SpectrumDNA, Inc. - FORM 10-Q - November 16, 2009

Attached files

file	filename
EX-31.2 - SpectrumDNA, Inc.	v166528_ex31-2.htm
EX-32.1 - SpectrumDNA, Inc.	v166528_ex32-1.htm
EX-31.1 - SpectrumDNA, Inc.	v166528_ex31-1.htm

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 September 30, 2009

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 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 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: $.001 par value per share: 48,747,237 outstanding as of November 13, 2009.

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.	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	18
Item 4T.	Controls and Procedures.	18

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	19
Item 3.	Default upon Senior Securities.	19
Item 4.	Submission of Matters to a Vote of Security Holders.	19
Item 5.	Other Information.	19
Item 6.	Exhibits.	19

SIGNATURES		20

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

SPECTRUMDNA, INC.

Index to Consolidated Financial Statements

Period Ended September 30, 2009

	Page
Consolidated Balance Sheets	3

Consolidated Statements of Operations	4

Consolidated Statements of Stockholders’ Equity	5

Consolidated Statements of Cash Flows	6

Notes to Financial Statements	8

SpectrumDNA, Inc.

(A Development Stage Company)

Consolidated Balance Sheets

	September 30,			December 31,
	2009			2008
ASSETS	(unaudited)
CURRENT ASSETS

Cash	$	34,901		$	548,499
Accounts receivable, net		33,550			14,000
Prepaid expenses		-			59,204

Total Current Assets		68,451			621,703

PROPERTY AND EQUIPMENT, NET		8,464			11,629

OTHER ASSETS

Domain names, net		3,341			3,428
Product development, net		17,534			69,273
Security deposit		5,000			5,000

Total Other Assets		25,874			77,701

TOTAL ASSETS	$	102,789		$	711,033

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES

Accounts payable	$	114,014		$	34,386
Accrued expenses		60,133			-
Interest payable		453			-
Stock subscription advances		42,000			-
Payroll liabilities		52,367			11,933

Total Current Liabilities		268,968			46,319
Total Liabilities		268,968			46,319

COMMITMENTS		-			-
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.001 par value, 10,000,000 shares authorized, -0- shares issued and outstanding		-			-
Common stock, $0.001 par value, 100,000,000 shares authorized, 48,747,237 and 48,739,658 shares issued and outstanding, respectively		48,747			48,740
Additional paid-in capital		6,336,764			5,309,232
Deficit accumulated during the development stage		(6,551,690	)		(4,693,258	)

Total Stockholders' Equity (Deficit)		(166,179	)		664,714
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	102,789		$	711,033

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

SpectrumDNA, Inc.

(A Development Stage Company)

Consolidated Statements of Operations

(unaudited)

	For the Three Months Ended September 30,			For the Three Months Ended September 30,			For the Nine Months Ended September 30,			For the Nine Months Ended September 30,			Accumulated From Inception on May 15, 2006 through September 30,
	2009			2008			2009			2008			2009
REVENUES, net	$	48,800		$	28,590		$	121,580		$	49,916		$	243,279

COST OF SALES, net		11,918			24,655			53,177			74,099			194,795

GROSS PROFIT (LOSS)		36,882			3,935			68,403			(24,183	)		48,484

OPERATING EXPENSES

General and administrative		129,492			195,205			350,785			371,986			1,638,242
Salaries and wages		493,986			465,301			1,502,065			1,393,663			4,593,070
Product development expenses		41,902			49,120			69,294			190,827			462,107
Bad debt expense		-			-			-			90			5,225
Depreciation expense		2,658			1,659			6,675			6,995			18,214

Total Operating Expenses		668,038			711,285			1,928,819			1,963,561			6,716,858

OPERATING LOSS		(631,156	)		(707,350	)		(1,860,416	)		(1,987,744	)		(6,668,374	)

OTHER INCOME (EXPENSES)
Interest income		30			7,119			1,984			33,692			103,916
Other income		-			-			-			-			12,768
Total Other Income (Expenses)		30			7,119			1,984			33,692			116,684

NET LOSS BEFORE INCOME TAXES		(631,126	)		(700,231	)		(1,858,432	)		(1,954,052	)		(6,551,690	)
INCOME TAX EXPENSE		-			-			-			-			-
NET LOSS	$	(631,126	)	$	(700,231	)	$	(1,858,432	)	$	(1,954,052	)	$	(6,551,690	)

BASIC AND FULLY DILUTED LOSS PER SHARE	$	(0.01	)	$	(0.01	)	$	(0.04	)	$	(0.04	)

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING		48,747,237			48,671,754			48,744,738			48,648,635

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

SpectrumDNA, Inc.

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit)

For the period May 15, 2006 (inception) through September 30, 2009

												Deficit
												Accumulated
									Additional			During the			Total
	Preferred Stock				Common Stock				Paid-In			Development			Stockholders'
	Shares		Amount		Shares		Amount		Capital			Stage			Equity
Balance, May 15, 2006 (inception)		-	$	-		-	$	-	$	-		$	-		$	-
Issuance of founder shares at inception		-		-		37,200,000		37,200		(37,200	)		-			-
Common shares issued for cash at $0.037 per share		-		-		5,400,000		5,400		194,600			-			200,000
Common shares issued for cash at $0.50 per share		-		-		2,025,000		2,025		1,010,475			-			1,012,500
Compensation expense associated with stock options and warrants		-		-		-		-		103,938			-			103,938
Net loss for the period from inception on May 15, 2006 through December 31, 2006		-		-		-		-		-			(301,652	)		(301,652	)

Balance, December 31, 2006		-		-		44,625,000		44,625		1,271,813			(301,652	)		1,014,786
Common shares issued for cash at $0.50 per share		-		-		3,975,000		3,975		1,983,525			-			1,987,500
Common shares issued for services at $0.50 per share		-		-		26,667		27		13,309			-			13,336
Compensation expense associated with stock options and warrants		-		-		-		-		800,084			-			800,084
Net loss for the year ended December 31, 2007		-		-		-		-		-			(1,832,975	)		(1,832,975	)

Balance, December 31, 2007		-		-		48,626,667		48,627		4,068,731			(2,134,627	)		1,982,731
Common shares issued for services at an average of $0.37 per share		-		-		112,991		113		42,095			-			42,208
Compensation expense associated with stock options and warrants		-		-		-		-		1,198,406			-			1,198,406
Net loss for the year ended December 31, 2008		-		-		-		-		-			(2,558,631	)		(2,558,631	)

Balance, December 31, 2008		-		-		48,739,658		48,740		5,309,232			(4,693,258	)		664,714
Common shares issued for services at an average of $0.55 per share		-		-		7,579		7		4,159			-			4,166
Compensation expense associated with stock options and warrants		-		-		-		-		1,023,373			-			1,023,373
Net loss for the nine months ended September 30, 2009 (unaudited)		-		-		-		-		-			(1,858,432	)		(1,858,432	)

Balance September 30, 2009 (unaudited)		-	$	-		48,747,237	$	48,747	$	6,336,764		$	(6,551,690	)	$	(166,179	)

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

SpectrumDNA, Inc.

(A Development Stage Company)

Statements of Cash Flows

(unaudited)

	For the Nine Months Ended September 30,			For the Nine Months Ended September 30,			Accumulated From Inception on May 15, 2006 through September 30,
	2009			2008			2009
CASH FLOWS FROM OPERATING ACTIVITIES

Net loss	$	(1,858,432	)	$	(1,954,052	)	$	(6,551,690	)
Adjustments to reconcile net loss to net used by operating activities:
Depreciation and amortization		59,852			81,094			202,420
Stock options and warrants granted for services rendered		1,023,373			885,059			3,125,801
Common stock issued for services rendered		4,166			24,625			59,709
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable		(19,550	)		(34,500	)		(33,550	)
(Increase) decrease in employee advances		-			1,790			-
(Increase) decrease in prepaid expenses		59,204			(40,997	)		-
(Increase) decrease in security deposits		-			-			(5,000	)
Increase (decrease) in accounts payable and accrued expenses		128,282			10,013			174,601
Increase (decrease) in payroll liabilities		52,367			-			52,367

Net Cash Used in Operating Activities		(550,738	)		(1,026,968	)		(2,975,342	)

CASH FLOWS FROM INVESTING ACTIVITIES

Cash paid for fixed assets		(3,510	)		(10,101	)		(26,678	)
Cash paid for product development		-			(16,686	)		(194,322	)
Cash paid for intangible assets		(1,350	)		(3,095	)		(10,758	)

Net Cash Used in Investing Activities		(4,860	)		(29,882	)		(231,757	)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash received from issuance of common stock		-			-			3,100,000
Cash received from stock subscription advances		42,000						42,000
Cash received on exercise of warrants		-			-			100,000

Net Cash Provided by Financing Activities		42,000			-			3,242,000

NET DECREASE IN CASH		(513,598	)		(1,056,850	)		34,901

CASH AT BEGINNING OF PERIOD		548,499			1,833,552			-

CASH AT END OF PERIOD	$	34,901		$	776,702		$	34,901

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

SpectrumDNA, Inc.

(A Development Stage Company)

Statements of Cash Flows (Continued)

(unaudited)

	For the Nine Months Ended September 30,		For the Nine Months Ended September 30,		Accumulated From Inception on May 15, 2006 through September 30,
	2009		2008		2009
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:

CASH PAID FOR:

Interest	$	-	$	-	$	-
Income Taxes	$	-	$	-	$	-


NON-CASH TRANSACTIONS:

Common stock issued for services	$	4,166	$	24,625	$	59,709
Valuation of Stock Options	$	1,023,373	$	885,059	$	3,125,801

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

SPECTRUMDNA, INC.

(A Development Stage Company)

Notes to the Condensed Financial Statements

September 30, 2009

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2009, and for all periods presented herein, have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2008 audited financial statements. The results of operations for the periods ended September 30, 2009 and 2008 are not necessarily indicative of the operating results for the full years.

NOTE 2- NET INCOME (LOSS) PER SHARE OF COMMON STOCK

The Company computes net income (loss) per share of common stock in accordance with GAAP. Under GAAP, basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income 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. The dilutive effect of outstanding stock options, is reflected in diluted earnings per share by application of the treasury stock method. Potential common shares of 17,087,229 resulting from outstanding stock options were considered but not included in the calculation of diluted income (loss) per share as their effect would be antidilutive.

	Three months ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2009			2008			2009			2008
Basic and diluted earnings per share:	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Loss (numerator)	$	(631,126	)	$	(700,231	)	$	(1,858,432	)	$	(1,954,052	)
Weighted average number of shares outstanding – basic (denominator)		48,747,237			48,671,754			48,744,738			48,648,635
Per share amount	$	(0.01	)	$	(0.01	)	$	(0.04	)	$	(0.04	)

NOTE 3- SHARE BASED COMPENSATION

The Company follows GAAP in valuing its share based compensation, 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 nine months ended September 30, 2009 and 2008, the Company recorded $1,023,373 and $885,059, respectively, in compensation expense related to share-based payment awards. The Company recognizes compensation expense for share-based payment awards on the straight-line basis over the requisite service period of the entire award, unless the awards are subject to market conditions, in which case the Company recognizes compensation expense over the requisite service period of each separate vesting installment. Compensation expense related to share-based payment awards is recorded in operating expenses. 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.

The following table sets forth information about the weighted-average fair value of options granted during the periods ended September 30, 2009 and December 31, 2008 and the weighted-average assumptions used for such grants:

	September 30,			December 31,
	2009			2008
	(unaudited)
Dividend yields		0.0	%		0.0	%
Expected volatility		177.6	%		68.5	%
Risk-free interest rate		3.15	%		4.0	%
Option terms	1 - 4 years			1-4 years

Common Stock Options

Changes in stock options issued to employees for the periods ended September 30, 2009 and December 31, 2008 are as follows:

				Weighted
	Number			Average
	Of			Exercise
	Options			Price

Outstanding, December 31, 2007		8,510,180		$	0.41
Exercisable, December 31, 2007		1,460,833		$	0.34
Granted		5,260,000			0.54
Exercised		-			-
Cancelled		(2,870,030	)		0.50
Outstanding, December, 31, 2008		10,900,150		$	0.45
Exercisable, December 31, 2008		4,694,465		$	0.39
Granted		7,300,100			0.13
Exercised		-			-
Cancelled		(1,113,021	)		0.54
Outstanding, September 30, 2009		17,087,229		$	0.31
Exercisable, September 30, 2009		7,961,061		$	0.37

The following table summarizes information about employee stock options outstanding at September 30, 2009:

Options Outstanding						Options Exercisable
						Weighted
						Average
Range				Weighted		Remaining				Weighted
Of				Average		Contractual				Average
Exercise		Number		Exercise		Life		Number of		Exercise
Prices		Outstanding		Price		(in years)		Options		Price
$	0.04		1,620,000	$	0.04		7.09		1,575,000	$	0.04
	0.50		4,089,681		0.50		7.93		2,865,056		0.50
	0.55		2,637,448		0.55		8.75		1,729,115		0.55
	0.56		1,020,000		0.56		8.84		308,333		0.56
	0.46		400,000		0.46		9.01		400,000		0.46
	0.21		20,000		0.21		8.55		20,000		0.21
	0.11		5,850,100		0.11		9.42		853,140		0.11
	0.17		1,000,000		0.17		9.54		114,583		0.17
	0.34		250,000		0.34		9.68		41,667		0.34
	0.33		200,000		0.33		9.73		54,167		0.33
			17,087,229	$	0.31				7,961,061	$	0.37

As of September 30, 2009, the aggregate intrinsic value of the options outstanding and exercisable was $267,662 and $163,538, respectively. As of September 30, 2008, the aggregate intrinsic value of the options outstanding and exercisable was $427,860 and $237,525, respectively. The weighted-average grant-date fair value of options granted for the period ended September 30, 2009 was $0.12. The weighted-average grant-date fair value of options granted for the period ended September 30, 2008 was $0.43. The total fair value of shares vested during the period ended September 30, 2009 and 2008 was $429,966 and $691,573, respectively.

NOTE 4 – GOING CONCERN

The Company’s financial statements have been prepared using accounting principles generally accepted in the United States of America generally applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments related to the recoverability of assets or classification of liabilities that might be necessary should we be unable to continue as a going concern. At September 30, 2009, the Company’s current liabilities exceeded it current assets. Additionally, it has incurred substantial losses in this and prior fiscal years and has recorded negative cash flows from operations in this and prior fiscal years. At September 30, 2009, the Company’s cash balance was $34,901. The preceding circumstances combine to raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plan to continue as a going concern includes significant cost cutting measures implemented in November of 2008 to improve earnings potential as well as continuing to focus on increasing revenues from the sales of its products. In addition, the Company is actively seeking additional sources of financing to fund its operations for the foreseeable future.

NOTE 5 – CONSULTING AGREEMENT

On July 31, 2009, the Company entered into a Consulting Agreement (the “Agreement”) with HFP Capital Markets LLC (“HFP”) pursuant to which HFP will provide certain consulting services to the Company including but not limited to assistance in securing future investment in the Company, assistance with certain corporate finance and investment banking activities, assistance with new business development, sales and marketing opportunities, and such other services as set forth therein. The term of the Agreement is three years, although the Company may terminate upon thirty days written notice for any reason or no reason at all, but no sooner than six months from the full execution of the Agreement. The Company will compensate HFP for these consulting services by issuing to HFP or its designees 4,000,000 shares of the Company’s restricted common stock which shall vest and become issuable to HFP or its designees 120 days from the full execution of the Agreement, or November 28, 2009.

NOTE 6 – PRIVATE FINANCING TRANSACTIONS

During September 2009, the Company commenced a 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 are being offered to accredited investors only. The securities have not be registered under the Securities Act of 1933, as amended (the “Act”) and are being 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. There can be no assurance that the Company will be able to complete the offering. This disclosure does not constitute an offer to sell or the solicitation of an offer to buy any the Company's securities, nor will there be any sale of these securities by the Company in any state or jurisdiction in which the offer, solicitation or sale would be unlawful.

Also, during the third quarter of 2009, the Company received an aggregate of $42,000 in stockholder advances from its Chief Executive Officer and another stockholder which funds were advanced towards the Bridge Financing in the form of Convertible Notes. See Note 7 below.

NOTE 7 – SUBSEQUENT EVENTS

On November 2, 2009 and November 12, 2009, and in connection with a private debt offering (“Bridge Financing”) subsequent to the quarter ended September 30, 2009, the Company raised $55,000 from two investors from the sale of Convertible Promissory Notes in the principal amount of $55,000 due three months from issuance bearing interest at a 90-day rate of 10%. In connection with such investments, 550,000 common stock purchase warrants were also issued to such investors. Similarly, on November 12, 2009, and in connection with the Bridge Financing, the Company issued Convertible Promissory Notes to its Chief Executive Officer and another stockholder in the principal amount of $42,000 due three months from issuance bearing interest at a 90-day rate of 10%, resulting from the funds advanced by such two stockholders during the third quarter of 2009. See Note 6 above. In connection with such issuance, 420,000 common stock purchase warrants were also issued to the two stockholders.

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

The following information should be read in conjunction with the 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,” “SpectrumDNA” 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, also Delaware corporations. We use the trade names “SpectrumDNA, Inc.” or “SpectrumDNA Studios, Inc.” in our commercial operations.

(b) Business Overview

General

SpectrumDNA, Inc. is a social media studio that creates Digital Network Applications and engines of engagement (or “Enginets”) for media outlets and advertisers looking to cost-effectively capture specific audience behaviors and develop advertiser-safe user-generated and user-marketed content. Enginets are branded web and wireless-based network experiences - Web 2.0 (and beyond) software applications — that empower users to take active roles in their community.

Our product development methodology is based on our Chief Executive Officer James A. Banister’s book “Word of Mouse: The New Age of Networked Media” (Agate, 2004) which we believe predicted what The Gartner Group has now measured in its study measuring demographics of the online 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”—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

Engines of engagement, or enginets, can create new ways to capture-and-nurture audiences and help existing organizations and online networks improve key audience metrics—drive more unique users, more frequency of usage by each user, and a deeper, longer engagement in each user visit. Our product development strategy is to develop, incubate and produce enginets based on observed emergent audience behavior.

Currently, our active enginets are as follows:

The Addictionary (http://www.spectrumdna.com/?page_id=108)

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) 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 (http://www.spectrumdna.com/?page_id=122)

PlanetTagger is a location-based social networking engine. The pre-cursor to PlanetTagger, our now-discontinued cooshoo.com property, was originally intended as a direct-to-consumer software application—a singular destination aimed at capturing “missed connections” behavior that was naturally emerging on sites like craigslist.org. Similar to our repositioning of The Addictionary, we re-engineered the cooshoo.com application into a generalized location-based services application and re-branded it PlanetTagger—another example of the software-as-a-service that can be offered to any niche community looking to capture and nurture location-based behavior. Like The Addictionary, emergence of PlanetTagger as a software-as-a-service effectively turned one product into dozens of products.

New Products

We maintain a product development pipeline that is continually re-prioritized based on commercial opportunity, market feedback and market conditions. Our development pipeline is based on our proprietary enginetworking process.

Sales, Marketing and Performance

Currently, mainstream advertising is based primarily on the “impression” model, such as thirty-second television commercials, print ads and radio spots; but the emergence of social media enables a new methodology for engaging audiences. Advertisers spend billions of dollars every year to create a “spark” with a target constituency. Typically these expenditures take the form of limited-run ad campaigns (e.g. 13-week television ad run), or fixed-length events (e.g. the Superbowl). However, when these events end, the exposure to and engagement with the sponsor’s audience concludes. Such campaigns can be characterized as “planting dead trees.”

With very little change in existing, and long-standing, advertising industry methodologies, advertisers can augment their limited-run campaigns that they are already doing with an engine of engagement—an enginet. This way, the dollars they are already investing in reaching their desired audience—the “spark”—can be used to prime an engine that has the potential to create a long-term return on investment by offering the audience a more engaging social media experience with potential to grow into a self-perpetuating messaging engine.

Conversely, traditional media outlets (print, broadcast, online) are in the business of building assets, and often the foundation of their business models rest on support from brand advertisers. But traditional media outlets aren’t proficient at creating social media experiences (as they are rooted in linear media— push media instead of conversational media).

In our sales and marketing strategy, SpectrumDNA has pioneered the business of social nicheworking—providing white-label social media experiences that media entities or brand advertisers (or both) can offer to their target affinity groups. Instead of launching “yet another web2.0 destination,” SpectrumDNA partners with institutions already spending the time, money and effort to engage their target affinity group, providing them with the social media expertise they lack. Our Addictionary property has over 4 million monthly unique users now (and growing) using this social nicheworking partnership strategy.

Our first Addictionary transaction of this type was signed in June 2008 with Comedy Central. As a result, we are the provider of the Political Addictionary (http://politicaladdictionary.com) to Comedy Central’s Indecision 2008 brand (http://indecision2008.com). Our partnership with Comedy Central on the Political Addictionary (http://politicaladdictionary.com) set two significant milestones for our business:

Licensing to Comedy Central validated our marketing strategy of providing social media software applications to media and brand partners bolstering their brand and the engagement of their existing audience. Due to the significant increases Comedy Central experienced in its core audience metrics, they have effectively monetized our software via advertising.

The Political Addictionary turned into a “brand asset”—a recognized brand within the world of political and social commentary across the internet. It has become the de facto online destination where politicos and political bloggers communicate with each other around the lingo of politics.

In the fourth quarter of 2008, we continued this momentum by partnering with three additional media companies. In October 2008, NBC Universal licensed and launched The Office Addictionary for their hit television show “The Office” (http://officeaddictionary.com). The following month, Universal Press Syndicate’s digital group, UClick, licensed the Addictionary for syndication to regional newspapers and websites. And finally, in December of 2008, E! Entertainment, a Comcast Networks property, licensed and launched The Celebrity Addictionary (http://celebrityaddictionary.com), which has rapidly grown into the most popular Addictionary implementation.

In the first quarter of 2009, MarketingProfs.com, a Los Angeles-based media property licensed The Marketing Addictionary, with the launch of the enginet occurring during that quarter. Further, in the first quarter of 2009, the Company licensed The Horror Addictionary to Comcast’s FearNet Channel, marking the second Comcast Networks property to launch a branded version of The Addictionary enginet. The Horror Addictionary launched in the second quarter of 2009.

In the second quarter of 2009, the Company licensed its Addictionary enginet to The Ellen DeGeneres show with the site launching later that quarter. Also in that quarter, the Company licensed the Addictionary to Dictionary.com, an operating business unit of IAC, with the launch of scheduled for first quarter of 2010. Finally, the Company licensed the Addictionary to News Corp’s daily newspaper The New York Post, with the launch of the New York Addictionary occurring in October 2009.

In the third quarter of 2009, the Company agreed to license the Addicitonary to Comedy Central’s television show Secret Girlfriend, representing the second Comedy Central property to launch a branded version of the Additictionary enginet. The site launched during the first week of October 2009. Also in the third quarter, the Company agreed to license the Gamers’ Addictionary to G4TV.com, which marks the third Comcast Networks property to license a branded Addictionary enginget. Finally, in the fourth quarter of 2009, the Company licensed the Addictionary to streetball.com, a site dedicated to the basketball and hip hop lifestyle. Both the Gamers’ Addictionary and the streetball.com Addicitonary are scheduled to launch during the fourth quarter of 2009.

The Addictionary has proven 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.

We continue to evolve the Addictionary platform to build on successes to-date. We are continuing sales efforts targeting the 500+ potential “verticals” we’ve identified—from IP-based communities like The Office, Harry Potter or Star Trek to subject-matter communities like golf, gardening, celebrity, local geography (e.g. New York) or pet ownership. Sales discussions during the third and into the fourth quarter have focused on a number of verticals in including parenting, sports, news, financial news, and food as well as brand marketers and traditional media outlets looking to engage online audiences around their brands or properties.

Our emerging 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.

PlanetTagger sales efforts will remain low-level until we are able to expand our sales force. Despite our limited sales and marketing resources, during the third quarter and continuing into the fourth quarter, the Company has had and continues to have sales meetings regarding potential PlanetTagger installations with a number of companies and institutions within the sports, music, and pharmaceutical industries as well as various governmental entities.

In general, as we increase our sales and marketing efforts we anticipate that we will continue to incur net losses for the foreseeable future. The extent of these losses will depend, in part, on the amount of growth in our revenues from organization adoption, consumer acceptance and use of our products; the number of relationships we are able to form with advertisers and marketers to use our enginets; and our ability to garner direct investment into our individual enginet enterprises.

Employees

As of the date hereof, the Company has seven (7) full-time employees located in Park City, UT, Helena, MT, and Billings, MT. 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 marketing, business development and sales efforts.

Results of Operations

For the Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008

Revenues for the quarterly period ended September 30, 2009 were $48,800 resulting primarily from E! Entertainment Addictionary license fees, UCLA PlanetTagger license fees, and partial set-up fees from Dictionary.com and NY Post; compared to $28,590 for the quarter ended September 30, 2008 resulting from license fees from Comedy Central for the Political Addictionary and set-up fees from NBC’s The Office. Cost of sales was $11,918 for the three months ended September 30, 2009, compared to $24,655 for the comparable period of 2008. Cost of sales was constituted primarily of the amortization of product development expenses.

Total operating expenses for the third quarter of the 2009 fiscal year were $668,038, compared to $711,285 for the comparable period of 2008, a decrease of 6%. The decreased operating expenses in 2009 resulted primarily from related increases in salaries and wages ($493,986 in 2009 compared to $465,301 in 2008) offset by decreases in product development expenses ($41,902 in 2009 compared to $49,120 in 2008) and general and administrative expenses ($129,492 in 2009 compared to $195,205 in 2008). Included in salaries and wages were expenses pertaining to common stock and stock options granted for services rendered. The Company recognized $333,274 in these expenses during the third quarter of 2009 compared to $330,921 in 2008. General and administrative expenses decreased primarily as a result of decreases in travel expenses related to the sales and marketing process and marketing and public relations expenses offset by increases in deferred salary expenses and site hosting costs.

We recognized a net loss of $631,126 for the quarter ended September 30, 2009 compared to a loss of $700,231 for the quarter ended September 30, 2008, a decrease of 10%. Excluding the non cash expense recorded for common stock and common stock options issued during the periods, the loss would have been $297,852 and $369,310, respectively. Our basic and diluted net loss per share was $0.01 for the three months ended September 30, 2009, compared to $0.01 for the comparable period of 2008.

For the Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008

Revenues for the nine month period ended September 30, 2009 were $121,580 resulting primarily from E! Entertainment, FearNet and NBC Universal Addictionary license fees, UCLA PlanetTagger license fees, and partial set-up fees from Dictionary.com and NY Post; compared to $49,916 for nine month period ended September 30, 2008 resulting from license fees from Comedy Central for the Political Addictionary and set-up fees from NBC’s The Office. Cost of sales was $53,177 for the nine months ended September 30, 2009, compared to $74,099 for the comparable period of 2008. Cost of sales was primarily constituted of the amortization of product development expenses.

Total operating expenses for the first nine months of the 2009 fiscal year were $1,928,819 compared to $1,963,561 for the comparable period of 2008, a decrease of 2%. The decreased operating expenses in 2009 resulted primarily from related increases in salaries and wages ($1,502,065 in 2009 compared to $1,393,663 in 2008) offset by a decrease in product development expenses ($69,294 in 2009 compared to $190,827 in 2008). The increase in salaries and wages is constituted largely of stock-based compensation. The Company recognized $1,023,373 in expenses pertaining to common stock and stock options granted for services rendered during the first nine months of 2009 compared to $885,059 in 2008. General and administrative expenses decreased primarily as a result of decreases in professional fees attributed to the filing of our registration statement in the second quarter of 2008 offset by increases in our insurance costs and deferred salary expenses .

We recognized a net loss of $1,858,432 for the nine month period ended September 30, 2009 compared to a loss of $1,954,052 for the nine month period ended September 30, 2008, an increase of 5%. Excluding the non cash expense recorded for common stock and common stock options issued during the periods, the loss would have been $835,059 and $1,068,993, respectively. Our basic and diluted net loss per share was $0.04 for the nine months ended September 30, 2009, compared to $0.04 for the comparable period of 2008.

Liquidity and Capital Resources

As of September 30, 2009, we had $34,901 in cash and total liabilities of $268,968. Additionally, our current liabilities exceeded our current assets, we have incurred substantial losses in this and prior fiscal years, and we have recorded negative cash flows from operations in this and prior fiscal years. As a result, management does not believe our current finances will enable us to implement our plans and satisfy our estimated financial needs over the next 12 months. We implemented significant cost cutting measures in November of 2008 to improve earnings potential as well as continuing to focus on increasing revenues from the sales of our products. In addition, we are actively seeking additional sources of financing to fund our operations for the foreseeable future. No assurance can be made, however, that we will be able to obtain such additional funding on terms acceptable to us, if at all. Our need to obtain capital from outside investors is expected to continue until the time, if ever, our cash flow from operations is sufficient to fund our financial needs. Therefore, if sales or revenues do not meet expectations, or cost estimates for development and expansion of business prove to be inaccurate, we will require additional funding in the future. If additional capital cannot be obtained, we may have to delay or postpone development or other expenditures which can be expected to harm our competitive position, business operations and growth potential. Changes in capital markets and the cost of capital are unpredictable. Any failure to obtain such financing now or in the future, or obtaining financing on unfavorable terms, can be expected to have a material adverse effect on our business, financial condition, results of operations and future business prospects.

On July 31, 2009, we entered into a Consulting Agreement (the “Agreement”) with HFP Capital Markets LLC (“HFP”) pursuant to which HFP will provide certain consulting services to us 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 we 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. We will compensate HFP for these consulting services by issuing to HFP or its designees 4,000,000 shares of the Company’s restricted common stock which shall vest and become issuable to HFP or its designees 120 days from the full execution of the Agreement.

During September 2009, we commenced a 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 are being offered to accredited investors only. The securities have not be registered under the Securities Act of 1933, as amended (the “Act”) and are being 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. There can be no assurance that we will be able to complete the offering. This disclosure does not constitute an offer to sell or the solicitation of an offer to buy any the Company's securities, nor will there be any sale of these securities by the Company in any state or jurisdiction in which the offer, solicitation or sale would be unlawful.

On November 2, 2009 and November 12, 2009, and in connection with a private debt offering (“Bridge Financing”) subsequent to the quarter ended September 30, 2009, we raised $55,000 from two investors from the sale of Convertible Promissory Notes in the principal amount of $55,000 due three months from issuance bearing interest at a 90-day rate of 10%. In connection with such investment, 550,000 common stock purchase warrants were also issued to such investors. Similarly, on November 12, 2009, and in connection with the Bridge Financing, the Company issued Convertible Promissory Notes to its Chief Executive Officer and another stockholder in the principal amount of $42,000 due three months from issuance bearing interest at a 90-day rate of 10%, resulting from the funds advanced by such two stockholders during the third quarter of 2009. In connection with such issuance, 420,000 common stock purchase warrants were also issued to the two stockholders.

For the nine months ended September 30, 2009, the Company’s Net Cash Used by Operating Activities was $550,738 compared to $1,026,968 for the comparable period in 2008. The decrease in Net Cash Used by Operating Activities between the two periods resulted from increases in cash-based salaries and wages and increases in accounts payable and related party expenses.

For the nine months ended September 30, 2009, the Company’s Net Cash Used for Investing Activities was $4,860 compared to $29,882 for the comparable period in 2008. The decrease in Net Cash Used by Investing Activities between the two periods resulted from decreases in fixed asset purchases as well as the Company’s decision to expense rather than capitalize certain intangible assets and product development costs.

Net Cash Provided by Financing Activities was $42,000 for the nine months ended September 30, 2009 due to stockholder subscription advances associated with the Bridge Financing compared to zero for the nine months ended September 30, 3008.

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, 2008.

Recently Issued Accounting Pronouncements

Please refer to our annual report on Form 10-K for the fiscal year ended December 31, 2008. There have been no changes to those accounting pronouncements listed.

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 September 30, 2009, 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 September 30, 2009, the Company had neither any unregistered sales of equity securities nor any exercise of options generating proceeds to the Company.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security-Holders.

None.

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: November 16, 2009	By:	/s/ James A. Banister
		James A. Banister,
		President and Chief Executive Officer
		(Principal Executive Officer)

Dated: November 16, 2009	By:	/s/ Rebecca D. Hershinger
		Rebecca D. Hershinger,
		Chief Financial Officer
		(Principal Financial Officer and
		Principal Accounting Officer)

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