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EX-5.1 - SpectrumDNA, Inc. | v186845_ex5-1.htm |
EX-23.2 - SpectrumDNA, Inc. | v186845_ex23-2.htm |
AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 28, 2010
REGISTRATION
NO. 333-_________
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SPECTRUMDNA,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
|
7370
(Primary Standard Industrial Classification Code
Number)
|
20-4880377
(I.R.S. employer identification number)
|
1700
Park Avenue, Suite 2020
P.O.
Box 682798
Park
City, Utah 84068
(435)
658-1349
(Address,
including zip code, and telephone number, including area code,
of
registrant’s principal executive offices)
James
A. Banister
Chief
Executive Officer
1700
Park Avenue, Suite 2020
P.O.
Box 682798
Park
City, Utah 84068
(435)
658-1349
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
COPIES
TO:
David
M. Kaye, Esq.
Kaye
Cooper Fiore Kay & Rosenberg, LLP
30A
Vreeland Road, Suite 230
Florham
Park, New Jersey 07932
(973)
443-0600
(973)
443-0609 (fax)
APPROXIMATE DATE OF COMMENCEMENT
OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO
TIME
AFTER THE EFFECTIVE
DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being
registered on the Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, check the following box.
x
If the Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If the Form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. ¨
If this Form is a post-effective
amendment filed pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. ¨
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
|
CALCULATION
OF REGISTRATION FEE
Title of Each Class of Securities
to be Registered
|
Number of Shares
to be Registered
|
Proposed Maximum
Offering Price Per
Share(2)
|
Proposed Maximum
Aggregate
Offering Price(2)
|
Amount of
Registration Fee
|
||||||||||||
Common
Stock, $0.001 par value per share, issued and
outstanding(1)
|
26,311,000 | $ | 0.08 | $ | 2,104,880 | $ | 150.08 | |||||||||
Common Stock, $0.001 par value per share, issuable
under warrants (1)
|
18,208,586 | $ | 0.08 | $ | 1,456,687 | $ | 103.87 | |||||||||
Total
|
44,519,586 | $ | 253.95 |
(1)
Pursuant to Rule 416 under the Securities Act, the shares being registered
hereunder include such indeterminate number of shares of Common Stock as may be
issuable with respect to the shares being registered hereunder as a result of
stock splits, stock dividends or similar transactions affecting the shares to be
offered by the selling stockholders.
(2)
Estimated solely for purposes of calculating the registration fee in accordance
with Rule 457(c) under the Securities Act, using the average of the high and low
prices as reported on the OTCBB on May 24, 2010 with respect to 26,311,000
shares and 18,208,586 shares issuable under warrants.
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION OF WHICH THIS
PROSPECTUS IS A PART BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT
TO COMPLETION, DATED ___________, 2010
PROSPECTUS
44,519,586
SHARES
SpectrumDNA,
Inc.
COMMON
STOCK
This
prospectus relates to an aggregate of up to 44,519,586 shares of our common
stock which may be offered by the selling stockholders identified in this
prospectus for their own account. The shares consist of 26,311,000
shares of our common stock held by certain of the selling stockholders and
18,208,586 shares underlying warrants held by certain of the selling
stockholders. We will not receive any proceeds from the sale of the
shares by these selling stockholders. We may, however, receive
proceeds in the event that some or all of the warrants held by the selling
stockholders are exercised.
Unless the context otherwise requires,
the terms “we,” “us” or “our” refer to SpectrumDNA, Inc. and its direct and
indirect wholly-owned subsidiaries.
Prices of
our common stock are quoted on the OTC Bulletin Board under the symbol
“SPXA”. The last reported closing price per share of our common
stock, as reported by the OTCBB on May 26, 2010, was $0.08.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
INVESTING
IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE “RISK
FACTORS” BEGINNING ON PAGE 2.
The date
of this prospectus is _________, 2010.
TABLE
OF CONTENTS
Prospectus
Summary
|
1
|
Notice
about Forward Looking Statements
|
2
|
Risk
Factors
|
2
|
Use
of Proceeds
|
6
|
Market
for Common Equity and Related Stockholder Matters
|
7
|
Business
|
8
|
Description
of Property
|
14
|
Legal
Proceedings
|
14
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
Management
|
22
|
Executive
Compensation
|
25
|
Certain
Relationships and Transactions and Corporate Governance
|
27
|
Security
Ownership of Certain Beneficial Owners and Management
|
28
|
Description
of Securities
|
29
|
Indemnification
for Securities Act Liabilities
|
30
|
Selling
Stockholders
|
30
|
Plan
of Distribution
|
38
|
Changes
In And Disagreements With Accountants On
Accounting And Financial Disclosure
|
39
|
Legal
Matters
|
39
|
Experts
|
39
|
Available
Information
|
40
|
Financial
Statements
|
F-1
|
WE
HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU SHOULD
NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL
OR BUY ANY SHARES IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL. THE INFORMATION
IN THIS PROSPECTUS IS CURRENT AS OF THE DATE ON THE COVER.
i
PROSPECTUS
SUMMARY
The
following summary highlights selected information contained in this prospectus.
This summary does not contain all the information you should consider before
investing in our securities. Before making an investment decision, you should
read the entire prospectus carefully, including the “risk factors” section, the
financial statements and the notes to the financial statements.
About
Us
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.
We are 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 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.
Summary
of the Offering
Common
stock offered by the Company:
|
None
|
Common
stock offered by selling stockholders:
|
44,519,586
shares. Of this number, 18,208,586 shares are issuable upon
exercise of warrants.
|
Capital
stock outstanding:
|
As
of the date hereof, we had outstanding 69,058,237 shares of common stock;
warrants to purchase 18,208,586 shares of common stock; and options to
purchase 15,764,551 shares of common stock.
|
Proceeds
to the Company:
|
We
will not receive proceeds from the resale of shares by the selling
stockholders. We may, however, receive proceeds in the event
some or all of the warrants held by the selling stockholders are exercised
for cash.
|
OCT
Bulletin Board Symbol:
|
SPXA
|
1
We are
registering for resale common stock issued or issuable as follows:
|
·
|
15,150,000
shares issued in a private placement offering of our securities consisting
of shares of Common Stock and common stock purchase warrants (the
“Purchase Warrants”) which offering was completed during the first quarter
of 2010, as more fully described
herein.
|
|
·
|
15,150,000
shares issuable upon exercise of the Purchase Warrants issued in the
private placement offering described
above.
|
|
·
|
2,010,000
shares issuable upon exercise of placement agent warrants issued to the
placement agent and its designees in connection with the private placement
offering described above.
|
|
·
|
4,500,000
shares issued during the fourth quarter of 2009 and the first quarter of
2010 to two consultants as compensation for consulting
services.
|
|
·
|
661,000
shares issued upon conversion of certain Convertible Promissory Notes (the
“Notes”) that the Company sold in a private debt offering (“Bridge
Financing”) during the fourth quarter of
2009.
|
|
·
|
1,048,586
shares issuable upon the exercise of the Purchase Warrants issued in the
private debt offering described
above.
|
|
·
|
6,000,000
shares currently owned by the Company’s Chief Executive Officer which were
issued to him in May 2006.
|
NOTICE
ABOUT FORWARD LOOKING STATEMENTS
When used
in this prospectus, 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 prospectus
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.
RISK
FACTORS
An investment in our securities is
highly speculative and extremely risky. You should carefully consider
the following risks, in addition to the other information contained in this
prospectus, before deciding to buy our securities.
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.
2
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. For the three months ended March 31, 2010 and 2009, we
had revenues of $26,000 and $22,030, 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.
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. For the three months ended March 31, 2010 and 2009, we
had net losses of $3,463,307 and $619,073, 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. As a result, as of March 31, 2010, we had $856,282 in
cash and total liabilities of $164,103. As of March 31, 2010,
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. Our continued operations 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.
3
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.
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.
4
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 March 31, 2010, one of our
principal officers, James A. Banister, beneficially owns approximately 44% 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.
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 March
31, 2010, we have outstanding options to purchase an aggregate of 15,264,551
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.
5
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.
|
The Company’s management is aware of
the abuses that have occurred historically in the penny stock
market.
USE
OF PROCEEDS
Proceeds from this offering of Common
Stock will inure directly to the selling shareholders hereunder. We
will not receive any proceeds from the sale of the Common Stock by the
shareholders whose shares are being registered pursuant hereto. We
may, however, receive proceeds in the event that some or all of the warrants
held by the selling stockholders are exercised.
6
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
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.
Period
Fiscal
Year 2010:
|
High
|
Low
|
||||||
First
Quarter 2010
|
$ | 0.20 | $ | 0.09 | ||||
Fiscal
Year 2009:
|
||||||||
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:
|
||||||||
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 |
The closing price of our common stock
on May 26, 2010 was $0.08.
Holders
As of the
date hereof, there were approximately 103 shareholders of record of our common
stock. Such number does not include any shareholders holding shares
in nominee or “street name”.
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.
Transfer
Agent
The transfer agent for our common stock
is Jersey Transfer & Trust Company, 201 Bloomfield Avenue, Verona, New
Jersey 07044. Its telephone number is (973)
239-2712.
7
Equity
Compensation Plan Information
Information regarding equity
compensations plans, as of December 31, 2009, is set forth in the table
below:
Number
of securities
|
||||||||||||
Number
of securities
|
remaining
available for
|
|||||||||||
to
be issued upon
|
Weighted-average
|
future
issuance under
|
||||||||||
exercise
of
|
exercise
price of
|
equity
compensation plans
|
||||||||||
outstanding
options,
|
outstanding
options,
|
(excluding
securities reflected
|
||||||||||
Plan
category
|
warrants
and rights (a)
|
warrants
and rights (b)
|
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.
BUSINESS
Overview
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.
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.
8
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.
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.
9
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.
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.
10
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.
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:
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.
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.
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.
11
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 Utah, Montana, California, and
Colorado. 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.
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.
12
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.
|
•
|
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.
13
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. During the three months ended March 31, 2010 and
2009, we spent $11,000 and $23,000 in research and development expenses,
respectively.
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.
DESCRIPTION
OF PROPERTY
We lease 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. In the three months ended March 31, 2010, the
Company performed additional services in association with the development of the
website totaling $5,100, which reduced the Company’s lease liability and
increased other income on the statement 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.
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.
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 three months
ended March 31, 2010 and 2009 and 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
prospectus. 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.
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.
14
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.
Recent
Accounting Pronouncements
In January 2010, the Financial
Accounting Standards Board issued amendments to Fair Value Measurements and
Disclosures under ASC Topic 820. Effective for our 2010 financial statements,
this guidance provides for disclosures of significant transfers in and out of
Levels 1 and 2. In addition, the guidance clarifies existing disclosure
requirements regarding inputs and valuation techniques as well as the
appropriate level of disaggregation for fair value measurements and disclosures.
Effective for our 2011 financial statements, this guidance provides for
disclosures of activity on a gross basis within Level 3
reconciliation.
15
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.
16
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
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.
17
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.
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.
18
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
For the Three Months Ended March 31,
2010 Compared to the Three Months Ended March 31, 2009
Revenues for the three months ended
March 31, 2010 were $26,000, compared to $22,030 for the three months ended
March 31, 2009. This revenue in the current period resulted from
sales relating to the Addictionary and PlanetTagger enginets. Cost of
sales was $1,402 for the three months ended March 31, 2010, compared to $23,026
for the comparable period of 2009. Cost of sales primarily consisted
of the amortization of product development expenses. As of March 31,
2010, these expenses have been almost fully amortized hence the significant
decrease from the amount recorded for the quarter ended March 31,
2009..
Total operating expenses for the
quarter ended March, 31 2010 were $3,487,129 compared to $619,746 for the
comparable period of 2009, an increase of 463%. The increased
operating expenses in 2010 resulted primarily from increases in general and
administrative costs ($207,871 in 2010 compared to $102,526 in 2009) offset by
decreases in salaries and wages ($389,547 in 2010 compared to $492,707 in
2009). The increase in general and administrative costs resulted from
two agreements for consulting services ($104,667 in 2010 and $0 in
2009). The increase in financing costs of $2,876,803 resulted from
the valuation of the warrants associated with the Company’s Private
Offering. The decrease in salaries and wages resulted from a decrease in
stock-based compensation. For the three months ended March 31, 2010,
the Company recognized $231,944 in compensation expense related to share-based
payment awards and $335,594 in the comparable period of 2009.
We recognized a net loss of $3,463,307
for the three months ended March 31, 2010 compared to a loss of $619,073 for the
three months ended March 31, 2009, a decrease of
459%. This net loss was primarily the result of the financing
costs of $2,876,803 associated with the Company’s Private
Offering. Our basic and diluted net loss per share was $0.05 for the
three months ended March 31, 2010, compared to a net loss per share of $0.01 for
the comparable period of 2009. Excluding the transaction costs,
consulting expenses, non cash stock-based compensation, and interest expense
associated with the Bridge Financing our loss would have been $246,496 and
$279,313 for 2010 and 2009, respectively.
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.
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.
19
Liquidity
and Capital Resources
March 31, 2010
As of March 31, 2010, we had $856,282
in cash and total liabilities of $164,103. While our current assets exceeded our
current liabilities as of March 31, 2010, we have recorded negative cash flows
from operations in this and prior fiscal years. As a result, as of
March 31, 2010, 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.
December 31, 2009
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.
Working
Capital
March 31, 2010
For the three months ended March 31,
2010, the Company’s Net Cash Used in Operating Activities was $478,472 compared
to $218,197 for the comparable period in 2009. The increase in Net
Cash Used in Operating Activities between the two periods resulted from
increases in prepaid consulting services and decreases in accounts payable and
accrued expenses.
For the three months ended March 31,
2010, the Company’s Net Cash Used in Investing Activities was $4,425 compared to
$3,510 for the comparable period in 2009. This increase in Net Cash
Used in Investing Activities between the two periods resulted from increases in
fixed asset purchases.
For the three months ended March 31,
2010, Net Cash Provided by Financing Activities was $1,328,876 compared to zero
in the prior year period. This increase resulted from cash received
in association with the Private Offering offset by cash paid for transaction
costs associated with the Private Offering and for the conversion of certain
Notes.
December 31, 2009
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.
20
Financing
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. During the three months ended March 31, 2010, $46,667 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. During the first
quarter of 2010, the offering period was extended from January 13, 2010 to
February 28, 2010 and again until March 15, 2010.
During the first quarter of 2010, 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.
On November 2, 2009, November 12, 2009,
and December 14, 2009, and in connection with a private debt offering (“Bridge
Financing”), the Company raised $104,859 from five investors, including the
Company’s Chief Executive Officer and Chief Operating Officer, from the issuance
of six Convertible Promissory Notes (the “Notes”) in the principal amount of
$104,859 due three months from issuance bearing interest at a 90-day rate of
10%. In connection with such investments, 1,048,586 common stock
purchase warrants were also granted to such investors.
On January 11, 2010, two investors
converted two Notes into 661,000 shares of the Company’s common stock resulting
from the outstanding principal amount of $60,000 and accrued interest of
$6,100. Similarly, on January 22, 2010, two additional investors,
including the Company’s Chief Executive Officer and Chief Operating Officer,
converted three Notes for a total of $22,172 in cash resulting from the
outstanding principal amount of $19,859 and accrued interest of
$2,314. Finally on February 10, 2010, one investor converted one Note
for a total of $27,667 in cash resulting from the principal amount of $25,000
and accrued interest of $2,667.
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.
Any
seasonal aspects
We have not experienced seasonal sales
spikes in our sales as a result of our very limited retail
distribution.
21
Off-Balance
Sheet Arrangements
None
MANAGEMENT
Directors
and Executive Officers
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
|
||||||
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.
22
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.
23
KELLY A. McCRYSTAL, age 39, has been
Managing Director of the Company’s Addictionary product line since May 1, 2010
and was the Company’s Chief Operating Officer from July 2007 through April 2010
and previously served as Vice President of Operations and Finance of the Company
from November 2006 to July 2007. 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.
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.
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.
Board
Committees
SpectrumDNA does not have a standing
audit, nominating or compensation committee or any committee performing similar
functions. These functions are fulfilled by the entire Board of
Directors which we believe is adequate based on the present size of SpectrumDNA
and the relatively small size of the Board.
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.
24
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(2)
|
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
$0.56. The options vest over periods from 36-48
months.
|
(2)
|
Kelly
McCrystal presently serves as the Managing Director of the Company’s
Addictionary product line, She resigned as Chief Operating
Officer effective as of May 1,
2010.
|
25
Equity
Awards
The following table provides certain
information concerning equity awards held by the individuals named in the
Summary Compensation Table as of December 31, 2009.
Outstanding
Equity Awards at December 31, 2009
OPTION
AWARDS
|
STOCK
AWARDS
|
||||||||||||||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Option
Exercise
Price ($)
|
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.
26
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.
Director
Compensation
Name
|
Fees Earned or
Paid in Cash ($)
|
Stock
Awards ($)
|
Option
Awards ($) (1)
|
All Other
Compensation ($)
|
Total ($)
|
|||||||||||||||
Jamed
Ackerly (2)
|
$ | 0 | -0- | $ | 9,750 | -0- | $ | 9,750 | ||||||||||||
Michael
Dowling
|
$ | 0 | -0- | $ | 31,500 | -0- | $ | 31,500 | ||||||||||||
James
Moloshok
|
$ | 0 | -0- | $ | 166,625 | -0- | $ | 166,625 | ||||||||||||
Jeffrey
Nolan (3)
|
$ | 1,000 | -0- | $ | 50,938 | -0- | $ | 51,938 | ||||||||||||
Anthony
Stonefield
|
$ | 0 | -0- | $ | 31,500 | -0- | $ | 31,500 |
(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.
CERTAIN
RELATIONSHIPS AND TRANSACTIONS AND CORPORATE GOVERNANCE
See “Liquidity and Capital Resources”
under Management’s Discussion and Analysis of Financial Condition and Results of
Operations, 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. On
January 22, 2010, these individuals were repaid the interest and principal due
on their Notes for a total of $22,172 in cash resulting from the outstanding
principal amount of $19,859 and accrued interest of $2,314.
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.
27
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of
the date hereof, 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) | 44.5 | % | ||||
Robin
Rankin(3)
|
6,010,200 | 8.7 | % | |||||
Michael
Dowling(3)
|
400,000 | (5) | * | |||||
James
Moloshok(3)
|
1,000,000 | (6) | 1.4 | % | ||||
Jeffrey
Nolan(3)
|
540,625 | (7) | * | |||||
Anthony
Stonefield(3)
|
224,000 | (8) | * | |||||
Kelly
A. McCrystal
|
4,172,130 | (9) | 5.7 | % | ||||
Rebecca
Hershinger
|
1,145,833 | (10) | 1.6 | % | ||||
All
Officers and Directors as a Group (consisting of 7
persons)
|
38,247,375 | 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 69,058,237 shares of common
stock outstanding as of May 14, 2010, together with securities exercisable
or convertible into shares of common stock within 60 days of May 14,
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 May 14, 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.
|
(6)
|
Consists
of 1,000,000 shares of common stock issuable upon the exercise of options
that have vested or will vest within the next 60
days.
|
(7)
|
Consists
of (a) 100,000 shares of common stock, (b) 340,625 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 109,375 shares of common stock
underlying options that are not exercisable within the next 60
days.
|
28
(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) 4,102,582 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 1,677,578 shares of common stock
underlying options that are not exercisable within the next 60
days.
|
(10)
|
Consists
of 1,145,833 shares of common stock issuable upon the exercise of options
that either vested or will vest within the next 60 days. Does
not include 1,854,167 shares of common stock underlying options that are
not exercisable within the next 60
days.
|
DESCRIPTION
OF SECURITIES
Common
Stock
We are currently authorized to issue
260,000,000 shares, 250,000,000 of which are shares of Common Stock, $0.001 par
value (the “Common Stock”) and 10,000,000 of which are shares of Preferred
Stock, $0.001 par value (the “Preferred Stock”). There are currently
outstanding 69,058,237 shares of Common Stock and no shares of Preferred
Stock.
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. The outstanding shares of Common Stock are, and the shares of
Common Stock issuable hereunder, will be, validly issued, fully paid and
non-assessable.
Preferred
Stock
We are authorized to issue 10,000,000
shares of preferred stock, $.001 par value per share, none of which are issued
and outstanding. The preferred stock will be entitled to preference over the
common stock with respect to the distribution of assets of SpectrumDNA in the
event of its liquidation, dissolution, or winding-up, whether voluntarily or
involuntarily, or in the event of any other distribution of assets of the
corporation among its stockholders for the purpose of winding-up its affairs.
The authorized but unissued shares of preferred stock may be divided into and
issued in designated series from time to time by one or more resolutions adopted
by our Board of Directors. The Board in its sole discretion shall have the power
to determine the relative powers, preferences, and rights of each series of
preferred stock. The issuance of preferred shares with such voting or conversion
rights may have the effect of delaying, deferring or preventing a change in
control of SpectrumDNA.
There are no other provisions in our
certificate of incorporation or our bylaws that may result in the delaying,
deferring or preventing of a change in control of SpectrumDNA.
Stock
Options, Warrants and Other Rights
There are currently outstanding
options to purchase an aggregate of 15,764,551 shares of our common stock and
outstanding common stock purchase warrants to purchase 16,198,586 shares of our
common stock and placement agent warrants to purchase 2,010,000 shares of our
common stock.
29
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
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.
SELLING
STOCKHOLDERS
Selling
Stockholder Table
This prospectus covers the offer and
sale by the selling stockholders of up to 44,519,586 shares of common
stock. We are registering for resale 15,150,000 shares issued
pursuant to our private placement offering of our securities consisting of
Common Stock and common stock purchase warrants (the “Purchase Warrants”) which
offering was completed in the first quarter of 2010 (the “Private Offering”);
15,150,000 shares issuable upon exercise of the Purchase Warrants issued in the
Private Offering; 2,010,000 shares issuable upon exercise of placement agent
warrants (the “Placement Agent Warrants”) issued to the placement agent and its
designees in connection with the Private Offering; 4,500,000 shares
issued during the fourth quarter of 2009 and the first quarter of 2010 to two
consultants or its designees as compensation for consulting services; 661,000
shares issued upon conversion of certain Convertible Promissory Notes that the
Company sold in a private debt offering (“Bridge Financing”) during the fourth
quarter of 2009; 1,048,586 shares issuable upon the exercise of the Purchase
Warrants issued in the Bridge Financing; and 6,000,000 shares currently owned by
the Company’s Chief Executive Officer which were issued to him in May
2006.
Each of the Purchase Warrants is
exercisable for a term of five years and entitles the holder thereof to purchase
one share of Common Stock at a price of $0.25 per share.
Each of the Placement Agent Warrants is
exercisable for a term of five years and entitles the holder thereof to purchase
warrant units (the “Warrant Units”) 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.
All such shares issued or to be issued
are and will be restricted securities as that term is defined in Rule 144 under
the Securities Act, and will remain restricted unless and until such shares are
sold pursuant to this prospectus or otherwise are sold in compliance with Rule
144.
The following table sets forth, to our
best knowledge and belief, with respect to the selling
stockholders:
|
·
|
The
number of shares of common stock beneficially owned as of the date
hereof,
|
30
|
·
|
The
number of shares of common stock eligible for resale and to be offered by
each selling stockholder pursuant to this
prospectus,
|
|
·
|
The
number of shares owned by each selling stockholder after the offering
contemplated hereby, assuming all the shares eligible for resale pursuant
to this prospectus actually are
sold,
|
|
·
|
The
percentage of shares of common stock beneficially owned by each selling
stockholder after the offering contemplated hereby,
and
|
|
·
|
In
the notes to the table, additional information concerning the selling
stockholders. Except as indicated in the notes to the table,
all of the shares being offered for resale pursuant to this prospectus
were acquired pursuant to the Private Offering or the Bridge
Financing. In addition, except as indicated in the notes to the
table, no selling stockholder which is not a natural person, is a
broker-dealer or an affiliate of a
broker-dealer. In addition, except as indicated in
the notes to the table, no selling stockholder has had a material
relationship during the past three years with SpectrumDNA or any of its
predecessors or affiliates.
|
We will
not receive any proceeds from the resale of the common stock by the selling
stockholders. We will receive proceeds from the Purchase Warrants and
Placement Agent Warrants, if exercised.
The
number and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under the rule, beneficial ownership includes
any shares as to which the selling stockholder has or within 60 days has the
right to acquire sole or shared voting power or investment power, and each
selling stockholder’s percentage ownership is computed without regard to the
amounts of shares that other selling stockholders have the right to
acquire.
|
Share
Ownership
|
|||||||||||||||||
Shares
|
Shares to be
Sold in this
|
Share Ownership
After Offering
|
After
Offering
|
|||||||||||||||
First
Name
|
Last
Name
|
Owned
|
Offering
|
No.
of Shares
|
%
of Class
|
|||||||||||||
Patricia
|
Avery
(1)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
James
A.
|
Banister
(2) *
|
30,764,786 | 6,148,586 | 24,616,200 | 36 | % | ||||||||||||
John
H.
|
Bargren
(3)
|
500,000 | 400,000 | 100,000 | 0 | % | ||||||||||||
Lisa
|
Barron
(4)
|
210,000 | 200,000 | 10,000 | 0 | % | ||||||||||||
Therese
L.
|
Beemster
(5)
|
210,000 | 200,000 | 10,000 | 0 | % | ||||||||||||
Jason
|
Brown
(6)
|
20,000 | 20,000 | - | 0 | % | ||||||||||||
Kyle
& Richard
|
Buchakjian
(7)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
Deloree
A.
|
Burd
(8)
|
255,080 | 200,000 | 55,080 | 0 | % | ||||||||||||
Michelle
|
Byruch
(9)
|
538,126 | 538,126 | - | 0 | % | ||||||||||||
Avram
|
Cahn
(10)
|
250,000 | 250,000 | - | 0 | % | ||||||||||||
Nathan
E.
|
Capps
(11)
|
1,300,300 | 1,100,000 | 200,300 | 0 | % | ||||||||||||
Cal
C.
|
Chandler
(12)
|
200,000 | 200,000 | - | 0 | % | ||||||||||||
Peter
|
Christos
(13)
|
1,001,000 | 1,001,000 | - | 0 | % | ||||||||||||
John
J.
|
Corino
(14)
|
330,000 | 250,000 | 80,000 | 0 | % | ||||||||||||
Jack
|
Cowles
(15)
|
826,667 | 626,667 | 200,000 | 0 | % | ||||||||||||
Michael
& Gia
|
Dowling
(16)
|
400,000 | 200,000 | 200,000 | 0 | % | ||||||||||||
Robert
E.
|
Duke
(17)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
Robert
|
Dziedzic
(18)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
Mike
|
Etemad
(19)
|
30,000 | 30,000 | - | 0 | % | ||||||||||||
Bass
|
Fakih
(20)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
Claudia
|
Faris
(21)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
George
N.
|
Faris
(22)
|
788,126 | 788,126 | - | 0 | % | ||||||||||||
Danielle
|
Faris
(23)
|
234,000 | 234,000 | - | 0 | % | ||||||||||||
Rose
|
Freda
(24)
|
6,000 | 6,000 | - | 0 | % | ||||||||||||
Joseph
|
Gentile
(25)
|
81,500 | 81,500 | - | 0 | % | ||||||||||||
Steve
|
Gerstenberger
(26)
|
250,000 | 250,000 | - | 0 | % | ||||||||||||
Richard
|
Gherardi
(27)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
Douglas
A.
|
Gochanour
(28)
|
1,070,000 | 1,000,000 | 70,000 | 0 | % |
31
Keith
|
Goodman
(29)
|
297,067 | 297,067 | - | 0 | % | ||||||||||||
L.
David
|
Griffin
(30)
|
200,000 | 200,000 | - | 0 | % | ||||||||||||
Robert
N.
|
Haidinger
(31)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
Edward
L
|
Hardin
Jr (32)
|
300,000 | 300,000 | - | 0 | % | ||||||||||||
Robert
A.
|
Harris
(33)
|
250,000 | 250,000 | - | 0 | % | ||||||||||||
Else
|
Hiemstra
(34)
|
320,000 | 300,000 | 20,000 | 0 | % | ||||||||||||
Timothy
A
|
Hill
(35)
|
200,000 | 200,000 | - | 0 | % | ||||||||||||
John
Thomas
|
Horner
(36)
|
401,000 | 401,000 | - | 0 | % | ||||||||||||
James
J. & Irene J.
|
Jonczyk
(37)
|
246,950 | 200,000 | 46,950 | 0 | % | ||||||||||||
Philip
R.
|
Jones
(38)
|
1,849,333 | 934,333 | 915,000 | 1 | % | ||||||||||||
Robert
E.
|
Kabacy
(39)
|
250,000 | 250,000 | - | 0 | % | ||||||||||||
Tarek
|
Kudsi
(40)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
Richard
|
Lauritzen
(41)
|
1,360,000 | 1,000,000 | 360,000 | 1 | % | ||||||||||||
David
|
Leventhal
(42)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
Nathan
|
Lowenbraum
(43)
|
1,000,000 | 1,000,000 | - | 0 | % | ||||||||||||
Robert
|
Mangino
(44)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
Randall
|
Marx
(45)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
Colin
|
McCarthy
(46)
|
69,500 | 69,500 | - | 0 | % | ||||||||||||
Kelly
A.
|
McCrystal
(47) *
|
4,172,131 | 50,000 | 4,122,131 | 6 | % | ||||||||||||
Hugh
K. & Ann Marie
|
McCrystal
(48)
|
200,000 | 200,000 | - | 0 | % | ||||||||||||
Thomas
|
Mikolasko
(49)
|
1,000,998 | 1,000,998 | - | 0 | % | ||||||||||||
Charles
R.
|
Miller
(50)
|
232,500 | 200,000 | 32,500 | 0 | % | ||||||||||||
David
|
Monassebian
(51)
|
250,000 | 250,000 | - | 0 | % | ||||||||||||
Lee
D.
|
Musser
(52)
|
200,000 | 200,000 | - | 0 | % | ||||||||||||
David
E.
|
Nelson
(53)
|
200,000 | 200,000 | - | 0 | % | ||||||||||||
Rob
& Rebecca
|
Noblin
(54)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
Jeffrey
& Lisa
|
Nolan
(55)
|
540,625 | 200,000 | 340,625 | 0 | % | ||||||||||||
McKay
|
Pearson
(56)
|
225,000 | 200,000 | 25,000 | 0 | % | ||||||||||||
Theodoros
& Dimitrios
|
Perides
(57)
|
1,000,000 | 1,000,000 | - | 0 | % | ||||||||||||
Gary
|
Perrine
(58)
|
505,410 | 500,000 | 5,410 | 0 | % | ||||||||||||
Sandra
D.
|
Poor
(59)
|
135,272 | 100,000 | 35,272 | 0 | % | ||||||||||||
Denise
|
Puma
(60)
|
1,076,250 | 1,076,250 | - | 0 | % | ||||||||||||
Lawrence
|
Rodler
(61)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
John
|
Roglieri
(62)
|
200,000 | 200,000 | - | 0 | % | ||||||||||||
Donald
G.
|
Rynne
(63)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
Carmine
& Barbara
|
Santandrea
(64)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
Michael
|
Solomon
(65)
|
597,433 | 597,433 | - | 0 | % | ||||||||||||
Samuel
|
Staggers
(66)
|
1,000,000 | 1,000,000 | - | 0 | % | ||||||||||||
Henry
|
Steeneck
(67)
|
1,000,000 | 1,000,000 | - | 0 | % | ||||||||||||
Hayat
B.
|
Stein
(68)
|
1,000,000 | 1,000,000 | - | 0 | % | ||||||||||||
Barry
|
Sussman
(69)
|
500,000 | 500,000 | - | 0 | % | ||||||||||||
Alan
|
Talesnick
(70)
|
250,000 | 250,000 | - | 0 | % | ||||||||||||
Tim
|
Tetarenko
(71)
|
250,000 | 250,000 | - | 0 | % | ||||||||||||
Georgia
|
Todd
(72)
|
200,000 | 200,000 | - | 0 | % | ||||||||||||
Edward
& Roberta
|
Zale
(73)
|
1,000,000 | 1,000,000 | - | 0 | % | ||||||||||||
Scott
|
Zimmer
(74)
|
250,000 | 250,000 | - | 0 | % | ||||||||||||
Anthony
Crisci Sr. / Margaret J. Smith (75)
|
1,000,000 | 1,000,000 | - | 0 | % | |||||||||||||
David
Arron Profit Sharing Plan 001 (76)
|
500,000 | 500,000 | - | 0 | % | |||||||||||||
Don
Boggs Revocable Trust (77)
|
500,000 | 500,000 | - | 0 | % | |||||||||||||
HFP
Capital Markets LLC (78)
|
169,000 | 169,000 | - | 0 | % | |||||||||||||
Irving
J. Hall & Lois J. Hall Trust (79)
|
200,000 | 200,000 | - | 0 | % | |||||||||||||
Martin
Leibowitz Revocable Trust (80)
|
500,000 | 500,000 | - | 0 | % | |||||||||||||
Scherlis
Family LLC (81)
|
1,000,000 | 1,000,000 | - | 0 | % | |||||||||||||
The
Mountain View Trust (82) **
|
3,376,000 | 1,500,000 | 1,876,000 | 3 | % | |||||||||||||
Vicky
L. Miller / Carol A. Auping (83)
|
785,500 | 600,000 | 185,500 | 0 | % |
32
*
|
The
selling stockholder is subject to a lock-up agreement dated as of
September 21, 2009 by and between the Company and each of the Company’s
then eight executive officers and directors pursuant to which each of such
executive officers agreed that until the one-year anniversary of the final
closing of the Private Offering, that he or she will not sell, assign or
transfer any securities of the Company, owned directly by such stockholder
or with respect to which such stockholder has beneficial ownership,
provided, however, that after the six-month anniversary of such final
closing date, such persons will be permitted to sell collectively up to
one quarter of one percent (1/4%) of the fully-diluted Common Stock upon
completion of the Private Offering each month which sales can be made only
if: (i) the average closing price of the Company’s Common Stock for 15
consecutive trading days immediately prior to such proposed date of sale
equals or exceeds $0.50; and (ii) the average daily trading volume for 15
consecutive trading days immediately prior to such proposed date of sale
equals or exceeds 250,000 shares.
|
**
|
The
selling stockholder has agreed that until the six-month anniversary of the
final closing of the Private Offering, it will not sell, assign or
transfer more than 50% of any securities of the Company owned directly by
such stockholder or with respect to which such stockholder has beneficial
ownership.
|
(1)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(2)
|
The
shares being offered for resale consist of 148,586 shares issuable upon
exercise of Purchase Warrants acquired in the Bridge Financing and
6,000,000 shares currently held by the James A. Banister which were issued
to him as founders shares in May 2006. James A. Banister is our
President, Chief Executive Officer, Secretary, Treasurer and a
Director.
|
(3)
|
The
shares being offered for resale include 200,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(4)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(5)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(6)
|
The
shares being offered for resale consist of 20,000 shares issued to Jason
Brown pursuant to a consulting agreement (the “HFP Consulting Agreement”)
entered into on July 31, 2009 by the Company with HFP Capital Markets LLC
(“HFP”) pursuant to which the Company agreed to issue to HFP or its
designees 4,000,000 shares of the Company’s restricted common stock which
shall vest and become issuable 120 days from the full execution of the
agreement. All of such shares were issued on January 11,
2010. HFP is a FINRA member firm. HFP also acted as
placement agent for the Private Offering. Mr. Brown is an
employee of HFP.
|
(7)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(8)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(9)
|
The
shares being offered for resale consist of 412,500 shares issued to
Michelle Byruch pursuant to the HFP Consulting Agreement and 125,626
shares issuable upon exercise of the Placement Agent Warrants issued to
Ms. Byruch.
|
(10)
|
The
shares being offered for resale include 125,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(11)
|
The
shares being offered for resale include 550,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
33
(12)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(13)
|
The
shares being offered for resale consist of 800,000 shares issued to Peter
Christos pursuant to the HFP Consulting Agreement and 201,000 shares
issuable upon exercise of the Placement Agent Warrants issued to Mr.
Christos. Peter Christos is an employee of
HFP.
|
(14)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Bridge
Financing.
|
(15)
|
The
shares being offered for resale consist of 326,667 shares issued pursuant
to the conversion of the convertible promissory note and 300,000 shares
issuable upon exercise of Purchase Warrants acquired in the Bridge
Financing.
|
(16)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(17)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(18)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(19)
|
The
shares being offered for resale consist of 30,000 shares issued to Mike
Etemad pursuant to the HFP Consulting
Agreement.
|
(20)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(21)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(22)
|
The
shares being offered for resale include 150,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private Offering, 362,500
shares issued to George Faris pursuant to the HFP Consulting Agreement and
125,626 shares issuable upon exercise of the Placement Agent Warrants
issued to Mr. Faris. To the best of our knowledge, he purchased
the registered shares acquired in the Private Offering in the ordinary
course of business and at the time of purchase he had no agreements or
understandings, directly or indirectly, with any person to distribute the
registered shares.
|
(23)
|
The
shares being offered for resale consist of 50,000 shares issued to
Danielle Faris pursuant to the HFP Consulting Agreement and 184,000 shares
issuable upon exercise of the Placement Agent Warrants issued to Ms.
Faris. Danielle Faris is an employee of
HFP.
|
(24)
|
The
shares being offered for resale consist of 6,000 shares issuable upon
exercise of the Placement Agent Warrants issued to Rose
Freda. Ms. Freda is an employee of
HFP.
|
(25)
|
The
shares being offered for resale consist of 81,500 shares issuable upon
exercise of the Placement Agent Warrants issued to Joseph
Gentile. Mr. Gentile is an employee of
HFP.
|
(26)
|
The
shares being offered for resale include 125,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(27)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(28)
|
The
shares being offered for resale include 500,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
34
(29)
|
The
shares being offered for resale consist of 116,667 shares issued to Keith
Goodman pursuant to the HFP Consulting Agreement and 180,400 shares
issuable upon exercise of the Placement Agent Warrants issued to Mr.
Goodman. Keith Goodman is an employee of
HFP.
|
(30)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(31)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(32)
|
The
shares being offered for resale include 150,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(33)
|
The
shares being offered for resale include 125,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(34)
|
The
shares being offered for resale include 150,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(35)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering. Timothy Hill is an employee of Principal Financial
Group, a FINRA member firm. To the best of our knowledge, he
purchased the registered shares in the ordinary course of business and at
the time of purchase he had no agreements or understandings, directly or
indirectly, with any person to distribute the registered
shares.
|
(36)
|
The
shares being offered for resale consist of 200,000 shares issued to John
Thomas Horner pursuant to the HFP Consulting Agreement and 201,000 shares
issuable upon exercise of the Placement Agent Warrants issued to Mr.
Horner. John Thomas Horner is an employee of
HFP.
|
(37)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(38)
|
The
shares being offered for resale consist of 334,333 shares issued pursuant
to the conversion of the convertible promissory note, 300,000 shares
issuable upon exercise of Purchase Warrants acquired in the Bridge
Financing, and 150,000 shares issuable upon exercise of Purchase Warrants
acquired in the Private Offering.
|
(39)
|
The
shares being offered for resale include 125,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(40)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(41)
|
The
shares being offered for resale include 500,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(42)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(43)
|
The
shares being offered for resale include 500,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(44)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(45)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(46)
|
The
shares being offered for resale consist of 69,500 shares issuable upon
exercise of the Placement Agent Warrants issued to Colin
McCarthy. Mr. McCarthy is an employee of
HFP.
|
35
(47)
|
The
shares being offered for resale consist of 50,000 shares issuable upon
exercise of Purchase Warrants acquired in the Bridge
Financing. Kelly A. McCrystal is the Managing Director of our
Addictionary product line. Until May 1, 2010, she was the
Company’s Chief Operating Officer.
|
(48)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(49)
|
The
shares being offered for resale consist of 800,000 shares issued to Thomas
Mikolasko pursuant to the HFP Consulting Agreement and 200,998 shares
issuable upon exercise of the Placement Agent Warrants issued to Mr.
Mikolasko. Thomas Mikolasko is an employee of
HFP.
|
(50)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(51)
|
The
shares being offered for resale include 125,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(52)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(53)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(54)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(55)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(56)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(57)
|
The
shares being offered for resale include 500,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(58)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(59)
|
The
shares being offered for resale include 50,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(60)
|
The
shares being offered for resale consist of 825,000 shares issued to Denise
Puma pursuant to the HFP Consulting Agreement and 251,250 shares issuable
upon exercise of the Placement Agent Warrants issued to Ms.
Puma.
|
(61)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(62)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(63)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(64)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
36
(65)
|
The
shares being offered for resale consist of 233,333 shares issued to
Michael Solomon pursuant to the HFP Consulting Agreement and 364,100
shares issuable upon exercise of the Placement Agent Warrants issued to
Mr. Solomon. Michael Solomon is an employee of
HFP.
|
(66)
|
The
shares being offered for resale include 500,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(67)
|
The
shares being offered for resale include 500,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(68)
|
The
shares being offered for resale include 500,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(69)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(70)
|
The
shares being offered for resale include 125,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(71)
|
The
shares being offered for resale include 125,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(72)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(73)
|
The
shares being offered for resale include 500,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(74)
|
The
shares being offered for resale include 125,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(75)
|
The
shares being offered for resale include 500,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
(76)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering. David Aaron exercises dispositive voting or
investment control over the shares listed on behalf of such
plan.
|
(77)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering. Don Boggs exercises dispositive voting or investment
control over the shares listed on behalf of such
entity.
|
(78)
|
The
shares being offered for resale consist of 19,000 shares issuable upon
exercise of the Placement Agent Warrants issued to
HFP.
|
(79)
|
The
shares being offered for resale include 100,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering. Irving J. Hall and Lois J. Hall exercise dispositive
voting or investment control over the shares listed on behalf of such
trust.
|
(80)
|
The
shares being offered for resale include 250,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering. Martin Leibowitz exercises dispositive voting or
investment control over the shares listed on behalf of such
trust.
|
(81)
|
The
shares being offered for resale include 500,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering. Morris Scherlis exercises dispositive voting or
investment control over the shares listed on behalf of such
trust.
|
(82)
|
The
shares being offered for resale include 500,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private Offering and 500,000
shares issued pursuant to a consulting agreement entered into with The
Mountain View Trust on January 15, 2010. Steven Cloyes
exercises dispositive voting or investment control over the shares listed
on behalf of such entity.
|
37
(83)
|
The
shares being offered for resale include 300,000 shares issuable upon
exercise of Purchase Warrants acquired in the Private
Offering.
|
PLAN
OF DISTRIBUTION
We are registering the shares of
common stock on behalf of the selling stockholders. Sales of shares may be made
by the selling stockholders, including their respective donees, transferees,
pledgees or other successors-in-interest directly to purchasers or to or through
underwriters, broker-dealers or through agents. Sales may be made from time to
time on the over-the-counter market, or on any other exchange upon which our
shares may trade in the future, at market prices prevailing at the time of sale,
at prices related to market prices, or at negotiated or fixed prices. The shares
may be sold by one or more of, or a combination of, the following:
|
•
|
a
block trade in which the broker-dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction (including crosses in which the
same broker acts as agent for both sides of the
transaction);
|
|
•
|
purchases
by a broker-dealer as principal and resale by such broker-dealer,
including resales for its account, pursuant to this
prospectus;
|
|
•
|
ordinary
brokerage transactions and transactions in which the broker solicits
purchases;
|
|
•
|
through
options, swaps or derivatives;
|
|
•
|
in
privately negotiated transactions;
|
|
•
|
in
making short sales or in transactions to cover short sales;
and
|
|
•
|
put
or call option transactions relating to the
shares.
|
If the
selling stockholders effect such transactions by selling their shares of common
stock to or through underwriters, brokers, dealers or agents, such underwriters,
brokers, dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of common stock for whom they may act as agent (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents may be in excess of those customary in the types of transactions
involved). Any brokers, dealers or agents that participate in the distribution
of the common stock may be deemed to be underwriters, and any profit on the sale
of common stock by them and any discounts, concessions or commissions received
by any such underwriters, brokers, dealers or agents may be deemed to be
underwriting discounts and commissions under the Securities Act.
The selling stockholders may enter into
hedging transactions with broker-dealers or other financial institutions. In
connection with those transactions, the broker-dealers or other financial
institutions may engage in short positions or other derivative transactions
relating to the shares of our common stock or of securities convertible into or
exchangeable for the shares of our common stock in the course of hedging
positions they assume with the selling stockholders and may deliver such
securities to close out their short positions or otherwise settle short sales or
other transactions. The selling stockholders may also loan or pledge shares to
broker-dealers or other third parties. In connection with those transactions,
the broker-dealers or other third parties may sell such loaned or pledged
shares. The selling stockholders may also enter into options or other
transactions with broker-dealers or other financial institutions which require
the delivery of shares offered by this prospectus to those broker-dealers or
other financial institutions. The broker-dealer or other financial institution
may then resell the shares pursuant to this prospectus (as amended or
supplemented, if required by applicable law, to reflect those
transactions).
Under the
securities laws of certain states, the shares of common stock may be sold in
such states only through registered or licensed brokers or dealers. The selling
stockholders are advised to ensure that any underwriters, brokers, dealers or
agents effecting transactions on behalf of the selling stockholders are
registered to sell securities in all fifty states. In addition, in certain
states the shares of common stock may not be sold unless the shares have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with.
38
Our
common stock is deemed to be “penny stock” as that term is defined in
Rule 3a51-1 promulgated under the Exchange Act. Penny stocks are
stock: (i) with a price of less than $5.00 per share; (ii) that are
not traded on a “recognized” national exchange; (iii) whose prices are not
quoted on the Nasdaq automated quotation system (Nasdaq listed stock must still
have a price of not less than $5.00 per share); or (iv) in issuers with net
tangible assets less than $2.0 million (if the issuer has been in
continuous operation for at least three years) or $5.0 million (if in
continuous operation for less than three years), or with average revenues of
less than $6.0 million for the last three years.
Broker/dealers
dealing in penny stocks are required to provide potential investors with a
document disclosing the risks of penny stocks. Moreover, broker/dealers are
required to determine whether an investment in a penny stock is a suitable
investment for a prospective investor. These requirements may reduce the
potential market for our common stock by reducing the number of potential
investors. This may make it more difficult for investors in our common stock to
sell shares to third parties or to otherwise dispose of them. This could cause
our stock price to decline.
The
selling stockholders should be aware that the anti-manipulation provisions of
Regulation M under the Exchange Act will apply to purchases and sales of shares
of common stock by the selling stockholders, and that there are restrictions on
market-making activities by persons engaged in the distribution of the shares.
Under Registration M, the selling stockholders or their agents may not bid
for, purchase, or attempt to induce any person to bid for or purchase, our
shares of common stock while such selling stockholder is distributing shares
covered by this prospectus. Accordingly, except as noted below, the selling
stockholders are not permitted to cover short sales by purchasing shares while
the distribution is taking place. The selling stockholders are advised that if a
particular offer of common stock is to be made on terms constituting a material
change from the information set forth above with respect to the Plan of
Distribution, then, to the extent required, a post-effective amendment to the
accompanying registration statement must be filed with the SEC.
The
selling stockholders also may resell all or a portion of their shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
they meet the criteria and conform to the requirements of Rule 144.
We will
pay all the expenses incident to the registration, offering and sale of the
shares of common stock to the public hereunder other than commissions, fees and
discounts of underwriters, brokers, dealers and agents. We will not
receive any proceeds from the sale of any of the shares of common stock by the
selling stockholders.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Our principal independent accountants
for our two most recent fiscal years and any later interim period have not
resigned, declined to stand for re-election or were dismissed.
LEGAL
MATTERS
The
validity of the shares of common stock being offered hereby will be passed upon
for us by Kaye Cooper Fiore Kay & Rosenberg, LLP, 30A Vreeland Road, Florham
Park, New Jersey 07932.
EXPERTS
Our
consolidated financial statements appearing in this prospectus and registration
statement as of and for the years ended December 31, 2008 and 2009 have been
audited by Chisholm, Bierwolf, Nilson & Morrill LLC, independent accountants
as set forth in its report appearing elsewhere herein, and is included in
reliance upon such reports given on the authority of such firm as experts in
accounting and auditing.
39
AVAILABLE
INFORMATION
We have filed a registration statement
on Form S-1 under the Securities Act, relating to the shares of common stock
being offered by this prospectus, and reference is made to such registration
statement. This prospectus constitutes the prospectus of SpectrumDNA, Inc. and
its consolidated subsidiaries filed as part of the registration statement, and
it does not contain all information in the registration statement, as certain
portions have been omitted in accordance with the rules and regulations of the
SEC.
We are subject to the informational
requirements of the Exchange Act and file annual, quarterly and current reports,
proxy statements and other information with the SEC. Such reports, proxy
statements and other information may be inspected at the public reference room
of the SEC at 100 F Street, N.E., Washington D.C. 20549. Copies of such material
can be obtained from the facility at prescribed rates. Please call the SEC toll
free at 1-800-SEC-0330 for information about its public reference room. Because
we file documents electronically with the SEC, you may also obtain this
information by visiting the SEC’s Internet website at
http://www.sec.gov.
Statements contained in this prospectus
as to the contents of any contract, agreement or any other document are
summaries of the material terms of this contract, agreement or other document.
With respect to each of these contracts, agreements or other documents filed as
an exhibit to the registration statement, reference is made to the exhibits for
a more complete description of the matter involved.
You
should rely only on the information incorporated by reference or provided in
this prospectus. We have not authorized anyone else to provide you with
different information. The selling stockholders are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus is accurate as of any date other than
the date on the front of the document.
40
SPECTRUMDNA, INC.
Consolidated
Financial Statements
Years
Ended December 31, 2009 and 2008
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders
SpectrumDNA,
Inc.
Park
City, Utah
We have
audited the accompanying consolidated balance sheets of SpectrumDNA, Inc, as of
December 31, 2009 and 2008, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatements. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's Internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall consolidated financial statements
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the aforementioned consolidated financial statements present fairly, in
all material respects, the consolidated financial position of SpectrumDNA, Inc.,
as of December 3l, 2009 and 2008, and the results of its consolidated operations
and cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 9 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, has used significant cash flows in operating activities and has
not established a positive working capital. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Chisholm,
Bierwolf, Nilson & Morrill LLC
Bountiful,
Utah
April 5,
2010
PCAOB
Registered, Members of AICPA, CPCAF and UACPA
|
|
533
West 2600 South, Suite 25 · Bountiful, Ulath
84010
|
12
South Main, Suite 208, Layton, Utah
84041
|
F-1
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.
F-2
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.
F-3
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 beneficial 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.
F-4
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.
F-5
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.
F-6
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.
F-7
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.
F-8
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.
F-9
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
F-10
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.
F-11
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.
F-12
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
F-13
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
|
||||||
$
|
-
|
$
|
-
|
F-14
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.
F-15
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.
F-16
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
|
F-17
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.
F-18
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.
F-19
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.
F-20
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.
F-21
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.
F-22
SPECTRUMDNA,
INC.
Consolidated
Financial Statements
March
31, 2010 and December 31, 2009
F-23
SpectrumDNA,
Inc.
Consolidated
Balance Sheets
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$
|
856,282
|
$
|
10,303
|
||||
Accounts
receivable, net
|
1,000
|
6,750
|
||||||
Prepaid
expenses
|
29,599
|
18,272
|
||||||
Total
Current Assets
|
886,881
|
35,325
|
||||||
PROPERTY
AND EQUIPMENT, NET
|
9,659
|
6,643
|
||||||
OTHER
ASSETS
|
||||||||
Domain
names, net
|
2,152
|
2,542
|
||||||
Product
development, net
|
1,570
|
2,583
|
||||||
Security
deposit
|
5,000
|
5,000
|
||||||
Total
Other Assets
|
8,722
|
10,125
|
||||||
TOTAL
ASSETS
|
$
|
905,262
|
$
|
52,093
|
||||
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$
|
70,399
|
$
|
152,019
|
||||
Accounts
payable - related parties
|
2,136
|
10,112
|
||||||
Accrued
expenses
|
79,533
|
166,526
|
||||||
Interest
payable
|
-
|
8,723
|
||||||
Debt
conversion payable
|
-
|
43,834
|
||||||
Convertible
promissory notes, net
|
-
|
49,611
|
||||||
Convertible
promissory notes - related parties, net
|
-
|
8,017
|
||||||
Notes
payable
|
12,035
|
19,150
|
||||||
Total
Current Liabilities
|
164,103
|
457,992
|
||||||
Total
Liabilities
|
164,103
|
457,992
|
||||||
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, 69,058,237 and
52,747,237 shares issued and outstanding, respectively
|
69,059
|
52,748
|
||||||
Prepaid
consulting services
|
(558,777
|
)
|
(544,444
|
)
|
||||
Additional
paid-in capital
|
11,820,914
|
7,212,527
|
||||||
Accumulated
deficit
|
(10,590,037
|
)
|
(7,126,730
|
)
|
||||
Total
Stockholders' Equity (Deficit)
|
741,159
|
(405,899
|
)
|
|||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$
|
905,262
|
$
|
52,093
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-24
SpectrumDNA,
Inc.
Consolidated
Statements of Operations
(unaudited)
For
the Three
Months
Ended
|
For
the Three
Months
Ended
|
|||||||
March
31,
|
March
31,
|
|||||||
2010
|
2009
|
|||||||
REVENUES,
net
|
$
|
26,000
|
$
|
22,030
|
||||
COST
OF SALES, net
|
1,402
|
23,026
|
||||||
GROSS
PROFIT (LOSS)
|
24,598
|
(996
|
)
|
|||||
OPERATING
EXPENSES
|
||||||||
General
and administrative
|
207,871
|
102,526
|
||||||
Salaries
and wages
|
389,547
|
492,707
|
||||||
Product
development expenses
|
11,498
|
22,608
|
||||||
Depreciation
expense
|
1,410
|
1,905
|
||||||
Financing
costs
|
2,876,803
|
-
|
||||||
Total
Operating Expenses
|
3,487,129
|
619,746
|
||||||
OPERATING
(LOSS)
|
(3,462,531
|
)
|
(620,742
|
)
|
||||
OTHER
INCOME (EXPENSES)
|
||||||||
Interest
income
|
360
|
1,669
|
||||||
Interest
expense
|
(2,839
|
)
|
-
|
|||||
Interest
expense - beneficial conversion feature
|
(28,397
|
)
|
-
|
|||||
Gain
on conversion of convertible promissory notes
|
25,000
|
-
|
||||||
Other
income
|
5,100
|
-
|
||||||
Total
Other Income (Expenses)
|
(776
|
)
|
1,669
|
|||||
NET
INCOME / (LOSS) BEFORE INCOME TAXES
|
(3,463,307
|
)
|
(619,073
|
)
|
||||
INCOME
TAX EXPENSE
|
-
|
-
|
||||||
NET
INCOME / (LOSS)
|
$
|
(3,463,307
|
)
|
$
|
(619,073
|
)
|
||
BASIC
AND FULLY DILUTED INCOME / (LOSS) PER SHARE
|
$
|
(0.05
|
)
|
$
|
(0.01
|
)
|
||
WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING
|
63,963,670
|
48,747,153
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-25
SpectrumDNA, Inc.
Consolidated
Statements of Stockholders' Equity (Deficit)
For the
period January 1, 2008 through March 31, 2010
Preferred
Stock
|
Common
Stock
|
Additional
Paid-In
|
Accumulated
|
Prepaid
Equity
|
Total
Stockholders'
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
income / (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 beneficial conversion features and related warrant
valuation
|
-
|
-
|
-
|
-
|
61,025
|
-
|
-
|
61,025
|
||||||||||||||||||||||||
Net
income / (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
|
)
|
||||||||||||||
Common
shares issued for cash at $0.10 per share, net of issuance
costs
|
-
|
-
|
15,150,000
|
15,150
|
1,365,701
|
-
|
-
|
1,380,851
|
||||||||||||||||||||||||
Financing
costs associated with stock warrants granted
|
-
|
-
|
-
|
-
|
2,876,803
|
-
|
-
|
2,876,803
|
||||||||||||||||||||||||
Common
shares issued for conversion of convertible promissory notes at $0.10 per
share
|
-
|
-
|
661,000
|
661
|
65,439
|
-
|
-
|
66,100
|
||||||||||||||||||||||||
Common
shares issued for pre-paid services at an average of $0.14 per
share
|
-
|
-
|
500,000
|
500
|
68,500
|
-
|
(69,000
|
)
|
-
|
|||||||||||||||||||||||
Compensation
expense associated with stock options and warrants
|
-
|
-
|
-
|
-
|
231,944
|
-
|
-
|
231,944
|
||||||||||||||||||||||||
Amortization
of prepaid consulting services
|
-
|
-
|
-
|
-
|
-
|
-
|
54,667
|
54,667
|
||||||||||||||||||||||||
Net
income / (loss) for the quarter ended March 31, 2010
(unaudited)
|
-
|
-
|
-
|
-
|
-
|
(3,463,307
|
)
|
-
|
(3,463,307
|
)
|
||||||||||||||||||||||
Balance,
March 31, 2010 (unaudited)
|
$
|
-
|
$
|
-
|
69,058,237
|
$
|
69,059
|
$
|
11,820,914
|
$
|
(10,590,037
|
)
|
$
|
(558,777
|
)
|
$
|
741,159
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-26
SpectrumDNA,
Inc.
Consolidated
Statements of Cash Flows
(unaudited)
For
the Three
Months
Ended
|
For
the Three
Months
Ended
|
|||||||
March
31,
|
March
31,
|
|||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
income / (loss)
|
$
|
(3,463,307
|
)
|
$
|
(619,073
|
)
|
||
Adjustments
to reconcile net loss to net used by operating activities:
|
||||||||
Depreciation
and amortization
|
2,811
|
24,932
|
||||||
Stock
options and warrants granted for services rendered
|
231,944
|
335,594
|
||||||
Financing
costs associated with stock warrants granted
|
2,876,803
|
-
|
||||||
Common
stock issued for services rendered
|
-
|
4,166
|
||||||
Prepaid
consulting services
|
54,667
|
-
|
||||||
Accretion
of remaining discount on convertible promissory notes
|
28,397
|
-
|
||||||
Gain
on conversion of convertible promissory notes
|
(25,000)
|
-
|
||||||
Changes
in operating assets and liabilities
|
||||||||
Decrease
in accounts receivable
|
5,750
|
2,970
|
||||||
(Increase)
/ decrease in prepaid expenses
|
(11,327
|
)
|
24,455
|
|||||
Increase
/ (decrease) in accounts payable and accrued expenses
|
(179,210
|
)
|
8,759
|
|||||
Net
Cash (Used) in Operating Activities
|
(478,472
|
)
|
(218,197
|
)
|
||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Cash
paid for fixed assets
|
(4,425
|
)
|
(3,510
|
)
|
||||
Net
Cash (Used) in Investing Activities
|
(4,425
|
)
|
(3,510
|
)
|
||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Cash
received from issuance of common stock
|
1,380,850
|
-
|
||||||
Payments
made on notes payable
|
(7,115
|
)
|
-
|
|||||
Cash
paid for repayment of convertible promissory note
|
(44,859
|
)
|
-
|
|||||
Net
Cash Provided by Financing Activities
|
1,328,876
|
-
|
||||||
NET
INCREASE / (DECREASE) IN CASH
|
845,979
|
(221,707
|
)
|
|||||
CASH
AT BEGINNING OF PERIOD
|
10,303
|
548,499
|
||||||
CASH
AT END OF PERIOD
|
$
|
856,282
|
$
|
326,792
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-27
SpectrumDNA,
Inc.
Consolidated
Statements of Cash Flows (Continued)
(unaudited)
For
the Three
Months
Ended
|
For
the Three
Months
Ended
|
|||||||
March
31,
|
March
31,
|
|||||||
2010
|
2009
|
|||||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||
CASH
PAID FOR:
|
||||||||
Interest
|
$
|
4,981
|
$
|
-
|
||||
Income
Taxes
|
$
|
-
|
$
|
-
|
||||
NON-CASH
FINANCING ACTIVITIES:
|
||||||||
Common
stock issued for services
|
$
|
-
|
$
|
4,167
|
||||
Stock
options and warrants granted for services rendered
|
$
|
231,944
|
$
|
335,594
|
||||
Common
stock issued for prepaid consulting services
|
$
|
69,000
|
$
|
-
|
||||
Stock
warrants granted for transaction costs
|
$
|
2,876,803
|
$
|
-
|
||||
Common
stock issued for payment of convertible promissory note &
interest
|
$
|
66,100
|
$
|
-
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-28
SPECTRUMDNA,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -
BASIS OF PRESENTATION AND USE OF ESTIMATES
The
interim financial statements of SpectrumDNA, Inc. (“we,” “us,” “our,” “Spectrum”
or the “Company”) are unaudited and contain all adjustments (consisting
primarily of normal recurring accruals) necessary for a fair statement of the
results for the interim periods presented. Results for interim periods are not
necessarily indicative of results to be expected for a full year or for
previously reported periods due in part, but not limited to, the timing of
acquisitions, product demand, market competition, and our ability to obtain
additional capital. You should read these condensed consolidated unaudited
interim financial statements in conjunction with the audited consolidated
financial statements and notes thereto included in Spectrum’s Annual Report on
Form 10-K for the year ended December 31, 2009.
NOTE 2-
NET INCOME (LOSS) PER SHARE OF COMMON STOCK
The
Company computes net income (loss) per share of common stock in accordance with
FASB 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 income (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. The dilutive effect of these instruments is
reflected in diluted earnings per share by application of the treasury stock
method. As of March 31, 2010 and 2009, the number of shares
underlying these instruments are as follows:
2010
|
2009
|
|||||||
Shares
of common stock underlying stock options
|
15,264,551
|
14,852,179
|
||||||
Shares
of common stock underlying warrants
|
18,208,586
|
-
|
||||||
Total
shares
|
33,473,137
|
14,852,179
|
For the
interim periods ended March 31, 2010 and 2009, potential common shares of
33,473,137 and 14,852,179 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.
2010
|
2009
|
|||||||
Basic
and Fully Diluted earnings per share:
|
||||||||
Loss
(numerator)
|
$
|
(3,463,307
|
)
|
$
|
(619,073
|
)
|
||
Weighted
average number of shares outstanding-basic and diluted
(denominator)
|
63,963,670
|
48,747,153
|
||||||
Per
share amount
|
$
|
(0.05
|
)
|
$
|
(0.01
|
)
|
F-29
SPECTRUMDNA,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3-
SHARE BASED PAYMENT
The
Company follows the provisions of FASB ASC 718, “ Stock Compensation ” (“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
the three month periods ended March 31, 2010 and 2009, the Company recorded
$231,944 and $335,594, 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 has been recorded in general
and administrative expense for non-employees and in salaries and wages for
employees. During the three month periods ended March 31, 2010 and
2009, the Company recorded $136,027 and $212,063, 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 the
Company 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 quarters ended March 31, 2010 and 2009 and the
assumptions used for such grants:
2010
|
2009
|
|||||
Dividend
yields
|
0.0%
|
0.0%
|
||||
Expected
volatility
|
173.0%
- 176.0%
|
188.7%
|
||||
Risk-free
interest rate
|
3.68%
- 3.85%
|
2.91%
|
||||
Option
terms
|
1 -
4 years
|
4
years
|
F-30
SPECTRUMDNA,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3-
SHARE BASED PAYMENT (CONTINUED)
Common Stock
Options (Continued)
Changes
in stock options issued to employees, advisors, and board members for the
periods ended March 31, 2010, December 31, 2009, and December 31, 2008 are as
follows:
Number Of
Options
|
Weighted
Average
Exercise Price
|
|||||||
Outstanding,
January 1, 2008
|
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
|
|||||
Outstanding,
December 31, 2009
|
14,262,075
|
$
|
0.30
|
|||||
Granted
|
2,750,000
|
0.16
|
||||||
Exercised
|
-
|
-
|
||||||
Cancelled
|
(1,747,524
|
)
|
0.19
|
|||||
Outstanding,
March 31, 2010 (unaudited)
|
15,264,551
|
$
|
0.29
|
|||||
Exercisable,
March 31, 2010 (unaudited)
|
8,141,284
|
$
|
0.35
|
F-31
SPECTRUMDNA,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3-
SHARE BASED PAYMENT (CONTINUED)
Common Stock
Options (Continued)
The
following table summarizes information about stock options granted to employees,
advisors, and board members at March 31, 2010:
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||||||||
Range of
Exercise Prices
|
Number of
Options
|
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
|
6.59
|
1,620,000
|
$
|
0.04
|
6.59
|
||||||||||||||||
0.50
|
2,690,716
|
0.50
|
7.39
|
2,230.269
|
0.50
|
7.37
|
|||||||||||||||||||
0.55
|
1,870,000
|
0.55
|
8.25
|
1,755,417
|
0.55
|
8.25
|
|||||||||||||||||||
0.56
|
1,020,000
|
0.56
|
8.34
|
436,667
|
0.56
|
8.34
|
|||||||||||||||||||
0.46
|
400,000
|
0.46
|
8.51
|
400,000
|
0.46
|
8.51
|
|||||||||||||||||||
0.21
|
20,000
|
0.21
|
8.05
|
20,000
|
0.21
|
8.05
|
|||||||||||||||||||
0.11
|
3,193,834
|
0.11
|
8.93
|
947,843
|
0.11
|
8.93
|
|||||||||||||||||||
0.17
|
1,000,000
|
0.17
|
9.04
|
239,583
|
0.17
|
9.04
|
|||||||||||||||||||
0.34
|
250,000
|
0.34
|
9.19
|
104,167
|
0.34
|
9.19
|
|||||||||||||||||||
0.33
|
200,000
|
0.33
|
9.24
|
154,167
|
0.33
|
9.24
|
|||||||||||||||||||
0.19
|
250,000
|
0.19
|
9.54
|
28,646
|
0.19
|
9.54
|
|||||||||||||||||||
0.15
|
750,000
|
0.15
|
9.78
|
42,969
|
0.15
|
9.78
|
|||||||||||||||||||
0.16
|
1,000,000
|
0.16
|
9.80
|
52,083
|
0.16
|
9.80
|
|||||||||||||||||||
0.20
|
500,000
|
0.20
|
9.80
|
104,167
|
0.20
|
9.80
|
|||||||||||||||||||
0.14
|
500,000
|
0.14
|
9.97
|
5,208
|
0.14
|
9.97
|
|||||||||||||||||||
15,264,551
|
$
|
0.29
|
8.46
|
8,141,284
|
$
|
0.35
|
7.87
|
As of
March 31, 2010, the aggregate intrinsic value of the options outstanding and
exercisable was $102,060 and $102,060, respectively. As of March 31,
2009, the aggregate intrinsic value of the options outstanding and exercisable
was $715,868 and $209,415. The weighted-average grant-date fair value
of options granted for the periods ended March 31, 2010 and 2009 was $0.17 and
$0.10, respectively. The total fair value of shares vested during the
three months ended March 31, 2010 and 2009 was $91,058 and $176,721,
respectively.
F-32
SPECTRUMDNA,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 –
SHARE BASED PAYMENT (CONTINUED)
Warrants
In
connection with the Bridge Financing and Private Offering discussed in Note 6
below, the Company granted warrants to purchase the Company’s common stock to
the investors in each offering. The warrants have an exercise price
of $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 three months ended March 31, 2010 and the assumptions
used for such grants. No warrants were issued in the comparable
period of 2009:
2010
|
||
Dividend
yields
|
0.0%
|
|
Expected
volatility
|
173.0%
- 175.0%
|
|
Risk-free
interest rate
|
2.26%
- 2.44%
|
|
Warrant
term
|
5
years
|
Changes
in warrants issued to investors for the periods ended March 31, 2010, and
December 31, 2009 are as follows:
Number Of
Warrants
|
Weighted Average
Exercise Price
|
|||||||
Outstanding,
January1, 2009
|
-
|
$
|
0
|
|||||
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
|
|||||
Outstanding,
December 31, 2009
|
1,048,586
|
$
|
0.25
|
|||||
Granted
|
17,160,000
|
0.24
|
||||||
Exercised
|
-
|
-
|
||||||
Cancelled
|
-
|
-
|
||||||
Outstanding,
March 31, 2010
|
18,208,586
|
$
|
0.24
|
|||||
Exercisable,
March 31, 2010
|
18,208,586
|
$
|
0.24
|
The
following table summarizes information about stock warrants granted to
employees, investors, and board members as of March 31, 2010
(unaudited):
Warrants Outstanding
|
Warrants Exercisable
|
||||||||||||||||||||||||
Range of
Exercise Prices
|
Number of
Warrants
|
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
|
4.62
|
1,048,586
|
$
|
0.25
|
4.62
|
||||||||||||||||
$ |
0.25
|
16,155,000
|
$
|
0.25
|
4.83
|
16,155,000
|
$
|
0.25
|
4.83
|
||||||||||||||||
$ |
0.10
|
1,005,000
|
$
|
0.10
|
4.80
|
1,005,000
|
$
|
0.10
|
4.80
|
||||||||||||||||
18,208,586
|
$
|
0.24
|
4.82
|
18,208,586
|
$
|
0.24
|
4.82
|
F-33
SPECTRUMDNA,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 –
SHARE BASED PAYMENT (CONTINUED)
Warrants
(Continued)
As of
March 31, 2010, 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 March 31, 2010
was $0.17. The total fair value of shares vested during 2010 was
$1,716,000.
NOTE 4 –
GOING CONCERN
The
Company’s financial statements have been prepared using accounting principles
generally accepted in the United States of America 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
March 31, 2010, while the Company’s current assets exceeded its current
liabilities, it has recorded negative cash flows from operations and net losses
in this period and prior fiscal years. At March 31, 2010, the
Company’s cash balance was $856,282. The preceding circumstances
combine to raise substantial doubt about the Company’s ability to continue as a
going concern.
NOTE 5 –
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 March 31, 2010, a
total amount of $62,223 had been amortized to consulting expense, with the
remaining as prepaid equity expense, to be amortized over the remaining life of
the agreement.
On
January 15, 2010, the Company entered into a one-year consulting agreement for
services rendered. In full consideration for this agreement, the
Company paid $50,000 to the consultant and issued a total of 500,000 shares of
Common Stock and options to acquire an additional 500,000 shares at $0.20 per
share. The shares were valued at an average of $0.14 per share for a
total prepayment for these fees of $69,000. At March 31, 2010, $8,000
had been amortized to consulting expense, with the remaining as prepaid equity
expense, to be amortized over the remaining life of the agreement.
F-34
SPECTRUMDNA,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 –
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. During the first quarter of 2010, the offering period was
extended from January 13, 2010 to February 28, 2010 and again until March 15,
2010.
During
the first quarter of 2010, 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 (See Note 3).
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 to acquire an additional share of Common Stock (See Note
3). The aggregate warrants considered outstanding and exercisable
from the warrant units granted is 2,010,000.
On
November 2, 2009, November 12, 2009, and December 14, 2009, and in connection
with a private debt offering (“Bridge Financing”), the Company raised $104,859
from five investors, including the Company’s Chief Executive Officer and Chief
Operating Officer, from the issuance of six Convertible Promissory Notes (the
“Notes”) in the principal amount of $104,859 due three months from issuance
bearing interest at a 90-day rate of 10%. In connection with such
investments, 1,048,586 common stock purchase warrants were also granted to such
investors (See Note 3).
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 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 Notes is equal to $0.10 per share of the Company’s
common stock (the “Conversion Price”). 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, as of December 31, 2009, 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 $57,628, which was charged to the Statements of
Operations.
F-35
SPECTRUMDNA,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 –
PRIVATE FINANCING TRANSACTIONS (CONTINUED)
On
January 11, 2010, two investors converted two Notes into 661,000 shares of the
Company’s common stock resulting from the outstanding principal amount of
$60,000 and accrued interest of $6,100. On January 22, 2010, two
additional investors, including the Company’s Chief Executive Officer and Chief
Operating Officer, were repaid the interest and principal due on three
Notes for a total of $22,172 in cash resulting from the outstanding principal
amount of $19,859 and accrued interest of $2,314. Finally on February
10, 2010, one investor was repaid the interest and principal due on one
Note for a total of $27,667 in cash resulting from the principal amount of
$25,000 and accrued interest of $2,667. Upon conversion of the Notes,
the debt conversion liability of $43,834 was deemed to be relieved by $18,834 in
cash and the remaining $25,000 being deemed a gain on the conversion of
convertible promissory notes. Total accretion for the period was $28,397 and was
charged to the Company’s Statements of Operations.
NOTE 7 –
RELATED PARTY TRANSACTIONS
During
the fourth quarter of 2009, the Chief Executive Officer and the Chief Operating
Officer invested a total of $19,859 in connection with the Bridge Financing as
referenced in Note 6 above. On January 22, 2010, these
individuals were repaid the interest and principle due on their three
Notes for a total of $22,172 in cash resulting from the outstanding principal
amount of $19,859 and accrued interest of $2,314.
NOTE 8 –
SUBSEQUENT EVENTS
We have
evaluated all activity of the Company and concluded that no subsequent events
have occurred that would require recognition in the consolidated financial
statements or disclosure in the notes to the consolidated financial statements,
except as disclosed below:
Effective
May 1, 2010, Kelly. A. McCrystal resigned as Chief Operating Officer of the
Company and was immediately appointed to the position of Managing Director of
the Company’s Addictionary product line.
F-36
WE
HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
ANY PROSPECTUS SUPPLEMENT. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION.
NEITHER THIS PROSPECTUS NOR ANY PROSPECTUS SUPPLEMENT IS AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THESE SECURITIES IN ANY JURISDICTION
WHERE AN OFFER OR SOLICITATION IS NOT PERMITTED. NO SALE MADE PURSUANT TO THIS
PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE AFFAIRS OF SPECTRUMDNA, INC. SINCE THE DATE OF THIS
PROSPECTUS.
UNTIL
90 DAYS AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT, ALL DEALERS
THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE DEALERS’ OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
SPECTRUMDNA,
INC.
44,519,586
SHARES OF COMMON STOCK
____________________________________
PROSPECTUS
_______________________________________
_________________,
2010
PART
II
INFORMATION NOT REQUIRED IN
PROSPECTUS
ITEM
24. INDEMNIFICATION
OF DIRECTORS, OFFICERS AND EMPLOYEES
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.
ITEM
25. OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses
of the Registrant in connection with the issuance and distribution of the
securities being registered are estimated as follows:
SEC
Registration Fee
|
$ | 253.95 | ||
Printing
and Engraving Expenses
|
$ | 2,500.00 | ||
Legal
Fees and Expenses
|
$ | 30,000.00 | ||
Accountants’
Fees and Expenses
|
$ | 10,000.00 | ||
Miscellaneous
Costs
|
$ | 5,000.00 | ||
Total
|
$ | 47,753.95 |
All of
these expenses, except for the SEC registration fee, represent estimates
only. The Registrant will pay all of the expenses of this
offering.
ITEM
26. RECENT
SALES OF UNREGISTERED SECURITIES
During the year ended December 31,
2007, the Company issued 3,975,000 shares of its common stock at $0.50 per share
to various investors for cash totaling $1,987,500.
During the year ended December 31, 2007
the Company issued 26,667 shares of its common stock at $0.50 per share for
services rendered in the amount of $13,336. Additionally, the Company granted
6,890,180 stock options to purchase shares of its common stock at a weighted
average exercise price of $0.50. During the year, the Company
cancelled 1,450,000 stock options with a weighted average exercise price of
$0.07. No options were exercised during the year ended December 31,
2007. As of December 31, 2007, the Company had 8,410,180 stock
options outstanding.
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. Additionally, the Company granted 5,260,000
stock options to purchase shares of its common stock at a weighted average
exercise price of $0.54. During the year, the Company cancelled
3,655,080 stock options with a weighted average exercise price of
$0.50. No options were exercised during the year ended December 31,
2008. As of December 31, 2008, the Company had 10,015,100 stock
options outstanding.
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. Additionally, the Company granted 7,550,100 stock options to
purchase shares of its common stock at a weighted average exercise price of
$0.13. During the year, the Company cancelled 3,303,125 stock options
with a weighted average exercise price of $0.35. No options were
exercised during the year ended December 31, 2009. As of December 31,
2009, the Company had 14,262,075 stock options outstanding.
On July 31, 2009, the Company entered
into a three year consulting agreement with a consultant pursuant to which the
consultant agreed to 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. Pursuant
thereto, the Company agreed to issue to consultant and its designee 4,000,000
shares of the Company’s common stock which shall vest and become issuable
120 days from the full execution of the agreement. All of such shares
were issued on January 11, 2010.
During the first quarter of 2010, the
Company completed three closings of a 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 addition, in association with the private offering, 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.
On November 2, 2009, November 12, 2009,
and December 14, 2009, and in connection with a private debt offering (“Bridge
Financing”), the Company raised $104,859 from five investors, including the
Company’s Chief Executive Officer and Chief Operating Officer, from the issuance
of six Convertible Promissory Notes (the “Notes”) in the principal amount of
$104,859 due three months from issuance bearing interest at a 90-day rate of
10%. In connection with such investments, 1,048,586 common stock
purchase warrants were also granted to such investors. On January 11.
2010, two investors converted two Notes into 661,000 shares of the Company’s
common stock resulting from the outstanding principal amount of $60,000 and
accrued interest of $6,100.
During the first quarter of 2010, the
Company issued a total of 500,000 shares of Common Stock and stock options to
acquire an additional 500,000 shares of its common stock at $0.20 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.
In
addition to the stock options granted pursuant to the consulting agreement
described above, during the quarter ended March 31, 2010, the Company granted an
additional 2,250,000 stock options to purchase shares of its common stock at a
weighted average exercise price of $0.15. During the quarter, the
Company cancelled 1,747,524 stock options to purchase shares of its common stock
at a weighted average exercise price of $0.19. No options were
exercised during the quarter ended March 31, 2010. As of March 31,
2010, the Company had 15,264,551 stock options outstanding.
All of
the foregoing securities were issued in reliance upon the exemption from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended,
and/or Rule 506 thereunder.
ITEM
27. EXHIBITS.
The following exhibits are included as
part of this Form S-1.
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)
|
||
5.1
|
Opinion
of Kaye Cooper Fiore Kay & Rosenberg, LLP
|
*
|
||
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)
|
||
21.1
|
Subsidiaries
of the Registrant
|
Exhibit
21.1 (1)
|
||
23.1
|
Consent
of Kaye Cooper Fiore Kay & Rosenberg, LLP (included in Exhibit
5.1)
|
*
|
||
23.2
|
Consent
of Chisholm, Bierwolf, Nilson & Morrill LLC
|
*
|
||
|
Power
of Attorney (included in the signature page of this Registration
Statement)
|
|
*
|
________________
(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.
|
ITEM
28. UNDERTAKINGS.
The
undersigned Registrant hereby undertakes to:
File,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to:
1. Include any prospectus required by
Section 10(a)(3) of the Securities Act;
2. Reflect in the prospectus any facts
or events which, individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar value
of the securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the SEC pursuant to Rule
424(b) under the Securities Act if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective
registration statement, and
3. Include any additional or changed
material information on the plan of distribution.
For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering.
File a
post-effective amendment to remove from registration any of the securities that
remain unsold at the end of the offering.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant 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 Registrant 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.For
the purpose of determining liability under the Securities Act to any purchaser,
each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Park City, Utah, on this 27th day of
May, 2010.
SPECTRUMDNA, INC.
|
|
By:
|
/s/ James A. Banister
|
James A. Banister,
|
|
President and Chief Executive Officer
|
POWER
OF ATTORNEY
We, the
undersigned officers and directors of SpectrumDNA, Inc, hereby severally
constitute and appoint James A. Banister our true and lawful attorney-in-fact
and agent, with full power of substitution, for us and in our stead, in any and
all capacities, to sign any and all amendments (including pre-effective and
post-effective amendments) to this Registration Statement and all documents
relating thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the U.S. Securities and Exchange
Commission, granting to said attorney-in-fact and agent full power and authority
to do and perform each and every act and thing necessary or advisable to be done
in and about the premises, as full to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all the said
attorney-in-fact and agent, or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed below by the following persons in the capacities and on the
dates indicated:
Signature
|
Title
|
Date
|
||
/s/ James A. Banister
|
President and Chief Executive
|
May 27, 2010
|
||
James A. Banister
|
Officer, Chairman of the Board
|
|||
and Director
|
||||
(Principal Executive Officer)
|
||||
/s/ Rebecca D. Hershinger
|
Chief Financial Officer
|
May 27, 2010
|
||
Rebecca D. Hershinger
|
(Principal Financial Officer and
|
|||
Principal Accounting Officer)
|
||||
/s/ Michael Dowling
|
Director
|
May 27, 2010
|
||
Michael Dowling
|
||||
/s/ James Moloshok
|
Director
|
May 26, 2010
|
||
James Moloshok
|
||||
/s/ Jeffrey Nolan
|
Director
|
May 25, 2010
|
||
Jeffrey Nolan
|
||||
/s/ Anthony Stonefield
|
Director
|
May 24, 2010
|
||
Anthony Stonefield
|
|
|
EXHIBIT
INDEX
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)
|
||
5.1
|
Opinion
of Kaye Cooper Fiore Kay & Rosenberg, LLP
|
*
|
||
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)
|
||
21.1
|
Subsidiaries
of the Registrant
|
Exhibit
21.1 (1)
|
||
23.1
|
Consent
of Kaye Cooper Fiore Kay & Rosenberg, LLP (included in
Exhibit 5.1)
|
*
|
||
23.2
|
|
Consent
of Chisholm, Bierwolf, Nilson & Morrill LLC
|
|
*
|
24
|
|
Power
of Attorney (included in the signature page of this Registration
Statement)
|
|
*
|
________________
(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.
|