General

iDNA, Inc. (the "Company" or "iDNA"), began operations in 1969 and was incorporated in Delaware in 1971. iDNA's operations are comprised of three principal reportable segments: (i) strategic communications services, (ii) information services and (iii) entertainment. iDNA manages each segment separately as a consequence of different marketing, service requirements and technology strategies for the respective segments.

The strategic communications services segment provides content development via the design, development and production of media, collateral material, logistics, support and/or broadcast services for presentations at corporate and institutional events, meetings, training seminars and symposiums. The presentations may be live at single or multi-site venues and can include video conferencing, satellite broadcasting and webcasting, or the presentations may be provided via on-demand access via internet websites, DVD or video tape.

The information services segment utilizes custom wireless communication technology and proprietary software to facilitate client audience interaction, participation and polling to collect, exchange and/or analyze data and information in real-time during a meeting or event. The wireless communication services are available as a turn-key service provided by iDNA during a scheduled meeting or event or alternatively, a client can purchase from iDNA the required electronic components and related proprietary software to administer its needs independently.

As of consequence of iDNA's investment in the Angelika Film Centers, LLC ("AFC"), iDNA operates in the movie exhibition and entertainment industry.

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 Condensed Consolidated Financial Statements included under Item 1 of this Part I (hereinafter, the "Notes"). However, certain accounting policies are deemed "critical", as they require management's highest degree of judgment, estimates and assumptions. These accounting estimates and disclosures have been discussed with the Audit Committee of iDNA's Board of Directors. A discussion of iDNA's critical accounting policies, the judgments and uncertainties affecting their application and the likelihood that materially different amounts would be reported under different conditions or using different assumptions are as follows:

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Revenues: iDNA's revenues are earned within short time periods, generally less than one week. iDNA recognizes revenue from its strategic communications segment, including the video production, video editing, meeting services and broadcast satellite or webcast services, and its information services segment when the services are complete and delivered or all technical services have been rendered. Deposits and other prepayments are recorded as deferred revenue until revenue is recognized. iDNA does not have licensing or other arrangements that result in additional revenues following the delivery of the video or a broadcast. Costs accumulated in the production of the video, meeting services or broadcasts are deferred until the sale and delivery are complete. Deferred production costs of $55,000 and $90,000, respectively, are reported as other current assets at April 30, 2008 and January 31, 2008.

iDNA recognizes revenue from the sale of electronic equipment, proprietary software and related components at the time of shipment. Deposits and other prepayments received prior to shipment are recorded as deferred revenue until the electronic equipment and related software are shipped. iDNA has licensing and technical support arrangements for future software enhancements and upgrades for technical support for previously delivered electronic equipment. Revenues derived from licensing and technical support are recognized over the term of the licensing and technical support period, which generally are sold in increments of one year of coverage. For the three months ended April 30, 2008 and 2007, electronic equipment sales were $476,000 and $576,000, respectively.

Cost of Revenues: Cost of revenues consists of direct expenses specifically associated with client service revenues. The cost of revenues includes direct salaries and benefits, purchased products or services for clients, web hosting, support services, shipping and delivery costs.

Accounts Receivable: iDNA extends credit to clients in the normal course of business. iDNA continuously monitors collections and payments from clients and maintains an allowance for doubtful accounts based upon historical experience and any specific client collection issues that have been identified. Since accounts receivable are concentrated in a relatively few number of clients, a significant change in the liquidity or financial position of any of these clients could have a material adverse impact on the collectibility of the accounts receivable and future operating results. iDNA does not have any off-balance sheet credit exposure related to its customers.

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

At January 31, 2008, the goodwill for each of iDNA's business segments (information services and strategic communications services) was tested for impairment. As a consequence of the testing, iDNA determined that the carrying value of both its information services and its strategic communications services business segments exceeded their fair value, which was estimated based upon the present value of each reporting units expected future cash flows. As a consequence, iDNA charged to operations an aggregate of $8.0 million for the estimated impairment of goodwill and other intangible assets relating to (i) its information services segment in the amount of $5.9 million, and (ii) strategic communication services segment in the amount of $2.1 million, respectively, resulting in the carrying value of all goodwill and other intangible assets being reduced to zero. Prior to the impairment charge during the fourth quarter of Fiscal 2008, iDNA charged to operations $203,000 for the amortization of these intangibles for the three months ended April 30, 2007.

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

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ARAC is the subject to certain self-insurance claims and associated litigation expenses relating to its discontinued automobile rental operations. iDNA's management estimates the required self-insurance liability based upon specific identification of the known matters subject to future claims, the nature of the claim and the estimated costs to be incurred. These estimates include, but are not limited to, ARAC's historical loss experience and projected loss factors. The required self-insurance liability is subject to adjustment in the future based upon changes in the nature of the remaining claims or the ultimate cost. As a consequence of iDNA's sale of its automobile rental operations in 1995, iDNA believes that all incurred claims have been reported to ARAC and that there are no longer any incurred but not yet reported claims to be received by ARAC. iDNA's self-insurance liability at April 30, 2008 and January 31, 2008 was $157,000 and $172,000, respectively.

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

Stock-Based Compensation: Effective February 1, 2006, iDNA adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123R (revised 2004), Share-Based Payment ("SFAS No. 123(R)"), which replaced SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), and superseded APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period after December 15, 2005. iDNA elected the prospective method of adopting SFAS No. 123(R) which requires that compensation expense be recorded over the remaining periods for what would have been the remaining fair value under SFAS No. 123 of all unvested stock options and restricted stock at the beginning of the first quarter of adoption. The compensation costs for that portion of awards is based on the grant-date fair value of the awards as calculated for pro forma disclosures under SFAS No. 123. iDNA charged to operations $122,000 and $77,000, respectively, for share-based compensation for the three months ended April 30, 2008 and 2007.

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

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Financial Condition and Results of Operations Results from Operations for the Three Months Ended April 30, 2008 as Compared to the Three Months Ended April 30, 2007

The following table sets forth for the three months ended April 30, 2008 and 2007 certain statements of operations data by segment obtained from iDNA's consolidated statement of operations (in thousands). All figures described in the ensuing discussion (as derived from the table) are stated in approximate amounts, based upon rounding of figures presented in the table.

                                                                   Strategic
                              Information Services          Communications Services        Intersegment Elimination
                               Three Months Ended             Three Months Ended              Three Months Ended
                                   April 30,                      April 30,                       April 30,
                              2008            2007          2008              2007          2008             2007

Revenues                  $     2,097    $      2,305   $      1,441    $       1,326   $        (35 )  $         (31 )
Cost of revenues                1,424           1,346            945            1,206            (35 )            (31 )
Selling, general and
administrative expenses         1,162           1,186            735              931              -                -
Operating income (loss)          (489 )          (226 )         (238 )           (811 )            -                -
Depreciation and
amortization expense              133             220             62              185              -                -



                                                             Undistributed
                                 Entertainment            Corporate Expenses             Consolidated
                              Three Months Ended          Three Months Ended          Three Months Ended
                                  April 30,                   April 30,                   April 30,
                             2008           2007         2008           2007         2008           2007
Revenues                  $        -    $         -   $        -    $         -   $   3,503    $      3,600
Cost of revenues                   -              -            -              -       2,334           2,521
Selling, general and
administrative expenses            -              -          180            217       2,077           2,334
Operating income (loss)          236            271         (414 )         (271 )      (905 )        (1,037 )
Depreciation and
amortization expense               -              -           11             14         206             419

Revenues: Revenues decreased $97,000 to $3.5 million for the three months ended April 30, 2008 as compared to $3.6 million for the three months ended April 30, 2007.

Revenues attributed to the information services segment decreased $208,000 to $2.1 million for the three months ended April 30, 2008 as compared to $2.3 million for the three months ended April 30, 2007. The decrease in revenues was principally due to (i) a decline in electronic equipment sales of $99,000 and
(ii) a decrease of $109,000 as a consequence of changes in the timing and/or scope of the projects completed during the three months ended April 30, 2008 as compared to the three months ended April 30, 2007.

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Revenues attributed to the strategic communications services segment increased $115,000 to $1.4 million for the three months ended April 30, 2008 as compared to $1.3 million for the three months ended April 30, 2007. The increase in revenues was principally due to an increase in the scope and size of projects completed during the three months ended April 30, 2008 as compared to the three months ended April 30,, 2007.

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

Cost of Service Revenues: Cost of revenues for the three months ended April 30,, 2008 and 2007 was $2.3 million and $2.5 million, respectively.

Cost of revenues attributed to the information services segment was $1.4 million for the three months ended April 30, 2008 as compared to $1.3 million for the three months ended April 30,, 2007.

The gross profit realized by the information services segment for the three months ended April 30, 2008 and 2007 was $673,000 and $959,000, respectively. The gross profit decrease of $286,000 for the three months ended April 30, 2008 as compared to the three months ended April 30, 2007 is due principally to the net effect of (i) a decrease in revenues, (ii) a decrease in project margins for the period offset by (iii) a decrease of $13,000 in project overhead costs. The gross margin for the three months ended April 30, 2008 decreased 9.5% to 32.1% as compared to 41.6% for the three months ended April 30, 2007, principally due to (i) a decrease of 9.2% associated with equipment sales, (ii) an increase in direct project costs of 9.3% that resulted in lower project margins and (iii) an increase of 1.2% in indirect production overhead expenses as a percentage of revenues.

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Cost of revenues attributable to the strategic communications segment decreased $261,000 to $945,000 for the three months ended April 30, 2008 as compared to $1.2 million for the three months ended April 30, 2007. The decrease in the costs of revenues was principally due to a decrease in direct project costs of $273,000 as a consequence of the net effect of (i) an increased utilization of internal production staff and resources offset by (ii) a reduction in outside production costs for the three months ended April 30, 2008 as compared to the three months ended April 30, 2007. The gross profit realized by the strategic communications segment for the three months ended April 30, 2008 and 2007 was $496,000 and $120,000, respectively. The gross profit increase of $376,000 for the three months ended April 30, 2008 as compared the three months ended April 30, 2007 was principally due to a favorable mix of production projects utilizing internal production staff and resources. The nature of the strategic communications segment's cost of revenues includes various fixed production, operating and personnel costs as well as variable direct project costs. As a consequence, the absorption of the fixed production operating and personnel costs can cause quarter-to-quarter fluctuations in gross profit realized as iDNA experiences quarter-to-quarter fluctuations in revenues.

Selling, General and Administrative ("SG&A"): SG&A for the three months ended April 30, 2008 and the three months ended April 30, 2007 was $2.1 million and $2.3 million, respectively.

SG&A attributed to the information services segment was $1.2 million and $1.2 million respectively, for three months ended April 30, 2008 and the three months ended April 30, 2007. The decrease in SG&A of $24,000 was principally due to the net effect of (i) a decrease of $92,000 for depreciation and amortization expense as a consequence of the elimination of the amortization of certain intangible assets written off in Fiscal 2008 offset by (ii) an increase in personnel and related cost of $59,000.

SG&A attributable to the strategic communications services segment decreased $196,000 to $735,000 for the three months ended April 30, 2008 as compared to $931,000 for the three months ended April 30, 2007. The decrease in SG&A was due to (i) a decrease of $111,000 for depreciation and amortization expense as a consequence of the elimination of the amortization of certain intangible assets written off in Fiscal 2008 and (ii) a decrease in facility expenses as a consequence of the consolidation of certain facilities implemented in Fiscal 2008.

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SG&A for undistributed corporate expenses for the three months ended April 30, 2008 and April 30, 2007 was $180,000 and $217,000, respectively. The corporate expenses incurred by iDNA relate principally to expenses incurred at its executive offices for executive and corporate finance personnel, certain employee benefits, professional services such as consulting, legal and accounting fees, corporate insurance, corporate marketing initiatives and the costs associated with maintaining its New York facility. iDNA allocates to its various business segments or units the proportionate share of corporate expenses that directly relate to and/or benefit such business segment or unit. The undistributed corporate expenses reflect the remaining expenses incurred but not directly attributable to a business segment or unit. The decrease in corporate SG&A of $37,000 for the three months ended April 30, 2008 as compared to the three months ended April 30, 2007 was due principally to the net effect of (i) lower professional fees from company advisors, (ii) the reduction in facility rent and related occupancy costs as iDNA consolidated its New York City-based strategic communications operations into one facility, offset by (iii) a net increase in personnel and related benefit expenses.

Income from AFC Investment: iDNA accounts for its investment in AFC using the equity method. For the three months ended April 30, 2008 and April 30, 2007, iDNA recorded income of $236,000 and $271,000, respectively, representing iDNA's share of AFC's net income.

Summarized income statement data for AFC for the three months ended March 31, 2008 and 2007, respectively, is as follows (in thousands):

                                               Three Months Ended
                                                    March 31,
                                              2008            2007
Revenues                                   $    1,847    $     2,000

Film rental                                       480            562
Operating costs                                   675            654
Depreciation and amortization                     197            195
General and administrative expenses                22             47
                                                1,374          1,458
Net income                                 $      473    $       542

iDNA's proportionate share of net income   $      236    $       271

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AFC's revenues decreased $153,000 for the three months ended March 31, 2008 as compared to the three months ended March 31, 2007, principally as a result of the net effects of (i) a decrease of 13.4% in attendance period-to-period, (ii) a decrease of $20,000 in other, concession and café revenues, offset by, (iii) a 6.0% increase in average ticket prices. The attendance, and at times the ticket prices, at AFC will vary depending on audience interest in, and the popularity of the films it exhibits and other factors. Film rental expense, as a percentage of revenue, decreased 2.1% to 26.0% from 28.1% for the three months ended March 31, 2008 and 2007, 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 and the popularity of the film. Operating costs, as a percentage of revenue, increased 3.8% to 36.5% for the three months ended March 31, 2008, as compared to 32.7% for the three months ended March 31, 2007 due principally to decreased revenues for the three months ended March 31, 2008 as compared to the three months ended March 31, 2007. The nature of AFC's operating costs tend generally to be more fixed overhead-related costs and advertising expenses.

Interest Expense: For the three months ended April 30, 2008 and 2007, iDNA incurred interest expense of $234,000 and $55,000, respectively. The increase of $179,000 in interest expense for the three month period ended April 30, 2008 as compared to the three month period ended April 30, 2007 is due principally to an increase in interest costs attributable to the Term Loan (defined below) consummated in November 2007.

Income Taxes: Due to net operating losses and the availability of net operating loss carryforwards, iDNA's effective federal income tax rate was zero for the three month periods ended April 30, 2008 and April 30, 2007. iDNA has provided a full valuation allowance against its net operating loss carryforward and other net deferred tax asset items due to the uncertainty of their future realization. For the three months ended April 30, 2008, iDNA has charged to income tax expense $6,000 relating to estimated state and local income taxes.

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Liquidity and Capital Resources

As a consequence of periodic fluctuations in iDNA's working capital needs based upon the timing of collections, distributions from AFC, and periods of increased production activity, on November 21, 2007, iDNA, via its wholly owned subsidiary, iDNA Cinema Holdings, Inc. ("Holdings"), consummated a Master Loan and Security Agreement (the "Loan Agreement") with Silar Advisors, L.P. ("Silar"), as Lender and Administrative, Payment and Collateral Agent, pursuant to which Silar provided a term loan in an aggregate principal amount of $4.25 million (the "Term Loan") to Holdings (the "Term Loan Financing"). Interest accrues on the Term Loan at a per annum rate equal to the variable annual rate of interest designated from time to time by Citibank N.A. as its "prime rate," plus 4%, or, if greater, 12.25%, and is payable by Holdings on a quarterly basis. At April 30, 2008, the "prime rate" was 5.0%. 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 . . .