UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 8-K
Current
Report
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of
Report (date of earliest event reported): January 5, 2006 (December 29,
2005)
OMNI
U.S.A., INC.
(Exact
Name of Registrant as Specified in Charter)
Nevada
(State
of
Other Jurisdiction of Incorporation)
|
0-17493
|
88-0237223
|
|
|
(Commission
File Number)
|
(I.R.S.
Employer Identification Number)
|
|
|
2236
Rutherford Road, Suite 107 -
|
||
|
Carlsbad,
California
|
92008
|
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
|
(760)
929-7500
(Registrant’s
Telephone Number, Including Area Code)
7502
Mesa
Road, Houston, Texas 77028
(Former
Name or Former Address, if Changed Since Last Report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425). |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12). |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)). |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)). |
TABLE
OF CONTENTS
|
Section
1 — Registrant’s Business and Operations
|
2
|
|
Item
1.01 Entry into a Material Definitive Agreement
|
2
|
|
Section
2 — Financial Information
|
6
|
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Item
2.01 Completion of Acquisition or Disposition of Assets
|
6
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|
Section
3 — Securities and Trading Markets
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6
|
|
Item
3.02 Unregistered Sales of Equity Securities
|
7
|
|
Section
4 — Matters Related to Accountants and Financial
Statements
|
7
|
|
Item
4.01. Changes in Registrant’s Certifying Accountant
|
7
|
|
Section
5 — Corporate Governance and Management
|
8
|
|
Item
5.01. Changes in Control of Registrant
|
8
|
|
Item
5.02. Departure of Directors or Principal Officers; Election of
Directors;
Appointment of Principal Officers
|
8
|
|
Section
7 — Regulation FD
|
9
|
|
Item
7.01 Regulation FD Disclosure
|
9
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|
Section
8 — Other Events
|
9
|
|
Item
8.01 Other Events
|
9
|
|
Section
9 — Financial Statements and Exhibits
|
10
|
|
Item
9.01. Financial Statements and Exhibits.
|
10
|
SIGNATURE
Exhibit
Index
Press
Release
i
Section
1 — Registrant’s Business and Operations
Item
1.01 Entry into a Material Definitive Agreement
On
December 29, 2005, Omni U.S.A., Inc., a Nevada corporation (“we”
or
“Omni”),
our
wholly-owned subsidiary Omni Merger Sub, Inc., a Michigan corporation
(“Merger
Sub”),
Jeffrey Daniel and Edward Daniel entered into an Agreement and Plan of Merger
(the “Merger
Agreement”)
with
Brendan Technologies, Inc., a Michigan corporation (“Brendan”),
pursuant to which Merger Sub was merged with and into Brendan and Brendan became
the surviving corporation in the merger and a wholly-owned subsidiary of Omni
(the “Merger”).
Brendan continued its corporate existence under the laws of the State of
Michigan. The terms of the Merger were negotiated on an arm’s length basis
between Omni and Brendan.
Concurrently
with the merger, 4,754,709
shares
of
Brendan 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)
4,679,053
shares
of
Omni common stock were issued to the holders of Brendan Senior and Bridge Notes
totaling $2,853,085
in
aggregate principal and interest, a conversion rate of 1.64 shares per $1.00
under such debt; (ii) 250,000
shares
of
Omni common stock were issued to another Brendan note holder in exchange for
a
note with a principal balance of $125,000;
and
(iii) 900,000 shares of Omni common stock was issued to a consultant and as
payment for outstanding indebtedness.
Common
stock options and warrants exercisable into 973,500
shares
of
Brendan before the Merger are non exercisable for 3,894,000
common
shares of Omni. The exercise price of the Omni stock options and warrants will
be 25% of the exercise price of the Brendan stock options and
warrants.
At
the
effective time of the merger, Omni appointed John Dunn II, Lowell Giffhorn,
Theo
Vermaelen and Steven Eisold to the Omni Board of Directors, and Jeffrey Daniel,
Craig Daniel, Kevin Guan and Didi Duan resigned from the Omni Board of
Directors. In addition, John Dunn II was appointed Chairman of the Board,
President, Chief Executive Officer and Chief Technical Officer; Lowell Giffhorn
was appointed Vice President and Chief Financial Officer; and George Dunn was
appointed Vice President, Secretary and Chief Operating Officer of Omni. Jeffrey
Daniel and Craig Daniel resigned from their positions as officers of
Omni.
Concurrent
with entering into the Merger Agreement, on December 29, 2005, we entered into
a
Stock Purchase Agreement (“Stock
Purchase Agreement”)
with
Jeffrey K. Daniel, Craig L. Daniel and Edward Daniel (the “Daniels”)
pursuant to which we sold to the Daniels all of the issued and outstanding
shares of capital stock (the “Subsidiary
Shares”)of
Omni
U.S.A., Inc., a Washington corporation (“Omni-Washington”)
and
Butler Products Corporation (“Butler”),
each
of which was previously a wholly-owned subsidiary, in exchange for a three-year
promissory note due on December 29, 2008 in the amount of $672,000 (the
“Promissory
Note”).
The
company has assigned the Promissory Note to third parties for an aggregate
amount of $400,000.
Prior
to
the transactions effected by the Stock Purchase Agreement and Merger Agreement,
Omni-Washington and Butler constituted substantially all of our operations.
Following the transactions effected by the Merger Agreement and the Stock
Purchase Agreement, Brendan is now our sole wholly-owned subsidiary, and we
conduct all our operations through Brendan.
The
sale
of the Subsidiary Shares occurred immediately after the Merger. The terms
thereof were negotiated on an arm’s length basis between the Daniels and the
Brendan representatives.
2
DESCRIPTION
OF THE BUSINESS
Business
Overview
Brendan
was formed on November 1, 1997, under the laws of the State of Michigan as
Brendan Technologies, Inc., and does business as Brendan Scientific Corporation.
Through Brendan we design, develop and market computational analytical software
products for the laboratory testing industry. Brendan’s laboratory workflow and
analysis software platform manages the raw, computed and analytical data in
testing laboratories and in manufacturing.
Brendan
evolved from the initial work of its founder John R. Dunn II, Ph.D., now our
Chairman, President, Chief Executive Officer and Chief Technical Officer.
Brendan’s first commercialized product is StatLIA®, a software designed
specifically for immunoassay testing. Since Dr. Dunn’s early work on StatLIA®
over nine years ago, StatLIA® has been developed with software engineers,
mathematicians and laboratory professionals who specialize in laboratory
testing. Over the past five years, StatLIA® has been used in laboratories,
undergoing revisions and additions to further develop the product.
StatLIA®
Immunoassays,
one of the world’s largest and fastest growing testing technologies, is used to
test for metabolites found in AIDS, hepatitis, cancer, environmental pollutants,
side effects of new drugs and thousands of other biological and environmental
substances. Immunoassays are a broadly applicable technology allowing low cost,
rapid analysis through high throughput testing. Immunoassays are used
extensively in pharmaceutical, hospital, clinical reference, academic and
industrial research, environmental, agricultural, food processing and
veterinarian laboratories throughout the world.
StatLIA®
uses comprehensive statistics to directly or indirectly analyze the performance
of each of the nine immunoassay components (label, tracer, antibody, buffer,
incubation, separation, standards, controls and unknowns). StatLIA® stores a
fixed set of stable reference assays which are statistically compared to a
single assay or multiple assays to detect changes in reagents or incubation
conditions. With a reference set of at least two assays, standard curve and
control specimen parameters in today’s assay are statistically compared to the
same parameter in the reference assays to identify any statistically significant
differences.
StatLIA®
is intended to address the following:
· Insufficient
Quality
- Error
rates in Immunoassay testing is estimated to be as high as 4%. Testing errors
and the inability to directly locate error sources is costly and time consuming.
We believe that StatLIA® will reduce the error rates and enhance the tester’s
ability to locate the error source.
· Lack
of Automation
-
Immunoassay testing is very labor intensive due to many manual steps in the
processing, tracking and analysis of the data produced. With high throughput
testing becoming the industry norm, the data needs to be managed with even
greater efficiency. We believe that StatLIA® will reduce such labor costs.
· Regulatory
Compliance
-
Federal regulations are placing increasing demands for compliance with the
Food
and Drug Administration’s (“FDA”)
quality assurance regulations. We believe that StatLIA® will meet the growing
need for automated software that can assist laboratories in complying with
the
regulation.
· Need
for Better Data Management
-
Improved technologies have allowed greater automation in Immunoassay testing,
increasing throughput volumes but requiring better connectivity and
standardization for the management of the data generated. We believe that
StatLIA® will address the need for greater connectivity and
standardization.
3
Brendan
first targeted the immunoassay market with StatLIA® because it is a fragmented
and large market that may allow Brendan to sell its software to testing
equipment distributors and original equipment manufacturers (“OEMs”),
and
earn a share of business from large organizations.
Users
of
StatLIA® include device and reagent manufacturers, pharmaceutical companies,
clinical diagnostic centers and government testing laboratories. Distributors
of
StatLIA® include device and reagent manufacturers and their distributors, as
well as Brendan’s direct sales force.
Customer
Base
Brendan
has used most of its capital to date in the development of StatLIA® and the
expansion of the program to encompass all of the differing immunoassay
technologies and workflow configurations found in research and clinical
laboratories. Existing customers who have used StatLIA® in laboratories
include several large pharmaceutical companies, clinical diagnostic
organizations, reagent manufacturers and research entities. This client base
also serves as a source of revenue for additional instruments and workstations,
and support and maintenance renewal fees.
Many
of
our institutional clients operate under rigorous FDA regulations, or the
European equivalent, and the FDA requires that new software products be
validated.
Strategy
Industry
Analysis
Using
data obtained from Morgan Stanley Dean Witter, Global Industry Analysts, and
other published industry and marketing reports, and instrument manufacturer
sales figures, we estimate this market to represent over $1 billion in
revenue and does not include the food processing, agricultural, veterinarian,
or
the rapidly expanding environmental immunoassay markets. This also does not
include software applications for other technologies. According to the Health
Industry Manufacturer’s Association, more than $50 billion in medical devices,
diagnostic products and health information systems are currently purchased
annually in the United States and more than $120 billion worldwide. This
represents only the clinical market segment and not pharmaceutical, research,
environmental and other segments.
Conventional
laboratory software falls into two primary areas: laboratory management or
instrumentation. Laboratory management software handles billing, report
generation, and other administrative tasks. The software is not designed for
complex technical computation. Software for the testing instruments operate
as
dedicated systems and is basically designed only to generate results. It is
not
designed for the complete statistical analysis and data management and record
keeping requirements for pharmaceutical, clinical or research labs, nor is
it
designed to exist in a cooperative environment with other immunoassay
instruments.
4
StatLIA®
was introduced to meet this need, which we believe no other commercial software
available meets. By using StatLIA® for their assay validation and documentation
as well as standardizing on it as one uniform system throughout their
organization, pharmaceutical companies may save substantial time and resources
supplying the necessary documentation to get new drugs to market and clinical
laboratories may increase productivity and reliability while reducing costs.
Market
We
believe that through Brendan we have the opportunity to introduce a product
to
serve an under-served niche market: the software used in biomedical and
non-biomedical testing laboratories. The testing industry generates more than
$100 billion in revenues each year to run tests for drug development, medical
diagnostics and treatments, water and soil samples, infectious disease research,
food contaminants, and numerous other health and industry-critical applications.
Brendan
has focused on the analytical segment of the market. This is the computation,
storage and analysis of the raw signal data generated by a testing instrument.
However, the majority of the software used to analyze these tests is a part
of
the instrument software that is provided by the instrument manufacturer. These
routines do not provide all of the capabilities and are not as extensive as
the
data currently computed by StatLIA®.
StatLIA®
allows laboratories to interface all of their immunoassay testing instruments
into one uniform system. As one system, as compared to the more common system
using several isolated testing instruments, the StatLIA® system can be easily
interfaced to Brendan’s main database for reporting patient results and
recording clinical trial data, among other processes. The system also integrates
into a laboratory’s network, so that multiple computers can be used to prepare,
compute, analyze and report all assay data, thereby increasing workflow.
StatLIA®’s superior quality control process not only determines the accuracy of
the test more reliably than the software currently available, but also pinpoints
the specific cause of a problem in a bad test, dramatically reducing laboratory
downtime and reagent costs.
Competition
Almost
all immunoassay software is produced and sold by manufacturers bundled with
their instruments. These programs are included to stimulate sales of their
instruments and are not usually marketed as stand-alone products.
Conventional laboratory software falls into two primary areas: laboratory
management or instrumentation functionality. Laboratory management software
handles billing, report generation and other administrative tasks. The software
is not designed for complex technical computation. On the other hand, software
for testing instruments operates as a dedicated system and is designed primarily
to generate testing data. This software has limitations meeting the complete
statistical analysis, data management, data utilization and record keeping
demands of pharmaceutical, clinical or research labs, nor is it designed to
exist in a cooperative environment with other testing instruments.
Prior
to
Brendan, we believe that no company has focused as extensively on the gap
between instrument operational software and administrative LIM software. Brendan
has worked with several industry-leading labs to develop StatLIA® and we believe
that StatLIA® is a unique software product that surpasses any software currently
available for this market.
5
To
date,
the majority of StatLIA® sales have been replacing existing OEM software on
testing equipment. This software, bundled with the instruments, is Brendan’s
current main competition.
Existing
equipment-specific software include Softmax, used for Molecular Device’s
microplate readers and KC4 used for BioTek Instrument’s microplate readers. We
believe instrument manufacturers are excellent prospects for distribution
agreements to incorporate or bundle our software with their
instruments.
Employees
Brendan
currently has eight full time employees, one contract programmer, and three
part time employees. Brendan has entered Employment Agreements with certain
of
its employees.
In
November 2004, we entered into an employment agreement with our Chairman,
President and Chief Executive Officer, 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 consolidates 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
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 consolidates 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.
Section
2 — Financial Information
Item
2.01 Completion of Acquisition or Disposition of Assets
On
December 29, 2005, Omni completed the acquisition of all of the capital stock
of
Brendan pursuant to the Merger Agreement and completed the disposition of all
the shares of capital stock of Omni-Washington and Butler pursuant to the Stock
Purchase Agreement. Please see the disclosures regarding the Merger Agreement
and the Stock Purchase Agreement and the transactions contemplated thereby
in
Item 1.01 above, which is hereby incorporated into this Item 2.01 by
reference.
6
Section
3 — Securities and Trading Markets
Item
3.02 Unregistered Sales of Equity Securities
On
December 29, 2005, Omni issued 24,847,889
shares
of
common stock to the previous shareholders, noteholders and certain other
persons. In addition, Omni issued stock options and warrants exercisable for
up
to 3,894,000
shares
of
common stock to employees, directors and consultants of Brendan. The issuance
of
the stock, stock options, and warrants was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereunder.
The
following table indicates the individuals, number of common shares issued,
and
the percentage of total common shares outstanding that were issued as a result
of the Merger Agreement on December 29, 2005:
|
Number
of
|
||||
|
|
Common
Shares
|
%
of total
|
||
|
Shareholder
|
Issued
|
outstanding
shares
|
||
|
John
R. Dunn II
|
4,880,000
|
18.7%
|
||
|
Robert
L. Tabor
|
4,730,589
|
18.1%
|
||
|
Robert
Kirk
|
2,049,658
|
7.9%
|
||
|
Massoud
Kharrazian
|
1,487,136
|
5.7%
|
||
|
George
P. Dunn
|
1,416,000
|
5.4%
|
||
|
Danny
Wu
|
1,066,664
|
4.1%
|
||
|
Theo
Vermaelen
|
654,359
|
2.5%
|
||
|
Stephen
Eisold
|
599,494
|
2.3%
|
||
|
David
Dean Wade
|
400,000
|
1.5%
|
||
|
Gretchen
A. Decker
|
400,000
|
1.5%
|
||
|
Kenneth
H. Swartz
|
400,000
|
1.5%
|
||
|
Michael
J. Fitzpatrick
|
400,000
|
1.5%
|
||
|
Robert
H. Lane
|
400,000
|
1.5%
|
||
|
Bjorn
J. Steinholt
|
320,000
|
1.2%
|
||
|
Robert
E. Dettle
|
293,449
|
1.1%
|
||
|
Liberta
Ltd.
|
266,664
|
1.0%
|
||
|
As
a group less than 1%
|
5,083,876
|
19.5%
|
Section
4 — Matters Related to Accountants and Financial
Statements
Item
4.01. Changes in Registrant’s Certifying Accountant
On
December 29, 2005, Omni completed the acquisition of all of the capital stock
of
Brendan pursuant to the Merger Agreement and completed the disposition of all
of
the capital assets of Omni-Washington and Butler pursuant to the Stock Purchase
Agreement. On December 29, 2005, Omni provided notice to Harper & Pearson
Company (“Harper
& Pearson”)
that
they would no longer be retained as Omni’s independent registered accounting
firm. Harper & Pearson’s reports on the consolidated financial statements of
Omni and its subsidiaries for the two most recent fiscal years ended June 30,
2005, did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope, or accounting
principles.
On
December 29, 2005, the Board of Directors of Omni elected to engage Farber
&
Hass LLP (“Farber
& Hass”)
to
serve as Omni’s independent registered accounting firm.
7
During
the Company's two most recent fiscal years ended June 30, 2005 and the
subsequent interim period through December 29, 2005, there were no disagreements
between Omni and Harper & Pearson on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which
disagreements, if not resolved to Harper & Pearson's satisfaction, would
have caused them to make reference to the subject matter of the disagreement
in
their reports on the financial statements for such years.
Omni
has
authorized Harper & Pearson to respond fully to the inquiries of Farber
& Hass concerning the subject matter of the reportable event and has
provided Harper & Pearson with a copy of the foregoing disclosures. Attached
as Exhibit 99.3 is a copy of Harper & Pearson's letter, dated January 4,
2006, stating its agreement with the statements related to it.
During
Omni's two most recent fiscal years ended June 30, 2005, and the subsequent
interim period through December 29, 2005, Omni did not consult Farber & Hass
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.
Section
5 — Corporate Governance and Management
Item
5.01. Changes in Control of Registrant
On
December 29, 2005, Omni completed the acquisition of all of the capital stock
of
Brendan pursuant to the Merger Agreement and completed the disposition of all
of
the capital stock 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 certain other persons, there was a change
in
control of Omni. Please see the disclosures regarding the Merger Agreement
and
the Stock Purchase Agreement and the transactions contemplated thereby in Item
1.01 above, which is hereby incorporated into this Item 5.01 by
reference.
Item
5.02. Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers
On
December 29, 2005, Omni completed the acquisition of all of the capital stock
of
Brendan pursuant to the Merger Agreement and completed the disposition of all
of
the capital stock of Omni-Washington and Butler pursuant to the Stock Purchase
Agreement. As a result of these transactions, new directors and officers were
appointed to fulfill vacancies provided by the resignation of the officers
and
directors of Omni. Please see the disclosures regarding the Merger Agreement
and
the Stock Purchase Agreement and the transactions contemplated thereby in Item
1.01 above, which is hereby incorporated into this Item 5.02 by
reference.
MANAGEMENT
Directors
and Executive Officers
Our
directors and executive officers are as follows:
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
John
R. Dunn II
|
|
55
|
|
Chairman,
Chief Executive Officer, President, and Director
|
|
George
Dunn
|
|
48
|
|
Secretary,
Chief Operating Officer
|
|
Lowell
W. Giffhorn
|
|
58
|
|
Treasurer,
Chief Financial Officer and Director
|
|
Theo
Vermaelen
|
|
52
|
|
Director
|
|
Stephen
Eisold
|
|
59
|
|
Director
|
8
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 Vice President of Marketing for Brendan since 1997 and
as
Chief Operating Officer of Brendan since 2002. Mr. Dunn has extensive experience
in marketing and sales and the implementation of strategic plans, market segment
analysis, promotions, sales and sales support and customer support. Mr. Dunn
has
been in the laboratory testing market for 15 years. Mr. Dunn received his B.A.
in Journalism from Michigan State University in 1982.
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
has been a member of its Board of Directors since August 1999. From June 1992
to
August 1996 and from September 1987 to June 1990 he was the CFO of Sym-Tek
Systems, Inc. and Vice President of Finance for its successor, Sym-Tek Inc.,
a
supplier of capital equipment to the semiconductor industry. Mr. Giffhorn
obtained a M.B.A. degree from National University in 1975 and he obtained a
B.S.
in Accountancy from the University of Illinois in 1969. Mr. Giffhorn is also
a
director and chairman of the audit committee of DND Technologies, Inc., a
publicly held company.
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-author
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.
9
Section
7 — Regulation FD
Item
7.01 Regulation FD Disclosure
On
January 4, 2006, Omni issued a press release reporting that on December 29,
2005, Omni completed the acquisition of all of the capital stock of Brendan
pursuant to the Merger Agreement and completed the disposition of all of the
capital stock of Omni-Washington and Butler pursuant to the Stock Purchase
Agreement, changed its accountants, appointed new board directors and officers,
and announced the resignation of its previous board members and officers. A
copy
of the January 4, 2006 press release, attached hereto as Exhibit 99.1, is being
furnished pursuant to Regulation FD and is incorporated by reference
herein.
Limitation
on Incorporation by Reference: In accordance with general instruction B.2 of
Form 8-K, the information in this Item 7.01 shall be deemed to be “filed” for
the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise
subject to the liability of that section.
Section
8 — Other Events
Item
8.01 Other Events
We
have
changed the location of our principal executive offices to 2236 Rutherford
Road,
Suite 107, Carlsbad, California 92008, which also is the location of Brendan’s
principal executive offices.
Section
9 — Financial Statements and Exhibits
Item
9.01. Financial Statements and Exhibits.
(a) Financial
Statements of Business Acquired.
The
audited financial statements of Brendan Technologies, Inc. for the years ended
December 31, 2004 and 2003 including independent auditor’s report of Singer
Lewak Greenbaum & Goldstein, LLP, required by this item, appear at the end
of this Current Report on Form 8-K and are incorporated by reference
herein.
(b) Proforma
Financial Information.
In
accordance with Item 9.01(b), any additional financial statements required
by
this Item, if any, will be filed by an amendment to this initial report on
Form
8-K as soon as practicable, but in no event later than 71 days after this
initial report on Form 8-K is required to be filed.
(c) Exhibits.
|
Exhibit
No.
|
Description
|
|
|
4.1
|
Agreement
and Plan of Merger among Omni U.S.A., Inc., Omni Merger Sub, Inc.,
Edward
Daniel, Jeffrey Daniel and Brendan Technologies, Inc. dated as of
December
29, 2005
|
|
|
4.2
|
Stock
Purchase Agreement by and among Jeffrey K. Daniel, Craig L. Daniel,
and
Edward Daniel, as the Purchases, and Omni U.S.A., Inc., as the Seller,
dated as of December 29, 2005
|
|
|
4.3
|
Amendment
to Loan and Related Agreements and Waiver of Default
(PACCAR)
|
|
|
4.4
|
Amendment
to Loan and Related Agreements and Waiver of Default
(Textron)
|
|
|
4.5
|
Promissory
Note between Jeffrey K. Daniel, Craig L. Daniel, and Edward Daniel,
collectively the Borrowers, and Omni U.S.A., Inc. with a maturity
date of
December 29, 2008
|
|
|
10.1
|
John
R. Dunn II Employment Contract dated November 1, 2004
|
|
|
10.2
|
George
Dunn Employment Contract dated November 1, 2004
|
|
|
16.1
|
Letter
from Harper: Pearson Company
|
|
|
99.1
|
Press
Release dated January 4, 2006
|
10
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
| OMNI U.S.A., INC. | ||
| |
|
|
|
Dated
January 5, 2006.
|
By: | /s/ JOHN R. DUNN II |
|
John R. Dunn II |
||
| President and Chief Executive Officer | ||
11
BRENDAN
TECHNOLOGIES, INC.
FINANCIAL
STATEMENTS
FOR
THE YEARS ENDED
DECEMBER
31, 2004 AND 2003
BRENDAN
TECHNOLOGIES, INC.
CONTENTS
December
31, 2004
|
Page
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
1
|
|
FINANCIAL
STATEMENTS
|
|
|
Balance
Sheets
|
2
- 3
|
|
Statements
of Operations
|
4
|
|
Statements
of Shareholder's Deficit
|
5
|
|
Statements
of Cash Flows
|
6
- 7
|
|
Notes
to Financial Statements
|
8
- 21
|
 |
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholder
Brendan
Technologies, Inc.
Carlsbad,
California
We
have audited the balance sheets of Brendan Technologies, Inc. as of December
31,
2004 and 2003, and the related statements of operations, shareholder's deficit,
and cash flows for each of the three years in the period ended December 31,
2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with auditing standards of the Public
Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provided a
reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in
all
material respects, the financial position of Brendan Technologies, Inc. as
of
December 31, 2004 and 2003, and the results of its operations and its cash
flows
for each of the two years ended December 31, 2004 in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, during the year ended December 31, 2004, the Company incurred
a net
loss of $901,423, had negative cash flows from operations of $340,444 and
had an
accumulated deficit of $5,231,544. In addition, the Company is in default
with
unsecured notes payable and the related accrued interest. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note
2. The
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
 |
| SINGER LEWAK GREENBAUM & GOLDSTEIN LLP |
Los
Angeles, California
August 23, 2005
August 23, 2005
1
BRENDAN
TECHNOLOGIES, INC
BALANCE
SHEETS
December
31,
|
ASSETS
|
|||||||
|
2004
|
2003
|
||||||
|
Current
assets
|
|||||||
|
Cash
|
$
|
21,670
|
$
|
88,414
|
|||
|
Accounts
receivable, net of allowance for doubtful
accounts
of $17,757 and $18,465, respectively
|
8,943
|
54,143
|
|||||
|
Prepaid
expense and other current assets
|
712
|
—
|
|||||
|
Note
receivable - shareholder
|
—
|
38,000
|
|||||
|
Total
current assets
|
31,325
|
180,557
|
|||||
|
Property
and equipment, net
|
2,433
|
4,194
|
|||||
|
Deposits
|
7,808
|
7,808
|
|||||
|
Total
assets
|
$
|
41,566
|
$
|
192,559
|
The accompanying notes are an integral part of these financial statements.
2
BRENDAN
TECHNOLOGIES, INC.
BALANCE
SHEETS
December
31,
|
LIABILITIES
AND SHAREHOLDER'S
DEFICIT
|
|||||||
|
2004
|
2003
|
||||||
|
Current
liabilities
|
|||||||
|
Convertible
notes payable in default
|
$
|
1,947,972
|
$
|
1,947,972
|
|||
|
Accrued
interest in default
|
822,933
|
606,437
|
|||||
|
Accrued
Interest
|
283,282
|
192,560
|
|||||
|
Accounts
payable
|
149,572
|
41,030
|
|||||
|
Accrued
wages
|
824,460
|
743,557
|
|||||
|
Deferred
revenue
|
84,530
|
66,463
|
|||||
|
Total
current liabilities
|
4,112,749
|
3,598,019
|
|||||
|
Commitments
and contingencies
|
|||||||
|
Shareholder's
deficit
|
|||||||
|
Common
stock, no par value
10,000,000
shares authorized
4,489,878
shares issued and outstanding
|
641,911
|
641,911
|
|||||
|
Committed
stock
188,998
and 108,332 shares committed
|
518,450
|
282,750
|
|||||
|
Accumulated
deficit
|
(5,231,544
|
)
|
(4,330,121
|
)
|
|||
|
Total
shareholder's deficit
|
(4,071,183
|
)
|
(3,405,460
|
)
|
|||
|
Total
liabilities and shareholder's deficit
|
$
|
41,566
|
$
|
192,559
|
The
accompanying notes are an integral part of these
financial statements.
3
BRENDAN
TECHNOLOGIES, INC.
STATEMENTS
OF OPERATIONS
For
the Years Ended December 31,
|
2004
|
2003
|
||||||
|
Net
sales
|
$
|
386,477
|
$
|
489,835
|
|||
|
Cost
of sales
|
159,542
|
150,407
|
|||||
|
Gross
profit
|
226,935
|
339,428
|
|||||
|
Operating
expenses
|
805,340
|
873,543
|
|||||
|
Loss
from operations
|
(578,405
|
)
|
(534,115
|
)
|
|||
|
Other
expense
|
|||||||
|
Interest
expense
|
(322,218
|
)
|
(311,127
|
)
|
|||
|
Loss
before provision for income taxes
|
(900,623
|
)
|
(845,242
|
)
|
|||
|
Provision
for income taxes
|
800
|
800
|
|||||
|
Net
loss
|
$
|
(901,423
|
)
|
$
|
(846,042
|
)
|
|
|
Basic
and diluted loss per share
|
$
|
(0.20
|
)
|
$
|
(0.19
|
)
|
|
|
Basic
and diluted weighted-average
common
shares outstanding
|
4,489,878 | 4,489,878 | |||||
The
accompanying notes are an integral part of these financial statements.
4
BRENDAN
TECHNOLOGIES, INC.
STATEMENTS
OF SHAREHOLDER'S DEFICIT
For
the Years Ended December 31,
|
Common
Stock
|
Committed
Stock
|
Accumulated
|
|||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Deficit
|
Total
|
||||||||||||||
|
Balance,
December 31, 2002
|
4,489,878
|
$
|
613,222
|
—
|
$
|
—
|
$
|
(3,484,079
|
)
|
$
|
(2,870,857
|
)
|
|||||||
|
Sale
of committed stock
|
108,332
|
325,000
|
325,000
|
||||||||||||||||
|
Offering
costs
|
(42,250
|
)
|
(42,250
|
)
|
|||||||||||||||
|
|
|||||||||||||||||||
|
Interest
from fixed conversion
features
|
28,689
|
28,689
|
|||||||||||||||||
|
Net
loss
|
(846,042
|
)
|
(846,042
|
)
|
|||||||||||||||
|
Balance,
December 31, 2003
|
4,489,878
|
$
|
641,911
|
108,332
|
$
|
282,750
|
$
|
(4,330,121
|
)
|
$
|
(3,405,460
|
)
|
|||||||
|
Sale
of committed stock
|
80,666
|
242,000
|
242,000
|
||||||||||||||||
|
Offering
costs
|
(6,300
|
)
|
(6,300
|
)
|
|||||||||||||||
|
Net
loss
|
(901,423
|
)
|
(901,423
|
)
|
|||||||||||||||
|
Balance,
December 31, 2004
|
4,489,878
|
$
|
641,911
|
188,998
|
$
|
518,450
|
$
|
(5,231,544
|
)
|
$
|
(4,071,183
|
)
|
|||||||
The accompanying notes are an integral part of these financial statements.
5
BRENDAN
TECHNOLOGIES, INC.
STATEMENTS
OF CASH FLOWS
For
the Years Ended December 31,
|
2004
|
2003
|
||||||
|
Cash
flows from operating activities
|
|||||||
|
Net
loss
|
$
|
(901,423
|
)
|
$
|
(846,042
|
)
|
|
|
Adjustments
to reconcile net loss to net cash
used
in operating activities
|
|||||||
|
Depreciation
of property and equipment
|
1,761
|
11,858
|
|||||
|
Interest
charges on convertible note payable
|
—
|
28,689
|
|||||
|
Allowance
for doubtful accounts
|
(708
|
)
|
18,465
|
||||
|
(Increase)
decrease in
|
|||||||
|
Accounts
receivable
|
45,908
|
(40,698
|
)
|
||||
|
Prepaid
expense and other current assets
|
(712
|
)
|
|||||
|
|
|||||||
|
Increase
(decrease) in
Accrued
interest in default
|
216,496
|
206,872
|
|||||
|
Accrued
interest
|
90,722
|
67,037
|
|||||
|
Accounts
payable
|
108,542
|
(7,458
|
)
|
||||
|
Accrued
wages
|
80,903
|
237,469
|
|||||
|
Deferred
revenue
|
18,067
|
(60,189
|
)
|
||||
|
Net
cash used in operating activities
|
(340,444
|
)
|
(383,997
|
)
|
|||
|
Cash
flows from investing activities
|
|||||||
|
Purchase
of property and equipment
|
—
|
(4,040
|
)
|
||||
|
Note
receivable - shareholder
|
38,000
|
—
|
|||||
|
Net
cash provided by (used in) investing activities
|
38,000
|
(4,040
|
)
|
||||
|
Cash
flows from financing activities
|
|||||||
|
Proceeds
from sale of committed stock
|
235,700
|
282,750
|
|||||
|
Proceeds
from notes payable
|
—
|
135,000
|
|||||
|
Net
cash provided by financing activities
|
235,700
|
417,750
|
|||||
|
Net
(decrease) increase in cash
|
(66,744
|
)
|
29,713
|
||||
|
Cash,
beginning of year
|
88,414
|
58,701
|
|||||
|
Cash,
end of year
|
$
|
21,670
|
$
|
88,414
|
|||
The
accompanying notes are an integral part of these financial statements.
6
BRENDAN
TECHNOLOGIES, INC.
STATEMENTS
OF CASH FLOWS
For
the Years Ended December 31,
|
2004
|
2003
|
||||||
|
Supplemental
disclosure of cash flow information
|
|||||||
|
Interest
paid
|
$
|
15,000
|
$
|
15,000
|
|||
|
Income
taxes paid
|
$
|
4,847
|
$
|
—
|
|||
The
accompanying notes are an integral part of these financial statements.
7
BRENDAN
TECHNOLOGIES, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2004
NOTE
1 - ORGANIZATION AND LINE OF BUSINESS
General
Brendan
Technologies, Inc. (the "Company") was incorporated on October 30, 1997
in the
state of Michigan. The Company develops and markets scientific computer
software
for applications in the pharmaceutical/biotechnical research, clinical
diagnostic, environmental, and other life and physical science markets.
NOTE
2 - GOING CONCERN
These
financial statements have been prepared on a going concern basis. However,
during the years ended December 31, 2004 and 2003, the Company incurred
net loss
of $901,421 and $846,042, respectively, and had accumulated deficit of
$5,231,544 and $4,330,121, at December 31, 2004 and 2003, respectively.
In
addition, the Company is in default with unsecured notes payable and the
related
accrued interest in the aggregate amount of $2,645,905 at of December 31,
2004.
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 by borrowing capital.
Management
plans to continue to provide for its capital needs during the year ended
December 31, 2005, by increasing sales through the continued development
of its
products with minimal borrowings. In addition, the Company’s capital
requirements during the year ended December 31, 2004 are expected to be
supplemented by issuing equity securities and converting its notes payable
into
common stock (see Note 6). 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.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. The Company’s
software is sold with an indefinite license period, and as such, product
revenue
is recorded at the time of shipment, net of estimated allowances and returns.
Post-contract customer support ("PCS") obligations are 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. The Company provides, for a fee, additional
training
and service calls to its customers and recognizes revenue at the time the
training or service call is provided.
8
BRENDAN
TECHNOLOGIES, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2004
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Trade
Accounts Receivable
The
Company provides for the possible inability to collect accounts receivable
by
recording an allowance for doubtful accounts. The Company writes off an
account
when it is considered to be uncollectible.
Property
and Equipment
Property
and equipment are stated at cost. The Company provides for depreciation
and
amortization using the straight-line and accelerated methods over the estimated
useful lives of the principal classes of property of three years.
Stock-Based
Compensation
SFAS
No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS
No. 148,
“Accounting for Stock-Based Compensation-Transition and Disclosure,” defines a
fair value based method of accounting for stock-based compensation. However,
SFAS No. 123 allows an entity to continue to measure compensation cost
related
to stock and stock options issued to employees using the intrinsic method
of
accounting prescribed by Accounting Principles Board ("APB") Opinion No.
25,
"Accounting for Stock Issued to Employees." Entities electing to remain
with the
accounting method of APB Opinion No. 25 must make pro forma disclosures
of net
income and earnings per share as if the fair value method of accounting
defined
in SFAS No. 123 had been applied. The Company has elected to account for
its
stock-based compensation to employees under APB Opinion No. 25 using the
intrinsic value method.
The
Company has adopted only the disclosure provisions of SFAS No. 123. Accordingly,
no compensation cost other than that required to be recognized by APB 25
for the
difference between the fair value of the Company's common stock at the
grant
date and the exercise price of the options has been recognized. Had compensation
cost for the Company's stock option plan been determined based on the fair
value
at the grant date for awards consistent with the provisions of SFAS No.
123, the
Company's net loss and basic and diluted loss per share for the year ended
December 31, 2004 would have been increased to the pro forma amounts indicated
below:
9
BRENDAN
TECHNOLOGIES, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2004
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based
Compensation
(Continued)
|
|
|||||||
|
For
the Year Ended
December
31,
|
|||||||
|
2004
|
2003
|
||||||
|
Net
loss
|
|||||||
|
As
reported
|
$
|
(901,423
|
)
|
$
|
(846,042
|
)
|
|
|
Deduct
total stock-based
|
|||||||
|
employee
compensation
|
|||||||
|
expense
determined under
|
|||||||
|
fair
value method for all
|
|||||||
|
awards,
net of taxes
|
(9,995
|
)
|
—
|
||||
|
Pro
forma
|
$
|
(911,418
|
)
|
$
|
(846,042
|
)
|
|
|
Loss
per common share
|
|||||||
|
Basic
and diluted - as reported
|
$
|
(0.20
|
)
|
$
|
(0.19
|
)
|
|
|
Basic
and diluted - pro forma
|
$
|
(0.20
|
)
|
$
|
(0.19
|
)
|
|
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 with the following weighted-average
assumptions for the year ended December 31, 2004: dividend yield of 0%;
expected
volatility of 0%; risk-free interest rate of 2.76%; and expected life of
three
years. The weighted-average fair value of options granted during the year
ended
December 31, 2004 for which the exercise price equals the market price
on the
grant date was $3, and the weighted-average exercise price was $3. No stock
options were granted during the year ended December 31, 2004 for which
the
exercise price was less than or greater than the market prices on the grant
date.
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.
10
BRENDAN
TECHNOLOGIES, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2004
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss
per Share
(Continued)
At
December 31, 2004 and 2003, the following common equivalent shares were
excluded
from the computation of loss per share since their effect is anti-dilutive.
|
December
31,
|
|||||||
|
2004
|
2003
|
||||||
|
Options
|
960,000
|
610,000
|
|||||
|
Warrants
|
89,600
|
89,600
|
|||||
|
Total
|
1,049,600
|
699,600
|
|||||
Fair
Value of Financial Instruments
The
Company's financial instruments include cash, accounts receivable, notes
receivable, accounts payable, and accrued wages. The book value of all
other
financial instruments is representative of their fair values.
Research
and Development
Research
and Development costs are charged to operations as incurred. Such costs
were
included in the total operating expenses for the years ended December 31,
2004
and 2003 that amounted to $805,340 and $873,543, respectively.
Income
Taxes
The
Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for
the tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each year-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.
11
BRENDAN
TECHNOLOGIES, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2004
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations
of Credit Risk
Financial
instruments which potentially subject the Company to credit risk are primarily
cash and accounts receivable. The Company deposits its cash with what it
considers high-credit, quality financial institutions. At times, balances
are in
excess of the Federal Deposit Insurance Corporation insured limit. As of
December 31, 2004, the Company did not have any uninsured cash. Credit
risk
concentration with respect to receivables is limited due to the geographic
dispersion of the Company's customer base. The Company conducts ongoing
credit
evaluations but does not obtain collateral or other forms of security.
The
Company believes its credit policies do not result in significant adverse
risk
and historically has not experienced significant credit-related losses.
The
Company provides credit to its customers primarily in the United States
in the
normal course of business. During the year ended December 31, 2004, one
customer
represented approximately 39% of total sales. During the year ended December
31,
2003, two customers accounted for 19% and 17% of total sales.
At
December 31, 2004, two customers accounted for 27%, and 12% of accounts
receivable. .At December 31, 2003, three customers accounted for 32%, 29%,
and
17% of accounts receivable. The Company does not obtain collateral with
which to
secure its accounts receivable. The Company performs ongoing credit evaluations
of its customers and maintains reserves for potential credit losses based
upon
the Company's historical experience related to credit losses and any unusual
circumstances that may affect the ability of its customers to meet their
obligations.
Recently
Issued Accounting Pronouncements
In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs”. SFAS No. 151
amends the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) under the guidance in ARB
No. 43,
Chapter 4, "Inventory Pricing”. Paragraph 5 of ARB No. 43, Chapter 4, previously
stated that ". . . under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and re-handling costs may
be so
abnormal as to require treatment as current period charges " This Statement
requires that those items be recognized as current-period charges regardless
of
whether they meet the criterion of "so abnormal." In addition, this Statement
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities.
This
statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Management does not expect adoption of SFAS
No.
151 to have a material impact on the Company’s financial statements.
In
December 2004, the FASB issued SFAS No. 152, “Accounting for Real Estate
TimeSharing Transactions”. The FASB issued this Statement as a result of the
guidance provided in AICPA Statement of Position (SOP) 04-2, ”Accounting for
Real Estate TimeSharing Transactions”. SOP 04-2 applies to all real estate
time-sharing transactions.
12
BRENDAN
TECHNOLOGIES, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2004
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently
Issued Accounting Pronouncements
(Continued)
Among
other items, the SOP provides guidance on the recording of credit losses
and the
treatment of selling costs, but does not change the revenue recognition
guidance
in SFAS No. 66, ”Accounting for Sales of Real Estate”, for real estate
time-sharing transactions. SFAS No. 152 amends Statement No. 66 to reference
the
guidance provided in SOP 04-2. SFAS No. 152 also amends SFAS No. 67, “Accounting
for Costs and Initial Rental Operations of Real Estate Projects”, to state that
SOP 04-2 provides the relevant guidance on accounting for incidental operations
and costs related to the sale of real estate time-sharing transactions.
SFAS No.
152 is effective for years beginning after June 15, 2005, with restatements
of
previously issued financial statements prohibited. This statement is not
applicable to the Company.
In
December 2004, the FASB issued SFAS No. 153, ”Exchanges of Nonmonetary Assets,”
an amendment to Opinion No. 29, ”Accounting for Nonmonetary Transactions”.
Statement No. 153 eliminates certain differences in the guidance in Opinion
No.
29 as compared to the guidance contained in standards issued by the
International Accounting Standards Board. The amendment to Opinion No.
29
eliminates the fair value exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges
of
nonmonetary assets that do not have commercial substance. Such an exchange
has
commercial substance if the future cash flows of the entity are expected
to
change significantly as a result of the exchange. SFAS No. 153 is effective
for
nonmonetary asset exchanges occurring in periods beginning after June 15,
2005.
Earlier application is permitted for nonmonetary asset exchanges occurring
in
periods beginning after December 16, 2004. Management does not expect adoption
of SFAS No. 153 to have a material impact on the Company’s financial statements.
In
December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”. SFAS
123(R) amends SFAS No. 123, “Accounting for Stock-Based Compensation”, and APB
Opinion 25, “Accounting for Stock Issued to Employees.” SFAS No.123(R) requires
that the cost of share-based payment transactions (including those with
employees and non-employees) be recognized in the financial statements.
SFAS No.
123(R) applies to all share-based payment transactions in which an entity
acquires goods or services by issuing (or offering to issue) its shares,
share
options, or other equity instruments (except for those held by an ESOP)
or by
incurring liabilities (1) in amounts based (even in part) on the price
of the
entity’s shares or other equity instruments, or (2) that require (or may
require) settlement by the issuance of an entity’s shares or other equity
instruments.
This
statement is effective (1) for public companies qualifying as SEC small
business
issuers, as of the first interim period or fiscal year beginning after
December
15, 2005, or (2) for all other public companies, as of the first interim
period
or fiscal year beginning after June 15, 2005, or (3) for all nonpublic
entities,
as of the first fiscal year beginning after December 15, 2005. Management
is
currently assessing the effect of SFAS No. 123(R) on the Company’s financial
statements.
13
BRENDAN
TECHNOLOGIES, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2004
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently
Issued Accounting Pronouncements
(Continued)
In
March 2005, the FASB issued FASB Interpretation (“FIN”) No. 47, “Accounting for
Conditional Asset Retirement Obligations”. FIN No. 47 clarifies that the term
conditional asset retirement obligation as used in FASB Statement No. 143,
“Accounting for Asset Retirement Obligations,” refers to a legal obligation to
perform an asset retirement activity in which the timing and (or) method
of
settlement are conditional on a future event that may or may not be within
the
control of the entity. The obligation to perform the asset retirement activity
is unconditional even though uncertainty exists about the timing and (or)
method
of settlement. Uncertainty about the timing and/or method of settlement
of a
conditional asset retirement obligation should be factored into the measurement
of the liability when sufficient information exists. This interpretation
also
clarifies when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. Fin No. 47 is
effective no later than the end of fiscal years ending after December 15,
2005
(December 31, 2005 for calendar-year companies). Retrospective application
of
interim financial information is permitted but is not required. Management
does
not expect adoption of FIN No. 47 to have a material impact on the Company’s
financial statements.
In
May 2005, the FASB issued Statement of Accounting Standards (SFAS) No.
154,
“Accounting Changes and Error Corrections” an amendment to Accounting Principles
Bulletin (APB) Opinion No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting
Accounting Changes in Interim Financial Statements” though SFAS No. 154 carries
forward the guidance in APB No. 20 and SFAS No. 3 with respect to accounting
for
changes in estimates, changes in reporting entity, and the correction of
errors.
SFAS No. 154 establishes new standards on accounting for changes in accounting
principles, whereby all such changes must be accounted for by retrospective
application to the financial statements of prior periods unless it is
impracticable to do so. SFAS No. 154 is effective for accounting changes
and
error corrections made in fiscal years beginning after December 15, 2005,
with
early adoption permitted for changes and corrections made in years beginning
after May 2005.
NOTE
4 - NOTE RECEIVABLE - SHAREHOLDER
The
note receivable - shareholder at December 31, 2003 bears interest at prime
(4.0%
at December 31, 2003), plus 2% and is without terms. In February 2004,
the note
receivable was paid in full.
14
BRENDAN
TECHNOLOGIES, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2004
NOTE
5 - PROPERTY AND EQUIPMENT
Property
and equipment at December 31, 2004 and 2003 consisted of the
following:
|
2004
|
2003
|
||||||
|
Computer
equipment
|
$
|
119,230
|
$
|
119,230
|
|||
|
Furniture
and fixtures
|
31,909
|
31,909
|
|||||
|
151,139
|
151,139
|
||||||
|
Less
accumulated depreciation
|
148,706
|
146,945
|
|||||
|
Total
|
$
|
2,433
|
$
|
4,194
|
|||
Depreciation
expense was $1,761, and $11,858, for the years ended December 31, 2004,
and
2003, respectively.
|
NOTE
6 - CONVERTIBLE NOTES PAYABLE IN DEFAULT
|
|||||||
|
Convertible
notes payable in default consisted of the following:
|
|||||||
|
2004
|
2003
|
||||||
|
Forty-six
convertible, unsecured, senior subordinated notes payable,
due on
various dates
on or before September 2004, bearing interest at 8% per annum.
The notes
are convertible into the Company’s common stock in the event the Company
completes a public offering. The conversion price will be the
number of
shares of the Company’s common stock valued at the public offering price
equal to the outstanding principal and interest of the Company’s
convertible notes payable. The
notes payable are currently in default.
|
$
|
1,387,500
|
$
|
1,387,500
|
|||
|
Six
convertible, unsecured, bridge notes payable, due various dates
on or
before December 2004, bearing interest at 12% per annum. The notes
are convertible into the Company’s common stock in the event the Company
completes a public offering. The conversion price
will be the number of shares of the Company’s
common stock valued at the public offering price equal to the
outstanding
principal and interest of the Company’s convertible notes payable. The
notes payable are currently in default.
|
435,472
|
435,472
|
15
BRENDAN
TECHNOLOGIES, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2004
NOTE
6 - CONVERTIBLE NOTES PAYABLE IN DEFAULT (Continued)
Convertible
notes payable in default consisted of the following: (Continued)
|
2004
|
2003
|
||||||
|
Unsecured,
convertible note payable for $125,000, which bears interest
at a rate of
12% per annum. The convertible note may be converted into
shares of the
Company’s common stock at a conversion price equal to $2.44 per share.
The
note payable is convertible upon issuance. In connection
with the
transaction the Company recognized interest expense in the
amount of
$28,689, for the year ended December 31, 2003 related to
the beneficial
conversion feature of the convertible note payable. The Company
accounted
for the interest expense as the difference between the conversion
price
and the Company’s stock price on the date of issuance of the note payable.
The note is currently in default.
|
$
|
125,000
|
$
|
125,000
|
|||
|
1,947,972
|
1,947,972
|
||||||
|
Less
current portion
|
1,947,972
|
1,947,972
|
|||||
|
Long-term
portion
|
$
|
-
|
$
|
-
|
NOTE
7 - COMMITMENTS AND CONTINGENCIES
The
Company leases its office facilities under a non-cancelable operating lease
agreement, which requires monthly payments of $4,300 and expires in June
2006.
Future minimum payments under these lease agreements at December 31, 2004
were
as follows:
|
Year
Ending
|
||||
|
December
31,
|
||||
|
2005
|
$
|
55,202
|
||
|
2006
|
23,330
|
|||
|
Total
|
$
|
78,532
|
||
Rent
expense was $67,196, and $56,667 for the years ended December 31, 2004
and 2003,
respectively.
16
BRENDAN
TECHNOLOGIES, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2004
Employee
Agreements
The
Company entered into an employment agreement with its Chief Executive Officer,
John Dunn, which expires on November 1, 2011. The employment agreement
provides
for an annual salary of $108,000. The agreement also provides that the
Company
may terminate the agreement with 30 days written notice if termination
is
without cause. The Company’s obligation would be to pay the Chief Executive
monthly payments equal to his base salary for 24 months. In addition, all
options of the chief executive would immediately vest.
The
agreement also provides that the employee can terminate employment if the
Company merges with or consolidates with another entity, or is subject
in any
way to a transfer of a substantial amount of its assets, resulting in the
assets, business or operations of the Company being controlled by an entity
or
individual other than the Company.
If
this occurs, the Company's obligation would be to pay its Chief Executive
Officer a lump sum amount equal to his base salary for 24 months. In addition,
the employee shall fully vest in all outstanding options and shall have
the
right to exercise such options within 90 days after the effective date
of
termination.
The
Company entered into an employment agreement with its Vice President of
Marketing, George Dunn, which expires on November 1, 2011. The employment
agreement provides for an annual salary of $96,000. The agreement also
provides
that the Company may terminate the agreement with 30 days written notice
if
termination is without cause. The Company’s obligation would be to pay the Vice
President of Marketing monthly payments equal to his base salary for 24
months.
In
addition, all options of the chief executive would immediately vest. The
agreement also provides that the employee can terminate employment if the
company merges with or consolidates with another entity, or is subject
in any
way to a transfer of a substantial amount of its assets, resulting in the
assets, business or operations of the Company being controlled by an entity
or
individual other than the Company. If this occurs, the Company's obligation
would be to pay its Vice President of Marketing a lump sum amount equal
to his
base salary for 24 months. In addition, the employee shall fully vest in
all
outstanding options and shall have the right to exercise such options within
90
days after the effective date of termination.
The
Company entered into an employment agreement with its Director of Sales.
The
employment agreement provides for an annual salary of $82,000. The agreement
also provides that the Company may terminate the agreement with 30 days
written
notice if termination is without cause. The Company’s obligation would be to pay
the Director of Sales a lump sum equal to two weeks salary plus an additional
week for each full year of employment.
17
BRENDAN
TECHNOLOGIES, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2004
NOTE
7 - COMMITMENTS AND CONTINGENCIES (Continued)
Employee
Agreements
(Continued)
The
Company entered into an employment agreement with its Senior Programmer,
which
expires on July 1, 2008. The employment agreement provides for an annual
salary
of $96,000. The agreement also provides that the Company may terminate
the
agreement with 30 days written notice if termination is without cause.
The
Company’s obligation would be to pay the Director of Sales a lump sum equal to
two weeks salary plus an additional week for each full year of employment
Litigation
The
Company may become involved in certain legal proceedings and claims which
arise
in the normal course of business. Management does not believe that the
outcome
of any such matters will have a material effect on the Company's financial
position or results of operations.
NOTE
8 - SHAREHOLDER'S DEFICIT
Warrants
In
August, 2000, the Company issued 89,600 warrants to purchase shares of
common
stock. The warrants are exercisable at $2.25 per share and expire five
years
from the date of grant. A compensation charge was not recorded in connection
with the issuance of such warrants as the fair market value of such warrants
was
nominal.
Stock
Option Plan
In
January 1999, the Board of Directors adopted and the shareholders approved
the
1999 Stock Option Plan (the "Option Plan") under which a total of 310,000
shares
of common stock had been reserved for issuance. In August 2000, the shareholders
approved an increase in the number of shares that may be granted under
the
Option Plan to 410,000. In January 2002, the shareholders approved an increase
in the number of shares that may be granted under the Option Plan to 610,000.
In
January 2004, the shareholders approved an increase in the number of shares
that
may be granted under the option plan to 960,000. The Option Plan terminates
in
2012, subject to earlier termination by the Board of Directors.
During
the year ended December 31, 2004, the Company granted options to purchase
350,000 shares of common stock to employees with an exercise price of $3
per
share. The options vest on a straight-line basis over a period of three
years
and expire 10 years from the date of grant. A compensation charge was not
recorded in connection with the issuance of such options as the exercise
price
of the stock options granted was not less than the fair market value of
the
Company’s stock price as of the date of grant.
A
summary of the Company's outstanding options and activity is as follows:
18
BRENDAN
TECHNOLOGIES, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2004
|
NOTE
8 - SHAREHOLDER'S DEFICIT (Continued)
|
|
Stock
Option Plan(Continued)
|
|||||||
|
Weighted-
|
|||||||
|
Average
|
|||||||
|
Number
|
Exercise
|
||||||
|
Of
Options
|
Price
|
||||||
|
Outstanding,
December 31, 2002 and 2003
|
610,000
|
$
|
0.50
|
||||
|
Granted
|
350,000
|
$
|
3.00
|
||||
|
Outstanding,
December 31, 2004
|
960,000
|
$
|
1.41
|
||||
|
Exercisable,
December 31, 2004
|
662,556
|
$
|
1.34
|
||||
The
weighted-average remaining contractual life of the options outstanding
at
December 31, 2004 is 6.49 years. The weighted-average fair value per share
of
options granted was $0.14 and $0.04 for the years ended December 31, 2004
and
2003, respectively.
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||||
|
Weighted-
|
|||||||||||||||||||
|
Average
|
Weighted-
|
||||||||||||||||||
|
Remaining
|
Average
|
Weighted-
|
|||||||||||||||||
|
Contractual
|
Exercise
|
Average
|
|||||||||||||||||
|
Exercise
Price
|
Shares
|
Life
|
Price
|
Shares
|
Price
|
||||||||||||||
|
|
$0.50
|
610,000
|
6.49
|
$
|
0.50
|
438,945
|
$
|
0.50
|
|||||||||||
|
|
$3.00
|
350,000
|
9.16
|
3.00
|
223,611
|
3.00
|
|||||||||||||
|
|
Total
|
960,000
|
7.46
|
$
|
1.41
|
662,556
|
$
|
1.34
|
|||||||||||
NOTE
9 - INCOME TAXES
Significant
components of the provision for income taxes for the years ended December
31,
2004 and 2003 were as follows:
|
2004
|
2003
|
||||||
|
Current
|
|||||||
|
Federal
|
$
|
-
|
$
|
-
|
|||
|
State
|
800
|
800
|
|||||
|
800
|
800
|
||||||
19
BRENDAN
TECHNOLOGIES, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2004
|
NOTE
9 - INCOME TAXES (Continued)
|
|
2004
|
2003
|
||||||
|
Deferred
|
|||||||
|
Federal
|
$
|
-
|
$
|
-
|
|||
|
State
|
-
|
-
|
|||||
|
|
-
|
-
|
|||||
|
Provision
for income taxes
|
$
|
800
|
$
|
800
|
|||
A
reconciliation of the expected income tax (benefit) computed using the
federal
statutory income tax rate to the Company's effective income tax rate is
as
follows for the years ended December 31, 2004 and 2003:
|
2004
|
2003
|
||||||
|
Income
tax computed at federal statutory tax rate
|
34.0
|
%
|
34.0
|
%
|
|||
|
State
taxes, net of federal benefit
|
5.8
|
5.7
|
|||||
|
Change
in valuation allowance
|
(26.6
|
)
|
(39.6
|
)
|
|||
|
Other
|
-
|
(0.2
|
)
|
||||
|
Total
|
13.2
|
%
|
(0.1
|
)%
|
|||
Significant
components of the Company's deferred tax assets (liability) at December
31, 2004
consisted of the following:
|
Deferred
tax assets
|
||||
|
Net
operating loss carry-forwards
|
$
|
1,859,426
|
||
|
Accrued
officer’s salary
|
294,537
|
|||
|
Deferred
income
|
36,213
|
|||
|
Allowance
for bad debt
|
7,607
|
|||
|
Valuation
allowance
|
(2,051,438
|
)
|
||
|
146,345
|
||||
|
Deferred
tax liability
|
||||
|
State
taxes
|
146,345
|
|||
|
Net
deferred tax assets
|
$
|
-
|
||
20
BRENDAN
TECHNOLOGIES, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2004
NOTE
9 - INCOME TAXES (Continued)
As
of December 31, 2004, the Company had net operating loss carry-forwards
for
federal and state income tax purposes of approximately $4,628,789 and
$2,354,081, respectively, which expire from 2012 through 2024.
The
net operating loss carry-forwards are the only significant deferred income
tax
assets of the Company. They have been offset by a valuation allowance since
management does not believe the recoverability of this deferred tax assets
during the next fiscal year is more likely than not. Accordingly, a deferred
income tax benefit for the year ended December 31, 2004 has not been recognized
in these financial statements.
NOTE
10 - SUBSEQUENT EVENTS
Sale
of Stock
Subsequent to December 31, 2004, the Company issued 75,833 shares of common stock at $3 per share to a group of five investors.
Subsequent to December 31, 2004, the Company issued 75,833 shares of common stock at $3 per share to a group of five investors.
Letters
of Intent
During 2003, the Company had initial discussions with a public company regarding a possible reverse merger. Subject to the finalization of these negotiations, the public company will exchange with the shareholders of the Company newly issued shares of the public company’s common stock for all of the outstanding securities of the Company.
During 2003, the Company had initial discussions with a public company regarding a possible reverse merger. Subject to the finalization of these negotiations, the public company will exchange with the shareholders of the Company newly issued shares of the public company’s common stock for all of the outstanding securities of the Company.
The
Company will become a wholly-owned subsidiary of the public company. In
connection with this transaction, the Company will convert its convertible
notes
payable into common stock at an exchange of 1.64 shares of common stock
for each
dollar of principal and interest outstanding. The holders of the notes
will
receive approximately 4,000,000 shares of common stock in the new company.
In
addition, prior to the reverse merger, the Company will effect a 4-to-1
forward
split of its common stock. At the closing, the public company will issue
to the
shareholders of the Company approximately 24,000,000 shares of common stock,
which will represent 92% of the issued and outstanding capital stock of
the
public company. The shareholders of the public company will retain the
remaining
8% of the Company, or approximately 2,000,000 shares.
21