UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
(Mark
One)
x
Quarterly
Report Under Section 13 Or 15(d) Of The Securities Exchange Act Of
1934
For
quarterly period ended September
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 0-17493
BRENDAN
TECHNOLOGIES, INC.
(Exact
name of small business issuer as specified in its charter)
NEVADA
|
|
88-0237223
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
2236
Rutherford Road, Suite 107
|
Carlsbad,
California 92008
|
(Address
of principal executive offices)
|
Issuer's
telephone number (760)
929-7500
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 Noo
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
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date:
Common
Stock, $.004995 par value
|
|
23,705,594
|
(Class)
|
|
Outstanding
at November 14, 2006
|
Transitional
Small Business Disclosure Format (Check one): Yes ¨ No
x
Brendan
Technologies, Inc.
INDEX
|
Page
|
PART
I. FINANCIAL INFORMATION
|
|
|
|
Item
1. Financial Statements:
|
|
|
|
Condensed
consolidated Balance Sheets as of September 30, 2006 (unaudited)
and June
30, 2006
|
3
|
|
|
Condensed
consolidated Statements of Operations for the three months ended
September
30, 2006 and 2005 (unaudited)
|
4
|
|
|
Condensed
consolidated Statements of Cash Flows for the three months ended
September
30, 2006 and 2005 (unaudited)
|
5
|
|
|
Notes
to Condensed Unaudited Consolidated Financial Statements
|
6
|
|
|
Item
2. Management’s Discussion and Analysis or Plan of
Operation
|
11
|
|
|
Item
3. Controls and Procedures
|
15
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
Item
1. Legal Proceedings
|
*
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
|
*
|
|
|
Item
3. Defaults upon Senior Securities
|
*
|
|
|
Item
4. Submission of Matters to a Vote of Security
Holders
|
*
|
|
|
Item
5. Other Information
|
*
|
|
|
Item
6. Exhibits
|
16
|
|
|
SIGNATURES
|
17
|
* No
information provided due to inapplicability of the item.
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
Brendan
Technologies, Inc.
|
Condensed
Consolidated Balance
Sheets
|
|
|
September
30,
|
|
June
30,
|
|
|
|
2006
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
552,904
|
|
$
|
149,512
|
|
Accounts
receivable, net
|
|
|
31,630
|
|
|
56,107
|
|
Prepaid
expenses
|
|
|
10,566
|
|
|
301
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
595,100
|
|
|
205,920
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
79,556
|
|
|
72,740
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
8,190
|
|
|
8,190
|
|
|
|
|
|
|
|
|
|
|
|
$
|
682,846
|
|
$
|
286,850
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Notes
payable in default
|
|
$
|
130,000
|
|
$
|
255,000
|
|
Accrued
interest in default
|
|
|
82,382
|
|
|
78,217
|
|
Accounts
payable
|
|
|
98,191
|
|
|
161,430
|
|
Accrued
wages
|
|
|
772,030
|
|
|
772,030
|
|
Accrued
interest
|
|
|
455,221
|
|
|
414,959
|
|
Deferred
revenue
|
|
|
84,478
|
|
|
77,651
|
|
Current
portion of lease obligations
|
|
|
6,750
|
|
|
6,442
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,629,052
|
|
|
1,765,729
|
|
|
|
|
|
|
|
|
|
Long
term portion of lease obligations
|
|
|
9,188
|
|
|
10,996
|
|
|
|
|
|
|
|
|
|
8%
Convertible debentures net of debt discount
|
|
|
833,669
|
|
|
23,002
|
|
8%
Convertible debentures net of debt discount - related
parties
|
|
|
85,692
|
|
|
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:
23,705,594 and 25,498,794 issued and outstanding
|
|
|
|
|
|
|
|
at
September 30, 2006 and June 30, 2006, respectively
|
|
|
118,409
|
|
|
127,366
|
|
Additional
paid in capital
|
|
|
4,654,417
|
|
|
4,517,814
|
|
Accumulated
deficit
|
|
|
(6,647,581
|
)
|
|
(6,241,709
|
)
|
Total
stockholders' deficit
|
|
|
(1,874,755
|
)
|
|
(1,596,529
|
)
|
|
|
$
|
682,846
|
|
$
|
286,850
|
|
See
accompanying summary of accounting polices and notes to unaudited
condensed consolidated financial
statements.
|
Brendan
Technologies, Inc.
|
Condensed
Consolidated Statements of Operation
|
(Unaudited)
|
|
|
Three
Months Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
87,395
|
|
$
|
109,842
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
23,205
|
|
|
26,269
|
|
General
and administrative expenses
|
|
|
401,059
|
|
|
242,149
|
|
|
|
|
424,264
|
|
|
268,418
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(336,869
|
)
|
|
(158,576
|
)
|
|
|
|
|
|
|
|
|
Other
expense
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(69,003
|
)
|
|
(83,722
|
)
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(405,872
|
)
|
|
(242,298
|
)
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(405,872
|
)
|
$
|
(242,298
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.02
|
)
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average
|
|
|
|
|
|
|
|
common
shares outstanding
|
|
|
23,725,085
|
|
|
4,718,758
|
|
See
accompanying summary of accounting polices and notes to unaudited
condensed consolidated financial
statements.
|
Brendan
Technologies, Inc.
|
Condensed
Consolidated Statements of Cash Flows
|
(Unaudited)
|
|
|
Three
Months Ended September 30,
|
|
|
|
2006
|
|
2005
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(405,872
|
)
|
$
|
(242,298
|
)
|
Adjustments
to reconcile net loss
|
|
|
|
|
|
|
|
to
cash provided by operating activities:
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
8,598
|
|
|
1,441
|
|
Stock
option compensation
|
|
|
18,066
|
|
|
-
|
|
Amortization
of debt discount
|
|
|
22,287
|
|
|
-
|
|
Provision
for uncollectible receivables
|
|
|
1,000
|
|
|
-
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
23,477
|
|
|
35,489
|
|
Prepaid
expense and other assets
|
|
|
(10,265
|
)
|
|
-
|
|
Accounts
payable
|
|
|
(63,239
|
)
|
|
48,494
|
|
Accrued
liabilities
|
|
|
44,427
|
|
|
30,055
|
|
Deferred
revenue
|
|
|
6,827
|
|
|
15,290
|
|
Net
cash used in operating activities
|
|
|
(354,694
|
)
|
|
(111,529
|
)
|
Investing
activities:
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(15,414
|
)
|
|
(2,863
|
)
|
Net
cash used in investing activities
|
|
|
(15,414
|
)
|
|
(2,863
|
)
|
Financing
activities:
|
|
|
|
|
|
|
|
Principal
payments of lease obligations
|
|
|
(1,500
|
)
|
|
(495
|
)
|
Principal
payments on notes payable in default
|
|
|
(125,000
|
)
|
|
-
|
|
Proceeds
from sale of stock, net of costs
|
|
|
-
|
|
|
170,625
|
|
Proceeds
from issuance of 8% convertible debentures,
|
|
|
|
|
|
|
|
net
of costs
|
|
|
900,000
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
773,500
|
|
|
170,130
|
|
Net
increase in cash and cash equivalents
|
|
|
403,392
|
|
|
55,738
|
|
Cash
and cash equivalents,
beginning of year
|
|
|
149,512
|
|
|
32,504
|
|
Cash
and cash equivalents,
end of period
|
|
$
|
552,904
|
|
$
|
88,242
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
2,289
|
|
$
|
4,461
|
|
Income
taxes
|
|
$
|
-
|
|
$
|
-
|
|
Non
Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
Cancellation
of stock
|
|
$
|
8,957
|
|
$
|
-
|
|
Debt
discount on 8% convertible debentures
|
|
$
|
209,580
|
|
$
|
-
|
|
See
accompanying summary of accounting polices and notes to unaudited
condensed consolidated financial
statements.
|
BRENDAN
TECHNOLOGIES, INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
Note
1 - Business
Nature
of Business
Brendan
Technologies, Inc., a Nevada corporation (the “Company”,
“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.
The
accompanying unaudited condensed consolidated financial statements include
the
accounts of the Company and the Company’s wholly owned subsidiary. The unaudited
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. All material inter-company accounts and
transactions have been eliminated in consolidation. Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments, consisting of normal
and recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for the periods presented have been
included. Operating results for the three month period ended September 30,
2006
are not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 2007. For further information, refer to the
financial statements and notes thereto included in the Brendan Technologies,
Inc. Annual Report on Form 10-KSB for the fiscal year ended June 30,
2006.
Recent
Accounting Pronouncements
On
July
13, 2006, FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income
Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”) was issued.
The provisions of FIN 48 are effective for fiscal years beginning after December
15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. It also prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. The Company is currently evaluating the impact of FIN 48 on
its results of operations, financial condition or cash flows.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements (“SAB No. 108”),
which provides interpretive guidance on the consideration of the effects of
prior year misstatements in quantifying current year misstatements for the
purpose of a materiality assessment. SAB No. 108 requires registrants to
quantify misstatements using both the balance sheet and income statement
approaches and to evaluate whether either approach results in quantifying an
error that is material based on relevant quantitative and qualitative factors.
The guidance is effective for the first fiscal period ending after November
15,
2006. Upon adoption the Company does not expect SAB No. 108 to have a
material effect on its results of operations, financial condition or cash
flows.
Note
2- Going Concern
Going
Concern
These
financial statements have been prepared on a going concern basis. However,
during the three months ended September 30, 2006 and the year ended June 30,
2006, the Company incurred net losses of $405,872 and $845,393, respectively,
and had an accumulated deficit of $6,647,581 and $6,241,709, at September 30
and
June 30, 2006, respectively. In addition, as of September 30, 2006, the Company
had a working capital deficit of $1,033,952 and is in default on $212,382 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.
BRENDAN
TECHNOLOGIES, INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)
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.
|
· |
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 - 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
three months ended September 30, 2006 and 2005, the following common equivalent
shares were excluded from the computation of loss per share since their effects
are anti-dilutive.
|
|
September
30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
(Post-merger)
|
|
Options
|
|
|
4,722,334
|
|
|
3,840,000
|
|
Warrants
|
|
|
4,920,667
|
|
|
54,000
|
|
Total
|
|
|
9,643,001
|
|
|
3,894,000
|
|
BRENDAN
TECHNOLOGIES, INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)
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.
Note
4-
Notes Payable In Default
Notes
payable in default consisted of the following:
|
|
September
30,
|
|
June
30,
|
|
|
|
2006
|
|
2006
|
|
Two
unsecured, senior subordinated
|
|
|
|
|
|
|
|
notes
payable, due on various dates on or before
|
|
|
|
|
|
|
|
September
2004, bearing interest at 8% per annum.
|
|
$
|
130,000
|
|
$
|
130,000
|
|
Unsecured,
note payable for $125,000,
|
|
|
|
|
|
|
|
with
interest at a rate of 12% per annum.
|
|
|
-
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
130,000
|
|
$
|
255,000
|
|
The
above
notes which were not converted as part of the reverse merger remain in default.
Note
5- 8% Convertible Debentures
Overview.
During
June and July, 2006 we sold an aggregate of $1,125,000 of 8% convertible
debentures to a group of five individual investors, two of which are affiliates
of the Company, and one institutional investor. 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.
Restrictions
on Use of Funds.
We may
not pay any cash dividends without the debenture holders prior written
approval.
BRENDAN
TECHNOLOGIES, INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)
The
following table presents the status, as of September 30 and June 30, 2006,
of
our convertible
debentures:
|
|
As
of
|
|
|
|
September
30, 2006
|
|
June
30, 2006
|
|
|
|
|
|
|
|
Convertible
debentures issued
|
|
$
|
1,125,000
|
|
$
|
125,000
|
|
Less
debt discount
|
|
|
(205,639
|
)
|
|
(18,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
919,361
|
|
|
106,654
|
|
Less
current portion
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Long
term portion
|
|
$
|
919,361
|
|
$
|
106,654
|
|
|
|
|
|
|
|
|
|
Issued
to related parties
|
|
$
|
85,692
|
|
$
|
83,652
|
|
|
|
|
|
|
|
|
|
Maturity
dates of outstanding
|
|
|
|
|
|
|
|
convertible
debentures
|
|
|
|
|
|
|
|
Year
Ending
|
|
|
|
|
|
|
|
June
30, 2007
|
|
$
|
-
|
|
$
|
-
|
|
June
30, 2008
|
|
|
125,000
|
|
|
125,000
|
|
June
30, 2009
|
|
|
1,000,000
|
|
|
-
|
|
|
|
$
|
1,125,000
|
|
$
|
125,000
|
|
Note
6- Shareholder’s Deficit
Common
Stock
The
Company has authorized 50,000,000 shares of common stock at $.004995 par value.
|
|
Common
|
|
|
|
|
|
Shares
|
|
Dollars
|
|
|
|
|
|
|
|
Balance
July 1, 2006
|
|
|
25,498,794
|
|
$
|
4,645,180
|
|
|
|
|
|
|
|
|
|
Cancellation
of shares
|
|
|
(1,793,200
|
)
|
|
-
|
|
Costs
of raising capital
|
|
|
-
|
|
|
(100,000
|
)
|
Expense
related to vesting of stock options
|
|
|
-
|
|
|
18,066
|
|
Non
cash debt discount on issuance of
|
|
|
|
|
|
|
|
8%
convertible debentures, net of amortization
|
|
|
-
|
|
|
209,580
|
|
|
|
|
|
|
|
|
|
Balance
September 30, 2006
|
|
|
23,705,594
|
|
$
|
4,772,826
|
|
During
the three months ended September 30, 2006, the Company cancelled 1,793,200
shares reserved for issuance to an individual as a result of 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. The Company determined that due to performance the
individual was not entitled to these shares.
Warrants
During
the three months ended September 30, 2006, the Company issued warrants
exercisable into up to 4,000,000 shares of common stock to an institutional
investor as part of the issuance of 8% convertible debentures. In addition,
the
Company issued a warrant for the purchase of up to 200,000 shares to one
individual who assisted the Company in raising funds.
The
Company estimated the fair value of the warrants at the issuance date by using
the Black-Scholes pricing model with the following weighted average assumptions
used for the three months ended September 30, 2006: dividend yield of zero
percent; expected volatility of 39%; risk free interest rate of 5.02 to 5.20%;
and expected lifes of 1 to 5 years.
BRENDAN
TECHNOLOGIES, INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)
In
August
2005, Brendan issued a warrant exercisable, after giving effect to the reverse
merger on December 29, 2005, into 54,000 shares of the Company’s stock at an
exercise price of $.75 per share with an
expiration date of five years from the date of grant. The Company estimated
the
fair value of the warrant at the issuance date by using the Black-Scholes
pricing model with the following weighted average assumptions used for the
three
months ended September 30, 2005: dividend yield of zero
percent; expected volatility of 100%; risk free interest rate of 4.08%; and
expected life of 5 years. The valuation of the warrant, $7,407, was recorded
as
a stock offering cost.
As
of
September 30, 2006, 4,920,667 warrants are outstanding at prices ranging from
$0.60 to $6.00 per share with expiration dates ranging from 2007 to 2011.
Included in the warrants outstanding are 166,667 warrants remaining from the
predecessor’s obligations transferred to the Company.
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 to executive officers, employees and consultants of the Company. The
Plan is administered by the full Board of Directors, who determine which
individuals shall receive 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.
During
the three months ended September 30, 2006, the Company issued stock options
exercisable into up to 100,000 shares of common stock to an employee and a
director of the Company. The
Company estimated the fair value of the stock options at the date of grant
by
using the Black-Scholes pricing model with the following weighted average
assumptions used for the three months ended September 30, 2006: dividend yield
of zero percent; expected volatility of 39%; risk free interest rate of 4.78%;
and expected lifes of 5 years.
As
of
September 30, 2006, 4,722,334 options are outstanding at prices ranging from
$0.025 to $4.87 per share with expiration dates ranging from 2006 to 2011.
Included in the options outstanding are 322,334 options remaining from the
predecessor’s stock option plan.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
THE
FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO OUR
FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY
OF
FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING, "RISK FACTORS."
SEE ALSO OUR ANNUAL REPORT ON FORM 10-KSB FOR OUR FISCAL YEAR ENDED JUNE 30,
2006.
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
These
financial statements have been prepared on a going concern basis. However,
during the three months ended September 30, 2006 and the year ended June 30,
2006, the Company incurred net losses of $405,872 and $845,393, respectively,
and had an accumulated deficit of $6,647,581 and $6,241,709, at September 30
and
June 30, 2006, respectively. In addition, as of September 30, 2006, the Company
had a working capital deficit of $1,033,952 and is in default on $212,382 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 was the six months ended June 30, 2005.
Three
Months Ended September 30, 2006 Compared to Three Months Ended September 30,
2005
Selected
Financial Information
|
|
Three
Months Ended September 30,
|
|
Increase
|
|
|
|
|
|
2006
|
|
2005
|
|
(Decrease)
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Statements
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
87,395
|
|
$
|
109,842
|
|
$
|
(22,447
|
)
|
|
-20.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
23,205
|
|
|
26,269
|
|
|
(3,064
|
)
|
|
-11.7
|
%
|
General
and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
|
401,059
|
|
|
242,149
|
|
|
158,910
|
|
|
65.6
|
%
|
Interest
expense
|
|
|
69,003
|
|
|
83,722
|
|
|
(14,719
|
)
|
|
17.6
|
%
|
Total
expenses
|
|
|
493,267
|
|
|
352,140
|
|
|
141,127
|
|
|
-40.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(405,872
|
)
|
$
|
(242,298
|
)
|
$
|
163,574
|
|
|
67.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) per basic and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted
share
|
|
$
|
(0.02
|
)
|
$
|
(0.05
|
)
|
$
|
(0.03
|
)
|
|
-60.0
|
%
|
Revenues
Revenues
for the quarter ended September 30, 2006 decreased $22,447, 20.4%, to $87,395
compared to $109,842 for the quarter ended September 30, 2005. The primary
reason for the revenue decrease was approximately $19,000 of customization
revenue related to validation and qualification of a particular customer in
2005
did not repeat during 2006. We anticipate that revenue will continue to decline
for the next several quarters as our customers are anticipating the release
of
our upgraded version of the StatLIA software to an enterprise level during
the
first half of calendar year 2007.
Selling
Expenses
Selling
expenses decreased by $3,064, a 11.7% decrease, to $23,205 for the three months
ended September 30, 2006 from $26,269 for the three months ended September
30,
2005. This decrease was primarily due to a reduction in commission expense
for
the three months ended September 30, 2006 related to the customization revenue
discussed above.
General
and Administrative Expenses
General
and administrative expenses increased by $158,910, a 65.6% increase, to $401,059
for the quarter ended September 30, 2006 from $242,149 for the quarter ended
September 30, 2005. The primary reasons for the increase were approximately
$32,000 increase in consulting expenses associated with becoming a public
company which included the retaining of a chief financial officer, $11,000
increase in expenses related to becoming a public company, $18,000 increase
in
non-cash compensation as a result of expensing employee stock options, and
$90,000 related to an increase in personnel and infrastructure related to
upgrading our StatLIA software to version 4.0.
Interest
Expense
Interest
expense decreased by $14,719, an 17.6% decrease, to $69,003 for the quarter
ended September 30, 2006 from $83,722 for the quarter ended September 30, 2005.
The primary reason for the decrease was the conversion of notes payable into
common stock of Omni in December 2005 partially offset by the increase in
interest related to the issuance of 8% convertible debentures.
Capital
Resources
|
|
As
of
|
|
|
|
|
|
September
30, 2006
|
|
June
30, 2006
|
|
|
|
Working
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
595,100
|
|
$
|
205,920
|
|
$
|
389,180
|
|
Current
liabilities
|
|
|
1,629,052
|
|
|
1,765,729
|
|
|
(136,677
|
)
|
Working
capital deficit
|
|
$
|
(1,033,952
|
)
|
$
|
(1,559,809
|
)
|
$
|
(525,857
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$
|
928,549
|
|
$
|
117,650
|
|
$
|
810,899
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
deficit
|
|
$
|
(1,874,755
|
)
|
$
|
(1,596,529
|
)
|
$
|
278,226
|
|
|
|
Quarter
Ended September 30,
|
|
|
|
|
|
2006
|
|
2005
|
|
Increase (Decrease)
|
|
Statements
of Cash Flows Select Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided (used) by:
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
(354,694
|
)
|
$
|
(111,529
|
)
|
$
|
243,165
|
|
Investing
activities
|
|
$
|
(15,414
|
)
|
$
|
(2,863
|
)
|
$
|
12,551
|
|
Financing
activities
|
|
$
|
773,500
|
|
$
|
170,130
|
|
$
|
603,370
|
|
|
|
As
of
|
|
|
|
|
|
September
30, 2006
|
|
June
30, 2006
|
|
|
|
Balance
Sheet Select Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
552,904
|
|
$
|
149,512
|
|
$
|
403,392
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
31,630
|
|
$
|
56,107
|
|
$
|
(24,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,325,442
|
|
$
|
1,348,419
|
|
$
|
(22,977
|
)
|
Liquidity
Brendan
has historically financed its operations through debt and equity financings.
At
September 30, 2006, we had cash holdings of $552,904, an increase of $403,392
compared to June 30, 2006. Our net working capital deficit at September 30,
2006, was $1,033,952 compared to $1,559,809 as of June 30, 2006.
These
financial statements have been prepared on a going concern basis. However,
during the three months ended September 30, 2006 and the year ended June 30,
2005, the Company incurred net losses of $405,872 and $845,393, respectively,
and had an accumulated deficit of $6,647,581 and $6,241,709, at September 30,
2006 and June 30, 2006, 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. During the three months ended September 30, 2006, the
Company issued $900,000 of 8% convertible debentures, net of costs amounting
to
$100,000.
Management
plans to continue to provide for its capital needs during the twelve months
ending September 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.
Recent
Accounting Pronouncements
On
July
13, 2006, FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income
Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”) was issued.
The provisions of FIN 48 are effective for fiscal years beginning after December
15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. It also prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. The Company is currently evaluating the impact of FIN 48 on
its results of operations, financial condition or cash flows.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements (“SAB No. 108”),
which provides interpretive guidance on the consideration of the effects of
prior year misstatements in quantifying current year misstatements for the
purpose of a materiality assessment. SAB No. 108 requires registrants to
quantify misstatements using both the balance sheet and income statement
approaches and to evaluate whether either approach results in quantifying an
error that is material based on relevant quantitative and qualitative factors.
The guidance is effective for the first fiscal period ending after November
15,
2006. Upon adoption the Company does not expect SAB No. 108 to have a
material effect on its results of operations, financial condition or cash
flows.
ITEM
3. CONTROLS AND PROCEDURES.
(a) |
Evaluation
of disclosure controls and procedures. Our Chief Executive Officer
and
Principal Financial Officer, after evaluating the effectiveness of
our
"disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end
of the
period covered by this Quarterly Report on Form 10-QSB (the "Evaluation
Date"), have concluded that as of the Evaluation Date, our disclosure
controls and procedures are effective to provide reasonable assurance
that
information we are required to disclose in reports that we file or
submit
under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission rules and forms, and that such information is accumulated
and
communicated to our management, including our Chief Executive Officer
and
Principal Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
|
(b) |
Changes
in internal control over financial reporting. There were no significant
changes in our internal control over financial reporting during our
most
recent fiscal quarter that materially affected, or were reasonably
likely
to materially affect, our internal control over financial
reporting.
|
PART
II. OTHER
INFORMATION
ITEM
6. EXHIBITS.
Exhibit
No.
|
|
Title
|
|
|
31.1
|
|
302
Certification of John R. Dunn II, Chief Executive Officer
|
|
|
|
|
|
|
|
31.2
|
|
302
Certification of Lowell W. Giffhorn, Chief Financial
Officer
|
|
|
|
|
|
|
|
32.1
|
|
906
Certification of John R. Dunn II, Chief Executive Officer
|
|
|
|
|
|
|
|
32.2
|
|
906
Certification of Lowell W. Giffhorn, Chief Financial
Officer
|
|
|
SIGNATURES
In
accordance with the requirements 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
|
|
|
|
Date:
November 14, 2006 |
By: |
/s/
JOHN
R. DUNN II |
|
John R. Dunn II
Chief Executive Officer
(Principal
Executive and duly authorized
to
sign on behalf of the
Registrant)
|