SpectrumDNA, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.1 - SpectrumDNA, Inc.	v194095_ex31-1.htm
EX-32.1 - SpectrumDNA, Inc.	v194095_ex32-1.htm
EX-31.2 - SpectrumDNA, Inc.	v194095_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 333-148883

SPECTRUMDNA, INC.

(Exact name of Registrant as Specified in its Charter)

Delaware	20-4880377
(State or other jurisdiction	(IRS Employer Identification No.)
of incorporation or organization)

1700 Park Avenue, Suite 2020
P.O. Box 682798
Park City, Utah	84068
(Address of principal executive offices)	(Zip Code)

(435) 658-1349

(Registrant’s Telephone Number, Including Area Code)

Not applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

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	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

Yes o No x

State the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date: $0.001 par value per share: 69,058,237 outstanding as of August 13, 2010.

SPECTRUMDNA, INC.

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements.	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	23
Item 4T.	Controls and Procedures.	23

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	24
Item 3.	Default upon Senior Securities.	24
Item 4.	[Removed and Reserved.]	24
Item 5.	Other Information.	24
Item 6.	Exhibits.	24

SIGNATURES		25

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

SPECTRUMDNA, INC.

Index to Condensed Consolidated Financial Statements

For The Six Month Period Ended June 30, 2010

		Page
Condensed Consolidated Balance Sheets		3

Condensed Consolidated Statements of Operations		4

Condensed Consolidated Statements of Stockholders’ Equity		5

Condensed Consolidated Statements of Cash Flows		6

Notes to Financial Statements		8

SpectrumDNA, Inc.

Consolidated Balance Sheets

ASSETS
	June 30,			December 31,
	2010			2009
	(unaudited)
CURRENT ASSETS

Cash	$	622,689		$	10,303
Accounts receivable, net		16,250			6,750
Prepaid expenses and other		10,988			18,272

Total Current Assets		649,927			35,325

PROPERTY AND EQUIPMENT, NET		11,619			6,643

OTHER ASSETS

Domain names, net		1,782			2,542
Product development, net		556			2,583
Security deposit		5,000			5,000

Total Other Assets		7,338			10,125

TOTAL ASSETS	$	668,884		$	52,093

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES

Accounts payable	$	59,631		$	152,019
Accounts payable - related parties		2,150			10,112
Accrued expenses		49,200			166,526
Unearned revenue		18,750			-
Interest payable		-			8,723
Debt conversion payable		-			43,834
Convertible promissory notes		-			49,611
Convertible promissory notes - related parties		-			8,017
Notes payable		4,840			19,150

Total Current Liabilities		134,571			457,992

Total Liabilities		134,571			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		(494,860	)		(544,444	)
Additional paid-in capital		12,094,052			7,212,527
Accumulated deficit		(11,133,938	)		(7,126,730	)

Total Stockholders' Equity (Deficit)		534,313			(405,899	)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)	$	668,884		$	52,093

The accompanying notes are an integral part of these consolidated financial statements.

SpectrumDNA, Inc.

Consolidated Statements of Operations

(unaudited)

	For the Three			For the Three			For the Six			For the Six
	Months Ended			Months Ended			Months Ended			Months Ended
	June 30,			June 30,			June 30,			June 30,
	2010			2009			2010			2009
REVENUES, net	$	38,750		$	50,750		$	64,750		$	72,780

COST OF SALES, net		1,384			18,233			2,786			41,259

GROSS PROFIT (LOSS)		37,366			32,517			61,964			31,521

OPERATING EXPENSES

General and administrative		97,829			118,767			305,699			221,293
Salaries and wages		448,071			515,372			837,618			1,008,079
Product development expenses		34,867			4,784			46,365			27,392
Depreciation expense		1,742			2,112			3,152			4,017
Financing Costs		-			-			2,876,803			-

Total Operating Expenses		582,509			641,035			4,069,637			1,260,781

OPERATING (LOSS)		(545,143	)		(608,518	)		(4,007,673	)		(1,229,260	)

OTHER INCOME (EXPENSES)
Interest income		720			285			1,080			1,954
Interest expense		(229	)		-			(3,068	)		-
Interest expense - beneficial conversion feature		-			-			(28,397	)		-
Gain on conversion of convertible promissory note		-			-			25,000			-
Other income		750			-			5,850			-

Total Other Income (Expenses)		1,241			285			465			1,954


NET INCOME / (LOSS) BEFORE INCOME TAXES		(543,902	)		(608,233	)		(4,007,208	)		(1,227,306	)
INCOME TAX EXPENSE		-			-			-			-

NET INCOME / (LOSS)	$	(543,902	)	$	(608,233	)	$	(4,007,208	)	$	(1,227,306	)

BASIC AND FULLY DILUTED INCOME / (LOSS) PER SHARE	$	(0.01	)	$	(0.01	)	$	(0.06	)	$	(0.03	)

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING		69,058,237			48,747,237			66,525,027			48,747,195

The accompanying notes are an integral part of these consolidated financial statements.

SpectrumDNA, Inc.

Consolidated Statements of Stockholders' Equity (Deficit)

For the period January 1, 2008 through June 30, 2010

																	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 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 benefical 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		-		-		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		-		-		-		-		505,082		-			-			505,082
Amortization of prepaid consulting services		-		-		-		-		-		-			118,584			118,584
Net income / (loss) for the six months ended June 30, 2010 (unaudited)		-		-		-		-		-		(4,007,208	)		-			(4,007,208	)
Balance, June 30, 2010 (unaudited)		-	$	-		69,058,237	$	69,059	$	12,094,052	$	(11,133,938	)	$	(494,860	)	$	534,313

The accompanying notes are an integral part of these consolidated financial statements.

SpectrumDNA, Inc.

Consolidated Statements of Cash Flows

(unaudited)

	For the Six			For the Six
	Months Ended			Months Ended
	June 30,			June 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES

Net income / (loss)	$	(4,007,208	)	$	(1,227,306	)
Adjustments to reconcile net loss to net
used by operating activities:
Depreciation and amortization		5,936			45,277
Stock options and warrants		505,082			690,099
granted for services rendered
Transaction costs incurred in connection with the issuance of common stock and warrants		2,876,803			-
Common stock issued for services rendered		-			4,166
Prepaid consulting services		118,584			-
Accretion of remaing discount on convertible promissory notes		28,397			-
Gain on conversion of convertible promissory notes		(25,000	)		-
Changes in operating assets and liabilities
(Increase) / decrease in accounts receivable		(9,500	)		(28,750	)
(Increase) / decrease in prepaid expenses and other		7,284			46,624
Increase / (decrease) in accounts payable
and accrued expenses		(220,295	)		37,741
Increase / (decrease) in unearned revenue		18,750			-

Net Cash (Used) in Operating Activities		(701,167	)		(432,150	)

CASH FLOWS FROM INVESTING ACTIVITIES

Cash paid for fixed assets		(8,128	)		(3,510	)

Net Cash (Used) in Investing Activities		(8,128	)		(3,510	)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash received from issuance of common stock		1,380,850			-
Payments made on notes payable		(14,310	)		-
Cash paid for repayment of convertible promissory note		(44,859	)		-

Net Cash Provided by Financing Activities		1,321,681			-


NET INCREASE / (DECREASE) IN CASH		612,386			(435,660	)

CASH AT BEGINNING OF PERIOD		10,303			548,499

CASH AT END OF PERIOD	$	622,689		$	112,839

The accompanying notes are an integral part of these consolidated financial statements.

SpectrumDNA, Inc.

Consolidated Statements of Cash Flows (Continued)

(unaudited)

	For the Six		For the Six
	Months Ended		Months Ended
	June 30,		June 30,
	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	$	-	$	4,166
Stock options and warrants granted for services rendered	$	505,082	$	690,099
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 notes and interest	$	66,100	$	-

The accompanying notes are an integral part of these consolidated financial statements.

SPECTRUMDNA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 June 30, 2010 and 2009, the number of shares underlying these instruments is as follows:

	2010		2009
Shares of common stock underlying stock options		17,860,160		15,965,200
Shares of common stock underlying warrants		18,208,586		-
Total shares		36,068,746		15,965,200

For the interim periods ended June 30, 2010 and 2009, potential common shares of 36,068,746 and 15,965,200 resulting from the aforementioned instruments, respectively, were considered but not included in the calculation of diluted loss per share as their effect would be anti-dilutive.

	Six Months Ended June 30,						Three Months Ended June 30,
	2010			2009			2010			2009
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Basic and diluted earnings per share:
Loss (numerator)	$	(4,007,208	)	$	(1,227,306	)	$	(543,902	)	$	(608,233	)
Weighted average number of shares outstanding – basic (denominator)		66,525,027			48,747,195			69,058,237			48,747,237
Per share amount	$	(0.06	)	$	(0.03	)	$	(0.01	)	$	(0.01	)

SPECTRUMDNA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 six month periods ended June 30, 2010 and 2009, the Company recorded $505,082 and $690,099, 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 six month ended June 30, 2010 and 2009, the Company recorded $284,494 and $441,991, 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 options granted during the six months ended June 30, 2010 and 2009 and the assumptions used for such grants:

	For the six months ended June 30,
Dividend yields	2010			2009
Expected volatility		0.0	%		0.0	%
Risk-free interest rate		163.6% - 176.0	%		175.0% - 188.7	%
Option terms		2.97% - 4.01	%		2.88% – 3.84	%
	1 - 4 years			1 - 4 years

SPECTRUMDNA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 June 30, 2010, December 31, 2009, and December 31, 2008 are as follows:

				Weighted
	Number			Average
	Of			Exercise
	Options			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		6,320,000			0.13
Exercised		-			-
Cancelled		(2,721,915	)		0.31
Outstanding, June 30, 2010 (unaudited)		17,860,160		$	0.24
Exercisable, June 30, 2010 (unaudited)		8,635,654		$	0.32

SPECTRUMDNA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 June 30, 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		6.35		1,620,000	$	0.04		6.35
	0.50		2,080,080		0.50		7.13		1,757,137		0.50		7.10
	0.55		1,620,000		0.55		7.98		1,620,000		0.55		7.98
	0.56		1,020,000		0.56		8.09		499,167		0.56		8.09
	0.46		400,000		0.46		8.26		400,000		0.46		8.26
	0.21		420,000		0.21		9.90		320,000		0.21		9.87
	0.11		3,080,080		0.11		8.68		1,026,693		0.11		8.68
	0.17		1,000,000		0.17		8.79		302,083		0.17		8.79
	0.34		250,000		0.34		8.94		135,417		0.34		8.94
	0.33		200,000		0.33		8.99		204,167		0.33		8.99
	0.19		250,000		0.19		9.29		44,271		0.19		9.29
	0.15		750,000		0.15		9.53		89,844		0.15		9.53
	0.16		1,000,000		0.16		9.55		114,583		0.16		9.55
	0.20		500,000		0.20		9.55		229,167		0.20		9.55
	0.14		500,000		0.14		9.72		36,458		0.14		9.72
	0.13		500,000		0.13		9.77		31,250		0.13		9.77
	0.09		2,020,000		0.09		9.93		42,917		0.09		9.93
	0.07		250,000		0.07		10.00		- 0 -		0.07		N/A
	0.22		200,000		0.22		10.00		158,333		0.22		10.00
	0.08		200,000		0.08		10.00		4,167		0.08		10.00
			17,860,160	$	0.24		8.59		8,635,654	$	0.32		7.88

As of June 30, 2010, the aggregate intrinsic value of the options outstanding and exercisable was $53,460 and $53,460, respectively. As of June 30, 2009, the aggregate intrinsic value of the options outstanding and exercisable was $820,569 and $280,158. The weighted-average grant-date fair value of options granted for the six months ended June 30, 2010 and 2009 was $0.12 and $0.12, respectively. The total fair value of shares vested during the six months ended June 30, 2010 and 2009 was $167,604 and $425,692, respectively.

SPECTRUMDNA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 3 – SHARE BASED PAYMENT (CONTINUED)

Warrants

In connection with the Private Offering discussed in Note 6 below, the Company granted warrants to purchase the Company’s common stock to the investors in each offering during the quarter ended March 31, 2010. The warrants have exercise prices of $0.10 and $0.25, vest upon grant, and are exercisable for a period of five years. No warrants were issued during the three months ended June 30, 2010.

Changes in warrants issued to investors for the periods ended June 30, 2010, and December 31, 2009 are as follows:

			Weighted
	Number		Average
	Of		Exercise
	Warrants		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, June 30, 2010		18,208,586	$	0.24
Exercisable, June 30, 2010		18,208,586	$	0.24

The following table summarizes information about stock warrants granted to employees, investors, and board members as of June 30, 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		17,203,586	$	0.25		4.55		17,203,586	$	0.25		4.55
	0.10		1,005,000		0.10		4.57		1,005,000		0.10		4.57
			18,208,586	$	0.24		4.57		18,208,586	$	0.24		4.57

As of June 30, 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 June 30, 2010 was $0.17. The total fair value of shares vested during 2010 was $1,201,200.

SPECTRUMDNA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 June 30, 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 June 30, 2010, the Company’s cash balance was $622,689. The preceding circumstances combine to raise substantial doubt about the Company’s ability to continue as a going concern.

NOTE 5 – CONSULTING AGREEMENTS

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. From the beginning of the term through June 30, 2010, a total amount of $108,889 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. From the beginning of the term through June 30, 2010, $25,250 had been amortized to consulting expense, with the remaining as prepaid equity expense, to be amortized over the remaining life of the agreement.

SPECTRUMDNA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 had 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 May 28, 2010, the Company filed a Form S-1 Registration Statement (the “Statement”) with the Securities and Exchange Commission relating to the aforementioned equity securities and certain other securities of the Company. On June 15, 2010, the Securities and Exchange Commission deemed the Statement effective.

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.

SPECTRUMDNA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 6 – PRIVATE FINANCING TRANSACTIONS (CONTINUED)

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.

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 three months ended March 31, 2010 was $28,397 and was charged to the Company’s Statements of Operations. No accretion was recorded for the three months ended June 30, 2010 as the entire liability related to the Notes had been satisfied by March 31, 2010.

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 converted 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. Aside from the transaction disclosed above, there were no other related party transactions during the three months ended March 31, 2010. There were no related party transactions in the three months ended June 30, 2010.

NOTE 8 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events for the period from June 30, 2010 through the date the financial statements were issued, and concluded there were no events or transactions occurring during this period that required recognition or disclosure in its condensed financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the condensed consolidated financial statements of SpectrumDNA, Inc. and the notes thereto appearing elsewhere in this report. Statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report that are not statements of historical or current fact constitute “forward looking statements”.

Our business and results of operations are affected by a wide variety of factors which could materially and adversely affect us and our actual results. As a result of these factors, we may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect our business, financial condition, operating results and stock price.

Projections and Forward-Looking Statements

When used in this report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,” “plans”, and similar expressions are intended to identify forward-looking statements. Given the early stage of SpectrumDNA, Inc., most of the statements made herein are forward-looking. 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.

Business.

(a) Organizational History

SpectrumDNA, Inc. was incorporated under the laws of the State of Delaware on January 16, 2008 under the name SpectrumDNA Holdings, Inc. to enable its now wholly-owned subsidiary, formerly known as SpectrumDNA, Inc. (now known as SpectrumDNA Studios, Inc.) to implement a holding company organizational structure. Effective as of January 22, 2008, we reorganized into a holding company structure whereby SpectrumDNA, Inc. became a wholly-owned subsidiary of SpectrumDNA Holdings, Inc. pursuant to an Agreement and Plan of Merger dated as of January 18, 2008 whereby SpectrumDNA, Inc. changed its name to SpectrumDNA Studios, Inc. and SpectrumDNA Holdings, Inc. changed its name to SpectrumDNA, Inc.

SpectrumDNA Studios, Inc. (formerly SpectrumDNA, Inc.) is a Delaware corporation. It was originally incorporated in the State of Utah in May 2006, and on September 11, 2006 was reorganized as a Delaware corporation as a result of a merger into a newly formed Delaware corporation incorporated on September 7, 2006 which took the Utah corporation’s name and became the surviving entity of the merger. The “DNA” in the corporate name stands for “digital networked applications.”

Cooshoo, Inc. is a Delaware corporation (formerly a Utah corporation) which is a wholly-owned subsidiary of SpectrumDNA Studios, Inc. and owns and operates the Cooshoo engine which was rebranded and renamed PlanetTagger in mid-2008.

References in this document to "us," "we," “Spectrum,” “SpectrumDNA,” “SPXA” or "the Company" refer to SpectrumDNA, Inc., and its direct and indirect wholly-owned subsidiaries.

Our corporate address is 1700 Park Avenue, Suite 2020, P.O. Box 682798, Park City, Utah 84068. Our telephone number is (435) 658-1349. The Company’s website is http://www.spectrumdna.com.

Organization

Our Company is presently comprised of SpectrumDNA, Inc., a Delaware corporation, with two wholly-owned subsidiaries, Cooshoo, Inc. and SpectrumDNA Studios, Inc., also Delaware corporations (collectively, the Company or Spectrum). We use the trade names “SpectrumDNA, Inc.” or “SpectrumDNA Studios, Inc.” in our commercial operations.

(b) Business Overview

General

SpectrumDNA, Inc. is an innovation agency and digital studio focused on creating high-engagement web and mobile applications that allow marketers to empower their community members to take an active, measurable, and monetizable role in the extension of their brand. SpectrumDNA’s private-label applications and platforms can be easily configured to engage and enroll the marketers’ most influential users who propagate its messaging to the masses through SpectrumDNA’s intelligent integration with popular social media sites. The applications cross-pollinate the editorial quality of traditional media with the utility of social media creating a new class of value to the marketer and hence its audience.

Our product development and services 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

SpectrumDNA’s products 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 products based on observed emergent audience behavior.

Currently, our active product lines 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. 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. We continue to enhance the product adding features and functionality as our customers or the market dictates. During the second quarter of 2010, we augmented the existing web-based application with the introduction of the PlanetTagger iPhone application.

OptEngage

OptEngage is a new class configurable and contextual browser application that talks to a cloud-based platform, which enables clients to deliver content and utility to their users anywhere they go on the web. SpectrumDNA clients can now program the entire Internet for their users, across all sites and platforms; and they can integrate customer data, context, location and their users’ intent to enhance their experience, driving deeper engagement, conversion and affinity for their brand or target affinity group.

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.

Strategic Relationships

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 during the first and second quarters of 2010.

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 product line to the Company’s existing and future clients. OptEngage is 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. 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). Any community owner can use 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. The OptEngage suite of services allows the online community owner not only to control their end users’ experience on the web and but also to collect metrics data related to the behavior of those users.

In June 2010, the Company entered into a value-added reseller relationship with Big Door Media, a Seattle, Washington, based organization that is focused on developing a virtual economy platform to help developers and digital publishers add game mechanics to their site or app. Foursquare and social games like Farmville and Mafia Wars have shown the power of badges and achievements to drive consumer activity. Recognition programs are shown to positively impact marketing campaigns and evoke deep customer loyalty. Our relationship with BigDoor has allowed for the gamification of our existing products where users can receive value in the form of points, currency or badges for not only purchases but any online activity, like posting brand related content on Facebook, Twitter or the host site.

Sales, Marketing and Performance

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 web 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 have 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.

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 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. Following the initial success of DigitalUproar, in the second quarter of 2010, USTAR extended its product license through the first quarter of 2011 and has benefited from numerous product enhancements as well as the launch of the iPhone app.

During the second quarter of 2010, the Company partnered Chisel Industries, a Bozeman, Montana, based marketing firm, to become the exclusive provider of digital marketing services to Vann’s Inc, a Montana-based electronics retailer, for the promotion of its new interactive, themed retail experience. In working to position the new store’s online identity, the Company and Chisel created three coordinated modes of audience engagement – a website destination, a contextual browser app called EverOn, and a mobile app for the iPhone based on PlanetTagger – the combination of which allow members of the retailer’s online social community to connect and share knowledge in a seamless user experience across platforms. Overlaying these methods of engagement, the Company implemented a gamification platform that allows these users to collect rewards worth actual currency to be used toward the purchase of gear in the boutique.

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.

Employees

As of the date hereof, the Company has ten (10) full-time employees located in Utah, California, New York, Oregon and Italy. 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.

Results of Operations

For the Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009

Revenues for the three months ended June 30, 2010 were $38,750, compared to $50,750 for the three months ended June 30, 2009. This revenue in the current period resulted from sales relating to the Addictionary and PlanetTagger enginets as well as the OptEngage installation. Cost of sales was $1,384 for the three months ended June 30, 2010, compared to $18,233 for the comparable period of 2009. Cost of sales primarily consisted of the amortization of product development expenses. As of June 30, 2010, these expenses have been almost fully amortized hence the significant decrease from the amount recorded for the quarter ended June 30, 2009.

Total operating expenses for the quarter ended June 30, 2010 were $582,509 compared to $641,035 for the comparable period of 2009, a decrease of 9%. The decreased operating expenses in 2010 resulted primarily from decreases in general and administrative costs ($97,829 in 2010 compared to $118,767 in 2009) and decreases in salaries and wages ($448,071 in 2010 compared to $515,372 in 2009) offset by increases in product development expenses ($34,867 in 2010 compared to $4,784 in 2009). The decrease in general and administrative costs resulted from decreases in unpaid employee services, general office expenses and travel and entertainment expenses offset by increases in consulting services expenses (see Note 5). The decrease in salaries and wages resulted from a decrease in stock-based compensation. For the three months ended June 30, 2010, the Company recognized $273,138 in compensation expense related to share-based payment awards and $354,505 in the comparable period of 2009.

We recognized a net loss of $543,902 for the three months ended June 30, 2010 compared to a loss of $608,233 for the three months ended June 30, 2009, a decrease of 11%. This net loss was primarily the result of general and administrative costs and salaries and wages expenses. Our basic and diluted net loss per share was $0.01 for the three months ended June 30, 2010, compared to a net loss per share of $0.01 for the comparable period of 2009. Excluding non cash stock-based compensation and consulting expenses, our loss would have been $206,847 and $253,728 for 2010 and 2009, respectively.

For the Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009

Revenues for the six months ended June 30, 2010 were $64,750, compared to $72,780 for the six months ended June 30, 2009. This revenue in the current period resulted from sales relating to the Addictionary and PlanetTagger enginets as well as the OptEngage installation. Cost of sales was $2,786 for the six months ended June 30, 2010, compared to $41,259 for the comparable period of 2009. Cost of sales primarily consisted of the amortization of product development expenses. As of June 30, 2010, these expenses have been almost fully amortized hence the significant decrease from the amount recorded for the six months ended June 30, 2009.

Total operating expenses for the six months ended June 30, 2010 were $4,069,637 compared to $1,260,781 for the comparable period of 2009, an increase of 223%. The increased operating expenses in 2010 resulted primarily from increases in general and administrative costs ($305,699 in 2010 compared to $221,293 in 2009) and increases in financing costs ($2,876,803 in 2010 compared to $0 in 2009) offset by decreases in salaries and wages ($837,618 in 2010 compared to $1,008,079 in 2009). The increase in general and administrative costs resulted primarily from increases in consulting services expense based on two agreements (see Note 5) offset by decreases in unpaid employee services. The increase in financing costs of $2,876,803 resulted from the valuation of the warrants associated with the Company’s Private Offering (see Note 6). The decrease in salaries and wages resulted from a decrease in stock-based compensation. For the six months ended June 30, 2010, the Company recognized $505,082 in compensation expense related to share-based payment awards and $690,099 in the comparable period of 2009.

We recognized a net loss of $4,007,208 for the six months ended June 30, 2010 compared to a loss of $1,227,306 for the six months ended June 30, 2009, an increase of 227%. This net loss was primarily the result of the financing costs of $2,876,803 associated with the Company’s Private Offering (see Note 6) and increases in interest expense associated with the Bridge Financing (see Note 6) offset by decreases in operating expenses. Our basic and diluted net loss per share was $0.06 for the six months ended June 30, 2010, compared to a net loss per share of $0.03 for the comparable period of 2009. Excluding the financing costs, consulting expenses, non cash stock-based compensation, interest expense associated with the Bridge Financing, and gain on the conversion of the convertible promissory notes, our loss would have been $453,342 and $533,041 for 2010 and 2009, respectively.

Liquidity and Capital Resources

As of June 30, 2010, we had $622,689 in cash and total liabilities of $134,571. While our current assets exceeded our current liabilities as of June 30, 2010, we have recorded negative cash flows from operations in this and prior fiscal years. As a result, as of June 30, 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.

Working Capital

For the six months ended June 30, 2010, the Company’s Net Cash Used in Operating Activities was $701,167 compared to $432,150 for the comparable period in 2009. The increase in Net Cash Used in Operating Activities between the two periods resulted from increases in certain transaction costs incurred in association with the Private Offering, increases in prepaid consulting services, increases in interest expense related to the Bridge Financing, and decreases in accounts payable and accrued expenses.

For the six months ended June 30, 2010, the Company’s Net Cash Used in Investing Activities was $8,128 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 six months ended June 30, 2010, Net Cash Provided by Financing Activities was $1,321,681 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.

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. As of June 30, 2010, $108,889 had been amortized to consulting expense, with the remaining as prepaid consulting services, to be amortized over the remaining life of the agreement.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

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. Our critical accounting policies are discussed in our annual report on Form 10-K for the fiscal year ended December 31, 2009. Certain prior period amounts have been reclassified in the condensed consolidated financial statements to conform to the current period presentation.

Recently Issued Accounting Pronouncements

Please refer to our annual report on Form 10-K for the fiscal year ended December 31, 2009. 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.

Impact of Inflation

We do not believe that price inflation had a material adverse effect on our financial condition or results of operations during the periods presented.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 4T. Controls and Procedures.

Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2010, these disclosure controls and procedures were effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no material changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

As of the date of this document, we know of no legal proceedings pending or threatened or judgments entered against the Company or any of our directors or officers in his or her capacity as such.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the quarter ended June 30, 2010, the Company did not have any unregistered sales of equity securities.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. [Removed and Reserved.]

Item 5. Other Information.

None.

Item 6. Exhibits.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)

32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

		SPECTRUMDNA, INC.
		(Registrant)

Dated: August 16, 2010	By:	/s/ James A. Banister
		James A. Banister,
		President and Chief Executive Officer
		(Principal Executive Officer)

Dated: August 16, 2010	By:	/s/ Rebecca D. Hershinger
		Rebecca D. Hershinger,
		Chief Financial Officer
		(Principal Financial Officer and
		Principal Accounting Officer)

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