Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 2010
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _______________ to ______________
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SUNRIDGE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Nevada
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98-0348905
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(State or other jurisdiction of
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(IRS Employer Identification No.)
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incorporation or organization)
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16857 E. Saguaro Blvd.
Fountain Hills, Arizona 85268
(Address of principal executive offices)
(480) 837-6165
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No þ Not applicable.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o | Small reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ
As of February 11, 2011, 47,112,024 shares of the issuer’s common stock were outstanding.
SUNRIDGE INTERNATIONAL, INC.
Table of Contents
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Forward-Looking Statements | 3 | |
PART I. FINANCIAL INFORMATION | ||
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Consolidated Balance Sheets as of December 31, 2010 (Unaudited) and June 30, 2010
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Unaudited Consolidated Statements of Operations for the Six and Three Months ended December 31, 2010 and 2009
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Unaudited Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Six Months ended December 31, 2010 | 6 | |
Unaudited Consolidated Statements of Cash Flows for the Six Months ended December 31, 2010 and 2009
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Notes to Unaudited Consolidated Financial Statements
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PART II. OTHER INFORMATION | ||
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Signatures |
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2
SUNRIDGE INTERNATIONAL, INC.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and should be read in conjunction with the Financial Statements of SunRidge International, Inc. (the “Company” or “SunRidge”). Such statements are not historical facts and reflect our current views regarding matters such as operations and financial performance. In general, forward-looking statements are identified by such words or phrases as “expects,” “anticipates,” “believes,” “could,” “approximates,” “estimates,” “may,” “intends,” “predicts,” “projects,” “plans,” or “will,” or the negative of those words or other terminology. These statements are not guarantees of future performance and involve certain known and unknown inherent risks, uncertainties and other factors that are difficult to predict; our actual results could differ materially from those expressed in these forward-looking statements. The cautionary factors, risks and other factors presented should not be construed as exhaustive. Other risks not presently known to us, or that we currently believe are immaterial, could also adversely affect our business, financial condition or results of operations.
Each forward-looking statement should be read in context with, and with an understanding of, the various disclosures concerning our business made elsewhere in this Quarterly Report, as well as other public reports filed by us with the United States Securities and Exchange Commission. Readers should not place undue reliance on any forward-looking statement as a prediction of actual results of developments. Except as required by applicable law or regulation, we undertake no obligation to update or revise any forward-looking statement contained in this Quarterly Report.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SUNRIDGE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2010 (Unaudited) and June 30, 2010
12/31/2010
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6/30/2010
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ASSETS
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CURRENT ASSETS
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Cash & Cash Equivalents
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$ | — | $ | — | ||||
Accounts Receivable
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1,292 | 8,927 | ||||||
Employee Advances
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— | 3,400 | ||||||
Prepaid Expenses
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67,814 | 179,814 | ||||||
Inventory
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22,364 | 20,920 | ||||||
TOTAL CURRENT ASSETS
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91,470 | 213,061 | ||||||
Property and Equipment-Net
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2,532 | 2,871 | ||||||
TOTAL ASSETS
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$ | 94,002 | $ | 215,932 | ||||
CURRENT LIABILITIES
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Notes Payable - Related Parties
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190,077 | $ | 203,976 | |||||
Notes Payable
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228,229 | 293,202 | ||||||
Cash Overdraft
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4,074 | 1,633 | ||||||
Accounts Payable
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334,655 | 307,805 | ||||||
Accrued Salaries
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66,250 | ¾ | ||||||
Accrued Interest
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59,881 | 44,902 | ||||||
TOTAL LIABILITIES
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883,166 | 851,518 | ||||||
Commitments
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— | — | ||||||
STOCKHOLDERS' EQUITY (DEFICIT)
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Preferred Stock - $0.001 par value; 50,000,000 shares
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authorized, zero shares outstanding at December 31, 2010 and June 30, 2010
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— | — | ||||||
Common Stock - $0.001 par value; 550,000,000 shares authorized;
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46,386,813 and 42,942,180 shares outstanding at December 31, 2010 and June 30, 2010, respectively
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46,386 | 42,942 | ||||||
Additional Paid In Capital
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13,913,312 | 13,407,088 | ||||||
Accumulated Deficit
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(14,748,862 | ) | (14,085,616 | ) | ||||
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)
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(789,164 | ) | (635,586 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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$ | 94,002 | $ | 215,932 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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SUNRIDGE INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six & Three Months Ended December 31, 2010 and 2009
Six Months Ended
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Three Months Ended
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12/31/2010
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12/31/2009
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12/31/2010
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12/31/2009
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PRODUCT REVENUES
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$ | 45,433 | $ | 7,000 | $ | — | $ | — | ||||||||
Less: Returns and Allowances
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(4,290 | ) | — | (4,290 | ) | |||||||||||
Cost of Product Revenues
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11,953 | 2,270 | — | — | ||||||||||||
GROSS PROFIT
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29,190 | 4,730 | (4,290 | ) | — | |||||||||||
GENERAL & ADMINISTRATIVE EXPENSES
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Employee and Consultants Expenses
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227,000 | 185,600 | 154,500 | 185,000 | ||||||||||||
Freight
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1,292 | 107 | 487 | 93 | ||||||||||||
Auto Expense
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4,141 | 181 | 586 | 63 | ||||||||||||
Reorganization Cost
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— | 189,673 | ¾ | 189,673 | ||||||||||||
Loss on Stock Issuances
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202,165 | — | 171,234 | — | ||||||||||||
Depreciation
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339 | 399 | 139 | 200 | ||||||||||||
Telephone and utilities
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5,455 | 1,839 | 2,894 | 593 | ||||||||||||
Bank Service Fees
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361 | 173 | 104 | 94 | ||||||||||||
Office Expenses
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4,714 | 1,730 | 1,905 | 1,484 | ||||||||||||
Dues and Subscriptions
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— | 591 | — | 39 | ||||||||||||
Insurance
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18,809 | 5,345 | 9,894 | 5,230 | ||||||||||||
Travel & Entertainment
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8,323 | 1,169 | 2,350 | 1,169 | ||||||||||||
Legal and Professional Fees
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89,812 | 108,672 | 83,608 | 72,583 | ||||||||||||
Rent Expense
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14,012 | 32,920 | — | 13,560 | ||||||||||||
Selling and Marketing Expenses
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80,402 | — | 26,249 | — | ||||||||||||
Other General & Operating Expenses
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3,966 | — | 3,326 | — | ||||||||||||
TOTAL GENERAL & ADMINISTRATIVE EXPENSES
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660,791 | 528,399 | 457,276 | 469,781 | ||||||||||||
LOSS FROM OPERATIONS
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(631,601 | ) | (523,669 | ) | (461,566 | ) | (469,781 | ) | ||||||||
OTHER INCOME (EXPENSE)
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Other income
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1,205 | — | — | — | ||||||||||||
Interest expense
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(32,850 | ) | (30,975 | ) | (15,627 | ) | (15,810 | ) | ||||||||
TOTAL OTHER INCOME (EXPENSES)
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(31,645 | ) | (30,975 | ) | (15,627 | ) | (15,810 | ) | ||||||||
NET LOSS
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$ | (663,246 | ) | $ | (554,644 | ) | $ | (477,193 | ) | $ | (485,591 | ) | ||||
Basic net income/(loss) per share
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$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
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Weighted Average Shares Outstanding
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44,237,294 | 40,000,000 | 45,208,396 | 40,000,000 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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SUNRIDGE INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Six Months Ended December 31, 2010
Additional
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Stockholders'
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Common Stock
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Paid-In
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Accumulated
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Equity
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Shares
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Par Value
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Capital
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Deficit
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(Deficit)
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Balance at JULY 1, 2009
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40,000,000 | $ | 40,000 | $ | 12,386,970 | $ | (13,065,719 | ) | $ | (638,749 | ) | |||||||||
Common Stock Issued for Services
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1,160,855 | 1,161 | 327,875 | 329,036 | ||||||||||||||||
Common Stock Issued for Debt and Interest
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1,781,325 | 1,781 | 506,084 | 507,865 | ||||||||||||||||
Loss on Stock Issuances
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— | — | 186,159 | 186,159 | ||||||||||||||||
Net loss for the year ended June 30, 2010
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(1,019,897 | ) | (1,019,897 | ) | ||||||||||||||||
BALANCE AT JUNE 30, 2010
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42,942,180 | 42,942 | 13,407,088 | (14,085,616 | ) | (635,586 | ) | |||||||||||||
Common Stock Issued for Services
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856,430 | 856 | 120,944 | 121,800 | ||||||||||||||||
Common Stock Issued for Debt and Interest
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492,794 | 493 | 80,560 | 81,053 | ||||||||||||||||
Common Stock Issued for Cash
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2,095,409 | 2,095 | 102,555 | 104,650 | ||||||||||||||||
Loss on Stock Issuances
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202,165 | 202,165 | ||||||||||||||||||
Net loss for the six months ended December 31, 2010
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(663,246 | ) | (663,246 | ) | ||||||||||||||||
BALANCE AT DECEMBER 31, 2010
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46,386,813 | $ | 46,386 | $ | 13,913,312 | $ | (14,748,862 | ) | $ | (789,164 | ) |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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SUNRIDGE INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended December 31, 2010 and 2009
Six Months Ended
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12/31/2010
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12/31/2009
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
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CASH FLOW FROM OPERATING ACTIVITIES:
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Net Loss
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$ | (663,246 | ) | $ | (554,645 | ) | ||
Adjustments to reconcile net income to net
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cash used by operating activities:
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Loss on stock issuances
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202,165 | ¾ | ||||||
Stock and debt issued for interest and services
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126,786 | ¾ | ||||||
Depreciation
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339 | 399 | ||||||
Reorganization Costs
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— | 189,673 | ||||||
Changes in Assets and Liabilities:
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Accounts receivable
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7,635 | — | ||||||
Inventory
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(1,444 | ) | 2,140 | |||||
Prepaid expenses
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112,000 | — | ||||||
Deposits
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— | 4,520 | ||||||
Accrued salaries
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66,250 | — | ||||||
Accounts payable and advances
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26,850 | 299,975 | ||||||
Accrued interest
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14,979 | 25,174 | ||||||
NET CASH USED IN OPERATING ACTIVITIES
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(107,686 | ) | (32,764 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES
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Overdraft borrowings (repayments)
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2,441 | (2,463 | ) | |||||
Repayment on notes payable, related party
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(50,978 | ) | (3,700 | ) | ||||
Repayment on notes payable
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(27,160 | ) | — | |||||
Proceeds from stock issuance
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104,650 | — | ||||||
Proceeds from borrowings
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78,733 | 39,225 | ||||||
NET CASHPROVIDED BY FINANCING ACTIVITIES
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107,686 | 33,062 | ||||||
NET CHANGE IN CASH & CASH EQUIVALENTS
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— | 298 | ||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
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— | — | ||||||
CASH AND CASH EQUIVALENTS AT DECEMBER 31, 2010 AND 2009
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$ | — | $ | 298 | ||||
Supplemental disclosure of cash flow information:
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Cash paid during the six months for interest
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$ | 16,440 | $ | 5,801 | ||||
Non-cash transactions:
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Common stock paid for services
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121,800 | — | ||||||
Common stock paid for interest
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4,986 | — | ||||||
Common stock paid for debt
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76,067 | — | ||||||
Cancellation of debt for repayment of employee advances
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3,400 | — |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Ophthalmic International, Inc. (OI) was incorporated in March 1997 in the state of Nevada. The Company had been a wholly owned subsidiary of Coronado Industries, Inc until January 26, 2007 when the Company and its subsidiaries were purchased from Coronado Industries, Inc. for cash and other consideration.
Tari, Inc. (Tari) was incorporated on May 2, 2001 under the laws of the State of Nevada. It is located in Toronto, Ontario, Canada. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America. The Company fiscal year end is March 31.
In September, 2009 Tari consummated an Agreement of Share Exchange and Plan of Reorganization (The Agreement) with OI. Pursuant to the Agreement Tari agreed to issue an aggregate of 33,050,000 shares of its restricted common stock to all of the shareholders of OI in exchange for all the issued and outstanding common stock shares of OI.
The exchange of shares has been accounted for as a reverse acquisition in the form of a recapitalization with OI as the “accounting acquirer.” Prior to the acquisition, Tari changed its name to SunRidge International, Inc. (hereinafter referred to as “SunRidge” or the “Company”). Following the acquisition, OI became the wholly owned subsidiary of SunRidge. SunRidge has adopted a fiscal year end of June 30. Operations after the acquisition have been based in Fountain Hills, Arizona, where the Company manufactures and markets a patented Vacuum Fixation Device and patented suction rings to major medical supply companies and health care providers throughout the world. As a recapitalization, the accompanying financial statements represent the activity of OI.
GOING CONCERN
The Company’s financial statements are presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not made an operating profit since 1996. Further, the Company has a working capital deficit of $(791,696) and a negative net worth of $(789,164) as of December 31, 2010, which causes a doubt about the ability of the Company to remain a going concern. As such, the Company’s auditors have expressed a going concern opinion on the financial statements for the fiscal year ended June 30, 2010
The financial statements do not include any adjustments to reflect the possible future effects of the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the uncertainty of the Company’s ability to continue as a going concern
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of December 31, 2010 and the results of its operations, changes in stockholders’ deficit, and cash flows for the six and three months ended December 31, 2010. Although management believes that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities Exchange Commission.
The result of operations for the six and three months ended, December 31, 2010, are not necessarily indicative of the results that may be expected for the full year ending June 30, 2011. The accompanying consolidated financial statements should be read in conjunction with the more detailed consolidated financial statements, and the related footnotes thereto, filed with the Company’s Annual Report on Form 10-K for the year ended June 30, 2010.
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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial position, results of operations, cash flows and changes in stockholders’ equity (deficit) of the Company and its wholly owned subsidiary. All material intercompany transactions, accounts and balances have been eliminated in consolidation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include, but are not limited to, collectability of accounts receivable, recovery of inventory, depreciable lives, realization of net operating losses, and valuation of stock-based transactions.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are considered to be all highly liquid investments purchased with an initial maturity of three (3) months or less.
INVENTORIES
Inventories consist primarily of materials and parts and are stated at the lower of cost, as determined on a first-in, first-out (FIFO) basis, or market.
ACCOUNTS RECEIVABLE
The Company follows the allowance method of recognizing uncollectible accounts receivable. The allowance method recognizes bad debt expense as a percentage of accounts receivable based on a review of the individual accounts outstanding and the Company’s prior history of uncollectible accounts receivable. As of December 31, 2010 and June 30, 2010, the Company has not established an allowance for uncollectible accounts receivable. The Company does not record interest income on delinquent receivable balances until it is received. Accounts receivable are generally unsecured.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to operations as incurred. Betterments or renewals are capitalized when incurred. Depreciation is provided using accelerated methods over the following useful lives:
Office furniture & Equipment
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5 – 7 Years
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Machinery
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5 – 7 Years
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Leasehold Improvements
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5 Years
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LONG LIVED ASSETS
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
DEFERRED INCOME TAXES
Deferred income taxes are provided on an asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
LOSS PER SHARE
Basic loss per share includes no dilution and is computed by dividing loss to common stockholders by the weighted average number of common shares outstanding for the period. The effect of the recapitalization is included in all periods presented.
Assumed conversion of convertible promissory notes for approximately 150,000 shares at December 31, 2010 has been excluded from the calculation of diluted net loss per common share as its effect would be anti-dilutive (decreases the loss per share). In addition, as the Company has a net loss available to common stockholders for the quarters ended December 31, 2010 and 2009, the diluted EPS calculation has been excluded from the financial statements. As of December 31, 2010 there were no dilutive securities outstanding.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of our financial instruments included in current assets and current liabilities approximated their respective fair values at each balance sheet date due to the immediate or short-term maturity of these financial instruments.
RECENT ACCOUNTING PRONOUNCEMENTS
There have been no recent accounting pronouncements or changes in accounting pronouncements during the six months ended December 31, 2010, that are of significance, or potential significance, to us, except as discussed below.
In October 2009, the FASB issued guidance on revenue recognition for multiple-deliverable revenue arrangements. The guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. The Company has adopted the guidance which did not have a material impact on its financial position and results of operations.
REVENUE RECOGNITION
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, our price is fixed or determinable, and collection is reasonably assured. We recognize revenue on our standard products when title passes to the customer upon shipment. The standard products do not have customer acceptance criteria. The Company has standard rights of return that are accounted for as a warranty provision, although it is deemed immaterial at this time. The Company does not have any price protection agreements or other post shipment obligations. For custom equipment where customer acceptance is part of the sales agreement, revenue will be recognized when the customer has accepted the product. In cases where custom equipment does not have customer acceptance as part of the sales agreement, revenue will be recognized upon shipment, as long as the system meets the specifications as agreed upon with the customer.
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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – DEBT AND DEBT CONVERSION
For the 2nd quarter ended December 31, 2010, the Company issued $32,600 of promissory notes. These promissory notes were for a duration of three months with an interest rate of 10% for the term and a default rate of 12%.
The Company offered the promissory note holders the opportunity to convert their principal and accrued interest into restricted common stock of the Company at various times during the three months ended December 31, 2010.
Conversions took place between October through December 2010, at the closing bid stock prices between $.08 and $.145 per share, and converted $21,303 of principal and interest.
NOTE 4 – EQUITY
Preferred Stock
As of December 31, 2010, our authorized preferred stock is 50,000,000 shares of preferred stock with par value of $0.001 per share. The Company’s Board of Directors has the authority to divide the preferred stock shares into series and to fix the voting powers, designation, preference, and relative participating, option or other special rights, and the qualifications, limitations, or restrictions of the shares of any series so established. The Company has issued no preferred stock shares as of December 31, 2010.
Common Stock
In September 2009, Tari, Inc. completed a 5-for-1 forward stock split which brought the shares outstanding of Tari, Inc. from 3,890,000 to 19,450,000. The 5-for-1 forward split has been accounted for retroactively for all periods presented.
The President of Tari, Inc. then contributed 12,500,000 shares of common stock to the Company as part of the exchange of shares with OI, leaving 6,950,000 shares outstanding prior to the merger.
In September, 2009, Tari consummated an Agreement of Share Exchange and Plan of Reorganization (the “Agreement”) with OI. Pursuant to the Agreement, Tari agreed to issue an aggregate of 33,050,000 shares of its restricted common stock to all of the shareholders of OI in exchange for all the issued and outstanding common stock of OI.
During the quarter ended December 31, 2010 the following equity transactions took place:
The Company issued 611,269 shares of common stock totaling $66,500 to various consultants and vendors for services performed.
The Company also issued 190,736 of shares of common stock totaling $21,303 to various note holders for payment of principal and interest.
The Company received $87,650 for the issuance of 1,995,409 shares of common stock.
NOTE 5 – LOSS ON STOCK ISSUANCES
The Company’s promissory note holders were given an incentive to convert the promissory notes to common stock by issuing the stock at a discount from the closing bid trade price. Also, certain consultants were paid in common stock at a discount from the closing bid trade price. As such, the Company recorded a loss on stock issuances of $171,234 on 2,797,414 shares of stock for the quarter ended December 31, 2010.
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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – RELATED PARTY TRANSACTIONS
During the quarter ended December 31, 2010, G. Richard Smith, the Company's President and a Director, loaned the Company an additional $26,100 and was repaid $37,128. This debt bears an interest rate of 10% for the term and 12% default per annum thereafter and is currently due on demand. At December 31, 2010, G. Richard Smith was owed $184,577 by the Company.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company entered into a non-cancelable lease agreement for office space in Fountain Hills, Arizona commencing December 1, 2004, through December 15, 2009. Monthly rental payments were $4,520. After the lease expired, the Company extended the lease to December 31, 2010, at a monthly rate of $4,520. There is no immediate plan to sign a new rental agreement. As of December 31, 2009, the Company had been delinquent in its rent payments. In order to make up past due payments, the Company issued a promissory note dated January 27, 2010 to convert $70,309 in rent and related late and legal fees into a note to pay $17,627 in four quarterly payments for a total principal amount of $70,309, including interest at 12% per annum after July 1, 2010.
The balance of the note as of December 31, 2010 was: $31,554, including accrued interest.
As of December 31, 2010, the Company had amended their lease agreement. The new agreement extends the term of the lease to January 1, 2011 through January 1, 2013. There is no January 2011 lease payment. The base rent for February 2011 through January 2012 will be $4,500 per month, with $3,000 going towards the current rent and $1,500 applied to the note balance. The base rent for February 2012 through January 2013 shall be $4,500 per month, with $3,500 going towards current rent and $1,000 applied to the note balance.
Indemnification
The Company has agreed to indemnify its officers and directors for certain events or occurrences that may arise as a result of the officer or director serving in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. However, the Company believes the estimated fair value of these indemnification agreements is minimal and has no liabilities recorded for these agreements as of December 31, 2010 and June 30, 2010.
Contingent Liability
The Company had a consulting agreement with Francesco Aspes whereby a clause stated that the Company would reimburse Mr. Aspes for documented expenses, up to a maximum of 80,000 euros (or $109,000 USD currently). There is a claim by Mr. Aspes for the maximum amount, however, the Company believes that it is more than reasonably possible that the reimbursement claim is unenforceable. As such, there is no accrued expense related to the potential reimbursement, as no underlying documentation in support of this claim has been received.
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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – COMMITMENTS AND CONTINGENCIES (Continued)
Litigation
On December 16, 2009, our patent attorneys, Meschkow & Gresham, P.L.C., filed a lawsuit (CV 2009-037698) in the Superior Court for Maricopa County, Arizona against the Company and Mr. Richard Smith for breach of contract in the failure to pay for legal services in the amount of $12,063 plus costs and legal fees. Our answer to the complaint admitted that legal services had been provided but claimed no knowledge of the value of those services. This case was transferred to arbitration and an award was rendered in the amount of $8,064 against G. Richard Smith, our President and Director, his wife, Karen Smith and the Ophthalmic International, Inc., our wholly-owned subsidiary, plus court costs of $453 and attorney fees of $1,500. During the quarter ended December 31, 2010, this arbitration award proceeded to judgment against the parties.
During our fiscal fourth quarter 2010, Charles E. Brokup filed a lawsuit (CV 2010-054295) in Superior Court for Maricopa County, Arizona against Ophthalmic International, Inc. and Mr. G. Richard Smith for breach of promise to pay $10,000 principal on a promissory note and $1,000 per month in interest. Our answer to the complaint admitted that the principal amount of $10,000 was owed but denies that more than legal interest is owed after the first month expressly stated interest of $1,000.
During the quarter ended September 30, 2010, Francesco Aspes, our former European marketing consultant, filed a lawsuit (CV 2010-028530) in the Superior Court for Maricopa County, Arizona against the Company for failure to pay him $180,000 of employee wages earned previously plus 80,000 Euros of expenses incurred as an employee of the Company. Our answer to this complaint disputes the 80,000 Euros of expense because the complaint contained no accounting of these expenses. As to the matter of $180,000 of employees wages, our answer alleges this employee obtained our agreement to pay this sum through duress and bad faith and this employee ceased working on our behalf previously. The plaintiff in this case has filed a Motion For Summary Judgment to which we have responded that there are facts still to be determined at trial. No decision has been made yet by the Court on this motion.
NOTE 8 – SUBSEQUENT EVENTS
Between January 1, 2011 and February 22, 2011, the Company issued the following restricted common stock: (i) 85,000 shares for $4,250 of services; (ii) 351,307 shares in conversion of $23,952 of debt and accrued interest; (iii) 288,904 shares for $11,100 cash. These sales were made without public solicitation. There were no underwriting discounts or commissions paid on these sales of securities.
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SUNRIDGE INTERNATIONAL, INC.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The following is a discussion of the financial condition of the Company as of December 31, 2010 and June 30, 2010, and results of operations of the Company as of and for the periods ended September 30, 2010 and 2009. This discussion should be read in conjunction with the Financial Statements of the Company and the related notes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on November 15, 2010.
On September 5, 2009, we entered into an Agreement of Share Exchange and Plan of Reorganization (the “Share Exchange Agreement”) and consummated a share exchange (the “Share Exchange”) with Ophthalmic International, Inc. (“OI”), a Nevada corporation. The closing date of the transaction was September 29, 2009 (the “Closing Date”) and resulted in the acquisition of OI (the “Acquisition”). Pursuant to the terms of the Share Exchange Agreement, we acquired all of the outstanding capital stock of OI from the five OI shareholders, and the OI shareholders transferred and contributed all of their share interests in OI to us. In exchange, we issued to the OI shareholders 33,050,000 shares, or approximately 82.6% of our common stock. On the Closing Date, OI became our wholly owned subsidiary.
Ophthalmic International, Inc.
OI was founded in 1997 and until January 2007, was a subsidiary of Coronado Industries, Inc., a publicly traded company. In January 2007, OI was acquired by G. Richard Smith, OI’s President and majority shareholder and former Chairman, Director and principal shareholder of Coronado Industries, Inc. Since January 2007, OI has operated as a private company. At one time OI attempted a merger with a public company, but the terms were unsatisfactory so the deal was not consummated and OI remained private.
Since 1997, Ophthalmic International, Inc. has manufactured and marketed a fixation device with a patented designed suction ring that treats Open Angle and Pigmentary glaucoma.
In the United States, glaucoma is the second leading cause of blindness affecting approximately 3,000,000 persons. Of those, about 60,000 are legally blind. If detected and treated early, glaucoma need not cause blindness or even severe vision loss. While there is no cure for glaucoma, we believe that our patented device and process provide an effective treatment for afflicted persons and that a significant global market for our patented process, equipment and rings currently exists. OI has not yet received FDA approval for sale of its products in the United States and at this time it appears OI’s sales in Europe and Canada will be negatively impacted until such FDA approval is obtained.
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SUNRIDGE INTERNATIONAL, INC.
Glaucoma may have many forms which cause or present a feature of progressive damage to the optic nerve due to increased pressure within the eyeball. As the optic nerve deteriorates, blind spots and patterns develop. If left untreated, the result may be total blindness. The space between the lens and the cornea in the eye is filled with a fluid called the aqueous humor. This fluid circulates from behind the colored portion of the eye (the iris) through the opening at the center of the eye (pupil) and into the space between the iris and cornea. The aqueous humor is produced constantly, so it must be drained constantly. The drain is at the point where the iris and cornea meet, known as the drainage angle, which directs fluid into a channel (Schlemm’s canal) that then leads it to a system of small veins outside the eye. When the drainage angle does not function properly, the fluid cannot drain and pressure builds up within the eye. Pressure also is exerted on another fluid in the eye, the vitreous humor behind the lens, which in turn presses on the retina. This pressure affects the fibers of the optic nerve, slowly damaging them. The result over time is a loss of vision.
Results of Operations
Quarter Ended December 31, 2010
The Company's had no sales during the quarter ended December 31, 2010 and none in the same quarter of the prior year.
Our total general and administrative expenses decreased slightly in the 2010 quarter in comparison to the 2009 quarter primarily as a result of lower Employee and Consultants Expenses. Legal and Professional Expenses increased slightly during the 2010 quarter over the prior year as a result of the increased litigation with creditors. Public Relations Expense increased in the 2010 quarter from the 2009 quarter because there were no such expenses in the prior year period. We had no Reorganization Cost in the 2010 quarter, but we did incur $171,234 of Loss on Stock Issuances during the 2010 quarter as a result of repayment of debt with our common stock at a discount to market value. Our Employees and Consultants Expenses will likely increase in 2011 as we commence paying salaries to our officers and hire additional personnel, assuming we can obtain sufficient working capital. We are likely to incur substantial loss on stock issuances in the future because our creditors demand a discount when converting debt to restricted stock. We are likely to incur substantial research and development expenses in 2011 as we commence our clinical studies in Canada. There is no assurance that we will ever be profitable.
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SUNRIDGE INTERNATIONAL, INC.
Liquidity and Capital Resources
We suffered a severe liquidity shortage in fiscal years 2009 and 2010. From October 1, 2010 to December 31, 2010, we borrowed a total of $32,600. These loans bear annual interest of 10% to 12% per annum and all of the loans are due on demand or prior to June 30, 2011. During the quarter ended December 31, 2010 our interest expense decreased by 1.2% ($183) in comparison to the quarter ended December 31, 2009 as a result of conversion of debt to Company common stock during the prior year. During the quarter ended December 31, 2010, we repaid $21,303 of debt, interest and services by issuing common stock.
As of December 31, 2010, G. Richard Smith, the Company’s President and a Director, loaned the Company an additional $26,100 and was repaid $37,128. This debt bears an interest rate of 10% for the term, and 12% per annum thereafter, and is due on demand. At December 31, 2010, G. Richard Smith was owed $184,577 by the Company.
Without substantial funding in the very near future, our liquidity shortage will become critical. We are hopeful we will be able to obtain substantial funding during the remainder of fiscal year 2011, but we presently have no agreements or arrangements to obtain any such funding. (See “Part II, Item 1. Legal Proceedings” and “Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” below.)
Over the next three years, we must obtain at least $6,500,000 of funding to finance our two planned patient clinical studies in Canada and the U.S., and a minimum level of administrative staff. If such funding is not obtained, it is unlikely we will receive FDA approval for the sale of our product in the U.S. Without FDA approval our revenues will be totally dependent on foreign sales.
During the quarter ended December 31, 2010 we commenced attempts to secure funding to open one or more glaucoma treatment clinics in Canada. We presently estimate we would require approximately $800,00 to $1,000,000 of working capital for the first year's expenses for each new Canadian treatment clinic. Presently, we have no agreements or arrangements to obtain such funding and there are no assurances such funding can be obtained.
The consolidated financial statements contained in this Form 10-Q have been prepared assuming we will continue to operate and do not include any adjustments that might be necessary if we are unable to continue as a going concern. As a result, our independent registered public accountants have issued a going concern explanatory paragraph to their audit report on our consolidated financial statements for the fiscal year ended June 30, 2010, and that qualification would have been extended through the quarter ended December 31, 2010.
Six Months Ended December 31, 2010
The Company's revenues in the six-month period ended December 31, 2010 were $45,433, an increase of $38,433 from the prior year period. This sales increase resulted from the marketing efforts of our Chinese distributor. Our gross margin decreased slightly (3.4%) in the 2010 period in comparison to the 2009 period, as a result of $4,290 or returns during the 2010 period.
Our general and administrative expenses increased by over 25% in the 2010 six-month period in comparison to the 2009 period as a result of a 22.3% increase in Employees and Consultants Expenses from the prior year. Employees and Consultants Expenses increased as a result of our President and a consultant accruing salaries for the first time. Legal and Professional Expenses decreased slightly during 2010 period as a result of the reverse acquisition of SunRidge by Ophthalmic International, Inc. being completed in the prior year. Public Relations Expense increased in the 2010 period from the 2009 period because there were no such expenses in the prior year period. Insurance expenses increased in the 2010 period from the 2009 period because we have distribution agreements covering more countries now than in the prior year. Our Rent Expense decreased during the 2010 period as a result of our landlord abating our rent during the last calendar quarter of the 2010 year. Our Employees and Consultants Expenses will likely increase in 2011 as we hire additional personnel, assuming we can obtain sufficient working capital. We are likely to incur substantial research and development expenses in 2011 as we commence on clinical studies in Canada. There is no assurance that we will ever be profitable.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Accordingly, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act were not effective as of December 31, 2010 to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure.
Management conducted a thorough review of all significant or non-routine adjustments for the quarter ended December 31, 2010. As a result of this review, management believes that there are no material inaccuracies or omissions of material fact and, to the best of their knowledge, believes that the unaudited consolidated financial statements for the quarter ended December 31, 2010 fairly present in all material respects the financial condition and results of operations for the Company in conformity with U.S. generally accepted accounting principles.
Inherent Limitations Over Internal Controls
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting.
We have made no change in our internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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SUNRIDGE INTERNATIONAL, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On December 16, 2009, our patent attorneys, Meschkow & Gresham, P.L.C., filed a lawsuit (CV 2009-037698) in the Superior Court for Maricopa County, Arizona against the Company and Mr. Richard Smith for breach of contract in the failure to pay for legal services in the amount of $12,063 plus costs and legal fees. Our answer to the complaint admitted that legal services had been provided but claimed no knowledge of the value of those services. This case was transferred to arbitration and an award was rendered in the amount of $8,064 against G. Richard Smith, our President and Director, his wife, Karen Smith and the Ophthalmic International, Inc., our wholly-owned subsidiary, plus court costs of $453 and attorney fees of $1,500. During the quarter ended December 31, 2010, this arbitration award proceeded to judgment against the parties.
During our fiscal fourth quarter 2010, Charles E. Brokup filed a lawsuit (CV 2010-054295) in Superior Court for Maricopa County, Arizona against Ophthalmic International, Inc. and Mr. G. Richard Smith for breach of promise to pay $10,000 principal on a promissory note and $1,000 per month in interest. Our answer to the complaint admitted that the principal amount of $10,000 was owed but denies that more than legal interest is owed after the first month expressly stated interest of $1,000.
During the quarter ended September 30, 2010, Francesco Aspes, our former European marketing consultant, filed a lawsuit (CV 2010-028530) in the Superior Court for Maricopa County, Arizona against the Company for failure to pay him $180,000 of employee wages earned previously plus 80,000 Euros of expenses incurred as an employee of the Company. Our answer to this complaint disputes the 80,000 Euros of expense because the complaint contained no accounting of these expenses. As to the matter of $180,000 of employees wages, our answer alleges this employee obtained our agreement to pay this sum through duress and bad faith and this employee ceased working on our behalf previously. The plaintiff in this case has filed a Motion For Summary Judgment to which we have responded that there are facts still to be determined at trial. No decision has been made yet by the Court on this motion.
Other than as set forth above, the Company is not currently a party to any pending lawsuit or legal proceeding.
Item 1A. Risk Factors.
Between October 1, 2010 and December 31, 2010, the Company issued the following restricted common stock: (i) 611,269 shares for $66,500 of services by 4 Non-Accredited Investor, as defined by SEC Rule 501; (ii) 190,736 shares in conversion of $21,303 of debt and accrued interest by 4 Non-Accredited Investors; and (iii) 1,995,409 shares to 4 Non-Accredited Investors and 1 Accredited Investor for $87,650 cash. These sales were made without public solicitation. There were no underwriting discounts or commissions paid on these sales of securities.
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SUNRIDGE INTERNATIONAL, INC.
Subsequent Events
Between January 1, 2011 and February 22, 2011, the Company issued the following restricted common stock: (i) 85,000 shares for $4,250 of services; (ii) 351,307 shares in conversion of $23,952 of debt and accrued interest; and (iii) 288,904 shares for $11,100 cash.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. (Removed and Reserved).
________________
* Filed herewith.
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SUNRIDGE INTERNATIONAL, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SUNRIDGE INTERNATIONAL, INC. | |||
Dated: February 22, 2011
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By:
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/s/ G. Richard Smith | |
G. Richard Smith
President and Chief Executive Officer
(Principal Executive Officer)
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Dated: February 22, 2011
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By:
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/s/ Gary R. Smith | |
Gary R. Smith
Secretary/Treasurer,
Chief Financial Officer and Director
(Principal Accounting Officer)
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