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, 2007
¨
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 our 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
¨
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. ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes ¨ No x
Revenues
for the fiscal year ended June 30, 2007 were:
$521,330.
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 September
25, 2007 was $2,975,405.
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date. As
of September 25, 2007 the issuer had 23,705,594 shares
of Common Stock outstanding.
Transitional
Small Business Disclosure Format (Check one): Yes ¨ No x
Annual
Report on Form 10-KSB
for
the Year Ended June 30, 2007
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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6
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ITEM
3.
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Legal
Proceedings
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6
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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
Accounting
and Financial Disclosure
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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; Compliance with
Section
16(a) of the Exchange Act
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18
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ITEM
10.
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Executive
Compensation
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20
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ITEM
11.
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Security
Ownership of Certain Beneficial Owners and Management
and
Related Stockholder Matters
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22 |
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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24
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ITEM
14.
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Principal
Accountant Fees and Services
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27
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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”, and the “Company”
mean Brendan Technologies, Inc., unless otherwise indicated.
PART
I
The
Company
On
September 15, 2006, we changed our name to Brendan Technologies, Inc., a Nevada
corporation (“Brendan”) from Omni U.S.A., Inc., a Nevada corporation (“Omni”).
On December 29, 2005, Omni merged with Brendan Technologies, Inc., a Michigan
corporation formed
on
October 31, 1997 doing business as Brendan Scientific Corporation
(“Brendan Sub”). 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 and is Brendan’s only subsidiary.
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
Brendan, a four for one ratio. Also concurrently with the merger, (i)
4,352,879
shares
of
Brendan 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 Brendan 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 Brendan after the merger. The exercise price of the Brendan stock
options and warrants was adjusted to 25% of the exercise price of the Brendan
Sub stock options and warrants.
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 our 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 ten 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.
There
can
be no assurance that we can achieve profitable operations, and we will need
additional financial resources during the next twelve months.
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 the current 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
regulations.
· 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 our 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
We
have
used most of our 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 operates
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
configurations consisting of isolated testing instruments, the StatLIA® system
can be easily interfaced to our customer’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 other 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. The software is included to stimulate sales of their
instruments and is not usually marketed as a stand-alone product.
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 Gen5 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 14 full time employees and two part time consultants. Brendan
has
entered into employment agreements with certain of our 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.
PART
II
ITEM
5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND SMALL BUSINESS ISSUER PURCHASES 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, 2007 and 2006. 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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|
|
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Fiscal
Year Ended June 30, 2007
|
|
|
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First
Quarter
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|
$
|
0.50
|
|
$
|
0.21
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|
Second
Quarter
|
|
$
|
1.01
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|
$
|
0.40
|
|
Third
Quarter
|
|
$
|
0.60
|
|
$
|
0.35
|
|
Fourth
Quarter
|
|
$
|
0.51
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|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended June 30, 2006
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
1.85
|
|
$
|
1.36
|
|
Second
Quarter
|
|
$
|
1.75
|
|
$
|
1.10
|
|
Third
Quarter
|
|
$
|
1.20
|
|
$
|
0.60
|
|
Fourth
Quarter
|
|
$
|
0.68
|
|
$
|
0.25
|
|
We
had
approximately 715 shareholders of record as of September 25, 2007. 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
During
June 2007, we sold to and received cash from a group of investors 8% Convertible
Debentures for an aggregate $175,000 and common stock purchase warrants to
purchase up to 700,000 common shares.
|
|
Issuance
|
|
|
|
Number
of Shares
|
|
Maturity
|
|
|
8%
Convertible Debentures
|
|
Date
of
|
|
Amount
of
|
|
May
Be Converted
|
|
Date
of
|
|
|
Debenture
holder
|
|
Debenture
|
|
Debenture
|
|
Into
|
|
Debenture
|
|
|
Derek
Duchein, IRA Account
|
|
|
6/6/2007
|
|
$
|
90,000
|
|
|
180,000
|
|
|
6/6/2009
|
|
|
|
Julie
Duchien, IRA Account
|
|
|
6/6/2007
|
|
$
|
60,000
|
|
|
120,000
|
|
|
6/6/2009
|
|
|
|
Bryan
Holland
|
|
|
6/11/2007
|
|
$
|
25,000
|
|
|
50,000
|
|
|
6/11/2009
|
|
|
|
|
|
|
|
|
$
|
175,000
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Purchase Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
|
Date
of Issuance
|
|
|
Number
of Shares
|
|
|
Exercise
Price
|
|
|
Expiraton
Date
|
|
|
|
Derek
Duchein, IRA Account
|
|
|
6/6/2007
|
|
|
180,000
|
|
$
|
0.60
|
|
|
6/6/2012
|
|
|
Debenture
|
Julie
Duchien, IRA Account
|
|
|
6/6/2007
|
|
|
120,000
|
|
$
|
0.60
|
|
|
6/6/2012
|
|
|
Debenture
|
Bryan
Holland
|
|
|
6/11/2007
|
|
|
50,000
|
|
$
|
0.60
|
|
|
6/11/2012
|
|
|
Debenture
|
Derek
Duchein, IRA Account
|
|
|
6/6/2007
|
|
|
180,000
|
|
$
|
1.00
|
|
|
6/6/2008
|
|
|
Debenture
|
Julie
Duchien, IRA Account
|
|
|
6/6/2007
|
|
|
120,000
|
|
$
|
1.00
|
|
|
6/6/2008
|
|
|
Debenture
|
Bryan
Holland
|
|
|
6/11/2007
|
|
|
50,000
|
|
$
|
1.00
|
|
|
6/11/2008
|
|
|
Debenture
|
|
|
|
|
|
|
700,000
|
|
|
|
|
|
|
|
|
|
With
respect to the above securities issuances, the Registrant relied on exemptions
provided by Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”) and Rule 506 under the Securities Act. No advertising or
general solicitation was employed in offering the securities. The securities
were issued to a limited number of persons all of whom were accredited investors
as that term is defined in Rule 501 of Regulation D under the
Securities Act. All were capable of analyzing the merits and risks of their
investment, acknowledged in writing that they were acquiring the securities
for
investment and not with a view toward distribution or resale, and understood
the
speculative nature of their investment. All securities issued contained a
restrictive legend prohibiting transfer of the shares except in accordance
with
federal securities laws.
ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Overview
Brendan
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 which was renamed Brendan Technologies, Inc, a Nevada
corporation, in September 2006. Brendan Sub continues to be the only operating
subsidiary of Brendan Technologies, Inc.
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
We
recognize 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.
We
recognize 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 years ended June 30, 2007 and 2006, we incurred net losses of
$2,110,698 and $845,393, respectively, and had an accumulated deficit of
$8,352,407 and $6,241,709, at June 30, 2007 and 2006, respectively. In addition,
at June 30, 2007, we had a working capital deficit of $1,679,643 and are in
default on $225,382 of debt and interest. Our ability to continue as a going
concern is dependent upon our ability to generate profitable operations in
the
future and/or to obtain the necessary financing to meet our obligations and
repay our 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 our ability to continue as a
going concern. Since inception, we have satisfied our capital needs through
debt
and equity financings and expect to continue to fund from these sources until
profitability is achieved. There can be no assurance that funds will be
available at terms favorable to us or that future profitability can be
achieved.
Results
of Operations
On
December 29, 2005, we 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 ours, became the
accounting acquirer and the transaction was accounted for as a reverse merger
acquisition.
Year
Ended June 30, 2007 Compared to the year ended June 30, 2006
Selected
Financial Information
|
|
Year
Ended
|
|
Year
Ended
|
|
Increase
|
|
|
|
|
|
June
30, 2007
|
|
June
30, 2006
|
|
(Decrease)%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Statements
of Operations
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
521,330
|
|
$
|
681,337
|
|
$
|
(160,007
|
)
|
|
-23.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
101,296
|
|
|
103,190
|
|
|
(1,894
|
)
|
|
-1.8
|
%
|
General
and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
|
2,115,310
|
|
|
1,215,966
|
|
|
899,344
|
|
|
74.0
|
%
|
Other
income
|
|
|
(38,121
|
)
|
|
-
|
|
|
(38,121
|
)
|
|
NM
|
|
Interest
expense
|
|
|
453,543
|
|
|
207,574
|
|
|
245,969
|
|
|
118.5
|
%
|
Total
expenses
|
|
|
2,632,028
|
|
|
1,526,730
|
|
|
1,105,298
|
|
|
72.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(2,110,698
|
)
|
$
|
(845,393
|
)
|
$
|
(1,265,305
|
)
|
|
149.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) per basic and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted
share
|
|
$
|
(0.09
|
)
|
$
|
(0.06
|
)
|
$
|
(0.03
|
)
|
|
50.0
|
%
|
Revenue
Revenue
for the year ended June 30, 2007 decreased $160,007, 23.5%, to $521,330 compared
to $681,337 for the year ended June 30, 2006. The primary reason for the sales
decrease was during the year ended June 30, 2006 we received a pre-release
order
amounting to approximately $127,000 for a minor segment of our upgraded version
of the StatLIA® software. No similar licenses were received during the current
fiscal year. In addition, revenue has been negatively impacted due to our
customers waiting for the release of our upgraded version of StatLIA®. The
upgraded version of StatLIA® is scheduled to be released during the first half
of fiscal year 2008.
Selling
Expenses
Selling
expenses for the year ended June 30, 2007 remained stable at $101,296 compared
to $103,190 for the year ended June 30, 2006.
General
and Administrative Expenses
General
and administrative expenses increased by $899,344, 74.0%, to $2,115,310 for
the
year ended June 30, 2007 from $1,215,966 for the year ended June 30, 2006.
The
primary reasons for the increase were approximately $673,000 related to an
increase in personnel, approximately $45,000 related to increasing the
infrastructure to upgrade our StatLIA® software, approximately $113,000 related
to our investor relations program and approximately $39,000 increase in travel
and trade show costs.
Interest
Expense
Interest
expense increased by $245,969, 118.5%, to $453,543 for the year ended June
30,
2007 from $207,574 for the year ended June 30, 2006. The primary reason for
the
increase was the increase in interest expense related to convertible
debentures.
Capital
Resources
|
|
As
of
|
|
Increase
|
|
|
|
June
30, 2007
|
|
June
30, 2006
|
|
(Decrease)
|
|
Working
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
250,218
|
|
$
|
205,920
|
|
$
|
44,298
|
|
Current
liabilities
|
|
|
1,929,861
|
|
|
1,765,729
|
|
|
164,132
|
|
Working
capital deficit
|
|
$
|
(1,679,643
|
)
|
$
|
(1,559,809
|
)
|
$
|
119,834
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$
|
1,381,629
|
|
$
|
117,650
|
|
$
|
1,263,979
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
deficit
|
|
$
|
(2,875,965
|
)
|
$
|
(1,596,529
|
)
|
$
|
1,279,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Increase
|
|
|
|
|
June
30, 007
|
|
|
June
30, 2006
|
|
|
(Decrease
|
)
|
Statements
of Cash Flows Select Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided (used) by:
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
(1,804,748
|
)
|
$
|
(508,818
|
)
|
$
|
(1,295,930
|
)
|
Investing
activities
|
|
$
|
(130,805
|
)
|
$
|
(67,351
|
)
|
$
|
(63,454
|
)
|
Financing
activities
|
|
$
|
1,871,057
|
|
$
|
693,177
|
|
$
|
1,177,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
|
|
Increase
|
|
|
|
June
30, 2007
|
|
June
30, 2006
|
|
(Decrease)
|
|
Balance
Sheet Select Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
85,016
|
|
$
|
149,512
|
|
$
|
(64,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
75,283
|
|
$
|
56,107
|
|
$
|
19,176
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,382,875
|
|
$
|
1,348,419
|
|
$
|
34,456
|
|
Liquidity
We
have
historically financed our operations through debt and equity financings. At
June
30, 2007, we had cash holdings of $85,016, a decrease of $64,496 compared to
June 30, 2006. Our net working capital deficit at June 30, 2007, was $1,679,643
compared to $1,559,809 as of June 30, 2006.
These
financial statements have been prepared on a going concern basis. However,
during the years ended June 30, 2007 and June 30, 2006, we incurred net losses
of $2,110,698 and $845,393, respectively, and had an accumulated deficit of
$8,352,407 and $6,241,709, at June 30, 2007 and 2006, respectively. Our ability
to continue as a going concern is dependent upon our ability to generate
profitable operations in the future and/or to obtain the necessary financing
to
meet our obligations and repay our 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, we have satisfied our capital
needs through debt and equity financings.
We
will
need to seek additional financing to meet our liquidity requirements.
Management
plans to continue to provide for our capital needs during the twelve months
ending June 30, 2008, by increasing sales through the continued development
of
our 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 we be unable to continue as a going
concern.
New
Accounting Pronouncements
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”. This Statement permits entities to
choose to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. We are currently assessing the impact of
SFAS No. 159 on our financial position and results of operations.
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans.” This Statement requires an
employer to recognize the over funded or under funded status of a defined
benefit post retirement plan (other than a multiemployer plan) as an asset
or
liability in its statement of financial position, and to recognize changes
in
that funded status in the year in which the changes occur through comprehensive
income. SFAS No. 158 is effective for fiscal years ending after December
15, 2006. The adoption of SFAS No. 158 had no impact on our financial position
and results of operations.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measures”.
This Statement defines fair value, establishes a framework for measuring fair
value under GAAP, expands disclosures about fair value measurements, and applies
under other accounting pronouncements that require or permit fair value
measurements. SFAS No. 157 does not require any new fair value
measurements. However, the FASB anticipates that for some entities, the
application of SFAS No. 157 will change current practice. SFAS No. 157
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, which for us would be the fiscal year beginning April 1,
2008. We are currently evaluating the impact of SFAS No. 157 but do
not expect that it will have a material impact on our financial statements.
In
September 2006, the SEC issued Staff Accounting Bulletin
(“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements.” SAB
No. 108 addresses how the effects of prior year uncorrected misstatements
should be considered when quantifying misstatements in current year financial
statements. SAB No. 108 requires companies to quantify misstatements using
a balance sheet and income statement approach and to evaluate whether either
approach results in quantifying an error that is material in light of relevant
quantitative and qualitative factors. SAB No. 108 is effective for periods
ending after November 15, 2006. The adoption of SAB No. 108 had no
impact on our financial position and results of operations.
In
June
2006, the FASB issued FASB Interpretation Number 48, "Accounting for Uncertainty
in Income Taxes - an interpretation of FASB Statement No. 109." This
Interpretation 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." This Interpretation is
effective for fiscal years beginning after December 15, 2006. We are currently
assessing the effect of this Interpretation on our financial
statements.
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.
We
commenced operations in November, 1997 and have a limited operating history.
Our
success will be dependent upon our ability to successfully exploit our unique
proprietary technology. Our success will depend in large part on our ability
to
deal with the problems, expenses, and delays frequently associated with
developing and marketing our software technology. Losses are likely to continue
before our operations will become profitable. There is no assurance that our
operations will prove profitable.
We
depend on new products and development to generate
revenues.
Substantially
all of our revenues have been derived, and substantially all of our future
revenues are expected to be derived, from the license of the software and sale
of our associated services, and the development and sale of future products.
Accordingly, broad acceptance of our software products and services by customers
is critical to our future success as is our 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 we 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.
Our
distribution strategy is to develop multiple distribution channels. We have
historically sold our products only through direct sales, Internet sales, and
original equipment manufacturers (“OEMs”). We expect 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.
Our
performance is substantially dependent upon the performance of our 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 us to find an
adequate replacement for Dr. Dunn in the immediate future.
Given
our
early stage of development, we are further dependent upon our ability to retain
and motivate high quality personnel, especially our management and highly
skilled development teams. We do not have key person life insurance policies
on
any of our employees. The loss of the services of any of our executive officers
or other key employees could have a materially adverse effect on our business,
operating results or financial condition. We intend to purchase key man life
insurance when management decides funds are available.
Our
future success also depends on our 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
we
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 our business operating results or financial condition.
Our
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 our products.
An
additional factor which we believe will be critical to the acceptance of our
products is a continuing need in our 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
our products at this time. However, we intend to voluntarily pursue the
acknowledgment and approval of certain federal agencies to gain further
awareness and acceptance for our 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
have worker’s compensation and general liability insurance but do not have
professional liability insurance at this time.
We
do
intend to purchase such insurance when funds become available if management
concludes that the benefit of having such a policy outweighs our 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 us. In addition, we will purchase a key man life
insurance policy naming Dr. John Dunn II as the insured and we as the
beneficiary if management concludes that the benefit of having such a policy
outweighs our cost. We further intend 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 us will depend on our earnings, financial condition
and
such other factors as our Board of Directors may consider relevant. We currently
plan to retain any earnings to provide for our development and
growth.
We
will need additional financing.
Our
ability to continue as a going concern is dependent upon our ability to generate
profitable operations in the future and/or to obtain the necessary financing
to
meet our obligations and repay our 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, we have satisfied our capital
needs through debt and equity financings. We will need to seek additional
financing to meet our liquidity requirements. There is no assurance that
financings can be obtained in amounts and at terms acceptable to us. If capital
is not available, we may be required to curtail our operations.
The
market for our products is unproven and acceptance of our products is
crucial.
The
market for our 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 we believe that our 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 our products will become widely adopted for use in those
industries.
Because
a
market for our 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 our products and services will develop or that
our
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 our products do not achieve market acceptance, our business,
operating results and financial condition will be materially adversely
affected.
We
compete with companies that have substantially greater
resources.
Our
management believes that over 90% of our 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 our 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, we believe that
at some point in the future, many of our 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 ours. We believe 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. We believe that most of our future competition
will
be from software companies but we can give no assurances. Because our 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.
We
intend
to interface StatLIA® with all immunoassay testing instruments which are capable
of exporting unprocessed raw data. Although we has been able to receive, decode
and process data from all instruments attempted to date, there can be no
assurance that we will be able to collect data from all immunoassay instruments
manufactured.
Although
device manufacturers are currently the largest competitors, we believe 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.
We
will focus on OEM’s as a primary sales channel.
We
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. We have
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 we will be able to successfully develop and market all
of
our intended products.
Our
success and ability to compete is dependent in part upon our proprietary
technology.
While
we
rely on trademark, trade secret and copyright law to protect our technology,
we
believe that factors such as the technological and creative skills of our
personnel, new product developments, frequent product enhancements, name
recognition and reliable product maintenance are more essential to establishing
and maintaining a technology leadership position. We do 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 our technology.
The source code for our proprietary software is protected both as a trade secret
and as a copyrighted work. We generally enter into confidentiality or license
agreements with our employees, consultants and vendors, and generally control
further access to and distribution of our software, documentation and other
proprietary information. Despite these precautions, it may be possible for
a
third party to copy or otherwise obtain and use our products or technology
without authorization, or to develop similar technology independently. Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy aspects of our products or to obtain and use information that we regard
as proprietary. Policing unauthorized use of our products is difficult. There
can be no assurance that the steps taken by us will prevent misappropriation
of
our technology or that such agreements will be enforceable.
Vigorous
protection and pursuit of intellectual property rights or positions characterize
the fiercely competitive software industry, which has resulted in significant
and often protracted and expensive litigation. Therefore, our competitors may
assert that our technologies or products infringe on their patents or
proprietary rights. Problems with patents or other rights could increase the
cost of our products or delay or preclude new product development and
commercialization by us. If infringement claims against us are deemed valid,
we
may not be able to obtain appropriate licenses on acceptable terms or at all.
Litigation could be costly and time-consuming but may be necessary
to protect our future patent and/or technology license positions or to defend
against infringement claims.
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.
We
will
be required to implement an internal control structure and procedures for
financial reporting, including those contemplated by Section 404 of the
Sarbanes-Oxley Act, designed to enable management to contest to the
effectiveness of our internal controls during the initial year, our year ending
June 30, 2008, and our registered public accounting firm to opine to the
effectiveness of our internal controls subsequent to the initial year, our
year
ending June 30, 2009. To comply with these requirements, we expect that we
may
need to hire additional accounting and finance staff and implement new financial
systems and procedures. There can be no assurance that we will be able to
implement such controls in a timely fashion and, therefore, we may not be able
to contest to or receive an opinion from independent sources that our internal
controls are effective.
Shares
of our common stock which are eligible for sale by our stockholders
may decrease the price of our common stock.
We
have
23,705,594 common shares outstanding of which 1,227,079 are freely tradable
and
22,478,515 are saleable under Rule 144. We also may have up to 17,690,667
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 OTC 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.” “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. 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.
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 Omni’s subsidiaries for the two 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
our two 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
authorized Harper & Pearson to respond fully to the inquiries of FHHM
concerning the subject matter of the reportable event and 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 made in the filing.
During
Omni's two 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 our 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 our 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 officers at June 30, 2007:
Directors
and Executive Officers
Our
directors and executive officers are as follows:
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
John
R. Dunn II
|
|
56
|
|
Chairman,
Chief Executive Officer, President, and Director
|
George
Dunn
|
|
50
|
|
Secretary,
Chief Operating Officer
|
Lowell
W. Giffhorn
|
|
60
|
|
Chief
Financial Officer and Director
|
Theo
Vermaelen
|
|
53
|
|
Director
|
Stephen
Eisold
|
|
60
|
|
Director
|
Jason
Booth
|
|
41
|
|
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 1976 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.
Except
for Dr. Dunn and Mr. Giffhorn, all of our directors are independent directors,
as defined by current NASDAQ listing standards and the rules and regulations
of
the SEC.
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 engaged by the
audit committee. The Audit Committee, which met four times during fiscal year
2007, is composed of one employee director and one other director, who was
determined by the Board to be an independent director. During 2007, the Audit
Committee consisted of Dr. Vermaelen (Chairman) and Mr. Giffhorn.
The
Board
of Directors has determined that Dr. 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
Dr. 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
We
have
set forth our 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
2007.
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 July
1, 2006 through June 30, 2007 that all such forms were timely filed with the
SEC.
ITEM
10. EXECUTIVE
COMPENSATION.
There
is
shown below information concerning the compensation of our principal executive
officer and the most highly compensated executive officers whose total
compensation exceeded $100,000 (each a “Named Officer”) for the fiscal years
ended June 30, 2007 and 2006.
SUMMARY
COMPENSATION TABLE
Name
and
|
|
Fiscal
|
|
|
|
Option
|
|
|
|
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Awards
($)
|
|
Total
($)
|
|
[a]
|
|
[b]
|
|
[c]
|
|
[f]
|
|
[j]
|
|
John
R. Dunn II
|
|
|
2007
|
|
$
|
108,000
|
|
$
|
5,071
|
|
$
|
113,071
|
|
President,
CEO and
|
|
|
2006
|
|
$
|
108,000
|
|
$
|
27,427
|
|
$
|
135,427
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George
Dunn
|
|
|
2007
|
|
$
|
108,000
|
|
$
|
5,071
|
|
$
|
113,071
|
|
VP,
Secretary and
|
|
|
2006
|
|
$
|
102,000
|
|
$
|
24,565
|
|
$
|
126,565
|
|
COO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
estimate the fair value of the options issued at the issuance date by using
the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for those options issued during the year ended:
|
June
30, 2007
|
June
30, 2006
|
|
|
|
Dividend
yield
|
0%
|
0%
|
Volatility
|
42%
|
1%-30%
|
Risk-free
interest rates
|
5.10%
|
2.76%-4.84%
|
Expected
life
|
5
years
|
5
years
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
Name
|
|
Number
|
|
Option
|
|
Option
|
|
|
|
of
|
|
Exercise
|
|
Expiration
|
|
|
|
Securities
|
|
Price
|
|
Date
|
|
|
|
Underlying
|
|
($)
|
|
|
|
|
|
Unexercised
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
|
(#)
|
|
|
|
|
|
|
|
Exercisable
|
|
|
|
|
|
[a]
|
|
[b]
|
|
[e]
|
|
[f]
|
|
John
R. Dunn II
|
|
|
40,000
|
|
|
$0.75
|
|
|
April
6, 2011
|
|
President,
CEO and
|
|
|
60,000
|
|
|
$0.64
|
|
|
April
6, 2011
|
|
Director
|
|
|
50,000
|
|
|
$0.64
|
|
|
June
15, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
George
Dunn
|
|
|
400,000
|
|
|
$0.125
|
|
|
April
6, 2011
|
|
VP,
Secretary and
|
|
|
400,000
|
|
|
$0.025
|
|
|
April
6, 2011
|
|
COO
|
|
|
60,000
|
|
|
$0.64
|
|
|
April
6, 2011
|
|
|
|
|
50,000
|
|
|
$0.64
|
|
|
June
15, 2012
|
|
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 $108,000 as of January 1, 2006. The agreement
also provides that we may terminate the agreement with 30 days written notice
if
termination is without cause. Our obligation would be to pay Mr. Dunn monthly
payments equal to his base salary for 24 months. In addition, all of Mr. Dunn’s
options would immediately vest. The agreement also provides that Mr. Dunn can
terminate employment if we merge with or consolidate with another entity, or
we
are subject in any way to a transfer of a substantial amount of our assets,
resulting in the assets, business or operations of ours being controlled by
an
entity or individual other than Brendan.
DIRECTOR
COMPENSATION
Name
|
Fees
|
Option
|
All
Other
|
Total
|
|
Earned
|
Awards
|
Compensation
|
($)
|
|
or
|
($)
|
($)
|
|
|
Paid
In
|
|
|
|
|
Cash
|
|
|
|
|
($)
|
|
|
|
[a]
|
[b]
|
[d]
|
[g]
|
[h]
|
Lowell
W. Giffhorn
|
-
|
$5,071
|
$75,000
|
$80,071
|
Theo
Vermaelen
|
-
|
$5,071
|
-
|
$5,071
|
Stephen
Eisold
|
-
|
$5,071
|
-
|
$5,071
|
Jason
Booth
|
-
|
$9,043
|
-
|
$9,043
|
Mr.
Giffhorn is our Chief Financial Officer and one of our directors. The amount
reflected as other compensation is the amount he was paid as our Chief Financial
Officer. He received no compensation for being a director.
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 amounts of 50,000 and
100,000 shares and to Mr. Booth in the amount of none and 100,000 shares during
the years ended June 30, 2007 and 2006, respectively.
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 25, 2007, 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,
Chief
Executive Officer,
Chief
Technical Officer and
Director
|
|
5,005,000
|
|
21.0%
|
|
|
|
|
|
|
|
George
Dunn (4)
|
|
Vice
President, Secretary
and
Chief Operating Officer
|
|
2,301,000
|
|
9.4%
|
|
|
|
|
|
|
|
Lowell
W. Giffhorn (5)
|
|
Vice
President, Chief
Financial
Officer and Director
|
|
645,000
|
|
2.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theo
Vermaelen (6)
|
|
Director
|
|
859,359
|
|
3.6%
|
|
|
|
|
|
|
|
Steven
Eisold (7)
|
|
Director
|
|
724,494
|
|
3.0%
|
|
|
|
|
|
|
|
Jason
Booth (8)
|
|
Director
|
|
75,000
|
|
*
|
|
|
|
|
|
|
|
All
Exective Officers and Directors as a Group (6
persons) (9)
|
|
|
|
9,609,853
|
|
37.3%
|
|
|
|
|
|
|
|
Greater
than 5% Owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potawatomi
Business
Development
Corp.
|
|
|
|
4,000,000
|
|
Note
10
|
|
|
|
|
|
|
|
Robert
Tabor
|
|
|
|
4,730,589
|
|
20.0%
|
|
|
|
|
|
|
|
Massoud
Kharrazian
|
|
|
|
1,487,136
|
|
6.3%
|
|
|
|
|
|
|
|
*
Less than 1%
|
|
|
|
|
|
|
(1)
Reflects amounts as to which the beneficial owner has sole voting power and
sole
investment power.
(2)
Includes stock options, common stock purchase warrants and convertible
debentures exercisable within 60
days
from the date
hereof.
(3) Comprised
of 4,880,000 shares and 125,000 stock options.
(4) Comprised
of 1,416,000 shares and 885,000 stock options.
(5) Comprised
of 20,000 shares, 125,000 stock options, 300,000 common stock purchase warrants
and 200,000
shares
issuable on the
conversion of a debenture.
(6)
Comprised of 654,359 shares, 125,000 stock options, 40,000 common stock purchase
warrants and 40,000
shares
issuable on the
conversion of a debenture.
(7)
Comprised of 599,494 shares and 125,000 stock options.
(8)
Comprised of 75,000 stock options.
(9)
Comprised of 7,549,853 shares, 1,460,000 stock options, 340,000 common stock
purchase warrants and
240,000
shares issuable
on the conversion of a debenture.
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 we accept 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.
Equity
Compensation Plan Information
|
|
|
|
|
|
Number
of securities
|
|
|
|
|
|
|
|
remaining
available
|
|
|
|
Number
of securities
|
|
|
|
for
issuance under
|
|
|
|
to
be issued upon
|
|
Weighted
average
|
|
equity
compensaton
|
|
|
|
exercise
of
|
|
exercise
price of
|
|
plans
(excluding
|
|
|
|
outstanding
options,
|
|
outstanding
options,
|
|
securities
reflected in
|
|
|
|
warrants
and rights
|
|
warrants
and rights
|
|
column
(a))
|
|
Plan
Category
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Equity
compensation
|
|
|
|
|
|
|
|
plans
approved by
|
|
|
|
|
|
|
|
shareholders
|
|
|
4,975,000
|
|
|
|
|
|
2,525,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation
|
|
|
|
|
|
|
|
|
|
|
plans
not approved
|
|
|
|
|
|
|
|
|
|
|
by
shareholders
|
|
|
8,660,667
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,635,667
|
|
|
|
|
|
2,525,000
|
|
Common
shares issuable on the exercise of common stock warrants have not been approved
by the shareholders and, accordingly, have been segregated in the above
table.
ITEM
12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
In
June
and December 2006 we entered into 8% Convertible Debentures with attached common
stock purchase warrants with Mr. Giffhorn, an executive officer and director,
and Dr. Vermaelen, a director, aggregating $120,000. 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.
One
of
our directors, Jason Booth, is also a director for the Potawatomi Business
Development Corporation.
(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, 2007 and 2006
Consolidated
Statements of Operation- Years Ended June 30, 2007 and 2006
Consolidated
Statement of Stockholders' Equity- Years Ended June 30, 2007 and 2006
Consolidated
Statements of Cash Flows- Years Ended June 30, 2007 and 2006
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
|
|
(1)
|
|
|
incorporated
by reference to Exhibit 3.5 to Form 10-KSB for year ended June
30,
2006
|
|
|
|
|
|
|
|
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
|
|
|
Exhibit
No.
|
|
Document
|
|
|
|
|
|
|
|
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 4.6
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
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
4.11
|
|
Form
of Loan and Security Agreement incorporated by reference to Exhibit
4.11
|
|
(1)
|
|
|
to
Current Report on Form 8-K dated July 18, 2007
|
|
|
|
|
|
|
|
4.12
|
|
Form
of 15% Secured Promissory Note incorporated by referecne to Exhibit
4.12
|
|
(1)
|
|
|
to
Current Report on Form 8-K dated July 18, 2007
|
|
|
|
|
|
|
|
4.13
|
|
Form
of Warrant incorporated by reference to Exhibit 4.13 to Current
Report
on
|
|
(1)
|
|
|
Form
8-K dated July 18, 2007
|
|
|
|
|
|
|
|
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 10.2 to Current Report on Form 8-K dated January 5,
2006
|
|
|
|
|
|
|
|
14.0
|
|
Code
of Ethics
|
|
|
|
|
|
|
|
14.1
|
|
Code
of Ethics incorporated by reference to Exhibit 14.1 to Form 10-KSB
for
year
|
|
(1)
|
|
|
ended
June 30, 2006
|
|
|
Exhibit
No.
|
|
Document
|
|
|
|
|
|
|
|
21.0
|
|
Subsidiaries
of the small business issuer
|
|
|
|
|
|
|
|
21.1
|
|
Subsidiaries
of the small business issuer incorporated by reference to Exhibit
21.1
|
|
(1)
|
|
|
to
Form 10-KSB for the year ended June 30, 2006
|
|
|
|
|
|
|
|
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 our principal accountant
for the fiscal years ended June 30, 2007 and 2006:
Farber
Hass Hurley & McEwen LLP
|
|
|
|
|
|
|
Fee
category
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Audit
fees
|
|
$
|
82,794
|
|
$
|
16,250
|
|
|
|
|
|
|
|
|
|
Audit-related
fees
|
|
$
|
1,400
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Tax
fees
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
All
other fees
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Total
fees
|
|
$
|
84,194
|
|
$
|
16,250
|
|
|
|
|
|
|
|
|
|
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 our 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 our 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 2007
and 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 years ended June 30,
2007
and 2006 filed with the Securities and Exchange Commission.
Index
to Consolidated Financial Statements
Index
to Consolidated Financial Statements
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Balance Sheets, June 30, 2007 and 2006
|
F-3
|
|
|
Consolidated
Statements of Operation, for the years ended
|
|
June
30, 2007 and 2006
|
F-4
|
|
|
Consolidated
Statement of Stockholders' Deficit, for the years ended
|
|
June
30, 2007 and 2006
|
F-5
|
|
|
Consolidated
Statements of Cash Flows, for the years ended June 30,
|
|
2007
and 2006
|
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.
Carlsbad,
California
We
have
audited the accompanying consolidated balance sheets of Brendan Technologies,
Inc. ("the Company") as of June 30, 2007 and 2006, and the related consolidated
statements of operations, stockholders’ equity (deficit) and cash flows for the
years ended June 30, 2007 and 2006. 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
audits.
We
conducted our audits in accordance with
the
standards of the Public Company Accounting Oversight Board (United
States).
Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of
its
internal control over financial reporting. Our audits included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. 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
audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Brendan
Technologies, Inc. as of June 30, 2007 and 2006, and the results of their
operations and their cash flows for the years ended June 30, 2007 and 2006,
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
$2,111,000 in the current year, has negative working capital of approximately
$1,680,000, and is in default on two of its notes payable. These matters raise
substantial doubt about its 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
26, 2007
Brendan
Technologies, Inc.
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
June
30,
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
85,016
|
|
$
|
149,512
|
|
Accounts
receivable, net
|
|
|
75,283
|
|
|
56,107
|
|
Prepaid
expenses
|
|
|
89,919
|
|
|
301
|
|
Total
current assets
|
|
|
250,218
|
|
|
205,920
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
157,356
|
|
|
72,740
|
|
Other
assets
|
|
|
27,951
|
|
|
8,190
|
|
|
|
|
|
|
|
|
|
|
|
$
|
435,525
|
|
$
|
286,850
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Convertible
notes payable in default
|
|
$
|
130,000
|
|
$
|
255,000
|
|
Accrued
interest in default
|
|
|
95,382
|
|
|
78,217
|
|
Note
payable
|
|
|
100,000
|
|
|
-
|
|
Accounts
payable
|
|
|
12,916
|
|
|
161,430
|
|
Accrued
wages and vacation
|
|
|
842,525
|
|
|
772,030
|
|
Accrued
interest
|
|
|
527,434
|
|
|
414,959
|
|
Deferred
revenue
|
|
|
98,394
|
|
|
77,651
|
|
Current
portion of lease obligations
|
|
|
7,388
|
|
|
6,442
|
|
Current
portion 8% convertible debentures net of debt discount
|
|
|
24,010
|
|
|
-
|
|
Current
portion 8% convertible debentures net of debt discount-
|
|
|
|
|
|
|
|
related
parties
|
|
|
91,812
|
|
|
-
|
|
Total
current liabilities
|
|
|
1,929,861
|
|
|
1,765,729
|
|
|
|
|
|
|
|
|
|
Long
term portion of lease obligations
|
|
|
3,607
|
|
|
10,996
|
|
8%
Convertible debentures net of debt discount
|
|
|
1,343,868
|
|
|
23,002
|
|
8%
Convertible debentures net of debt discount - related
parties
|
|
|
34,154
|
|
|
83,652
|
|
Total
liabilities
|
|
|
3,311,490
|
|
|
1,883,379
|
|
|
|
|
|
|
|
|
|
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 June 30, 2007 and 2006, respectively
|
|
|
118,409
|
|
|
127,366
|
|
Additional
paid in capital
|
|
|
5,358,033
|
|
|
4,517,814
|
|
Accumulated
deficit
|
|
|
(8,352,407
|
)
|
|
(6,241,709
|
)
|
Total
stockholders' deficit
|
|
|
(2,875,965
|
)
|
|
(1,596,529
|
)
|
|
|
$
|
435,525
|
|
$
|
286,850
|
|
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
|
|
|
|
|
|
|
|
Year
Ended June 30,
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
521,330
|
|
$
|
681,337
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
101,296
|
|
|
103,190
|
|
General
and administrative expenses
|
|
|
2,115,310
|
|
|
1,215,966
|
|
|
|
|
2,216,606
|
|
|
1,319,156
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(1,695,276
|
)
|
|
(637,819
|
)
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
Other
income
|
|
|
38,121
|
|
|
-
|
|
Interest
expense
|
|
|
(453,543
|
)
|
|
(207,574
|
)
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(2,110,698
|
)
|
|
(845,393
|
)
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,110,698
|
)
|
$
|
(845,393
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.09
|
)
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average
|
|
|
|
|
|
|
|
common
shares outstanding
|
|
|
23,710,507
|
|
|
15,146,106
|
|
|
|
|
|
|
|
|
|
See
accompanying report of independent registered public accounting
firm,
summary of accounting
|
Brendan
Technologies, Inc.
|
|
Consolidated
Statements of Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended June 30, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Additional
Paid
|
|
Retained
Earnings
|
|
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
in
Capital
|
|
(Deficit)
|
|
(Deficit)
|
|
Balance,
July 1, 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation
of shares
|
|
|
(1,793,200
|
)
|
|
(8,957
|
)
|
|
8,957
|
|
|
-
|
|
|
-
|
|
Warrant
valuation related to financing costs
|
|
|
-
|
|
|
|
|
|
40,403
|
|
|
-
|
|
|
40,403
|
|
Warrant
valuation as result of services provided
|
|
|
-
|
|
|
|
|
|
30,390
|
|
|
-
|
|
|
30,390
|
|
Non
cash issuance of stock options
|
|
|
-
|
|
|
|
|
|
80,208
|
|
|
-
|
|
|
80,208
|
|
Non
cash debt discount on issuance of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
convertible debentures, net of amortization
|
|
|
-
|
|
|
|
|
|
680,261
|
|
|
-
|
|
|
680,261
|
|
Net
(loss) for the year ended June 30, 2007
|
|
|
-
|
|
|
|
|
|
-
|
|
|
(2,110,698
|
)
|
|
(2,110,698
|
)
|
Balance,
June 30, 2007
|
|
|
23,705,594
|
|
$
|
118,409
|
|
$
|
5,358,033
|
|
$
|
(8,352,407
|
)
|
$
|
(2,875,965
|
)
|
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 June 30,
|
|
2007
|
|
2006
|
|
Operating
activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,110,698
|
)
|
$
|
(845,393
|
)
|
Adjustments
to reconcile net loss
|
|
|
|
|
|
|
|
to
cash provided by operating activities:
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
46,189
|
|
|
14,858
|
|
Provision
for uncollectible receivables
|
|
|
1,000
|
|
|
-
|
|
Stock
option compensation
|
|
|
80,208
|
|
|
83,650
|
|
Amortization
of debt discount
|
|
|
164,951
|
|
|
-
|
|
Amortization
of financing costs
|
|
|
17,398
|
|
|
-
|
|
Amortization
of warrant valuation issued for services
|
|
|
11,397
|
|
|
-
|
|
Other
non cash items
|
|
|
(38,122
|
)
|
|
98,000
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
(Increase)
decrease in accounts receivable
|
|
|
(20,176
|
)
|
|
15,644
|
|
(Increase)
decrease in prepaid expense and other assets
|
|
|
(67,381
|
)
|
|
29
|
|
Increase
(decrease) in accounts payable
|
|
|
(110,392
|
)
|
|
48,773
|
|
Increase
(decrease) in accrued liabilities
|
|
|
200,135
|
|
|
60,967
|
|
Increase
(decrease) in deferred revenue
|
|
|
20,743
|
|
|
14,654
|
|
Net
cash (used in) operating activities
|
|
|
(1,804,748
|
)
|
|
(508,818
|
)
|
Investing
activities:
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(130,805
|
)
|
|
(67,351
|
)
|
Net
cash (used in) investing activities
|
|
|
(130,805
|
)
|
|
(67,351
|
)
|
Financing
activities:
|
|
|
|
|
|
|
|
Principal
payments of lease obligations
|
|
|
(6,443
|
)
|
|
(2,448
|
)
|
Principal
payments on notes payable in default
|
|
|
(125,000
|
)
|
|
-
|
|
Proceeds
from notes receivable on sale of Omni divisions
|
|
|
-
|
|
|
400,000
|
|
Proceeds
from issuance of 8% convertible debentures
|
|
|
1,902,500
|
|
|
125,000
|
|
Proceeds
from issuance of short term note payable
|
|
|
100,000
|
|
|
-
|
|
Proceeds
from issuance of common stock, net of cash
|
|
|
|
|
|
|
|
paid
for costs
|
|
|
-
|
|
|
170,625
|
|
Net
cash provided by financing activities
|
|
|
1,871,057
|
|
|
693,177
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(64,496
|
)
|
|
117,008
|
|
Cash
and cash equivalents, beginning of year
|
|
|
149,512
|
|
|
32,504
|
|
Cash
and cash equivalents, end of year
|
|
$
|
85,016
|
|
$
|
149,512
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
88,306
|
|
$
|
17,708
|
|
Income
taxes
|
|
$
|
-
|
|
$
|
-
|
|
Non
Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
Debt
discount on 8% convertible debentures
|
|
$
|
680,261
|
|
$
|
18,346
|
|
Financing
costs related to debentures and notes
|
|
$
|
40,403
|
|
$
|
-
|
|
Valuation
of warrants issued for services
|
|
$
|
30,390
|
|
$
|
-
|
|
Property
and equipment acquired through lease
|
|
$
|
-
|
|
$
|
7,886
|
|
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
|
|
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.
Name
Change and Merger of Brendan Technologies, Inc. into Omni, U.S.A.,
Inc.
On
September 15, 2006, Omni changed its name to Brendan Technologies, 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”)
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; (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 were adjusted to 25% of the exercise price of the Brendan Sub
stock
options and warrants.
Following
the transactions effected by the Merger Agreement, Brendan Sub is now our sole
wholly-owned subsidiary and we conduct all our operations through Brendan
Sub.
Note
2- Going Concern
Going
Concern
These
financial statements have been prepared on a going concern basis. However,
during the years ended June 30, 2007 and 2006, we incurred net losses of
$2,110,698 and $845,393, respectively, and had an accumulated deficit of
$8,352,407 and $6,241,709, at June 30, 2007 and 2006, respectively. In addition,
at June 30, 2007, we had a working capital deficit of $1,679,643 and are in
default on $225,382 of debt and interest. Our ability to continue as a going
concern is dependent upon our ability to generate profitable operations in
the
future and/or to obtain the necessary financing to meet our obligations and
repay our 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 our
ability to continue as a going concern. Since inception, we have satisfied
our
capital needs through debt and equity financings and expect to continue to
fund
our operations from these sources until profitability is achieved. There can
be
no assurance that funds will be available at terms favorable to us 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 we be unable to continue as a going
concern.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
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 our
ability to continue as a going concern. Since inception, we have satisfied
our
capital needs through debt and equity financings and expect to continue to
fund
our operations from these sources until profitability is achieved. There can
be
no assurance that funds will be available at terms favorable to us 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 we 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,
2007,
we received net
proceeds of $555,000
from the issuance of a bridge loan to a group of five investors.
·
Increase
revenue from the sale of our software. We are anticipating releasing an upgraded
version of our
software
during the next twelve months that will address customer enterprise level
requirements.
· If
necessary, we 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 our
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 ours in conformity with accounting principles generally accepted in
the
United States.
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
We
provide for the possible inability to collect accounts receivable by recording
an allowance for
doubtful accounts. We write off an account when it is considered to be
uncollectible.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued).
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 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. We follow 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 us
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. We periodically
evaluate the recoverability of our long-lived assets based on estimated future
cash flows and the estimated fair value of such long-lived assets, and provide
for impairment if such undiscounted cash flows are insufficient to recover
the
carrying amount of the long-lived asset.
Revenue
Recognition
We
recognize 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.
We
recognize 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.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
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.
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.
Stock
Based Compensation
Effective
January 1, 2006, we adopted FASB Statement No. 123R, “Accounting for Stock-Based
Compensation” (“SFAS 123R”). SFAS 123R requires all share-based payments to
employees, including grants of employee stock options and restricted stock,
to
be recognized in the financial statements based on their fair values. Under
SFAS
123R, the pro forma disclosures previously permitted under APB 25 are no longer
an alternative for financial statement reporting purposes.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
We
have
selected the Black-Scholes method of valuation for share-based compensation
and
have adopted the modified prospective transition method under SFAS 123R,
which
requires that compensation cost be recorded, as earned, for all unvested
stock
options outstanding at the beginning of the first quarter of adoption of
SFAS
123R. As permitted by SFAS 123R, prior periods have not been restated. The
charge is being recognized in non cash compensation, which
is
included in stock-based compensation expense, on a straight-line basis over
the
remaining service period after the adoption date based on the options’ original
estimate of fair value. Prior to the adoption of SFAS 123R, the Company applied
the intrinsic-value-based method of accounting prescribed by Accounting
Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to
Employees.” Under this method, compensation cost was recorded only if the market
price of the underlying stock on the grant date exceeded the exercise price.
As
permitted by SFAS 123, the Company elected the disclosure only requirements
of
SFAS 123. The fair-value based method used to determine historical pro forma
amounts under SFAS 123 was similar in most respects to the method used to
determine stock-based compensation expense under SFAS 123R.
The
following table illustrates the pro forma effect on our net loss and net loss
per share as if we had adopted the fair value based method of accounting for
stock-based compensations under the provisions of SFAS 123R at the beginning
of
the year ended June 30, 2006:
|
|
Year
Ended June 30,
|
|
|
|
2006
|
|
|
|
|
|
Net
income (loss), as reported
|
|
$
|
(845,393
|
)
|
Stock-based
employee compensation,
|
|
|
|
|
net
of tax effects
|
|
$
|
(57,078
|
)
|
Proforma
net income (loss)
|
|
$
|
(902,471
|
)
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
Basic
and diluted- as reported
|
|
$
|
(0.06
|
)
|
Basic
and diluted- proforma
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
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 695,000 and 460,000 shares of common stock were
granted to employees and directors during the years ended June 30, 2007 and
2006
and $80,208 and $83,650 was charged to expense for the years ended June 30,
2007
and 2006. The stock options were valued using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for the years ended
June 30:
|
2007
|
2006
|
Dividend
yield
|
None
|
None
|
Interest
rate
|
4.62%
to 5.10%
|
4.84%
|
Expected
lives
|
5
Years
|
5
years
|
Volatility
|
39%
to 43%
|
37%
|
Forfeitures
(estimated)
|
0
%
|
0%
|
|
|
|
We
apply
SFAS No. 123 in valuing options granted to consultants and estimate the fair
value of such options using the Black-Scholes option-pricing model. The fair
value is recorded as consulting
expense and included in general and administrative expenses 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)
Loss
Per Share
We
utilize 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
years ended June 30, 2007 and 2006, the following common equivalent shares
were
excluded from the computation of loss per share since their effects are
anti-dilutive.
|
|
June
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Convertible
debentures
|
|
|
4,055,000
|
|
|
250,000
|
|
Options
|
|
|
4,975,000
|
|
|
4,622,334
|
|
Warrants
|
|
|
8,660,667
|
|
|
720,667
|
|
Total
|
|
|
17,690,667
|
|
|
5,593,001
|
|
Fair
Value of Financial Instruments
Our
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
We
utilize 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.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Concentrations
of Credit Risk
Financial
instruments which potentially subject us to credit risk are
primarily accounts receivable. Credit risk concentration with respect to
receivables is limited due to the geographic dispersion of our customer base.
We
conduct ongoing credit evaluations but do not obtain collateral or other forms
of security. We believe our credit policies do not result in significant adverse
risk and historically have not experienced significant credit-related losses.
We
had two customers whose balances due at June 30, 2007 exceeded 10% of gross
accounts receivable (12% and 10%). At June 30, 2006, we had two customers which
accounted for 29% and 18% of our accounts receivable balance.
We
have
several customers which accounted for greater than 10% of our sales. Two
customers accounted for 24% and 12% of our sales for the year ended June 30,
2007 and one customer accounted for 42% of our sales for the year ended June
30,
2006.
Recently
Enacted Accounting Standards
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”. This Statement permits entities to
choose to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. We are currently assessing the impact of
SFAS No. 159 on our financial position and results of operations.
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans.” This Statement requires an
employer to recognize the over funded or under funded status of a defined
benefit post retirement plan (other than a multiemployer plan) as an asset
or
liability in its statement of financial position, and to recognize changes
in
that funded status in the year in which the changes occur through comprehensive
income. SFAS No. 158 is effective for fiscal years ending after December
15, 2006. The adoption of SFAS No. 158 had no impact on our financial position
and results of operations.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measures”.
This Statement defines fair value, establishes a framework for measuring fair
value under GAAP, expands disclosures about fair value measurements, and applies
under other accounting pronouncements that require or permit fair value
measurements. SFAS No. 157 does not require any new fair value
measurements. However, the FASB anticipates that for some entities, the
application of SFAS No. 157 will change current practice. SFAS No. 157
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, which for us would be the fiscal year beginning April 1,
2008. We are currently evaluating the impact of SFAS No. 157 but do
not expect that it will have a material impact on our financial statements.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
In
September 2006, the SEC issued Staff Accounting Bulletin
(“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements.” SAB
No. 108 addresses how the effects of prior year uncorrected misstatements
should
be
considered when quantifying misstatements in current year financial statements.
SAB No. 108 requires companies to quantify misstatements using a balance
sheet and income statement approach and to evaluate whether either approach
results in quantifying an error that is material in light of relevant
quantitative and qualitative factors. SAB No. 108 is effective for periods
ending after November 15, 2006. The adoption of SAB No. 108 had no
impact on our financial position and results of operations.
In
June
2006, the FASB issued FASB Interpretation Number 48, "Accounting for Uncertainty
in Income Taxes - an interpretation of FASB Statement No. 109." This
Interpretation 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." This Interpretation is
effective for fiscal years beginning after December 15, 2006. We are currently
assessing the effect of this Interpretation on our financial
statements.
Note
4- Accounts
Receivable
Accounts
receivable are carried at the expected realizable value. Accounts receivable
consisted of the following:
|
|
June
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Accounts
receivable - trade
|
|
$
|
81,283
|
|
$
|
61,107
|
|
Allowance
for doubtful accounts
|
|
|
(6,000
|
)
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$
|
75,283
|
|
$
|
56,107
|
|
Note
5- Property and Equipment
The
following is a summary of equipment, at cost, less accumulated
depreciation:
|
|
June
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Computer
equipment
|
|
$
|
214,131
|
|
$
|
95,047
|
|
Furniture
and fixtures
|
|
|
115,982
|
|
|
104,261
|
|
|
|
|
330,113
|
|
|
199,308
|
|
|
|
|
|
|
|
|
|
Less
accumulated depreciation
|
|
|
172,757
|
|
|
126,568
|
|
|
|
|
|
|
|
|
|
|
|
$
|
157,356
|
|
$
|
72,740
|
|
Depreciation
expense for the years ended June 30, 2007 and 2006 was $46,189 and $14,858,
respectively.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
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,
2007 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 $455,974 and
$414,723 at June 30, 2007 and 2006, respectively. We anticipate paying 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 $231,367 and $210,221 at June 30,
2007
and 2006, respectively, are affiliates of ours.
Note
7- Convertible Notes Payable in Default
Three
of
53 convertible notes payable were not converted into common stock of Brendan
at
the time of its merger with Omni. One of these notes was paid in July 2006
and
the remaining two are outstanding and, therefore, remain in default at June
30,
2007 and consist of the following:
|
|
June
30,
|
|
June
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Two
convertible, 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,
convertible note payable for $125,000,
|
|
|
|
|
|
|
|
with
an interest rate of 12% per annum.
|
|
|
-
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
130,000
|
|
$
|
255,000
|
|
Note
8 - 8% Convertible Debentures
Overview.
From
June 2006 through June 2007, we sold an aggregate of $2,027,500 of 8%
convertible debentures to a group of 24 investors, two of which are affiliates
of ours. 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, at the election of the debenture holder, either
quarterly in cash or in common stock at the earlier of the conversion or
maturity of the debenture.
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 two
warrants to each debenture holder to purchase shares of our common stock. One
warrant is exercisable at $0.60 per share within five years of issuance while
the other warrant is exercisable at $1.00 per share within one year of
issuance.
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.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
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.
The
following table presents the status, as of June 30, 2007 and 2006, of
our
convertible
debentures:
|
|
As
of
|
|
|
|
June
30, 2007
|
|
June
30, 2006
|
|
|
|
|
|
|
|
Convertible
debentures issued
|
|
$
|
2,027,500
|
|
$
|
125,000
|
|
Less
debt discount
|
|
|
(533,656
|
)
|
|
(18,346
|
)
|
|
|
|
|
|
|
|
|
1,493,844
|
|
|
106,654
|
|
Less
current portion
|
|
|
(115,822
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Long
term portion
|
|
$
|
1,378,022
|
|
$
|
106,654
|
|
|
|
|
|
|
|
|
|
Current
issued to related parties
|
|
$
|
91,812
|
|
$
|
-
|
|
Long
term issued to related parties
|
|
$
|
34,154
|
|
$
|
83,652
|
|
|
|
|
|
|
|
|
|
Maturity
dates of outstanding
|
|
|
|
|
|
|
|
convertible
debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
2008
|
|
$
|
125,000
|
|
$
|
125,000
|
|
June
2009
|
|
|
1,902,500
|
|
|
-
|
|
|
|
$
|
2,027,500
|
|
$
|
125,000
|
|
Note
9- Lease Obligations
Operating
Lease
We
have
entered into a two-year building lease for our office commencing in June 2006
and expiring in May 2008 with a one year option to renew. Lease expense for
the
years ended June 30, 2007 and 2006 amounted to $73,854 and $71,076,
respectively. The following is a schedule of minimum annual rental payments
for
the next five years.
Years
ending June 30,
|
|
|
|
|
|
|
|
2008
|
|
$
|
54,835
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
$
|
54,835
|
|
|
|
|
|
|
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Note
10- Capital Stock
Preferred
Stock
We
have
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, 2007.
Common
Stock
We
have
authorized 50,000,000 shares of common stock at $.004995 par value. At June
30,
2007, we had 23,705,594 shares of common stock issued and
outstanding.
During
the year ended June 30, 2006, we 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
us.
Although outstanding on the records as of June 30, 2006, the individual was
not
entitled to these shares and we had not issued the shares as of June 30, 2006.
The 1,793,200 shares were cancelled during the year ended June 30,
2007.
Warrants
During
the year ended June 30, 2007, we issued 7,610,000 common stock purchase warrants
to a group of 21 investors, one of which is our affiliate, related to the
issuance of 8% convertible debentures. In addition, we issued a common stock
purchase warrant for the purchase of 240,000 common shares to one individual
who
assisted us in raising funds, a warrant to one individual for the purchase
of
240,000 common shares related to our investor relations program and a warrant
to
one investor for 100,000 common shares related to a short term note. During
the
year, one year warrants issued in conjunction with the 8% convertible debentures
representing 250,000 common shares expired. A warrant to purchase up to 166,667
common shares remains outstanding which was issued by the predecessor company
as
a result of their financings with an institutional investor.
During
the year ended June 30, 2006, we issued 500,000 common stock purchase warrants
to a group of five individual investors, two of which are our affiliates,
related to the issuance of 8% convertible debentures. In addition, we issued
a
common stock purchase warrant for the purchase of 54,000 post-merger shares
to
one individual who assisted us in raising funds. 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,
2007
and
2006,
and
changes during the years then ended is presented below:
|
|
Warrants
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
Price
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
8,190,000
|
|
|
0.79
|
|
Cancelled
|
|
|
(250,000
|
)
|
|
1.00
|
|
Outstanding,
June 30, 2007
|
|
|
8,660,667
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
June 30, 2006
|
|
|
720,667
|
|
$
|
2.00
|
|
Exercisable,
June 30, 2007
|
|
|
8,660,667
|
|
$
|
0.88
|
|
The
weighted average grant date fair value of warrants issued during the year ended
June 30, 2007 was $0.08.
We
estimate 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, 2007: dividend yield of zero
percent; expected volatility of 39% to 43%, risk-free interest rates of 4.57%
to
5.20%; and expected lives of 1 to 5 years and 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.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
Weighted
|
|
Range
of
|
|
|
|
Remaining
|
|
Average
|
|
|
|
Average
|
|
Exercise
|
|
Number
|
|
Contractual
|
|
Exercise
|
|
Number
|
|
Exercise
|
|
Prices
|
|
Outstanding
|
|
Life
|
|
Price
|
|
Exercisable
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.60
|
|
|
4,635,000
|
|
|
4.31
|
|
$
|
0.60
|
|
|
4,635,000
|
|
$
|
0.60
|
|
$ 0.75
|
|
|
54,000
|
|
|
3.13
|
|
$
|
0.75
|
|
|
54,000
|
|
$
|
0.75
|
|
$ 1.00
|
|
|
3,805,000
|
|
|
0.33
|
|
$
|
1.00
|
|
|
3,805,000
|
|
$
|
0.33
|
|
$ 6.00
|
|
|
166,667
|
|
|
2.01
|
|
$
|
6.00
|
|
|
166,667
|
|
$
|
6.00
|
|
|
|
|
8,660,667
|
|
|
2.51
|
|
$
|
0.88
|
|
|
8,660,667
|
|
$
|
0.88
|
|
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 4,950,000 options are issued and outstanding to executive
officers, employees and consultants at prices ranging from $0.025 to $0.75
per
share. 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.
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, 2007 and 2006, there
were
options granted to purchase up to 695,000 and 460,000 shares of common
stock.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
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. The number of stock options outstanding
at June 30, 2007 from the predecessor company’s plan is 25,000 with exercise
prices ranging from $3.56 to $6.75 per share.
A
summary
of the status of the options granted under the stock option plan and other
agreements at June 30, 2007, are presented in the table below:
|
|
Options
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
Price
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
695,000
|
|
|
0.64
|
|
Cancelled
|
|
|
(342,334
|
)
|
|
2.69
|
|
Outstanding,
June 30, 2007
|
|
|
4,975,000
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
Exercisable,
June 30, 2006
|
|
|
4,472,334
|
|
$
|
0.54
|
|
Exercisable,
June 30, 2007
|
|
|
4,559,500
|
|
$
|
0.36
|
|
The
weighted average grant date fair value of options granted during the year ended
June 30, 2007 was $0.15.
As
of
June 30, 2007 and 2006, the number of unvested shares equaled 415,500 and
150,000 shares, respectively. As
of
June 30, 2007, the unamortized portion of stock compensation expense on all
existing stock options was $56,471. This cost is expected to be
recognized over a weighted average period of 1.2 years.
The
aggregate pre-tax intrinsic value of outstanding options, based on the closing
price of $0.38 as of June 30, 2007, was $774,200 and there was no intrinsic
value for options granted during the year ended June 30, 2007.
The
total
fair value of options vested during the year ended June 30, 2007 was
approximately $80,208 and for June 30, 2006 was $83,650.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Range
of
|
|
|
|
Remaining
|
|
Average
|
|
|
|
Average
|
|
|
|
Exercise
|
|
Number
|
|
Contractual
|
|
Exercise
|
|
Number
|
|
Exercise
|
|
|
|
Prices
|
|
Outstanding
|
|
Life
|
|
Price
|
|
Exercisable
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.025
|
|
|
1,520,000
|
|
|
3.77
|
|
$
|
0.03
|
|
|
1,520,000
|
|
$
|
0.03
|
|
|
|
$
|
0.125
|
|
|
920,000
|
|
|
3.77
|
|
$
|
0.13
|
|
|
920,000
|
|
$
|
0.13
|
|
|
|
$
|
0.64-0.65
|
|
|
950,000
|
|
|
4.36
|
|
$
|
0.64
|
|
|
534,500
|
|
$
|
0.64
|
|
|
|
$
|
0.75
|
|
|
1,560,000
|
|
|
3.77
|
|
$
|
0.75
|
|
|
1,560,000
|
|
$
|
0.75
|
|
|
|
$
|
3.00-6.75
|
|
|
25,000
|
|
|
2.20
|
|
$
|
4.73
|
|
|
25,000
|
|
$
|
4.73
|
|
|
|
|
|
|
|
4,975,000
|
|
|
3.87
|
|
$
|
0.41
|
|
|
4,559,500
|
|
$
|
0.36
|
|
Note
11- Income Taxes
We
account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109. SFAS No. 109 requires us 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,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Allowance
for bad debts
|
|
$
|
2,000
|
|
$
|
2,000
|
|
Valuation
of stock options and warrants
|
|
|
96,000
|
|
|
33,000
|
|
Accrued
wages
|
|
|
274,000
|
|
|
274,000
|
|
Accrued
vacation
|
|
|
27,000
|
|
|
-
|
|
Deferred
income
|
|
|
39,000
|
|
|
31,000
|
|
Net
operating loss carryforwards
|
|
|
2,888,000
|
|
|
2,146,000
|
|
Valuation
allowance
|
|
|
(3,326,000
|
)
|
|
(2,486,000
|
)
|
Net
deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
As
of
June 30, 2007, 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 years ended
June
30, 2007 and 2006 due to reported losses. The valuation allowance increased
$840,000 from the prior period.
At
June
30, 2007, we have federal net operating loss carryforwards of approximately
$7,251,000 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 $6,800,000 that expire from 2010
through 2015.
BRENDAN
TECHNOLOGIES, INC.
Notes
to
the Consolidated Financial Statements (Continued)
Note
12- Subsequent Events
In
July
2007 we issued a 15% bridge loan with attached common stock purchase warrants
for $600,000 ($555,000 net of costs) to five investors. The bridge loan will
mature in nine months and the interest is payable monthly. The attached common
stock purchase warrants have exercise prices of $0.60 per share for 600,000
shares which expire in five years.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on our behalf by the undersigned, thereunto duly
authorized.
BRENDAN
TECHNOLOGIES., INC.
a
Nevada
corporation
By:
|
/s/
JOHN R. DUNN II
|
|
Dated:
September 28, 2007
|
|
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,
|
September
28, 2007
|
John
R. Dunn II
|
President
and Director
|
|
|
|
|
|
|
|
/s/
GEORGE DUNN
|
Chief
Operating Officer and Secretary
|
September
28, 2007
|
George
Dunn
|
|
|
|
|
|
|
|
|
/s/
LOWELL W. GIFFHORN
|
Chief
Financial Officer (Principal
|
|
Lowell
W. Giffhorn
|
Accounting
Officer) and Director
|
September
28, 2007
|
|
|
|
|
|
|
/s/
THEO VERMAELEN
|
Director
|
September
28, 2007
|
Theo
Vermaelen
|
|
|
|
|
|
|
|
|
/s/
STEPHEN EISOLD
|
Director
|
September
28, 2007
|
Stephen
Eisold
|
|
|
|
|
|
/s/
JASON BOOTH
|
Director
|
September
28, 2007
|
Jason
Booth
|
|
|