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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

o QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

o 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
of incorporation or organization)
  Identification No.)
     
2 Davis Drive, PO Box 13169
Research Triangle Park, NC
 
27709-3169
(Address of principal executive offices)
 
(Zip Code)

(919) 408-7003
(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 x No o
  
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: 59,281,237 outstanding as of February 12, 2013.
 


 
 

 
SPECTRUMDNA, INC.

TABLE OF CONTENTS

     
Page
 
PART I - FINANCIAL INFORMATION
     
         
Item 1.
Financial Statements.
    3-13  
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
    14, 15  
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
    15  
Item 4.
Controls and Procedures.
    16, 17  
           
PART II - OTHER INFORMATION
       
           
Item 1.
Legal Proceedings.
    18  
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
    18  
Item 3.
Default upon Senior Securities.
    18  
Item 4.
[Removed and Reserved.]
    18  
Item 5.
Other Information.
    18  
Item 6.
Exhibits.
    18  
           
SIGNATURES
    19  

 
2

 

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

SPECTRUMDNA, INC.

Index to Condensed Consolidated Financial Statements
As of June 30, 2011, and For the Six Month Periods Ended June 30, 2011 and 2010

   
Page
 
       
Condensed Consolidated Balance Sheets
    4  
         
Condensed Consolidated Statements of Operations
    5  
         
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
    6  
         
Condensed Consolidated Statements of Cash Flows
    7  
         
Notes to Condensed Consolidated Financial Statements
    8-13  

 
3

 
 
 SPECTRUMDNA, INC.
 Condensed Consolidated Balance Sheets
 
   
June 30,
   
December 31,
 
   
2011
   
2010
 
   
(Unaudited)
       
ASSETS
 
 CURRENT ASSETS
           
 Cash
  $ 271     $ 195,876  
 Receivables associated with assets held for sale, net of allowance
               
       for doubtful accounts of $-0- and $7,206, respectively
    27,360       2,200  
 Prepaid expenses associated with assets held for sale
    -       311,336  
 Prepaid expenses and other assets
    4,854       17,354  
     Total current assets
    32,485       526,766  
                 
 OTHER ASSETS
               
 Assets held for sale, discontinued operations
    558       7,485  
     Total other assets
    558       7,485  
                 
     TOTAL ASSETS
  $ 33,043     $ 534,251  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
 CURRENT LIABILITIES
               
 Accounts payable
  $ 86,663     $ 56,864  
 Accounts payable - related parties
    3,309       261  
 Liabilities associated with assets held for sale
    18,138       77,937  
 Notes payable
    2,284       15,828  
     Total current liabilities
    110,394       150,890  
                 
 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,
               
   69,896,237 and 69,058,237 shares issued and outstanding, respectively
    69,896       69,058  
 Additional paid-in capital
    9,597,433       9,359,475  
 Accumulated deficit
    (9,744,680 )     (9,045,172 )
 Total stockholders’ equity (deficit)
    (77,351 )     383,361  
       Total liabilities and stockholders' equity (deficit)
  $ 33,043     $ 534,251  
 
 The accompanying notes are an integral part of these condensed consolidated financial statements

 
4

 
 
 SPECTRUMDNA, INC.
 Condensed Consolidated Statements of Operations
 (Unaudited)
 
   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
         
(Restated)
         
(Restated)
 
                         
 REVENUE
  $ -     $ -     $ -     $ -  
                                 
 OPERATING EXPENSES
                               
 General and administrative
    38,372       27,171       87,242       82,809  
 Salaries and wages
    79,350       273,138       164,455       505,082  
 Depreciation and amortization expense
    1,721       3,126       3,089       5,938  
             Total Operating Expenses
    119,443       303,435       254,786       593,829  
                                 
 OPERATING LOSS
    (119,443 )     (303,435 )     (254,786 )     (593,829 )
                                 
 OTHER INCOME (EXPENSES)
                               
 Interest income
    17       722       122       1,082  
 Interest expense
    (208 )     (228 )     (344 )     (3,067 )
 Interest expense - beneficial conversion
                               
   feature
    -       -       -       (47,232 )
 Other income (expenses)
    (275 )     -       (275 )     -  
             Total Other Income (Expenses)
    (466 )     494       (497 )     (49,217 )
                                 
 LOSS FROM CONTINUING OPERATIONS
                               
   BEFORE INCOME TAXES
    (119,909 )     (302,941 )     (255,283 )     (643,046 )
                                 
 INCOME TAX EXPENSE
    -       -       -       -  
                                 
 LOSS FROM CONTINUING OPERATIONS
    (119,909 )     (302,941 )     (255,283 )     (643,046 )
                                 
 LOSS FROM DISCONTINUED
                               
   OPERATIONS
    (337,189 )     (242,392 )     (444,225 )     (534,465 )
                                 
 NET LOSS
  $ (457,098 )   $ (545,333 )   $ (699,508 )   $ (1,177,511 )
                                 
 NET LOSS PER COMMON SHARE
                               
   Loss from continuing operations
  $ (0.002 )   $ (0.004 )   $ (0.004 )   $ (0.010 )
   Loss from discontinued operations
    (0.005 )     (0.004 )     (0.006 )     (0.008 )
 NET LOSS PER COMMON SHARE - Basic
                               
     and diluted
  $ (0.007 )   $ (0.008 )   $ (0.010 )   $ (0.018 )
                                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING -
                               
     Basic and diluted
    69,601,556       69,058,237       69,331,397       66,525,027  
 
 The accompanying notes are an integral part of these condensed consolidated financial statements

 
5

 

SPECTRUMDNA, INC.
 Condensed Consolidated Statements of Stockholders' Equity (Deficit)
 For the Period January 1, 2011 through June 30, 2011
 
   
Common Stock
   
Additional
Paid-In
     
Accumulated
       
   
Shares
   
Amount
   
Capital
   
Deficit
   
Total
 
                                         
 Balance, December 31, 2010
    69,058,237       69,058       9,359,475       (9,045,172 )     383,361  
                                         
 Stock based compensation (unaudited)
    -       -       164,455       -       164,455  
 Common shares issued for services
                                       
rendered at $0.03 per share (unaudited)
    838,000       838       24,303       -       25,141  
Contribution of deferred compensation by
                                 
former related parties (unaudited)
    -       -       49,200       -       49,200  
 Net loss for the six months ended
                                       
June 30, 2011 (unaudited)
    -       -       -       (699,508 )     (699,508 )
                                         
 Balance, June 30, 2011 (unaudited)
    69,896,237     $ 69,896     $ 9,597,433     $ (9,744,680 )   $ (77,351 )
 
 The accompanying notes are an integral part of these condensed consolidated financial statements

 
6

 
 
 SPECTRUMDNA, INC.
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 
   
For the Six
   
For the Six
 
   
Months Ended
   
Months Ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
 
         
(Restated)
 
 CASH FLOWS FROM OPERATING ACTIVITIES
           
 Net loss
  $ (699,508 )   $ (1,177,511 )
 Adjustments to reconcile net loss to net cash
               
 used in operating activities:
               
 Depreciation and amortization
    3,089       5,938  
 Common stock issued for services rendered
    25,141       505,082  
 Stock options and warrants issued for services rendered
    164,455       69,000  
 Accretion of remaining discount on convertible promissory notes
    -       47,231  
 Changes in operating assets and liabilities:
               
 Accounts receivable - associated with assets held for sale
    (25,160 )     (9,500 )
 Prepaid expenses associated with assets held for sale
    311,336       45,354  
 Prepaid expenses
    12,500       14,784  
 Accounts payable and accrued liabilities
    29,799       (169,177 )
 Accounts payable - related party
    3,048       -  
 Liabilities - Associated with assets held for sale
    (10,601 )     (38,470 )
            Net cash (used in) operating activities
    (185,901 )     (707,269 )
                 
 CASH FLOWS FROM INVESTING ACTIVITIES
               
 Additions to fixed assets
    (1,200 )     (8,128 )
 Net proceeds from sale of fixed assets
    5,040       -  
            Net cash provided by (used in) investing activities
    3,840       (8,128 )
                 
 CASH FLOWS FROM FINANCING ACTIVITIES:
               
 Issuance of common stock, net of stock offering costs
    -       1,380,850  
 Payments made on notes payable
    (13,544 )     (14,310 )
 Repayment of convertible promissory notes
    -       (38,758 )
            Net cash provided by (used in) financing activities
    (13,544 )     1,327,782  
                 
 NET INCREASE (DECREASE) IN CASH
    (195,605 )     612,385  
                 
 CASH AT BEGINNING OF PERIOD
    195,876       10,303  
                 
 CASH AT END OF PERIOD
  $ 271     $ 622,688  
                 
 SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
               
 CASH PAID FOR:
               
 Interest
  $ 204     $ 5,545  
 Income taxes
  $ -     $ -  
 NON-CASH INVESTING AND FINANCING ACTIVITIES:
               
 Common stock issued for prepaid consulting services
  $ 25,141     $ 69,000  
 Common stock issued for payment of convertible promissory
               
 notes and interest
  $ -     $ 66,100  
 Cancellation of deferred compensation
  $ 49,200     $ -  
 
 The accompanying notes are an integral part of these condensed consolidated financial statements
 
 
7

 

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.  In the opinion of management, all adjustments which are necessary for a fair presentation of the results for the interim period have been included.  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, 2010.
 
NOTE 2 - DISCONTINUED OPERATIONS
 
During the quarter ended June 30, 2012, the Company discontinued its Addictionary and PlanetTagger product lines. Addictionary was a social word play engine. PlanetTagger was a location-enabled integrated social media platform. The Company has reclassified all amounts presented in these financial statements to reflect the impact of the discontinuance of operations. The Company realized a loss of $337,189 during this quarter that was related to the discontinued operations. The assets (receivables) related to the discontinued operations have been written down to a net realizable value of $27,918 and the liabilities associated to the sale of these assets are recorded at $18,138 as of June 30, 2011.
 
   
At June 30,
   
At December 31,
 
   
2011
   
2010
 
             
 Receivables associated with assets held for sale, net
  $ 27,360     $ 2,200  
 Computer equipment
    -       26,411  
 Software
    -       8,393  
 Patents, trademarks, and domain names
    7,182       7,083  
 Product development costs
    194,323       194,423  
 Less: Accumulated depreciation and amortization
    (200,947 )     (228,825 )
  Total assets held for sale - Discontinued operations
  $ 27,918     $ 9,685  
                 
 Total liabilities associated with assets held for sale -
               
  Discontinued operations
  $ 18,138     $ 77,937  
 
The following tables present the revenues and expenses related to the above projects for the three month and six month periods ended June 30, 2011, and June 30, 2010.  Prior period income statement amounts applicable to the above projects have been reclassified and included under income (loss) from discontinued operations.
 
   
Three Months Ended,
   
Three Months Ended,
 
   
June 30, 2011
   
June 30, 2010
 
             
 REVENUE
  $ 97,910     $ 39,500  
 OPERATING EXPENSES
               
 General and administrative
    288,141       72,156  
 Salaries and wages
    132,075       174,933  
 Product development costs
    15,732       34,803  
 Total Operating Expenses
    435,948       281,892  
 OPERATING LOSS
    (338,038 )     (242,392 )
 OTHER INCOME (EXPENSES)
               
 Gain on sale of equipment
    849       -  
 Total Other Income (Expenses)
    849       -  
 LOSS FROM DISCONTINUED OPERATIONS
  $ (337,189 )   $ (242,392 )
 
 
8

 

SPECTRUMDNA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 2 - DISCONTINUED OPERATIONS (Continued)
 
   
Six Months Ended,
   
Six Months Ended,
 
   
June 30, 2011
   
June 30, 2010
 
             
 REVENUE
  $ 218,509     $ 70,600  
 OPERATING EXPENSES
               
 General and administrative
    372,125       226,227  
 Salaries and wages
    266,448       332,536  
 Product development costs
    25,010       46,302  
 Total Operating Expenses
    663,583       605,065  
 OPERATING LOSS
    (445,074 )     (534,465 )
 OTHER INCOME (EXPENSES)
               
 Gain on sale of equipment
    849       -  
 Total Other Income (Expenses)
    849       -  
 LOSS FROM DISCONTINUED OPERATIONS
  $ (444,225 )   $ (534,465 )
 
NOTE 3 - RELATED PARTY TRANSACTIONS
 
As of June 30, 2011, and December 31, 2010, the Company recorded accounts payable balances of $3,309 and $261, respectively.  From time to time, employees of the Company procure goods or services on behalf of the Company which require reimbursement or are owed non-salaried compensation.
 
NOTE 4 – SHARE BASED PAYMENT
 
The Company follows the provisions of 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.
 
During the six months ended June 30, 2011 and 2010, the Company recorded $164,455 and $505,082, 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 included in general and administrative expense for non-employees and in salaries and wages for employees.  During the six months ended June 30, 2011 and 2010, the Company recorded $114,962 and $284,494, respectively, in compensation expense related to share-based payment 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
 
During the first and second quarters of 2011, there were no material changes to common stock options from those disclosed in the audited annual consolidated financial statements for the year ended December 31, 2010, other than the cancellation of 1,583,333 common stock options as the employees to whom the options had been granted left the Company.
 
 
9

 

SPECTRUMDNA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4 – SHARE BASED PAYMENT (Continued)
 
Changes in stock options issued to employees, advisors, and board members for the periods ended June 30, 2011 and December 31, 2010 are as follows:
   
Number of
   
Weighted Average
 
   
Options
   
Exercise Price
 
             
 Outstanding, December 31, 2009
    13,762,075     $ 0.31  
 Granted
    7,520,000       0.12  
 Exercised
    -       -  
 Cancelled
    (6,739,067 )     0.23  
 Outstanding, December 31, 2010
    14,543,008     $ 0.26  
 Exercisable, December 31, 2010
    10,020,716     $ 0.30  
                 
 Outstanding, December 31, 2010
    14,543,008     $ 0.26  
 Granted
    -       -  
 Exercised
    -       -  
 Cancelled
    (1,583,333 )     0.09  
 Outstanding, June 30, 2011
    12,959,675     $ 0.28  
 Exercisable, June 30, 2011
    11,112,278     $ 0.29  
 
The following table summarizes information about stock options granted to employees, advisors, and board members at June 30, 2011:
 
OPTIONS OUTSTANDING
   
OPTIONS EXERCISABLE
 
                 
Weighted
               
Weighted
 
                 
Average
               
Average
 
Range
         
Weighted
   
Remaining
         
Weighted
   
Remaining
 
of
         
Average
   
Contractual
         
Average
   
Contractual
 
Exercise
   
Number of
   
Exercise
   
Life
   
Number of
   
Exercise
   
Life
 
Prices
   
Options
   
Price
   
(in years)
   
Options
   
Price
   
(in years)
 
                                                     
  0.04       1,620,000     $ 0.04       5.35       1,620,000     $ 0.04       5.35  
  0.50       1,819,643       0.50       6.11       1,819,643       0.50       6.11  
  0.55       1,620,000       0.55       6.98       1,620,000       0.55       6.98  
  0.56       1,020,000       0.56       7.09       749,167       0.56       7.09  
  0.46       400,000       0.46       7.26       400,000       0.46       7.26  
  0.21       420,000       0.21       8.90       420,000       0.21       8.90  
  0.11       1,823,365       0.11       7.68       1,406,698       0.11       7.68  
  0.17       1,000,000       0.17       7.79       552,083       0.17       7.79  
  0.34       250,000       0.34       7.94       250,000       0.34       7.94  
  0.33       200,000       0.33       7.99       200,000       0.33       7.99  
  0.19       250,000       0.19       8.29       106,771       0.19       8.29  
  0.20       500,000       0.20       8.55       500,000       0.20       8.55  
  0.14       156,250       0.14       8.72       156,250       0.14       8.72  
  0.13       500,000       0.13       8.77       156,250       0.13       8.77  
  0.09       280,416       0.09       8.93       280,416       0.09       8.93  
  0.07       100,000       0.07       9.01       25,000       0.07       9.01  
  0.22       200,000       0.22       9.01       200,000       0.22       9.01  
  0.08       200,000       0.08       9.01       200,000       0.08       9.01  
  0.05       600,000       0.05       9.26       450,000       0.05       9.26  
Totals
      12,959,674     $ 0.28       7.33       11,112,278     $ 0.29       7.21  
 
 
10

 

SPECTRUMDNA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4 – SHARE BASED PAYMENT (Continued)
 
Common Stock Options (Continued)
 
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 stock options were made available on January 1, 2009, another 2,637,362 were made available on January 1, 2010, and another 3,452,912 were made available on January 1, 2011.  Of the 12,959,674 options outstanding, 9,520,031 were issued under the Plan.
 
As of June 30, 2011, the aggregate intrinsic value of the options outstanding and exercisable was $0 and $0, respectively.  As of June 30, 2010, the aggregate intrinsic value of the options outstanding and exercisable was $53,460 and $53,460, respectively.  The total fair value of shares vested during the six months ended June 30, 2011 and 2010 was $7,833 and $167,604, respectively.
 
Warrants
 
In connection with the Bridge Financing and Private Offering discussed in Note 7 below, the Company granted warrants to purchase the Company’s common stock to the investors in each offering during the quarters ended December 31, 2009 and March 31, 2010.  These warrants have exercise prices of $0.10 and $0.25, vested upon grant, and are exercisable for a period of five years.  No warrants have been issued since the quarter ended March 31, 2010.
 
Changes in warrants issued to investors for the periods ended June 30, 2011 and December 31, 2010 are as follows:
 
   
Number of
   
Weighted Average
 
   
Warrants
   
Exercise Price
 
             
 Outstanding, December 31, 2009
    1,048,586     $ 0.25  
 Granted
    17,160,000       0.24  
 Exercised
    -       -  
 Cancelled
    -       -  
 Outstanding, December 31, 2010
    18,208,586     $ 0.24  
 Exercisable, December 31, 2010
    18,208,586     $ 0.24  
 
   
Number of
   
Weighted Average
 
   
Warrants
   
Exercise Price
 
                 
 Outstanding, December 31, 2010
    18,208,586     $ 0.24  
 Granted
    -       -  
 Exercised
    -       -  
 Cancelled
    -       -  
 Outstanding, June 30, 2011
    18,208,586     $ 0.24  
 Exercisable, June 30, 2011
    18,208,586     $ 0.24  

 
11

 
 
SPECTRUMDNA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4 – SHARE BASED PAYMENT (Continued)
 
The following table summarizes information about stock warrants granted to employees, investors, and board members as of June 30, 2011:
 
WARRANTS OUTSTANDING
   
WARRANTS EXERCISABLE
 
                 
Weighted
               
Weighted
 
                 
Average
               
Average
 
           
Weighted
   
Remaining
         
Weighted
   
Remaining
 
Range of
         
Average
   
Contractual
         
Average
   
Contractual
 
Exercise
   
Number of
   
Exercise
   
Life
   
Number of
   
Exercise
   
Life
 
Prices
   
Warrants
   
Price
   
(in years)
   
Warrants
   
Price
   
(in years)
 
                                                     
$ 0.25       17,203,586     $ 0.25       3.57       17,203,586     $ 0.25       3.57  
  0.10       1,005,000       0.10       3.55       1,005,000       0.10       3.55  
Totals
      18,208,586     $ 0.24       3.57       18,208,586     $ 0.24       3.57  
 
As of June 30, 2011, the aggregate intrinsic value of the warrants outstanding and exercisable was $0 and $0, respectively.  As of June 30, 2010, the aggregate intrinsic value of the warrants outstanding and exercisable was $0 and $0, respectively.  The total fair value of shares vested during the six months ended June 30, 2010 was $1,201,200.  No warrants vested during the six months ended June 30, 2011.
 
NOTE 5 - EQUITY TRANSACTIONS
 
The Company issued 838,000 shares of common stock as consideration for services rendered by the Company’s legal counsel (during 2010 and 2011) at a value of $.03 per share during the six month period ended June 30, 2011. Also during this period, the Company cancelled $49,200 in deferred compensation that was contributed by former related parties. This amount was closed to additional paid in capital.
 
NOTE 6 - GOING CONCERN
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.  During the six months ended June 30, 2011, the Company incurred net losses of $699,508.  In addition, at the quarter ended June 30, 2011 and year ended December 31, 2010, the Company had accumulated deficits of $9,744,680 and $9,045,172, respectively.  These conditions raise substantial doubt about the Company's ability to continue as a going concern.  The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
 
The Company's continuation as a going concern is contingent upon its ability to obtain financing and to generate revenues and cash flow to meet its obligations on a timely basis.  As the result of the discontinuance of the
 
Addictionary and PlanetTagger product lines, the Company's intends to refocus its business. The Company has appointed a new Board of Directors and Management team to direct this effort.
 
The Company has been able to generate working capital in the past through private placements and issuing promissory notes. It is the Company’s belief that these avenues will remain available. However, no assurance can be made that these efforts will be successful.
 
NOTE 7 - RESTATEMENT
 
On February 9, 2011, the Company dismissed its previous independent accountant, Chisholm, Bierwolf, Nilson, and Morrill LLC and subsequently retained HJ & Associates, LLC (“HJ & Associates) to conduct the audit of its financial statements for the year ended December 31, 2010 and a re-audit of its financial statements for the year ended December 31, 2009, during which we made certain adjustments.
 
 
12

 

SPECTRUMDNA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 – RESTATEMENT (Continued)
 
The table below highlights the material balance sheet items that were affected by these restatements:
 
   
For the Six
Months Ended
June 30, 2010
(As Originally Filed)
   
Changes
Attributable
to Restatement
   
For the Six
Months Ended
June 30, 2010
(Restated)
   
Changes
Attributable to
Discontinued
Operations
   
For the Six
Months Ended
June 30, 2010
(As Filed Herein)
 
                                         
 General and administrative
  $ 305,699     $ 223,859     $ 529,558     $ (446,749 )   $ 82,809  
 Salaries and wages
    837,618       (220,588 )     617,030       (111,948 )     505,082  
 Financing costs
    2,876,803       (2,876,803 )     -       -       -  
 Interest expense - beneficial  
                                       
 conversion feature
    28,397       18,835       47,232       -       47,232  
 Gain on conversion
    25,000       (25,000 )     -       -       -  
 Loss from discontinued operations
    -       -       -       558,697       558,697  
 Net Loss
    (4,007,208 )     2,829,698       (1,177,510 )     -       (1,177,510 )
 Basic and Fully Diluted  
                                       
 Loss per Share
  $ (0.06 )   $ 0.04     $ (0.02 )   $ -     $ (0.02 )
 
During the six months ended June 30, 2010, these adjustments resulted in the variances highlighted in the table immediately above and are related to the following accounts:
 
·  
Associated with a prepaid consulting agreement, to properly recognize consulting expenses in the first two quarters of 2010, general and administrative expenses increased by $3,272.
 
·  
The reclassification of $220,588 related to certain stock-based compensation resulting in a decrease in Salaries and Wages and an increase in General and Administrative.
 
·  
The reclassification of $2,876,803 in financing costs associated with the value of the warrants granted as part of Private Offering resulting in a decrease in financing cost expense and a corresponding decrease in additional paid in capital.
 
·  
The increase in interest expense related to the beneficial conversion feature of the convertible promissory notes of $18,835 and the elimination of the $25,000 gain on conversion of the convertible promissory notes.
 
 NOTE 8 - SUBSEQUENT EVENTS
 
Management has evaluated events and transactions that occurred after the balance sheet date for potential recognition and disclosure through February 12, 2013, the date on which the financial statements were available to be issued.
 
In April of 2012, the Company entered into an agreement with its President and CEO, James Bannister, whereby Mr. Bannister returned 30,615,000 shares of common stock and warrants to acquire 148,586 shares of common stock in consideration for the transfer to Mr. Bannister of certain intellectual property owned by the Company. As additional compensation, the Company paid Mr. Bannister $7,500 in cash. Details of this transaction, along with related schedules and exhibits, are specified in an 8-K report filed with the SEC on April 16, 2012. The Company also raised $50,000 through the issuance of 20,000,000 units (one share of common stock and one warrant) to three investors. Details of this equity transaction are enumerated in the 8-K filed on April 16, 2012.
 
The Company recommenced development stage status during the third quarter of fiscal 2012, ending September 30, 2012.
 
 
13

 

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”.
 
When used in this report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,” “plans”, and similar expressions are intended to identify forward-looking statements regarding events, conditions and financial trends which may affect our future plans of operations, business strategy, operating results and financial position. Forward looking statements in this report include without limitation statements relating to trends affecting our financial condition or results of operations, our business and growth strategies and our financing plans.  Such statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.
 
Plan of Operation
 
During the quarter ended June 30, 2011, the Company discontinued its Addictionary and PlanetTagger product lines, including all assets associated with the Addictionary and PlanetTagger product offering. The Company completed its sale of all related assets in April, 2012 (see 8-K filed on April 16, 2012).
 
As a result of the discontinuance of the Company's previous business operations, our Company is classified as a "shell" company by the Securities and Exchange Commission (SEC). The term shell company means a Company, other than an asset-backed issuer as defined in Item 1101(b) of Regulation AB (§ 229.1101(b) of that chapter), that has:
 
(1) No or nominal operations; and

(2) Either:

(i) No or nominal assets;
(ii) Assets consisting solely of cash and cash equivalents; or
(iii) Assets consisting of any amount of cash and cash equivalents and nominal other assets.

As such, we intend to seek to acquire the assets or shares of an entity actively engaged in business in exchange for our securities through a business combination transaction. While we will attempt to obtain audited financial statements of a business combination candidate, there is no assurance that such audited financial statements will be available. The Board of Directors does intend to obtain certain assurances of value of the candidate entity's assets prior to consummating such a transaction. We have no full time employees. Presently, our officers have agreed to allocate a portion of their time to our activities without compensation. However, we may compensate them in stock for services rendered at some future date.  Consequently, conflicts of interest may arise with respect to the limited time commitment by such officers. In addition, our officers and directors may, in the future, become involved with other companies, which have a business purpose similar to that of ours. As a result, additional conflicts of interest may arise in the future.
 
The contemplated business combination or transaction could result in a significant issuance of shares. This issuance of shares may create a substantial dilution to our present stockholders.

Searching for Business Combination Candidate

The Company is undercapitalized. Previously, the current Board has advanced funds to the Company or on behalf of the Company.  Additionally, the Company may undertake a private placement of its securities in order to (1) maintain the integrity of the corporate entity, and (2) pay general and administrative expenses related to transfer agency fees, financial accounting and auditing, and legal fees associated with initiating and preserving the corporate standing as a Securities and Exchange Commission reporting company.

 
14

 

Form of Business Combination

The manner in which the Company participates in a business combination will depend upon the nature of the transaction, the respective needs and desires of the Company and the management and shareholders of the candidate company, and the relative negotiating strength of each.
 
It is likely that the Company will acquire its participation in a business combination through the issuance of common stock or other securities of the Company. Although the terms of any such transaction cannot be predicted, it should be noted that in certain circumstances the criteria for determining whether or not an acquisition is a so-called "tax free" reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), depends upon whether the owners of the acquired business own 80% or more of the voting stock of the surviving entity. If a transaction were structured to take advantage of these provisions rather than other "tax free" provisions provided under the Code, all prior stockholders would in such circumstances retain 20% or less of the total issued and outstanding shares. Under other circumstances, depending upon the relative negotiating strength of the parties, prior stockholders may retain substantially less than 20% of the total issued and outstanding shares of the surviving entity. This could result in substantial additional dilution to the equity of those who were stockholders of the Company prior to such reorganization.
 
Results of Operations
 
For the Three Months Ended June 30, 2011 Compared to the Three Months Ended June 30, 2010
 
As a result of the discontinuation of operations, the Company recorded no revenues during the quarter ended June 30, 2011, as well as in the quarter for the comparative prior year period. General and administrative expenses were relatively comparable ($38,372 for the period ended June 30, 2011 and $27,171 for the period ended June 30, 2010). However, salaries and wages decreased significantly from $273,138 during the June 30, 2010 quarter to $79,350 during the quarter ended June 30, 2011.  All product development expenses were directly related to the discontinued operations and were included in the loss from discontinued operations for both the current and comparative quarters ended June 30th. The Company incurred a loss from continuing operations of $119,909 during the quarter ended June 30, 2011 compared to a loss of $302,941 during the comparative prior year quarter. The Company also sustained a loss of $337,189 from discontinued operations for the quarter ended June 30, 2011, compared to a restated comparable loss of $242,392 during the quarter ended June 30, 2010. Net loss decreased (on a restated, discontinued operational basis) from $545,333 in the quarter ended June 30, 2010 to $457,098 for the quarter ended June 30, 2011.
 
For the Six Months Ended June 30, 2011 Compared to the Three Months Ended June 30, 2010
 
Again, as a result of the discontinuation of operations, the Company recorded no revenues during the six month period ended June 30, 2011, as well for the comparative prior year six month period ended June 30, 2010. General and administrative expenses were similar ($87,242 for the period ended June 30, 2011 and $82,809 for the period ended June 30, 2010). However, salaries and wages decreased significantly from $505,082 during the six months ending June 30, 2010 to $164,455 during the comparable period ended June 30, 2011.  All product development expenses were directly related to the discontinued operations and were included in the loss from discontinued operations for both the current and comparative six month periods ended June 30th. The Company incurred a loss from continuing operations of $255,283 during the six months ended June 30, 2011 compared to a loss of $643,046 during the comparative prior year six month period. The Company also sustained a loss of $444,225 from discontinued operations for the six months ended June 30, 2011, compared to a restated comparative loss of $643,046 during the six months ended June 30, 2010. Net loss decreased (on a restated, discontinued operational basis) from $1,177,511 for the six month period ended June 30, 2010 to $699,508 for the same six month period ended June 30, 2011.
 
Liquidity and Capital Resources
 
As of June 30, 2011, the Company had current assets of $32,485 and current liabilities of $110,394 which resulted in a working capital deficiency of $77,909. During the six month period ended June 30, 2011, the Company incurred a net cash outlay of $185,901 from operating activities, and had a net decrease in cash of $195,605 from January 1, 2011, to June 30, 2011, which resulted in a cash balance of $271 as of June 30, 2011.
 
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.
 
 
15

 

Item 4T.  Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2010, and June 30, 2011, these disclosure controls and procedures were ineffective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
Management’s Report on Internal Control over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
 
Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.
 
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting.  Based on our evaluation, management concluded that our internal control over financial reporting was ineffective as of December 31, 2010, our most recently completed fiscal year.
 
Material Weakness in Internal Control over Financial Reporting
 
A material weakness in internal control over financial reporting is defined by the Public Company Accounting Oversight Board’s Audit Standard No. 5 as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.  A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.
 
 
16

 
 
At December 31, 2010, management’s assessment identified the following material weaknesses in internal control over financial reporting:
 
1.  
Inadequate segregation of duties within certain aspects of the financial reporting process.
 
2.  
The non-cash aspects of certain debt and equity issuances were not properly and accurately accounted for.
 
Related mitigating procedures did not operate effectively to alleviate these deficiencies.
 
In light of the material weaknesses described above, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles.  Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
 
The internal control weakness identified above with regard to the inadequate segregation of duties with certain aspects of the financial reporting process will only be completely corrected if the Company expands and has the capacity to adequately segregate the duties to mitigate the risk in financial reporting.  This expansion will depend mostly on the ability of management to fully execute its business operating strategy as outlined in Item 2(b) above and generate enough income to warrant growth in personnel.  With regard to the internal control deficiency identified above related to the lack of preventative measures to properly and accurately account for the recording of the non-cash aspects of certain debt and equity issuances, management has already taken steps to mitigate such risk going forward by utilizing external financial consulting services prior to the review by our principal independent accounting firm to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the Commission’s rule and forms.
 
Changes in Internal Control over Financial Reporting
 
The Company did not issue any debt instruments and only issued a limited amount of equity instruments (838,000 common shares) during the six months ended June, 30, 2011. The Company has taken steps to mitigate the risk associated with the lack of preventative measures to properly and accurately account for the recording of the non-cash aspects of these issuances. This risk has been mitigated by utilizing external financial consulting services prior to the review by our principal independent accounting firm.  Aside from these efforts, there were no other changes in our internal control over financial reporting that occurred during the fiscal quarter ended June 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
17

 
 
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, 2011, the Company issued 838,000 shares of common stock as compensation for services.
 
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 Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)
32.1
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
32.2
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
101.INS **
XBRL Instance Document
101.SCH **
XBRL Taxonomy Extension Schema Document
101.CAL **
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF **
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB **
XBRL Taxonomy Extension Label Linkbase Document
101.PRE **
XBRL Taxonomy Extension Presentation Linkbase Document

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
18

 
 
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: February 19, 2013
By:
/s/ Parrish B. Ketchmark  
   
Parrish B. Ketchmark,
   
Principal Executive Officer
     
     
Dated: February 19, 2013
By:
/s/ Terrence J. Dunne  
   
Terrence J. Dunne,
   
Principal Financial Officer


 

 19