Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
(Mark
One)
x Quarterly
Report Under Section 13 Or 15(d) Of The Securities Exchange Act Of
1934
For
quarterly period ended December
31, 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 0-17493
BRENDAN
TECHNOLOGIES, INC.
(Exact
name of small business issuer as specified in its charter)
NEVADA
|
|
88-0237223
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
2236
Rutherford Road, Suite 107
|
Carlsbad,
California 92008
|
(Address
of principal executive offices)
|
Issuer's
telephone number (760)
929-7500
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x No o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date:
Common
Stock, $.004995 par value
|
|
25,550,594
|
|
|
|
(Class)
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|
Outstanding
at February 14, 2008
|
Transitional
Small Business Disclosure Format (Check one): Yes ¨ No x
Brendan
Technologies, Inc.
INDEX
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Page
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PART
I. FINANCIAL
INFORMATION
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Item
1.
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Financial
Statements:
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Condensed
consolidated Balance Sheets as of December 31, 2007 (unaudited) and
June
30, 2007
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3
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|
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|
Condensed
consolidated Statements of Operations for the three and six months
ended
December 31, 2007 and 2006(unaudited)
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4
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|
|
|
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|
Condensed
consolidated Statements of Cash Flows for the six months ended December
31, 2007 and 2006 (unaudited)
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5
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|
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Notes
to Condensed Unaudited Consolidated Financial Statements
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6
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Item
2.
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Management’s
Discussion and Analysis or Plan of Operation
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12
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Item
3.
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Controls
and Procedures
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16
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PART
II. OTHER
INFORMATION
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Item
1.
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Legal
Proceedings
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*
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Item
2.
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|
Unregistered
Sales of Equity Securities and Use of Proceeds
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|
*
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Item
3.
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Defaults
upon Senior Securities
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|
*
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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*
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Item
5.
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Other
Information
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*
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Item
6.
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Exhibits
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17
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SIGNATURES
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17
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* No
information provided due to inapplicability of the item.
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
Brendan
Technologies, Inc.
|
Condensed
Consolidated Balance
Sheets
|
|
|
December
31,
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June
30,
|
|
|
|
2007
|
|
2007
|
|
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|
(Unaudited)
|
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|
|
ASSETS
|
|
|
|
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|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
32,353
|
|
$
|
85,016
|
|
Accounts
receivable, net
|
|
|
118,068
|
|
|
75,283
|
|
Prepaid
expenses
|
|
|
109,537
|
|
|
89,919
|
|
Total
current assets
|
|
|
259,958
|
|
|
250,218
|
|
|
|
|
|
|
|
|
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Property
and equipment, net
|
|
|
130,062
|
|
|
157,356
|
|
Other
assets
|
|
|
19,585
|
|
|
27,951
|
|
|
|
$
|
409,605
|
|
$
|
435,525
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|
|
|
|
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|
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LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
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Current
liabilities:
|
|
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|
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Notes
payable in default
|
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$
|
130,000
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|
$
|
130,000
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|
Accrued
interest in default
|
|
|
104,398
|
|
|
95,382
|
|
Note
payable
|
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|
-
|
|
|
100,000
|
|
Secured
bridge loan payable
|
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|
600,000
|
|
|
-
|
|
Accounts
payable
|
|
|
61,366
|
|
|
12,916
|
|
Accrued
wages and vacation
|
|
|
850,272
|
|
|
842,525
|
|
Accrued
interest
|
|
|
599,980
|
|
|
527,434
|
|
Deferred
revenue
|
|
|
114,067
|
|
|
98,394
|
|
Current
portion of lease obligations
|
|
|
5,765
|
|
|
7,388
|
|
Current
portion 8% convertible debentures net of debt discount
|
|
|
1,082,374
|
|
|
24,010
|
|
Current
portion 8% convertible debentures net of debt discount-related
parties
|
|
|
129,929
|
|
|
91,812
|
|
Total
current liabilities
|
|
|
3,678,151
|
|
|
1,929,861
|
|
|
|
|
|
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Long
term portion of lease obligations
|
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1,529
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3,607
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|
8%
Convertible debentures net of debt discount
|
|
|
428,879
|
|
|
1,343,868
|
|
8%
Convertible debentures net of debt discount - related
parties
|
|
|
7,881
|
|
|
34,154
|
|
Total
liabilities
|
|
|
4,116,440
|
|
|
3,311,490
|
|
|
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|
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Stockholders'
deficit
|
|
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Preferred
stock, $.004995 par value; 5,000,000 shares authorized: none
outstanding
|
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|
-
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|
-
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|
Common
stock, $.004995 par value; 50,000,000 shares authorized: xx,xxx,xxx
and
23,705,594 issued and outstanding at December 31, 2007 and June 30,
2007
|
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|
127,625
|
|
|
118,409
|
|
Additional
paid in capital
|
|
|
5,930,858
|
|
|
5,358,033
|
|
Accumulated
deficit
|
|
|
(9,765,318
|
)
|
|
(8,352,407
|
)
|
Total
stockholders' deficit
|
|
|
(3,706,835
|
)
|
|
(2,875,965
|
)
|
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|
$
|
409,605
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|
$
|
435,525
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|
See
accompanying summary of accounting policies and notes to unaudtied condensed
consolidated financial statements.
Brendan
Technologies, Inc.
Condensed
Consolidated Statements of Operation
(Unaudited)
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|
Three
Months Ended
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|
Six
Months Ended
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December
31
|
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December
31,
|
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December
31
|
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December
31,
|
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|
2007
|
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2006
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|
2007
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|
2006
|
|
|
|
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|
|
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Revenue
|
|
$
|
206,981
|
|
$
|
135,253
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|
$
|
366,807
|
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$
|
222,648
|
|
|
|
|
|
|
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|
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Selling
expenses
|
|
|
35,734
|
|
|
24,756
|
|
|
78,422
|
|
|
47,961
|
|
Research
and development
|
|
|
126,961
|
|
|
115,309
|
|
|
245,729
|
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198,444
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|
General
and administrative expenses
|
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|
477,841
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|
449,916
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|
945,096
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|
767,840
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|
|
|
|
640,536
|
|
|
589,981
|
|
|
1,269,247
|
|
|
1,014,245
|
|
|
|
|
|
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|
|
|
|
|
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|
Loss
from operations
|
|
|
(433,555
|
)
|
|
(454,728
|
)
|
|
(902,440
|
)
|
|
(791,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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Other
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(271,904
|
)
|
|
(104,101
|
)
|
|
(510,470
|
)
|
|
(173,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(705,459
|
)
|
|
(558,829
|
)
|
|
(1,412,910
|
)
|
|
(964,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(705,459
|
)
|
$
|
(558,829
|
)
|
$
|
(1,412,910
|
)
|
$
|
(964,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.03
|
)
|
$
|
(0.02
|
)
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average common shares outstanding
|
|
|
24,975,431
|
|
|
23,705,594
|
|
|
24,340,512
|
|
|
23,705,594
|
|
See
accompanying summary of accounting polices and notes to unaudited condensed
consolidated financial statements.
Brendan
Technologies, Inc.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
Six Months Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Operating
activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,412,910
|
)
|
$
|
(964,701
|
)
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
37,250
|
|
|
17,650
|
|
Stock
option compensation
|
|
|
20,816
|
|
|
46,278
|
|
Intrinsic
value of warrant exercises
|
|
|
22,800
|
|
|
-
|
|
Amortization
of warrants
|
|
|
77,175
|
|
|
50,191
|
|
Amortization
of debt discount
|
|
|
155,219
|
|
|
27,421
|
|
Provision
for uncollectible receivables
|
|
|
8,000
|
|
|
1,000
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(50,785
|
)
|
|
(7,183
|
)
|
Prepaid
expense and other assets
|
|
|
(11,252
|
)
|
|
(1,056
|
)
|
Accounts
payable
|
|
|
48,449
|
|
|
(108,546
|
)
|
Accrued
liabilities
|
|
|
89,309
|
|
|
113,182
|
|
Deferred
revenue
|
|
|
15,673
|
|
|
21,467
|
|
Net
cash used in operating activities
|
|
|
(1,000,256
|
)
|
|
(804,297
|
)
|
Investing
activities:
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(9,956
|
)
|
|
(26,830
|
)
|
Net
cash used in investing activities
|
|
|
(9,956
|
)
|
|
(26,830
|
)
|
Financing
activities:
|
|
|
|
|
|
|
|
Principal
payments of lease obligations
|
|
|
(3,701
|
)
|
|
(3,072
|
)
|
Principal
payments on notes payable in default
|
|
|
-
|
|
|
(125,000
|
)
|
Principal
payments on notes payable
|
|
|
(100,000
|
)
|
|
-
|
|
Proceeds
from issuance of secured bridge loan
|
|
|
600,000
|
|
|
-
|
|
Proceeds
from exercise of warrants
|
|
|
461,250
|
|
|
-
|
|
Proceeds
from issuance of 8% convertible debentures, net of costs
|
|
|
-
|
|
|
1,125,000
|
|
Net
cash provided by financing activities
|
|
|
957,549
|
|
|
996,928
|
|
Net
increase in cash and cash equivalents
|
|
|
(52,663
|
)
|
|
165,801
|
|
Cash
and cash equivalents,
beginning of year
|
|
|
85,016
|
|
|
149,512
|
|
Cash
and cash equivalents,
end of period
|
|
$
|
32,353
|
|
$
|
315,313
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
96,213
|
|
$
|
95,492
|
|
Income
taxes
|
|
$
|
-
|
|
$
|
-
|
|
Non
Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
Cancellation
of stock
|
|
$
|
-
|
|
$
|
8,957
|
|
Debt
discount on 8% convertible debentures
|
|
$
|
-
|
|
$
|
333,176
|
|
See
accompanying summary of accounting polices and notes to unaudited condensed
consolidated financial statements.
BRENDAN
TECHNOLOGIES, INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
Note
1 - Business
Nature
of Business
Brendan
Technologies, Inc., a Nevada corporation (the “Company”,
“we”
or“Brendan”)
provides software solutions to improve the accuracy, quality control, workflow,
and regulatory compliance of immunoassay testing in laboratories in the
biopharmaceutical, clinical, research, veterinarian and agricultural industries.
The
accompanying unaudited condensed consolidated financial statements include
the
accounts of the Company and the Company’s wholly owned subsidiary. The unaudited
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. All material inter-company accounts and
transactions have been eliminated in consolidation. Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments, consisting of normal
and recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for the periods presented have been
included. Operating results for the three and six month periods ended December
31, 2007 are not necessarily indicative of the results that may be expected
for
the fiscal year ending June 30, 2008. For further information, refer to the
financial statements and notes thereto included in the Brendan Technologies,
Inc. Annual Report on Form 10-KSB for the fiscal year ended June 30,
2007.
Recent
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, which for us will be the fiscal year
beginning April 1, 2008. 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. 157, “Fair Value Measures”.
This Statement defines fair value, establishes a framework for measuring fair
value in generally 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 will 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.
Reclassifications
Certain
reclassifications have been made to the December 31, 2006 financial statements
in order for them to conform to the December 31, 2007 presentation. Such
reclassifications have no impact on our financial position or results of
operations.
BRENDAN
TECHNOLOGIES, INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)
Note
2- Going Concern
Going
Concern
These
financial statements have been prepared on a going concern basis. However,
during the six months
ended December 31, 2007 and the year ended June 30, 2007, the Company incurred
net losses of $1,412,910 and $2,110,698, respectively, and had an accumulated
deficit of $9,765,318 and $8,352,407, at December 31 and June 30, 2007,
respectively. In addition, as of December 31, 2007, the Company had a working
capital deficit of $3,418,193 and is in default on $234,398 of debt and
interest. The Company’s
ability to continue as a going concern is dependent upon its ability to generate
profitable operations in the future and/or to obtain the necessary financing
to
meet its obligations and repay its liabilities arising from normal business
operations when they come due. The outcome of these matters cannot be predicted
with any certainty at this time and as such raise substantial doubt as to the
Company’s ability to continue as a going concern. Since inception, the Company
has satisfied its capital needs through debt and equity financings and expects
to fund the Company from these sources until profitability is achieved. There
can be no assurance that funds will be available at terms favorable to the
Company or that future profitability can be achieved. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification
of
liabilities that might be necessary should the Company be unable to continue
as
a going concern.
Management’s
Plans
Management's
plans to eliminate the going concern situation include, but are not limited
to,
the following:
· Obtain
additional equity or debt financing from investors.
· Increase
revenue from the sale of its software. The Company is anticipating to release
an
upgraded version of its software during the next twelve months that will address
customer enterprise level requirements.
· If
necessary, the Company will initiate cost cutting programs that would reduce
cash requirements.
Note
3 - Loss Per Share
The
Company utilizes SFAS No. 128, “Earnings per Share.” Basic loss per share is
computed by dividing loss available to common shareholders by the
weighted-average number of common shares outstanding. Diluted loss per share
is
computed similar to basic loss per share except that the denominator is
increased to include the number of additional common shares that would have
been
outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. Common equivalent shares are excluded from the
computation if their effect is anti-dilutive.
For
the
six months ended December 31, 2007 and 2006, the following common equivalent
shares were excluded from the computation of loss per share since their effects
are anti-dilutive.
BRENDAN
TECHNOLOGIES, INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Convertible
debentures
|
|
|
4,055,000
|
|
|
2,250,000
|
|
Options
|
|
|
5,435,000
|
|
|
4,722,334
|
|
Warrants
|
|
|
5,505,667
|
|
|
4,920,667
|
|
Total
|
|
|
14,995,667
|
|
|
11,893,001
|
|
Estimates
The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting
period. Actual results could differ from those estimates.
Note
4-
Notes Payable and Secured Bridge Loan
Notes
payable in default consisted of the following:
|
|
|
|
June
30,
2007
|
|
|
|
|
|
|
|
Two
unsecured, senior subordinated notes payable, due on various dates
on or
before September 2004, bearing interest at 8% per annum.
|
|
$
|
130,000
|
|
$
|
130,000
|
|
The
above
notes which were not converted as part of the reverse merger remain in default.
In
July
2007, we issued secured bridge loans with a face value of $600,000 ($555,000
net
of costs) to a group of five investors. The loans are due nine months from
the
date of issuance and interest is paid monthly in cash at the rate of 15%
per annum. The bridge loans are secured by all of our assets. In addition,
we
issued 690,000 common stock purchase warrants to the investors and individuals
who assisted in the transaction.
Note
5- 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 23 individual investors, two of which
are
affiliates of the Company, and one institutional investor. The convertible
debentures entitle the debenture holder to convert the principal into our common
stock for two years from the date of closing. Interest on the debentures is
payable, at the option of the warrant holder, either quarterly in cash or at
the
earlier of maturity or conversion in common stock of the Company.
Number
of Shares Debentures May Be Converted Into.
The
debentures can be converted into a number of our common shares at a conversion
price equal to $0.50 per share.
Warrants.
Concurrent with the issuance of the convertible debentures, we issued to the
debenture holders warrants to purchase shares of our common stock. These
warrants are exercisable for one to five years from the date of issuance at
exercise prices ranging from $0.60 to $1.00 per share.
Right
of First Refusal.
The
debenture holders have a right of first refusal to purchase or participate
in
any equity securities offered by us in any private transaction which closes
on
or prior to the date that is two years after the issue date of each
debenture.
BRENDAN
TECHNOLOGIES, INC.
Notes
to the Unaudited Condensed 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 December 31 and June 30, 2007, of
our
convertible
debentures:
|
|
As of
|
|
|
|
December 31, 2007
|
|
June 30, 2007
|
|
|
|
|
|
|
|
Convertible
debentures issued
|
|
$
|
2,027,500
|
|
$
|
2,027,500
|
|
Less
debt discount
|
|
|
(378,437
|
)
|
|
(533,656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
1,649,063
|
|
|
1,493,844
|
|
Less
current portion
|
|
|
(1,212,303
|
)
|
|
(115,822
|
)
|
|
|
|
|
|
|
|
|
Long
term portion
|
|
$
|
436,760
|
|
$
|
1,378,022
|
|
|
|
|
|
|
|
|
|
Current
issued to related parties
|
|
$
|
129,929
|
|
$
|
91,812
|
|
Long
term issued to related parties
|
|
$
|
7,881
|
|
$
|
34,154
|
|
|
|
|
|
|
|
|
|
Maturity
dates of outstanding convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
2008
|
|
$
|
1,350,000
|
|
$
|
125,000
|
|
December
2009
|
|
|
677,500
|
|
|
1,902,500
|
|
|
|
$
|
2,027,500
|
|
$
|
2,027,500
|
|
Note
6- Equity Transactions
In
October 2007, we extended a rights offering to our existing warrant holders,
whereby, through November 10, 2007, at the sole election of the warrant holder,
any outstanding warrant could be exercised at $0.25 per share. For any warrants
not exercised, the terms of the warrant remained unchanged. As a result of
this
rights offering, warrants with original exercise prices ranging from $.60 to
$1.00 per share were exercised at $0.25 per share for the purchase of 1,845,000
shares of our common stock resulting in proceeds of $461,250. The difference
between the closing price of our common stock on the date of exercise and $0.25,
$22,800, is being reflected as additional non-cash interest during the quarter
ending December 31, 2007.
We
recorded additional paid in capital and non-cash compensation expense for stock
options issued to employees and consultants of $20,816 for the six months ended
December 31, 2007. Also, we recorded additional paid in capital of $77,175
related to warrants issued as a result of receiving secured bridge loans during
the six months ended December 31, 2007.
The
significant assumptions used in the Black-Scholes model to estimate the
compensation and interest expense for the issuance of stock options and warrants
during the current fiscal quarter are as follows:
BRENDAN
TECHNOLOGIES, INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)
Expected
term of options and warrants
|
5 years
|
|
|
Expected
volatility
|
42% - 43%
|
|
|
Expected
dividends
|
None
|
|
|
Risk-free
interest rate
|
4.24% - 5.03%
|
|
|
Forfeitures
|
0%
|
A
summary
of the options outstanding follows:
|
|
For the Six Months Ended
December 31, 2007
|
|
Options
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at beginning of year
|
|
|
4,975,000
|
|
$
|
0.41
|
|
Granted
|
|
|
500,000
|
|
|
0.65
|
|
Cancelled
|
|
|
(40,000
|
)
|
|
0.65
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Outstanding
at end of the period
|
|
|
5,435,000
|
|
|
0.43
|
|
|
|
|
|
|
|
|
|
Exercisable
at end of the the period
|
|
|
4,829,000
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options granted during the
period
|
|
|
500,000
|
|
$
|
0.06
|
|
As
of
December 31, 2007, the unamortized portion of stock compensation expense on
all
existing stock options was $62,025.
A
summary
of warrants outstanding follows:
|
|
For the Six Months Ended
December 31, 2007
|
|
Warrants
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at beginning of year
|
|
|
8,660,667
|
|
$
|
0.88
|
|
Granted
|
|
|
690,000
|
|
|
0.60
|
|
Cancelled
|
|
|
(2,000,000
|
)
|
|
1.00
|
|
Exercised
|
|
|
(1,845,000
|
)
|
|
0.25
|
|
Outstanding
at end of the period
|
|
|
5,505,667
|
|
|
0.80
|
|
|
|
|
|
|
|
|
|
Exercisable
at end of the the period
|
|
|
5,505,667
|
|
$
|
0.80
|
|
Note
7- Income Taxes
We
or one
of our subsidiaries file income tax returns in the U.S. federal jurisdiction
and
the state of California. With few exceptions, we are no longer subject to U.S.
federal, state and local or non-U.S. income tax examinations by tax authorities
for years before 2004.
BRENDAN
TECHNOLOGIES, INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)
We
adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes,
on July
1, 2007. As a result of the implementation of Interpretation 48, we did not
recognize an increase in the liability for unrecognized tax benefits. No
unrecognized tax benefits are being reported for the three or six months ended
December 31, 2007.
Included
in the balance at July 1, 2007, are no tax positions for which the ultimate
deductibility is highly certain but for which there is uncertainty about the
timing of such deductibility. Because of the impact of deferred tax accounting,
other than interest and penalties, the disallowance of the shorter deductibility
period would not affect the annual effective tax rate but would accelerate
the
payment of cash to the taxing authority to an earlier period.
Our
policy is to recognize interest accrued related to unrecognized tax benefits
in
interest expense and penalties in operating expenses.
At
June
30, 2007, we had 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.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
THE
FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO OUR
FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY
OF
FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING, "RISK FACTORS."
SEE ALSO OUR ANNUAL REPORT ON FORM 10-KSB FOR OUR FISCAL YEAR ENDED JUNE 30,
2007.
Critical
Accounting Policies and Estimates
The
preparation of consolidated financial statements in accordance with accounting
principles generally accepted in the United States requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and
liabilities.
On
an
ongoing basis, we evaluate our estimates, including those related to our product
returns, bad debts, intangible assets, long-lived assets and contingencies
and
litigation. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions
or
conditions.
We
have
identified two accounting policies that we believe are key to an understanding
of our financial statements. These important accounting policies require
management's most difficult, subjective judgments.
1.
Revenue Recognition
The
Company recognizes revenues related to software licenses and software
maintenance in accordance with the American Institute of Certified Public
Accountants (“AICPA”) Statements of Position (“SOP”) No. 97-2, “Software Revenue
Recognition,” as amended by SOP No. 94-4 and SOP No. 98-9. We follow the
guidance established by the SEC in Staff Accounting Bulletin No. 104, as well
as
generally accepted criteria for revenue recognition, which require that, before
revenue is recorded, there is persuasive evidence of an arrangement, the fee
is
fixed or determinable, collection is reasonably assured, and delivery to our
customer has occurred. In addition, our invoices may include multiple elements
that identify vendor specific objective evidence of fair value for each of
those
elements. The Company recognizes revenue as follows:
Software-
our software is sold with an indefinite license period, and as such, product
revenue is recorded at the time of the customer’s acceptance (generally 30 days
after shipment which allows for a 30 day return guarantee if the customer is
not
satisfied with the product), net of estimated allowances and returns.
Post-contract
customer support- (“PCS”) obligations are generally for annual services and are
recognized over the period of service. Revenues for which payment has been
received are treated as deferred revenue until services are provided and
revenues have been earned.
Training
and service calls- recognized at the time training or service calls are
provided.
Royalties-
we recognize revenue from royalties only after the cash has been collected
(typically 30 days after the end of the quarter on which the royalty payment
is
based.)
Licensing-
we also derive license revenue from fees for the transfer of proven and reusable
intellectual property components. Generally, these payments will include a
nonrefundable technology license fee, which will be payable upon the transfer
of
intellectual property. License fees will be recognized upon the execution of
the
license agreement and transfer of intellectual property provided no further
significant performance obligations exist and collectibility is deemed probable.
Customization
revenue- fees related to software service contracts to aid customers in adapting
such intellectual property to their particular instruments, which will be
performed on a best efforts basis and for which we will receive periodic
milestone payments, will be recognized as revenue over the estimated development
period, using a cost-based percentage of completion method.
2.
Going Concern
These
financial statements have been prepared on a going concern basis. However,
during the six months ended December 31, 2007 and the year ended June 30, 2007,
the Company incurred net losses of $1,412,910 and $2,110,698, respectively,
and
had an accumulated deficit of $9,765,318 and $8,352,407, at December 31 and
June
30, 2007, respectively. In addition, as of December 31, 2007, the Company had
a
working capital deficit of $3,418,193 and is in default on $234,398 of debt
and
interest. The Company’s ability to continue as a going concern is dependent upon
its ability to generate profitable operations in the future and/or to obtain
the
necessary financing to meet its obligations and repay its liabilities arising
from normal business operations when they come due. The outcome of these matters
cannot be predicted with any certainty at this time and as such raise
substantial doubt as to the Company’s ability to continue as a going concern.
Since inception, the Company has satisfied its capital needs through debt and
equity financings and expects to fund the Company from these sources until
profitability is achieved. There can be no assurance that funds will be
available at terms favorable to the Company or that future profitability can
be
achieved.
Results
of Operations
Three
Months Ended December 31, 2007 Compared to Three Months Ended December 31,
2006
Selected
Financial Information
|
|
Three Months Ended December 31,
|
|
Increase
|
|
|
|
|
|
2007
|
|
2006
|
|
(Decrease)
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Statements
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
206,981
|
|
$
|
135,253
|
|
$
|
71,728
|
|
|
53.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
35,734
|
|
|
24,756
|
|
|
10,978
|
|
|
44.3
|
%
|
Research
and development
|
|
|
126,961
|
|
|
115,309
|
|
|
11,652
|
|
|
10.1
|
%
|
General
and administrative expenses
|
|
|
477,841
|
|
|
449,916
|
|
|
27,925
|
|
|
6.2
|
%
|
Interest
expense
|
|
|
271,904
|
|
|
104,101
|
|
|
167,803
|
|
|
161.2
|
%
|
Total
expenses
|
|
|
912,440
|
|
|
694,082
|
|
|
218,358
|
|
|
31.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(705,459
|
)
|
$
|
(558,829
|
)
|
$
|
146,630
|
|
|
26.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) per basic and diluted share
|
|
$
|
(0.03
|
)
|
$
|
(0.02
|
)
|
$
|
0.01
|
|
|
50.0
|
%
|
Revenues
Revenues
for the quarter ended December 31, 2007 increased $71,728, 53.0%, to $206,981
compared to $135,253 for the quarter ended December 31, 2006. The primary reason
for the revenue increase was an approximate $54,000 increase in the sale of
our
existing StatLIA software plus an approximate $20,000 increase in training,
maintenance and support related to our software. We anticipate that revenue
will
decline for the next quarter as our customers are anticipating the release
of
our upgraded version of the StatLIA software to an enterprise level during
the
first half of calendar year 2008.
Selling
Expenses
Selling
expenses increased by $10,978, 44.3%, to $35,734 for the three months ended
December 31, 2007 from $24,756 for the three months ended December 31, 2006.
This increase was primarily due to an increase in selling commission expense
as
a result of the increased revenue during the current fiscal quarter.
Research
and Development Expenses
Research
and development expenses increased by $11,652, 10.1%, to $126,961 for the three
months ended December 31, 2007 from $115,309 for the three months ended December
31, 2006. This increase was primarily due to an increase in software engineers
to complete the upgrade of our StatLIA software to an enterprise version.
General
and Administrative Expenses
General
and administrative expenses increased by $27,925, 6.2%, to $477,841 for the
quarter ended December 31, 2007 from $449,916 for the quarter ended December
31,
2006. The primary reasons for the increase were approximately $18,000 increase
in personnel to ramp up for the anticipated release of our StatLIA software
to
an enterprise version during the first half of calendar year 2008 and
approximately $21,000 related to travel and trade show presentations offset
by a
reduction in legal and accounting costs.
Interest
Expense
Interest
expense increased by $167,803, 161.2% increase, to $271,904 for the quarter
ended December 31, 2007 from $104,101 for the quarter ended December 31, 2006.
The primary reason for the increase in interest was a result of the issuance
of
8% convertible debentures and the issuance of secured bridge loans.
Six
Months Ended December 31, 2007 Compared to Six Months Ended December 31,
2006
Selected
Financial Information
|
|
Six Months Ended December 31,
|
|
Increase
|
|
|
|
|
|
2007
|
|
2006
|
|
(Decrease)
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Statements
of
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
366,807
|
|
$
|
222,648
|
|
$
|
144,159
|
|
|
64.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
78,422
|
|
|
47,961
|
|
|
30,461
|
|
|
63.5
|
%
|
Research
and development
|
|
|
245,729
|
|
|
198,444
|
|
|
47,285
|
|
|
23.8
|
%
|
General
and administrative expenses
|
|
|
945,096
|
|
|
767,840
|
|
|
177,256
|
|
|
23.1
|
%
|
Interest
expense
|
|
|
510,470
|
|
|
173,104
|
|
|
337,366
|
|
|
194.9
|
%
|
Total
expenses
|
|
|
1,779,717
|
|
|
1,187,349
|
|
|
592,368
|
|
|
49.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(1,412,910
|
)
|
$
|
(964,701
|
)
|
$
|
448,209
|
|
|
46.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) per basic and diluted share
|
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
$
|
0.02
|
|
|
50.0
|
%
|
Revenues
Revenues
for the six months ended December 31, 2007 increased $144,159, 64.7%, to
$366,807 compared to $222,648 for the six months ended December 31, 2006. The
primary reason for the revenue increase was an approximate $84,000 increase
in
the sale of our existing StatLIA software, an approximate $41,000 increase
in
sales of packages used to validate our software plus an approximate $28,000
increase in training, maintenance and support related to our software. We
anticipate that revenue will decline for the next quarter as our customers
are
anticipating the release of our upgraded version of the StatLIA software to
an
enterprise level during the first half of calendar year 2008.
Selling
Expenses
Selling
expenses increased by $30,461, 63.5%, to $78,422 for the six months ended
December 31, 2007 from $47,961 for the six months ended December 31, 2006.
This
increase was primarily due to the increase in our sales force and an increase
in
selling commission expense as a result of the increased revenue during the
current fiscal year.
Research
and Development Expenses
Research
and development expenses increased by $47,285, 23.8%, to $245,729 for the six
months ended December 31, 2007 from $198,444 for the six months ended December
31, 2006. This increase was primarily due to an increase in software engineers
to complete the upgrade of our StatLIA software to an enterprise version.
General
and Administrative Expenses
General
and administrative expenses increased by $177,256, 23.1%, to $945,096 for the
six months ended December 31, 2007 from $767,840 for the six months ended
December 31, 2006. The primary reasons for the increase were approximately
$140,000 increase in personnel to ramp up for the anticipated release of our
StatLIA software to an enterprise version during the first half of calendar
year
2008 and approximately $33,000 related to travel and trade show
presentations.
Interest
Expense
Interest
expense increased by $337,366, 194.9% increase, to $510,470 for the six months
ended December 31, 2007 from $173,104 for the six months ended December 31,
2006. The primary reason for the increase in interest was a result of the
issuance of 8% convertible debentures and the issuance of secured bridge
loans.
Capital
Resources
|
|
As of
|
|
Increase
|
|
|
|
December 31, 2007
|
|
June 30, 2007
|
|
(Decrease)
|
|
Working
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
259,958
|
|
$
|
250,218
|
|
$
|
9,740
|
|
Current
liabilities
|
|
|
3,678,151
|
|
|
1,929,861
|
|
|
1,748,290
|
|
Working
capital deficit
|
|
$
|
(3,418,193
|
)
|
$
|
(1,679,643
|
)
|
$
|
1,738,550
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$
|
438,289
|
|
$
|
1,381,629
|
|
$
|
(943,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
deficit
|
|
$
|
(3,706,835
|
)
|
$
|
(2,875,965
|
)
|
$
|
830,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31,
|
|
Increase
|
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
Statements
of Cash Flows Select Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided (used) by:
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
(1,000,256
|
)
|
$
|
(804,297
|
)
|
$
|
195,959
|
|
Investing
activities
|
|
$
|
(9,956
|
)
|
$
|
(26,830
|
)
|
$
|
(16,874
|
)
|
Financing
activities
|
|
$
|
957,549
|
|
$
|
996,928
|
|
$
|
(39,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
|
|
|
Increase
|
|
|
|
|
December 31, 2007
|
|
|
June 30, 2007
|
|
|
(Decrease)
|
|
Balance
Sheet Select Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
32,353
|
|
$
|
85,016
|
|
$
|
(52,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
118,068
|
|
$
|
75,283
|
|
$
|
42,785
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,511,618
|
|
$
|
1,382,875
|
|
$
|
128,743
|
|
Liquidity
Brendan
has historically financed its operations through debt and equity financings.
At
December 31, 2007, we had cash holdings of $32,353, a decrease of $52,663
compared to June 30, 2007. Our net working capital deficit at December 31,
2007,
was $3,418,193 compared to $1,679,643 as of June 30, 2007.
These
financial statements have been prepared on a going concern basis. However,
during the six months ended December 31, 2007 and the year ended June 30, 2007,
the Company incurred net losses of $1,412,910 and $2,110,698, respectively,
and
had an accumulated deficit of $9,765,318 and $8,352,407, at December 31, 2007
and June 30, 2007, respectively. The Company’s ability to continue as a going
concern is dependent upon its ability to generate profitable operations in
the
future and/or to obtain the necessary financing to meet its obligations and
repay its liabilities arising from normal business operations when they come
due. The outcome of these matters cannot be predicted with any certainty at
this
time. Since inception, the Company has satisfied its capital needs through
debt
and equity financings. During the six months ended December 31, 2007, the
Company issued $555,000 of 15% secured bridge loans, net of costs amounting
to
$45,000.
Management
plans to continue to provide for its capital needs during the twelve months
ending December 31, 2008, by increasing sales through the continued development
of its products and by debt and/or equity financings. These financial statements
do not include any adjustments to the amounts and classification of assets
and
liabilities that may be necessary should the Company be unable to continue
as a
going concern.
Recent
Accounting Pronouncements
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, which for us will be the fiscal year
beginning April 1, 2008. 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. 157, “Fair Value Measures”.
This Statement defines fair value, establishes a framework for measuring fair
value in generally 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 will 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.
ITEM
3. CONTROLS AND PROCEDURES.
(a) |
Evaluation
of disclosure controls and procedures. Our Chief Executive Officer
and
Principal Financial Officer, after evaluating the effectiveness of
our
"disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end
of the
period covered by this Quarterly Report on Form 10-QSB (the "Evaluation
Date"), have concluded that as of the Evaluation Date, our disclosure
controls and procedures are effective to provide reasonable assurance
that
information we are required to disclose in reports that we file or
submit
under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission rules and forms, and that such information is accumulated
and
communicated to our management, including our Chief Executive Officer
and
Principal Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
|
(b) |
Changes
in internal control over financial reporting. There were no changes
in our
internal control over financial reporting during our most recent
fiscal
quarter that materially affected, or were reasonably likely
to materially affect, our internal control over financial
reporting.
|
PART
II. OTHER
INFORMATION
ITEM
6. EXHIBITS.
Exhibit No.
|
|
Title
|
|
|
|
31.1
|
|
302
Certification of John R. Dunn II, Chief Executive
Officer
|
|
|
|
31.2
|
|
302
Certification of Lowell W. Giffhorn, Chief Financial
Officer
|
|
|
|
32.1
|
|
906
Certification of John R. Dunn II, Chief Executive
Officer
|
|
|
|
32.2
|
|
906
Certification of Lowell W. Giffhorn, Chief Financial
Officer
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BRENDAN
TECHNOLOGIES, INC.
a
Nevada
corporation
|
By:
|
/s/
JOHN R. DUNN II
|
|
|
John
R. Dunn II
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
(Principal
Executive and duly authorized
|
|
|
to
sign on behalf of the Registrant)
|