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EX-31.2 - SpectrumDNA, Inc. | v180645_ex31-2.htm |
EX-31.1 - SpectrumDNA, Inc. | v180645_ex31-1.htm |
EX-32.1 - SpectrumDNA, Inc. | v180645_ex32-1.htm |
UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington,
D.C. 20549
FORM
10-K
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
fiscal year ended December 31, 2009
¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from _______________ to __________________
Commission File No.
333-148833
Spectrum DNA,
Inc.
(Exact
Name of registrant as specified in its charter)
Delaware
|
20-4880377
|
(State
or other jurisdiction
|
(IRS
Employer Identification Number)
|
of
incorporation or organization)
|
|
1700
Park Avenue, Suite 2020
P.O.
Box 682798
|
|
Park City, Utah
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84068
|
(Address
of principal executive offices)
|
(Zip
code)
|
(435)
658-1349
(Registrant's
telephone number, including area code)
Securities
Registered Pursuant to Section 12(b) of the Act: None
Securities
Registered Pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.
Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definition of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
|
Non-accelerated
filer
|
¨
|
Smaller
reporting company
|
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes ¨ No x
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of June 30, 2009, the last business day of
the registrant’s most recently completed second fiscal quarter, was
approximately $6,390,000. The number of shares outstanding of the
Common Stock ($.001 par value) of the registrant as of the close of business on
March 18, 2010 was 68,818,237.
Documents
Incorporated by Reference: None
TABLE OF CONTENTS
Item
|
Description
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Page
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Part
I
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||
Item
1.
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Business
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3
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Item
1A.
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Risk
Factors
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8
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Item
1B.
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Unresolved
Staff Comments
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12
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Item
2.
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Properties
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12
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Item
3.
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Legal
Proceedings
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12
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Item
4.
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Reserved
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12
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Part
II
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||
Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters
and
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Issuer
Purchases of Equity Securities
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13
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Item
6.
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Selected
Financial Data
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14
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Item
7.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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14
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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20
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Item
8.
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Financial
Statements and Supplementary Data
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21
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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44
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Item9A(T)
.
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Controls
and Procedures
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44
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Item
9B.
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Other
Information
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45
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Part
III
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||
Item
10.
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Directors,
Executive Officers and Corporate Governance
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46
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Item
11.
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Executive
Compensation
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49
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
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52
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Item
13.
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Certain
Relationships and Related Transactions and Director
Independence
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54
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Item
14.
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Principal
Accountant Fees and Services
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54
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Part
IV
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||
Item
15.
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Exhibits
and Financial Statement Schedules
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55
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Signatures
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57
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2
NOTICE ABOUT FORWARD LOOKING
STATEMENTS
When used
in this report, the words “may,” “will,” “expect,” “anticipate,” “continue,”
“estimate,” “intend,” “plans”, and similar expressions are intended to identify
forward-looking statements regarding events, conditions and financial trends
which may affect our future plans of operations, business strategy, operating
results and financial position. Forward looking statements in this report
include without limitation statements relating to trends affecting our financial
condition or results of operations, our business and growth strategies and our
financing plans. Such statements are not guarantees of future
performance and are subject to risks and uncertainties and actual results may
differ materially from those included within the forward-looking statements as a
result of various factors. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
made. We undertake no obligation to publicly release the result of any revision
of these forward-looking statements to reflect events or circumstances after the
date they are made or to reflect the occurrence of unanticipated
events.
PART
I
ITEM
1. Business.
(a) Organizational
History
SpectrumDNA,
Inc. was incorporated under the laws of the State of Delaware on January 16,
2008 under the name SpectrumDNA Holdings, Inc. to enable its now wholly-owned
subsidiary, formerly known as SpectrumDNA, Inc. (now known as SpectrumDNA
Studios, Inc.) to implement a holding company organizational
structure. Effective as of January 22, 2008, we reorganized into a
holding company structure whereby SpectrumDNA, Inc. became a wholly-owned
subsidiary of SpectrumDNA Holdings, Inc. pursuant to an Agreement and Plan of
Merger dated as of January 18, 2008 whereby SpectrumDNA, Inc. changed its name
to SpectrumDNA Studios, Inc. and SpectrumDNA Holdings, Inc. changed its name to
SpectrumDNA, Inc.
SpectrumDNA
Studios, Inc. (formerly SpectrumDNA, Inc.) is a Delaware
corporation. It was originally incorporated in the State of Utah in
May 2006, and on September 11, 2006 was reorganized as a Delaware corporation as
a result of a merger into a newly formed Delaware corporation incorporated on
September 7, 2006 which took the Utah corporation’s name and became the
surviving entity of the merger. The “DNA” in the corporate name stands for
“digital networked applications.”
Cooshoo,
Inc. is a Delaware corporation (formerly a Utah corporation) which is a
wholly-owned subsidiary of SpectrumDNA Studios, Inc. and owns and operates the
Cooshoo engine which was rebranded and renamed PlanetTagger in
mid-2008.
References
in this document to "us," "we," “Spectrum,” “SpectrumDNA,” “SPXA” or "the
Company" refer to SpectrumDNA, Inc., and its direct and indirect wholly-owned
subsidiaries.
Our
corporate address is 1700 Park Avenue, Suite 2020, P.O. Box 682798, Park City,
Utah 84068. Our telephone number is (435) 658-1349. The
Company’s website is http://www.spectrumdna.com.
Organization
Our
Company is presently comprised of SpectrumDNA, Inc., a Delaware corporation,
with two wholly-owned subsidiaries, Cooshoo, Inc. and SpectrumDNA Studios, Inc.,
also Delaware corporations (collectively, the Company or
Spectrum). We use the trade names “SpectrumDNA, Inc.” or “SpectrumDNA
Studios, Inc.” in our commercial operations.
(b) Business
Overview
General
SpectrumDNA,
Inc. is a social media studio that creates digital networked applications that
are engines of engagement (or “enginets”) for institutions—primarily media
outlets and brand advertisers—seeking to cost-effectively capture specific
audiences (“social nicheworks”) and audience behaviors, and develop
advertiser-safe user-generated and user-marketed content. Enginets
are branded web and wireless-based network experiences—web apps and mobile apps—
that empower users to take active roles in their community.
Our
product development methodology is based on our Chief Executive Officer James A.
Banister’s book “Word of Mouse: The New Age of Networked Media” (Agate, 2004)
which we believe predicted what The Gartner Group has now measured in its study
measuring demographics of the social media audience and
culture. Banister distilled his research into a methodology called
“enginetworking,” a process for creating and evolving software applications for
the web and mobile wireless that address all levels of engagement.
3
Strong evidence exists that the history of success in online and
mobile web is a history of “capturing behavior” or “providing
utility”—searching, dating, self-expression, shopping, social networking,
job-seeking, travel, with many more behaviors left to
capture-and-nurture. Further, the nature of social media is such that
software applications seeking to capture user behavior must be evolutionary
by-design. Our team is trained in leading-edge agile-adaptive
techniques that enable us to quickly adapt our engines’ functionality, form and
content to actual user-behavior, partner requests and advertiser/sponsor
imperatives.
Current
Products
Enginets
can create new ways to capture-and-nurture audiences and help existing
organizations and online networks improve key audience metrics - drive more
unique users, more frequency of usage by each user, and a deeper, longer
engagement in each user visit. Our product development strategy is to
develop, incubate and produce enginets based on observed emergent audience
behavior.
Currently,
our active enginets are
as follows:
The
Addictionary
The
Addictionary is a social wordplay engine. The original strategy for
The Addictionary was to build the product into a singular web destination for
creating, contributing, contesting and sharing lingo/language. Market
feedback indicated there was a larger opportunity in evolving the engine into a
software-as-a-service (“SaaS”) application that enabled us to instance the
social wordplay engine for multiple existing online communities, as each
affinity group has its own idiosyncratic lingo and social morays (e.g. golfers
vs. pet owners). We undertook and completed that conversion in the
first quarter of 2008, effectively turning one product into dozens of products
by licensing the Addictionary to companies desiring social media applications to
increase their brands’ awareness and increase engagement of their existing user
base.
This move
pre-dated, and we believe predicted a now rapidly emerging trend in social
media—social nicheworking—which are
software applications for web and mobile wireless that target specific affinity
groups, either direct-to-consumer or in partnership with traditional media
entities or brand advertisers targeting those affinity groups.
PlanetTagger
PlanetTagger
is a location-enabled integrated social marketing platform offering online
communities a powerful tool which centralizes their social media marketing and
editorial programming and provides the community users with utility to extend
the reach of the community. The pre-cursor to PlanetTagger, our
now-discontinued cooshoo.com property, was originally intended as a
direct-to-consumer software application—a singular destination aimed at
capturing “missed connections” behavior that was naturally emerging on sites
like craigslist.org. Similar to our repositioning of The
Addictionary, we re-engineered the cooshoo.com application into a
location-enabled services application and re-branded it PlanetTagger—another
example of a SaaS application that can be offered to any niche community looking
to capture and nurture the behavior of its users around People, Events, Media,
or Locations. Like The Addictionary, emergence of PlanetTagger as a
software-as-a-service effectively turned one product into dozens of
products
New
Products
We
maintain a product development pipeline that is continually re-prioritized based
on commercial opportunity, market feedback and market conditions. Our
development pipeline is based on our proprietary enginetworking process as well
as other opportunities as they arise.
Sales,
Marketing and Performance
Currently,
mainstream advertising is based primarily on the “impression” model, such as
thirty-second television commercials, print ads and radio spots; but the
emergence of social media enables a new methodology for engaging
audiences. Advertisers spend billions of dollars every year to create
a “spark” with a target constituency. Typically these expenditures
take the form of limited-run ad campaigns (e.g. 13-week television ad run), or
fixed-length events (e.g. the Superbowl). However, when these events
end, the exposure to and engagement with the sponsor’s audience
concludes. Such campaigns can be characterized as “planting dead
trees.”
With very
little change in existing, and long-standing, advertising industry
methodologies, advertisers can augment their limited-run campaigns that they are already doing with
an engine of engagement—an enginet. This way, the dollars they are
already investing in reaching their desired audience—the “spark”—can be used to
prime an engine that has the potential to create a long-term return on
investment by offering the audience a more engaging social media experience with
potential to grow into a self-perpetuating messaging engine.
4
Conversely,
traditional media outlets (print, broadcast, online) are in the business of
building assets, and often the foundation of their business models rest on
support from brand advertisers. But traditional media outlets aren’t
proficient at creating social media experiences, as they are rooted in linear
media— push media instead of conversational media or “pull” media.
In our
sales and marketing strategy, SpectrumDNA has pioneered the business of social
nicheworking—providing white-label social media experiences that media entities
or brand advertisers (or both) can offer to their target affinity
groups. Instead of launching “yet another web2.0 destination,”
SpectrumDNA partners with institutions already spending the time, money and
effort to engage their target affinity group, providing them with the social
media expertise they lack.
Our first
Addictionary transaction of this type was signed in June 2008 with Comedy
Central. During the remainder of 2008 and throughout 2009, the
Company licensed the Addictionary to a number of other media companies and
brands including:
|
·
|
NBC
Universal’s television show The
Office
|
|
·
|
E!Online,
the online presence of E! Entertainment, a Comcast Networks
Property
|
|
·
|
Warner
Bros. distributed syndicated talk show The Ellen DeGeneres
Show
|
|
·
|
Dictionary.com,
an IAC operating unit
|
|
·
|
The New York Post, News
Corp’s daily newspaper
|
|
·
|
FearNet
Channel, another Comcast Networks
Property
|
|
·
|
Comedy
Central’s television show Secret
Girlfriend
|
|
·
|
G4TV.com,
the third Comcast Networks Property
|
The
Addictionary has proved itself very capable of moving the needle on our
partners’ core audience metrics. For example, the Political
Addictionary doubled average time-on-site for Comedy Central’s Indecision2008
efforts leading up to the election, and approximately 40% of visitors to E!
Online spend twice as much time-on-site because of the Celebrity Addictionary
feature.
The
Addictionary platform continued to evolve based on successes
to-date. We continued sales efforts targeting IP-based communities
(like The Office, Harry Potter or Star Trek) and subject-matter
communities like golf, gardening, celebrity, local geography (e.g. New York) or
pet ownership. Sales discussions during the third and into the fourth
quarter have focused on a number of verticals in including parenting, sports,
news, financial news, and food as well as brand marketers and traditional media
outlets looking to engage online audiences around their brands or
properties.
Our
secondary sales focus is on licensing PlanetTagger. During the second
quarter of 2009, preliminary meetings held prior to the launch of the deployable
PlanetTagger product resulted in our first license sold to UCLA Anderson School
of Management’s Entertainment and Media Management Institute (dba Managing
Enterprises in Entertainment, Media, and Sports). Launch of the site
occurred in November 2009.
During
the third and fourth quarter 2009, PlanetTagger sales efforts remain low-level
due to limited sales and marketing resources. Despite this, the
Company continued to have sales meetings regarding potential PlanetTagger
installations with a number of companies and institutions within the sports,
music, and pharmaceutical industries as well as various governmental
entities.
In
general, as we increase our sales and marketing efforts we anticipate that we
will continue to incur net losses for the foreseeable future. The
extent of these losses will depend, in part, on the amount of growth in our
revenues from organization adoption, consumer acceptance and use of our products
and the number of relationships we are able to form with advertisers and
marketers to use our enginets.
Recent
Events
During
the first quarter of 2010, the Company sold its second PlanetTagger installation
to the State of Utah’s Utah Science Technology and Research initiative
(USTAR). USTAR’s PlanetTagger installation, DigitalUproar, launched
in March of 2010 to coincide with USTAR’s PushButton Digital Media Summit hosted
by the State of Utah.
Late in
the fourth quarter of 2009, the Company began to re-focus its efforts on
differentiation, circumventing resource limitations and leveraging its
assets. That strategy resulted in two additions to strategic
direction and two strategic relationships formed early in 2010:
5
OptEngage,
a product development and services offering strategy rooted in the currently
exploding “browser apps” marketplace (happening in parallel to the smartphone
apps explosion, albeit much less publicized) and the contextual/semantic web
movement, was introduced. OptEngage enables clients to deliver
content and utility to their constituency and/or audience anywhere they go on
the web, contextual to what they’re doing, when they’re doing and where they’re
doing it. For example, we are OptEngaging the PlanetTagger product,
so we can offer it to clients and their users in a “to go” form—via a mobile
app, and via an optengaged browser app (or series of browser apps).
In
January 2010, SpectrumDNA entered into an exclusive license agreement with
Optini, LLC, a Utah based company, to market and sell Optini’s products under
the OptEngage brand to the Company’s existing and future
clients. Optini offers a suite of services that allows an online
community owner to control their end users’ experience on the web and to collect
metrics data related to the behavior of those users. The community
owner uses the product suite to personalize and customize its content around the
community member wherever he or she travels on
the web, contextually to where they are, when they are and what they’re
doing.
Also, in
January 2010, the Company partnered with mediaForge, a Salt Lake City based
ecommerce retargeting and personalization provider that allows its clients to
deliver advanced, fully interactive ads geared for personalization and optimized
for engagement. These personalized ads and widgets listen for
shoppers who have shopped but not bought, and
delivers personalized
ads and widgets. Viewers of such ads are provided with a
more personalized and engaging user experience. The Company has taken
steps to integrate mediaForge’s products into its own Addictionary widgets to
take advantage of the high engagement we already see and turn it into revenue,
thereby assisting our Addictionary licensees with an incremental method of
monetization and a revenue stream into which they are not currently
tapping.
Customers
and Competition
The
internet industry is highly competitive, rapidly evolving and subject to
constant technological change. As the markets for internet based
products and services and online advertising continue to grow, we expect that
competition will intensify. Barriers to entry are minimal, and
competitors can offer products and services at a relatively low
cost. We compete for the time, attention and usage of a broad
spectrum of consumers and internet users, as well as the marketing, advertising
and purchasing budgets of a broad range of businesses. Many companies
offer properties that compete with our properties for user attention and
partner, advertiser and subscriber budgets, including large companies such as
Yahoo, Google, Microsoft, and Facebook, as well as start-ups such as Hootsuite,
Foursquare, Loopt, and Brightkite as well as others about which we may not yet
know. These companies may be or may become directly competitive with
our business. We also expect that additional companies will offer competing
products in the future. Furthermore, competitors of our properties may develop
products or services that are superior to, or have greater market acceptance
than, the enginets we develop.
Competitors
against our properties may have greater brand recognition and greater financial,
marketing and other resources than we do. This may place our properties at a
disadvantage in responding to their competitors’ pricing strategies,
technological advances, advertising campaigns, strategic partnerships and other
initiatives. Many competitors have (i) greater financial, technical,
engineering, personnel and marketing resources; (ii) longer operating histories;
(iii) greater name recognition; and (iv) larger consumer bases. These
advantages afford competitors the ability to (a) offer greater pricing
flexibility, (b) offer more attractive incentive packages to encourage
prospective partners to do business with competitive properties, (c) negotiate
more favorable contracts with affiliates, partners and service providers and (d)
negotiate more favorable contracts with other suppliers. We believe
that additional competitors may be attracted to the market, including media
companies, marketing and advertising firms, internet companies, startups and
others. We also believe that existing competitors are likely to continue to
expand their service offerings to appeal to advertisers and
consumers.
Our
ability to compete effectively in the internet industry will depend upon our
ability to (i) provide high quality properties and services with usage and
advertising prices competitive with, or lower than, those charged by our
competitors; (ii) develop new and innovative products and services; and (iii)
exhibit a high degree of agility and adaptability in our properties, our
operations and our business strategies. There can be no assurance
that competition from existing or new competitors or changes in internet user
trends, habits or expectations affected by such competitors will not have a
material adverse effect on our business, financial condition and results of
operations, or that we will be able to compete successfully in the
future.
Employees
As of the
date hereof, the Company has eight (8) full-time employees located in Park City,
UT, Spanish Fork, UT, Billings, MT, Denver, CO, and Fairfield,
CA. This includes one of the founders, James A. Banister, serving as
Chief Executive Officer. The remaining employees manage operations,
finance, engineering and product management, market and sell our products and
build software and implement effective quality assurance
standards. It is expected that in the next 12 months we will seek to
employ one or two additional employees to augment the product development,
marketing, business development and sales efforts.
6
Proprietary
Information and Technology
Our
operations do not currently depend upon any patents, copyrights, or trade
secrets (collectively, “intellectual property”). However, over time
we do anticipate that certain of our individual properties and subsidiaries, and
the Company itself, may come to depend upon certain intellectual property
developed or acquired by us in the pursuit of development of such
properties. In such cases, we anticipate relying on a combination of
patent, trademark, copyright and trade secret laws in the U.S. and other
jurisdictions as well as confidentiality procedures and contractual provisions
to protect any proprietary technologies and brands. We plan to enter
into confidentiality and invention assignment agreements with employees and
consultants and confidentiality agreements with third parties where
necessary.
We also
plan to rigorously control access to any proprietary technologies, and as the
Company matures, we also plan to assess at regular intervals our intellectual
property status, including identifying and articulating particular pieces of
intellectual property, and for intellectual property believed to be of
significant novelty and value, engaging patent counsel to assist in the
assessment of whether such intellectual property should be protected by patents,
trade secret doctrine, copyrights, or other mechanisms. Our management has had
significant experience in the development and administration of such processes,
and includes individuals who have been awarded multiple patents in connection
with prior ventures.
We have
been granted an exclusive worldwide license to use the name “Spectrum” by James
A. Banister, one of the Company’s founders and its Chairman of the Board, who is
the owner of the U.S. Federal Trademark Registration for the mark
“Spectrum”. Pursuant to the Trademark License Agreement, Mr. Banister
reserved any and all rights to authorize or license use of such mark or names
containing Spectrum or Spectrum Mediaworks (a company in which Mr. Banister owns
an interest) for use in connection with its business, which Mr. Banister has
indicated is not competitive with the business of the Company.
Government
Regulation
The
availability and wide use of the internet and Web are relatively recent
developments. Although the development, deployment and operation of enginets
using the internet and Web are currently permitted by United States law and
largely unregulated within the United States, some foreign governments have
adopted laws and/or regulations restricting certain kinds of applications and
content. Overall, industry experts generally characterize the current regulatory
environment for most internet companies as favorable. However, more
aggressive domestic or international regulation of the internet in general may
materially and adversely affect our business, financial condition, operating
results and future prospects.
In the
United States, Congress has begun to adopt legislation that regulates certain
aspects of the internet, including online content, user privacy, taxation,
liability for third party activities and jurisdiction. Such legislation includes
the following:
•
|
Communications Decency
Act. The Communications Decency Act, or CDA, regulates content of
material on the internet, and provides immunity to internet service
providers and providers of interactive computer services. The CDA and the
case law interpreting it provide that domain name registrars and website
hosting providers cannot be liable for defamatory or obscene content
posted by customers on websites unless they participate in the
conduct.
|
•
|
Digital Millennium Copyright
Act. The Digital Millennium Copyright Act of 1998, or DMCA,
provides recourse for owners of copyrighted material who believe that
their rights under U.S. copyright law have been infringed on the internet.
The DMCA provides domain name registrars and website hosting providers a
safe harbor from liability for third-party copyright infringement.
However, to qualify for the safe harbor, registrars and website hosting
providers must satisfy a number of requirements, including adoption of a
user policy that provides for termination of service access of users who
are repeat infringers, informing users of this policy, and implementing
the policy in a reasonable manner. In addition, a registrar or a website
hosting provider must remove or disable access to content upon receiving a
proper notice from a copyright owner alleging infringement of its
protected works by domain names or content on hosted web pages. A
registrar or website hosting provider that fails to comply with these safe
harbor requirements may be found contributorily or vicariously liable for
third-party infringement.
|
•
|
Lanham Act. The Lanham
Act governs trademarks and servicemarks, and case law interpreting the
Lanham Act has limited liability for search engine providers and domain
name registrars in a manner similar to the DMCA. No court decision to date
known to us has found a domain name registrar liable for trademark
infringement or trademark dilution as a result of accepting registrations
of domain names that are identical or similar to trademarks or service
marks held by third parties, or by holding auctions for such domain
names.
|
7
•
|
Anticybersquatting Consumer
Protection Act. The Anticybersquatting Consumer Protection Act, or
ACPA, was enacted to address piracy on the internet by curtailing a
practice known as “cybersquatting,” or registering a domain name that is
identical or similar to another party’s trademark, or to the name of
another living person, in order to profit from that domain name. The ACPA
provides that registrars may not be held liable for registration or
maintenance of a domain name for another person absent a showing of the
registrar’s bad faith intent to profit from the use of the domain name.
Registrars may be held liable, however, for failure to comply with
procedural steps set forth in the
ACPA.
|
•
|
Privacy and Data
Protection. In the area of data protection, the U.S. Federal Trade
Commission and certain state agencies have investigated various internet
companies’ use of their customers’ personal information, and the federal
government has enacted legislation protecting the privacy of consumers’
non-public personal information. Other federal and state statutes regulate
specific aspects of privacy and data collection practices. Although we
believe that our information collection and disclosure policies will
comply with existing laws, if challenged, we may not be able to
demonstrate adequate compliance with existing or future laws or
regulations. In addition, in the European Union member states and certain
other countries outside the U.S., data protection is more highly regulated
and rigidly enforced. To the extent that we expand our business into these
countries, we expect that compliance with these regulatory schemes will be
more burdensome and costly for
us.
|
Federal,
state, local and foreign governments also are considering other legislative and
regulatory proposals that would regulate the internet in more and different ways
than exist today. It is impossible to predict whether new taxes will be imposed
on our services, and depending upon the type of such taxes, whether and how we
would be affected. Increased regulation of the internet both in the United
States and abroad may decrease its growth and hinder technological development,
which may negatively impact the cost of doing business via the internet or
otherwise materially adversely affect our business, financial condition or
operational results.
Research
and Development Update
We have
spent approximately $81,000 and $209,000 in research and development activities
during the years ended December 31, 2009 and 2008.
Environmental
Compliance
At the
present time, SpectrumDNA is not subject to any material costs for compliance
with any environmental laws. With respect to our current focus of operations, we
do not know if environmental compliance will have a material impact on us in the
future.
ITEM
1A. Risk
Factors.
In
addition to other information and financial data set forth elsewhere in this
report, the following risk factors should be considered carefully in evaluating
the Company.
THE
ONGOING ECONOMIC SLOWDOWN MAY HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS AND
FINANCIAL CONDITION THAT WE CURRENTLY CANNOT PREDICT. The
ongoing global economic slowdown has caused turmoil and upheaval characterized
by extreme volatility and declines in prices of securities, diminished liquidity
and credit availability, inability to access capital markets, the bankruptcy,
failure, collapse or sale of financial institutions and an unprecedented level
of intervention from the United States federal government and other governments.
Unemployment has risen while businesses and consumer confidence have declined
and there are fears of a prolonged recession. While the ultimate
outcome of these events cannot be predicted, they could materially adversely
affect our business and financial condition, including our ability to raise any
equity or debt financing in the future.
WE HAVE
HAD A LIMITED OPERATING HISTORY AND LIMITED REVENUES SO FAR. Our
business originally began in July 2006. Since then, we have had
limited revenues. For the years ended December 31, 2009 and 2008, we
had revenues of $149,800 and $67,747, respectively. Our likelihood of
success must be considered in light of all of the risks, expenses and delays
inherent in establishing a new business, including, but not limited to,
unforeseen expenses, complications and delays, established competitors and other
factors. Irrespective of the quality of our enginet properties and
skills of management, we may still never achieve profitable operations. Any
investment in the Company is therefore highly speculative and could result in
the loss of the entire investment.
8
OUR
AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A
GOING CONCERN. Our independent public accounting firm has issued an
opinion on our financial statements that states that the financial statements
have been prepared assuming the Company will continue as a going concern and
further states that our recurring losses from operations, use of significant
cash flows in operating activities and our lack of significant revenues raise
substantial doubt about our ability to continue as a going
concern. If these factors continue, there is a risk of total
loss of any monies invested in the Company and we may have to cease
operations.
WE HAVE
SUFFERED OPERATING LOSSES SINCE INCEPTION ANY MAY NEVER BECOME
PROFITABLE. For the years ended December 31, 2009 and 2008, we
suffered net losses of $2,433,472 and $2,558,631, respectively. We
cannot predict whether our current or prospective business activities will ever
generate enough revenue to be profitable. If we do not generate
enough revenue to be profitable, our business might have to be discontinued, in
which case, investors would lose all or most of their investment in the
Company.
WE MAY
NOT BE ABLE TO RAISE SUFFICIENT CAPITAL TO SUCCESSFULLY OPERATE OR EXPAND OUR
BUSINESS. As of
December 31, 2009, we had $10,303 in cash and total liabilities of
$457,992. Subsequent to the end of the fiscal year, however, we did
raise gross proceeds of $1,515,000 pursuant to a private placement offering of
shares of common stock and warrants. While management believes our
current finances will enable us to implement our plans and satisfy our estimated
financial needs for at least the next 12 months, such belief cannot give rise to
an assumption that cost estimates are accurate or that we will in fact have
sufficient working capital for the foreseeable future. Our continued
operations after such period will depend upon the availability of cash flow from
operations and/or our ability to raise additional funds through various
financing methods. If sales or revenues do not meet expectations, or
cost estimates for development and expansion of business prove to be inaccurate,
we will require additional funding. There can be no assurance that
additional financing will be available on satisfactory terms, if at
all.
OUR ENGINET PROPERTIES ARE IN VARIOUS
STAGES OF DEVELOPMENT; NO ASSURANCE THAT EACH WILL
LAUNCH. We
currently have various enginet properties in various stages of development and
we cannot guarantee that each will ultimately launch. We expect and
intend that, from time to time, market analysis, user feedback, operational
performance and other considerations will prompt us to terminate further
development or operation of some enginets. There is no assurance that
we will be able to successfully manage this process and deliver compelling
content to users.
IF WE ARE
UNABLE TO ATTRACT A SIGNIFICANT NUMBER OF USERS OF OUR ENGINETS, WE MAY NOT BE
ABLE TO GENERATE SUFFICIENT REVENUES. In order to operate our
enginets profitably, we must attract sufficient users, including users who
regularly visit and use our enginets. Our ability to attract
advertisements and other sources of revenues for our enginets will be dependent
upon various metrics, including the number of unique visitors, the number of
unique page views, and the number of repeat visitors. For example,
these metrics help advertisers determine whether or not to advertise on our
website and the price which we will receive from them. If we unable to attract
sufficient users, we will not generate sufficient revenues and your investment
may be jeopardized.
INTENSE
COMPETITION IN THE INTERNET INDUSTRY COULD HAVE A NEGATIVE IMPACT ON OUR ABILITY
TO SECURE A MARKET SHARE SUFFICIENT TO SUSTAIN OPERATIONS. The
internet industry is highly competitive, rapidly evolving and subject to
constant technological change. As the markets for internet based products and
services and online advertising continue to grow, we expect that competition
will intensify. Barriers to entry are minimal and competitors can
offer products and services at a relatively low cost. We compete for
the time, attention and usage of a broad spectrum of consumers and internet
users, and also compete for marketing, advertising and purchasing budgets of a
broad range of businesses. Many companies offer properties that
compete with our properties for user attention and partner, advertiser and
subscriber budgets, including large companies such as Yahoo, Google, Microsoft,
News Corporation and YouTube, as well as start-ups such as Hootsuite,
Foursquare, Loopt, and Brightkite, and others about which we may not yet
know. These companies may be or may become directly competitive with
our business. We also expect that additional companies will offer competing
products in the future. Furthermore, competitors of our enginet properties may
develop products or services that are superior to, or have greater market
acceptance than, the enginets we develop.
Competitors
against our properties may have greater brand recognition and greater financial,
marketing and other resources than we do. This may place our properties at a
disadvantage in responding to their competitors’ pricing strategies,
technological advances, advertising campaigns, strategic partnerships and other
initiatives. Many competitors have (i) greater financial, technical,
engineering, personnel and marketing resources; (ii) longer operating histories;
(iii) greater name recognition; and (iv) larger consumer bases than
us. These advantages afford competitors the ability to (a) offer
greater pricing flexibility, (b) offer more attractive incentive packages to
encourage prospective partners to do business with competitive properties, (c)
negotiate more favorable contracts with affiliates, partners and service
providers and (d) negotiate more favorable contracts with other
suppliers. We believe that additional competitors may be attracted to
the market, including media companies, marketing and advertising firms, internet
companies, startups and others. We also believe that existing competitors are
likely to continue to expand their service offerings to appeal to advertisers
and consumers.
Our
ability to compete effectively in the internet industry will depend upon our
ability to (i) provide high quality properties and services with usage and
advertising prices competitive with, or lower than, those charged by our
competitors; (ii) develop new and innovative products and services; and (iii)
exhibit a high degree of agility and adaptability in our properties, our
operations and our business strategies. There can be no assurance
that competition from existing or new competitors or changes in internet user
trends, habits or expectations affected by such competitors will not have a
material adverse effect on our business, financial condition and results of
operations, or that we will be able to compete successfully in the
future.
9
WE MAY
NOT BE ABLE TO ADAPT TO RAPID TECHNOLOGICAL AND OTHER CHANGES AS QUICKLY AS OUR
COMPETITORS. The
internet industry is characterized, in part, by rapid growth, evolving industry
standards, significant technological changes and frequent product enhancements.
These characteristics could render our existing systems and strategies obsolete,
and require us to continue to develop and implement new products and services,
anticipate changing consumer demands and respond to emerging industry standards
and technological changes. We intend to evaluate these developments and others
that may allow us to improve service to our customers. However, no assurance can
be given that we will be able to keep pace with rapidly changing consumer
demands, technological trends and evolving industry standards. The failure to
keep up with such changes is likely to have a material adverse effect on our
business, long term growth prospects and results of operations.
GOVERNMENT
REGULATION. The availability and wide use of the internet and Web are
relatively recent developments. Although the development, deployment and
operation of enginets using the internet and Web are currently permitted by
United States law and largely unregulated within the United States, some foreign
governments have adopted laws and/or regulations restricting certain kinds of
applications and content. Overall, industry experts generally characterize the
current regulatory environment for most internet companies as
favorable. However, more aggressive domestic or international
regulation of the internet in general may materially and adversely affect our
business, financial condition, operating results and future
prospects. In the United States, Congress has begun to adopt
legislation that regulates certain aspects of the internet, including online
content, user privacy, taxation, liability for third party activities and
jurisdiction. Federal, state, local and foreign governments
also are considering other legislative and regulatory proposals that would
regulate the internet in more and different ways than exist today. It is
impossible to predict whether new taxes will be imposed on our services, and
depending upon the type of such taxes, whether and how we would be affected.
Increased regulation of the internet both in the United States and abroad may
decrease its growth and hinder technological development, which may negatively
impact the cost of doing business via the internet or otherwise materially
adversely affect our business, financial condition or operational
results.
SERVICE
INTERRUPTIONS OR IMPEDIMENTS COULD HARM OUR BUSINESS. Our operations are
vulnerable to damaging software programs, such as computer viruses and worms.
Certain of these programs have disabled the ability of computers to access the
internet, requiring users to obtain technical support. Other programs have had
the potential to damage or delete computer programs. The development and
widespread dissemination of harmful programs has the potential to seriously
disrupt internet usage. If internet usage is significantly disrupted for an
extended period of time, or if the prevalence of these programs results in
decreased residential internet usage, our business could be materially and
adversely impacted. In addition, our operations
and services depend on the extent to which our computer equipment and the
computer equipment of our third-party network providers are protected against
damage from fire, flood, earthquakes, power loss, telecommunications failures,
break-ins, acts of war or terrorism and similar events. Despite
precautions taken by us and our third-party network providers, over which we
have no control, a natural disaster or other unanticipated problem that impacts
this location or our third-party providers’ networks could cause interruptions
in the services that we provide. Such interruptions in our services could have a
material adverse effect on our ability to provide internet services to our
subscribers and, in turn, on our business, financial condition and results of
operations.
FAILURE
TO PROPERLY MANAGE OUR POTENTIAL GROWTH POTENTIAL WOULD BE DETRIMENTAL TO
HOLDERS OF OUR SECURITIES. Since we have limited operating history,
any significant growth will place considerable strain on our financial resources
and increase demands on our management and on our operational and administrative
systems, controls and other resources. There can be no assurance that our
existing personnel, systems, procedures or controls will be adequate to support
our operations in the future or that we will be able to successfully implement
appropriate measures consistent with our growth strategy. As part of this
growth, we may have to implement new operational and financial systems,
procedures and controls to expand, train and manage our employees and maintain
close coordination among our technical, accounting, finance, marketing, sales
and editorial staff. We cannot guarantee that we will be able to do so, or that
if we are able to do so, we will be able to effectively integrate them into our
existing staff and systems. We may fail to adequately manage our anticipated
future growth. We will also need to continue to attract, retain and integrate
personnel in all aspects of our operations. Failure to manage our growth
effectively could hurt our business.
ABSENCE
OF DIVIDENDS. We have never declared or paid any cash dividends on
our Common Stock and do not currently intend to pay cash dividends on our Common
Stock in the foreseeable future.
THE
COMPANY IS SUBJECT TO CONTROL BY ONE OF OUR PRINCIPAL OFFICERS. As of
December 31, 2009, one of our principal officers, James A. Banister,
beneficially owns approximately 63% of the voting shares of the
Company. As a result, such person will possess meaningful influence
and control over the Company and will be able to control and direct the
Company’s affairs, including the election of directors and approval of
significant corporate transactions.
DEPENDENCE ON FOUNDERS AND PERSONS
TO BE HIRED; NO EMPLOYMENT AGREEMENTS. Our success will be dependent to a
significant degree, upon the continuing contributions of our key executive
officers. We do not have an employment agreement with any of our
officers. Therefore, we cannot guarantee that we can retain these
individuals. In addition, we have not obtained “key man” life
insurance on the lives of any of the members of our management
team. Investors should note that it may be difficult for us to find
adequate replacements for these key individuals. In addition, we will
need to attract and retain additional talented individuals in order to carry out
our business objectives. The competition for such persons is intense
and there are no assurances that these individuals will be available to
us.
10
DIRECTOR
AND OFFICER LIABILITY IS LIMITED. As permitted by Delaware
law, the Company’s certificate of incorporation limits the personal liability of
directors to the fullest extent permitted by the provisions of the Delaware
General Corporation Law. As a result of the Company’s charter
provision and Delaware law, stockholders may have limited rights to recover
against directors for breach of fiduciary duty.
RECENT
ISSUANCES AND POSSIBLE ADDITIONAL ISSUANCES OF EQUITY SECURITIES IN THE FUTURE
HAS A DILUTIVE EFFECT ON EXISITNG SHAREHOLDERS WHICH COULD SUBSTANTIALLY
DIMINISH THE VALUE OF THEIR STOCK. We recently issued
15,150,000 shares of Common Stock and 15,150,000 common stock purchase
warrants in connection with a private placement which resulted in
dilution to the interests of our then existing shareholders. We may
in the future issue additional shares of Common Stock for various reasons and
may grant additional stock options to employees, officers, directors and third
parties which will cause further dilution. Such dilution can be
expected to cause the market price of the Common Stock to
decline. One of the factors which generally affects the market price
of publicly traded equity securities is the number of shares outstanding in
relationship to assets, net worth, earnings or anticipated
earnings. Furthermore, the public perception of future dilution can
have the same effect even if actual dilution does not occur.
THE
EXISTENCE OF OUTSTANDING OPTIONS MAY HARM OUR ABILITY TO OBTAIN ADDITIONAL
FINANCING AND THEIR EXERCISE WILL RESULT IN DILUTION TO INTERESTS OF EXISTING
SHAREHOLDERS. As of December 31, 2009, we have outstanding options to
purchase an aggregate of 14,262,075 shares of our common stock. While
these options are outstanding, our ability to obtain future financing may be
harmed since such options represent an outstanding obligation to sell
shares of common stock at a price which may be significantly below then-current
market prices. Upon exercise of these options, dilution to the
ownership interests of existing shareholders will occur as the number of shares
of Common Stock outstanding increases.
PENNY
STOCK REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF THE
COMPANY’S SECURITIES. Our Common Stock is classified as a penny
stock, which is traded on the OTCBB. The SEC has adopted
regulations which generally define a “penny stock” to be any equity security
that has a market price (as defined) of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. As
a result, the Company’s Common Stock is subject to rules that impose additional
sales practice requirements on broker-dealers who sell such securities to
persons other than established clients and “accredited
investors”. For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser’s written consent to the
transaction prior to the purchase. Additionally, for any transaction
involving a penny stock, unless exempt, the rules require the delivery, prior to
the transaction, of a risk disclosure document mandated by the SEC relating to
the penny stock market. The broker-dealer must also disclose the
commission payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market maker, the broker-dealer must disclose this fact and the broker-dealer’s
presumed control over the market. Finally, monthly statements must be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. Consequently,
the “penny stock” rules may restrict the ability of broker-dealers to sell
shares of the Company’s Common Stock and may affect the ability of investors to
sell such shares of Common Stock in the secondary market and the price at which
such investors can sell any of such shares.
Investors
should be aware that, according to the SEC, the market for penny stocks has
suffered in recent years from patterns of fraud and abuse. Such
patterns include:
|
·
|
control
of the market for the security by one or a few broker-dealers that are
often related to the promoter or
issuer;
|
|
·
|
manipulation
of prices through prearranged matching of purchases and sales and false
and misleading press releases;
|
|
·
|
“boiler
room” practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales
persons;
|
|
·
|
excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
|
|
·
|
the
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with the
inevitable collapse of those prices with consequent investor
losses.
|
11
The
Company’s management is aware of the abuses that have occurred historically in
the penny stock market.
ITEM
1B. Unresolved Staff
Comments.
We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this item.
ITEM
2. Properties.
The
Company leases approximately 2,326 square feet of space in Park City,
Utah. Such lease, which commenced on September 1, 2007, has a term of
three years, subject to an option to extend for an additional three
years. Pursuant to the terms thereof, base rent is $4,264 per month
for the first year and $4,563 per month for the second and third years of the
lease. In November 2009, the parties entered into an amendment to the
lease agreement, pursuant to which the parties agreed that the option shall be
terminated and the third and final year of the lease shall be paid for by a cash
payment of $45,000 plus the Company creating a website and providing
ongoing maintenance, training, and hosting services associated with said
website. Through December 31, 2009, the Company performed services in
association with the website development of $9,000, which reduced the Company’s
lease liability and increased other income on the statements of
operations. Management believes that the current facility is
adequate for the foreseeable future. In the event the lease is not
renewed at the end of the term, management believes other suitable space will be
available in the Park City, Utah area on terms acceptable to the
Company.
ITEM
3. Legal
Proceedings.
There are
no material pending legal proceedings to which we are a party or to which any of
our property is subject, nor are there any such proceedings known to be
contemplated by governmental authorities. None of our directors,
officers or affiliates is involved in a proceeding adverse to our business or
has a material interest adverse to our business.
ITEM
4. Reserved.
12
PART
II
ITEM
5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
(a) Principal Market or
Markets
Our
common stock is quoted on the OTC Bulletin Board under the symbol
“SPXA”. It has been listed on the OTC Bulletin Board since August 4,
2008. The following table sets forth the range of high and low
closing prices per share of the common stock for each of the calendar quarters
identified below.
Fiscal
Year 2009
|
High
|
Low
|
||||||
Quarter
Ended:
|
||||||||
First
Quarter 2009
|
$ | 0.24 | $ | 0.095 | ||||
Second
Quarter 2009
|
$ | 0.44 | $ | 0.10 | ||||
Third
Quarter 2009
|
$ | 0.29 | $ | 0.13 | ||||
Fourth
Quarter 2009
|
$ | 0.20 | $ | 0.10 |
Fiscal Year 2008
|
High
|
Low
|
||||||
Quarter
Ended:
|
||||||||
First
Quarter 2008
|
N/A | N/A | ||||||
Second
Quarter 2008
|
N/A | N/A | ||||||
Third
Quarter 2008
|
$ | 0.60 | $ | 0.30 | ||||
Fourth
Quarter 2008
|
$ | 0.30 | $ | 0.15 |
(b) Approximate Number of
Holders of Common Stock
As of
March 18, 2010, there were 103 shareholders of record of our common
stock. Such number does not include any shareholders holding shares
in nominee or “street name”.
(c) Dividends
Holders
of our common stock are entitled to receive such dividends as may be declared by
our Board of Directors. Spectrum paid no dividends on the common
stock during the periods reported herein nor do we anticipate paying such
dividends in the foreseeable future.
13
(d) Equity Compensation Plan
Information
Information
regarding equity compensations plans, as of December 31, 2009, is set forth in
the table below:
Plan category
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights (a)
|
Weighted-average
Exercise price of
Outstanding options,
Warrants and rights (b)
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities reflected
in column (a)) (c)
|
|||||||||
Equity
compensation plans
approved by security
holders
|
-0- | -0- | -0- | |||||||||
Equity
compensation plans
not approved by
security holders
|
14,262,075 | $ | 0.30 | 3,030,008 | ||||||||
Total
|
14,262,075 | $ | 0.30 | 3,030,008 |
The
foregoing equity compensation plan information relates to the stock options
granted under and outside of the 2008 Equity Incentive Plan. On June
30, 2008, the Board of Directors of the Company approved and adopted the 2008
Equity Incentive Plan, under which 10,000,000 stock options were available in
2008. Pursuant to the Plan, an additional 2,436,983 were made
available on January 1, 2009, and an additional 2,637,362 were made available on
January 1, 2010. Of the 14,262,075 options outstanding, 9,406,975
were issued under the Plan.
(e) Recent Sales of Unregistered
Securities
The
information set forth below describes our issuance of securities without
registration under the Securities Act of 1933, as amended, during the year ended
December 31, 2009, that were not previously disclosed in a Quarterly Report on
Form 10-Q or in a Current Report on Form 8-K:
ITEM 6. Selected
Financial Data.
We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this
item.
ITEM
7. Management's Discussion and
Analysis of Financial Condition and Results of Operations
This
discussion summarizes the significant factors affecting the operating results,
financial condition, liquidity and cash flows of the Company and its subsidiary
for the fiscal years ended December 31, 2009 and 2008. The discussion
and analysis that follows should be read together with the consolidated
financial statements of SpectrumDNA, Inc. and the notes to the consolidated
financial statements included elsewhere in this annual report on Form
10-K. Except for historical information, the matters discussed in
this section are forward looking statements that involve risks and uncertainties
and are based upon judgments concerning various factors that are beyond the
Company’s control.
14
Application
of Critical Accounting Policies and Estimates
Our
consolidated financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United
States. Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses. These estimates and assumptions
are affected by management’s application of accounting policies.
Critical
accounting policies for us include our accounting for intangible assets,
convertible debt, share based payment arrangements, and revenue
recognition.
Intangible
Assets
Intangible
assets for us are patents, trademarks and other rights. Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets, requires that goodwill and other intangible assets be tested for
impairment on an annual basis and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a
reporting unit below its carrying value. These events or
circumstances could include a significant change in the business climate, legal
factors, operating performance indicators, competition or sale or disposition of
a significant portion of an operating unit. Application of the
impairment test requires judgment, including the identification of reporting
units, assignment of assets and liabilities to reporting units, assignment of
intangibles to reporting units, and determination of the fair value of each
reporting unit. The fair value of each reporting unit is estimated
using a discounted cash flow methodology. This requires significant
judgments including estimation of future cash flows, which is dependent on
internal forecasts, estimation of the long-term rate of growth for our business,
the useful life over which cash flows will occur, and determination of our
weighted average cost of capital. Changes in these estimates and
assumptions could materially affect the determination of fair value and/or
intangible impairment.
Convertible
Debt
In
accordance with FASB ASC 470-20-30, the Company used the effective conversion
price based on the proceeds received to compute the intrinsic value of the
embedded conversion option. The Company allocated the proceeds
received from the Bridge Financing (See Note 11 to the consolidated financial
statements included under Part II, Item 8) to the convertible instrument and the
detachable warrants included in the exchange on a relative fair value
basis. The Company then calculated an effective conversion price and
used that price to measure the intrinsic value of the embedded conversion
option. The convertible notes may be converted into shares of the
Company’s common stock or cash at any time at the option of the
holder. The conversion price of the convertible notes is equal to
$0.10 per share of the company’s common stock. The number of shares
issuable upon conversion of the notes shall be determined by dividing the
outstanding principal amount, together with accrued but unpaid interest, to be
converted by the conversion price in effect on the conversion date.
Share Based
Payment
FASB ASC
718, Share Based
Payment, requires companies to estimate the fair value of share based
payments on the date of grant. For stock grants, the Company uses the
closing price on the date of grant. For warrants, we use the Black
Scholes option pricing model. In order to estimate the fair value of the
warrants, certain assumptions are made regarding future events. Such assumptions
include the estimated future volatility of the Company’s stock price, the
expected lives of the awards and the expected forfeiture rate. Changes in these
estimates would change the estimated fair value of the awards and the
corresponding accounting for the rewards.
Revenue
Recognition
The
Company intends to derive revenues from the sale and licensing of web based
software applications. In addition, the Company may at times earn
revenues from the performance of certain hosting, marketing, and contract labor
services. Revenue will be recognized when earned and collection is
reasonably assured. The Company’s revenue recognition policies are in compliance
with FASB ASC 985-605, “Software Revenue Recognition” and FASB ASC 605-10 .
Revenues will be recognized ratably over the license period, only if no
significant company obligations remain, the fee is fixed or determinable, and
collection is received or the resulting receivable is deemed probable. Revenue
will be recognized, net of any discounts and allowances. Provisions will be
recorded for returns, concessions, and bad debts. Revenues which include
technical support, will be based on the relative fair value of each of the
deliverables determined based on vendor-specific objective evidence (VSOE) when
significant. The Company VSOE will be determined by the price charged when each
element is sold separately. Revenue from non-recurring programming, consulting
service, support arrangements and training programs will be recognized as the
services are provided.
15
Recent
Accounting Pronouncements
In
January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of a
Subsidiary. This amendment to Topic 810 clarifies, but does not change, the
scope of current US GAAP. It clarifies the
decrease in ownership provisions of Subtopic 810-10 and removes the potential
conflict between guidance in that Subtopic and asset derecognition and gain or
loss recognition guidance that may exist in other US GAAP. An entity will be
required to follow the amended guidance beginning in the period that it first
adopts FAS 160 (now included in Subtopic 810-10). For those entities that have
already adopted FAS 160, the amendments are effective at the beginning of the
first interim or annual reporting period ending on or after December 15, 2009.
The amendments should be applied retrospectively to the first period that an
entity adopted FAS 160. The Company does not expect the provisions of ASU
2010-02 to have a material effect on the financial position, results of
operations or cash flows of the Company.
In
January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic
505): Accounting for Distributions to Shareholders with Components of Stock and
Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to
Topic 505 clarifies the stock portion of a distribution to shareholders that
allows them to elect to receive cash or stock with a limit on the amount of cash
that will be distributed is not a stock dividend for purposes of applying Topics
505 and 260. Effective for interim and annual periods ending on or after
December 15, 2009, and would be applied on a retrospective basis. The Company
does not expect the provisions of ASU 2010-01 to have a material effect on the
financial position, results of operations or cash flows of the
Company.
In
December 2009, the FASB issued Accounting Standards Update 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities. This Accounting Standards Update
amends the FASB Accounting Standards Codification for Statement 167. (See FAS
167 effective date below.)
In
December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers
and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This
Accounting Standards Update amends the FASB Accounting Standards Codification
for Statement 166. (See FAS 166 effective date below.)
In
October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance
or Other Financing. This Accounting Standards Update amends the FASB Accounting
Standard Codification for EITF 09-1. (See EITF 09-1 effective date
below.)
In
October 2009, the FASB issued Accounting Standards Update 2009-14, Software
(Topic 985): Certain Revenue Arrangements That Include Software Elements. This
update changed the accounting model for revenue arrangements that include both
tangible products and software elements. Effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15,2010. Early adoption is permitted. The Company does not expect the
provisions of ASU 2009-14 to have a material effect on the financial position,
results of operations or cash flows of the Company.
In
October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update
addressed the accounting for multiple-deliverable arrangements to enable vendors
to account for products or services (deliverables) separately rather than a
combined unit and will be separated in more circumstances that under existing US
GAAP. This amendment has eliminated that residual method of
allocation. Effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted. The Company does not expect the provisions of ASU 2009-13
to have a material effect on the financial position, results of operations or
cash flows of the Company.
In
September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value
Measurements and Disclosures (Topic 820): Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent). This update provides
amendments to Topic 820 for the fair value measurement of investments in certain
entities that calculate net asset value per share (or its equivalent). It is
effective for interim and annual periods ending after December 15,2009. Early
application is permitted in financial statements for earlier interim and annual
periods that have not been issued. The Company does not expect the provisions of
ASU 2009-12 to have a material effect on the financial position, results of
operations or cash flows of the Company.
In July
2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task
Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance" ("EITF 09-1"). The
provisions of EITF 09-1, clarifies the accounting treatment and disclosure of
share-lending arrangements that are classified as equity in the financial
statements of the share lender. An example of a share-lending arrangement is an
agreement between the Company (share lender) and an investment bank (share
borrower) which allows the investment bank to use the loaned shares to enter
into equity derivative contracts with investors. EITF 09-1 is effective for
fiscal years that beginning on or after December 15,2009 and requires
retrospective application for all arrangements outstanding as of the beginning
of fiscal years beginning on or after December 15,2009. Share-lending
arrangements that have been terminated as a result of counterparty default prior
to December 15, 2009, but for which the entity has not reached a final
settlement as of December 15, 2009 are within the scope. Effective for
share-lending arrangements entered into on or after the beginning of the first
reporting period that begins on or after June 15,2009. The Company does not
expect the provisions of EITF 09-1 to have a material effect on the financial
position, results of operations or cash flows of the Company.
16
In June
2009, FASB issued ASC 105-10 (Prior authoritative literature: SFAS
No. 168, "The FASB Accounting
Standards Codification TM and the Hierarchy of Generally Accepted Accounting
Principles - a replacement of FASB Statement No. 162").FASB ASC 105-10
establishes the FASB Accounting Standards Codification TM (Codification) as the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with GAAP. FASB ASC 105-10 is effective for financial statements
issued for fiscal years and interim periods ending after September 15, 2009. As
such, the Company is required to adopt these provisions at the beginning of the
fiscal year ending December 31, 2009. Adoption of FASB ASC 105-10 did
not have a material effect on the Company’s financial statements.
In June
2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative
literature: SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)”) which amends the consolidation guidance applicable to a
variable interest entity (“VIE”). This standard also amends the guidance
governing the determination of whether an enterprise is the primary beneficiary
of a VIE, and is therefore required to consolidate an entity, by requiring a
qualitative analysis rather than a quantitative analysis. Previously, the
standard required reconsideration of whether an enterprise was the primary
beneficiary of a VIE only when specific events had occurred. This standard is
effective for fiscal years beginning after November 15, 2009, and for
interim periods within those fiscal years. Early adoption is
prohibited. Adoption of FASB ASC 810-10-65 did not have a material
impact on the Company’s financial statements.
In June
2009, the FASB ASC 860-10 (Prior authoritative literature: issued SFAS
No. 166, “Accounting for
Transfers of Financial Assets, an Amendment of FASB Statement
No. 140”), which eliminates the concept of a qualifying
special-purpose entity (“QSPE”), clarifies and amends the de-recognition
criteria for a transfer to be accounted for as a sale, amends and clarifies the
unit of account eligible for sale accounting and requires that a transferor
initially measure at fair value and recognize all assets obtained and
liabilities incurred as a result of a transfer of an entire financial asset or
group of financial assets accounted for as a sale. This standard is effective
for fiscal years beginning after November 15, 2009. Adoption of FASB ASC
860-10 did not have a material impact on the Company’s financial
statements.
In May
2009, FASB issued FASB ASC 855-10 (Prior authoritative
literature: SFAS No. 165, "Subsequent Events"). FASB
ASC 855-10 establishes principles and requirements for the reporting of events
or transactions that occur after the balance sheet date, but before financial
statements are issued or are available to be issued. FASB ASC 855-10 is
effective for financial statements issued for fiscal years and interim periods
ending after June 15, 2009. As such, the Company adopted these provisions at the
beginning of the interim period ended June 30, 2009.
In April
2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature: SFAS
No. 164, “Not-for-Profit
Entities: Mergers and Acquisitions”) which governs the information that a
not-for-profit entity should provide in its financial reports about a
combination with one or more other not-for-profit entities, businesses or
nonprofit activities and sets out the principles and requirements for how a
not-for-profit entity should determine whether a combination is in fact a merger
or an acquisition. This standard is effective for mergers occurring on or after
Dec. 15, 2009 and for acquisitions where the acquisition date is on or after the
beginning of the first annual reporting period, beginning on or after Dec. 15,
2009. This standard does not apply to the Company since the Company is
considered a for-profit entity
In May
2008, the FASB issued FASB ASC 944 (Prior authoritative literature: SFAS No.
163, "Accounting for Financial
Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60").
FASB ASC 944 interprets Statement 60 and amends existing accounting
pronouncements to clarify their application to the financial guarantee insurance
contracts included within the scope of that Statement. This standard is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and all interim periods within those fiscal
years. As such, the Company is required to adopt these provisions at
the beginning of the fiscal year ended December 31, 2009. The Company does
not believe this standard will have any impact on the financial
statements.
In March
2008, the FASB issued FASB ASC 815-10 (Prior authoritative literature: SFAS No.
161, “Disclosures about
Derivative Instruments and Hedging Activities”), which is effective
January 1, 2009. FASB ASC 815-10 requires enhanced disclosures about derivative
instruments and hedging activities to allow for a better understanding of their
effects on an entity’s financial position, financial performance, and cash
flows. Among other things, this standard requires disclosures of the fair values
of derivative instruments and associated gains and losses in a tabular formant.
This standard is not currently applicable to the Company since we do not have
derivative instruments or engage in hedging activity.
In
December, 2007, the FASB issued FASB ASC 810-10-65 (Prior authoritative
literature: SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, an amendment of ARB No. 51). FASB ASC
810-10-65 will change the accounting and reporting for minority interests which
will be characterized as noncontrolling interests and classified as a component
of equity. This new consolidation method will significantly change the
accounting for transactions with minority interest shareholders. This standard
is effective for fiscal years and interim periods within those fiscal years
beginning on or after December 15, 2008. The Company adopted this
standard beginning January 1, 2009 and does not believe it has a material impact
in its financial statements.
17
In
December, 2007, the FASB issued FASB ASC 805 (Prior authoritative literature:
SFAS No. 141(R), “Business
Combinations”), which established the principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. FASB ASC 805 also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the
business combination. FASB ASC 805 is effective the first annual reporting
period beginning on or after December 15, 2008. The Company adopted
this standard beginning January 1, 2009 and does not believe it has a material
impact in its financial statements.
In March
2007, FASB ASC 715-60 (Prior authoritative literature: EITF Issue No.
06-10, "Accounting for
Collateral Assignment Split-Dollar Life Insurance Agreements”). FASB ASC
715-60 provides guidance for determining a liability for the postretirement
benefit obligation as well as recognition and measurement of the associated
asset on the basis of the terms of the collateral assignment agreement. FASB ASC
715-60 is effective for fiscal years beginning after December 15, 2007. The
adoption of FASB ASC 715-60 did not have a material impact on the Company’s
financial position, results of operations, or cash flows.
In
February 2007, FASB ASC 825-10 (Prior authoritative
literature: Statement of Financial Accounting Standards No. 159,
“ The Fair Value Option for
Financial Assets and Financial Liabilities-Including an Amendment of FASB
Statement No. 115 ,”) was issued. This standard allows a
company to irrevocably elect fair value as the initial and subsequent
measurement attribute for certain financial assets and financial liabilities on
a contract-by-contract basis, with changes in fair value recognized in earnings.
The provisions of this standard were effective as of the beginning of fiscal
year 2008, with early adoption permitted. The adoption of FASB ASC 825-10 did
not have a material impact on the Company’s financial position, results of
operations, or cash flows.
In
September 2006, the FASB issued FASB ASC 820-10 (Prior authoritative
literature: FASB Statement 157, “Fair Value Measurements”).
FASB ASC 820-10 defines fair value, establishes a framework for measuring fair
value under GAAP and expands disclosures about fair value measurements. FASB ASC
820-10 applies under other accounting pronouncements that require or permit fair
value measurements. Accordingly, FASB ASC 820-10 does not require any new fair
value measurements. However, for some entities, the application of FASB ASC
820-10 will change current practice. The changes to current practice resulting
from the application of FASB ASC 820-10 relate to the definition of fair value,
the methods used to measure fair value and the expanded disclosures about fair
value measurements. The provisions of FASB ASC 820-10 are effective as of
January 1, 2008, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained earnings. However,
delayed application of this statement is permitted for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually),
until fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years. The adoption of FASB ASC 820-10 did not have a material
impact on the Company’s financial position, results of operations, or cash
flows.
In June
2006, FASB issued FASB ASC 740-10 (Prior authoritative
literature: FASB Interpretation No. 48 “Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109”). This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB No.
109, “Accounting for Income
Taxes”. FASB ASC 740-10
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FASB ASC 740-10 is effective for fiscal years
beginning after December 15, 2006. The adoption of FASB ASC 740-10 did not have
a material impact on the Company’s financial position, results of operations, or
cash flows.
Results
of Operations
This
section entitled Management Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with our consolidated
financial statements and the related notes to the consolidated financial
statements included elsewhere in this report.
For
the Year Ended December 31, 2009 Compared to the Year Ended December 31,
2008
Revenues
for the year ended December 31, 2009 were $149,800, compared to $67,747 for the
year ended December 31, 2008. This revenue in the current period
resulted from sales relating to the Addictionary enginet and various service
functions. Cost of sales was $68,926 for the year ended December 31,
2009, compared to $97,669 for the comparable period of 2008. Cost of
sales primarily consisted of the amortization of product development
expenses. As of December 31, 2009, these expenses have been almost
fully amortized hence the significant decrease from the amount recorded for the
year ended December 31, 2008.
Total
operating expenses for the 2009 fiscal year were $2,458,457, compared to
$2,565,691 for the comparable period of 2008, a decrease of 4%. The
decreased operating expenses in 2009 resulted primarily from related decreases
in salaries and wages ($1,480,029 in 2009 compared to $1,553,505 in 2008), and
product development expenses ($80,578 in 2009 compared to $209,496 in
2008). The decrease in salaries and wages was offset by an increase
in stock-based compensation. The Company recognized $1,301,834 in
2009 compared to $1,240,614 in expenses pertaining to common stock and stock
options granted for services rendered.
18
We
recognized a net loss of $2,433,472 for the year ended December 31, 2009
compared to a loss of $2,558,631 for the year ended December 31, 2008, a
decrease of 5%. This decreased net loss was primarily the result of
increased revenues and decreased operating expenses offset by an increase in
interest expense. Our basic and diluted net loss per share was $0.05 for the
year ended December 31, 2009, compared to $0.05 for the comparable period of
2008. Excluding the non cash stock-based compensation described above
our loss would have been $1,131,638 and $1,318,017 for 2009 and 2008,
respectively.
Liquidity
and Capital Resources
As of
December 31, 2009, we had $10,303 in cash and total liabilities of $457,992.
Additionally, our current liabilities exceeded our current assets, we have
incurred substantial losses in this and prior fiscal years, and we have recorded
negative cash flows from operations in this and prior fiscal
years. As a result, as of December 31, 2009, management could not be
assured that the Company’s current finances would enable us to implement our
plans and satisfy our estimated financial needs over the next 12
months. We implemented significant cost cutting measures in November
of 2008 to improve earnings potential as well as continuing to focus on
increasing revenues from the sales of our products. In addition, we
were actively seeking additional sources of financing to fund our operations for
the foreseeable future.
On July
31, 2009, the Company entered into a Consulting Agreement (the “Agreement”) with
HFP Capital Markets LLC (“HFP”) pursuant to which HFP will provide certain
consulting services to the Company including but not limited to assistance in
securing future investment in the Company, assistance with certain corporate
finance and investment banking activities, assistance with new business
development, sales and marketing opportunities, and such other services as set
forth therein. The term of the Agreement is three years, although the
Company may terminate upon thirty days written notice for any reason or no
reason at all, but no sooner than six months from the full execution of the
Agreement. As compensation for these consulting services, the Company
issued to HFP or its designees 4,000,000 shares of the Company’s restricted
common stock which vested and became issuable to HFP or its designees 120 days
from the full execution of the Agreement, or November 28, 2009. As
such, the shares issued were recorded as prepaid consulting services since it is
a three year agreement. The shares were valued at $0.14 per share for
a total prepayment for these fees of $560,000. At December 31, 2009,
$15,556 had been amortized to consulting expense, with the remaining as prepaid
consulting services, to be amortized over the remaining life of the
agreement.
During
September 2009, the Company commenced a private offering (“Private Offering”) of
equity securities consisting of shares of common stock and common stock purchase
warrants on a best efforts $1,500,000 minimum and $2,000,000 maximum
basis. The securities were offered to accredited investors only. The
securities have not been registered under the Securities Act of 1933, as amended
(the “Act”) and were offered in reliance upon the exemption from registration
set forth in Section 4(2) and Regulation D, promulgated under the
Act. Such securities may not be offered or sold in the United States
absent registration or an applicable exemption from registration
requirements. On December 8, 2009, the minimum for the offering was
reduced to $1,000,000 and the offering period was extended to January 13,
2010. Subsequent to the end of the fiscal year, the offering period
was extended from January 13, 2010 to February 28, 2010 and again until March
15, 2010.
On
November 2, 2009, November 12, 2009, and December 14, 2009, and in connection
with a private debt offering (“Bridge Financing”), the Company raised $62,859
from four investors, including the Company’s Chief Executive Officer and Chief
Operating Officer, from the sale of Convertible Promissory Notes in the
principal amount of $62,859 due three months from issuance bearing interest at a
90-day rate of 10%. In connection with such investments, 628,586
common stock purchase warrants were also issued to such
investors. Similarly, on November 12, 2009, and in connection with
the Bridge Financing, the Company issued Convertible Promissory Notes to its
Chief Executive Officer and another stockholder in the principal amount of
$42,000 due three months from issuance bearing interest at a 90-day rate of 10%,
resulting from the funds advanced by such two stockholders during the third
quarter of 2009. In connection with such issuance, 420,000 common
stock purchase warrants were also issued to the two stockholders.
Subsequent
to the end of the fiscal year, the Company completed three closings of the
Private Offering with a total of 65 accredited investors (the “Purchasers”) for
the issuance and sale of securities of the Company consisting of shares of
Common Stock and common stock purchase warrants (the “Purchase
Warrants”). Pursuant to the Private Offering, the Company issued
15,150,000 shares of Common Stock and 15,150,000 Purchase
Warrants. Gross offering proceeds totaled $1,515,000. Each
of the Purchase Warrants entitles the holder thereof to purchase, at any time
beginning from the final closing through five years thereafter, one share of
Common Stock at a price of $0.25 per share.
In
association with the Private Offering, the Company paid the placement agent
commissions of $100,500 and a non-accountable expense allowance of
$30,150. In addition, the placement agent and its designees were
issued an aggregate of 1,005,000 placement agent warrants (the “Placement Agent
Warrants”) to purchase up to 1,005,000 warrant units (the “Warrant Units”)
exercisable for five years at an exercise price of $0.10 per Warrant Unit with
each Warrant Unit consisting of one share of Common Stock and one Purchase
Warrant.
19
During
the first quarter of 2010, two of the investors in the Bridge Financing
converted all of the principal and interest due on their Convertible Promissory
Notes into a total of 661,000 shares of Common Stock. On January 22,
2010 and February 10, 2010, the balance of the principal and interest due on the
Convertible Promissory Notes issued in connection with the Bridge Financing, was
repaid to the other three of the investors, including the Chief Executive
Officer and Chief Operating Officer, in the principal amount of $44,859 plus
accrued interest of $4,981.
For the
fiscal year ended December 31, 2009, the Company’s Net Cash Used in Operating
Activities was $633,495 compared to $1,262,357 for the comparable period in
2008. The decrease in Net Cash Used in Operating Activities between
the two periods resulted from decreases in cash-based salaries and wages,
increases in accounts payable and accrued expenses, and decreases in prepaid
expenses.
For the
fiscal year ended December 31, 2009, the Company’s Net Cash Used in Investing
Activities was $4,860 compared to $22,696 for the comparable period in
2008. The decrease in Net Cash Used in Investing Activities between
the two periods resulted from decreases in fixed asset purchases and new product
development. .
For the
fiscal year ended December 31, 2009, Net Cash Provided by Financing Activities
was $100,159 for the year ended December 31, 2009 due to the receipt of proceeds
from convertible promissory notes.
Capital
Commitments
The
Company currently has no material commitments for capital
expenditures.
CONTRACTUAL
OBLIGATIONS, COMMITMENTS AND OFF BALANCE SHEET ARRANGEMENTS
The
Company has various contractual obligations, which are recorded as liabilities
in the consolidated financial statements. Other items, such as certain lease
agreements are not recognized as liabilities in our consolidated financial
statements but are required to be disclosed. For example, the Company is
contractually committed to make certain minimum lease payments to rent its
current corporate location.
Any seasonal
aspects
We have
not experienced seasonal sales spikes in our sales as a result of our very
limited retail distribution.
Off-Balance Sheet
Arrangements
None
ITEM
7A. Quantitative
and Qualitative Disclosures About Market Risk.
We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this
item.
20
ITEM
8. Financial
Statements and
Supplementary Data.
SPECTRUMDNA,
INC.
Consolidated
Financial Statements
Years
Ended December 31, 2009 and 2008
21
22
SpectrumDNA,
Inc.
Consolidated
Balance Sheets
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 10,303 | $ | 548,499 | ||||
Accounts
receivable, net
|
6,750 | 14,000 | ||||||
Prepaid
expenses
|
18,272 | 59,204 | ||||||
Total
Current Assets
|
35,325 | 621,703 | ||||||
PROPERTY
AND EQUIPMENT, NET
|
6,643 | 11,629 | ||||||
OTHER
ASSETS
|
||||||||
Domain
names, net
|
2,542 | 3,428 | ||||||
Product
development, net
|
2,583 | 69,273 | ||||||
Security
deposit
|
5,000 | 5,000 | ||||||
Total
Other Assets
|
10,125 | 77,701 | ||||||
TOTAL
ASSETS
|
$ | 52,093 | $ | 711,033 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 152,019 | $ | 34,386 | ||||
Accounts
payable - Related Parties
|
10,112 | - | ||||||
Accrued
expenses
|
166,526 | 11,933 | ||||||
Interest
payable
|
8,723 | - | ||||||
Debt
conversion payable
|
43,834 | - | ||||||
Convertible
promissory notes
|
49,611 | - | ||||||
Convertible
promissory notes - Related Parties
|
8,017 | - | ||||||
Notes
payable
|
19,150 | - | ||||||
Total
Current Liabilities
|
457,992 | 46,319 | ||||||
Total
Liabilities
|
457,992 | 46,319 | ||||||
COMMITMENTS
|
- | - | ||||||
STOCKHOLDERS'
EQUITY (DEFICIT)
|
||||||||
Preferred
stock, $0.001 par value, 10,000,000 shares authorized,
-0-
shares issued and outstanding
|
- | - | ||||||
Common
stock, $0.001 par value, 250,000,000 shares authorized, 52,747,237 and
48,739,658 shares issued and outstanding, respectively
|
52,748 | 48,740 | ||||||
Additional
paid-in capital
|
7,212,527 | 5,309,232 | ||||||
Prepaid
consulting services
|
(544,444 | ) | - | |||||
Accumulated
deficit
|
(7,126,730 | ) | (4,693,258 | ) | ||||
Total
Stockholders' Equity (Deficit)
|
(405,899 | ) | 664,714 | |||||
TOTAL
LIABILITIES AND
|
||||||||
STOCKHOLDERS'
EQUITY (DEFICIT)
|
$ | 52,093 | $ | 711,033 |
The
accompanying notes are an integral part of these consolidated financial
statements.
23
SpectrumDNA,
Inc.
Consolidated
Statements of Operations
For
the
|
For
the
|
|||||||
Year
Ended
|
Year
Ended
|
|||||||
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
REVENUES,
net
|
$ | 149,800 | $ | 67,747 | ||||
COST
OF SALES, net
|
68,926 | 97,669 | ||||||
GROSS
PROFIT (LOSS)
|
80,874 | (29,922 | ) | |||||
OPERATING
EXPENSES
|
||||||||
General
and administrative
|
889,354 | 795,211 | ||||||
Salaries
and wages
|
1,480,029 | 1,553,505 | ||||||
Product
development expenses
|
80,578 | 209,496 | ||||||
Bad
debt expense
|
- | 90 | ||||||
Depreciation
expense
|
8,496 | 7,389 | ||||||
Total
Operating Expenses
|
2,458,457 | 2,565,691 | ||||||
OPERATING
LOSS
|
(2,377,583 | ) | (2,595,613 | ) | ||||
OTHER
INCOME (EXPENSES)
|
||||||||
Interest
income
|
1,984 | 36,982 | ||||||
Interest
expense
|
(66,873 | ) | - | |||||
Other
income
|
9,000 | - | ||||||
Total
Other Income (Expenses)
|
(55,889 | ) | 36,982 | |||||
NET
LOSS BEFORE INCOME TAXES
|
(2,433,472 | ) | (2,558,631 | ) | ||||
INCOME
TAX EXPENSE
|
- | - | ||||||
NET
LOSS
|
$ | (2,433,472 | ) | $ | (2,558,631 | ) | ||
BASIC
AND FULLY DILUTED LOSS PER SHARE
|
$ | (0.05 | ) | $ | (0.05 | ) | ||
WEIGHTED
AVERAGE NUMBER
OF
SHARES OUTSTANDING
|
49,108,860 | 48,658,823 |
The
accompanying notes are an integral part of these consolidated financial
statements.
24
SpectrumDNA,
Inc.
Consolidated
Statements of Stockholders' Equity (Deficit)
For the
period January 1, 2008 through December 31, 2009
Total
|
||||||||||||||||||||||||||||||||
Additional
|
Prepaid
|
Stockholders'
|
||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Paid-In
|
Accumulated
|
Equity
|
Equity
|
|||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Expenses
|
(Deficit)
|
|||||||||||||||||||||||||
Balance,
January 1, 2008
|
- | $ | - | 48,626,667 | $ | 48,627 | $ | 4,068,731 | $ | (2,134,627 | ) | $ | - | $ | 1,982,731 | |||||||||||||||||
Common
shares issued for services at an average of $0.37 per
share
|
- | - | 112,991 | 113 | 42,095 | - | - | 42,208 | ||||||||||||||||||||||||
Compensation
expense associated with stock options and warrants
|
- | - | - | - | 1,198,406 | - | - | 1,198,406 | ||||||||||||||||||||||||
Net
loss for the year ended December 31, 2008
|
- | - | - | - | - | (2,558,631 | ) | - | (2,558,631 | ) | ||||||||||||||||||||||
Balance,
December 31, 2008
|
- | - | 48,739,658 | 48,740 | 5,309,232 | (4,693,258 | ) | - | 664,714 | |||||||||||||||||||||||
Common
shares issued for services at an average of $0.55 per
share
|
- | - | 7,579 | 8 | 4,159 | - | - | 4,167 | ||||||||||||||||||||||||
Common
shares issued for pre-paid services at an average of $0.14 per
share
|
- | - | 4,000,000 | 4,000 | 556,000 | - | (560,000 | ) | - | |||||||||||||||||||||||
Compensation
expense associated with stock options and warrants
|
- | - | - | - | 1,282,111 | - | - | 1,282,111 | ||||||||||||||||||||||||
Amortization
of prepaid consulting services
|
15,556 | 15,556 | ||||||||||||||||||||||||||||||
Value
attributable to benefical conversion features and related warrant
valuation
|
- | - | - | - | 61,025 | - | - | 61,025 | ||||||||||||||||||||||||
Net
loss for the year ended December 31, 2009
|
- | - | - | - | - | (2,433,472 | ) | (2,433,472 | ) | |||||||||||||||||||||||
Balance,
December 31, 2009
|
$ | - | $ | - | 52,747,237 | $ | 52,748 | $ | 7,212,527 | $ | (7,126,730 | ) | $ | (544,444 | ) | $ | (405,899 | ) |
The
accompanying notes are an integral part of these consolidated financial
statements.
25
SpectrumDNA,
Inc.
Consolidated
Statements of Cash Flows
For
the
|
For
the
|
|||||||
Year
Ended
|
Year
Ended
|
|||||||
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (2,433,472 | ) | $ | (2,558,631 | ) | ||
Adjustments
to reconcile net loss to net used by operating activities:
|
||||||||
Depreciation
and amortization
|
77,423 | 99,613 | ||||||
Stock
options and warrants granted for services rendered
|
1,282,111 | 1,198,406 | ||||||
Common
stock issued for services rendered
|
4,167 | 42,208 | ||||||
Prepaid
consulting services
|
15,556 | - | ||||||
Accretion
of discount on convertible promissory notes
|
57,628 | - | ||||||
Changes
in operating assets and liabilities
|
||||||||
(Increase)
decrease in accounts receivable
|
7,250 | (14,000 | ) | |||||
(Increase)
decrease in employee advances
|
- | 1,790 | ||||||
(Increase)
decrease in prepaid expenses
|
64,782 | (10,050 | ) | |||||
Increase
(decrease) in accounts payable and accrued expenses
|
291,060 | (21,693 | ) | |||||
Net
Cash Used in Operating Activities
|
(633,495 | ) | (1,262,357 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Cash
paid for fixed assets
|
(3,510 | ) | (11,491 | ) | ||||
Cash
paid for product development
|
- | (8,110 | ) | |||||
Cash
paid for intangible assets
|
(1,350 | ) | (3,095 | ) | ||||
Net
Cash Used in Investing Activities
|
(4,860 | ) | (22,696 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Payments
made on notes payable
|
(4,700 | ) | - | |||||
Proceeds
from convertible promissory notes
|
104,859 | - | ||||||
Net
Cash Provided by Financing Activities
|
100,159 | - | ||||||
NET
DECREASE IN CASH
|
(538,196 | ) | (1,285,053 | ) | ||||
CASH
AT BEGINNING OF YEAR
|
548,499 | 1,833,552 | ||||||
CASH
AT END OF YEAR
|
$ | 10,303 | $ | 548,499 |
The
accompanying notes are an integral part of these consolidated financial
statements.
26
SpectrumDNA,
Inc.
Consolidated
Statements of Cash Flows (Continued)
For
the
|
For
the
|
|||||||
Year
Ended
|
Year
Ended
|
|||||||
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
SUPPLEMENTAL DISCLOSURES
OF
CASH
FLOW INFORMATION:
|
||||||||
CASH
PAID FOR:
|
||||||||
Interest
|
$ | - | $ | - | ||||
Income
Taxes
|
$ | - | $ | - | ||||
NON-CASH
FINANCING ACTIVITIES:
|
||||||||
Common
stock issued for services
|
$ | 4,167 | $ | 42,208 | ||||
Stock
options and warrants granted for services rendered
|
$ | 1,282,111 | $ | 1,198,406 | ||||
Insurance
financing through note payable
|
$ | 23,850 | $ | - | ||||
Common
stock issued for prepaid consulting
services
|
$ | 560,000 | $ | - |
The
accompanying notes are an integral part of these consolidated financial
statements.
27
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 1 -
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Organization
SpectrumDNA,
Inc. was incorporated under the laws of the State of Delaware on January 16,
2008 under the name SpectrumDNA Holdings, Inc. to enable its now wholly-owned
subsidiary, formerly known as SpectrumDNA, Inc. (now known as SpectrumDNA
Studios, Inc.) to implement a holding company organizational
structure. Effective as of January 22, 2008, we reorganized into a
holding company structure whereby SpectrumDNA, Inc. became a wholly-owned
subsidiary of SpectrumDNA Holdings, Inc. pursuant to an Agreement and Plan of
Merger dated as of January 18, 2008 whereby SpectrumDNA, Inc. changed its name
to SpectrumDNA Studios, Inc. and SpectrumDNA Holdings, Inc. changed its name to
SpectrumDNA, Inc.
SpectrumDNA
Studios, Inc. (formerly SpectrumDNA, Inc.) is a Delaware
corporation. It was originally incorporated in the State of Utah in
May 2006, and on September 11, 2006 was reorganized as a Delaware corporation as
a result of a merger into a newly formed Delaware corporation incorporated on
September 7, 2006 which took the Utah corporation’s name and became the
surviving entity of the merger. In management's opinion, the
accompanying consolidated financial statements presented include all adjustments
necessary for a fair presentation. The consolidated financial
statements include the accounts of SpectrumDNA, Inc. and its wholly-owned
subsidiary, Cooshoo, Inc. which was created and capitalized by the Company
(collectively, the Company).
SpectrumDNA,
Inc. is a social media studio that creates digital networked applications that
are engines of engagement (or “enginets”) for institutions—primarily media
outlets and brand advertisers—seeking to cost-effectively capture specific
audiences (“social nicheworks”) and audience behaviors, and develop
advertiser-safe user-generated and user-marketed content. Enginets
are branded web and wireless-based network experiences—web apps and mobile apps—
that empower users to take active roles in their community.
Financial Statement
Reclassification
Certain
account balances from prior periods have been reclassified in these consolidated
financial statements so as to conform with current year
classifications.
Development Stage
Activities
Prior to
the realization of significant revenues during 2009, the Company was classified
as a development stage enterprise.
Cash and Cash
Equivalents
Cash
equivalents are highly liquid investments with maturities of three months or
less when purchased.
Concentrations of Credit
Risk
The
Company’s financial instruments that are exposed to concentrations of credit
risk consist primarily of temporary cash investments.
The
Company maintains its cash balances at one financial institution. At
times, such investments may exceed the FDIC limit of $250,000 per depositor per
insured institution. The Company has not experienced any losses in
such accounts, but it is exposed to limited credit risk on cash since its
investments are deposited in only one financial institution.
Concentration of Revenue
with Individual Customers
The
Company is exposed to financial risk due to the concentration of revenue
generated from certain individual customers. During 2009, the Company
had ten customers. The top three customers represented 67% of total
revenue, with the top customer representing 40% of revenue, the next customer
representing 17% of the revenue and the third representing 10% of the
revenue.
28
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 1 -
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Accounts
Receivable
Accounts
receivable are stated at the amount management expects to collect from
outstanding balances. The Company provides for probable uncollectible
amounts through a charge to earnings and a credit to a valuation allowance based
on its assessment of the current status of individual
accounts. Balances that are still outstanding after management has
used reasonable collection efforts are written off through a charge to the
valuation allowance and a credit to accounts receivable. A provision for bad
debt of $1,668 and $-0-existed at December 31, 2009 and 2008,
respectively.
Property and
Equipment
Property
and equipment are recorded at cost, less accumulated
depreciation. Depreciation of property and equipment is computed
using the straight-line method over the estimated useful lives of the assets,
generally three years.
Costs of
renewals and improvements which substantially extend the useful life of the
assets are capitalized. Upon retirement, sale or other disposition,
the cost and accumulated depreciation are eliminated from the respective
accounts and any resulting gain or loss is included in
operations. Maintenance and repairs are expensed as
incurred.
Intangible
Assets
The
Company’s intangible assets are amortized using the straight-line method over
their estimated period of benefit of three years. The Company evaluates the
recoverability of intangible assets periodically and takes into account events
or circumstances that warrant revised estimates of useful lives or that indicate
that impairment exists. All intangible assets are subject to amortization. No
material impairments of intangible assets have been identified during the period
presented. Capitalized product development costs are amortized to
Cost of Sales.
Product
Development
Product
development expenses include payroll, employee benefits, stock-based
compensation, and other headcount-related costs associated with product
development. The Company charges costs incurred internally in creating software
products to product development until technological feasibility has been
established. Product development expense for the periods ended
December 31, 2009 and 2008 were $80,578 and $209,496,
respectively. Thereafter, all product development costs are
capitalized until the product is launched into the market. Once the
product is launched, all associated capitalized costs are amortized via the
straight-line method over the estimated remaining economic life of the
products. The amortization of these costs will be included in cost of
revenue over the estimated life of the products. Amortization expense
for the periods ended December 31, 2009 and 2008 were $68,926 and $88,650,
respectively.
Fair Value of Financial
Instruments
On
January 1, 2008, the Company adopted FASB ASC 820-10-50, “Fair Value Measurements. This
guidance defines fair value, establishes a three-level valuation hierarchy for
disclosures of fair value measurement and enhances disclosure requirements for
fair value measures. The three levels are defined as follows:
|
·
|
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active
markets.
|
|
·
|
Level
2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
·
|
Level
3 inputs to valuation methodology are unobservable and significant to the
fair measurement.
|
The
carrying amounts reported in the balance sheets for the cash and cash
equivalents, receivables and current liabilities each qualify as financial
instruments and are a reasonable estimate of fair value because of the short
period of time between the origination of such instruments and their expected
realization and their current market rate of interest. The carrying value of
convertible promissory notes approximates fair value because negotiated terms
and conditions are consistent with current market rates as of December 31,
2009. No convertible promissory notes were outstanding as of December
31, 2008.
29
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 1 -
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Recently Issued Accounting
Pronouncements
In
January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of a
Subsidiary. This amendment to Topic 810 clarifies, but does not change, the
scope of current US GAAP. It clarifies the decrease in ownership provisions of
Subtopic 810-10 and removes the potential conflict between guidance in that
Subtopic and asset derecognition and gain or loss recognition guidance that may
exist in other US GAAP. An entity will be required to follow the amended
guidance beginning in the period that it first adopts FAS 160 (now included in
Subtopic 810-10). For those entities that have already adopted FAS 160, the
amendments are effective at the beginning of the first interim or annual
reporting period ending on or after December 15, 2009. The amendments should be
applied retrospectively to the first period that an entity adopted FAS 160. The
Company does not expect the provisions of ASU 2010-02 to have a material effect
on the financial position, results of operations or cash flows of the
Company.
In
January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic
505): Accounting for Distributions to Shareholders with Components of Stock and
Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to
Topic 505 clarifies the stock portion of a distribution to shareholders that
allows them to elect to receive cash or stock with a limit on the amount of cash
that will be distributed is not a stock dividend for purposes of applying Topics
505 and 260. Effective for interim and annual periods ending on or after
December 15, 2009, and would be applied on a retrospective basis. The Company
does not expect the provisions of ASU 2010-01 to have a material effect on the
financial position, results of operations or cash flows of the
Company.
In
December 2009, the FASB issued Accounting Standards Update 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities. This Accounting Standards Update
amends the FASB Accounting Standards Codification for Statement 167. (See FAS
167 effective date below.)
In
December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers
and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This
Accounting Standards Update amends the FASB Accounting Standards Codification
for Statement 166. (See FAS 166 effective date below)
In
October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance
or Other Financing. This Accounting Standards Update amends the FASB Accounting
Standard Codification for EITF 09-1. (See EITF 09-1 effective date
below.)
In
October 2009, the FASB issued Accounting Standards Update 2009-14, Software
(Topic 985): Certain Revenue Arrangements That Include Software Elements. This
update changed the accounting model for revenue arrangements that include both
tangible products and software elements. Effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15,2010. Early adoption is permitted. The Company does not expect the
provisions of ASU 2009-14 to have a material effect on the financial position,
results of operations or cash flows of the Company.
In
October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update
addressed the accounting for multiple-deliverable arrangements to enable vendors
to account for products or services (deliverables) separately rather than a
combined unit and will be separated in more circumstances that under existing US
GAAP. This amendment has eliminated that residual method of allocation.
Effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Early adoption is
permitted. The Company does not expect the provisions of ASU 2009-13 to have a
material effect on the financial position, results of operations or cash flows
of the Company.
In
September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value
Measurements and Disclosures (Topic 820): Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent). This update provides
amendments to Topic 820 for the fair value measurement of investments in certain
entities that calculate net asset value per share (or its equivalent). It is
effective for interim and annual periods ending after December 15,2009. Early
application is permitted in financial statements for earlier interim and annual
periods that have not been issued. The Company does not expect the provisions of
ASU 2009-12 to have a material effect on the financial position, results of
operations or cash flows of the Company.
30
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 1 -
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Recently Issued Accounting
Pronouncements
(Continued)
In July
2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task
Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance" ("EITF 09-1"). The
provisions of EITF 09-1, clarifies the accounting treatment and disclosure of
share-lending arrangements that are classified as equity in the financial
statements of the share lender. An example of a share-lending arrangement is an
agreement between the Company (share lender) and an investment bank (share
borrower) which allows the investment bank to use the loaned shares to enter
into equity derivative contracts with investors. EITF 09-1 is effective for
fiscal years that beginning on or after December 15,2009 and requires
retrospective application for all arrangements outstanding as of the beginning
of fiscal years beginning on or after December 15,2009. Share-lending
arrangements that have been terminated as a result of counterparty default prior
to December 15, 2009, but for which the entity has not reached a final
settlement as of December 15, 2009 are within the scope. Effective for
share-lending arrangements entered into on or after the beginning of the first
reporting period that begins on or after June 15, 2009. The Company does not
expect the provisions of EITF 09-1 to have a material effect on the financial
position, results of operations or cash flows of the Company.
In June
2009, FASB issued ASC 105-10 (Prior authoritative literature: SFAS
No. 168, "The FASB Accounting
Standards Codification TM and the Hierarchy of Generally Accepted Accounting
Principles - a replacement of FASB Statement No. 162").FASB ASC 105-10
establishes the FASB Accounting Standards Codification TM (Codification) as the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with GAAP. FASB ASC 105-10 is effective for financial statements
issued for fiscal years and interim periods ending after September 15, 2009. As
such, the Company is required to adopt these provisions at the beginning of the
fiscal year ending December 31, 2009. Adoption of FASB ASC 105-10 did
not have a material effect on the Company’s financial statements.
In June
2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative
literature: SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)”) which amends the consolidation guidance applicable to a
variable interest entity (“VIE”). This standard also amends the guidance
governing the determination of whether an enterprise is the primary beneficiary
of a VIE, and is therefore required to consolidate an entity, by requiring a
qualitative analysis rather than a quantitative analysis. Previously, the
standard required reconsideration of whether an enterprise was the primary
beneficiary of a VIE only when specific events had occurred. This standard is
effective for fiscal years beginning after November 15, 2009, and for
interim periods within those fiscal years. Early adoption is
prohibited. Adoption of FASB ASC 810-10-65 did not have a material
impact on the Company’s financial statements.
In June
2009, the FASB ASC 860-10 (Prior authoritative literature: issued SFAS
No. 166, “Accounting for
Transfers of Financial Assets, an Amendment of FASB Statement
No. 140”), which eliminates the concept of a qualifying
special-purpose entity (“QSPE”), clarifies and amends the de-recognition
criteria for a transfer to be accounted for as a sale, amends and clarifies the
unit of account eligible for sale accounting and requires that a transferor
initially measure at fair value and recognize all assets obtained and
liabilities incurred as a result of a transfer of an entire financial asset or
group of financial assets accounted for as a sale. This standard is effective
for fiscal years beginning after November 15, 2009. Adoption of FASB ASC
860-10 did not have a material impact on the Company’s financial
statements.
In May
2009, FASB issued FASB ASC 855-10 (Prior authoritative
literature: SFAS No. 165, "Subsequent Events"). FASB
ASC 855-10 establishes principles and requirements for the reporting of events
or transactions that occur after the balance sheet date, but before financial
statements are issued or are available to be issued. FASB ASC 855-10 is
effective for financial statements issued for fiscal years and interim periods
ending after June 15, 2009. As such, the Company adopted these provisions at the
beginning of the interim period ended June 30, 2009.
In April
2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature: SFAS
No. 164, “Not-for-Profit
Entities: Mergers and Acquisitions”) which governs the information that a
not-for-profit entity should provide in its financial reports about a
combination with one or more other not-for-profit entities, businesses or
nonprofit activities and sets out the principles and requirements for how a
not-for-profit entity should determine whether a combination is in fact a merger
or an acquisition. This standard is effective for mergers occurring on or after
Dec. 15, 2009 and for acquisitions where the acquisition date is on or after the
beginning of the first annual reporting period, beginning on or after Dec. 15,
2009. This standard does not apply to the Company since the Company is
considered a for-profit entity
31
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 1 -
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Recently Issued Accounting
Pronouncements
(Continued)
In May
2008, the FASB issued FASB ASC 944 (Prior authoritative literature: SFAS No.
163, "Accounting for Financial
Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60").
FASB ASC 944 interprets Statement 60 and amends existing accounting
pronouncements to clarify their application to the financial guarantee insurance
contracts included within the scope of that Statement. This standard is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and all interim periods within those fiscal
years. As such, the Company is required to adopt these provisions at
the beginning of the fiscal year ended December 31, 2009. The Company does
not believe this standard will have any impact on the financial
statements.
In March
2008, the FASB issued FASB ASC 815-10 (Prior authoritative literature: SFAS No.
161, “Disclosures about
Derivative Instruments and Hedging Activities”), which is effective
January 1, 2009. FASB ASC 815-10 requires enhanced disclosures about derivative
instruments and hedging activities to allow for a better understanding of their
effects on an entity’s financial position, financial performance, and cash
flows. Among other things, this standard requires disclosures of the fair values
of derivative instruments and associated gains and losses in a tabular formant.
This standard is not currently applicable to the Company since we do not have
derivative instruments or engage in hedging activity.
In
December, 2007, the FASB issued FASB ASC 810-10-65 (Prior authoritative
literature: SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, an amendment of ARB No. 51). FASB ASC
810-10-65 will change the accounting and reporting for minority interests which
will be characterized as noncontrolling interests and classified as a component
of equity. This new consolidation method will significantly change the
accounting for transactions with minority interest shareholders. This standard
is effective for fiscal years and interim periods within those fiscal years
beginning on or after December 15, 2008. The Company adopted this
standard beginning January 1, 2009 and does not believe it has a material impact
in its financial statements.
In
December, 2007, the FASB issued FASB ASC 805 (Prior authoritative literature:
SFAS No. 141(R), “Business
Combinations”), which established the principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. FASB ASC 805 also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the
business combination. FASB ASC 805 is effective the first annual reporting
period beginning on or after December 15, 2008. The Company adopted
this standard beginning January 1, 2009 and does not believe it has a material
impact in its financial statements.
In March
2007, FASB ASC 715-60 (Prior authoritative literature: EITF Issue No.
06-10, "Accounting for
Collateral Assignment Split-Dollar Life Insurance Agreements”). FASB ASC
715-60 provides guidance for determining a liability for the postretirement
benefit obligation as well as recognition and measurement of the associated
asset on the basis of the terms of the collateral assignment agreement. FASB ASC
715-60 is effective for fiscal years beginning after December 15, 2007. The
adoption of FASB ASC 715-60 did not have a material impact on the Company’s
financial position, results of operations, or cash flows.
In
February 2007, FASB ASC 825-10 (Prior authoritative
literature: Statement of Financial Accounting Standards No. 159,
“ The Fair Value Option for
Financial Assets and Financial Liabilities-Including an Amendment of FASB
Statement No. 115 ,”) was issued. This standard allows a
company to irrevocably elect fair value as the initial and subsequent
measurement attribute for certain financial assets and financial liabilities on
a contract-by-contract basis, with changes in fair value recognized in earnings.
The provisions of this standard were effective as of the beginning of fiscal
year 2008, with early adoption permitted. The adoption of FASB ASC 825-10 did
not have a material impact on the Company’s financial position, results of
operations, or cash flows.
32
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 1 -
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Recently Issued Accounting
Pronouncements
(Continued)
In
September 2006, the FASB issued FASB ASC 820-10 (Prior authoritative
literature: FASB Statement 157, “Fair Value Measurements”).
FASB ASC 820-10 defines fair value, establishes a framework for measuring fair
value under GAAP and expands disclosures about fair value measurements. FASB ASC
820-10 applies under other accounting pronouncements that require or permit fair
value measurements. Accordingly, FASB ASC 820-10 does not require any new fair
value measurements. However, for some entities, the application of FASB ASC
820-10 will change current practice. The changes to current practice resulting
from the application of FASB ASC 820-10 relate to the definition of fair value,
the methods used to measure fair value and the expanded disclosures about fair
value measurements. The provisions of FASB ASC 820-10 are effective as of
January 1, 2008, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained earnings. However,
delayed application of this statement is permitted for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually),
until fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years. The adoption of FASB ASC 820-10 did not have a material
impact on the Company’s financial position, results of operations, or cash
flows.
In June
2006, FASB issued FASB ASC 740-10 (Prior authoritative
literature: FASB Interpretation No. 48 “Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109”). This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB No.
109, “Accounting for Income
Taxes”. FASB ASC 740-10
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FASB ASC 740-10 is effective for fiscal years
beginning after December 15, 2006. The adoption of FASB ASC 740-10 did not have
a material impact on the Company’s financial position, results of operations, or
cash flows.
Revenue
Recognition
The
Company intends to derive revenues from the sale and licensing of web based
software applications. In addition, the Company may at times earn
revenues from the performance of certain hosting, marketing, and contract labor
services. Revenue will be recognized when earned and collection is
reasonably assured. The Company’s revenue recognition policies are in compliance
with FASB ASC 985-605, “Software Revenue Recognition” and FASB ASC 605-10 .
Revenues will be recognized ratably over the license period, only if no
significant company obligations remain, the fee is fixed or determinable, and
collection is received or the resulting receivable is deemed probable. Revenue
will be recognized, net of any discounts and allowances. Provisions will be
recorded for returns, concessions, and bad debts. Revenues which include
technical support, will be based on the relative fair value of each of the
deliverables determined based on vendor-specific objective evidence (VSOE) when
significant. The Company VSOE will be determined by the price charged when each
element is sold separately. Revenue from non-recurring programming, consulting
service, support arrangements and training programs will be recognized as the
services are provided.
Advertising
Advertising
costs are expensed as incurred. The Company recorded $1,776 and
$9,965 in advertising expense during the years ended December 31,
2009 and 2008, respectively.
Use of Estimates in the
Preparation of Financial Statements
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that 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 year. Actual results could differ from those
estimates.
33
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 1 -
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Share-Based
Payment
The
Company adopted ASC 718, Share-Based Payment, which
requires the grant-date fair value of all share-based payment awards that are
expected to vest, including employee share options, to be recognized as employee
compensation expense over the requisite service period.
Net Loss Per Share of Common
Stock
The
Company computes net loss per share of common stock in accordance with ASC 260,
Earnings per Share (“ASC 260”). Under the provisions of ASC 260, basic net
income (loss) per share is computed using the weighted average number of common
shares outstanding during the period. Diluted net loss per share is computed
using the weighted average number of common shares and, if dilutive, potential
common shares outstanding during the period. Potential common shares consist of
the incremental common shares issuable upon the exercise of stock options and
warrants and the conversion of convertible promissory notes. The dilutive effect
of these instruments is reflected in diluted earnings per share by application
of the treasury stock method. As of December 31, 2009 and 2008, the
number of shares underlying these instruments are as follows:
2009
|
2008
|
|||||||
Shares
of common stock underlying stock options
|
14,262,075 | 10,015,100 | ||||||
Shares
of common stock underlying warrants
|
1,048,586 | -0- | ||||||
Shares
of common stock issuable upon conversion of convertible promissory
notes
|
1,135,815 | -0- | ||||||
Total
shares
|
16,446,476 | 10,015,100 |
For the
fiscal years ended December 31, 2009 and 2008, potential common shares of
16,446,476 and 10,015,100 resulting from the aforementioned instruments,
respectively, were considered but not included in the calculation of diluted
income (loss) per share as their effect would be anti-dilutive.
2009
|
2008
|
|||||||
Basic
and Fully Diluted earnings per share:
|
||||||||
Loss
(numerator)
|
$ | (2,433,472 | ) | $ | (2,558,631 | ) | ||
Weighted
average number of shares outstanding – basic (denominator)
|
49,108,860 | 48,658,823 | ||||||
Per
share amount
|
$ | (0.05 | ) | $ | (0.05 | ) |
NOTE 2 -
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment as of December 31, 2009 and 2008 are as follows:
Cost:
|
||||||||
Computer
equipment
|
$ | 18,284 | $ | 14,709 | ||||
Software
|
7,744 | 7,808 | ||||||
Office
furniture
|
650 | 650 | ||||||
Less: accumulated
depreciation
|
(20,035 | ) | (11,538 | ) | ||||
Net
book value
|
$ | 6,643 | $ | 11,629 |
Depreciation
expense for the years ended December 31, 2009 and 2008 was $8,496 and $7,389,
respectively
34
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 3 -
|
INTANGIBLE
ASSETS
|
Intangible
assets as of December 31, 2009 and 2008 are as follows:
Cost:
|
||||||||
Patents
and trademarks
|
$ | 100 | $ | 100 | ||||
Domain
names
|
7,083 | 5,734 | ||||||
Product
development costs
|
194,322 | 194,322 | ||||||
Total
Intangible Assets
|
201,505 | 200,156 | ||||||
Less:
accumulated amortization
|
(196,380 | ) | (127,455 | ) | ||||
Net
book value
|
$ | 5,125 | $ | 72,701 |
Amortization
expense for the years ended December 31, 2009 and 2008 was $68,926 and $88,650,
respectively, and have been included in cost of sales for the periods ended
December 31, 2009 and 2008.
NOTE 4 -
|
INCOME
TAXES
|
The
Financial Accounting Standards Board (FASB) has issued FASB ASC 740-10 (Prior
authoritative literature: Financial Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 (FIN
48)). FASB ASC 740-10 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in accordance with
prior literature FASB Statement No. 109, Accounting for Income Taxes. This
standard requires a company to determine whether it is more likely than not that
a tax position will be sustained will be sustained upon examination based upon
the technical merits of the position. If the more-likely-than- not
threshold is met, a company must measure the tax position to determine the
amount to recognize in the financial statements. As a result of the
implementation of this standard, the Company performed a review of its material
tax positions in accordance with recognition and measurement standards
established by FASB ASC 740-10.
Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax basis.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
The
components of current income tax expense as of December 31, 2009 and 2008
consist of the following:
2009
|
2008
|
|||||||
Current
federal tax expense
|
$ | - | $ | - | ||||
Current
state tax expense
|
- | - | ||||||
Change
in NOL benefits
|
(525,700 | ) | (508,700 | ) | ||||
Change
in depreciation differences
|
- | - | ||||||
Change
in contribution benefits
|
- | - | ||||||
Change
in valuation allowance
|
525,700 | 508,700 | ||||||
$ | - | $ | - |
35
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 4 -
|
INCOME
TAXES (CONTINUED)
|
The net
deferred income taxes in the accompanying balance sheet include the following
amounts of deferred income tax assets:
2009
|
2008
|
|||||||
Net
income tax assets:
|
||||||||
Net
operating loss carryforward
|
$ | 972,000 | $ | 953,800 | ||||
Contribution
carryforward
|
- | 400 | ||||||
Less:
Deferred income tax liabilities:
|
||||||||
Depreciation
differences
|
- | 9,600 | ||||||
Less:
Valuation allowance
|
(972,000 | ) | (963,800 | ) | ||||
Net
deferred income tax asset
|
$ | - | $ | - |
The
following is a reconciliation of the provision for income taxes at the United
States of America federal income tax rate to the income taxes reflected in the
statements of operations:
Tax
expense (credit) at statutory rate – federal
|
-35 | % | ||
State
tax expense net of federal tax
|
-6 | % | ||
Change
in valuation allowance
|
-41 | % | ||
Tax
expense at actual rate
|
0 | % |
As of
December 31, 2009, the Company’s net deferred tax assets are offset by a
valuation allowance of $1,442,000. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the year in which those temporary differences become
deductible. Management considers projected future taxable income and tax
planning strategies in making this assessment.
As of
December 31, 2009 and 2008, the Company has approximately $3,517,000 and
$2,432,000, respectively, of net operating loss carryforwards available to
reduce future taxable income. These carryforwards will begin to expire in
2027.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:
Year
ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Beginning
balance
|
$ | - | $ | - | ||||
Additions
based on tax positions related to current year
|
- | - | ||||||
Additions
for tax positions of prior years
|
- | - | ||||||
Reductions
for tax positions of prior years
|
- | - | ||||||
Reductions
in benefit due to income tax expense
|
- | - | ||||||
Ending
balance
|
$ | - | $ | - |
At
December 31, 2009, the Company had no unrecognized tax benefits that, if
recognized, would affect the effective tax rate.
The
Company did not have any tax positions for which it is reasonably possible that
the total amount of unrecognized tax benefits will significantly increase or
decrease within the next 12 months.
36
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 4 -
|
INCOME
TAXES (CONTINUED)
|
The
Company includes interest and penalties arising from the underpayment of income
taxes in the consolidated statements of operations in the provision for income
taxes. As of December 31, 2009 and 2008, the Company had no accrued
interest or penalties related to uncertain tax positions.
The tax
years that remain subject to examination by major taxing jurisdictions are those
for the years ended December 31, 2009, 2008 and 2007.
NOTE 5 -
|
CAPITAL
STRUCTURE
|
The
Company is authorized to issue 250,000,000 shares of Common Stock with a par
value of $0.001. As of December 31, 2009 and 2008, 52,747,237 and
48,739,658 shares of Common Stock are issued and outstanding,
respectively. The holders of our Common Stock are entitled to one
vote for each share of record on all matters to be voted on by
stockholders. Stockholders are not entitled to cumulative voting, so
the holders of Common Stock entitled to cast more than 50% of the votes cast at
an election of directors can elect all of the directors. Holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefore, as well as
any distributions to the shareholders and, in the event of liquidation,
dissolution or winding up of SpectrumDNA, are entitled to share ratably in all
assets of SpectrumDNA remaining after satisfaction of all
liabilities. Holders of the Common Stock have no conversion,
redemption or preemptive rights or other rights to subscribe for additional
shares.
On
February 16, 2010, pursuant to a Certificate of Amendment to the Company’s
Certificate of Incorporation filed with the State of Delaware, the Company
increased the number of authorized shares of Common Stock, par value $0.001 per
share, from 100,000,000 to 250,000,000.
NOTE 6 -
|
STOCKHOLDERS
EQUITY
|
During
the year ended December 31, 2008, the Company issued 112,991 shares of its
common stock at an average of $0.37 per share for services rendered in the
amount of $42,208.
During
the year ended December 31, 2009, the Company issued 7,579 shares of its common
stock at an average of $0.55 per share for services rendered in the amount of
$4,167.
On
November 28, 2009, the Company executed a three year consulting
agreement. As payment of the services the Company issued 4,000,000
shares of common stock to be recognized as consulting fees over the three year
term. Accordingly, the Company recorded $560,000 as prepaid equity
expenses. At December 31, 2009, $15,556 had been amortized in the
statement of operations with $544,444 remaining as prepaid consulting
services.
37
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 7-
|
SHARE
BASED PAYMENT
|
The
Company follows the provisions of ASC 718, which requires the grant-date fair
value of all share-based payment awards that are expected to vest, including
employee share options, to be recognized as employee compensation expense over
the requisite service period.
During
2009 and 2008, the Company recorded $1,282,111 and $1,198,406, respectively, in
compensation expense related to share-based payment awards. The Company
recognizes compensation expense for share-based payment awards on the
straight-line basis over the requisite service period of the entire award,
unless the awards are subject to market conditions, in which case the Company
recognizes compensation expense over the requisite service period of each
separate vesting installment. Compensation expense related to share-based
payment awards is recorded in general and administrative expense for
non-employees and in salaries and wages for employees. During 2009
and 2008, the Company recorded $852,970 and $842,392, respectively, in
compensation expense related to shared-based payments awards for employees. The
fair value of each option or warrant award is estimated on the date of the grant
using the Black-Scholes pricing model that uses the assumptions noted in the
following table. The expected term of the options or warrants granted represents
the period of time that options or warrants granted are expected to be
outstanding. Expected volatilities are based on historical volatility of the
stock of similar companies and other factors. The risk-free interest rate for
the period matching the expected term of the option or warrant is based on the
U.S. Treasury yield curve in effect at the time of the grant.
Common
Stock Options
The
following table sets forth information about the weighted-average fair value of
options granted during the years ended December 31, 2009 and 2008 and the
assumptions used for such grants:
2009
|
2008
|
|||
Dividend
yields
|
0.0%
|
0.0%
|
||
Expected
volatility
|
175.0%
- 188.7%
|
68.5%
|
||
Risk-free
interest rate
|
2.88%
- 3.84%
|
3.57%
- 4.06%
|
||
Option
terms
|
1–
4 years
|
1–
4
years
|
Changes
in stock options issued to employees, advisors, and board members for the period
ended December 31, 2009 and 2008 are as follows:
Weighted
|
||||||||
Number
|
Average
|
|||||||
Of
|
Exercise
|
|||||||
Options
|
Price
|
|||||||
Outstanding,
December 31, 2007
|
8,410,180 | $ | 0.35 | |||||
Granted
|
5,260,000 | 0.54 | ||||||
Exercised
|
- | - | ||||||
Cancelled
|
(3,655,080 | ) | 0.50 | |||||
Outstanding,
December 31, 2008
|
10,015,100 | $ | 0.45 | |||||
Exercisable,
December 31, 2008
|
4,094,614 | $ | 0.38 | |||||
Outstanding,
December 31, 2008
|
10,015,100 | $ | 0.45 | |||||
Granted
|
7,550,100 | 0.13 | ||||||
Exercised
|
- | - | ||||||
Cancelled
|
(3,303,125 | ) | 0.35 | |||||
Outstanding,
December 31, 2009
|
14,262,075 | $ | 0.30 | |||||
Exercisable,
December 31, 2009
|
8,066,743 | $ | 0.35 |
38
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 7-
|
SHARE
BASED PAYMENT(CONTINUED)
|
Common Stock Options
(Continued)
The
following table summarizes information about stock options granted to employees,
advisors, and board members at December 31, 2009:
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||||||
Range of
Exercise
Prices
|
Number
Outstanding
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
Number of
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
||||||||||||||||||||
$ | 0.04 | 1,620,000 | $ | 0.04 | 6.84 | 1,620,000 | $ | 0.04 | 6.84 | |||||||||||||||||
0.50 | 3,235,100 | 0.50 | 7.67 | 2,510,159 | 0.50 | 7.65 | ||||||||||||||||||||
0.55 | 1,870,000 | 0.55 | 8.49 | 1,624,167 | 0.55 | 8.50 | ||||||||||||||||||||
0.56 | 1,020,000 | 0.56 | 8.59 | 374,167 | 0.56 | 8.59 | ||||||||||||||||||||
0.46 | 400,000 | 0.46 | 8.76 | 400,000 | 0.46 | 8.76 | ||||||||||||||||||||
0.21 | 20,000 | 0.21 | 8.29 | 20,000 | 0.21 | 8.29 | ||||||||||||||||||||
0.11 | 4,396,975 | 0.11 | 9.17 | 1,151,063 | 0.11 | 9.17 | ||||||||||||||||||||
0.17 | 1,000,000 | 0.17 | 9.29 | 177,083 | 0.17 | 9.29 | ||||||||||||||||||||
0.34 | 250,000 | 0.34 | 9.43 | 72,917 | 0.34 | 9.43 | ||||||||||||||||||||
0.33 | 200,000 | 0.33 | 9.48 | 104,167 | 0.33 | 9.48 | ||||||||||||||||||||
0.19 | 250,000 | 0.19 | 9.79 | 13,021 | 0.19 | 9.79 | ||||||||||||||||||||
14,262,075 | $ | 0.30 | 8.45 | 8,066,743 | $ | 0.35 | 8.05 |
On June
30, 2008, the Board of Directors of the Company approved and adopted the 2008
Equity Incentive Plan, under which 10,000,000 stock options were available in
2008. Pursuant to the Plan, an additional 2,436,983 were made
available on January 1, 2009. Of the 14,262,075 options outstanding,
9,406,975 were issued under the Plan. As of December 31, 2009, the
aggregate intrinsic value of the options outstanding and exercisable was
$358,939 and $229,103, respectively. As of December 31, 2008, the
aggregate intrinsic value of the options outstanding and exercisable was
$183,060 and $132,210. The weighted-average grant-date fair value of
options granted for the periods ended December 31, 2009 and 2008 was $0.12 and
$0.41, respectively. The total fair value of shares vested during
2009 and 2008 was $636,538 and $432,825, respectively.
39
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 7-
|
SHARE
BASED PAYMENT(CONTINUED)
|
Warrants
In
connection with the Bridge Financing convertible promissory notes discussed in
Note 11 below, the holders of the notes were granted warrants to purchase the
Company’s common stock. The exercise price of the warrants is $0.25,
vest upon grant and are exercisable for a period of five years.
The
following table sets forth information about the weighted-average fair value of
warrants issued during the year ended December 31, 2009 and the assumptions used
for such grants. No warrants were issued in 2008:
2009
|
|
Dividend
yields
|
0.0%
|
Expected
volatility
|
178.0%
- 183.0%
|
Risk-free
interest rate
|
2.28%
- 2.33%
|
Warrant
term
|
5
years
|
Changes
in warrants issued to investors for the period ended December 31, 2009 are as
follows:
Weighted
|
||||||||
Number
|
Average
|
|||||||
Of
|
Exercise
|
|||||||
Warrants
|
Price
|
|||||||
Outstanding,
December 31, 2008
|
- | $ |
0.00
|
|||||
Granted
|
1,048,586 | 0.25 | ||||||
Exercised
|
- | - | ||||||
Cancelled
|
- | - | ||||||
Outstanding,
December 31, 2009
|
1,048,586 | $ | 0.25 | |||||
Exercisable,
December 31, 2009
|
1,048,586 | $ | 0.25 |
The
following table summarizes information about stock warrants granted to
employees, advisors, and board members at December 31, 2009:
Warrants Outstanding
|
Warrants Exercisable
|
|||||||||||||||||||||||||
Range of
Exercise
Prices
|
Number
Outstanding
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
Number of
Warrants
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
||||||||||||||||||||
$ | 0.25 | 1,048,586 | $ | 0.25 | 4.87 | 1,048,586 | $ | 0.25 | 4.87 | |||||||||||||||||
1,048,586 | $ | 0.25 | 4.87 | 1,048,586 | $ | 0.25 | 4.87 |
As of
December 31, 2009, the aggregate intrinsic value of the warrants outstanding and
exercisable was $0 and $0, respectively. The weighted-average
grant-date fair value of options granted for the periods ended December 31, 2009
was $0.14. The total fair value of shares vested during 2009 was
$157,288.
40
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 8-
|
OPERATING
LEASES
|
The
Company leases approximately 2,326 square feet of space in Park City,
Utah. Such lease, which commenced on September 1, 2007, has a term of
three years, subject to an option to extend for an additional three
years. Pursuant to the terms thereof, base rent is $4,264 per month
for the first year and $4,563 per month for the second and third years of the
lease. In November 2009, the parties entered into an amendment to the
lease agreement, pursuant to which the parties agreed that the option shall be
terminated and the third and final year of the lease shall be paid for by a cash
payment of $45,000 plus the Company creating a website and providing
ongoing maintenance, training, and hosting services associated with said website
for its landlord. Through December 31, 2009, the Company performed
services in association with the website development of $9,000, which reduced
the Company’s lease liability and increased other income on the statements of
operations. Subsequent to the end of the year, the Company made a
cash payment of $45,000 in order to fulfill the lease amendment.
Rent
expense for operating leases for the years end December 31, 2009 and 2008 was
$49,876 and $52,366, respectively.
NOTE 9-
|
GOING
CONCERN
|
The
Company’s financial statements have been prepared using accounting principles
generally accepted in the United States of America generally applicable to a
going concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. Accordingly, the
consolidated financial statements do not include any adjustments related to the
recoverability of assets or classification of liabilities that might be
necessary should we be unable to continue as a going concern. At
December 31, 2009, the Company’s current liabilities exceeded it current
assets. Additionally, it has incurred substantial losses in this and
prior fiscal years and has recorded negative cash flows from operations in this
and prior fiscal years. At December 31, 2009, the Company’s cash
balance was $10,303. The preceding circumstances combine to raise
substantial doubt about the Company’s ability to continue as a going
concern.
Management’s
plan to continue as a going concern includes significant cost cutting measures
implemented in November of 2008 to improve earnings potential as well as
continuing to focus on increasing revenues from the sales of its
products. In addition, throughout the third and fourth quarters of
2009, the Company actively sought additional sources of financing to fund its
operations for the foreseeable future. Subsequent to the close of the
year ended December 31, 2009, the Company closed a private offering of equity
securities. See Notes 11 and 12 below.
NOTE 10 –
|
CONSULTING
AGREEMENT
|
On July
31, 2009, the Company entered into a Consulting Agreement (the “Agreement”) with
HFP Capital Markets LLC (“HFP”) pursuant to which HFP will provide certain
consulting services to the Company including but not limited to assistance in
securing future investment in the Company, assistance with certain corporate
finance and investment banking activities, assistance with new business
development, sales and marketing opportunities, and such other services as set
forth therein. The term of the Agreement is three years, although the
Company may terminate upon thirty days written notice for any reason or no
reason at all, but no sooner than six months from the full execution of the
Agreement. As compensation for these consulting services, the
Company issued to HFP or its designees 4,000,000 shares of the
Company’s restricted common stock which vested and became issuable to HFP or its
designees 120 days from the full execution of the Agreement, or November 28,
2009. As such, the shares issued were recorded as prepaid equity
expenses since it is a three year agreement. The shares were valued
at $0.14 per share for a total prepayment for these fees of
$560,000. At December 31, 2009, $15,556 had been amortized to
consulting expense, with the remaining as prepaid equity expense, to be
amortized over the remaining life of the agreement.
41
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 11 –
|
PRIVATE
FINANCING TRANSACTIONS
|
During
September 2009, the Company commenced a private offering (“Private Offering”) of
equity securities consisting of shares of common stock and common stock purchase
warrants on a best efforts $1,500,000 minimum and $2,000,000 maximum
basis. The securities were offered to accredited investors only. The
securities have not been registered under the Securities Act of 1933, as amended
(the “Act”) and were offered in reliance upon the exemption from registration
set forth in Section 4(2) and Regulation D, promulgated under the
Act. Such securities may not be offered or sold in the United States
absent registration or an applicable exemption from registration
requirements. On December 8, 2009, the minimum for the offering was
reduced to $1,000,000 and the offering period was extended to January 13,
2010. Subsequent to the end of the fiscal year, the offering period
was extended from January 13, 2010 to February 28, 2010 and again until March
15, 2010.
On
November 2, 2009, November 12, 2009, and December 14, 2009, and in connection
with a private debt offering (“Bridge Financing”), the Company raised $62,859
from four investors, including the Company’s Chief Executive Officer and Chief
Operating Officer, from the issuance of Convertible Promissory Notes in the
principal amount of $62,859 due three months from issuance bearing interest at a
90-day rate of 10%. In connection with such investments, 628,586
common stock purchase warrants were also granted to such investors (See Note
7). Similarly, on November 12, 2009, and in connection with the
Bridge Financing, the Company issued Convertible Promissory Notes to its Chief
Executive Officer and another stockholder in the principal amount of $42,000 due
three months from issuance bearing interest at a 90-day rate of 10%, resulting
from the funds advanced by such two stockholders during the third quarter of
2009. In connection with such issuance, 420,000 common stock purchase
warrants were also granted to the two stockholders.
In
accordance with FASB ASC 470-20-30, the Company used the effective conversion
price based on the proceeds received to compute the intrinsic value of the
embedded conversion option. The Company allocated the proceeds
received from the Bridge Financing to the convertible instrument and the
detachable warrants included in the exchange on a relative fair value
basis. The Company then calculated an effective conversion price and
used that price to measure the intrinsic value of the embedded conversion
option. The convertible notes may be converted into shares of the
Company’s common stock or cash at any time at the option of the
holder. The conversion price of the convertible notes is equal to
$0.10 per share of the company’s common stock. The number of shares
issuable upon conversion of the notes shall be determined by dividing the
outstanding principal amount, together with accrued but unpaid interest, to be
converted by the conversion price in effect on the conversion date.
Since the
holder has the option to convert the note to cash, the Company recorded a
liability for the portion of the note that contained the conversion
option. Therefore, the six notes resulted in a debt discount of
$104,859, with $43,834 recorded as a debt conversion liability and $61,025 as
the equity component associated with the value of the warrants. The
debt discount will be accreted over the life of the respective note or 90
days. Accretion of the debt discount at December 31, 2009
was $57,629, which was charged to the statements of operations.
The
following table outlines the gross amounts owed under these
arrangements:
Principal Balance as of
December 31, 2009
|
Interest Accrued as of
December 31, 2009
|
|||||||
Convertible
promissory note, interest at 10% per 90 days,
no
monthly payments due, unsecured, matures January 2010
|
$ | 30,000 | $ | 2,300 | ||||
Convertible
promissory note, interest at 10% per 90 days
no
monthly payments due, unsecured, matures February 2010
|
25,000 | 1,528 | ||||||
Convertible
promissory note, interest at 10% per 90 days
no
monthly payments due, unsecured, matures February 2010
|
30,000 | 3,067 | ||||||
Convertible
promissory note, interest at 10% per 90 days
no
monthly payments due, unsecured, matures February 2010
|
12,000 | 1,680 | ||||||
Convertible
promissory note, interest at 10% per 90 days
no
monthly payments due, unsecured, matures March 2010
|
2,859 | 54 | ||||||
Convertible
promissory note, interest at 10% per 90 days
no
monthly payments due, unsecured, matures March 2010
|
5,000 | 94 | ||||||
Total
|
$ | 104,859 | $ | 8,723 |
At
December 31, 2009, the Company’s convertible instruments’ if-converted value
exceeded its principal value in the amount of $52,430.
42
SPECTRUMDNA,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
NOTE 12 –
|
RELATED
PARTY TRANSACTIONS
|
The
following table outlines the convertible promissory notes held by
officers and directors of the Company as referenced in Note 11
above:
Principal Balance as of
December 31, 2009
|
Interest Accrued as of
December 31, 2009
|
|||||||
Convertible
promissory note, interest at 10% per 90 days
no
monthly payments due, unsecured, matures February 2010
|
$ | 12,000 | $ | 1,680 | ||||
Convertible
promissory note, interest at 10% per 90 days
no
monthly payments due, unsecured, matures March 2010
|
2,859 | 54 | ||||||
Convertible
promissory note, interest at 10% per 90 days
no
monthly payments due, unsecured, matures March 2010
|
5,000 | 94 | ||||||
Total
|
$ | 19,859 | $ | 1,828 |
No
payments had been made and no notes had been converted at December 31,
2009.
NOTE 13 –
|
SUBSEQUENT
EVENTS
|
Subsequent
to the end of the fiscal year, the Company completed three closings of the
Private Offering with a total of 65 accredited investors (the “Purchasers”) for
the issuance and sale of securities of the Company consisting of shares of
Common Stock and common stock purchase warrants (the “Purchase
Warrants”). Pursuant to the Private Offering, the Company issued
15,150,000 shares of Common Stock and 15,150,000 Purchase
Warrants. Gross offering proceeds totaled $1,515,000. Each
of the Purchase Warrants entitles the holder thereof to purchase, at any time
beginning from the final closing through five years thereafter, one share of
Common Stock at a price of $0.25 per share.
In
association with the Private Offering, the Company paid the placement agent
commissions of $100,500 and a non-accountable expense allowance of
$30,150. In addition, the placement agent and its designees were
issued an aggregate of 1,005,000 placement agent warrants (the “Placement Agent
Warrants”) to purchase up to 1,005,000 warrant units (the “Warrant Units”)
exercisable for five years at an exercise price of $0.10 per Warrant Unit with
each Warrant Unit consisting of one share of Common Stock and one Purchase
Warrant.
During
the first quarter of 2010, two of the investors in the Bridge Financing
converted all of the principal and interest due on their Convertible Promissory
Notes into a total of 661,000 shares of Common Stock. On January 22,
2010 and February 10, 2010, the balance of the principal and interest due on the
Convertible Promissory Notes issued in connection with the Bridge Financing, was
repaid to the other three of the investors, including the Chief Executive
Officer and Chief Operating Officer, in the principal amount of
$44,859 plus accrued interest of $4,981. See Note 11 and 12
above.
During
the first quarter of 2010, the Company issued a total of 500,000 shares of
Common Stock and options to acquire an additional 500,000 shares at $.20 per
share and paid $50,000 to a consultant for services rendered and in full
consideration for a one-year consulting agreement entered into on January 15,
2010.
The
Company has evaluated subsequent events from the balance sheet date through the
issuance of these financial statements and has determined that no events had a
material impact on its financial statements other than those disclosed
above.
43
ITEM
9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
None
ITEM
9A(T). Controls and
Procedures.
Evaluation
of Disclosure Controls and Procedures
Under the
supervision and with the participation of our management, including the
Principal Executive Officer and Principal Financial Officer, we have evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that, as of December 31,
2009, these disclosure controls and procedures were ineffective to ensure that
all information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is: (i) recorded, processed, summarized and
reported, within the time periods specified in the Commission’s rule and forms;
and (ii) accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
There
have been no material changes in internal control over financial reporting that
occurred during the fourth fiscal quarter that have materially affected, or are
reasonably likely to materially affect the Company’s internal control over
financial reporting.
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial
reporting is a process designed by, or under the supervision of, the Chief
Executive Officer and Chief Financial Officer and effected by our Board of
Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.
Our
evaluation of internal control over financial reporting includes using the COSO
framework, an integrated framework for the evaluation of internal controls
issued by the Committee of Sponsoring Organizations of the Treadway Commission,
to identify the risks and control objectives related to the evaluation of our
control environment.
Our
management conducted an evaluation of the effectiveness of our internal control
over financial reporting. Based on our evaluation, management
concluded that our internal control over financial reporting was ineffective as
of December 31, 2009 due to two significant deficiencies. A material
weakness in internal control over financial reporting is defined by the Public
Company Accounting Oversight Board’s Audit Standard No. 5 as a deficiency, or a
combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the
company's annual or interim financial statements will not be prevented or
detected on a timely basis. A significant deficiency is a deficiency,
or a combination of deficiencies, in internal control over financial reporting
that is less severe than a material weakness, yet important enough to merit
attention by those responsible for oversight of our financial
reporting.
Management’s
assessment identified the following significant deficiencies in internal control
over financial reporting:
|
·
|
Incomplete
recording of beneficial conversion feature associated with the Convertible
Promissory Notes issued during the fourth quarter of 2009 (See Note 11 to
the consolidated financial statements included under Part II, Item 8)
prior to the audit conducted by our principal independent accounting
firm.
|
|
·
|
Incomplete
recording of the prepaid consulting services associated with the
Consulting Agreement fulfilled during the fourth quarter (See Note 10 to
the consolidated financial statements included under Part II, Item 8)
prior to the audit conducted by our principal
independent accounting firm. While the issuance of
the stock certificates occurred on January 11, 2010 subsequent to the end
of the fiscal year, the substance of the agreement was completed prior to
December 31, 2009.
|
In light
of the significant deficiencies described above, we performed additional
analysis and other post-closing procedures to ensure our financial statements
were prepared in accordance with generally accepted accounting
principles. Accordingly, we believe that the financial statements
included in this report fairly present, in all material respects, our financial
condition, results of operations and cash flows for the periods
presented.
Management
intends to mitigate the risk of significant deficiencies going forward by
utilizing external financial consulting services prior to the review by our
principal independent accounting firm to ensure that all information required to
be disclosed by us in the reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported accurately and within the time
periods specified in the Commission’s rule and forms.
44
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation requirements by the company’s
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the company to provide only management’s
report in this annual report.
Inherent
Limitations Over Internal Controls
Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations, including
the possibility of human error and circumvention by collusion or overriding of
controls. Accordingly, even an effective internal control system may
not prevent or detect material misstatements on a timely basis. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions or
that the degree of compliance with the policies or procedures may
deteriorate.
ITEM
9B. Other
Information.
None.
45
PART
III
ITEM
10. Directors, Executive
Officers and Corporate Governance.
Set forth
below are the present directors and executive officers of the
Company. Note that there are no other persons who have been nominated
or chosen to become directors nor are there any other persons who have been
chosen to become executive officers. There are no arrangements or
understandings between any of the directors, officers and other persons pursuant
to which such person was selected as a director or an
officer. Directors are elected to serve until the next annual meeting
of stockholders and until their successors have been elected and have
qualified. Officers are appointed to serve until the meeting of the
Board of Directors following the next annual meeting of stockholders and until
their successors have been elected and qualified.
Present
Position
|
Has
Served As
|
|||||
Name
|
Age
|
and
Offices
|
Director
Since
|
|||
James
A. Banister
|
51
|
President,
Chief Executive
|
2006
|
|||
Officer,
Chairman of the Board,
|
||||||
Secretary,
Treasurer
|
||||||
and
Director
|
||||||
Kelly
A. McCrystal
|
39
|
Chief
Operating Officer
|
—
|
|||
Rebecca
D. Hershinger
|
36
|
Chief
Financial Officer
|
—
|
|||
Michael
Dowling
|
42
|
Director
|
2008
|
|||
James
Moloshok
|
60
|
Director
|
2008
|
|||
Jeffrey
Nolan
|
43
|
Director
|
2009
|
|||
Anthony
Stonefield
|
|
47
|
|
Director
|
|
2008
|
None of
the directors and officers is related to any other director or officer of the
Company.
Set forth
below are brief accounts of the business experience during the past five years
of each director, executive officer and significant employees of the
Company.
JAMES A.
BANISTER has been the Chairman of the Board and a Director of SpectrumDNA, Inc.
since its inception in May 2006 and President and Chief Executive Officer since
October 2006. Mr. Banister’s background includes more than 20 years
of crossing content with technology and he has been an entrepreneur in computer
animation and media. From March 2004 to January 2006, Mr. Banister
was Executive Creative Director of the Center for Applied Media, a non-profit
center for digital media education and enterprise development and in addition,
since 2004, Mr. Banister has been the Managing Director of Spectrum Mediaworks,
Inc., a digital media company that he co-founded which focused on the crossover
between television, games and network media. From June 2002 to March
2004, Mr. Banister traveled, researched, and wrote a book on the past, present
and future of digital networked media entitled “Word of Mouse: The New Age of
Networked Media”, Agate Fine Print, published in August 2004. Prior
thereto, and from September 2001 to June 2002, he was a project director for the
British Broadcasting Corporation in London, England, and led its Media Asset
Exchange project, an internal revamping of the BBC’s digital media
infrastructure. From June 2000 to June 2001, he was Managing Director
of Windsor Digital, LLC, and was responsible for finding and developing early
stage investments/partnerships for companies in the web, games and wireless
industries. From May 1995 to March 2000, Mr. Banister worked for
Warner Brothers Online initially as Vice President of Production and Technology
and then as its Chief Development Officer. At Warner Brothers Online,
he led the digital media content, community and commerce programming and
spearheaded its overall digital media strategy. Mr. Banister was the
Producer of award-winning one-hour dramatic television specials for the Walt
Disney Company, and two short subject films, both of which premiered at the
Cannes Film Festival. Mr. Banister has a Bachelors of Science in
Physics from San Diego State University and a Masters of Science in Electrical
Engineering from University of Southern California.
KELLY A.
McCRYSTAL has been Chief Operating Officer since July 2007 and previously served
as Vice President of Operations and Finance of the Company since November
2006. From 1997 to 2006, Ms. McCrystal managed the development of
large-scale software projects for Interactive Corp., EDS, BMC Software and
Virgin Atlantic Airways. Specific projects have included the
Ticketmaster/CitySearch hotel reservation system, Leading Hotels of the World
online reservation system, and Virgin Atlantic’s first online reservation
system. From 2001 through 2006, Ms. McCrystal delivered on these
projects as President of Crystech Consulting, and from 1997 through 2001 as
Senior Project Manager/Senior Web and Database Developer at Panther
Software. She holds a Bachelor of Arts in Economics from the
University of Notre Dame and a Masters of Business Administration in Finance
from The Wharton School of the University of Pennsylvania.
46
REBECCA
D. HERSHINGER has been Chief Financial Officer since April 2009 and previously
served as Vice President of Finance and Corporate Development since July
2008. From 2007 to 2008, she provided financial and strategy
consulting services to Kurt Salmon Associates and SpectrumDNA,
Inc. Prior to that, from 1999 to 2005, Ms. Hershinger held various
positions at Metro-Goldwyn-Mayer, Inc., serving most recently as Vice President
of Finance and Corporate Development. From 1995 to 1998, she worked
at J.P. Morgan in the Investment Banking and Global Credit Risk Management
divisions covering media/entertainment, hotels, gaming, and commercial real
estate clients. She holds a Bachelor of Science in Business
Administration from Georgetown University and a Masters of Business
Administration in Finance from The Wharton School, University of
Pennsylvania.
MICHAEL
DOWLING has been a Director of the Company since October 2008. Since
March, 2006, Mr. Dowling has been the Chief Executive Officer of Interpret, LLC,
a consumer research company that helps companies to bridge the gap between
traditional and new media. Prior to founding Interpret, from January 2002
to March 2006, Mr. Dowling was SVP, Entertainment at the Nielsen Company,
leading its growth into emerging industries, such as video games, wireless and
broadband and overseeing strategic planning and the efforts to consolidate seven
separate companies into one. Prior to that, from March 1998 to December
2000, Mr. Dowling co-founded and served as President and COO of iFUSE, a
youth-oriented media company that provided integrated marketing solutions to
major advertisers.
JAMES
MOLOSHOK has been a Director of the Company since September
2008. Since December 2007, he has been the Executive Chairman of
Betawave, formerly known as GoFish Corp. Prior to joining Betawave,
from 2005 to 2007, Mr. Moloshok was President of Digital Initiatives for HBO
Network, where he was responsible for exploring new opportunities for the
company, focusing on innovative content and fast-changing
technology. Prior to that, from 2001 to 2005, Mr. Moloshok served in
various positions with Yahoo! Inc., serving most recently as Senior Vice
President, Entertainment and Content Relationships, during which he helped build
partnerships with movie studios, TV networks and producers. Prior to
that, Mr. Moloshok was a co-founder of Windsor Digital, an entertainment and
investment company. From 1999 to 2000, Mr. Moloshok served as
president of Warner Bros. Online and president and CEO of Entertaindom.com, an
original entertainment destination for Time Warner. From 1989 to
1999, Mr. Moloshok served as Senior Vice President of Marketing at Warner Bros.
and previously held the same position at Lorimar Telepictures, a television
distribution company, which was formed when Lorimar merged with Telepictures in
1986 where he was also responsible for marketing to consumers, broadcasters and
advertisers.
JEFFREY
NOLAN has been has been a Director of the Company since June
2009. From August 2007 until January 2009, Mr. Nolan was the VP
Corporate Development at NewsGator Technologies where he oversaw the
restructuring of NewsGator into enterprise software and media business units
operating independently of each other. He also worked to establish
brand leadership for the company in the widget and content syndication market
space. Prior to that, and from September 2006 to May 2007, he was CEO
of Teqlo, Inc. where he defined strategy, led fundraising, oversaw marketing and
managed operations for the early stage company in the emerging mashup platform
space. From October 2005 through September 2006, Mr. Nolan was
appointed Director of the Apollo Strategy Group for SAP Global Marketing,
leading the Oracle Competitive Strategies Team which identified and implemented
disruptive competitive strategies, including innovative social media
tactics. From 1998 through 2005, Mr. Nolan was a Venture Partner for
SAP Ventures where he managed a portfolio of investments.
ANTHONY
STONEFIELD has been has been a Director of the Company since October
2008. Since January 2010, he has been a consulting executive and
advisor to several innovative wireless and online ventures, including Yagatta, a
Qualcomm venture that focuses on providing smart phone users with a
next-generation in data augmented communication experience. and Zad Mobile,
Inc., a provider of turn-key marketing and rich media applications to help
wireless service providers boost brand engagement and content sales. From
September 2006 through January 2010, Mr. Stonefield was the Co-founder, Chairman
of the Board, and Chief Executive Officer of eMotive Communications, Inc., that
pioneered a Telco 2.0 solution that enables mobile subscribers to
project programmable media files from phone to phone in real time. In
January 2010, Mr. Stonefield completed the merger of eMotive Communications’
assets and capabilities with Zad Mobile, Inc. From October 1993 to
January 2002, he founded and served as CEO of Moviso LLC until its sale to
Vivendi Universal in 2002 and subsequently to InfoSpace in 2003, in both cases
serving as Chief Strategy Officer of the business unit. Since 1995,
working in cooperation with companies such as AT&T/Bell Labs and Qualcomm
Services Labs, he has conceived and productized applications for networked media
distribution and marketing, including pioneering downloadable song distribution,
developing and popularizing the worldwide ringtone market, and deploying the
first commercial peer-to-peer media networking service for mobile
phones. He received a bachelor’s degree in Biology from the
University of California, Santa Cruz.
To the
knowledge of the Company, none of the officers or directors has been personally
involved in any bankruptcy or insolvency proceedings. To the knowledge of the
Company, none of the directors or officers have been convicted in any criminal
proceedings (excluding traffic violations and other minor offenses) or are the
subject of a criminal proceeding which is presently pending, nor have such
persons been the subject of any order, judgment, or decree of any court of
competent jurisdiction, permanently or temporarily enjoining them from acting as
an investment advisor, underwriter, broker or dealer in securities, or as an
affiliated person, director or insurance company, or from engaging in or
continuing in any conduct or practice in connection with any such activity or in
connection with the purchase or sale of any security, nor were any of such
persons the subject of a federal or state authority barring or suspending, for
more than 60 days, the right of such person to be engaged in any such activity,
which order has not been reversed or suspended.
47
Audit
Committee Financial Expert
We do not
have an audit committee financial expert, as such term is defined in Item
407(d)(5) of Regulation S-K, serving on our audit committee because we have no
audit committee and are not required to have an audit committee because we are
not a listed security.
Director
Nominations
Due to
the early stage nature of our business, our Board of Directors has not
established formal procedures by which security holders may recommend nominees
to the Company’s Board of Directors.
Compliance
with Section 16(a) of the Securities Exchange Act of 1934
Insofar
that we do not have a class of securities registered pursuant to Section 12 of
the Exchange Act, our directors and executive officers, and persons who own more
than ten percent of the Company’s Common Stock, are not required to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes of ownership of Common Stock of the Company.
Code
of Ethics for Chief Executive Officer and Senior Financial Officers
The Board
of Directors has adopted a Code of Ethics applicable to its principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, which is designed to
promote honest and ethical conduct; full, fair, accurate, timely and
understandable disclosure; and compliance with applicable laws, rules and
regulations. A copy of the Code of Ethics will be provided to any
person without charge upon written request to the Company at its executive
offices, 1700 Park Avenue, Suite 2020, P.O. Box 682798, Park City, Utah
84068.
Indemnification
of Directors and Officers
The
Company's Bylaws (the “Bylaws”) provide that the Company will indemnify its
officers and directors to the fullest extent permitted by Delaware
law. The Bylaws also provide that the Company will indemnify and hold
harmless its officers and directors for any liability including reasonable costs
of defense arising out of any act or omission taken on behalf of the Company, to
the fullest extent allowed by Delaware law, if the officer or director acted in
good faith and in a manner the officer or director reasonably believed to be in,
or not opposed to, the best interests of the corporation. The Company
has also entered into indemnification agreements with the officers and directors
of the Company with indemnification obligation substantially similar to those in
the Bylaws, provided that they provide for advancement of funds in certain
circumstances where the indemnified officers and directors have presented claims
for indemnification.
In so far
as indemnification for liabilities arising under the Securities Act of 1933, as
amended (the “Securities Act”) may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification for such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such
issue.
48
ITEM
11. Executive
Compensation.
SUMMARY
COMPENSATION TABLE
|
The
following summary compensation table sets forth the aggregate compensation we
paid or accrued during the fiscal years ended December 31, 2009 and December 31,
2008 to (i) our Chief Executive Officer (principal executive officer), (ii) our
two most highly compensated executive officers other than the principal
executive officer who were serving as executive officers on December 31, 2009
whose total compensation was in excess of $100,000, and (iii) up to two
additional individuals who would have been within the two-other-most-highly
compensated but were not serving as executive officers on December 31,
2009.
Summary
Compensation Table
Name and
Principal Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
(1)
|
Option
Awards
(1)
|
Non-Equity
Incentive Plan
Compensation
|
Nonqualified
Deferred
Compensation
Earnings
|
All Other
Compensation
|
Total
|
|||||||||||||||||||||||||
James
Banister,
|
2009
|
$ | 88,129 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 88,129 | |||||||||||||||||
Chief
Executive Officer
|
2008
|
$ | 117,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 117,000 | |||||||||||||||||
Kelly
McCrystal,
|
2009
|
$ | 88,129 | $ | 0 | $ | 0 | $ | 497,243 | $ | 0 | $ | 0 | $ | 0 | $ | 585,372 | |||||||||||||||||
Chief
Operating Officer
|
2008
|
$ | 117,000 | $ | 0 | $ | 0 | $ | 497,108 | $ | 0 | $ | 0 | $ | 0 | $ | 614,108 | |||||||||||||||||
Rebecca
Hershinger,
|
2009
|
$ | 74,651 | $ | 0 | $ | 0 | $ | 152,396 | $ | 0 | $ | 0 | $ | 0 | $ | 227,047 | |||||||||||||||||
Chief
Financial Officer
|
2008
|
$ | 34,965 | $ | 0 | $ | 0 | $ | 43,750 | $ | 0 | $ | 0 | $ | 0 | $ | 78,715 |
(1)
|
Represents
the dollar amount recognized for financial reporting purposes of stock
awards and stock options awarded in 2008 and 2009 computed in accordance
with FASB ASC 718. Ms. McCrystal had 5,780,160 outstanding
stock options at December 31, 2009; and Ms. Hershinger had 3,000,000
outstanding stock options at December 31, 2009. The options are
valued at $0.10 to $0.48, with exercise prices ranging from $0.037 to
$0.56. The options vest over periods from 36-48
months.
|
49
Equity
Awards
The
following table provides certain information concerning equity awards held by
the individuals named in the Summary Compensation Table as of December 31,
2009.
Outstanding
Equity Awards at December 31, 2009
OPTION
AWARDS
|
STOCK
AWARDS
|
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
Number of
Shares or
Units of Stock
That Have Not
Vested (#)
|
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
Or Other
Rights That
Have Not
Vested(#)
|
|||||||||||||||
Kelly
McCrystal
|
1,620,000 | -0- | $ | 0.037 |
11/1/2016
|
-0- | -0- | ||||||||||||||
915,000 | 165,000 | $ | 0.50 |
6/19/2017
|
-0- | -0- | |||||||||||||||
552,128 | 447,952 | $ | 0.50 |
10/15/2017
|
-0- | -0- | |||||||||||||||
433,350 | 1,646,730 | $ | 0.11 |
3/2/2019
|
-0- | -0- | |||||||||||||||
Rebecca
Hershinger
|
354,167 | 645,833 | $ | 0.56 |
7/31/2018
|
-0- | -0- | ||||||||||||||
208,333 | 791,667 | $ | 0.11 |
3/2/2019
|
-0- | -0- | |||||||||||||||
-0- | 1,000,000 | $ | 0.17 |
4/13/2019
|
-0- | -0- |
Benefit
Plans
On June
30, 2008, our Board of Directors approved and adopted the 2008 Equity Incentive
Plan (the “2008 Plan”). Under the 2008 Plan, we will have the right
to issue incentive stock options, nonstatutory stock options, restricted stock,
restricted stock units, stock appreciation rights and performance
shares. The purposes of the 2008 Plan are: (i) to attract and retain
the best available personnel for positions of substantial responsibility, (ii)
to provide additional incentive to employees, directors and consultants, and
(iii) to promote the success of the Company’s business. The maximum
aggregate number of shares of common stock that may be optioned and sold under
the 2008 Plan is 10,000,000, plus an annual increase to be added on the first
day of the Company’s fiscal year beginning with the Company’s 2009 fiscal year,
equal to the lesser of (a) 5,000,000 shares, or (b) 5% of the outstanding shares
on the last day of the immediately preceding Company fiscal
year. There are 15,074,345 shares currently available under the
plan.
Compensation
of Directors
The
following table provides certain summary information concerning the compensation
paid to directors, other than James A. Banister (our Chief Executive Officer),
during the year ended December 31, 2009. No cash compensation was
paid to directors, other than James A. Banister in 2009. All
compensation paid to Mr. Banister is set forth in the Summary Compensation
Table. All directors are also entitled to be reimbursed for their
reasonable out-of-pocket expenses incurred in connection with their duties to
the Company.
50
Director
Compensation
Name
|
Fees Earned or
Paid in Cash ($)
|
Stock
Awards ($)
|
Option
Awards ($) (1)
|
All Other
Compensation ($)
|
Total ($)
|
|||||||||||||||
Jamed
Ackerly (2)
|
$ | 0 | -0- | $ | 78,000 | -0- | $ | 78,000 | ||||||||||||
Michael
Dowling
|
$ | 0 | -0- | $ | 42,000 | -0- | $ | 42,000 | ||||||||||||
James
Moloshok
|
$ | 0 | -0- | $ | 430,000 | -0- | $ | 430,000 | ||||||||||||
Jeffrey
Nolan (3)
|
$ | 1,000 | -0- | $ | 138,500 | -0- | $ | 139,500 | ||||||||||||
Anthony
Stonefield
|
$ | 0 | -0- | $ | 42,000 | -0- | $ | 42,000 |
(1)
|
Represents
the dollar amount recognized for financial reporting purposes of stock
options awarded in 2009 computed in accordance with FASB ASC
718.
|
(2)
|
Mr.
Ackerly resigned from the Board of Directors on June 22,
2009
|
(3)
|
Mr.
Nolan was appointed to the Board of Directors on June 23,
2009. Prior to his appointment, Mr. Nolan was paid $1,000 in
consulting fees for advisory
services.
|
Employment
Agreements
We do not
have any employment agreements with any of our executive
officers.
51
ITEM
12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters.
The
following table sets forth, as of March 18, 2010, certain information with
regard to the record and beneficial ownership of the Company’s Common Stock by
(i) each person known to the Company to be the record or beneficial owner of 5%
or more of the Company’s Common Stock, (ii) each director of the Company, (iii)
the Company’s Chief Executive Officer and other individuals named in the Summary
Compensation Table, and (iv) all executive officers and directors of the Company
as a group:
Amount and Nature
|
Percent
|
|||||||
Name of Beneficial Owner(1)
|
of Beneficial Ownership(2)
|
of Class(2)
|
||||||
James
A. Banister(3)
|
30,764,786 | (4) | 44.6 | % | ||||
Robin
Rankin(3)
|
6,010,200 | 8.7 | % | |||||
Michael
Dowling(3)
|
400,000 | (5) | * | |||||
James
Moloshok(3)
|
986,458 | (6) | 1.4 | % | ||||
Jeffrey
Nolan(3)
|
503,125 | (7) | * | |||||
Anthony
Stonefield(3)
|
224,000 | (8) | * | |||||
Kelly
A. McCrystal
|
4,013,791 | (9) | 5.5 | % | ||||
Rebecca
Hershinger
|
1,020,833 | (10) | 1.5 | % | ||||
All
Officers and Directors as a Group
|
||||||||
(consisting
of 7 persons)
|
37,926,535 | 50.0 | % |
*
|
Less
than 1%.
|
(1)
|
Except
as otherwise indicated, the address of each beneficial owner is c/o
SpectrumDNA, Inc., 1700 Park Avenue, Suite 2020, P.O. Box 682798, Park
City, Utah 84068.
|
(2)
|
Applicable
percentage ownership is based on 68,818,237 shares of
common stock outstanding as of March 18, 2010, together with securities
exercisable or convertible into shares of common stock within 60 days of
March 18, 2010. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Shares of common stock that a person has the right to acquire beneficial
ownership of upon the exercise or conversion of options, convertible
stock, warrants or other securities that are currently exercisable or
convertible or that will become exercisable or convertible within 60 days
of March 18, 2010 are deemed to be beneficially owned by the person
holding such securities for the purpose of computing the number of shares
beneficially owned and percentage of ownership of such person, but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person.
|
(3)
|
Each
is a founder and/or director of the
Company.
|
(4)
|
Consists
of (a) 30,616,200 share of common stock and (b) 148,586 shares of common
stock issuable upon exercise of warrants that have vested or will vest
within the next 60 days.
|
(5)
|
Consists
of (a) 100,000 shares of common stock, (b) 200,000 shares of common stock
issuable upon exercise of options that have vested or will vest within the
next 60 days, and (c) 100,000 shares of common stock issuable upon the
exercise of warrants that have vested or will vest within the next 60
days.
|
52
(6)
|
Consists
of 986,458 shares of common stock issuable upon the exercise of options
that have vested or will vest within the next 60 days. Does not
include 13,542 shares of common stock underlying options that are not
exercisable within the next 60
days.
|
(7)
|
Consists
of (a) 100,000 shares of common stock, (b) 303,125 shares of common stock
issuable upon the exercise of options that have vested or will vest within
the next 60 days, and (c) 100,000 shares of common stock issuable upon the
exercise of warrants that have vested or will vest within the next 60
days. Does not include 146,875 shares of common stock
underlying options that are not exercisable within the next 60
days.
|
(8)
|
Consists
of (a) 24,000 shares of common stock and (b) 200,000 shares of common
stock issuable upon the exercise of options that have vested or will vest
within the next 60 days.
|
(9)
|
Consists
of: (a) 19,548 shares of common stock, (b) 3,944,243 shares of common
stock issuable upon the exercise of options that have vested or will vest
within the next 60 days, and (c) 50,000 shares of common stock issuable
upon the exercise of warrants that have vested or will vest within the
next 60 days. Does not include 1,835,917 shares of common stock
underlying options that are not exercisable within the next 60
days.
|
(10)
|
Consists
of 1,020,833 shares of common stock issuable upon the exercise of options
that either vested or will vest within the next 60 days. Does
not include 1,979,167 shares of common stock underlying options that are
not exercisable within the next 60
days.
|
53
ITEM
13. Certain Relationships and
Related Transactions, and Director Independence.
See
“Liquidity and Capital Resources” under Part II, Item 7, for information on
the Bridge Financing effected by the Company during November and
December 2009 which raised gross proceeds of $104,859 from the sale of
Convertible Promissory Notes due three months from issuance bearing interest at
a 90-day rate of 10%. Of such amount, $14,859 was raised from James
A. Banister, the Company’s Chief Executive Officer, and $5,000 was raised from
Kelly A. McCrystal, the Company’s Chief Operating Officer. In
connection therewith, Mr. Banister was issued Convertible Promissory Notes in
the aggregate principal amount of $14,859 and Ms. McCrystal was issued a
Convertible Promissory Note in the principal amount of $5,000. In
addition, Mr. Banister and Ms. McCrystal received 148,586 and 50,000 common
stock purchase warrants, respectively.
Other
than the foregoing, since January 1, 2009, there has not been, nor is there
currently proposed, any transaction or series of similar transactions to which
we were or will be a party: (i) in which the amount involved exceeds the lesser
of $120,000 or one percent of the average of our total assets at year-end for
the last three completed fiscal years; and (ii) in which any director, executive
officer, shareholder who beneficially owns 5% or more of our common stock or any
member of their immediate family had or will have a direct or indirect material
interest.
Director
Independence
Our board
of directors currently consists of five members. They are James A.
Banister, Michael Dowling, James Moloshok, Jeffrey Nolan, and Anthony
Stonefield. Mr. Banister is the Company’s Chief Executive Officer and
President. Messrs. Dowling, Moloshok, Nolan, and Stonefield are
independent directors. We have determined their independence using
the general independence criteria set forth in the Nasdaq Marketplace
Rules.
ITEM
14. Principal Accountant Fees
And Services.
Effective
November 7, 2007, Chisholm, Bierwolf, Nilson, and Morrill LLC (CBNM) became our
principal independent accounting firm. All audit work was performed
by the full time employees of CBNM. Our Board of Directors does not
have an audit committee. The functions customarily delegated to an
audit committee are performed by our full Board of Directors. Our
Board of Directors approves in advance, all services performed by
CBNM. Our Board of Directors has considered whether the provision of
non-audit services is compatible with maintaining the principal accountant’s
independence, and has approved such services.
The
following table sets forth fees billed by our auditors during the last two
fiscal years for services rendered for the audit of our annual consolidated
financial statements and the review of our quarterly financial statements,
services by our auditors that are reasonably related to the performance of the
audit or review of our consolidated financial statements and that are not
reported as audit fees, services rendered in connection with tax compliance, tax
advice and tax planning, and all other fees for services rendered.
December 31, 2009
|
December 31, 2008
|
|||||||
Audit
fees
|
$ | 24,486 | $ | 30,190 | ||||
Audit
related fees
|
-0- | -0- | ||||||
Tax
fees
|
-0- | -0- | ||||||
All
other fees
|
-0- | -0- |
54
PART
IV
ITEM
15. Exhibits and Financial
Statement Schedules.
The
following documents are filed as part of this report:
(1)
|
Financial
Statements
|
Financial
Statements are included in Part II, Item 8 of this report.
(2)
|
Financial
Statement Schedules
|
No
financial statement schedules are included because such schedules are not
applicable, are not required, or because required information is included in the
consolidated financial statements or notes thereto.
(3)
|
Exhibits
|
Incorporated
by
|
||||
Exhibit Number
|
Name of Exhibit
|
Reference to
|
||
2.1
|
Agreement
and Plan of Merger dated January 18, 2008 among SpectrumDNA, Inc.,
SpectrumDNA Holdings, Inc. and SpectrumDNA Merger Sub,
Inc.
|
Exhibit
2.1 (1)
|
||
3.1
|
Certificate
of Incorporation of SpectrumDNA Holdings, Inc. filed January 16, 2008
(Delaware)
|
Exhibit
3.1 (1)
|
||
3.2
|
Certificate
of Amendment of Certificate of Incorporation of SpectrumDNA Holdings,
Inc. filed January 23, 2008 (Delaware)
|
Exhibit
3.2 (1)
|
||
3.3
|
Certificate
of Amendment of Certificate of Incorporation filed February 16, 2010
(Delaware)
|
Exhibit
3.1 (4)
|
||
3.4
|
Bylaws
|
Exhibit
3.3 (1)
|
||
10.1
|
Assignment
of Property dated June 1, 2006 between James Banister and
SpectrumDNA, Inc.
|
Exhibit
10.1 (1)
|
||
10.2
|
Assignment
of Property dated June 1, 2006 between Robin Rankin and
SpectrumDNA, Inc.
|
Exhibit
10.2 (1)
|
||
10.3
|
Assignment
of Property dated August 30, 2006 between James Banister and Cooshoo,
Inc.
|
Exhibit
10.3 (1)
|
||
10.4
|
Trademark
License Agreement dated September 6, 2006 between James Banister and
SpectrumDNA, Inc.
|
Exhibit
10.4 (1)
|
||
10.5
|
Lease
Agreement dated July 17, 2007 between SpectrumDNA, Inc. and East West
Center, LLC
|
Exhibit
10.5 (1)
|
||
10.6
|
2008
Equity Incentive Plan
|
Exhibit
10.1 (2)
|
||
10.7
|
Form
of Private Offering Subscription Agreement
|
Exhibit
10.1 (3)
|
||
10.8
|
Form
of Common stock Purchase Warrant
|
Exhibit
10.2 (3)
|
||
10.9
|
Form
of Placement Agent Warrant
|
Exhibit
10.3 (3)
|
||
10.10
|
|
Registration
Rights Agreement
|
|
Exhibit
10.4
(3)
|
55
21.1
|
Subsidiaries
of the Registrant
|
Exhibit
21.1 (1)
|
||
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302
|
|||
of
the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and
|
||||
15d-14
of the Exchange Act)
|
*
|
|||
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302
|
|||
of
the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and
|
||||
15d-14
of the Exchange Act)
|
*
|
|||
32.1
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act
|
|||
|
of
2002 (18 U.S.C. 1350)
|
|
*
|
(1)
|
Filed
as an exhibit to the Company’s Registration Statement on Form SB-2 filed
on January 28, 2008, File No. 333-148883, and incorporated by reference
herein.
|
(2)
|
Filed
as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2008 filed on August 14, 2008, and
incorporated by reference herein.
|
(3)
|
Filed
as an exhibit to the Company’s Current Report on Form 8-K filed on January
19, 2010, and incorporated by reference
herein.
|
(4)
|
Filed
as an exhibit to the Company’s Current Report on Form 8-K filed on
February 22, 2010, and incorporated by reference
herein.
|
*
|
Filed
herewith.
|
56
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
SPECTRUMDNA,
INC.
|
|||
(Registrant)
|
|||
By:
|
/s/ James A. Banister
|
||
James
A. Banister,
|
|||
President
and Chief Executive Officer
|
|||
Dated:
|
April 12, 2010
|
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant, and in the capacities and on the
dates indicated:
Signature
|
Title
|
Date
|
||
/s/ James A. Banister
|
President,
Chief Executive
|
|||
James
A. Banister
|
Officer,
Chairman of the
|
April 12, 2010
|
||
Board
and Director
|
||||
(Principal
Executive Officer)
|
||||
/s/ Rebecca D. Hershinger
|
Chief
Financial Officer
|
April 12, 2010
|
||
Rebecca
D. Hershinger
|
(Principal
Financial Officer and
|
|||
Principal
Accounting Officer)
|
||||
/s/ Michael Dowling
|
Director
|
April 12, 2010
|
||
Michael
Dowling
|
||||
/s/ James Moloshok
|
Director
|
April 12, 2010
|
||
James
Moloshok
|
||||
/s/ Jeffrey Nolan
|
Director
|
April 12, 2010
|
||
Jeffrey
Nolan
|
||||
/s/ Anthony Stonefield
|
Director
|
April 12, 2010
|
||
Anthony
Stonefield
|
|
|
57
SUPPLEMENTAL
INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF
THE ACT
No annual
report covering the last fiscal year or proxy materials with respect to any
annual or other meeting of security holders has been sent to our
stockholders. An annual report and proxy materials may be sent to our
stockholders subsequent to the filing of this Form 10-K. In such
event, we shall furnish to the Securities and Exchange Commission copies of any
annual report or proxy materials that is sent to our
stockholders.
58