SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K-12(g)3
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: November 3, 2000
DNAPRINT GENOMICS, INC.
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(New name of registrant as specified in its charter)
(successor registrant under Sec. 12(g)3 of the Securities Exchange Act of 1934)
S.D.E. HOLDINGS 1 INC.
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(Prior name of corporation pre-merger)
NEVADA 0-30119 84-1529311
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.
incorporation pre-merger)
pre-merger)
Utah 59-2780520
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.
incorporation post-merger)
post-merger)
1748 Independence Blvd., Suite D1, Sarasota, FL 34234
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(NEW ADDRESS)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 941-351-4543
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
The Company is a successor registrant pursuant to Section 12(g) 3 of the
Securities Exchange Act of 1934, by virtue of a statutory merger of the Parent,
DNAPrint genomics, Inc. a Utah corporation, and its wholly owned subsidiary,
S.D.E. Holdings 1 Inc., a Nevada corporation, with DNAPrint genomics, Inc. being
the survivor. There was no change to the issued and outstanding shares of
DNAPrint genomics, Inc. and all shares of S.D.E. Holdings 1 Inc. were retired by
virtue of the merger.
On October 12, 2000, DNAPrint genomics, Inc. completed a Share Purchase
Agreement with shareholders of S.D.E. Holdings 1 Inc. in which DNAPrint
genomics, Inc., a Utah corporation, acquired all 500,000 shares outstanding of
the Registrant for the purposes of accomplishing a Merger of S.D.E. Holdings 1
Inc. and DNAPrint genomics, Inc. The Merger was subsequently completed on
October 13, 2000.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 17, 2000, DNAPrint genomics, Inc. executed its Plan of Merger and
Articles of Merger with S.D.E. Holdings 1 Inc. whereby it acquired 100% of the
outstanding stock of S.D.E. Holdings 1 Inc. and merged with S.D.E. Holdings 1
Inc. All outstanding shares of S.D.E. Holdings 1 Inc. were retired in the
merger. DNAPrint genomics, Inc. is the surviving company, and will carry out its
business plan as set forth hereinbelow in Item 5.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
None.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
None.
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ITEM 5. OTHER EVENTS
MISSION STATEMENT - BUSINESS AND BUSINESS PLAN OF DNAPRINT GENOMICS, INC.
DNAPrint genomics intends to be a national provider of analytical tools and
knowledge based solutions for personalized medicine, using DNA related products
and procedures.
BACKGROUND ON SNP TECHNOLOGY.
SNP technology has just now been enabled by the completion of the Human Genome
Project, a multi-billion dollar, multi-year international effort funded by the
Wellcome Trust and the National Institutes of Health. It has also been enabled
by recent advancements in hardware technology (i.e. Sequenom Inc. of San Diego,
CA and Orchid Biosciences of Princeton NJ). Today, for the first time in
history, it is possible to create microchips of SNP data for any population or
any person, and analyze thousands and thousands of genes that contribute to the
biological and psychological make-up of a person. For Pharmacogenomic studies,
the genes focused on are those that are involved in the metabolism of xenobiotic
compounds.
How does it work? Hundreds of DNA sequences are isolated from a patient,
amplified and sprayed onto a tiny microchip using a special machine. This DNA is
then read using a machine called a mass spectromoter or a genetic bit analyzer.
Until now, sequencing involved multiple steps and reagents, but now with the new
genomics tools, it takes about 3-5 seconds to read a samples sequence, and about
20 minutes to read 384 sequences for a given person. The collection of sequences
that results constitutes the persons SNP profile for those markers tested. By
building databases of profiles and comparing them to databases of drug
sensitivity/side-effect databases, drug companies hope to be able to stratify
the drug treatment results based on patient genetic profiles. In so doing, a
drug that would have failed a trial in the past because it caused a reaction in
a specific subset of the population, may now be a success and approved for
prescription to everyone else.
However, as promising as personalized medicine is, it is still in its infancy.
First, all companies performing Pharmacogenomic studies are focusing on new
drugs, not drugs that have already been FDA approved. Secondly, no companies
have the ability to analyze their data on anything other than a very simple
format. Most current SNP testing is performed for patients with specific genetic
diseases and simple genetic mutations, which are relatively rare and therefore
of limited economic value. The reason is that "solutions" for these cases tend
to be simple. However, over 99% of all human traits, including drug response or
disease, are the result of complex genetic interactions (interactions between
genes, between genes and environment etc.). This is true even though the future
of this technology is its power to unravel multi-genic phenotypes and diseases.
Complex analytical software will need to be designed, appropriate SNP batteries
defined and donors assembled corresponding to the various phenotypes in order to
obtain "true" solutions for these problems. Why haven't these things been done
yet? The first reason is that SNP technology is still too new, and the simple
problems are the first to be addressed. The second reason is that finding
complex patterns in genetic data is mathematically and scientifically difficult.
There are simply too few people in the world with the combination of
mathematical, programming and biological knowledge necessary to effectively work
on these problems.
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DNAPrint genomics intends to be among the first to focus on "mining" SNP data
for multi-genic phenotype information. We intend to do this by building a unique
informatics platform.
How a patient interacts with a drug is a function of multi-genic determinants,
and so multi-genic analysis has enormous implications for the development of
personalized medicine. Physical characteristics such as height and weight, are
determined by multiple genes interacting with each other. So too are drug
responses or disease succeptibility (i.e. cancer). There is no drug interaction
gene or cancer gene; there are several 10s or even 100s of genes that determine
these traits. Thus learning how to mine physical trait information from SNP
arrays would have implications for forensic and medical science, and the
"solution" for these problems represent a sort of "diagnostic" product for a
drug, that operates by preventing a disease or medical problem rather than
simply tell a doctor that a person has a disease or medical problem. In this
way, they can help prevent disease, not just report that disease exists. They
are therefore more valuable than diagnostic products, which generate billions of
dollars each year for their discoverers. However, these "solutions" await the
development of highly advanced informatics approaches to the difficult problem
of understanding data on a genomic scale.
Science has shown that over 99% of known phenotypes (physical traits) are more a
function of complex multi-gene interactions within and between genetic pathways
than single genes (Voehringer et al., PNAS 2100: 97(6) 2680-2685; Xue et al.,
Cancer Res 2000 60(4):839-841; Weatherall et al., Philos Trans Soc Lond B Bio
Sci 1999 354(1352):1995-2010; Nicholls et al., Acta Paediatr Suppl
88(433):99-104; Bolk et al., PNAS 2000 97(1) 268-273; Bovill et al., Thronm
Haemost 82(2):662-666). Most drug response studies, for example, have
nevertheless considered only simple genetic causes - single SNPs not complex
patterns of SNPs. Thus, the multigenic analysis platform technology we are
attempting to construct may have significant implications for making
personalized medicine (and even make "smart forensics" a reality).
Our first mission is to develop sophisticated software analytical tools. If
developed, we hope to sell to every hospital. Research institutes and biotech
companies using human genomic information may also have need for our product.
During the course of our work, we will be "training" our system to recognize
patterns by applying it to several human trait "problems", such as drug
side-effects or disease states. The "solutions" obtained from these applications
constitute a separate but valuable product. The "solutions" can be used to match
patients with drugs and identify the disease succeptible. As such, we hope they
will be among the very first personalized medical products on the market. Our
analytical tools, which constitute our informatics platform, will enable us to
recognize the "solution" in the data. Our company is designing systems to
generate these "solutions" using proprietary mathematics and programming
strategies.
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Several types of personalized genetic markets are identified:
PERSONALIZED MEDICINE.
The public market ultimately represents the greatest single source of revenue
for our products. There is an opportunity here, for the first time in history,
to "solve" drug interaction problems that have been vexing to doctors and
patients for years. Most pharmaceutical companies are focusing their
"simpilistic" analytical tools on new drugs so that they can help them pass
through the FDA approval process. Logistically, they do not have the time, money
or motivation to address already FDA approved drugs with existing markets.
Though "problems" represent a huge potential market for personalized medical
products or "solutions", this market is largely ignored at present because the
focus of big Pharma is to push new drugs through clinical trials to generate new
revenue producing products. We have forged relationships with local diagnostic
clinics whereby these clinics are supplying us with a) blood samples from
elderly patients taking a variety of drugs in South Florida and b)
hepatocellular toxicity test results for each sample. These labs actually
perform the "liver tests" for local hospitals. Rather than pay for biohazard
disposal of excess blood, they ship the samples to us and we perform our own
pharmacogenomics testing on them to find their "solutions". Each drug "solution"
that we hope to generate may be a separate, viable diagnostic product for a new,
more responsible and safer personalized medicine.
Further, we believe there is a market for our product in new drug discovery. Our
tools and datasets may help pharmaceutical companies obtain genetic "solutions"
for their new drugs.
As genetic "solutions" are produced and publicized, we believe the demand for
individual people to have their SNP profiles produced will increase. Why take a
drug that may damage your liver and lead to immune system depression - even
cancer - when a simple blood or saliva test exists for determining this
possibility before-hand? Hospitals of the future will have high-throughput
genotyping equipment, and we feel that our informatics product and trait
"solutions" will form a platform and knowledge base for analyzing the results
produced with such equipment.
FORENSIC SCIENCE SOLUTIONS.
We can use DNA for more than simple plus/minus human identification to expand
the scope of forensic analysis. Our platform may enable law enforcement to
define the probability of race, hair color, eye color and weight based on the
SNP profile obtained from the evidence. To do this, we will have to define SNP
batteries for genes involved in certain genetic pathways for biological
characteristics unique to different populations of human beings. Examples
include pigment production and metabolism - only humans can respond to sunlight
exposure by upregulating melanin synthesis and the mechanism of this is SNPs
within genes that function in regulating human pigment steady state levels and
deposition. Decades of publicly funded work have defined these genes. How their
variation among different populations relate to the differences between these
populations has not yet been determined, and the new tools of the human genome
project enable this for the first time. How will we assemble this data into a
forensic test? We intend to accumulate this data through emperical
experimentation on SNPs selected through reference to decades of scientific
literature. This will bring us to suitable genetic pathways suitable for study.
For example, we might select SNPs associated with proteins that are known to
function during the process of human fat production and metabolism to create a
battery of SNPs that may have predictive value for the weight of the donor. The
"solutions" to this problem can be used to classify an unknown DNA sample as
belonging to one human subgroup or another.
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THE PLATFORM ITSELF
The key to each of these applications is to tease complex genetic information
from empirical genetic data sets with artificial intelligence. Likely genetic
players for a trait can be predicted using decades of publicly funded and
available genetic research. The goal is to prove association of genes with
traits by studying the genetic variation within the human population using human
genomics technology. We hope to construct extensive intra-genic SNP maps
directly from the blood or saliva of phenotypically similar patients (patients
with similar symptoms, diseases or drug reaction groups). The heuristic software
algorithms we plan to develop will employ numerical and conceptual clustering
tools, using neural net technology, to find patterns and overlapping
genotype/environmental circuits, which may be associated with the target
phenotype.
SHORT TERM REVENUE POTENTIAL
We have described how as we develop our platform technology, we will produce
"solutions" for some of the most dangerous drugs on the current market as well
as future markets. By virtue of our blood sample supplier relationship, we will
naturally receive samples for drug "problems" that are the most frequent in the
South Florida population. The rationale for choosing to locate the company in
South Florida is based on the large number of seniors in the area. Statistics
show that 1 in 5 seniors is on an average of 5 different medications. The drug
portfolio of these seniors turns over on average every 5 years. Simply put,
there is a wealth of biological specimen resources in this area.
In addition to providing a great source of starting material, these patients
also form a customer base for our genetic "solutions". For example, if we could
"solve" Lamisil hepatocellular toxicity, the "solution" can be sold to each
Lamasil patient prior to prescription. Alternatively, the "solution" can be sold
or licensed to the pharmaceutical company that makes the drug, so they can
market the drug more responsibly. Insurance companies have repeatedly stated
that such tests are fundable, because they reduce their financial exposure at a
later date when dealing with costly side-effects. In other words, they are
expected to be cost-effective. Aside from this, there is a moral issue. It is
not responsible or ethical to prescribe a drug based on a population mean when a
test exists to determine compatibility before-hand.
We hope to generate near-term revenue is through the provision of our technology
to pharmaceutical companies engaged in clinical trials. We plan to partner with
companies performing pre-clinical and clinical studies, to provide them with SNP
profiling services and analysis using our proprietary informatics platform.
Aside from serving as a good way to "prove" our system to these future
customers, who may wish to license it from us, we can ask for downstream
revenues that our "solutions" enable. In this model, we would enable them to
stratify their results based on the genetics of the patient population, without
investing in expensive capital (hardware or software) equipment. Such a service
would potentially enable companies to identify a drug that had, say, a 10%
success rate, which is too low for FDA approval, as a drug that had a 99%
success rate on individuals of certain SNP profiles that comprise about 10% of
the human population. Thus, the drug can be approved for use with this specific
genetic subset of the patient population. For the company, this means the
difference between trial failure and success.
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This technology is new and UNPROVEN. Companies in this field are just now coming
onto the scene (Sequenom Corp. and Orchid Biocomputer for example). Their
commercialization of high-throughput SNP mapping technology, combined with the
completion of the publicly funded Human Genome Project (HGP) opens the study of
genetic variation up to the world for the first time in history. For about five
thousand dollars, anyone can set up the hardware necessary to study genetic
variation through the analysis of SNP profiles. The problem is analyzing it.
Companies may have little expertise with the complex mathematics of this
endeavor, and instead look to license-in this technology from specialty
companies like ours.
With new genomic technology and database information, 100 individual maps can be
analyzed in about 5 seconds, and building comprehensive genetic databases is now
just a question of time, money, expertise and vision. Analyzing the data is more
problematic. Innovative mathematical modeling is needed. Smart programmers and
experienced bioinformaticists are needed. Over 4 decades of publicly and
privately funded biological research has gone into the creation of the data and
equipment necessary to begin the work. However, the work cannot be done yet
because the sophisticated tools have not yet been developed. Companies are just
now starting to address this problem, and most are doing a poor job.
The genetic data that we will use on our chips to "score" each patient is public
domain and cost the Government of the United States and the Wellcome Trust of
Britain over 3 Billion dollars. The hardware technology that enables efficient
study of this information has came from this same project, and has taken decades
to assemble. The two have co-existed in time for only a couple of months now
(since January of 2000). Simply put, the technology is very new and the window
of opportunity to develop "solution" finding algorithms and "solutions"
themselves has just opened.
Many genomics laboratories are preoccupied with finding genes and promoters in
the sequence. Others attempt to predict gene product function using
sophisticated programming tools. Relatively few have begun to build analytical
algorithms for the study of human genetic variation, which is our aim. The
application of DNA to everyday life is even further behind at present. At this
time DNA analysis is currently only performed by genetic testing facilities for
very simple diseases or problems, which we already mentioned constitute less
than 1% of those that humans experience, because they are easy and do not
require smart genomics approaches. In other words, from development to
application takes several years.
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DNA analysis is also performed by scientific specialists in the field of
forensics and paternity. This is called STR analysis. STR analysis is based on a
much less sensitive and more primitive approach to reading DNA. The STR approach
"sequences" only 13 regions of a persons DNA, and this DNA is so-called "junk"
DNA because it resides between that DNA which comprises a persons "genes". Since
genes make the body parts of a human, only gene sequences can be used to say
anything about a humans physical and psychological characteristics. Thus, STR
data is useful only for individual identification, and except in rare cases of
genetic linkage, cannot be used for predictive or medical functions. This
limitation of STR data is why some big pharmaceutical companies are spending so
much money to develop SNP databases for disease diagnosis and drug reactivity
prediction. Analytical projects are down the road for them, if they can find the
rare mathematicians that are needed. By the time they reach this point, we will
have already produced a world-class product and licensure will be a more
economical alternative - just as it currently is for the hardware used for this
purpose. In other words, first to develop wins because of the cost of
re-inventing the wheel and most of these companies are currently pre-occupied
with simple analytical tools for new drugs they are pushing through their
pipelines.
Our Company's basis for entry into this area is proprietary chemistry combined
with a mathematical approach.
We are one of a few companies in the world using mathematics to address the
difficult task of building complex genetic analysis tools. The other 3 companies
(Genomica, Corp., Rosetta Inpharmatics, PPGx) are currently working on database
tools for genomic data management, not analytical tools for drawing genetic
associations. The fact that neither Sequenom nor Orchid, the purveyors of the
only two high-throughput genotyping hardware platforms on the market, have a
coordinated effort in the analytical space for this industry speaks to how
difficult it is to find the talent for this endeavor.
We are one of the first companies to offer STR services to the general public.
This was accomplished by the patenting of a proprietary enzyme reagent called
TruSeq(tm) that enables mass-scale DNA analysis for a fraction of the cost. In
so doing, DNAPrint genomics was able to offer DNA services at an economical
price for the first time. Since our patent pending reagent is compatible with
SNP applications, or any application that uses thermostable enzymes, it confers
to us a distinct economic advantage over any competition in the field (which is
still largely unformed due to the novelty of the technology). We are developing
unique analytical tools to process genomic data, and we hope to be able to build
genomic data matricies more economically than any one else.
REVENUE ACTIVITIES
The platform technology we develop will be comprised of proprietary SNP
databases for certain important genes and genetic pathways, proprietary neural
net algorithms that can mine complex genetic information from huge genetic data
sets and the genetic "solutions" that arise from the application of the latter
to the former. The platform technology- which we call the PHENOME(tm) system,
will enable the generation of diagnostic/prognostic systems which can be applied
to virtually any human phenotype or disease. We hope to generate revenues and
profits from three main application areas for our informatics platform:
a) personalized drug prescription
b) the identification of disease determinants
c) forensic science
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We hope to generate revenues through the:
1) License of our informatics platform, patented and extensive SNP location
databases and population genotype databases (the "solutions") derived from
analyzing the latter with the former for important human genes involved in
human drug response and disease susceptibility (a license model). Each drug
that we discover a "solution" for represents a sort of new diagnostic
product, with economic potential rivaling a traditional diagnostic product.
It enables us to skip from "problem" to "problem" and build an entire
portfolio of valuable "solutions".
2) License and use of heuristic, artificial intelligence software applications
capable of mining complex human genotype information from genetic SNP
arrays for the purpose of pharmaceutical target identification (another
license model). This may generate revenue from the discoveries that the
system enables.
3) Service fees for production and storage of SNP data for third parties using
the proprietary platform that we develop (a service model).
4) Licensing and use of our patent pending DNA analysis products (i.e.
TruSeq(tm)) and platform tools to pharmaceutical and biotechnology
partners.
Other minor sources of revenue:
5) Sale of DNA specimen collection kits used to provide the material to
construct each profile.
6) Through internet-based DNA sequencing and STR analysis services offered to
the public. These services rely on internet capable RDMS systems, are
unique to the industry, and will provide positive cash flow during our
investment period required to ramp up this business plan. This service is
already being phased out so that we can focus on personalized medicine.
DIRECTIONS AND CONSIDERATIONS
Our goals are, in order, to:
1) Develop complex SNP databases for the discovery of predictive SNP arrays
for multi-genic traits.
2) Build our informatics platform, work already in progress using artificial
data sets.
3) Discover the genetic "solutions" for selected economically important drug
"problems".
4) Extend this process to find "solutions" to selected disease trait
"problems", such as sporadic breast cancer, a relatively common disease
with high heritibility.
5) Enable personalized medicine from the patient side of the equation by
licensing and/or using our system for SNP analysis via a direct-to-patient
model.
6) Enable new disease trait discovery by licensing the informatics system and
disease "solutions" we generate to pharmaceutical companies for new drug
development.
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It is important to point out that a successful "solution" does not need to solve
the entire problem. Although we will strive to generate "solutions" that offer
100% power of prediction, if a "solution" offers a prediction power of 80%, (in
other words, explains 80% of the variation in the population), it is easily cost
effect from a statistical standpoint and could have real economic impact because
they are preventative tools, not simply tools of detection an already manifest
problem.
In order to do these six things, there are several issues to be addressed:
1. the feasibility of the empirical approach.
True multi-genic trait analysis has never been performed for most traits in
humans. The determinants for most multi-genic phenotypes or traits is
unknown, mostly because of the complexities of genetic pathways involved
and the here-to-fore lack of genomic information, genomic hardware and
analytical software. For example, hepatocellular cytotoxcicity for Lipitor
may be caused by a pattern of variation for overlapping clusters of SNPs
within the CYP2A, NAD2 and CYP1A genes that follows a multinomial
distribution. Population studies necessary to reveal this kind of
"solution" have not been possible up until now. Empirical study of
intelligently selected SNPs for these genes means "guessing" which genes
contain SNPs that are useful for solving the problem. This is where
biological expertise comes into play. In the future, when the price per
genome comes down (and it will), systematic study of markers distributed
throughout the human genome will be possible, but for now, intelligent or
"educated" guesses are necessary when building databases. Fortunately, many
of the genes that might participate in certain traits such as drug response
or cancer are reasonably predicted. Over 40 years of basic research has
taught us a great deal about the biological basis for certain cellular
processes, and the goal of genomics research is to prove, or demonstrate
which of the hundreds of candidate genes actually play a role, and through
which mutations or SNPs.
2. our ability to develop new software tools.
This is perhaps the most challenging aspect of our business plan. One of
our founders, Myung Ho Kim, is a seasoned mathematician and software
developer. Another, Kondragunta Venkateswarlu, is an accomplished
biostatistician and programmer. The third is a proven molecular biologist
and the fourth an experienced database manager. The first three are Ph.D.
level scientists, and uniquely qualified for the project. Several members
of our board of directors have valuable and rare expertise with this
heuristic logic development. We have already made inroads into estimating
complicated genetic parameters using maximum liklihood methods, and our
people have a proven track record for innovation in the field of complex
pattern discovery in voice recognition, signal processing and genetics.
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3. public perception of DNA.
The president has recently enacted legislation to safeguard the privacy and
accessibility of genetic information. Since SNP analysis yields qualitative
information, the public concern will be especially acute in this area.
Nevertheless, this issue is one of public education and effective
marketing, for SNP analysis is just like any technology - it can be
misused. We intend to allay public perception problems by focusing on the
fact that our databases will enhance the quality of everyday life for the
average person. We will focus on the benefits of personalized medicine of
safeguarding individual health. One thing is certain - medicine of the
future will use genomic technology. This is simply not debatable.
Therefore, fear of DNA is something the public will simply have to "get
over" if that public wants to eliminate debilitating drug side effects and
cure diseases like cancer. For the marketing of each of our genetic
"solutions", we will rely on professional public relations and marketing
consultants to help us shape our public image. Licensure of our products to
more established companies in the SNP arena, such as Sequenom Inc., or
Orchid Biosciences, or large diagnostic laboratories such as LabCorp, may
be helpful in this area because of their public relations and marketing
machinery. We will be sure to communicate that SNP data we use will be
stored without cross-reference to identity, and using a key system, in
which access is highly restricted. Names will never be coupled with data,
and names are not even asked for from our suppliers.
4. How will we acquire our test materials to build our databases and develop
our algorithms? We have addressed this problem with agreements with several
local diagnostic clinics/labs which serve the medical community of South
Florida. Affiliations with cancer centers are currently being negotiated.
5. How would we process tests for public customers if we choose to operate via
a service model? Blood draws can be cumbersome and frightful for people.
When we collect specimens ourselves, we will obtain a specimen from saliva
and deposit it on a special preservative (FTA(tm)) card. (Tiny cheek cells
with DNA naturally populate human saliva). This is part of our DNAPRINT(tm)
specimen collection kit (see below). The application will cover an area
about the size of a 384 well microtiter dish and will be adequate for
several hundred samplings or "punches". An automated punch machine can be
used to deposit punches into a 96-well or 384-well format, compatible with
our high-throughput and semi-automated genotyping routine.
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NEED FOR ADDITIONAL FUNDING
Specifically, we will be seeking funding to accomplish the following:
1) convert our STR/DNA testing facility into a high-throughput SNP profiling
facility for the creation of proprietary predictive SNP databases,
proprietary neural net algorithms to mine complex phenotype-genotype data
and proprietary information management tools and systems. Later, we hope to
become the worlds first, or licensor to the worlds first, public service
SNP profiling laboratory with a legitimate scientific foundation. This will
require the purchase of commercially available high-throughput genotyping
hardware which sells for approximately $500,000, and consumables which will
cost another $250,000.
2) Develop software tools and applications to enable us to deposit our SNP
data and its accompanying personal questionnaire data into a relational
database system. This will cost about $100,000 in consultation salary,
in-house effort and equipment.
3) Develop software tools called "classification tools" to enable the matching
of SNP profiles with our "solutions" over an inter/internet. This will cost
about $120,000 in consultation salary and equipment, excluding partnering
costs associated with obtaining access to these databases.
4) Build a more complex and responsive client-server network. This will cost
about $150,000 in hardware, software and labor.
5) Advertise and present our unique service to the world through the actual
production of "solutions" and the placement of beta systems. This will
require about $500,000 in meeting presentation/exhibitor fees, advertising
fees and R and D over the course of two years.
6) Employ three more scientific staff (a bioinformaticist/biostatistician, a
software engineer and a laboratory technician) for a period of two years.
At $160,000 per year for two staff, including benefits, this amounts to
$320,000.
7) Provide two years worth of salary for the two scientific and one
administrative staff already employed. This will require $242,000 per year
and $484,000 for two years.
8) Mass-produce our home DNA collection kits for distribution to subjects.
This will require $30,000 for each 5,000 produced and will be accomplished
through partnership with Life Technologies Inc. of Rockville, MD.
9) Develop a more sophisticated e-commerce presence on the internet. We will
use this presence to process our own work, as well as to provide trials for
future customers. This will require licensing professional e-commerce
software, building a better web site and integrating our information
management system with the site. The contractors for this endeavor, Gecko
Media of Tampa, Florida have already been identified.
TOTAL REQUIREMENTS:
We are seeking a total of $2,379,000 for an equity investment in our company.
This would fund the execution of this business plan for two years.
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<TABLE>
<CAPTION>
OPERATIONS BUDGET
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
July August Sept. Oct. Nov. Dec. Jan. Feb. March April May June
------------------------------------------------------------------------------------------------------------------------------------
Salaries 19,416 19,416 26,082 26,082 26,082 26,082 26,082 26,082 26,082 26,082 26,082 26,082
Benefits &
Payroll Taxes 2,753 2,753 3,686 3,686 3,686 3,686 3,686 3,686 3,686 3,686 3,686 3,686
Consultant
Fees 11,480 11,330 8,595 1,745 1,595 1,745 1,595 1,745 1,595 1,745 595 745
Collaborations 2,295 300 300 300 300 300 300 300 300 300 300 300
Services 2,530 2,530 330 330 330 24,730 14,730 4,730 4,730 4,730 4,730 4,730
Advertising 3,450 3,450 3,450 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700
Equipment 37,057 25,857 25,257 24,507 24,507 25,707 24,507 26,007 26,757 26,007 26,007 26,757
Lease 1,000 1,000 1,000 1,000 1,450 1,450 1,450 1,450 1,450 1,450 1,450 1,450
Power 300 500 500 500 500 500 500 500 500 500 500 500
Disposal 350 350 350 350 350 350 350 350 350 350 350 350
Consumables 27,900 2,450 2,450 2,700 2,700 2,800 2,700 2,700 2,800 2,700 2,700 2,800
Miscellaneous 4,450 2,450 2,100 0 2,000 0 2,000 0 2,000 1,000 2,200 2,200
------------------------------------------------------------------------------------------------------------------------------------
SubTotal 219,762 140,372 144,150 125,950 128,100 177,500 153,900 135,200 138,600 136,200 135,100 137,100
5% Buffer 5,627 3,597 3,700 3,195 3,310 4,502 4,030 3,512 3,648 3,562 3,565 3,615
------------------------------------------------------------------------------------------------------------------------------------
TOTAL 225,389 143,969 147,850 129,145 131,410 182,002 157,930 138,712 142,248 139,762 138,665 140,715
</TABLE>
TRADEMARKS
The company owns the url address DNAPrint genomics, the trademarks DNAPrint(tm),
TruSeq(tm), SnipScan(tm) and TruSpin(tm). The company has patented the
TruSeq(tm), SnipScan(tm) and TruSpin(tm) products and applied for the trademarks
SnipDoc(tm), DNACorporate(tm), DNAGenealogy(tm) and DNADating(tm).
The company began with the discovery and development of the truline of products
- TruSeq(tm), SnipScan(tm) and TruSpin(tm). This product enables cost-effective
high-throughput DNA testing for the first time. As such, it brings DNA analysis
into the economic reach of the common person. Dr. Tony Frudakis developed this
product and filed the patent application for these products which serve as the
foundation for our start-up company.
13
<PAGE>
CURRENT INVENTORY OF PROPRIETARY PRODUCTS
1. TRUSEQ(tm).This patent-pending product was developed at GAFF biologic (the
Company's predecessor). It is a molecular biology reagent that is added to
thermocycle enzyme reactions which form the basis for automated DNA cycle
sequencing reactions, STR profiling reactions and SNP profiling extension
reactions. The product enables a scientist to dilute expensive analytical
reagents used during these processes and perform their reactions in a much
more economical manner. For example, a DNA researcher currently adds 8
microliters of BigDye Terminator (BDT) Sequencing Mix (containing DNA
sequencing enzyme) to each sequencing reaction, which costs $8 per reaction
(each BDT kit costs $800 and is good for 100 reactions). If the researcher
attempts to use less, the quality of the DNA sequencing results are
generally unacceptable (low peak height, short read length or no read at
all). However, TruSeq(tm) allows kit reagent dilution by stabilizing the
main ingredient of the BDT Sequencing Mix (AmpliTaq DNA Polymerase FS's) in
the reaction tube. The sequencer can dilute the bdt sequencing mix 0.5/ 4.4
in TruSeq(tm), and get the same results as if they used undiluted BDT
Sequencing Mix. In essence, the DNA sequencer can add one half a microliter
of sequencing chemicals to the reaction instead of 8 microliters, saving
$7.50 per reaction. Extensive study at our laboratory show that the
sequencing results obtained by using TruSeq(tm) are indistinguishable from
the undiluted and more expensive reaction set up in every way. A specific
cycling protocol is required for use of TruSeq(tm). The product has been
independently validated by scientists at Life Technologies of Rockville MD,
a company currently negotiating with the Company for the worldwide
marketing and distribution rights to the product for non-STR and non-SNP
applications. Market research has revealed a 10% market share in the DNA
sequencing community would translate into over 2 million dollars of net
profit for the company. The product is a purple liquid, encapsulated in a
sterile sample vial. It is packaged in a moisture proof bag and sold in
aliquots good for 100 reactions per vial. The offering price will be $100
per vial, and each vial will cost the company 5 cents each to produce. The
company has applied for the trademark designation and the patent process
for this discovery is ongoing.
2. SNIPScan(tm) - is a patent-pending variation of TruSeq(tm) that is
optimized for application to DNA testing (STR and SNP profiling). DNA
testing is accomplished using the same enzyme and basic reagents as DNA
sequencing, but a different amplification strategy (geometric vs. linear)
and primers. DNA testing is more expensive than DNA sequencing, and as DNA
testing increases in the future, this product has even more potential than
TruSeq(tm).
14
<PAGE>
3. TRUSpin(tm) - a patent-pending, multi-well, reusable spin column tool by
which to purify DNA sequencing reactions and DNA profiles. TruSpin(tm)
eliminates the primer and unincorporated nucleotide peaks which commonly
disrupt data analysis during DNA sequencing or STR profiling. Current tools
available on the market use disposable plastic parts and resin bed heights
that are unsuitable for efficient DNA purification. The TruSpin(tm) product
enable superior purification in a reusable format through patent-pending
design parameters and protocol development. This product will be used to
reduce the overhead costs associated with producing an SNP profile. It will
also be licensed out for use in non-SNP and non-STR applications to bring
annual revenues to the company.
4. FEMS. The company has developed a Front-End Management System (FEMS)
software product to manage the workflow of DNA through automated DNA
analysis equipment. The work load going into this equipment (front-end to
the machine) is a rate-limiting step for high-throughput operation. Before
the development of FEMS, many hours were wasted by DNA technicians as they
program the equipment for operation. Our software automates this tedious
process. FEMS enables the auto-generation of DNA template identification
numbers, establishes a DNA template physical archive system, creates a
database for the archival of template annotation data, enables bar-code
retrieval of DNA from an archive database, and enables the automated
loading of DNA template annotation into the operating software of DNA
sequencing and DNA profiling machines. It will be easily adaptable to the
MassArray or GBA SNP genotyping systems. These tasks are critical to
managing the tremendous amount of data that is inherent to DNA work.
5. Home DNA specimen Collection Kit. We manufacture, through a license
agreement with Life Technologies of Rockville MD, a home DNA specimen
collection kit called the DNAPrint(tm) kit. The kit enables the collection
of DNA for indefinite storage. A foam tipped swab is used to rub the inside
of the subjects cheek, and the DNA collected on the swab (from tiny cells
on the surface of the cheek) is then deposited by contact to a preservative
card. The card is sealed in a tamper resistant pouch with a desiccant pack
and can be stored in a filing cabinet or safe indefinitely. The product is
attractive to parents of children who wish to be able to identify their
child at a later date through forensic DNA testing (i.e. run-away or
kidnapping victim - a replacement for the outdated and ineffective infant
footprint). Others are interested in establishing an archive of their DNA
for estate planning purposes (to refute illegitimate claims of relation and
will challenging after death without exhumation) or are interested in
establishing a DNA archive for insurance purposes (for positive post-mortem
identification for the life insured after traumatic accident to replace
dental records). We sell these kits for $19.95 each, and each costs $5.00
to produce.
6. Phenome(tm) Snip database. We have mined SNP data from publicly available
human genome data and our own private experiments. Our work here has
focused on expounding on the complexity of genetic variation within certain
key genes across entire populations as opposed to cataloguing variance for
virtually all genes (including unimportant and unconserved genes) of a few
people. (In case you are wondering, expounding on variation within all
genes across entire populations is economically infeasible). Our Phenome
database is focused on the genes that decades of literature have shown are
important for those traits of most viable economical status (such as drug
metabolism or developmental relevance for cancer predisposition). The
database is stratified for over 30 qualitative and quantitative phenotypic
variables to enable us to design intelligent SNP arrays well-suited for the
particular questions we are asking. Only two other companies possess a
database like ours, but neither is searchable like ours.
15
<PAGE>
ANCILLARY REVENUE SOURCES:
The company has performed services on a fee per use basis to fund basic company
operations during the generation of the DNAPrint genomics business plan. The
services are commonly used by academic and private laboratories for genetic
research and forensic science. This outline is given so that a basic
understanding of the current company can be had - we do not intend to continue
operating these services if our business plan is executed and their elimination
will be in the form of a ramp-down over the first year of operation.
CURRENT SERVICES OFFERED BY THE COMPANY
1. DNA sequencing. During the course of basic laboratory research in the
biological sciences, researchers frequently determine the sequence of DNA,
called "DNA sequencing". The machinery that enables this process is very
expensive. For labs that do not sequence a great deal, it is economically
impractical to buy and maintain these machines. To these labs, we offer an
out-sourcing solution. What separates our service from others is the fact
that we deposit our data into an internet capable relational database
management system. In short, our system is a complete system used to
collect sequencing requests though a web-based interface. The system is
used to build request "sample sheets" for sequencing and organize
chromatogram files by customer, project and library. Our customers will use
the system, through web-pages, to make their orders and retrieve their
data. All chromatogram files are processed through the phred basecalling
algorithm to give reads and quality values. The resulting reads are then
compared to a set of vector sequences (UniVec from NCBI) and the E. coli
genome. Customers can retrieve chromatogram files and sequences and the
sequences can be retrieved as quality trimmed or vector masked. E. coli
sequences can be excluded. We use the Finch-Server to create sample sheets
from requests, monitor data quality and throughput and track orders for
billing. The result of this is that the can access, store and manipulate
their data from remote locations. In the future, we will enable the use
proprietary and state-of-the-art bioinformatics tools on a fee for service
basis, and implement a system by which customers can store BLAST submission
chronology data in our server. Links are provided to download PE Applied
Biosystems Sequence Analysis software for electropherogram viewing. Text
files constitute a separate file for each order. We are sequencing about
200 templates per month at the current time.
2. Forensic DNA testing (forensic DNA "fingerprinting"). DNA testing is
commonly used by law enforcement to match suspects with microscopic
evidence such as blood stains or other body fluids left at crime scenes.
Several states are building DNA fingerprint databases for convicted felons.
However, many of the organizations who want to conduct these analyses have
short term budgets that do not allow great capital and labor expenditure.
For them, a DNA testing out-source facility is an attractive option to meet
their near-term goals.
16
<PAGE>
MARKET ANALYSIS
There are clearly defined needs in the DNA testing community, including:
1. Genome informatics tools that enable multi-genic trait analysis through SNP
profiling.
2. Front-end and back-end software tools for high-throughput SNP profile
analysis and data manipulation.
3. Economical SNP profile service providers.
4. High-throughput genotyping facilities are starting to pop up all over the
company. LabCorp has recently invested in a system, and GeneScreen - a well
known DNA laboratory - was recently acquired by Orchid Biosciences. As
personalized medicine ramps up, this kind of activity will intensify.
5. 15-20 high-throughput genotyping machines have been placed in the
pharmaceutical industry as of early this year. Lower cost machines are in
development and promise to occupy space in the clinic in the near future.
These machines need analytical "operating systems" such as that we are
producing.
TRUSEQ(tm) AND TRUSPIN(tm) LICENSE AGREEMENTS:
- 1 tube TruSeq(tm) - good for 100 DNA sequencing reactions- company nets
$100 profit for each sold since production cost is only a nickel per tube.
- 10% of the market = 1,600 customers per month = $160,000 per month in
TruSeq(tm) sales = $2M per year in net margin.
The target market for DNAPrint genomics has been studied and ranked according to
potential.
COMPETITORS. There are only a handful of commercial DNA testing laboratories in
the world. SNP profiling is practiced by a handful of pharmaceutical companies
to accelerate gene discover and product evaluation. To our knowledge, there are
no other companies whose goals resemble those which we have outlined here.
The SNP consortium is "a collaborative effort to create a public database of
gene markers that will enhance understanding of the biological basis for
disease." Rather than representing a competitor, this consortium will provide us
with the necessary SNP data upon which to build our experiments. From a recent
press release, "The Consortium intends to identify a minimum of 300,000 and map
at least 150,000 SNPs by April 2001. As SNPs are mapped, they will be placed in
the public domain, providing biomedical researchers worldwide with free and
unrestricted access. Since November, the Consortium has deposited approximately
7,200 newly identified and characterized SNPs into public databases accessible
via the Internet".
The Consortium's members include the Wellcome Trust; 10 pharmaceutical companies
including AstraZeneca PLC, Aventis Pharma, Bayer AG, Bristol-Myers Squibb
Company, F. Hoffman-La Roche, Glaxo Wellcome PLC, Novartis, Pfizer Inc, Searle,
and SmithKline Beecham PLC; Motorola, Inc.; and IBM. Academic centers including
the Whitehead Institute for Biomedical Research, Washington University School of
Medicine in St. Louis, the Wellcome Trust's Sanger Centre, Stanford Human Genome
Center, and Cold Spring Harbor Laboratory, are involved in SNP identification
and analysis. The data they produce is mandated by law to be freely accessible
to scientists all over the world.
17
<PAGE>
About ten pharmaceutical companies are engaged in the pharmacogenomic field (the
study of genetic variation through SNP analysis). None are devoted to complex
trait determination through SNP profiling and all are focused on single gene
disorders and phenotypes. Examples include Curagen and Type II diabetes,
Millinium and artherosclerosis and heart disease, Warner-lambert, GenSet and
Parke Davis as well as Glaxo Wellcome for drug interactivity.
Rosetta Inpharmatics develops informatics solutions like us, however they are
focused on gene expression data rather than genetype data. By definition, only
the latter can be applied to personalized medicine. PPGx is a pharmacogenomics
company that is developing software tools, but discussions I have had with their
scientists have revealed that they have not yet begun to develop complex genetic
analysis tools and do not have the mathematical horse power to get this job done
currently. Celera genomics is entering the field of human genetic variation, but
does not have a coordinated effort within the complex genetic sector. Like most
companies, they focus on easy problems almost exclusively. Genomica of Boulder
Colorado is entering the field of complex genetic analysis but intends to
produce a product aimed at academic laboratories for basic R and D, rather than
the personalized medicine market like us. Orchid and Sequenom, the two providers
of genotyping hardware machinery, do not have coordinated efforts in complex
genetics.
Most other current DNA testing facilities focus on paternity determination using
the STR technique. These are LabCorp, the market leader, IdentiGene Corp.,
ReliaGene Corp., LifeCodes Corp., GeneLex Corp., GeneScreen Corp. the Bode
Technology Group and DNA Identification Services. None of these companies target
their services for other than the paternity market and none could be considered
an e-business. Only one uses the FTA DNA preservative card manufactured by Life
Technologies Inc. Non-commercial leaders in the field of DNA testing include the
Armed Forces DNA Identification Laboratory (AFDIL), The FBI Laboratory and the
Lawrence Livermore National Laboratory. These labs do not accept private orders.
MARKETING PLAN
Our marketing needs will be handled by a professional marketing firm.
Our DNAPrint(tm) forensic tools that we develop will be introduced to the
medical community through presentation and solicitation at human genetics and
medical conferences, as well as strategic personal contact with leaders in the
field of genetic testing. SnipDoc(tm)- advertising for our public services will
be handled by a professional marketing firm. Concepts such as DNACorporate(tm)
explained below, would appeal to small pharmaceutical companies who do not wish
to set up their own complex genotyping system through direct mail and word of
mouth.
Partnering Intellectual properties - select intellectual properties that we
develop (such as SNP databases, parts of our informatics system and software)
will be partnered with leading pharmaceutical and biotech companies around the
world in such a way as to not to negatively impact our business model. Rather,
these partnerships will likely enable us to generate profit from our work in a
highly efficient manner. Our goal is to focus on discovery and development, and
let others who are better market our products for us. In this way we can more
quickly establish a footprint in the industry and reward near-term as well as
long-term investors.
18
<PAGE>
MARKETING STRATEGY
An aggressive marketing and sales campaign will be launched in 2001. It
will be managed by our marketing consultant and consist of, but not be limited
to:
- A sales force, with a regional and national sales director coordinating the
efforts and direction of the team.
- A marketing and PR director who plans, devises and implements a national
marketing campaign, targeting diagnostic clinics, hospitals, HMOs and other
medical insurance providers. Advertising will be performed on television,
radio, in medical journals, at medical meetings and conferences, directly
to health care providers and insurers, hospitals, health care
organizations, pharmaceutical/biotech companies.
ITEM 6. RESIGNATION AND APPOINTMENT OF OFFICERS AND DIRECTORS
Directors from DNAPrint genomics now form the Board after the Merger of
companies. Scott A. Deitler and Wesley F. Whiting have resigned as President and
Secretary/Treasurer, respectively. The business experience of the Directors and
Officers is disclosed herein.
CARL L. SMITH, President and Director, is 58 years of age. Mr. Smith is an
entrepreneur in venture capital marketing, sales and business development. Mr.
Smith has served as the CEO of DNAPrint genomics, Inc. f/k/a Catalyst
Communications, Inc. from 1994 to the present and has served on the board of
directors of Diversified Resources Group, Inc. from 1994 to 1996 and from April
1999 to the present. Mr. Smith has served as a director of GRG, Inc. from
September 1998 to October 2000, and also serves on the Board of Directors of
Penn-Akron Corporation from June 2000 to the present. Mr. Smith has also been
chairman of Tampa Bay Financial, Inc. from 1994 to the present, a Florida based
consulting company and became President of American Communications Enterprises
in October 2000. Catalyst Communications, Inc. filed a Chapter 11 Bankruptcy in
1998 for which a Plan was confirmed in 1999.
MATTHEW A. VEAL, Chief Financial Officer, Secretary and Director is 41 years
old. Mr. Veal, a CPA, is currently CFO for the following entities (including
DNAPrint genomics, Inc.): Tampa Bay Financial, Inc. (since 1995), Diversified
Resources Group, Inc. (since 1999), Global Resources Group, Inc. (since 1998),
and American Communications Enterprises, Inc. (since 2000). Diversified
Resources Group, Inc. filed Bankruptcy, Chapter 11, in 1997, the Plan was
confirmed in 1998 and it was closed in 1999. From 1997 to 1998 he was Chief
Accounting Officer for Kosmas Group International. From 1995 to 1997 he was CFO
for Catalyst and from 1994 to 1995 he was CFO for ComCentral Corp. Mr. Veal
served on the Board of Directors of ComCentral through 1995 and Data 1, Inc. and
American Communications Enterprises, Inc. Mr. Veal is a graduate of the
University of Florida School of Accounting. Catalyst Communications, Inc. filed
a Chapter 11 Bankruptcy in 1998 for which a Plan was confirmed in 1999.
19
<PAGE>
DR. TONY FRUDAKIS, Chief Scientific Officer, received his doctorate degree in
molecular and cell biology from the University of California Berkeley in 1992.
He has 11 total years of experience as a molecular biologist. Since September
1998, Dr. Frudakis worked to develop and manage high-throughput DNA analysis
products, services and genotyping systems for application which form the basis
of the DNAPrint genomics business plan. Dr. Frudakis has worked on implementing
the FEMS software application to handle the companies high-throughput
electrophoresis needs, developed automated routines and managed laboratory
accreditation and promotion. He has developed several new molecular biology
products developing TruSeq(tm) into an off-the-shelf product. From 1995 to 1999,
Dr. Frudakis served as a scientist at Corixa Corporation in Seattle, WA where he
managed and executed high-throughput gene discovery programs. At Corixa, Dr.
Frudakis directed a differential display and subtractive library based program
of genetic discovery for genes that are over-expressed in various cancers,
resulting in a patent application for over 350 unique genes. For this work, Dr.
Frudakis used gene chip technology (Synteni). During the course of the last 5
1/2 years, Dr. Frudakis has worked in the development and management of
high-throughput gene discovery routines based on DNA sequencing. Dr. Frudakis'
work has resulted in the authorship of several patents for over 350 different
novel expressed sequence tags (EST's) and 12 full-length sequences which will be
used by Corixa to develop novel Cancer Vaccines. Dr. Frudakis is also a
co-inventor of patents associated with the DNA sequencing reagents and the
software product described here.
GEORGE FRUDAKIS, Vice President of Business Operations, started a
multi-component company called GAFF group in 1998. During his life's work as a
self-employed entrepreneur, he made the initial seed investment for the DNAPrint
genomics business plan.
O. HOWARD DAVIDSMEYER, Director, is 76 years old. Mr. Davidsmeyer has been the
chairman of Diversified Resources Group, Inc., formerly known as Data 1, Inc.,
from 1994 to 1996 and again from 1997 to present. He also served as CEO from
1994 to 1995 and again June 1999 to present. He has also served as chairman of
DNAPrint genomics, Inc. f/k/a Catalyst Communications, Inc. from 1994 to
present. Mr. Davidsmeyer's career extends many years and includes a variety of
business and civic accomplishments. Catalyst Communications, Inc. filed a
Chapter 11 Bankruptcy in 1998 for which a Plan was confirmed in 1999.
MYUNG HO KIM, PH.D. MATHEMATICS. Myung obtained his Ph.D. from the University of
Michigan. Myung has scores of publications in mathematical texts and journals as
well as previous professorships and fellowships. His job function is generating
and adapting mathematical ideas into computer code for pattern recognition and
other types of sophisticated analysis. He has built information retrieval
systems for a variety of applications.
VENKATESWARLU KONDRAGUNTA, PH.D. STATISTICS. He worked in the laboratory of
genetic statistician Dr. Ranajit Chakaroborty, at the University of Texas from
1998 to August 2000. Venkateswarlu specializes in the application of population
statistics and mathematical expression to high-density datasets such as those
that we will be building. He attended the University of Madras, India.
20
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIALS, & EXHIBITS
Financial Statements -
1-17 FYE December 31, 1999 of DNAPrint genomics, Inc.
(audited)
F-1-F-18 Consolidated Financial Statements as
of September 30, 2000 for DNAPrint genomics, Inc.
(unaudited)
PF-1-PF-7 ProForma Financial Statements as of
September 30, 2000 (unaudited)
F-1-F-8 Financial Statements of S.D.E. Holdings 1 Inc.
for the seven months ended September 30, 2000
(audited)
Exhibits - 10.1 Plan of Merger
10.2 Articles of Merger
10.3 Articles of Amendment to Articles of Inc.
10.4 Supply & License Agreement
10.5 Agreement & Plan of Exchange between
Catalyst Communications, Inc. and
DNAPrint genomics, Inc. & Shareholders
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 3, 2000 DNAPrint genomics, Inc.
By:/s/Carl L. Smith
---------------------------
President
22
<PAGE>
DNAPRINT GENOMICS INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
(A development stage company)
Consolidated Financial Statements
December 31, 1999
1
<PAGE>
CONTENTS
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . 7
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . 8
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . 11-17
2
<PAGE>
HOWARD R. WOMELDORPH, JR. C.P.A., P.A.
CERTIFIED PUBLIC ACCOUNTANT
7648 Lockwood Ridge Road, Sarasota, Florida 34243 (941) 351-3561
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
DNAPrint genomics, Inc.
(Formerly Catalyst Communications, Inc & Subsidiaries)
(A development stage company)
Sarasota, Florida
I have audited the accompanying consolidated balance sheet of DNAPrint
genomics, Inc. (formerly Catalyst Communications, Inc & Subsidiaries) as of
December 31, 1999 and the related consolidated statements of operation,
stockholders' equity and cash flows for the years ended December 31, 1999 and
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those 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 audits
provide a reasonable basis for our opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DNAPrint
genomics, Inc. (formerly Catalyst Communications, Inc. & Subsidiaries) as of
December 31, 1999 and the results of their operations and their cash flows for
the years ended December 31, 1999 and 1998 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 5 to the
financial statements, the Company's recurring losses from operations and net
accumulated deficit raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also described in
Note 5. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Howard R. Womeldorph, Jr.
September 12, 2000
3
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
Consolidated Balance Sheet
(A development stage company)
ASSETS
December 31,
1999
------------
CURRENT ASSETS
Cash on hand & in bank 14,931
------------
Total Current Assets 14,931
PROPERTY AND EQUIPMENT
Furniture and equipment 11,362
------------
Less accumulated depreciation (9,000)
------------
Total Property and Equipment 2,362
Other Assets
Investment in GRG, Inc. - Available for sale 222,443
Total Other Assets 222,443
------------
TOTAL ASSETS $ 239,736
============
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
Consolidated Balance Sheet
(A development stage company)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1999
---------------
CURRENT LIABILITIES
Accounts payable 10,289
Accounts payable - liabilities subject to compromise 190,835
---------------
Total Current Liabilities 201,124
---------------
Total Liabilities 201,124
---------------
STOCKHOLDERS' EQUITY
Preferred stock: authorized 10,000,00 shares;
$ .01 par value; 0 shares issued and outstanding
Common stock: authorized 500,000,000 shares; $0.01 par
value; 154,400,986 shares issued and outstanding 1,544,009
Additional paid-in capital 6,664,861
Accumulated other comprehensive income 222,443
Accumulated earnings prior to development stage (7,442,370)
Development stage accumulated deficit from December 10, 1998
through December 31, 1999 (950,331)
---------------
Total Stockholders' Equity 38,612
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 239,736
===============
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
Consolidated Statement of Operations
(A development stage company)
<S> <C> <C> <C>
From
Inception of the
Development
For the Years stage on
Ended December 31, December 10, 1998
through
1999 1998 December 31, 1999
----------------------------------------- --------------------
SALES $ 46,512 $ 192,971 $ 38,762
COST OF SALES 213,911 89,718
----------------------------------------- --------------------
GROSS PROFIT 46,512 (20,940) (50,956)
OPERATING EXPENSES
General and administrative
Expense 20,117,912 20,958,318 554,079
Depreciation 3,000 3,000
Bad debt expense 8,152 8,152
----------------------------------------- --------------------
Total Operating Expenses 20,126,064 20,961,318 565,231
----------------------------------------- --------------------
OTHER INCOME (EXPENSE)
Gain on sale of assets 3,090 9,344 3,090
Interest expense (337,234) (337,234)
----------------------------------------- --------------------
Total Other Income (Expense) 3,090 (327,890) (334,144)
----------------------------------------- --------------------
NET INCOME (LOSS) $ (20,076,462) $(21,310,148) $ (950,331)
========================================= ====================
NET INCOME (LOSS) PER SHARE $ (.65) $ (1.46)
=========================================
WEIGHTED AVERAGE NUMBER
OF SHARES 30,933,002 14,616,358
=========================================
The accompanying notes are an integral part of these consolidated financial
statements.
6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
(Consolidated Statements of Stockholder's Equity
(A development stage company)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Additional Other
Common stock Preferred stock Paid-in Accumulated Comprehensive
Shares Amount Shares Amount Capital Deficit Income Total
------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 29,400,986 $ 294,009 - $ - $4,375,797 $(30,013,434) $ - $(25,343,628)
------------------------------------------------------------------------------------------------------
Donated Capital from
Tampa Bay Financial, Inc. 601,584 601,584
GRG, Inc. Stock acquired
in sale of Teleprizes TM
Division (348,467) (348,467)
Unrealized gains on
securities, net of
reclassification adjustment 222,443 222,443
Net Income for the year
ended December 31, 1998 (21,310,148) (21,310,148)
------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 29,400,986 $ 294,009 - $ - $4,977,381 $(51,672,049) $222,443 $(46,178,216)
------------------------------------------------------------------------------------------------------
Common Stock issued for reorg/
court order at $0.02 per share 125,000,000 1,250,000 1,687,480 2,937,480
Adjustment due to subsidiaries
Liquidation in bankruptcy 63,355,810 63,355,810
Net Income for the year
ended December 31, 1999 (20,076,462) (20,076,462)
------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 154,400,986 $ 1,544,009 - $ - $6,664,861 $(8,392,701 $222,443 $ 38,612
------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
Consolidated Statement of Cash Flows
(A development stage company)
<S> <C> <C> <C>
From
Inception of the
Development
For the Years Stage on
Ended December 31, December 10,
1998 Through
1999 1998 December 31, 1999
---------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)
Adjustments to reconcile net income (loss) to (20,076,462) (21,310,148) (950,331)
Net cash provided by operating activities
Depreciation and amortization 3,000 3,000
Common stock issued for reorganization/
court order 343,000 343,000
Changes in Operating Assets and Liabilities:
(Increase) Decrease in accounts receivable (240,960) 621,961 318,637
Increase (Decrease) in sponsorship liability (36,024,889) 19,730,000 (35,223,386)
Increase (Decrease) in accounts payable 96,114 (215,173) 96,114
Increase (Decrease) in property and payroll taxes payable (15,344) 15,344 (15,344)
(Increase) Decrease in garnishment 57,542 (57,542) 57,542
---------------------------------------------------------
Net Cash Provided (Used) by Operating Activities (55,860,999) (1,212,558) (35,370,768)
---------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
Consolidated Statement of Cash Flows
(A development stage company)
<S> <C> <C> <C>
From
Inception of the
Development
For the Years Stage on
Ended December 31, December 10,
1998 Through
1999 1998 December 31, 1999
----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Reduction in indebtedness arising from disposal
of subsidiaries in bankruptcy 56,160,240 704,668 35,734,660
Interest 337,234
----------------------------------------------------
Net Cash (Used) by Investing Activities 56,160,240 1,041,902 35,734,660
----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from note payable 149,951
Payments on notes (286,149) (254,651) (350,800)
Dividend of GRG, Inc. stock acquired in sale
of Teleprizes TM division (348,467)
Contribution of capital 601,584
Rounding (1)
----------------------------------------------------
Net Cash Provided by Financing Activities (286,149) 148,416 (350,800)
----------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
Consolidated Statement of Cash Flows
(A development stage company)
<S> <C> <C> <C>
From
Inception of the
Development
For the Years Stage on
Ended December 31, December 10,
1998 Through
1999 1998 December 31, 1999
--------------------------------------------------------------
(DECREASE) IN CASH AND CASH EQUIVALENTS $ 13,092 $ (22,240) 13,092
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 1,847 24,087 1,847
--------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,939 $ 1,847 14,939
==============================================================
CASH PAID DURING THE YEAR FOR
Interest $ - $ -
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for Reorganization/Court Order $ 2,905,500 $ -
Arising from conversion of claim to stock
The accompanying notes are an integral part of these consolidated financial
statements.
10
</TABLE>
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
Notes to the Consolidated Financial Statements
(A development stage company)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
DNAPrint genomics, Inc. (formerly Catalyst Communications, Inc.,
(DNAPrint) was incorporated under the laws of the State of Utah
on January 3, 1998 as Lexington Energy, Inc. DNAPrint was
organized for the purpose of investing in all forms of
investments, but has since changed its purpose to human genome
sciences. Until 1999, DNAPrint genomics, Inc. had three
subsidiaries:
a. Homestyle Harmony, Inc.
Homestyle Harmony, Inc. (HHI) was incorporated under the laws of
the State of Florida on October 20, 1993. HHI was in the business
of operating specialty restaurants located in Sarasota and
Clearwater, Florida. On February 5, 1999, Homestyle Harmony, Inc.
filed a petition for relief under Chapter 7 of the federal
bankruptcy laws of the United States Bankruptcy Court for the
Middle District of Florida, Tampa Division, Case No. 99-1654-8P7.
The company was discharged from debts and ceased doing business
as of that date.
b. Catalyst Communications, Inc.
Catalyst Communications, Inc. (formerly Jackpot communications,
Inc.) (CCIF) was incorporated under the laws of the State of
Florida on April 9, 1997. CCIF was incorporated as Jackpot
Communications, Inc. and it changed its name to Catalyst
Communications, Inc. on May 7, 1997. For purposes of
distinguishing the subsidiary from the parent, future references
to the subsidiary will be as CCIF. CCIF was incorporated to
engage in the promotion and marketing of prepaid phone cards. On
February 5, 1999, Catalyst Communications, Inc. filed a petition
for relief under Chapter 7 of the federal bankruptcy laws of the
United States Bankruptcy Court for the Middle District of
Florida, Tampa Division, Case No. 99-1652-8P7. The company was
discharged from debts and ceased doing business as of that date.
c. Comcash, Inc.
Comcash, Inc. (Comcash) was incorporated under the laws of the
State of Florida on April 12, 1997. Comcash was incorporated to
engage in the promotion and marketing of prepaid phone cards.
Comcash is a wholly owned subsidiary of CCIF. CCIF filed a
Chapter 7 bankruptcy petition on February 5, 1999, by virtue of
CCIF bankruptcy, Comcash, Inc. ceased business as of that date.
11
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
Notes to the Consolidated Financial Statements
(A development stage company)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (continued)
d. Principles of Consolidation
The accounts included here include those of DNAPrint genomics,
Inc. (the parent), Catalyst Communications, Inc., Homestyle
Harmony, Inc. and Comcash, Inc. Collectively they are referred to
herein as "the Company". All significant intercompany accounts
have been eliminated in Consolidation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a calendar year
end.
b. Cash and Cash equivalents
Cash equivalents include short-term, highly liquid investments
with maturities of three months or less at the time of
acquisition. The Company maintains its cash accounts in several
bank accounts. Accounts are guaranteed by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000. The Company's cash
balance in some of its bank accounts sometimes exceeds the
guarantee.
c. Accounts Receivable
Accounts receivable are shown net of allowance for doubtful
accounts at December 31, 1999. All accounts receivable deemed
uncollectable have been written off at the balance sheet date.
d. Depreciation and Amortization
Property and equipment are stated at cost. Depreciation is
computed, using primarily the straight-line method, over the
estimated useful lives of the assets. Total depreciation expense
for the year ended December 31, 1999 was $-0-.
e. Revenue Recognition
Sales are recorded when products are shipped to customers.
Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in
the same period the related sales are recorded.
12
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
Notes to the Consolidated Financial Statements
(A development stage company)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
f. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
g. Provision for Taxes
At December 31, 1999, the Company had net operating loss
carryforwards of approximately $7,000,000 that may be offset
against future taxable income through 2014. No tax benefit has
been reported in the financial statements, because the Company
believes there is a 50% or greater chance the carryforward will
expire unused. Accordingly, the potential tax benefits of the
loss carryforward will expire unused. Accordingly, the potential
tax benefits of the loss carryforward are offset by a valuation
account of the same amount.
h. Loss Per Share
The computations of basic income (loss) per share of common stock
are based on the weighted average number of shares outstanding at
the date of the financial statements as follows:
For the year ended
December 31,
-----------------------------------
1999 1998
Numerator
Net Loss $(20,076,462) $ (21,310,148)
Denominator (weighted average number
Of shares outstanding) 30,933,002 14,616,358
Income (loss) per share $ (.65) $ (1.46)
Dilutive loss per share is not presented as there are no
potentially dilutive items outstanding.
i. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and 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. Actual results could differ from those estimates.
13
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
Notes to the Consolidated Financial Statements
(A development stage company)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
j. Restated Consolidated Financial Statements
Prior period consolidated financial Statements have been restated
to conform with current financial statement presentation.
k. Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which addresses
the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging
activities. SFAS No. 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999 and is not
required to be applied retroactively. The adoption of this
statement had no material impact on the Company's financial
statements.
l. Long-Lived Assets
All long-lived assets are evaluated yearly for impairment per
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of." Any impairment in
value is recognized as an expense in the period when the
impairment occurs.
m. Comprehensive Income
Comprehensive income consists of net income and other gains and
losses affecting shareholders' equity that, under generally
accepted accounting principles, are excluded from net income. For
the Company, such items consist primarily of unrealized gains and
losses on marketable equity investments. The changes in the
components of other comprehensive income (loss) are as follows:
Years Ended December 31
1999 1998
Tax Tax
Pre-Tax Expense Pre-tax Expense
Amount (Credit) Amount (Credit)
---------------------------------------------
Unrealized gain on securities $ - $ - $ 222,443 $ -
---------------------------------------------
Total other comprehensive income $222,443 $ - $ 222,443 $ -
=============================================
14
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
Notes to the Consolidated Financial Statements
(A development stage company)
NOTE 3 - COMMITMENTS AND CONTINGENCIES
a. Leases
Effective March 31, 1998, the Company terminated its lease for
facilities in Sarasota, Florida it had been leasing on a
month-to-month basis. Lease payments were $1,551 per month. The
Company has since relocated to a facility leased by an affiliate
company and pays rent under a consulting agreement with this
company.
b. Litigation
From time to time, the Company is subject to litigation in the
normal course of business. The Company believes that any adverse
outcome from litigation would not have a material effect on its
financial position or results of operations.
NOTE 4 - DEVELOPMENT STAGE COMPANY
The Company essentially has reverted to the status of a startup
company as it emerged from the bankruptcy proceedings discussed
in Note 10 and will be considered to be a development stage
company as it commences its planned principal operations of
genomics services.
NOTE 5 - REORGANIZATION ITEMS
On December 10, 1998, Catalyst Communications, Inc. (Utah) now
known as DNAPrint (the "Debtor") 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. Under Chapter 11, certain claims
against the Debtor in existence prior to the filing of the
petition of relief under the federal bankruptcy laws are stayed
while the Debtor continues business operations as
debtor-in-possession. These claims are reported in the December
31, 1999 balance sheet as "liabilities subject to compromise."
Claims secured against the Debtor's assets (`secured claims")
also are stayed. Although the holders of such claims have the
right to move the Court for relief from the stay. There are no
secured claims.
Because holders of existing voting shares immediately before
confirmation received more than 50% of voting share of emerging
entity, the Company does not qualify for fresh start accounting
under SOP 90-7 (See Note 7).
NOTE 6 - GOING CONCERN
The company's consolidated financial statements are prepared
using generally accepted accounting principles applicable to a
going concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The
company has incurred losses from its inception.
15
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
Notes to the Consolidated Financial Statements
(A development stage company)
NOTE 6 - GOING CONCERN (continued)
The company has sustained recurring losses and negative cash flow
from operations. Over the past year the Company's growth has been
funded through private equity. On December 10, 1998 the Company
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. The company received approval to exchange certain
debt for equity in the Company. This was done through stock
issued in October 1999. The company has terminated the calling
card and restaurant business. The company has acquired a new
subsidiary in the Human genome sciences and is concentrating its
resources to commence operations of this company. The Company has
experienced and continues to experience negative operating
margins and negative cash flows, from operations as well as an
ongoing requirement for substantial additional capital investment
to accomplish the business plan over the next several years. The
Company expects to seek additional funding through private or
public equity. There can be no assurance as to the availability
or terms upon which such capital might be available.
NOTE 7 - EQUITY TRANSACTIONS
a. Sale of Teleprizes Division and Dividend of Proceeds
The Company sold Teleprizes TM for 3,150,000 shares of common
stock of GRG, Inc. d/b/a Global Resources Group, Inc. a Nevada
start up public company, with certain marketing rights associated
with providing internet scratch off sweepstakes promotions to
internet websites to induce traffic. GRG, Inc. was controlled by
the major shareholders of the Company. The Company declared a
dividend in May 1998 whereby it issued one share of GRG common
stock for every share of Company stock. The remaining 222,443
restricted shares of GRG are classified as available for sale
since the company has no present intention to sell the shares.
b. Related Party Transactions
During 1998 Tampa Bay Financial, Inc., a related party, directly
contributed $601,587 to the company. Tampa Bay Financial, Inc. is
controlled by the Company's largest shareholder, Carl Smith, Sr.
On October 1, 1999, Tampa Bay Financial Holdings, Inc., ("TBFH")
a related party controlled by a son of Carl Smith, Sr., acquired
the largest claim in the Company's bankruptcy (totaling in excess
of $2,500,000) for $1,200,000. The most significant terms of the
claims transfer included a provision that TBFH would pay amounts
owed in installments as follows:
$625,000 At Closing
$125,000 Due October 31, 1999
$225,000 Due December 20, 1999
$225,000 Due March 1, 2000
16
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc & Subsidiaries)
Notes to the Consolidated Financial Statements
(A development stage company)
NOTE 7 - EQUITY TRANSACTIONS (continued)
As part of the bankruptcy TBFH agreed to convert the claim to
125,000,000 shares; however, the Company, in the event of a
default by TBFH, was obligated to buy back shares proportionate
to any amounts owed under the claim which were unpaid. As a
result the Company was contingent liable to under this agreement
in the amount of $1,338,036 at December 31, 1999. TBFH paid all
remaining installments in 2000 which resulted in the Company
being relieved of this contingent obligation.
NOTE 8 - SUBSEQUENT EVENTS
a. Land Acquisition
On January 31, 2000 the Company acquired a 17 acre tract of
undeveloped land in Apex, North Caroline for 30,000,000
restricted common shares. The Company subsequently sold the land
to Penn Akron Corporation, a start up Nevada Public Corporation
in the internet-based education business for 4,500,000 restricted
common shares.
b. DNAPrint genomics, Inc. Acquisition
DNAPrint genomics, Inc. (a Florida Corporation) (DNA) was
incorporated under the laws of the State of Florida in May 2000.
DNA specializes in the construction of electronic facilities to
assist scientists in researching and assembling data from the
human genome and other advances in genetics research. DNA was
acquired on July 15, 2000 for 192,000,000 shares of the DNAPrint
common stock. The acquisition will be treated as a pooling of
interests for accounting purposes.
c. Name Change and Increase in Authorized Shares
On July 15, 2000 the board of Directors, authorized a name change
to DNAPrint genomics, Inc from Catalyst Communications, Inc. The
Board approved and amended the Articles of Incorporation to
increase the authorized common shares to 500,000,000 shares of
common stock and 10,000,000 preferred stock.
17
<PAGE>
DNAPRINT GENOMICS, INC.
(FORMERLY CATALYST COMMUNICATIONS, INC. & SUBSIDIARIES)
(A development stage company)
Consolidated Financial Statements
September 30, 2000
<PAGE>
CONTENTS
Auditor's Report..................................................... F-2
Consolidated Balance Sheet.............................................F-3-F-4
Consolidated Statements of Operations................................. F-5
Consolidated Statements of Stockholder's Equity........................F-6
Consolidated Statements of Cash Flows..................................F-7-F-9
Notes to the Consolidated Financial Statements.........................F-10-F-18
<PAGE>
HOWARD R. WOMELDORPH, JR. C.P.A., PA
Certified Public Accountant
7648 Lockwood Ridge Road, Sarasota, Florida 34243 (941) 351-3561
================================================================================
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
DNAPrint genomics, Inc., Subsidiaries
I have audited the accompanying consolidated balance sheet of DNAPrint
genomics, Inc., and subsidiaries as of December 31, 1999, and the related
consolidated statements of loss, stockholders' equity (deficit) and cash flows
for the year ended December 31, 1999. These 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.
I have conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DNAPrint
genomics, Inc. and subsidiaries as of December 31, 1999, and the results of its
operations and its cash flows for the year ended December 31, 1999, in
conformity with generally accepted accounting principles.
As more fully discussed in Note 8, the 1999 consolidated financial
statements have been restated to reflect the pooling of interests with DNAPrint
genomics, Inc., (Florida).
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 6 to the
financial statements, the Company's recurring losses from operations and net
accumulated deficit raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also described in
Note 6. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/Howard R. Womeldorph, Jr. C.P.A., PA
HOWARD R. WOMELDORPH, JR. C.P.A., PA
Certified Public Accountant
F-2
<PAGE>
<TABLE>
<CAPTION>
DNAPrint genomics, Inc.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Consolidated Balance Sheet
(A development stage company)
ASSETS
<S> <C> <C>
September 30, 2000
(UNAUDITED) DECEMBER 31, 1999
----------- -----------------
CURRENT ASSETS
Cash $ 27,103 $ 4,519
Accounts Receivable 4,440 7,054
------ -----
Total Current Assets $ 31,543 $ 11,573
------------- -------------
PROPERTY AND EQUIPMENT
Furniture and Equipment 74,507 11,362
Less Accumulated Depreciation (10,111) ( 9,000)
-------- --------
Total Property and Equipment $ 64,396 $ 2,362
OTHER ASSETS
Investment in GRG, Inc. 95,650 222,443
Investment in Globalseer, Inc. 2,000,000
--------- ---------------
Total Other Assets $ 2,095,650 $ 222,443
----------- ----------
TOTAL ASSETS $ 2,191,589 $ 236,378
=========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DNAPrint genomics, Inc.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Consolidated Balance Sheet
(A development stage company)
LIABILITIES AND STOCKHODERS' EQUITY
<S> <C> <C>
September 30, 2000
(UNAUDITED) DECEMBER 31, 1999
----------- -----------------
LIABILITIES
Accounts Payable $ 290,441 $ 182,817
--------------- ------------
Total Liabilities $ 290,441 $ 182,817
STOCKHOLDERS' EQUITY
Preferred stock: authorized 10,000,000 shares;
$.01 par value; 0 shares issued and outstanding
common stock: authorized 500,000,000 shares; $0.01 par
value; 384,400,986 shares issued and outstanding, 115,200,000 of
the outstanding shares held in escrow $ 3,844,009 $ 3,464,010
Additional paid-in capital $ 7,524,861 $ 5,744,861
Accumulated other comprehensive income $ 95,650 $ 222,443
Stock Subscriptions Receivable $ (875,000) $ (1,000,000)
Accumulated deficit prior to development stage $ (7,442,370) $ (7,442,370)
Development stage accumulated deficit from December 10, 1998
through September 30, 2000 and December 31, 1999, respectively $ (1,246,002) $ ( 935,383)
----------- -----------
Total Stockholders' Equity $ 1,901,148 $ 53,561
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,191,589 $ 236,378
========== ============
The accompanying notes are an integral part of these consolidated
financial statements.
F- 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DNAPrint genomics, Inc.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Consolidated Statement of Operations
(A development stage company)
<S> <C> <C> <C> <C>
From
Inception of the
Development
Stage on
For the December 10,
Nine Months Ended For The 1998 Through
September 30, Year Ended September 30,
(Unaudited) December 31, (Unaudited)
----------------- ----------------- --------------------- --------------------
2000 1999 1999 2000
---- ---- ---- ----
REVENUES
Sales, net $ 30,001 $119,969 $133,187 $155,438
Cost of sales 4,039 35,059 51,893 145,650
----- ------ ------ -------
Gross margin 25,962 84,910 81,294 9,788
------ ------- ------ ---------
OPERATING EXPENSES
Research and Development Costs 105,434 14,432 19,833 125,267
General and Administrative 230,038 254,846 20,117,912 784,117
Depreciation and Amortization 1,111 4,111
Bad Debt Expense _______ _______ 8,152 8,152
----- -------
Total Operating Expenses 336,583 296,278 20,145,897 921,647
------- ------- ---------- -------
LOSS FROM OPERATIONS (310,621) (184,368) (20,064,603) (911,859)
OTHER INCOME (EXPENSE)
Other income 3,090 3,090 3,090
Other expense ________ ________ ____________ (337,234)
---------
Total Other Income (Expense) 3,090 3,090 (334,144)
NET (LOSS) INCOME $(310,621) $(181,278) $(20,061,513) $(1,246,003)
========== =========== =============== ==========
BASIC LOSS PER SHARE $ (.002) $ ( .001) $ (.125)
WEIGHTED AVERAGE SHARES
OUTSTANDING 198,222,466 160,494,173 160,484,173
The accompanying notes are an integral part of these consolidated
financial statements.
F- 5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Consolidated Statement of Stockholder's Equity
(A development stage company)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Additional Stock Other
Common Stock Preferred Stock Paid-In Subscript Accumulated Comprehensive
Shares Amount Shares Amount Capital Receivable Deficit Income Total
BALANCE, DECEMBER 31, 1998 29,400,986 $ 294,009 - $- $4,977,381 $ - (51,672,049) $222,443 $(46,178,216)
------------------------------------------------------------------------------------------------------------------------------------
Stock issued for acquisition of
DNAPrint genomics, Inc. (FL) 192,000,000 1,920,000 (92,0000) (1,000,000) -0-
Common Stock issued for
reorganization/court order
at $.02 per share 125,000,000 1,250,000 1,687,480 2,937,480
Adjustment due to subsidiaries
liquidation in bankruptcy 63,355,810 63,355,810
Rounding (1) (1)
Net Income for the year ended
December 31, 1999 20,061,513 20,061,513
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 346,400,986 $3,464,010 - $5,744,861 $(1,000,000) $(8,377,753) $222,443 $ 53,561
------------------------------------------------------------------------------------------------------------------------------------
Stock issued for advertising
and marketing services 8,000,000 80,000 80,000 160,000
Stock issued for acquisition
of land 30,000,000 300,000 1,700,000 2,000,000
Net Income for the period ended
September 30, 2000 (310,621) (310,621)
Rounding (1) (1)
Unrealized Loss on Securities (126,793) (126,793)
Subscription receivable payments 125,000 125,000
------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000
(Unaudited) 384,400,986 $3,844,009 - $7,524,861 $(875,000) $(8,688,372) $95,650 $1,901,148
====================================================================================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
F- 6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Consolidated Statement of Cash Flows
(A development stage company)
<S> <C> <C> <C> <C>
From
Inception of the
Development
Stage on
For the December 10,
Nine Months Ended For the 1998 Through
September 30, Year Ended September 30,
(UNAUDITED) DECEMBER 31, (UNAUDITED)
----------- ------------ -----------
2000 1999 1999 2000
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(310,621) $(181,278) $(20,061,513) $(1,246,003)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,111 - - 4,111
Common stock issued for reorganization/court order 343,000 343,000
Common stock issued for advertising services 160,000 - - 160,000
Changes in Operating Assets and Liabilities
(Increase) Decrease in accounts
receivable 2,614 - - 2,614
Increase (Decrease) in sponsorship
liability from liquidation of subsidiary
in bankruptcy - - (36,024,889) -
Increase (Decrease) in accounts payable 97,212 549,985 (63,319) 1,052,325
New Cash Provided (Used) by Operating _________ _________ ___________ ___________
Activities $(49,684) $ 368,707 $(55,812,721) $ 316,047
--------- --------- ------------- ----------
The accompanying notes are an integral part of these consolidated
financial statements
F- 7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Consolidated Statement of Cash Flows
(A development stage company)
<S> <C> <C> <C> <C>
From
Inception of
the
Development
For the Stage on
Nine Months Ended For the December 10,
September 30, Year Ended 1998 Through
(UNAUDITED) DECEMBER 31, September 30,
(UNAUDITED)
2000 1999 1999 2000
---- ---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES
Reduction in indebtedness arising
from disposal of subsidiaries in
bankruptcy $ - $ - $56,160,240 $ -
-----------
Net Cash (Used) by Investing
Activities - - 56,160,240 -
----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Collections from stock subscriptions
cash Received from Note Payable 125,000 - - 125,000
Payments on Notes Payable - (343,000) (343,000) (350,800)
Net Cash Provided by
Financing Activities 125,000 (343,000) (343,000) (225,800)
------- --------- ---------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Equipment purchase (63,144) - - (63,144)
-------- --------- ---------- ------------
Net Cash (Used) by Investing
Activities $(63,144) $ - $ - $ (63,144)
-------- --------- ---------- ------------
The accompanying notes are an integral part of these consolidated
financial statements
F- 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Consolidated Statement of Cash Flows
(A development stage company)
<S> <C> <C> <C> <C>
From
Inception of the
Development
Stage on
For the December 10,
Nine Months Ended For the 1998 Through
September 30, Year Ended September 30,
(Unaudited) December 31, (Unaudited)
----------------------------------- --------------- ----------------
2000 1999 1999 2000
---- ---- ---- ----
(DECREASE) IN CASH AND $ $ 25,707 $ 4,519 $27,103
CASH EQUIVALENTS
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD 14,931 4,519 - -
CASH AND CASH
EQUIVALENTS AT END
OF PERIOD $ 27,103 $ 30,226 $ 4,519 $ 27,103
--------- -------- ------- --------
CASH PAID DURING THE
PERIOD FOR:
Interest $ - $ 674,469 $674,469 $674,469
Income Taxes $ - $ - $ - $ -
NON-CASH FINANCING
ACTIVITIES
Stock Subscriptions Receivable
arising from pooling of interests
With DNAPrint genomics, Inc. (Florida) $ - $1,000,000 $ - $1,000,000
Unrealized Income (Loss)
On GRG, Inc. $ (126,793) $ - $ - $(126,793)
Common stock issued for
land subsequently swapped for
investment in Globalseer, Inc. $ 2,000,000 $ - $ - $ 2,000,000
The accompanying notes are an integral part of these consolidated
financial statements
F- 9
</TABLE>
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Notes to Financial Statements
(A development stage company)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
DNAPrint genomics, Inc., (formerly Catalyst Communications, Inc.,) (DNAPrint)
was incorporated under the laws of the State of Utah on January 3, 1983 as
Lexington Energy, Inc. DNAPrint was organized for the purpose of investing in
all forms of investments, but has since changed its purpose to human genome
sciences. Prior to 2000, DNAPrint genomics, Inc., had three subsidiaries, all of
which were liquidated and replaced by a new subsidiary, as indicated below:
a. Homestyle Harmony, Inc.
Homestyle Harmony, Inc. (HHI) was incorporated under the laws of the State of
Florida on October 20, 1993. HHI was in the business of operating specialty
restaurants located in Sarasota and Clearwater, Florida. On February 5, 1999,
Homestyle Harmony, Inc. filed a petition for relief under Chapter 7 of the
federal bankruptcy laws of the United States Bankruptcy Court for the Middle
District of Florida, Tampa Division, Case No. 99-1654-8P7. The Company was
discharged from debts and ceased doing business as of that date.
b. Catalyst Communications, Inc.
Catalyst Communications, Inc., (formerly Jackpot Communications, Inc.) (CCIF)
was incorporated under the laws of the State of Florida on April 2, 1997. CCIF
was incorporated as Jackpot Communications, Inc., and changed its name to
Catalyst from the parent, future reference to the subsidiary will be as CCIF.
CCIF was incorporated to engage in the promotion and marketing of prepaid phone
cards. On February 5, 1999, Catalyst Communications, Inc., filed a petition for
relief under the Middle District of Florida, Tampa Division, Case No.
99-1652-8P7. The Company was discharged from debts and ceased doing business as
of that date.
c. Comcash, Inc.
Comcash, Inc., (Comcash) was incorporated under the laws of the State of Florida
on April 12, 1997. Comcash was incorporated to engage in the promotion and
marketing of prepaid phone cards. Comcash is a wholly owned subsidiary of CCIF.
CCIF filed a Chapter 7 bankruptcy petition on February 5, 1999, by virtue of the
CCIF bankruptcy, Comcash, Inc., ceased business as of that date.
d. DNAPrint genomics, Inc. (Florida)
DNAPrint genomics, Inc. (a Florida Corporation) (DNA) was incorporated under the
laws of the State of Florida in May 2000. DNA specializes in the construction of
electronics facilities to assist scientists in researching and assembling data
from the human genome and other advances in genetics research. DNA was acquired
on July 15, 2000 for 192,000,000 shares of DNAPrint common stock. The
acquisition will be accounted for as a pooling of interests for accounting
purposes because the Company and DNA are considered to be under common control.
See Note 8 for further discussion.
e. Principals of Consolidation
The accounts included here include those of DNAPrint genomics, Inc., (the
parent), DNAPrint genomics, Inc. (Florida), Catalyst Communications, Inc.,
Homestyle Harmony, Inc., and Comcash, Inc., collectively they are referred to
herein as "the Company". All significant intercompany accounts have been
eliminated in consolidation.
F- 10
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Notes to Financial Statements
(A development stage company)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a calendar year end.
b. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with maturities
of three months or less at the time of acquisition. The Company maintains its
cash accounts in several bank accounts. Accounts are guaranteed by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000. The Company's cash balance
in some of its bank accounts sometimes exceeds the guarantee.
c. Accounts Receivable
Accounts receivable is shown net of allowances for doubtful accounts. All
accounts receivable deemed uncollectable have been written off at the balance
sheet date.
d. Depreciation and Amortization
Property and equipment are stated at cost. Depreciation is computed, using
primarily the straight-line method, over the estimated useful lives of the
assets. Total depreciation expense for the nine months ended September 30, 2000
and 1999 was $1,111, and zero respectively, and depreciation expense was zero
for the year ended December 31, 1999.
e. Revenue Recognition
Sales are recorded when products are shipped to customers. Provisions for
discounts and rebates to customers, estimated returned and allowances, and other
adjustments are provided for in the same period the related sales are recorded.
f. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
g. Provision for Taxes
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $7,000,000 that may be offset against future taxable income
through 2014. No tax benefit has been reported in the financial statements,
because the Company believes there is a 50% or greater chance the carryforward
will expire unused. Accordingly, the potential tax benefits of the loss
carryforward will expire unused. Accordingly, the potential tax benefits of the
loss carryforward are offset by a valuation account of the same amount.
F-11
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Notes to Financial Statements
(A development stage company)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
h. Loss Per Share
The computations of basic income (loss) per share of common stock are based on
the weighted average number of shares outstanding at the date of the financial
statements as follows:
For nine month For nine month For the
Period Ended Period Ended Year Ended
September 30, September 30, December 31,
2000 1999 2000
(Unaudited) (Unaudited)
------------------------------------------
Numerator
Net Loss $ (310,621)$ (181,278) $(20,061,513)
Denominator (weighted average number
of shares outstanding) $198,222,466 $160,494,173 $160,494,173
Income (loss) per share $ (.002) $ (.001) $ (.125)
Dilutive loss per share is not presented, as there are no potentially dilutive
items outstanding.
i. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and 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.
Actual results could differ from those estimates.
j. Restated Consolidated Financial Statements
Prior period consolidated financial statements have been restated to conform to
current financial statement presentation.
k. Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999 and is not
required to be applied retroactively. The adoption of this statement had no
material impact on the Company's financial statements.
F-12
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Notes to Financial Statements
(A development stage company)
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
l. Long-Lived Assets
All long-lived assets are evaluated yearly for impairment per SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." Any impairment in value is recognized as an expense in the
period when the impairment occurs.
m. Comprehensive Income
Comprehensive income consists of net income and other gains and losses affecting
shareholders' equity that, under generally accepted accounting principles, are
excluded from net income. For the Company, such items consist primarily of
unrealized gains and losses on marketable equity investments. Balances of
related after-tax components comprising accumulated other comprehensive income
included in stockholders equity at December 31, 1999 and September 30, 2000 are
as follows:
Unrealized
Gains (Losses)
SECURITIES
Balance, January 1, 1999 $ 222,443
Change for the year ended
December 31, 1999 (after tax) $ -0-
Balance, December 31, 1999 $ 222,443
Unrealized gain (loss) for the nine
month period ended
SEPTEMBER 30, 2000 (AFTER TAX) $(126,793)
-------------
Balance, September 30, 2000 $ 95,630
=============
n. Research and Development Costs
The Company expenses research and development costs as incurred.
NOTE 3 -COMMITMENTS AND CONTINGENCIES
a. Leases
DNAPrint genomics, Inc., (Florida) leases office space under terms of a lease
executed August 7, 2000. Lease term is six months ending January 31, 2001, the
monthly lease payment is $1,660.00.
The Company leases equipment under terms of a lease executed September 1999.
Lease terms is 48 months, the monthly lease payment is $1,988.45. Rent expense
for the nine months ended September 30, 2000 and 1999 was $6,682 and $-0-,
respectively.
F-13
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Notes to Financial Statements
(A development stage company)
NOTE 3 -COMMITMENTS AND CONTINGENCIES (continued)
a. Leases (continued)
Operating lease commitments for the next five years are as follows:
Year Ended September 30,
2001 $30,501
2002 $23,861
2003 $23,861
2004 $ -
2005 $ -
b. Commitments
On September 22, 2000, the Company signed a purchase agreement with Orchid
Biosciences, Inc. to acquire $500,000 of equipment. Under this commitment which
begins when equipment included in the agreement is installed in the Company's
facilities (expected November 2000). The Company also signed a supply and
license agreement by which it will be liable to purchase $140,000 of genotypes
kits and pay a 15% royalty to Orchid for compensation from the sale or license
of any discoveries found from the genomics, not subject to the option (see
below).
Simultaneously, Orchid purchased an option for $350,000, payable in November
2000, to co-develop and co-commercialize certain existing and future
intellectual properties and products of DNAPrint genomics for a twenty-five year
period. Under the terms of the agreement, DNAPrint granted Orchid an option to
license the rights to co-develop and/or co-commercialize certain DNAPrint
genomics products and properties. The option provides Orchid exclusive rights to
negotiate partnership terms with DNAPrint for these products and properties. The
option covers a broad spectrum of intellectual properties including genetic
algorithms, software and information resources such as single nucleotide
polymorphism (SNP) and haplotype determinations and multivariate associations
with complex human traits and diseases.
The option gives Orchid the right of first refusal for the property defined
above, if Orchid does not match the price, DNAPrint is free to license to a
third party. Properties not subject to the option are subject to a payment of
15% royalty on the amount of profit to Orchid.
The Company has also entered into a commitment to lease facilities in an office
building being purchased by George Frudakis, a Corporate Officer, to be
finalized in November, 2000.
c. Litigation
From time to time, the Company is subject to litigation in the normal course of
business. The Company believes that any adverse outcome from litigation would
not have a material effect on its financial position or results of operations.
NOTE 4 -DEVELOPMENT STAGE COMPANY
The Company essentially has reverted to the status of a startup company as it
emerged from the bankruptcy proceedings discussed in Note 5 and will be
considered to be a development stage company until it generates significant
revenues from its core genomics services business. Development stage
presentation does not include subsidiaries which were liquidated in 1999.
F-14
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Notes to Financial Statements
(A development stage company)
NOTE 5 - REORGANIZATION ITEMS
On December 10, 1998, Catalyst Communications, Inc. (Utah) now known as DNAPrint
(the "Debtor") 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. Under Chapter 11, certain claims
against the Debtor in existence prior to the filing of the petition of relief
under the federal bankruptcy laws are stayed while the Debtor continues business
operations as debtor-in-possession. These claims are reported in the December
31, 1999 balance sheet as "liabilities subject to compromise." Claims secured
against the Debtor's assets ("secured claims") also are stayed. Although the
holders of such claims have the right to move the Court for relief from the
stay. There are no secured claims.
Because holders of existing voting shares immediately before confirmation
received more than 50% of voting shares of emerging equity, the Company does not
qualify for fresh start accounting under SOP 90-7 (See Note 7).
NOTE 6 - GOING CONCERN
The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. The Company has incurred losses from its inception.
The Company has sustained recurring losses and negative cash flow from
operations. Over the past year the Company's growth has been funded through
private equity. On December 10, 1998 the Company 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.
The Company received approval to exchange certain debt for equity in the
Company. This was done through stock issued in October 1999. The Company has
terminated the calling card and restaurant business. The Company has acquired a
new subsidiary in the Human genome sciences and is concentrating its resources
to commence operations of this company. The Company has experienced and
continued to experience negative operating margins and negative cash flows, from
operations as well as an ongoing requirements for substantial additional capital
investment to accomplish the business plan over the next several years. The
Company expects to seek additional funding through private or public equity and
receives funding through collections on subscriptions receivable and equipment
and facilities leases. There can be no assurance as to the availability or terms
upon which such capital might be available.
NOTE 7 - EQUITY TRANSACTIONS
a. Related Party
On October 1, 1999, Tampa Bay Financial Holdings, Inc., ("TBFH") a
related party controlled by a son of Carl Smith, Sr., (The Company's CEO)
acquired the largest claim in the Company's bankruptcy (totaling in excess of
$2,500,000) for $1,200,000. The most significant terms of the claims transfer
included a provision that TBFH would pay amounts owed in installments as
follows:
$625,000 At Closing (October 1, 1999)
$125,000 Due October 31, 1999
$225,000 Due December 20, 1999
$225,000 Due March 1, 2000
F- 15
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Notes to Financial Statements
(A development stage company)
NOTE 7 -EQUITY TRANSACTIONS (continued)
As part of the bankruptcy TBFH agreed to convert the claim to 125,000,000
shares; however, the Company, in the event of a default by TBFH, was obligated
to buy back share proportions to any amounts owed under the claim which were
unpaid. As a result, the Company was contingently liable under this agreement in
the amount of $1,338,036 at December 31, 1999. TBFH paid all remaining
installments in 2000, which resulted in the Company being relieved of this
contingent obligation.
On August 18, 2000 the Company acquired DNAPrint genomics, Inc. (A Florida
Corporation) (DNA). DNA was incorporated under the laws of the State of Florida
in May 2000. DNA specializes in the construction of electronic facilities to
assist scientists in researching and assembling data from the human genome and
other advances in genetics research. DNA was acquired on July 15, 2000 for
192,000,000 shares of DNAPrint common stock. The acquisition will be treated as
a pooling of interests for accounting purposes (See Note 8).
b. Other
In January, 2000, the Company issued 8,000,000 restricted common shares to an
unrelated party as an inducement to enter into a contract to provide
advertising, marketing, and consulting services in connection with a Hotel
Development the Company was planning. The Company has since abandoned the
project and expensed the consideration based on the trading price of $.02 per
share at the time of the transaction.
On January 31, 2000 the Company acquired a 17-acre tract of undeveloped land in
Apex, North Carolina (from an unrelated party) for 30,000,000 restricted common
shares. The Company subsequently sold the land to Penn-Akron Corporation, a
start up Nevada Public Corporation in the internet-based education business for
4,500,000 restricted common shares.
NOTE 8 -BUSINESS ACQUISITION OF DNAPRINT GENOMICS, INC.
On July 15, 2000 the Company exchanged 192,000,000 shares of its common stock in
a business combination accounted as a pooling of interests because the Company
and DNA are considered to be under common control. DNA's principal assets
included certain genomics equipment and a stock subscription receivable of
$1,000,000 from Tampa Bay Financial, Inc., and affiliates, a common shareholder.
This transaction included the Company's assumption of approximately $71,584 in
equipment operating lease obligations and operating leases of office space from
DNA.
DNAPrint genomics, Inc. (Florida) was formed in May 2000 through the combination
of the Gaff Biologic division of Pacific Atlantic, Inc., and a stock
subscription receivable of $1,000,000 from Tampa Bay Financial, Inc. (a
controlling shareholder of both companies).
As part of the transaction, 115,200,000 shares of common stock have been placed
in escrow to be released upon the achievement of certain performance conditions.
The formula for the earnout of escrowed shares is as follows:
- One share for every 1.1 cent of gross profit achieved by DNAPrint
genomics, Inc. or one share for every 2.56 cents of valuation of
DNAPrint genomics, Inc. (Florida) based on the appraisal of a
mutually acceptable (to the Company and Chief Scientific Officer
Tony Frudakis) independent business valuation firm.
F-16
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Notes to Financial Statements
(A development stage company)
NOTE 8 -BUSINESS ACQUISITION OF DNAPRINT GENOMICS, INC. (continued)
Pacific Atlantic continued in existence subsequent to September 30, 1999, as a
shareholder of the Company. The assets of Pacific Atlantic not related to the
transaction with the Company have not been reflected in these financial
statements.
Summarized results of operations of the separate companies for the period of
January 1, 2000 through September 30, 2000, the date of acquisition, are as
follows:
DNAPrint genomics, Inc. DNAPrint genomics, Inc.
(Utah) (Florida)
-------------------------------------------------
Sales $ 7,582 $ 22,419
Net Loss $(191,447) $ (119,174)
Following is a reconciliation of the amounts of net sales and net income
previously reported with restated amounts:
For the Nine Months For the Nine Months
Ended September 30, 2000 Ended September 30, 1999
--------------------------------------------------
Sales:
DNAPrint genomics, Inc. (Utah),
as previously reported $ 7,582 $ 111,817
Dnaprint genomics, Inc. (Florida) $ 22,419 $ 8,152
--------------- ---------------
As restated $ 30,001 $ 119,969
=============== ===============
For the Nine Months For the Nine Months
Ended September 30, 2000 Ended September 30, 1999
--------------------------------------------------
Net Income:
DNAPrint genomics, Inc. (Utah),
as previously reported $(191,447) $(181,262)
Dnaprint genomics, Inc. (Florida) $(119,174) $ (16)
--------------- ---------------
As restated $ (310,621) $(181,278)
=============== ===============
F-17
<PAGE>
DNAPRINT GENOMICS, INC.
(Formerly Catalyst Communications, Inc. & Subsidiaries)
Notes to Financial Statements
(A development stage company)
NOTE 8 - BUSINESS ACQUISITION OF DNAPRINT GENOMICS, INC. (continued)
For the Year Ended
DECEMBER 31, 1999
Sales:
DNAPrint genomics, Inc. (Utah),
as previously reported $ 46,512
DNAPrint genomics, Inc. (Florida) $ 86,675
--------------
As restated $ 133,187
==============
Net Income:
DNAPrint genomics, Inc. (Utah),
as previously reported $(20,076,462)
DNAPrint genomics, Inc. (Florida) $ (14,949)
--------------
As restated $(20,061,513)
==============
NOTE 9 - SUBSEQUENT EVENTS
On October 19, 2000 the Company merged with S.D.E. Holdings, 1, Inc., an
unrelated Nevada company. S.D.E. Holdings, 1, Inc., is a full reporting company
under Rule 12 (g) of the Securities and Exchange Commission.
The purpose of the merger was to allow the Company to file a 211 application
with the National Association of Security Dealers, Inc., as a successor full
reporting company to become listed on the OTC Building 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. As consideration the DNAPrint genomics Inc., (Utah) paid the
principals of S.D.E. Holdings 1, Inc., $150,000, which included the legal
expenses to administer the transaction.
In October, 2000, the Company dividended its minority interest in Penn-Akron
Corporation, Inc., to its shareholders since the Company desired to focus more
closely on its genomics related projects.
F-18
<PAGE>
DNAPRINT GENOMICS, INC.
ProForma Financial Statements as
of September 30, 2000 (unaudited)
<PAGE>
The following unaudited pro forma financial statements for DNA Print genomics,
Inc. have been prepared based upon certain pro forma adjustments to the
historical financial statements of DNA Print genomics, Inc. and subsidiaries,
and S.D.E. Holdings 1, Inc. set forth elsewhere in this form 8-K. The pro forma
financial statements should be read in conjunction with the notes thereto and
the historical financial statements of DNA Print genomics, Inc. and
subsidiaries, and S.D.E. Holdings 1, Inc.
The accompanying balance sheets and pro forma statements of operations for
December 31, 1999 and September 30, 2000 and for the nine months ended September
30, 2000, and the year ended December 31, 1999, have been prepared as if the
transactions were consummated as of January 1, 1999.
The pro forma financial statements do not purport to be indicative of the
results which would actually have been obtained had the transactions been
completed on the dates indicated or which may be obtained in the future.
PF-1
<PAGE>
DNAPRINT genomics, Inc.
Balance Sheet
December 31, 1999
(unaudited)
ASSETS
DNAPrint S.D.E. ProForma ProForma
genomics, Holdings Adjustments Totals
Inc. 1 Inc.
--------------------------------------------------
Cash in bank $ 63,353 $ 1,488 $ 1,488(3) $ 63,353
Accounts receivable 7,054 - - 7,054
Property and equipment 11,362 - - 11,362
Accumulated depreciation (9,000) - - (9,000)
Investment in GRG, Inc. 222,443 - - 222,443
--------------------------------------------------
TOTAL ASSETS $ 298,212 $ 1,488 $(1,488) $ 295,212
==================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable $ 241,651 $ 2,220 $(2,220)(3) $ 241,651
Common stock 3,464,010 1,000 (1,000)(4) 3,464,010
Additional paid in capital 5,744,861 - 150,000 (5) 5,744,861
Acquisition cost of
S.D.E. Holdings 1 Inc. - - (150,000)(5) -
Accumulated other
comprehensive income 222,443 - - 222,443
Stock subscriptions receivable (1,000,000) - - (1,000,000)
Accumulated earnings prior
to development stage (7,442,370) - - (7,442,370)
Development stage
accumulated deficit (953,383) (1,732) 1,732(6) (935,383)
--------------------------------------------------
$ 295,212 $ 1,488 $(1,488) $ 295,212
==================================================
See accompanying notes to pro forma statements.
PF-2
<PAGE>
DNAPRINT genomics, Inc.
Balance Sheet
September 30, 2000
(unaudited)
ASSETS
DNAPrint S.D.E. ProForma ProForma
genomics, Holdings Adjustments Totals
Inc. 1 Inc.
--------------------------------------------------
Cash in bank $ 27,103 $ 1,488 $ 1,488(3) $ 27,103
Accounts receivable 4,440 - - 4,440
Property and equipment 74,507 - - 74,507
Accumulated depreciation (10,111) - - (10,111)
Investment in GRG, Inc. 95,650 - - 95,650
Investment in Penn-Akron
Corporation 2,000,000 - - 2,000,000
--------------------------------------------------
TOTAL ASSETS $ 2,191,589 $ 1,488 $(1,488) $2,191,589
==================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable $ 290,441 $ 2,220 $(2,220)(3) $ 290,441
Common stock 3,844,009 1,000 (1,000)(4) 3,844,009
Additional paid in capital 7,524,861 - - 7,524,861
Accumulated other
comprehensive income 95,650 - - 95,650
Stock subscriptions receivable ( 875,000) - - ( 875,000)
Accumulated earnings prior
to development stage (7,442,370) - - (7,442,370)
Development stage
accumulated deficit (1,246,002) (1,732) 1,732 (6) (1,246,002)
--------------------------------------------------
$ 2,191,589 $ 1,488 $(1,488) $2,191,589
==================================================
See accompanying notes to pro forma statements.
PF-3
<PAGE>
DNAPRINT genomics, Inc.
ProForma Statement of Operations
For the year ended December 31, 1999
(unaudited)
DNAPrint S.D.E. ProForma ProForma
genomics, Holdings Adjustments Totals
Inc. 1 Inc.
--------------------------------------------------
Sales $ 133,187 $ - $ - $ 133,187
Cost of sales 51,893 - - 51,893
--------------------------------------------------
Gross profit 81,294 - - 81,294
--------------------------------------------------
Bad debt expense 8,152 - - 8,152
Research & development costs 19,833 - - 19,833
General and administrative
expenses 20,117,912 1,732 (1,732)(2) 20,117,912
--------------------------------------------------
20,145,897 (1,732) 1,732 20,145,897
Loss from operations (20,064,603) (1,732) 1,732 (20,064,603)
--------------------------------------------------
Other income (expense)
Other income 3,090 - - 3,090
--------------------------------------------------
Total other income (expense) 3,090 - - 3,090
--------------------------------------------------
Net loss $20,061,513 $(1,732) $1,732 $(20,061,513)
==================================================
Net loss per common share $ (.125) $ .00 $ .00 $ (.125)
==================================================
Weighted average number of
Common share equivalents
Outstanding used for computing
Primary earnings per share 160,484,173 1,000,000 160,484,173
=========== ========= ===========
See accompanying notes to pro forma statements.
PF-4
<PAGE>
DNAPRINT genomics, Inc.
ProForma Statement of Operations
For the Nine Months Ended September 30, 2000
(unaudited)
DNAPrint S.D.E. ProForma ProForma
genomics, Holdings Adjustments Totals
Inc. 1 Inc.
--------------------------------------------------
Sales $ 30,001 $ - $ - $ 30,001
Cost of sales 4,039 - - 4,039
--------------------------------------------------
Gross profit 25,962 - - 25,962
--------------------------------------------------
Research & development costs 105,434 - - 105,434
Depreciation and amortization 1,111 - - 1,111
General and administrative
expenses 230,038 1,732 (1,732)(2) 230,038
--------------------------------------------------
336,583 1,732 (1,732) (336,583)
Loss from operations ( 310,621) (1,732) 1,732 ( 310,621)
--------------------------------------------------
Other income (expense)
Other income - - - -
--------------------------------------------------
Total other income (expense) - - - -
--------------------------------------------------
Net loss $( 310,621) $(1,732) $1,732 $(310,621)
==================================================
Net loss per common share $ (.002) $ .00 $ .00 $ (.002)
==================================================
Weighted average number of
Common share equivalents
Outstanding used for computing
Primary earnings per share 198,222,466 1,000,000 198,222,466
=========== ========== ===========
See accompanying notes to pro forma statements.
PF-5
<PAGE>
DNA PRINT GENOMICS, INC.
AND SUBSIDIARIES
NOTES TO PRO FORMA STATEMENT
(UNAUDITED)
The accompanying pro forma statements of operation give effect to the merger of
DNA Print genomics, Inc. and S.D.E. Holdings 1, Inc., all as if consummated on
January 1, 1999. The operations of S.D.E. Holdings 1, Inc. have been accounted
for as a purchase with DNA Print genomics, Inc. for all periods represented,
whereby the basis for accounting of DNA Print genomics, Inc.
The accompanying pro forma statements of operations and balance sheet give
effect to the following pro forma adjustments:
1. The S.D.E. Holdings 1, Inc. amounts presented are for the period from
inception (January 19, 2000) through September 30, 2000. The Company's
management believes the amounts presented are representative of the
historical operations of S.D.E. Holdings 1, Inc. for the year ended
December 31, 1999.
2. Represents the elimination of S.D.E. Holdings 1, Inc. legal and accounting
expenses that are not indicative of the combined operations. The DNA Print
genomics, Inc. general and administrative expenses include adequate legal
and accounting expenses.
The Company has shown the $150,000 paid by DNA Print genomics, Inc. to the
shareholders of S.D.E. Holdings 1, Inc. for consulting, legal fees, the
facilitation of the merger, the filing of related forms with the Securities and
Exchange Commission and to cancel their stock as an offset to paid in capital as
a result of the business combination. The amount of capital raised to pay this
amount has been shown as an increase to paid in capital. The merger provides
that:
o S.D.E. Holdings 1, Inc. would be merged into DNA Print genomics, Inc.
effective October 19, 2000.
o Each share issued and outstanding immediately prior to the effective
date would remain as issued and outstanding common stock in DNA Print
genomics, Inc. without change.
3. Cash adjustments reflect the following:
Purchase price all outstanding shares of S.D.E. Holdings 1, Inc. $150,000
amount allocated to shares, net of cancellation of shares 0
--------
Payment of fees and costs in connection with merger $150,000
========
Elimination of S.D.E. Holdings 1, Inc. to pay
Accounts payable ($1,488)
========
4. Common stock adjustments reflect the following:
Elimination of S.D.E. Holdings 1, Inc. common shares ($1,000)
PF-6
<PAGE>
DNA PRINT GENOMICS, INC.
AND SUBSIDIARIES
NOTES TO PRO FORMA STATEMENT
(UNAUDITED)
5. Paid in capital adjustments:
Capital contributions from Tampa Bay Financial, Inc. $150,000
Fees and costs in connection with the merger ($150,000)
----------
$ 0
==========
6. Adjustments to deficit accumulated during the development stage include the
following:
Elimination of S.D.E. Holdings 1, Inc. deficit $1,732
==========
Pro forma earnings per share are based on the number of common and common stock
equivalents outstanding as of the end of the periods presented and are computed
after giving effect to the zero (0) shares of common stock issued resulting from
the merger of S.D.E. Holdings 1, Inc. and DNA Print genomics, Inc. as of the
beginning of the period.
PF-7
<PAGE>
S.D.E. HOLDINGS 1 INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
FOR THE PERIOD ENDED FEBRUARY 29, 2000
AND FOR THE SEVEN MONTHS ENDED SEPTEMBER 30, 2000
AND CUMULATIVE FROM INCEPTION
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report F-2
Financial Statements:
Balance Sheet F-3
Statements of Operations F-4
Statement of Changes in Stockholders' Equity (Deficit) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
F-1
<PAGE>
A.J. ROBBINS, PC
Certified Public Accountants
and Consultants
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
S.D.E. HOLDINGS 1 INC.
BOULDER, COLORADO
We have audited the accompanying balance sheet of S.D.E. Holdings 1 Inc. (a
development stage company) as of September 30, 2000, and the related statements
of operations, changes in stockholders' equity (deficit), and cash flows for the
period from January 19, 2000 (inception) to February 29, 2000 and for the seven
months ended September 30, 2000. These 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 generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of S.D.E. Holdings 1 Inc. as of
September 30, 2000, and the results of its operations and its cash flows for the
period from January 19, 2000 (inception) to February 29, 2000 and for the seven
months ended September 30, 2000, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is in the development stage and has not
commenced operations. Its ability to continue as a going concern is dependent
upon its ability to develop additional sources of capital, locate and complete a
merger with another company and ultimately achieve profitable operations. These
conditions raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/A.J. Robbins
DENVER, COLORADO
OCTOBER 2, 2000
3033 East 1st Avenue, Suite #201, Denver, CO 80206
- 303-321-1281 Fax 303-321-1288
F-2
<PAGE>
<TABLE>
<CAPTION>
S.D.E. HOLDINGS 1 INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<S> <C>
SEPTEMBER 30,
2000
------------------
ASSETS
CURRENT ASSETS, CASH $ 1,488
==================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES, PAYABLE TO RELATED PARTIES $ 2,220
------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value, 25,000,000 shares 1,000
authorized, 1,000,000 shares issued and outstanding
(Deficit) accumulated during the development stage (1,732)
------------------
Total Stockholders' Equity (Deficit) (732)
------------------
$ 1,488
==================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
S.D.E. HOLDINGS 1 INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<S> <C> <C> <C>
CUMULATIVE
FOR THE PERIOD FROM
FROM JANUARY 19,
JANUARY 19, 2000
FOR THE SEVEN 2000 (INCEPTION)
MONTHS ENDED (INCEPTION) TO TO
SEPTEMBER 30, FEBRUARY 29, SEPTEMBER 30,
2000 2000 22000
----------------- ----------------- -----
REVENUE $ - $ - $ -
----------------- ----------------- -----------------
EXPENSES:
General and Administrative 1,512 220 1,732
----------------- ----------------- -----------------
Total Expenses 1,512 220 1,732
----------------- ----------------- -----------------
NET (LOSS) $ (1,512) $ (220) $ (1,732)
================= ================= =================
NET (LOSS) PER COMMON SHARE - BASIC $ * $ *
================= =================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 1,000,000 1,000,000
================= =================
*Less than $(.01)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
S.D.E. HOLDINGS 1 INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 19, 2000 (INCEPTION)
TO FEBRUARY 29, 2000
AND FOR THE SEVEN MONTHS ENDED SEPTEMBER 30, 2000
<S> <C> <C> <C> <C> <C>
(DEFICIT)
ACCUMULATED
STOCK DURING THE
COMMON STOCK SUBSCRIPTION DEVELOPMENT
SHARES AMOUNT RECEIVABLE STAGE TOTAL
----------------------------------------------------------------------------------------------
BALANCES, JANUARY 19, 2000 - $ - $ - $ - $ -
Issuance of stock on February 1,000,000 1,000 (800) - 200
21, 2000, for $.001 per share
NET (LOSS) - - - (220) (220)
---------------- ---------------- ---------------- ---------------- ----------------
BALANCES, FEBRUARY 29, 2000 1,000,000 1,000 (800) (220) (20)
Satisfaction of subscription - - 800 - 800
receivable
NET (LOSS) - - - (1,512) (1,512)
---------------- ---------------- ---------------- ---------------- ----------------
BALANCES, SEPTEMBER 30, 2000 1,000,000 $ 1,000 $ - $ (1,732) $ (732)
================ ================ ================ ================ ================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
S.D.E. HOLDINGS 1 INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<S> <C> <C> <C>
CUMULATIVE
FOR THE PERIOD FROM
FROM JANUARY 19,
JANUARY 19, 2000
FOR THE SEVEN 2000 (INCEPTION)
MONTHS ENDED (INCEPTION) TO TO
SEPTEMBER 30, FEBRUARY 29, SEPTEMBER 30,
2000 2000 2000
----------------- ----------------- ------------
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net (loss) from operations $ (1,512) $ (220) $ (1,732)
Adjustments to reconcile net (loss) to net cash provided (used)
by operating activities:
Changes in:
Payable to related parties 2,200 20 2,220
----------------- ----------------- --------------
Net Cash Provided (Used) by Operating Activities 688 (200) 488
----------------- ----------------- --------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Collection of subscription receivable 800 - 800
Common stock issued for cash - 200 200
----------------- ----------------- --------------
Net Cash Provided by Financing Activities 800 200 1,000
----------------- ----------------- --------------
NET INCREASE (DECREASE) IN CASH 1,488 - 1,488
CASH, beginning of period - - -
----------------- ----------------- --------------
CASH, end of period $ 1,488 $ - $ 1,488
================= ================= ==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-6
</TABLE>
<PAGE>
S.D.E. HOLDINGS 1 INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY
S.D.E. Holdings 1 Inc. (the Company), a development stage company, was organized
under the laws of the State of Nevada on January 19, 2000. The Company is in the
development stage as defined in Financial Accounting Standards Board Statement
No. 7. The fiscal year end is the last day of February.
GOING CONCERN AND PLAN OF OPERATION
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company is in the
development stage and has not earned any revenues from operations to date.
The Company is currently devoting its efforts to locating merger candidates. The
Company's ability to continue as a going concern is dependent upon its ability
to develop additional sources of capital, locate and complete a merger with
another company, and ultimately, achieve profitable operations. The accompanying
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
CASH
Cash and cash equivalents consists primarily of cash on hand and cash in banks.
INCOME TAXES
The Company uses the liability method of accounting for income taxes pursuant to
Statement of Financial Accounting Standards No. 109. Under this method, deferred
income taxes are recorded to reflect the tax consequences in future years of
temporary differences between the tax basis of the assets and liabilities and
their financial amounts at year end.
For federal income tax purposes, substantially all expenses must be deferred
until the Company commences business and then they may be written off over a 60
month period. Therefore, $1,732 of net losses incurred in the period from
January 19, 2000 (inception) to September 30, 2000 have not been deducted for
tax purposes and represent a deferred tax asset. The Company is providing a
valuation allowance in the full amount of the deferred tax asset since there is
no assurance of future taxable income. Tax deductible losses can be carried
forward for 20 years until utilized.
F-7
<PAGE>
S.D.E. HOLDINGS 1 INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS (LOSS) PER COMMON SHARE
During 1997 the Financial Accounting Standard Board (FASB) issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic earnings (loss) per common
share is computed based upon the weighted average number of common shares
outstanding during the period. Diluted earnings per share consists of the
weighted average number of common shares outstanding plus the dilutive effects
of options and warrants calculated using the treasury stock method. In loss
periods, dilutive common equivalent shares are excluded as the effect would be
anti-dilutive.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, 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 periods.
Actual results could differ from those estimates and assumptions.
NOTE 2 - STOCKHOLDERS' EQUITY
During February 2000, the Company issued for cash and a stock subscription
receivable 500,000 shares of its $.001 par value common stock to a private
investor. The Company also issued for cash and a stock subscription receivable
500,000 shares of its $.001 par value common stock to its president and the
father of its president.
In March 2000 the stock subscription receivables were paid in full.
In September 1990 the Company entered into an agreement to sell 100% of the
Company's outstanding common stock for $150,000; simultaneously, 500,000
outstanding shares were retired.
NOTE 3 - PAYABLE TO RELATED PARTIES
The Company received advances of $2,200 from stockholders in March 2000.
F-8
