OPHTHALMIC INTERNATIONAL, INC. & SUBSIDIARIES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF ESTIMATES
ORGANIZATION
Ophthalmic International, Inc. (the Company) was a wholly owned subsidiary of Coronado Industries, Inc.. Coronado Industries, Inc. prior to January 26, 2007. The Company was purchased from Coronado Industries, Inc. for cash and other considerations.
Ophthalmic International, Inc. intends to manufacture and market the patented Vacuum Fixation Device and the patented suction rings to major medical supply companies and health care providers throughout the world.
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 $(608,925) and a negative net worth of $(12,863,313) as of September 30, 2008.
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
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the activity of Ophthalmic International Inc., together with its wholly-owned subsidiaries, American Glaucoma, Inc. and Ophthalmic International, LLC. All significant inter-company accounts and transactions have been eliminated. All of the above subsidiaries were inactive for the years ended September 30, 2008 and 2007.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles 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.
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.
OPHTHALMIC INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF ESTIMATES (Continued)
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 September 30, 2008 and 2007, the Company has not established an allowance for uncollectible accounts receivable as they believe that all accounts are currently collectible. The Company does not record interest income on delinquent accounts 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 | 39 Years |
LONG LIVED ASSETS
Long lived assets are accounted for in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The statement requires that long-lived assets be reviewed 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.
OPHTHALMIC INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF ESTIMATES (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.
STOCKHOLDERS’ EQUITY
The accumulated deficit for the Company had been previously reported with Coronado Industries, Inc. on a consolidated basis through September 30, 3006. Due to the integral nature of accounting for the consolidated companies, assumptions have been made to calculate the amount of the accumulated deficit attributable to Ophthalmic International, Inc. as a stand-alone company. The calculations were performed by reviewing the reported income statements for Coronado Industries, Inc. from 1996 to 2006. The yearly net losses that would be attributable to Ophthalmic International, Inc. were determined by taking the consolidated loss of Coronado Industries, Inc. and adding back for any clinic losses, 20% of Richard Smith’s salary, legal and professional fees, promotion, media and marketing expenses, sale of a clinic, and certain rent expenses that would have been associated with Coronado Industries, Inc. only. The difference would be the loss attributable to Ophthalmic International, Inc. See note 5 below for details of the calculations.
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.
OPHTHALMIC INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF ESTIMATES (Continued)
The Company reviews its intangible assets at least annually to evaluate potential impairment by comparing the carrying value of the intangible assets with expected future net operating cash flows from the related operations. If the expected future net operating cash flows are less than the carrying value, the Company recognizes an impairment loss equal to the amount by which the carrying value exceeds the discounted expected future net operating cash flows from the related operations.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”), which provides companies with an option to report selected financial assets and liabilities at fair value with the changes in fair value recognized in earnings at each subsequent reporting date. SFAS 159 provides an opportunity to mitigate potential volatility in earnings caused by measuring related assets and liabilities differently, and it may reduce the need for applying complex hedge accounting provisions. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect SFAS No. 159 will have a material effect on its financial statements.
OPHTHALMIC INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF ESTIMATES (Continued)
RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141(R)”). SFAS 141(R) requires that the acquisition method of accounting be applied to a broader set of business combinations and establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired. SFAS 141(R) also establishes the disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The Company does not expect SFAS No. 141 will have a material effect on its financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 requires that the noncontrolling interest in the equity of a subsidiary be accounted for and reported as equity, provides revised guidance on the treatment of net income and losses attributable to the noncontrolling interest and changes in ownership interests in a subsidiary and requires additional disclosures that identify and distinguish between the interests of the controlling and noncontrolling owners. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company does not expect SFAS No. 160 will have a material effect on its financial statements.
In March 2008, the FASB issued SFAS 161, about Derivative Instruments and Hedging Activities (“SFAS 161”), which becomes effective for the Company on January 1, 2009. This standard amends and expands the disclosure requirements of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 161 requires disclosures related to objectives and strategies for using derivatives; the fair-value amounts of, and gains and losses on, derivative instruments; and credit-risk-related contingent features in derivative agreements. The effect on the Company’s disclosures for derivative instruments as a result of the adoption of FAS 161 in 2009 will depend on the company’s derivative instruments and hedging activities at that time.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). The Board believes that the GAAP hierarchy should be directed to entities because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. This Statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.
OPHTHALMIC INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF ESTIMATES (Continued)
RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts – an interpretation of FASB Statement No. 60 (“SFAS 163”). This Statement requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. Those clarifications will increase comparability in financial reporting of financial guarantee insurance contracts by insurance enterprises by lessening inconsistencies in the recognition and measurement of claim liabilities due to differing views about when a loss has been incurred under FASB Statement No. 5, Accounting for Contingencies. The Company does not expect SFAS No. 163 will have a material effect on its financial statements.
In September 2006, the FASB issues SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R)”. The statement requires an employer to recognize the over funded or under funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted assets of a not-for-profit organization. . SFAS No. 158 is effective for the beginning of an entity’s fiscal year that begins after December 15, 2006. The Company does not expect SFAS No. 158 will have a material effect on its financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The statement standardizes the definition of fair value, establishes a framework for measuring in generally accepted accounting principles and sets forth the disclosures about fair value measurements. SFAS No. 157 is effective for the beginning of an entity’s fiscal year that begins after November 15, 2007. The Company does not expect SFAS No. 157 will have a material effect on its financial statements.
NOTE 2. PROPERTY & EQUIPMENT
At September 30, 2008 & 2007, property and equipment consists of the following:
| | | 2008 | | | 2007 | |
| | | | | | | | | |
| Office furniture and equipment | | $ | 58,433 | | | $ | 58,433 | |
| Machinery and equipment | | | 15,613 | | | | 15,613 | |
| Leasehold improvements | | | 3,000 | | | | 3,000 | |
| | | | 77,046 | | | | 77,046 | |
| Less: accumulated depreciation | | | (72,778 | ) | | | (71,979 | ) |
| Net property and equipment | | $ | 4,268 | | | $ | 5,067 | |
Depreciation expense was $798 and $2,138, for the years ended September 30, 2008 and 2007, respectively.
OPHTHALMIC INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3. INVENTORY
As of September 30, 2008 and 2007, inventory consisted of the following:
| | | 2008 | | | 2007 | |
| | | | | | | | | |
| Raw materials | | $ | 4,624 | | | $ | 7,785 | |
| Finished goods | | | – | | | | – | |
| | | $ | 4,624 | | | $ | 7,785 | |
NOTE 4. RELATED PARTY TRANSACTIONS
As of September 30, 2008 and 2007, notes payable to related parties consist of the following:
| | | 2008 | | | 2007 | |
| | | | | | | |
10% for the first 90 days and 12% per annum, thereafter, note payable to stockholders, principal and interest due at various time | | $ | 249,860 | | | $ | 123,500 | |
18% per annum note payable to a stockholder, principal an interest due on demand; unsecured | | | 11,000 | | | | 11,000 | |
| | | | 260,860 | | | | 134,500 | |
| Less: Current Portion | | | (260,860 | ) | | | (134,500 | ) |
| | | $ | – | | | $ | – | |
OPHTHALMIC INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. SHAREHOLDERS’ EQUITY
The following is the calculation of the September 30, 2006 Ophthalmic International, Inc. accumulated deficit:
| | | | | | | | | | | Adjusted | |
| | | Coronado | | | Adjustments | | | | | Ophthalmic | |
| | | Industries, Inc. | | | | | | | | | Public Rel. | | | | | | | | International, | |
| | | Consolidated | | | Salaries/ | | | Clinic | | | Legal/ | | | General/ | | | | | Inc. | |
| Year | | Income/(Loss) | | | Options | | | Expense | | | Professional | | | Admin. | | | | | Income/(Loss) | |
| | | | | | | | | | | | | | | | | | | | | |
| 1997 | | | (829,702 | ) | | | 20,000 | | | | 243,629 | | | | | | | 122,255 | | 1 | | | $ | (443,818 | ) |
| 1998 | | | (1,622,014 | ) | | | 20,000 | | | | 220,181 | | | | | | | 298,945 | | 1 | | | | (1,082,888 | ) |
| 1999 | | | (1,171,734 | ) | | | 30,000 | | | | 99,613 | | | | 252,529 | | | | | | | | | | (789,592 | ) |
| 2000 | | | (3,580,799 | ) | | | 49,800 | | | | | | | | 1,353,433 | | | | | | | | | | (2,177,566 | ) |
| 2001 | | | (1,779,787 | ) | | | 36,240 | | | | | | | | 309,743 | | | | | | | | | | (1,433,804 | ) |
| 2002 | | | (1,481,121 | ) | | | 36,000 | | | | | | | | 286,432 | | | | | | | | | | (1,158,689 | ) |
| 2003 | | | (1,324,328 | ) | | | 38,500 | | | | | | | | 289,450 | | | | | | | | | | (996,378 | ) |
| 2004 | | | (2,094,936 | ) | | | 30,000 | | | | | | | | 424,769 | | | | | | | | | | (1,640,167 | ) |
| 2005 | | | (2,258,179 | ) | | | 313,500 | | | | | | | | 584,978 | | | | | | | | | | (1,359,701 | ) |
| 09/30/2006 | | | (3,352,279 | ) | | | 1,724,325 | | | | | | | | 576,059 | | | | | | | | | | (1,051,895 | ) |
| | | | (19,494,879 | ) | | | 2,298,365 | | | | 563,423 | | | | 4,077,393 | | | | 421,200 | | | | | | (12,134,498 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Other Adjustments: | | | | | | | Sale of Clinic | | | | | | 38,747 | |
| | | | | | | | | | | | | | | Rent Expense | | | | | | 36,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2006 Ophthalmic International, Inc. Accumulated Deficit: | | | | | $ | (12,059,751 | ) |
__________
| 1. | In 1997 and 1998, legal and professional and public relation expenses had been included under the line item general and administrative expenses. To solve this issue a percentage had to be calculated to estimate how much of the total general and administrative expenses would actually represent legal & professional and public relation expenses. The percentage was obtained by taking a total average of each of the average legal and professional and public relation expenses to total general and administrative expenses for the years 1999, 2001 through 2005. Years 2000 and 2006 were not used because the total general administrative expenses were abnormally large in comparison to the other years and would have caused a less accurate estimate. The percentage of legal and professional and public relation expenses that would have been attributable to Coronado Industries, Inc. as unconsolidated was estimated to be 21.555%. |
OPHTHALMIC INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. INCOME TAXES
As of September 30, 2008, the components of deferred income taxes are as follows:
| Long-term Deferred Tax Assets (Liabilities) | | | | |
| Net operating loss carry-forwards | | $ | 313,389 | |
| Less: valuation allowance | | | (313,389 | ) |
| Net Long-term Deferred Tax Asset | | | – | |
The Company has provided a full valuation allowance on its deferred tax asset as of September 30, 2008. The valuation allowance increased by approximately $85,432 during the year ended September 30, 2008, primarily due to the increase in the net operating loss.
As of September 30, 2008, the Company has net operating loss carry-forwards available to offset future federal and state taxable income in the amounts of approximately $803,562.
NOTE 7. COMMITMENTS
Operating Leases
The Company moved operations to new facilities in November 2004 at which time 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 rent payments are $4,520.
Future minimum lease payments under the Company’s operating lease as of September 30, 2008 are as follows:
Year Ending September 30: | | | |
| | | | | |
| 2009 | | | 54,240 | |
| 2010 | | | 13,560 | |
| Future minimum lease payments | | $ | 67,800 | |
For the years ended September 30, 2008 and 2007, rent expense under the lease agreements was $45,200 and $52,551, respectively.
OPHTHALMIC INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. NOTE PAYABLES
| | | 2008 | | | 2007 | |
| | | | | | | |
15% per annum note payables to Robert Suliot, principal and interest payable on demand | | $ | 100,000 | | | $ | 100,000 | |
| 12% per annum note payable to Victor Webb, principal and interest payable on demand | | | 20,000 | | | | | |
| 15% per annum note payable to Vickie Goulette, principal and interest payable on demand | | | 60,000 | | | | | |
| | | | 180,000 | | | | 100,000 | |
| Less: current portion | | | (180,000 | ) | | | (100,000 | ) |
| | | $ | – | | | $ | – | |
