UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
10-Q





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





For
the quarterly period ended June 30, 2010





o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF
      THESECURITIES
      EXCHANGE ACT OF 1934





For the
transition period from __________ to __________





Commission
file number 333-148883





SPECTRUMDNA,
INC.


(Exact
name of Registrant as Specified in its Charter)





Delaware
            20-4880377(State
      or other jurisdiction
            (IRS
      Employer Identification No.)of
      incorporation or organization)1700
      Park Avenue, Suite 2020P.O.
      Box 682798Park
      City, Utah
            84068(Address
      of principal executive offices)
            (Zip
      Code)





(435) 658-1349


(Registrant’s
Telephone Number, Including Area Code)





Not
applicable


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




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


Yes o         No  x





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


Yes o        No  x





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


Yes   x      No  o





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


Yes   o       No   o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large
      accelerated filer
            o
            Accelerated
      filer
            oNon-accelerated
      filer
            o
            Smaller
      reporting company
            x





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


Yes  o 
No  x





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







SPECTRUMDNA,
INC.





TABLE
OF CONTENTS





PagePART
      I - FINANCIAL INFORMATIONItem
      1.
            
            Financial
      Statements.
            
            2Item
      2.
            
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
            
            16Item
      3.
            
            Quantitative
      and Qualitative Disclosures About Market Risk.
            
            23Item
      4T.
            
            Controls
      and Procedures.
            
            23PART
      II - OTHER INFORMATIONItem
      1.
            
            Legal
      Proceedings.
            
            24Item
      2.
            
            Unregistered
      Sales of Equity Securities and Use of Proceeds.
            
            24Item
      3.
            
            Default
      upon Senior Securities.
            
            24Item
      4.
            
            [Removed
      and Reserved.]
            
            24Item
      5.
            
            Other
      Information.
            
            24Item
      6.
            
            Exhibits.
            
            24SIGNATURES
            
            25




1




PART
I - FINANCIAL INFORMATION





Item 1.  Financial
Statements.




SPECTRUMDNA,
INC.





Index
to Condensed Consolidated Financial Statements


For
The Six Month Period Ended June 30, 2010





PageCondensed
      Consolidated Balance Sheets
            
            3Condensed
      Consolidated Statements of Operations
            
            4Condensed
      Consolidated Statements of Stockholders’ Equity
            
            5Condensed
      Consolidated Statements of Cash Flows
            
            6Notes
      to Financial Statements
            
            8




2





SpectrumDNA, Inc.


Consolidated
Balance Sheets




ASSETSJune
      30,
            
            
            December
      31,2010
            
            
            2009(unaudited)CURRENT
      ASSETSCash
            
            $
            622,689
            
            
            $
            10,303Accounts
      receivable, net
            
            
            16,250
            
            
            
            6,750Prepaid
      expenses and other
            
            
            10,988
            
            
            
            18,272Total
      Current Assets
            
            
            649,927
            
            
            
            35,325PROPERTY
      AND EQUIPMENT, NET
            
            
            11,619
            
            
            
            6,643OTHER
      ASSETSDomain
      names, net
            
            
            1,782
            
            
            
            2,542Product
      development, net
            
            
            556
            
            
            
            2,583Security
      deposit
            
            
            5,000
            
            
            
            5,000Total
      Other Assets
            
            
            7,338
            
            
            
            10,125TOTAL
      ASSETS
            
            $
            668,884
            
            
            $
            52,093LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable
            
            $
            59,631
            
            
            $
            152,019Accounts
      payable - related parties
            
            
            2,150
            
            
            
            10,112Accrued
      expenses
            
            
            49,200
            
            
            
            166,526Unearned
      revenue
            
            
            18,750
            
            
            
            -Interest
      payable
            
            
            -
            
            
            
            8,723Debt
      conversion payable
            
            
            -
            
            
            
            43,834Convertible
      promissory notes
            
            
            -
            
            
            
            49,611Convertible
      promissory notes - related parties
            
            
            -
            
            
            
            8,017Notes
      payable
            
            
            4,840
            
            
            
            19,150Total
      Current Liabilities
            
            
            134,571
            
            
            
            457,992Total
      Liabilities
            
            
            134,571
            
            
            
            457,992COMMITMENTS
            
            
            -
            
            
            
            -STOCKHOLDERS'
      EQUITY (DEFICIT)Preferred
      stock, $0.001 par value, 10,000,000 shares authorized, -0- shares issued
      and outstanding
            
            
            -
            
            
            
            -Common
      stock, $0.001 par value, 250,000,000 shares authorized, 69,058,237 and
      52,747,237 shares issued and outstanding, respectively
            
            
            69,059
            
            
            
            52,748Prepaid
      consulting services
            
            
            (494,860
            )
            
            
            (544,444
            )Additional
      paid-in capital
            
            
            12,094,052
            
            
            
            7,212,527Accumulated
      deficit
            
            
            (11,133,938
            )
            
            
            (7,126,730
            )Total
      Stockholders' Equity (Deficit)
            
            
            534,313
            
            
            
            (405,899
            )TOTAL
      LIABILITIES ANDSTOCKHOLDERS'
      EQUITY (DEFICIT)
            
            $
            668,884
            
            
            $
            52,093




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




3





SpectrumDNA,
Inc.
 Consolidated
Statements of Operations
 (unaudited)




For
      the Three
            
            
            For
      the Three
            
            
            For
      the Six
            
            
            For
      the SixMonths
      Ended
            
            
            Months
      Ended
            
            
            Months
      Ended
            
            
            Months
      EndedJune
      30,
            
            
            June
      30,
            
            
            June
      30,
            
            
            June
      30,2010
            
            
            2009
            
            
            2010
            
            
            2009REVENUES,
      net
            
            $
            38,750
            
            
            $
            50,750
            
            
            $
            64,750
            
            
            $
            72,780COST
      OF SALES, net
            
            
            1,384
            
            
            
            18,233
            
            
            
            2,786
            
            
            
            41,259GROSS
      PROFIT (LOSS)
            
            
            37,366
            
            
            
            32,517
            
            
            
            61,964
            
            
            
            31,521OPERATING
      EXPENSESGeneral
      and administrative
            
            
            97,829
            
            
            
            118,767
            
            
            
            305,699
            
            
            
            221,293Salaries
      and wages
            
            
            448,071
            
            
            
            515,372
            
            
            
            837,618
            
            
            
            1,008,079Product
      development expenses
            
            
            34,867
            
            
            
            4,784
            
            
            
            46,365
            
            
            
            27,392Depreciation
      expense
            
            
            1,742
            
            
            
            2,112
            
            
            
            3,152
            
            
            
            4,017Financing
      Costs
            
            
            -
            
            
            
            -
            
            
            
            2,876,803
            
            
            
            -Total
      Operating Expenses
            
            
            582,509
            
            
            
            641,035
            
            
            
            4,069,637
            
            
            
            1,260,781OPERATING
      (LOSS)
            
            
            (545,143
            )
            
            
            (608,518
            )
            
            
            (4,007,673
            )
            
            
            (1,229,260
            )OTHER
      INCOME (EXPENSES)Interest
      income
            
            
            720
            
            
            
            285
            
            
            
            1,080
            
            
            
            1,954Interest
      expense
            
            
            (229
            )
            
            
            -
            
            
            
            (3,068
            )
            
            
            -Interest
      expense - beneficial conversion feature
            
            
            -
            
            
            
            -
            
            
            
            (28,397
            )
            
            
            -Gain
      on conversion of convertible promissory note
            
            
            -
            
            
            
            -
            
            
            
            25,000
            
            
            
            -Other
      income
            
            
            750
            
            
            
            -
            
            
            
            5,850
            
            
            
            -Total
      Other Income (Expenses)
            
            
            1,241
            
            
            
            285
            
            
            
            465
            
            
            
            1,954NET
      INCOME / (LOSS) BEFORE INCOME TAXES
            
            
            (543,902
            )
            
            
            (608,233
            )
            
            
            (4,007,208
            )
            
            
            (1,227,306
            )INCOME
      TAX EXPENSE
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -NET
      INCOME / (LOSS)
            
            $
            (543,902
            )
            
            $
            (608,233
            )
            
            $
            (4,007,208
            )
            
            $
            (1,227,306
            )BASIC
      AND FULLY DILUTED INCOME / (LOSS) PER SHARE
            
            $
            (0.01
            )
            
            $
            (0.01
            )
            
            $
            (0.06
            )
            
            $
            (0.03
            )WEIGHTED
      AVERAGE NUMBER OF SHARES OUTSTANDING
            
            
            69,058,237
            
            
            
            48,747,237
            
            
            
            66,525,027
            
            
            
            48,747,195




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




4





SpectrumDNA,
Inc.


Consolidated Statements of
Stockholders' Equity (Deficit)


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




TotalAdditional
                  
                  
                  
                  
                  
                  Prepaid
                  
                  
                  Stockholders'Preferred
      Stock
                  
                  
                  Common
      Stock
                  
                  
                  Paid-In
                  
                  
                  Accumulated
                  
                  
                  Equity
                  
                  
                  EquityShares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  Expenses
                  
                  
                  (Deficit)Balance,
      January 1, 2008
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  48,626,667
                  
                  
                  $
                  48,627
                  
                  
                  $
                  4,068,731
                  
                  
                  $
                  (2,134,627
                  )
                  
                  $
                  -
                  
                  
                  $
                  1,982,731Common
      shares issued for services at an average of $0.37 per
share
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  112,991
                  
                  
                  
                  113
                  
                  
                  
                  42,095
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  42,208Compensation
      expense associated with stock options and warrants
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,198,406
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,198,406Net
      income / (loss) for the year ended December 31, 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,558,631
                  )
                  
                  
                  -
                  
                  
                  
                  (2,558,631
                  )Balance,
      December 31, 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  48,739,658
                  
                  
                  
                  48,740
                  
                  
                  
                  5,309,232
                  
                  
                  
                  (4,693,258
                  )
                  
                  
                  -
                  
                  
                  
                  664,714Common
      shares issued for services at an average of $0.55 per
share
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,579
                  
                  
                  
                  8
                  
                  
                  
                  4,159
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,167Common
      shares issued for pre-paid services at an average of $0.14 per
      share
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,000,000
                  
                  
                  
                  4,000
                  
                  
                  
                  556,000
                  
                  
                  
                  -
                  
                  
                  
                  (560,000
                  )
                  
                  
                  -Compensation
      expense associated with stock options and warrants
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,282,111
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,282,111Amortization
      of prepaid consulting services
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  15,556
                  
                  
                  
                  15,556Value
      attributable to benefical conversion features and related warrant
      valuation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  61,025
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  61,025Net
      income / (loss) for the year ended December 31, 2009
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,433,472
                  )
                  
                  
                  -
                  
                  
                  
                  (2,433,472
                  )Balance,
      December 31, 2009
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  52,747,237
                  
                  
                  $
                  52,748
                  
                  
                  $
                  7,212,527
                  
                  
                  $
                  (7,126,730
                  )
                  
                  $
                  (544,444
                  )
                  
                  $
                  (405,899
                  )Common
      shares issued for cash at $0.10 per share
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,150,000
                  
                  
                  
                  15,150
                  
                  
                  
                  1,365,701
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,380,851Financing
      costs associated with stock warrants granted
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,876,803
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,876,803Common
      shares issued for conversion of convertible promissory notes at $0.10 per
      share
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  661,000
                  
                  
                  
                  661
                  
                  
                  
                  65,439
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  66,100Common
      shares issued for pre-paid services at an average of $0.14 per
      share
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  500,000
                  
                  
                  
                  500
                  
                  
                  
                  68,500
                  
                  
                  
                  -
                  
                  
                  
                  (69,000
                  )
                  
                  
                  -Compensation
      expense associated with stock options and warrants
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  505,082
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  505,082Amortization
      of prepaid consulting services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  118,584
                  
                  
                  
                  118,584Net
      income / (loss) for the six months ended June 30, 2010
      (unaudited)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (4,007,208
                  )
                  
                  
                  -
                  
                  
                  
                  (4,007,208
                  )Balance,
      June 30, 2010 (unaudited)
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  69,058,237
                  
                  
                  $
                  69,059
                  
                  
                  $
                  12,094,052
                  
                  
                  $
                  (11,133,938
                  )
                  
                  $
                  (494,860
                  )
                  
                  $
                  534,313
  The
accompanying notes are an integral part of these consolidated financial
statements.


5





SpectrumDNA, Inc.


Consolidated
Statements of Cash Flows


(unaudited)




For
      the Six
            
            
            For
      the SixMonths
      Ended
            
            
            Months
      EndedJune
      30,
            
            
            June
      30,2010
            
            
            2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income / (loss)
            
            $
            (4,007,208
            )
            
            $
            (1,227,306
            )Adjustments
      to reconcile net loss to netused
      by operating activities:Depreciation
      and amortization
            
            
            5,936
            
            
            
            45,277Stock
      options and warrants
            
            
            505,082
            
            
            
            690,099granted
      for services renderedTransaction
      costs incurred in connection with the issuance of common stock and
      warrants
            
            
            2,876,803
            
            
            
            -Common
      stock issued for services rendered
            
            
            -
            
            
            
            4,166Prepaid
      consulting services
            
            
            118,584
            
            
            
            -Accretion
      of remaing discount on convertible promissory notes
            
            
            28,397
            
            
            
            -Gain
      on conversion of convertible promissory notes
            
            
            (25,000
            )
            
            
            -Changes
      in operating assets and liabilities(Increase)
      / decrease in accounts receivable
            
            
            (9,500
            )
            
            
            (28,750
            )(Increase)
      / decrease in prepaid expenses and other
            
            
            7,284
            
            
            
            46,624Increase
      / (decrease) in accounts payableand
      accrued expenses
            
            
            (220,295
            )
            
            
            37,741Increase
      / (decrease) in unearned revenue
            
            
            18,750
            
            
            
            -Net
      Cash (Used) in Operating Activities
            
            
            (701,167
            )
            
            
            (432,150
            )CASH
      FLOWS FROM INVESTING ACTIVITIESCash
      paid for fixed assets
            
            
            (8,128
            )
            
            
            (3,510
            )Net
      Cash (Used) in Investing Activities
            
            
            (8,128
            )
            
            
            (3,510
            )CASH
      FLOWS FROM FINANCING ACTIVITIESCash
      received from issuance of common stock
            
            
            1,380,850
            
            
            
            -Payments
      made on notes payable
            
            
            (14,310
            )
            
            
            -Cash
      paid for repayment of convertible promissory note
            
            
            (44,859
            )
            
            
            -Net
      Cash Provided by Financing Activities
            
            
            1,321,681
            
            
            
            -NET
      INCREASE / (DECREASE) IN CASH
            
            
            612,386
            
            
            
            (435,660
            )CASH
      AT BEGINNING OF PERIOD
            
            
            10,303
            
            
            
            548,499CASH
      AT END OF PERIOD
            
            $
            622,689
            
            
            $
            112,839




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




6




SpectrumDNA, Inc.


Consolidated
Statements of Cash Flows (Continued)


(unaudited)




For
      the Six
              
              
              For
      the SixMonths
      Ended
              
              
              Months
      EndedJune
      30,
              
              
              June
      30,2010
              
              
              2009SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:CASH
      PAID FOR:Interest
              
              $
              4,981
              
              
              $
              -Income
      Taxes
              
              $
              -
              
              
              $
              -NON-CASH
      FINANCING ACTIVITIES:Common
      stock issued for services
              
              $
              -
              
              
              $
              4,166Stock
      options and warrants granted for services rendered
              
              $
              505,082
              
              
              $
              690,099Common
      stock issued for prepaid consulting services
              
              $
              69,000
              
              
              $
              -Stock
      warrants granted for transaction costs
              
              $
              2,876,803
              
              
              $
              -Common
      stock issued for payment of convertible promissory notes and
      interest
              
              $
              66,100
              
              
              $
              -




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




7


SPECTRUMDNA,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





NOTE 1 -
BASIS OF PRESENTATION AND USE OF ESTIMATES





The
interim financial statements of SpectrumDNA, Inc. (“we,” “us,” “our,” “Spectrum”
or the “Company”) are unaudited and contain all adjustments (consisting
primarily of normal recurring accruals) necessary for a fair statement of the
results for the interim periods presented. Results for interim periods are not
necessarily indicative of results to be expected for a full year or for
previously reported periods due in part, but not limited to, the timing of
acquisitions, product demand, market competition, and our ability to obtain
additional capital. You should read these condensed consolidated unaudited
interim financial statements in conjunction with the audited consolidated
financial statements and notes thereto included in Spectrum’s Annual Report on
Form 10-K for the year ended December 31, 2009.





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





The
Company computes net income (loss) per share of common stock in accordance with
FASB ASC 260, “Earnings
per Share” (“ASC
260”). Under the provisions of ASC 260, basic net income (loss) per share is
computed using the weighted average number of common shares outstanding during
the period.  Diluted net income (loss) per share is computed using the
weighted average number of common shares and, if dilutive, potential common
shares outstanding during the period.  Potential common shares consist
of the incremental common shares issuable upon the exercise of stock options and
warrants.  The dilutive effect of these instruments is reflected in
diluted earnings per share by application of the treasury stock
method.  As of June 30, 2010 and 2009, the number of shares underlying
these instruments is as follows:




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





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





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




8


SPECTRUMDNA,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





NOTE 3-
SHARE BASED PAYMENT





The
Company follows the provisions of FASB ASC 718, “Stock Compensation” (“ASC
718”) which requires the grant-date fair value of all share-based payment awards
that are expected to vest, including employee share options, to be recognized as
employee compensation expense over the requisite service period.





During
the six month periods ended June 30, 2010 and 2009, the Company recorded
$505,082 and $690,099, respectively, in compensation expense related to
share-based payment awards. The Company recognizes compensation expense for
share-based payment awards on the straight-line basis over the requisite service
period of the entire award, unless the awards are subject to market conditions,
in which case the Company recognizes compensation expense over the requisite
service period of each separate vesting installment. Compensation expense
related to share-based payment awards  has been recorded in general
and administrative expense for non-employees and in salaries and wages for
employees.  During the six month ended June 30, 2010 and 2009, the
Company recorded $284,494 and $441,991, respectively, in compensation expense
related to shared-based payments awards for employees. The fair value of each
option or warrant award is estimated on the date of the grant using the
Black-Scholes pricing model that uses the assumptions noted in the following
table. The expected term of the options or warrants granted represents the
period of time that options or warrants granted are expected to be outstanding.
Expected volatilities are based on historical volatility of the stock of the
Company and other factors. The risk-free interest rate for the period matching
the expected term of the option or warrant is based on the U.S. Treasury yield
curve in effect at the time of the grant.





Common
Stock Options





The
following table sets forth information about the options granted during the six
months ended June 30, 2010 and 2009 and the assumptions used for such
grants:





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




9


SPECTRUMDNA,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





NOTE 3-
SHARE BASED PAYMENT (CONTINUED)





Common Stock
Options  (Continued)





Changes
in stock options issued to employees, advisors, and board members for the
periods ended June 30, 2010, December 31, 2009, and December 31, 2008 are as
follows:





WeightedNumber
            
            
            AverageOf
            
            
            ExerciseOptions
            
            
            PriceOutstanding,
      January 1, 2008
            
            
            8,410,180
            
            
            $
            0.35Granted
            
            
            5,260,000
            
            
            
            0.54Exercised
            
            
            -
            
            
            
            -Cancelled
            
            
            (3,655,080
            )
            
            
            0.50Outstanding,
      December 31, 2008
            
            
            10,015,100
            
            
            $
            0.45Exercisable,
      December 31, 2008
            
            
            4,094,614
            
            
            $
            0.38Outstanding,
      December 31, 2008
            
            
            10,015,100
            
            
            $
            0.45Granted
            
            
            7,550,100
            
            
            
            0.13Exercised
            
            
            -
            
            
            
            -Cancelled
            
            
            (3,303,125
            )
            
            
            0.35Outstanding,
      December 31, 2009
            
            
            14,262,075
            
            
            $
            0.30Exercisable,
      December 31, 2009
            
            
            8,066,743
            
            
            $
            0.35Outstanding,
      December 31, 2009
            
            
            14,262,075
            
            
            $
            0.30Granted
            
            
            6,320,000
            
            
            
            0.13Exercised
            
            
            -
            
            
            
            -Cancelled
            
            
            (2,721,915
            )
            
            
            0.31Outstanding,
      June 30, 2010 (unaudited)
            
            
            17,860,160
            
            
            $
            0.24Exercisable,
      June 30, 2010 (unaudited)
            
            
            8,635,654
            
            
            $
            0.32




10


SPECTRUMDNA,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





NOTE 3-
SHARE BASED PAYMENT (CONTINUED)





Common Stock
Options  (Continued)





The
following table summarizes information about stock options granted to employees,
advisors, and board members at June 30, 2010:





Options Outstanding
            
            
            Options ExercisableRange
      of Exercise Prices
            
            
            Number
      of
              Options
            
            
            Weighted
      Average Exercise Price
            
            
            Weighted
      Average Remaining Contractual Life
              (in years)
            
            
            Number
      of
              Options
            
            
            Weighted
      Average Exercise Price
            
            
            Weighted
      Average Remaining Contractual Life
              (in years)$
            0.04
            
            
            
            1,620,000
            
            
            $
            0.04
            
            
            
            6.35
            
            
            
            1,620,000
            
            
            $
            0.04
            
            
            
            6.350.50
            
            
            
            2,080,080
            
            
            
            0.50
            
            
            
            7.13
            
            
            
            1,757,137
            
            
            
            0.50
            
            
            
            7.100.55
            
            
            
            1,620,000
            
            
            
            0.55
            
            
            
            7.98
            
            
            
            1,620,000
            
            
            
            0.55
            
            
            
            7.980.56
            
            
            
            1,020,000
            
            
            
            0.56
            
            
            
            8.09
            
            
            
            499,167
            
            
            
            0.56
            
            
            
            8.090.46
            
            
            
            400,000
            
            
            
            0.46
            
            
            
            8.26
            
            
            
            400,000
            
            
            
            0.46
            
            
            
            8.260.21
            
            
            
            420,000
            
            
            
            0.21
            
            
            
            9.90
            
            
            
            320,000
            
            
            
            0.21
            
            
            
            9.870.11
            
            
            
            3,080,080
            
            
            
            0.11
            
            
            
            8.68
            
            
            
            1,026,693
            
            
            
            0.11
            
            
            
            8.680.17
            
            
            
            1,000,000
            
            
            
            0.17
            
            
            
            8.79
            
            
            
            302,083
            
            
            
            0.17
            
            
            
            8.790.34
            
            
            
            250,000
            
            
            
            0.34
            
            
            
            8.94
            
            
            
            135,417
            
            
            
            0.34
            
            
            
            8.940.33
            
            
            
            200,000
            
            
            
            0.33
            
            
            
            8.99
            
            
            
            204,167
            
            
            
            0.33
            
            
            
            8.990.19
            
            
            
            250,000
            
            
            
            0.19
            
            
            
            9.29
            
            
            
            44,271
            
            
            
            0.19
            
            
            
            9.290.15
            
            
            
            750,000
            
            
            
            0.15
            
            
            
            9.53
            
            
            
            89,844
            
            
            
            0.15
            
            
            
            9.530.16
            
            
            
            1,000,000
            
            
            
            0.16
            
            
            
            9.55
            
            
            
            114,583
            
            
            
            0.16
            
            
            
            9.550.20
            
            
            
            500,000
            
            
            
            0.20
            
            
            
            9.55
            
            
            
            229,167
            
            
            
            0.20
            
            
            
            9.550.14
            
            
            
            500,000
            
            
            
            0.14
            
            
            
            9.72
            
            
            
            36,458
            
            
            
            0.14
            
            
            
            9.720.13
            
            
            
            500,000
            
            
            
            0.13
            
            
            
            9.77
            
            
            
            31,250
            
            
            
            0.13
            
            
            
            9.770.09
            
            
            
            2,020,000
            
            
            
            0.09
            
            
            
            9.93
            
            
            
            42,917
            
            
            
            0.09
            
            
            
            9.930.07
            
            
            
            250,000
            
            
            
            0.07
            
            
            
            10.00
            
            
            
            - 0
      -
            
            
            
            0.07
            
            
            
            N/A0.22
            
            
            
            200,000
            
            
            
            0.22
            
            
            
            10.00
            
            
            
            158,333
            
            
            
            0.22
            
            
            
            10.000.08
            
            
            
            200,000
            
            
            
            0.08
            
            
            
            10.00
            
            
            
            4,167
            
            
            
            0.08
            
            
            
            10.0017,860,160
            
            
            $
            0.24
            
            
            
            8.59
            
            
            
            8,635,654
            
            
            $
            0.32
            
            
            
            7.88





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


11


SPECTRUMDNA,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





NOTE 3 –
SHARE BASED PAYMENT (CONTINUED)





Warrants





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





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





WeightedNumber
            
            
            AverageOf
            
            
            ExerciseWarrants
            
            
            PriceOutstanding,
      January1, 2009
            
            
            -
            
            
            $
            0Granted
            
            
            1,048,586
            
            
            
            0.25Exercised
            
            
            -
            
            
            
            -Cancelled
            
            
            -
            
            
            
            -Outstanding,
      December 31, 2009
            
            
            1,048,586
            
            
            $
            0.25Exercisable,
      December 31, 2009
            
            
            1,048,586
            
            
            $
            0.25Outstanding,
      December 31, 2009
            
            
            1,048,586
            
            
            $
            0.25Granted
            
            
            17,160,000
            
            
            
            0.24Exercised
            
            
            -
            
            
            
            -Cancelled
            
            
            -
            
            
            
            -Outstanding,
      June 30, 2010
            
            
            18,208,586
            
            
            $
            0.24Exercisable,
      June 30, 2010
            
            
            18,208,586
            
            
            $
            0.24




The
following table summarizes information about stock warrants granted to
employees, investors, and board members as of June 30, 2010
(unaudited):





Warrants Outstanding
            
            
            Warrants ExercisableRange
      of
              Exercise
      Prices
            
            
            Number
      of
              Warrants
            
            
            Weighted
      Average Exercise Price
            
            
            Weighted
      Average Remaining Contractual Life
              (in years)
            
            
            Number
      of
              Warrants
            
            
            Weighted
      Average Exercise Price
            
            
            Weighted
      Average Remaining Contractual Life
              (in years)$
            0.25
            
            
            
            17,203,586
            
            
            $
            0.25
            
            
            
            4.55
            
            
            
            17,203,586
            
            
            $
            0.25
            
            
            
            4.550.10
            
            
            
            1,005,000
            
            
            
            0.10
            
            
            
            4.57
            
            
            
            1,005,000
            
            
            
            0.10
            
            
            
            4.5718,208,586
            
            
            $
            0.24
            
            
            
            4.57
            
            
            
            18,208,586
            
            
            $
            0.24
            
            
            
            4.57





As of
June 30, 2010, the aggregate intrinsic value of the warrants outstanding and
exercisable was $0 and $0, respectively.  The weighted-average
grant-date fair value of options granted for the periods ended June 30, 2010 was
$0.17.  The total fair value of shares vested during 2010 was
$1,201,200.


12


SPECTRUMDNA,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





NOTE 4 –
GOING CONCERN





The
Company’s financial statements have been prepared using accounting principles
generally accepted in the United States of America applicable to a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business.  Accordingly, the
consolidated financial statements do not include any adjustments related to the
recoverability of assets or classification of liabilities that might be
necessary should we be unable to continue as a going concern.  At June
30, 2010, while the Company’s current assets exceeded its current liabilities,
it has recorded negative cash flows from operations and net losses in this
period and prior fiscal years.  At June 30, 2010, the Company’s cash
balance was $622,689.  The preceding circumstances combine to raise
substantial doubt about the Company’s ability to continue as a going
concern.





NOTE 5 –
CONSULTING AGREEMENTS





On July
31, 2009, the Company entered into a Consulting Agreement (the “Agreement”) with
HFP Capital Markets LLC (“HFP”) pursuant to which HFP will provide certain
consulting services to the Company including but not limited to assistance in
securing future investment in the Company, assistance with certain corporate
finance and investment banking activities, assistance with new business
development, sales and marketing opportunities, and such other services as set
forth therein.  The term of the Agreement is three years, although the
Company may terminate upon thirty days written notice for any reason or no
reason at all, but no sooner than six months from the full execution of the
Agreement.  As compensation for these consulting services, the Company
issued to HFP or its designees 4,000,000 shares of the Company’s restricted
common stock which vested and became issuable to HFP or its designees 120 days
from the full execution of the Agreement, or November 28, 2009.  As
such, the shares issued were recorded as prepaid equity expenses since it is a
three year agreement.  The shares were valued at $0.14 per share for a
total prepayment for these fees of $560,000.  From the beginning of
the term through June 30, 2010, a total amount of $108,889 had been amortized to
consulting expense, with the remaining as prepaid equity expense, to be
amortized over the remaining life of the agreement.





On
January 15, 2010, the Company entered into a one-year consulting agreement for
services rendered.  In full consideration for this agreement, the
Company paid $50,000 to the consultant and issued a total of 500,000 shares of
Common Stock and options to acquire an additional 500,000 shares at $0.20 per
share.  The shares were valued at an average of $0.14 per share for a
total prepayment for these fees of $69,000.  From the beginning of the
term through June 30, 2010, $25,250 had been amortized to consulting expense,
with the remaining as prepaid equity expense, to be amortized over the remaining
life of the agreement.


13


SPECTRUMDNA,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





NOTE 6 –
PRIVATE FINANCING TRANSACTIONS





During
September 2009, the Company commenced a private offering (“Private Offering”) of
equity securities consisting of shares of common stock and common stock purchase
warrants on a best efforts $1,500,000 minimum and $2,000,000 maximum
basis.  The securities were offered to accredited investors only. The
securities had not been registered under the Securities Act of 1933, as amended
(the “Act”) and were offered in reliance upon the exemption from registration
set forth in Section 4(2) and Regulation D, promulgated under the
Act.  Such securities may not be offered or sold in the United States
absent registration or an applicable exemption from registration
requirements.  On December 8, 2009, the minimum for the offering was
reduced to $1,000,000 and the offering period was extended to January 13,
2010.  During the first quarter of 2010, the offering period was
extended from January 13, 2010 to February 28, 2010 and again until March 15,
2010.





During
the first quarter of 2010, the Company completed three closings of the Private
Offering with a total of 65 accredited investors (the “Purchasers”) for the
issuance and sale of securities of the Company consisting of shares of Common
Stock and common stock purchase warrants (the “Purchase
Warrants”).  Pursuant to the Private Offering, the Company issued
15,150,000 shares of Common Stock and 15,150,000 Purchase
Warrants.  Gross offering proceeds totaled $1,515,000.  Each
of the Purchase Warrants entitles the holder thereof to purchase, at any time
beginning from the final closing through five years thereafter, one share of
Common Stock at a price of $0.25 per share (See Note 3).





In
association with the Private Offering, the Company paid the placement agent
commissions of $100,500 and a non-accountable expense allowance of
$30,150.  In addition, the placement agent and its designees were
issued an aggregate of 1,005,000 placement agent warrants (the “Placement Agent
Warrants”) to purchase up to 1,005,000 warrant units (the “Warrant Units”)
exercisable for five years at an exercise price of $0.10 per Warrant Unit with
each Warrant Unit consisting of one share of Common Stock and one Purchase
Warrant to acquire an additional share of Common Stock (See Note
3).  The aggregate warrants considered outstanding and exercisable
from the warrant units granted is 2,010,000.





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





On November 2, 2009,
November 12, 2009, and December 14, 2009, and in connection with a private debt
offering (“Bridge Financing”), the Company raised $104,859 from five investors,
including the Company’s Chief Executive Officer and Chief Operating Officer,
from the issuance of six Convertible Promissory Notes (the “Notes”) in the
principal amount of $104,859 due three months from issuance bearing interest at
a 90-day rate of 10%.  In connection with such investments, 1,048,586
common stock purchase warrants were also granted to such investors (See Note
3).





In
accordance with FASB ASC 470-20-30, the Company used the effective conversion
price based on the proceeds received to compute the intrinsic value of the
embedded conversion option.  The Company allocated the proceeds
received from the Bridge Financing to the convertible instrument and the
detachable warrants included in the exchange on a relative fair value
basis.  The Company then calculated an effective conversion price and
used that price to measure the intrinsic value of the embedded conversion
option.  The Notes may be converted into shares of the Company’s
common stock or cash at any time at the option of the holder.  The
conversion price of the Notes is equal to $0.10 per share of the Company’s
common stock (the “Conversion Price”).  The number of shares issuable
upon conversion of the Notes shall be determined by dividing the outstanding
principal amount, together with accrued but unpaid interest, to be converted by
the Conversion Price in effect on the conversion date.




14


SPECTRUMDNA,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





NOTE 6 –
PRIVATE FINANCING TRANSACTIONS (CONTINUED)





Since the
holder has the option to convert the note to cash, as of December 31, 2009, the
Company recorded a liability for the portion of the note that contained the
conversion option.  Therefore, the six notes resulted in a debt
discount of $104,859, with $43,834 recorded as a debt conversion liability and
$61,025 as the equity component associated with the value of the
warrants.  The debt discount will be accreted over the life of the
respective note or 90 days.  Accretion of the debt discount at
December 31, 2009 was $57,628, which was charged to the Statements of
Operations.





On
January 11, 2010, two investors converted two Notes into 661,000 shares of the
Company’s common stock resulting from the outstanding principal amount of
$60,000 and accrued interest of $6,100.  On January 22, 2010, two
additional investors, including the Company’s Chief Executive Officer and Chief
Operating Officer, were repaid the interest and principal due on three Notes for
a total of $22,172 in cash resulting from the outstanding principal amount of
$19,859 and accrued interest of $2,314.  Finally on February 10, 2010,
one investor was repaid the interest and principal due on one Note for a total
of $27,667 in cash resulting from the principal amount of $25,000 and accrued
interest of $2,667.  Upon conversion of the Notes, the debt conversion
liability of $43,834 was deemed to be relieved by $18,834 in cash and the
remaining $25,000 being deemed a gain on the conversion of convertible
promissory notes.  Total accretion for the three months ended March
31, 2010 was $28,397 and was charged to the Company’s Statements of
Operations.  No accretion was recorded for the three months ended June
30, 2010 as the entire liability related to the Notes had been satisfied by
March 31, 2010.





NOTE 7 –
RELATED PARTY TRANSACTIONS





During
the fourth quarter of 2009, the Chief Executive Officer and the Chief Operating
Officer invested a total of $19,859 in connection with the Bridge Financing as
referenced in Note 6 above.  On January 22, 2010, these individuals
converted their three Notes for a total of $22,172 in cash resulting from the
outstanding principal amount of $19,859 and accrued interest of
$2,314.  Aside from the transaction disclosed above, there were no
other related party transactions during the three months ended March 31,
2010.  There were no related party transactions in the three months
ended June 30, 2010.





NOTE 8 –
SUBSEQUENT EVENTS





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


15


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




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





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





Projections
and Forward-Looking Statements





When used
in this report, the words “may,” “will,” “expect,” “anticipate,” “continue,”
“estimate,” “intend,” “plans”, and similar expressions are intended to identify
forward-looking statements. Given the early stage of SpectrumDNA, Inc., most of
the statements made herein are forward-looking. Such statements are not
guarantees of future performance and are subject to risks and uncertainties and
actual results may differ materially from those included within the
forward-looking statements as a result of various factors. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date made. We undertake no obligation to publicly release the
result of any revision of these forward-looking statements to reflect events or
circumstances after the date they are made or to reflect the occurrence of
unanticipated events.





Business.





(a)  Organizational
History





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





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





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





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





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





Organization





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




16




(b)  Business
Overview





General





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





Our
product development and services methodology is based on our Chief Executive
Officer James A. Banister’s book “Word of Mouse: The New Age of Networked Media”
(Agate, 2004) which we believe predicted what The Gartner Group has now measured
in its study measuring demographics of the social media audience and
culture.  Banister distilled his research into a methodology called
“enginetworking,” a process for creating and evolving software applications for
the web and mobile wireless that address all levels of engagement.





Strong
evidence exists that the history of success in online and mobile web is a
history of “capturing behavior” or “providing utility”—searching, dating,
self-expression, shopping, social networking, job-seeking, travel, with many
more behaviors left to capture-and-nurture.  Further, the nature of
social media is such that software applications seeking to capture user behavior
must be evolutionary by-design.  Our team is trained in leading-edge
agile-adaptive techniques that enable us to quickly adapt our engines’
functionality, form and content to actual user-behavior, partner requests and
advertiser/sponsor imperatives.





Current
Products





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





Currently,
our active product
lines are as follows:





The
Addictionary




The
Addictionary is a social wordplay engine.  The original strategy for
The Addictionary was to build the product into a singular web destination for
creating, contributing, contesting and sharing lingo/language.  Market
feedback indicated there was a larger opportunity in evolving the engine into a
software-as-a-service (“SaaS”) application that enabled us to instance the
social wordplay engine for multiple existing online communities, as each
affinity group has its own idiosyncratic lingo and social morays (e.g. golfers
vs. pet owners).  We undertook and completed that conversion in the
first quarter of 2008, effectively turning one product into dozens of products
by licensing the Addictionary to companies desiring social media applications to
increase their brands’ awareness and increase engagement of their existing user
base.





This move
pre-dated, and we believe predicted a now rapidly emerging trend in social
media—social  nicheworking—which are
software applications for web and mobile wireless that target specific affinity
groups, either direct-to-consumer or in partnership with traditional media
entities or brand advertisers targeting those affinity groups.





PlanetTagger




PlanetTagger
is a location-enabled integrated social marketing platform offering online
communities a powerful tool which centralizes their social media marketing and
editorial programming and provides the community users with utility to extend
the reach of the community.  The pre-cursor to PlanetTagger, our
now-discontinued cooshoo.com property, was originally intended as a
direct-to-consumer software application.  Similar to our
repositioning of The Addictionary, we re-engineered the cooshoo.com application
into a location-enabled services application and re-branded it
PlanetTagger—another example of a SaaS application that can be offered to any
niche community looking to capture and nurture the behavior of its users around
People, Events, Media, or Locations.  Like The Addictionary, emergence
of PlanetTagger as a software-as-a-service effectively turned one product into
dozens of products.  We continue to enhance the product adding
features and functionality as our customers or the market
dictates.  During the second quarter of 2010, we augmented the
existing web-based application with the introduction of the PlanetTagger iPhone
application.




17




OptEngage




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





New
Products





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





Strategic
Relationships





Late in
the fourth quarter of 2009, the Company began to re-focus its efforts on
differentiation, circumventing resource limitations and leveraging its
assets.  That strategy resulted in two additions to strategic
direction and two strategic relationships during the first and second quarters
of 2010.





In
January 2010, SpectrumDNA entered into an exclusive license agreement with
Optini, LLC, a Utah based company, to market and sell Optini’s products under
the OptEngage product line to the Company’s existing and future
clients.  OptEngage is a product development and services offering
strategy rooted in the currently exploding “browser apps” marketplace (happening
in parallel to the smartphone apps explosion, albeit much less publicized) and
the contextual/semantic web movement.  OptEngage enables clients to
deliver content and utility to their constituency and/or audience anywhere they
go on the web, contextual to what they’re doing, when they’re doing and where
they’re doing it.  For example, we are OptEngaging the PlanetTagger
product, so we can offer it to clients and their users in a “to go” form—via a
mobile app, and via an optengaged browser app (or series of browser
apps).  Any community owner can use the product suite to personalize
and customize its content around the community member wherever he or she travels on
the web, contextually to where they are, when they are and what they’re
doing.  The OptEngage suite of services allows the online community
owner not only to control their end users’ experience on the web and but also to
collect metrics data related to the behavior of those users.





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





Sales,
Marketing and Performance





In our
sales and marketing strategy, SpectrumDNA has pioneered the business of social
nicheworking—providing white-label social media experiences that media entities
or brand advertisers (or both) can offer to their target affinity
groups.  Instead of launching “yet another web destination,”
SpectrumDNA partners with institutions already spending the time, money and
effort to engage their target affinity group, providing them with the social
media expertise they lack.




18




Our first
Addictionary transaction of this type was signed in June 2008 with Comedy
Central.  During the remainder of 2008 and throughout 2009, the
Company licensed the Addictionary to a number of other media companies and
brands including:




·
            NBC
      Universal’s television show The
    Office




·
            E!Online,
      the online presence of E! Entertainment, a Comcast Networks
      Property




·
            Warner
      Bros. distributed syndicated talk show The Ellen DeGeneres
      Show




·
            Dictionary.com,
      an IAC operating unit




·
            TheNew YorkPost,News Corp’s daily
      newspaper




·
            FearNet
      Channel, another Comcast Networks
Property




·
            Comedy
      Central’s television show Secret
      Girlfriend




·
            G4TV.com,
      the third Comcast Networks Property





The
Addictionary has proved itself very capable of moving the needle on our
partners’ core audience metrics.  For example, the Political
Addictionary doubled average time-on-site for Comedy Central’s Indecision2008
efforts leading up to the election, and approximately 40% of visitors to E!
Online spend twice as much time-on-site because of the Celebrity Addictionary
feature.





The
Addictionary platform continued to evolve based on successes
to-date.  We have continued sales efforts targeting IP-based
communities (like The
Office, Harry
Potter or Star
Trek) and subject-matter communities like golf, gardening, celebrity,
local geography (e.g. New York) or pet ownership.





Our
secondary sales focus is on licensing PlanetTagger.  During the second
quarter of 2009, preliminary meetings held prior to the launch of the deployable
PlanetTagger product resulted in our first license sold to UCLA Anderson School
of Management’s Entertainment and Media Management Institute (dba Managing
Enterprises in Entertainment, Media, and Sports).  Launch of the site
occurred in November 2009.





During
the first quarter of 2010, the Company sold its second PlanetTagger installation
to the State of Utah’s Utah Science Technology and Research initiative
(USTAR).  USTAR’s PlanetTagger installation, DigitalUproar, launched
in March of 2010 to coincide with USTAR’s PushButton Digital Media Summit hosted
by the State of Utah.  Following the initial success of DigitalUproar,
in the second quarter of 2010, USTAR extended its product license through the
first quarter of 2011 and has benefited from numerous product enhancements as
well as the launch of the iPhone app.





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





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




19




Employees





As of the
date hereof, the Company has ten (10) full-time employees located in Utah,
California, New York, Oregon and Italy.  This includes one of the
founders, James A. Banister, serving as Chief Executive Officer.  The
remaining employees manage operations, finance, engineering and product
management, market and sell our products and build software and implement
effective quality assurance standards.  It is expected that in the
next 12 months we will seek to employ one or two additional employees to augment
the product development, marketing, business development and sales
efforts.





Results
of Operations





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





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





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




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





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





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





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




20
  We
recognized a net loss of $4,007,208 for the six months ended June 30, 2010
compared to a loss of $1,227,306 for the six months ended June 30, 2009, an
increase of 227%.  This net loss was primarily the result of the
financing costs of $2,876,803 associated with the Company’s Private Offering
(see Note 6) and increases in interest expense associated with the Bridge
Financing (see Note 6) offset by decreases in operating expenses. Our basic and
diluted net loss per share was $0.06 for the six months ended June 30, 2010,
compared to a net loss per share of $0.03 for the comparable period of
2009.  Excluding the financing costs, consulting expenses, non cash
stock-based compensation, interest expense associated with the Bridge Financing,
and gain on the conversion of the convertible promissory notes, our loss would
have been $453,342 and $533,041 for 2010 and 2009,
respectively.





Liquidity
and Capital Resources





As of
June 30, 2010, we had $622,689 in cash and total liabilities of $134,571. While
our current assets exceeded our current liabilities as of June 30, 2010, we have
recorded negative cash flows from operations in this and prior fiscal
years.  As a result, as of June 30, 2010, management could not be
assured that the Company’s current finances would enable us to implement our
plans and satisfy our estimated financial needs over the next 12
months.





Working
Capital




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





For the
six months ended June 30, 2010, the Company’s Net Cash Used in Investing
Activities was $8,128 compared to $3,510 for the comparable period in
2009.  This increase in Net Cash Used in Investing Activities between
the two periods resulted from increases in fixed asset purchases.





For the
six months ended June 30, 2010, Net Cash Provided by Financing Activities was
$1,321,681 compared to zero in the prior year period.  This increase
resulted from cash received in association with the Private Offering offset by
cash paid for transaction costs associated with the Private Offering and for the
conversion of certain Notes.





Financing




On July
31, 2009, the Company entered into a Consulting Agreement (the “Agreement”) with
HFP Capital Markets LLC (“HFP”) pursuant to which HFP will provide certain
consulting services to the Company including but not limited to assistance in
securing future investment in the Company, assistance with certain corporate
finance and investment banking activities, assistance with new business
development, sales and marketing opportunities, and such other services as set
forth therein.  The term of the Agreement is three years, although the
Company may terminate upon thirty days written notice for any reason or no
reason at all, but no sooner than six months from the full execution of the
Agreement.  As compensation for these consulting services, the Company
issued to HFP or its designees 4,000,000 shares of the Company’s restricted
common stock which vested and became issuable to HFP or its designees 120 days
from the full execution of the Agreement, or November 28, 2009.  As
such, the shares issued were recorded as prepaid consulting services since it is
a three year agreement.  The shares were valued at $0.14 per share for
a total prepayment for these fees of $560,000.  As of June 30, 2010,
$108,889 had been amortized to consulting expense, with the remaining as prepaid
consulting services, to be amortized over the remaining life of the
agreement.





During
September 2009, the Company commenced a private offering (“Private Offering”) of
equity securities consisting of shares of common stock and common stock purchase
warrants on a best efforts $1,500,000 minimum and $2,000,000 maximum
basis.  The securities were offered to accredited investors only. The
securities had not been registered under the Securities Act of 1933, as amended
(the “Act”) and were offered in reliance upon the exemption from registration
set forth in Section 4(2) and Regulation D, promulgated under the
Act.  Such securities may not be offered or sold in the United States
absent registration or an applicable exemption from registration
requirements.  On December 8, 2009, the minimum for the offering was
reduced to $1,000,000 and the offering period was extended to January 13,
2010.  During the first quarter of 2010, the offering period was
extended from January 13, 2010 to February 28, 2010 and again until March 15,
2010.




21




During
the first quarter of 2010, the Company completed three closings of the Private
Offering with a total of 65 accredited investors (the “Purchasers”) for the
issuance and sale of securities of the Company consisting of shares of Common
Stock and common stock purchase warrants (the “Purchase
Warrants”).  Pursuant to the Private Offering, the Company issued
15,150,000 shares of Common Stock and 15,150,000 Purchase
Warrants.  Gross offering proceeds totaled $1,515,000.  Each
of the Purchase Warrants entitles the holder thereof to purchase, at any time
beginning from the final closing through five years thereafter, one share of
Common Stock at a price of $0.25 per share (See Note 3).





In
association with the Private Offering, the Company paid the placement agent
commissions of $100,500 and a non-accountable expense allowance of
$30,150.  In addition, the placement agent and its designees were
issued an aggregate of 1,005,000 placement agent warrants (the “Placement Agent
Warrants”) to purchase up to 1,005,000 warrant units (the “Warrant Units”)
exercisable for five years at an exercise price of $0.10 per Warrant Unit with
each Warrant Unit consisting of one share of Common Stock and one Purchase
Warrant (See Note 3).





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





On
November 2, 2009, November 12, 2009, and December 14, 2009, and in connection
with a private debt offering (“Bridge Financing”), the Company raised $104,859
from five investors, including the Company’s Chief Executive Officer and Chief
Operating Officer, from the issuance of six Convertible Promissory Notes (the
“Notes”) in the principal amount of $104,859 due three months from issuance
bearing interest at a 90-day rate of 10%.  In connection with such
investments, 1,048,586 common stock purchase warrants were also granted to such
investors (See Note 3).





On
January 11, 2010, two investors converted two Notes into 661,000 shares of the
Company’s common stock resulting from the outstanding principal amount of
$60,000 and accrued interest of $6,100.  On January 22, 2010, two
additional investors, including the Company’s Chief Executive Officer and Chief
Operating Officer, were repaid the interest and principal due on three Notes for
a total of $22,172 in cash resulting from the outstanding principal amount of
$19,859 and accrued interest of $2,314.  Finally on February 10, 2010,
one investor was repaid the interest and principal due on one Note for a total
of $27,667 in cash resulting from the principal amount of $25,000 and accrued
interest of $2,667.





Off-Balance
Sheet Arrangements





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





Critical
Accounting Policies and Estimates





Our
consolidated financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United
States.  Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses.  These estimates and assumptions
are affected by management’s application of accounting policies.  Our
critical accounting policies are discussed in our annual report on Form 10-K for
the fiscal year ended December 31, 2009.  Certain prior period
amounts have been reclassified in the condensed consolidated financial
statements to conform to the current period presentation.




22


Recently
Issued Accounting Pronouncements





Please
refer to our annual report on Form 10-K for the fiscal year ended
December 31, 2009.  In January 2010, the Financial Accounting
Standards Board issued amendments to Fair Value Measurements and Disclosures
under ASC Topic 820. Effective for our 2010 financial statements, this guidance
provides for disclosures of significant transfers in and out of Levels 1
and 2. In addition, the guidance clarifies existing disclosure requirements
regarding inputs and valuation techniques as well as the appropriate level of
disaggregation for fair value measurements and disclosures. Effective for our
2011 financial statements, this guidance provides for disclosures of activity on
a gross basis within Level 3 reconciliation.





Impact
of Inflation





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





Item 3.  Quantitative and
Qualitative Disclosures About Market Risk.





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





Item 4T.  Controls and
Procedures.





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





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


23




PART
II - OTHER INFORMATION





Item
1.  Legal Proceedings.





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





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





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





Item 3.  Defaults Upon Senior
Securities.





None.





Item
4.  [Removed and Reserved.]





Item
5.  Other Information.





None.





Item 6.  Exhibits.





31.1
            
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange
  Act)31.2
            
            Certification
      of Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange
      Act)32.1
            
            Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
      1350)




24




SIGNATURES





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





SPECTRUMDNA,
      INC.(Registrant)Dated:
      August 16,
      2010
            By:
            /s/
      James A. BanisterJames
      A. Banister,President
      and Chief Executive Officer(Principal
      Executive Officer)Dated:
      August 16,
      2010
            By:
            /s/
      Rebecca D. HershingerRebecca
      D. Hershinger,Chief
      Financial Officer(Principal
      Financial Officer andPrincipal
      Accounting Officer)




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