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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended -- December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 33-33042-NY
CORONADO INDUSTRIES, INC.
(Name of small business issuer in its charter)
Nevada 22-3161629
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16929 E. Enterprise Drive, Suite 202, Fountain Hills, AZ 85268
(Address of principal executive offices) (as of date of filing) (Zip Code)
Issuer's telephone number (602) 837-6810
Securities registered under Section 12(b) of the Exchange Act: NONE
Title of each class Name of each exchange on which registered
Securities registered under section 12(g) of the Exchange Act: NONE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject such filing requirements for the past 90 days. Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
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CORONADO INDUSTRIES, INC.
FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Page
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PART I
Item 1. Business Development ................................ 1
Item 2. Description of Property ............................. 6
Item 3. Legal Proceedings ................................... 6
Item 4. Submission of Matters to a Vote of Security Holders.. 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters............................. 7
Item 6. Management's Discussion and Analysis or
Plan of Operation................................ 8
Item 7. Financial Statements................................. 9
Item 8. Changes In and Disagreement with Accountants on
Accounting and Financial disclosure ............. 9
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons' Compliance with Section 16(a)
of the Exchange Act................................ 10
Item 10. Executive Compensation .............................. 11
Item 11. Security Ownership of Certain Beneficial Owners
and Management..................................... 12
Item 12. Certain Relationships and Related Transactions....... 12
PART IV
Item 13. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K ............................... 13
SIGNATURES................................................................ 14
SUPPLEMENTAL INFORMATION AND EXHIBITS..................................... 15
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PART I
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this document contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the Registrant intends
that such forward-looking statements be subject to the safe harbors created
thereby. Such forward-looking statements involve risks and uncertainties and
include, but are not limited to, statements regarding future events and the
Registrant's plans and expectations. The Registrant's actual results may differ
materially from such statements. Although the Registrant believes that the
assumptions underlying the forward-looking statements herein are reasonable, any
of the assumptions could prove inaccurate and, therefore, there can be no
assurance that the results contemplated in such forward-looking statements will
be realized. In addition, the business and operations of the Registrant are
subject to substantial risks which increase the uncertainties inherent in the
forward-looking statements included in this document. The inclusion of such
forward-looking information should not be regarded as a representation by the
Registrant or any other person that the future events, plans or expectations
contemplated by the Registrant will be achieved.
ITEM 1(a). BUSINESS DEVELOPMENT.
INITIAL PUBLIC OFFERING
The Registrant was incorporated under the laws of the State of New York on
December 21, 1989. The effective date of the Registrant's public offering was
March 13, 1990. The Registrant offered 5,000 common shares, par value $.001
each, at $4.50 per Share and 5,000 Warrant Units each Warrant Unit consisting of
8 redeemable common share purchase "A" warrants, 16 redeemable common share
purchase "B" warrants and 16 redeemable common share purchase "C" warrants at
$.50 per Warrant Unit.5,000 Shares and 5,000 Warrant Units were sold in the
offering yielding gross proceeds of $25,000 and net proceeds of $15,000 after
payment of offering expenses of $10,000. The Offering closed on May 1, 1990.For
further information concerning the Registration Statement, see File No.
33-33042-NY at the Securities and Exchange Commission's Regional Office in New
York City or at its principal office in Washington, D.C.
GENERAL DESCRIPTION OF INITIAL BUSINESS
The Registrant was organized under the name, First Lloyd Funding, Inc. as a
blank check company. The Registrant was not engaged in any business prior to its
initial public offering. It was formed to invest in, merge, or otherwise combine
with or acquire another company or other companies.
OPHTHALMIC INTERNATIONAL, L.L.C. AND AMERICAN GLAUCOMA, INC.
After a series of acquisitions and spin-offs from May 1990 to September
1996, on November 5, 1996 the Registrant entered into an Asset Purchase
Agreement with Ophthalmic International, L.L.C. ("OI"), and American Glaucoma, a
joint venture ("AG"), which provided for the purchase of the assets of OI and AG
in exchange for 15,592,224 shares of the Registrant's common stock (85%) to be
issued to the Registrant's current three Directors. An additional 855,000 shares
were issued as finders fees to twelve entities and individuals, including
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340,000 shares to Edward A. Barth (then President and a Director of the
Registrant) and Barth Construction Co., Inc., 5,000 shares to Richard Campanalie
(then a Registrant Director) and 20,000 shares to Richard Hooper (then a
Registrant Director). See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
The assets of OI transferred to the Registrant were a patent pending and
other proprietary information concerning equipment and a process for the
treatment of open angle glaucoma. The assets of AG transferred to the Registrant
were the concept and a business plan for forty glaucoma treatment centers in the
United States. However, a provision in the Asset Purchase Agreement allowed OI
to rescind the transaction and receive the patent rights and other proprietary
rights back from the Registrant in the event OI discovered within one year after
the date of the Asset Purchase Agreement that the Registrant breached one of its
representations or warranties in that agreement. OI waived this right of
rescission in July 1997.
ITEM 1(b). BUSINESS OF ISSUER
OVERVIEW
The Registrant is a holding company and all business operations are
conducted through its two wholly-owned subsidiaries. The Registrant, through its
Ophthalmic International, Inc. subsidiary, will manufacture and market a vacuum
fixation device with a patented designed suction ring that treats Open Angle and
Pigmentary glaucoma. American Glaucoma, Inc. ("AGI"), the Registrant's other
subsidiary, operates a glaucoma treatment center in Scottsdale, Arizona and
intends to open up to 40 similar treatment centers in the United States.
In the United States, glaucoma is the second leading cause of blindness
affecting approximately 7,500,000 persons. Of those, about 60,000 are legally
blind. Glaucoma affects approximately three percent of the world's population,
with certain ethnic populations having a higher occurrence rate. If detected and
treated early, glaucoma need not cause blindness or even severe vision loss.
While there is no cure for glaucoma, the Registrant believes that its patented
device and process provide an effective treatment for afflicted persons and that
a significant global market for its patented process, equipment and rings
currently exists.
Glaucoma is not a single disease but rather a group of diseases that effect
the eye. This group of diseases has a single feature in that 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.
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THE VACUUM FIXATION DEVICE
After four years of ongoing studies involving Dr. John T. LiVecchi, M.D.,
F.A.C.S., Assistant Clinical Professor of Ophthalmology, Allegheny University
and Dr. Guillermo Avolos, Professor of Ophthalmology, University of Guadalajara,
Mexico, it was determined that a 2 minute treatment with Ophthalmic
International's "vacuum fixation device and patented design suction ring"
temporarily reduced I.O.P. in the treatment of Open angle Glaucoma by
approximately 6 Hg for an average of three months at which time the treatment
can be repeated with no serious side effects. This I.O.P. lowering is achieved
when the external suction device is applied over the perilimbal area for a
specified time. With this treatment the Registrant believes that there are no
harmful side effects, like those associated with eye drop treatments. In
addition, the following patent entitled "Open Angle Glaucoma Treatment Apparatus
and Method" has been approved and is believed to allow the Registrant to achieve
a significant market advantage over competitors.
The Registrant's treatment is a "Non-Invasive Procedure" and the Registrant
believes the procedure has no harmful side effects, like those associated with
eye drops. The test results thus far have indicated an average drop of I.O.P.
per procedure was 6 mm Hg and 73% of all eyes treated maintained an I.O.P.
lowering effect (without additional traditional treatment) after 8 months.
Dr. John LiVecchi, a Registrant Director, and Dr. Leo Bores, the
Registrant's Medical Director, have been asked to address to different medical
conventions of ophthalmologists in March and April 1998 concerning the results
of the studies of Registrant's procedure and equipment. These presentations to
the ultimate end-users of Registrant's products serve to educate the industry
about the Registrant's products and their efficacy.
Registrant's subsidiary, Ophthalmic International, Inc., intends to
manufacture and sell the vacuum equipment, the patented rings and the process in
the United States and abroad, primarily through distributors who will be
assigned specific geographical territories, on the basis of continents or
countries. Ophthalmic International entered into a confidentiality agreement
with Alcon Co. in March, 1997 as the first step in negotiating for Alcon to
become a distributor. The Registrant expects Ophthalmic International to enter
into confidentiality agreements with one or more additional potential
distributors and to commence negotiations for exclusive worldwide distribution
rights within the next 30 days. These negotiations may not be completed and
definitive agreements executed until one or more independent studies are
completed.
Until such time as Registrant executes an exclusive worldwide distribution
agreement, Registrant expects to enter into one or more non-exclusive
distribution agreements with medical equipment dealers in the Far East and/or
Europe. These short-term agreements will provide Registrant with test-marketing
results for use in its negotiations for the exclusive worldwide rights and
provide Registrant with interim cash flow.
The Registrant expects its distributors will purchase the vacuum equipment
for approximately $5,000-$10,000 per unit and purchase the patented ring which
is placed on the patient's eye, for approximately $10 to $15 each, depending
upon volume. The Registrant expects, without assurance, to have a gross profit
margin on the vacuum equipment and patented rings in excess of 60%.
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The Registrant's vacuum equipment is composed of special order parts, such
as molded case, display board, circuit boards, and motors, all for which
Registrant has established manufacturing relationships with manufacturers.
Registrant's subsidiary, Ophthalmic International, Inc., assembles the vacuum
fixation device at its offices in Fountain Hills, Arizona. At such time as
Registrant executes an agreement with a major worldwide distributor, Registrant
may also sell the manufacturing rights to the same company. The Registrant has
contracted for the manufacture of the patented rings with a medical device
manufacturer located in California.
THE TREATMENT CENTERS
Registrant's subsidiary, American Glaucoma, Inc., opened its first glaucoma
treatment center in Scottsdale, Arizona in September 1997. Registrant estimates
that there are approximately 62,000 glaucoma patients in the Phoenix area, based
upon a three percent general population occurrence of the condition. Based upon
an estimated start-up cost and first year budget of $600,000 for the Scottsdale
Center, Registrant estimates that it would have to treat approximately 1,000
patients for an annual clinic fee of $1,200 to break-even on these initial
expenditures, assuming a 50% net income margin (of which there is no assurance).
During the fourth quarter of 1997 the Registrant's Scottsdale Center
generated approximately $65,000 of gross revenues. The Registrant believes that
its advertising campaign and the resulting patient treatment at the Scottsdale
Center have indicated that the Registrant's products and glaucoma treatment
centers will be widely accepted by the general glaucoma public in the near
future.
The Registrant is hopeful of opening two additional treatment centers in
during 1998, subject to adequate funding. These initial two centers are
currently planned for the Sun Belt areas, such as Florida. The Registrant has
initiated discussions with certain practicing ophthalmologists in these states,
concerning their possible participation in the Registrant's future treatment
centers. On the basis of these discussions, the Registrant believes it will be
able to recruit practicing ophthalmologists as the medical directors of its
future treatment centers. However, the Registrant has not entered into any
agreement or reached any arrangement with any physician at this time. The
Registrant anticipates that its advertising and telemarketing techniques
initiated and refined at the Registrant's Scottsdale Center will enable the
Registrant's additional treatment centers to reach profitability in a shorter
time period than the Scottsdale Center.
Dr. Leo Bores, currently the Medical Director of the Registrant's
Scottsdale Center, will become the Supervising Medical Director of all of the
Registrant's future treatment centers at such time as the Registrant has opened
two or more additional centers.
PATENT
On February 11, 1997 the U.S. Patents and Trademarks Office issued a patent
to Ophthalmic International, L.L.C., Patent Number 5,601,548, for the process,
equipment and the procedure which has been licensed to the Registrant. The
Registrant believes, without assurance, that this patent provides the Registrant
with a substantial competitive advantage over current and future glaucoma
treatment competitors. The Registrant is not aware of any other patent being
granted for glaucoma treatment.
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The Registrant intends to follow a policy of aggressively pursuing claims
of infringement on its patent and the Registrant does not believe its patent, or
product or services infringe on the rights of any other person.
COMPETITION
The medical device and service industries are highly competitive. The
Registrant's patented device and treatment process are and will be in
competition with established and future treatment procedures and products. The
Registrant's treatment centers will compete directly with other medical care
providers. The future sale of the Registrant's products to ophthalmologists,
optometrists, medical clinics and hospitals may meet substantial resistance from
distributors and potential customers, particularly until the FDA product label
is changed and the insurance /Medicare billing codes are established.
Ophthalmologists not employed by the Registrant are likely to discount the
benefits of the Registrant's products to their patients from fear of losing
patients to the Registrant's treatment centers, even though the clinical results
of the Registrant's products have been presented at ophthalmic conventions in
the United States for over two years. Further, the Registrant will need to
establish the economic benefit of its products to the satisfaction of health
maintenance organizations ("HMO") before the Registrant's glaucoma treatment
centers receive patient treatment referrals from HMOs. Today HMOs are
responsible for the medical treatment of a substantial percentage of the
population of the United States.
GOVERNMENTAL REGULATION
Presently the Registrant believes it may sell and distribute its "vacuum
fixation device" in the Untied States pursuant to a Section 510(k) exemption of
the Untied States Food and Drug Administration (the "FDA"). The Registrant
registered with the FDA as a manufacturer and distributor of a Section 510(k)
product in April 1996. The Registrant anticipates that it will apply to the FDA
to change the label on the equipment from a "vacuum fixation device" to a
"glaucoma treatment device." The first step in this FDA re-labeling process is
the completion of independent studies of the product's performance and safety.
Registrant is currently in discussion with several other universities and
medical study centers concerning the commencement of additional studies on the
Registrant's product and process under its 1994 investigational device exemption
study. There is no assurance as to when any study will be completed or that the
results of any study will be beneficial to the Registrant's FDA process.
Likewise, there can be no assurance when, if ever, the Registrant's equipment
will be re-labeled as a "glaucoma treatment device" by the FDA.
In May 1996 the FDA advised eye care professionals that physician decisions
to conduct procedures which are outside the FDA approved labeling on equipment
are considered the practice of medicine and, as such, are outside the FDA's
jurisdiction. At the same time the United States Federal Trade Commission
advised that physicians should not advertise the possible use of medical devices
beyond the limits approved by the FDA. Presently the Registrant does not, and
will not in the future until proper approval is obtained, advertise the use of
its equipment as a glaucoma treatment device.
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In July 1997 the Registrant's Scottsdale treatment center registered with
the State of Arizona Department of Health Services as a "health care treatment
institution" and the Registrant anticipates that all of its treatment centers
will be required to register in the various states in which they will be
located. The Registrant is unable to predict at this time the exact amount of
time and expense which will be needed to register as a health care provider in
each state in which the Registrant may wish to open a glaucoma treatment center.
There is no assurance that the Registrant will be able to register as a health
care provider in each state of the Registrant's choice.
EMPLOYEES
In addition to its two officers, the Registrant employs one person
full-time at the corporate headquarters. The Registrant presently employs its
Medical Director, Dr. Leo Bores, and 4 full-time medical and clerical personnel
at its Scottsdale glaucoma treatment center. The Registrant anticipates hiring
additional administrative and marketing personnel upon the opening of additional
treatment centers, in addition to medical personnel at the centers.
ITEM 2. DESCRIPTION OF PROPERTY.
During calendar year 1997, the Registrant's offices were located at 16929
E. Enterprise Drive, Suite 202, Fountain Hills, AZ 85268, where Registrant is
currently leasing approximately 1,600 square feet of space from a third party
landlord. Registrant is paying approximately $1,000 per month, including
utilities, in rent for this space on a five-year lease. Registrant presently
believes this space is adequate to satisfy Registrant's current needs. However,
Registrant will need to obtain additional space in order to hire additional
people at the corporate level.
On July 28, 1997 the Registrant executed a lease with Dr. Leo Bores, the
Registrant's Medical Director, for a 4,200 square foot medical facility located
at 8049 N. 85th Way, Scottsdale, Arizona. This facility is the site of the
Registrant's first treatment center. The monthly lease rate on this facility is
$3,500. The Registrant has a two-year option to purchase this building for the
sum of $400,000 cash. The Registrant believes this facility is adequate to serve
up to 60 glaucoma patients per day.
ITEM 3. LEGAL PROCEEDINGS.
There were no legal proceedings involving the Registrant pending or
threatened at December 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During calendar year 1997 no matters were submitted to a vote of the
Registrant's security holders.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information. The principal U.S. market in which the Registrant's
common shares (all of which are one class, $.001 par value) were traded was the
over-the-counter market. The aforesaid securities are not traded or quoted on
any automated quotation system. Such over-the-counter market quotations reflect
inter-dealer prices without retail markup, markdown or commission and may not
necessarily represent actual transactions. The following table shows the low and
the high bid reported by the NASDAQ Bulletin Board System in 1996 and 1997, by
fiscal quarter, and for the first quarter of 1998.
Low High
--- ----
January 1, 1996 -- March 31, 1996 0 0
April 1, 1996 -- June 30, 1996 (reflecting 5:1 reverse split) 0 0
July 1, 1996 -- September 30, 1996 0 0
October 1, 1996 -- December 31, 1996 $1.50 $9.75
January 1, 1997 -- March 31, 1997 $3.00 $6.75
April 1, 1997 - June 30, 1997 $2.50 $5.94
July 1, 1997 - September 30, 1997 $1.94 $4.38
October 1, 1997 - December 31, 1997 $1.00 $2.75
January 1, 1998 - March 27, 1998 $0.63 $3.09
Holders. The Registrant has approximately 310 stockholders of record
including nominee firms for securities dealers.
Dividends. The Registrant has not paid or declared any dividends upon its
common shares since its inception and, by reason of its present financial status
and its contemplated financial requirements, does not intend to pay or declare
any dividends upon its common shares within the foreseeable future.
Warrants. During calendar year 1997 the Registrant issued a total of
568,400 common stock purchase warrants to the underwriter of its 1997 private
placement and its representatives. Through March 20, 1998, Registrant had issued
a total of 819,824 warrants to the underwriter of its 1998 private placement and
its representatives. All of these warrants have the same following terms:
exercise price of $2.00 per share through December 31, 1998 and then $2.50 per
share through December 31, 2000 when they expire. These warrants enjoy
"piggy-back" registration rights with respect to certain future registration
statements of Registrant and "demand" registration rights one year after the
final offering closing dates which occurred in February and March 1998,
respectively.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Operations. Registrant was a development stage company at year-end December
31, 1996, with no revenues having been generated during the year. Therefore,
there is no comparable prior year's operations to which to compare the 1997
annual operating results.
For the year ended December 31, 1997 Registrant experienced a net loss from
operations of $810,806, which was comprised of a net loss from Registrant's
treatment center operation of $243,629 and its general and administrative
expenses incurred at the corporate level of $567,177. 68.7% of Registrant's
corporate expenses consisted of officers salaries of $200,000 (35.3%) and
professional expenses of $189,228 (33.4%). Registrant expects its professional
expenses to remain at a high level as a result of its continued attempts to
obtain financing in 1998 for two additional treatment centers, as well as
incurring the legal costs of acquiring and opening additional treatment centers.
See "Liquidity and Capital Resources" below.
During the four months in which Registrant's Scottsdale treatment center
was receiving patients, the center generated $26,107 of revenues. During the
first quarter of 1998 the revenues of the center were substantially higher on a
monthly basis than in 1997. Registrant currently expects the Scottsdale
treatment center to be profitable in the second half of 1998, if not sooner.
Since the Registrant incurred advertising and personnel expenses during the
month preceding the opening of its treatment center, Registrant's center
expenses of $269,736 represented five months of costs. 79.0% of the center's
expenses were represented by advertising costs of $120,300 (44.5%) and personnel
salaries of $93,072 (34.5%). Registrant expects the treatment center's personnel
costs to remain fairly constant during 1998, and perhaps increase in the second
half of the year as increased patients require additional personnel. Registrant
expects its advertising costs of the Scottsdale center to decrease substantially
in 1998, because the initial advertising expenses will not be required in 1998
and Registrant has sufficient capital on hand in 1998 to pay for advertising in
advance, which should result in a substantial discount.
Liquidity and Capital Resources. On a short-term and long-term basis
Registrant requires only minimal capital to sustain its manufacturing and
marketing of the patented Vacuum Fixation Device and the patented suction rings,
because of Registrant's current inventory levels and the low cost of marketing
these patented products. However, on a short-term basis Registrant requires
approximately $800,000 to $1,000,000 to adequately fund the first year's
operation of any additional glaucoma treatment centers. Registrant is presently
planning to conduct another private placement of its securities or secure debt
financing in 1998 to secure financing for one or more treatment centers.
However, at this time Registrant has received no commitments from any source to
provide such financing. On a long-term basis, Registrant anticipates, without
assurances, that its initial glaucoma treatment centers will be sufficiently
profitable to permit additional glaucoma treatment centers to be funded during
subsequent years from a combination of internal and external sources.
During the second half of 1997 the Registrant received a total of $710,500
of proceeds from a private placement of its securities. These funds were used
primarily to purchase and open the Scottsdale treatment center and to pay
various professional expenses.
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During the first quarter of 1998 Registrant received a total of $834,544
from two private placement offerings of its securities. Registrant expects these
funds, along with the future profitably of the Scottsdale treatment center, will
provide financial stability for the Registrant's current operations throughout
1998.
In December 1996 through April 1997 Registrant issued a series of
promissory notes to a third party aggregating $220,000 at year end, all payable
on one year after issuance and bearing 15% annual interest. These notes and
accrued interest thereon were repaid in full on March 19, 1998.
ITEM 7. FINANCIAL STATEMENTS.
See Financial Statements starting on page F-1 for this information.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
On March 21, 1996, Registrant's prior certifying accountant, Hobe & Lucas
of Independence, Ohio, issued an opinion on the consolidated financial
statements of Logical Computer Services of New York, Ltd., a New York
corporation and a predecessor corporation, in conjunction with the issuance of
the Registrant's annual report on Form 10-KSB for the fiscal year ended December
31, 1995. The opinion stated that the accompanying consolidated financial
statements for the fiscal years ended December 31, 1995 and 1994 were prepared
assuming that the Registrant would continue as a going concern. The letter
referred to disclosures in Note 8 of the financial statements that the
Registrant had incurred net losses during the years ended December 31, 1995 and
1994, respectively, which, along with other conditions, raised substantial doubt
about the Registrant's ability to continue as a going concern. The opinion
additionally stated that the financial statements did not include any
adjustments that might result from the outcome of these uncertainties. Note 8 to
those financial statements disclosed that in order to meet the Registrant's
current debt, additional working capital would be required and that as of the
date of the report the Registrant had not raised sufficient funds to meet its
needs. Registrant is unaware of any disagreements with Hobe & Lucas that existed
at any time.
On January 17, 1997 Hobe & Lucas resigned from its engagement with
Registrant as a result of Registrant's move of its offices to Arizona.
On March 13, 1997 Arthur Andersen LLP ("Arthur Andersen") was engaged by
Registrant to audit its financial statements for the fiscal year ended December
31, 1996. Registrant was not provided with any advice as to accounting, auditing
or financial reporting issues arising from any discussion with Arthur Andersen.
On March 28, 1997, Arthur Andersen resigned as the certifying accountant for
Registrant. Arthur Andersen had not issued any report on the financial
statements of Registrant. Registrant is aware of no disagreements or reportable
events with respect to its relationship with Arthur Andersen.
On May 8, 1997, Registrant engaged Semple & Cooper, L.L.P., as its
principal accountant to audit Registrant's financial statement, commencing with
the year-ended December 31, 1996. Prior to its engagement of Semple & Cooper
L.L.P., the Registrant had not contacted Semple & Cooper L.L.P. with respect to
any accounting matter or the subject of any disagreement with a previous
accounting firm.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS' COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The directors and executive officers of the Registrant as of December 31,
1997 were as follows:
Name and Address Position
---------------- --------
Gary R. Smith Director, President and Treasurer
16929 E. Enterprise Drive Suite 202
Fountain Hills, AZ 85268
G. Richard Smith Director, Chairman and Secretary
16929 E. Enterprise Drive Suite 202
Fountain Hills, AZ 85268
John T. LiVecchi Director
16929 E. Enterprise Drive Suite 202
Fountain Hills, AZ 85268
The Registrant presently has two vacancies on its Board of Directors.
Gary R. Smith, age 54, has been a Director of the Registrant since November
5, 1996, and President and Treasurer of the Registrant since November 5, 1996.
From July, 1995 to November 5, 1996 Gary R. Smith was a member and Vice
President of Product Development and Manufacturing of Ophthalmic International,
L.L.C., the company that developed and patented the glaucoma treatment which was
conditionally transferred to the Registrant. From 1987 to June, 1995 Gary R.
Smith was Co-owner and Vice President of Product Development and Manufacturing
for Southern California Medical Distributors, Ltd. ("SCMD"), where he developed
a turbine powered keratome for eye surgery. Gary R. Smith attended Detroit
Institute of Technology in Detroit, Michigan from 1961 through 1963.
G. Richard Smith, age 50, has been a Director of the Registrant since
November 5, 1996 and Secretary of the Registrant since November 5, 1996. He
became Chairman in March, 1998. From July, 1995 to November 5, 1996 G. Richard
Smith was a member and President of Ophthalmic International, L.L.C., the
company that developed and patented the glaucoma treatment which was
conditionally transferred to the Registrant. From 1987 to June, 1995 G. Richard
Smith was Co-owner and President of Southern California Medical Distributors,
Ltd. ("SCMD") which developed a turbine powered keratome for eye surgery. G.
Richard Smith attended Oakland University in Oakland County, Michigan from 1968
to 1970.
John T. LiVecchi, age 50, has been a Director of the Registrant since
December 16, 1996. Dr. LiVecchi received his medical degree in 1977 from the
University of Rome, Italy. From 1983 to present Dr. LiVecchi has been in private
medical practice in the field of ophthalmology in the Scranton, Pennsylvania
area. Dr. LiVecchi has been on the staff of several hospitals and universities.
Dr. LiVecchi is licensed to practice medicine in the States of New York,
Michigan and Pennsylvania. Dr. LiVecchi has authored numerous articles and
presentations. In 1994 Dr. LiVecchi undertook the project of developing
equipment and procedures for treating open angle glaucoma, along with the
Registrant's other Directors.
10
<PAGE>
Messrs. Smith, Smith and LiVecchi were the three owners of SCMD which
developed a turbine powered keratome for eye surgery. They sold this company to
its Chinese distributor in 1995. During the last year before its sale, this
company had total revenues of approximately $1,050,000 and net income of
approximately $695,000. This company was sold for a multiple of its net income.
Messrs. Smith, Smith and LiVecchi sold SCMD to devote their efforts to the
development of the glaucoma treatment process and equipment, which they felt
could be more profitable than the turbine keratome.
KEY EMPLOYEE
Dr. Leo Bores, as the Medical Director of the Registrant's Scottsdale
glaucoma treatment center and the Supervising Medical Director of the future
centers, is a key employee of the Registrant. Dr. Bores received a B.S. degree
in Biochemistry and Biology in 1958 from Wayne State University. Dr. Bores
received his degree from the Wayne State University College of Medicine in 1962
and he served his internship at Harper Hospital in Detroit, Michigan in 1962 and
1963. Dr. Bores was a resident in Ophthalmology from 1963 to 1968 and was
certified by the American Board of Ophthalmology in 1969. Dr. Bores is
internationally known for his contributions to the development of radial
keratotomy ("RK"). In 1994, Dr. Bores received the 1st Annual Award for
outstanding scientific contributions to eye microsurgery. In 1995 Dr. Bores
became the 12th recipient of the Innovators in Ophthalmology Award from the
American Society for Cataract and Refractive Surgery for outstanding
contributions in ophthalmic surgery.
ITEM 10. EXECUTIVE COMPENSATION.
As of December 31, 1997, there are no outstanding employment contracts.
However, in December 1996 the Registrant's Board of Directors approved annual
salaries of $100,000 for the Registrant's two Officers, Gary R. Smith and G.
Richard Smith. During 1997 each of these officers received $37,500 of salary,
with $62,500 accruing to each. As the Registrant's revenues and earnings
increase in the future, the salaries of these officers may increase.
On July 18, 1997, the Registrant executed a two-year agreement with Dr. Leo
Bores, pursuant to which Dr. Bores will be paid a salary of $150,000 for the
first year and $200,000 for the second year. In addition to his base salary, Dr.
Bores shall receive an annual bonus equal to 5% of the net income from the
Scottsdale treatment center. It is presently expected that the Registrant will
execute an agreement with Dr. Bores as the Supervising Medical Director over all
the Registrant's future glaucoma treatment centers.
STOCK OPTION PLAN
The Registrant's Board of Directors is considering the adoption of a 1997
Stock Option Plan for the Company (the "Option Plan") and anticipates up to
2,000,000 shares will be reserved for issuance thereunder. The Option Plan is
structured to allow the Board of Directors and a future Stock Option Committee
of the Boards discretion in creating equity incentives to management, key
employees and professional consultants for the purpose of assisting the
Registrant in motivating and retaining appropriate talent. To date, the Option
Plan has not been adopted and the Registrant has not granted any options under
the Option Plan; however, it is anticipated that Dr. Bores will be granted an
option for a significant number of Registrant shares.
The Registrant currently has no pension, retirement, annuity, savings or
similar benefit plan which provides compensation to its executive officers or
directors.
11
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of March 23, 1998 there were 20,563,421 outstanding shares. The
following table sets forth the name, address, number of shares beneficially
owned, and the percentage of the Registrant's total outstanding common stock
shares owned by: (i) each of the Registrant's Officers and Directors; (ii) the
Registrant's Officers and Directors as a group; and (iii) other shareholders of
5% or more of the Registrant's total outstanding common stock shares.
Name and Address Amount and Nature of Percent
Title Of Class Beneficial Owner Beneficial Ownership(1) of Class
- -------------- ---------------- ----------------------- --------
Common Stock Gary R. Smith 6,238,512 30.3%
16929 E. Enterprise Drive Suite 202
Fountain Hills, AZ 85268
Common Stock G. Richard Smith 6,622,112 32.2%
16929 E. Enterprise Drive Suite 202
Fountain Hills, AZ 85268
Common Stock John T. LiVecchi 2,000,000 9.7%
16929 E. Enterprise Drive Suite 202
Fountain Hills, AZ 85268
Common Stock Officers and Directors, As a 14,860,624 72.3%
Group (3 People)
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On November 5, 1996, the Registrant entered into the Asset Purchase
Agreement with Ophthalmic International, L.L.C., and American Glaucoma, whereby
6,796,112 restricted shares of Registrant's common stock were issued to each of
Gary R. Smith and G. Richard Smith, and 2,000,000 restricted shares were issued
to John T. LiVecchi. Messrs. Smith, Smith and LiVecchi became the Registrant's
sole Directors as a result of this transaction. For accounting purposes, Messrs.
Smith, Smith and LiVecchi are deemed to have no cost in the assets transferred
to the Registrant. Ophthalmic International, L.L.C., has the right to rescind
the transaction and receive the return of the patent and other proprietary
assets it transferred to Registrant, if it discovers that Registrant breached
any of its warranties or representations contained in the Asset Purchase
Agreement.
Edward A. Barth, Richard Companalie and Richard Hooper, former directors of
the Registrant, received 335,000, 5,000, and 20,000 restricted Registrant
shares, respectively, as a finder's fee in the Asset Purchase Agreement. In
addition, Barth Construction Co., Edward Barth's construction company, received
5,000 shares of Registrant common stock as a finder's fee in the Asset Purchase
Agreement. An additional 495,000 post-split shares was issued in November, 1996
by the Registrant to former officers of the Registrant and shareholders of
Android Corp. as finder's fees.
12
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8K.
Reference is herewith made to the financial statements and notes thereto
included herein and to the cover page of this 10-KSB with respect to documents
incorporated by reference in accordance with Rule 12b-33.
INDEX TO EXHIBITS PROVIDED
Financial Statements -- F-1
Exhibit 27 -- Financial Data Schedule
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf on March 26, 1998 by the undersigned, thereunto authorized.
CORONADO INDUSTRIES, INC.
By: /s/ Gary R. Smith
------------------------------
Gary R. Smith, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities on the date(s) indicated.
/s/ G. Richard Smith Chairman, Secretary, Director Dated: March 26, 1998
- -------------------------
G. Richard Smith
/s/ Gary R. Smith President (Chief Executive Dated: March 26, 1998
- ------------------------- Officer), Treasurer (Chief
Gary R. Smith Accounting Officer), Director
- ------------------------- Director Dated:
John LiVecchi
14
<PAGE>
SUPPLEMENTAL INFORMATION AND EXHIBITS
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
The Registrant's fiscal year ended December 31, 1998. The Registrant
currently has not held its Annual Meeting of Stockholders.
Four copies of all material to be mailed to stockholders with respect to
such meeting will be furnished to the Securities and Exchange Commission but
such documents, when furnished, will not be deemed to be filed with the
Securities and Exchange Commission or otherwise subject to liabilities of
Section 18 of the Act (except to the extent that the Registrant specifically
incorporates such material by reference in any subsequent Form 10-KSB); it is
expected that such documents will consist of a Form of Proxy, Notice of Annual
Meeting, Information Statement with Schedules and/or Exhibits annexed thereto.
15
<PAGE>
CORONADO INDUSTRIES, INC.
FINANCIAL STATEMENTS
For The Years Ended
December 31, 1997 and 1996
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board of Directors of
Coronado Industries, Inc.
We have audited the accompanying balance sheet of Coronado Industries, Inc. as
of December 31, 1997, and the related statements of operations, changes in
stockholders' equity (deficit), and cash flows for the years ended December 31,
1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Coronado Industries, Inc. as of
December 31, 1997, and the results of its operations, changes in stockholders'
equity (deficit), and its cash flows for the years ended December 31, 1997 and
1996 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Semple & Cooper, LLP
Certified Public Accountants
Phoenix, Arizona
March 13, 1998
F-2
<PAGE>
CORONADO INDUSTRIES, INC.
BALANCE SHEET
December 31, 1997
ASSETS
Current Assets:
Cash $ 65,631
Accounts receivable, net (Notes 1 and 5)
- trade 7,809
- other 3,999
Inventory (Note 1) 43,031
Prepaid expenses 104,500
---------
Total Current Assets 224,970
Property and Equipment, net (Notes 1 and 2) 149,402
Other Assets:
Intangible assets, net (Notes 1 and 3) 36,345
---------
Total Assets $ 410,717
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable (Note 4) $ 224,631
Note payable to related party - current
portion (Note 5) 39,375
Accounts payable 76,690
Accrued salaries 153,673
Accrued payroll taxes and other 22,222
---------
Total Current Liabilities 516,591
Note payable to related party - long-term
portion (Note 5) 39,375
---------
Total Liabilities 555,966
---------
Commitments: (Notes 5 and 9) --
Stockholders' Equity (Deficit): (Note 6)
Preferred stock - $.0001 par value; 3,000,000 shares
authorized, none issued or outstanding --
Common stock - $.001 par value; 25,000,000 shares
authorized, 18,962,653 shares issued and outstanding 18,962
Additional paid-in capital 730,622
Accumulated deficit (894,833)
---------
Total Stockholders' Equity (Deficit) (145,249)
---------
Total Liabilities and Stockholders' Equity (Deficit) $ 410,717
=========
The Accompanying Notes are an Integral Part
of the Financial Statements
F-3
<PAGE>
CORONADO INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
For The Years Ended December 31, 1997 and 1996
1997 1996
---- ----
Patient Revenues, Net (Note 1) $ 26,107 $ --
Cost of Patient Revenues 269,736 --
----------- -----------
Gross Loss (243,629) --
General and Administrative Expenses 567,177 64,042
----------- -----------
Loss from Operations (810,806) (64,042)
Interest Expense (26,381) (1,089)
Other Income 7,485 --
----------- -----------
Net Loss $ (829,702) $ (65,131)
=========== ===========
Basic Loss per Share (Note 1) $ (.04) $ --
=========== ===========
Weighted Average Shares Outstanding 18,504,392 18,344,253
=========== ===========
The Accompanying Notes are an Integral Part
of the Financial Statements
F-4
<PAGE>
CORONADO INDUSTRIES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For The Years Ended December 31, 1997 and 1996
Total
Common Stock Stock-
-------------------- Additional Retained Holders'
Shares Paid-in Earnings Treasury Equity
Outstanding Amount Capital (Deficit) Stock (Deficit)
----------- ------ ------- --------- ----- -------
Balance at
December
31, 1995 1,885,573 $ 2,755 $ 253,737 $(298,854) $(9,425) $ (51,787)
Stock issued
for
services 40,000 40 1,160 -- -- 1,200
One for five
reverse
stock
split (1,540,448) (1,540) 1,540 -- -- --
Proceeds
from sale
of stock, net 1,511,904 1,512 74,885 -- -- 76,397
Reverse merger
with American
Glaucoma and
Ophthalmic 15,592,224 15,592 (293,313) 298,854 -- 21,133
Retirement of
treasury
stock -- (870) (8,555) -- 9,425 --
Stock issued
for finders
fee 855,000 855 7,695 -- -- 8,550
Net loss -- -- -- (65,131) -- (65,131)
----------- ------- --------- --------- ------- ---------
Balance at
December
31, 1996 18,344,253 18,344 37,149 (65,131) -- (9,638)
Proceeds from
sale of stock,
net of costs
of $138,659 568,400 568 573,523 -- -- 574,091
Stock issued
for services 50,000 50 119,950 -- -- 120,000
Net loss -- -- -- (829,702) -- (829,702)
----------- ------- --------- --------- ------- ---------
Balance at
December
31, 1997 18,962,653 $18,962 $ 730,622 $(894,833) $ -- $(145,249)
=========== ======= ========= ========= ======= =========
The Accompanying Notes are an Integral Part
of the Financial Statements
F-5
<PAGE>
CORONADO INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1997 and 1996
1997 1996
---- ----
Cash Flows from Operating Activities:
Cash received from customers $ 25,783 $ --
Cash paid to suppliers and employees (609,807) (75,528)
Interest paid -- (1,089)
--------- --------
Net cash used by operating
activities (584,024) (76,617)
--------- --------
Cash Flows from Investing Activities:
Purchase of fixed assets (92,935) --
Cash disbursements for patents (30,684) --
--------- --------
Net cash used by investing
activities (123,619) --
--------- --------
Cash Flows from Financing Activities:
Cash received from notes payable 192,000 10,000
Cash received from sale of stock 574,091 76,397
Repayment of notes payable to stockholders -- (4,000)
--------- --------
Net cash provided by financing
activities 766,091 82,397
--------- --------
Net increase in cash 58,448 5,780
Cash at beginning of year 7,183 1,403
--------- --------
Cash at end of year $ 65,631 $ 7,183
========= ========
The Accompanying Notes are an Integral Part
of the Financial Statements
F-6
<PAGE>
CORONADO INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS (Continued)
For The Years Ended December 31, 1997 and 1996
1997 1996
---- ----
Reconciliation of Net Loss to Net Cash Used
by Operating Activities:
Net loss $(829,702) $(65,131)
--------- --------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 27,332 1,766
Amortization 2,605 285
Stock issued for services 120,000 1,200
Interest added to principal of notes
payable 26,381 --
Changes in Assets and Liabilities:
Accounts receivable
- trade (7,809) --
- other (3,999) --
Inventory (32,464) --
Prepaid expenses (104,500) --
Accounts payable 72,793 (44,265)
Accrued salaries 123,117 30,556
Accrued payroll taxes and other 22,222 (1,028)
--------- --------
245,678 (11,486)
--------- --------
Net Cash Used by Operating Activities $(584,024) $(76,617)
========= ========
The Accompanying Notes are an Integral Part
of the Financial Statements
F-7
<PAGE>
CORONADO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF
ESTIMATES:
ORGANIZATION:
Coronado Industries, Inc. (the Company) was originally incorporated under
the laws of the State of New York in December 1989 as First Lloyd Funding,
Inc., which subsequently changed its name to Logical Computer Services of
New York, Ltd. In September, 1996, the Company changed its name to Coronado
Industries, Inc. The Company had limited activity prior to its merger on
November 5, 1996, when the Company acquired one hundred percent (100%) of
the assets of Ophthalmic International, L.L.C. and American Glaucoma.
The stockholders of American Glaucoma and Ophthalmic International, L.L.C.,
which are the same for both corporations, obtained majority control of the
Company in the combination. Therefore, the transaction is accounted for as
a reverse merger. The accompanying financial statements have been presented
on a contiguous basis due to the inactivity of Logical Computer Services of
New York, Ltd.
The Company was in the development stage from its acquisition of Ophthalmic
International, L.L.C. and American Glaucoma in November, 1996 through
September, 1997. In September, 1997, American Glaucoma opened their first
glaucoma treatment clinic in Scottsdale, Arizona. Ophthalmic International,
L.L.C. has received a patent on the method for treating Open Angle
Glaucoma, as well as the devices used in the treatment, including the
Vacuum Fixation Device. The Company 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.
However, Ophthalmic International, L.L.C. has yet to generate any revenues.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
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.
INVENTORIES:
Inventories consist primarily of raw materials and are stated at the lower
of cost, as determined on a first-in/first-out (FIFO) basis, or market.
F-8
<PAGE>
CORONADO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF
ESTIMATES: (CONTINUED)
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 and equipment 5-7 years
Machinery and equipment 5-7 years
Leasehold improvements 7-39 years
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of the Company's note payable to related party cannot be
determined due to its related party nature. The carrying value of the
Company's notes payable approximates fair value and is based on rates
currently available to the Company for debt with similar terms and
maturities.
LOSS PER SHARE:
For the year ended December 31, 1996, the basic loss per share is based
upon the weighted average number of shares outstanding from the time of the
reverse merger, and giving retroactive effect to the one-for-five reverse
stock split. For the year ended December 31, 1997, basic loss per share
include no dilution and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share are not presented, as their
effect is anti-dilutive. Subsequent to December 31, 1997, the Company sold
1,580,768 additional shares of common stock through a private placement.
The effect of these shares would also be anti-dilutive on the earnings per
share as of December 31, 1997.
F-9
<PAGE>
CORONADO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF
ESTIMATES: (CONTINUED)
INTANGIBLE ASSETS:
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.
ACCOUNTS RECEIVABLE - TRADE:
Accounts receivable - trade represents amounts earned but not collected in
connection with the performance of medical procedures.
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 individual accounts
outstanding. At December 31, 1997, no allowance has been provided for
potentially uncollectible accounts receivable. As of December 31, 1997,
third party payors would not reimburse the Company for its patented
procedure. Subsequent to December 31, 1997, the Company began receiving
reimbursement for current procedures performed. In management's opinion,
they will not receive reimbursement for procedures performed prior to
December 31, 1997, and therefore an allowance in the amount of $39,155 has
been accrued and offset against revenues.
ADVERTISING:
Advertising costs are charged to operations when incurred. Advertising
costs for the years ended December 31, 1997 and 1996 were $124,857 and
$285, respectively.
NEW ACCOUNTING PRONOUNCEMENTS:
During the year ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No.
128). This pronouncement provides a different method of calculating
earnings per share than required by APB 15, Earnings per Share. SFAS No.
128 provides for the calculation of Basic and Diluted earnings per share.
Basic earnings per share include no dilution and is computed by dividing
income available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution of securities that could share in the
earnings of an entity similar to fully diluted earnings per share. Due to
the net losses for the years ended December 31, 1997 and 1996, this
statement has no effect on its reported loss per share.
F-10
<PAGE>
CORONADO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF
ESTIMATES: (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS: (CONTINUED)
During the year ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure" (SFAS No. 129). The new standard reinstates various
securities disclosure requirements previously in effect under Accounting
Principles Board Opinion No. 15, which has been superseded by SFAS No. 128.
For the years ended December 31, 1997 and 1996, the adoption of SFAS No.
129 did not have a material effect on the Company's financial position or
results of operations.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) is effective for financial statements
with fiscal years beginning after December 15, 1997. Earlier application is
permitted. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company does not expect adoption of SFAS No. 130
to have a material effect, if any, on its financial position or results of
operations.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", (SFAS No. 131) is
effective for financial statements with fiscal years beginning after
December 15, 1997. Earlier application is permitted. SFAS No. 131 requires
that public companies report certain information about operating segments,
products, services and geographical areas in which they operate and their
major customers. The Company does not expect adoption of SFAS No. 131 to
have a material effect, if any, on its financial position or results of
operations.
2. PROPERTY AND EQUIPMENT:
At December 31, 1997, property and equipment consists of the following:
Office furniture and equipment $ 58,433
Machinery and equipment 114,605
Leasehold improvements 5,462
--------
178,500
Less: accumulated depreciation (29,098)
--------
Net property and equipment $149,402
========
Depreciation expense was $27,332 and $1,766, respectively, for the years
ended December 31, 1997 and 1996.
F-11
<PAGE>
CORONADO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
3. INTANGIBLE ASSETS:
Intangible assets consist of goodwill, which represents the excess of the
cost of the combined companies over the fair value of their net assets at
the date of combination, and legal costs incurred to secure patents.
Goodwill and patents are being amortized ratably over five (5) and fifteen
(15) years, respectively. Amortization expense charged to operations for
the years ended December 31, 1997 and 1996 was $2,605 and $285,
respectively.
4. NOTES PAYABLE:
At December 31, 1997, notes payable consist of the following:
Notes payable to Hayden Investment, with interest at 15%,
due April 30, 1998 through July 20, 1998; unsecured. $ 224,631
Less: current portion (224,631)
---------
$ --
=========
5. RELATED PARTY TRANSACTIONS:
ACCOUNTS RECEIVABLE - OTHER:
Accounts receivable - other consists of advances to a corporate
shareholder. The advances are non-interest bearing and considered
short-term in nature.
NOTE PAYABLE TO RELATED PARTY:
Note payable to Dr. Leo Bores, with interest at the
rate of 10% per annum in two annual installments,
due July 18, 1999; unsecured. $ 78,750
Less: current portion (39,375)
--------
$ 39,375
========
Future minimum principal payments due on the above note payable, are as
follows:
Year Ending
December 31, Amount
------------ ------
1998 $39,375
1999 39,375
-------
$78,750
=======
F-12
<PAGE>
CORONADO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
5. RELATED PARTY TRANSACTIONS: (CONTINUED)
COMMITMENTS:
The Company currently leases office space for its glaucoma treatment center
in Scottsdale, Arizona from a related party under a non-cancellable
operating lease agreement, which expires in July, 1999. Under the terms of
the lease, the Company pays monthly rent of $3,500. The Company subleases
space to lessor for one day a week at $700 per month under a cancellable
sublease agreement. For the year ended December 31, 1997, rent expense, net
of sublease, under the aforementioned non-cancellable operating lease
agreement was $14,000.
Future minimum payments due under the operating lease agreement, are as
follows:
Year Ending
December 31, Amount
------------ ------
1998 $42,000
1999 24,500
-------
$66,500
=======
Total minimum future payments have not been reduced by payments which may
be received under a cancellable sublease.
6. STOCKHOLDERS' EQUITY (DEFICIT):
COMMON STOCK AND COMMON STOCK WARRANTS:
The Company issued 568,400 shares of common stock for $574,091, net of
costs of $138,659, through private offerings throughout the year ended
December 31, 1997. In relation to those offerings, the Company issued a
total of 568,400 common stock warrants to the underwriter and its
representatives. The warrants have an exercise price of $2.00 per share
through December 31, 1998, and then $2.50 per share through December 31,
2000, when they expire.
7. INCOME TAXES:
The net operating losses of the Company prior to the reverse merger have
been substantially eliminated due to the change in ownership. As such, as
of December 31, 1997, the Company has a net operating loss carryforward in
the approximate amount of $730,000, available to offset federal and state
taxable income primarily through December 31, 2012.
Differences between financial reporting and income tax losses to date
relates primarily to the Company's net operating loss carryforwards at
December 31, 1997. SFAS No. 109 requires the reduction of deferred tax
assets by a valuation allowance, if based on the weight of available
evidence, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Based on the weight of available
evidence, the Company has provided a full valuation allowance on its
deferred tax asset at December 31, 1997 in the approximate amount of
$280,000.
F-13
<PAGE>
CORONADO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. GOING CONCERN:
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, the Company has sustained
continuing operating losses.
The primary business of the Company is to manufacture and market a patented
treatment for Open Angle Glaucoma, and to operate glaucoma treatment
clinics where the patented treatment procedures are performed. The first of
these clinics was opened in 1997, but is not yet profitable.
As shown in the accompanying statement of operations, the Company has
incurred net losses of $829,702 and $65,131 in 1997 and 1996, respectively.
Unaudited information subsequent to December 31, 1997, indicates that the
losses are continuing. As of December 31, 1997, the accompanying balance
sheet reflects $145,249 in net stockholders' deficit.
The above conditions indicate that the Company may be unable to continue in
existence. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts, or the
amounts and classification of liabilities that might be necessary should
the Company be unable to continue in existence.
Management has secured additional funding through the sale of common stock,
and is currently negotiating the marketing, distribution and manufacturing
of the Company's patented treatment with potential customers.
9. COMMITMENTS:
The Company currently leases office space in Fountain Hills, Arizona under
a non- cancellable operating lease agreement which expires in June, 2001.
Under the terms of the lease, the Company pays monthly rent in the amount
of $972. For the year ended December 31, 1997, rent expense under the
aforementioned non-cancellable operating lease agreement was $10,411.
Future minimum payments due under the operating lease agreement, are as
follows:
Year Ending
December 31, Amount
------------ ------
1998 $11,667
1999 11,667
2000 11,667
2001 5,833
-------
$40,834
=======
F-14
<PAGE>
CORONADO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
10. NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company recognized investing, financing and operating activities that
affected assets, liabilities, and equity but did not result in cash
receipts or payments.
For the year ended December 31, 1997, these non-cash activities are as
follows:
50,000 shares of common stock were issued for services
valued at $120,000.
Purchased equipment through the issuance of a note in the
amount of $75,000.
For the year ended December 31, 1996, these non-cash activities were as
follows:
Interest in the amount of $26,381 was added to the principal
balance of the outstanding notes.
The Company merged with Ophthalmic International, L.L.C. and
American Glaucoma. In this merger, the Company received
inventory totaling $10,567, office furniture and equipment
of $10,300, machinery and equipment of $265 and patents valued
at $1 in exchange for 15,592,224 shares of common stock.
Retired 869,977 shares of treasury stock recorded at a cost of
$9,425, reducing additional paid-in capital by $8,555, and
common stock by $870.
Issuance of 40,000 shares of common stock for services
valued at $1,200.
Issuance of 855,000 shares of common stock for a finders fee
valued at $8,550.
11. SUBSEQUENT EVENT:
Subsequent to December 31, 1997, the Company issued additional shares of
common stock for $701,888, net of costs. In addition, the Company issued
819,824 warrants to the offerings underwriter and its representatives.
F-15
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