through the development of the
Retinome-HATM test.
If successful, Retinome-HATM will be available as an integrated component of
the DNAWitnessTM 3.0 suite. We have also begun studies to add skin shade to
our expanded product line, but it will require further testing and
experimentation to advance this application. We hope to enlist universities and other personnel to help us collect DNA
samples from across the globe. We have initiated plans to expand our scientific
advisory board to include other scientists who will actively contribute to our
effort in increasing the number of BGA sub-categories from our current four, to
as many as 20. ANCESTRYbyDNA In February 2004, we launched our 2.5 version of ANCESTRYbyDNATM,
increasing accuracy and the number of markers from 71 to 175 from
ANCESTRYbyDNATM 2.0. We are developing ANCESTRYbyDNATM 3.0, which will expand
the resolution of ANCESTRYbyDNATM 2.5 by including the inference of population
affiliations within a continent and proportionality (proportion or range of a
given ancestry marker). ANCESTRYbyDNATM 2.5 can predict mixture of continental
origin, but cannot predict mixtures of ancestral composition within a
continent. For example, ANCESTRYbyDNATM 2.5 might indicate that someone is of
Indo-European descent, while ANCESTRYbyDNATM 3.0 might indicate that someone is
60% Northern European and 20% Indo-European and 20% Middle Eastern descent. If
successful, ANCESTRYbyDNATM 3.0 will provide additional accuracy and a broader
application in the genealogy market. These added benefits will assist our other two product categories,
forensics and pharmacogenomics, by broadening our abilities to identify and
search for new associations in phenotype descriptors for forensics and improving our
understanding of drug response across a wider population. 17




---



##### Table of Contents



We are also adding features to our product including a genetic family
tree capability that allows all family members willing to participate, to take
our test and add their data to the family genetic tree. If we are able to
collect enough associations, the data may help us predict the genetic profile
of a deceased ancestor. Currently we are able to predict only one generation
back with 70-80% statistical accuracy. This may be helpful to individuals
wishing to know more about a lost parent, grandparent or great grand parent,
depending upon how many generations are still living. Patents We have filed claims for international and domestic patent protection. The
patents 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. Two of our patents, Compositions...Pigmentation 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 includes the use of method for determining a persons ability to
respond favorably to a particular Statin. We have covered all Statins and the
use of our AIMs and any assay developed that might use those markers in the
development of the assay. Additional national phases will begin for the other patents during the
second quarter of 2004 and will likely run through 2005. As discoveries
warrant, we will continue to apply for future additional patents. Listed below
is 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
    
    WO 03/048999
 18




---



##### Table of Contents



Classification Including Classification Tree
AnalysisMethods and Apparatus for use in Complex
Genetics Classification Based on
Correspondence Analysis and
Linear-Quadratic Analysis


    WO 03/048372Composition and Methods for the Inference
    
    US10/156,995Of Pigmentation Traits
    
    PCT/US02/16789AU2002/312112CA2,448,569EP02739467.5JP2003/500216Compositions and Methods for Inferring
    
    US10/188,359A Response to a Statin
    
    PCT/US02/20847AU2002/316485EP02746794.3JP2003/509083Single Nucleotide Polymorphisms and
Combinations Thereof Predictive of
Paclitaxel Responsiveness in Cancer Patients
    
    PCT/US02/38345Compositions and Methods for Inferring
    
    US10/644,594Ancestry
    
    PCT/US03/26229
 Licensing and Partnering Agreements We have the rights to license, sell or partner our products exclusively
within the United States and abroad, subject to the terms of an option with
Orchid Biosciences. On October 24, 2001, we signed an Option agreement with
Orchid Biosciences of Princeton NJ, a leader in high-throughput genotyping.
Under the terms of the agreement, Orchid provided an up-front payment of
$350,000 for the option to negotiate exclusively for a license to co-develop
and/or co-commercialize certain products in the future. We will continue to
negotiate agreements with universities and businesses to apply our proprietary
products and resources to other product development projects. Competition Our expertise finding and modeling AIMs form the cornerstone of our
strategy to penetrate the consumer products, forensic and pharmacogenomics
markets with our 19




---



##### Table of Contents



genomic testing products. We are one of the first companies
to develop infrastructure for this purpose. Due to limited competition in the
field of complex genomics classification to date, these market opportunities
remain attractive. Other companies and researchers seeking to develop genomic classification or diagnostic products
to bring to market are currently screening hundreds of thousands to millions of
markers across the genome. This process is not commercially viable for many
markets, due to cost. By developing unique genome maps, however, we allow researchers to
efficiently and cost effectively discover and decipher complex, common genetic
traits. Our AIMs are novel because they allow a genome screen to be
accomplished with as few as 2,000 markers, making it cost effective to develop
genomic based tests. We compete against a limited number of companies in pharmacogenomics,
including Gennaissance, Seryx, Variagenics, and Genset; deCODE Genetics, Celera
Genomics, Incyte Genomics, Orchid BioSciences, and Sequenom. The latter two
principally offer tools and services for sequencing and scoring SNPs, while
Celera and Incyte are involved primarily in creating SNP databases. DeCODE
Genetics focuses on gene discovery, drug target validation, as well as
pharmacogenomic analysis through use of its proprietary informatics system and
its Icelandic Health Sector Database. Genset also has an interest in
pharmacogenomics through its development of genomic markers using its
proprietary technology platform; however, it has dedicated its resources to
internal drug discovery and development in the areas of central nervous system
and metabolic disorders. 
 Item 2. Description of Property. We currently lease our operating facility at 900 Cocoanut Avenue,
Sarasota, Florida from JSD Sarasota LLC. This lease runs until May 31, 2005
and we have the option to renew the lease for an additional five year term.
The lease requires monthly rent of approximately $5,400 (plus sales tax). The
building consists of approximately 4,000 square feet of laboratory and office
space. 
 Item 3. Legal Proceedings. On October 27, 2003, DNAPrint genomics, Inc. 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 20




---



##### Table of Contents



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. 
 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 2002
    
    
    .089
    
    
    
    .0502nd Quarter 2002
    
    
    .074
    
    
    
    .0513rd Quarter 2002
    
    
    .059
    
    
    
    .0204th Quarter 2002
    
    
    .053
    
    
    
    .0161st Quarter 2003
    
    
    .033
    
    
    
    .0132nd Quarter 2003
    
    
    .185
    
    
    
    .0173rd Quarter 2003
    
    
    .096
    
    
    
    .0474th Quarter 2003
    
    
    .083
    
    
    
    .023
 21




---



##### Table of Contents



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. All historical data was obtained
from the integratIR.com OTCBB web site. As February 20, 2004 there were 873 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. Use of Proceeds We filed, with the SEC, a Registration Statement on Form S-2 (Registration
No. 333-111169), which was declared effective by the SEC on December 19, 2003.
The offering described in the Registration Statement has commenced, and as of
December 31, 2003, we had received $449,930 in proceeds associated with the
offering. The offering relates to the issuance to La Jolla Cove Investors, Inc.
(LJCI) of a $500,000, 8% convertible debenture with attached warrants. We pay
interest on a monthly basis with a principal balloon payment due on the
maturity date of November 24, 2005. Under the agreement, LJCI must convert at
least 5% of the face value of the debenture, and exercise the related warrants,
each calendar month. As of December 31, 2003, we had used approximately $317,000 of the
proceeds for working capital, including payroll of approximately $49,000, lease
repayment of approximately $8,700, and miscellaneous monthly payments to our
vendors for materials and supplies of approximately $260,000. We intend to use
the remaining net proceeds from the offering for the purchase of capital
equipment and for working capital. In addition, we may use a portion of the
proceeds to fund acquisitions or lease real property. Sales of Unregistered Securities In the fourth quarter of 2003, we issued 1,209,980 shares of
our common stock in exchange for services valued at approximately $66,104. These
shares were issued to four of our consultants who are sophisticated
investors. We believe the transactions were exempt from registration under
Rule 506 promulgated under the Securities Act of 1933. The offerings were not
underwritten. 
 Item 6. Managements Discussion and Analysis or Plan of Operation. 22




---



##### Table of Contents



The following discussion and analysis should be read in conjunction with
the balance sheet as of December 31, 2003 and the financial statements as of
and for the years ended December 31, 2003 and 2002 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 the generation of
significant revenues. Initially, managements efforts focused on developing
licensing relationships from our research and development. More recently, new
management has chosen to focus on increasing sales volume in the consumer market and building sales in the
forensic market while continuing to develop products for introduction to the
pharmacogenomics market. We continue to devote substantially all of our
efforts in initiating and developing our planned principal operations. While
sales of our genealogy product ANCESTRYbyDNA are increasing, our forensic
product, DNAWitness has just been introduced in the marketplace. Our
pharmacogenomics products are still in development and genotyping services are
in the initial stage. A priority of management throughout 2003 was to raise the capital
necessary to fund the implementation of their strategic plan. Late in 2003, we
successfully secured initial funding of $8,000,000. During 2003, management
began to implement the strategic plan, and throughout 2004 management expects
to continue to implement and refine operational procedures and controls to
support future growth and development. We intend to support research and
development as a vital component of our overall growth strategy. Until
potential customers are familiar with our technology and products, which will
come from continued research and development and proven market use, it is
unlikely that we will generate significant revenue. The following discussion
of our historical financial results should be read against that background. Results of Operations Revenues and cost of sales For the years ended December 31, 2003 and 2002, revenues were $709,638 and
$184,551, respectively. A $525,087 increase in revenues from the prior year is
a 285% increase that was primarily a result of our sales of ANCESTRYbyDNATM
version 2.0 to the general public, which commenced in the fourth quarter of
2002. An increase in our genotyping services also contributed to our sales
growth. Introduction of our forensic product, DNAWitnessTM did not
significantly impact our revenues for 2003. For the same period, cost of sales
increased from $73,205 (40% of revenues) in 2002 to $432,224 (61% of revenues)
in 2003. Because of the small sales volume, lack of historical comparisons and
its dependence on the type of testing conducted in a particular period, these
results are not indicative of the margins that we may attain if our long-term
goals 23




---



##### Table of Contents



are achieved. During 2004, we will continue to focus on increasing
market awareness of our products, particularly within the consumer and forensic
markets. Research and development expenses In 2003 and 2002, the largest component of our operating expenses was
research and development costs, which consists of raw materials, laboratory
supplies, equipment expense, and facilities and employment-related costs. The
expenses were incurred in support of our currently available products,
ANCESTRYbyDNATM and DNAWitnessTM, and for our anticipated pharmacogenomics
products. In 2003, we also conducted research for future enhancements to
DNAWitnessTM. The research included much needed sample collection for our eye
and hair color studies. In addition, investigative research and studies
continued on our pharmacogenomics products, including OvanomeTM and StatinomeTM and a future cardiac
product. Some of this research involved the acquisition and evaluation of new
samples with corresponding medical histories. For the year ended December 31, 2003, research and development costs
increased from $2,195,418 in 2002 to $2,654,259 in 2003, an increase of
$458,841, or 21%. This increase is primarily the result of the stock based
compensation received by our Chief Scientific Officer in return for his
services to us. Because we are in the development stage of our long-term business, it is
not possible to directly correlate our current research and development costs
to our future costs. We will continue to support research and development as
our long-term business develops and it will remain a high priority and a
necessary resource to sustain future growth. We will continue to hire research
and development personnel and invest in the infrastructure required to support
future innovation, including equipment, supplies and other asset purchases. In
order to advance our pharmacogenomic product, OvanomeTM, to commercialization,
our development costs for this product will increase in 2004. In addition, as
we move other pharmacogenomic products forward, research and development costs
will likely increase proportionately. General and administrative expenses Another significant component of our operating expenses is general and
administrative expenses. These expenses resulted from (i) accounting and other
fees associated with preparing the audited financial statements 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, and (iii) administrative and other salaries and
expenses. For the years ended December 31, 2003 and 2002, general and administrative
expenses increased $3,328,390, from $529,535 in 2002 to $3,857,925, in 2003. 24




---



##### Table of Contents



$1,944,507 of this increase is stock based compensation for the three top
executives that were recruited during 2003. The remaining increase consists
primarily of consulting expenses. The increased consulting services resulted
principally from our consulting agreements with a former director and a
marketing consultant. As discussed in Research and Development expenses, we are not able to
extrapolate current general and administrative costs to our future costs. As
our long-term business develops, we believe our general and administrative
costs will increase with revenue growth. For example, to increase sales, an
increase in marketing and sales expenditures will be required to broaden and
expand our market awareness and penetration. We expect all costs associated
with normal marketing and sales activities to increase, including trade shows,
advertising and promotion. In addition, our current facility of approximately
4,000 square feet, will not meet our growth plans and we will need to expand
our facilities to accommodate new personnel, increased production and future
research and development. Our general and administrative cost will rise
accordingly along with the associated costs such as utilities, taxes and
maintenance. Stock based settlement expense During 2003, Tampa Bay Financial, Inc. exercised a right to purchase
4,763,662 shares of our common stock at a price of $.05 per share. Because the
fair market value of our stock was $.082 at the date they exercised their
right, we have recognized $152,437 of expense, the difference between the fair
market value and the exercise price. This amount has been reflected as a
settlement expense as this right was granted to Tampa Bay Financial in
connection with the termination of their funding agreement. Interest expense For the years ended December 31, 2003 and 2002, interest expense increased
significantly from $453,247 in 2002, to $1,402,698 in 2003. During 2003, we
recorded interest expense of approximately $26,000 on related party notes and
certain capital leases, $5,000 on the convertible debenture and related
deferred financing fee, $500,000 related to the intrinsic value associated with
the convertible debt and non-detachable warrants and $872,000 for the issuance
of our common stock for the payment of related party notes payable, at an
agreed upon per share price which was less than the market price of our stock.
We accounted for the difference between the stock issue price and the market
price as interest expense. During 2002, we recorded interest expense of
approximately $46,000 on the related party notes and certain capital leases and
$407,000 for the issuance of our common stock for the payment of related party
notes payable, at an agreed upon per share price which was less than the market
price of our stock. During 2004, we will continue to incur interest on the related party
notes. The amount, however, will be less than 2003 as the outstanding balance
has been reduced 25




---



##### Table of Contents



by our repayments on the notes and the satisfaction of $44,940
in notes held by George Frudakis repaid in cash in January 2004. We may elect
to pay the remaining notes outstanding to Tony Frudakis with common stock. If
we elect to do so, these payments will result in additional interest expense
for the difference between the stock issue price and the market price at the
date the common stock is issued. Our interest expense may also increase as a
result of our convertible debenture that was entered into in late 2003. We will
have a full year of interest expense and related deferred financing fee charge
during 2004. There will be no additional interest expense charge related to
the intrinsic value associated with the convertible debt and non-detachable
warrants that are recorded. Liquidity and Capital Resources Our operating requirements generated a negative cash flow from operations
as we continue to engage in testing and development of our products. Our cash
used by operating activities for the year ended December 31, 2003 was
$1,529,812. We also invested in equipment of approximately $14,165 and had
principal payments on capital lease obligations of $78,200. The resulting
cash shortfall was financed primarily through sales of common stock, the issuance of a convertible debenture and
related party funding. Based upon our current plans, we will continue to focus on increasing
market awareness of our products and developing sales for our currently
available products. It is difficult to predict what revenue stream, if any,
they will generate. We do not expect our revenue stream to cover costs of
operations in the immediate future. We anticipate that the funding from 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 2004. If additional funding is needed, we will attempt to
raise these funds through borrowing instruments or raising additional equity.
Management is 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 can not be predicted. 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 working capital and stockholders
deficiencies of approximately $1,540,922 and $2,037,095 at December 31, 2003,
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 two years, our operations have been funded through related party
funding, sales of common stock and the issuance of a convertible debenture. We
continue to experience some success generating operating revenues; however, we
do not 26




---



##### Table of Contents



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 minimum conversions of the outstanding debenture into common stock and
the related exercise of the non-detachable warrants will fund our operating
activities through 2004. 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 be exercised and/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. Capital Expenditures During 2004, we anticipate developing the required infrastructure to
realize our 2004 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 15,000
to 20,000 square feet with additional expansion potential. We estimate that
lease costs will be between $15 and $25 per square foot. This does not include
fit out 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 $257,000. Timing of the incurrence of the expense will depend
upon the length of time required to find the appropriate facility. In addition, it is anticipated that new laboratory and computer equipment
will be purchased during 2004. Computer purchases for programming, modeling
and business use is estimated at $100,000 and scientific and business programs
and software at $65,000. Capital expenditures for laboratory equipment are
estimated at $500,000 which includes a new robotic SNP machine at a value of
approximately $250,000. Related Party Transactions We have entered into certain related party transactions during the year
ended 2003 and 2002. See item 7 for a discussion of these transactions. 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 27




---



##### Table of Contents



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. Accruals and deferred compensation We estimate the various accruals we record based upon the information we
have available at the time the accruals are recorded. Any changes to these
estimates could impact the accrual and related expense accounts. We recorded
an accrual for federal and state income taxes that we agreed to pay for various
executives on stock grants based upon the information we had at the time the
current financial statements were prepared. This estimate could change based
upon the actual tax that is paid by the various executives compared to the
accrual we booked. Some changes to these estimates could have a significant impact on the accrual and related
compensation expense and/or deferred compensation. 
 Item 7. Financial Statements. 28




---



##### Table of Contents



DNAPrint genomics, Inc.
(A Development Stage Enterprise) Consolidated Financial Statements as of and
for various periods ended December 31, 2003
and 2002 and Independent Auditors Report




---



##### Table of Contents



DNAPrint genomics, Inc.
(A Development Stage Enterprise) TABLE OF CONTENTS PageIndependent Auditors Reports
    
    
    1Consolidated Financial Statements:Consolidated Balance Sheet as of December 31, 2003
    
    
    3Consolidated Statements of Operations for the years ended
December 31, 2003 and 2002, and for the period
December 10, 1998 (date of inception) to December 31, 2003
    
    
    4Consolidated Statements of Stockholders Deficit for the period ended
December 10, 1998 to December 31, 1998 and for the years ended
December 31, 1999, 2000, 2001, 2002 and 2003
    
    
    5Consolidated Statements of Cash Flows for the years ended December
31, 2003 and 2002 and for the period December 10, 1998
(date of inception) to December 31, 2003
    
    
    8Notes to Financial Statements
    
    
    10




---



##### Table of Contents



Independent Auditors Report Board of Directors
DNAPrint genomics, Inc. and Subsidiary
Sarasota, Florida We have audited the accompanying consolidated balance sheet of DNAPrint
genomics, Inc. and Subsidiary as of December 31, 2003 and related consolidated
statements of operations, changes in stockholders equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the management of DNAPrint genomics, Inc. and Subsidiary.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of DNAPrint genomics,
Inc. and Subsidiary as of December 31, 2003 and the results of its operations
and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America. The accompanying consolidated financial statements of DNAPrint genomics, Inc.
and Subsidiary have been prepared assuming that the Company will continue as a
going concern. As more fully described in Note B, the Company has had
recurring operating losses since inception, has negative working capital as of
December 31, 2003, and has used approximately $1,530,000 of cash in operations
for the year ended December 31, 2003. These conditions raise substantial doubt
about the Companys ability to continue as a going concern. Managements plans
regarding these matters are also described in Note B. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
February 20, 2004 1




---



##### Table of Contents



INDEPENDENT AUDITORS REPORT To the Board of Directors and stockholders of DNAPrint genomics, Inc. and
subsidiary: We have audited the
accompanying consolidated statements of operations, stockholders
deficit and cash flows of DNAPrint
genomics, Inc. and subsidiary (collectively the Company), a development stage
enterprise, for the year ended December 31, 2002.  These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash
flows of the Company for the year ended
December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes A and
B to the consolidated financial statements, the Company is in the development
stage, has recurring losses from operations, a stockholders deficit and
requirements for a significant amount of capital financing to proceed with its
business plan. 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 consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. Kingery, Crouse & Hohl,
P.A. April 11, 2003
Kingery & Crouse & Hohl, P.A.
Tampa, Florida




---



##### Table of Contents



DNAPrint genomics, Inc.
(A Development Stage Enterprise) 
 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2003 ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    265,921Accounts receivable (net of allowance for doubtful accounts of $500)
    
    
    9,303Stock proceeds receivable
    
    
    422,955Deferred compensation
    
    
    220,067Prepaid expenses
    
    
    83,010Total current assets
    
    
    1,001,256PROPERTY AND EQUIPMENT(net of accumulated depreciation
and amortization of $321,327)
    
    
    282,305OTHER ASSETS
    
    
    5,000TOTAL
    
    $
    1,288,561LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIES:Accounts payable
    
    $
    582,602Accrued expenses
    
    
    256,593Accrued compensation expense
    
    
    1,283,206Deferred revenue
    
    
    62,118Notes payable to related parties
    
    
    298,043Capital lease obligation
    
    
    59,616Total current liabilities
    
    
    2,542,178Capital lease obligation  long-term
    
    
    5,613Accrued expenses payable with common stock
    
    
    307,865Convertible debenture
    
    
    470,000Total liabilities
    
    
    3,325,656STOCKHOLDERS DEFICIT:Preferred stock, $.01 par value, 10,000,000 shares authorized; -0-
shares issued and outstanding
    
    
    Common stock, $.01 par value, 1,500,000,000 shares authorized;
523,898,635 shares issued and outstanding
    
    
    5,238,986Common stock subscribed
    
    
    1,153,663Additional paid-in capital
    
    
    16,360,817Deferred stock compensation
    
    
    (735,356
    )Deficit incurred prior to development stage
    
    
    (7,427,422
    )Deficit accumulated during the development stage
    
    
    (16,627,783
    )Total stockholders deficit
    
    
    (2,037,095
    )TOTAL
    
    $
    1,288,561
 See notes to consolidated financial statements 2




---



##### Table of Contents



DNAPrint genomics, Inc.
(A Development Stage Enterprise) 
 CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)For the PeriodDecember 10, 1998For the Year Ended
    
    For the Year Ended
    
    (date of inception)December 31,
    
    December 31,
    
    to December 31,2003
    
    2002
    
    2003SALES
    
    $
    709,638
    
    
    $
    184,551
    
    
    $
    980,576COST OF SALES
    
    
    432,224
    
    
    
    73,205
    
    
    
    605,100GROSS PROFIT
    
    
    277,414
    
    
    
    111,346
    
    
    
    375,476OTHER OPERATING EXPENSES:Research and development
    
    
    2,654,259
    
    
    
    2,195,418
    
    
    
    7,084,525General and administrative
    
    
    3,857,925
    
    
    
    529,535
    
    
    
    5,848,955Total other operating expenses
    
    
    6,512,184
    
    
    
    2,724,953
    
    
    
    12,933,480LOSS FROM OPERATIONS
    
    
    (6,234,770
    )
    
    
    (2,613,607
    )
    
    
    (12,558,004
    )OTHER INCOME (EXPENSE):Sale of option to Orchid Biosciences
    
    
    
    
    
    
    
    
    
    
    353,090Loss on disposal of investments
    
    
    
    
    
    
    
    
    
    
    (349,006
    )Stock based settlement expense
    
    
    (152,437
    )
    
    
    
    
    
    
    (152,437
    )Interest expense
    
    
    (902,698
    )
    
    
    (453,247
    )
    
    
    (1,386,428
    )Intrinsic value of convertible debt and
non-detachable warrants
    
    
    (500,000
    )
    
    
    
    
    
    
    (500,000
    )Other expense
    
    
    
    
    
    
    (46,770
    )
    
    
    (46,770
    )Total other income (expense)  net
    
    
    (1,555,135
    )
    
    
    (500,017
    )
    
    
    (2,081,551
    )NET LOSS
    
    $
    (7,789,905
    )
    
    $
    (3,113,624
    )
    
    $
    (14,639,555
    )NET LOSS PER SHARE- Basic and
Diluted
    
    $
    (.016
    )
    
    $
    (.007
    )
    
    $
    (.037
    )SHARES USED IN COMPUTING NET
LOSS PER SHARE Basic and Diluted
    
    
    499,603,483
    
    
    
    451,366,200
    
    
    
    393,357,702
 See notes to consolidated financial statements 3




---



##### Table of Contents



DNAPrint genomics, Inc.
(A Development Stage Enterprise) 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) Common Stock
    
    Additional
    
    Common
    
    StockPaid-In
    
    Stock
    
    SubscriptionsShares
    
    Amount
    
    Capital
    
    Subscribed
    
    ReceivableBALANCES, DECEMBER 10, 1998
    
    
    29,400,986
    
    
    
    294,010
    
    
    
    4,977,381
    
    
    
    
    
    
    
    Stock issued for acquisition of DNAPrint genomics, Inc. (FL) in Pooling of Interests
    
    
    192,000,000
    
    
    
    1,920,000
    
    
    
    (920,000
    )
    
    
    
    
    
    
    (1,000,000
    )Common stock issued for reorganization/court order at $0.02 per share
    
    
    125,000,000
    
    
    
    1,250,000
    
    
    
    1,687,480Adjustment due to subsidiaries liquation in bankruptcyNet loss for the year ended December 31, 1999BALANCES, DECEMBER 31, 1999
    
    
    346,400,986
    
    
    
    3,464,010
    
    
    
    5,744,861
    
    
    
    
    
    
    
    (1,000,000
    )Stock issued for advertising and marketing services at $.02 per share
    
    
    8,000,000
    
    
    
    80,000
    
    
    
    80,000Increases in stock issued for acquisition of land at $.075 per share
    
    
    30,000,000
    
    
    
    300,000
    
    
    
    1,700,000Net loss for the year ended December 31, 2000Unrealized loss on securitiesSubscription receivable payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    539,500Deferred stock compensation related to stock option grants
    
    
    
    
    
    
    
    
    
    
    731,450Dividend paid in common stock of Heroes, Inc.BALANCES, DECEMBER 31, 2000
    
    
    384,400,986
    
    
    
    3,844,010
    
    
    
    8,256,311
    
    
    
    
    
    
    
    (460,500
    )Common stock issuances:Via 506 Private Placement at $.05 per share
    
    
    14,324,000
    
    
    
    143,240
    
    
    
    572,960
    
    
    
    
    
    
    
    For consulting services at $.05 per share
    
    
    800,000
    
    
    
    8,000
    
    
    
    32,000
    
    
    
    
    
    
    
    Through funding agreement with TBFI at $.05 per share
    
    
    7,816,620
    
    
    
    78,166
    
    
    
    312,665
    
    
    
    
    
    
    
    From exercise of nonqualified stock options at $.05 per share
    
    
    11,250,000
    
    
    
    112,500
    
    
    
    574,375
    
    
    
    
    
    
    
    For bankruptcy settlements at $.02 per share
    
    
    10,695,768
    
    
    
    106,958
    
    
    
    106,958
    
    
    
    
    
    
    
    Loss on investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recovery of subscription receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    460,500Deferred stock compensation related to stock option grants
    
    
    
    
    
    
    
    
    
    
    22,100
    
    
    
    
    
    
    
    Amortization of deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss for the year ended December 31, 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BALANCES, DECEMBER 31, 2001
    
    
    429,287,374
    
    
    
    4,292,874
    
    
    
    9,877,369
    
    
    
    
    
    
    
    
   [Continued from above table, first column(s) repeated] DeficitDeficit
    
    accumulated
    
    AccumulatedDeferred
    
    incurred prior
    
    during the
    
    OtherStock
    
    to development
    
    development
    
    ComprehensiveCompensation
    
    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 $0.02 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 $.02 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160,000Increases in stock issued for acquisition of land at $.075 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
    
    
    (731,450
    )Dividend paid in common stock of Heroes, Inc.
    
    
    
    
    
    
    
    
    
    
    (1,988,228
    )
    
    
    
    
    
    
    (1,988,228
    )BALANCES, DECEMBER 31, 2000
    
    
    (731,450
    )
    
    
    (7,427,422
    )
    
    
    (3,130,348
    )
    
    
    25,145
    
    
    
    375,746Common stock issuances:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Via 506 Private Placement at $.05 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    716,200For consulting services at $.05 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000Through funding agreement with TBFI at $.05 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390,831From exercise of nonqualified stock options at $.05 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    For bankruptcy settlements at $.02 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    213,916Loss on investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,145
    )
    
    
    (25,145
    )Recovery of subscription receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    460,500Deferred stock compensation related to stock option grants
    
    
    (22,100
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred stock compensation
    
    
    219,530
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    219,530Net loss for the year ended December 31, 2001
    
    
    
    
    
    
    
    
    
    
    (2,593,906
    )
    
    
    
    
    
    
    (2,593,906
    )BALANCES, DECEMBER 31, 2001
    
    
    (534,020
    )
    
    
    (7,427,422
    )
    
    
    (5,724,254
    )
    
    
    
    
    
    
    484,547
 (Continued) 4




---



##### Table of Contents



(Continued) Common Stock
    
    Additional
    
    Common
    
    StockPaid-In
    
    Stock
    
    SubscriptionsShares
    
    Amount
    
    Capital
    
    Subscribed
    
    ReceivableCommon stock issuances:Via 506 Private Placement at $.018 per share
    
    
    1,388,888
    
    
    
    13,889
    
    
    
    11,111
    
    
    
    
    
    
    
    For consulting services at $.04 per share
    
    
    50,000
    
    
    
    500
    
    
    
    1,500
    
    
    
    
    
    
    
    For consulting services at $.063 per share
    
    
    42,063
    
    
    
    420
    
    
    
    2,229
    
    
    
    
    
    
    
    For consulting services at $.067 per share
    
    
    50,000
    
    
    
    500
    
    
    
    2,850
    
    
    
    
    
    
    
    From exercise of nonqualified stock options at $.051 per
share
    
    
    2,555,555
    
    
    
    25,556
    
    
    
    97,943
    
    
    
    
    
    
    
    From exercise of nonqualified stock options at $.059 per
share
    
    
    2,500,000
    
    
    
    25,000
    
    
    
    122,500
    
    
    
    
    
    
    
    From exercise of employee stock options
    
    
    944,978
    
    
    
    9,450
    
    
    
    (9,450
    )
    
    
    
    
    
    
    For settlement of related party notes payable at $.035
per share
    
    
    14,547,355
    
    
    
    145,473
    
    
    
    771,010
    
    
    
    
    
    
    
    Per settlement agreement with TBFI
    
    
    
    
    
    
    
    
    
    
    34,200
    
    
    
    
    
    
    
    Deferred stock compensation related to stock option grants
    
    
    
    
    
    
    
    
    
    
    171,800
    
    
    
    
    
    
    
    Amortization of deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss for the year ended December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BALANCES, DECEMBER 31, 2002
    
    
    451,366,213
    
    
    $
    4,513,662
    
    
    $
    11,083,062
    
    
    $
    
    
    
    
    Common stock issuances:For settlement of related party notes payable and
interest at $0.032
    
    
    17,307,983
    
    
    
    173,079
    
    
    
    380,776For settlement of related party notes payable and
interest at $0.032
    
    
    8,067,238
    
    
    
    80,672
    
    
    
    177,479For settlement of related party notes payable and
interest at $0.074
    
    
    2,710,043
    
    
    
    27,100
    
    
    
    173,443For settlement of related party notes payable and
interest at $0.072
    
    
    8,092,592
    
    
    
    80,926
    
    
    
    501,741For consulting services at $.030 per share
    
    
    2,780,867
    
    
    
    27,809
    
    
    
    55,617For consulting services at $.048 per share
    
    
    333,725
    
    
    
    3,337
    
    
    
    12,665For consulting and scientific advisory board services at
$.073 per share
    
    
    269,937
    
    
    
    2,699
    
    
    
    17,133For scientific advisory board services at $.048 per share
    
    
    100,000
    
    
    
    1,000
    
    
    
    3,750For accounting services at $.026 per share
    
    
    84,150
    
    
    
    841
    
    
    
    1,358For legal services at $.068 per share
    
    
    58,330
    
    
    
    583
    
    
    
    3,360For legal services at $.077 per share
    
    
    70,778
    
    
    
    708
    
    
    
    4,756
   [Continued from above table, first column(s) repeated] DeficitDeficit
    
    accumulated
    
    AccumulatedDeferred
    
    incurred prior
    
    during the
    
    OtherStock
    
    to development
    
    development
    
    ComprehensiveCompensation
    
    stage
    
    stage
    
    Income
    
    TotalCommon stock issuances:Via 506 Private Placement at $.018 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000For consulting services at $.04 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,000For consulting services at $.063 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,649For consulting services at $.067 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,350From exercise of nonqualified stock options at $.051 per
share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123,499From exercise of nonqualified stock options at $.059 per
share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147,500From exercise of employee stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    For settlement of related party notes payable at $.035
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    916,483Per settlement agreement with TBFI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,200Deferred stock compensation related to stock option grants
    
    
    (171,800
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred stock compensation
    
    
    269,694
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    269,694Net loss for the year ended December 31, 2002
    
    
    
    
    
    
    
    
    
    
    (3,113,624
    )
    
    
    
    
    
    
    (3,113,624
    )BALANCES, DECEMBER 31, 2002
    
    $
    (436,126
    )
    
    $
    (7,427,422
    )
    
    $
    (8,837,878
    )
    
    $
    
    
    
    $
    (1,104,702
    )Common stock issuances:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    For settlement of related party notes payable and
interest at $0.032
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    553,855For settlement of related party notes payable and
interest at $0.032
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    258,151For settlement of related party notes payable and
interest at $0.074
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,543For settlement of related party notes payable and
interest at $0.072
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    582,667For consulting services at $.030 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,426For consulting services at $.048 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,002For consulting and scientific advisory board services at
$.073 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,832For scientific advisory board services at $.048 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,750For accounting services at $.026 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,199For legal services at $.068 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,943For legal services at $.077 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,464
 (Continued) 5




---



##### Table of Contents



(Continued) Common Stock
    
    Additional
    
    Common
    
    StockPaid-In
    
    Stock
    
    SubscriptionsShares
    
    Amount
    
    Capital
    
    Subscribed
    
    ReceivableFor legal services at $.064 per share
    
    
    63,594
    
    
    
    636
    
    
    
    3,447For legal services at $.05 per share
    
    
    59,803
    
    
    
    598
    
    
    
    2,422For legal services at $.048 per share
    
    
    128,074
    
    
    
    1,281
    
    
    
    4,918For consulting services at $.031 per share
    
    
    134,589
    
    
    
    1,346
    
    
    
    2,876For legal services at $0.027 per share
    
    
    843,912
    
    
    
    8,439
    
    
    
    14,566For consulting services at $.050
    
    
    652,166
    
    
    
    6,522
    
    
    
    25,781From exercise of nonqualified stock options at $.029 per share
    
    
    5,882,352
    
    
    
    58,824
    
    
    
    111,764From exercise of nonqualified stock options at $.135 per share
    
    
    4,166,666
    
    
    
    41,667
    
    
    
    520,833From exercise of nonqualified stock options at $.110 per share
    
    
    4,166,666
    
    
    
    41,667
    
    
    
    416,666From exercise of nonqualified stock options at $.072 per share
    
    
    3,030,303
    
    
    
    30,303
    
    
    
    187,879From exercise of nonqualified stock options at $.061 per share
    
    
    3,225,806
    
    
    
    32,258
    
    
    
    164,516Via 506 private placement at $A.015 per share
    
    
    666,667
    
    
    
    6,667
    
    
    
    3,333Via 506 private placement at $.014 per share
    
    
    2,777,778
    
    
    
    27,778
    
    
    
    12,222For settlement with TBFI. at $.082 per share
    
    
    4,763,662
    
    
    
    47,637
    
    
    
    342,983Conversion of debt to common stock and exercise of
non-detachable warrants
    
    
    1,063,829
    
    
    
    10,638
    
    
    
    29,362Conversion of debt to common stock and exercise of
non-detachable warrants
    
    
    1,030,912
    
    
    
    10,309
    
    
    
    29,691Amortization of deferred stock compensationDeferred stock compensation costsStock options cancelled
    
    
    
    
    
    
    
    
    
    
    (170,883
    )Common stock subscribed
    
    
    
    
    
    
    
    
    
    
    1,836,824
    
    
    
    1,153,663Intrinsic 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, 2003BALANCES, DECEMBER 31, 2003
    
    
    523,898,635
    
    
    
    5,238,986
    
    
    
    16,360,817
    
    
    
    1,153,663
    
    
    
    
   [Continued from above table, first column(s) repeated] DeficitDeficit
    
    accumulated
    
    AccumulatedDeferred
    
    incurred prior
    
    during the
    
    OtherStock
    
    to development
    
    development
    
    ComprehensiveCompensation
    
    stage
    
    stage
    
    Income
    
    TotalFor legal services at $.064 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,083For legal services at $.05 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,020For legal services at $.048 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,199For consulting services at $.031 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,222For legal services at $0.027 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,005For consulting services at $.050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,303From exercise of nonqualified stock options at $.029 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170,588From exercise of nonqualified stock options at $.135 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    562,500From exercise of nonqualified stock options at $.110 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    458,333From exercise of nonqualified stock options at $.072 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218,182From exercise of nonqualified stock options at $.061 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196,774Via 506 private placement at $A.015 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000Via 506 private placement at $.014 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000For settlement with TBFI. at $.082 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390,620Conversion of debt to common stock and exercise of
non-detachable warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000Conversion of debt to common stock and exercise of
non-detachable warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000Amortization of deferred stock compensation
    
    
    1,378,637
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,378,637Deferred stock compensation costs
    
    
    (1,848,750
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,848,750
    )Stock options cancelled
    
    
    170,883
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    (735,356
    )
    
    
    (7,427,422
    )
    
    
    (16,627,783
    )
    
    
    
    
    
    
    (2,037,095
    )
 See notes to consolidated financial statements 6




---



##### Table of Contents



DNAPrint genomics, Inc.
(A Development Stage Enterprise) 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)For the Year Ended
    
    For the Year Ended
    
    For the PeriodDecember 31,
    
    December 31,
    
    December 10, 19982003
    
    2002
    
    (Date of
Inception)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (7,789,905
    )
    
    $
    (3,113,624
    )
    
    $
    (14,639,555
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    125,640
    
    
    
    179,146
    
    
    
    488,917Provision for bad debts
    
    
    (1,750
    )
    
    
    13,488
    
    
    
    11,738Impairment of assets
    
    
    
    
    
    
    254,434
    
    
    
    254,434Loss on disposal of investments
    
    
    
    
    
    
    
    
    
    
    11,772Loss on disposal of property and equipment
    
    
    
    
    
    
    5,039
    
    
    
    5,039Amortization of deferred stock compensation
    
    
    174,231
    
    
    
    269,694
    
    
    
    663,455Amortization of deferred compensation
    
    
    740,101
    
    
    
    
    
    
    
    740,101Common stock issued for interest expense on related party
notes payable
    
    
    893,052
    
    
    
    407,326
    
    
    
    1,300,378Common stock issued for reorganization/court order
    
    
    
    
    
    
    
    
    
    
    343,000Common stock issued for services
    
    
    1,647,254
    
    
    
    7,999
    
    
    
    2,236,668Common stock issued for bankruptcy settlement
    
    
    
    
    
    
    
    
    
    
    28,080Stock issued for settlement
    
    
    152,437
    
    
    
    
    
    
    
    152,437Intrinsic value of convertible debt and non-detachable
warrants
    
    
    500,000
    
    
    
    
    
    
    
    500,000Stock based compensation
    
    
    1,943,906
    
    
    
    
    
    
    
    1,943,906(Increase) decrease in receivables
    
    
    2,058
    
    
    
    (23,099
    )
    
    
    304,650Decrease (increase) in prepaid expenses and other assets
    
    
    (1,452,380
    )
    
    
    9,824
    
    
    
    (1,471,133
    )Increase in accounts payable and accrued liabilities
    
    
    1,535,544
    
    
    
    418,398
    
    
    
    2,327,979NET CASH USED IN OPERATING ACTIVITIES
    
    
    (1,529,812
    )
    
    
    (1,571,375
    )
    
    
    (4,798,134
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (14,165
    )
    
    
    (16,454
    )
    
    
    (775,529
    )Proceeds from disposal of property and equipment
    
    
    
    
    
    
    10,100
    
    
    
    10,100Net bankruptcy adjustment
    
    
    
    
    
    
    
    
    
    
    511,274NET CASH USED IN INVESTING ACTIVITIES
    
    
    (14,165
    )
    
    
    (6,354
    )
    
    
    (254,155
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds
from notes payable - related party
    
    
    231,657
    
    
    
    1,255,379
    
    
    
    1,487,036Proceeds from settlement with Tampa Bay Financial
    
    
    238,183
    
    
    
    34,200
    
    
    
    272,383Advances from Tampa Bay Financial, net
    
    
    
    
    
    
    50,815
    
    
    
    384,581Proceeds from issuance of common stock
    
    
    906,478
    
    
    
    295,999
    
    
    
    2,393,427Proceeds from convertible debenture
    
    
    500,000
    
    
    
    
    
    
    
    500,000Repayment of notes payable
    
    
    
    
    
    
    
    
    
    
    (350,800
    )Collections from stock subscriptions
    
    
    
    
    
    
    
    
    
    
    836,960Principal payments on capital lease obligation
    
    
    (78,200
    )
    
    
    (89,876
    )
    
    
    (205,377
    )NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    1,798,118
    
    
    
    1,546,517
    
    
    
    5,318,210NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    254,141
    
    
    
    (31,212
    )
    
    
    265,921CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    11,780
    
    
    
    42,992
    
    
    
    CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    265,921
    
    
    $
    11,780
    
    
    $
    265,921
 (Continued) 7




---



##### Table of Contents



(Continued) (Unaudited)For the PeriodDecember 10, 1998For the year ended
    
    For the year ended
    
    (date of inception)December 31,
    
    December 31,
    
    to December 31,2003
    
    2002
    
    2003SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Approximate Interest Paid
    
    $
    
    
    
    $
    24,000
    
    
    $
    53,300Income 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
    
    $
    702,164
    
    
    $
    509,158
    
    
    $
    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
    
    $
    11,193
    
    
    $
    
    
    
    $
    259,905Deferred compensation on grants of stock options
    
    $
    
    
    
    $
    171,800
    
    
    $
    925,350Deferred compensation reduced for stock options cancelled
    
    $
    (170,883
    )
    
    $
    
    
    
    $
    (170,883
    )Stock to be issued for compensation
    
    $
    2,588,250
    
    
    $
    
    
    
    $
    2,588,250Debenture converted into common stock
    
    $
    30,000
    
    
    $
    
    
    
    $
    30,000Warrants issued for stock issuance costs
    
    $
    80,000
    
    
    $
    
    
    
    $
    80,000
 See notes to consolidated financial statements 8




---



##### Table of Contents



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 192,000,000
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. As a result of this acquisition, the
accompanying consolidated financial statements include the accounts of DNAP
Utah and its wholly-owned operating subsidiary, DNAP Florida (collectively
referred to as we, us, our). All significant intercompany accounts and
balances have been eliminated in consolidation. On December 10, 1998, one of our predecessors, Catalyst Communications, Inc,
filed a petition for relief under Chapter 11 of the federal bankruptcy laws of
the United States Bankruptcy Court for the Middle District of Florida, Tampa
Division (Case No. 98-21641-8P1). We emerged from Chapter 11 on June 7, 2000
and accordingly were no longer under the protection of the bankruptcy court as
of such date. Because holders of our existing voting shares immediately
before confirmation received more than 50% of the voting shares of the
reorganized equity, we did not qualify for fresh start accounting under SOP
90-7. On October 19, 2000, we merged with S.D.E. Holdings 1, Inc., an unrelated
Nevada company. S.D.E. Holdings, Inc., was a reporting company under Section
12 (g) of the Securities Exchange Act of 1934. The purpose of the merger was to
allow us to file a 211 application with the National Association of Securities
Dealers, Inc., as a successor reporting company to become listed on the NASD
OTC Bulletin Board. S.D.E. Holdings had no substantive assets, liabilities,
revenues or expenses since its inception, and all equity of S.D.E. Holdings,
1, Inc. was cancelled as part of the transaction. 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 9




---



##### Table of Contents



efforts in initiating and developing our planned principal operations. While
sales of our genealogy product ANCESTRYbyDNA are increasing, our forensic
product, DNAWitness has just been introduced in the marketplace. Our
pharmacogenomics products are still in development and genotyping services are
in the initial introductory stage. Revenue Recognition Revenues are recognized at the time the services are provided and no additional
performance is required by us. We are currently providing ancestry, forensic,
and genotyping services. Deferred revenue represents the unearned portion of
payments received in advance of tests being completed. Use of Estimates The preparation of financial statements in accordance 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. Estimates that are critical
to the accompanying consolidated financial statements include the accrual and
related compensation and/or deferred compensation for federal and state income
taxes that we have agreed to pay for various executives on stock grants (see
Note G). It is at least reasonably possible that our estimates could change in
the near term with respect to these matters. We estimate the various accruals we record based upon the information we have
available at the time the accruals are recorded. Any changes to these
estimates could impact the accrual and related expense accounts. We recorded
an accrual for federal and state income taxes that we agreed to pay for various
executives on stock grants based upon the information we had at the time the
current financial statements were prepared. This estimate could change based
upon the actual tax that is paid by the various executives compared to the
accrual we booked. Some changes to these estimates could have a significant
impact on the accrual and related compensation expense and/or deferred
compensation. Financial Instruments Our financial instruments include cash, receivables, current assets and current
liabilities. We believe the estimated fair value of such financial instruments
at December 31, 2003 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 debenture as
there are not currently any quoted market prices available. We are in
development stage and it is difficult to get debt financing as well as this
debenture has a convertible feature, thus it is difficult to determine what the
fair value would be. The carrying amount for this convertible debenture at
December 31, 2003 is $470,000 and the interest rate is 8% payable monthly. Accounts Receivable Accounts receivable consist of ancestry, forensic, and genotyping services to
customers. We generally require prepayment for ancestry services, and perform
ongoing credit evaluations of our customers. We 10




---



##### Table of Contents



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 $500 is considered adequate. We determine receivables to be past due based
on the payment terms of original invoices. 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 one financial institution 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. Property and Equipment Property and equipment are recorded at the lower of cost or fair value. 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 three
to ten 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. For income tax purposes, we use the
accelerated methods for all assets as required by the Internal Revenue Service. Long Lived Assets We periodically review our long-lived assets for indications of impairment. If
the value of an asset is considered impaired, an impairment loss is recognized.
During the year ended December 31, 2002, we recognized impairment losses
aggregating $254,434, on two pieces of our equipment. These amounts are
included in other operating expenses in our December 31, 2002 consolidated
statement of operations. The impairment losses resulted because we projected
negative cash flows for the foreseeable future; accordingly, the assets have
been written down to their estimated fair market values (as determined by
management). There was no impairment of long-lived assets during the year
ended December 31, 2003. 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 bases. 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. 11




---



##### Table of Contents



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 2003
and 2002 based on uncertainties concerning our ability to generate taxable
income in future periods. There was no income tax receivable at December 31,
2003 and 2002. 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 $2,075 and $4,600, respectively, for the
years ended December 31, 2003 and 2002, are expensed as they are incurred. Stock-Based Compensation We account for equity instruments issued to employees for services based on the
fair value of the equity instruments issued and account for equity instruments
issued to those other than 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 those other than
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 No. 25 Accounting for Stock Issued to
Employees and related Interpretations. Under the intrinsic value based
method, compensation cost is the excess, if any, 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 income and earnings per share had we applied the fair value recognition
provisions of BASB Statement No. 123 to stock-based employee compensation: 2003
    
    2002Net loss as reported
    
    $
    7,789,905
    
    
    $
    3,113,624Total stock-based employee compensation
expenses determined under fair value based
method for all awards, net of related tax
effects
    
    
    42,195
    
    
    
    99,000Pro forma net loss
    
    $
    7,832,100
    
    
    $
    3,212,624Loss per share basic and diluted:As reported
    
    $
    .016
    
    
    $
    .007Pro forma
    
    $
    .016
    
    
    $
    .007
 12




---



##### Table of Contents



See footnote G, for additional disclosure and discussion of our option plan and
option activity. Recent Pronouncements In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
148, Accounting for Stock-Based Compensation-Transition and
Disclosure. This
Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. We adopted
SFAS 148 on January 1, 2003. We continue to use the intrinsic value method of
accounting under APB Opinion No. 25, Accounting for Stock Issued to Employees
to account for our stock-based employee compensation. In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51 (the Interpretation). The Interpretation requires the consolidation
of variable interest entities in which an enterprise absorbs a majority of the
entitys expected losses, receives a majority of the entitys expected residual
returns, or both, as a result of ownership, contractual, or other financial
interests in the entity. Currently, entities are generally consolidated by an
enterprise that has controlling financial interest through ownership of a
majority voting interest in the entity. The Interpretation was originally
immediately effective for variable interest entities created after January 31,
2003, and effective in the fourth quarter of the Companys fiscal 2003 for
those created prior to February 1, 2003. However, in October 2003, the FASB
deferred the effective date for those variable interest entities created prior
to February 1, 2003, until the Companys first quarter of fiscal 2004. The
Company has substantially completed the process of evaluating this
interpretation and believes its adoption will not have a material impact on its
consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
statement establishes standards for how an issuer classifies and measures in
its statement of financial position certain financial instruments with
characteristics of both liabilities and equity. In accordance with the
standard, a financial instrument that embodies an obligation for the issuer is
required to be classified as a liability (or an asset in some circumstances).
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did
not have any impact on our financial statements. 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 and 13




---



##### Table of Contents



common equivalent shares outstanding during the period. Common equivalent
shares outstanding as of December 31, 2003 and 2002, 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, 2003 and
2002 and for the period December 10, 1998 to December 31, 2003. 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 working capital and stockholders
deficiencies of approximately $1,540,922 and $2,037,095 at December 31, 2003,
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 two years, our operations have been funded through related party
funding, sales of common stock and the issuance of a convertible debenture. 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 minimum conversions of the outstanding debenture into common stock and
the related exercise of the non-detachable warrants will fund our operating
activities through 2004. 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 be exercised and/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, 2003: 2003Leased equipment under capital lease
    
    $
    86,122Furniture, fixtures and other equipment
    
    
    347,697Leasehold improvements
    
    
    169,813Subtotal
    
    
    603,632Less accumulated depreciation and amortization
    
    
    (321,327
    )Property and equipment  net
    
    $
    282,305
 Accumulated depreciation and amortization includes $36,429 of accumulated
depreciation of leased equipment as of December 31, 2003. 14




---



##### Table of Contents



NOTE D - 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 $8,500,000. These net operating loss
carry forwards expire in various years through the year ended December 31,
2023, however because we have experienced changes in control and have incurred
significant operating losses, utilization of the income tax loss carry forwards
are 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 are 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. In addition to the above, we also incurred significant net operating losses
prior to our acquisition of DNAP Florida. However, because of our bankruptcy
proceedings, changes in control, and various other matters the availability of
these losses to offset future taxable income is so uncertain that no deferred
income tax asset has been recorded. At December 31, 2003 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: AmountsDeferred income tax asset:Net operating loss carry forwards
    
    $
    3,189,000Bonuses
    
    
    704,000Option expense
    
    
    250,000Impairment of assets
    
    
    96,000Total deferred income tax asset
    
    
    4,239,000Deferred income tax liability:Deferred stock compensation included in employee
compensation in 2003
    
    
    (242,000
    )Total deferred income tax liability
    
    
    (242,000
    )Less valuation allowance
    
    
    (3,997,000
    )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 as of December 31, 2003 and
2002: 15




---



##### Table of Contents



2003
    
    2002Statutory benefit
    
    $
    (2,648,000
    )
    
    
    (1,059,000
    )State tax benefit, net of federal effect
    
    
    (283,000
    )
    
    
    (124,000
    )Increase in deferred income tax valuation allowance
    
    
    1,937,000
    
    
    
    1,126,000Intrinsic value of convertible debt and non-detachable warrants
    
    
    328,000
    
    
    
    Non-deductible expenses
    
    
    473,000
    
    
    
    Non-deductible interest expense
    
    
    188,000
    
    
    
    Other
    
    
    5,000
    
    
    
    57,000$
    
    
    
    
    
 NOTE E - 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. (LJCI). We pay
interest on a monthly basis with a principal balloon payment due on the
maturity date of November 24, 2005. LJCI has the right to convert the
debenture and exercise the warrants after the first full calendar month after
the registration statement was filed (which was filed on December 19, 2003).
Per the agreement, LJCI 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
LJCIs election to convert. Per the agreement, if LJCI would be deemed the beneficial owner of more than
4.99% of the then outstanding share of our common stock, then LJCI 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 LJCI. LJCI 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 LJCI does not convert at least 5% of the warrants
per month, then LJCI will not be able to collect interest on the debenture for
that month. The 7,500,000 warrants issued to LJCI expire on November 25, 2006. On February 18, 2004, the Convertible debenture and Warrant to Purchase Common
Stock agreements were amended between LJCI and us. If LJCI 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, LJCI 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 LJCI fail to wire DNAP such funds, LJCI shall
not be entitled to collect interest on the debenture for that month. If
breached more than once, than DNAP may terminate the agreements with LJCI and
the debenture becomes due six months thereafter with accrued interest. If the debenture principal amount declines below $100,000, LJCI shall be
permitted, for a period of 30 days, to add up to $250,000 of additional
principal to the debenture on the same terms and conditions as the debenture,
except that such additional principal shall bear interest at 2%. 16




---



##### Table of Contents



During 2003, we recorded $500,000 for the intrinsic value associated with the
convertible debt and non-detachable warrants which was recorded as interest
expense and capitalized $30,070 of deferred financing costs which will be
amortized to interest expense over the two-year life of the note.
Additionally, during 2003, we recorded $5,000 of interest expense on this note
including amortization of deferred financing costs of $3,000. During December 2003, LJCI converted $30,000 of convertible debentures into our
common stock and exercised 450,000 of the non-detachable warrants. See Note G
below for a further discussion of this conversion. LJCI converted additional debentures into common stock after yearend. See Note
J below for additional information on these conversions. NOTE F - NOTES PAYABLE TO RELATED PARTIES In addition to the notes outstanding at December 31, 2002 of $746,222, during
2003, we received additional funds of $231,657 from our Chief Scientific
Officer and his father in accordance with a funding agreement we entered into
with them in February 2002 and which was subsequently amended during October
2002. We also had rent payments of $22,328 which were paid by issuing notes
payable to George Frudakis (the rent was owed to a company he owned). The
principal and 8% interest on these notes were due at December 30, 2003. The
funding agreement provided that if we are unable to pay the notes and accrued
interest, the lenders 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 in satisfaction of the debt will be based on a price of $.035 per
share if the weighted average price of our stock is $.05 per share or above;
alternatively if the weighted average price of our stock is less than $.05, 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 $.01 per share. During January and July, 2003, we elected to satisfy approximately $549,000 and
$174,000, respectively of the related party notes and accrued interest and as
satisfaction for same we issued 25,375,221 and 10,802,635, respectively shares
of our common stock. Because the issuance price was less than the fair market
value of our shares at the time of issuance, we recognized additional interest
expense in January and July, 2003 of approximately $263,000 and $609,000,
respectively as a result of these transactions. At December 31, 2003, our notes payable to related parties is $298,043. The
notes of approximately $45,000 and accrued interest of approximately $4,000
owed to George Frudakis was paid in full during January 2004. Subsequent to
yearend, the Company and Tony Frudakis agreed to extend the funding agreement
with him under the same terms until December 31, 2004. While we currently
anticipate having the funds to satisfy this remaining indebtedness at its
maturity, if we liquidate the indebtedness using discounted stock, then we will
be required to record additional interest expense arising from the difference
between the fair value and issuance price of our stock. NOTE G - CERTAIN EQUITY TRANSACTIONS Common Stock 17




---



##### Table of Contents



Conversion of Debenture and
Exercise of Warrants

At the end of the year, LJCI converted $30,000 of convertible debentures into
our common stock and exercised 450,000 of the non-detachable warrants. This
combined transaction resulted in us recording a receivable of $422,955 (the
funds were sent by LJCI to our investment banking firm which wired us the funds
early in January 2004) which is net of $27,045 stock issuance costs and we
issued 12,403,861 shares of the our common stock of which 2,094,741 were issued
at yearend and 10,309,120 were issued in early January 2004. At December 31,
2003, we have $103,091 recorded in our common stock subscribed equity account
for the unissued shares. Stock Issued for Payment of Related Party Notes

During January and July, 2003, we elected to satisfy approximately $549,000 and
$174,000, respectively of the related party notes and accrued interest and as
satisfaction for same we issued 25,375,221 and 10,802,635, respectively shares
of our common stock. Because the issuance price was less than the fair market
value of our shares at the time of issuance, we recognized additional interest
expense in January and July, 2003 of approximately $263,000 and $609,000,
respectively as a result of these transactions. Stock Issued for Services During 2003, we issued stock in lieu of cash payment to several service
providers including legal, accounting and marketing services. The total number
of shares issued in lieu of cash was 1,443,230 at a value of approximately
$52,135, which has been recorded as an expense during the year. 2002 Private Placement

During 2003, we received $50,000 for 3,444,445 shares of common stock issued
related to the 2002 private placement. Agreement with Tampa Bay Financial, Inc. On June 24, 2003, Tampa Bay Financial, Inc. exercised a right to purchase
4,763,662 shares of our common stock at a price of $.05 per share. Because the
fair market value of our stock was $.082 at the date they exercised their
right, we have recognized $152,437 of expense during 2003. This amount has
been reflected as a settlement expense as this right was granted to Tampa Bay
Financial in connection with the termination of their funding agreement. In
accordance with the terms of this agreement, Tampa Bay Financial, Inc. retains
the rights to purchase an additional 14,786,018 shares of our common stock at a
price of $.05 per share at any time through February 2005. These shares remain
in escrow pursuant to such agreement. Service Agreement On July 14, 2003, we entered into an agreement with Sema4, Inc. dba Semaphore.
In the agreement, Semaphore agrees to provide consulting and support services
for investor relations and general counsel activities. Semaphore will bill us
at an agreed upon hourly rate for investor relation services and general
counsel activities. Semaphore agreed to defer, until financing is completed,
60% of the general counsel fees and 50% of the investor relation fees. The
deferred billing may be converted to equity at Semaphores choosing and at a
20% discount. The value of the stock will be based on the past fifteen day
moving average prior to the date of the valuation which will be the date of the
invoice. During 18




---



##### Table of Contents



December 2003, we issued 652,166 shares of common stock with a value of
approximately $32,000. The discount amount of approximately $7,000 has been
recorded as an expense during the period. During February 2004, we issued an additional 24,034 shares of common stock to
Semaphore with a value of approximately $1,300 and a discount amount of
approximately $300 for services that were provided during 2003. We recorded
the expense for these services during 2003 and at December 31, 2003, we have
$240 recorded in our common stock subscribed equity account for the unissued
shares. Consulting Agreement During 2003, we issued stock under an ongoing agreement with a consultant who
provided us with certain marketing services. We received $500,000 in cash
under the option agreement and the consultant received approximately 20,471,793
shares at a fair market value of approximately $1,606,000. As a result, we
have recognized approximately $1,106,000 in consulting expense during 2003. Consulting Agreement with Scientific Advisory Board Member During June 2002, we entered into an agreement with a member of our Scientific
Advisory Board, 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 50,000 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. This individual also receives 50,000 shares of
common stock annually for the services he provides as a Scientific Advisory
Board member. During 2003, we issued 603,662 shares of common stock at a fair
market value of approximately $36,000 as payment for the quarterly shares owed,
commission on net revenues owed and the annual shares owed for providing the
Scientific Advisory Board services. Scientific Advisory Board Member

On November 20, 2000, we entered into an agreement to pay 50,000 shares of
common stock annually for five years for the services performed as a member of
the scientific advisory board member. During 2004, this scientific advisory
board member was issued 100,000 shares of common stock at a fair market value
of approximately $5,000 in payment for his services provided during 2002 and
2003. Agreement with Former Director Luchese

In February 2002, we entered into a Consulting Agreement and a Stock Purchase
Option with one of our former directors (this director resigned in January
2003). Under this agreement, the director has agreed to provide us substantial
management, business development and strategic planning advice through at least
May 31, 2003. As consideration for these services, and successful completion
of various other milestones, we agreed to issue up to 28,000,000 options of our
stock to this director at an exercise price of $0.01 per share. 1,680,000 of
these options were to be earned by this director by providing services as
required by the Consulting Agreement, but without the achievement of any
particular performance milestones. We recorded an expense of approximately
$56,000 during 2002 and $11,000 during 2003 related to the 1,680,000 options. 19




---



##### Table of Contents



In addition to the consulting agreement discussed above, in November 2002, we
engaged this individual to provide us with consulting services valued at
$25,000 per month (payable in shares of our common stock) for a period of four
months. As of December 31, 2002 we had recognized $50,000 of consulting
expenses under this arrangement, and in January 2003, we issued 2,780,867
shares of our common stock as consideration for such liability (because the
shares were issued at a price less than the fair market value of our stock on
the date of issuance, we recorded additional consulting expenses in 2003). We entered into a conversion agreement with this individual on May 16, 2003.
As consideration for services provided in 2003, we have agreed to pay this
director approximately $110,000 and such amount has been included in consulting
fees and other liabilities in the accompanying financial statements. In
accordance with this agreement all of the 28,000,000 options were cancelled on
May 16, 2003 and since no milestones were met, no further expense was required
to be recorded for these options. Stock Award In addition to the above, we previously had an agreement to award 30,000,000
shares of our common stock to our Chief Science Officer when certain
performance measures were met. At December 31, 2002 and March 31, 2003, it
was not probable that the shares would ever be issued and accordingly no stock
based compensation was recorded through such date. During the second quarter
of 2003, the Board of Directors approved the immediate vesting of these shares
as the criteria the Board of Directors had set had been met, and in addition
agreed to pay the related federal and state income taxes that this officer will
incur as a result of these stock grants. As a result, we have recognized
approximately $1,047,000 of compensation during 2003. At December 31, 2003,
approximately $308,000 is owed to him for the related federal and state income
taxes and is recorded in the accrued compensation expense liability account.
Since the shares have not been issued as of December 31, 2003, $300,000 is
recorded in the common stock subscribed equity account with the remaining
balance to additional paid in capital. During the fourth quarter the estimate
for the stock compensation and the related bonus was revised from $1,334,000 to
$1,047,000 based upon additional information received during the quarter. The
effect of this change of estimates is recorded during the fourth quarter 2003. Deferred Compensation and Stock to be Issued to Executives In May 2003, we entered into one-year employment agreements with three of our
officers. These agreements automatically extend for unlimited successive
one-year periods unless it is terminated in accordance with the agreement which
includes either party furnishing the other with written notice at least sixty
days prior to the expiration of such period. As consideration for their
services, we have agreed to issue, at no cost to the executives, a total of
75,000,000 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. We have
estimated that the total compensation expense under these agreements will
approximate $2,809,000 over the term of the employment agreements, and have
recognized approximately $1,945,000 of compensation expense (based on the
amount of service provided through December 31, 2003) during 2003. At December
31, 2003, the deferred compensation asset account has a remaining balance of
$220,067 and the deferred stock compensation contra-equity account has a
remaining balance of $735,356. These remaining amounts will be amortized to
compensation expense over the remaining terms of the agreements. At December
31, 2003, approximately $960,000 is owed to these executives for the related
federal and state income taxes and is recorded in the accrued compensation
expense liability account. The shares have not 20




---



##### Table of Contents



been issued as of December 31, 2003; therefore approximately $750,000 is
recorded in the common stock subscribed equity account with the remaining
balance to additional paid in capital. During the fourth quarter the estimate
for the stock compensation and the related bonus was revised from $3,650,000 to
$2,809,000 based upon additional information received during the quarter. The
effect of this change of estimates is recorded during the fourth quarter 2003.. 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,
for a period of twelve months, 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:  
    
    A non-refundable retainer, payable in warrants to
purchase stock of our Company valued at $80,000. During 2003,
these 3,636,363 warrants were recorded as stock issuance costs in
additional paid-in-capital. These warrants have an exercise price
of $0.022 and expire in five years. During 2003, none of these
warrants were exercised.
    
    Upon closing of a transaction, a fee equal to the greater
of $165,000 or 6% of the aggregate dollar value of the aggregate
consideration paid by investors (provided however that if the
total raised is less than $1,000,000, then the fee shall be 16.5%
of the amount raised).
    
    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. We get to
apply a credit of one-half the value of the $80,000 warrants
discussed above to these warrants. As of December 31, 2003, no
additional warrants were required to be issued.
    
    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. 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. We are authorized to grant options for up
to 19,200,000 common stock shares, of which 7,387,500 have been granted as of
December 31, 2003. The Board of Directors granted 21




---



##### Table of Contents



2,600,000 options to one of the board members and these were outstanding at
December 31, 2003. Options were granted at exercise prices from
$ .006 - $ .03
per share (or approximately 40 % of the market price of our stock on the
respective grant dates). With the exception of the options issued to one of
our directors, which vests monthly over four years, the options issued vest 25%
per year for four years and all expire in ten years. The status of our stock options are summarized below: WeightedNumber of
    
    AverageShares
    
    Exercise PriceOutstanding at December 31, 2001
    
    
    10,850,000
    
    
    $
    0.008Granted
    
    
    4,280,000
    
    
    
    0.022Exercised
    
    
    (1,037,500
    )
    
    
    0.006Cancelled
    
    
    
    
    
    
    Outstanding at December 31, 2002
    
    
    14,092,500
    
    
    
    0.013Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (5,142,500
    )
    
    
    0.007Outstanding at December 31, 2003
    
    
    8,950,000
    
    
    $
    0.015Options exercisable at December 31, 2003
    
    
    6,744,792
    
    
    $
    0.012Options available for grant at December
31, 2003
    
    
    11,812,500
 The following table summarizes the information about our stock options
outstanding at December 31, 2003: WeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    average
    
    
    
    
    
    AverageNumber
    
    contractual
    
    exercise
    
    Number
    
    ExerciseExercise Price
    
    Outstanding
    
    life (years)
    
    price
    
    exercisable
    
    Price$
    .006
    
    
    
    4,962,500
    
    
    
    6.77
    
    
    $
    0.006
    
    
    
    4,821,875
    
    
    $
    0.006$
    .010
    
    
    
    125,000
    
    
    
    6.74
    
    
    
    0.010
    
    
    
    93,750
    
    
    
    0.010$
    .020
    
    
    
    1,262,500
    
    
    
    7.63
    
    
    
    0.020
    
    
    
    637,500
    
    
    
    0.020$
    .030
    
    
    
    2,600,000
    
    
    
    8.16
    
    
    
    0.030
    
    
    
    1,191,667
    
    
    
    0.0308,950,000
    
    
    
    7.30
    
    
    $
    0.015
    
    
    
    6,744,792
    
    
    $
    0.012
 We account for our stock-based compensation using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. With respect to stock 22




---



##### Table of Contents



options granted during 2002, we recorded deferred stock compensation of
approximately $174,000 for the differences between the exercise prices and the
fair values of the common stock underlying the options on the dates of the
grants. These amounts are being amortized consistent with the method described
in FASB Interpretation No. 28 over the vesting period of the individual
options. There were no options granted during 2003. Had our compensation
expense for stock-based compensation plans been determined based upon fair
values at the grant dates for awards under this plan in accordance with SFAS
No. 123, Accounting for Stock-Based Compensation, our net loss and pro forma
net loss per share amounts would have increased as follows: 2003
    
    2002Net loss:As reported
    
    $
    7,789,905
    
    
    $
    3,113,624Pro forma
    
    $
    7,832,100
    
    
    $
    3,212,624Loss per share:As reported
    
    $
    .016
    
    
    $
    .007Pro forma
    
    $
    .016
    
    
    $
    .007
 The weighted average fair value of options granted during 2002, estimated on
the date of grant using the Black-Scholes option-pricing model, was $.04 to
$.05. The fair value of options granted was estimated on the dates of the
grants using the following approximate assumptions: dividend yield of 0 %,
expected volatilities of 112%, risk-free interest rates of 5%, and expected
lives of 4 years. NOTE H  OTHER COMMITMENTS AND CONTINGENCIES Operating Lease Commitments We rent our operating facility under a two-year operating lease agreement
expiring on May 31, 2005 with an option to extend the lease an additional five
years at the same rental rate. Prior to August 26, 2003, this operating
facility was leased from Atlantic Pacific Corporation, a related entity
controlled by the father of our Chief Scientific Officer. Future minimum lease
payments under this lease are $64,653 for 2004 and $26,939 for 2005. Rent expense amounted to $107,689 and $64,700 for the years ended December 31,
2003 and December 31, 2002, respectively. This included a charge of $41,865
which was for renegotiating the lease (prior lease expired in 2010) with
Atlantic Corporation (a related entity controlled by the father of one of our
major shareholders) and is expected to be paid in common stock. The above amounts are not necessarily indicative of the amounts which would
have been incurred had comparable transactions been entered into with
independent parties. On August 26, 2003, this building was sold to a
non-related party entity. Obligations under Capital Leases 23




---



##### Table of Contents



We have capitalized rental obligations under leases of equipment. The
obligations, which mature in 2005 and 2006, 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: Year EndingDecember 31,2004
    
    $
    65,6742005
    
    
    5,8772006
    
    
    293Total minimum lease payments
    
    
    71,844Less amount representing interest
    
    
    6,615Present value of net minimum lease payments
    
    
    65,229Less current portion
    
    
    (59,616
    )$
    5,613
 Employment Agreement with Chief Scientific Officer On May 8, 2001, we entered into an employment agreement with Tony Frudakis, our
Chief Science 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. The agreement initially provided a base salary of $95,000
per year to Dr. Frudakis. We increased this salary to $130,000 per year in
2001, and our Board of Directors may increase the salary form time to time at
its discretion. The employment agreement also permits the Board of Directors
to authorize payment of discretionary bonuses or other benefits to Dr.
Frudakis. Scientific Advisory Board and Board of Consultant Currently we have two Scientific Advisory Board members and one Board of
Consultant member. For the services performed by these three members, we are
committed to issue 50,000 shares of our common stock each year to each member.
The remaining commitments of common stock shares for these individuals are
150,000 shares in 2004, 150,000 shares in 2005, 50,000 shares in 2006 and
50,000 shares in 2007. During June 2002, we entered into a two-year consulting agreement with a member
of the Scientific Advisory Board. For his services, we have agreed to pay him
quarterly 50,000 shares of common stock and $4,000 through the term of this
agreement. Consulting Agreement We entered into a consulting agreement on June 1, 2003 with an individual for
certain marketing services. For these services the individual would be paid
5,000,000 shares of our common stock upon our acceptance of the services
provided. At December 31, 2003, we accrued $280,000 in the accrued expenses to
be paid with stock account for the services that had been performed during
2003. On January 19, 2004, we accepted the services that were provided and
issued the 5,000,000 shares of our common stock. 24




---



##### Table of Contents



Litigation We are involved in certain legal actions 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
any of these matters or these matters in the aggregate will have a material
adverse effect on our business or our consolidated financial position or
results of operations. NOTE I - OTHER RELATED PARTY TRANSACTIONS Agreements with Directors On February 26, 2002, we agreed to pay one of our Board of Directors $20,000
annual compensation and 2,600,000 of stock options for his Board of Director
services. The options have an exercise price of $0.03 and expire in four
years. We recorded an expense associated with these services of $20,000 and
$16,667 for the years ended 2003 and 2002, respectively. At December 31, 2003
we have an accrual recorded for $16,667 related to these services. GenBiomics, LLC Consulting Agreement A consulting agreement between GenBiomics, LLC and us was terminated on April
1, 2003. The original consulting agreement was signed on May 17, 2002 and was
an agreement that we entered into for consultation and advice on the
development of our scientific and business plans. Since that time, two of
GenBiomics members have agreed to become executives in our Company and Board of
Director members and as a result the prior consulting agreement was terminated.
At December 31, 2003, we had accrued $35,475 owed to GenBiomics for the
services provided prior to the termination of this agreement. During 2003 and
2002, we recorded consulting expense related to this agreement of $10,000 and
41,250, respectively. NOTE J - SUBSEQUENT EVENTS Conversion of Debenture and Exercise of Warrants From yearend to February 20, 2004, LJCI converted $20,000 of convertible
debentures into our common stock and exercised 300,000 of the non-detachable
warrants. This combined transaction resulted in us receiving cash of $211,425
which is net of the $13,575 stock issuance costs and a receivable of $70,465
from our investment banking firm. We issued 8,030,416 shares of our common
stock. Early in 2004, we also issued the 10,309,120 shares of stock to LJCI
that was unissued at December 31, 2003 (see Note G above). Consulting Agreement On January 19, 2004, we accepted the services that were provided from a certain
marketing consultant and issued the 5,000,000 common stock shares we had
committed to this individual as payment for these services. Related Party Notes Payment During late January 2004, we paid in full the notes and related accrued
interest totaling approximately $49,000 owed to George Frudakis, father of our
Chief Scientific Officer. 25




---



##### Table of Contents



Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. We dismissed our accounting firm Kingery, Crouse, and Hohl on September
19, 2003 and engaged Pender, Newkirk and Company (PNC). Our Board of Directors
approved the change. Kingery, Crouse, and Hohls reports on our consolidated
financial statements for each of the years ended December 31, 2002 and 2001 did
not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope for accounting principles,
except that the report of Kingery, Crouse and Hohl on our financial statements
for the fiscal year ended December 31, 2002 contains an expression of
substantial doubt regarding our ability to continue as a going concern. There were no disagreements with our former accountants and we filed an 8K
with the SEC noting the change on September 19, 2003. 
 Item 8A. Controls and Procedures Under the supervision and with the participation of management, including
the CEO and CFO, we conducted an evaluation of our disclosure controls and
procedures, as such term is defined under Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended (the Exchange Act), as of
December 31, 2003. Based on this evaluation, our principal executive officer
and principal financial officer concluded that our disclosure controls and
procedures are effective. There have been no significant changes in the Companys internal controls
or in other factors that could significantly affect these controls subsequent
to the date of their evaluation. 
 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
    
    
    36
    
    
    Director, Secretary, Chief Scientific OfficerRichard Gabriel2
    
    
    55
    
    
    Director, Chief Executive Officer, PresidentHector Gomez
    
    
    64
    
    
    Director, Chief Medical OfficerMonica Tamborini 3
    
    
    47
    
    
    Chief Financial Officer, Chief Operating Officer
   2 Married to Monica Tamborini3 Married to Richard Gabriel 26




---



##### Table of Contents



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
the Companys inception. He has served in many capacities, including
CEO/President. Dr. Frudakis now serves as Chief Scientific Officer (CSO) 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 DNAPrint genomics, Inc., 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 January of 2003 as a member of
our Board of Directors. As Chief Executive Officer (CEO), he, along with our
other Board members, formulates and communicates strategic direction. He
continues in that capacity and in addition, in March of 2003, he agreed to join
us as President. In his role as President, Mr. Gabriel is responsible for and
oversees all aspects of the organization. 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 (CMO). In this
capacity, he is 27




---



##### Table of Contents



responsible for overseeing and managing our efforts to
commercialize our pharmacogenomic products. In addition to his duties with us, he is a partner in Genbiomics, LLC, a
consulting firm. 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. Monica Tamborini. In May of 2003, Ms. Tamborini joined us as Chief
Financial Officer (CFO) and Chief Operating Officer (COO). As CFO, Ms.
Tamborini oversees and manages all accounting functions, including financial
reporting, as well as helping to obtain outside capital to fund our operations.
As COO, 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 CFO
positions since 1988. From 1992 to 2001, she was CFO 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. Ms. Tamborini serves on our audit committee and 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 as noted in Item
401 of the SEC rules and regulations. 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 and 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. Section 16(a) Beneficial Ownership Reporting Compliance The following table sets forth the names, number of late reports; number
of late reported transactions and known that failures to file a required report
with respect to 28




---



##### Table of Contents



required filings under Section 16(a) the Exchange Act by our
officers, directors and stockholders. Name
    
    Late Reports
    
    Transactions
    
    Known FailureTony Frudakis
    
    
    7
    
    
    
    21
    
    
    
    0Richard Gabriel
    
    
    2
    
    
    
    1
    
    
    
    0Hector Gomez
    
    
    2
    
    
    
    1
    
    
    
    0Monica Tamborini
    
    
    2
    
    
    
    1
    
    
    
    0
 Code of Ethics We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer and our controller. The text of the code
of ethics is available for public viewing at our website at www.dnaprint.com.
In addition, we will briefly describe on our website the nature of any
amendment to our code of ethics and the nature of any waiver of a provision of
our code of ethics, the name of the person to whom the waiver was granted, and
the date of the waiver. 
 Item 10. Executive Compensation. The compensation and awards that have been earned by our executives is
listed below. Summary Compensation Table RestrictedStock
    
    All OtherName and Principal Capacity
    
    Year
    
    Salary
    
    Awards4
    
    Compensation5Richard Gabriel6Director, Chief Executive
    
    
    2002
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Officer , President
    
    
    2003
    
    
    $
    0
    
    
    $
    $870,000
    7
    
    $
    444,808
   4  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.5 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. This was earned in 2003 but will be paid in 2004. 29




---



##### Table of Contents



Hector Gomez, M.D.,
Ph.D.
Director, Chairman of the
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    $
    20,000Board, Chief Medical Officer
    
    
    2003
    
    
    
    
    
    
    $
    725,000
    8
    
    $
    277,988Tony Frudakis, Ph.D.9
Chief Scientific Officer
    
    
    2001
    
    
    $
    130,000Director, Secretary
    
    
    2002
    
    
    $
    130,0002003
    
    
    $
    130.000
    
    
    $
    870,000
    10
    
    $
    307,888Monica Tamborini11
Chief Financial Officer,
Chief Operations Officer
    
    
    2003
    
    
    $
    0
    
    
    $
    580,000
    12

    
    $
    257,372
 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. The Agreement provided a base salary of
$95,000 per year to Dr. Frudakis. We increased this salary to $130,000 per year
in 2001, and our Board of Directors may increase the salary from time to time
in its discretion. 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 30 million shares of our restricted stock upon
achieving certain milestones. The Board of Directors renegotiated the
milestones in   6 Mr. Gabriel joined our Board of Directors during 2002 and became our
President in 2003.7 Calculated on 30,000,000 shares at a price of .029, the close price of the
stock on May 16, 2003, the date the award was granted by the Board of
Directors.8 Calculated on 25,000,000 shares at a price of .029, the close price of the
stock on May 16, 2003, the date the award was granted by the Board of
Directors.9 Dr. Frudakis has been with us since inception and has held many titles and
positions during that time including CEO, President and CFO. Dr. Frudakis is
currently our CSO.10 Calculated on 30,000,000 shares at a price of .029, the close price of the
stock on May 16, 2003, the date the award was granted by the Board of
Directors.11 Ms. Tamborini joined us in 2003.12 Calculated on 20,000,000 shares at a price of .029, the close price of the
stock on May 16, 2003, the date the award was granted by the Board of
Directors. 30




---



##### Table of Contents



light of changes in the Companys 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 have agreed to issue, at no cost to the executives, a total of
75,000,000 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. 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 2,600,000
shares of our stock at an exercise price of $0.03 per share. The options vest
ratably over a period of four years from the date of the contract. As of
February 20, 2004 approximately 1,191,667 options to purchase shares had vested
and no vested shares had been exercised. In addition, we agreed to pay him a
cash directors fee of $20,000 per year. Fiscal Year End Option Values (a)
    
    (d)
    
    (e)Name
    
    Number of Securities
Underlying Unexercised
Options at Fiscal Year End
    
    Value of Unexercised
In-the-Money Options at
Fiscal Year EndExercisable/UnexercisableHector Gomez
    
    2,600,000
    
    $101,400131,191,667/1,408,333
 There were no options exercised during fiscal year 2003.   13 Calculated based on the closing price of .069 on December 31, 2003 less the
exercise price of .03 multiplied by 2,600,000. 31




---



##### Table of Contents



Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
 The following table sets forth, as of February 20, 2004 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. Name And Address Of
    
    Amount Of
    
    Percentage OfTitle Of Class
    
    Beneficial Owner 14
    
    Beneficial Ownership
    
    Class15Common
    
    Tony Frudakis
    
    
    60,782,937
    
    
    
    9.39
    %Common
    
    Richard Gabriel
    
    
    30,000,000
    
    
    
    4.64
    %Common
    
    Hector Gomez
    
    
    26,191,667
    16
    
    
    4.04
    %Common
    
    Monica Tamborini
    
    
    20,000,000
    
    
    
    3.09
    %Common
    
    Directors and
Officers as a Group
(4 persons)
    
    
    135,782,937
    
    
    
    20.98
    %
 Securities Authorized for Issuance Under Equity Compensation Plans   14Unless otherwise noted, c/o DNAPrint genomics, Inc., 900 Cocoanut Avenue,
Sarasota, FL 34236.15 Percentage of ownership is based on 547,238,171 shares of Common Stock
outstanding at February 20, 2004 and the addition of the subscribed stock
for the executives of 105,000,000 shares. The total shares used for
percentage of class calculation is 647,238,171.16 Represents 25,000,000 shares directly owned by Dr. Gomez and 1,191,667
shares which may currently be acquired by exercise of options. 32




---



##### Table of Contents



The following table sets forth certain information, as of December 31,
2003, with respect to compensation plans (including individual compensation
arrangements) under which our equity securities of the registrant are
authorized for issuance. Number of securitiesNumber of securities
    
    Weighted-average
    
    remaining available for futureto be issued
    
    exercise price of
    
    issuance under equityupon exercise of
    
    outstanding
    
    compensation plansoutstanding options,
    
    options, warrants
    
    (excluding securities reflectedwarrants and rights
    
    and rights
    
    in column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    0
    
    
    
    N/A
    
    
    
    0Equity compensation
plans not approved
by security holders
    
    
    8,950,000
    
    
    $
    0.015
    
    
    
    40,350,000Total
    
    
    8,950,000
    
    
    $
    0.015
    
    
    
    40,350,000
 The material features of the equity compensation plans reflected in the
foregoing table are described in Note G to our financial statements contained
in Item 7 of this Annual Report on Form 10-KSB, under the caption Employee
Stock Options and Awards. 
 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 expires on May 31, 2005 with an option to extend
the lease an additional five years at monthly rent of approximately $5,400.
The building was sold to JSD Sarasota, LLC on August 26, 2003. 33




---



##### Table of Contents



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 February 24, 2002, we entered into a Consulting Agreement and a Stock
Purchase Option with Jack Luchese. At the time, Mr. Luchese was one of our
directors. Under these agreements, and in addition to his service as one of
our directors, Mr. Luchese agreed to provide us substantial management,
business development and strategic planning advice through at least May 31,
2003. The sole consideration that we were obliged to pay under the Consulting
Agreement was the grant of options to purchase stock under the Stock Purchase
Option. The Stock Purchase Option provided for the issuance of up to 28,000,000
shares of our stock to Mr. Luchese at an exercise price of $0.01 per share. As
of December 31, 2002, we had recognized $50,000 of consulting expenses under
this arrangement, and in January 2003, we issued 2,780,868 shares of our common
stock as consideration for such liability (as noted above, because the shares
were issued at a price less than the fair market value of our stock on the date
of issuance, we recorded additional consulting expenses in 2003.) During the
second quarter of 2003, we negotiated a Conversion Agreement with Mr. Luchese.
In return for payment of $110,000, the agreement terminated all contracts
between Mr. Luchese and us. 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 14,547,355 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 $.035 per share if the weighted average
price of our stock is $.05 per share or above; alternatively if the weighted
average price of our shares is less than $.05, 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 $.01 per share. At December 31, 2003, our notes payable to related parties approximated
$298,043. The notes of approximately $45,000 and accrued interest of
approximately 34




---



##### Table of Contents



$4,000 owed to George Frudakis were paid in full during January
2004. Subsequent to yearend, Tony Frudakis agreed to extend his funding
agreement under the same terms
until December 31, 2004. We agreed to pay one of our directors, Hector Gomez, $20,000 annually for
his role as Chairman of our Board of Directors. In addition, he has an option
to purchase 2,600,000 shares of our common stock at an exercise price of $0.03.
The options vest over in four years. On April 1, 2003, we terminated a consulting agreement with GenBiomics,
LLC. The original consulting agreement was signed on May 17, 2002. Since that
time, two of GenBiomics members have agreed to become officers and directors of
the Company. As a result, the prior consulting agreement was terminated. As of
December 31, 2003, we had accrued $35,475 owed to GenBiomics for the services
provided prior to the termination of the agreement. During 2003 and 2002, we
recorded consulting expense related to this agreement of $10,000 and 41,250,
respectively. 
 Item 13. Exhibits and Reports on Form 8-K.  (a)
    
    Exhibits 3.1
    
    Articles of Incorporation*3.2
    
    Bylaws*10.1
    
    Plan of Merger*10.2
    
    Articles of Merger*10.3
    
    Articles of Amendment to Articles of Incorporation*10.4
    
    Supply & License Agreement*10.5
    
    Agreement & Plan of exchange between Catalyst
Communications, Inc. and DNAPrint Genomics, Inc. and
Shareholders. *10.6
    
    Equipment Agreement dated September 19, 2001
between Orchid
Biosciences, Inc. and the Company. *10.7
    
    Purchase Agreement dated September 19, 2001
between Orchid Biosciences, Inc. and the Company. *
 35




---



##### Table of Contents



10.8
    
    Employment Agreement dated may 8, 2001 between
Tony Frudakis and the Company. *10.9
    
    Lease Agreement dated October 15, 2001 between
Pacific Atlantic Corporation and the Company. *10.10
    
    Option Agreement dated September 19, 2001
between Orchid Biosciences, Inc. and the Company. *10.11
    
    Equipment Lease Agreement dated May 18, 2001
between Orchid Biosciences, Inc. and the Company. *10.12
    
    Funding and Stock Subscription Agreement dated
June 8, 2001 between Tampa Bay Financial, Inc. and the
Company. *10.13
    
    Consulting and Marketing License Agreement
between the Company and Mark Neuhaus. *10.14
    
    Agreement dated February 22, 2002, among the
Company, Tampa Bay Financial, Inc., Carl Smith, Mathew Veal,
and the Company. *10.15
    
    Contract Genotyping Agreement dated January 15,
2002 between the Company and GenoMed LLC. *10.16
    
    Funding Agreement dated February 22, 2002 among
the Company Tony Frudakis, George Frudakis, Carl Smith Iii,
and Richard Craig Hall. *10.17
    
    Performance Stock Agreement dated November 30,
2001 between the Company and Tony Frudakis. *10.18
    
    Consulting Agreement dated February 24, 2002
between the Company and Jack Luchese. *10.19
    
    Stock Purchase Option dated February 25, 2002
between the Company and Jack Luchese. *10.20
    
    Consulting Agreement dated June 12, 2002 between
Mark Shriver and the Company. *
 36




---



##### Table of Contents



10.21
    
    Letter of Commitment between Mark Shriver and
the Companys Scientific Advisory Board. *10.22
    
    Agreement between Startup Florida and the
Company. *10.23
    
    Service Agreement dated April 15, 2002 between
Altura LLC and the Company. *10.24
    
    License Agreement between Penn State Research
Foundation and the Company. *10.25
    
    Private Placement Agreement between John Oskarep
and the Company. *10.26
    
    Consulting Agreement dated May 17, 2002 between
Genbiomics LLC and the Company. *10.27
    
    Amendment to Consulting Agreement between
Genbiomics LLC and the Company dated May 31, 2002. *10.28
    
    Amendment to Consulting Agreement between Mark
Shriver and the Company. *10.29
    
    Funding Agreement between Tony Frudakis, George
Frudakis and the Company. *10.30
    
    Securities Purchase Agreement with La Jolla Cove Investors, Inc. *10.31
    
    Registration Rights Agreement with La Jolla Cove Investors, Inc. *10.32
    
    Convertible Debenture with La Jolla Cove Investors, Inc. *10.33
    
    Warrant with La Jolla Cove Investors, Inc. *10.34
    
    Letter Agreements with La Jolla Cove Investors, Inc. *10.35
    
    Employment Agreement between the Company and
Richard Gabriel. *
 37




---



##### Table of Contents



10.36
    
    Employment Agreement between the Company and
Monica Tamborini. *10.37
    
    Employment Agreement between the Company and
Hector Gomez.*10.38
    
    Termination Agreement between the Company and
Genbiomics, LLC. *10.39
    
    Lease between Florida West Construction dba
Pacific Atlantic Corp and DNAPrint genomics, Inc. *10.40
    
    Amendment to Consulting Agreement between
DNAPrint genomics, Inc. and Mark Neuhaus. *10.41
    
    Conversion Agreement between the Company and
Jack Luchese. *10.42
    
    Amendment to Funding Agreement between DNAPrint
genomics, Inc. and Tony Frudakis.21
    
    List of Subsidiaries. *23
    
    Consent of Pender Newkirk & Company31.1
    
    Rule 13a-14 Certification of Chief Executive Officer, Richard Gabriel31.2
    
    Rule 13a-14 Certification of Chief Financial
Officer, Monica Tamborini32.1
    
    Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)32.2
    
    Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
 *
    
    Previously filed.
 (b)
    
    Reports on Form 8-K.None.


38



---



##### Table of Contents



Item 14. Principal Accountant Fees and Services. Audit Fees During 2002, we were billed by our accountants, Kingery, Crouse, and Hohl,
approximately $36,000 for audit and review fees. During 2003, we were billed
by Kingery, Crouse and Hohl, approximately $17,000 for audit and review fees
associated with our 10-QSB and 10-KSB filings. In addition during 2003, we were
billed by Pender, Newkirk and Company, our new accountants, approximately
$49,000 for audit and review fees. Audit related fees During 2002 and 2003, we were billed by an outside accountant that we
hired as a consultant to help us with our SEC filings, including our 10-KSB
2002 and our 10-QSB for March 31, 2003. We were billed approximately, $8,000
by this consultant. In addition, during 2003, we engaged an outside accountant to help us with
our 10-KSB filing for 2003. We were billed approximately $12,000 for these
services. Tax Fees During 2002, we engaged an outside accountant to file our tax returns. We
were billed approximately $500 for these services. This amount was for
services supplied to us for preparation of our tax forms, including form 1120.
In addition, during 2003, we were billed approximately $1,400 by our
accountants Pender, Newkirk and Company for the tax services that they supplied
us. These services did not include the preparation and filing of our 1120 tax
forms but for researching other tax issues as requested by us. All Other Fees None 39




---



##### Table of Contents



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 GabrielRichard Gabriel, CEO, DirectorDate: March 30, 2004
 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
    
    March 30, 2004Richard Gabriel/s/ Monica
Tamborini
    
    CFO
    
    March 30, 2004Monica Tamborini/s/
Hector Gomez
    
    Director
    
    March 30, 2004Hector Gomez/s/
Tony Frudakis
    
    Director
    
    March 30, 2004Tony Frudakis
 40