Edgar Filing: iDNA, Inc.

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

¨	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, 7^th 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

Item	1.	Business	1
	1A.	Risk Factors	4
	1B.	Unresolved Staff Comments	9
	2.	Properties	10
	3.	Legal Proceedings	10
	4.	Submission of Matters to a Vote of Security Holders	11

Part II

Item	5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
	6.	Selected Financial Data	16
	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	7A.	Quantitative and Qualitative Disclosures About Market Risk	36
	8.	Financial Statements and Supplementary Data	37
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	87
	9A(T).	Controls and Procedures	87
	9B.	Other Information	88

Part III

Item	10.	Directors, Executive Officers and Corporate Governance	89
	11.	Executive Compensation	89
	12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	89
	13.	Certain Relationships and Related Transactions, and Director Independence	89
	14.	Principal Accounting Fees and Services	89

Part IV

Item	15.	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, 7^th 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		Base Annual 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

¹See 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

¹See 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.

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.

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