UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-Q
 (Mark
One)
 x
                      QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF
1934
 
 For the
quarterly period ended  October 31,
2008
 
 OR
 
  ̈
                      TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF
1934
 
 For the
transition period from _______________ to _______________
 
 Commission
file number  1-11601
 
 iDNA, INC.
 (Exact
name of registrant as specified in its charter)
 
 Delaware
                  
                  34-1816760(State
      or other jurisdiction of
                  
                  (I.R.S.
      Employerincorporation
      or organization)
                  
                  Identification
      No.)
  415 Madison Avenue, 7thFloor, New York, New York
                        
                        10017(Address
      of principal executive offices)
                        
                        (Zip
      Code)
 
 (212) 644-1400(Registrant’s
      telephone number, including area
code)
 
 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  xNo
 ̈
 
 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
definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act). (Check one):
 
 Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer ̈Smaller reporting companyx
 
 Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act)Yes ̈Nox
 
 Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:
 
 Class
                
                Outstanding at December 19,
      2008Common
      Stock, $0.05 par value
                
                13,085,864
  
  iDNA,
Inc. and Subsidiaries
 
 TABLE
OF CONTENTS
 
 PAGEPART
      I.
                                FINANCIAL
      INFORMATIONItem
      1.
                                Financial
      StatementsCondensed
      Consolidated Balance Sheets as of October 31, 2008 and January 31,
      2008
                                
                                
                                3Condensed
      Consolidated Statements of Operations for the Three Months and Nine
      Months Ended October 31, 2008 and 2007
                                
                                
                                4Condensed
      Consolidated Statement of Stockholders’ Equity and Comprehensive Income
      (Loss) for the Nine Months Ended October 31, 2008
                                
                                
                                5Condensed
      Consolidated Statements of Cash Flows for the Nine Months Ended October
      31, 2008 and 2007
                                
                                
                                6Notes
      to Condensed Consolidated Financial Statements
                                
                                
                                7Item
      2.
                                Management’s
      Discussion and Analysis of  Financial Condition and Results of
      Operations
                                
                                
                                23Item
      3.
                                Quantitative
      and Qualitative Disclosures About Market Risk
                                
                                
                                47Item
      4.
                                Controls
      and Procedures
                                
                                
                                47PART
      II.
                                OTHER
      INFORMATIONItem
      1.
                                Legal
      Proceedings
                                
                                
                                48Item
      1A.
                                Risk
      Factors
                                
                                
                                49Item
      2.
                                Unregistered
      Sales of Equity Securities and Use of Proceeds
                                
                                
                                49Item
      3.
                                Defaults
      Upon Senior Securities
                                
                                
                                49Item
      4.
                                Submission
      of Matters to a Vote of Security Holders
                                
                                
                                49Item
      5.
                                Other
      Information
                                
                                
                                49Item
      6.
                                Exhibits
                                
                                
                                50Signatures
                                
                                
                                51Certifications
  -2-
  PART
I.  FINANCIAL INFORMATION
 Item
1. Financial Statements.
 iDNA,
Inc. and Subsidiaries
 Condensed
Consolidated Balance Sheets
 (in
thousands, except share data)
  October 31,
                        
                        
                        January 31,2008
                        
                        
                        2008(unaudited)ASSETSCash
      and cash equivalents
                        
                        $
                        78
                        
                        
                        $
                        169Restricted
      cash (Note 1)
                        
                        
                        147
                        
                        
                        
                        147Investment
      in trading securities (Note 1)
                        
                        
                        -
                        
                        
                        
                        1,421Accounts
      receivable, net of allowance of $71 and $75, respectively (Note
      1)
                        
                        
                        1,489
                        
                        
                        
                        1,453Income
      taxes refundable
                        
                        
                        19
                        
                        
                        
                        19Inventory
      (Note 1)
                        
                        
                        132
                        
                        
                        
                        165Prepaid
      expenses
                        
                        
                        269
                        
                        
                        
                        444Other
      current assets
                        
                        
                        76
                        
                        
                        
                        90Total
      current assets
                        
                        
                        2,210
                        
                        
                        
                        3,908Property
      and equipment, net of accumulated depreciation of $3,855 and $3,325,
      respectively (Note 1)
                        
                        
                        1,709
                        
                        
                        
                        2,102Investment
      in AFC (Note 2)
                        
                        
                        6,958
                        
                        
                        
                        7,129Other
      assets
                        
                        
                        145
                        
                        
                        
                        414$
                        11,022
                        
                        
                        $
                        13,553LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)LIABILITIESCurrent
      maturities of long term obligations (Notes 3 and 4)
                        
                        $
                        1,000
                        
                        
                        $
                        1,123Accounts
      payable
                        
                        
                        2,314
                        
                        
                        
                        1,220Deferred
      revenue (Note 1)
                        
                        
                        1,324
                        
                        
                        
                        1,552Self-insurance
      claims (Note 5)
                        
                        
                        142
                        
                        
                        
                        172Other
      liabilities
                        
                        
                        885
                        
                        
                        
                        1,324Total
      current liabilities
                        
                        
                        5,665
                        
                        
                        
                        5,391Long
      term obligations (Notes 3 and 4)
                        
                        
                        3,953
                        
                        
                        
                        13,373Convertible
      promissory note (Note 4)
                        
                        
                        -
                        
                        
                        
                        2,825Accrued
      income taxes, long term
                        
                        
                        628
                        
                        
                        
                        610Redeemable
      common stock - issued 2,500,000 shares (Note 4)
                        
                        
                        3,215
                        
                        
                        
                        -13,461
                        
                        
                        
                        22,199COMMITMENTS
      AND CONTINGENCIES (Note 5)
                        
                        
                        -
                        
                        
                        
                        -STOCKHOLDERS'
      EQUITY (DEFICIT)Preferred
      stock
                        
                        
                        -
                        
                        
                        
                        -Common
      stock - $.05 par value, authorized 50,000,000 shares, issued 37,449,589
      and 39,949,589 shares, respectively (Note 4)
                        
                        
                        1,872
                        
                        
                        
                        1,997Additional
      paid-in capital
                        
                        
                        175,780
                        
                        
                        
                        175,537Retained
      deficit
                        
                        
                        (160,274
                        )
                        
                        
                        (164,076
                        )Deferred
      compensation
                        
                        
                        -
                        
                        
                        
                        (18
                        )Treasury
      stock, at cost, 26,863,725 and 29,938,725 shares,
    respectively
                        
                        
                        (19,817
                        )
                        
                        
                        (22,086
                        )Total
      stockholders' equity (deficit)
                        
                        
                        (2,439
                        )
                        
                        
                        (8,646
                        )$
                        11,022
                        
                        
                        $
                        13,553
  See
accompanying notes to condensed consolidated financial statements.
 
 3
 
 iDNA,
Inc. and Subsidiaries
 Condensed
Consolidated Statements of Operations
 (in
thousands, except per share data)
 (unaudited)
  Three Months Ended
                  
                  
                  Nine Months EndedOctober 31,
                  
                  
                  October 31,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenues
      (Note 1)
                  
                  $
                  2,375
                  
                  
                  $
                  5,070
                  
                  
                  $
                  10,024
                  
                  
                  $
                  11,494Cost
      of revenues (Note 1)
                  
                  
                  1,926
                  
                  
                  
                  2,501
                  
                  
                  
                  6,822
                  
                  
                  
                  7,067Gross
      profit
                  
                  
                  449
                  
                  
                  
                  2,569
                  
                  
                  
                  3,202
                  
                  
                  
                  4,427Selling,
      general and administrative
                  
                  
                  1,769
                  
                  
                  
                  2,390
                  
                  
                  
                  5,933
                  
                  
                  
                  7,073Income
      (loss) from operations
                  
                  
                  (1,320
                  )
                  
                  
                  179
                  
                  
                  
                  (2,731
                  )
                  
                  
                  (2,646
                  )Other
      income (expense):Income from
      AFC investment (Note 2)
                  
                  
                  215
                  
                  
                  
                  148
                  
                  
                  
                  429
                  
                  
                  
                  484Interest
      income
                  
                  
                  -
                  
                  
                  
                  1
                  
                  
                  
                  3
                  
                  
                  
                  4Interest
      expense (Note 3)
                  
                  
                  (258
                  )
                  
                  
                  (59
                  )
                  
                  
                  (783
                  )
                  
                  
                  (172
                  )Interest
      expense abatement (Note 4)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  156
                  
                  
                  
                  -Gain
      on restructuring of debt (Note 4)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  9,026
                  
                  
                  
                  -Income
      (loss) from continuing operations before income taxes
                  
                  
                  (1,363
                  )
                  
                  
                  269
                  
                  
                  
                  6,100
                  
                  
                  
                  (2,330
                  )Benefit
      (provision) for income taxes
                  
                  
                  (6
                  )
                  
                  
                  (14
                  )
                  
                  
                  (18
                  )
                  
                  
                  (18
                  )Income
      (loss) from continuing operations
                  
                  
                  (1,369
                  )
                  
                  
                  255
                  
                  
                  
                  6,082
                  
                  
                  
                  (2,348
                  )Income
      from discontinued operations, net of tax
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2
                  
                  
                  
                  8Net
      income (loss)
                  
                  
                  (1,369
                  )
                  
                  
                  255
                  
                  
                  
                  6,084
                  
                  
                  
                  (2,340
                  )Accretion
      of discount on redeemable common stock (Note 4)
                  
                  
                  94
                  
                  
                  
                  -
                  
                  
                  
                  94
                  
                  
                  
                  -Net
      income (loss) applicable to common stock
                  
                  $
                  (1,463
                  )
                  
                  $
                  255
                  
                  
                  $
                  5,990
                  
                  
                  $
                  (2,340
                  )Basic
      and diluted income (loss) per shareContinuing
      operations
                  
                  $
                  (.13
                  )
                  
                  $
                  .03
                  
                  
                  $
                  .58
                  
                  
                  $
                  (.24
                  )Discontinued
      operations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      income (loss) per share
                  
                  $
                  (.13
                  )
                  
                  $
                  .03
                  
                  
                  $
                  .58
                  
                  
                  $
                  (.24
                  )Weighted
      average number of shares outstanding Basic and diluted
                  
                  
                  10,586
                  
                  
                  
                  9,955
                  
                  
                  
                  10,410
                  
                  
                  
                  9,924
  See
accompanying notes to condensed consolidated financial
statements.
  4
 
 iDNA,
Inc. and Subsidiaries
 Condensed
Consolidated Statement of Stockholders’ Equity (Deficit)
 and
Comprehensive Income (Loss)
 Nine
Months Ended October 31, 2008
 (in
thousands, except share data)
 (unaudited)
  Preferred Stock
                    
                    
                    Common Stock
                    
                    
                    Additional
                    
                    
                    
                    
                    
                    
                    
                    
                    Deferred
                    
                    
                    
                    
                    
                    ComprehensivePar
                    
                    
                    
                    
                    
                    Par
                    
                    
                    Paid-In
                    
                    
                    Retained
                    
                    
                    Treasury
                    
                    
                    Compensation
                    
                    
                    
                    
                    
                    IncomeShares
                    
                    
                    Value
                    
                    
                    Shares
                    
                    
                    Value
                    
                    
                    Capital
                    
                    
                    Deficit
                    
                    
                    Stock
                    
                    
                    Expense
                    
                    
                    Total
                    
                    
                    (Loss)Balance
      atJanuary
      31, 2008
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    39,949,589
                    
                    
                    $
                    1,997
                    
                    
                    $
                    175,537
                    
                    
                    $
                    (164,076
                    )
                    
                    $
                    (22,086
                    )
                    
                    $
                    (18
                    )
                    
                    $
                    (8,646
                    )Net
      income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    6,084
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    6,084
                    
                    
                    $
                    6,084Accretion
      on redeemable common stock
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (94
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (94
                    )Share-based
      compensation expense
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    118
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    118Treasury
      stock issued
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (344
                    )
                    
                    
                    425
                    
                    
                    
                    
                    
                    
                    
                    81Issuance
      of common stock from treasury for restructuring debt (Note
    4)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,500,000
                    )
                    
                    
                    (125
                    )
                    
                    
                    125
                    
                    
                    
                    (1,844
                    )
                    
                    
                    1,844
                    
                    
                    
                    
                    
                    
                    
                    -Deferred
      compensation expense
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    18
                    
                    
                    
                    18Comprehensive
      income (loss)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    6,084Balance
      at October 31, 2008
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    37,449,589
                    
                    
                    $
                    1,872
                    
                    
                    $
                    175,780
                    
                    
                    $
                    (160,274
                    )
                    
                    $
                    (19,817
                    )
                    
                    $
                    -
                    
                    
                    $
                    (2,439
                    )
 
 See
accompanying notes to condensed consolidated financial
statements.
  5
  iDNA,
Inc. and Subsidiaries
 Condensed
Consolidated Statements of Cash Flows
 (in
thousands)
 (unaudited)
 
 Nine Months EndedOctober 31,2008
                  
                  
                  2007Cash
      flows from operating activitiesNet
      income (loss)
                  
                  $
                  6,084
                  
                  
                  $
                  (2,340
                  )Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Gain
      on restructuring of debt
                  
                  
                  (9,026
                  )
                  
                  
                  -Depreciation
      and amortization
                  
                  
                  550
                  
                  
                  
                  1,233Non-cash
      interest
                  
                  
                  278
                  
                  
                  
                  -Income
      from AFC investment
                  
                  
                  (429
                  )
                  
                  
                  (484
                  )Share-based
      compensation expense
                  
                  
                  199
                  
                  
                  
                  211Stock
      issued as compensation for services rendered
                  
                  
                  -
                  
                  
                  
                  128Amortization
      of deferred compensation expense
                  
                  
                  18
                  
                  
                  
                  17Loss
      on disposal of assets
                  
                  
                  -
                  
                  
                  
                  10Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  (36
                  )
                  
                  
                  (680
                  )Accrued
      income tax/refundable
                  
                  
                  18
                  
                  
                  
                  (17
                  )Accounts
      payable
                  
                  
                  1,094
                  
                  
                  
                  201Deferred
      revenue
                  
                  
                  (228
                  )
                  
                  
                  882Self
      insurance claims
                  
                  
                  (30
                  )
                  
                  
                  -Other
      operating assets and liabilities, net
                  
                  
                  (73
                  )
                  
                  
                  94Net
      cash used in operating activities
                  
                  
                  (1,581
                  )
                  
                  
                  (745
                  )Cash
      flows from investing activities:Proceeds
      from AFC distributions
                  
                  
                  600
                  
                  
                  
                  750Proceeds
      from sale of marketable securities
                  
                  
                  1,421
                  
                  
                  
                  -Purchase
      of other property and equipment
                  
                  
                  (157
                  )
                  
                  
                  (97
                  )Net
      cash provided by investing activities
                  
                  
                  1,864
                  
                  
                  
                  653Cash
      flows from financing activities:Proceeds
      from issuance of a promissory note
                  
                  
                  100
                  
                  
                  
                  -Proceeds
      from exercise of stock options
                  
                  
                  -
                  
                  
                  
                  14Payments
      of loan origination fees
                  
                  
                  (43
                  )
                  
                  
                  -Payments
      on debt, notes payable and capital lease
                  
                  
                  (431
                  )
                  
                  
                  (179
                  )Net
      cash used in financing activities
                  
                  
                  (374
                  )
                  
                  
                  (165
                  )Increase
      (decrease) in cash and cash equivalents
                  
                  
                  (91
                  )
                  
                  
                  (257
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  169
                  
                  
                  
                  548Cash
      and cash equivalents at end of period
                  
                  $
                  78
                  
                  
                  $
                  291Supplemental
      disclosures of cash flow information:Interest
      paid
                  
                  $
                  225
                  
                  
                  $
                  175Income
      taxes paid
                  
                  $
                  -
                  
                  
                  $
                  17
 
 See
accompanying notes to condensed consolidated financial
statements
  6
  Note
1 – Basis of Presentation and Significant Accounting Policies
 
 General
 The
accompanying unaudited condensed consolidated financial statements include the
accounts of iDNA, Inc. and its subsidiaries (“iDNA”). iDNA’s operations are
comprised of three principal reportable segments: (i) strategic communications
services, (ii) information services and (iii) entertainment.  iDNA
manages each segment separately as a consequence of different
marketing,  service requirements and technology strategies (see Note
6).
 
 The
strategic communications services segment provides content development via the
design, development and production of media, collateral material, logistics,
support and/or broadcast services for presentations at corporate and
institutional events, meetings, training seminars and symposiums. The
presentations may be live at single or multi-site venues and can include video
conferencing, satellite broadcasting and webcasting or the presentations may be
provided via on-demand access via internet websites, DVD or video
tape.
 
 The
information services segment utilizes custom wireless communication technology
and proprietary software to facilitate client audience interaction,
participation and polling to collect, exchange and/or analyze data and
information in real-time during a meeting or event.  The wireless
communication services are available as a turn-key service provided by iDNA
during a scheduled meeting or event or alternatively, a client can purchase from
iDNA the required electronic components and related proprietary software to
administer its needs independently.
 
 As a
consequence of iDNA’s investment in the Angelika Film Centers, LLC (“AFC”), iDNA
operates in the movie exhibition and entertainment industry (see Note
2).
 
 The
accompanying consolidated financial statements have been prepared assuming that
iDNA will continue as a going concern. iDNA has incurred recurring losses from
continuing operations through Fiscal 2008 and has negative working capital at
October 31, 2008.   The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should iDNA be unable to continue as a going concern.  iDNA’s
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to obtain
additional equity or debt financing or refinancing as may be required, increase
revenues and reduce costs ultimately to establish profitable operations or
through monetizing or the sale of assets.  If iDNA is unable to
complete its financing requirements or achieve revenue as projected, it will
then modify its expenditures and plan of operations to coincide with the actual
financing completed and/or actual operating revenues. There are no assurances,
however, with respect to the future success of these plans.
 
 The
financial statements are unaudited but in the opinion of management, reflect all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of iDNA’s consolidated financial position, results of operations,
stockholders’ equity and comprehensive loss, and cash flows for the periods
presented.
  7
 iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
  Note
1 – Basis of Presentation and Significant Accounting Policies -
continued
 
 The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial statements and with the rules of the Securities and Exchange
Commission applicable to interim financial statements and therefore do not
include all disclosures that might normally be required for financial statements
prepared in accordance with generally accepted accounting
principles.
 
 The
preparation of financial statements and the accompanying notes thereto, in
conformity with generally accepted accounting principles, requires management to
make estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the respective reporting periods.  Examples include the provision for
bad debt, useful lives of property and equipment and intangible assets,
impairment of property and equipment and intangible assets, deferred income
taxes, self insurance claims and assumptions related to equity-based
compensation.   Actual results could differ from those
estimates.
 
 The
accompanying unaudited condensed consolidated financial statements have not been
reviewed by iDNA’s Independent Registered Public Accounting Firm due to
independence constraints resulting from an accumulation of unpaid
fees. iDNA is currently working with its auditors to establish a mutually
acceptable payment program and upon agreement, the auditors will perform a
review and iDNA will amend this current report.
 
 The
accompanying unaudited condensed consolidated financial statements should be
read in conjunction with iDNA’s consolidated financial statements, including the
notes thereto, appearing in iDNA’s Annual Report on Form 10-K for the year ended
January 31, 2008. The results of operations for the three months and nine months
ended October 31, 2008 are not necessarily indicative of operating results that
may be achieved over the course of the full year.
 
 iDNA uses
a January 31 year-end for financial reporting purposes. References herein to the
term “Fiscal 2009” shall mean iDNA’s fiscal year ending January 31, 2009 and
references to other “Fiscal” years shall mean the year that ended (or ends, as
the case may be) on January 31 of the year indicated. The term the “Company” or
“iDNA” as used herein refers to iDNA, Inc. together with its consolidated
subsidiaries unless the context otherwise requires.
 
 Investments in Trading
Securities
 iDNA’s
investment in trading securities was comprised of an investment in a mutual fund
which invests in highly liquid, AAA fixed income securities.  iDNA’s
investment in trading securities was carried at fair market value at January 31,
2008.  Unrealized gains or losses on trading securities are credited
or charged to operations.  Interest and dividends earned on the
investment are recorded as interest income.
  8
 iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
  Note
1 – Basis of Presentation and Significant Accounting Policies -
continued
 
 Revenues
 iDNA’s
revenues are earned within short time periods, generally less than one
week.  iDNA recognizes revenue from its strategic communications
segment, including the video production, video editing, meeting services and
broadcast satellite or webcast services, and its information services segment
when the services are complete and delivered or all technical services have been
rendered.  Deposits and other prepayments are recorded as deferred
revenue until revenue is recognized.  iDNA does not have licensing or
other arrangements that result in additional revenues following the delivery of
the video or a broadcast.  Costs accumulated in the production of the
video, meeting services or broadcasts are deferred until the sale and delivery
are complete.  Deferred production costs of $76,000 and $90,000,
respectively, are reported as other current assets at October31, 2008
and January 31, 2008.
 
 iDNA
recognizes revenue from the sale of electronic equipment, proprietary software
and related components at the time of shipment.  Deposits and other
prepayments received prior to shipment are recorded as deferred revenue until
the electronic equipment and related software are shipped.  iDNA has
licensing and technical support arrangements for future software enhancements
and upgrades for technical support for previously delivered electronic
equipment.  Revenues derived from licensing and technical support are
recognized over the term of the licensing and technical support period, which
generally are sold in increments of one year of coverage.  For the
three months ended October31, 2008
and 2007, electronic equipment sales were $420,000 and $560,000,
respectively.  For the nine months ended October31, 2008
and 2007, electronic equipment sales were $1.2 million and $1.6 million,
respectively.
 
 Cost of
Revenues
 Cost of
revenues consists of direct expenses specifically associated with client service
revenues.  The cost of revenues includes direct salaries and benefits,
purchased products or services for clients, web hosting, support services,
shipping and delivery costs.
 
 Research and Development
Costs
 Research
and development costs are comprised principally of personnel costs incurred for
enhancements, modifications, updates, service and support expenditures for
iDNA’s proprietary software.  Research and development costs are
charged to operations as incurred and are included as a component of costs of
revenues.  iDNA charged $82,000 and $96,000, respectively, to research
and development expense for the three months ended October 31, 2008 and
2007.  iDNA charged $297,000 and $305,000, respectively, to research
and development expense for the nine months ended October 31, 2008 and
2007.
 
 Restricted
Cash
 In June
2006, iDNA obtained a letter of credit in an amount of $147,000 that was issued
in favor of the landlord of iDNA’s new New York headquarters. The letter of
credit is collateralized by an interest bearing money market account in the same
amount. Therefore, $147,000 is classified as restricted cash as of October 31,
2008 and January 31, 2008.
  9
  iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
 Note
1 – Basis of Presentation and Significant Accounting Policies -
continued
 
 Accounts
Receivable
 Accounts
receivable are recorded at the invoiced amount and do not bear
interest.  The allowance for doubtful accounts is iDNA’s best estimate
of the amount of probable credit losses in iDNA's existing accounts
receivable.  iDNA determines the allowance based on analysis of
historical bad debts, client concentrations, client credit-worthiness and
current economic trends.  iDNA reviews its allowance for doubtful
accounts quarterly.  Past-due balances over 90 days and specified
other balances are reviewed individually for collectability.  All
other balances are reviewed on an aggregate basis.  Account balances
are written off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.  iDNA
does not have any off-balance sheet credit exposure related to its
clients.
 
 Inventory
 Inventory
is comprised principally of electronic equipment and related components held for
sale to clients.  Inventory is valued at the lower of cost or market
using the first-in – first-out inventory cost method.
 
 Property and
Equipment
 Property
and equipment are stated at cost.  Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which range
from eighteen months to ten years.  Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful lives of
the related improvements.
 
 Goodwill and Other
Intangible Assets
 Intangible
assets with indefinite lives, including goodwill through January 31, 2008, are
not subject to amortization but are subject to testing for impairment at least
annually or whenever there is an impairment indicator (see below).
 
 Valuation of Long-Lived
Assets
 iDNA reviews the carrying value of its
long-lived assets (other than goodwill) whenever events or changes in
circumstances indicate that its carrying amount may not be
recoverable.  When indicators of impairment exist, iDNA determines
whether the estimated undiscounted sum of the future cash flows of such assets
is less than their carrying amounts.  If less, an impairment loss is
recognized in the amount, if any, by which the carrying amount of such assets
exceeds their respective fair values.  The determination of fair value
is based on quoted market prices in active markets, if available, or independent
appraisals; sales price negotiations; or projected future cash flows discounted
at a rate determined by management to be commensurate with iDNA’s business
risk.  The estimation of fair value utilizing discounted forecasted
cash flows includes significant judgments regarding assumptions of revenue,
operating and marketing costs; selling and administrative expenses; interest
rates; property and equipment additions and retirements; industry competition;
and general economic and business conditions, among other
factors.
  10


iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
  Note
1 – Basis of Presentation and Significant Accounting Policies -
continued
 
 At January 31, 2008, the goodwill for
each of iDNA’s business segments (information services and strategic
communications services) was tested for impairment.  As a consequence
of the testing, iDNA determined that the carrying value of both its information
services and its strategic communications services business segments exceeded
their fair value, which was estimated based upon the present value of each
reporting units expected future cash flows.  As a consequence, iDNA
charged to operations an aggregate of $8.0 million for the estimated impairment
of goodwill and other intangible assets relating to (i) its information services
segment in the amount of $5.9 million, and (ii) strategic communication services
segment in the amount of $2.1 million, respectively, resulting in the reduction
of the carrying value of all goodwill and other intangible assets to
zero.  Prior to the impairment charge during the fourth quarter of
Fiscal 2008, iDNA charged to operations $202,000 and $607,000, respectively, for
the amortization of these intangibles for the three months and nine months ended
October 31, 2007.
 
 Income
Taxes
 Deferred
income taxes are provided for all temporary differences between the book and tax
basis of assets and liabilities.  Deferred income taxes are adjusted
to reflect new tax rates when they are enacted into law.  The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.  A valuation
allowance is recognized if it is anticipated that some or all of a net deferred
tax asset may not be realized.
 
 In
February 2007, iDNA adopted the provisions of the Financial Accounting Standards
Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”), an interpretation of FASB Statement No. 109, Accounting for Income
Taxes.  FIN 48 prescribes a recognition threshold and
measurement attribute for the financial recognition and measurement of a tax
position taken or expected to be taken on a tax return.  The
interpretation requires that iDNA recognize the impact of a tax position in the
financial statements if that position is more likely than not of being sustained
on audit, based on the technical merits of the position.  FIN 48 also
provides guidance on derecognition classification, interest and penalties,
accounting in interim periods and disclosure.
 
 In
accordance with the provisions of FIN 48, upon its adoption as of February 1,
2007,  iDNA recorded an adjustment to retained deficit of $329,000,
inclusive of interest, to reflect potential liabilities for iDNA’s uncertain tax
positions, inclusive of interest.  iDNA recognizes interest and
penalties associated with uncertain tax positions as a component of tax expense
(benefit).  For the three months and nine months ended October 31,
2008, iDNA charged to operations $6,000 and $18,000, respectively, for income
taxes.
 
 As of
January 31, 2008 iDNA has federal net operating loss carryforwards of $91.5
million of which approximately $24.5 million is estimated to expire due to the
limitations described below.  As a consequence, iDNA’s remaining
federal net operating loss carryforwards of $67.0 million may be used to reduce
future taxable income.  Largely as a consequence of these operating
loss carryforwards, iDNA reported a net deferred tax asset of $29.0 million and
an offsetting valuation allowance of $29.0 million since iDNA is unable to
determine, at this time, that it more likely than not will generate future
taxable income against which the net operating loss could be
applied.
 
 11
 iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
 Note
1 – Basis of Presentation and Significant Accounting Policies -
continued
 
 Effective
November 3, 2000, iDNA repurchased shares of its common stock, $0.05 par value,
(“Common Stock”) and underwent a “change in ownership” as defined for the
purposes of Sections 382 and 383 of the Internal Revenue Code.  As a
consequence of this “change in ownership”, the use of net operating loss
carryforwards totaling $61.0 million incurred prior to November 3, 2000
(“pre-change losses”) will be subject to significant annual
limitation.  Based upon an evaluation of the tax position regarding
the Section 382 limitation on the pre-change losses, iDNA has determined that
$24.5 million of these pre-change losses may expire unused.
 
 Stock-Based
Compensation
 Effective
February 1, 2006, iDNA adopted the provisions of Statement of Financial
Accounting Standards (“SFAS”) No. 123R (revised 2004), Share-Based Payment (“SFAS
No. 123(R)”), which replaced SFAS No. 123, Accounting for Stock-Based
Compensation (“SFAS No. 123”), and superseded APB Opinion No. 25, Accounting for Stock Issued to
Employees.  SFAS No. 123(R) requires all share-based payments
to employees, including grants of employee stock options, to be recognized in
the financial statements based on their fair values beginning with the first
interim or annual period after December 15, 2005.  iDNA elected the
prospective method of adopting SFAS No. 123(R) which requires that compensation
expense be recorded over the remaining periods for what would have been the
remaining fair value under SFAS No. 123 of all unvested stock options and
restricted stock at the beginning of the first quarter of
adoption.  The compensation costs for that portion of awards is based
on the grant-date fair value of the awards as calculated for pro forma
disclosures under SFAS No. 123.  iDNA charged to operations $37,000
and $60,000, respectively, for share-based compensation for the three months
ended October 31, 2008 and 2007.  iDNA charged to operations $199,000
and $211,000, respectively, for share-based compensation for the nine months
ended October 31, 2008 and 2007.
 
 Earnings Per
Share
 Basic
earnings (loss) per share is computed by dividing net income (loss) by the
weighted-average number of shares of Common Stock, exclusive of Common Stock
subject to redemption (see Note 4), outstanding for the
period.  Dilutive earnings per share for all periods presented is the
same as basic earnings per share due to (i) the inclusion of common stock, in
the form of stock options and warrants (“Common Stock Equivalents”), would have
an anti-dilutive effect on income (loss) per share for the three months and nine
months ended October 31, 2008 and 2007 or (ii) there were no Common Stock
Equivalents for the respective period.  For the three months ended
October 31, 2008 and 2007, there were no Common Stock Equivalents excluded from
the earnings per share computation due to their dilutive effect.  For
the nine months ended October 31, 2008 and 2007, there were 0 and 39,711 Common
Stock Equivalents, respectively, excluded from the earnings per share
computation due to their dilutive effect.
 
 Non-cash Financing
Activities
 In July 2008, iDNA issued 2.5 million
shares of Common Stock in exchange for the repayment of $375,000 of aggregate
principal amount of the Amended Promissory Notes (defined below, see Note
4).
  12
 iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
 Note
1 – Basis of Presentation and Significant Accounting Policies -
continued
 
 New Accounting
Pronouncements
 In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, Fair Value
Measurement (“SFAS No. 157”). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in accordance with Generally
Accepted Accounting Principles (“GAAP”), and expands disclosures about fair
value measurements. The provisions of SFAS No. 157 are effective for fiscal
years beginning after November 15, 2007.   The FASB agreed to a
one-year deferral of the effective date for non-financial assets and liabilities
that are recognized or disclosed at fair value on a non-recurring
basis.  The application of this pronouncement did not have a material
impact on iDNA’s reported consolidated financial position or results of
operations.
 
 In
February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS No. 159”).  SFAS No.
159 allows entities the option to measure eligible financial instruments at fair
value as of specified dates.  Such election, which may be applied on
an instrument by instrument basis, is typically irrevocable once
elected.  SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007.  The adoption of this pronouncement did not have a
material impact on iDNA’s reported consolidated financial position or results of
operations.
 
 In
December 2007, the FASB issued SFAS No. 141-R, Business
Combinations.  SFAS No. 141-R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  The objective of SFAS No. 141-R is to improve the relevance,
representational faithfulness and comparability of the information that a
reporting entity provides in its financial reports about a business
combination.  SFAS No, 141-R changes the requirements for an
acquirer’s recognition and measurement of the assets acquired and the
liabilities assumed in a business combination.  iDNA does not
anticipate the application of this pronouncement will have a material impact on
iDNA’s reported consolidated financial position or results of
operations.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements – an amendment to ARB
No.51.  SFAS No. 160 requires that (i) noncontrolling
(minority) interests be reported as a component of shareholders’ equity, (ii)
net income attributable to the parent and to the noncontrolling interest be
separately identified in the consolidated statement of operations, (iii) changes
in a parent’s ownership interest while the parent retains its controlling
interest be accounted for as equity transactions, (iv) any retained
noncontrolling equity investment upon the deconsolidation of a subsidiary be
initially measured at fair value, and (v) sufficient disclosures are provided
that clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners.  SFAS No.160 is effective
for annual periods beginning after December 15, 2008.  iDNA does not
anticipate the application of this pronouncement will have a material impact on
iDNA’s reported consolidated financial position or results of
operations.
  13
 iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
  Note
1 – Basis of Presentation and Significant Accounting Policies -
continued
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“SFAS 161”).  SFAS 161
enhances disclosure requirements for derivative instruments in order to provide
users of financial statements with an enhanced understanding of (i) how and why
an entity uses derivative instruments, (ii) how derivative instruments and
related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” and its related interpretations, and
(iii) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance and cash flows.  SFAS 161 is
to be applied prospectively for the first annual reporting period beginning on
or after November 15, 2008.  iDNA does not anticipate the application
of this pronouncement will have a material impact on iDNA’s reported
consolidated financial position or results of operations.
 
 FASB Staff Position
142-3
 In April
2008, the FASB issued FASB Staff Position 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP 142-3”).  FSP 142-3 is to be applied
prospectively for fiscal years beginning after December 15,
2008.  iDNA does not anticipate the application of this pronouncement
will have a material impact on iDNA’s reported consolidated financial position
or results of operations.
 
 Reclassifications
 Certain
Fiscal 2008 amounts have been reclassified to conform with Fiscal 2009
presentations.
 
 Note
2 – Investment in AFC
 
 On April
5, 2000, iDNA, through its wholly owned subsidiary National Cinemas, Inc.,
acquired a 50% membership interest in AFC.  AFC is the owner and
operator of the Angelika Film Centers, which is a multiplex cinema and café
complex in the Soho District of Manhattan in New York City.
 
 AFC is
currently owned 50% by iDNA and 50% by Reading International, Inc.
(“Reading”).  The articles and bylaws of AFC provide that for all
matters subject to a vote of the members, a majority is required, except that in
the event of a tie vote, the Chairman of Reading shall cast the deciding
vote.
 
 iDNA uses
the equity method to account for its investment in AFC.  AFC uses a
December 31 year-end for financial reporting purposes.  iDNA reports
on a January 31 year-end, and for its fiscal quarters ending April 30, July 31,
October 31 and January 31 records its pro-rata share of AFC’s earnings on the
basis of AFC’s fiscal quarters ending March 31, June 30, September 30 and
December 31, respectively.  For the three months ended October 31,
2008 and 2007, iDNA recorded income of $215,000 and $148,000, respectively,
representing its share of AFC’s net income.  For the nine months ended
October 31, 2008 and 2007, iDNA recorded income of $429,000 and $484,000,
respectively, representing its share of AFC’s net income.
 
 14
 iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
 Note
2 – Investment in AFC – continued
 
 Summarized
income statement data for AFC for the three months and nine months ended
September 30, 2008 and 2007, respectively, is as follows (in
thousands):
 
 Three Months Ended
                  
                  
                  Nine Months EndedSeptember 30,
                  
                  
                  September 30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenues
                  
                  $
                  1,922
                  
                  
                  $
                  1,408
                  
                  
                  $
                  4,812
                  
                  
                  $
                  4,696Operating
      costs
                  
                  
                  1,271
                  
                  
                  
                  895
                  
                  
                  
                  3,286
                  
                  
                  
                  3,053Depreciation
      and amortization
                  
                  
                  201
                  
                  
                  
                  195
                  
                  
                  
                  604
                  
                  
                  
                  585General
      and administrative expenses
                  
                  
                  20
                  
                  
                  
                  22
                  
                  
                  
                  64
                  
                  
                  
                  901,492
                  
                  
                  
                  1,112
                  
                  
                  
                  3,954
                  
                  
                  
                  3,728Net
      income
                  
                  $
                  430
                  
                  
                  $
                  296
                  
                  
                  $
                  858
                  
                  
                  $
                  968iDNA's
      proportionate share of net income
                  
                  $
                  215
                  
                  
                  $
                  148
                  
                  
                  $
                  429
                  
                  
                  $
                  484
 
 Note
3 – Current and Long Term Obligations
 
 On
November 21, 2007, iDNA, via its wholly owned subsidiary, iDNA Cinema Holdings,
Inc. (“Holdings”), consummated a Master Loan and Security Agreement (the “Loan
Agreement”) with Silar Advisors, L.P. (“Silar”), as Lender and Administrative,
Payment and Collateral Agent, pursuant to which Silar provided a term loan in an
aggregate principal amount of $4.25 million (the “Term Loan”) to Holdings (the
“Term Loan Financing”).  Interest accrues on the Term Loan at a per
annum rate equal to the variable annual rate of interest designated from time to
time by Citibank N.A. as its “prime rate,” plus 4%, or, if greater, 12.25%, and
is payable by Holdings on a quarterly basis.  At October 31, 2008, the
“prime rate” was 4.0%.  The Term Loan matures on November 20, 2009
unless extended for one year at the option of Holdings, upon written notice
provided to Silar between fifteen (15) and forty-five (45) days prior to the
Maturity Date, provided that no default is then ongoing and that Holdings is
then in compliance with its financial covenants under the Loan
Agreement.  At October 31, 2008, Holdings and iDNA were in compliance
with the financial covenants under the Loan Agreement.  At October 31,
2008, the principal balance of the Term Loan was $3.9 million.
 
 Holdings’
obligations under the Term Loan are secured by a pledge of all of Holdings’
assets, including all of the outstanding shares of National Cinemas, Inc.
(“NCI”), which owns a 50% membership interest in AFC.  The Term Loan
is also guaranteed by (i) iDNA (with such guaranty being secured by a pledge of
substantially all of iDNA’s assets, other than the shares of its operating
subsidiaries) and (ii) NCI (with such guaranty being secured by a pledge of
substantially all of NCI’s assets, other than its 50% membership interest in
AFC).
  15
 iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
 Note
3 – Current and Long Term Obligations – continued
 
 In
connection with the consummation of the Term Loan, as required by the Loan
Agreement, iDNA issued warrants to Silar and a consultant (the “Warrants”) to
purchase 1.5 million and 60,000 shares, respectively, of iDNA’s Common Stock at
an exercise price of $0.27 per share.  The number of shares issuable
upon exercise of the Warrants is subject to customary adjustment in the event of
a stock dividend, stock split, reverse stock split or similar event and is
furthermore subject to a weighted-average antidilution protection in the event
that iDNA issues additional shares of Common Stock for consideration less than
the existing exercise price under the Warrants.  Additionally,
pursuant to the Warrants, the holder thereof has been granted (subject to
certain conditions, including the reimbursement of iDNA’s costs) three demand
registration rights for the underlying shares of Common Stock, as well as
unlimited piggyback registration rights for such shares of Common
Stock.  The fair value of the Warrants at the date of grant was
$339,000.  At October 31, 2008, the unamortized fair value of the
Warrants issued in the amount of $198,000 was recorded as a reduction of the
principal on the Term Loan.  iDNA charges to interest expense the fair
value of the Warrants over the expected three year term of the Term
Loan.  For the three months and nine months ended October 31, 2008,
iDNA charged to interest expense $33,000 and $107,000, respectively, for the
fair value of the Warrants.
  On
January 31, 2008, ARS consummated an auto loan with a financing institution for
the purchase of a delivery van in the principal amount of
$24,000.  The auto loan is repayable in monthly installments of $755
with the last payment due February 2011.  The auto loan bears interest
at the rate of 9.0% and is collateralized by the van purchased with the proceeds
from the loan.  At October 31, 2008, the principal balance of the auto
loan was $20,000.
 
 In
October 2008, iDNA consummated a loan agreement and issued a promissory note to
a director of iDNA in an aggregate principal amount of $100,000 (the “Promissory
Note”).  Interest accrues on the Promissory Note at a per annum rate
of, 12.25%, and is payable by iDNA on a monthly basis. The Promissory Note
matures on March 1, 2010.  The proceeds from the loan were used for
working capital purposes.
 
 As a
consequence of iDNA’s acquisition of OTI effective November 18, 2005, iDNA
issued to Flexner Wheatley & Associates (“FWA”) and MeetingNet Interactive,
Inc. (“MeetingNet”) promissory notes in an aggregate principal amount of $1.5
million (the “OTI Promissory Notes”).  The OTI Promissory Notes bear
interest at 5% per annum and are repayable in quarterly installments according
to a formula based upon the future cash flows realized from OTI’s
operations.  iDNA’s obligations under the OTI Promissory Notes are
secured by the membership interests of OTI.  At October 31, 2008, iDNA
had outstanding principal obligations under the terms of the OTI Promissory
Notes of $855,000 and accrued interest obligations of $12,000.
  16
 iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
  Note
3 – Current and Long Term Obligations – continued
 
 As of
January 31, 2008, OTI did not meet certain minimum financial performance
criterion and, as a consequence, (i) iDNA retained an option to reduce the
purchase price in an amount estimated between $206,000 and $412,000 and (ii) for
the three months and nine months ended October 31, 2008 no interest was incurred
under the OTI Promissory Notes.  iDNA has not exercised its option to
reduce the purchase price for its acquisition of OTI as of December 19, 2008 and
no adjustment to the OTI Promissory Notes was recorded at October 31,
2008.  Prospectively, interest may accrue pursuant to the terms of the
OTI Promissory Notes once the minimum operating cash flow thresholds are
achieved.
 
 As a
consequence of iDNA’s acquisition of OMI Business Communications, Inc. (“OMI”)
effective April 1, 2003, iDNA assumed a $402,000 loan guaranteed by the U.S.
Small Business Administration (the “SBA Loan”). At October 31, 2008, the
remaining balance of the SBA Loan of $278,000 is repayable in monthly
installments of $3,309 with the last payment due in April 2017.  The
SBA Loan bears interest at the rate of 4% per annum.  OMI’s
obligations under the SBA Loan are collateralized by substantially all of OMI’s
assets and the personal guarantee of Mr. Dean Thompson, President of
OMI.
 
 In
September 2006, OMI consummated equipment financing in the form of a capital
lease with a financing institution to acquire $102,000 in various digital media
production and editing equipment.  The capital lease bears an implied
interest rate of 10% and is payable in monthly installments with the last
payment due in July 2009.  At October 31, 2008, the remaining balance
due under the capital lease was $27,000. The accumulated depreciation for the
underlying equipment pursuant to the capital lease was $82,000 and $48,000,
respectively, at October 31, 2008 and January 31, 2008.
 
 The
components of long term obligations at October 31, 2008 are as follows (in
thousands):
  AmountsAuto
      loan
                
                $
                19Capital
      leases
                
                
                27Promissory
      note
                
                
                100SBA
      loan
                
                
                278Term
      Loan
                
                
                3,674OTI
      promissory notes
                
                
                8554,953Less
      current maturities
                
                
                (1,000
                )Long-term
      obligations
                
                $
                3,953
  17
 iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
  Note
3 – Current and Long Term Obligations – continued
 
 iDNA’s
current maturities and long term obligations at October 31, 2008 are as follows
(in thousands):
 
 Amounts2009
                    
                    $
                    1,0022010
                    
                    
                    1,3892011
                    
                    
                    2,4752012
                    
                    
                    322013
                    
                    
                    32Thereafter
                    
                    
                    1245,054Less
      - unamortized debt discount
                    
                    
                    (198
                    )Less
      - capital lease interest
                    
                    
                    (3
                    )$
                    4,853
  Note
4 – Gain on Restructuring of Debt and Issuance of Shares of Common Stock Subject
to Redemption
  Effective
as of July 3, 2008, iDNA entered into a Reduction of Purchase Price Agreement
(the “Reduction Agreement”) with Steven Campus, president of the Campus Group
(defined below), the Campus Family 2000 Trust (the “Family Trust”) and the Trust
Established Under the Will of Nancy Campus (the “Shelter Trust” and,
collectively with the Family Trust, the “Trusts” and each a “Trust”). (The
Trusts and Steven Campus are herein referred to collectively as the
“Stockholders” and each as a “Stockholder”).
  Pursuant
to and as provided in that certain Stock Purchase Agreement dated July 31, 2003
between iDNA and the Stockholders, iDNA acquired from the Stockholders all of
the issued and outstanding shares of capital stock of each of (i) Campus Group
Companies, Inc. (“CGCI”), (ii) Multi-Video Services, Inc. (“Multi-Video”), (iii)
Interactive Conferencing Network, Inc. (“Interactive”) and (iv) Audience
Response Systems, Inc. (“ARSI” and, collectively with CGCI, Multi-Video,
Interactive and ARSI, the “Campus Group”).  In consideration for the
shares of the Campus Group so acquired, iDNA (i) made a cash payment to the
Stockholders and (ii) issued to the Stockholders certain promissory notes in an
aggregate principal amount of $9.9 million and a convertible promissory note in
the principal amount of $2.8 million (collectively, the “Promissory Notes”) (the
cash amount and Promissory Notes collectively, the “Purchase
Price”).  At July 2, 2008, iDNA had outstanding principal obligations
under the terms of the Promissory Notes of $12.1 million and accrued interest of
$156,000.
  18
 iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
  Note
4 – Gain on Restructuring of Debt and Issuance of Shares of Common Stock Subject
to Redemption - continued
  Pursuant
to the Reduction Agreement, iDNA and the Stockholders agreed, among other
matters, that the Purchase Price was reduced to a remaining balance of three
hundred seventy-five thousand dollars ($375,000) (the “Purchase Price
Balance”).  The parties further agreed that, inasmuch as the
Promissory Notes were intended to represent iDNA’s obligation to pay the unpaid
portion of the Purchase Price, the aggregate outstanding amount of the
Promissory Notes was reduced from an aggregate of $12.1 million to an amount
equal to the Purchase Price Balance.  The Promissory Notes were
modified and amended so that the outstanding principal amounts due thereunder
were reduced to an aggregate of $375,000. (The Promissory Notes, as modified and
amended pursuant to the Reduction Agreement, are hereinafter referred to as the
“Amended Promissory Notes.”)
  Furthermore,
pursuant to the Reduction Agreement, in July 2008 the Stockholders surrendered
and delivered to iDNA each and all of the Amended Promissory Notes, marked
cancelled, and iDNA, in full payment, discharge and satisfaction of the Amended
Promissory Notes, issued to the Stockholders an aggregate of two million five
hundred thousand (2,500,000) shares of iDNA’s common stock, $0.05 par value per
share (the “Issued Shares”), such Issued Shares to be allocated proportionally
among the Stockholders.  iDNA and the Stockholders agreed that upon
the issuance of the Issued Shares to the Stockholders, the Purchase Price
Balance shall be paid, discharged and satisfied in full, and no additional
amount (whether pursuant to the Promissory Notes or otherwise) shall be payable
by iDNA on account of or with respect to the Purchase Price.
  In
addition, subject to the terms and conditions set forth in the Reduction
Agreement, iDNA (i) assumed certain obligations to redeem or repurchase from the
Stockholders their Issued Shares and (ii) granted to the Stockholders certain
rights to sell (or “put”) the Issued Shares to iDNA.  iDNA is required
to semi-annually offer to redeem certain Issued Shares from the Stockholders at
the rate of $2.00 per share for a maximum total redemption payment equal to the
excess (if
any) of  certain minimum operating cash flow thresholds of the Campus
Group for the period from August 1, 2008 through July 31, 2013.  At
any time, the Stockholders are free to (i) accept or decline iDNA’s offer to
redeem or repurchase the Issued Shares and (ii) sell, redeem, transfer or
otherwise dispose of the Issued Shares to third parties.  (All shares
redeemed by iDNA, or sold, transferred or otherwise disposed of to third parties
are hereinafter referred to as “Excluded Shares”.)
  19
 iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
 Note
4 – Gain on Restructuring of Debt and Issuance of Shares of Common Stock Subject
to Redemption - continued
  Pursuant
to the Reduction Agreement, iDNA also granted to the Stockholders the right,
subject to certain criteria, to sell (or “put”) to iDNA, and require iDNA to
purchase from the Stockholders, any or all of the Issued Shares (exclusive of
all Excluded Shares) at the rate of $2.00 per share during the period October
31, 2013 through November 15, 2013 (the “Put Right”).  However, the
Put Right shall not be exercisable if one or more of the Stockholders shall have
received (or be deemed to have received) aggregate consideration of at least
five million dollars ($5,000,000) on account of or with respect to the sale,
transfer, redemption or other disposition of some or all of the Issued Shares.
At July 31, 2008, iDNA recorded a $3.1 million obligation representing the fair
value of the future redemption obligation for the Issued Shares (exclusive of
all Excluded Shares).  The following sets forth the changes in the
redemption obligation for the three months ended October 31, 2008 (in
thousands):
  Shares
                    
                    
                    AmountIssuance
      of redeemable Common Stock  for restructuring of
      debt
                    
                    
                    2,500,000
                    
                    
                    $
                    3,121Accretion
      of discount to redemption price
                    
                    
                    
                    
                    
                    
                    94Balance
      at October 31, 2008
                    
                    
                    2,500,000
                    
                    
                    $
                    3,215
  In order
to secure its obligations to the Stockholders under the Reduction Agreement,
iDNA has (i) pledged to the Stockholders all of iDNA’s right, title and interest
in and to all of the capital stock of the Campus Group held by iDNA and (ii)
caused the Campus Group to guaranty such obligations, with such guaranty to be
secured by the assets of the Campus Group.
  In
addition, pursuant to the Reduction Agreement, Mr. Campus, the Campus Group and
iDNA are entering into an employment agreement (the “Employment Agreement”)
under which Mr. Campus shall serve as President of the Campus Group until the
earliest to occur of (i) the redemption of all Issued Shares (exclusive of any
Excluded Shares) or (ii) the lapse of the Put Right.  Mr. Campus is
entitled to base compensation of $100,000 per year and standard employment
benefits pursuant to the Campus Group’s employment benefits program offered to
all personnel from time-to-time.
  20
 iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
 Note
4 – Gain on Restructuring of Debt and Issuance of Shares of Common Stock Subject
to Redemption – continued
 
 As a
consequence of the various terms of the Reduction Agreement, iDNA (i) realized a
gain of $9.0 million for the restructuring of debt, (ii) recorded a $3.1 million
obligation for the fair value of the redemption obligation for the Issued Shares
and (iii) realized the abatement of previously accrued interest of $156,000 for
the nine months ended October 31, 2008.  Prospectively, the fair value
of the redemption obligation is subject to adjustment each reporting period as a
consequence of changes, if any, to (i) the number of Issued Shares (exclusive of
all Excluded Shares) held by the Stockholders at the end of a period, (ii)
actual redemption accepted or declined, by the Stockholders and/or (iii) sales
of Issued Shares to third parties.
 
 Note
5 – Commitments and Contingencies
 
 Self-Insurance Reserves for
Property Damage and Personal Injury Claims
 iDNA,
under the names Agency Rent-A-Car, Inc. (“ARAC”), Altra Auto Rental and Automate
Auto Rental, previously engaged in the rental of automobiles on a short-term
basis, principally to the insurance replacement market.  In Fiscal
1996, iDNA disposed of its rental fleet business through the sale of certain
assets and through certain leases to a national car rental
company.  All liabilities related to the discontinued rental business,
principally self-insurance claims, were retained by ARAC.
 
 iDNA is
subject to certain self-insurance claims and litigation expenses relating to its
discontinued automobile rental operations.  iDNA’s management
estimates the required self-insurance liability based upon specific
identification of the known matters subject to future claims, the nature of the
claim and the estimated costs to be incurred.  These estimates
include, but are not limited to, ARAC’s historical loss experience and projected
loss factors.  The required self-insurance liability is subject to
adjustment in the future based upon changes in the nature of the remaining
claims or the ultimate cost.  As a consequence of iDNA’s sale of its
automobile rental operations in 1995, iDNA believes that all incurred claims
have been reported to ARAC and that there are no longer any incurred but not yet
reported claims to be received by ARAC.  iDNA’s self-insurance
liability at October 31, 2008 and January 31, 2008 was $142,000 and $172,000,
respectively.
 
 Other
Litigation
 In the
normal course of its business, iDNA is periodically named as defendant in legal
proceedings.  It is the policy of iDNA to vigorously defend litigation
and/or enter into settlements of claims where management deems
appropriate.  In the opinion of management, the amount of ultimate
liability with respect to any current actions, if any, is unlikely to materially
affect iDNA’s financial position, results of operations or
liquidity.
  21
 iDNA,
Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
  Note
6 – Segment Information
 
 iDNA’s
operations are comprised of three principal reportable segments: (i) strategic
communications services, (ii) information services and (iii)
entertainment.  iDNA manages each segment separately as a consequence
of different marketing, service requirements and technology strategies for the
respective segments.
 
 iDNA
evaluates the performance of its segments and allocates resources based on
revenues and operating income.  The table below presents the
information about reportable segments for continuing operations used by iDNA’s
chief operating decision-makers for the three months ended and nine months ended
October 31, 2008 and 2007.  Prior financial periods have been
conformed to the current presentation (in thousands):
 
 Strategic
                            
                            
                            
                            
                            
                            UndistributedInformation
                            
                            
                            Communications
                            
                            
                            
                            
                            
                            Corporate
                            
                            
                            IntersegmentServices
                            
                            
                            Services
                            
                            
                            Entertainment
                            
                            
                            Expenses
                            
                            
                            Elimination
                            
                            
                            TotalThree
      Months EndedOctober
      31, 2008Revenues
                            
                            $
                            1,660
                            
                            
                            $
                            716
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            (1
                            )
                            
                            $
                            2,375Operating
      income (loss)
                            
                            
                            (712
                            )
                            
                            
                            (683
                            )
                            
                            
                            215
                            
                            
                            
                            (183
                            )
                            
                            
                            -
                            
                            
                            
                            (1,363
                            )Depreciation
      and amortization expense
                            
                            
                            103
                            
                            
                            
                            22
                            
                            
                            
                            -
                            
                            
                            
                            11
                            
                            
                            
                            -
                            
                            
                            
                            136Capital
      expenditures
                            
                            
                            10
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            10Three
      Months EndedOctober
      31, 2007Revenues
                            
                            $
                            2,432
                            
                            
                            $
                            2,729
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            (91
                            )
                            
                            $
                            5,070Operating
      income (loss)
                            
                            
                            47
                            
                            
                            
                            365
                            
                            
                            
                            148
                            
                            
                            
                            (291
                            )
                            
                            
                            -
                            
                            
                            
                            269Depreciation
      and amortization expense
                            
                            
                            219
                            
                            
                            
                            177
                            
                            
                            
                            -
                            
                            
                            
                            11
                            
                            
                            
                            -
                            
                            
                            
                            407Capital
      expenditures
                            
                            
                            9
                            
                            
                            
                            28
                            
                            
                            
                            -
                            
                            
                            
                            2
                            
                            
                            
                            -
                            
                            
                            
                            39Nine
      Months EndedOctober
      31, 2008Revenues
                            
                            $
                            5,947
                            
                            
                            $
                            4,140
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            (63
                            )
                            
                            $
                            10,024Operating
      income (loss)
                            
                            
                            (1,293
                            )
                            
                            
                            (993
                            )
                            
                            
                            429
                            
                            
                            
                            7,957
                            
                            
                            
                            -
                            
                            
                            
                            6,100Depreciation
      and amortization expense
                            
                            
                            373
                            
                            
                            
                            145
                            
                            
                            
                            -
                            
                            
                            
                            32
                            
                            
                            
                            -
                            
                            
                            
                            550Capital
      expenditures
                            
                            
                            131
                            
                            
                            
                            6
                            
                            
                            
                            -
                            
                            
                            
                            20
                            
                            
                            
                            -
                            
                            
                            
                            157Nine
      Months EndedOctober
      31, 2007Revenues
                            
                            $
                            7,074
                            
                            
                            $
                            4,568
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            (148
                            )
                            
                            $
                            11,494Operating
      income (loss)
                            
                            
                            (469
                            )
                            
                            
                            (1,481
                            )
                            
                            
                            484
                            
                            
                            
                            (864
                            )
                            
                            
                            -
                            
                            
                            
                            (2,330
                            )Depreciation
      and amortization expense
                            
                            
                            656
                            
                            
                            
                            539
                            
                            
                            
                            -
                            
                            
                            
                            38
                            
                            
                            
                            -
                            
                            
                            
                            1,233Capital
      expenditures
                            
                            
                            48
                            
                            
                            
                            43
                            
                            
                            
                            -
                            
                            
                            
                            6
                            
                            
                            
                            -
                            
                            
                            
                            97
  22
  Item
2.
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 
 General
 
 iDNA,
Inc. (the “Company” or “iDNA”),  began operations in 1969 and was
incorporated in Delaware in 1971.  iDNA’s operations are comprised of
three principal reportable segments: (i) strategic communications services, (ii)
information services and (iii) entertainment.  iDNA manages each
segment separately as a consequence of different marketing, service requirements
and technology strategies for the respective segments.
 
 The
strategic communications services segment provides content development via the
design, development and production of media, collateral material, logistics,
support and/or broadcast services for presentations at corporate and
institutional events, meetings, training seminars and symposiums. The
presentations may be live at single or multi-site venues and can include video
conferencing, satellite broadcasting and webcasting, or the presentations may be
provided via on-demand access via internet websites, DVD or video
tape.
 
 The
information services segment utilizes custom wireless communication technology
and proprietary software to facilitate client audience interaction,
participation and polling to collect, exchange and/or analyze data and
information in real-time during a meeting or event.  The wireless
communication services are available as a turn-key service provided by iDNA
during a scheduled meeting or event or alternatively, a client can purchase from
iDNA the required electronic components and related proprietary software to
administer its needs independently.
 
 As a
consequence of iDNA’s investment in the Angelika Film Centers, LLC (“AFC”), iDNA
operates in the movie exhibition and entertainment industry.
 
 Recent
Developments
 
 Effective
as of July 3, 2008, iDNA entered into a Reduction of Purchase Price Agreement
(the “Reduction Agreement”) with Steven Campus, president of the Campus Group
(defined below), the Campus Family 2000 Trust (the “Family Trust”) and the Trust
Established Under the Will of Nancy Campus (the “Shelter Trust” and,
collectively with the Family Trust, the “Trusts” and each a “Trust”). (The
Trusts and Steven Campus are herein referred to collectively as the
“Stockholders” and each as a “Stockholder”).
  23
  iDNA,
Inc. and Subsidiaries
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations – continued
 
 Pursuant
to and as provided in that certain Stock Purchase Agreement dated July 31, 2003
between iDNA and the Stockholders, iDNA acquired from the Stockholders all of
the issued and outstanding shares of capital stock of each of (i) Campus Group
Companies, Inc. (“CGCI”), (ii) Multi-Video Services, Inc. (“Multi-Video”), (iii)
Interactive Conferencing Network, Inc. (“Interactive”) and (iv) Audience
Response Systems, Inc. (“ARSI” and, collectively with CGCI, Multi-Video,
Interactive and ARSI, the “Campus Group”).  In consideration for the
shares of the Campus Group so acquired, iDNA (i) made a cash payment to the
Stockholders and (ii) issued to the Stockholders certain promissory notes in an
aggregate principal amount of $9.9 million and a convertible promissory note in
the principal amount of $2.8 million (collectively, the “Promissory Notes”) (the
cash amount and Promissory Notes collectively, the “Purchase
Price”).  At July 2, 2008, iDNA had outstanding principal obligations
under the terms of the Promissory Notes of $12.1 million and accrued interest of
$156,000.
  Pursuant
to the Reduction Agreement, iDNA and the Stockholders agreed, among other
matters, that the Purchase Price was reduced to a remaining balance of three
hundred seventy-five thousand dollars ($375,000) (the “Purchase Price
Balance”).  The parties further agreed that, inasmuch as the
Promissory Notes were intended to represent iDNA’s obligation to pay the unpaid
portion of the Purchase Price, the aggregate outstanding amount of the
Promissory Notes was reduced from an aggregate of $12.1 million to an amount
equal to the Purchase Price Balance.  The Promissory Notes were
modified and amended so that the outstanding principal amounts due thereunder
were reduced to an aggregate of $375,000. (The Promissory Notes, as modified and
amended pursuant to the Reduction Agreement, are hereinafter referred to as the
“Amended Promissory Notes.”)
  Furthermore,
pursuant to the Reduction Agreement, in July 2008 the Stockholders surrendered
and delivered to iDNA each and all of the Amended Promissory Notes, marked
cancelled, and iDNA, in full payment, discharge and satisfaction of the Amended
Promissory Notes, issued to the Stockholders an aggregate of two million five
hundred thousand (2,500,000) shares of iDNA’s common stock, $0.05 par value per
share (the “Issued Shares”), such Issued Shares to be allocated proportionally
among the Stockholders.  iDNA and the Stockholders agreed that upon
the issuance of the Issued Shares to the Stockholders, the Purchase Price
Balance shall be paid, discharged and satisfied in full, and no additional
amount (whether pursuant to the Promissory Notes or otherwise) shall be payable
by iDNA on account of or with respect to the Purchase Price.
  24
  iDNA,
Inc. and Subsidiaries
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations – continued
 
 In
addition, subject to the terms and conditions set forth in the Reduction
Agreement, iDNA (i) assumed certain obligations to redeem or repurchase from the
Stockholders their Issued Shares and (ii) granted to the Stockholders certain
rights to sell (or “put”) the Issued Shares to iDNA.  iDNA is required
to semi-annually offer to redeem certain Issued Shares from the Stockholders at
the rate of $2.00 per share for a maximum total redemption payment equal to the
excess (if
any) of  certain minimum operating cash flow thresholds of the Campus
Group for the period from August 1, 2008 through July 31, 2013.  At
any time, the Stockholders are free to (i) accept or decline iDNA’s offer to
redeem or repurchase the Issued Shares and (ii) sell, redeem, transfer or
otherwise dispose of the Issued Shares to third parties.  (All shares
redeemed by iDNA, or sold, transferred or otherwise disposed of to third parties
are hereinafter referred to as “Excluded Shares”.)
  Pursuant to the Reduction Agreement,
iDNA also granted to the Stockholders the right, subject to certain criteria, to
sell (or “put”) to iDNA, and require iDNA to purchase from the Stockholders, any
or all of the Issued Shares (exclusive of all Excluded Shares) at the rate of
$2.00 per share during the period October 31, 2013 through November 15, 2013
(the “Put Right”).  However, the Put Right shall not be exercisable if
one or more of the Stockholders shall have received (or be deemed to have
received) aggregate consideration of at least five million dollars ($5,000,000)
on account of or with respect to the sale, transfer, redemption or other
disposition of some or all of the Issued Shares.  iDNA recorded a $3.1
million obligation as of July 31, 2008 representing the fair value of the future
redemption obligation for the Issued Shares (exclusive of all Excluded Shares)
and recorded $94,000 for the accretion of discount to redemption price for the
three months ended October 31, 2008.
  In order
to secure its obligations to the Stockholders under the Reduction Agreement,
iDNA has (i) pledged to the Stockholders all of iDNA’s right, title and interest
in and to all of the capital stock of the Campus Group held by iDNA and (ii)
caused the Campus Group to guaranty such obligations, with such guaranty to be
secured by the assets of the Campus Group.
  In
addition, pursuant to the Reduction Agreement, Mr. Campus, the Campus Group and
iDNA are entering into an employment agreement (the “Employment Agreement”)
under which Mr. Campus shall serve as President of the Campus Group until the
earliest to occur of (i) the redemption of all Issued Shares (exclusive of any
Excluded Shares) or (ii) the lapse of the Put Right.  Mr. Campus is
entitled to base compensation of $100,000 per year and standard employment
benefits pursuant to the Campus Group’s employment benefits program offered to
all personnel from time-to-time.
  As a
consequence of the various terms of the Reduction Agreement, iDNA (i) realized a
gain of $9.0 million for the restructuring of debt, (ii) recorded a $3.1 million
obligation for the fair value of the redemption obligation for the Issued Shares
and (iii) realized the abatement of interest of $156,000 for the nine months
ended October 31, 2008.  Prospectively, the fair value of the
redemption obligation is subject to adjustment each reporting period as a
consequence of changes, if any, to (i) the number of Issued Shares (exclusive of
all Excluded Shares) held by the Stockholders at the end of a period, (ii)
actual redemption accepted or declined, by the Stockholders and/or (iii) sales
of Issued Shares to third parties.
  25
  iDNA,
Inc. and Subsidiaries
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations – continued
 
 Critical
Accounting Policies
  The
unaudited condensed consolidated financial statements have not been reviewed by
iDNA’s Independent Registered Public Accounting Firm due to independence
constraints resulting from an accumulation of unpaid fees. iDNA is
currently working with its auditors to establish a mutually acceptable payment
program and upon agreement, the auditors will perform a review and iDNA will
amend this current report.
 
 iDNA’s
consolidated financial statements are prepared in accordance with generally
accepted accounting principles, which require iDNA to make estimates and
assumptions.  Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses of iDNA.  iDNA’s
significant accounting policies are described in Note 1 of Notes to Condensed
Consolidated Financial Statements included under Item 1 of this Part I
(hereinafter, the “Notes”).  However, certain accounting policies are
deemed “critical”, as they require management’s highest degree of judgment,
estimates and assumptions.  These accounting estimates and disclosures
have been discussed with the Audit Committee of iDNA’s Board of
Directors.  A discussion of iDNA’s critical accounting policies, the
judgments and uncertainties affecting their application and the likelihood that
materially different amounts would be reported under different conditions or
using different assumptions are as follows:
 
 The
consolidated financial statements have been prepared assuming that iDNA will
continue as a going concern. iDNA has incurred recurring losses from continuing
operations through Fiscal 2008 and has negative working capital at October 31,
2008.   The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should
iDNA be unable to continue as a going concern.  iDNA’s continuation as
a going concern is dependent upon its ability to generate sufficient cash flow
to meet its obligations on a timely basis, to obtain additional equity or debt
financing or refinancing as may be required, increase revenues and reduce costs
ultimately to establish profitable operations or through monetizing or the sale
of assets.  If iDNA is unable to complete its financing requirements
or achieve revenue as projected, it will then modify its expenditures and plan
of operations to coincide with the actual financing completed and/or actual
operating revenues. There are no assurances, however, with respect to the future
success of these plans.
 
  26
  iDNA,
Inc. and Subsidiaries
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations – continued
 
 Revenues:  iDNA’s
revenues are earned within short time periods, generally less than one
week.  iDNA recognizes revenue from its strategic communications
segment, including the video production, video editing, meeting services and
broadcast satellite or webcast services, and its information services segment
when the services are complete and delivered or all technical services have been
rendered.  Deposits and other prepayments are recorded as deferred
revenue until revenue is recognized.  iDNA does not have licensing or
other arrangements that result in additional revenues following the delivery of
the video or a broadcast.  Costs accumulated in the production of the
video, meeting services or broadcasts are deferred until the sale and delivery
are complete.  Deferred production costs of $76,000 and $90,000,
respectively, are reported as other current assets at October 31, 2008 and
January 31, 2008.
 
 iDNA
recognizes revenue from the sale of electronic equipment, proprietary software
and related components at the time of shipment.  Deposits and other
prepayments received prior to shipment are recorded as deferred revenue until
the electronic equipment and related software are shipped.  iDNA has
licensing and technical support arrangements for future software enhancements
and upgrades for technical support for previously delivered electronic
equipment.  Revenues derived from licensing and technical support are
recognized over the term of the licensing and technical support period, which
generally are sold in increments of one year of coverage.  For the
three months ended October 31, 2008 and 2007, electronic equipment sales were
$420,000 and $560,000, respectively.  For the nine months ended
October 31, 2008 and 2007, electronic equipment sales were $1.2 million and $1.6
million, respectively.
 
 Cost of
Revenues:  Cost of revenues consists of direct expenses
specifically associated with client service revenues.   The cost
of revenues includes direct salaries and benefits, purchased products or
services for clients, web hosting, support services, shipping and delivery
costs.
 
 Accounts
Receivable:  iDNA extends credit to clients in the normal
course of business.  iDNA continuously monitors collections and
payments from clients and maintains an allowance for doubtful accounts based
upon historical experience and any specific client collection issues that have
been identified.  Since  accounts receivable are
concentrated in a relatively few number of clients, a significant change in the
liquidity or financial position of any of these clients could have a material
adverse impact on the collectability of the accounts receivable and future
operating results.  iDNA does not have any off-balance sheet credit
exposure related to its customers.
  27





iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued




Valuation of Long-lived
Assets and Goodwill:  iDNA reviews the carrying value of its
long-lived assets (other than goodwill) whenever events or changes in
circumstances indicate that its carrying amount may not be
recoverable.  When indicators of impairment exist, iDNA determines
whether the estimated undiscounted sum of the future cash flows of such assets
is less than their carrying amounts.  If less, an impairment loss is
recognized in the amount, if any, by which the carrying amount of such assets
exceeds their respective fair values.  The determination of fair value
is based on quoted market prices in active markets, if available, or independent
appraisals; sales price negotiations; or projected future cash flows discounted
at a rate determined by management to be commensurate with iDNA’s business
risk.  The estimation of fair value utilizing discounted forecasted
cash flows includes significant judgments regarding assumptions of revenue,
operating and marketing costs; selling and administrative expenses; interest
rates; property and equipment additions and retirements; industry competition;
and general economic and business conditions, among other factors.





At January 31, 2008, the goodwill for
each of iDNA’s business segments (information services and strategic
communications services) was tested for impairment.  As a consequence
of the testing, iDNA determined that the carrying value of both its information
services and its strategic communications services business segments exceeded
their fair value, which was estimated based upon the present value of each
reporting units expected future cash flows.  As a consequence, iDNA
charged to operations an aggregate of $8.0 million for the estimated impairment
of goodwill and other intangible assets relating to (i) its information services
segment in the amount of $5.9 million, and (ii) strategic communication services
segment in the amount of $2.1 million, respectively, resulting in the carrying
value of all goodwill and other intangible assets being reduced to
zero.  Prior to the impairment charge during the fourth quarter of
Fiscal 2008, iDNA charged to operations $202,000 and $607,000 for the
amortization of these intangibles for the three months and nine months ended
October 31, 2007.





Self-Insurance
Claims:  iDNA’s wholly-owned subsidiary ARAC, Inc. (“ARAC”)
maintained and continues to maintain self-insurance for claims and associated
litigation expenses relating to bodily injury or property damage from accidents
involving the vehicles rented to customers by its discontinued automobile rental
operations occurring in Fiscal 1996 and prior. ARAC was, when required by either
governing state law or the terms of its rental agreement, self-insured for the
first $1.0 million per occurrence, and for losses in excess of $5.0 million per
occurrence, for bodily injury and property damage resulting from accidents
involving its rental vehicles.  ARAC was also self-insured, up to
certain retained limits, for bodily injury and property damage resulting from
accidents involving ARAC vehicles operated by employees within the scope of
their employment.




28


iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued


ARAC is
the subject to certain self-insurance claims and associated litigation expenses
relating to its discontinued automobile rental operations. iDNA’s management
estimates the required self-insurance liability based upon specific
identification of the known matters subject to future claims, the nature of the
claim and the estimated costs to be incurred.  These estimates
include, but are not limited to, ARAC’s historical loss experience and projected
loss factors.  The required self-insurance liability is subject to
adjustment in the future based upon changes in the nature of the remaining
claims or the ultimate cost.  As a consequence of iDNA’s sale of its
automobile rental operations in 1995, iDNA believes that all incurred claims
have been reported to ARAC and that there are no longer any incurred but not yet
reported claims to be received by ARAC.   iDNA’s self-insurance
liability at October 31, 2008 and January 31, 2008 was $142,000 and $172,000,
respectively.





Because
of the uncertainties related to several residual small claims and legal
proceedings involving iDNA’s former rental operations and self-insurance claims,
it is difficult to project with precision the ultimate effect that the
adjudication or settlement of these matters will have on iDNA.  As
additional information regarding iDNA’s potential liabilities becomes available,
iDNA will revise its estimates as appropriate.





Stock-Based
Compensation:  Effective February 1, 2006, iDNA adopted the
provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R
(revised 2004), Share-Based
Payment (“SFAS No. 123(R)”), which replaced SFAS No. 123, Accounting for Stock-Based
Compensation (“SFAS No. 123”), and superseded APB Opinion No. 25, Accounting for Stock Issued to
Employees.  SFAS No. 123(R) requires all share-based payments
to employees, including grants of employee stock options, to be recognized in
the financial statements based on their fair values beginning with the first
interim or annual period after December 15, 2005.  iDNA elected the
prospective method of adopting SFAS No. 123(R) which requires that compensation
expense be recorded over the remaining periods for what would have been the
remaining fair value under SFAS No. 123 of all unvested stock options and
restricted stock at the beginning of the first quarter of
adoption.  The compensation costs for that portion of awards is based
on the grant-date fair value of the awards as calculated for pro forma
disclosures under SFAS No. 123.  iDNA charged to operations $37,000
and $60,000, respectively, for share-based compensation for the three months
ended October 31, 2008 and 2007.  iDNA charged to operations $199,000
and $211,000, respectively, for share-based compensation for the nine months
ended October 31, 2008 and 2007.


29


iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued








Income Taxes: iDNA
recognizes deferred tax assets and liabilities based on differences between the
financial statement carrying amounts and the tax basis of assets and
liabilities.  Loss carrybacks, reversal of deferred tax liabilities,
tax planning and estimates of future taxable income are considered in assessing
the need for a valuation allowance.  At the time it is determined that
iDNA will more likely than not be able to realize deferred tax assets in excess
of the recorded amount, net of its valuation allowance, an adjustment to reduce
the valuation allowance would be recorded that would increase income in the
period such determination was made.  Likewise, should management
determine that iDNA would not be able to realize all or part of net deferred tax
assets generated in the future, an increase to the valuation allowance would be
charged to and reduce income in the period such determination was
made.




Financial
Condition and Results of Operations


Results
from Operations for the Three Months Ended October 31, 2008


as
Compared to the Three Months Ended October 31, 2007





The
following table sets forth for the three months ended October 31, 2008 and 2007
certain statements of operations data by segment obtained from iDNA’s
consolidated statement of operations (in thousands).  All figures
described in the ensuing discussion (as derived from the table) are stated in
approximate amounts, based upon rounding of figures presented in the
table.





StrategicInformation Services
                                              
                                              
                                              Communications Services
                                              
                                              
                                              Intersegment EliminationThree Months Ended
                                              
                                              
                                              Three Months Ended
                                              
                                              
                                              Three Months EndedOctober 31,
                                              
                                              
                                              October 31,
                                              
                                              
                                              October 31,2008
                                              
                                              
                                              2007
                                              
                                              
                                              2008
                                              
                                              
                                              2007
                                              
                                              
                                              2008
                                              
                                              
                                              2007Revenues
                                              
                                              $
                                              1,660
                                              
                                              
                                              $
                                              2,432
                                              
                                              
                                              $
                                              716
                                              
                                              
                                              $
                                              2,729
                                              
                                              
                                              $
                                              (1
                                              )
                                              
                                              $
                                              (91
                                              )Cost
      of revenues
                                              
                                              
                                              1,253
                                              
                                              
                                              
                                              1,325
                                              
                                              
                                              
                                              674
                                              
                                              
                                              
                                              1,267
                                              
                                              
                                              
                                              (1
                                              )
                                              
                                              
                                              (91
                                              )Selling,
      general andadministrative
      expenses
                                              
                                              
                                              1,119
                                              
                                              
                                              
                                              1,060
                                              
                                              
                                              
                                              725
                                              
                                              
                                              
                                              1,097
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Operating
      income (loss)
                                              
                                              
                                              (712
                                              )
                                              
                                              
                                              47
                                              
                                              
                                              
                                              (683
                                              )
                                              
                                              
                                              365
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Depreciation
      andamortization
      expense
                                              
                                              
                                              103
                                              
                                              
                                              
                                              219
                                              
                                              
                                              
                                              22
                                              
                                              
                                              
                                              177
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -UndistributedEntertainment
                                              
                                              
                                              Corporate Expenses
                                              
                                              
                                              ConsolidatedThree Months Ended
                                              
                                              
                                              Three Months Ended
                                              
                                              
                                              Three Months EndedOctober 31,
                                              
                                              
                                              October 31,
                                              
                                              
                                              October 31,2008
                                              
                                              
                                              2007
                                              
                                              
                                              2008
                                              
                                              
                                              2007
                                              
                                              
                                              2008
                                              
                                              
                                              2007Revenues
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              2,375
                                              
                                              
                                              $
                                              5,070Cost
      of revenues
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,926
                                              
                                              
                                              
                                              2,501Selling,
      general andadministrative
      expenses
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (75
                                              )
                                              
                                              
                                              233
                                              
                                              
                                              
                                              1,769
                                              
                                              
                                              
                                              2,390Operating
      income (loss)
                                              
                                              
                                              215
                                              
                                              
                                              
                                              148
                                              
                                              
                                              
                                              (183
                                              )
                                              
                                              
                                              (291
                                              )
                                              
                                              
                                              (1,363
                                              )
                                              
                                              
                                              269Depreciation
      andamortization
      expense
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              11
                                              
                                              
                                              
                                              11
                                              
                                              
                                              
                                              136
                                              
                                              
                                              
                                              407




30




iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued








Revenues:  Revenues
decreased $2.7 million to $2.4 million for the three months ended October 31,
2008 as compared to $5.1 million for the three months ended October 31,
2007.  Beginning with the three month period ended October 31, 2008 a
decline in revenues was realized within each of iDNA’s business segments
principally as a consequence of client meeting cancellations and postponements,
budget reductions and event deferments as a result of the contracting domestic
economy.  The limited credit environment, contracting economy and
general economic uncertainty has adversely affected client budgets and/or timing
for corporate meetings and events.   Several larger programs
initially scheduled for the third and fourth quarter of Fiscal 2008 have been
rescheduled to first and second quarter of Fiscal 2009.





Revenues
attributed to the information services segment decreased $772,000 to $1.7
million for the three months ended October 31, 2008 as compared to $2.4 million
for the three months ended October 31, 2007. The decrease in revenues was
principally due to (i) a reduction in the size, scope and number of corporate
meetings and events of $632,000 and (ii) a decline in electronic equipment sales
of $140,000 during the three months ended October 31, 2008 as compared to the
three months ended October 31, 2007.





Revenues
attributed to the strategic communications services segment decreased $2.0
million to $716,000 for the three months ended October 31, 2008 as compared to
$2.7 million for the three months ended October 31, 2007.  The
decrease in revenues was principally due to a decrease in the scope, size and
number of projects completed during the three months ended October 31, 2008 as
compared to the three months ended October 31, 2007.





The
nature of iDNA’s business is such that the nature and timing of assignments
completed for clients, and the resulting revenue, will vary from period to
period in terms of scope, size of projects and the ultimate revenues
derived.  The timing and fluctuations between periods for assignments
is particularly apparent for our strategic communications segment where
assignments tend to be fewer in number but larger in scope than the information
services segment.  As a consequence, revenues tend to fluctuate from
quarter-to-quarter based upon the client determined timing for completion of an
assignment.





Cost of Service
Revenues:  Cost of revenues for the three months ended October
31, 2008 and 2007 was $1.9 million and $2.5 million, respectively.





Cost of
revenues attributed to the information services segment was $1.2 million for the
three months ended October 31, 2008 as compared to $1.3 million for the three
months October 31, 2007.


31


iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued








The gross
profit realized by the information services segment for the three months ended
October 31, 2008 and 2007 was $407,000 and $1.1 million,
respectively.  The gross profit decrease of $700,000 for the three
months ended October 31, 2008 as compared to the three months ended October 31,
2007 is due principally to the lower margins for the period on projects
completed and for the sale of equipment.  The gross margin for the
three months ended October 31, 2008 decreased 21.0% to 24.5% as compared to
45.5% for the three months ended October 31, 2007, principally due to (i) a
decrease in project size and scope resulting in lower margins, (ii) decline in
pricing and volume of equipment sales, and (iii) as a consequence of lower
revenues, the under-absorption of project overhead as a percentage of
revenues.





Cost of
revenues attributable to the strategic communications segment decreased $593,000
to $674,000 for the three months ended October 31, 2008 as compared to $1.3
million for the three months ended October 31, 2007.  The decrease in
the costs of revenues was principally due to a decrease in revenues for the
three months ended October 31, 2008 as compared to the three months ended
October 31, 2007.  The gross profit realized by the strategic
communications segment for the three months ended October 31, 2008 and 2007 was
$42,000 and $1.5 million, respectively. The gross profit decrease of $1.4
million for the three months ended October 31, 2008 as compared to the three
months ended October 31, 2007 was principally due to a decrease in production
projects completed during the period which utilized internal production staff
and resources.  The nature of the strategic communications segment’s
cost of revenues includes various fixed production, operating and personnel
costs as well as variable direct project costs.  As a consequence, the
absorption of the fixed production operating and personnel costs can cause
quarter-to-quarter fluctuations in gross profit realized as iDNA experiences
quarter-to-quarter fluctuations in revenues.





Selling, General and
Administrative (“SG&A”):  SG&A for the three months
ended October 31, 2008 and the three months ended October 31, 2007 was $1.8
million and $2.4 million, respectively.





SG&A
attributed to the information services segment was $1.1 million and $1.1 million
respectively, for three months ended October 31, 2008 and the three months ended
October 31, 2007.    The increase in SG&A of $59,000 was
principally due to the net effect of (i) a decrease of $116,000 for depreciation
and amortization expense as a consequence of the elimination of the amortization
of certain intangible assets written off in Fiscal 2008, (ii) a decrease of
$53,000 in personnel and related costs offset by (iii) an increase in corporate
expense allocation.





SG&A
attributable to the strategic communications services segment decreased $372,000
to $725,000 for the three months ended October 31, 2008 as compared to $1.1
million for the three months ended October 31, 2007. The decrease in SG&A
was due to (i) a decrease of $155,000 for depreciation and amortization expense
principally as a consequence of the elimination of the amortization of certain
intangible assets written off in Fiscal 2008, (ii) a decrease of $15,000 for
facility expenses as a consequence of the consolidation of certain facilities
implemented in Fiscal 2008, (iii) a decrease of $104,000 in personnel and
related costs and (iv) a decrease in corporate expense
allocation.


32


iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued





SG&A
for undistributed corporate expenses for the three months ended October 31, 2008
and October 31, 2007 was ($75,000) and $233,000, respectively.  The
corporate expenses incurred by iDNA relate principally to expenses incurred at
its executive offices for executive and corporate finance personnel, certain
employee benefits, professional services such as consulting, legal and
accounting fees, corporate insurance, corporate marketing initiatives and the
costs associated with maintaining its New York facility.  iDNA
allocates to its various business segments or units the proportionate share of
corporate expenses that directly relate to and/or benefit such business segment
or unit. The undistributed corporate expenses reflect the remaining expenses
incurred but not directly attributable to a business segment or unit. The
decrease in corporate SG&A of $308,000 for the three months ended October
31, 2008 as compared to the three months ended October 31, 2007 was due
principally to (i) lower professional fees from company advisors, (ii) the
reduction in facility rent and related occupancy costs as iDNA consolidated its
New York City-based strategic communications operations into one facility, (iii)
a net decrease in personnel and related benefit expenses and (iv) an increase in
the expense allocation to the business segments.





Income from AFC
Investment:  iDNA accounts for its investment in AFC using the
equity method. For the three months ended October 31, 2008 and October 31, 2007,
iDNA recorded income of $215,000 and $148,000, respectively, representing iDNA’s
share of AFC’s net income (loss).





Summarized income statement data for
AFC for the three months ended September 30, 2008 and 2007, respectively, is as
follows (in thousands):





Three Months EndedSeptember 30,2008
                    
                    
                    2007Revenues
                    
                    $
                    1,922
                    
                    
                    $
                    1,408Operating
      costs
                    
                    
                    1,271
                    
                    
                    
                    895Depreciation
      and amortization
                    
                    
                    201
                    
                    
                    
                    195General
      and administrative expenses
                    
                    
                    20
                    
                    
                    
                    221,492
                    
                    
                    
                    1,112Net
      income
                    
                    $
                    430
                    
                    
                    $
                    296iDNA's
      proportionate share of net income
                    
                    $
                    215
                    
                    
                    $
                    148




33


iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued





AFC’s
revenues increased $514,000 to $1.9 million for the three months ended September
30, 2008 as compared to $1.4 million for the three months ended September 30,
2007, principally as a result of (i) an increase of 31.9% in attendance
period-to-period, (ii) an increase of $22,000 in other, concession and café
revenues and (iii) an increase of 10.2% in average ticket prices.  The
attendance, and at times the ticket prices, at AFC will vary depending on
audience interest in, and the popularity of the films it exhibits and other
factors.  Operating costs, as a percentage of revenue, increased 2.4%
to 66.1% for the three months ended September 30, 2008, as compared to 63.7% for
the three months ended September 30, 2007 due principally to (i) an increase in
film rental expense of 10.2% and (ii) an increase in general operating and
advertising costs of $50,000 for the three months ended September 30, 2008 as
compared to the three months ended September 30, 2007.  The nature of
AFC’s operating costs tend generally to be more fixed overhead-related costs and
advertising expenses.  In addition, film rental expense generally is a
factor of a fixed percentage rental rate per film multiplied by the number of
tickets sold.  AFC experiences fluctuations in film rental expense, as
a percentage of revenue, depending upon the rental rate per film and the
popularity of the film.





Interest
Expense:  For the three months ended October 31, 2008 and 2007,
iDNA incurred interest expense of $259,000 and $59,000,
respectively.  The increase of $200,000 in interest expense for the
three month period ended October 31, 2008 as compared to the three month period
ended October 31, 2007 is due principally to an increase in interest costs
attributable to the Term Loan (defined below) consummated in November
2007.





Income Taxes: Due to
net operating losses and the availability of net operating loss carryforwards,
iDNA’s effective federal income tax rate was zero for the three month periods
ended October 31, 2008 and October 31, 2007.  Additionally, iDNA is in
the process of analyzing the final tax treatment associated with the Reduction
Agreement however, based upon currently available information, iDNA believes
that the gain on the Reduction Agreement is not a gain for tax
purposes.  iDNA has provided a full valuation allowance against its
net operating loss carryforward and other net deferred tax asset items due to
the uncertainty of their future realization.  For the three months
ended October 31, 2008 and October 31, 2007, iDNA has charged to income tax
expense $6,000 and 14,000, respectively, relating to estimated state and local
income taxes.


34


iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued





Financial
Condition and Results of Operations


Results
from Operations for the Nine Months Ended October 31, 2008


as
Compared to the Nine Months Ended October 31, 2007





The
following table sets forth for the nine months ended October 31, 2008 and 2007
certain statements of operations data by segment obtained from iDNA’s
consolidated statement of operations (in thousands).  All figures
described in the ensuing discussion (as derived from the table) are stated in
approximate amounts, based upon rounding of figures presented in the
table.





StrategicInformation Services
                                            
                                            
                                            Communications Services
                                            
                                            
                                            Intersegment EliminationNine Months Ended
                                            
                                            
                                            Nine Months Ended
                                            
                                            
                                            Nine Months EndedOctober 31,
                                            
                                            
                                            October 31,
                                            
                                            
                                            October 31,2008
                                            
                                            
                                            2007
                                            
                                            
                                            2008
                                            
                                            
                                            2007
                                            
                                            
                                            2008
                                            
                                            
                                            2007Revenues
                                            
                                            $
                                            5,947
                                            
                                            
                                            $
                                            7,074
                                            
                                            
                                            $
                                            4,140
                                            
                                            
                                            $
                                            4,568
                                            
                                            
                                            $
                                            (63
                                            )
                                            
                                            $
                                            (148
                                            )Cost
      of revenues
                                            
                                            
                                            3,929
                                            
                                            
                                            
                                            4,108
                                            
                                            
                                            
                                            2,956
                                            
                                            
                                            
                                            3,107
                                            
                                            
                                            
                                            (63
                                            )
                                            
                                            
                                            (148
                                            )Selling,
      general andadministrative
      expenses
                                            
                                            
                                            3,311
                                            
                                            
                                            
                                            3,428
                                            
                                            
                                            
                                            2,177
                                            
                                            
                                            
                                            2,942
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Operating
      income (loss)
                                            
                                            
                                            (1,293
                                            )
                                            
                                            
                                            (469
                                            )
                                            
                                            
                                            (993
                                            )
                                            
                                            
                                            (1,481
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Depreciation
      andamortization
      expense
                                            
                                            
                                            373
                                            
                                            
                                            
                                            656
                                            
                                            
                                            
                                            145
                                            
                                            
                                            
                                            539
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -UndistributedEntertainment
                                            
                                            
                                            Corporate
      Expenses
                                            
                                            
                                            ConsolidatedNine Months Ended
                                            
                                            
                                            Nine Months Ended
                                            
                                            
                                            Nine Months EndedOctober 31,
                                            
                                            
                                            October 31,
                                            
                                            
                                            October 31,2008
                                            
                                            
                                            2007
                                            
                                            
                                            2008
                                            
                                            
                                            2007
                                            
                                            
                                            2008
                                            
                                            
                                            2007Revenues
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            10,024
                                            
                                            
                                            $
                                            11,494Cost
      of revenues
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            6,822
                                            
                                            
                                            
                                            7,067Selling,
      general andadministrative
      expenses
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            445
                                            
                                            
                                            
                                            703
                                            
                                            
                                            
                                            5,933
                                            
                                            
                                            
                                            7,073Operating
      income (loss)
                                            
                                            
                                            429
                                            
                                            
                                            
                                            484
                                            
                                            
                                            
                                            7,957
                                            
                                            
                                            
                                            (864
                                            )
                                            
                                            
                                            6,100
                                            
                                            
                                            
                                            (2,330
                                            )Depreciation
      andamortization
      expense
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            32
                                            
                                            
                                            
                                            38
                                            
                                            
                                            
                                            550
                                            
                                            
                                            
                                            1,233




Revenues:  Revenues
decreased $1.5 million to $10.0 million for the nine months ended October 31,
2008 as compared to $11.5 million for the nine months ended October 31,
2007.   As previously discussed above, beginning with the three
month period ended October 31, 2008 a decline in revenues was realized within
each of iDNA’s business segments principally as a consequence of client meeting
cancellations and postponements, budget reductions and event deferments as a
result of the contracting domestic economy.  The limited credit
environment, contracting economy and general economic uncertainty has adversely
affected client budgets and/or timing for corporate meetings and
events.   Several larger programs initially scheduled for the
third and fourth quarter of Fiscal 2008 have been rescheduled to first and
second quarter of Fiscal 2009.


35





iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued








Revenues
attributed to the information services segment decreased $1.1 million to $5.9
million for the nine months ended October 31, 2008 as compared to $7.1 million
for the nine months ended October 31, 2007. The decrease in revenues was
principally due to (i) a decline in electronic equipment sales of $401,000 and
(ii) a decrease in the scope, size and number of projects completed during the
nine months ended October 31, 2008 as compared to the nine months ended October
31, 2007.





Revenues
attributed to the strategic communications services segment decreased $428,000
to $4.1 million for the nine months ended October 31, 2008 as compared to $4.6
million for the nine months ended October 31, 2007.  The decrease in
revenues was principally due to an increase in the scope, size and number of
projects completed during the nine months ended October 31, 2008 as compared to
the nine months ended October 31, 2007.





The
nature of iDNA’s business is such that the nature and timing of assignments
completed for clients, and the resulting revenue, will vary from period to
period in terms of scope, size of projects and the ultimate revenues
derived.  The timing and fluctuations between periods for assignments
is particularly apparent for our strategic communications segment where
assignments tend to be fewer in number but larger in scope than the information
services segment.  As a consequence, revenues tend to fluctuate from
quarter-to-quarter based upon the client determined timing for completion of an
assignment.





Cost of Service
Revenues:  Cost of revenues for the nine months ended October
31, 2008 and 2007 was $6.8 million and $7.1 million, respectively.





Cost of
revenues attributed to the information services segment was $3.9 million for the
nine months ended October 31, 2008 as compared to $4.1 million for the nine
months October 31, 2007.





The gross
profit realized by the information services segment for the nine months ended
October 31, 2008 and 2007 was $2.0 million and $3.0 million,
respectively.  The gross profit decrease of $948,000 for the nine
months ended October 31, 2008 as compared to the nine months ended October 31,
2007 is due principally to (i) a decrease in project margins for the period, and
(iii) a decrease in revenues.  The gross margin for the nine months
ended October 31, 2008 decreased 8.0% to 33.9% as compared to 41.9% for the nine
months ended October 31, 2007, principally due (i) a decrease in project size
and scope resulting in lower margins, (ii) decline in pricing and volume of
equipment sales, and (iii) as a consequence of lower revenues, the
under-absorption of project overhead as a percentage of
revenues.


36


iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued





Cost of
revenues attributable to the strategic communications segment decreased $151,000
to $3.0 million for the nine months ended October 31, 2008 as compared to $3.1
million for the nine months ended October 31, 2007.  The decrease in
the costs of revenues was principally due to a decrease in revenues for the nine
months ended October 31, 2008 as compared to the nine months ended October 31,
2007.  The gross profit increase of $277,000 for the nine months ended
October 31, 2008 as compared the nine months ended October 31, 2007 was
principally due to a decrease in production projects completed during the
period.  The nature of the strategic communications segment’s cost of
revenues includes various fixed production, operating and personnel costs as
well as variable direct project costs.  As a consequence, the
absorption of the fixed production operating and personnel costs can cause
quarter-to-quarter fluctuations in gross profit realized as iDNA experiences
quarter-to-quarter fluctuations in revenues.





Selling, General and
Administrative (“SG&A”):  SG&A for the nine months
ended October 31, 2008 and the nine months ended October 31, 2007 was $5.9
million and $7.1 million, respectively.





SG&A
attributed to the information services segment was $3.3 million and $3.4 million
respectively, for nine months ended October 31, 2008 and the nine months ended
October 31, 2007.    The decrease in SG&A of $117,000
was principally due to the net effect of (i) a decrease of $282,000 for
depreciation and amortization expense principally as a consequence of the
elimination of the amortization of certain intangible assets written off in
Fiscal 2008 offset by (ii) an increase of $148,000 in personnel and related cost
and (iii) an increase of $17,000 for other SG&A costs.





SG&A
attributable to the strategic communications services segment decreased $765,000
to $2.2 million for the nine months ended October 31, 2008 as compared to $2.9
million for the nine months ended October 31, 2007. The decrease in SG&A was
due to (i) a decrease of $395,000 for depreciation and amortization expense
principally as a consequence of the elimination of the amortization of certain
intangible assets written off in Fiscal 2008, (ii) a decrease of $78,000 for
facility expenses as a consequence of the consolidation of certain facilities
implemented in Fiscal 2008, (iii) a decrease of $185,000 in personnel and
related costs and (iv) an increase of $107,000 for other SG&A
costs.


37


iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued





SG&A
for undistributed corporate expenses for the nine months ended October 31, 2008
and October 31, 2007 was $445,000 and $703,000, respectively.  The
corporate expenses incurred by iDNA relate principally to expenses incurred at
its executive offices for executive and corporate finance personnel, certain
employee benefits, professional services such as consulting, legal and
accounting fees, corporate insurance, corporate marketing initiatives and the
costs associated with maintaining its New York facility.  iDNA
allocates to its various business segments or units the proportionate share of
corporate expenses that directly relate to and/or benefit such business segment
or unit. The undistributed corporate expenses reflect the remaining expenses
incurred but not directly attributable to a business segment or unit. The
decrease in corporate SG&A of $258,000 for the nine months ended October 31,
2008 as compared to the nine months ended October 31, 2007 was due principally
to (i) lower professional fees from company advisors, (ii) the reduction in
facility rent and related occupancy costs as iDNA consolidated its New York
City-based strategic communications operations into one facility, (iii)
reduction in personnel and related cost and (iv) an increase in the expense
allocation to the business segments.





Income from AFC
Investment:  iDNA accounts for its investment in AFC using the
equity method. For the nine months ended October 31, 2008 and October 31, 2007,
iDNA recorded income of $429,000 and $484,000, respectively, representing iDNA’s
share of AFC’s net income.





Summarized income statement data for
AFC for the nine months ended September 30, 2008 and 2007, respectively, is as
follows (in thousands):





Nine Months EndedSeptember 30,2008
                    
                    
                    2007Revenues
                    
                    $
                    4,812
                    
                    
                    $
                    4,696Operating
      costs
                    
                    
                    3,286
                    
                    
                    
                    3,053Depreciation
      and amortization
                    
                    
                    604
                    
                    
                    
                    585General
      and administrative expenses
                    
                    
                    64
                    
                    
                    
                    903,954
                    
                    
                    
                    3,728Net
      income
                    
                    $
                    858
                    
                    
                    $
                    968iDNA's
      proportionate share of net income
                    
                    $
                    429
                    
                    
                    $
                    484




38


iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued





AFC’s
revenues increased $116,000 to $4.8 million for the nine months ended September
30, 2008 as compared to $4.7 million for the nine months ended September 30,
2007, principally as a result of the net effects of (i) a decrease of 3.3% in
attendance period-to-period, (ii) a decrease of $41,000 in other, concession and
café revenues offset by (iii) an increase of 7.7% in average ticket
prices.  The attendance, and at times the ticket prices, at AFC will
vary depending on audience interest in, and the popularity of the films it
exhibits and other factors.  Operating costs, as a percentage of
revenue, increased 3.3% to 68.3% for the nine months ended September 30, 2008,
as compared to 65.0% for the nine months ended September 30, 2007 due
principally to an increase in film rental expense of 3.2%.  The nature
of AFC’s operating costs tend generally to be more fixed overhead-related costs
and advertising expenses.  In addition, film rental expense generally
is a factor of a fixed percentage rental rate per film multiplied by the number
of tickets sold.  AFC experiences fluctuations in film rental expense,
as a percentage of revenue, depending upon the rental rate per film and the
popularity of the film.





Interest
Expense:  For the nine months ended October 31, 2008 and 2007,
iDNA incurred interest expense of $783,000 and $172,000,
respectively.  The increase of $611,000 in interest expense for the
nine month period ended October 31, 2008 as compared to the nine month period
ended October 31, 2007 is due principally to an increase in interest costs
attributable to the Term Loan (defined below) consummated in November
2007.





Interest
Abatement:  As a consequence of the various terms of the
Reduction Agreement, iDNA realized a reduction of interest expense from the
abatement of previously accrued interest of $156,000 for the nine months ended
October 31, 2008.




Gain on Restructuring of
Debt:  As a consequence of the various terms of the Reduction
Agreement, for the nine months ended October 31, 2008, iDNA realized a gain of
$9.0 million relating to the reduction of the Campus Group Purchase Price and
the restructuring of the corresponding debt.




Income Taxes: Due to
net operating losses and the availability of net operating loss carryforwards,
iDNA’s effective federal income tax rate was zero for the nine month periods
ended October 31, 2008 and October 31, 2007.  Additionally, iDNA is in
the process of analyzing the final tax treatment associated with the Reduction
Agreement however, based upon currently available information, iDNA believes
that the gain on the Reduction Agreement is not a gain for tax
purposes.  iDNA has provided a full valuation allowance against its
net operating loss carryforward and other net deferred tax asset items due to
the uncertainty of their future realization.  For the nine months
ended October 31, 2008 and October 31, 2008, iDNA has charged to income tax
expense of $18,000 and $18,000, respectively, relating to estimated state and
local income taxes.


39


iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued





Liquidity
and Capital Resources





As a
consequence of periodic fluctuations in iDNA’s working capital needs based upon
the timing of collections, distributions from AFC, and periods of increased
production activity, on November 21, 2007, iDNA, via its wholly owned
subsidiary, iDNA Cinema Holdings, Inc. (“Holdings”), consummated a Master Loan
and Security Agreement (the “Loan Agreement”) with Silar Advisors, L.P.
(“Silar”), as Lender and Administrative, Payment and Collateral Agent, pursuant
to which Silar provided a term loan in an aggregate principal amount of $4.25
million (the “Term Loan”) to Holdings (the “Term Loan
Financing”).  Interest accrues on the Term Loan at a per annum rate
equal to the variable annual rate of interest designated from time to time by
Citibank N.A. as its “prime rate,” plus 4%, or, if greater, 12.25%, and is
payable by Holdings on a quarterly basis.  At October 31, 2008, the
“prime rate” was 4.0%.  The Term Loan matures on November 20, 2009
unless extended for one year at the option of Holdings, upon written notice
provided to Silar between fifteen (15) and forty-five (45) days prior to the
Maturity Date, provided that no default is then ongoing and that Holdings is
then in compliance with its financial covenants under the Loan
Agreement.  At October 31, 2008, Holdings and iDNA were in compliance
with the financial covenants under the Loan Agreement.  At October 31,
2008, the principal balance of the Term Loan was $3.9 million.  The
Term Loan is also guaranteed by (i) iDNA (with such guaranty being secured by a
pledge of substantially all of iDNA’s assets, other than the shares of its
operating subsidiaries) and (ii) National Cinemas, Inc. (“NCI”), which owns a
50% membership interest in AFC (with such guaranty being secured by a pledge of
substantially all of NCI’s assets, other than its 50% membership interest in
AFC).





As a
consequence of iDNA’s acquisition of OTI effective November 18, 2005, iDNA
issued to Flexner Wheatley & Associates (“FWA”) and MeetingNet Interactive,
Inc. (“MeetingNet”) promissory notes in an aggregate principal amount of $1.5
million (the “OTI Promissory Notes”).  The OTI Promissory Notes bear
interest at 5% per annum and are repayable in quarterly installments according
to a formula based upon the future cash flows realized from OTI’s
operations.  iDNA’s obligations under the OTI Promissory Notes are
secured by the membership interests of OTI.  At October 31, 2008, iDNA
had outstanding principal obligations under the terms of the OTI Promissory
Notes of $855,000 and accrued interest obligations of $12,000.





As of
January 31, 2008, OTI did not meet certain minimum financial performance
criterion and, as a consequence, (i) iDNA retained an option to reduce the
purchase price in an amount estimated between $206,000 and $412,000 and (ii) for
the three and nine months ended October 31, 2008 no interest was incurred under
the OTI Promissory Notes.  iDNA has not exercised its option to reduce
the purchase price for its acquisition of OTI as of December 19, 2008 and no
adjustment to the OTI Promissory Notes was recorded at October 31,
2008.  Prospectively, interest may accrue pursuant to the terms of the
OTI Promissory Notes once the minimum operating cash flow thresholds are
achieved.


40


iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued





As a
consequence of iDNA’s acquisition of OMI Business Communications, Inc. (“OMI”)
effective April 1, 2003, iDNA assumed a $402,000 loan guaranteed by the U.S.
Small Business Administration (the “SBA Loan”).  At October31, 2008, the
remaining balance of the SBA Loan of $278,000 is repayable in monthly
installments of $3,309 with the last payment due in April 2017. The SBA Loan
bears interest at the rate of 4% per annum.  OMI’s obligations under
the SBA Loan are collateralized by substantially all of OMI’s assets and payment
thereunder is subject to the personal guarantee of Mr. Dean Thompson, President
of OMI.





In
September 2006, OMI consummated equipment financing in the form of a capital
lease with a financing institution to acquire $102,000 in various digital media
production and editing equipment.  The capital lease bears an implied
interest rate of 10% and is payable in monthly installments with the last
payment due in July 2009.  At October31, 2008, the
remaining balance due under the capital lease was $27,000.





On
January 31, 2008, ARS consummated an auto loan with a financing institution for
the purchase of a delivery van in the principal amount of
$24,000.  The auto loan is repayable in monthly installments of $755
with the last payment due February 2011.  The auto loan bears interest
at the rate of 9.0% and is collateralized by the van purchased with the proceeds
from the loan.  At October 31, 2008, the principal balance of the auto
loan was $20,000.





In July
2008, as set forth in the Reduction Agreement, iDNA (i) assumed certain
obligations to redeem or repurchase from the Stockholders their Issued Shares
and (ii) granted to the Stockholders certain rights to sell (or “put”) the
Issued Shares to iDNA.  iDNA is required to semi-annually offer to
redeem certain Issued Shares from the Stockholders at the rate of $2.00 per
share for a maximum total redemption payment equal to the excess (if
any) of  certain minimum operating cash flow thresholds of the Campus
Group for the period from August 1, 2008 through July 31, 2013.  At
any time, the Stockholders are free to (i) accept or decline iDNA’s offer to
redeem or repurchase the Issued Shares and (ii) sell, redeem, transfer or
otherwise dispose of the Issued Shares to third parties.




Pursuant to the Reduction Agreement,
iDNA also granted to the Stockholders the right, subject to certain criteria, to
sell (or “put”) to iDNA, and require iDNA to purchase from the Stockholders, any
or all of the Issued Shares (exclusive of all Excluded Shares) at the rate of
$2.00 per share during the period October 31, 2013 through November 15, 2013
(the “Put Right”).  However, the Put Right shall not be exercisable if
one or more of the Stockholders shall have received (or be deemed to have
received) aggregate consideration of at least five million dollars ($5,000,000)
on account of or with respect to the sale, transfer, redemption or other
disposition of some or all of the Issued Shares.


41


iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued





As a
consequence of the iDNA’s redemption obligation of the Issued Shares under the
terms of the Reduction Agreement, at July 31, 2008, iDNA recorded a $3.1 million
obligation for the fair value of the redemption
obligation.  Prospectively, the fair value of the redemption
obligation is subject to adjustment each reporting period as a consequence of
changes, if any, to (i) the number of Issued Shares (exclusive of all Excluded
Shares) held by the Stockholders at the end of a period, (ii) actual redemption
accepted or declined, by the Stockholders and/or (iii) sales of Issued Shares to
third parties.  For the three months ended October 31, 2008, iDNA
recorded $94,000 for the accretion of discount to redemption price.




In order
to secure its obligations to the Stockholders under the Reduction Agreement,
iDNA has (i) pledged to the Stockholders all of iDNA’s right, title and interest
in and to all of the capital stock of the Campus Group held by iDNA and (ii)
caused the Campus Group to guaranty such obligations, with such guaranty to be
secured by the assets of the Campus Group.




In
October 2008, iDNA consummated a loan agreement and issued a promissory note to
a Director of iDNA in an aggregate principal amount of $100,000 (the “Promissory
Note”).  Interest accrues on the Promissory Note at a per annum rate
of, 12.25%, and is payable by iDNA on a monthly basis. The Promissory Note
matures on March 1, 2010.  The proceeds from the loan were used to
working capital purposes.





For the
nine months ended October 31, 2008, iDNA’s cash and cash equivalents decreased
$374,000 due principally to the net effects of (i) proceeds from the sale of
marketable securities of $1.4 million, (ii) AFC distributions of $600,000 offset
by (iii) cash flows used in operations of $1.6 million, (iv) capital
expenditures of $157,000, and (v) the repayment of debt and fees of
$474,000.





The
consolidated financial statements have been prepared assuming that iDNA will
continue as a going concern. iDNA has incurred recurring losses from continuing
operations through Fiscal 2008 and has negative working capital at October 31,
2008.  The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should
iDNA be unable to continue as a going concern.  iDNA’s continuation as
a going concern is dependent upon its ability to generate sufficient cash flow
to meet its obligations on a timely basis, to obtain additional equity or debt
financing or refinancing as may be required, increase revenues and reduce costs
ultimately to establish profitable operations or through monetizing or the sale
of assets.  If iDNA is unable to complete its financing requirements
or achieve revenue as projected, it will then modify its expenditures and plan
of operations to coincide with the actual financing completed and/or actual
operating revenues. There are no assurances, however, with respect to the future
success of these plans.


42





iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued





Prior to
the Term Loan and the Promissory Note, iDNA had limited external sources of
financing and has operated on its existing cash balances, cash flows from
operations and distributions from its investment in AFC.  iDNA will
continue to pursue reductions in its operating expenses, invest in marketing
initiatives and seek new debt or equity financing (though there can be no
assurance iDNA will obtain such financing) as means of supplementing iDNA’s
resources available to pursue new acquisitions, joint ventures or other business
development opportunities. At October 31, 2008, iDNA had unrestricted cash of
$78,000 together with any cash flow derived from its investment in AFC and the
operations of iDNA’s corporate communications business will be used to pursue
such opportunities and reduce debt.


43





iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued





Other





New Accounting
Pronouncements


In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, Fair Value
Measurement (“SFAS No. 157”). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in accordance with Generally
Accepted Accounting Principles (“GAAP”), and expands disclosures about fair
value measurements. The provisions of SFAS No. 157 are effective for fiscal
years beginning after November 15, 2007.   The FASB agreed to a
one-year deferral of the effective date for non-financial assets and liabilities
that are recognized or disclosed at fair value on a non-recurring
basis.  The application of this pronouncement did not have a material
impact on iDNA’s reported consolidated financial position or results of
operations.





In
February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS No. 159”).  SFAS No.
159 allows entities the option to measure eligible financial instruments at fair
value as of specified dates.  Such election, which may be applied on
an instrument by instrument basis, is typically irrevocable once
elected.  SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007.  The adoption of this pronouncement did not have a
material impact on iDNA’s reported consolidated financial position or results of
operations.





In
December 2007, the FASB issued SFAS No. 141-R, Business
Combinations.  SFAS No. 141-R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  The objective of SFAS No. 141-R is to improve the relevance,
representational faithfulness and comparability of the information that a
reporting entity provides in its financial reports about a business
combination.  SFAS No, 141-R changes the requirements for an
acquirer’s recognition and measurement of the assets acquired and the
liabilities assumed in a business combination.  iDNA does not
anticipate the application of this pronouncement will have a material impact on
iDNA’s reported consolidated financial position or results of
operations.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements – an amendment to ARB
No.51.  SFAS No. 160 requires that (i) noncontrolling
(minority) interests be reported as a component of shareholders’ equity, (ii)
net income attributable to the parent and to the noncontrolling interest be
separately identified in the consolidated statement of operations, (iii) changes
in a parent’s ownership interest while the parent retains its controlling
interest be accounted for as equity transactions, (iv) any retained
noncontrolling equity investment upon the deconsolidation of a subsidiary be
initially measured at fair value, and (v) sufficient disclosures are provided
that clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners.  SFAS No.160 is effective
for annual periods beginning after December 15, 2008.  iDNA does not
anticipate the application of this pronouncement will have a material impact on
iDNA’s reported consolidated financial position or results of
operations.


44





iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“SFAS 161”).  SFAS 161
enhances disclosure requirements for derivative instruments in order to provide
users of financial statements with an enhanced understanding of (i) how and why
an entity uses derivative instruments, (ii) how derivative instruments and
related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” and its related interpretations, and
(iii) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance and cash flows.  SFAS 161 is
to be applied prospectively for the first annual reporting period beginning on
or after November 15, 2008.  iDNA does not anticipate the application
of this pronouncement will have a material impact on iDNA’s reported
consolidated financial position or results of operations.





FASB Staff Position
142-3


In April
2008, the FASB issued FASB Staff Position 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP 142-3”).  FSP 142-3 is to be applied
prospectively for fiscal years beginning after December 15,
2008.  iDNA does not anticipate the application of this pronouncement
will have a material impact on iDNA’s reported consolidated financial position
or results of operations.





Inflation


Inflation
has not had a material adverse impact on iDNA.





Off-Balance Sheet
Arrangements


iDNA does not have in place any
off-balance sheet arrangements (as defined in Item 303(a)(4) of Regulation
S-K).


45





iDNA,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of


Financial
Condition and Results of Operations – continued





Forward
Looking Statements





Some of
the information in this Quarterly Report on Form 10-Q (including the section
titled Management’s Discussion and Analysis of Financial Condition and Results
of Operations) contains forward looking statements within the meaning of the
federal securities laws that relate to future events or our future financial
performance and involve known and unknown risks, uncertainties and other factors
that may cause iDNA or iDNA’s industry’s actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by the
forward-looking statements.  You should not rely on forward-looking
statements in this report.  Forward-looking statements typically are
identified by use of terms such as “anticipate”, “believe”, “plan”, “expect”,
“intend”, “may”, “will”, “should”, “estimate”, “predict”, “potential”,
“continue” and similar words, although some forward-looking statements are
expressed differently.  This report may contain forward-looking
statements attributed to third parties relating to their estimates regarding the
growth of iDNA’s markets or other factors.  All forward-looking
statements address matters that involve risk and uncertainties, and there are
many important risks, uncertainties and other factors that could cause iDNA’s
actual results as well as those of the markets it serves, levels of activity,
performance, achievements and prospects to differ materially from the
forward-looking statements contained in this report.  You should also
consider carefully the statements under other sections of this report that
address additional factors that could cause our actual results to differ from
those set forth in any forward-looking statements.  iDNA undertakes no
obligation to publicly update or review any forward-looking statements, whether
as a result of new information, future developments or
otherwise.


46


Item
3.   Quantitative and Qualitative Disclosures About Market
Risk.





Not
applicable





Item
4.   Controls and Procedures.




As of the
end of the period covered by this Quarterly Report on Form 10-Q, the Chief
Executive Officer and the Chief Financial Officer of iDNA (the “Certifying
Officers”) have conducted evaluations of iDNA’s disclosure controls and
procedures.  As defined under Sections 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term
“disclosure controls and procedures” means controls and other procedures of an
issuer that are designed to ensure that information required to be disclosed by
the issuer in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s rules and
forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuer’s management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.  The Certifying Officers have reviewed iDNA’s
disclosure controls and procedures and have concluded that those disclosure
controls and procedures were effective as of the end of iDNA’s most recent
fiscal quarter.  In compliance with Rules 13a-14(a) and 15d-14(a)
under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002, (18
U.S.C. 1350), each of the Certifying Officers has executed the requisite
Officer’s Certification included as Exhibit 31 to this Quarterly Report on Form
10-Q.





In accordance with Rules 13a-15(d) and
15d-15(d) of the Exchange Act, the Certifying Officers have also conducted an
evaluation of iDNA’s internal control over financial reporting and have
concluded that there has been no change in iDNA’s internal control over
financial reporting during its most recent fiscal quarter covered by this
Quarterly Report on Form 10-Q that has materially affected, or is reasonably
likely to materially affect, iDNA’s internal control over financial
reporting.


47





PART
II. - OTHER INFORMATION





Item
1.   Legal Proceedings





Self-Insurance Reserves for
Property Damage and Personal Injury Claims


iDNA,
under the names Agency Rent-A-Car, Inc. (“ARAC”), Altra Auto Rental and Automate
Auto Rental, previously engaged in the rental of automobiles on a short-term
basis, principally to the insurance replacement market.  In Fiscal
1996, iDNA discontinued its automobile rental fleet business through the sale of
certain assets and through certain leases to a national car rental
company.  All liabilities related to the discontinued rental business,
principally self-insurance claims, were retained by ARAC.





iDNA’s
wholly-owned subsidiary ARAC maintained and continues to maintain self-insurance
for claims relating to bodily injury or property damage from accidents involving
the vehicles rented to customers by its discontinued automobile rental
operations occurring in Fiscal 1996 and prior. ARAC was, when required by either
governing state law or the terms of its rental agreement, self-insured for the
first $1.0 million per occurrence, and for losses in excess of $5.0 million per
occurrence, for bodily injury and property damage resulting from accidents
involving its rental vehicles.  ARAC was also self-insured, up to
certain retained limits, for bodily injury and property damage resulting from
accidents involving ARAC vehicles operated by employees within the scope of
their employment.





ARAC is
subject to certain self-insurance claims and litigation expenses relating to its
discontinued automobile rental operations.  iDNA’s management
estimates the required self-insurance liability based upon specific
identification of the known matters subject to future claims, the nature of the
claim and the estimated costs to be incurred.  These estimates
include, but are not limited to, ARAC’s historical loss experience and projected
loss factors.  The required self-insurance liability is subject to
adjustment in the future based upon changes in the nature of the remaining
claims or the ultimate cost.  As a consequence of iDNA’s sale of its
automobile rental operations in 1995, iDNA believes that all incurred claims
have been reported to ARAC and that there are no longer any incurred but not yet
reported claims to be received by ARAC.   iDNA’s self-insurance
liability at October 31, 2008 and January 31, 2008 was $142,000 and $172,000,
respectively.





Because
of the uncertainties related to several residual small claims and legal
proceedings involving iDNA’s former rental operations and self-insurance claims,
it is difficult to project with precision the ultimate effect the adjudication
or settlement of these matters will have on iDNA.  As additional
information regarding iDNA’s potential liabilities becomes available, iDNA will
revise the estimates as appropriate.


48





Other
Litigation


In the
normal course of its business, iDNA is periodically named as defendant in legal
proceedings.  It is the policy of iDNA to vigorously defend litigation
and/or enter into settlements of claims where management deems
appropriate.  In the opinion of management, the amount of ultimate
liability with respect to any current actions, if any, is unlikely to materially
affect our financial position, results of operations or liquidity.





Item
1A.   Risk Factors.


Not
applicable





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


Not
applicable





Item
3.   Defaults Upon Senior Securities.


Not
applicable





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


Not
applicable





Item
5.   Other Information.


Not
applicable


49


Item
6.       Exhibits.




Exhibit
                                              
                                              
                                              
                                              PageNumber
                                              
                                              Title
      of Exhibit
                                              
                                              Number3.1
                                              
                                              Second
      Amended and Restated Certificate of Incorporation of the Company
      (incorporated by reference to Exhibit 99.1 to the Company’s Current Report
      on Form 8-K filed with the SEC on November 4, 2005, SEC File No.
      1-11601).
                                              
                                              N/A3.2
                                              
                                              Second
      Amended and Restated By-Laws of the Company dated as of November 4, 2005
      (incorporated by reference to Exhibit 99.2 to the Company’s Current Report
      on Form 8-K filed with the SEC on November 4, 2005, SEC File No.
      1-11601).
                                              
                                              N/A4.1
                                              
                                              Certificate
      of Designation Preferences and Rights of Series D Junior Participating
      Preferred Stock of the Company (incorporated by reference to Exhibit 4.1
      to the Company’s Current Report on Form 8-K filed with the SEC on October
      9, 2001, SEC File No. 1-11601).
                                              
                                              N/A4.2
                                              
                                              Specimen
      Stock Certificate – of the Company’s Common Stock (incorporated by
      reference to Exhibit 4(c) to the Company’s Annual Report on Form 10-K for
      the fiscal year ended January 31, 1996, filed with the SEC on April
      25,  1996, SEC File No. 1-11601).
                                              
                                              N/A4.3
                                              
                                              Rights
      Agreement, dated as of September 26, 2001, by and between the Company and
      American Stock Transfer & Trust Company, including the form of
      Certificate of Designation, Preferences and Rights for the Series D Junior
      Participating Preferred Stock attached as Exhibit “A”, the form of Rights
      Certificate attached as Exhibit “B” and the Summary of Rights to Purchase
      Preferred Stock attached as Exhibit “C” (incorporated by reference to
      Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the
      SEC on October 9, 2001, SEC File No. 1-11601).
                                              
                                              N/A31.1
                                              
                                              Certification
      of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the
      Securities Exchange Act of 1934, As adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act
                                              
                                              5231.2
                                              
                                              Certification
      of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the
      Securities Exchange Act of 1934, As adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act
                                              
                                              5332.1
                                              
                                              Certification
      of Principal Executive Officer Pursuant to Rule 13a-14(b) of the
      Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                                              
                                              5432.2
                                              
                                              Certification
      of Principal Financial Officer Pursuant to Rule 13a-14(b) of the
      Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                                              
                                              55


50


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.





iDNA,
      INC.Date:
                                        December 19, 2008
                                        
                                        By:
                                        /s/
      James J. McNamaraJames
      J. McNamaraChairman
      of the Board and Chief Executive Officer(principal
      executive officer)By:
                                        /s/
      Robert V. Cuddihy, Jr.Date:
                                        December 19, 2008
                                        
                                        Robert
      V. Cuddihy, Jr.Chief
      Financial Officer, Secretary and Treasurer(principal
      accounting and financial
officer)


51