Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
x
|
Annual
Report Pursuant to Section 13 or 15(d) of the
Securities
|
Exchange
Act of 1934
For
the fiscal year ended January 31, 2008
or
¨
|
Transition
Report Pursuant to Section 13 or 15(d) of the
Securities
|
Exchange
Act of 1934
For
the
Transition Period from ______to______
Commission
file number 1-11601
iDNA,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
34-1816760
|
(State
of incorporation)
|
|
(I.R.S.
Employer Identification No.)
|
415 Madison Avenue, 7th Floor, New York New York
|
|
10017
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (212)
644-1400
Securities
registered pursuant to Section 12(b) of the Act:
Title
of class
None
Securities
registered pursuant to Section 12(g) of the Act:
Title
of each class
Common
Stock, par value $.05 per share
Indicate
by check mark if the registrant is a well known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ 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 ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
definition of “accelerated filer, “large accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer x
|
Smaller
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)
Yes ¨
No x
Aggregate
market value of the registrant’s common stock held by non-affiliates at July 31,
2007, was approximately $3,144,147 (Based on the closing price of the
registrant’s common stock as quoted on the OTC Bulletin Board on July 31,
2007).
As
of May
14, 2008, 10,585,864 shares
of
common stock, par value $0.05, of iDNA, Inc. were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Document
Incorporated by Reference
|
Part
of Report into Which Incorporated
|
|
|
Proxy
Statement for 2008 Annual Meeting
|
Part
III
|
Of
Stockholder
|
|
TABLE
OF CONTENTS
|
|
|
Page
|
Part
I
|
|
|
|
|
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|
Item
|
1.
|
Business
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1
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|
1A.
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Risk
Factors
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4
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1B.
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Unresolved
Staff Comments
|
9
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|
2.
|
Properties
|
10
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|
3.
|
Legal
Proceedings
|
10
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4.
|
Submission
of Matters to a Vote of Security Holders
|
11
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Part
II
|
|
|
|
|
|
|
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Item
|
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
12
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|
6.
|
Selected
Financial Data
|
16
|
|
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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18
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7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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36
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8.
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Financial
Statements and Supplementary Data
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37
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9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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87
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9A(T).
|
Controls
and Procedures
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87
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9B.
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Other
Information
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88
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|
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Part
III
|
|
|
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|
|
|
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Item
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10.
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Directors,
Executive Officers and Corporate Governance
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89
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11.
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Executive
Compensation
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89
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12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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89
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13.
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Certain
Relationships and Related Transactions, and Director
Independence
|
89
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14.
|
Principal
Accounting Fees and Services
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89
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Part
IV
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|
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|
|
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Item
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15.
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Exhibits,
Financial Statement Schedules
|
90
|
PART
I
Some
of
the information in this Annual Report on Form 10-K (including the section titled
Management’s Discussion and Analysis of Financial Condition and Results of
Operation) contains forward looking statements within the meaning of the federal
securities laws that relate to future events or our future financial performance
and involve known and unknown risks, uncertainties and other factors that may
cause us or our industry’s actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by the
forward-looking statements. You should not rely on forward-looking statements
in
this report. Forward-looking statements typically are identified by use of
terms
such as “anticipate”, “believe”, “plan”, “expect”, “intend”, “may”, “will”,
“should”, “estimate”, “predict”, “potential”, “continue” and similar words
although some forward-looking statements are expressed differently. This report
may contain forward-looking statements attributed to third parties relating
to
their estimates regarding the growth of our markets or other factors. All
forward-looking statements address matters that involve risk and uncertainties,
and there are many important risks, uncertainties and other factors that could
cause our actual results, as well as those of the markets we serve, levels
of
activity, performance, achievements and prospects to differ materially from
the
forward-looking statements contained in this report. You should also consider
carefully the statements under other sections of this report which address
additional facts that could cause our actual results to differ from those set
forth in any forward-looking statements. We undertake no obligation to publicly
update or review any forward-looking statements, whether as a result of new
information, future developments or otherwise.
iDNA,
Inc. (“iDNA” or the “Company”)) files reports with the Securities and Exchange
Commission (“SEC”). iDNA makes available on its website (www.idnausa.com)
free of
charge its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and amendments to those reports as soon as reasonably
practical after iDNA electronically files such materials with or furnishes
them
to the SEC. Information appearing on iDNA’s website is not part of this Annual
Report on Form 10-K. You can also read and copy any materials iDNA files with
the SEC at its Public Reference Room at 100 F Street, NE, Washington DC 20549.
You can obtain additional information about the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an Internet site (www.sec.gov)
that
contains reports, proxy and information statements regarding issuers that file
electronically with the SEC, including iDNA.
Item
1. Business.
GENERAL
DEVELOPMENT OF BUSINESS
iDNA
began operations in 1969 and was incorporated in Delaware in 1971. iDNA’s
operations are comprised of three principal reportable segments: (i) strategic
communications services, (ii) information services and (iii) entertainment.
iDNA
manages each segment separately as a consequence of different marketing, service
requirements and technology strategies.
The
strategic communications services segment provides content development via
the
design, development and production of media, collateral material, logistics,
support and/or broadcast services for presentations at corporate and
institutional events, meetings, training seminars and symposiums. The
presentations may be live at single or multi-site venues and can include video
conferencing, satellite broadcasting and webcasting or the presentations may
be
provided via on-demand access via internet websites, DVD or video
tape.
The
information services segment utilizes custom wireless communication technology
and proprietary software to facilitate client audience interaction,
participation and polling to collect, exchange and/or analyze data and
information in real-time during a meeting or event. The wireless communication
services are available as a turn-key service provided by iDNA during a scheduled
meeting or event or alternatively, a client can purchase from iDNA the required
electronic components and related proprietary software to administer its needs
independently.
As
of
consequence of iDNA’s investment in the Angelika Film Centers, LLC (“AFC”), iDNA
operates in the movie exhibition and entertainment industry.
Prior
to
Fiscal 2003 (as defined below), iDNA was engaged in the sub-prime used
automobile finance business. At that time, iDNA, then known as National Auto
Credit, Inc. (“NAC”), invested in sub-prime used automobile consumer loans,
which took the form of installment loans collateralized by the related vehicle.
NAC purchased such loans, or interests in pools of such loans, from member
dealerships, and performed the related underwriting and collection functions.
NAC formally discontinued its automobile finance business effective December
31,
2001 (see Note 17 to Notes to Consolidated Financial Statements included in
this
report).
iDNA
continues to examine new business opportunities, which may be pursued through
the investment in or acquisition of existing corporate operating businesses
or
other means. iDNA will also continue to pursue reductions and/or synergies
in
its operating expenses and new debt or equity financing (although there can
be
no assurance that iDNA will obtain such financing or that such financing can
be
obtained on commercially reasonable terms) as means of supplementing iDNA’s
resources available to pursue new acquisitions, joint ventures or other business
development opportunities. At January 31, 2008, iDNA had cash and cash
equivalents and trading securities of $1.6 million which together with any
cash
flow derived from iDNA’s operations may be used to pursue such opportunities.
iDNA
uses
a January 31 year-end for financial reporting purposes. References herein to
the
term “Fiscal 2008” shall mean iDNA’s fiscal year ended January 31, 2008 and
references to other “Fiscal” years shall mean the year that ended (or ends, as
the case may be) on January 31 of the year indicated. The terms the “Company” or
“iDNA” as used herein refers to iDNA, Inc. together with its consolidated
subsidiaries unless the context otherwise requires.
iDNA's
principal executive offices are located at 415 Madison Avenue, 7th
Floor,
New York, New York, 10017. Its telephone number is 212-644-1400.
CORPORATE
COMMUNICATION BUSINESS
Strategic
Communication Services
iDNA,
through its wholly-owned subsidiaries Campus Group Companies, Inc. (“CGC”), iDNA
Healthcare Communications, Inc. (“iDNA Healthcare”) and OMI Business
Communications, Inc. (“OMI”), provides a broad range of strategic content
development, management and broadcast services for single and multiple site
corporate and institutional events, meetings and symposiums.
iDNA
serves Fortune 100 pharmaceutical and financial services organizations as well
as other companies, institutions and industries seeking to develop communication
and education content for periodic meetings, events and symposiums. Through
a
collaborative effort between iDNA and its clients, relevant education, product
information, regulatory requirements, strategic initiatives, training or other
communication initiatives are developed and executed. Frequently, these services
result in the development of corporate communication, education and/or training
videos which are then broadcast at a single site or simulcast via
satellite/internet to multiple sites both domestic and international.
Furthermore, once produced, such content is frequently modified and integrated
into a corporate website for future on-demand access by a broad range of
geographically dispersed users.
Information
Services
iDNA,
through its wholly-owned subsidiaries Audience Response Systems, Inc. (“ARS”)
and Option Technologies Interactive, LLC (“OTI”), provides custom wireless
communication technology and proprietary software systems (“iDNA Insight”) to
facilitate client audience interaction, participation, training and polling
to
collect, exchange and/or analyze data and information in real-time during a
meeting or event. Clients can obtain and respond dynamically in real-time to
audience preferences, attitudes or responses to specific queries within an
event. These data collection and analysis services assist in further engaging
corporate and other audiences in understanding and relating to the overall
communication program, ensuring better information retention, providing a record
of responses for regulatory and testing purposes and in many cases providing
clients with live field data not otherwise as easily obtained.
Each
of
ARS’ and OTI’s proprietary interactive audience response software frequently
utilizes various wireless communication electronic components using either
radio
frequency (“RF”) or infrared (“IR”) technology. Although ARS’ and OTI’s
proprietary software are each distinct, custom software applications, they
both
operate across a myriad of communication devices, including internet
applications. iDNA’s wireless communication services are available as a turn-key
service provided by iDNA during a scheduled meeting or event or alternatively,
a
client can purchase from iDNA the required electronic components and related
proprietary software to administer its needs independently. The electronic
components are readily available from a myriad of electronic component
suppliers.
Competition
The
corporate communication, symposium, education and training industries in which
iDNA’s strategic communication services and information services segments
primarily compete is very fragmented and highly competitive. Certain of iDNA's
competitors, including several diversified companies, may have greater financial
and other resources than iDNA. Most competitors generally operate on a local
or
regional level. As clients increasingly require vendors to offer comprehensive
services and support sophisticated broadcast technologies, many operators may
not have the capital resources, management skills and technical expertise
necessary to compete, or to provide integrated communication services. Although
iDNA believes that it has certain creative design, technological, managerial
and
other advantages over its competitors, there can be no assurance that iDNA
will
maintain such advantages.
Clients
iDNA's
clients include national and multi-national pharmaceutical, financial services
and consumer product companies such as Actellion Ltd., American Express Company,
Booz Allen Hamilton Inc. (“Booz Allen”), Caterpillar, Inc., Deloitte LLP, KPMG
International LLP, Pfizer Inc. (“Pfizer”), PricewaterhouseCoopers LLP,
OptionFinder Europe GmbH, and R&D Strategic Solutions, Inc. as well as other
companies seeking to develop communication, education and/or training content
for periodic events.
Revenues
for Fiscal 2008, Fiscal 2007 and Fiscal 2006 were $14.6 million, $15.4 million
and $14.1 million, respectively. Pfizer Inc. and R&D Strategic Solutions,
Inc. accounted for 12% and 15%, respectively, of revenues for Fiscal 2008.
Pfizer, Inc. accounted for 17% of revenues for Fiscal 2007. Pfizer Inc. and
BearingPoint, Inc. accounted for 21% and 13%, respectively of revenues for
Fiscal 2006.
Patents
and Trademarks
iDNA
does
not hold any material patents for its current business operations. iDNA does,
however, maintain certain trademarks in connection with its business such as
Audience Response Systems®,
Power
Poll®,
Compliance XR®,
OptionFinder®
and
Option Power®.
MOVIE
EXHIBITION BUSINESS
iDNA
engages in the movie exhibition business through its investment in AFC. AFC
owns
and operates the Angelika Film Center. The real property constituting the
Angelika Film Center is held under a long term lease having a remaining term
of
approximately 18 years. AFC is owned 50% by iDNA and 50% by Reading
International, Inc. Each of the owners of AFC is entitled to a proportionate
share of the cash distributions that are paid by AFC.
The
Angelika Film Center is a 17,000 square foot, six screen multiplex theater
and
café that focuses on the exhibition of art and specialty films. The exhibition
of art and specialty films, while seasonal in nature, is less so than the film
exhibition business in general. Art and specialty films tend to be released
more
evenly over the course of the year and, if successful, tend to enjoy a longer
run than wide release films. Art and specialty films are obtained from a number
of sources ranging from divisions of the larger film distributors specializing
in specialty films to individuals who have acquired domestic rights to one
film.
Generally film payment terms are based on an agreed upon percentage of the
box
office receipts.
EMPLOYEES
As
of
January 31, 2008, iDNA employed sixty-eight (68) people on a full-time basis
and
four (4) persons on a part-time basis. None of iDNA’s employees are covered by a
collective bargaining agreement. iDNA believes it maintains good relations
with
its employees.
Item
1A. Risk Factors.
The
following are certain risk factors that could affect our business, financial
performance, and results of operations. These risk factors should be considered
in connection with evaluating the forward-looking statements contained in this
Annual Report on Form 10-K for Fiscal 2008, as the forward-looking statements
are based upon current expectations, and actual results and conditions could
differ materially from the current expectations. Investing in iDNA securities
involves a degree of risk, and before making an investment decision, a
prospective investor should consider these risk factors as well as other
information included or incorporated by reference in the other reports iDNA
files with the Securities and Exchange Commission.
In
addition to other information set forth herein, consider carefully the following
risk factors in evaluating iDNA and its business. Any of these risks could
materially affect iDNA’s business, financial condition, or results of
operations. These risks could also cause our actual results to differ materially
from those indicated in the forward-looking statements contained herein and
elsewhere. The risks described below are not the only risks facing iDNA.
Additional risks not currently known to us or those we currently deem to be
immaterial may also materially and adversely affect iDNA’s business
operations.
iDNA
is integrating significant new strategic components into its business
plan
As
a
consequence of a series of acquisitions, investments and initiatives, iDNA
has
been in the process of a strategic transformation of its operations to a
strategic communications, information services, technology, and entertainment
enterprise from a company engaged in the automobile financing business. iDNA
operates in the movie exhibition segment, through the activities of AFC,
acquired in April 2000, and added business communications, media services and
technology services such as satellite videoconferencing, multi-media production
services and corporate and institutional meeting services, web-site development
and content management as a result of the acquisitions of (i) CGC and ARS
(collectively known as the “Campus Group”), acquired in July 2003, (ii) OMI,
acquired in April 2003, and (iii) OTI, acquired in November 2005 and the
formation of iDNA Healthcare in July 2006. There can be no assurance that iDNA
will be able to effectuate this new business plan successfully, that revenue
growth will occur once the plan is enacted, or that any of these new lines
of
business will achieve profitability or sustain such profitability, once
achieved.
iDNA’s
business is subject to significant competitive pressures
iDNA’s
competitors may have greater financial, technical and other resources than
iDNA,
which may provide such competitors with certain advantages, including the
ability to allocate greater resources for development, marketing and other
purposes.
AFC
faces
varying degrees of competition from other motion picture exhibitors with respect
to licensing films and attracting customers. Competitors have built theatres
in
the area where AFC operates. AFC also competes with a number of other motion
picture delivery systems including cable television, pay-per-view, DVDs and
videocassettes, satellite and home video systems. New technologies for movie
delivery (such as video on demand) could also have a material adverse effect
on
AFC's business and results of operations. While the impact of these alternative
types of motion picture delivery systems on the motion picture exhibition
industry is difficult to determine precisely, there is a risk that they could
adversely affect attendance at motion pictures shown in theatres. Movie theatres
also face competition from a variety of other forms of entertainment competing
for the public's leisure time and disposable income, including sporting events,
concerts, live theatre and restaurants.
iDNA’s
performance may fluctuate when its clients are affected simultaneously by the
same economic or regulatory factors
iDNA's
revenues are significantly concentrated in communications, media and
entertainment and iDNA’s clients are concentrated within specific industries
including pharmaceuticals, legal and professional services, and financial
services. These industries are subject to fluctuations of business
communications needs based upon the timing of research and development
activities, new product launches, continuing educational support, marketplace
communication, general budgetary levels, regulatory changes and general economic
trends. Consequently, many of iDNA’s clients will likely be influenced at the
same time by similar economic or regulatory factors, which can affect the level
of spending for advertising, marketing, promotion and communication services.
In
the event of a decline, projected decline or delay in such spending, the
management of iDNA’s clients may choose to cut back or defer spending for iDNA’s
services. It is reasonable to expect that, if one client reduces or delays
its
spending in response to a major economic factor, other clients will also decide
to reduce or delay their spending at approximately the same time. Accordingly,
iDNA’s revenues are subject to fluctuations as a result of factors that affect
its client’s expenditures.
iDNA
has significant outstanding indebtedness
At
January 31, 2008, iDNA has an aggregate of $17.6 million in outstanding
indebtedness comprised of (i) Acquisition Debt (defined below) in the aggregate
principal amount of $13.0 million, (ii) a Term Loan (defined below) in the
principal amount of $4.25 million and (iii) other financing obligations in
the
aggregate principal amount of $376,000.
Principally
as a consequence of the means in which iDNA has financed the acquisitions of
OTI, ARS and CGC (ARS and CGC collectively known as the “Campus Group”), iDNA
has outstanding debt in the aggregate principal amount of $13.0 million
(collectively the “Acquisition Debt”) which bears interest at the weighted
average rate of 5% per annum. The indebtedness is secured by essentially all
of
iDNA's interest in OTI and the Campus Group, respectively. Repayment of
principal attributable to the Acquisition Debt is based upon a formula of cash
flows of each of the underlying acquired businesses.
iDNA,
via
its wholly-owned subsidiary, iDNA Cinemas Holdings, Inc. (“Holdings”),
consummated a Master Loan and Security Agreement (the “Loan Agreement”) with a
third party lender in the principal amount of $4.25 million (the “Term Loan”).
The Term Loan is secured by a pledge of all of Holdings assets, including all
of
the outstanding shares of National Cinemas, Inc. (“NCI”), which owns a 50%
membership interest in AFC. The interest rate attributable to the Term Loan
is a
variable annual rate based upon the prime rate, as published by Citibank N.A.
(“Prime Rate”) plus 4%, or, if greater, 12.25%. As a consequence, iDNA’s
interest charges under the Term Loan are subject to fluctuations based upon
changes in the credit markets and the corresponding Prime Rate. For each 1%
increase in the Prime Rate above 8.25%, iDNA’s interest costs on the Term Loan
would increase approximately $42,000 per annum. At
January 31, 2008, the Prime Rate was 6.0%. Repayment of principal attributable
to the Term Loan is based upon a formula of cash distributions received from
AFC
during the term.
iDNA
is subject to credit risk from its clients
iDNA
extends credit to clients in the normal course of business. iDNA continuously
monitors collections and payments from clients and maintains an allowance for
doubtful accounts based upon historical experience and any specific client
collection issues that have been identified. Since accounts receivable are
concentrated in a relatively few number of clients, a significant change in
the
liquidity or financial position of any of these clients could have a material
adverse impact on the collectability of the accounts receivable and future
operating results.
The
businesses purchased by iDNA may turn out to be worth less than expected at
the
time of acquisition
Management
reviews the carrying value of its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of these
assets may not be fully recoverable. As a consequence of iDNA’s series of
acquisitions, iDNA carries goodwill as an asset that it annually assesses for
impairment by comparing the carrying value of the goodwill to its fair value.
When it is determined that the carrying amount of long-lived assets and goodwill
may not be fully recoverable, impairment is measured by comparing an asset’s
estimated fair value to its carrying value. The determination of fair value
is
based on quoted market prices in active markets, if available, or independent
appraisals; sales price negotiations; or projected future cash flows discounted
at a rate determined by management to be commensurate with iDNA’s business risk.
The estimation of fair value utilizing discounted forecasted cash flows includes
significant judgments regarding assumptions of revenue, operating and marketing
costs; selling and administrative expenses; interest rates; property and
equipment additions and retirements; and industry competition, general economic
and business conditions, among other factors.
During
the second quarter of Fiscal 2007, the results of the operations of the CGC
reporting unit raised questions as to whether projections used at the last
valuation date were still valid. Accordingly, management performed additional
impairment tests as of July 31, 2006 for CGC and determined that impairment
charges were required at that date. Accordingly, based upon iDNA’s assessment,
second quarter Fiscal 2007 operations were charged $1.9 million and $2.6 million
for the estimated impairment of CGC’s goodwill and other intangible assets,
respectively. At January 31, 2008, the goodwill for each of iDNA’s business
segments (information services and strategic communications services) was tested
for additional impairment. As a consequence of the testing and initial
assessment for Fiscal 2008, iDNA determined that the carrying value of both
its
information services and its strategic communications services business segments
exceeded their fair value, which was estimated based upon the present value
of
each reporting units expected future cash flows. As a consequence, iDNA charged
to operations an aggregate of $8.0 million for the estimated impairment of
goodwill and other intangible assets relating to (i) its information services
segment in the amount of $5.9 million, and (ii) strategic communication services
segment in the amount of $2.1 million, respectively (see Note 2 to Notes to
Consolidated Financial Statements included in this report).
As
a
consequence of this impairment charge and other factors, iDNA has initiated
preliminary discussions with the former shareholders of the Campus Group
(defined below) to restructure the Campus Notes (defined below) in the aggregate
amount of $12.1 million and/or reduce the original purchase consideration of
the
Campus Group acquisition (see Note 7 to Notes to Consolidated Financial
Statements). Currently, iDNA’s payment obligations are deferred until certain
performance criteria are met. Although iDNA is seeking to restructure its
obligations under the Campus Notes and/or reduce the original purchase
consideration, there can be no assurance that such negotiations will result
in a
restructuring and/or a reduction in the original purchase consideration. iDNA
believes that the available cash and cash equivalents and investments in trading
securities totaling $1.6 million at January 31, 2008 and any cash distributions
from its investment in AFC and cash flow from operations will be sufficient
to
pay operating expenses, existing liabilities, fund existing debt repayments
and
fund its activities through the next twelve months, notwithstanding these
impairment charges.
iDNA’s
success is dependent upon key personnel
iDNA’s
success depends, in part, upon the continued services of key personnel, such
as:
James J. McNamara, Chairman of the Board and Chief Executive Officer; Robert
V.
Cuddihy, Jr., Chief Financial Officer and certain divisional managers and sales
strategists with iDNA. The loss of the services of any one of them could have
a
material adverse effect on iDNA.
Future
acquisitions or investments could disrupt iDNA’s ongoing business, distract
management and employees, increase expenses and adversely affect results of
operations
iDNA
has
made three significant acquisitions since April 2003 and has started another
business. Management's attention may be diverted from operations towards
identifying potential acquisitions and negotiating and consummating them. Any
acquisitions or investments iDNA makes in the future will involve risks. iDNA
may not be able to make acquisitions or investments on commercially acceptable
terms. If iDNA does acquire another company, iDNA could have difficulty
retaining and assimilating the acquired company's personnel. In addition, iDNA
could have difficulty assimilating acquired products, services or technologies
into iDNA’s existing operations. These difficulties could disrupt iDNA’s ongoing
business, distract management and employees, increase expenses and materially
and adversely affect the results of operations. Furthermore, iDNA may incur
debt
or issue equity securities to pay for any future acquisitions, which could
dilute its stockholders’ ownership interest in iDNA or subordinate such
ownership interest in priority to additional senior obligations.
iDNA
may not be able to hire, train, motivate, retain and manage professional staff
iDNA’s
management must hire, train, motivate, retain and manage highly skilled
employees. Competition for skilled employees who can perform the services that
iDNA requires is intense. iDNA might not be able to hire enough of them or
to
train, motivate, retain and manage the employees it does hire. Hiring, training,
motivating, retaining and managing employees with the skills required is
time-consuming and expensive.
iDNA
is unlikely to pay dividends for the foreseeable future
iDNA
has
not paid cash dividends on its common stock. iDNA intends to reinvest any
earnings in its business to finance future growth and acquisitions. Accordingly,
iDNA’s Board of Directors does not anticipate declaring any cash dividends in
the foreseeable future.
Adverse
decisions in iDNA’s litigation matters would adversely affect iDNA’s business
iDNA
is
involved in certain legal proceedings in the normal course of its business.
If a
major case is decided against iDNA, iDNA could be held liable for an amount
that
would adversely affect iDNA’s ability to do business. Additionally, iDNA
maintained and continues to maintain self-insurance for claims relating to
bodily injury or property damage from accidents involving the vehicles rented
to
customers by its discontinued automobile rental and finance operations. iDNA
was, when required by either governing state law or the terms of its rental
agreement, self-insured for the first $1.0 million per occurrence, and for
losses in excess of $5.0 million per occurrence, for bodily injury and property
damage resulting from accidents involving its rental vehicles. iDNA was also
self-insured, up to certain retained limits, for bodily injury and property
damage resulting from accidents involving iDNA vehicles operated by employees
within the scope of their employment. In connection therewith, iDNA established
certain reserves in its financial statements for the estimated cost of
satisfying those claims. If there is a material change in the assumptions used
or the ultimate outcome of the self-insurance claims, iDNA could experience
additional future charges to operations.
iDNA
may be unable to fund its additional capital needs
iDNA’s
access to capital may be limited because of iDNA’s indebtedness. As a result,
iDNA may be unable to make the capital expenditures that iDNA would otherwise
believe necessary. In addition, iDNA cannot assure its stockholders that iDNA’s
business will generate sufficient cash flow from operations, that currently
anticipated revenue growth will be realized or that future capital will be
available to iDNA to enable it to fund its capital expenditure needs.
Certain
Officers and Directors own a substantial portion of iDNA’s Common Stock
As
of May
14, 2008, iDNA's executive officers and directors beneficially owned
approximately 42.4% of iDNA’s common stock, $0.05 par value (“Common Stock”).
While no individual is a beneficial owner of a majority of the outstanding
shares of iDNA’s Common Stock, these stockholders have substantial influence
and, if they act together, may be able to control decisions on corporate
matters, including the election of directors. Such concentration of ownership
may also have the effect of preventing a change in control of iDNA. In addition,
the interests of management may not always be identical to the interests of
non-management stockholders.
Future
sales of iDNA’s Common Stock in the public market could lower its stock price
and impair its ability to raise funds in new stock
offerings
As
of
January 31, 2008, there were 10,010,864 shares of iDNA’s Common Stock
outstanding. An aggregate of 6,474,117 additional shares of Common Stock may
be
issued upon the exercise or conversion, as the case may be, of all of the stock
options, warrants and convertible debentures outstanding on such date. If the
holders of a large number of these securities elect to exercise them for or
convert them into Common Stock and then sell the shares of Common Stock they
acquire, the market price of the Common Stock could decline. Sales by existing
stockholders of a large number of shares at any one time could also adversely
affect the market price of iDNA’s Common Stock and could impair iDNA’s ability
to raise funds in additional stock offerings. Moreover, the mere possibility
that these sales could be made in the future could have the same effect even
if
these sales are not actually made.
Trading
in iDNA’s Common Stock has been and may continue to be limited, which may make
it difficult to resell shares
iDNA’s
Common Stock is quoted on the Over-the-Counter Bulletin Board. The
Over-the-Counter Bulletin Board is not, however, a national securities exchange,
and trading in securities on the Over-the-Counter Bulletin Board is often more
sporadic than trading in securities listed on an exchange (including NASDAQ).
Consequently, an investor may have difficulty reselling any shares of iDNA’s
Common Stock that it purchases.
The
market price of iDNA’s Common Stock can be highly volatile
The
average daily trading volume of iDNA’s Common Stock has generally been low,
which iDNA believes has had a significant effect on the historical market price
of iDNA’s Common Stock. As a result, such market price has been highly volatile
and may not be indicative of the market price in a more liquid market. The
market price of iDNA’s Common Stock could be subject to significant fluctuations
in response to a number of factors, including the depth and liquidity of the
market for iDNA’s Common Stock, public announcements by iDNA, its clients and
its competitors, investor perception of iDNA and general economic and other
conditions, which may or may not relate to iDNA's performance. Fluctuations
in
iDNA’s Common Stock's market price may affect iDNA’s ability to raise
capital.
Because
iDNA’s Common Stock is deemed to be “Penny Stock” under the Securities Exchange
Act of 1934, investors may not be readily able to resell iDNA’s shares in the
public markets
iDNA’s
Common Stock is currently deemed penny stock under the Securities Exchange
Act
of 1934 and the rules of the Securities and Exchange Commission. These rules
impose additional sales practices and disclosure requirements on broker-dealers
who sell iDNA’s shares to persons other than certain accredited investors. For
covered transactions, a broker-dealer must make a suitability determination
for
each purchaser and receive a purchaser’s written agreement before the sale. In
addition, the broker-dealer must make certain mandated disclosures in
transactions of penny stocks. These rules affect the ability of broker-dealers
to make a market in iDNA’s Common Stock and adversely affect an investor’s
ability to resell shares of iDNA’s Common Stock.
Item
1B. Unresolved Staff Comments.
Not
applicable.
Item
2. Properties.
iDNA
occupies a series of leased facilities as follows:
Location
|
|
Square Feet
|
|
Rent
|
|
Expiration of Term
|
|
Purpose
|
|
Bohemia,
NY
|
|
|
15,000
|
|
$
|
100,000
|
|
|
April
2010
|
|
|
Warehouse
and distribution
|
|
Evansville,
IN
|
|
|
6,800
|
|
$
|
57,000
|
|
|
September
2008
|
|
|
Sales,
service and field support
|
|
New
York, NY
|
|
|
6,838
|
|
$
|
294,000
|
|
|
December
2012
|
|
|
Corporate
Headquarters, Creative Services and Production Studio
|
|
Orlando,
FL
|
|
|
8,000
|
|
$
|
53,000
|
|
|
September
2010
|
|
|
Sales,
service and field support
|
|
Tuckahoe,
NY
|
|
|
11,000
|
|
$
|
75,000
|
|
|
April
2010
|
|
|
Creative
Services and Production Studio
|
|
In
addition to the above facilitates, OTI leases approximately 3,500 square feet
and 1,000 square feet of office space on a month-to-month basis in Ogden, UT
and
Chicago, IL, respectively. The combined monthly rent for these additional
facilities is $4,000.
All
of
iDNA’s leased real properties are in good working condition, and iDNA believes
that they are adequate to meet its current operations needs. In addition, iDNA
believes that all such properties are adequately covered by
insurance.
Item
3. Legal Proceedings.
Self-Insurance
Reserves for Property Damage and Personal Injury Claims.
iDNA,
under the names Agency Rent-A-Car, Inc. (“ARAC”), Altra Auto Rental and Automate
Auto Rental, previously engaged in the rental of automobiles on a short-term
basis, principally to the insurance replacement market. In Fiscal 1996, iDNA
discontinued its automobile rental fleet business through the sale of certain
assets and through certain leases to a national car rental company. All
liabilities related to the discontinued rental business, principally
self-insurance claims, were retained by ARAC.
iDNA’s
wholly-owned subsidiary ARAC maintained and continues to maintain self-insurance
for claims relating to bodily injury or property damage from accidents involving
the vehicles rented to customers by its discontinued automobile rental
operations occurring in Fiscal 1996 and prior. ARAC was, when required by either
governing state law or the terms of its rental agreement, self-insured for
the
first $1.0 million per occurrence, and for losses in excess of $5.0 million
per
occurrence, for bodily injury and property damage resulting from accidents
involving its rental vehicles. ARAC was also self-insured, up to certain
retained limits, for bodily injury and property damage resulting from accidents
involving ARAC vehicles operated by employees within the scope of their
employment.
ARAC
is
the subject to certain self-insurance claims and litigation expenses relating
to
its discontinued automobile rental operations. iDNA’s management estimates
ARAC’s required self-insurance liability based upon specific identification of
the known matters subject to future claims, the nature of the claim and the
estimated costs to be incurred. These estimates include, but are not limited
to,
ARAC’s historical loss experience and projected loss factors. The required
self-insurance liability is subject to adjustment in the future based upon
changes in the nature of the remaining claims or the ultimate cost. As a
consequence of iDNA’s sale of its automobile rental operations in 1995, iDNA
believes that all incurred claims have been reported to ARAC and that there
are
no longer any incurred but not yet reported claims to be received by ARAC.
iDNA’s self-insurance liability at January 31, 2008 and 2007 was $172,000 and
$235,000, respectively.
Because
of the uncertainties related to several residual small claims and legal
proceedings involving iDNA’s former rental operations and self-insurance claims,
it is difficult to project the ultimate effect the adjudication or settlement
of
these matters will have on iDNA. As additional information regarding iDNA’s
potential liabilities becomes available, iDNA will revise the estimates as
appropriate.
Other
Litigation
In
the
normal course of its business, iDNA is named as defendant in legal proceedings.
It is the policy of iDNA to vigorously defend litigation and/or enter into
settlements of claims where its management deems appropriate.
Item
4. Submission of Matters to a Vote of Security Holders.
None.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
MARKET
INFORMATION
iDNA’s
Common Stock has been quoted on the Over-the-Counter Bulletin Board (the
“OTCBB”), operated by The Nasdaq Stock Market, Inc., since March 23, 1998. As a
consequence of iDNA’s corporate name change in January 2006, iDNA applied for
and received a new ticker symbol. Effective March 8, 2006, iDNA’s Common Stock
began to be quoted under the ticker symbol “IDAI”. Prior to March 8, 2006,
iDNA’s Common Stock was quoted under the ticker symbol “NAKD”.
The
following table sets forth the range of the high and low closing quotations
for
iDNA’s Common Stock on the OTCBB during the periods indicated as reported by the
OTCBB. Such market quotations reflect inter-dealer prices, without mark-up,
mark-downs or commissions and may not necessarily represent actual
transactions
|
|
High
|
|
Low
|
|
Year
ended January 31, 2008
|
|
|
|
|
|
First
Quarter (February 1 - April 30)
|
|
$
|
.96
|
|
$
|
.60
|
|
Second
Quarter (May 1 - July 31)
|
|
|
.73
|
|
|
.34
|
|
Third
Quarter (August 1 - October 31)
|
|
|
.44
|
|
|
.22
|
|
Fourth
Quarter (November 1 - January 31)
|
|
|
.27
|
|
|
.14
|
|
|
|
|
|
|
|
|
|
Year
ended January 31, 2007
|
|
|
|
|
|
|
|
First
Quarter (February 1 - April 30)
|
|
$
|
1.12
|
|
$
|
.33
|
|
Second
Quarter (May 1 - July 31)
|
|
|
1.02
|
|
|
.46
|
|
Third
Quarter (August 1 - October 31)
|
|
|
.50
|
|
|
.33
|
|
Fourth
Quarter (November 1 - January 31)
|
|
|
.99
|
|
|
.35
|
|
Stock
Performance Graph
The
following graph compares the yearly change in iDNA’s cumulative total
shareholder return on its Common Stock (based on the market price of iDNA’s
Common Stock) with the cumulative total return of the S&P 600 Small Cap
Index, the Russell 2000 Index, and Reading International, Inc. (a theatre and
real estate concern). The comparisons shown in the graph below are based upon
historical data. The stock price performance shown in the graph below is not
necessarily indicative of, or intended to forecast, the future performance
of
iDNA’s Common Stock. The stock performance graph shall not be deemed to be
“soliciting material” or to be “filed” with the Commission under the Securities
Act of 1933, as amended (the “Securities Act”) or the Securities Exchange Act of
1934, as amended (the “Exchange Act”), or incorporated by reference by any
document so filed.
|
|
2/1/03
|
|
1/31/04
|
|
1/31/05
|
|
1/31/06
|
|
1/31/07
|
|
1/31/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iDNA,
Inc.
|
|
|
100
|
|
|
428
|
|
|
228
|
|
|
264
|
|
|
593
|
|
|
100
|
|
S&P
600 Small Cap Index
|
|
|
100
|
|
|
147
|
|
|
169
|
|
|
200
|
|
|
215
|
|
|
198
|
|
Russell
2000 Index
|
|
|
100
|
|
|
156
|
|
|
168
|
|
|
197
|
|
|
215
|
|
|
192
|
|
Reading International, Inc.
|
|
|
100
|
|
|
154
|
|
|
198
|
|
|
200
|
|
|
215
|
|
|
244
|
|
For
purposes of the above table, iDNA is compared to Reading International Inc.
because that company is engaged principally in the operation of various film
theatres. iDNA’s current operations are comprised principally of its investment
in AFC and its providing strategic communication services and information
services.
STOCKHOLDERS
At
May 9,
2008 there were 1,202 stockholders of record of iDNA's Common Stock based upon
a
securities position listing furnished to iDNA by American Stock Transfer &
Trust Company, iDNA’s transfer agent. On that date, the closing bid quotation of
iDNA’s Common Stock on the OTCBB was $0.10 per share.
DIVIDEND
POLICY
It
has
been iDNA's policy to retain any earnings and preserve its cash resources to
finance the growth of its business, provide resources for future acquisition(s)
and reduce outstanding debt and other liabilities; accordingly, iDNA has
generally not declared or paid cash dividends. iDNA intends to reinvest any
earnings in its business to finance future growth and acquisitions. Accordingly,
iDNA’s Board of Directors does not anticipate declaring any cash dividends in
the foreseeable future. However, iDNA does from time to time reassess its cash
dividend policy and may declare and pay cash dividends in the future if
circumstances warrant. No cash dividends were declared during Fiscal 2008 or
Fiscal, 2007.
RECENT
SALE OF UNREGISTERED SECURITIES
iDNA
did
not engage in sales of unregistered securities during Fiscal 2008 that have
not
been reported heretofore in a Quarterly Report on Form 10-Q or in a Current
Report on Form 8-K.
REPURCHASE
OF EQUITY SECURITIES
iDNA
did
not repurchase any shares of its equity securities (including shares of its
Common Stock) during the fourth quarter of Fiscal 2008.
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The
following table sets forth, as of January 31, 2008, relevant information with
respect to compensation plans (including individual compensation arrangements)
under which equity securities of iDNA are authorized for issuance.
Plan Category
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
( a )
|
|
Weighted-average
exercise price of
outstanding
options, warrants
and rights
( b )
|
|
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
( c )
|
|
Equity
compensation plans approved by security holders
|
|
|
3,030,784
|
|
$
|
0.70
|
|
|
560,068
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
-
|
|
|
-
|
|
|
28,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,030,784
|
|
$
|
0.70
|
|
|
588,068
|
|
2003
Restricted Stock Plan
iDNA
sponsors a 2003 Restricted Stock Plan (the “2003 Plan”) that authorizes the
grant of up to a maximum of 400,000 restricted shares of Common Stock to
employees of iDNA. During Fiscal 2004, there were 372,000 shares of Common
Stock
granted pursuant to the terms of the 2003 Plan at an estimated fair value of
$0.32 per share. No such shares were granted to any of iDNA’s executive officers
or directors. There were no further grants under the 2003 Plan during Fiscal
2008, Fiscal 2007 and Fiscal 2006. Each grant under the 2003 Plan is subject
to
vesting at the rate of 20% per year over a five year period. Shares granted
under the 2003 Plan may not be sold, transferred, pledged or otherwise disposed
until they vest. During the vesting period, unvested shares are voted by the
manager of each business unit.
Item
6. Selected Financial Data.
The
following sets forth certain selected financial data appearing in or derived
from iDNA’s historical financial statements, adjusted for the discontinued
operations of its automobile finance and auto rental businesses. The selected
financial data should be read in conjunction with the consolidated financial
statements appearing elsewhere herein, and with Item 7 – Management’s Discussion
and Analysis of Financial Condition and Results of Operations (in thousands,
except per share amounts):
|
|
Years Ended January 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
STATEMENT
OF OPERATIONS DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
14,617
|
|
$
|
15,444
|
|
$
|
14,090
|
|
$
|
11,343
|
|
$
|
7,144
|
|
Operating
costs and expenses
|
|
$
|
18,728
|
|
$
|
19,334
|
|
$
|
16,621
|
|
$
|
14,294
|
|
$
|
11,001
|
|
Loss
from continuing operations
|
|
$
|
(11,823
|
)
|
$
|
(7,591
|
)
|
$
|
(515
|
)
|
$
|
(3,164
|
)
|
$
|
(3,383
|
)
|
Discontinued
operations, net of tax1
|
|
|
10
|
|
|
11
|
|
|
14
|
|
|
-
|
|
|
401
|
|
Net
loss
|
|
$
|
(11,813
|
)
|
$
|
(7,580
|
)
|
$
|
(501
|
)
|
$
|
(3,164
|
)
|
$
|
(2,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(1.19
|
)
|
$
|
(.83
|
)
|
$
|
(.05
|
)
|
$
|
(.33
|
)
|
$
|
(.41
|
)
|
Discontinued
operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
.05
|
|
Total
|
|
$
|
(1.19
|
)
|
$
|
(.83
|
)
|
$
|
(.05
|
)
|
$
|
(.33
|
)
|
$
|
(.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,933
|
|
|
9,167
|
|
|
9,250
|
|
|
9,529
|
|
|
8,182
|
|
Diluted
|
|
|
9,933
|
|
|
9,167
|
|
|
9,250
|
|
|
9,529
|
|
|
8,182
|
|
|
|
As of January 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
BALANCE
SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
169
|
|
$
|
277
|
|
$
|
1,144
|
|
$
|
471
|
|
$
|
376
|
|
Total
assets
|
|
$
|
13,553
|
|
$
|
22,078
|
|
$
|
28,847
|
|
$
|
28,089
|
|
$
|
30,916
|
|
Long
term debt and convertible debt (2)
|
|
$
|
16,198
|
|
$
|
13,896
|
|
$
|
12,941
|
|
$
|
11,475
|
|
$
|
11,794
|
|
Total
stockholders' equity (deficit)
|
|
$
|
(8,646
|
)
|
$
|
2,745
|
|
$
|
9,572
|
|
$
|
10,577
|
|
$
|
13,480
|
|
1
See
Note
17 of Notes to Consolidated Financial Statements included in this report for
further discussion of discontinued operations.
2
Amount
at January 31, 2008 is presented net of the effect of the unamortized fair
value
of $306,000 for the 1.5 million warrants issued pursuant to the terms of the
Loan Agreement. The fair value of the warrants is reported as a reduction of
principal at January 31, 2008. See Note 7 of Notes to the Consolidated Financial
Statements included in this report.
The
selected statements of operations data for the quarters ended April 30, July
31,
October 31, and January 31 for Fiscal 2008 and 2007 set forth below have been
derived from iDNA’s unaudited quarterly historical financial statements. The
selected financial data should be read in conjunction with the consolidated
financial statements appearing elsewhere herein and with Item 7 – Management’s
Discussion and Analysis of Financial Condition and Results of Operations (in
thousands, except per share data):
STATEMENT
OF OPERATIONS DATA
|
|
For the Three Months Ended
|
|
|
|
January 31,
|
|
October 31,
|
|
July 31,
|
|
April 30,
|
|
January 31,
|
|
October 31,
|
|
July 31,
|
|
April 30,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
2007
|
|
2007
|
|
2006
|
|
2006
|
|
2006
|
|
Revenues
|
|
$
|
3,123
|
|
$
|
5,070
|
|
$
|
2,824
|
|
$
|
3,600
|
|
$
|
3,716
|
|
$
|
4,758
|
|
$
|
3,538
|
|
$
|
3,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$
|
859
|
|
$
|
2,569
|
|
$
|
779
|
|
$
|
1,079
|
|
$
|
1,498
|
|
$
|
2,204
|
|
$
|
1,497
|
|
$
|
1,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(9,475
|
)
|
$
|
255
|
|
$
|
(1,560
|
)
|
$
|
(1,043
|
)
|
$
|
(1,020
|
)
|
$
|
(280
|
)
|
$
|
(5,137
|
)
|
$
|
(1,154
|
)
|
Discontinued
operations, net of tax1
|
|
|
2
|
|
|
|
|
|
3
|
|
|
5
|
|
|
8
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Net
income (loss)
|
|
$
|
(9,473
|
)
|
$
|
255
|
|
$
|
(1,557
|
)
|
$
|
(1,038
|
)
|
$
|
(1,012
|
)
|
$
|
(279
|
)
|
$
|
(5,136
|
)
|
$
|
(1,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) 2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(.95
|
)
|
$
|
.03
|
|
$
|
(.16
|
)
|
$
|
(.11
|
)
|
$
|
(.11
|
)
|
$
|
(.03
|
)
|
$
|
(.56
|
)
|
$
|
(.13
|
)
|
Discontinued
operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
(.95
|
)
|
$
|
.03
|
|
$
|
(.16
|
)
|
$
|
(.11
|
)
|
$
|
(.11
|
)
|
$
|
(.03
|
)
|
$
|
(.56
|
)
|
$
|
(.13
|
)
|
Weighted
average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,960
|
|
|
9,955
|
|
|
9,955
|
|
|
9,861
|
|
|
9,451
|
|
|
9,098
|
|
|
9,081
|
|
|
9,036
|
|
Diluted
|
|
|
9,960
|
|
|
9,955
|
|
|
9,955
|
|
|
9,861
|
|
|
9,451
|
|
|
9,098
|
|
|
9,081
|
|
|
9,036
|
|
1
See
Note
17 of Notes to Consolidated Financial Statements included in this report for
further discussion of discontinued operations.
2
The sum
of the quarters do not equal year to date
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
GENERAL
iDNA,
Inc. (the “Company” or “iDNA”), began operations in 1969 and was incorporated in
Delaware in 1971. iDNA’s operations are comprised of three principal reportable
segments: (i) strategic communications services, (ii) information services
and
(iii) entertainment. iDNA manages each segment separately as a consequence
of
different marketing, service requirements and technology strategies.
The
strategic communications services segment provides content development via
the
design, development and production of media, collateral material, logistics,
support and/or broadcast services for presentations at corporate and
institutional events, meetings, training seminars and symposiums. The
presentations may be live at single or multi-site venues and can include video
conferencing, satellite broadcasting and webcasting, or the presentations may
be
provided via on-demand access via internet websites, DVD or video
tape.
The
information services segment utilizes custom wireless communication technology
and proprietary software to facilitate client audience interaction,
participation and polling to collect, exchange and/or analyze data and
information in real-time during a meeting or event. The wireless communication
services are available as a turn-key service provided by iDNA during a scheduled
meeting or event or alternatively, a client can purchase from iDNA the required
electronic components and related proprietary software to administer its needs
independently.
As
of
consequence of iDNA’s investment in the Angelika Film Centers, LLC (“AFC”), iDNA
operates in the movie exhibition and entertainment industry.
Significant
Developments Fiscal 2008
For
Fiscal 2008, iDNA’s strategic initiatives were focused upon (i) marketing of its
products and services, (ii) reduction of overhead expenses and (iii) refinancing
certain of its short-term debt obligations. iDNA’s marketing initiatives have
led to (i) iDNA’s consolidation its strategic communications service marketing
group at its New York City headquarters, (ii) iDNA’s elimination of certain
redundant expenses and (iii) a renewed interest by certain clients in iDNA’s
satellite broadcasting services. iDNA also streamlined elements of its marketing
of its information services to achieve more effective client acquisition,
identify new applications and provide consultative data management and analysis
services with certain strategic clients. Additionally, during the third and
fourth quarters of Fiscal 2008, iDNA began to consolidate all of its strategic
communication services from various satellite operational service locations
within the New York metropolitan area into its New York City headquarters in
an
effort to reduce overhead expenses.
On
November 21, 2007, iDNA, via its wholly owned subsidiary, iDNA Cinema Holdings,
Inc. (“Holdings”), consummated a Master Loan and Security Agreement (the “Loan
Agreement”) with Silar Advisors, L.P. (“Silar”), as Lender and Administrative,
Payment and Collateral Agent, pursuant to which Silar provided a term loan
in an
aggregate principal amount of $4.25 million (the “Term Loan”) to Holdings (the
“Term Loan Financing”). Interest accrues on the Term Loan at a per annum rate
equal to the variable annual rate of interest designated from time to time
by
Citibank N.A. as its “prime rate,” plus 4%, or, if greater, 12.25%, and is
payable by Holdings on a quarterly basis. The Term Loan matures on November
20,
2009 unless extended for one year at the option of Holdings, upon written notice
provided to Silar between fifteen (15) and forty-five (45) days prior to the
Maturity Date, provided that no default is then ongoing and that Holdings is
then in compliance with its financial covenants under the Loan Agreement. The
remaining details of the Term Loan Financing .are set forth below under the
sub-heading “LIQUIDITY AND CAPITAL RESOURCES” and are furthermore described in
Note 7 of Notes to Consolidated Financial Statements.
iDNA
has
utilized the proceeds from the Term Loan Financing in the following manners:
(i)
approximately $1.0 million was applied for the repayment and retirement of
iDNA’s indebtedness to Seasons Go Round Inc.; (ii) $263,000 was used for
prepayment of interest on the Term Loan; (iii) $207,000 was paid to Silar or
its
designee in satisfaction of fees and expenses due in connection with the Term
Loan Financing; (iv) $60,000 was paid to a consultant for its role in
facilitating the Term Loan Financing; and (v) the remaining proceeds of
approximately $2.7 million have been and will continue to be utilized for
working capital purposes. iDNA incurred various loan origination fees in the
amount of $511,000, inclusive of the $207,000 paid to Silar at closing, and
iDNA
amortizes the origination fees to interest expense over the expected term of
the
Term Loan. At January 31, 2008, iDNA charged to interest expense $33,000 for
loan origination fees.
As
discussed in more detail below, iDNA recorded a non-cash charge to operations
in
the amount of $8.0 million for the impairment of goodwill and certain intangible
assets due to the impact of the historical and projected performance of its
information services and strategic communications services reporting units
on
their fair values in relation to the carrying value of their underlying net
assets. At January 31, 2008, iDNA has reduced the carrying value of all goodwill
and other intangible assets to zero. As a consequence of this impairment charge
and other factors, iDNA has initiated preliminary discussions with the former
shareholders of the Campus Group (defined below) to restructure the Campus
Notes
(defined below) in the aggregate amount of $12.1 million and/or reduce the
original purchase consideration of the Campus Group acquisition (see Note 7
of
Notes to Consolidated Financial Statements). Currently, iDNA’s payment
obligations are deferred until certain performance criteria are met. Although
iDNA is seeking to restructure its obligations under the Campus Notes and/or
reduce the original purchase consideration, there can be no assurance that
such
negotiations will result in a restructuring and/or a reduction in the original
purchase consideration. iDNA believes that the available cash and cash
equivalents and investments in trading securities totaling $1.6 million at
January 31, 2008 and any cash distributions from its investment in AFC and
cash
flow from operations will be sufficient to pay operating expenses, existing
liabilities, fund existing debt repayments and fund its activities through
the
next twelve months, notwithstanding these impairment charges.
Significant
Developments Fiscal 2007
Strategic
Initiatives for Fiscal 2007
iDNA
implemented a number of strategic initiatives during Fiscal 2007 designed to
assist iDNA with expanding its service offerings to clients, creation of custom
products and/or solutions for client communication programs, diversification
of
its client base, formation of strategic business relationships with third
parties, effecting capital investments in new digital mediums and formats,
and
launching of iDNA’s corporate website and relocation of its corporate offices to
new facilities in New York City, New York.
iDNA’s
website (www.idnausa.com),
launched in May 2006, is part of an evolving program to unify iDNA’s diverse
product and service offerings under a full-service, turn-key strategic
communications umbrella. iDNA’s website provides information regarding the
products and services available from iDNA, insights into strategic
communications and capabilities, and is a portal to more detailed information.
The website provides links, as needed, to individual supporting iDNA subsidiary
websites.
iDNA
moved its New York-based headquarters to a new, expanded facility in June 2006.
The new offices house iDNA’s executive offices and allowed for the subsequent
consolidation of iDNA’s facility with two other New York-based iDNA offices
which were moved into the new facility; one move was completed in December
2006
and the second move was completed in September 2007. Through the consolidation
of the New York facilities, iDNA eliminated approximately $254,000 in annual
base rent expenses.
In
July
2006, iDNA formed iDNA Healthcare Communications, Inc. (“iDNA Healthcare”), to
further focus iDNA’s marketing efforts for strategic communications services
targeted specifically for the medical and pharmaceutical symposium and the
pharmaceutical-physician-patient communication markets. In addition, iDNA
Healthcare hired three new pharmaceutical communications specialists and aligned
the Concepts of Medicine Division from the Campus Group Companies, Inc. (“CGC”)
into iDNA Healthcare.
iDNA
made
a series of strategic capital investments principally during Fiscal 2007 which
aggregated $274,000 for additional wireless communication service components,
$44,000 in supporting data collectors and related computer components and
$123,000 in upgraded and new digital editing suites. Each capital investment
made by iDNA is designed to yield positive results in future periods by helping
iDNA to obtain new client projects, reducing costs of performing such projects
and providing unique, cost effective communication products.
Employment
Agreement with James J. McNamara
Also
in
Fiscal 2007, the Board of Directors of iDNA approved, and iDNA consummated,
an
employment agreement with James J. McNamara (the “Employment
Agreement”)
on
November 29, 2006. Under the terms of the Employment Agreement, Mr. McNamara
shall be employed as the Company’s Chief Executive Officer for an initial term
of approximately three years, until January 31, 2010. The detailed terms of
the
Employment Agreement are set forth more fully in Note 11 to Notes to
Consolidated Financial Statements.
Significant
Developments Fiscal 2006
Name
Change Approved
On
January 31, 2006, the Company’s shareholders approved, among other corporate
matters, the Board of Directors’ recommendation for a change of the Company’s
name to iDNA, Inc. from National Auto Credit, Inc. The change of name was
proposed as a consequence of the Company’s transformation of its business,
beginning in Fiscal 2001, to a strategic communications, information services
and entertainment company from a company that formerly invested in sub-prime
used automobile consumer loans.
Acquisition
of Option Technologies Interactive, LLC.
On
November 18, 2005, iDNA consummated
the acquisition of 100% of the membership interests of Option Technologies
Interactive, LLC (“OTI”) from Flexner Wheatley & Associates (“FWA”) and
MeetingNet Interactive, Inc. (“MeetingNet”). OTI is a technology company
providing interactive software and hardware systems and services that facilitate
audience interaction, participation and polling to collect exchange and/or
analyze data and information in real-time for use in live events, training
and
education satellite videoconferencing and corporate or institutional meeting
services. Prior to the acquisition of OTI, iDNA’s subsidiary Audience Response
Systems, Inc. (“ARS”) also provided similar services. With the acquisition of
OTI, iDNA (i) gained access to important new clients, industries and market
segments, (ii) acquired a fully developed and integrated propriety software
that
is an “add-in” application module with Microsoft®
Office
PowerPoint®
which,
among other attributes, allows clients to develop and self-administrate audience
interaction programs at smaller and other venues not then served by iDNA and
(iii) expanded its solutions-based communication product offering to meet
dynamic demands of current and potential clients. The significant value in
the
acquired company lay principally in its (i) industry position, (ii) assembled
workforce, (iii) proprietary software, (iv) trademarks and (iv) client lists
and
client relations.
In
exchange for the acquisition of all of the outstanding membership interests
in
OTI, iDNA (i) paid $744,000 at closing from iDNA’s available cash balances, (ii)
issued to FWA and MeetingNet promissory notes in an aggregate principal amount
of $1.5 million (“OTI Promissory Notes”) and (iii) issued an aggregate of
496,250 shares of iDNA Common Stock to FWA and MeetingNet valued at $258,000,
representing the fair value of such number of shares of iDNA’s Common Stock at
the date of acquisition. For financial reporting purposes, the transaction
was
treated as a purchase with an effective date of November 18, 2005. The purchase
price is subject to an upward and downward adjustment not to exceed $412,500
based upon OTI meeting, or failing to meet, certain minimum financial
performance criterion for Fiscal 2007 and Fiscal 2008. As of January 31, 2008,
OTI did not meet all of the minimum financial performance criterion and, as
a
consequence, iDNA retains an option to reduce the purchase price in amount
estimated between $206,000 and $412,000. iDNA has not exercised its option
to
reduce the purchase price of OTI as of May 14, 2008 and no adjustment to the
OTI
Promissory Notes was recorded at January 31, 2008.
Critical
Accounting Policies
iDNA’s
consolidated financial statements are prepared in accordance with generally
accepted accounting principles, which require iDNA to make estimates and
assumptions. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities,
and
the reported revenues and expenses of iDNA. iDNA’s significant accounting
policies are described in Note 1 of Notes to Consolidated Financial Statements.
However, certain accounting policies are deemed “critical”, as they require
management’s highest degree of judgment, estimates and assumptions. These
accounting estimates and disclosures have been discussed with the Audit
Committee of iDNA’s Board of Directors. A discussion of iDNA’s critical
accounting policies, the judgments and uncertainties affecting their
application, and the likelihood that materially different amounts would be
reported under different conditions or using different assumptions are as
follows:
Revenues:
iDNA’s
revenues are earned within short time periods, generally less than one week.
iDNA recognizes revenue from its strategic communications segment, including
video production, video editing, meeting services and broadcast satellite or
webcast services and its information services segment when the services are
complete and delivered or all technical services have been rendered. Deposits
and other prepayments are recorded as deferred revenue until revenue is
recognized. iDNA does not have licensing or other arrangements that result
in
additional revenues following the delivery of the video or a broadcast. Costs
accumulated in the production of the video, meeting services or broadcasts
are
deferred until the sale and delivery are complete. Deferred production costs
of
$90,000 and $115,000, respectively, are included as a component of other current
assets at January 31, 2008 and 2007.
iDNA
recognizes revenue from the sale of electronic equipment, proprietary software
and related components at the time of shipment. Deposits and other prepayments
received prior to shipment are recorded as deferred revenue until the electronic
equipment and related software is shipped. iDNA has licensing and technical
support arrangements for future software enhancements and upgrades for technical
support for previously delivered electronic equipment. Revenues derived from
licensing and technical support are recognized over the term of the licensing
and technical support period which are generally sold in increments of one
year
of coverage. For Fiscal 2008, Fiscal 2007 and Fiscal 2006, electronic equipment
sales were $2.1 million, $2.6 million and $1.3 million,
respectively.
iDNA
recognizes revenue from website design and development when the customer accepts
the completed project. Deposits and other prepayments are recorded as deferred
revenue until revenue is recognized. These contracts are generally limited
to
the design and development of websites and the presentation of site library
content developed by iDNA. Clients also have the option to engage iDNA to
maintain and upgrade their websites. These projects are separate from the
website development and design engagements, and the related revenue is
recognized over the term of the agreement, which is generally up to one
year.
Cost
of Revenues:
Cost of
revenues consists of direct expenses specifically associated with client
revenues. The cost of revenues includes direct salaries and benefits, purchased
products or services for clients, web hosting, support services, and shipping
and delivery costs.
Accounts
Receivable:
iDNA
extends credit to clients in the normal course of business. iDNA continuously
monitors collections and payments from clients and maintains an allowance for
doubtful accounts based upon historical experience and any specific client
collection issues that have been identified. Since accounts receivable are
concentrated in a relatively few number of clients, a significant change in
the
liquidity or financial position of any of these clients could have a material
adverse impact on the collectibility of the accounts receivable and future
operating results. iDNA
does
not have any off-balance sheet credit exposure related to its
customers.
Valuation
of Long-Lived Assets and Goodwill:
iDNA
reviews the carrying value of its long-lived assets whenever events or changes
in circumstances indicate that its carrying amount may not be recoverable.
When
indicators of impairment exist, iDNA determines whether the estimated
undiscounted sum of the future cash flows of such assets is less than their
carrying amounts. If less, an impairment loss is recognized in the amount,
if
any, by which the carrying amount of such assets exceeds their respective fair
values. The determination of fair value is based on quoted market prices in
active markets, if available, or independent appraisals; sales price
negotiations; or projected future cash flows discounted at a rate determined
by
management to be commensurate with iDNA’s business risk. The estimation of fair
value utilizing discounted forecasted cash flows includes significant judgments
regarding assumptions of revenue, operating and marketing costs; selling and
administrative expenses; interest rates; property and equipment additions and
retirements; industry competition; and general economic and business conditions,
among other factors.
iDNA
conducts
an
annual analysis of goodwill. iDNA estimates the fair value of its reporting
units and compares those values to the carrying values of those reporting units.
If the estimated fair value of the reporting unit is less than the estimated
book value, then an impairment is deemed to have occurred. In estimating the
fair value of each reporting unit, iDNA used primarily the income approach
(which utilizes forecasted discounted cash flows to estimate the fair value
of
the reporting unit). iDNA concluded that as of January 31, 2006 there was no
impairment of its goodwill based upon the then estimated fair value of its
reporting units.
However,
during the second quarter of Fiscal 2007, as a consequence of declining revenues
and the loss of a client, the results of the operations of the Campus Group
Companies, Inc. (“CGC”) reporting unit raised questions as to whether
projections used at the last valuation date were still valid. Accordingly,
management performed additional impairment tests as of July 31, 2006 for CGC
and
determined that impairment charges were required at that date. Accordingly,
based upon iDNA’s preliminary assessment, second quarter operations for Fiscal
2007 were charged $2.6 million and $1.9 million for the estimated impairment
of
CGC’s goodwill and other intangible assets, respectively. Additionally, iDNA
determined it appropriate to reduce the useful life of the CGC client
relationships intangible asset from 17 years to 10 years. iDNA will continue
to
monitor CGC’s operations and will recognize further impairment charges if and
when deemed appropriate. iDNA conducted its Fiscal 2007 annual analysis of
goodwill as of January 31, 2007. iDNA estimated the fair value of its reporting
units and compared those values to the carrying values of those reporting units.
iDNA concluded that as of January 31, 2007 there were no additional impairments
of its goodwill based upon the then estimated fair value of its reporting units.
At
January 31, 2008, the goodwill for each of iDNA’s business segments (information
services and strategic communications services) was tested for additional
impairment. As a consequence of that testing, iDNA determined that the carrying
value of both its information services and its strategic communications services
business segments exceeded their fair values, which were estimated based upon
the present value of each reporting units expected future cash flows. As a
consequence, iDNA charged to operations an aggregate of $8.0 million for the
estimated impairment of goodwill and other intangible assets relating to (i)
its
information services segment in the amount of $5.9 million, and (ii) strategic
communication services segment in the amount of $2.1 million, respectively.
Self-Insurance
Claims:
iDNA’s
wholly-owned subsidiary ARAC, Inc. (“ARAC”) maintained and continues to maintain
self-insurance for claims and associated litigation expenses relating to bodily
injury or property damage from accidents involving the vehicles rented to
customers by its discontinued automobile rental operations occurring in Fiscal
1996 and prior. ARAC was, when required by either governing state law or the
terms of its rental agreement, self-insured for the first $1.0 million per
occurrence, and for losses in excess of $5.0 million per occurrence, for bodily
injury and property damage resulting from accidents involving its rental
vehicles. ARAC was also self-insured, up to certain retained limits, for bodily
injury and property damage resulting from accidents involving ARAC vehicles
operated by employees within the scope of their employment.
ARAC
is
the subject to certain self-insurance claims and associated litigation expenses
relating to its discontinued automobile rental operations. iDNA’s management
estimates ARAC’s required self-insurance liability based upon specific
identification of the known matters subject to future claims, the nature of
the
claim and the estimated costs to be incurred. These estimates include, but
are
not limited to, ARAC’s historical loss experience and projected loss factors.
The required self-insurance liability is subject to adjustment in the future
based upon changes in the nature of the remaining claims or the ultimate cost.
As a consequence of iDNA’s sale of its automobile rental operations in 1995,
iDNA believes that all incurred claims have been reported to ARAC and that
there
are no longer any incurred but not yet reported claims to be received by ARAC.
During Fiscal 2008 and Fiscal 2006, iDNA paid out $63,000 and $21,000,
respectively for residual self-insurance claims previously accrued. iDNA did
not
incur or pay out residual insurance claims for Fiscal 2007. iDNA’s
self-insurance liability at January 31, 2008 and 2007 was $172,000 and $235,000,
respectively.
Because
of the uncertainties related to several residual small claims and legal
proceedings involving iDNA’s former rental operations and self-insurance claims,
it is difficult to project the ultimate effect the adjudication or settlement
of
these matters will have on iDNA. As additional information regarding iDNA’s
potential liabilities becomes available, iDNA will revise the estimates as
appropriate.
Accounting
for Stock-Based Compensation:
Effective February 1, 2006, iDNA adopted the provisions of Statement of
Financial Accounting Standards (“SFAS”) No. 123R (revised 2004), Share-Based
Payment,
which
replaces SFAS No. 123, Accounting
for Stock-Based Compensation
(“SFAS
No. 123(R)”), and supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees.
SFAS
No. 123R requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based
on
their fair values beginning with the first interim or annual period after
December 15, 2005. iDNA elected the prospective method of adopting SFAS No.
123R
which requires that compensation expense be recorded over the remaining periods
for what would have been the remaining fair value under SFAS No. 123 of all
unvested stock options and restricted stock at the beginning of the first
quarter of adoption. The compensation costs for that portion of awards is based
on the grant-date fair value of the awards as calculated for pro forma
disclosures under SFAS No. 123.
Prior
to
the adoption of SFAS No. 123(R), iDNA followed the intrinsic value method in
accordance with APB No. 25 to account for its employee stock options.
Historically, substantially all stock options have been granted with an exercise
price equal to the fair market value of the iDNA’s Common Stock. As a
consequence, no compensation expense was recognized from substantially all
option grants to employees, officers and directors.
In
Fiscal
2008, Fiscal 2007 and Fiscal 2006, iDNA issued options to acquire 300,000,
1,605,000 and 507,509 shares of Common Stock options, respectively, to iDNA’s
employees, officers, directors and advisors. Each of the stock options granted
in Fiscal 2008, Fiscal 2007 and Fiscal 2006 were subject to vesting and at
January 31, 2008, options to acquire 2,365,170 shares of Common Stock had vested
pursuant to the terms of the grants. Options to acquire 143,668 and 455,557
shares of Common Stock were cancelled in Fiscal 2008 and Fiscal 2006,
respectively. As a consequence of adopting SFAS 123(R), iDNA has recorded
charges to operations for stock-based compensation expense for Fiscal 2008
and
Fiscal 2007 of $260,000 and $724,000, respectively. If iDNA had recorded
compensation expense using the fair value method of SFAS 123(R) for Fiscal
2006,
iDNA’s net after tax charge to operations would have been $67,000.
Income
Taxes:
iDNA
recognizes deferred tax assets and liabilities based on differences between
the
financial statement carrying amounts and the tax basis of assets and
liabilities. Loss carrybacks, reversal of deferred tax liabilities, tax planning
and estimates of future taxable income are considered in assessing the need
for
a valuation allowance. At the time it is determined that iDNA will more likely
than not be able to realize deferred tax assets in excess of the recorded
amount, net of its valuation allowance, an adjustment to reduce the valuation
allowance would be recorded that would increase income in the period such
determination was made. Likewise, should management determine that iDNA would
not be able to realize all or part of net deferred tax assets generated in
the
future, increase to the valuation allowance would be charged to and reduce
income in the period such determination was made.
RESULTS
FROM CONTINUING OPERATIONS
The
following table sets forth for Fiscal 2008, Fiscal 2007 and Fiscal 2006 certain
statements of operations data by segment obtained from iDNA’s consolidated
statement of operations (in thousands).
|
|
Information Services
|
|
Strategic Communication Services
|
|
Intersegment Elimination
|
|
|
|
Year Ended January 31,
|
|
Year Ended January 31,
|
|
Year Ended January 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
8,711
|
|
$
|
9,478
|
|
$
|
5,958
|
|
$
|
6,052
|
|
$
|
6,083
|
|
$
|
8,322
|
|
$
|
(146
|
)
|
$
|
(117
|
)
|
$
|
(190
|
)
|
Cost
of revenues
|
|
|
5,345
|
|
|
5,510
|
|
|
3,581
|
|
|
4,132
|
|
|
3,754
|
|
|
4,771
|
|
|
(146
|
)
|
|
(117
|
)
|
|
(190
|
)
|
Selling,
general and admininistrative expenses
|
|
|
4,693
|
|
|
4,486
|
|
|
2,289
|
|
|
4,045
|
|
|
4,582
|
|
|
4,088
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Operating
income (loss)
|
|
|
(7,267
|
)
|
|
(482
|
)
|
|
(54
|
)
|
|
(4,225
|
)
|
|
(6,807
|
)
|
|
(465
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Depreciation
and amortization expense
|
|
|
874
|
|
|
871
|
|
|
587
|
|
|
713
|
|
|
719
|
|
|
757
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Impairment
charge
|
|
|
5,940
|
|
|
-
|
|
|
-
|
|
|
2,093
|
|
|
4,482
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
Entertainment
|
|
Undistributed Corporate Expenses
|
|
Consolidated
|
|
|
|
Year Ended January 31,
|
|
Year Ended January 31,
|
|
Year Ended January 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
14,617
|
|
$
|
15,444
|
|
$
|
14,090
|
|
Cost
of revenues
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,331
|
|
|
9,147
|
|
|
8,162
|
|
Selling,
general and admininistrative expenses
|
|
|
25
|
|
|
20
|
|
|
-
|
|
|
634
|
|
|
1,099
|
|
|
2,082
|
|
|
9,397
|
|
|
10,187
|
|
|
8,459
|
|
Operating
income (loss)
|
|
|
630
|
|
|
590
|
|
|
738
|
|
|
(960
|
)
|
|
(902
|
)
|
|
(664
|
)
|
|
(11,822
|
)
|
|
(7,601
|
)
|
|
(445
|
)
|
Depreciation
and amortization expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
49
|
|
|
62
|
|
|
67
|
|
|
1,636
|
|
|
1,652
|
|
|
1,411
|
|
Impairment
charge
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
8,033
|
|
|
4,482
|
|
|
-
|
|
Revenues:
Revenues
for Fiscal 2008, Fiscal 2007 and Fiscal 2006 were $14.6 million, $15.4 million
and $14.1 million, respectively.
Revenues
attributed to the information services segment decreased $767,000 to $8.7
million for Fiscal 2008 as compared to $9.5 million for Fiscal 2007. The
decrease in revenues was principally due to (i) the $117,000 decrease in
revenues derived from iDNA’s meeting services and (ii) a decline of $653,000 in
equipment and software application sales. The decline in equipment and software
application sales from Fiscal 2007 to Fiscal 2008 was due to the combined effect
of (i) a delay in iDNA’s introduction of new hardware and software products that
iDNA originally scheduled in the fall of 2008 (but which will be introduced
in
Fiscal 2009), (ii) changes in client timing and/or scope of purchases and (iii)
general changes in the overall economic climate causing prospective clients
to
delay, defer or cancel purchase plans until a future date. Revenues for Fiscal
2007 increased $3.5 million to $9.5 million as compared to $6.0 million for
Fiscal 2006. The increase in revenues was principally due to the net effects
of
(i) an increase in revenues derived from OTI, acquired November 18, 2005, of
$3.7 million, offset by (ii) a decline of $206,000 in core information service
revenues as a consequence of changes in the timing and/or scope of the projects
during Fiscal 2007 as compared to Fiscal 2006.
Revenues
attributed to the strategic communication services segment remained stable
at
$6.1 million for each of Fiscal 2008 and Fiscal 2007. Overall client spending
with iDNA remained consistent from year-to-year with various programs and events
scheduled for each period of similar scope, size and general timing. Revenues
for Fiscal 2007 decreased $2.2 million to $6.1 million as compared to $8.3
million for Fiscal 2006. The decrease in revenues was principally due to (i)
a
series of projects performed in Fiscal 2006 which aggregated $1.8 million for
a
client that were not repeated in Fiscal 2007 due to the client’s budgetary
constraints and a change/reduction scope of its communications initiatives
and
(ii) a decline of $347,000 attributed to a pharmaceutical client due to a change
in its budgetary spending from Fiscal 2006 to Fiscal 2007.
The
nature of iDNA’s business is such that the nature and timing of assignments
completed for clients, and the resulting revenue, will vary from period to
period in terms of scope, size of projects and the ultimate revenues derived.
iDNA’s continues to pursue the consolidation of its previously decentralized
marketing for strategic communication services in an effort to improve the
coordination and program value for current and prospective clients. Through
this
consolidation initiative, each of iDNA’s senior marketing strategists develop
new marketing initiatives, create new project opportunities, seek new clients
for its services and expand existing client relationships to generate new
revenues to reduce period to period fluctuations. Although no assurances can
be
made, iDNA continues to seek revenue expansion through its new marketing
strategist’s initiatives as a means to reduce year-to-year and
quarter-to-quarter fluctuations in its revenues as well as to ultimately
increase revenues.
Cost
of Revenues:
Cost of
revenues for Fiscal 2008, Fiscal 2007 and Fiscal 2006 were $9.3 million, $9.1
million and $8.2 million, respectively.
Cost
of
revenues attributed to the information services segment decreased $165,000
to
$5.3 million as compared to $5.5 million for Fiscal 2007. The decrease in the
cost of revenues was principally due to the net effects of (i) a decline in
revenues offset by (ii) an increase in direct project costs. Cost of revenues
for Fiscal 2007 increased $1.9 million to $5.5 million for Fiscal 2007 as
compared to $3.6 million for Fiscal 2006. The increase in cost of revenues
was
principally due to (i) an increase in cost of revenues derived from OTI,
acquired November 18, 2005, of $1.7 million and (ii) an increase of $211,000
in
core information service cost of revenues as a consequence of increased project
expenses and related overhead during Fiscal 2007 as compared to Fiscal
2006.
The
gross
profit realized by the information services segment for Fiscal 2008, Fiscal
2007
and Fiscal 2006 was $3.4 million, $4.0 million and $2.4 million, respectively.
The gross profit decrease of $602,000 for Fiscal 2008 as compared to Fiscal
2007
was due principally to the net effects of (i) a decline in revenues offset
by
(ii) an increase in direct project costs as a consequence of increased project
and pricing competition. The gross profit increase of $1.6 million for Fiscal
2007 as compared to Fiscal 2006 was due principally to the net effects of (i)
the increase in gross profit derived from OTI, acquired November 18, 2005,
of
$2.0 million offset by (ii) a decrease of $417,000 in gross profit attributable
to the core information services as a consequence of (a) a decline in revenues
of $206,000 and (b) an increase of project expenses and related overhead during
Fiscal 2007 as compared to Fiscal 2006. The gross margin for Fiscal 2008 was
38.6% as compared to 41.8% for Fiscal 2007 and 39.9% for Fiscal 2006. The
decrease in overall gross margin of 3.2% for Fiscal 2008 as compared to Fiscal
2007 was principally due to the net effects of (i) a 4.2% increase in direct
project costs as a consequence of increased project and pricing competition
offset by (iii) a 1.0% decrease in indirect production and overhead expenses.
The increase in overall gross margin of 2.0% for Fiscal 2007 as compared to
Fiscal 2006 is principally due to the net effects of (i) reduced variable
project costs of 4.9%, offset by, (ii) an increase in indirect production and
overhead costs of 2.9%. The gross profit increase of $229,000 for Fiscal 2007
as
compared to Fiscal 2006 was principally due to the increase in gross profit
derived from OTI.
Cost
of
revenues attributable to the strategic communication segment increased $378,000
to $4.1 million for Fiscal 2008 as compared to $3.8 million for Fiscal 2007.
The
increase in the cost of revenues was principally due to an increase in direct
project costs as a consequence of the completion of smaller, lower margin
projects during the period and an increase in production costs. For Fiscal
2007,
cost of revenues decreased $1.0 million to $3.8 million for Fiscal 2007 as
compared to $4.8 million for Fiscal 2006. The decrease in the costs of revenues
was principally due to a reduction in direct project costs as a consequence
of
the $2.2 million decrease in revenues for Fiscal 2007.
The
gross
profit realized by the strategic communication segment for Fiscal 2008, Fiscal
2007 and Fiscal 2006 was $1.9 million, $2.3 million and $3.5 million,
respectively. The gross profit decrease of $409,000 for Fiscal 2008 as compared
to Fiscal 2007 was principally due to the net effect of (i) an increase in
direct project costs of $470,000 offset by (ii) a decrease in indirect
production and overhead expenses of $92,000. The gross profit decrease of $1.2
million to $2.3 million for Fiscal 2007 as compared to $3.5 million for Fiscal
2006 was principally due to the decrease of revenues and corresponding project
margins from Fiscal 2006 to Fiscal 2007. The gross margin for Fiscal 2008 was
31.7% as compared to 38.2% for Fiscal 2007 and 42.7% for Fiscal 2006. The
decrease in gross margin of 6.5% is principally due to the net effects of (i)
a
7.9% increase in direct project costs offset by (ii) a 1.4% decrease in indirect
production and overhead expenses. The decrease in gross margin of 4.5% for
Fiscal 2007 as compared to Fiscal 2006 is principally due to (i) an unfavorable
project price variance of 2.6% and (ii) an increase in fixed production overhead
costs, as a percentage of revenues, of 1.9%.
Selling,
General and Administrative Expense (“SG&A”):
SG&A
for Fiscal 2008, Fiscal 2007 and Fiscal 2006 were $9.4 million, $10.2 million
and $8.5 million, respectively.
SG&A
attributed to the information services segment increased $207,000 to $4.7
million for Fiscal 2008 as compared to $4.5 million for Fiscal 2007. The
increase in SG&A was due principally to (i) an increase in professional
services of $142,000 pertaining to consulting, legal and accounting services
provided to iDNA and (ii) an increase of personnel expenses of $27,000. For
Fiscal 2007, SG&A increased $2.2 million to $4.5 million as compared to $2.3
million for Fiscal 2006. The increase in SG&A was principally due to (i) an
increase of $2.0 million in SG&A derived from OTI, acquired November 18,
2005, and (ii) an increase in SG&A of $243,000 attributable to the core
information services as a consequence of increased marketing, personnel and
professional service costs incurred.
SG&A
attributable to the strategic communication services segment decreased $537,000
to $4.0 million for Fiscal 2008 as compared to $4.6 million for Fiscal 2007.
The
decrease in SG&A was due principally to the net effect of (i) a decrease in
personnel expenses of $364,000, (ii) a decrease of facility expenses of $571,000
offset by (iii) an increase in professional services of $436,000 pertaining
to
consulting, legal and accounting services These personnel and facility expense
reductions resulted from iDNA’s (i) consolidating certain personnel functions
and eliminating redundant expenses, (ii) centralizing its marketing initiatives
and (iii) eliminating redundant facility expenses through the consolidation
of
the New York office. For Fiscal 2007 SG&A increased $494,000 to $4.6 million
as compared to $4.1 million for Fiscal 2006. The increase in SG&A was
principally due to (i) an increase of $276,000 in marketing personnel expenses,
(ii) an increase of $112,000 in rent and related facility costs and (iii) and
an
increase of $106,000 in other SG&A incurred.
SG&A
for undistributed corporate expenses for Fiscal 2008, Fiscal 2007 and Fiscal
2006 was $634,000, $1.1 million and $2.1 million, respectively. The corporate
expenses incurred by iDNA relate principally to expenses incurred at its
executive offices for executive and corporate finance personnel, certain
employee benefits, professional services such as consulting, legal and
accounting fees, corporate insurance, corporate marketing initiatives and the
costs associated with maintaining its New York facility. iDNA allocates to
its
various business segments or units the proportionate share of corporate expenses
that directly relate to and/or benefit each business segment or unit. The
undistributed corporate expense reflect the remaining expenses incurred but
not
directly attributable to a business segment or unit. The decline in corporate
SG&A of $465,000 in Fiscal 2008 as compared to Fiscal 2007 was due
principally to (i) a reduction of $200,000 in personnel expenses and (ii) an
increase in the allocation of corporate expenses directly to the operating
segments as a consequence of iDNA having centralized components of its
operations within its New York City headquarters. The decline in corporate
SG&A of $1.0 million for Fiscal 2007 as compared to Fiscal 2006 was due
principally to (i) a reduction in legal expenses of $225,000, (ii) the
elimination of the one-time charge incurred in Fiscal 2006 of $208,000 for
the
premium paid by iDNA over market value in order to acquire 1,562,500 shares
of
iDNA’s Common Stock, and (iii) an increased proportionate share of corporate
expense allocated to OTI, acquired November 18, 2005, of $625,000.
Interest
Income:
Interest
income is derived principally from interest earned on iDNA’s investments in
commercial paper, and money market accounts. Interest earned on iDNA’s
investments for Fiscal 2008, Fiscal 2007 and Fiscal 2006 was $36,000, $19,000
and $20,000, respectively. The change in interest income over each fiscal period
is due principally to changes in the weighted average investment balances during
the periods.
In
addition to the interest income earned on investments, iDNA also recorded
interest income as a result of (i) interest associated with the net proceeds
received from the New York Settlement Stipulation of $24,000 in Fiscal 2006.
Income
from Investment in AFC:
iDNA
accounts for its investment in AFC using the equity method. For Fiscal 2008,
Fiscal 2007 and Fiscal 2006, iDNA’s share of the net income of AFC was $655,000,
$609,000 and $744,000, respectively. AFC’s fiscal year ends December 31. The
following sets forth summarized operating results for AFC (in
thousands):
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Revenues
|
|
$
|
6,494
|
|
$
|
6,328
|
|
$
|
6,487
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs
|
|
|
4,135
|
|
|
4,037
|
|
|
3,980
|
|
Depreciation
and amortization
|
|
|
781
|
|
|
775
|
|
|
752
|
|
General
and administrative expenses
|
|
|
269
|
|
|
298
|
|
|
268
|
|
|
|
|
5,185
|
|
|
5,110
|
|
|
5,000
|
|
Net
income
|
|
$
|
1,309
|
|
$
|
1,218
|
|
$
|
1,487
|
|
|
|
|
|
|
|
|
|
|
|
|
iDNA's
proportionate share of net income
|
|
$
|
655
|
|
$
|
609
|
|
$
|
744
|
|
AFC’s
revenues increased $166,000 to $6.5 million for the year ended December 31,
2007
as compared to $6.3 million for the year ended December 31, 2006. The increase
in AFC’s revenues was principally as a result of the net effects of (i) an
increase of 2.1% in attendance, (ii) an increase of 1.6% in ticket prices offset
by (iii) a decrease of 1.4% in café, concessions and other revenues, or $18,000.
AFC’s revenues decreased $159,000 to $6.3 million for the year ended December
31, 2006 as compared to $6.5 million for the year ended December 31, 2005.
The
decrease in AFC’s revenues was principally as a result of the net effects of (i)
a 5.2% decrease in attendance, offset by, (ii) an increase in ticket prices
of
1.2% and (iii) an increase in café, concessions and other revenues of 3.7%, or
$48,000. AFC’s revenues can fluctuate from month-to-month and year-to-year
principally as a result of film attendance, and at times, the ticket prices,
depending on audience interest in, and the popularity of the films AFC exhibits.
For
the
years ended December 31, 2007, 2006 and 2005, film rental expense (a component
of operating expenses) was $1.5 million, $1.6 million and $1.5 million,
respectively. Film expense, as a percentage of revenues, was 23.0%, 24.8% and
22.9% for the years ended December 31, 2007, 2006 and 2005, respectively. Film
rental expense generally is a factor of a fixed percentage rental rate per
film
multiplied by the number of tickets sold. AFC experiences fluctuations in film
rental expense, as a percentage of revenue, depending upon the rental rate
per
film, length of time the film is exhibited and the popularity of the film.
For
the
years ended December 31, 2007, 2006 and 2005, operating costs (excluding film
rental expense) were $2.6 million, $2.5 million and $2.5 million, respectively.
Furthermore, operating costs, as a percentage of revenues were 40.6%, 39.0%
and
38.4%for the years ended December 31, 2007, 2006 and 2005, respectively. The
nature of AFC’s operating costs tend to generally be more fixed overhead related
costs and advertising expenses. Due to the fixed overhead nature of AFC’s
operating expenses, these costs are not significantly affected by fluctuations
in attendance from period to period as the expenses remained stable from the
year ended December 31, 2005 through the year ended December 31, 2007.
As
a
result of the net cash flow realized by AFC, distributions by AFC to iDNA for
Fiscal 2008, Fiscal 2007 and Fiscal 2006 were $750,000, $1.2 million and
$878,000, respectively. The timing and dollar value of AFC distributions are
dependent upon the combined effects of (i) the operating performance of AFC
from
period-to-period and (ii) working capital of AFC at the time of distribution.
Interest
Expense:
For
Fiscal 2008, Fiscal 2007 and Fiscal 2006, iDNA incurred interest expense of
$369,000, $488,000 and $662,000, respectively. During Fiscal 2008, Fiscal 2007
and Fiscal 2006, iDNA’s weighted average of borrowings was $15.4 million, $14.4
million and $13.0 million, respectively. The effective weighted average rate
of
interest expense incurred for each of Fiscal 2008, Fiscal 2007 and Fiscal 2006
was 2.4%, 3.4% and 5.1%, respectively. iDNA financed a portion of the cost
of
its acquisitions through the issuance of promissory notes, bearing interest
at
5% per annum, to the selling shareholders or members. The aggregate weighted
average of the promissory notes issued and outstanding as a consequence of
financing acquisitions for Fiscal 2008, Fiscal 2007 and Fiscal 2006 was $13.5
million, $13.5 million and $12.6 million, respectively.
The
effective weighted average rate of interest for Fiscal 2008 was 2.4% as compared
to 3.4% for Fiscal 2007. The decline in the effective interest rate is due
to
the net effect of (i) the interest abatement attributable to the Base Notes,
Trailing Notes and Convertible Notes (each defined below, collectively known
as
the “Campus Notes”) during Fiscal 2008 (see the interest expense abatement
discussion below) offset by (ii) additional interest expense incurred during
the
fourth quarter of Fiscal 2008 as a consequence of the Term Loan. The effective
weighted average interest rate for Fiscal 2007 was 3.4% as compared to 5.1%
for
Fiscal 2006. The decline in the effective interest rate was due principally
to
the suspension of interest attributable to the Campus Notes for the period
August 1, 2006 through January 31, 2007. The aggregate principal amount of
the
Campus Notes outstanding during the interest suspension period in Fiscal 2008
and Fiscal 2007 was $12.1 million (in both such years) and the value of the
foregone interest was $616,000 and $314,000, respectively.
Interest
expense abatement:
The
Campus Notes issued by iDNA in its acquisition of Audience Response Systems,
Inc. (“ARS”) and CGC (collectively, the “Campus Group”) bear interest at 5% per
annum and are repayable in quarterly installments according to a formula based
upon the future cash flows realized from The Campus Group. For the trailing
twelve month period ended July 31, 2006, the Campus Group’s financial
performance fell below certain minimum operating cash flow thresholds
established pursuant to the terms of the Campus Notes. As a consequence, the
interest expense incurred by iDNA during the twelve month period ended July
31,
2006 was abated. As a consequence of the interest abatement, iDNA realized
a
gain of $631,000 for Fiscal 2007. For the period August 1, 2006 through January
31, 2007 and for Fiscal 2008, the Campus Group’s financial performance remained
below the minimum operating cash flow thresholds (see the above interest expense
discussion),and as a consequence, additional interest expense has been suspended
until the thresholds are met. Prospectively, once the thresholds are achieved,
interest will begin to accrue pursuant to the terms of the Campus
Notes.
Income
Taxes:
For
Fiscal 2008, iDNA recorded income tax expense of $1,000 from continuing
operations representing various net state and local income tax. For Fiscal
2007,
iDNA recorded income tax benefits of $10,000 from continuing operations and
$7,000 attributable to discontinued auto rental and finance operations. For
Fiscal 2006, iDNA incurred $70,000 in income tax expense from continuing
operations comprised of (i) $25,000 in federal alternate minimum income tax
expense and (ii) $45,000 for state and local income taxes.
As
of
January 31, 2008 iDNA has federal net operating loss carryforwards of $91.5
million of which approximately $24.5 million is estimated to expire due to
the
limitations described below. As a consequence, iDNA’s federal net operating loss
carryforwards of $67.0 million may be used to reduce future taxable income.
Such
net operating loss carryforwards will expire: $22.6 million in Fiscal 2019,
$13.5 million in Fiscal 2020, $7.2 million in Fiscal 2021, $10.6 million in
Fiscal 2022, $5.3 million in Fiscal 2023, $3.0 million in Fiscal 2024, $607,000
in Fiscal 2025, $1.4 million in Fiscal 2027 and $2.7 million in Fiscal 2028.
As
of January 31, 2008, iDNA has state and local operating loss carryforwards
of
$53.6 million which will expire: $5.7 million in Fiscal 2018, $1.1 million
in
Fiscal 2019, $14.2 million, in Fiscal 2021, $9.8 million in Fiscal 2022, $9.1
million in Fiscal 2023, $4.4 million in Fiscal 2024, $525,000 in Fiscal 2025,
$3.0 million in Fiscal 2027 and $6.0 million in Fiscal 2028.
As
a
consequence of iDNA’s November 3, 2000 repurchase of shares of its Common Stock,
iDNA underwent a “change in ownership” as defined for the purposes of Sections
382 and 383 of the Internal Revenue Code. As a result of the “change in
ownership” described above, the use of net operating loss carryforwards totaling
$61.0 million (“Section 382 NOL”) incurred prior to November 3, 2000 will be
subject to significant annual limitation. As of January 31, 2008, iDNA has
utilized approximately $858,000 of the Section 382 NOL. Furthermore, an iDNA
subsidiary has a Separate Return Loss Year that is also subject to “change of
ownership” limitations of $2.2 million as of January 31, 2008. The use of the
net operating loss carryforwards incurred after November 3, 2000, which total
$28.2 million as of January 31, 2008, are not subject to the Section 382
limitation.
As
of
January 31, 2008, iDNA also has unused low income housing credits (“LIHC”)
totaling $4.3 million which expire: $569,000 in Fiscal 2013, $820,000 in Fiscal
2019, $953,000 in Fiscal 2020, $968,000 in Fiscal 2021, $898,000 in Fiscal
2022
and smaller amounts expiring in Fiscal 2023 through Fiscal 2028. Of such low
income housing credits, $3.4 million were generated prior to November 3, 2000
and are therefore subject to the Section 383 limitation described above. iDNA
estimates that the entire LIHC of $3.4 million subject to the Section 383
limitation will expire unused.
As
of
January 31, 2008, iDNA has $919,000 of minimum tax credits, which may be applied
against any future regular income taxes which exceed alternative minimum taxes.
These credits may be carried forward indefinitely and are also subject to the
Section 383 limitation.
iDNA’s
adoption of FIN No. 48 for the year ended January 31, 2008 resulted in an
adjustment to retained deficit of $329,000 to reflect potential liabilities
for
iDNA’s uncertain tax positions, inclusive of interest and penalties. iDNA
adjusted its initial estimates developed during the first quarter of Fiscal
2008
as iDNA refined its calculations and assessment of its uncertain tax positions.
In addition, iDNA’s tax years open for examination vary by jurisdiction. iDNA’s
last taxable year under examination by the IRS was January 31, 1998.
SEASONALITY
OF BUSINESS
iDNA’s
revenues are derived from services performed for clients principally on a
project-by-project basis. The nature, scope and timing of client projects are
determined independently by each client based upon their own internal operating
and communications needs which fluctuate from quarter-to-quarter and
year-to-year. To date, iDNA has not experienced any determinable revenue trends
based upon seasonality.
DISCONTINUED
OPERATIONS
iDNA,
under the names Agency Rent-A-Car, Inc. (“ARAC”), Altra Auto Rental and Automate
Auto Rental, previously engaged in the rental of automobiles on a short-term
basis, principally to the insurance replacement market. During Fiscal 1996,
iDNA
disposed of its rental fleet business through the sale of certain assets and
through certain leases to a national car rental company. All liabilities related
to the discontinued rental business, principally self-insurance claims, were
retained by ARAC.
The
results of both the auto rental and finance operations are included in the
results of discontinued operations. For Fiscal 2008, Fiscal 2007 and Fiscal
2006, the results of the discontinued operations principally represent the
effects of the residual collection of previously charged off loans, and the
settlement of, and changes in iDNA’s, provisions for income taxes and reserves
for claims against ARAC related to the self-insured claims.
LIQUIDITY
AND CAPITAL RESOURCES
As
a
consequence of periodic fluctuations in iDNA’s working capital needs based upon
the timing of collections, distributions from AFC, and periods of increased
production activity, on November 21, 2007, Holdings consummated the Loan
Agreement with Silar, pursuant to which Silar agreed to provide the Term Loan
in
an aggregate principal amount of $4.25 million to Holdings. Interest is to
accrue on the Term Loan at a per annum rate equal to the variable annual rate
of
interest designated from time to time by Citibank N.A. as its “prime rate,” plus
4%, or, if greater, 12.25%, and is payable by Holdings on a quarterly basis.
At
January 31, 2008, the “prime rate” was 6.0%. The Term Loan matures on November
20, 2009 unless extended for one year at the option of Holdings, upon written
notice provided to Silar between fifteen (15) and forty-five (45) days prior
to
the Maturity Date, provided that no default is then ongoing and that Holdings
is
then in compliance with its financial covenants under the Loan Agreement. At
January 31, 2008, Holdings and iDNA were in compliance with the financial
covenants under the Loan Agreement. iDNA’s obligations under the Term Loan are
secured by a pledge of all of Holdings’ assets, including all of the outstanding
shares of NCI, which owns a 50% membership interest in AFC.
The
Term Loan is also guaranteed by (i) iDNA (with such guaranty being secured
by a
pledge of substantially all of iDNA’s assets, other than the shares of its
operating subsidiaries) and (ii) NCI (with such guaranty being secured by a
pledge of substantially all of NCI’s assets, other than its 50% membership
interest in AFC).
On
January 31, 2008, ARS consummated an auto loan with a financing institution
for
the purchase of a delivery van in the principal amount of $24,000. The auto
loan
is repayable in monthly installments of $755 with the last payment due February
2011. The auto loan bears interest at the rate of 9.0% and is collateralized
by
the van purchased with the proceeds from the loan.
On
July
20, 2006, iDNA consummated a Loan and Security Agreement with a lender and
issued a Promissory Note (the “Note”) in the principal amount of $1.0 million.
The lender, Seasons Go Round, was an unaffiliated third party lender. Pursuant
to the terms of the Note, (i) the outstanding principal of the Note was due
February 15, 2008, (ii) iDNA was required to pay interest only, monthly and
in
arrears, during the term and (iii) the Note bore interest at fourteen percent
(14%) per annum. iDNA prepaid the Note in full without a prepayment penalty
on
November 21, 2007 from the net proceeds derived from the Term Loan
Financing.
As
a
consequence of iDNA’s acquisition of OTI effective November 18, 2005, iDNA
issued to FWA and MeetingNet the OTI Promissory Notes in the aggregate principal
amount of $1.5 million. The OTI Promissory Notes bear interest at the rate
of 5%
per annum and are repayable in quarterly installments according to a formula
based upon the future cash flows realized from OTI’s operations. iDNA’s
obligations under the OTI Promissory Notes are secured by the membership
interests of OTI. At January 31, 2008, iDNA had outstanding principal
obligations under the terms of the OTI Promissory Notes of $855,000 and an
accrued interest obligation of $12,000.
As
a
consequence of iDNA’s acquisition of the Campus Group effective July 31, 2003,
iDNA issued to Mr. Campus and certain family trusts promissory notes (the former
shareholders of the Campus Group) in an aggregate principal amount of $9.9
million and issued to a family trust a convertible promissory note in the
principal amount of $2.8 million (collectively, the “Campus Notes”). Of the $9.9
million in promissory notes issued by iDNA, $6.6 million of the promissory
notes
(“Base Notes”) bear interest at 5% per annum and are repayable in quarterly
installments according to a formula based upon the future cash flows realized
from The Campus Group over a period not to exceed seven years. The remaining
$3.3 million in promissory notes (“Trailing Notes”) issued by iDNA bear interest
at 5% per annum and are repayable in quarterly installments, commencing upon
the
retirement of the Base Notes, according to a formula based upon the future
cash
flows realized from The Campus Group over a period not to exceed three years
subsequent to the retirement of the Base Notes. The $2.8 million convertible
promissory note (“Convertible Note”) (i) bears interest at 5% per annum, payable
quarterly in cash or accumulating as principal at the election of iDNA, (ii)
requires principal payments to commence upon the retirement of the Base Notes
and Trailing Notes and is then repayable in quarterly installments according
to
a formula based upon the future cash flows realized from the Campus Group over
a
period not to exceed three years and (iii) is convertible at the option of
the
holder into shares of iDNA Common Stock at a base conversion price of $1.50
per
share. The holder may not convert the convertible promissory note into iDNA
Common Stock prior to repayment of the Base Notes and Trailing Notes. iDNA’s
obligations under the Campus Notes are secured by the capital stock of the
companies comprising the Campus Group. At January 31, 2008, iDNA had outstanding
principal obligations under the terms of the Base Notes, Trailing Notes and
Convertible Notes of $6.0 million, $3.3 million and $2.8 million, respectively
and accrued interest obligations of $156,000.
For
the
trailing twelve month period ended July 31, 2006, The Campus Group’s financial
performance had fallen below certain minimum operating cash flow thresholds
established pursuant to the terms of the Campus Notes. As a consequence, the
interest expense incurred by iDNA during the twelve month period ended July
31,
2006 was abated. As a consequence of the interest abatement, iDNA realized
a
gain from the abatement of interest on the Campus Notes of $631,000 during
the
second quarter of Fiscal 2007. For the period August 1, 2006 through January
31,
2007 and for Fiscal 2008, the Campus Group’s financial performance remained
below the minimum operating cash flow thresholds. As a consequence no interest
was incurred on the Campus Notes during the period August 1, 2006 through
January 31, 2007 or for Fiscal 2008. Prospectively, interest may accrue pursuant
to the terms of the Campus Notes once the minimum operating cash flow thresholds
are achieved.
As
a
consequence of iDNA’s acquisition of OMI, iDNA assumed a $402,000 loan
guaranteed by the U.S. Small Business Administration (the “SBA Loan”). At
January 31, 2008, the remaining balance of the SBA Loan of $299,000 is repayable
in monthly installments of $3,309 with the last payment due in April 2017.
The
loan bears interest at the rate of 4% per annum. OMI’s obligations under the SBA
Loan are collateralized by substantially all of OMI's assets and the personal
guarantee of Mr. Dean Thompson, President of OMI.
In
September 2006, OMI consummated equipment financing in the form of a capital
lease with a financing institution to acquire $102,000 in various digital media
production and editing equipment. The capital lease is payable in monthly
installments with the last payment due in July 2009 and bears an implied
interest rate of 10%. OMI’s obligations under the capital lease are
collateralized by the digital media production and editing equipment acquired
by
OMI. At January 31, 2008, the remaining balance due under the capital lease
was
$53,000.
For
Fiscal 2008, iDNA’s cash and cash equivalents decreased $108,000 principally due
to the net effects of (i) the cash flows used by operations $2.0 million, (ii)
capital expenditures of $201,000,(iii) the repayment of debt of $1.3 million,
(iv) the purchase of trading securities of $1.1 million, and (v) the payment
of
loan origination fees of $468,000, offset by (vi) proceeds from the issuance
of
the Term Loan of $4.25 million and the auto loan of $24,000, (vii) the net
proceeds derived from the exercise of stock options of $14,000, (viii) AFC
distributions of $750,000.
For
Fiscal 2007, iDNA’s cash and cash equivalents decreased $867,000 due to the net
effects of (i) cash flows used by operations of $1.2 million, (ii) capital
expenditures of $579,000, (iii) repayment of the amounts due to the former
OTI
Members of $530,000, (iv) the repayment of debt of $453,000 (v) the purchase
of
trading securities of $271,000, offset by (vi) proceeds from AFC distributions
of 1.2 million and (vii) proceeds from the issuance of the Note and a capital
lease of $1.0 million and $102,000, respectively.
For
Fiscal 2006, iDNA’s cash and cash equivalents increased $673,000 due to the net
effects of (i) cash flows provided by operations of $2.5 million, inclusive
of
the net proceeds of $2.0 million derived from the Settlement Fund, (ii) proceeds
from AFC distributions of $878,000, offset by, (iii) payments to repurchase
iDNA
Common Stock of $1.1 million, (iv) payments to acquire OTI, net of cash
acquired, of $827,000, (v) the repayment of debt of $524,000 and (vi) capital
expenditures of $285,000. The principal components of iDNA’s cash flow from
operations for Fiscal 2006 included the collection of iDNA’s income tax refund
of $826,000 and the net proceeds derived from the New York Settlement
Stipulation of $2.0 million. iDNA also used $7,000 of cash principally for
legal
and claim expenses associated with iDNA’s discontinued operations.
Prior
to
the Term Loan, iDNA had limited external sources of financing and has operated
on its existing cash balances, cash flows from operations and distributions
from
its investment in AFC. iDNA will continue to pursue reductions in its operating
expenses, invest in marketing initiatives and seek new debt or equity financing
(though there can be no assurance iDNA will obtain such financing) as means
of
supplementing iDNA’s resources available to pursue new acquisitions, joint
ventures or other business development opportunities. At January 31, 2008,
iDNA
had unrestricted cash of $169,000 and investments in trading securities of
$1.4
million, which together with any cash flow derived from its investment in AFC
and the operations of iDNA’s corporate communications business will be used to
pursue such opportunities and reduce debt.
iDNA
believes that the available cash and cash equivalents and investments in trading
securities totaling $1.6 million at January 31, 2008 and any cash distributions
from its investment in AFC and cash flow from operations will be sufficient
to
pay operating expenses, existing liabilities, fund existing debt repayments
and
fund its activities through the next twelve months as iDNA explores new
strategic business alternatives. However, as previously discussed, iDNA’s lack
of external financing sources may limit its ability to pursue strategic business
alternatives being considered by iDNA’s Board of Directors. Such limitations may
have an adverse impact on iDNA’s financial position, results of operations and
liquidity.
The
following table presents certain payments due under contractual obligations
with
minimum firm commitments as of January 31, 2008 (in thousands):
|
|
Payments Due by Period
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
More Than
|
|
Contractual Obligations
|
|
Total
|
|
1 Year
|
|
1 - 3 Years
|
|
3 - 5 Years
|
|
5 Years
|
|
Long-term
Debt Obligations
|
|
$
|
17,575
|
|
$
|
1,088
|
|
$
|
10,175
|
|
$
|
1,702
|
|
$
|
4,610
|
|
Capital
Lease Obligation
|
|
|
57
|
|
|
39
|
|
|
18
|
|
|
-
|
|
|
-
|
|
Operating
Lease Obligation
|
|
|
2,075
|
|
|
567
|
|
|
918
|
|
|
590
|
|
|
-
|
|
Purchase
Obligation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other
Long-Term Liabilities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
$
|
19,707
|
|
$
|
1,694
|
|
$
|
11,111
|
|
$
|
2,292
|
|
$
|
4,610
|
|
OFF-BALANCE
SHEET ARRANGEMENTS
iDNA
has
no off-balance sheet arrangements.
OTHER
New
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair
Value Measurement
(“SFAS
No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accordance with Generally Accepted Accounting Principles
(“GAAP”), and expands disclosures about fair value measurements. The provisions
of SFAS No. 157 are effective for fiscal years beginning after November 15,
2007. The FASB agreed to a one-year deferral of the effective date for
non-financial assets and liabilities that are recognized or disclosed at fair
value on a non-recurring basis. iDNA does not anticipate the application of
this
pronouncement will have a material impact on iDNA’s reported consolidated
financial position or results of operations.
In
February 2007, the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities
(“SFAS
No. 159”). SFAS No. 159 allows entities the option to measure eligible financial
instruments at fair value as of specified dates. Such election, which may be
applied on an instrument by instrument basis, is typically irrevocable once
elected. SFAS No. 159 is effective for fiscal years beginning after November
15,
2007, and early application is allowed under certain circumstances. iDNA is
currently evaluating the impact SFAS No. 159 will have on its consolidated
financial position.
In
December 2007, the FASB issued SFAS No. 141-R, Business
Combinations.
SFAS
No. 141-R applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The objective of SFAS No. 141-R
is to improve the relevance, representational faithfulness and comparability
of
the information that a reporting entity provides in its financial reports about
a business combination. SFAS No, 141-R changes the requirements for an
acquirer’s recognition and measurement of the assets acquired and the
liabilities assumed in a business combination. iDNA does not anticipate the
application of this pronouncement will have a material impact on iDNA’s reported
consolidated financial position or results of operations.
In
December 2007, the FASB issued FSAS No. 160, Noncontrolling
Interest in Consolidated Financial Statements – an amendment to ARB
No.51.
SFAS
No. 160 requires that (i) noncontrolling (minority) interests be reported as
a
component of shareholders’ equity, (ii) net income attributable to the parent
and to the noncontrolling interest be separately identified in the consolidated
statement of operations, (iii) changes in a parent’s ownership interest while
the parent retains its controlling interest be accounted for as equity
transactions, (iv) any retained noncontrolling equity investment upon the
deconsolidation of a subsidiary be initially measured at fair value, and (v)
sufficient disclosures are provided that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. SFAS No.160 is effective for annual periods beginning after December
15,
2008.
Inflation
Inflation
has not had a material effect on iDNA’s business.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
Like
virtually all commercial enterprises, iDNA can be exposed to the risk (“market
risk”) that the cash flows to be received or paid relating to certain financial
instruments could change as a result of changes in interest rate, exchange
rates, commodity prices, equity prices and other market changes.
iDNA
does
not engage in trading activities, does not utilize interest rate swaps or other
derivative financial instruments and does not buy or sell foreign currency,
commodity or stock indexed futures or options. Accordingly, iDNA is not exposed
to market risk from these sources.
As
of
January 31, 2008, the interest rates under iDNA’s long term and convertible
debt, exclusive of the Term Loan, are fixed. As a result iDNA has limited market
risk associated with market interest rates. The interest rate attributable
to
the Term Loan is a variable annual rate based upon the prime rate, as published
by Citibank N.A. (“Prime Rate”) plus 4%, or, if greater, 12.25%. As a
consequence, iDNA interest charges under the Term Loan are subject to
fluctuations based upon changes in the credit markets and the corresponding
Prime Rate. For each 1% increase in the Prime Rate above 8.25%, iDNA’s interest
costs on the Term Loan would increase approximately $42,000 per annum. At
January 31, 2008, the Prime Rate was 6.0%.
Item
8. Financial Statements and Supplementary Data.
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders of
iDNA,
Inc. and Subsidiaries
New
York,
New York
We
have
audited the accompanying consolidated balance sheets of iDNA, Inc. and
subsidiaries as of January 31, 2008 and 2007, and the related consolidated
statements of operations, comprehensive income (loss), stockholders’ equity
(deficit) and cash flows for the three years in the period ended January 31,
2008. Our
audits of the basic financial statements included the financial statement
schedule listed in the index appearing under item 15(a)(2). These financial
statements and financial statement schedule are the responsibility of the
Company’s management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. The
Company is not required to have, nor were we engaged to perform an audit of
its
internal control over financial reporting. Our audit included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of iDNA, Inc. and subsidiaries
as of January 31, 2008 and 2007, and the results of their operations and their
cash flows for each of the three years in the period ended January 31, 2008
in
conformity with accounting principles generally accepted in the United States
of
America. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
As
discussed in Notes 1 and 8 to the consolidated financial statements, effective
February 1, 2007, the Company adopted Financial Accounting Standards Board
Interpretation No. 48, Accounting
for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109,
Accounting for Income Taxes.
/s/
GRANT
THORNTON LLP
Cleveland,
Ohio
May
14,
2008
iDNA,
Inc. and Subsidiaries
Consolidated
Balance Sheets
(In
Thousands, Except Share Amounts)
|
|
January 31,
|
|
|
|
2008
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
Cash
and cash equivalents (Note 1)
|
|
$
|
169
|
|
$
|
277
|
|
Restricted
cash (Note 1)
|
|
|
147
|
|
|
147
|
|
Investment
in trading securities (Note 1)
|
|
|
1,421
|
|
|
271
|
|
Accounts
receivable, net of allowance of $75 and $82, respectively (Note
1)
|
|
|
1,453
|
|
|
1,796
|
|
Income
taxes refundable (Note 8)
|
|
|
19
|
|
|
19
|
|
Inventory
(Note 1)
|
|
|
165
|
|
|
232
|
|
Prepaid
expenses
|
|
|
444
|
|
|
293
|
|
Other
current assets
|
|
|
90
|
|
|
115
|
|
Total
current assets
|
|
|
3,908
|
|
|
3,150
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $3,325 and $2,833,
respectively (Notes 1 and 3)
|
|
|
2,102
|
|
|
2,752
|
|
Investment
in AFC (Note 4)
|
|
|
7,129
|
|
|
7,224
|
|
Goodwill
(Notes 1, 2 and 12)
|
|
|
-
|
|
|
2,728
|
|
Other
intangible assets, net of accumulated amortization of $2,183, respectively
(Notes 1, 2 and 12)
|
|
|
-
|
|
|
6,115
|
|
Other
assets
|
|
|
414
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,553
|
|
$
|
22,078
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current
maturities of long term obligations (Note 7)
|
|
$
|
1,123
|
|
$
|
805
|
|
Accounts
payable
|
|
|
1,220
|
|
|
1,621
|
|
Deferred
revenue (Note 1)
|
|
|
1,552
|
|
|
1,033
|
|
Self-insurance
claims (Note 11)
|
|
|
172
|
|
|
235
|
|
Other
liabilities (Note 6)
|
|
|
1,324
|
|
|
1,445
|
|
Total
current liabilities
|
|
|
5,391
|
|
|
5,139
|
|
|
|
|
|
|
|
|
|
Long
term obligations (Note 7)
|
|
|
13,373
|
|
|
11,071
|
|
Convertible
promissory note (Note 7)
|
|
|
2,825
|
|
|
2,825
|
|
Accrued
income taxes, long term (Note 8)
|
|
|
610
|
|
|
298
|
|
|
|
|
22,199
|
|
|
19,333
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES (Note 11)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT) (Note 9)
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
-
|
|
|
-
|
|
Common
stock - $.05 par value, authorized 50,000,000 shares, issued 39,949,589
and 39,949,589 shares, respectively
|
|
|
1,997
|
|
|
1,997
|
|
Additional
paid-in capital
|
|
|
175,537
|
|
|
174,837
|
|
Retained
deficit
|
|
|
(164,076
|
)
|
|
(151,699
|
)
|
Deferred
compensation
|
|
|
(18
|
)
|
|
(41
|
)
|
Treasury
stock, at cost, 29,938,725 and 30,294,975 shares,
respectively
|
|
|
(22,086
|
)
|
|
(22,349
|
)
|
Total
stockholders' equity (deficit)
|
|
|
(8,646
|
)
|
|
2,745
|
|
|
|
$
|
13,553
|
|
$
|
22,078
|
|
See
accompanying notes to consolidated financial statements.
iDNA,
Inc. and Subsidiaries
Consolidated
Statements of Operations
(In
Thousands, Except Per Share Amounts)
|
|
Years Ended January 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Revenues
(Notes 1 and 14)
|
|
$
|
14,617
|
|
$
|
15,444
|
|
$
|
14,090
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues (Note 1)
|
|
|
9,331
|
|
|
9,147
|
|
|
8,162
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
5,286
|
|
|
6,297
|
|
|
5,928
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
9,397
|
|
|
10,187
|
|
|
8,459
|
|
Impairment
charge (Notes 1 and 2)
|
|
|
8,033
|
|
|
4,482
|
|
|
-
|
|
Loss
from operations
|
|
|
(12,144
|
)
|
|
(8,372
|
)
|
|
(2,531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
36
|
|
|
19
|
|
|
44
|
|
Income
from AFC investment (Note 4)
|
|
|
655
|
|
|
609
|
|
|
744
|
|
Interest
expense (Note 7)
|
|
|
(369
|
)
|
|
(488
|
)
|
|
(662
|
)
|
Interest
abatement (Note 7)
|
|
|
-
|
|
|
631
|
|
|
-
|
|
Other
income (Note 18)
|
|
|
-
|
|
|
-
|
|
|
1,960
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
|
(11,822
|
)
|
|
(7,601
|
)
|
|
(445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes (Note 8)
|
|
|
1
|
|
|
(10
|
)
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(11,823
|
)
|
|
(7,591
|
)
|
|
(515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations, net of tax (Note 17)
|
|
|
10
|
|
|
11
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common stock
|
|
$
|
(11,813
|
)
|
$
|
(7,580
|
)
|
$
|
(501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(1.19
|
)
|
$
|
(.83
|
)
|
$
|
(.05
|
)
|
Discontinued
operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
loss per share
|
|
$
|
(1.19
|
)
|
$
|
(.83
|
)
|
$
|
(.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
9,933
|
|
|
9,167
|
|
|
9,250
|
|
See
accompanying notes to consolidated financial statements.
iDNA,
Inc. and Subsidiaries
Consolidated
Statements of Stockholders’ Equity (Deficit)
and
Comprehensive Income (Loss)
Years
Ended January 31, 2008, 2007 and 2006
(In
Thousands, Except Share Amounts)
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
|
|
|
|
|
|
Deferred
|
|
|
|
Comprehensive
|
|
|
|
|
|
Par
|
|
|
|
Par
|
|
Paid-In
|
|
Retained
|
|
Treasury
|
|
Compensation
|
|
|
|
Income
|
|
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Capital
|
|
Deficit
|
|
Stock
|
|
Expense
|
|
Total
|
|
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
JANUARY 31, 2005
|
|
|
-
|
|
$
|
-
|
|
|
39,949,589
|
|
$
|
1,997
|
|
$
|
174,454
|
|
$ |
(143,383
|
)
|
$ |
(22,402
|
)
|
$ |
(89
|
)
|
$
|
10,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(501
|
)
|
|
|
|
|
|
|
|
(501
|
)
|
|
(501
|
)
|
Treasury
stock issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
75
|
|
|
|
|
|
33
|
|
|
|
|
Treasury
stock issued to acquire OTI (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108
|
)
|
|
366
|
|
|
|
|
|
258
|
|
|
|
|
Treasury
stock purchased (Note 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(844
|
)
|
|
|
|
|
(844
|
)
|
|
|
|
Fair
value of Eligible Shareholder warrants to be issued (Note
18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
Deferred
compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
24
|
|
|
|
|
BALANCE,
JANUARY 31, 2006
|
|
|
-
|
|
|
-
|
|
|
39,949,589
|
|
|
1,997
|
|
|
174,479
|
|
|
(144,034
|
)
|
|
(22,805
|
)
|
|
(65
|
)
|
|
9,572
|
|
$
|
(501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,580
|
)
|
|
|
|
|
|
|
|
(7,580
|
)
|
|
(7,580
|
)
|
Share-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
358
|
|
|
|
|
Treasury
stock issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85
|
)
|
|
456
|
|
|
|
|
|
371
|
|
|
|
|
Deferred
compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
24
|
|
|
|
|
BALANCE,
JANUARY 31, 2007
|
|
|
-
|
|
|
-
|
|
|
39,949,589
|
|
|
1,997
|
|
|
174,837
|
|
|
(151,699
|
)
|
|
(22,349
|
)
|
|
(41
|
)
|
|
2,745
|
|
$
|
(7,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,813
|
)
|
|
|
|
|
|
|
|
(11,813
|
)
|
|
(11,813
|
)
|
Share-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
374
|
|
|
|
|
|
|
|
|
|
|
|
374
|
|
|
|
|
Treasury
stock issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(235
|
)
|
|
263
|
|
|
|
|
|
28
|
|
|
|
|
Deferred
warrant expense (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
|
326
|
|
|
|
|
Deferred
compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
23
|
|
|
|
|
Cummulative
adjustment for the adoption of FIN 48 (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(329
|
)
|
|
|
|
|
|
|
|
(329
|
)
|
|
|
|
BALANCE,
JANUARY 31, 2008
|
|
|
-
|
|
$
|
-
|
|
|
39,949,589
|
|
$
|
1,997
|
|
$
|
175,537
|
|
$
|
(164,076
|
)
|
$
|
(22,086
|
)
|
$
|
(18
|
)
|
$
|
(8,646
|
)
|
$
|
(11,813
|
)
|
See
accompanying notes to consolidated financial statements.
iDNA,
Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
(In
Thousands)
|
|
Years Ended January 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Continuing Operating Activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(11,813
|
)
|
$
|
(7,580
|
)
|
$
|
(501
|
)
|
Adjustments
to reconcile net loss to net cash provided by (used in) continuing
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,636
|
|
|
1,652
|
|
|
1,411
|
|
Non-cash
interest
|
|
|
53 |
|
|
- |
|
|
- |
|
Impairment
charge
|
|
|
8,033
|
|
|
4,482
|
|
|
|
|
Income
from AFC investment
|
|
|
(655
|
)
|
|
(609
|
)
|
|
(744
|
)
|
Share-based
compensation expense
|
|
|
260
|
|
|
724
|
|
|
-
|
|
Stock
issued as compensation for services rendered
|
|
|
128
|
|
|
5
|
|
|
33
|
|
Excess
payment over fair value of tresury stock purchased
|
|
|
-
|
|
|
-
|
|
|
208
|
|
Amortization
of deferred compensation expense
|
|
|
23
|
|
|
24
|
|
|
24
|
|
Fair
value of Eligible Shareholder warrants
|
|
|
-
|
|
|
-
|
|
|
25
|
|
Loss
on disposal of assets
|
|
|
25
|
|
|
-
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
343
|
|
|
249
|
|
|
882
|
|
Accrued
income tax/refundable
|
|
|
(17
|
)
|
|
(79
|
)
|
|
856
|
|
Accounts
payable
|
|
|
(401
|
)
|
|
158
|
|
|
77
|
|
Deferred
revenue
|
|
|
519
|
|
|
141
|
|
|
(351
|
)
|
Self
insurance claims
|
|
|
(63
|
)
|
|
-
|
|
|
(21
|
)
|
Other
operating assets and liabilities, net
|
|
|
(50
|
)
|
|
(363
|
)
|
|
584
|
|
Net
cash provided by (used in) operating activities
|
|
|
(1,979
|
)
|
|
(1,196
|
)
|
|
2,483
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of OTI net of cash acquired
|
|
|
-
|
|
|
-
|
|
|
(827
|
)
|
Purchase
of letter of credit, increase in restricted cash
|
|
|
-
|
|
|
(147
|
)
|
|
-
|
|
Purchase
of marketable securities, net
|
|
|
(1,150
|
)
|
|
(271
|
)
|
|
-
|
|
Proceeds
from AFC distributions
|
|
|
750
|
|
|
1,207
|
|
|
878
|
|
Purchase
of other property and equipment
|
|
|
(201
|
)
|
|
(579
|
)
|
|
(285
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
(601
|
)
|
|
210
|
|
|
(234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of the Term Loan
|
|
|
4,250
|
|
|
-
|
|
|
-
|
|
Proceeds
from issuance of promissory note
|
|
|
-
|
|
|
1,000
|
|
|
-
|
|
Proceeds
from borrowings under a capital lease and installment
loans
|
|
|
24
|
|
|
102
|
|
|
-
|
|
Proceeds
from exercise of stock options
|
|
|
14
|
|
|
-
|
|
|
-
|
|
Payments
of loan origination fees
|
|
|
(468
|
)
|
|
-
|
|
|
-
|
|
Payments
on debt, notes payable and capital lease
|
|
|
(1,348
|
)
|
|
(453
|
)
|
|
(524
|
)
|
Payments
to acquire treasury stock
|
|
|
-
|
|
|
-
|
|
|
(1,052
|
)
|
Payments
to retire due to the former OTI Members
|
|
|
-
|
|
|
(530
|
)
|
|
-
|
|
Net
cash provided by (used in) financing activities
|
|
|
2,472
|
|
|
119
|
|
|
(1,576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents from operations
|
|
|
(108
|
)
|
|
(867
|
)
|
|
673
|
|
Cash
and cash equivalents at beginning of year
|
|
|
277
|
|
|
1,144
|
|
|
471
|
|
Cash
and cash equivalents at end of year
|
|
$
|
169
|
|
$
|
277
|
|
$
|
1,144
|
|
-
continued -
See
accompanying notes to consolidated financial statements.
iDNA,
Inc. and Subsidiaries
Consolidated
Statements of Cash Flows - Continued
(In
Thousands)
|
|
Years Ended January 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
530
|
|
$
|
166
|
|
$
|
489
|
|
Income
taxes paid
|
|
$
|
17
|
|
$
|
55
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of OTI:
|
|
|
|
|
|
|
|
|
|
|
Non-cash
assets acquired
|
|
|
|
|
|
|
|
$
|
3,605
|
|
Liabilities
assumed
|
|
|
|
|
|
|
|
|
(1,031
|
)
|
|
|
|
|
|
|
|
|
|
2,574
|
|
Promissory
notes issued
|
|
|
|
|
|
|
|
|
(1,489
|
)
|
Treasury
stock issued
|
|
|
|
|
|
|
|
|
(258
|
)
|
Cash
paid, net of cash acquired
|
|
|
|
|
|
|
|
$
|
827
|
|
See
accompanying notes to consolidated financial statements.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: iDNA,
Inc. (the “Company” or “iDNA”) began operations in 1969 and was incorporated in
Delaware in 1971. iDNA’s operations are comprised of three principal reportable
segments: (i) strategic communications services, (ii) information services
and
(iii) entertainment. iDNA manages each segment separately as a consequence
of
different marketing, service requirements and technology strategies (see Note
13).
The
strategic communications services segment provides content development via
the
design, development and production of media, collateral material, logistics,
support and/or broadcast services for presentations at corporate and
institutional events, meetings, training seminars and symposiums. The
presentations may be live at single or multi-site venues and can include video
conferencing, satellite broadcasting and webcasting or the presentations may
be
provided via on-demand access via internet websites, DVD or video
tape.
The
information services segment utilizes custom wireless communication technology
and proprietary software to facilitate client audience interaction,
participation and polling to collect, exchange and/or analyze data and
information in real-time during a meeting or event. The wireless communication
services are available as a turn-key service provided by iDNA during a scheduled
meeting or event or alternatively, a client can purchase from iDNA the required
electronic components and related proprietary software to administer its needs
independently.
As
of
consequence of iDNA’s investment in the Angelika Film Centers, LLC (“AFC”), iDNA
operates in the movie exhibition and entertainment industry (see Note
4).
Prior
to
Fiscal 2003, iDNA was engaged in the sub-prime used automobile finance business.
At that time, iDNA, then known as National Auto Credit, Inc. (“NAC”), invested
in sub-prime used automobile consumer loans, which took the form of installment
loans collateralized by the related vehicle. NAC purchased such loans, or
interests in pools of such loans, from member dealerships, and performed the
related underwriting and collection functions. NAC formally discontinued its
automobile finance business effective December 31, 2001 (see Note
17).
PRINCIPLES
OF CONSOLIDATION: The consolidated financial statements include the accounts
of
iDNA and its wholly owned subsidiaries and its investment in AFC, a 50% owned
limited liability company, which is accounted for under the equity method.
All
material intercompany accounts and transactions have been eliminated in
consolidation.
ESTIMATES:
The preparation of financial statements and the accompanying notes thereto,
in
conformity with generally accepted accounting principles in the United States
of
America, requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported amounts
of
revenues and expenses during the respective reporting periods. Actual results
could differ from those estimates.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH
EQUIVALENTS: All highly liquid investments, such as commercial paper and debt
instruments with initial maturities of three months or less are considered
to be
cash equivalents. Cash equivalents are stated at cost, which approximates the
market value. As of January 31, 2008, the Company’s cash balance, inclusive of
its restricted cash, was $316,000 and the bank balance was $1.2 million. Of
the
total bank balance, $230,000 was covered by federal depository insurance and
$1.0 million was uninsured.
INVESTMENT
IN TRADING SECURITIES: iDNA’s investment in trading securities is comprised of
an investment in a mutual fund which invests in highly liquid, AAA fixed income
securities. iDNA’s investment in trading securities that are available for
trading is carried at their fair market value at January 31, 2008. Unrealized
gains or losses at on trading securities are credited or charged to operations
for Fiscal 2008 and Fiscal 2007. Interest and dividend earned on the investment
are recorded as interest income.
RESTRICTED
CASH:
In June
2006, iDNA obtained a letter of credit in an amount of $147,000 that was issued
in favor of the landlord of iDNA’s new New York headquarters. The letter of
credit is collateralized by an interest bearing money market account in the
same
amount. Therefore, $147,000 is classified as restricted cash as of January
31,
2008 and 2007.
GOODWILL
AND OTHER INTANGIBLE ASSETS: Intangible assets with indefinite lives, including
goodwill, are not subject to amortization but are subject to testing for
impairment at least annually or whenever there is an impairment indicator (see
Note 2).
In
its
acquisition of Option Technologies Interactive, LLC (“OTI”) on November 18, 2005
(see Note 12), iDNA acquired certain intangible assets including client
relationships and lists and a non-competition agreement with an aggregate fair
value of $703,000. The useful lives of these intangibles are estimated to be
5
to 7 years. The intangible assets with definite useful lives are amortized
using
the straight-line method over those lives. For Fiscal 2008, Fiscal 2007 and
from
November 18, 2005, the date of acquisition, to January 31, 2006, iDNA charged
to
operations $105,000, $114,000 and $10,000, respectively, for the amortization
of
these intangible assets.
In
its
acquisition of Audience Response Systems, Inc. (“ARS”) and the Campus Group
Companies, Inc. (“CGC” and collectively with ARS, the “Campus Group”) on July
31, 2003, iDNA acquired certain intangible assets including client relationships
and lists and a non-competition agreement with an initial aggregate fair value
of $9.5 million. The adjusted useful lives (see Note 2) of these intangibles
are
estimated to be 10 years and 9 years, respectively. The intangible assets with
definite useful lives are amortized using the straight-line method over those
lives. For Fiscal 2008, Fiscal 2007 and Fiscal 2006, iDNA charged to operations
$705,000, $639,000 and $568,000, respectively, for the amortization of these
intangible assets. As a consequence of the impairment charge recorded for Fiscal
2008, there will not be any charges to operations in the future for the
amortization of other intangible assets.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT
OF LONG-LIVED ASSETS: iDNA reviews the carrying value of its long-lived assets
(other than goodwill) whenever events or changes in circumstances indicate
that
its carrying amount may not be recoverable. When indicators of impairment exist,
iDNA determines whether the estimated undiscounted sum of the future cash flows
of such assets is less than their carrying amounts. If less, an impairment
loss
is recognized in the amount, if any, by which the carrying amount of such assets
exceeds their respective fair values. The determination of fair value is based
on quoted market prices in active markets, if available, or independent
appraisals; sales price negotiations; or projected future cash flows discounted
at a rate determined by management to be commensurate with iDNA’s business risk.
The estimation of fair value utilizing discounted forecasted cash flows includes
significant judgments regarding assumptions of revenue, operating and marketing
costs; selling and administrative expenses; interest rates; property and
equipment additions and retirements; industry competition; and general economic
and business conditions, among other factors.
Certain
of these long-lived assets were disposed of or have been written-down to their
estimated fair value during Fiscal 2008 and Fiscal 2007 (see Note
2).
ACCOUNTS
RECEIVABLE: Accounts receivable are recorded at the invoiced amount and do
not
bear interest. The allowance for doubtful accounts is iDNA’s best estimate of
the amount of probable credit losses in iDNA’s existing accounts receivable.
iDNA determines the allowance based on analysis of historical bad debts, client
concentrations, client credit-worthiness and current economic trends. iDNA
reviews its allowance for doubtful accounts quarterly. Past-due balances over
90
days and specified other balances are reviewed individually for collectibility.
All other balances are reviewed on an aggregate basis. Account balances are
written off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote. iDNA does not
have any off-balance sheet credit exposure related to its clients.
INVENTORY:
Inventory is comprised principally of electronic equipment and related
components held for sale to clients. Inventory is valued at the lower of cost
or
market using the first-in – first-out inventory cost method.
PROPERTY
AND EQUIPMENT: Property and equipment is stated at cost (see Note 3).
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from eighteen months to ten years.
Leasehold improvements are amortized using the straight-line method over the
shorter of the lease term or the estimated useful lives of the related
improvements.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME
TAXES: Deferred income taxes are provided for all temporary differences between
the book and tax basis of assets and liabilities. Deferred income taxes are
adjusted to reflect new tax rates when they are enacted into law. The effect
on
deferred tax assets and liabilities of a change in tax rates is recognized
in
income in the period that includes the enactment date. A valuation allowance
is
recognized if it is anticipated that some or all of a net deferred tax asset
may
not be realized (see Note 8).
In
February 2007, iDNA adopted the provisions of FASB Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes
(“FIN
48”), an interpretation of FASB Statement No. 109, Accounting
for Income Taxes.
FIN 48
prescribes a recognition threshold and measurement attribute for the financial
recognition and measurement of a tax position taken or expected to be taken
on a
tax return. The interpretation requires that iDNA recognize the impact of a
tax
position in the financial statements if that position is more likely than not
of
being sustained on audit, based on the technical merits of the position. FIN
48
also provides guidance on derecognition classification, interest and penalties,
accounting in interim periods and disclosure. In accordance with the provisions
of FIN 48, any cumulative effect resulting from the change in accounting
principle is to be recorded as an adjustment to the opening balance of retained
earnings (deficit).
As
a
consequence of the adoption of the provisions of FIN 48, iDNA recorded an
adjustment to retained deficit of $329,000 as of February 1, 2007 to reflect
potential liabilities for iDNA’s uncertain tax positions, inclusive of interest.
iDNA adjusted its initial estimates developed during the first quarter of Fiscal
2008 as iDNA refined its calculations and assessment of its uncertain tax
positions. iDNA recognizes interest and penalties associated with uncertain
tax
positions as a component of tax expense (benefit).
SELF-INSURANCE
CLAIMS: iDNA’s wholly-owned subsidiary ARAC, Inc. (“ARAC”) is subject to certain
self-insurance claims and associated litigation expenses relating to its
discontinued automobile rental operations (see Notes 11 and 17). iDNA’s
management estimates the required self-insurance liability based upon specific
identification of the known matters subject to future claims, the nature of
the
claim and the estimated costs to be incurred. These estimates include, but
are
not limited to, ARAC’s historical loss experience and projected loss factors.
The required self-insurance liability is subject to adjustment in the future
based upon changes in the nature of the remaining claims or the ultimate cost.
As a consequence of iDNA’s sale of its automobile rental operations in 1995,
iDNA believes that all incurred claims have been reported to ARAC and that
there
are no longer any incurred but not yet reported claims to be received by ARAC.
Because
of the uncertainties related to several residual small claims and legal
proceedings involving iDNA’s former rental operations and self-insurance claims,
it is difficult to project the ultimate effect the adjudication or settlement
of
these matters will have on iDNA. As additional information regarding iDNA’s
potential liabilities becomes available, iDNA will revise the estimates as
appropriate.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUES:
iDNA’s revenues are earned within short time periods, generally less than one
week. iDNA recognizes revenue from its strategic communications segment,
including the video production, video editing, meeting services and broadcast
satellite or webcast services, and its information services segment when the
services are complete and delivered or all technical services have been
rendered. Deposits and other prepayments are recorded as deferred revenue until
revenue is recognized. iDNA does not have licensing or other arrangements that
result in additional revenues following the delivery of the video or a
broadcast. Costs accumulated in the production of the video, meeting services
or
broadcasts are deferred until the sale and delivery are complete. Deferred
production costs of $90,000 and $115,000, respectively, are reported as other
current assets at January 31, 2008 and 2007.
iDNA
recognizes revenue from the sale of electronic equipment, proprietary software
and related components at the time of shipment. Deposits and other prepayments
received prior to shipment are recorded as deferred revenue until the electronic
equipment and related software is shipped. iDNA has licensing and technical
support arrangements for future software enhancements and upgrades for technical
support for previously delivered electronic equipment. Revenues derived from
licensing and technical support are recognized over the term of the licensing
and technical support period which generally are sold in increments of one
year
of coverage. For Fiscal 2008, Fiscal 2007 and Fiscal 2006, electronic equipment
sales were $2.1 million, $2.6 million and $1.3 million,
respectively.
iDNA
recognizes revenue from website design and development when the customer accepts
the completed project. Deposits and other prepayments are recorded as deferred
revenue until revenue is recognized. These contracts are generally limited
to
the design and development of websites and the presentation of site library
content developed by iDNA. Clients also have the option to engage iDNA to
maintain and upgrade their websites. These projects are separate from the
website development and design engagements, and the related revenue is
recognized over the term of the agreement, which is generally up to one
year.
COST
OF
REVENUES: Cost of revenues consists of direct expenses specifically associated
with client revenues. The cost of revenues includes direct salaries and
benefits, purchased products or services for clients, web hosting, support
services and shipping and delivery costs.
RESEARCH
AND DEVELOPMENT COSTS: As a consequence of the acquisition of OTI, iDNA incurs
certain research and development costs. Research and development costs are
comprised principally of personnel costs incurred for enhancements,
modifications, updates, service and support expenditures for iDNA’s proprietary
software. Research and development costs are charged to operations as incurred
and are included as a component of costs of revenues. For Fiscal 2008, Fiscal
2007 and from November 18, 2005, the date of acquisition of OTI, to January
31,
2006, iDNA charged $416,000, $416,000 and $75,000, respectively, to product
research and development expense.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING
FOR STOCK-BASED COMPENSATION: Effective February 1, 2006, iDNA adopted the
provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R
(revised 2004), Share-Based
Payment
(“SFAS
No. 123(R)”), which replaces SFAS No. 123, Accounting
for Stock-Based Compensation
(“SFAS
No. 123”), and supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees.
SFAS
No. 123(R) requires all share-based payments to employees, including grants
of
employee stock options, to be recognized in the financial statements based
on
their fair values beginning with the first interim or annual period after
December 15, 2005. iDNA elected the prospective method of adopting SFAS No.
123(R) which requires that compensation expense be recorded over the remaining
periods for what would have been the remaining fair value under SFAS No. 123
of
all unvested stock options and restricted stock at the beginning of the first
quarter of adoption. The compensation costs for that portion of awards is based
on the grant-date fair value of the awards as calculated for pro forma
disclosures under SFAS No. 123.
Prior
to
the adoption of SFAS No. 123(R), iDNA followed the intrinsic value method in
accordance with APB No. 25 to account for its employee stock options.
Historically, substantially all stock options have been granted with an exercise
price equal to the fair market value of the iDNA’s common stock, $0.05 par value
(“Common Stock”). As a consequence, no compensation expense was recognized from
substantially all option grants to iDNA’s employees, officers and directors.
EARNINGS
PER SHARE: Basic earnings (loss) per share is computed by dividing net income
(loss) by the weighted-average number of shares of iDNA Common Stock outstanding
for the year. Dilutive earnings per share for all years presented is the same
as
basic earnings per share because the inclusion of common stock equivalents
would
have an anti-dilutive effect on loss per share for Fiscal 2008, Fiscal 2007,
and
Fiscal 2006. For Fiscal 2008, Fiscal 2007 and Fiscal 2006 there were no common
stock equivalents, in the form of stock options and warrants, excluded from
the
earnings (loss) per share due to their dilutive effect.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW
ACCOUNTING PRONOUNCEMENTS: In September 2006, the Financial Accounting Standards
Board (“FASB”) issued SFAS No. 157, Fair
Value Measurement
(“SFAS
No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accordance with Generally Accepted Accounting Principles
(“GAAP”), and expands disclosures about fair value measurements. The provisions
of SFAS No. 157 are effective for fiscal years beginning after November 15,
2007. The FASB agreed to a one-year deferral of the effective date for
non-financial assets and liabilities that are recognized or disclosed at fair
value on a non-recurring basis. iDNA does not anticipate the application of
this
pronouncement will have a material impact on iDNA’s reported consolidated
financial position or results of operations.
In
February 2007, the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities
(“SFAS
No. 159”). SFAS No. 159 allows entities the option to measure eligible financial
instruments at fair value as of specified dates. Such election, which may be
applied on an instrument by instrument basis, is typically irrevocable once
elected. SFAS No. 159 is effective for fiscal years beginning after November
15,
2007, and early application is allowed under certain circumstances. iDNA is
currently evaluating the impact SFAS No. 159 will have on its consolidated
financial position.
In
December 2007, the FASB issued SFAS No. 141-R, Business
Combinations.
SFAS
No. 141-R applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The objective of SFAS No. 141-R
is to improve the relevance, representational faithfulness and comparability
of
the information that a reporting entity provides in its financial reports about
a business combination. SFAS No, 141-R changes the requirements for an
acquirer’s recognition and measurement of the assets acquired and the
liabilities assumed in a business combination. iDNA does not anticipate the
application of this pronouncement will have a material impact on iDNA’s reported
consolidated financial position or results of operations.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interest in Consolidated Financial Statements – an amendment to ARB
No.51.
SFAS
No. 160 requires that (i) noncontrolling (minority) interests be reported as
a
component of shareholders’ equity, (ii) net income attributable to the parent
and to the noncontrolling interest be separately identified in the consolidated
statement of operations, (iii) changes in a parent’s ownership interest while
the parent retains its controlling interest be accounted for as equity
transactions, (iv) any retained noncontrolling equity investment upon the
deconsolidation of a subsidiary be initially measured at fair value, and (v)
sufficient disclosures are provided that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. SFAS No.160 is effective for annual periods beginning after December
15,
2008.
RECLASSIFICATIONS:
Certain prior year amounts have been reclassified to conform to the current
year
presentation.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
2 – IMPAIRMENT OF LONG-LIVED ASSETS
AND GOODWILL
Pursuant
to iDNA’s established accounting policies, iDNA
conducts an annual analysis of goodwill. iDNA estimates the fair value of its
reporting units and compares those values to the carrying values of those
reporting units. If the estimated fair value of the reporting unit is less
than
the estimated book value, then an impairment is deemed to have occurred. In
estimating the fair value of each reporting unit, iDNA used primarily the income
approach (which utilizes forecasted discounted cash flows to estimate the fair
value of the reporting unit). iDNA concluded that as of January 31, 2006 there
was no impairment of its goodwill based upon the then estimated fair value
of
its reporting units.
However,
during the second quarter of Fiscal 2007, as a consequence of declining revenues
and the loss of a client, the results of the operations of the Campus Group
Companies, Inc. (“CGC”) reporting unit raised questions as to whether
projections used at the last valuation date were still valid. Accordingly,
management performed additional impairment tests as of July 31, 2006 for CGC
and
determined that impairment charges were required at that date. Accordingly,
based upon iDNA’s preliminary assessment, second quarter operations for Fiscal
2007 were charged $2.6 million and $1.9 million for the estimated impairment
of
CGC’s goodwill and other intangible assets, respectively. Additionally, iDNA
determined it appropriate to reduce the useful life of the CGC client
relationships intangible asset from 17 years to 10 years. iDNA will continue
to
monitor CGC’s operations and will recognize further impairment charges if and
when deemed appropriate. iDNA conducted its Fiscal 2007 annual analysis of
goodwill as of January 31, 2007. iDNA estimated the fair value of its reporting
units and compared those values to the carrying values of those reporting units.
iDNA concluded that as of January 31, 2007 there were no additional impairments
of its goodwill based upon the then estimated fair value of its reporting units.
At
January 31, 2008, the goodwill for each of iDNA’s business segments (information
services and strategic communications services) was tested for additional
impairment. As a consequence of the testing and initial assessment for Fiscal
2008, iDNA determined that the carrying value of both its information services
and its strategic communications services business segments exceeded their
fair
value, which was estimated based upon the present value of each reporting units
expected future cash flows. As a consequence, iDNA charged to operations an
aggregate of $8.0 million for the estimated impairment of goodwill and other
intangible assets relating to (i) its information services segment in the amount
of $5.9 million, and (ii) strategic communication services segment in the amount
of $2.1 million, respectively. At
January 31, 2008, iDNA has reduced the carrying value of all goodwill and other
intangible assets to zero.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
3 – PROPERTY AND EQUIPMENT
The
components of property and equipment are as follows (in thousands):
|
|
January 31,
|
|
|
|
Description
|
|
2008
|
|
2007
|
|
Estimated Useful Life
|
|
|
|
|
|
|
|
|
|
Leasehold
improvements
|
|
$
|
227
|
|
$
|
368
|
|
|
Lesser
of useful life or term of lease
|
|
Machinery
& equipment
|
|
|
2,036
|
|
|
2,008
|
|
|
5
years
|
|
Computer
equipment
|
|
|
1,127
|
|
|
1,108
|
|
|
3
years
|
|
Furniture
& fixtures
|
|
|
240
|
|
|
308
|
|
|
5
years
|
|
Automobiles
|
|
|
63
|
|
|
59
|
|
|
2
- 3 years
|
|
Software
|
|
|
1,574
|
|
|
1,576
|
|
|
5
to 10 years
|
|
Small
tools
|
|
|
30
|
|
|
28
|
|
|
18
to 24 months
|
|
Film
library
|
|
|
130
|
|
|
130
|
|
|
5
years
|
|
|
|
|
5,427
|
|
|
5,585
|
|
|
|
|
Less
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(3,325
|
)
|
|
(2,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,102
|
|
$
|
2,752
|
|
|
|
|
Depreciation
expense was $826,000, $899,000 and $833,000 for Fiscal 2008, Fiscal 2007 and
Fiscal 2006, respectively.
NOTE
4 – INVESTMENT IN AFC
On
April
5, 2000, iDNA, through its wholly owned subsidiary National Cinemas, Inc.,
purchased a 50% membership interest in AFC. AFC is the owner and operator of
the
Angelika Film Centers, which is a multiplex cinema and café complex in the Soho
District of Manhattan in New York City. The 50% membership interest was
purchased from Reading International, Inc. (“Reading”) for an initial investment
of $11.1 million. At April 5, 2000, the investment exceeded iDNA’s share of the
net assets of AFC by approximately $5.6 million, which is being treated in
a
manner similar to goodwill (see Note 1).
AFC
is
currently owned 50% by iDNA and 50% by Reading. The articles and bylaws of
AFC
provide that for all matters subject to a vote of AFC’s members, a majority is
required, except that in the event of a tie vote, the Chairman of Reading shall
cast the deciding vote.
iDNA
uses
the equity method to account for its investment in AFC. AFC uses a December
31
year-end for financial reporting purposes. iDNA reports on a January 31
year-end, and for its fiscal quarters ending April 30, July 31, October 31
and
January 31 records its pro-rata share of AFC’s earnings on the basis of AFC’s
fiscal quarters ending March 31, June 30, September 30, and December 31,
respectively. For Fiscal 2008, Fiscal 2007 and Fiscal 2006, iDNA recorded income
from its investment in AFC of $655,000, $609,000 and $744,000, respectively,
representing its share of AFC’s income.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
4 – INVESTMENT IN AFC (CONTINUED)
Summarized
financial statement information for AFC as of December 31, 2007 and 2006 and
for
the years ended December 31, 2007, 2006 and 2005 is as follows (in
thousands):
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
Condensed
Balance Sheet:
|
|
|
|
|
|
Current
assets
|
|
$
|
1,237
|
|
$
|
1,223
|
|
Property
and equipment, net
|
|
|
734
|
|
|
833
|
|
Intangible
with definitive life
|
|
|
5,117
|
|
|
5,707
|
|
Other
assets
|
|
|
80
|
|
|
80
|
|
|
|
$
|
7,168
|
|
$
|
7,843
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
661
|
|
$
|
480
|
|
Non-current
liabilities
|
|
|
2,168
|
|
|
2,083
|
|
Members'
equity
|
|
|
4,339
|
|
|
5,280
|
|
|
|
$
|
7,168
|
|
$
|
7,843
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Condensed
Statement of Earnings:
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,494
|
|
$
|
6,328
|
|
$
|
6,487
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs
|
|
|
4,135
|
|
|
4,037
|
|
|
3,980
|
|
Depreciation
and amortization
|
|
|
781
|
|
|
775
|
|
|
752
|
|
General
and administrative expenses
|
|
|
269
|
|
|
298
|
|
|
268
|
|
|
|
|
5,185
|
|
|
5,110
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,309
|
|
$
|
1,218
|
|
$
|
1,487
|
|
iDNA's
proportionate share of net income
|
|
$
|
655
|
|
$
|
609
|
|
$
|
744
|
|
NOTE
5 – FINANCIAL INSTRUMENTS
iDNA
has
various financial instruments including cash and cash equivalents, and
investments in trading securities and in affordable housing limited
partnerships, miscellaneous other assets, promissory notes, Term Loan (as
defined in Note 7) and a loan guaranteed by the U.S. Small Business
Administration (the “SBA Loan”). Many of these instruments are short-term in
nature and the fair value of these financial instruments has been estimated
based on available market information and appropriate valuation methodologies.
iDNA has determined that the carrying values of such instruments approximate
estimated fair values. The OTI Promissory Note, Base Promissory Notes, Trailing
Notes and Convertible debt (as defined in Note 7) are stated at cost since
the
obligations under these instruments arose pursuant to the terms of related
purchase agreements and since there are currently no market prices available
for
similar instruments.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
6 – OTHER LIABILITIES
The
components of other liabilities are as follows (in thousands):
|
|
January 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Accrued
interest
|
|
$
|
168
|
|
$
|
176
|
|
Accrued
salary, wages and related benefits
|
|
|
532
|
|
|
427
|
|
Accrued
expenses
|
|
|
617
|
|
|
790
|
|
Accrued
state and local taxes
|
|
|
7
|
|
|
52
|
|
Total
|
|
$
|
1,324
|
|
$
|
1,445
|
|
NOTE
7 – CURRENT AND LONG TERM OBLIGATIONS
On
November 21, 2007, iDNA, via its wholly owned subsidiary, iDNA Cinema Holdings,
Inc. (“Holdings”), consummated a Master Loan and Security Agreement (the “Loan
Agreement”) with Silar Advisors, L.P. (“Silar”), as Lender and Administrative,
Payment and Collateral Agent, pursuant to which Silar provided a term loan
in an
aggregate principal amount of $4.25 million (the “Term Loan”) to Holdings (the
“Term Loan Financing”). Interest accrues on the Term Loan at a per annum rate
equal to the variable annual rate of interest designated from time to time
by
Citibank N.A. as its “prime rate,” plus 4%, or, if greater, 12.25%, and is
payable by Holdings on a quarterly basis. At January 31, 2008, the “prime rate”
was 6.0%. The Term Loan matures on November 20, 2009 unless extended for one
year at the option of Holdings, upon written notice provided to Silar between
fifteen (15) and forty-five (45) days prior to the Maturity Date, provided
that
no default is then ongoing and that Holdings is then in compliance with its
financial covenants under the Loan Agreement. At January 31, 2008, Holdings
and
iDNA were in compliance with the financial covenants under the Loan Agreement.
iDNA
has
utilized the proceeds from the Term Loan Financing in the following manners:
(i)
approximately $1.0 million was applied for the repayment and retirement of
iDNA’s indebtedness to Seasons Go Round Inc.; (ii) $263,000 was used for
prepayment of interest on the Term Loan; (iii) $207,000 was paid to Silar or
its
designee in satisfaction of fees and expenses due in connection with the Term
Loan Financing; (iv) $60,000 was paid to a consultant for its role in
facilitating the Term Loan Financing; and (v) the remaining proceeds of
approximately $2.7 million have been and will continue to be utilized for
working capital purposes. iDNA incurred various loan origination fees in the
amount of $511,000, inclusive of the $207,000 paid to Silar at closing, and
iDNA
amortizes the origination fees to interest expense over the expected term of
the
Term Loan. At January 31, 2008, iDNA charged to interest expense $33,000 for
loan origination fees.
Holdings’
obligations under the Term Loan are secured by a pledge of all of Holdings’
assets, including all of the outstanding shares of National Cinemas, Inc.
(“NCI”), which owns a 50% membership interest in AFC.
The
Term Loan is also guaranteed by (i) iDNA (with such guaranty being secured
by a
pledge of substantially all of iDNA’s assets, other than the shares of its
operating subsidiaries) and (ii) NCI (with such guaranty being secured by a
pledge of substantially all of NCI’s assets, other than its 50% membership
interest in AFC).
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
7 – CURRENT AND LONG TERM OBLIGATIONS (CONTINUED)
In
connection with the consummation of the Term Loan, as required by the Loan
Agreement, iDNA issued warrants to Silar and a consultant (the “Warrants”) to
purchase 1.5 million and 60,000 shares, respectively, of iDNA’s Common Stock at
an exercise price of $0.27 per share. The number of shares issuable upon
exercise of the Warrants is subject to customary adjustment in the event of
a
stock dividend, stock split, reverse stock split or similar event and is
furthermore subject to a weighted-average antidilution protection in the event
that iDNA issues additional shares of Common Stock for consideration less than
the existing exercise price under the Warrants. Additionally, pursuant to the
Warrants, the holder thereof has been granted (subject to certain conditions,
including the reimbursement of iDNA’s costs) three demand registration rights
for the underlying shares of Common Stock, as well as unlimited piggyback
registration rights for such shares of Common Stock. The fair value of the
Warrants at the date of grant was $339,000. At January 31, 2008, the unamortized
fair value of the Warrants issued in the amount of $306,000 was recorded as
a
component of additional paid in capital and a reduction of the principal on
the
Term Loan. iDNA charges to interest expense the fair value of the Warrants
over
the expected three year term of the Term Loan. For the period November 21,
2007
to January 31, 2008, iDNA charged to interest expense $33,000 for the fair
value
of the Warrants.
On
January 31, 2008, ARS consummated an auto loan with a financing institution
for
the purchase of a delivery van in the principal amount of $24,000. The auto
loan
is repayable in monthly installments of $755 with the last payment due February
2011. The auto loan bears interest at the rate of 9.0% and is collateralized
by
the van purchased with the proceeds from the loan.
On
July
20, 2006, iDNA consummated a Loan and Security Agreement with a lender and
issued a Promissory Note (the “Note”) in the principal amount of $1.0 million.
The lender, Seasons Go Round, was an unaffiliated third party lender. Pursuant
to the terms of the Note, (i) the outstanding principal of the Note was due
February 15, 2008, (ii) iDNA was required to pay interest only, monthly and
in
arrears, during the term and (iii) the Note bore interest at fourteen percent
(14%) per annum. iDNA prepaid the Note in full without a prepayment penalty
on
November 21, 2007 from the net proceeds derived from the Term Loan
Financing.
As
a
consequence of iDNA’s acquisition of OTI effective November 18, 2005, iDNA
issued to FWA and MeetingNet the OTI Promissory Notes in the aggregate principal
amount of $1.5 million. The OTI Promissory Notes bear interest at the rate
of 5%
per annum and are repayable in quarterly installments according to a formula
based upon the future cash flows realized from OTI’s operations. iDNA’s
obligations under the OTI Promissory Notes are secured by the membership
interests of OTI. At January 31, 2008, iDNA had outstanding principal
obligations under the terms of the OTI Promissory Notes of $855,000 and an
accrued interest obligation of $12,000.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
7 – CURRENT AND LONG TERM OBLIGATIONS (CONTINUED)
As
a
consequence of iDNA’s acquisition of the Campus Group effective July 31, 2003,
iDNA issued to Mr. Campus and certain family trusts promissory notes (the former
shareholders of the Campus Group) in an aggregate principal amount of $9.9
million and issued to a family trust a convertible promissory note in the
principal amount of $2.8 million (collectively, the “Campus Notes”). Of the $9.9
million in promissory notes issued by iDNA, $6.6 million of the promissory
notes
(“Base Notes”) bear interest at 5% per annum and are repayable in quarterly
installments according to a formula based upon the future cash flows realized
from The Campus Group over a period not to exceed seven years. The remaining
$3.3 million in promissory notes (“Trailing Notes”) issued by iDNA bear interest
at 5% per annum and are repayable in quarterly installments, commencing upon
the
retirement of the Base Notes, according to a formula based upon the future
cash
flows realized from The Campus Group over a period not to exceed three years
subsequent to the retirement of the Base Notes. The $2.8 million convertible
promissory note (“Convertible Note”) (i) bears interest at 5% per annum, payable
quarterly in cash or accumulating as principal at the election of iDNA, (ii)
requires principal payments to commence upon the retirement of the Base Notes
and Trailing Notes and is then repayable in quarterly installments according
to
a formula based upon the future cash flows realized from the Campus Group over
a
period not to exceed three years and (iii) is convertible at the option of
the
holder into shares of iDNA’s Common Stock at a base conversion price of $1.50
per share. The holder may not convert the convertible promissory note into
iDNA
Common Stock prior to repayment of the Base Notes and Trailing Notes. iDNA’s
obligations under the Campus Notes are secured by the capital stock of the
companies comprising the Campus Group. At January 31, 2008, iDNA had outstanding
principal obligations under the terms of the Base Notes, Trailing Notes and
Convertible Notes of $6.0 million, $3.3 million and $2.8 million, respectively
and accrued interest obligations of $156,000.
For
the
trailing twelve month period ended July 31, 2006, The Campus Group’s financial
performance had fallen below certain minimum operating cash flow thresholds
established pursuant to the terms of the Campus Notes. As a consequence, the
interest expense incurred by iDNA during the twelve month period ended July
31,
2006 was abated. As a consequence of the interest abatement, iDNA realized
a
gain from the abatement of interest on the Campus Notes of $631,000 during
the
second quarter of Fiscal 2007. For the period August 1, 2006 through January
31,
2007 and for Fiscal 2008, the Campus Group’s financial performance remained
below the minimum operating cash flow thresholds. As a consequence no interest
was incurred on the Campus Notes during the period August 1, 2006 through
January 31, 2007 or for Fiscal 2008. Prospectively, interest may accrue pursuant
to the terms of the Campus Notes once the minimum operating cash flow thresholds
are achieved.
As
a
consequence of iDNA’s acquisition of OMI, iDNA assumed a $402,000 loan
guaranteed by the U.S. Small Business Administration (the “SBA Loan”). At
January 31, 2008, the remaining balance of the SBA Loan of $299,000 is repayable
in monthly installments of $3,309 with the last payment due in April 2017.
The
loan bears interest at the rate of 4% per annum. OMI’s obligations under the SBA
Loan are collateralized by substantially all of OMI's assets and the personal
guarantee of Mr. Dean Thompson, President of OMI.
In
September 2006, OMI consummated equipment financing in the form of a capital
lease with a financing institution to acquire $102,000 in various digital media
production and editing equipment. The capital lease is payable in monthly
installments with the last payment due in July 2009 and bears an implied
interest rate of 10%. OMI’s obligations under the capital lease are
collateralized by the digital media production and editing equipment acquired
by
OMI. At January 31, 2008, the remaining balance due under the capital lease
was
$53,000 and the accumulated depreciation for the underlying equipment was
$48,000.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
7 – CURRENT AND LONG TERM OBLIGATIONS (CONTINUED)
The
components of long term obligations and convertible debt at January 31, 2008
and
January 31, 2007 are as follows (in thousands):
|
|
January 31,
|
|
|
|
2008
|
|
2007
|
|
Auto
loan
|
|
$
|
24
|
|
$
|
-
|
|
Capital
leases
|
|
|
53
|
|
|
85
|
|
SBA
loan
|
|
|
299
|
|
|
329
|
|
Promissory
note
|
|
|
-
|
|
|
1,000
|
|
OTI
promissory notes
|
|
|
855
|
|
|
1,141
|
|
Term
loan
|
|
|
3,944
|
|
|
-
|
|
Base
promissory notes
|
|
|
6,046
|
|
|
6,046
|
|
Trailing
promissory notes
|
|
|
3,275
|
|
|
3,275
|
|
Convertible
debt
|
|
|
2,825
|
|
|
2,825
|
|
|
|
|
17,321
|
|
|
14,701
|
|
Less
current maturities
|
|
|
(1,123
|
)
|
|
(805
|
)
|
Long-term
obligations and convertible debt
|
|
$
|
16,198
|
|
$
|
13,896
|
|
iDNA’s
long term obligations and convertible debt at January 31, 2008 mature as follows
(in thousands):
Fiscal Year
|
|
Amount
|
|
2009
|
|
$
|
1,127
|
|
2010
|
|
|
1,620
|
|
2011
|
|
|
8,573
|
|
2012
|
|
|
577
|
|
2013
|
|
|
1,125
|
|
Thereafter
|
|
|
4,610
|
|
|
|
$
|
17,632
|
|
Less
- unamortized debt discount
|
|
|
(306
|
)
|
Less
- capital lease interest
|
|
|
(5
|
)
|
|
|
$
|
17,321
|
|
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
8 – INCOME TAXES
The
components of the provision (benefit) for income taxes, in the consolidated
statement of operations are as follows (in thousands):
|
|
Years Ended January 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
$
|
(19
|
)
|
$
|
30
|
|
Foreign
|
|
|
-
|
|
|
(7
|
)
|
|
-
|
|
State
|
|
|
1
|
|
|
9
|
|
|
45
|
|
|
|
|
1
|
|
|
(17
|
)
|
|
75
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
-
|
|
|
-
|
|
State
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
- |
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1
|
|
|
(17
|
)
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated
to discontinued operations
|
|
|
-
|
|
|
7
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
1
|
|
$
|
(10
|
)
|
$
|
70
|
|
As
of
January 31, 2008 iDNA has federal net operating loss carryforwards of $91.5
million of which approximately $24.5 million is estimated to expire due to
the
limitations described below. As a consequence, iDNA’s federal net operating loss
carryforwards of $67.0 million may be used to reduce future taxable income.
Such
net operating loss carryforwards will expire: $22.6 million in Fiscal 2019,
$13.5 million in Fiscal 2020, $7.2 million in Fiscal 2021, $10.6 million in
Fiscal 2022, $5.3 million in Fiscal 2023, $3.0 million in Fiscal 2024, $607,000
in Fiscal 2025, $1.4 million in Fiscal 2027 and $2.7 million in Fiscal 2028.
As
of January 31, 2008, iDNA has state and local operating loss carryforwards
of
$53.6 million which will expire: $5.7 million in Fiscal 2018, $1.1 million
in
Fiscal 2019, $14.2 million, in Fiscal 2021, $9.8 million in Fiscal 2022, $9.1
million in Fiscal 2023, $4.4 million in Fiscal 2024, $525,000 in Fiscal 2025,
$3.0 million in Fiscal 2027 and $6.0 million in Fiscal 2028. The state and
local
net operating loss deductions may also be subject to limitations, as described
below, however, no reduction has been included in the state and local
amounts.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
8 – INCOME TAXES (CONTINUED)
As
a
consequence of iDNA’s November 3, 2000 repurchase of shares of its Common Stock,
iDNA underwent a “change in ownership” as defined for the purposes of Sections
382 and 383 of the Internal Revenue Code. As a result of the “change in
ownership” described above, the use of net operating loss carryforwards totaling
approximately $61.0 million (“Section 382 NOL”) incurred prior to November 3,
2000 will be subject to significant annual limitation. As of January 31, 2008,
iDNA has utilized approximately $858,000 of the Section 382 NOL. Furthermore,
an
iDNA subsidiary has a Separate Return Loss Year that is also subject to “change
of ownership” limitations of $2.2 million as of January 31, 2008. The use of the
net operating loss carryforwards incurred after November 3, 2000, which total
$28.2 million as of January 31, 2008, are not subject to the Section 382
limitation.
As
of
January 31, 2008, iDNA also has unused low income housing credits (“LIHC”)
totaling $4.3 million which expire: $569,000 in Fiscal 2013, $820,000 in Fiscal
2019, $953,000 in Fiscal 2020, $968,000 in Fiscal 2021, $898,000 in Fiscal
2022
and additional smaller amounts expiring in Fiscal 2023 through Fiscal 2028.
Of
such low income housing credits, $3.4 million were generated prior to November
3, 2000 and are therefore subject to the Section 383 limitation described above.
iDNA estimates that the entire LIHC of $3.4 million subject to the Section
383
limitation will expire unused.
As
of
January 31, 2008, iDNA has $919,000 of minimum tax credits, which may be applied
against any future regular income taxes which exceed alternative minimum taxes.
These credits may be carried forward indefinitely and are also subject to the
Section 383 limitation.
The
components of the net deferred tax asset (liability) are as follows (in
thousands):
|
|
January 31,
|
|
|
|
2008
|
|
2007
|
|
Deferred
tax assets:
|
|
|
|
|
|
Self-insurance
claims
|
|
$
|
60
|
|
$
|
82
|
|
Impairment
charge
|
|
|
2,236
|
|
|
1,976
|
|
State
income taxes
|
|
|
98
|
|
|
93
|
|
Accrued
liabilities
|
|
|
221
|
|
|
150
|
|
Stock
options
|
|
|
204
|
|
|
125
|
|
Tax
credits carryforwards
|
|
|
1,809
|
|
|
5,213
|
|
Net
operating loss carryforwards (federal and state)
|
|
|
26,092
|
|
|
33,389
|
|
Other
|
|
|
329
|
|
|
15
|
|
Total
deferred tax assets
|
|
|
31,049
|
|
|
41,043
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(211
|
)
|
|
(89
|
)
|
Limited
partnership investments
|
|
|
(1,850
|
)
|
|
(1,562
|
)
|
Total
deferred tax liabilities
|
|
|
(2,061
|
)
|
|
(1,651
|
)
|
|
|
|
|
|
|
|
|
Net
deferred tax asset before valuation allowance
|
|
|
28,988
|
|
|
39,392
|
|
Less:
valuation allowance
|
|
|
(28,988
|
)
|
|
(39,392
|
)
|
Net
deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
8 – INCOME TAXES (CONTINUED)
A
valuation allowance for all of iDNA’s net deferred tax assets has been provided
as iDNA is unable to determine, at this time, that the generation of future
taxable income against which the net operating loss and tax credit carryforwards
could be used can be predicted to be more likely than not. In addition, iDNA
recorded a reduction of $11.9 million for its deferred tax asset in Fiscal
2008
as a consequence of (i) the $8.5 million estimated reduction of the net
operating loss carryforward of $24.5 million and (ii) the $3.4 million LHHC
each
of which are estimated to expire as a consequence of the “change in ownership”
discussed above. Excluding the effect of the limitation adjustment of $11.9
million, the net change in the valuation allowance for Fiscal 2008, Fiscal
2007
and Fiscal 2006 was ($1.5) million, $2.8 million and ($443,000), respectively.
Reconciliations
of the federal statutory tax rate to the effective tax rate for continuing
operations are as follows:
|
|
|
Years
ended January 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Statutory
rate
|
|
|
(35.0
|
)%
|
|
(35.0
|
)%
|
|
(35.0
|
)%
|
Permanent
differences
|
|
|
0.5
|
|
|
1.2
|
|
|
159.8
|
|
State income taxes (net of federal tax benefit)
|
|
|
0.1
|
|
|
0.1
|
|
|
6.6
|
|
Deferred
tax valuation allowance
|
|
|
13.1
|
|
|
36.7
|
|
|
(98.1
|
)
|
Tax
credits
|
|
|
-
|
|
|
-
|
|
|
(4.1
|
)
|
Expense
due to AMT NOL limitation
|
|
|
-
|
|
|
-
|
|
|
5.6
|
|
Adjustment
to NOL carryforward
|
|
|
0.3
|
|
|
(5.2
|
)
|
|
(20.9
|
)
|
Goodwill
impairment
|
|
|
23.8
|
|
|
-
|
|
|
-
|
|
NOL and LIHC adjustment Section 382/383
|
|
|
101.3
|
|
|
-
|
|
|
-
|
|
Deferred
tax valuation allowance NOL and LIHC
|
|
|
(101.3
|
)
|
|
-
|
|
|
-
|
|
Other
|
|
|
0.1
|
|
|
2.1
|
|
|
1.8
|
|
Effective
Tax Rate
|
|
|
2.9
|
%
|
|
(.1
|
)%
|
|
15.7
|
%
|
iDNA’s
adoption of FIN No. 48 for the year ended January 31, 2008 resulted in an
adjustment to retained deficit of $329,000 to reflect potential liabilities
for
iDNA’s uncertain tax positions, inclusive of interest and penalties. iDNA
adjusted its initial estimates developed during the first quarter of Fiscal
2008
as iDNA refined its calculations and assessment of its uncertain tax positions.
iDNA recognizes interest and penalties associated with uncertain tax positions
as a component of tax expense (benefit).
iDNA
had
no unrecognized tax benefits as of January 31, 2007. iDNA classifies liabilities
for unrecognized tax benefits and related interest and penalties as long-term
liabilities. Interest expense and penalties related to current year unrecognized
tax benefits are classified as income tax expense. During Fiscal 2008, iDNA
did
not recognize interest expense pertaining to current year unrecognized tax
benefits; there was, therefore, no after-tax impact.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
8 – INCOME TAXES (CONTINUED)
The
following table summarizes the activity related to unrecognized tax benefits
(in
thousands):
|
|
Amount
|
|
Balance
as of February 1, 2007
|
|
$
|
329
|
|
Increases
related to current year tax positions
|
|
|
-
|
|
Increases
related to prior year tax positions
|
|
|
-
|
|
Decreases
related to prior year tax positions
|
|
|
-
|
|
Settlements
|
|
|
-
|
|
Lapse
of statute of limitations
|
|
|
-
|
|
Balance
as of January 31, 2008
|
|
$
|
329
|
|
None
of
the unrecognized tax benefits of approximately $329,000 at January 31, 2008
would, if recognized, effect iDNA’s annual effective tax rate. IDNA conducts
business and files tax returns in various jurisdictions and currently has no
tax
examinations in progress. The last taxable year under examination by the U.S.
Internal Revenue Service (“IRS”) was the year ended January 31, 1998. The
taxable years ended January 31, 2005 through January 31, 2007 remain open to
examination by the IRS. In other major jurisdictions where iDNA conducts
business, the remaining open taxable years vary. IDNA does not expect that
the
total amount of unrecognized tax benefits will significantly change over the
next twelve months. IDNA does not expect a significant payment within the next
twelve months, and is not able to provide a reasonably reliable estimate of
the
timing of any future tax payments, relating to uncertain tax positions.
NOTE
9 – STOCKHOLDERS’ EQUITY AND PREFERRED STOCK
Preferred
Stock
iDNA
is
authorized to issue up to 5,000,000 shares of preferred stock, in one or more
series, having such preferences and terms as iDNA’s Board of Directors may
determine. At January 31, 2008 and 2007, there were no outstanding shares of
Preferred Stock.
Warrants
Issued to Eligible Shareholders
As
a
consequence of the New York Settlement Stipulation (as defined and described
in
Note 18), in April 2006 iDNA issued to the class of Eligible Shareholders
warrants to purchase 100,282 shares of Common Stock. Each warrant issued by
iDNA
has a five year term expiring April 2011 and is exercisable for shares of Common
Stock at a price of $1.55 per share. For Fiscal 2006, iDNA charged other income
$25,000 for the expense of the fair value of the warrants issued to the Eligible
Shareholders.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
9 – STOCKHOLDERS’ EQUITY AND PREFERRED STOCK (CONTINUED)
Stock
Grants and Awards
In
Fiscal
2007, iDNA issued 52,000 shares of unregistered treasury stock to two employees
as a bonus and issued an additional 10,000 shares of unregistered stock to
an
unrelated third party for professional services. Such shares issued were
recorded at their then market value for an aggregate cost of $52,000, or a
weighted average of $0.83 per share. The restricted shares may not be sold
or
otherwise transferred without registration under the Securities Act of 1933,
as
amended, and applicable state securities laws or an exemption therefrom. In
the
event that iDNA proposes to register any of its securities under the Securities
Act, whether for its own account or for the account of another shareholder,
the
treasury stock issued may be included in such registration.
In
February 2005, iDNA issued 100,000 shares of unregistered, restricted treasury
stock as compensation for professional services rendered by an unrelated third
party. Such shares issued were recorded at their then market value of $0.33
per
share for an aggregate cost of $33,000.
During
Fiscal 2004, iDNA granted 372,000 shares of Common Stock pursuant to the 2003
Restricted Stock Plan (see Note 10) valued at $119,000 representing the fair
value of the Common Stock at the time of award. Accordingly, iDNA recorded
$119,000 of deferred compensation expense in connection with the 2003 Plan
grant, which was reported as a component of stockholders’ equity, during Fiscal
2004. The deferred compensation expense is charged to operations over the 5
year
vesting period of the stock grant. For Fiscal 2008, 2007 and 2006, iDNA charged
to operations $23,000, $24,000 and $24,000, respectively, with respect to such
grant.
Stockholders’
Rights Plan
On
September 26, 2001, iDNA’s Board of Directors declared a dividend of one
preferred share purchase right (a “Right”) for each outstanding share of iDNA’s
Common Stock to stockholders of record at the close of business on October
8,
2001 (the “Record Date”). Under certain circumstances, a Right may be exercised
to purchase from iDNA a unit consisting of one one-hundredth of a share (a
“Unit”) of Series D Junior Participating Preferred Stock, par value $.05 per
share (the “Series D Preferred Stock”) at a Purchase Price of $5.00 per Unit,
subject to adjustment.
The
Rights become exercisable upon the earlier of (i) ten business days following
a
public announcement that a person or group of affiliated or associated persons
(an “Acquiring Person”) has acquired beneficial ownership of 15% or more of the
outstanding shares of iDNA Common Stock (the “Stock Acquisition Date”), other
than as a result of repurchases of stock by iDNA or certain inadvertent actions
by institutional or certain other stockholders, or (ii) 10 business days (or
such later date as the Board shall determine) following the commencement of
a
tender offer or exchange offer that would result in a person or group becoming
an Acquiring Person. Once exercisable, and in some circumstances if certain
additional conditions are met, the rights plan allows iDNA’s shareholders (other
than the acquirer) to purchase, at a substantial discount, iDNA Common Stock
or
common stock of the surviving acquirer in the event of a merger.
The
Rights will expire on September 26, 2011 and may be redeemed by iDNA for $0.01
per Right at any time prior to the close of business on the later of (i) the
tenth business day following the acquisition by a person or group of beneficial
ownership of 15% or more of iDNA's Common Stock or (ii) the tenth business
day
(or such later date as iDNA’s Board of Directors shall determine) following the
commencement of a tender offer or exchange offer that would result in a person
or group becoming an Acquiring Person.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
10 – BENEFITS PLANS
Equity
Compensation Plans
iDNA's
2005 Equity Compensation Plan (the “2005 Plan”) and iDNA’s 1993 Equity Incentive
Plan (the “1993 Plan”, together with the 2005 Plan collectively, the “Stock
Plans”) each provides for the granting of incentive and non-qualified stock
options, stock appreciation rights, and common stock and restricted common
stock
awards to key employees, advisors and non-employee members of iDNA’s Board of
Directors. The total number of shares available for options or awards granted
under the 2005 Plan and the 1993 Plan is 2,000,000 shares and 2,200,000 shares,
respectively. During Fiscal 2008, iDNA granted options to acquire 300,000 shares
of Common Stock to certain financial advisors who exercised such options,
pursuant to the Stock Plans. During Fiscal 2007, iDNA granted options and stock
awards to acquire an aggregate of 1,605,000 shares of Common Stock to officers,
non-employee directors, advisors and employees of iDNA pursuant to the Stock
Plans. Each such stock option is subject to vesting over a specific period
of
time and, in certain cases, performance criterion. During Fiscal 2006, iDNA
granted options to acquire 507,509 shares of Common Stock options pursuant
to
the Stock Plans, each such stock option being subject to vesting over a specific
period of time and, in certain cases, performance criterion.
Options
to acquire 143,668 and 455,557 shares of Common Stock were cancelled under
the
Stock Plan during Fiscal 2008 and Fiscal 2006, respectively. There were no
stock
options cancelled under the Stock Plans during Fiscal 2007. At January 31,
2008,
there were 405,000 shares and 155,068 shares available for future stock awards
or option grants under the 2005 Plan and the 1993 Plan,
respectively.
The
fair
value of the stock options at the time of the grant during Fiscal 2008 was
$195,000. Each of the stock options granted in Fiscal 2007 and Fiscal 2006
were
subject to vesting such that the fair value of the stock options granted is
charged to operations over the vesting period. At January 31, 2008, an aggregate
of 2,365,170 options had vested pursuant to the terms of the grant under the
Stock Plans. iDNA has recorded charges to operations for stock-based
compensation expense for Fiscal 2008 and Fiscal 2007 of $260,000 and $724,000,
respectively. If iDNA had recorded compensation expense using the fair value
method of SFAS No. 123(R) for Fiscal 2006, iDNA’s net after tax charge to
operations would have been $67,000.
The
weighted average fair value using the Black-Scholes option pricing model of
the
options granted during Fiscal 2008, Fiscal 2007 and Fiscal 2006 was $0.65,
$0.43
and $0.50, respectively. Based upon iDNA’s limited historical experience, iDNA
did not estimate any forfeitures for the options granted during Fiscal 2008,
Fiscal 2007 or Fiscal 2006. The fair value of the stock options at the date
of
grant was estimated using the Black-Scholes option pricing model with the
following weighted average assumptions:
|
|
Year Ended January 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Expected
option life (years)
|
|
|
1.0
|
|
|
5.6
|
|
|
7.3
|
|
Risk
free interest rate
|
|
|
4.9
|
%
|
|
4.6
|
%
|
|
4.6
|
%
|
Dividend
yield
|
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Expected
volatility
|
|
|
140
|
%
|
|
129
|
%
|
|
107
|
%
|
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
10 – BENEFITS PLANS (CONTINUED)
A
summary
of all options granted, exercised, and cancelled under the Stock Plans for
Fiscal 2008, Fiscal 2007 and Fiscal 2006 is as follows:
|
|
Years Ended January 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
Weighted Average
|
|
|
|
Weighted Average
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
Exercise Price
|
|
Shares
|
|
Exercise Price
|
|
Shares
|
|
Exercise Price
|
|
Options
outstanding - beginning of year
|
|
|
3,230,682
|
|
$
|
0.69
|
|
|
1,681,932
|
|
$
|
0.78
|
|
|
1,630,000
|
|
$
|
0.80
|
|
Granted
|
|
|
300,000
|
|
$
|
0.05
|
|
|
1,605,000
|
|
$
|
0.59
|
|
|
507,509
|
|
$
|
0.59
|
|
Exercised
|
|
|
(356,250
|
)
|
$
|
0.04
|
|
|
(56,250
|
)
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
Cancelled
|
|
|
(143,668
|
)
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
|
(455,577
|
)
|
$
|
0.66
|
|
Options
outstanding - end of year
|
|
|
3,030,764
|
|
$
|
0.70
|
|
|
3,230,682
|
|
$
|
0.69
|
|
|
1,681,932
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
at end of year
|
|
|
2,365,170
|
|
|
|
|
|
1,873,651
|
|
|
|
|
|
1,285,000
|
|
|
|
|
Available
for grant
|
|
|
560,068
|
|
|
|
|
|
716,400
|
|
|
|
|
|
2,321,400
|
|
|
|
|
Weighted
average fair value per share of options granted during
year
|
|
$
|
0.65
|
|
|
|
|
$
|
0.43
|
|
|
|
|
$
|
0.50
|
|
|
|
|
The
outstanding options expire at dates through the year 2014. A summary of stock
options outstanding and exercisable as of January 31, 2008 is as
follows:
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range of
|
|
|
|
Weighted Average
|
|
Weighted Average
|
|
|
|
Weighted Average
|
|
Per Share
|
|
Number
|
|
Remaining Contractual
|
|
Per Share
|
|
Number
|
|
Per Share
|
|
Exercise Prices
|
|
Outstanding
|
|
Life (years)
|
|
Exercise Price
|
|
Exercisable
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.00
to $0.51
|
|
|
462,500
|
|
|
3.84
|
|
$
|
0.37
|
|
|
200,000
|
|
$ |
0.49 |
|
$0.52
to $0.92
|
|
|
1,943,284
|
|
|
4.04
|
|
|
0.58
|
|
|
1,665,170
|
|
|
0.65 |
|
$1.03
to $1.15
|
|
|
512,500
|
|
|
2.65
|
|
|
1.05
|
|
|
387,500
|
|
|
1.05 |
|
$1.30
|
|
|
112,500
|
|
|
1.43
|
|
|
1.54
|
|
|
112,500
|
|
|
1.54 |
|
Total
|
|
|
3,030,784
|
|
|
|
|
|
|
|
|
2,365,170
|
|
|
|
|
2003
Restricted Stock Plan
iDNA
sponsors a 2003 Restricted Stock Plan (the “2003 Plan”) that provides stock
grants to all employees. The 2003 Plan authorizes the grant of up to a maximum
of 400,000 restricted shares of Common Stock to employees of iDNA. No grants
were made under the 2003 Plan during Fiscal 2008, Fiscal 2007 and Fiscal 2006.
During Fiscal 2004, there were 372,000 shares of Common Stock granted pursuant
to the terms of the 2003 Plan at an estimated fair value of $0.32 per share.
Each share granted is restricted and is not registered for resale. Each award
under the 2003 Plan vests at the rate of 20% per year over a five year period.
Shares granted under the 2003 Plan may not be sold, transferred, pledged or
otherwise disposed until they vest. During the vesting period, unvested shares
are voted by the manager of each business unit. For Fiscal 2004, iDNA recorded
$119,000 of deferred compensation expense in connection with the 2003 Plan
grants, which was recorded as a component of shareholders’ equity. The deferred
compensation expense is amortized on a straight-line basis over the 5 year
vesting period of the restricted iDNA Common Stock. For Fiscal 2008, Fiscal
2007
and Fiscal 2006, deferred compensation amortization expense was $23,000, $24,000
and $24,000, respectively.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
10 – BENEFITS PLANS (CONTINUED)
401(k)
Savings and Profit Sharing Plan
iDNA
maintained the iDNA 401(k) Savings and Profit Sharing Plan (the “iDNA 401k”), a
defined contribution benefit program under IRS Code Section 401(k), for Fiscal
2008, Fiscal 2007 and Fiscal 2006. The iDNA 401k covers substantially all active
iDNA employees who are at least 21 years of age and have completed 90 days
of
service. The iDNA 401k allows eligible employees to contribute up to 50% of
their compensation on a pre-tax basis. The iDNA 401k provides a safe harbor
matching contribution of (i) 100% of the first 3% of the employee’s
contribution, (ii) 50% of the next 2% of the employees’ contribution for a
maximum of 4% matching contribution and (iii) vesting for the iDNA matching
contribution is immediate. For Fiscal 2008, Fiscal 2007 and Fiscal 2006, the
charge to operations for iDNA’s contribution to the iDNA 401k was $200,000,
$214,000 and $164,000, respectively.
iDNA
does
not provide post-retirement or post-employment benefits to its
employees.
NOTE
11 – COMMITMENTS AND CONTINGENCIES
Self-Insurance
Reserves for Property Damage and Personal Injury Claims
iDNA’s
wholly-owned subsidiary ARAC is the subject to certain self-insurance claims
and
litigation expenses relating to its discontinued automobile rental operations
(see Note 17). iDNA’s management estimates ARAC’s required self-insurance
liability based upon specific identification of the known matters subject to
future claims, the nature of the claim and the estimated costs to be incurred.
These estimates include, but are not limited to, ARAC’s historical loss
experience and projected loss factors. The required self-insurance liability
is
subject to adjustment in the future based upon changes in the nature of the
remaining claims or the ultimate cost. As a consequence of iDNA’s sale of its
automobile rental operations in 1995, iDNA believes that all incurred claims
have been reported to ARAC and that there are no longer any incurred but not
yet
reported claims to be received by ARAC. During Fiscal 2008 and Fiscal 2006,
ARAC
paid out $63,000 and $21,000, respectively, for residual self-insurance claims
previously accrued. iDNA did not incur or pay out residual self-insurance claims
for Fiscal 2007. iDNA’s self-insurance liability at January 31, 2008 and 2007
was $172,000 and $235,000, respectively.
Because
of the uncertainties related to several residual small claims and legal
proceedings involving iDNA’s former rental operations and self-insurance claims,
it is difficult to project the ultimate effect the adjudication or settlement
of
these matters will have on iDNA. At January 31, 2008, iDNA had accrued $172,000
to cover all outstanding self-insurance liabilities. As additional information
regarding iDNA’s potential liabilities becomes available, iDNA will revise the
estimates as appropriate.
Other
Litigation
In
the
normal course of its business, iDNA is named as defendant in legal proceedings.
It is the policy of iDNA to vigorously defend litigation and/or enter into
settlements of claims where its management deems appropriate.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
11 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
Lease
Commitments
iDNA
leases office and warehouse facilities in Florida, Indiana and New York under
leases expiring at various dates. In addition to the lease base rents, iDNA
is
generally required to pay increases over base period amounts for taxes and
other
operating expense. At January 31, 2008, future minimum payments under
noncancellable operating leases, net of the effects of the sublease, are as
follows (in thousands):
Fiscal Year
|
|
Amount
|
|
|
|
|
|
2009
|
|
$
|
567
|
|
2010
|
|
|
529
|
|
2011
|
|
|
389
|
|
2012
|
|
|
308
|
|
2013
|
|
|
282
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
2,075
|
|
Employment
Agreement with James J. McNamara
On
November 29, 2006, the Board of Directors of iDNA and iDNA consummated, an
employment agreement with James J. McNamara (the “Employment
Agreement”).
Under
the terms of the Employment Agreement, Mr. McNamara shall be employed as the
Company’s Chief Executive Officer for an initial term of approximately three
years, until January 31, 2010 (the “Initial
Term”),
and
shall receive an initial base salary of $590,000 per year (the “Base
Salary”),
which
shall increase annually by $15,000 each January 31st,
beginning January 31, 2008 (each year under the Employment Agreement commencing
January 31st,
an
“Employment
Year”).
Mr.
McNamara is also entitled to receive an annual bonus of $100,000 if, at the
end
of a particular Employment Year, the price of iDNA’s Common
Stock,
exceeds
the previous Employment Year’s price per share by 125%. Furthermore, Mr.
McNamara is also entitled to incentive compensation of up to $200,000 in the
event that iDNA achieves certain performance objectives established by iDNA’s
Board of Directors. The incentive compensation may also be increased by the
Board of Directors if the Board believes it appropriate to reward the Chief
Executive Officer’s performance for a given year. For Fiscal 2008, iDNA charged
operations $200,000 for incentive compensation earned during the
period.
In
addition to cash compensation, the Employment Agreement provides Mr. McNamara,
as a signing bonus, a grant of 500,000 shares of Common Stock. However,
in
the
event of Mr. McNamara’s resignation or termination for any reason prior to the
expiration of the Initial Term, iDNA may redeem and repurchase, at the price
of
$0.01 per share, (i) 250,000 shares of Common Stock, if such resignation or
termination occurs after the passage of one Employment Year but prior to the
completion of the second Employment Year under the Employment Agreement (January
31, 2009), or (ii) 125,000 shares of Common Stock if such resignation or
termination follows the completion of two Employment Years but precedes the
completion of the third Employment Year under the Employment Agreement (January
31, 2010).
As a
consequence of the grant of stock as a signing bonus, iDNA charged to operations
$290,000 during Fiscal 2007 for compensation expense for the fair value of
the
stock at the time of grant.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
11 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
Besides
the grant of shares of Common Stock, the Employment Agreement also provides
for
Mr. McNamara to be granted stock options exercisable for the purchase of 500,000
shares of Common Stock at
the
following exercise prices: (i) 125,000 options at $0.61 per share; (ii) 125,000
options at $0.73 per share; (iii) 125,000 options at $0.88 per share; and (iv)
125,000 options at $1.05 per share. The stock options, having a seven year
term
from the grant date, were granted (upon approval by iDNA’s Board of Directors)
pursuant to the terms of iDNA’s
2005 Equity Compensation Plan.
Of the
500,000 options granted, 250,000 options have vested (and are exercisable)
as of
January 31, 2008, whereas the remaining 250,000 of the options are subject
to
vesting and become exercisable in two equal, annual installments of 125,000
options each, provided that Mr. McNamara is employed as of November 29, 2008
and
2009, respectively.
As a
consequence of the grant of stock options, for Fiscal 2008 and Fiscal 2007
iDNA
charged to operations $64,000 and $75,000, respectively, for compensation
expense for the fair value of the vested portion of the stock options at the
time of grant.
The
Employment Agreement also provides for certain payments to Mr. McNamara in
the
event of a termination without cause by iDNA or a termination for good reason
by
Mr. McNamara, as follows: iDNA will pay to Mr. McNamara, in accordance with
iDNA’s normal payroll payment practices, the lesser of (i) thirty months of the
Base Salary or (ii) one dollar ($1) less than the amount that would constitute
an “excess parachute payment” under Section 280G of the Internal Revenue Code.
As a result of such termination, iDNA shall also continue to provide Mr.
McNamara with all employee benefits in which he was participating or which
he
was receiving as of the effective date of termination (or, if greater, as of
the
end of the prior year) for thirty months following termination. At its own
election, iDNA may make a lump sum payment of eighteen months of base
compensation and employee benefits as full termination compensation pursuant
to
the terms of the Employment Agreement.
If,
upon
a Change in Control (as defined in the Employment Agreement), as a result of
any
payment or the vesting of any options pursuant to the terms of the Employment
Agreement (or pursuant to any other plan, agreement or program) (collectively,
a
“Payment”),
it is
determined that Mr. McNamara would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code (the “Parachute
Tax”),
then
Mr. McNamara shall be entitled to receive an additional payment or payments
(a
“Gross-Up
Payment”)
in an
amount such that, after payment by Mr. McNamara of all taxes (including any
Parachute Tax) imposed upon the Gross-Up Payment, Mr. McNamara will retain
an
amount of the Gross-Up Payment equal to the Parachute Tax imposed upon the
Payment.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
12 – ACQUISITION
OTI
On
November 18, 2005, iDNA consummated
the acquisition of 100% of the membership interests of OTI from Flexner Wheatley
& Associates (“FWA”) and MeetingNet Interactive, Inc. (“MeetingNet”). OTI is
an information services and technology company providing interactive software
and hardware systems and services that facilitate audience interaction,
participation and polling to collect, exchange and/or analyze data and
information in real-time for use in live events, training and education
satellite videoconferencing and corporate or institutional meeting services.
Prior to the acquisition of OTI, iDNA’s subsidiary Audience Response Systems,
Inc. (“ARS”), also provided similar services. With the acquisition of OTI, iDNA
(i) gained access to important new clients, industries and market segments,
(ii)
acquired a fully developed and integrated propriety software that is an “add-in”
application module with Microsoft®
Office
PowerPoint®
which,
among other attributes, allows clients to develop and self-administrate audience
interaction and data collection programs at smaller and other venues not then
currently served by iDNA and (iii) expanded its solutions-based communication
product offering to meet dynamic demands of current and potential clients.
The
significant value in the acquisition lay principally in its (i) industry
position, (ii) assembled workforce, (iii) proprietary software, (iv) trademarks
and (iv) client lists and client relations.
In
exchange for the acquisition of all of the outstanding membership interests
of
OTI, iDNA (i) paid $744,000 at closing from iDNA’s available cash balances, (ii)
issued to FWA and MeetingNet promissory notes in an aggregate principal amount
of $1.5 million (“OTI Promissory Notes”) and (iii) issued an aggregate of
496,250 shares of iDNA’s Common Stock to FWA and MeetingNet valued at $258,000,
representing the fair value of such number of shares of iDNA’s Common Stock at
the date of acquisition. For financial reporting purposes, the transaction
was
treated as a purchase with an effective date of November 18, 2005. The purchase
price is subject to an upward and downward adjustment not to exceed $412,500
based upon OTI’s meeting, or failing to meet, certain minimum financial
performance criterion for Fiscal 2007 and Fiscal 2008. As of January 31, 2008,
OTI did not meet all of the minimum financial performance criterion and, as
a
consequence, iDNA retains an option to reduce the purchase price in amount
estimated between $206,000 and $412,000. iDNA has not exercised its option
to
reduce the purchase price of OTI as of May 14, 2008 and no adjustment to the
OTI
Promissory Notes was recorded at January 31, 2008.
In
connection with the OTI acquisition, Mark Fite, entered into an employment
agreement with OTI under which he has agreed to serve as President of OTI for
an
initial term of three years. Under the terms of the employment agreement, Mr.
Fite will be entitled to base compensation of $150,000 per year, a grant of
stock options to acquire 60,000 shares of iDNA Common Stock, subject to vesting
in three equal annual installments over the term of the employment agreement
and
a performance bonus based upon the operating results of OTI. iDNA also granted
stock options to all active OTI employees to acquire an aggregate of 66,500
shares of iDNA Common Stock, subject to vesting over a three year period and
subject to OTI’s meeting certain minimum financial performance criterion for
Fiscal 2007 and Fiscal 2008. The exercise price for the stock options granted
to
Mr. Fite and the OTI employees was set at the fair value of iDNA’s Common Stock
as of the date of the OTI acquisition, $0.52 per share.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
12 – ACQUISITION (CONTINUED)
As
a
consequence of the OTI acquisition and in accordance with SFAS No. 141
Business
Combinations,
iDNA
recorded goodwill and other intangible assets of $403,000 and $703,000,
respectively (see Note 2). iDNA has estimated lives for other intangible assets
of 5 to 7 years. For Fiscal 2008, Fiscal 2007 and for the period of November
18,
2005, the date of acquisition, to January 31, 2006, iDNA charged to operations
$105,000, $114,000 and $10,000, respectively, for the amortization of these
intangibles. iDNA engaged the valuation services of an independent third party
appraisal company to assist iDNA with respect to the final determination of
the
fair value of tangible and intangible assets acquired in accordance with SFAS
No. 141 Business
Combinations.
iDNA
does
not expect the amortization or impairment charges related to goodwill or
other intangibles, if any, to be deductible for income tax
purposes.
The
following sets forth the pro forma condensed results of operations of iDNA
and
OTI for Fiscal 2006 as if the acquisition was consummated on February 1, 2005.
Prior to OTI’s acquisition, OTI, used a December 31 year end, and accordingly
the pro forma results have been prepared by combining the historical results
for
iDNA for the year ended January 31 with the historical results of OTI for the
year ended December 31. These pro forma results have been prepared for
illustrative purposes only and do not purport to be indicative of what would
have occurred had the acquisition been in effect for the periods indicated
or
the results which may occur in the future. Pro forma revenues, net loss and
loss
per share are as follows (in thousands):
|
|
Year Ended
January 31,
|
|
|
|
2006
|
|
|
|
|
|
Service
revenues
|
|
$
|
18,990
|
|
|
|
|
|
|
Net
income (loss) from continuing operations
|
|
$
|
153
|
|
|
|
|
|
|
Income
(loss) per share from continuing operations
|
|
$
|
0.02
|
|
NOTE
13 – SEGMENT INFORMATION
iDNA’s
operations are comprised of three principal reportable segments, strategic
communications services, information services and entertainment. iDNA manages
each segment separately as a consequence of different marketing, service
requirements and technology strategies.
Strategic
Communication Services
The
strategic communications services segment provides content development via
the
design, development and production of media, collateral material, logistics,
support and/or broadcast services for presentations at corporate and
institutional events, meetings, training seminars and symposiums. The
presentations may be live at single or multi-site venues and can include video
conferencing, satellite broadcasting and webcasting, or the presentations may
be
provided via on-demand access via internet websites, DVD or video
tape.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
13 – SEGMENT INFORMATION (CONTINUED)
Information
Services
The
information services segment utilizes custom wireless communication technology
and proprietary software to facilitate client audience interaction,
participation and polling to collect, exchange and/or analyze data and
information in real-time during a meeting or event. The wireless communication
services are available as a turn-key service provided by iDNA during a scheduled
meeting or event or alternatively, a client can purchase from iDNA the required
electronic components and related proprietary software to administer its needs
independently.
Entertainment
As
of
consequence of iDNA’s investment in AFC (see Note 4), iDNA operates in the movie
exhibition and entertainment industry.
iDNA
evaluates the performance of its segments and allocates resources based on
revenues and operating income. The table below presents the information about
iDNA’s reportable segments for its continuing operations used by its chief
operating decision-makers for Fiscal 2008, Fiscal 2007 and Fiscal 2006. Prior
fiscal periods have been conformed to the current presentation.
|
|
Information
|
|
Strategic
Communications
|
|
|
|
Undistributed
Corporate
|
|
Intersegment
|
|
|
|
|
|
Services
|
|
Services
|
|
Entertainment
|
|
Expenses
|
|
Elimination
|
|
Total
|
|
Year
Ended January 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
8,711
|
|
$
|
6,052
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(146
|
)
|
$
|
14,617
|
|
Operating
income (loss)
|
|
|
(7,267
|
)
|
|
(4,225
|
)
|
|
630
|
|
|
(960
|
)
|
|
-
|
|
|
(11,822
|
)
|
Identifiable
assets
|
|
|
2,778
|
|
|
208
|
|
|
7,129
|
|
|
3,438
|
|
|
-
|
|
|
13,553
|
|
Depreciation
and amortization expense
|
|
|
874
|
|
|
713
|
|
|
-
|
|
|
49
|
|
|
-
|
|
|
1,636
|
|
Impairment
charge
|
|
|
5,940
|
|
|
2,093
|
|
|
|
|
|
|
|
|
|
|
|
8,033
|
|
Capital
expenditures
|
|
|
151
|
|
|
44
|
|
|
-
|
|
|
6
|
|
|
-
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended January 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
9,478
|
|
$
|
6,083
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(117
|
)
|
$
|
15,444
|
|
Operating
income (loss)
|
|
|
(482
|
)
|
|
(6,807
|
)
|
|
590
|
|
|
(902
|
)
|
|
-
|
|
|
(7,601
|
)
|
Identifiable
assets
|
|
|
10,285
|
|
|
3,495
|
|
|
7,224
|
|
|
1,074
|
|
|
-
|
|
|
22,078
|
|
Depreciation
and amortization expense
|
|
|
871
|
|
|
719
|
|
|
-
|
|
|
62
|
|
|
-
|
|
|
1,652
|
|
Impairment
charge
|
|
|
-
|
|
|
4,482
|
|
|
-
|
|
|
|
|
|
-
|
|
|
4,482
|
|
Capital
expenditures
|
|
|
357
|
|
|
144
|
|
|
-
|
|
|
78
|
|
|
-
|
|
|
579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended January 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
5,958
|
|
$
|
8,322
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(190
|
)
|
$
|
14,090
|
|
Operating
income (loss)
|
|
|
(54
|
)
|
|
(465
|
)
|
|
738
|
|
|
(664
|
)
|
|
-
|
|
|
(445
|
)
|
Identifiable
assets
|
|
|
10,819
|
|
|
9,047
|
|
|
7,836
|
|
|
1,145
|
|
|
-
|
|
|
28,847
|
|
Depreciation
and amortization expense
|
|
|
587
|
|
|
757
|
|
|
-
|
|
|
67
|
|
|
-
|
|
|
1,411
|
|
Capital
expenditures
|
|
|
222
|
|
|
57
|
|
|
-
|
|
|
6
|
|
|
-
|
|
|
285
|
|
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
14 – SIGNIFICANT CLIENTS
Revenues
for Fiscal 2008, Fiscal 2007 and Fiscal 2006 were $14.6 million, $15.4 million
and $14.1 million, respectively. Pfizer Inc. and R&D Strategic Solutions,
Inc. accounted for 12% and 15%, respectively, of revenues for Fiscal 2008.
Pfizer, Inc. accounted for 17% of revenues for Fiscal 2007. Pfizer Inc. and
BearingPoint, Inc. accounted for 21% and 13%, respectively of revenues for
Fiscal 2006.
iDNA
is
subject to account receivable credit concentrations from time-to-time as a
consequence of the timing, payment pattern and ultimate value of large meeting
or event schedules with its clients. These concentrations of client meetings
or
events may impact iDNA’s overall exposure to credit risk, either positively or
negatively, in that its clients may be similarly affected by changes in
economic, regulatory or other conditions that may impact the timing and
collectability of amounts due to iDNA. At January 31, 2008, two clients
comprised approximately 12.3% and 11.0%, respectively, of iDNA’s accounts
receivable. Management believes that the provision for possible losses on
uncollectible accounts receivable is adequate for iDNA’s credit loss exposure.
At January 31, 2008 and 2007, the allowance for doubtful accounts was $75,000
and $82,000, respectively.
NOTE
15 – QUARTERLY FINANCIAL DATA (UNAUDITED)
The
following table presents unaudited quarterly financial information for Fiscal
2008 and Fiscal 2007 (in thousands, except per share amounts):
|
|
Quarter
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Fiscal
2008
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,600
|
|
$
|
2,824
|
|
$
|
5,070
|
|
$
|
3,123
|
|
Gross
profit
|
|
|
1,079
|
|
|
779
|
|
|
2,569
|
|
|
859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(1,043
|
)
|
$
|
(1,560
|
)
|
$
|
255
|
|
$
|
(9,475
|
)
|
Discontinued
operations, net of tax
|
|
|
5
|
|
|
3
|
|
|
-
|
|
|
2
|
|
Net
income (loss)
|
|
$
|
(1,038
|
)
|
$
|
(1,557
|
)
|
$
|
255
|
|
$
|
(9,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted income (loss) earnings per share1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(.11
|
)
|
$
|
(.16
|
)
|
$
|
.03
|
|
$
|
(.95
|
)
|
Discontinued
operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
income (loss) per share
|
|
$
|
(.11
|
)
|
$
|
(.16
|
)
|
$
|
.03
|
|
$
|
(.95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,432
|
|
$
|
3,538
|
|
$
|
4,758
|
|
$
|
3,716
|
|
Gross
profit
|
|
|
1,098
|
|
|
1,497
|
|
|
2,204
|
|
|
1,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(1,154
|
)
|
$
|
(5,137
|
)
|
$
|
(280
|
)
|
$
|
(1,020
|
)
|
Discontinued
operations, net of tax
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
8
|
|
Net
income (loss)
|
|
$
|
(1,153
|
)
|
$
|
(5,136
|
)
|
$
|
(279
|
)
|
$
|
(1,012
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted income (loss) earnings per share1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(.13
|
)
|
$
|
(.56
|
)
|
$
|
(.03
|
)
|
$
|
(.11
|
)
|
Discontinued
operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
income (loss) per share
|
|
$
|
(.13
|
)
|
$
|
(.56
|
)
|
$
|
(.03
|
)
|
$
|
(.11
|
)
|
1The
sum
of the quarters do not equal year to date.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
16 – RELATED PARTY TRANSACTIONS
Pursuant
to the terms of the OTI Membership Purchase Agreement dated November 18, 2005,
iDNA was obligated to repay the former OTI Members for certain loans and
advances made by the former OTI Members prior to the OTI acquisition by iDNA.
iDNA repaid in full the OTI Members loans and advances in periodic installments,
as required, during Fiscal 2007.
The
Campus Group leases its corporate headquarters in Tuckahoe, New York and its
Bohemia, New York warehouse and distribution center from a former The Campus
Group shareholder. The leases expire in April 2010. The annual lease commitment
during the term is $175,000 per annum. iDNA charged to operations rent expense
of $175,000 for each of Fiscal 2008, Fiscal 2007 and Fiscal 2006, respectively.
At January 31, 2008, iDNA charged to operations and included as a component
of
accrued expenses $172,000 for deferred rent and property tax expenses due under
the terms of the leases. The deferred rental charges are expected to be paid
by
the Campus Group during Fiscal 2009.
NOTE
17 – DISCONTINUED OPERATIONS
Auto
Rental and Finance Operations
iDNA,
under the names Agency Rent-A-Car, Inc. (“ARAC”), Altra Auto Rental and Automate
Auto Rental, previously engaged in the rental of automobiles on a short-term
basis, principally to the insurance replacement market. During Fiscal 1996,
iDNA
disposed of its rental fleet business through the sale of certain assets and
through certain leases to a national car rental company. All liabilities related
to the discontinued rental business, principally self-insurance claims, were
retained by ARAC.
Prior
to
Fiscal 2002, iDNA was engaged in the sub-prime used automobile finance business.
At that time, iDNA, then known as National Auto Credit, Inc. (“NAC”), invested
in sub-prime used automobile consumer loans, which took the form of installment
loans collateralized by the related vehicle. NAC purchased such loans, or
interests in pools of such loans, from member dealerships, and performed the
related underwriting and collection functions. NAC formally discontinued its
automobile finance business effective December 31, 2001.
The
results of both the auto rental and finance operations are included in the
results of discontinued operations. For Fiscal 2008, 2007 and 2006, the results
of the discontinued operations principally represent the effects of the residual
collection of previously charged off loans, and the settlement of, and changes
in iDNA’s, provisions for income taxes and reserves for claims against ARAC
related to the self-insured claims (see Note 11).
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
17 – DISCONTINUED OPERATIONS (CONTINUED)
Summarized
results of discontinued operations are as follows (in thousands):
|
|
Discontinued Operations
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
10
|
|
$
|
4
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
-
|
|
|
-
|
|
|
1
|
|
Income
before income taxes
|
|
|
10
|
|
|
4
|
|
|
19
|
|
Provision
(benefit) for income taxes
|
|
|
-
|
|
|
(7
|
)
|
|
5
|
|
Income
from discontinued operations
|
|
$
|
10
|
|
$
|
11
|
|
$
|
14
|
|
NOTE
18 – SHAREHOLDER COMPLAINT SETTLEMENT
Shareholder
Complaints
In
July
and August 2001, iDNA received three separate derivative complaints filed with
the Court of Chancery of Delaware (“Delaware Court”) by each of Academy Capital
Management, Inc (“Academy Complaint”)., Levy Markovich, (“Markovich Complaint”)
and Harbor Finance Partners (“Harbor Complaint”), all shareholders of iDNA,
against James J. McNamara, John A. Gleason, William S. Marshall, Henry Y.L.
Toh,
Donald Jasensky, Peter T. Zackaroff, Mallory Factor, and Thomas F. Carney,
Jr.
(the “Director Defendants”) and names iDNA as a nominal defendant. By order of
the Delaware Court on November 12, 2001, the Academy, Markovich and Harbor
Complaints were consolidated under the title “In re National Auto Credit, Inc.
Shareholders Litigation,” Civil Action No. 19028 NC (Delaware Court) (“Delaware
Action”).
The
Delaware Action principally sought: (i) a declaration that the Director
Defendants breached their fiduciary duties to iDNA, (ii) a judgment voiding
an
employment agreement with James J. McNamara and rescinding a stock exchange
agreement in which iDNA acquired ZoomLot, (iii) a judgment voiding the grant
of
stock options and the award of director fees allegedly related thereto, (iv)
an
order directing the Director Defendants to account for alleged damages sustained
and profits obtained by the Director Defendants as a result of the alleged
various acts complained of, (v) the imposition of a constructive trust over
monies or other benefits received by the Director Defendants, (vi) a judgment
requiring the Director Defendants to promptly schedule an annual meeting of
shareholders and (vii) an award of costs and expenses.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
18 – SHAREHOLDER COMPLAINT SETTLEMENT (CONTINUED)
On
October 12, 2001, iDNA received a derivative complaint filed by Robert Zadra,
a
shareholder of iDNA, that had been filed with the Supreme Court of the State
of
New York (“New York Court”) on or about October 12, 2001 against James J.
McNamara, John A. Gleason, William S. Marshall, Henry Y. L. Toh, Donald
Jasensky, Peter T. Zackaroff, Mallory Factor, Thomas F. Carney, Jr., and iDNA
as
Defendants. On or about May 29, 2002 the complaint was amended to include class
action allegations (the “New York Action”). The New York Action contained
allegations similar to those in the Delaware Action concerning the Board's
approval of the employment agreement with James McNamara, option grants and
past
and future compensation to the Director Defendants, and the ZoomLot transaction.
The New York Action sought (i) a declaration that as a result of approving
these
transactions the Director Defendants breached their fiduciary duties to iDNA,
(ii) a judgment enjoining Director Defendants from proceeding with or exercising
the option agreements, (iii) rescission of the option grants to Director
Defendants, if exercised, (iv) an order directing the Director Defendants to
account for alleged profits and losses obtained by the Director Defendants
as a
result of the alleged various acts complained of, (v) awarding compensatory
damages to iDNA and the class, together with prejudgment interest, and (vi)
an
award of costs and expenses.
iDNA
vigorously defended against each of the respective claims made in the Delaware
Action and New York Action, as it believed that the claims had no merit.
The
parties in the New York Action thereafter engaged in settlement negotiations
and, in December 2002, the parties entered into a stipulation of settlement
which was thereafter amended in November 2004 (the “New York Settlement
Stipulation”). Under the terms of the New York Settlement Stipulation, iDNA
agreed (subject to certain terms and conditions) to, among other things, (a)
adopt or implement certain corporate governance procedures or policies, (b)
issue to a class of iDNA shareholders who had continuously held iDNA’s Common
Stock from December 14, 2000 through December 24, 2002 (hereinafter, the
“Eligible Shareholders”) up to one million warrants (one warrant per 8.23 shares
of Common Stock), with each warrant having a five year term and being
exercisable for shares of iDNA’s Common Stock at a price of $1.55 per share, (c)
cancel 50% of certain stock options granted on December 15, 2000, and (d) make
certain payments for legal fees for counsel to the plaintiffs in the New York
Action. The New York Settlement Stipulation created for the benefit of iDNA
a
settlement fund in the amount of $2.5 million to be funded by an insurance
policy (the “Settlement Fund”). The New York Court also subsequently approved
$500,000 for legal fees for counsel to the plaintiffs in the New York Action
to
be paid from the proceeds from the Settlement Fund.
In
order
to facilitate the settlement and dismissal of the separate Delaware Action
as
well as the New York Action, on April 22, 2005, iDNA
entered
into a Stock Purchase Agreement (“Agreement”) with Academy Capital Management,
Inc., Diamond A. Partners, L.P., Diamond A. Investors, L.P., Ridglea Investor
Services, Inc. and William S. Banowsky (hereinafter
referred
to collectively as the “Selling Stockholders”). The
Selling Stockholders had also raised objections to the settlement of the New
York Action. The New York Court (a) had rejected the objections raised by the
Selling Stockholders and (b) had approved as fair and in the best interests
of
iDNA and its shareholders the proposed settlement of the New York Action as
set
forth in the New York Settlement Stipulation. The Selling Stockholders had
then
filed an appeal (the “Appeal”) to such determination by the New York Court.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
18 – SHAREHOLDER COMPLAINT SETTLEMENT (CONTINUED)
Pursuant
to the terms of the Agreement, the Selling Stockholders agreed, among other
things, to do the following:
|
·
|
enter
into a stipulation (to be filed with the New York Court) pursuant
to which
they would (a) irrevocably withdraw, with prejudice, any objections
they
had asserted or might have asserted with respect to the settlement
of the
New York Action, (b) stipulate to the entry of an order dismissing
the New
York Action and (c) agree to the dismissal of the
Appeal.
|
|
·
|
enter
into a stipulation (to be filed with the Appellate Division, First
Department, of the Supreme Court of the State of New York) providing
for
the dismissal of the Appeal.
|
|
·
|
enter
into a stipulation (to be filed in the Delaware Court), pursuant
to which
they would agree to the dismissal of the Delaware Action with
prejudice.
|
The
Selling Stockholders executed and delivered to iDNA
and iDNA
filed with the applicable New York Court and Delaware Court each of the
stipulations referred to above. Effective May 5, 2005, the New York Court
entered a Final Order and Judgment in which it approved the Stipulation of
Dismissal of Objections, finding the terms set forth therein fair, reasonable
and adequate, and dismissed the New York Action and the objections to the New
York Settlement with prejudice. Effective May, 13, 2005, the Appellate
Division, First Department, of the Supreme Court of the State of New York
granted the dismissal of the Appeal. Effective May 18, 2005, the Delaware Court
granted an Order and Judgment Dismissing Action with Prejudice with respect
to
the Delaware Action. As a consequence of each of the above actions by the
respective courts, settlement of the New York Action and the Delaware Action,
was deemed final in June 2005 and iDNA received net proceeds of $2.0 million
from iDNA’s insurer from the Settlement Fund for the New York
Action.
Pursuant
to the Agreement, iDNA
agreed (subject to certain terms and conditions set forth in the Agreement)
to
purchase from the Selling Stockholders their 1,562,500 shares of iDNA Common
Stock at a price of $0.6732 per share (or a total purchase price of $1,051,875)
and to contribute $100,000 to cover a portion of the legal fees incurred by
the
Selling Stockholders. Effective June 30, 2005, iDNA purchased 1,562,500 shares
of iDNA Common Stock from the Selling Stockholders.
As
a
consequence of the confirmation of the New York Settlement Stipulation, the
Dismissing Action with Prejudice of the Delaware Action and the subsequent
purchase by iDNA
of
Common Stock from the Selling Stockholders, for Fiscal 2006, iDNA recorded
(i) a
charge to operations of $100,000 for legal fees of the Selling Stockholders,
(ii) a charge to operations of $208,000 for the excess cost over the market
value of the iDNA Common Stock acquired as of the date of the Agreement, April
22, 2005, (iii) a charge to other income of $25,000 for the expense of the
fair
value of the warrants to be issued to Eligible Shareholders and (iv) realized
other income of $2.0 million for the net proceeds received by iDNA from the
Settlement Fund. The Eligible Shareholders had until December 2005 to submit
their claim for one warrant for each 8.23 shares of Common Stock owned during
the eligibility period, with each warrant having a five year term and being
exercisable for shares of Common Stock at a price of $1.55 per share. Based
upon
the final submission of claims by Eligible Shareholders, in April 2006 iDNA
issued 100,282 warrants to the Eligible Shareholders.
iDNA,
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Years
Ended January 31, 2008, 2007 and 2006
NOTE
18 – SHAREHOLDER COMPLAINT SETTLEMENT (CONTINUED)
As
acknowledged by the Selling Stockholders in the Agreement, iDNA
was
willing to enter into the Agreement, settle the New York Action and the Delaware
Action and consummate the other transactions contemplated by the Agreement
in
order to terminate prolonged and expensive litigation and iDNA’s entry into the
Agreement would not constitute or be deemed to constitute or evidence any
improper or illegal conduct by or on behalf of iDNA (or any of its directors,
officers, employees and other agents or representatives) or any other wrongdoing
by iDNA (or any of its directors, officers, employees and other agents or
representatives). The Agreement was approved by the disinterested and
independent members of iDNA’s Board of Directors.
FINANCIAL
STATEMENTS AND REPORT OF
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
ANGELIKA
FILM CENTERS, LLC
At
December 31, 2007 and December 28, 2006
and
For
the
Years Ended December 31, 2007, December 28, 2006 and
December
29, 2005
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors
Angelika
Film Centers, LLC
We
have
audited the accompanying balance sheets of Angelika Film Centers, LLC (a
Delaware limited liability company) as of December 31, 2007 and December 28,
2006, and the related statements of income, members’ equity and cash flows for
each of the three fiscal years in the period ended December 31, 2007. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform an audit of
its
internal control over financial reporting. Our audit included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Angelika Film Centers, LLC as
of
December 31, 2007 and December 28, 2006, and the results of its operations
and
its cash flows for each of the three fiscal years in the period ended December
31, 2007, in conformity with accounting principles generally accepted in the
United States of America.
/s/
Grant Thornton |
Cleveland,
Ohio |
May
14, 2008 |
Angelika
Film Centers, LLC
(A
Limited Liability Company)
BALANCE
SHEETS
(dollar
amounts in thousands)
December
28, 2006 and December 29, 2005
|
|
December 31,
|
|
December 28,
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
981
|
|
$
|
257
|
|
Trade
and other receivables
|
|
|
184
|
|
|
120
|
|
Concession
inventories (Note A)
|
|
|
16
|
|
|
13
|
|
Prepaid
expenses and other current assets
|
|
|
12
|
|
|
8
|
|
Due
from affiliates (Note E)
|
|
|
44
|
|
|
825
|
|
Total
current assets
|
|
|
1,237
|
|
|
1,223
|
|
|
|
|
|
|
|
|
|
Property,
equipment and leasehold improvements, net (Note B)
|
|
|
734
|
|
|
833
|
|
Intangible
with definitive life (Note A)
|
|
|
5,117
|
|
|
5,707
|
|
Deposits
|
|
|
80
|
|
|
80
|
|
Total
Assets
|
|
$
|
7,168
|
|
$
|
7,843
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND MEMBERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
515
|
|
$
|
338
|
|
Deferred
income and other obligations
|
|
|
146
|
|
|
142
|
|
Total
current liabilities
|
|
|
661
|
|
|
480
|
|
|
|
|
|
|
|
|
|
Deferred
rental obligation (Note C)
|
|
|
2,168
|
|
|
2,083
|
|
Total
liabilities
|
|
|
2,829
|
|
|
2,563
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note D)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Members'
Equity (Note A)
|
|
|
4,339
|
|
|
5,280
|
|
Total
Liabilities and Members’ Equity
|
|
$
|
7,168
|
|
$
|
7,843
|
|
The
accompanying notes to financial statements are an integral part of these
statements.
Angelika
Film Centers, LLC
(A
Limited Liability Company)
STATEMENTS
OF INCOME
(dollar
amounts in thousands)
For
the
fiscal years ended December 31, 2007, December 28, 2006 and December 29,
2005
|
|
December 31,
|
|
December 28,
|
|
December 29,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
Theatre
income
|
|
$
|
5,199
|
|
$
|
5,015
|
|
$
|
5,222
|
|
Theatre
concessions
|
|
|
687
|
|
|
677
|
|
|
666
|
|
Café
concession sales
|
|
|
425
|
|
|
418
|
|
|
412
|
|
Rental
and other income
|
|
|
183
|
|
|
218
|
|
|
187
|
|
Total
operating income
|
|
|
6,494
|
|
|
6,328
|
|
|
6,487
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses
|
|
|
|
|
|
|
|
|
|
|
Operating
costs
|
|
|
4,135
|
|
|
4,037
|
|
|
3,980
|
|
General
and administrative expenses
|
|
|
229
|
|
|
231
|
|
|
209
|
|
Depreciation
and amortization
|
|
|
781
|
|
|
775
|
|
|
752
|
|
Total
operating costs and expenses
|
|
|
5,145
|
|
|
5,043
|
|
|
4,941
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
1,349
|
|
|
1,285
|
|
|
1,546
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and local income taxes (Note A)
|
|
|
40
|
|
|
67
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
1,309
|
|
$
|
1,218
|
|
$
|
1,487
|
|
The
accompanying notes are an integral part of these financial
statements.
Angelika
Film Centers, LLC
(A
Limited Liability Company)
STATEMENTS
OF MEMBERS' EQUITY
(dollar
amounts in thousands)
For
the
fiscal years ended December 31, 2007, December 28, 2006 and December 29,
2005
|
|
National
|
|
Reading
|
|
|
|
|
|
Cinemas,
|
|
International
|
|
|
|
|
|
Inc.
|
|
Inc.
|
|
Total
|
|
|
|
|
|
|
|
|
|
Balance
at December 30, 2004
|
|
$
|
2,996
|
|
$
|
3,524
|
|
$
|
6,520
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
to members
|
|
|
(878
|
)
|
|
(1,403
|
)
|
|
(2,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
743
|
|
|
744
|
|
|
1,487
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 29, 2005
|
|
|
2,861
|
|
|
2,865
|
|
|
5,726
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
to members
|
|
|
(1,209
|
)
|
|
(455
|
)
|
|
(1,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
609
|
|
|
609
|
|
|
1,218
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 28, 2006
|
|
|
2,261
|
|
|
3,019
|
|
|
5,280
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
to members
|
|
|
(746
|
)
|
|
(1,504
|
)
|
|
(2,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
655
|
|
|
654
|
|
|
1,309
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
$
|
2,170
|
|
$
|
2,169
|
|
$
|
4,339
|
|
The
accompanying notes are an integral part of these financial
statements.
Angelika
Film Centers, LLC
(A
Limited Liability Company)
STATEMENTS
OF CASH FLOWS
(dollar
amounts in thousands)
For
the
fiscal years ended December 31, 2007, December 28, 2006 and December 29,
2005
|
|
December 31,
|
|
December 28,
|
|
December 29,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,309
|
|
$
|
1,218
|
|
$
|
1,487
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
781
|
|
|
775
|
|
|
752
|
|
Deferred
rental expense
|
|
|
85
|
|
|
134
|
|
|
170
|
|
Changes
in assets and liabilities associated with operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Trade
and other receivables
|
|
|
(64
|
)
|
|
104
|
|
|
(163
|
)
|
Due
to (from) affiliates
|
|
|
781
|
|
|
(1,065
|
)
|
|
199
|
|
Concession
inventories
|
|
|
(3
|
)
|
|
(4
|
)
|
|
(2
|
)
|
Prepaid
expenses and other current assets
|
|
|
(4
|
)
|
|
5
|
|
|
4
|
|
Accounts
payable and accrued liabilities
|
|
|
177
|
|
|
(217
|
)
|
|
115
|
|
Deferred
income and other obligations
|
|
|
4
|
|
|
60
|
|
|
(20
|
)
|
Security
deposit
|
|
|
-
|
|
|
9
|
|
|
-
|
|
Net
cash provided by operating activities
|
|
|
3,066
|
|
|
1,019
|
|
|
2,542
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, equipment and leasehold improvements
|
|
|
(92
|
)
|
|
13
|
|
|
(42
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
(92
|
)
|
|
13
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Distribution
to members
|
|
|
(2,250
|
)
|
|
(1,664
|
)
|
|
(2,281
|
)
|
Net
cash used in investing activities
|
|
|
(2,250
|
)
|
|
(1,664
|
)
|
|
(2,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
724
|
|
|
(632
|
)
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of year
|
|
|
257
|
|
|
889
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
981
|
|
$
|
257
|
|
$
|
889
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for income taxes
|
|
$
|
40
|
|
$
|
67
|
|
$
|
59
|
|
The
accompanying notes are an integral part of these financial
statements.
Angelika
Film Centers, LLC
(A
Limited Liability Company)
NOTES
TO FINANCIAL STATEMENTS
Fiscal
Years Ended December 31, 2007, December 28, 2006 and December 29,
2005
NOTE
A –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Operations
Angelika
Film Centers, LLC (“AFC”) is a Delaware limited liability company, whose
membership interests at December 31, 2007 are held 50% by Reading International,
Inc. (“RDI”) and 50% by National Cinemas, Inc. (“NCI”), a wholly-owned
subsidiary of iDNA, Inc.
AFC
is
the owner and operator of the Angelika Film Center, which is a multiplex cinema
and café complex in the Soho District of Manhattan in New York
City.
Fiscal
Year
Beginning
in fiscal 2007, AFC’s changed its fiscal year to end on December 31st,
the
last day of the calendar year. Previously, AFC had been on a 52-53 week fiscal
year that ended on the last Thursday closest to the end of the month, December
28, 2006 and December 29, 2005 for the years presented herein. Unless stated
otherwise, all references herein are to AFC’s fiscal years.
Cash
and Cash Equivalents
AFC
considers all highly liquid investments and money market accounts with original
maturities of three months or less to be cash equivalents.
Concession
Inventories
Inventories
are comprised of concession goods and are stated at lower of cost (first-in,
first-out method) or market.
Property,
Equipment and Leasehold Improvements
Property,
equipment and leasehold improvements are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the
assets, which range from 7 to 12 years. Leasehold improvements are amortized
using the straight-line method over the shorter of the lease term or the
estimated useful lives of the related improvements.
Revenue
Recognition
Theater
revenue is recognized when film tickets are purchased at the box office.
Concession revenue arises from the sale of food and other merchandise and is
recognized upon delivery. Revenues derived from gift certificates are recognized
when the certificates are redeemed.
Angelika
Film Centers, LLC
(A
Limited Liability Company)
NOTES
TO FINANCIAL STATEMENTS - CONTINUED
Fiscal
Years Ended December 31, 2007, December 28, 2006 and December 29,
2005
NOTE
A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Income
Taxes
AFC
is a
limited liability company; therefore, no federal income taxes have been provided
for its operations. Any tax liability or benefit arising from the AFC’s income
or losses is the responsibility of the individual members. AFC provides for
state and city income taxes, as applicable in accordance with Statement of
Financial Accounting Standards No. 109, Accounting
for Income Taxes
(SFAS 109).
Intangible
With Definitive Life
AFC
recorded an intangible asset of $11,810,000 based on an independent appraisal
performed to determine the fair value of assets acquired in an acquisition
made
during fiscal year 1996. AFC is amortizing the intangible on a straight-line
basis over a twenty-year period, which represents the term of the long-term
lease on the Angelika Film Center complex. Accumulated amortization of the
intangible is $6,691,000 and $6,101,000 at December 31, 2007 and December 28,
2006, respectively. The amortization expense is $590,000 for each of the next
five years.
Advertising
Expense
Advertising
costs are expensed as incurred. Gross advertising expenses were approximately
$312,000, $289,000 and $296,000for the years ended December 31, 2007, December
28, 2006 and December 29, 2005, respectively. Reimbursements received for
cooperative advertising netted against advertising expenses amounted to
$231,000, $260,000 and $296,000 for the years ended December 31, 2007, December
28, 2006 and December 29, 2005, respectively.
Fair
Value of Financial Instruments
AFC
has
various financial instruments including cash, trade and other receivables and
accounts payable and accrued liabilities. These instruments are short-term
in
nature and AFC has determined that their carrying values approximate estimated
fair values.
Impairment
of Long-Lived Assets
AFC
reviews the carrying value of its long-lived assets whenever events or changes
in circumstances indicate that its carrying amount may not be recoverable.
If
there were such indicators of impairment, AFC would determine whether the
estimated undiscounted sum of the future cash flows to be derived from such
assets is less than their carrying amounts. If less, an impairment loss would
be
recognized based on the excess of the carrying amounts of such assets over
their
respective fair values. AFC would determine the fair values by using quoted
market prices, if available, for such assets; or if quoted market prices are
not
available, AFC would discount the expected estimated future cash flows. No
impairment was recorded for the periods presented.
Angelika
Film Centers, LLC
(A
Limited Liability Company)
NOTES
TO FINANCIAL STATEMENTS - CONTINUED
Fiscal
Years Ended December 31, 2007, December 28, 2006 and December 29,
2005
NOTE
A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Estimates
The
preparation of financial statements and the accompanying notes thereto, in
conformity with generally accepted accounting principles, requires management
to
make estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and reported amounts of revenues and expenses during
the respective reporting periods. Actual results could differ from those
estimates.
NOTE
B – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
At
December 31, 2007 and December 28, 2006, a summary of property, equipment and
leasehold improvements is as follows (in thousands):
|
|
December 31,
2007
|
|
December 28,
2006
|
|
Leasehold
improvements
|
|
$
|
1,353
|
|
$
|
1,353
|
|
Furniture,
fixtures and equipment
|
|
|
997
|
|
|
905
|
|
|
|
|
2,350
|
|
|
2,258
|
|
Less
accumulated depreciation
|
|
|
1,616
|
|
|
1,425
|
|
|
|
|
|
|
|
|
|
|
|
$
|
734
|
|
$
|
833
|
|
NOTE
C – LEASE COMMITMENTS
AFC
leases a theater under a non-cancelable operating lease which matures in August
2026. Rental expense was $827,000 for each fiscal year, including amortization
of deferred rent expense of $85,000, $134,000 and $170,000 for the years ended
December 31, 2007, December 28, 2006 and December 29, 2005,
respectively.
Angelika
Film Centers, LLC
(A
Limited Liability Company)
NOTES
TO FINANCIAL STATEMENTS – CONTINUED
Fiscal
Years Ended December 31, 2007, December 28, 2006 and December 29,
2005
NOTE
C – LEASE COMMITMENTS - Continued
At
December 31, 2007, future minimum rental commitments for the next five years
were as follows (in thousands):
2008
|
|
$
|
741
|
|
2009
|
|
|
741
|
|
2010
|
|
|
741
|
|
2011
2012
|
|
|
795
871
|
|
Thereafter
|
|
|
13,656
|
|
Total
minimum lease payments
|
|
$
|
17,545
|
|
AFC
has
scheduled rent increases under the theater lease. The accompanying statement
of
operations reflects rent expense on a straight-line basis over the term of
the
theater lease. Deferred rental obligations of $2,168,000 and $2,083,000,
representing the excess of expense recognized to date over the lease payments
made, are reflected in the accompanying balance sheets as of December 31, 2007
and December 28, 2006, respectively.
NOTE
D – COMMITMENTS AND CONTINGENCIES
AFC
has
been involved in various lawsuits. The ultimate outcome of these lawsuits is
not
always determinable; however, in the opinion of management, based in part upon
advice of counsel, the amount of losses that might be sustained, if any, would
not materially affect the financial position, results of operations and
liquidity of AFC.
Angelika
Film Centers, LLC
(A
Limited Liability Company)
NOTES
TO FINANCIAL STATEMENTS – CONTINUED
Fiscal
Years Ended December 31, 2007, December 28, 2006 and December 29,
2005
NOTE
E – RELATED PARTY TRANSACTIONS
Citadel
Cinemas, Inc. (“Citadel”), an affiliate of RDI, operates and manages the
Angelika Film Centers pursuant to a management agreement (the “Agreement”)
entered into with the AFC in August 1996. This Agreement was assigned to Citadel
from another affiliate of RDI effective June 1, 2000.
Citadel
is to be paid an annual base management fee of $152,000 as adjusted by Consumer
Price Index (“CPI”) adjustments plus a bonus fee contingent on the attainment of
certain income levels (as defined in the Agreement). The management fee amounted
to the base fee of $152,000 for each of the years ended December 31, 2007 and
December 28, 2006 and $208,000 for December 29, 2005. During 2005, a $56,000
adjustment to the base management fee was made to catch up for CPI increases
that relate to prior periods.
AFC’s
leasehold interest in the theater is guaranteed by both the Reading Company,
an
affiliate of RDI, and Reading Entertainment, Inc., an affiliate of RDI, through
the day prior to the 15th
anniversary of the lease commencement.
At
December 31, 2007 and December 28, 2006, AFC had a net aggregate receivable
(payable) balance of $44,000 and $825,000, respectively, to Citadel. This amount
is comprised of monies collected by affiliated entities of Citadel on behalf
of
AFC for gift certificates and credit card purchases offset by amounts paid
by
Citadel on behalf of AFC.
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
None
Item
9A(T). Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
The
Company has established and maintain disclosure controls and procedures designed
to ensure that information required to be disclosed in the reports that it
files
or submits under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), is recorded, processed, summarized and reported within the time period
specified in the rules and forms of the SEC, and that such information is
accumulated and communicated to management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
In
connection with its Annual Report on Form 10-K for the fiscal year ended January
31, 2008, as required under Rule 13a-15(b) of the Exchange Act, the Company’s
management, including its Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness of the design and operation of
the
Company’s disclosure controls and procedures as of the end of the period covered
by this report. Based on that evaluation, the Company’s Chief Executive Officer
and Chief Financial Officer concluded that its disclosure controls and
procedures were effective as of the date of such evaluation to provide
reasonable assurance that information required to be disclosed by the Company
in
the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by the
SEC’s rules and forms.
Management’s
Report on Internal Control Over Financial Reporting
iDNA
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting
is
defined in Securities Exchange Act Riles 13a-15(f) and 15d-15(f) under the
Exchange Act as a process designed by, or under the supervision of, the
Company’s principal executive and principal financial officers and effected by
the Company’s Board of Directors, management and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principals and includes those policies and
procedures that:
|
·
|
pertain
to the maintenance of records in reasonable detail that accurately
and
fairly reflect the transactions of the
Company;
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with generally
accepted
accounting principals and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management
and
directors of the Company; and
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection unauthorized
acquisition, use or disposition of the Company’s assets that could have a
material effect on the Company’s financial
statements.
|
Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with policies
or procedures may deteriorate. However, these inherent limitations are known
features of the financial reporting process. It is possible to design into
the
process safeguards to reduce, though not eliminate, the risk that misstatements
are not prevented or detected on a timely basis. Management is responsible
for
establishing and maintaining adequate internal control over financial reporting
for the Company.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of January 31, 2008. In making this assessment, management used
the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework. Based on this assessment,
management have concluded that as of January 31, 2008, the Company’s internal
control over financial reporting was effective to provide reasonable assurance
regarding the reliability of financial reporting and the preparation and
presentation of financial statements for external purposes in accordance with
generally accepted accounting principals.
This
Annual Report on Form 10-K does not include an attestation report of
the
Company’s registered public accounting firm
regarding internal control over financial reporting. Management’s report was not
subject to attestation by the Company’s registered public accounting firm
pursuant to temporary rules of the SEC that permit the Company to provide only
management’s report in this Annual Report on Form 10-K.
Changes
in Internal Control Over Financial Reporting.
In
connection with the Company’s Annual Report on Form 10-K for the fiscal year
ended January 31, 2008, as required under Rule 13a-15(d) of the Exchange Act,
the Company’s management, including its Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of whether there had been any change
in the Company’s internal control over financial reporting that occurred during
the Company’s fiscal quarter ended January 31, 2008. Based on that evaluation,
the Company’s Chief Executive Officer and Chief Financial Officer concluded that
there were no changes in the Company’s internal controls over financial
reporting during such fiscal quarter ended January 31, 2008 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
controls over financial reporting.
Item
9B. Other Information.
None
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance.
The
information required by this Item is set forth in the following sections of
the
Company’s Definitive Proxy Statement for its 2008 Annual Meeting of
Stockholders: “Proposal No. 1- Election of Directors”, “Executive Officers Who
Are Not Directors”, “Section 16(a) Beneficial Ownership Reporting Compliance”,
and “Corporate Governance” (including “Code of Ethics”), each of which is
incorporated by reference herein.
Item
11. Executive Compensation.
The
information required by this Item is set forth in the following sections of
the
Company’s Definitive Proxy Statement for its 2008 Annual Meeting of
Stockholders: “Executive Compensation”, “Compensation Discussion and Analysis”,
“Compensation Committee Report”, “Director Compensation” and “Overview of
Compensation of Directors”, each of which is incorporated by reference
herein.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The
information required by this Item is set forth in the following sections of
the
Company’s Definitive Proxy Statement for its 2008 Annual Meeting of
Stockholders: “Security Ownership of Certain Beneficial Owners and Management”
and “Equity Compensation Plan Information”, each of which is incorporated by
reference herein.
Item
13. Certain Relationships and Related Transactions, and Director
Independence.
The
information required by this Item is set forth in the following sections of
the
Company’s Definitive Proxy Statement for its 2008 Annual Meeting of
Stockholders: “Corporate Governance” and “Certain Relationships and Related
Transactions”, each of which is incorporated by reference herein.
Item
14. Principal Accounting Fees and Services.
The
information required by this Item is set forth in the following section of
the
Company’s Definitive Proxy Statement for its 2008 Annual Meeting of
Stockholders: “Proposal No. 2- Ratification of Selection of Independent
Registered Public Accounting Firm”, which is incorporated by reference
herein.
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
(a)(1)
The following financial statements are included in PART II, Item 8 of this
Annual Report on Form 10-K:
Financial
Statements of the Company
Report
of
Independent Certified Public Accountants
Financial
Statements:
Consolidated
Balance Sheets – as of
January
31, 2008 and 2007
Consolidated
Statements of Operations –
Years
Ended January 31, 2008, 2007 and 2006
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income (Loss)
-
Years
Ended January 31, 2008, 2007 and 2006
Consolidated
Statements of Cash Flows –
Years
Ended January 31, 2008, 2007 and 2006
Notes
to
Consolidated Financial Statements –
Years
Ended January 31, 2008, 2007 and 2006
Financial
Statements of AFC
Report
of
Independent Certified Public Accountants
Financial
Statements:
Balance
Sheets as of December 31, 2007 and December 28, 2006
Statements
of Operations for the Years Ended
December
31, 2007, December 28, 2006 and December 29, 2005
Statements
of Members’ Equity for the Years Ended
December
31, 2007 and December 28, 2006
Statements
of Cash Flows for the Years Ended
December
31, 2007, December 28, 2006 and December 29, 2005
Notes
to
Financial Statements for the Years Ended
December
31, 2007, December 28, 2006 and December 29, 2005
Item
15. Exhibits, Financial Statement Schedules (cont.)
(a)(2)
|
The
following financial statement schedule for the years ended January
31,
2008, 2007 and 2006 is submitted
herewith:
|
Schedule
II – Valuation and Qualifying Accounts
All
other
schedules are omitted because the required information either is not applicable
or is shown in the consolidated financial statements or notes.
(a)(3)
Exhibits
|
|
Description
|
|
|
|
3.1
|
|
Second
Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 99.1 to the Company’s Current Report
on Form 8-K filed with the SEC on November 4, 2005, SEC File No.
1-11601).
|
|
|
|
3.2
|
|
Second
Amended and Restated By-Laws of the Company, dated as of November
4, 2005
(incorporated by reference to Exhibit 99.2 to the Company’s Current Report
on Form 8-K, filed with the SEC on November 4, 2005, SEC File No.
1-11601).
|
|
|
|
4.1
|
|
Certificate
of Designation for the Company’s Series D Junior Participating Preferred
Stock (incorporated by reference to the Company’s Current Report on Form
8-K, filed with the SEC on October 9, 2001, SEC File No.
1-11601).
|
|
|
|
4.2
|
|
Specimen
Stock Certificate of the Company’s Common Stock (incorporated by reference
to Exhibit 4(c) to the Company’s Annual Report on Form 10-K for the fiscal
year ended January 31, 1996, filed with the SEC on April 25, 1996,
SEC
File No. 1-11601).
|
|
|
|
4.3
|
|
Rights
Agreement, dated as of September 26, 2001, by and between the Company
and
American Stock Transfer & Trust Company, including the form of
Certificate of Designation for the Series D Junior Participating
Preferred
Stock attached as Exhibit “A”, the form of Rights Certificate attached as
Exhibit “B” and the Summary of Rights to Purchase Preferred Stock attached
as Exhibit “C” (incorporated by reference to the Company’s Current Report
on Form 8-K, filed with the SEC on October 9, 2001, SEC File No.
1-11601).
|
|
|
|
10.1*
|
|
iDNA,
Inc. 1993 Equity Incentive Plan (incorporated by reference to the
exhibits
to the Company’s Form S-8 Registration Statement, filed with the SEC on
December 28, 1993, File No. 33-51727).
|
|
|
|
10.2*
|
|
iDNA,
Inc. 401(k) Savings and Retirement Plan and Trust (incorporated by
reference to the exhibits to the Company’s Form S-8 Registration
Statement, filed with the SEC on December 28, 1993, File No.
33-51727).
|
Item
15. Exhibits, Financial Statement Schedules (cont.)
10.3
|
|
Purchase
Agreement dated as of April 5, 2000, by and among the Company, National
Cinemas, Inc., FA, Inc. and Reading Entertainment, Inc. (incorporated
by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K,
filed with the SEC on April 20, 2000, File No.
1-11601).
|
|
|
|
10.4*
|
|
Employment
Agreement, dated December 31, 2001, by and between the Company and
Robert
V. Cuddihy, Jr. (incorporated by reference to Exhibit 10.16 to the
Company’s Annual Report on Form 10-K for the fiscal year ended January 31,
2002, filed with the SEC on May 13, 2002, SEC File No.
1-11601).
|
|
|
|
10.5
|
|
Employment
Agreement and Non-Competition and Non-Solicitation Agreement, dated
as of
April 1, 2003, by and between OMI Communications, Inc. and Mr. Dean
R.
Thompson (incorporated by reference to Exhibit 10.16 to the Company’s
Annual Report on Form 10-K for the fiscal year ended January 31,
2003,
filed with the SEC on May1, 2003, SEC File No.
1-11601).
|
|
|
|
10.6
|
|
Stock
Purchase Agreement, dated July 31, 2003, by and among the Company,
Campus
Group Companies, Inc., Audience Response Systems, Inc., Interactive
Conferencing Network, Inc. and Multi-Video Services, Inc. and Steven
Campus, the Campus Family 2000 Trust and the Trust Established Under
the
Will of Nancy Campus (the “Campus Group Shareholders”) (incorporated by
reference to the exhibits to Current Report on Form 8-K, filed with
the
SEC on August 13, 2003, SEC File No. 1-11601).
|
|
|
|
10.7
|
|
Lock-up,
Standstill and Voting Agreement, dated July 31, 2003, by and between
the
Company and The Campus Group Shareholders (incorporated by reference
to
the exhibits to the Company’s Current Report on Form 8-K, filed with the
SEC on August 13, 2003, SEC File No. 1-11601).
|
|
|
|
10.8
|
|
Registration
Rights Agreement, dated July 31, 2003, by and between the Company
and the
Campus Family 2000 Trust (incorporated by reference to the exhibits
to the
Company’s Current Report on Form 8-K, filed with the SEC on August 13,
2003, SEC File No. 1-11601).
|
|
|
|
10.9*
|
|
Employment
Agreement, Non-Competition and Non-Solicitation Agreement , dated
July 31,
2003, by and among the Campus Group Companies, Inc. and Steven Campus
dated July 31, 2003 (incorporated by reference to the exhibits to
the
Company’s Current Report on Form 8-K, filed with the SEC on August 13,
2003, SEC File No. 1-11601).
|
|
|
|
10.10
|
|
Amendment
to Lease [Tuckahoe Premises] dated July 31, 2003, by and between
the
Campus Group Companies, Inc. and the Campus Family 2000 Trust
(incorporated by reference to the exhibits to the
Company’s Current Report on Form
8-K, filed with the SEC on August 13, 2003, SEC File No.
1-11601).
|
|
|
|
10.11
|
|
Amendment
to Lease [Bohemia Premises] dated July 31, 2003, by and between the
Campus
Group Companies, Inc. and the Campus Family 2002 Trust ( incorporated
by
reference to the exhibits to the Company’s Current Report on Form 8-K,
filed with the SEC on August 13, 2003, SEC File No.
1-11601).
|
Item
15. Exhibits, Financial Statement Schedules (cont.)
10.12
|
|
Surety
Agreement, dated as of July 31, 2003, by and between The Campus Group
and
the Campus Group Shareholders (incorporated by reference to the exhibits
to the Company’s Current Report on Form 8-K, filed with the SEC on August
13, 2003, SEC File No. 1-11601).
|
|
|
|
10.13
|
|
Security
Agreement, dated as of July 31, 2003, by and between The Campus Group
and
the Campus Group Shareholders (incorporated by reference to the exhibits
to the Company’s Current Report on Form 8-K, filed with the SEC on August
13, 2003, SEC File No. 1-11601).
|
|
|
|
10.14
|
|
Pledge
Agreement, dated as of July 31, 2003, by and between The Campus Group
and
the Campus Group Shareholders (incorporated by reference to the exhibits
to the Company’s Current Report on Form 8-K, filed with the SEC on August
13, 2003, SEC File No. 1-11601).
|
|
|
|
10.15
|
|
Non-Negotiable
Promissory Notes, dated July 31, 2003, issued by the Company to the
Campus
Group Shareholders (incorporated by reference to the exhibits to
the
Company’s Current Report on Form 8-K, filed with the SEC on August 13,
2003, SEC File No. 1-11601).
|
|
|
|
10.16
|
|
Non-Negotiable
Convertible Promissory Note, dated July 31, 2003, issued by the Company
to
the Campus Family 2000 Trust (incorporated by reference to the exhibits
to
the Company’s Current Report on Form 8-K, filed with the SEC on August 13,
2003, SEC File No. 1-11601).
|
|
|
|
10.17
|
|
Membership
Interest Purchase Agreement, dated as of November 18, 2005, by and
among
the Company, Flexner Wheatley & Associates and MeetingNet Interactive,
Inc.
(incorporated by reference to Exhibit 99.1 to the Company’s Current Report
on Form 8-K, filed with the SEC on November 22, 2005, SEC File No.
1-11601).
|
|
|
|
10.18
|
|
Lockup,
Standstill and Voting Agreement, dated
as
of November 18, 2005, by and among the Company, Flexner Wheatley
&
Associates and MeetingNet Interactive, Inc.
(incorporated by reference to Exhibit 99.2 to the Company’s Current Report
on Form 8-K, filed with the SEC on November 22, 2005, SEC File No.
1-11601).
|
|
|
|
10.19
|
|
Registration
Rights Agreement, dated
as
of November 18, 2005, by and among the Company, Flexner Wheatley
&
Associates and MeetingNet Interactive, Inc.
(incorporated by reference to Exhibit 99.3 to the Company’s Current Report
on Form 8-K, filed with the SEC on November 22, 2005, SEC File No.
1-11601).
|
|
|
|
10.20*
|
|
Employment
Agreement, dated November 18, 2005, by and between OTI and Mark A.
Fite
(incorporated by reference to Exhibit 99.4 to the Company’s Current Report
on Form 8-K, filed with the SEC on November 22, 2005, SEC File No.
1-11601).
|
|
|
|
10.21
|
|
Non-Competition
and Non-Solicitation Agreement, dated as of November 18, 2005, by
and
among the Company, OTI, Flexner Wheatley & Associates, MeetingNet
Interactive, Inc., Mark A. Fite, William A. Flexner, Ray Franklin
and
Kimbal Wheatley
(incorporated by reference to Exhibit 99.5 to the Company’s Current Report
on Form 8-K, filed with the SEC on November 22, 2005, SEC File No.
1-11601).
|
Item
15. Exhibits, Financial Statement Schedules (cont.)
10.22
|
|
Surety
Agreement, dated as of November 18, 2005, by and among the Company,
Flexner Wheatley & Associates and MeetingNet Interactive, Inc.
(incorporated
by reference to Exhibit 99.6 to the Company’s Current Report on Form 8-K,
filed with the SEC on November 22, 2005, SEC File No.
1-11601).
|
|
|
|
10.23
|
|
Security
Agreement (from OTI), dated as of November 18, 2005, by and among
OTI,
Flexner Wheatley & Associates and MeetingNet Interactive, Inc.
(incorporated
by reference to Exhibit 99.7 to the Company’s Current Report on Form 8-K,
filed with the SEC on November 22, 2005, SEC File No.
1-11601).
|
|
|
|
10.24
|
|
Security
Agreement (from the Company), dated as of November 18, 2005, by and
among
the Company, Flexner Wheatley & Associates and MeetingNet Interactive,
Inc. (incorporated
by reference to Exhibit 99.8 to the Company’s Current Report on Form 8-K,
filed with the SEC on November 22, 2005, SEC File No.
1-11601).
|
|
|
|
10.25
|
|
Non-Negotiable
Promissory Note, dated November 18, 2005, issued by the Company to
Flexner
Wheatley & Associates Inc. (incorporated
by reference to Exhibit 99.9 to the Company’s Current Report on Form 8-K,
filed with the SEC on November 22, 2005, SEC File No.
1-11601).
|
|
|
|
10.26
|
|
Non-Negotiable
Promissory Note, dated November 18, 2005, issued by the Company to
MeetingNet Interactive, Inc. (incorporated
by reference to Exhibit 99.10 to the Company’s Current Report on Form 8-K,
filed with the SEC on November 22, 2005, SEC File No.
1-11601).
|
|
|
|
10.27*
|
|
iDNA,
Inc. 2005 Equity Compensation Plan (incorporated by reference to
Appendix
B to the Company’s Definitive Proxy Statement on Schedule 14A, filed with
the SEC on December 14, 2005, SEC File No. 1-11601).
|
|
|
|
10.28
|
|
Loan
and Security Agreement, dated as of July 20, 2006, by and between
the
Company and Seasons Go Round, Inc. (incorporated by reference to
Exhibit
99.1 to the Company’s Current Report on Form 8-K, filed with the SEC on
July 24, 2006, SEC File No. 1-11601).
|
|
|
|
10.29*
|
|
Employment
Agreement, dated as of November 29, 2006, by and between the Company
and
James J. McNamara (incorporated by reference to Exhibit 99.1 to the
Company’s Current Report on Form 8-K, filed with the SEC on December 1,
2006, SEC File No. 1-11601).
|
|
|
|
10.30
|
|
Form
of Master Loan and Security Agreement, dated as of November 19, 2007,
by
and between iDNA Cinema Holdings, Inc., as Borrower, and Silar Advisors,
L.P., as Lender and Administrative, Payment and Collateral Agent
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K, filed with the SEC on November 27, 2007, SEC File No.
1-11601).
|
|
|
|
10.31
|
|
Form
of Promissory Note in the principal amount of $4,250,000, dated November
21, 2007, issued by iDNA Cinema Holdings, Inc. to Silar Advisors,
L.P.
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K, filed with the SEC on November 27, 2007, SEC File No.
1-11601).
|
Item
15. Exhibits, Financial Statement Schedules (cont.)
10.32
|
|
Form
of Warrant to purchase 1,500,000 shares of the Company’s Common Stock,
issued by the Company to Silar Advisors, L.P. on November 21, 2007
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report
on Form 8-K, filed with the SEC on November 27, 2007, SEC File No.
1-11601).
|
|
|
|
10.33
|
|
Form
of Guaranty and Pledge Agreement, dated as of November 19, 2007,
made by
the Company in favor of Silar Advisors, L.P. (incorporated by reference
to
Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the
SEC on November 27, 2007, SEC File No. 1-11601).
|
|
|
|
10.34
|
|
Form
of Guaranty and Pledge Agreement, dated as of November 19, 2007,
made by
National Cinemas, Inc. in favor of Silar Advisors, L.P. (incorporated
by
reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K,
filed with the SEC on November 27, 2007, SEC File No.
1-11601).
|
|
|
|
10.35
|
|
Form
of Amendatory Agreement, dated as of November 21, 2007, entered into
by
the Company, iDNA Cinema Holdings, Inc., National Cinemas, Inc.,
Silar
Advisors, L.P. and Reed Smith LLP providing, inter
alia,
for the re-dating to November 21, 2007 of the foregoing documents
serving
as Exhibits 10.30 through 10.34 to this Annual Report on Form 10-K
that
were dated as of November 19, 2007 (incorporated by reference to
Exhibit
10.6 to the Company’s Current Report on Form 8-K, filed with the SEC on
November 27, 2007, SEC File No. 1-11601).
|
|
|
|
14.
|
|
Code
of Business Conduct, Ethics and Corporate Governance (incorporated
by
reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K,
filed with the SEC on November 8, 2005, SEC File No.
1-11601).
|
|
|
|
21
|
|
Subsidiaries
of iDNA, Inc. at January 31, 2008.
|
|
|
|
23
|
|
Consent
of Independent Certified Public Accountants.
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant
to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant
to
Section 906 of the Sarbanes-Oxley Act of
2002
|
Exhibits
that are above denoted with an asterisk (*) are management contracts or
compensatory plans or arrangements.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
|
|
iDNA,
Inc.
Registrant
|
|
|
|
|
|
|
|
|
|
Date
May 14, 2008
|
|
By:
|
/s/James
J. McNamara
|
|
|
|
|
James
J. McNamara
|
|
|
|
|
Chairman
of the Board and
|
|
|
|
|
Chief
Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Principal
Executive Officer
|
|
Principal
Financial and Accounting Officer
|
|
|
|
|
By:
|
/s/James
J. McNamara
|
|
By:
|
/s/Robert
V. Cuddihy, Jr.
|
James
J. McNamara
|
|
|
Robert
V. Cuddihy, Jr.
|
Chairman
of the Board and
|
|
|
Chief
Financial Officer and Treasurer
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
Date
May 14, 2008 |
|
|
|
|
Directors:
|
|
|
|
|
|
|
/s/James
M. Augur |
|
|
|
James
M. Augur |
|
|
John
A. Gleason
|
|
|
|
|
/s/Donald
Shek |
|
|
|
Donald
Shek |
|
|
James
J. McNamara
|
|
|
|
|
/s/Henry
Y. L. Toh |
|
|
|
Henry
Y. L. Toh |
|
|
|
|
|
|
|
Date May
14, 2008 |
|
|
|
SCHEDULE
II
VALUATION
AND QUALIFYING ACCOUNTS
(In
Thousands)
Column A
|
|
Column B
|
|
Column C
|
|
Column D
|
|
Column E
|
|
|
|
Balance at
beginning of
|
|
Additions Charged to:
|
|
|
|
Balance
at end of
|
|
Description
|
|
period
|
|
Expenses
|
|
Other
|
|
Deductions
|
|
period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended January 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
82
|
|
$
|
(1
|
)
|
$
|
-
|
|
$
|
6
|
|
$
|
75
|
|
Self-insurance
claims
|
|
$
|
235
|
|
$
|
-
|
|
$
|
-
|
|
$
|
63
|
(a)
|
$
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended January 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
105
|
|
$
|
(4
|
)
|
$
|
-
|
|
$
|
19
|
|
$
|
82
|
|
Self-insurance
claims
|
|
$
|
235
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended January 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
65
|
|
$
|
5
|
|
$
|
40
|
(b)
|
$
|
5
|
|
$
|
105
|
|
Self-insurance
claims
|
|
$
|
256
|
|
$
|
-
|
|
$
|
-
|
|
$
|
21
|
(a)
|
$
|
235
|
|
(a)
Cash
disbursements related to self-insured claims.
(b)
Includes $40,000 provision for doubtful accounts at the date of the OTI
acquisition during Fiscal 2006.