UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
(Mark
One)
x
Annual
Report Pursuant To Section 13 or 15(d) Of the Securities Exchange Act Of
1934
For
the
fiscal year end June
30, 2006
¨
Transition
Report under Section 13 or 15(d) Of the Securities Exchange Act Of 1934
For
the
transition period from _____ to _____
COMMISSION
FILE NUMBER 033-24138-D
BRENDAN
TECHNOLOGIES, INC.
(Name
of
small business issuer in its charter)
NEVADA
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38-3378963
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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2236
Rutherford Rd., Suite 107
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Carlsbad,
California
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92008
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(Address
of principal executive offices)
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(Zip
Code)
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Issuer's
telephone number (760)
929-7500
Securities
registered under Section 12(b) of the Exchange Act: NONE.
Securities
registered under Section 12(g) of the Exchange Act:
COMMON
STOCK, $0.004995 PAR VALUE PER SHARE.
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act ¨
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x No
o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes o No x
Revenues
for the fiscal year ended June 30, 2006 were:
$681,337.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
sold as of October
5, 2006 was $4,841,963.
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date. As
of October 5, 2006 the issuer had 25,498,794 shares
of Common Stock outstanding.
Part I
Item 4 of this Annual Report on Form 10-KSB incorporates by reference
information (to the extent specific sections are referred to herein) from the
Registrant’s Information Statement mailed to stockholders on July 24, 2006.
Transitional
Small Business Disclosure Format (Check one): Yes ¨ No x
Annual
Report on Form 10-KSB
for
the Year Ended June 30, 2006
TABLE
OF CONTENTS
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Page
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PART
I
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ITEM
1.
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Description
of Business
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3
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ITEM
2.
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Description
of Property
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7
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ITEM
3.
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Legal
Proceedings
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7
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ITEM
4.
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Submission
of Matters to a Vote of Security Holders
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7
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PART
II
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ITEM
5.
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Market
for Common Equity, Related Stockholder Matters and Small
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Business
Issuer Purchases of Equity Securities
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7
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ITEM
6.
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Management's
Discussion and Analysis or Plan of Operation
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8
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ITEM
7.
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Financial
Statements
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17
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ITEM
8.
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Changes
in and Disagreements with Accountants on
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Accounting
and Financial Disclosure
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17
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ITEM
8A.
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Controls
and Procedures
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18
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ITEM
8B.
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Other
Information
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18
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PART
III
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ITEM
9.
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Directors,
Executive Officers, Promoters and Control Persons;
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Compliance
with Section 16(a) of the Exchange Act
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19
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ITEM
10.
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Executive
Compensation
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21
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ITEM
11.
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Security
Ownership of Certain Beneficial Owners and Management
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and
Related Stockholder Matters
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23
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ITEM
12.
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Certain
Relationships and Related Transactions
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24
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ITEM
13.
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Exhibits
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25
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ITEM
14.
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Principal
Accountant Fees and Services
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28
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DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements contained in this Annual Report on Form 10-KSB constitute
"forward-looking statements". These statements, identified by words such as
“plan”, "anticipate", "believe", "estimate", "should," "expect" and similar
expressions, include our expectations and objectives regarding our future
financial position, operating results and business strategy. These statements
reflect the current views of management with respect to future events and are
subject to risks, uncertainties and other factors that may cause our actual
results, performance or achievements, or industry results, to be materially
different from those described in the forward-looking statements. Such risks
and
uncertainties include those set forth under the caption "Management's Discussion
and Analysis or Plan of Operation" and elsewhere in this Form 10-KSB. We advise
you to carefully review the reports and documents we file from time to time
with
the Securities and Exchange Commission (“SEC”), particularly our quarterly
reports on Form 10-QSB and our current reports on Form 8-K.
As
used
in this annual report, the terms "we", "us", "our", Brendan”, the “Company”, and
“Omni” mean Brendan Technologies, Inc., unless otherwise indicated.
PART
I
The
Company
On
September 15, 2006, Omni U.S.A., Inc., a Nevada corporation (“Omni”),
changed its name to Brendan Technologies, Inc., a Nevada corporation
(“we”,
the “Company” or “Brendan”).
On
December 29, 2005, Omni, Omni’s wholly-owned subsidiary Omni Merger Sub, Inc., a
Michigan corporation (“Merger
Sub”),
Jeffrey Daniel and Edward Daniel entered into an Agreement and Plan of Merger
(the “Merger
Agreement”)
with
Brendan Technologies, Inc., a Michigan corporation (“Brendan
Sub”)
pursuant to which Merger Sub was merged with and into Brendan Sub and Brendan
Sub became the surviving corporation in the merger and a wholly-owned subsidiary
of Omni. Brendan Sub continues its corporate existence under the laws of the
State of Michigan.
Concurrently
with the merger, 4,754,709
shares
of
Brendan Sub common stock outstanding immediately before the merger were
converted into 19,018,836
shares
of
Omni common stock, a four for one ratio. Also concurrently with the merger,
(i)
4,352,879
shares
of
Omni common stock were issued to the holders of Brendan Sub Senior and Bridge
Notes totaling $2,654,198
in
aggregate principal and interest, a conversion rate of 1.64 shares per $1.00
under such debt; and (ii) 900,000 shares of Omni common stock was issued to
individuals who participated in the arrangement of the merger.
Common
stock options and warrants exercisable into 973,500
shares
of
Brendan Sub before the merger became exercisable into 3,894,000
common
shares of Omni after the merger. The exercise price of the Omni stock options
and warrants was adjusted to 25% of the exercise price of the Brendan Sub stock
options and warrants.
At
the
effective time of the merger, Omni appointed John Dunn II, Lowell Giffhorn,
Theo
Vermaelen and Steven Eisold to the Omni Board of Directors, and Jeffrey Daniel,
Craig Daniel, Kevin Guan and Didi Duan resigned from the Omni Board of
Directors. In addition, John Dunn II was appointed Chairman of the Board,
President, Chief Executive Officer and Chief Technical Officer; Lowell Giffhorn
was appointed Vice President and Chief Financial Officer; and George Dunn was
appointed Vice President, Secretary and Chief Operating Officer of Omni. Jeffrey
Daniel and Craig Daniel resigned from their positions as officers of
Omni.
Concurrent
with entering into the Merger Agreement, on December 29, 2005, Omni entered
into
a Stock Purchase Agreement (“Stock
Purchase Agreement”)
with
Jeffrey K. Daniel, Craig L. Daniel and Edward Daniel (“Daniels”)
pursuant to which, immediately following the merger, Omni sold to Daniels all
of
the issued and outstanding shares of capital stock of Omni U.S.A., Inc., a
Washington corporation (“Omni-Washington”)
and
Butler Products Corporation (“Butler”),
each
of which was previously a wholly-owned subsidiary, in exchange for a three-year
promissory note due on December 29, 2008 in the amount of $672,000 (the
“Promissory
Note”).
Prior
to
the transactions effected by the Stock Purchase Agreement and Merger Agreement,
Omni-Washington and Butler constituted substantially all of Omni’s operations.
Following the transactions effected by the Merger Agreement and the Stock
Purchase Agreement, Brendan Sub is now our sole wholly-owned subsidiary, and
we
conduct all our operations through Brendan.
Business
Overview
Brendan
Sub was formed on October 31, 1997, under the laws of the State of Michigan
as
Brendan Technologies, Inc., and does business as Brendan Scientific Corporation.
Through Brendan Sub, our wholly owned subsidiary, we are a software company
that
designs, develops and markets computational analytical software products for
the
laboratory testing industry. Brendan’s laboratory workflow and analysis software
platform manages the raw, computed and analytical data in testing laboratories
and in manufacturing.
Brendan
evolved from the initial work of its founder John R. Dunn II, Ph.D., now our
Chairman, President, Chief Executive Officer and Chief Technical Officer.
Brendan’s first commercialized product is StatLIA®, software designed
specifically for immunoassay testing. Since Dr. Dunn’s early work on StatLIA®
over nine years ago, StatLIA® has been developed with software engineers,
mathematicians and laboratory professionals who specialize in laboratory
testing. Over the years, StatLIA® has been used in laboratories, undergoing
numerous revisions and additions to develop the product.
StatLIA®
Immunoassays,
one of the world’s largest and fastest growing testing technologies, is used to
test for metabolites found in AIDS, hepatitis, cancer, environmental pollutants,
side effects of new drugs and thousands of other biological and environmental
substances. Immunoassays are a broadly applicable technology allowing low cost,
rapid analysis through high throughput testing. Immunoassays are used
extensively in pharmaceutical, hospital, clinical reference, academic and
industrial research, environmental, agricultural, food processing and
veterinarian laboratories throughout the world.
StatLIA®
uses comprehensive statistics to directly or indirectly analyze the performance
of each of the nine immunoassay components (label, tracer, antibody, buffer,
incubation, separation, standards, controls and unknowns). StatLIA® stores a
fixed set of stable reference assays which are statistically compared to a
single assay or multiple assays to detect changes in reagents or incubation
conditions. With a reference set of at least two assays, standard curve and
control specimen parameters in today’s assay are statistically compared to the
same parameter in the reference assays to identify any statistically significant
differences.
StatLIA®
is intended to address the following:
·
Insufficient
Quality
- Error
rates in Immunoassay testing is estimated to be as high as 4%. Testing errors
and the inability to directly locate error sources is costly and time consuming.
We believe that StatLIA® will reduce the error rates and enhance the tester’s
ability to locate the error source.
· Lack
of Automation
-
Immunoassay testing is very labor intensive due to many manual steps in the
processing, tracking and analysis of the data produced. With high throughput
testing becoming the industry norm, the data needs to be managed with even
greater efficiency. We believe that StatLIA® will reduce such labor costs.
·
Regulatory
Compliance
-
Federal regulations are placing increasing demands for compliance with the
Food
and Drug Administration’s (“FDA”)
quality assurance regulations. We believe that StatLIA® will meet the growing
need for automated software that can assist laboratories in complying with
the
regulation.
·
Need
for Better Data
Management
-
Improved technologies have allowed greater automation in Immunoassay testing,
increasing throughput volumes but requiring better connectivity and
standardization for the management of the data generated. We believe that
StatLIA® will address the need for greater connectivity and
standardization.
Brendan
first targeted the immunoassay market with StatLIA® because it is a fragmented
and large market that may allow Brendan to sell its software to testing
equipment distributors and original equipment manufacturers (“OEMs”),
and
earn a share of business from large organizations.
Users
of
StatLIA® include device and reagent manufacturers, pharmaceutical companies,
clinical diagnostic centers and government testing laboratories. Distributors
of
StatLIA® include device and reagent manufacturers and their distributors, as
well as Brendan’s direct sales force.
Customer
Base
Brendan
has used most of its capital to date in the development of StatLIA® and the
expansion of the program to encompass all of the differing immunoassay
technologies and workflow configurations found in research and clinical
laboratories. Existing customers who have used StatLIA® in laboratories
include several large pharmaceutical companies, clinical diagnostic
organizations, reagent manufacturers and research entities. This client base
also serves as a source of revenue for additional instruments and workstations,
and support and maintenance renewal fees.
Many
of
our institutional clients operate under rigorous FDA regulations, or the
European equivalent, and the FDA requires that new software products be
validated.
Strategy
Industry
Analysis
Using
data obtained from Morgan Stanley Dean Witter, Global Industry Analysts, and
other published industry and marketing reports, and instrument manufacturer
sales figures, we estimate this market to represent over $1 billion in
revenue and does not include the food processing, agricultural, veterinarian,
or
the rapidly expanding environmental immunoassay markets. This also does not
include software applications for other technologies. According to the Health
Industry Manufacturer’s Association, more than $50 billion in medical devices,
diagnostic products and health information systems are currently purchased
annually in the United States and more than $120 billion worldwide. This
represents only the clinical market segment and not pharmaceutical, research,
environmental and other segments.
Conventional
laboratory software falls into two primary areas: laboratory management or
instrumentation. Laboratory management software handles billing, report
generation, and other administrative tasks. The software is not designed for
complex technical computation. Software for the testing instruments operate
as
dedicated systems and is basically designed only to generate results. It is
not
designed for the complete statistical analysis and data management and record
keeping requirements for pharmaceutical, clinical or research labs, nor is
it
designed to exist in a cooperative environment with other immunoassay
instruments.
StatLIA®
was introduced to meet this need, which we believe no other commercial software
available meets. By using StatLIA® for their assay validation and documentation
as well as standardizing on it as one uniform system throughout their
organization, pharmaceutical companies may save substantial time and resources
supplying the necessary documentation to get new drugs to market and clinical
laboratories may increase productivity and reliability while reducing costs.
Market
We
believe that through Brendan we have the opportunity to introduce a product
to
serve an under-served niche market: the software used in biomedical and
non-biomedical testing laboratories. The testing industry generates more than
$100 billion in revenues each year to run tests for drug development, medical
diagnostics and treatments, water and soil samples, infectious disease research,
food contaminants, and numerous other health and industry-critical applications.
Brendan
has focused on the analytical segment of the market. This is the computation,
storage and analysis of the raw signal data generated by a testing instrument.
However, the majority of the software used to analyze these tests is a part
of
the instrument software that is provided by the instrument manufacturer. These
routines do not provide all of the capabilities and are not as extensive as
the
data currently computed by StatLIA®.
StatLIA®
allows laboratories to interface all of their immunoassay testing instruments
into one uniform system. As one system, as compared to the more common system
using several isolated testing instruments, the StatLIA® system can be easily
interfaced to Brendan’s main database for reporting patient results and
recording clinical trial data, among other processes. The system also integrates
into a laboratory’s network, so that multiple computers can be used to prepare,
compute, analyze and report all assay data, thereby increasing workflow.
StatLIA®’s superior quality control process not only determines the accuracy of
the test more reliably than the software currently available, but also pinpoints
the specific cause of a problem in a bad test, dramatically reducing laboratory
downtime and reagent costs.
Competition
Almost
all immunoassay software is produced and sold by manufacturers bundled with
their instruments. These programs are included to stimulate sales of their
instruments and are not usually marketed as stand-alone products.
Conventional laboratory software falls into two primary areas: laboratory
management or instrumentation functionality. Laboratory management software
handles billing, report generation and other administrative tasks. The software
is not designed for complex technical computation. On the other hand, software
for testing instruments operates as a dedicated system and is designed primarily
to generate testing data. This software has limitations meeting the complete
statistical analysis, data management, data utilization and record keeping
demands of pharmaceutical, clinical or research labs, nor is it designed to
exist in a cooperative environment with other testing instruments.
Prior
to
Brendan, we believe that no company has focused as extensively on the gap
between instrument operational software and administrative LIM software. Brendan
has worked with several industry-leading labs to develop StatLIA® and we believe
that StatLIA® is a unique software product that surpasses any software currently
available for this market.
To
date,
the majority of StatLIA® sales have been replacing existing OEM software on
testing equipment. This software, bundled with the instruments, is Brendan’s
current main competition. Existing equipment-specific software include Softmax,
used for Molecular Device’s microplate readers and KC4 used for BioTek
Instrument’s microplate readers. We believe instrument manufacturers are
excellent prospects for distribution agreements to incorporate or bundle our
software with their instruments.
Intellectual
Property
We
attempt to protect the proprietary aspects of our products with copyrights,
trade secret law and internal nondisclosure safeguards. The source code for
the
software contained in our products is considered proprietary and we do not
furnish source code to our customers. We have also entered into confidentiality
agreements with our employees. Despite these restrictions, it may be possible
for competitors or users to copy aspects of our products or to obtain
information that we regard as a trade secret.
There
is
a rapid pace of technological change in the software industry, which in turn
compels us to continually enhance and extend our product lines. We believe
that
patent, trade secret and copyright protection is less significant to our
competitive position than factors such as the knowledge, ability and experience
of our personnel, new product development, frequent product enhancements, name
recognition and ongoing, reliable product maintenance and support.
Employees
Brendan
currently has 12 full time employees and two part time consultants. Brendan
has
entered into employment agreements with certain of its employees.
ITEM
2. DESCRIPTION
OF PROPERTY.
We
conduct our corporate functions and manufacturing, product development, sales
and marketing activities in Carlsbad, California. We rent 3,988 square feet
of
office space at 2236 Rutherford Road, Suite 107, Carlsbad, California 92008
under a two-year lease ending May 31, 2008 for a monthly rent ranging from
$4,825 for the first year increasing to $4,985 for the second year. The average
monthly rent for the two-year period is $4,905. This space is adequate to meet
our foreseeable future needs.
ITEM
3. LEGAL PROCEEDINGS.
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
On
July
24, 2006, we provided an Information Statement to stockholders of record as
of
June 15, 2006 in which we provided information related to a change in the name
of the corporation to Brendan Technologies, Inc. and the adoption of the 2006
Equity Incentive Plan. The Information Statement is hereby incorporated by
reference.
PART
II
ITEM
5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND SMALL BUSINESS ISSUER PRUCHASES OF EQUITY
SECURITIES.
Our
Common Stock is traded in the over-the-counter market and is quoted on the
NASD
OTC Bulletin Board system maintained by the National Association of Securities
Dealers, Inc. Prices reported represent prices between dealers, do not include
markups, markdowns or commissions and do not necessarily represent actual
transactions. The market for our shares has been sporadic and at times very
limited.
The
following table sets forth the high and low closing price for the Common Stock
for the fiscal years ended June 30, 2006 and 2005. Closing prices previous
to
the reverse merger date of December 29, 2005, are reflective of the closing
prices for the predecessor corporation.
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Closing
Price
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High
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Low
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Fiscal
Year Ended June 30, 2006
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First
Quarter
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$
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1.85
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$
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1.36
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Second
Quarter
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$
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1.75
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$
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1.10
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Third
Quarter
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$
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1.20
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$
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0.60
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Fourth
Quarter
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$
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0.68
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$
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0.25
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Fiscal
Year Ended June 30, 2005
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First
Quarter
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$
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2.00
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$
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1.01
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Second
Quarter
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$
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2.35
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$
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1.11
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Third
Quarter
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$
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2.33
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$
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1.30
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Fourth
Quarter
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$
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1.75
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$
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0.91
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We
had
approximately 250 shareholders of record as of September 15, 2006. Because
most
of our common stock is held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of beneficial owners
represented by these record holders. We have never paid a cash dividend on
our
common stock and do not expect to pay one in the foreseeable
future.
Recent
Sale of Unregistered Securities
Information
concerning the sales of unregistered securities during fiscal year 2006 have
been previously provided on Current Reports on Form 8-K.
ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Overview
The
Company completed a reverse merger transaction on December 29, 2005 with Brendan
Sub, a Michigan corporation formed in October 1997. Prior to the merger, Omni,
through its wholly-owned subsidiary, Omni U.S.A., Inc., a Washington corporation
("Omni-Washington") and Omni-Washington's wholly-owned subsidiary, Omni
Resources, Ltd., a Hong Kong company ("Omni Resources"), through its
wholly-owned manufacturing facility, Shanghai Omni Gear Co., Ltd.("Shanghai
Omni
Gear"), designed, developed, manufactured and distributed power transmissions
(also known as "gearboxes" or "enclosed gear drives") for use in agricultural,
industrial, "off-highway" and construction equipment. Omni, through another
wholly-owned subsidiary, Butler Products Corporation, designed, developed,
manufactured and distributed trailer and implement jacks and couplers, which
included light and heavy-duty jacks and couplers used in a variety of trailers.
Immediately following the closing of the merger, the subsidiaries of Omni were
sold to its founders and Brendan Sub became the only wholly owned subsidiary
of
Omni, the public company. The directors and management of Brendan Sub became
the
directors and management of Omni. For a more complete description of the reverse
merger transaction and sale of the subsidiaries in which Omni received
approximately $498,000 in gross proceeds, see our current report on Form 8-K,
dated December 29, 2005 and filed with the SEC on January 5, 2006.
On
September 15, 2006, we changed the name of our company from Omni U.S.A., a
Nevada corporation, to Brendan Technologies, Inc., a Nevada corporation. Brendan
Sub continues to be the only operating subsidiary of Brendan Technologies,
Inc.
Brendan
Sub was incorporated on October 31, 1997 in the state of Michigan. Brendan
Sub
develops and markets scientific computer software for applications in the
pharmaceutical/biotechnical research, clinical diagnostic, environmental, and
other life and physical science markets.
Since
our
business is that of Brendan Sub only, the management of Brendan Sub became
the
management of the Company and the former Brendan Sub stockholders and note
holders received a majority of the total common stock of the Company in the
reverse merger, the merger was accounted for as a recapitalization of Omni
and
the information in this Form 10-KSB is that of Brendan Sub.
Critical
Accounting Policies and Estimates
The
preparation of consolidated financial statements in accordance with accounting
principles generally accepted in the United States requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and
liabilities.
On
an
ongoing basis, we evaluate our estimates, including those related to our product
returns, bad debts, intangible assets, long-lived assets and contingencies
and
litigation. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions
or
conditions.
We
have
identified two accounting policies that we believe are key to an understanding
of our financial statements. These important accounting policies require
management's most difficult, subjective judgments.
1.
Revenue Recognition
The
Company recognizes revenues related to software licenses and software
maintenance in accordance with the American Institute of Certified Public
Accountants (“AICPA”) Statements of Position (“SOP”) No. 97-2, “Software Revenue
Recognition,” as amended by SOP No. 94-4 and SOP No. 98-9. We follow the
guidance established by the SEC in Staff Accounting Bulletin No. 104, as well
as
generally accepted criteria for revenue recognition, which require that, before
revenue is recorded, there is persuasive evidence of an arrangement, the fee
is
fixed or determinable, collection is reasonably assured, and delivery to our
customer has occurred. In addition, our invoices may include multiple elements
that identify vendor specific objective evidence of fair value for each of
those
elements. The Company recognizes revenue as follows:
Software-
our software is sold with an indefinite license period, and as such, product
revenue is recorded at the time of the customer’s acceptance (generally 30 days
after shipment which allows for a 30 day return guarantee if the customer is
not
satisfied with the product), net of estimated allowances and returns.
Post-contract
customer support- (“PCS”) obligations are generally for annual services and are
recognized over the period of service. Revenues for which payment has been
received are treated as deferred revenue until services are provided and
revenues have been earned.
Training
and service calls- recognized at the time training or service calls are
provided.
Royalties-
we recognize revenue from royalties only after the cash has been collected
(typically 30 days after the end of the quarter on which the royalty payment
is
based.)
Licensing-
we also derive license revenue from fees for the transfer of proven and reusable
intellectual property components. Generally, these payments will include a
nonrefundable technology license fee, which will be payable upon the transfer
of
intellectual property. License fees will be recognized upon the execution of
the
license agreement and transfer of intellectual property provided no further
significant performance obligations exist and collectibility is deemed probable.
Customization
revenue- fees related to software service contracts to aid customers in adapting
such intellectual property to their particular instruments, which will be
performed on a best efforts basis and for which we will receive periodic
milestone payments, will be recognized as revenue over the estimated development
period, using a cost-based percentage of completion method.
2.
Going Concern
The
financial statements have been prepared on a going concern basis. However,
during the year ended June 30, 2006 and the transition six month period ended
June 30, 2005, the Company incurred net losses of $845,393 and $164,772,
respectively, and had an accumulated deficit of $6,241,709 and $5,396,316,
at
June 30, 2006 and 2005, respectively. In addition, the Company had a working
capital deficit of $1,559,809 and is in default on $333,217 of debt and
interest. The Company’s ability to continue as a going concern is dependent upon
its ability to generate profitable operations in the future and/or to obtain
the
necessary financing to meet its obligations and repay its liabilities arising
from normal business operations when they come due. The outcome of these matters
cannot be predicted with any certainty at this time and as such raise
substantial doubt as to the Company’s ability to continue as a going concern.
Since inception, the Company has satisfied its capital needs through debt and
equity financings and expects to fund the Company from these sources until
profitability is achieved. There can be no assurance that funds will be
available at terms favorable to the Company or that future profitability can
be
achieved.
Results
of Operations
On
December 29, 2005, the Company completed the acquisition of substantially all
the assets of Brendan Sub pursuant to the Merger Agreement and completed the
disposition of substantially all the assets of Omni-Washington and Butler
pursuant to the Stock Purchase Agreement. As a result of these transactions
and
the issuance of common stock to the shareholders, noteholders and individuals
who assisted in the merger, Brendan Sub, a now wholly-owned subsidiary of the
Company, became the accounting acquirer and the transaction was accounted for
as
a reverse merger acquisition.
As
a
result of Brendan Sub being the accounting acquirer and the post acquisition
financial statements being the historical statements of Brendan Sub, the fiscal
year end of Brendan Sub was changed from December 31 to June 30. The Company’s
transition period is the six months ended June 30, 2005.
Year
Ended June 30, 2006 Compared to the Six Months Ended June 30, 2005 (transition
period)
Selected
Financial Information
|
|
Year
Ended
June
30, 2006
|
|
Six
Months Ended
June
30, 2005
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Statements
of Operations
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
681,337
|
|
$
|
419,526
|
|
$
|
261,811
|
|
|
62.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
103,190
|
|
|
65,173
|
|
|
38,017
|
|
|
58.3
|
%
|
General
and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
|
1,215,966
|
|
|
352,614
|
|
|
863,352
|
|
|
244.8
|
%
|
Interest
expense |
|
|
207,574
|
|
|
166,511
|
|
|
41,063
|
|
|
-24.7
|
%
|
Total
expenses
|
|
|
1,526,730
|
|
|
584,298
|
|
|
942,432
|
|
|
-161.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(845,393
|
)
|
$
|
(164,772
|
)
|
$
|
(680,621
|
)
|
|
413.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) per basic and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted
share
|
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
$
|
(0.02
|
)
|
|
50.0
|
%
|
Revenue
Revenue
for the year ended June 30, 2006 increased $261,811, 62.4%, to $681,337 compared
to $419,526 for the transition period ended June 30, 2005. The primary reason
for the sales increase was the initial order for a segment of our upgraded
version of the StatLIA software, version 4.0, which amounted to approximately
$127,000 and the change in the accounting period which compared six months
for
the transition period ended June 30, 2005 to twelve months for the year ended
June 30, 2006.
Selling
Expenses
Selling
expenses for the year ended June 30, 2006 increased $38,017, 58.3%, to $103,190
compared to $65,173 for the transition period ended June 30, 2005. The increase
reflects the change in the accounting period from six months for the transition
period ended June 30, 2005 compared to twelve months for the year ended June
30,
2006.
Operating
Expenses
Operating
expenses increased by $863,352, a 244.8% increase, to $1,215,966 for the year
ended June 30, 2006 from $352,614 for the transition period ended June 30,
2005.
The primary reasons for the increase were approximately $106,000 increase in
consulting expenses associated with becoming a public company which included
the
retaining of a chief financial officer, $148,000 increase in legal and
accounting expenses related to becoming a public company, and $275,000 related
to an increase in personnel and infrastructure related to upgrading our StatLIA
software to version 4.0. In addition, the above comparative amounts reflect
the
change in the accounting period from six months for the transition period ended
June 30, 2005 compared to twelve months for the year ended June 30,
2006.
Interest
Expense
Interest
expense increased by $41,063, a 24.7% increase, to $207,574 for the year ended
June 30, 2006 from $166,511 for the transition period ended June 30, 2005.
The
primary reason for the increase was the change in the accounting period from
six
months for the transition period to twelve months for the year ended June 30,
2006 offset by a reduction in interest expense as a result of the conversion
of
notes payable into common stock of Omni in December 2005.
Capital
Resources
|
|
As
of
|
|
Increase
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
(Decrease)
|
|
Working
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
205,920
|
|
$
|
104,967
|
|
$
|
100,953
|
|
Current
liabilities |
|
|
1,765,729
|
|
|
4,326,255
|
|
|
(2,560,526 |
) |
Working
capital deficit
|
|
$
|
(1,559,809
|
)
|
$
|
(4,221,288
|
)
|
$
|
2,661,479
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$
|
117,650
|
|
$
|
9,836
|
|
$
|
107,814
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
deficit
|
|
$
|
(1,596,529
|
)
|
$
|
(4,210,955
|
)
|
$
|
2,614,426
|
|
|
|
Year
Ended
|
|
Six
Months Ended
|
|
Increase
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
(Decrease)
|
|
Statements
of Cash Flows Select Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided (used) by:
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
(637,191
|
)
|
$
|
(13,854
|
)
|
$
|
(623,337
|
)
|
Investing
activities
|
|
$
|
(67,039
|
)
|
$
|
(312
|
)
|
$
|
(66,727
|
)
|
Financing
activities
|
|
$
|
821,238
|
|
$
|
25,000
|
|
$
|
796,238
|
|
|
|
As
of
|
|
Increase
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
(Decrease)
|
|
Balance
Sheet Select Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
149,512
|
|
$
|
32,504
|
|
$
|
117,008
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
56,107
|
|
$
|
71,751
|
|
$
|
(15,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,348,419
|
|
$
|
1,380,208
|
|
$
|
(31,789
|
)
|
Liquidity
Brendan
has historically financed its operations through debt and equity financings.
At
June 30, 2006, we had cash holdings of $149,512, an increase of $117,008
compared to June 30, 2005. Our net working capital deficit at June 30, 2006,
was
$1,559,809 compared to $4,221,288 as of June 30, 2005. In June and July 2006,
we
issued 8% convertible debentures with attached common stock purchase warrants
for $125,000 and $900,000, net of costs, respectively.
These
financial statements have been prepared on a going concern basis. However,
during the year ended June 30, 2006 and the transitional period ended June
30,
2005, the Company incurred net losses of $845,393 and $164,772, respectively,
and had an accumulated deficit of $6,241,709 and $5,396,316, at June 30, 2006
and 2005, respectively. The Company’s ability to continue as a going concern is
dependent upon its ability to generate profitable operations in the future
and/or to obtain the necessary financing to meet its obligations and repay
its
liabilities arising from normal business operations when they come due. The
outcome of these matters cannot be predicted with any certainty at this time.
Since inception, the Company has satisfied its capital needs through debt and
equity financings.
On
December 29, 2005, Omni, immediately following the reverse merger, sold its
operating subsidiaries to their original founders for a note receivable of
$770,000. The note was subsequently discounted to $498,000 of which $98,000
was
advanced to Brendan to cover a portion of the costs associated with the reverse
merger and $398,498 was received in cash as of June 30, 2006. In addition,
Brendan’s noteholders converted $2,654,198 of notes payable and accrued interest
into 4,352,879 common shares of Omni. Brendan’s shareholders converted 4,754,709
shares of common stock into 19,018,836 common shares of Omni. An additional
900,000 shares of Omni’s common stock was issued to individuals who participated
in the reverse merger. The cash proceeds from the sale of the note will be
insufficient to meet the Company’s ongoing liquidity requirements. Therefore,
the Company will need to seek additional financing to meet its liquidity
requirements. In June and July 2006 we issued 8% convertible debentures with
attached common stock purchase warrants for $125,000 and $900,000, net of costs,
respectively.
Management
plans to continue to provide for its capital needs during the twelve months
ending June 30, 2007, by increasing sales through the continued development
of
its products and by debt and/or equity financings. These financial statements
do
not include any adjustments to the amounts and classification of assets and
liabilities that may be necessary should the Company be unable to continue
as a
going concern.
New
Accounting Pronouncements
In
May
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections"
("SFAS 154") which replaces Accounting Principles Board Opinions No. 20
"Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim
Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154 provides
guidance on the accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application, or the latest practicable
date, as the required method for reporting a change in accounting principle
and
the reporting of a correction of an error. SFAS 154 is effective for accounting
changes and a correction of errors made in fiscal years beginning after December
15, 2005 and is required to be adopted by the Company in the first quarter
of
fiscal 2007. The Company is currently evaluating the effect that the adoption
of
SFAS 154 will have on its consolidated results of operations and financial
condition.
In
December 2004, the FASB issued SFAS No. 123R, “Share Based Payment". This
Statement is a revision of FASB Statement No. 123, “Accounting for Stock-Based
Compensation”. This Statement supersedes APB Opinion No. 25, “Accounting for
Stock Issued to Employees”, and its related implementation guidance. This
Statement establishes standards for the accounting for transactions in which
an
entity exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments
or
that may be settled by the issuance of those equity instruments. This Statement
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. This Statement does
not
change the accounting guidance for share-based payment transactions with parties
other than employees provided in Statement 123 as originally issued and EITF
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." This Statement does not address the accounting for employee share
ownership plans, which are subject to AICPA Statement of Position 93-6,
“Employers’ Accounting for Employee Stock Ownership Plans”. The Company adopted
this standard on January 1, 2006. The adoption of this standard did not have
a
material impact on our historical financial statements but could have a material
impact on our financial statements issued after January 2006.
Risk
Factors
You
should consider the following discussion of risks as well as other information
regarding our common stock. The risks and uncertainties described below are
not
the only ones. Additional risks and uncertainties not presently known to us
or
that we currently deem immaterial also may impair our business operations.
If
any of the following risks actually occur, our business could be harmed.
We
have a limited operating history.
Brendan
commenced operations in November, 1997 and has a limited operating history.
The
success of the Company will be dependent upon its ability to successfully
exploit its unique proprietary technology. The Company’s success will depend in
large part on its ability to deal with the problems, expenses, and delays
frequently associated with developing and marketing its software technology.
Losses are likely to continue before the Company’s operations will become
profitable. There is no assurance that the Company’s operations will prove
profitable.
The
market for our products is unproven and acceptance of the Company’s products is
crucial.
The
market for the Company’s software and services has only recently begun to
develop, is rapidly evolving and could be subject to an increasing number of
competitive market entries. While the Company believes that its software
products offer significant advantages for quality assurance, regulatory
compliance and reliability in the clinical, pharmaceutical, environmental,
and
manufacturing industries, there can be no assurance that its products will
become widely adopted for use in those industries.
Because
a
market for the Company’s products and services is new and evolving, it is
difficult to predict the future growth rate, if any, and size of this market.
There can be no assurance that the market for the Company’s products and
services will develop or that its products and services will be used in the
marketplace. If the market fails to develop, develops more slowly than expected,
or becomes saturated with competitors, or if the Company’s products do not
achieve market acceptance, the Company’s business, operating results and
financial condition will be materially adversely affected.
We
depend on new products and development to generate
revenues.
Substantially
all of the Company’s revenues have been derived, and substantially all of the
Company’s future revenues are expected to be derived, from the license of the
software and sale of its associated services, and the development and sale
of
future products. Accordingly, broad acceptance of the Company’s software
products and services by customers is critical to the Company’s future success
as is the Company’s ability to design, develop, test and support new software
products and enhancements on a timely basis that meet changing customer needs
and respond to technological developments in emerging industry standards. There
can be no assurance that the Company will be successful in developing and
marketing new software products and enhancements that meet changing customer
needs and respond to such technological changes or evolving industry
standards.
Our
success depends upon developing distribution channels.
The
Company’s distribution strategy is to develop multiple distribution channels.
The Company has historically sold its products only through direct sales,
Internet sales, and original equipment manufacturers (“OEMs”). The Company
expects to increasingly utilize OEMs and independent sales representatives,
and
to pursue utilizing systems integrators, value added resellers (“VARs”), and
software retailers. There can be no assurances that these distribution channels
will be effective sales channels.
Our
success is dependent on our founders and other key
personnel.
The
Company’s performance is substantially dependent upon the performance of its
executive officers and key employees, particularly that of Dr. John R. Dunn,
II.
Dr. Dunn was responsible for creation of the Software and the scientific
principles incorporated therein. As a result, Dr. Dunn is the single most
knowledgeable person with regard to the Software. It would be difficult for
the
Company to find an adequate replacement for Dr. Dunn in the immediate
future.
Given
the
Company’s early stage of development, the Company is further dependent upon its
ability to retain and motivate high quality personnel, especially its management
and highly skilled development teams. The Company does not have key person
life
insurance policies on any of its employees. The loss of the services of any
of
its executive officers or other key employees could have a materially adverse
effect on the business, operating results or financial condition of the Company.
The Company intends to purchase key man life insurance when management decides
funds are available.
The
Company’s future success also depends on its continuing ability to identify,
hire, train, and retain other highly qualified technical and managerial
personnel. Competition for such personnel is intense and there can be no
assurance that the Company will be able to attract, hire or retain other highly
qualified technical and managerial personnel in the future. The inability to
attract and retain the necessary technical and managerial personnel could have
a
materially adverse effect upon the Company’s business operating results or
financial condition.
The
Company’s success will depend, in part, on the continuing and growing interest
in quality control and quality assurance regarding reliable laboratory and
manufacturing testing results among the markets targeted by the Company’s
products.
An
additional factor which the Company believes will be critical to the acceptance
of its products is a continuing need in its targeted markets for more powerful
solutions for instrument connectivity, networking, and data
management.
No
governmental or regulatory agency must approve the production or sale of any
of
the Company’s products at this time. However the Company intends to voluntarily
pursue the acknowledgment and approval of certain federal agencies to gain
further awareness and acceptance for its new statistical methodologies. There
can be no assurance that the interest in quality control and quality assurance
will continue among the testing industry, general public or governmental and
regulatory agencies.
We
compete with companies that have substantially greater
resources.
Management
of the Company believes that over 90% of the Company’s current competitors are
instrument manufacturers. These manufacturers primarily develop and market
their
software programs to be used with only their instruments and not as stand-alone
programs (which could be used with competing manufacturers’ instruments or even
earlier models of their own instruments). The level of interoperability of
such
software with the instruments sold by their competitors or with laboratory
computer systems is minimal or nonexistent. This market is splintered into
many
fragments and no one or few of these instrument manufacturers hold a commanding
percentage of market share. To the Company’s knowledge, no commercial product
available in the world today offers the quality control and quality assurance
capabilities or many of the advanced computational features found in StatLIA.
However, the Company believes that at some point in the future, many of its
competitors will use quality assurance methodologies similar to, or as effective
as, those incorporated in StatLIA. Some of these competitors may be of greater
size and have greater financial resources than the Company. The Company believes
that most instrument manufacturers currently marketing immunoassay software
will
remain focused on instrumentation and not develop software as complex as StatLIA
for the limited market share held by any one of these manufacturers. The Company
believes that most of its future competition will be from software companies
but
the Company can give no assurances. Because the Company’s products are either
newly-developed or in the process of being developed, no guarantees can be
given
as to how commercially viable such new products will be in the
marketplace.
The
Company intends to interface StatLIA with all immunoassay testing instruments
which are capable of exporting unprocessed raw data. Although the Company has
been able to receive, decode and process data from all instruments attempted
to
date, there can be no assurance that the Company will be able to collect data
from all immunoassay instruments manufactured.
Although
device manufacturers are currently the largest competitors, the company believes
that OEM’s will soon serve as ideal partners as equipment makers seek to remove
themselves from software development and partner with more powerful programs.
OEM’s will be a primary sales channel focus of the Company.
The
Company believes that the statistical quality control and quality assurance
principles and the connectivity and data management methodologies incorporated
in StatLIA can be applied in new products for other disciplines and
technologies. The Company has outlined other programs in addition to StatLIA
to
be developed in the next three years for application in testing laboratories
and
manufacturing. However, the statistical quality control and quality assurance
principles and methodology have been tested only in the immunoassay field for
which StatLIA was designed, and to a lesser extent, in steel tensile testing
and
chromatography. There can be no assurances that the Company will be able to
successfully develop and market all of the Company’s intended
products.
The
Company’s success and ability to compete is dependent in part upon its
proprietary technology.
While
the
Company relies on trademark, trade secret and copyright law to protect its
technology, the Company believes that factors such as the technological and
creative skills of its personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance are more
essential to establishing and maintaining a technology leadership position.
The
Company does not presently have any patents or patent applications pending.
There can be no assurance that others will not develop technologies that are
similar or superior to the Company’s technology. The source code for the
Company’s proprietary software is protected both as a trade secret and as a
copyrighted work. The Company generally enters into confidentiality or license
agreements with its employees, consultants and vendors, and generally controls
further access to and distribution of its software, documentation and other
proprietary information. Despite these precautions, it may be possible for
a
third party to copy or otherwise obtain and use the Company’s products or
technology without authorization, or to develop similar technology
independently. Despite the Company’s efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company’s products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company’s products is difficult. There can be no
assurance that the steps taken by the Company will prevent misappropriation
of
its technology or that such agreements will be enforceable.
The
Company has worker’s compensation and general liability insurance but does not
have professional liability insurance at this time.
The
Company does intend to purchase such insurance when funds become available
if
management concludes that the benefit of having such a policy outweighs its
cost. Any professional liability claims made prior to acquiring such insurance
or for amounts exceeding the coverage after the insurance is purchased, could
have an adverse material effect on the Company. In addition, the Company will
purchase a key man life insurance policy naming Dr. John Dunn II as the insured
and the Company as the beneficiary if management concludes that the benefit
of
having such a policy outweighs its cost. The Company further intends to purchase
director and officer liability insurance when management decides that funds
are
available in order to attract additional directors and officers.
We
are subject to the risks and uncertainties inherent in new
businesses.
We
are
subject to the risks and uncertainties inherent in new businesses, including
the
following:
· We
may
not be able to raise enough money to develop our services and bring them to
market;
· Our
projected capital needs may be inaccurate, and we may not have enough money
to
develop our services and bring them to market;
· We
may
experience unanticipated development or marketing expenses, which may make
it
more difficult to develop our services and bring them to market;
· Even
if
we are able to develop our services and bring them to market, we may not earn
enough revenues from the sales of our services to cover the costs of operating
our business.
· If
we are
unsuccessful in our development efforts, we are not likely to ever become
profitable.
We
have never paid cash dividends on our Common Stock, and do not anticipate that
we will pay cash dividends in the foreseeable future.
The
payment of dividends by the Company will depend on its earnings, financial
condition and such other factors as the Board of Directors of the Company may
consider relevant. The Company currently plans to retain any earnings to provide
for the development and growth of the Company.
We
will need additional financing.
The
Company’s ability to continue as a going concern is dependent upon its ability
to generate profitable operations in the future and/or to obtain the necessary
financing to meet its obligations and repay its liabilities arising from normal
business operations when they come due. The outcome of these matters cannot
be
predicted with any certainty at this time. Since inception, the Company has
satisfied its capital needs through debt and equity financings. The Company
will
need to seek additional financing to meet its liquidity requirements. There
is
no assurance that financings can be obtained in amounts and at terms acceptable
to the Company.
We
may be effected by changes in Securities Laws and
Regulations
We
have
made, and will need to continue to make, changes in our corporate governance
and
securities disclosure and compliance practices as a result of the Sarbanes-Oxley
Act of 2002. The SEC and the NASD have enacted, and we expect will continue
to
enact, new rules on a variety of subjects as a result of the Sarbanes-Oxley
Act
of 2002. While we believe that we can ultimately comply with the new legislated
requirements associated with being a public company, compliance with the
Sarbanes-Oxley Act of 2002 will increase our costs and may present new
challenges and risks. These developments could also possibly make it more
difficult and more expensive to obtain director and officer liability insurance.
We may be required to accept reduced coverage or incur substantially higher
costs to obtain coverage for our officers and directors, which may make it
more
difficult for us to attract and retain qualified board members or executive
officers. We are currently evaluating and monitoring regulatory developments
and
cannot estimate the timing or magnitude of additional costs that may be incurred
as a result of the Sarbanes-Oxley Act of 2002.
Shares
of our common stock which are eligible for sale by our stockholders
may decrease the price of our common stock.
We
have
25,498,794 common shares outstanding, of which only 1,227,079 are freely
tradeable or saleable under Rule 144. Of the balance of the outstanding common
shares, 8,454,479 will be saleable under Rule 144 as of December 29, 2006 and
the remaining 15,817,236 will be saleable under Rule 144 as of December 29,
2007
unless a portion or all of the shares are included in a registration statements
previous to those two dates. We also may have up to 11,443,001 additional shares
which could be outstanding following conversions of debentures, exercise of
warrants and exercise of stock options. If our stockholders sell substantial
amounts of our common stock, the market price of our common stock could
decrease.
There
is a limited but potentially volatile trading market in our common stock, which
may adversely affect our stock price.
Our
common stock trades on the Electronic Bulletin Board. The Bulletin Board tends
to be highly illiquid, in part because there is no national quotation system
by
which potential investors can track the market price of shares except through
information received or generated by a limited number of broker-dealers that
make a market in particular stocks. There is a greater chance of market
volatility for securities that trade on the Bulletin Board as opposed to a
national exchange or quotation system. This volatility may be caused by a
variety of factors, including:
|
·
|
The
lack of readily available price quotations;
|
|
·
|
The
absence of consistent administrative supervision of “bid” and “ask”
quotations;
|
|
·
|
Lower
trading volume; and
|
There
could be wide fluctuations in the market price of our common stock. These
fluctuations may have an extremely negative effect on the market price of our
securities.
Because
our common stock is classified as “penny stock,” trading in it could be limited,
and our stock price could decline.
Our
common stock falls under the definition of “penny stock” because our net
tangible assets are below $2,000,000. As a result, trading in our common stock
is limited because broker-dealers are required to provide their customers with
disclosure documents prior to allowing them to participate in transactions
involving our common stock. These disclosure requirements are burdensome to
broker-dealers and may discourage them from allowing their customers to
participate in transactions involving our common stock.
“Penny
stocks” are equity securities with a market price below $5.00 per share, other
than a security that is registered on a national exchange or included for
quotation on the Nasdaq system, unless the issuer has net tangible assets of
more than $2,000,000 and has been in continuous operation for greater than
three
years. Issuers who have been in operation for less than three years must
have net tangible assets of at least $5,000,000.
Rules promulgated
by the Securities and Exchange Commission under Section 15(g) of the
Exchange Act require broker-dealers engaging in transactions in penny stocks,
to
first provide to their customers a series of disclosures and documents,
including:
|
·
|
A
standardized risk disclosure document identifying the risks inherent
in
investment in penny stocks;
|
|
·
|
All
compensation received by the broker-dealer in connection with the
transaction;
|
|
·
|
Current
quotation prices and other relevant market data; and
|
|
·
|
Monthly
account statements reflecting the fair market value of the securities.
In
addition, these rules require that a broker-dealer obtain financial
and
other information from a customer, determine that transactions in
penny
stocks are suitable for such customer and deliver a written statement
to
such customer setting forth the basis for this determination.
|
ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL
DISCLOSURE.
On
December 29, 2005, Omni completed the acquisition of substantially all the
assets of Brendan Sub pursuant to the Merger Agreement and completed the
disposition of substantially all the assets of Omni-Washington and Butler
pursuant to the Stock Purchase Agreement. On December 29, 2005, Omni provided
notice to Harper & Pearson Company (“Harper
& Pearson”)
that
they would no longer be retained as Omni’s independent registered accounting
firm. Harper & Pearson’s reports on the consolidated financial statements of
Omni and its subsidiaries for the two most recent fiscal years ended June 30,
2005, did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope, or accounting
principles.
On
December 29, 2005, the Board of Directors of Omni elected to engage Farber
Hass
Hurley McEwen LLP (“FHHM”)
to
serve as Omni’s independent registered accounting firm.
On
December 29, 2005, Omni was informed that it had been accepted as a client
of
FHHM.
During
the Company's two most recent fiscal years ended June 30, 2005 and the
subsequent interim period through December 29, 2005, there were no disagreements
between Omni and Harper & Pearson on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which
disagreements, if not resolved to Harper & Pearson's satisfaction, would
have caused them to make reference to the subject matter of the disagreement
in
their reports on the financial statements for such years.
Omni
has
authorized Harper & Pearson to respond fully to the inquiries of FHHM
concerning the subject matter of the reportable event and has provided Harper
& Pearson with a copy of the foregoing disclosures. Attached as Exhibit 99.3
to our Current Report on Form 8-K filed on January 5, 2006 is a copy of Harper
& Pearson's letter, dated January 4, 2006, stating its agreement with the
statements related to it.
During
Omni's two most recent fiscal years ended June 30, 2005, and the subsequent
interim period through December 29, 2005, Omni did not consult FHHM with respect
to the application of accounting principles to a specific transaction, either
completed or contemplated, or the type of audit opinion that might be rendered
on Omni’s consolidated financial statements, or any other matters of reportable
events as set forth in Items 304(a)(2)(i) and (ii) of Regulation
S-B.
ITEM
8A. CONTROLS AND PROCEDURES.
Evaluation
of Disclosure Controls and Procedures
As
a
result of the enactment of the Sarbanes-Oxley Act of 2002, issuers such as
Brendan that file periodic reports under the Securities Exchange Act of 1934
(the “Act”) are required to include in those reports certain information
concerning the issuer’s controls and procedures for complying with the
disclosure requirements of the federal securities laws pursuant to Exchange
Act
Rules 13a-15(b) and 15d-15(b). These disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports it files or
submits under the Act, is communicated to the issuer’s management, including its
principal executive officer and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure. A control system can provide only reasonable, not absolute,
assurance that the objectives of the control system are met.
Under
the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the design and operation of our disclosure controls and
procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c)
promulgated under the Act, within 90 days prior to the filing date of this
report. Based on that evaluation, our principal executive officer and our
principal financial officer concluded that the design and operation of our
disclosure controls and procedures were effective in timely alerting them to
material information required to be included in the Company's periodic reports
filed with the SEC under the Act. The design of any system of controls is based
in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote.
Change
in Internal Controls.
There
have been no significant changes made in the internal controls and there were
no
other factors that could significantly affect our internal controls during
the
fourth quarter of the fiscal year covered by this report.
ITEM
8B. OTHER
INFORMATION.
None.
ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The
following table and biographical summaries set forth information, including
principal occupations and business experience, about our directors and the
executive officer at June 30, 2006:
Directors
and Executive Officers
Our
directors and executive officers are as follows:
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
John
R. Dunn II
|
|
55
|
|
Chairman,
Chief Executive Officer, President, and Director
|
George
Dunn
|
|
49
|
|
Secretary,
Chief Operating Officer
|
Lowell
W. Giffhorn
|
|
59
|
|
Chief
Financial Officer and Director
|
Theo
Vermaelen
|
|
52
|
|
Director
|
Stephen
Eisold
|
|
59
|
|
Director
|
Jason
Booth
|
|
40
|
|
Director
|
The
business experience of each of our executive officers and directors is set
forth
below.
John
R.
Dunn II is the founder of Brendan and has served as the Chairman, Chief
Executive Officer, President and Director of Brendan since 1997. Dr. Dunn has
had extensive experience in hospital and clinical laboratories, including
bio-science laboratories. He has set up and run a reference laboratory
specializing in immunoassays and been a consultant in immunoassay development
and statistics for several clinical and hospital laboratories. Dr. Dunn obtained
a Ph.D. in Biology from Wayne State University, Detroit, MI, in 1987 and he
obtained a B.S. in Biology from Wayne State University in 1974.
George
Dunn has served as the Secretary and Chief Operating Officer of Brendan since
1997. Mr. Dunn has extensive experience in marketing and sales and the
implementation of strategic plans, market segment analysis, promotions, sales
and sales support development. Mr. Dunn received his B.A. in Communication
Arts
from Michigan State University in 1981.
Lowell
W.
Giffhorn has served as our Chief Financial Officer since October 2005. Since
July 2005, Mr. Giffhorn also serves as the Chief Financial Officer of
Imagenetix, Inc., a publicly held nutritional supplement company. Mr. Giffhorn
was the Chief Financial Officer of Patriot Scientific Corp., a publicly held
semiconductor and intellectual property company, from May 1997 to June 2005
and
was a member of its Board of Directors from August 1999 to April 2006. From
June
1992 to August 1996 and from September 1987 to June 1990 he was the CFO of
Sym-Tek Systems, Inc. and Vice President of Finance for its successor, Sym-Tek
Inc., a supplier of capital equipment to the semiconductor industry. Mr.
Giffhorn obtained a M.B.A. degree from National University in 1975 and he
obtained a B.S. in Accountancy from the University of Illinois in 1969. Mr.
Giffhorn is also a director and chairman of the audit committee of DND
Technologies, Inc., a publicly held company. Mr. Giffhorn devotes approximately
50% of his time to our affairs.
Theo
Vermaelen has served as a Director since December 2005. Since 2001, Dr.
Vermaelen has been the Schroders Chaired Professor of International Finance
and
Asset Management at INSEAD, a business school with campuses in Fontainebleau,
France and Singapore. From 1998 to 2003, Dr. Vermaelen was portfolio manager
of
the KBC equity buyback fund. Dr. Vermaelen has taught at the University of
British Columbia, the Catholic University of Leuven, London Business School,
UCLA, the University of Chicago, and Maastricht University. He is the co-editor
of the Journal of Empirical Finance. He is also a consultant to various
corporations and government agencies and Program Director of the Amsterdam
Institute of Finance, a training institute for investment bankers and other
financial professionals. Dr. Vermaelen obtained his M.B.A. in 1976 and Ph.D.
in
Finance in 1980 from the Graduate School of Business, University of Chicago.
Stephen
C. Eisold has served as a Director since December 2005. From February 2001
to
November 2005, Mr. Eisold was the Chief Executive Officer of Brendan. From
1998
to 2001, Mr. Eisold was the Chief Executive Officer at Axiom Biotechnologies,
Inc. From 1996 to 1998, Mr. Eisold was the Executive Vice President and Chief
Operating Officer at Cypros Pharmaceutical. Previously Mr. Eisold was the
General Manager of North America Pharmaceuticals for Gensia and before which
he
held various marketing and business development positions with Marion
Laboratories. Mr. Eisold obtained a M.B.A. degree from Rockhurst College, Kansas
City, MO, in 1981 and a B.S. in Biology from Springfield College, Springfield,
MA, in 1968.
Jason
Booth has served as a Director since August 2006. Since 1999, Mr. Booth has
been
the owner of Booth Publications, Inc., which focuses on sales and marketing
campaigns primarily for the pharmaceutical industry. For the five years previous
to that, Mr. Booth provided executive recruiting and retention consulting
services for large and small company human resource departments as an Account
Manager for Pro Staff Personnel Services. Mr. Booth is also on the board of
directors of the Potawatomi Business Development Corporation, who in July 2006,
purchased from us a $1 million 8% convertible debenture with attached common
stock purchase warrants. He is also a tribal member of the Turtle Mountain
Band
of Chippewa Indians. Mr. Booth obtained a B.S. in English from the University
of
Minnesota in 1989.
John
R.
Dunn II and George Dunn are brothers.
Committees
of the Board of Directors
Our
Board
has a standing Audit Committee. The entire Board serves as the Compensation
Committee.
Audit
Committee. The
Audit
Committee is responsible for: (1) selection and oversight of our independent
accountant; (2) establishing procedures for the receipt, retention and treatment
of complaints regarding accounting, internal controls and auditing matters;
(3)
establishing procedures for the confidential, anonymous submission of concerns
regarding accounting and auditing matters; (4) engaging outside advisors; and,
(5) funding for the outside auditors and any outside advisors engagement by
the
audit committee. The Audit Committee, which met two times during 2006, is
composed of one employee director and one other director, who was determined
by
the Board to be an independent director. During 2006, the Audit Committee
consisted of Mr. Vermaelen (Chairman) and Mr. Giffhorn.
The
Board
of Directors has determined that Mr. Vermaelen is an audit committee
financial expert as defined in Item 401 of Regulation S-B promulgated by the
Securities and Exchange Commission. The Board's conclusions regarding the
qualifications of Mr. Vermaelen as an audit committee financial expert were
based on his experience at financial and educational institutions and his
doctoral degree in finance.
Code
of Ethics
Brendan
has set forth its policy on ethical behavior in a document called "Code of
Business Conduct and Ethics." This policy applies to the members of our Board
of
Directors and all employees, including (but not limited to) our principal
executive officer, principal financial officer, principal accounting officer
or
controller and persons performing similar functions. This policy comprises
written standards that are reasonably designed to deter wrongdoing and to
promote the behavior described in Item 406 of Regulation S-B promulgated by
the Securities and Exchange Commission. No waivers of the Code were granted
in
2006.
Compliance
with Section 16(a) of the Securities Exchange Act
Section
16(a) of the Exchange Act requires our directors, executive officers and persons
who beneficially own 10% or more of a class of securities registered under
Section 12 of the Exchange Act to file reports of beneficial ownership and
changes in beneficial ownership with the SEC. Directors, executive
officers
and greater than 10% shareholders are required by the rules and regulations
of
the Commission to furnish us with copies of all reports filed by them in
compliance with Section 16(a).
Based
solely on our review of copies of the reports we received from persons required
to make such filings and our own records, we believe that from the period
December 29, 2005 through September 15, 2006, Mr. Eisold and Mr. Booth,
directors of the Company, each failed to file timely Form 3s with the SEC to
report initial beneficial ownership.
ITEM
10. EXECUTIVE
COMPENSATION.
There
is
shown below information concerning the compensation of our chief executive
officer and the most highly compensated executive officers whose salaries and
bonus exceeded $100,000 (each a “Named Officer”) for the fiscal years ended June
30, 2006, 2005, and 2004. The information provided for the periods prior to
the
reverse merger is for employment with Brendan Sub.
SUMMARY
COMPENSATION TABLE
|
|
Annual
Cash Compensation
|
|
Long-Term
Compensation
|
|
Name
and
|
|
Fiscal
|
|
|
|
|
|
|
|
All
Other
|
|
Principal
Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
(#
of Shares)
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Dunn
|
|
|
2006
|
|
$
|
108,000
|
|
|
Nil
|
|
|
100,000
|
|
|
None
|
|
President
and CEO
|
|
|
2005
|
|
$
|
108,000
|
|
|
Nil
|
|
|
None
|
|
|
None
|
|
|
|
|
2004
|
|
$
|
108,000
|
|
|
Nil
|
|
|
None
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George
Dunn
|
|
|
2006
|
|
$
|
102,000
|
|
|
Nil
|
|
|
60,000
|
|
|
None
|
|
VP
and COO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregated
Option Exercise and Fiscal Year-End Option Values
There
were no exercises of stock options for the fiscal year ended June 30, 2006
by
any of the Named Officers. Shown below is information on fiscal year-end
values
under the Company's Stock Option Plan to the officers reflected in the Summary
Compensation Table shown above.
|
|
|
|
|
|
Number
of Unexercised
|
|
Value
of Unexercised
|
|
|
|
Shares
|
|
|
|
Options
Held At
|
|
In-The-Money
Options At
|
|
|
|
Acquired
on
|
|
Value
|
|
June
30, 2006
|
|
June
30, 2006
|
|
Name
|
|
Exercise
(#)
|
|
Realized
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
R. Dunn II
|
|
|
-
|
|
|
-
|
|
|
70,000
|
|
|
30,000
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George
Dunn
|
|
|
-
|
|
|
-
|
|
|
830,000
|
|
|
30,000
|
|
$
|
148,000
|
|
$
|
-
|
|
The
fair
market value of the unexercised in-the-money options at June 30, 2006 was
determined by subtracting the option exercise price from the last sale price
as
reported on the over the counter bulletin board on June 30, 2006, $0.26. The
Company has not awarded stock appreciation rights to any of its employees.
The
Company has no long-term incentive plans.
Compensation
of Directors
We
reimburse our directors for any travel related expenses incurred in performing
their duties as directors. In addition, we granted stock options to each of
Messrs. Dunn, Giffhorn, Vermaelen, and Eisold in the amount of 100,000 shares.
Subsequent to June 30, 2006, we granted a stock option to Mr. Booth for 50,000
shares.
Employment
Contracts
In
November 2004, we entered into an employment agreement with our Chairman,
President and Chief Executive Officer, Dr. John Dunn II, which expires on
November 1, 2011. The employment agreement provides for an annual salary of
$108,000. The agreement also provides that we may terminate the agreement with
30 days written notice if termination is without cause. Our obligation would
be
to pay Dr. Dunn monthly payments equal to his base salary for 24 months. In
addition, all of Dr. Dunn’s options would immediately vest. The agreement also
provides that Dr. Dunn can terminate employment if we merge with or consolidate
with another entity, or we are subject in any way to a transfer of a substantial
amount of our assets, resulting in the assets, business or operations of ours
being controlled by an entity or individual other than Brendan.
In
November 2004, we entered into an employment agreement with our Vice President
of Marketing and Chief Operating Officer, George Dunn, which expires on November
1, 2011. The employment agreement provides for an annual salary of $96,000.
The
annual salary was increased to $108,000 as of January 1, 2006. The agreement
also provides that we may terminate the agreement with 30 days written notice
if
termination is without cause. Our obligation would be to pay Mr. Dunn monthly
payments equal to his base salary for 24 months. In addition, all of Mr. Dunn’s
options would immediately vest. The agreement also provides that Mr. Dunn can
terminate employment if we merge with or consolidate with another entity, or
we
are subject in any way to a transfer of a substantial amount of our assets,
resulting in the assets, business or operations of ours being controlled by
an
entity or individual other than Brendan.
ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The
following table sets forth certain information concerning our common stock
ownership as of September 30, 2006, by (1) each person who is known by us to
be
the beneficial owner of more than five percent of our common stock; (2) each
of
our executive officers and directors; and (3) all of our directors and executive
officers as a group. The address of each such stockholder is in care of us
at
2236 Rutherford Road, Suite 107, Carlsbad, California 92008.
|
|
|
|
Shares
of Common
|
|
Percentage
|
|
|
|
|
|
Stock
Beneficially
|
|
of
Outstanding
|
|
Name
|
|
Postion
with the Company
|
|
Owned
(1) (2)
|
|
Shares
|
|
|
|
|
|
|
|
|
|
Executive
Officers and
|
|
|
|
|
|
|
|
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
R. Dunn II (3)
|
|
|
Chairman
of the Board,
|
|
|
4,950,000
|
|
|
19.4
|
%
|
|
|
|
Chief
Executive Officer,
|
|
|
|
|
|
|
|
|
|
|
Chief
Technical Officer and
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George
Dunn (4)
|
|
|
Vice
President, Secretary
|
|
|
2,246,000
|
|
|
8.5
|
%
|
|
|
|
and
Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowell
W. Giffhorn (5)
|
|
|
Vice
President, Chief
|
|
|
370,000
|
|
|
1.4
|
%
|
|
|
|
Financial
Officer and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theo
Vermaelen (6)
|
|
|
Director
|
|
|
844,359
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Steven
Eisold (7)
|
|
|
Director
|
|
|
669,494
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Jason
Booth (8)
|
|
|
Director
|
|
|
25,000
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Exective Officers and
|
|
|
|
|
|
9,104,853
|
|
|
35.3
|
% |
Directors
as a Group
|
|
|
|
|
|
|
|
|
|
|
(6
persons) (9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater
than 5% Owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potawatomi
Business
|
|
|
|
|
|
6,000,000
|
|
|
Note
10
|
|
Development
Corp.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Tabor
|
|
|
|
|
|
4,730,589
|
|
|
18.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Kirk (11)
|
|
|
|
|
|
1,849,658
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Massoud
Kharrazian
|
|
|
|
|
|
1,487,136
|
|
|
5.8
|
%
|
(1) |
Reflects
amounts as to which the beneficial owner has sole voting power and
sole
investment power.
|
(2) |
Includes
stock options and common stock purchase warrants exercisable within
60
days from the date hereof.
|
(3) |
Comprised
of 4,880,000 shares and 70,000 stock options.
|
(4) |
Comprised
of 1,416,000 shares and 830,000 stock options.
|
(5) |
Comprised
of 70,000 stock options, 200,000 common stock purchase warrants
and
100,000 shares issuable on the conversion of a debenture.
|
(6) |
Comprised
of 654,359 shares, 70,000 stock options, 80,000 common stock purchase
warrants and 40,000 shares issuable on the conversion of a debenture.
|
(7) |
Comprised
of 599,494 shares and 70,000 stock
options.
|
(8) |
Comprised
of 25,000 stock options.
|
(9) |
Comprised
of 7,549,853 shares, 1,1355,000 stock options, 280,000 common stock
purchase warrants and 140,000
shares issuable on the conversion of a debenture.
|
10) |
The
shares issuable to Potawatomi Business Development Corp. (PBDC) on
the
conversion of debentures or the exercise of warrants would not be
deemed
beneficially owned (due to exercise restrictions within the debentures
and
warrants) within the meaning of Sections 13(d) and 13(g) of the Exchange
Act to the extent that their acquisition in a debenture conversion
or a
warrant exercise by PBDC would cause PBDC to own in excess of 4.99%
of our
outstanding common stock immediately following such conversion or
exercise. By the terms of the debentures and warrants, the 4.99%
limitation may be increased to a maximum of 9.99% if the Company
accepts a
tender offer and a change in control takes place. Therefore, it is
expected that PBDC will not beneficially own more than 9.99% of our
outstanding common stock at any time. Carol Leese has ultimate voting
and/or investment control over the securities owned by
PBDC.
|
11) |
Comprised
of 56,458 shares issued as a result of a private placement by Mr.
Kirk and
1,793,200 shares related to an agreement in 1999 in which an investment
banking firm, of which Mr. Kirk was a principal, was obligated to
use its
best efforts to secure private placement financings and underwrite
an
initial public offering for the Company. Although outstanding on
the
records of the Company, Mr. Kirk is not entitled to the 1,793,200
shares
and the Company has not issued, and does not presently intend to
issue,
these shares to Mr. Kirk.
|
Equity
Compensation Plan Information
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
issuance under
equity
compensaton
plans
(excluding
securities
reflected in
column
(a))
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders
|
|
|
4,622,334
|
|
$
|
0.55
|
|
|
2,877,666
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
720,667
|
|
$
|
2.00
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,343,001
|
|
$
|
0.75
|
|
|
2,877,666
|
|
Common
shares issuable on the exercise of common stock warrants have not been approved
by the security holders and, accordingly, have been segregated in the above
table.
ITEM
12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
In
June
2006 we entered into 8% Convertible Debentures with attached common stock
purchase warrants with Mr. Giffhorn, an executive officer and director, and
Mr.
Vermaelen, a director, aggregating $70,000. The Convertible Debentures mature
in
two years and the common stock purchase warrants are exercisable from 1 to
5
years with exercise prices ranging form $0.60 to $1.00.
We
believe that the above transactions were fair, reasonable and upon terms at
least as favorable to us as those we might have obtained from unaffiliated
third
parties
(a) The
following documents are filed as a part of this Report:
1.
Financial
Statements. The following consolidated financial statements and Report of
Independent
Registered Certified Public Accounting Firm is included in Part II of this
Report:
Report
of
Farber Hass Hurley & McEwen LLP, Independent Registered Public Accounting
Firm
Consolidated
Balance Sheets- As of June 30, 2006 and 2005
Consolidated
Statements of Operation- Year Ended June 30, 2006 and Six Months Ended June
30,
2005 (transition period)
Consolidated
Statement of Stockholders' Equity- Year Ended June 30, 2006 and Six Months
Ended
June 30, 2005 (transition period)
Consolidated
Statements of Cash Flows- Year Ended June 30, 2006 and Six Months Ended June
30,
2005 (transition period)
Notes
to
Consolidated Financial Statements
2. Exhibits.
The following Exhibits are filed as part of, or incorporated by reference into,
this
Report:
Exhibit
No.
|
|
Document
|
|
|
|
|
|
|
|
3.0
|
|
Articles
of Incorporation and Bylaws
|
|
|
|
|
|
|
|
3.1
|
|
Amended
and Restated Articles of the Company, as amended November
|
|
(1)
|
|
|
30,
1994, incorporated by reference to Exhibit 3.1 to Amendment No. 1
to
|
|
|
|
|
Registration
Statement on Form SB-2 dated December 22, 1994
|
|
|
|
|
|
|
|
3.2
|
|
Certificate
of Designation of Series A Redeemable Convertible
Preferred
|
|
(1)
|
|
|
Stock
incorporated by reference to Exhibit 3.2 to Registration Statement
on
|
|
|
|
|
Form
SB-2 dated October 12, 1994
|
|
|
|
|
|
|
|
3.3
|
|
Certificate
of Designation of Series B Redeemable Convertible
Preferred
|
|
(1)
|
|
|
Stock
incorporated by reference to Exhibit 3.2 to Registration Statement
on
|
|
|
|
|
Form
SB-2 dated October 12, 1994
|
|
|
|
|
|
|
|
3.4
|
|
Bylaws
of the Company incorporated by reference to Exhibit 3.4 to
|
|
(1)
|
|
|
Registration
Statement on Form SB-2 dated October 12, 1994
|
|
|
|
|
|
|
|
3.5
|
|
Certificate
of Amendment of Articles of Incorporation dated May 16,
2006
|
|
(2)
|
|
|
|
|
|
4.0
|
|
Instruments
Defining the Rights of Security Holders, Including
Debentures
|
|
|
|
|
|
|
|
4.1
|
|
Agreement
and Plan of Merger among Omni U.S.A., Inc., Omni Merger Sub, Inc.,
|
|
(1)
|
|
|
Edward
Daniel, Jeffrey Daniel and Brendan Technologies, Inc. dated as of
|
|
|
|
|
December
29, 2005 incorporated by reference to Exhibit 4.1 to Current Report
|
|
|
|
|
on
Form 8-K dated January 5, 2006
|
|
|
|
|
|
|
|
4.2
|
|
Stock
Purchase Agreement by and among Jeffrey K. Daniel, Craig L. Daniel,
and
|
|
(1)
|
|
|
Edward
Daniel, as the Purchases, and Omni U.S.A., Inc., as the Seller, dated
as
|
|
|
|
|
of
December 29, 2005 incorporated by reference to Exhibit 4.2 to Current
Report
|
|
|
|
|
on
Form 8-K dated January 5, 2006
|
|
|
|
|
|
|
|
4.3
|
|
Amendment
to Loan and Related Agreements and Waiver of Default
(PACCAR)
|
|
(1)
|
|
|
incorporated
by reference to Exhibit 4.3 to Current Report on Form 8-K
dated
|
|
|
|
|
January
5, 2006
|
|
|
|
|
|
|
|
4.4
|
|
Amendment
to Loan and Related Agreements and Waiver of Default
(Textron)
|
|
(1)
|
|
|
incorporated
by reference to Exhibit 4.4 to Current Report on Form 8-K
dated
|
|
|
|
|
January
5, 2006
|
|
|
|
|
|
|
|
4.5
|
|
Promissory
Note between Jeffrey K. Daniel, Craig L. Daniel, and Edward
Daniel,
|
|
(1)
|
|
|
collectively
the Borrowers, and Omni U.S.A., Inc. with a maturity date of
|
|
|
|
|
December
29, 2008 incorporated by reference to Exhibit 4.5 to Current
Report
|
|
|
|
|
on
Form 8-K dated January 5, 2006
|
|
|
|
|
|
|
|
4.6
|
|
2006
Equity Incentive Plan incorporated by reference to Exhibit 4.1
to
|
|
(1)
|
|
|
Registration
Statement on Form S-8 dated June 15, 2006
|
|
|
|
|
|
|
|
4.7
|
|
Form
of Securities Purchase Agreement incorporated by reference to Exhibit
4.7
|
|
(1)
|
|
|
to
Current Report on Form 8-K dated July 18, 2006
|
|
|
|
|
|
|
|
4.8
|
|
Form
of 8% Convertible Debenture incorporated by reference to Exhibit
4.8
|
|
(1)
|
|
|
to
Current Report on Form 8-K dated July 18, 2006
|
|
|
Exhibit
No.
|
|
Document
|
|
|
|
|
|
|
|
4.9
|
|
Form
of Registration Rights Agreement incorporated by referecne to Exhibit
4.9
|
|
(1)
|
|
|
to
Current Report on Form 8-K dated July 18, 2006
|
|
|
|
|
|
|
|
4.10
|
|
Form
of Warrant incorporated by reference to Exhibit 4.10 to Current Report
on
|
|
(1)
|
|
|
Form
8-K dated July 18, 2006
|
|
|
|
|
|
|
|
10.0
|
|
Material
Contracts
|
|
|
|
|
|
|
|
10.1
|
|
John
R. Dunn II Employment Contract dated November 1, 2004 incorporated
by
|
|
(1)
|
|
|
reference
to Exhibit 10.1 to Current Report on Form 8-K dated January 5,
2006
|
|
|
|
|
|
|
|
10.2
|
|
George
Dunn Employment Contract dated November 1, 2004 incorporated
by
|
|
(1)
|
|
|
reference
to Exhibit 10.1 to Current Report on Form 8-K dated January 5,
2006
|
|
|
|
|
|
|
|
14.0
|
|
Code
of Ethics
|
|
|
|
|
|
|
|
14.1
|
|
Code
of Ethics
|
|
(2)
|
|
|
|
|
|
21.0
|
|
Subsidiaries
of the small business issuer
|
|
|
|
|
|
|
|
21.1
|
|
Subsidiaries
of the small business issuer
|
|
(2)
|
|
|
|
|
|
31.0
|
|
Rule
13a-14(a)/15d-14(a) Certifications
|
|
|
|
|
|
|
|
31.1
|
|
302
Certification of John R. Dunn II
|
|
(2)
|
|
|
|
|
|
31.2
|
|
302
Certification of Lowell W. Giffhorn
|
|
(2)
|
|
|
|
|
|
32.0
|
|
Section
1350 Certifications
|
|
|
|
|
|
|
|
32.1
|
|
906
Certification of John R. Dunn II
|
|
(2)
|
|
|
|
|
|
32.2
|
|
906
Certification of Lowell W. Giffhorn
|
|
(2)
|
|
|
|
|
|
|
|
(1)
Previously filed in indicated registration statement or
report
|
|
|
|
|
(2)
Exhibit filed herewith
|
|
|
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
The
following is a summary of the fees billed to Brendan by its principal accountant
for the fiscal year ended June 30, 2006 and the six months ended June 30, 2005
(transitional period):
|
|
Farber
Hass Hurley & McEwen LLP
|
|
|
|
|
|
|
|
Fee
category
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Audit
fees
|
|
$
|
16,250
|
|
$
|
5,975
|
|
|
|
|
|
|
|
|
|
Audit-related
fees
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Tax
fees
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
All
other fees
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Total
fees
|
|
$
|
16,250
|
|
$
|
5,975
|
|
Audit
fees. Consists of fees for professional services rendered by our principal
accountants for the audit of our annual financial statements and the review
of
financial statements included in our Forms 10-QSB or services that are normally
provided by our principal accountants in connection with statutory and
regulatory filings or engagements.
Audit-related
fees. Consists of fees for assurance and related services by our principal
accountants that are reasonably related to the performance of the audit or
review of our financial statements and are not reported under "Audit fees."
Tax
fees.
Consists of fees for professional services rendered by our principal accountants
for tax compliance, tax advice and tax planning.
All
other
fees. Consists of fees for products and services provided by our principal
accountants, other than the services reported under "Audit fees," "Audit-related
fees" and "Tax fees" above.
Pre-Approval
Policies and Procedures
All
services provided by our independent registered public accounting firm, Farber
Hass Hurley & McEwen LLP (“FHHM”) are subject to pre-approval by our Audit
Committee. The Audit Committee has authorized each of its members to approve
services by FHHM in the event there is a need for such approval prior to the
next full Audit Committee meeting. The Audit Committee has also adopted policies
and procedures that are detailed as to the particular service and that do not
include delegation of the Audit Committee’s responsibilities to management under
which management may engage FHHM to render audit or non-audit services. Any
interim approval given by an Audit Committee member and any such engagement
by
management must be reported to the Audit Committee no later than its next
scheduled meeting. Before granting any approval, the Audit Committee (or a
committee member if applicable) gives due consideration to whether approval
of
the proposed service will have a detrimental impact on FHHM’s independence. The
full Audit Committee pre-approved all services provided by FHHM in fiscal 2006.
Based
upon the Audit Committee's discussion with management and the independent
auditors and the Audit Committee review of the representations of management
and
the report of the independent accountants to the Audit Committee, the Audit
Committee approved that the Board of Directors include our audited financial
statements in our Annual Report on Form 10-KSB for the year ended June 30,
2006
filed with the Securities and Exchange Commission.
Index
to Consolidated Financial Statements
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Balance Sheets, June 30, 2006 and 2005
|
F-3
|
|
|
Consolidated
Statements of Operation, for the year ended June 30, 2006 and the
six
months ended June 20, 2005 (transition period)
|
F-4
|
|
|
Consolidated
Statement of Stockholders' Equity, for the year ended June 30,
2006 and
the six months ended June 30, 2005 (transition period)
|
F-5
|
|
|
Consolidated
Statements of Cash Flows, for the year ended June 30, 2006 and
the six
months ended June 30, 2005 (transition period)
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-7-F-22
|
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors
Brendan
Technologies, Inc. (formerly known as Omni U.S.A., Inc.)
Carlsbad,
California
We
have
audited the accompanying consolidated balance sheets of Brendan Technologies,
Inc. as of June 30, 2006 and 2005, and the related consolidated statements
of
operations, stockholders’ equity (deficit) and cash flows for the year ended
June 30, 2006 and the six months ended June 30, 2005 (transition period). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We
conducted our audit 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Brendan
Technologies, Inc. as of June 30, 2006 and 2005, and the results of their
operations and their cash flows for the year ended June 30, 2006 and the six
months ended June 20, 2005 (transition period), in conformity with accounting
principles generally accepted in the United States..
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in the notes to
the
financial statements, the Company has incurred a loss of approximately $845,000
in the current year, has negative working capital of approximately $1,560,000,
and is in default on its convertible notes payable. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans concerning these matters are also described in the notes
to
the consolidated financial statements. The consolidated financial statements
do
not include any adjustments that might result from the outcome of this
uncertainty.
Farber
Hass Hurley McEwen LLP
/s/
Farber Hass Hurley McEwen LLP
Camarillo,
California
August
25, 2006
Brendan
Technologies, Inc.
Consolidated
Balance Sheets
June
30,
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
149,512
|
|
$
|
32,504
|
|
Accounts
receivable, net
|
|
|
56,107
|
|
|
71,751
|
|
Prepaid
expenses
|
|
|
301
|
|
|
712
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
205,920
|
|
|
104,967
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
72,740
|
|
|
12,361
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
8,190
|
|
|
7,808
|
|
|
|
|
|
|
|
|
|
|
|
$
|
286,850
|
|
$
|
125,136
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Convertible
notes payable in default
|
|
$
|
255,000
|
|
$
|
1,947,972
|
|
Accrued
interest in default
|
|
|
78,217
|
|
|
932,914
|
|
Accounts
payable
|
|
|
161,430
|
|
|
147,657
|
|
Accrued
wages
|
|
|
772,030
|
|
|
900,729
|
|
Accrued
interest
|
|
|
414,959
|
|
|
331,822
|
|
Deferred
revenue
|
|
|
77,651
|
|
|
62,997
|
|
Current
portion of lease obligations
|
|
|
6,442
|
|
|
2,164
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,765,729
|
|
|
4,326,255
|
|
|
|
|
|
|
|
|
|
Long
term portion of lease obligations
|
|
|
10,996
|
|
|
9,836
|
|
|
|
|
|
|
|
|
|
8%
Convertible debentures net of debt discount
|
|
|
23,002
|
|
|
-
|
|
8%
Convertible debentures net of debt discount - related
parties
|
|
|
83,652
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Stockholders'
deficit
|
|
|
|
|
|
|
|
Preferred
stock, $.004995 par value; 5,000,000 shares
|
|
|
|
|
|
|
|
authorized:
none outstanding
|
|
|
-
|
|
|
-
|
|
Common
stock, $.004995 par value; 50,000,000 shares
|
|
|
|
|
|
|
|
authorized:
25,498,794 and 4,687,209 issued and
|
|
|
|
|
|
|
|
outstanding
at June 30, 2006 and 2005, respectively
|
|
|
127,366
|
|
|
23,413
|
|
Additional
paid in capital
|
|
|
4,517,814
|
|
|
1,161,948
|
|
Accumulated
deficit
|
|
|
(6,241,709 |
) |
|
(5,396,316 |
) |
Total
stockholders' deficit
|
|
|
(1,596,529 |
) |
|
(4,210,955 |
) |
|
|
$
|
286,850
|
|
$
|
125,136
|
|
See
accompanying report of independent registered public accounting firm, summary
of
accounting policies and
notes to consolidated financial statements.
Brendan
Technologies, Inc.
Consolidated
Statements of Operation
|
|
|
|
|
|
Periods
Ended June 30,
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
681,337
|
|
$
|
419,526
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
103,190
|
|
|
65,173
|
|
General
and administrative expenses
|
|
|
1,215,966
|
|
|
352,614
|
|
|
|
|
1,319,156
|
|
|
417,787
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(637,819
|
)
|
|
1,739
|
|
|
|
|
|
|
|
|
|
Other
expense
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(207,574
|
)
|
|
(166,511
|
)
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(845,393
|
)
|
|
(164,772
|
)
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(845,393
|
)
|
$
|
(164,772
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average common shares outstanding
|
|
|
15,146,106
|
|
|
4,686,951
|
|
See
accompanying report of independent registered public accounting firm, summary
of
accounting polices
and notes to consolidated financial
statements.
Brendan
Technologies, Inc.
Consolidated
Statements of Stockholders' Equity (Deficit)
|
|
|
|
|
|
Additional
|
|
Retained
|
|
Stockholders'
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
Periods
Ended June 30, 2006 and 2005
|
|
Shares
|
|
Amount
|
|
in
Capital
|
|
(Deficit)
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2005
|
|
|
4,678,876
|
|
$
|
23,371
|
|
$
|
1,136,990
|
|
$
|
(5,231,544
|
)
|
$
|
(4,071,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock at $3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
share
|
|
|
8,333
|
|
|
42
|
|
|
24,958
|
|
|
-
|
|
|
25,000
|
|
Net
(loss) for the six months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2005
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(164,772
|
)
|
|
(164,772
|
)
|
Balance,
June 30, 2005
|
|
|
4,687,209
|
|
$
|
23,413
|
|
$
|
1,161,948
|
|
$
|
(5,396,316
|
)
|
$
|
(4,210,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock at $3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
share
|
|
|
67,500
|
|
|
337
|
|
|
202,163
|
|
|
-
|
|
|
202,500
|
|
Offering
costs paid in cash
|
|
|
(31,875
|
)
|
|
-
|
|
|
(31,875
|
)
|
|
|
|
|
|
|
Brendan
shares converted to Omni at 4 to 1
|
|
|
14,264,127
|
|
|
71,248
|
|
|
(71,248
|
)
|
|
-
|
|
|
-
|
|
Brendan
notes payable and accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
converted
to Omni stock
|
|
|
4,352,879
|
|
|
21,743
|
|
|
2,632,455
|
|
|
-
|
|
|
2,654,198
|
|
Omni
common shares issued in payment of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brendan
accounts payable related to merger
|
|
|
100,000
|
|
|
500
|
|
|
34,500
|
|
|
-
|
|
|
35,000
|
|
Omni
common shares issued to an
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
individual
as costs of the merger
|
|
|
800,000
|
|
|
3,996
|
|
|
(3,996
|
)
|
|
-
|
|
|
-
|
|
Omni
shares previously outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recapitalized
due to the merger
|
|
|
1,227,079
|
|
|
6,129
|
|
|
(6,129
|
)
|
|
-
|
|
|
-
|
|
Sale
of previous Omni operating subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
treated
as contributed capital
|
|
|
-
|
|
|
-
|
|
|
498,000
|
|
|
-
|
|
|
498,000
|
|
Value
of warrants and stock options issued
|
|
|
-
|
|
|
-
|
|
|
101,996
|
|
|
-
|
|
|
101,996
|
|
Net
(loss) for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(845,393
|
)
|
|
(845,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2006
|
|
|
25,498,794
|
|
$
|
127,366
|
|
$
|
4,517,814
|
|
$
|
(6,241,709
|
)
|
$
|
(1,596,529
|
)
|
See
accompanying report of independent registered public accounting firm, summary
of
accounting policies and notes to consolidated financial
statements.
Brendan
Technologies, Inc.
Consolidated
Statements of Cash Flows
|
|
Year
Ended
|
|
Six
Months Ended
|
|
Periods
Ended June 30,
|
|
2006
|
|
2005
|
|
Operating
activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(845,393
|
)
|
$
|
(164,772
|
)
|
Adjustments
to reconcile net loss
|
|
|
|
|
|
|
|
to
cash provided by operating activities:
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
14,858
|
|
|
2,384
|
|
Non
cash expense related to warrants
|
|
|
|
|
|
|
|
and
stock options
|
|
|
83,650
|
|
|
-
|
|
Non
cash reduction in accounts payable
|
|
|
98,000
|
|
|
-
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
(Increase)
decrease in accounts receivable
|
|
|
15,644
|
|
|
(62,808
|
)
|
(Increase)
decrease in prepaid expense and other assets
|
|
|
29
|
|
|
-
|
|
Increase
(decrease) in accounts payable
|
|
|
48,773
|
|
|
(1,915
|
)
|
Increase
(decrease) in accrued liabilities
|
|
|
60,967
|
|
|
234,790
|
|
Increase
(decrease) in deferred revenue
|
|
|
14,654
|
|
|
(21,533
|
)
|
Net
cash (used in) operating activities
|
|
|
(508,818
|
)
|
|
(13,854
|
)
|
Investing
activities:
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(67,351
|
)
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(67,351
|
)
|
|
-
|
|
Financing
activities:
|
|
|
|
|
|
|
|
Principal
payments of lease obligations
|
|
|
(2,448
|
)
|
|
(312
|
)
|
Proceeds
from notes receivable on sale of Omni divisions
|
|
|
400,000
|
|
|
-
|
|
Proceeds
from issuance of 8% convertible debentures
|
|
|
125,000
|
|
|
-
|
|
Proceeds
from issuance of common stock, net of cash
|
|
|
|
|
|
|
|
paid
for costs
|
|
|
170,625
|
|
|
25,000
|
|
Net
cash provided by financing activities
|
|
|
693,177
|
|
|
24,688
|
|
Net
increase (decrease) in cash
|
|
|
117,008
|
|
|
10,834
|
|
Cash
and cash equivalents,
beginning of year
|
|
|
32,504
|
|
|
21,670
|
|
Cash
and cash equivalents,
end of year
|
|
$
|
149,512
|
|
$
|
32,504
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
17,708
|
|
$
|
7,500
|
|
Income
taxes
|
|
$
|
-
|
|
$
|
-
|
|
Non
Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
Property
and equipment acquired through lease
|
|
$
|
7,886
|
|
$
|
12,312
|
|
Conversion
of Brendan notes payable into common stock
|
|
$
|
1,692,972
|
|
$
|
-
|
|
Conversion
of Brendan accrued interest into common stock
|
|
$
|
961,226
|
|
$
|
-
|
|
Issuance
of common stock in payment of accounts payable
|
|
$
|
35,000
|
|
$
|
-
|
|
Debt
discount on 8% convertible debentures
|
|
$
|
18,346
|
|
$
|
-
|
|
See
accompanying reports of independent registered public accounting firms, summary
of accounting policies and notes to consolidated financial
statements.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements
Note
1 - Business
Nature
of Business
Brendan
Technologies, Inc., a
Nevada
corporation (“we”
or
“Brendan”)
provides
software solutions to improve the accuracy, quality control, workflow, and
regulatory compliance of immunoassay testing in laboratories in the
biopharmaceutical, clinical, research, veterinarian and agricultural industries.
Merger
of Brendan Technologies, Inc. into Omni, U.S.A., Inc.
On
December 29, 2005, Omni U.S.A., Inc., a Nevada corporation (“Omni”),
Omni’s
wholly-owned subsidiary Omni Merger Sub, Inc., a Michigan corporation
(“Merger
Sub”),
Jeffrey Daniel and Edward Daniel entered into an Agreement and Plan of Merger
(the “Merger
Agreement”)
with
Brendan Technologies, Inc., a Michigan corporation (“Brendan
Sub”),
pursuant to which Merger Sub was merged with and into Brendan Sub and Brendan
Sub became the surviving corporation in the merger and a wholly-owned subsidiary
of Omni. Brendan Sub continued its corporate existence under the laws of the
State of Michigan. On September 15, 2006, Omni changed its name to Brendan
Technologies, Inc.
Concurrently
with the merger, 4,754,709
shares
of
Brendan Sub common stock outstanding immediately before the merger were
converted into 19,018,836
shares
of
Omni common stock, a four for one ratio. Also concurrently with the merger,
(i)
4,352,879
shares
of
Omni common stock were issued to the holders of Brendan Sub Senior and Bridge
Notes totaling $2,654,198
in
aggregate principal and interest, a conversion rate of 1.64 shares per $1.00
under such debt; (ii) 900,000 shares of Omni common stock was issued to
individuals who participated in the arrangement of the merger.
Common
stock options and warrants exercisable into 973,500
shares
of
Brendan Sub before the merger will become exercisable into 3,894,000
common
shares of Omni after the merger. The exercise price of the Omni stock options
and warrants was adjusted to 25% of the exercise price of the Brendan Sub stock
options and warrants.
Concurrent
with entering into the Merger Agreement, on December 29, 2005, Omni entered
into
a Stock Purchase Agreement (“Stock
Purchase Agreement”)
with
Jeffrey K. Daniel, Craig L. Daniel and Edward Daniel (“Daniels”)
pursuant to which Omni sold to Daniels all of the issued and outstanding shares
of capital stock of Omni U.S.A., Inc., a Washington corporation (“Omni-Washington”)
and
Butler Products Corporation (“Butler”),
each
of which was previously a wholly-owned subsidiary of Omni, in exchange for
a
three-year promissory note due on December 29, 2008 in the amount of $672,000
(the “Promissory
Note”),
which
was discounted to $498,000.
Prior
to
the transactions effected by the Stock Purchase Agreement and Merger Agreement,
Omni-Washington and Butler constituted substantially all of Omni’s operations.
Following the transactions effected by the Merger Agreement and the Stock
Purchase Agreement, Brendan Sub is now our sole wholly-owned subsidiary, and
we
conduct all our operations through Brendan Sub.
The
Company has, at the present time, not paid any dividends, and any dividends
that
may be paid in the future will depend upon the financial requirements of the
Company and other relevant factors.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Note
2- Going Concern
Going
Concern
These
financial statements have been prepared on a going concern basis. However,
during the year ended June 30, 2006 and the transitional six month period ended
June 30, 2005, the Company incurred net losses of $845,393 and $164,772,
respectively, and had an accumulated
deficit
of $6,241,709 and $5,396,316, at June 30, 2006 and 2005, respectively. In
addition, the Company had a working capital deficit of $1,559,809 and is in
default on $333,217 of debt and interest. The Company’s ability to continue as a
going concern is dependent upon its ability to generate profitable operations
in
the future and/or to obtain the necessary financing to meet its obligations
and
repay its liabilities arising from normal business operations when they come
due. The outcome of these matters cannot be predicted with any certainty at
this
time and as such raise substantial doubt as to the Company’s ability to continue
as a going concern. Since inception, the Company has satisfied its capital
needs
through debt and equity financings and expects to fund the Company from these
sources until profitability is achieved. There can be no assurance that funds
will be available at terms favorable to the Company or that future profitability
can be achieved. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
Management’s
Plans
Management's
plans to eliminate the going concern situation include, but are not limited
to,
the following:
· |
Obtain
additional equity or debt financing from investors. Subsequent to
June 30,
2006, the Company received net proceeds of $900,000 from the issuance
of
an 8% convertible debenture.
|
· |
Increase
revenue from the sale of its software. The Company is anticipating
to
release an upgraded version of its software during the next twelve
months
that will address customer enterprise level
requirements.
|
· |
If
necessary, the Company will initiate cost cutting programs that would
reduce cash requirements.
|
Note
3 - Summary
of Significant Accounting Policies
Consolidation
Policy
The
foregoing financial information has been prepared from the books and records
of
Brendan. Brendan’s consolidated financial statements include the accounts of its
wholly-owned subsidiary, Brendan Sub. All significant intercompany balances
and
transactions have been eliminated in consolidation. In the opinion of
management, the financial information reflects all adjustments necessary for
a
fair presentation of the financial condition, results of operations and cash
flows of the Company in conformity with accounting principles generally accepted
in the United States.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Cash
and cash Equivalents
Cash
and
cash equivalents include cash, funds invested in money market funds and cash
invested temporarily in various instruments with maturities of three months
or
less at the time of purchase.
Trade
Accounts Receivable
The
Company provides for the possible inability to collect accounts receivable
by
recording an allowance for doubtful accounts. The Company writes off an account
when it is considered to be uncollectible.
Property
and Equipment
Property
and equipment are stated at cost. Expenditures for major renewals and
betterments that extend the useful lives of property and equipment are
capitalized, upon being placed in service. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation is computed over the
estimated useful life of three to seven years, except leasehold improvements
which are depreciated over the lesser of the remaining lease life or the life
of
the asset, using the straight-line method. The Company follows the provisions
of
the Financial Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment of
Long-lived Assets." Long-lived assets and certain identifiable intangibles
to be
held and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not
be recoverable. The Company periodically evaluates the recoverability of its
long-lived assets based on estimated future cash flows and the estimated fair
value of such long-lived assets, and provides for impairment if such
undiscounted cash flows are insufficient to recover the carrying amount of
the
long-lived asset.
Revenue
Recognition
The
Company recognizes revenues related to software licenses and software
maintenance in accordance with the American Institute of Certified Public
Accountants (“AICPA”) Statements of Position (“SOP”) No. 97-2, “Software Revenue
Recognition,” as amended by SOP No. 94-4 and SOP No. 98-9. We follow the
guidance established by the SEC in Staff Accounting Bulletin No. 104, as well
as
generally accepted criteria for revenue recognition, which require that, before
revenue is recorded, there is persuasive evidence of an arrangement, the fee
is
fixed or determinable, collection is reasonably assured, and delivery to our
customer has occurred. In addition, our invoices may include multiple elements
that identify vendor specific objective evidence of fair value for each of
those
elements. The Company recognizes revenue as follows:
Software-
our software is sold with an indefinite license period, and as such, product
revenue is recorded at the time of the customer’s acceptance (generally 30 days
after shipment which allows for a 30 day return guarantee if the customer is
not
satisfied with the product), net of estimated allowances and returns.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Post-contract
customer support- (“PCS”) obligations are generally for annual services and are
recognized over the period of service. Revenues for which payment has been
received are treated as deferred revenue until services are provided and
revenues have been earned.
Training
and service calls- recognized at the time training or service calls are
provided.
Royalties-
we recognize revenue from royalties only after the cash has been collected
(typically 30 days after the end of the quarter on which the royalty payment
is
based.)
Licensing-
we also derive license revenue from fees for the transfer of proven and reusable
intellectual property components. Generally, these payments will include a
nonrefundable technology license fee, which will be payable upon the transfer
of
intellectual property. License fees will be recognized upon the execution of
the
license agreement and transfer of intellectual property provided no further
significant performance obligations exist and collectibility is deemed probable.
Customization
revenue- fees related to software service contracts to aid customers in adapting
such intellectual property to their particular instruments, which will be
performed on a best efforts basis and for which we will receive periodic
milestone payments, will be recognized as revenue over the estimated development
period, using a cost-based percentage of completion method.
Software
Development Costs
Costs
associated with the development and enhancement of proprietary software for
sale
is expensed as incurred. The costs incurred between the time when our products
reach technological feasibility and when they are available for general release
to the public are
capitalized
and amortized over their estimated useful lives. When such assets have been
capitalized, they are reviewed each period to determine if the value of the
asset has been impaired. We currently have no capitalized and unamortized
software development costs.
Research
and Development
We
account for research and development costs in accordance with several accounting
pronouncements, including SFAS No. 2, Accounting
for Research and Development Costs,
and
SFAS No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed.
SFAS No.
86 specifies that costs incurred internally in researching and developing a
computer software product should be charged to expense until technological
feasibility has been established for the product. Once technological feasibility
is established, all software costs should be capitalized until the product
is
available for general release to customers. Judgment is required in determining
when technological feasibility of a product is established. We have determined
that technological feasibility for our software products is reached shortly
before the products are released to manufacturing. Costs to maintain and upgrade
our software after initial release to our customers are expensed when incurred.
Research and development costs were immaterial during each period.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Stock
Based Compensation
The
Company applies Accounting Principles Board ("APB") Opinion 25, "Accounting
for
Stock Issued to Employees," and related Interpretations in accounting for all
stock option plans. Under APB Opinion 25, compensation cost has been recognized
for stock options granted to employees when the option price is less than the
market price of the underlying common stock on the date of grant.
Through
December 31, 2005, SFAS No. 123, "Accounting for Stock-Based Compensation,"
and
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure," required the Company to provide pro forma information regarding
net
income as if compensation cost for the Company's stock option plans had been
determined in accordance with the fair value based method prescribed in SFAS
No.
123. To provide the required pro forma information, the Company estimated the
fair value of each stock option at the grant date by using the Black-Scholes
option-pricing model. SFAS No. 148 also provides for alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. The Company has elected to continue
to
account for stock-based compensation under APB No. 25.
On
December 15, 2005, our Board of Directors accelerated the vesting of 350,000
unvested stock options held by our employees with exercise prices of $3.00
per
share. The options would have otherwise vested over various periods through
January 2007. Our Board of Directors determined that the acceleration of the
vesting of the stock options described above was in the best interests of the
company to enhance the incentive of the affected options and to provide us
with
greater flexibility for future grants of share-based incentives as SFAS 123(R)
became effective. We adopted SFAS 123(R) in January 2006.
The
Company applies SFAS No. 123 in valuing options granted to consultants and
estimates the fair value of such options using the Black-Scholes option-pricing
model. The fair value is recorded as consulting expense as services are
provided. Options granted to consultants for which vesting is contingent based
on future performance are measured at their then current fair value at each
period end, until vested.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Under
the
accounting provisions of SFAS No. 123, the Company's net loss per share would
have been increased by the pro forma amounts indicated below:
|
|
Period
Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Net
income (loss), as reported
|
|
$
|
(845,393
|
)
|
$
|
(164,772
|
)
|
Stock-based
employee compensation,
|
|
|
|
|
|
|
|
net
of tax effects
|
|
|
(57,078
|
)
|
|
(27,354
|
)
|
Proforma
net income (loss)
|
|
$
|
(902,471
|
)
|
$
|
(192,126
|
)
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
Basic
and diluted- as reported
|
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
Basic
and diluted- proforma
|
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
For
purposes of computing the pro forma disclosures required by SFAS No. 123, the
fair value of each option granted to employees and directors is estimated using
the Black-Scholes option-pricing model.
Stock
options to purchase up to 460,000 shares of common stock were granted to
employees and directors subsequent to January 1, 2006 and $83,650 was charged
to
expense for the year ended June 30, 2006. The stock options were valued using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for the year ended June 30, 2006: dividend yield of zero
percent; expected volatility of 37%; risk-free interest rates of 4.84%, and
expected lives of 5 years.
Loss
Per Share
The
Company utilizes SFAS No. 128, “Earnings per Share.” Basic loss per share is
computed by dividing loss available to common shareholders by the
weighted-average number of common shares outstanding. Diluted loss per share
is
computed similar to basic loss per share except that the denominator is
increased to include the number of additional common shares that would have
been
outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. Common equivalent shares are excluded from the
computation if their effect is anti-dilutive.
For
the
year ended June 30, 2006 and the transition period ended June 30, 2005, the
following common equivalent shares were excluded from the computation of loss
per share since their effects are anti-dilutive.
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
(Post-merger)
|
|
Options
|
|
|
4,622,334
|
|
|
3,840,000
|
|
Warrants
|
|
|
720,667
|
|
|
358,400
|
|
Total
|
|
|
5,343,001
|
|
|
4,198,400
|
|
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Fair
Value of Financial Instruments
The
Company’s financial instruments include accounts receivable, notes receivable,
accounts payable, notes payable and accrued wages. The book value of all
financial instruments is representative of their fair values.
Income
Taxes
The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for the
tax
consequences in future years of differences
between
the tax bases of assets and liabilities and their financial reporting amounts
at
each period-end based on enacted tax laws and statutory tax rates applicable
to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.
Estimates
The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Concentrations
of Credit Risk
Financial
instruments which potentially subject the Company to credit risk are primarily
cash and accounts receivable. The Company deposits its cash with what it
considers high-credit, quality financial institutions. At times, balances are
in
excess of the Federal Deposit Insurance Corporation insured limit. As of June
30, 2006, the Company had approximately $144,000 in cash on deposit with one
bank. Credit risk concentration with respect to receivables is limited due
to
the geographic dispersion of the Company’s customer base. The Company conducts
ongoing credit evaluations but does not obtain collateral or other forms of
security. The Company believes its credit policies do not result in significant
adverse risk and historically has not experienced significant credit-related
losses. The Company had two customers whose balances due at June 30, 2006
exceeded 10% of gross accounts receivable (29% and 18%). At June 30, 2005,
the
Company had five customers which accounted for 16%, 15%, 11%, 11%, and 10%
of
the Company’s accounts receivable balances.
The
Company is dependent on one customer for the majority of its revenues. This
customer accounted for 42% in sales for the year ended June 30, 2006. During
the
transition period ended June 30, 2005, the Company had two significant customers
which accounted for 20% and 13% of sales.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Recently
Enacted Accounting Standards
In
November 2004, the FASB issued SFAS No. 151, "Inventory Costs-an amendment
of
ARB. No. 43, Chapter 4". This Statement amends the guidance in ARB No. 43,
Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and wasted material
(spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that "... under
some circumstances, items such as idle facility expense, excessive spoilage,
double freight, and re-handling costs may be so abnormal as to require treatment
as current period charges...." This Statement requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal." In addition, this Statement requires
that allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. The Company adopted
this standard on January 1, 2006. The adoption of this standard did not have
a
material impact on our financial statements.
In
December 2004, the FASB issued SFAS No. 123R, “Share Based Payment". This
Statement is a revision of FASB Statement No. 123, “Accounting for Stock-Based
Compensation”. This Statement supersedes APB Opinion No. 25, “Accounting for
Stock Issued to Employees”, and its related implementation guidance. This
Statement establishes standards for the accounting for transactions in which
an
entity exchanges its equity instruments for goods or services. It also
addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments
or
that may be settled by the issuance of those equity instruments. This Statement
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. This Statement does
not
change the accounting guidance for share-based payment transactions with parties
other than employees provided in Statement 123 as originally issued and EITF
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." This Statement does not address the accounting for employee share
ownership plans, which are subject to AICPA Statement of Position 93-6,
“Employers’ Accounting for Employee Stock Ownership Plans”. The Company adopted
this standard on January 1, 2006. The adoption of this standard did not have
a
material impact on our historical financial statements but could have a material
impact on our financial statements issued after January 2006.
In
May
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections"
("SFAS 154") which replaces Accounting Principles Board Opinions No. 20
"Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim
Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154 provides
guidance on the accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application, or the latest practicable
date, as the required method for reporting a change in accounting principle
and
the reporting of a correction of an error. SFAS 154 is effective for accounting
changes and a correction of errors made in fiscal years beginning after December
15, 2005 and is required to be adopted by the Company in the first quarter
of
fiscal 2007. The Company is currently evaluating the effect that the adoption
of
SFAS 154 will have on its consolidated results of operations and financial
condition.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Note
4- Accounts
Receivable
Accounts
receivable are carried at the expected realizable value. Accounts receivable
consisted of the following:
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Accounts
receivable - trade
|
|
$
|
61,107
|
|
$
|
76,751
|
|
Allowance
for doubtful accounts
|
|
|
(5,000
|
)
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$
|
56,107
|
|
$
|
71,751
|
|
Note
5- Property and Equipment
The
following is a summary of equipment, at cost, less accumulated
depreciation:
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Computer
equipment
|
|
$
|
95,047
|
|
$
|
29,022
|
|
Furniture
and fixtures
|
|
|
104,261
|
|
|
98,444
|
|
|
|
|
199,308
|
|
|
127,466
|
|
|
|
|
|
|
|
|
|
Less
accumulated depreciation
|
|
|
126,568
|
|
|
115,105
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72,740
|
|
$
|
12,361
|
|
Depreciation
expense for the year ended June 30, 2006 and the transition period ended June
30, 2005 was $14,858 and $2,384, respectively.
Note
6- Accrued Wages and Accrued Interest
From
1999
through 2004, employees deferred a portion of their wages accumulating $687,527.
This amount plus employee taxes payable thereon remains outstanding at June
30,
2005 and 2006. The outstanding balance accrues interest at the rate of 12%
per
annum. The amount of accrued interest payable related to the deferred wages
equaled $331,822 and $414,723 at June 30, 2005 and 2006. The Company anticipates
to pay the accrued wages and interest either in cash or by allowing the
employees to convert to common stock. Two of the employees with accumulated
wages payable of $352,455 and accrued interest payable of $210,221 are
affiliates of the Company.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Note
7- Convertible Notes Payable in Default
Convertible
notes payable, the majority of which were converted into common stock of Brendan
consisted of the following:
|
|
June
30,
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Forty-six
convertible, unsecured, senior subordinated
|
|
|
|
|
|
|
|
notes
payable, due on various dates on or before
|
|
|
|
|
|
|
|
September
2004, bearing interest at 8% per annum.
|
|
|
|
|
|
|
|
Forty-four
of the notes were converted into 2,062,300
|
|
|
|
|
|
|
|
shares
of the Company's common stock on December 29,
|
|
|
|
|
|
|
|
2005
the result of a reverse acquisition.
|
|
$
|
130,000
|
|
$
|
1,387,500
|
|
|
|
|
|
|
|
|
|
Six
convertible, unsecured, bridge notes payable, due
|
|
|
|
|
|
|
|
various
dates on or before December 2004, bearing
|
|
|
|
|
|
|
|
interest
at 12% per annum. The notes were converted
|
|
|
|
|
|
|
|
into
714,174 shares of the Company's common stock
|
|
|
|
|
|
|
|
on
December 29, 2005 as the result of a reverse
|
|
|
|
|
|
|
|
acquisition.
|
|
|
-
|
|
|
435,472
|
|
|
|
|
|
|
|
|
|
Unsecured,
convertible note payable for $125,000,
|
|
|
|
|
|
|
|
which
bears interest at a rate of 12% per annum.
|
|
|
125,000
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
255,000
|
|
$
|
1,947,972
|
|
In
December 2005, two of the individuals who converted their notes to common stock
were appointed to the Company’s Board of Directors.
As
of
June 30, 2006, the holder of the $125,000, 12% note made demand on the Company
for full payment. Subsequent to June 30, 2006, the Company paid this note in
full.
Note
8- 8% Convertible Debentures
Overview.
During
June 2006 we sold an aggregate of $125,000 of 8% convertible debentures to
a
group of five individual investors, two of which are affiliates of the Company.
The convertible debentures entitle the debenture holder to convert the principal
into our common stock for two years from the date of closing. Interest on
the
debentures is payable quarterly in cash.
Number
of Shares Debentures May Be Converted Into.
The
debentures can be converted into a number of our common shares at a conversion
price equal to $0.50 per share.
Warrants.
Concurrent with the issuance of the convertible debentures, we issued to
the
debenture holders warrants to purchase shares of our common stock. These
warrants are exercisable for one to five years from the date of issuance
at
exercise prices ranging from $0.60 to $1.00 per share.
Right
of First Refusal.
The
debenture holders have a right of first refusal to purchase or participate
in
any equity securities offered by us in any private transaction which closes
on
or prior to the date that is two years after the issue date of each
debenture.
Registration
Rights.
We are
responsible for registering the resale of the shares of our common stock
which
will be issued on the conversion of the debentures.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Restrictions
on Use of Funds.
We may
not pay any cash dividends without the debenture holders prior written
approval.
The
following table presents the status, as of June 30, 2006, of our convertible
debentures:
|
|
As
of
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
|
|
|
|
Convertible
debentures issued
|
|
$
|
125,000
|
|
$
|
-
|
|
Less
debt discount
|
|
|
(18,346
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
106,654
|
|
|
-
|
|
Less
current portion
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Long
term portion
|
|
$
|
106,654
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Issued
to related parties
|
|
$
|
83,652
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Maturity
dates of outstanding convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
2008
|
|
$
|
125,000
|
|
$
|
-
|
|
Note
9- Lease Obligations
Operating
Lease
The
Company has entered into a two-year building lease for its office commencing
in
June 2006 and expiring in May 2008 with a one year option to renew. Lease
expense for the year ended June 30, 2006 and the transition period ended June
30, 2005 amounted to $71,076 and $32,704, respectively. The following is a
schedule of minimum annual rental payments for the next five years.
Years
ending June 30,
|
|
|
|
|
|
|
|
2007
|
|
$
|
58,065
|
|
2008
|
|
|
54,835
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
$
|
112,900
|
|
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Note
10- Capital Stock
Preferred
Stock
The
Company has authorized 5,000,000 shares of preferred stock, $.004995 par value,
with such rights, preferences and designations and to be issued in such series
as determined by the Board of Directors. No shares are issued and outstanding
at
June 30, 2006.
Common
Stock
The
Company has authorized 50,000,000 shares of common stock at $.004995 par value.
At June 30, 2006, the Company had 25,498,794 shares of common stock issued
and
outstanding.
During
the year ended June 30, 2006, the Company issued 67,500 shares of common stock
for proceeds of $202,500 less offering costs of $31,875; reflected 14,264,127
shares to affect a 4 for 1 reverse merger with shareholders of Brendan Sub,
issued 4,352,879 shares in exchange for notes payable and accrued expenses
to
note holders of Brendan Sub, and issued 900,000 shares to individuals who
participated in the reverse merger. At the conclusion of the reverse merger,
the
shareholders of the predecessor corporation held 1,227,079 shares of common
stock. Of the 14,264,127 shares discussed above, 12,470,927 have been issued
and
1,793,200 are for an individual and relate to a 1999 agreement with an
investment banking firm in which the individual was a principal. The individual
was obligated to use his best efforts to secure private placement financings
and
the investment banking firm was to underwrite an initial public offering for
the
Company. Although outstanding on the records of the Company, the individual
is
not entitled to these shares and the Company has not issued, and does not
presently intend to issue, these shares to the individual.
During
the transition period ended June 30, 2005, the Company issued 8,333 shares
of
common stock for proceeds of $25,000.
Warrants
During
the year ended June 30, 2006, the Company issued 500,000 common stock purchase
warrants to a group of five individual investors, two of which are affiliates
of
the Company, related to the issuance of 8% convertible debentures. In addition,
the Company issued a common stock purchase warrant for the purchase of 54,000
post-merger shares to one individual who assisted the Company in raising funds.
Warrants remain outstanding which were issued by the predecessor company as
a
result of their financings with an institutional investor. In addition, a
warrant exercisable into up to 358,400 post merger shares expired during the
year ended June 30, 2006.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
A
summary
of the status of the warrants granted under various agreements at June 30,
2006
and 2005, and changes during the years then ended is presented
below:
|
|
Warrants
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2004
|
|
|
89,600
|
|
$
|
2.25
|
|
Outstanding,
June 30, 2005
|
|
|
89,600
|
|
|
2.25
|
|
|
|
|
|
|
|
|
|
Post
Merger warrants at 4 for 1
|
|
|
358,400
|
|
|
0.56
|
|
Predecessor
warrants outstanding
|
|
|
166,667
|
|
|
6.00
|
|
Granted
|
|
|
554,000
|
|
|
0.80
|
|
Cancelled
|
|
|
(358,400
|
)
|
|
0.56
|
|
Outstanding,
June 30, 2006
|
|
|
720,667
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
Exercisable,
June 30, 2005
|
|
|
89,600
|
|
$
|
2.25
|
|
Exercisable,
June 30, 2006
|
|
|
720,667
|
|
$
|
2.64
|
|
The
weighted average grant date fair value of warrants issued during the year ended
June 30, 2006 was $0.05.
The
Company estimates the fair value of each warrant at the issuance date by using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for the year ended June 30, 2006: dividend yield of zero
percent; expected volatility of 37%, risk-free interest rates of 5.13% to 5.28%;
and expected lives of 1 to 5 years.
|
|
Outstanding
|
|
Exercisable
|
|
Range
of
Exercise
Prices
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.60
|
|
|
250,000
|
|
|
4.98
|
|
$
|
0.60
|
|
|
250,000
|
|
$
|
0.60
|
|
$0.75
|
|
|
54,000
|
|
|
4.13
|
|
$
|
0.75
|
|
|
54,000
|
|
$
|
0.75
|
|
$1.00
|
|
|
250,000
|
|
|
0.98
|
|
$
|
1.00
|
|
|
250,000
|
|
$
|
1.00
|
|
$6.00
|
|
|
166,667
|
|
|
3.01
|
|
$
|
6.00
|
|
|
166,667
|
|
$
|
6.00
|
|
|
|
|
720,667
|
|
|
3.07
|
|
$
|
2.64
|
|
|
720,667
|
|
$
|
2.00
|
|
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Stock
Option Plan
In
April 2006 we adopted a Stock Option Plan, which we refer to as the "Plan,"
which provides for the grant of stock options intended to qualify as "incentive
stock options" and "nonqualified stock options" (collectively "stock options")
within the meaning of Section 422 of the United States Internal Revenue
Code of 1986 (the "Code"). Stock options may be issued to any of our officers,
directors, key employees or consultants.
Under
the
Plan, we have reserved 7.5 million shares underlying stock options for
issuance, of which 4,622,334 options have been granted to executive officers,
employees and consultants at prices ranging from $0.025 to $6.75 per share.
The
Plan is administered by the full Board of Directors, who determine which
individuals shall received stock options, the time period during which the
stock
options may be exercised, the number of shares of common stock that may be
purchased under each stock option and the stock option price.
The
per
share exercise price of incentive stock options may not be less than the fair
market value of the common stock on the date the option is granted. The
aggregate fair market value (determined as of the date the stock option is
granted) of the common stock that any person may purchase under an incentive
stock option in any calendar year pursuant to the exercise of incentive stock
options will not exceed $100,000. No person who owns, directly or indirectly,
at
the time of the granting of an incentive stock option, more than 10% of the
total combined voting power of all classes of our stock is eligible to receive
incentive stock options under the Plan unless the stock option price is at
least
110% of the fair market value of the common stock subject to the stock option
on
the date of grant.
No
incentive stock options may be transferred by an optionee other than by will
or
the laws of descent and distribution, and, during the lifetime of an optionee,
the stock option may only be exercisable by the optionee. Except as otherwise
determined by the Board of Directors, stock options may be exercised only if
the
stock option holder remains continuously associated with us from the date of
grant to the date of exercise. The exercise date of a stock option granted
under
the Plan may not be later than ten years from the date of grant. Any stock
options that expire unexercised or that terminate upon an optionee's ceasing
to
be employed by us will become available once again for issuance. Shares issued
upon exercise of a stock option will rank equally with other shares then
outstanding. No stock options will be granted by us at an exercise price less
than 85% of the fair market value of the stock underlying the option on the
date
the option is granted. During the years ended June 30, 2005 and 2006, there
were
options granted to purchase up to none and 460,000 shares of common stock.
There
also remain outstanding stock options inherited from another stock option plan
of the predecessor company which were issued to employees, directors and
consultants of the predecessor company.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
A
summary
of the status of the options granted under the Company’s 2000 stock option plan
and other agreements at June 30, 2006 and 2005, and changes during the years
then ended is presented below:
The
Company estimates the fair value of each stock option at the issuance date
by
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for the year ended June 30, 2006: dividend yield of zero
percent; expected volatility of 37%, risk-free interest rates of 4.84%; and
expected lives of 5 years.
|
|
Options
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2004
|
|
|
960,000
|
|
$
|
1.25
|
|
Outstanding,
June 30, 2005
|
|
|
960,000
|
|
|
1.25
|
|
|
|
|
|
|
|
|
|
Post
Merger options at 4 for 1
|
|
|
3,840,000
|
|
|
0.31
|
|
Granted
|
|
|
460,000
|
|
|
0.68
|
|
Predecessor
options outstanding
|
|
|
322,334
|
|
|
3.13
|
|
Outstanding,
June 30, 2006
|
|
|
4,622,334
|
|
|
0.55
|
|
|
|
|
|
|
|
|
|
Exercisable,
June 30, 2005
|
|
|
660,000
|
|
$
|
0.73
|
|
Exercisable,
June 30, 2006
|
|
|
4,472,334
|
|
$
|
0.54
|
|
The
weighted average grant date fair value of options issued during the year ended
June 30, 2006 was $0.28.
A
summary
of the status of the options granted under the stock option plan and other
agreements at June 30, 2006, are presented in the table below:
|
|
Outstanding
|
|
Exercisable
|
|
Range
of
Exercise
Prices
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.025
|
|
|
1,520,000
|
|
|
4.77
|
|
$
|
0.03
|
|
|
1,520,000
|
|
$
|
0.03
|
|
$0.125
|
|
|
920,000
|
|
|
4.77
|
|
$
|
0.13
|
|
|
920,000
|
|
$
|
0.13
|
|
$0.64
|
|
|
300,000
|
|
|
4.77
|
|
$
|
0.64
|
|
|
150,000
|
|
$
|
0.64
|
|
$0.75
|
|
|
1,560,000
|
|
|
4.77
|
|
$
|
0.75
|
|
|
1,560,000
|
|
$
|
0.75
|
|
$3.00-6.75
|
|
|
322,334
|
|
|
0.71
|
|
$
|
3.13
|
|
|
322,334
|
|
$
|
3.13
|
|
|
|
|
4,622,334
|
|
|
4.48
|
|
$
|
0.55
|
|
|
4,472,334
|
|
$
|
0.55
|
|
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Note
11- Income Taxes
The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109. SFAS No. 109 requires the Company to provide
a net
deferred tax asset or liability equal to the expected future tax benefit or
expense of temporary reporting differences
between
book and tax accounting and any available operating loss or tax credit
carryforwards.
The
temporary differences gave rise to the following deferred tax asset
(liability):
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
Allowance
for bad debts
|
|
$
|
2,000
|
|
$
|
2,000
|
|
Valuation
of stock options and warrants
|
|
|
33,000
|
|
|
-
|
|
Accrued
wages
|
|
|
274,000
|
|
|
274,000
|
|
Deferred
income
|
|
|
31,000
|
|
|
25,000
|
|
Net
operating loss carryforwards
|
|
|
2,146,000
|
|
|
1,848,000
|
|
Valuation
allowance
|
|
|
(2,486,000
|
)
|
|
(2,149,000
|
)
|
Net
deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
As
of
June 30, 2006, a valuation allowance equal to the net deferred tax asset
recognized has been recorded, as Management has not determined that it is more
likely than not that the deferred tax
asset
will be realized. No current tax provision was recorded for the year ended
June
30, 2006 and the transition period ended June 30, 2005 due to reported losses.
The valuation allowance increased $337,000 from the prior period.
At
June
30, 2006, the Company has federal net operating loss carryforwards of
approximately $5,387,000 that expire from 2017 through 2025 and are subject
to
certain limitations under the Internal Revenue Code of 1986, as amended, and
state net operating loss carryforwards of approximately $4,936,000 that expire
from 2010 through 2015.
Note
12- Subsequent Events
In
July
2006 the Company issued an 8% convertible debenture with attached common stock
purchase warrants for $1,000,000 ($900,000 net of costs) to one institutional
investor. If not converted to common stock, the debenture will mature in two
years. The debenture can be converted into 2,000,000 shares of common stock
at a
fixed conversion price of $0.50 per share. The attached common stock purchase
warrants have exercise prices of $0.60 per share for 2,000,000 shares which
expires in five years and $1.00 per share for 2,000,000 shares which expires
in
one year.
Also
during July 2006, the Company paid in full a $125,000 note payable which had
been in default.
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BRENDAN
TECHNOLOGIES., INC.
a
Nevada
corporation
By:
/s/ JOHN R. DUNN II
John
R.
Dunn II
Chief
Executive Officer
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
JOHN R. DUNN II
|
|
Chief
Executive Officer,
|
|
October
13, 2006
|
John
R. Dunn II
|
|
President
and Director
|
|
|
|
|
|
|
|
/s/
GEORGE DUNN
|
|
Chief
Operating Officer and Secretary,
|
|
October
13, 2006
|
George
Dunn
|
|
|
|
|
|
|
|
|
|
/s/
LOWELL W. GIFFHORN
|
|
Chief
Financial Officer (Principal
|
|
October
13, 2006
|
Lowell
W. Giffhorn
|
|
Accounting
Officer) and Director
|
|
|
|
|
|
|
|
/s/
THEO VERMAELEN
|
|
Director
|
|
October
13, 2006
|
Theo
Vermaelen
|
|
|
|
|
|
|
|
|
|
/s/
STEVEN EISOLD
|
|
Director
|
|
October
13, 2006
|
Steven
Eisold
|
|
|
|
|
|
|
|
|
|
/s/
JASON BOOTH
|
|
Director
|
|
October
13, 2006
|
Jason
Booth
|
|
|
|
|