- Quarterly Report (10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended March 31, 2010
o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from __________ to __________

 

Commission file number:   001-31669

 

SUNRIDGE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		98-0348905
(State or other jurisdiction of		(IRS Employer Identification No.)
incorporation or organization)

 

16857 E. Saguaro Blvd.

Fountain Hills, Arizona 85268

(Address of principal executive offices)

 

[phone]

(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 May 20, 2010, 42,569,727 shares of the issuer’s common stock were outstanding.

 

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Table of Contents

 

SUNRIDGE INTERNATIONAL, INC.

 

Table of Contents

 

 

		Page
Forward-Looking Statements		3
PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and June 30, 2009	4
	Unaudited Consolidated Statements of Operations for the Nine Months and Three Months ended March 31, 2010 and 2009	5
	Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months ended March 31, 2010	6
	Unaudited Consolidated Statements of Cash Flows for the Nine Months ended March 31, 2010 and 2009	7
	Unaudited Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4T.	Controls and Procedures	18
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	(Removed and Reserved)	21
Item 5.	Other Information	21
Item 6.	Exhibits	21
Signatures		22

 

 

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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. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

March 31, 2010 (Unaudited) and June 30, 2009

 

		3/31/2010				6/30/2009
ASSETS
CURRENT ASSETS
Cash & Cash Equivalents		$	31,077			$	–
Accounts Receivable			4,065				–
Inventory			–				3,556
TOTAL CURRENT ASSETS			35,142				3,556
Property and Equipment-Net			3,071				3,669
Deposits			–				4,520
TOTAL ASSETS		$	38,213			$	11,745
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes Payable - Related Parties		$	203,401			$	289,726
Notes Payable			261,050				195,300
Cash Overdraft			–				2,463
Accounts Payable			357,045				101,452
Accrued Interest			60,986				61,553
TOTAL LIABILITIES			882,482				650,494
Commitments			–				–
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock - $0.0001 par value; 50,000,000 shares
authorized, none issued or outstanding			–				–
Common Stock -  $0.001 par value; 500,000,000 shares authorized,
41,708,066 and 40,000,000 shares issued and outstanding,
respectively			41,708				40,000
Additional Paid In Capital			13,063,489				12,386,970
Accumulated Deficit			(13,949,466	)			(13,065,719	)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)			(844,269	)			(638,749	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)		$	38,213			$	11,745

   

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

 

 

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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES

 

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Nine and Three Months Ended March 31, 2010 and 2009

 

		Nine Months Ended								Three Months Ended
		3/31/2010				3/31/2009				3/31/2010				3/31/2009
PRODUCT REVENUES		$	25,761			$	80,123			$	18,761			$	1,653
Cost of Product Revenues			6,411				25,229				4,141				96
GROSS PROFIT (LOSS)			19,350				54,894				14,620				1,557
GENERAL & ADMINISTRATIVE EXPENSES
Employees and consultants expenses			210,250				29,350				24,650				5,850
FDA Expense			2,008				–				2,008				–
Depreciation			599				599				200				200
Loss on stock issuances			170,807				–				170,807				–
Reorganization costs			189,673				–				–				–
Selling and marketing expenses			36,086				17,045				36,086				–
Legal and professional fees			143,558				53,290				34,886				45,288
Rent expense			46,480				40,680				13,560				13,560
Telephone and utilities			4,548				7,120				2,709				2,144
Office expenses			4,019				25,435				2,289				2,769
Freight			1,792				798				1,686				–
Insurance			13,190				22,789				7,845				8,373
Other general & administrative expenses			2,696				1,968				1,751				1,231
Travel & Entertainment			4,296				300				3,127				–
TOTAL GENERAL & ADMINISTRATIVE EXPENSES			830,002				199,374				301,604				79,415
INCOME (LOSS) FROM OPERATIONS			( 810,652	)			(144,480	)			( 286,984	)			(77,858	)
OTHER INCOME (EXPENSE)
Other income			–				1,754				–				–
Interest expense			(73,095	)			(41,805	)			(42,120	)			(13,874	)
			(73,095	)			(40,051	)			(42,120	)			(13,874	)
NET LOSS		$	( 883,747	)		$	(184,531	)		$	( 329,104	)		$	(91,732	)
Basic net income/(loss) per share		$	(0.02	)		$	–			$	( 0.01	)		$	(0.00	)
Weighted Average Shares Outstanding			40,002,381				40,000,000				40,007,222				40,000,000

 

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

 

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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Nine Months Ended March 31, 2010

 

																		Total
																		Stockholders ’
		Common Stock								Paid-In				Accumulated				Equity
		Shares				Par Value				Capital				Deficit				(Deficit)
Balance at JULY 1, 2008			19,450,000			$	19,450			$	12,407,520			$	(12,828,816	)		$	(401,846	)
Effect of recapitalization (See Note 1):
Stock Retired			(12,500,000	)			(12,500	)			12,500				–				–
Issuance of Common Stock			33,050,000				33,050				(33,050	)			–				–
BALANCE  AT JULY 1, 2008
RECAPITALIZED			40,000,000				40,000				12,386,970				(12,828,816	)			(401,846	)
Net Loss			–				–				–				(236,903	)			(236,903	)
BALANCE AT JUNE 30, 2009			40,000,000				40,000				12,386,970				(13,065,719	)			(638,749	)
Common Stock Issued for Services			210,954				211				70,575				–				70,786
Common Stock Issued for Debt and Interest			1,497,112				1,497				435,137				–				436,634
Loss on Stock Issuances			–				–				170,807				–				170,807
Net Loss			–				–				–				(883,747	)			(883,747	)
Balance at MARCH 31, 2010			41,708,066			$	41,708			$	13,063,489			$	(13,949,466	)		$	(844,269	)

 

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

 

 

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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES

 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended March 31, 2010 and 2009

 

		Nine Months Ended
		3/31/2010				3/31/2009
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss)			(883,747	)			(184,531	)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation			598				599
Reorganizational Costs			189,673				–
Loss on stock issuances			170,807				–
Stock issued for services & interest			65,786				–
Changes in Assets and Liabilities:
Deposits			4,520				–
Inventory			3,556				8,582
Accounts receivable			(4,065	)			10,034
Accounts payable and advances			233,086				55,475
Accrued interest			27,662				26,651
NET CASH USED IN OPERATING ACTIVITIES			(192,124	)			(83,190	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment on Notes Payable, Related Party			(26,700	)			(39,675	)
Repayment on Notes Payable			(6,000	)			(5,000	)
Proceeds from borrowings			257,337				126,480
Overdraft borrowings (repayment)			(2,463	)			1,385
NET CASH  PROVIDED BY FINANCING ACTIVITIES			227,174				83,190
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from reorganization			1,027				–
NET CASH PROVIDED BY INVESTING ACTIVITIES			1,027				–
Net change in cash and cash equivalents			31,077				–
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			–				–
CASH AND CASH EQUIVALENTS AT END OF PERIOD			31,077				–
Supplemental disclosure of cash flow information:
Cash paid during the nine months for interest			20,432				15,155
Non Cash Transactions:
Issuance of common stock for services			70,786				–
Issuance of common stock for interest			53,229				–
Issuance of common stock for debt			383,405				–

 

The accompanying condensed 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. OI had been a wholly-owned subsidiary of Coronado Industries, Inc. until January 26, 2007, when OI 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 and located in Toronto, Ontario, Canada. The accounting and reporting policies of Tari conform to accounting principles generally accepted in the United States of America. Tari’s 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 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 will be based in Fountain Hills, Arizona, where the Company intends to manufacture and market 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. Ophthalmic International, Inc. has not made an operating profit since 1996. Further, the Company has a working capital deficit of $ (847,340) and a negative net worth of $ (844,269) as of March 31, 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 .

 

 

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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

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 March 31, 2010 and the results of its operations, changes in stockholders’ equity (deficit), and cash flows for the nine months ended March 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 nine months ended March 31, 2010, are not necessarily indicative of the results that may be expected for the full year ending June 30, 2010. 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 current report on Form 8-K filed October 2, 2009.

 

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 subsidiaries. All material intercompany transactions, accounts and balances have been eliminated.

 

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.

 

 

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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 recognized 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 March 31, 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.

 

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		5 – 7  Years
Machinery		5 – 7  Years
Leasehold Improvements		5 - 39 Years

 

 

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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

 

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 carryforwards 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 a convertible promissory note for approximately 3,000 shares at March 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 years ended March 31, 2010 and 2009, the diluted EPS calculation has been excluded from the financial statements.

 

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.  The fair value of long-term notes payable and lease obligations is based on current rates at which we could borrow funds with similar remaining maturities.

 

 

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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the nine months ended March  31, 2010, that are of significance, or potential significance, to us.

 

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 is currently assessing the impact of this guidance 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. 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. Certain transactions may have multiple deliverables, with the deliverables clearly defined. To the extent that the secondary deliverables are other than perfunctory, the Company will recognize the revenue on each deliverable as it is delivered, if separable, or on the completion of all deliverables, if not separable.

 

 

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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 3 – DEBT AND DEBT CONVERSION

 

From July 1, 2009 to March 31, 2010, the Company received $395,530 of investment in exchange for promissory notes.  These promissory notes had a duration of one month to one year.  These promissory notes had an interest rate of 10% during the term and a default interest rate of 12%.

 

In March 2010, the Company offered promissory note holders the opportunity to convert their principal and accrued interest into restricted common stock of the Company at the rate of $.30 per share, the closing bid price on March 31, 2010. As of March 31, 2010, $436,634 of principal and interest was converted into common stock.

NOTE 4 – EQUITY

 

In September 2009, Tari, Inc. completed a five-for-one forward stock split which brought the shares outstanding of Tari, Inc. from 3,890,000 to 19,450,000. The five-for-one forward split has been accounted for retroactively for all periods presented.

 

The President of Tari, Inc. contributed 12,500,000 shares of common stock to the Company as part of the exchange of share with Ophthalmic International, Inc.

 

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.

 

In March 2010, the Company offered promissory note holders and consultants with accrued fees the opportunity to convert their principal and accrued interest or accrued consulting fees into restricted common stock of the Company at the rate of $.30 per share, the closing bid price on March 31, 2010. As of March 31, 2010, $436,634 of note principal and interest was converted into 1,497,112 shares of common stock and $70,786 of accrued consulting fees were converted into 210,954 shares of common stock.

 

 

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SUNRIDGE INTERNATIONAL, INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 5 –  LOSS ON STOCK ISSUANCES

 

The Company's promissory note holders refused to convert to common stock without a discount from the trading price.  Therefore, the Company has incurred a Loss on Stock Issuances of $170,806 upon the issuance of 1,708,066 shares of stock as of March 31, 2010.

 

NOTE 6 – RELATED PARTY TRANSACTIONS

 

From July 1, 2009 to March 31, 2010, G. Richard Smith, the Company's President and a Director, loaned the Company an additional $16,375 and was repaid $24,700.  This debt bears an interest rate of 12% per annum and is due on demand.  At March 31, 2010, G. Richard Smith was owed $178,401 by the Company.

 

During the quarter ended March 31, 2010, Gary R. Smith, the Company's Chief Financial Officer and Treasurer, was repaid his loans of $12,500 and accrued interest thereon. On March 31, 2010, The Smith Foundation, Inc., a charitable foundation of which G. Richard Smith, the Company's President and a Director, is President, was issued 49,600 shares of restricted common stock in conversion of $12,000 in loans and accrued interest thereon.  On March 31, 2010, John Sharkey, a Director of the Company, was issued 97,121 shares of restricted common stock in conversion of $29,136 of expense he incurred on behalf of the Company in 2007.

 

On April 18, 2008, Marston & Webb, Inc. loaned Ophthalmic International $20,000.  This loan bears an interest rate of 12% per annum and is due on demand.  On September 29, 2009, Victor Webb, a principal on Marston & Webb, Inc., became a Director of the Company.  At March 31, 2010, Marston & Webb, Inc. was issued 79,671 shares of restricted common stock for the $20,000 of principal and $3,901 of accrued interest thereon.

 

Between January 1, 2010 and March 31, 2010, we received loans in the total amount of $356,305 from five non-affiliated sources and our President. $190,500 of this amount was used to pay off the debt owed to third parties and Theodore Tsagkris, our prior President, Secretary, Treasurer, as required by the agreement between Ophthalmic International, Inc. and the Company.  After the payments of these debts, Mr. Tsagkris resigned as a Director of the Company, effective February 11, 2010. 

 

 

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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 March 31, 2010 and June 30, 2009, and results of operations of the Company as of and for the periods ended March 31, 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 Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on October 2, 2009. 

 

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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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

 

Three Months Ended March 31, 2010

 

The Company ’ s revenues in the quarter ended March 31, 2010 increased by $17,108 over the same quarter of the prior year.  This sales increase resulted from the commencement of sales in China.      

 

Our total general and administrative expenses increased by 279.8% in the 2010 quarter as a result primarily of Loss on Stock Issuances, increased Employee and Consultant Expenses and Selling and Marketing Expenses.  The Loss on Stock Issuances of $170,807 resulted from our creditors demanding a $.30 per share conversion price on their debt and accounts payable conversion in March 2010 instead of the $.40 per share trading price.  See Note 5 of the Notes to Financial Statements. Our Employee and Consultant Expenses more than tripled in the 2010 quarter as a result of hiring our first investor relations consultant in the 2010 quarter.  Our Employee and Consultant Expenses will likely increase as we expand the shipment of our products to China, Europe and the Caribbean in the future, assuming we can obtain sufficient working capital.  We will likely commence paying our officers and Directors compenstion some time in the future.  Our Selling and Marketing Expenses increased during the 2010 quarter when we recorded a promotional expense from 2007 in March 2010.  Our Selling and Marketing Expenses will likely increase as we expand sales of our products to China, Europe and the Caribbean in the future.  We are likely to incur additional Research and Development Expenses in 2010 as we apply to the FDA for our clinical study protocols.  There is no assurance that we will ever be profitable.

 

Liquidity and Capital Resources

 

We suffered a severe liquidity shortage in fiscal years 2009 and 2010. During the nine months ended March 31, 2010, we have borrowed a total of approximately $395,000.  These loans bear interest at annual rates from 10% to 12%. Our interest expense during the quarter ended March 31, 2010 increased by 203.6% ($28,246) from the prior year as a result of receiving new loans during the quarter.  During March, April and May, 2010, we repaid approximately $528,000 of debt and accounts payable by issuing common stock to some creditors.  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 in the near term and the long term, but we presently have no agreements or arrangement to obtain any such funds.  (See "Part II, Item 1. Legal Proceedings" and "Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds" below.)

 

 

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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. Our independent registered public accountants issued a going concern qualification to their audit report on our consolidated financial statements for the fiscal year ended June 30, 2009 and that qualification would have been extended through the quarter ended March 31, 2010.

 

Our French distributor has completed a clinical study of French PNT patients which we believe will be an acceptable substitute for the Canadian clinical study we had previously planned.  In the future, we are hopeful we can negotiate for a potential U.S. distributor of the PNT product to finance the U.S. clinical study required for FDA approval.  If we are required to fund our U.S. clinical study, the cost could approach $5 Million.  Without FDA approval our revenues will be totally dependent on foreign sales.

From January 1, 2010 to March 31, 2010, G. Richard Smith, loaned the Company an additional $5,350 and was repaid $24,700.  This debt bears an interest rate of 12% per annum and is due on demand.  At March 31, 2010, G. Richard Smith was owed $178,401 by the Company.

 

During the quarter ended March 31, 2010, Gary R. Smith, our Chief Financial Officer and Treasurer, was repaid his loans of $12,500 and accrued interest thereon. On March 31, 2010, The Smith Foundation, Inc., a charitable foundation of which G. Richard Smith, our President and a Director, is President, was issued 49,600 shares of restricted common stock in conversion of $12,000 in loans and accrued interest thereon.  On March 31, 2010, John Sharkey, a Director of the Company, was issued 97,121 shares of restricted common stock in conversion of $29,136 of expense he incurred on behalf of the Company in 2007.

 

On April 18, 2008, Marston & Webb, Inc. loaned Ophthalmic International $20,000.  This loan bears an interest rate of 12% per annum and is due on demand.  On September 29, 2009, Victor Webb, a principal on Marston & Webb, Inc., became a Director of the Company.  At March 31, 2010, Marston & Webb, Inc. was issued 79,671 shares of restricted common stock for the $20,000 of principal and $3,901 of accrued interest thereon.

 

Between January 1, 2010 and March 31, 2010, we received loans in the total amount of $356,305 from five non-affiliated sources and our President. $190,500 of this amount was used to pay off the debt owed to third parties and Theodore Tsagkris, our prior President, Secretary, Treasurer, as required by the agreement between Ophthalmic International, Inc. and the Company.  After the payments of these debts, Mr. Tsagkris resigned as a Director of the Company, effective February 11, 2010. 

 

 

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Nine Months Ended March 31, 2010

 

The Company’s revenues in the nine-month period ended March 31, 2010 were $25,761, a decrease of $54,362 from the prior year period. This sales decrease resulted from the lack of working capital for marketing efforts and an economically depressed European market for our product. Our gross margin increased slightly in the 2010 period as a percentage of revenues.  

 

Our total general and administrative expenses increased by over 316% in the nine-month period ended March 31, 2010 in comparison to the 2009 period  as a result primarily of Reorganization Costs, Loss on Stock Issuances, increased Employee and Consultant Expenses, and Legal and Professional Fees.  The Reorganization Costs were incurred as a result of the Company's acquisition of Ophthalmic International, Inc. in October 2009 .  The Loss on Stock Issuances of $170,807 resulted from our creditors demanding a $.30 per share conversion price on their debt and accounts payable conversion in March 2010 instead of the $.40 per share trading price.  See Note 5 of the Notes to Financial Statements.   Our Employee and Consultant Expenses increased by more than 600% in the 2010 period over the 2009 period as a result of the hiring of our European consultant in the second quarter of our 2010 fiscal year.  Our Employee and Consultant Expenses will likely increase as we expand the shipment of our products to China, Europe and the Caribbean in the future, assuming we can obtain sufficient working capital. We will likely commence paying our officers and Directors compensation some time in the future.  Our Legal and Professional Fees increased in the 2010 period because of the acquisition of Ophthalmic International, Inc. in October 2009.  Our Selling and Marketing Expenses will likely increase as we expand sales of our products to China, Europe and the Caribbean in the future.  We are likely to incur additional Research and Development Expenses in 2010 as we apply to the FDA for our U.S. clinical study protocols. There is no assurance that we will ever be profitable.

 

In the nine-month period ended March 31, 2010, our interest expense increased by 74.8% over the same period of the prior year as a result of receiving about $395,000 of additional debt during the 2010 fiscal year.

 

Item 3 .

Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

Item 4 T.

Controls and Procedures.

 

Management is responsible  for establishing and maintaining adequate internal control over financial reporting for the small business issuer.  The Company’s Chief Executive Officer and Chief Financial Officer have concluded, based on an evaluation required by paragraph (b) of Section 240.13a-15 or 240.15d-15 of the Rules of the Securities Exchange Act of 1934 (the “Exchange Act”), conducted as of the end of the period covered by this Quarterly Report on Form 10-Q, that the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) or 240.15d-15(e)) have functioned effectively.   For purposes of this Item, the term “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq. ) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange 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.   

 

 

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There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Section 240.13a-15 or 240.15d-15 of the Rules of the Exchange Act, that occurred during the Company’s last fiscal quarter that have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. 

 

As directed by Section 404 of the Sarbanes-Oxley Act, the Securities and Exchange Commission adopted rules requiring each public company to include a report of management on the company’s internal controls over financial reporting in its annual reports.  In addition, the independent registered public accounting firm auditing a company’s financial statements must also attest to the effectiveness of the company’s internal controls over financial reporting. While we were not subject to these requirements for the fiscal year ended June 30, 2009, we will be subject to these requirements beginning fiscal year 2010.

 

While we expect to expend significant resources in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely with all of the requirements imposed by this rule.  In the event that we are unable to receive a positive attestation from our independent registered public accounting firm with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements and our stock price and ability to obtain equity or debt financing as needed could suffer.

 

In addition, in the event that our independent registered public accounting firm is unable to rely on our internal controls in connection with its audit of our financial statements, and in the further event that it is unable to devise alternative procedures in order to satisfy itself as to the material accuracy of our financial statements and related disclosures, it is possible that we would be unable to file our Annual Report on Form 10-K with the Securities and Exchange Commission, which could also adversely affect the market price of our common stock and our ability to secure additional financing as needed.

 

 

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SUNRIDGE INTERNATIONAL, INC.

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings.

 

In January 2010, we commenced negotiations with certain creditors for the repayment of their entire debt during 2010, based upon expected financing during 2010. There is no assurance our efforts to negotiate with our creditors will be resolved without litigation.  

 

In December 16, 2009 our patent attorneys, Meschkow & Gresham, P.L.C., filed a lawsuit (CV 2009-037698) in 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 lawsuit was settled in April 2010 with us agreeing to pay our patent attorneys $2,000 per month until the claim is paid in full.

 

Item 1A.

Risk Factors.

 

Not applicable.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

From January 1, 2010 through May 20, 2010, we issued 421,686 shares of restricted common stock for $123,909 to seven non-accredited investors and 1,348,041 restricted shares for $404,413 to four accredited investors, as that term is defined by SEC Rule 501, for the conversion of promissory notes and accrued consulting fees. In addition, 800,000 restricted common stock shares, valued at $.25 per share, were issued in advance on an investor relations contract. These sales were made without public solicitation. There were no underwriting discounts or commissions paid on these sales of securities.

 

Item 3.

Defaults Upon Senior Securities.

 

None.

 

 

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Item 4.

(Removed and Reserved).

 

Item 5.

Other Information.

 

None.

 

Item 6.

Exhibits

 

Exhibit No.		Description
31.1*		Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act *
31.2*		Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act *
32*		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act *

__________

*	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:   May 24, 2010	By:	/s/  G. Richard Smith
		G. Richard Smith President and Chief Executive Officer (Principal Executive Officer)

 

Dated:   May 24, 2010	By:	/s/  Gary R. Smith
		Gary R. Smith Secretary/Treasurer, Chief Financial Officer and Director (Principal Accounting Officer)

 

 

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