U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
L.O.M. MEDICAL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 98-0178784
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
#3 - 1482 Springfield Road, Kelowna, B. C. Canada V1Y 5V3 V6C 1N8
(Address of registrant's principal executive offices) (Zip Code)
250.762.7552
(Registrant's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which
to be so Registered: Each Class is to be Registered:
-------------------- -------------------------------
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $.001
(Title of Class)
Preferred Stock, Par Value $.001
Copies to:
Thomas E. Stepp, Jr.
Stepp & Beauchamp, LLP
1301 Dove Street, Suite 460
Newport Beach, California 92660
949.660.9700
Facsimile: 949.660.9010
<PAGE>
L.O.M. MEDICAL INTERNATIONAL, INC.,
a Delaware corporation
Index to Amendment No. 4 to Registration Statement on Form 10-SB
Item Number and Caption Page
----------------------- ----
Part I
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 3
Part II
3. Changes in and Disagreements
with Accountants 8
PART F/S
Financial Statements F-1 through F-22
PART III
(a) Index to Exhibits E-1 through E-2
(b) Exhibits
Signatures 9
2
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following discussion includes a number of forward-looking statements which
indicate the Company's current expectations with respect to future events and
financial performance. Forward-looking statements can be identified by the use
of forward-looking terminology such as "believes", "anticipates", "estimates",
"projects", "expects", "may", "will", or "should" or the negative thereof or
other variations thereon or comparable terminology. Such statements are subject
to certain risks, uncertainties and assumptions. No assurances can be given that
the future results anticipated by those forward-looking statements will be
achieved. The following matters constitute cautionary statements identifying
important factors with respect to such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to vary
materially from the future results covered in such forward-looking statements.
Other factors could also cause actual results to vary materially from the future
results anticipated in such forward-looking statements. Undue reliance should
not be placed on those forward-looking statements, are based on facts existing
as of the date of this Amendment No. 4 to the Company's Form 10-SB.
The Company is not currently producing commercial quantities of its products nor
is it currently supplying any services to any third parties. No assurance can be
given that the Company, on a timely basis, will be able to make the transition
from manufacturing testing quantities of the Syringe to commercial production
quantities successfully or be able to arrange for contract manufacturing. The
Company has produced testing quantities amounting to 33,000 units of its eye
care products. The Company's current production capacity does allow for the
production of commercial quantities of its eye care products, with its present
dyes allowing for the production of 75,000 units per month. The Company believes
that this can be increased to 150,000 units by running additional shifts. The
Company has a second set of dyes designed that will have a 300,000 unit capacity
which would allow the production for a total of 450,000 units of its eye care
products per month. The Company does anticipate that it will be able to
manufacture its products for initial commercialization.
The Company anticipates that it will contract out the first two years of
production of the Syringe. At the end of the second year of production, the
Company anticipates it will engage in significant discussions regarding the
potential for the construction of its own production facility. The Company
recognizes that the construction of its own production facility will be
contingent upon its having reached its sales and profit projections. The Company
anticipates that it will present this issue for vote by its Board of Directors
and shareholders. In this regard, the Company anticipates that it will locate
its production facilities in North America, specifically, the state of
Washington, due to its strategic location for penetration into the United States
and Canadian markets.
The Company's eye care products are currently produced in Canada. The Company
owns all of the necessary injection molds. The Company contracts out for the
production of components needed for the assembly and packaging of its eye care
products. The actual assembly and packaging are done by the Company's own work
force. All other products of the Company, those either currently in production
or the subject of future production will be produced on a contract basis through
plants that are FDA approved for production of medical products.
The Company is currently negotiating with the Irish Development Board in Ireland
("Development Board"). Representatives from the Development Board have met with
the Company's Board of Directors on 3 different occasions and have offered to
assist the Company in establishing a production facility in Ireland. The Company
has already sent representatives to Ireland to discuss the production of the
Syringe as well as strategic alliances for market distribution of all the
Company's products. The Company's plans to construct a production facility are
merely preliminary. As such, the Company has not reached an estimation of the
capital resources necessary to fund such a project nor has the Company
determined how long such a project would take to complete. The Company
anticipates that at the end of the projected two-year period, the Company will
have a sufficient revenue stream to finance, at least partially, the
construction of the proposed production facilities. However, there can be no
assurance that the Company will have the necessary funds at the end of the
two-year period to construct its proposed production facilities. Should the
Company not have the necessary funds, the Company anticipates it will continue
to cause its products to be produced on a contract basis.
The manufacture of the products of the Company involves a number of steps and
requires compliance with stringent quality control specifications imposed by the
Company and various regulators. The Company may not be able to quickly replace
its manufacturing capacity if it were unable to use its manufacturing facilities
as a result of a fire, natural disaster (including earthquake), equipment
failure or other difficulty, or if such facilities are deemed not in compliance
with the
3
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various regulators' requirements and the non-compliance could not be rapidly
rectified. The inability or reduced capacity of the Company to manufacture or
have manufactured any of its products would have a material adverse effect on
the Company's business and results of operations.
Currently, the Company does have the necessary production facilities to produce
its line of eye care products on a commercial basis. The Company has FDA
approval to market its line of eye care products in the United States. Also, as
previously discussed, the Company has the necessary Canadian approval to market
its eye-care products in Canada. The Company has commenced marketing the
Lens-O-Matic in Canada as well as the United States. Shippert Medical will be
marketing the Company's eye care products in the United States as well as in
Canada. The Company has entered into a marketing and distribution contract with
Shippert Medical. The contract has an initial two-year term with a two-year
renewal option.
The products of the Company will be subject to numerous foreign government
standards and regulations that are continually being amended. Although the
Company will endeavor to satisfy foreign technical and regulatory standards,
there can be no assurance that the products of the Company will comply with
foreign government standards and regulations, or changes thereto, or that it
will be cost effective for the Company to redesign its products to comply with
such standards or regulations. The inability of the Company to design or
redesign products to comply with foreign standards could have a material adverse
effect on the Company's business, financial condition and results of operations.
The business of the Company and its subsidiaries will expose it to potential
product liability risks that are inherent in the testing, manufacturing and
marketing of medical products. The Company does not currently have product
liability insurance, and there can be no assurance that the Company will be able
to obtain or maintain such insurance on acceptable terms or, if obtained, that
such insurance will provide adequate coverage against potential liabilities. The
Company faces an inherent business risk of exposure to product liability and
other claims in the event that the development or use of its technology or
products is alleged to have resulted in adverse effects. Such risk exists even
with respect to those products that are manufactured in licensed and regulated
facilities or that otherwise possess regulatory approval for commercial sale.
There can be no assurance that the Company will avoid significant product
liability exposure. There can be no assurance that insurance coverage will be
available in the future on commercially reasonable terms, or at all, that such
insurance will be adequate to cover potential product liability claims or that a
loss of insurance coverage or the assertion of a product liability claim or
claims would not materially adversely affect the Company's business, financial
condition and results of operations. While the Company has taken, and will
continue to take, what it believes are appropriate precautions, there can be no
assurance that it will avoid significant liability exposure. An inability to
obtain product liability insurance at acceptable cost or to otherwise protect
against potential product liability claims could prevent or inhibit the
commercialization of products developed by the Company. A product liability
claim could have a material adverse effect on the Company's business, financial
condition and results of operations.
The health care industry is subject to changing political, economic and
regulatory influences that will affect the procurement practices and operation
of health care organizations. Changes in current health care financing and
reimbursements systems could result in the need for unplanned product
enhancements, in delays or cancellations of product orders or shipments, or in
the revocation of endorsement of the products of the Company. Any of such
occurrences could have a material adverse effect on the Company's business,
financial condition and results of operations. During the past several years,
various health care industries have been subject to an increase in governmental
regulation of, among other things, reimbursement rates. Certain proposals to
reform the health care systems are periodically under consideration by the
appropriate regulators. These programs may contain proposals to increase
government involvement in health care and otherwise change the operating
environment for the customers of the Company. Health care organizations have
responded to these proposals and the uncertainty surrounding these proposals by
curtailing or deferring investments in cost containment tools and related
technology, such as the products of the Company. The Company cannot predict what
impact, if any, such factors might have on its business, financial condition and
results of operations. In addition, many health care providers are consolidating
to create integrated health care delivery systems with greater regional market
power. As a result, these emerging systems could have greater bargaining power,
which may lead to price erosion of the products of the Company. The failure of
the Company to maintain adequate price levels would have a material adverse
effect on the Company's business, financial condition and results of operations.
Other legislative or market-driven reforms could have unpredictable effects on
the Company's business, financial condition and results of operations.
4
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The Company is a development stage enterprise and is currently putting
technology in place which will, if successful, mitigate the net losses
experienced by the Company. The Company is reviewing its options and evaluating
its potential to raise substantial equity capital. Management has proceeded as
planned in the ongoing development of the Syringe and the Lens-O-Matic. In order
to meet its requisite budget, management has held and continues to conduct
negotiations with investors. The Company has also conducted extensive
negotiations with various medical companies in an attempt to establish
beneficial strategic alliances. The Company hopes that these negotiations will
result in significant earnings for the Company. To achieve and maintain the
competitiveness of its products and to conduct costly and time-consuming
research and development, the Company may be required to raise substantial funds
in addition to the funds already raised through the issuance of the Company's
shares. The Company's forecast for the period of time through which its
financial resources will be adequate to support its operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could fail as a result of a number of factors. The Company anticipates
that it will need to raise additional capital in order to develop, promote,
produce and distribute its products. Such additional capital may be raised
through additional public or private financings, as well as borrowings and other
resources.
There can be no assurance that additional funding will be available under
favorable terms, if at all. If adequate funds are not available, the Company may
be required to curtail operations significantly or to obtain funds through
entering into arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain products that the Company
would not otherwise relinquish. The Company believes that it is poised to
maintain its long-term liquidity. This is based upon cash flow projections
prepared by the Company. A copy of the cash flow projections have been appended
to this report for your information. Management of the Company has raised enough
capital and will be able it to meet its financial obligations for a period of at
least twelve (12) months from March 1, 2000. The Company believes that within a
short period of time, it can begin manufacturing and marketing commercial
quantities of its eye care products. Coupled with the further issuance of common
stock of the Company, the Company believes it can significantly improve its
long-term liquidity. An anticipated cash flow analysis for the 12-month period
beginning March 1, 2000, and ending February 29, 2001, is attached as Exhibit 1
to this Amendment No. 4 to the Company's Registration Statement on Form 10-SB.
Impact of the Year 2000. The Company anticipates that the Year 2000 ("Y2K")
could impact the business of the Company. Many business software applications
use only the last two digits to indicate the applicable year. Unless these
programs are modified, computers running time-sensitive software may be unable
to distinguish between 1900 and 2000, resulting in system failures or
miscalculations and disruptions of operations, including, among other things, a
temporary inability to process transactions or engage in other normal business
activities. Many Y2K problems might not be readily apparent when they first
occur, but instead could imperceptibly degrade technology systems and corrupt
information stored in computerized databases, in some cases before January 1,
2000.
In order to improve operating performance and meet Y2K compliance, the Company
anticipates it will undertake a number of significant systems initiatives. The
Company has determined that the incremental cost of ensuring that its computer
systems are Y2K compliant is not expected to have a material adverse impact on
the Company. The Company has completed a preliminary assessment of each of its
operations and their Y2K readiness and feels that the appropriate actions are
being taken, and expects to complete its overall Y2K readiness program prior to
any anticipated impact on its operations. The Company has determined that, with
modifications to existing software and conversions to new systems, the Y2K issue
will not pose significant operational problems for its computer systems. The
Company recognizes, however, that if such modifications are not completed, the
Y2K issue could have a material impact on the operations of the Company. The
Company has initiated formal communications with a number of its significant
suppliers to determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remedy their own Y2K issues, and
anticipates it will initiate similar communications with major customers as well
as the balance of its major suppliers in 1999. There is no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted and will not have an adverse effect on the Company's systems.
Liquidity and Capital Resources. Cash and equivalents constitute the Company's
current internal sources of liquidity. Because the Company is not generating any
revenues from the sale or licensing of its products, the Company's only external
source of liquidity is the sale of its capital stock.
5
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Operations Review.
May 31,1999 and 1998 Audited Financial Statements.
The Company has attached the audited financial statements as at May 31, 1999 and
May 31, 1998 to this Amendment No. 4. The Company's balance sheet as at May 31,
1999 shows a cash balance of $346,646 compared to a $548,197 cash balance at the
same time in the previous year. Accounts receivable at May 31, 1999 were $26,442
compared to a $11,446 balance at the same time in the previous year. Product
rights as at May 31, 1999 were valued at $16,740, down significantly from the
$403,336 reported in the previous year. As indicated in Note 3 to the audited
financial statements, such reduction was due to the writing down of the
investment in the Lensomatic product rights from $380,885 to a nominal amount
due to its speculative nature.
During 1999, the Company increased its paid-up capital from $1,074,283 to
$1,171,009 through the sale of its common stock. The accumulated deficit during
that period increased from $(431,511) to $(1,157,566). Included in this increase
was $374,128 for the write down of the Lensomatic product rights. The remainder
of the loss related to ongoing business expenses.
During the year ended 1999, the Company incurred a loss of $(726,055) as
compared to the previous years loss of $(293,239). One of the major differences
between the years is the $374,128 Lensomatic product rights and write down of
inventory of $(55,734). These are one time items and the total effect of these
two items was a $429,862 greater loss than would have otherwise occurred. When
the 1999 year-end expenses are normalized, the adjusted loss in 1999 was
$(296,193). This is comparable to the previous year loss of $(293,239).
Interest income increased from $16,335 in 1988 to $21,612 in 1999. This was due
to slightly higher interest rates on our term deposits and more cash in term
deposits during the year. This is the Company's only source of income since it
has not commenced full operations as of this time.
The amortization expenses increased by $13,791 during the year-ended May 31,
1999 due to the Company undertaking $27,000 in leasehold improvements. There
were no design plans paid for in 1999. The total payment of $10,911 was incurred
in 1998. Foreign exchange fluctuated based on the difference between the United
States Dollarand the Canadian Dollar. Management fees were down $73,205 in 1999
compared to 1998 because John Klippenstein, President of the Company, drew less
cash in 1999 than what he was entitled to under his employment contract. Office
and administration expense increased by $36,284. This was due to the Company
contracting with additional subcontractors to deal with the expanding office
requirements.
All other expenses in 1999 were comparable to the previous year.
Financial Statements for the Nine Months Ended February 29, 2000 (Unaudited).
At February 29, 2000 the Company had $417,851 cash in the bank and receivables
of $29,337. There had been no significant changes in capital assets during the
period. Accounts payable were down $17,041 during the period. Additional paid up
capital increased by $285,012 due to the sale of our capital stock. Share
subscriptions were at $172,919, up from $62,731 during the same period the
previous year. The accumulated deficit had increased by $318,184, which
represented the operating loss for that period.
A review of the expenses incurred for the nine months ended February 29, 2000
indicates consulting fees were up $24,303 from the same period the previous
year. This reflects the increased cost of using consultants as we continue to
develop our products. Legal and accounting had increased $14,336 over the
period. This is due to our security compliance and filing requirements.
Management fees and office expenses are down slightly due to the movement of
contract personnel to salaried positions. Salaries are being recorded for the
first time this year because the Company has hired staff and is paying payroll
instead of hiring subcontractors to perform the same services.
Travel has increased $11,515 over the period due to our ongoing efforts to
develop our products and raise capital. All the other expenses are in line with
the previous period.
6
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The only revenue the Company had during the period is interest income. This is
down slightly due to the Company having less money in its term deposits during
the period. The business strategy of the Company may enable the Company to
realize revenue to support, in part, its operations and, therefore, may reduce
offerings of the Company's common stock needed to raise capital.
Manufacturing and Marketing the Company's Products.
The Syringe. The Company anticipates that it will obtain the necessary plastic
for the injection molds used to manufacture the Syringe from various domestic
and international suppliers. Initially, Tessey Plastics of Elbridge, New York
will be manufacturing the Syringe on a contract basis. The engineering for the
molds and dyes are near completion. The Company also contemplates that it will
be able to readily obtain the necessary packaging for the Syringe. The Company
does not believe that its sales will be affected by seasonal factors. The
Company believes that prototypes of the Syringe will be ready for testing in
March, 2000. The Company believes that it will complete testing in Canada and
gain the necessary regulatory approvals in or around June, 2000. The Company
believes it will complete the necessary United States testing as well as secure
the required United States regulatory approval in or around September, 2000.
The Company hopes to eventually establish a production facility in Spokane,
Washington. It is anticipated that the facility will initially produce
approximately 2,500,000 units of the Syringe per month with the capacity to meet
increased market demands. The Company believes that it will deliver its products
to the North American markets by courier. All supply and distribution agreements
will be negotiated by Health Care Insights.
Once testing of the Syringe is completed, and assuming FDA approval is received,
the Company hopes to manufacture, or cause to be manufactured, a specified
number of units of the Syringe, which will be provided, at no charge, to a
target group of physicians for testing. The Company plans to provide units to
various individuals who are to form part of the testing group. These individuals
will be asked to try the Syringe and report their findings. The Company will
then utilize professionals such as doctors and related health care professionals
who approve, recommend and endorse the Company's products, including the
Syringe. Thereafter, the Company anticipates that the Syringe will be supplied
to large national distributors within specific regions all over the world. The
Company anticipates that the distributors will thereafter market the Syringe to
pharmacy and medical supply companies. The Company's overall operating plan is
to act as a manufacturer, selling directly and only to distributors and retail
chains. The Company hopes that the product will gain acceptance in the medical
community and that the Company's skill in positioning and merchandising the
products and technology of the Company will enable it to acquire a commercially
reasonable portion of the market.
Lens-O-Matic. The Company anticipates that its eye care products will be sold
both by retail stores and as a kit distributed by the medical profession. The
Company expects that its eye care products will be sold through pharmacies,
wholesale drug distributors and chain stores and that such products will be sold
to Optometrists and Ophthalmologists directly by the Company's sales
representatives. The Company has recently secured FDA approval for the
manufacturing and distribution of a first product run of its eye-care products.
The Company has developed our own dyes and injection molds for our Lens-O-Matic
and related products. The Company has paid for all of the dyes and molds and
currently own them. The first product run of our eye care products includes the
utilization of our production dyes at full capacity, the production of a
marketable product which exceeds FDA standards for medical devices. The Company
manufactures the necessary components for the Lens-O-Matic and related products
in Saskatchewan, Canada. The Company is currently negotiating with Shippert
Medical Technologies of Englewood, Colorado ("Shippert") pursuant to which the
Company anticipates that Shippert will distribute the Company's product line in
the United States. The Company anticipates that its agreement with Shippert will
be finalized within the second fiscal quarter of 2000. The Company has begun
marketing its eye-care products. The Company has received requests for the
Lens-O-Matic from the United States, Europe and Asia.
The Company plans to focus its initial marketing efforts in Canada and the
United States. The Company hopes to eventually expand its product marketing and
sales into Europe, South America, Central America, Mexico and Asia. The Company
plans to market its products by advertising in catalogs and medical journals, by
distributing brochures (both written and video), by direct mail and by posters.
Follow-up calls will be made to promising prospects. This approach will be the
Company's primary marketing method. It is expected that the Company's personnel
will attend various trade shows and medical conventions in order to introduce
the Syringe with the hope of gaining endorsements and approvals. There can be no
assurance that the Company would be able to establish successfully other methods
of marketing and sales of its products should it become necessary or desirable
in the future. A significant portion of the Company's sales may be
7
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made through independent distributors over which the Company has no control and
who also will represent products of other companies. The Company recognizes that
in order to increase market awareness and the marketing potential of its
products, it must hire adequate personnel and institute effective advertising in
the most cost effective way.
PART II
Item 3. Changes in and Disagreements with Accountants.
There have been no changes in or disagreements with the Company's accountants
since the formation of the Company required to be disclosed pursuant to Item 304
of Regulation S-B except for the following:
On November 17, 1999, the Company dismissed its former independent auditor Joe
Maciel Inc., Chartered Accountants ("Joe Maciel, Inc."), based on their
agreement that such action is in the best interest of both firms. Effective as
of that date, the Company engaged KPMG LLP ("KPMG") as its new independent
auditor. The decision to end the Company's relationship with Joe Maciel, Inc.
and to engage KPMG was unanimously approved by the Company's Board of Directors.
Over the course of Joe Maciel, Inc.'s engagement, the Company and Joe Maciel,
Inc. had no disagreements on any matters of accounting principles or practices,
financial statement disclosure, auditing scope or procedure, which disagreement,
if not resolved to the satisfaction of Joe Maciel, Inc. would have caused it to
make reference to the subject matter of the disagreement in connection with any
report or opinion it might have issued. Furthermore, neither of Joe Maciel
Inc.'s reports on the Company's financial statements for the past two years
contained an adverse opinion, disclaimer of opinion, or modification or
qualification of opinion.
Joe Maciel's consent letter has been hereto as an Exhibit.
PART F/S
Copies of the financial statements specified in Regulation 228.310 (Item 310)
are filed with this Amendment No. 4 to Registration Statement, Form 10-SB.
<TABLE>
<CAPTION>
(a) Index to Financial Statements. Page
----------------------------------- ----
<S> <C>
Auditors' Report for the year ended May 31, 1999 F-1
(Consolidated) Audited Balance Sheet as at May 31, 1998
and as at May 31, 1999 F-2
(Consolidated) Audited Statement of Loss
for the years ended May 31, 1998 and 1999 F-3
(Consolidated) Audited Statement of Cash Flows
for the years ended May 31, 1998 and 1999 F-4
(Consolidated) Audited Statement of Stockholders' Equity and
Comprehensive Income for years ended May 31, 1998 and 1999 F-5
Notes to Audited Consolidated Financial Statements F-6 through F-11
Unaudited Consolidated Balance Sheet as at February 29, 2000 F-12
Unaudited Consolidated Statement of Loss
For Nine Months Ended February 29, 2000 F-13 through F-14
Unaudited Consolidated Statement of Cash Flows
For Nine Months Ended February 29, 2000 F-15
Unaudited Consolidated Statement of Stockholders' Equity and
Comprehensive Income for Nine Months Ended February 29, 2000 F-16
Notes to Unaudited Consolidated Financial Statements F-17 through F-22
(b) Index to Exhibits.
---------------------
(1) Financial Date Schedule E-1
for Nine-Month Period
Ended February 29, 2000
(2) Consent Letter from E-2
Previous Auditor
</TABLE>
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SIGNATURES
In accordance with the provisions of Section 12 of the Securities Exchange
Act of 1934, the Company has duly caused this Amendment No. 4 to Registration
Statement on Form 10-SB to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Kelowna, British Columbia, Canada on July __,
2000.
L.O.M. MEDICAL TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ John Klippenstein
-----------------------------
John Klippenstein
Its: President
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AUDITORS' REPORT TO THE STOCKHOLDERS
We have audited the consolidated balance sheet of L.O.M. Medical International
Inc. and subsidiary, a development stage enterprise, as at May 31, 1999 and 1998
and the consolidated statements of loss, cash flows and stockholders' equity and
comprehensive income for the period from inception on March 17, 1997 to May 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of L.O.M. Medical
International Inc. and subsidiary as at May 31, 1999 and 1998 and the results of
its operations and its cash flows for the period from inception on March 17,
1997 to May 31, 1999 in accordance with generally accepted accounting principles
in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the consolidated financial
statements, the Company has accumulated a deficit since inception of $1,157,566.
This factor, as discussed in Note 1 a) raises substantial doubt about the
Company's ability to continue as a going concern. Managements plans in regard to
these matters are also described in note 1a). The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
Signed "KPMG LLP"
Chartered Accountants
Kelowna, Canada
November 29, 1999
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L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Consolidated Balance Sheet
$ United States
May 31, 1999 and 1998
<TABLE>
<CAPTION>
============================================================================================
1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash $ 346,646 $ 548,197
Accounts receivable 26,442 11,446
Inventory 100 --
Prepaid expenses 3,353 11,885
--------------------------------------------------------------------------------------------
376,541 571,528
Product rights and patent costs (note 3) 16,740 403,336
Capital assets (note 4) 49,869 10,660
--------------------------------------------------------------------------------------------
$ 443,150 $ 985,524
============================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 36,404 $ 21,304
Redeemable preferred shares (note 5) 301,727 309,677
Share subscriptions (note 6(b)) 62,731 --
Stockholders' equity
Capital stock (note 6) 5,519 5,483
Additional paid in capital 1,171,009 1,074,283
Deficit accumulated during the development stage (1,157,566) (431,511)
Accumulated other comprehensive income 23,326 6,288
--------------------------------------------------------------------------------------------
42,288 654,543
--------------------------------------------------------------------------------------------
$ 443,150 $ 985,524
============================================================================================
</TABLE>
See accompanying notes to financial statements
On behalf of the Board:
_____________________ Director
_____________________ Director
11
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L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Consolidated Statement of Loss
$ United States
Years ended May 31, 1999 and 1998
<TABLE>
<CAPTION>
================================================================================================
From Inception
(March 17, 1997) 1999 1998
to May 31, 1999
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expenses
Advertising $ 12,118 $ 4,729 $ 3,496
Amortization 28,569 17,661 3,870
Automotive 26,927 15,865 10,646
Consulting fees 67,786 20,889 --
Design plans 10,911 -- 10,911
Director's fees 15,424 6,904 8,520
Foreign exchange loss (gain) 2,630 6,187 (8,649)
Insurance 3,424 376 1,605
Interest and bank charges 3,287 1,034 937
Legal and accounting 89,509 42,575 39,404
Licences, fees and dues 865 575 290
Management fees 214,513 70,654 143,859
Office and administration 107,700 63,750 27,466
Product development 8,799 -- 1,582
Promotion and entertainment 12,828 4,265 5,887
Rent 79,692 33,751 30,538
Repairs and maintenance 2,316 177 1,973
Telephone and utilities 27,200 13,706 9,505
Travel 33,344 4,792 10,161
Video production 20,040 9,915 7,573
Write down of inventory (note 8) 55,734 55,734 --
Write down of product rights and
patent costs (note 3) 374,128 374,128 --
------------------------------------------------------------------------------------------------
1,197,744 747,667 309,574
------------------------------------------------------------------------------------------------
Loss from operations 1,197,744 (747,667) (309,574)
Other income
Interest income 40,178 21,612 16,335
------------------------------------------------------------------------------------------------
(1,157,566) (726,055) (293,239)
------------------------------------------------------------------------------------------------
Net loss $(1,157,566) $ (726,055) $ (293,239)
================================================================================================
Loss per share 0 $ (0.13) $ (0.05)
Weighted average shares used 0 5,503,339 5,483,247
================================================================================================
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Consolidated Statement of Cash Flows
$ United States
Years ended May 31, 1999 and 1998
<TABLE>
<CAPTION>
========================================================================================================
From inception
(March 17, 1997) 1999 1998
to May 31, 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net loss $(1,157,566) $ (726,055) $ (293,239)
Items not involving cash
Amortization 28,569 17,661 3,870
Gain on sale of capital asset (2,659) -- (2,659)
Write down of inventory 55,734 55,734 --
Write down of product rights 374,128 374,128 --
Changes in non-cash working capital
Accounts receivable (26,442) (14,996) (7,404)
Inventory (55,834) (55,834) --
Prepaid expenses (3,353) 8,532 (10,155)
Accounts payable and accrued liabilities 36,404 15,100 6,791
--------------------------------------------------------------------------------------------------------
(751,019) (325,730) (302,796)
Financing
Issuance of capital stock 571,528 96,762 474,766
Proceeds from share subscriptions 667,731 62,731 --
--------------------------------------------------------------------------------------------------------
1,239,259 159,493 474,766
Investing
Acquisition of capital assets (80,532) (52,352) (4,718)
Acquisition of product rights (90,577) -- --
Proceeds on disposition of capital asset 6,189 -- 6,189
--------------------------------------------------------------------------------------------------------
(164,920) (52,352) 1,471
Other comprehensive income 23,326 17,038 (7,294)
--------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 346,646 (201,551) 166,147
Cash, beginning of year -- 548,197 382,050
--------------------------------------------------------------------------------------------------------
Cash, end of year $ 346,646 $ 346,646 $ 548,197
========================================================================================================
Supplementary information:
Interest paid $ -- $ -- $ --
Income taxes paid -- -- --
Non-cash financing and investing activities:
Issuance of redeemable preferred shares
for product rights $ 309,677 $ -- $ 309,677
========================================================================================================
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Equity and Comprehensive Income
$ United States
For the period from inception on March 17, 1997 to May 31, 1999
<TABLE>
<CAPTION>
====================================================================================================================================
Deficit
Capital Stock Accumulated Accumulated
---------------------- Additional During the Other Total
Number Paid in Development Comprehensive Stockholders'
of Shares Amount Capital Stage Income Equity
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common shares issued 3 $ 1 $ -- $ -- $ -- $ 1
Comprehensive income:
Loss -- -- -- (138,272) -- (138,272)
Foreign currency translation -- -- -- -- 13,582 13,582
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) -- -- -- (138,272) 13,582 (124,690)
------------------------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1997 3 1 -- (138,272) 13,582 (124,689)
Common shares issued
net of share issue costs 2,410,944 2,410 472,355 -- -- 474,765
Common shares issued
net of share issue costs 3,072,300 3,072 601,928 -- -- 605,000
Comprehensive income:
Loss -- -- -- (293,239) -- (293,239)
Foreign currency translation -- -- -- -- (7,294) (7,294)
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive (loss) -- -- -- (293,239) (7,294) (300,533)
------------------------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1998 5,483,247 5,483 1,074,283 (431,511) 6,288 654,543
Common shares issued
net of shares issue costs 36,300 36 96,726 -- -- 96,762
Comprehensive income:
Loss -- -- -- (726,055) -- (726,055)
Foreign currency translation -- -- -- -- 17,038 17,038
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) -- -- -- (726,055) 17,038 (709,017)
------------------------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1999 5,519,547 $ 5,519 $ 1,171,009 $(1,157,566) $ 23,326 $ 42,288
====================================================================================================================================
</TABLE>
14
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
$ United States
Year ended May 31, 1999
================================================================================
L.O.M. Medical International Inc. was incorporated on March 17, 1997 under the
General Corporation Laws of Delaware. It conducts research and development on
new products in the medical field and has filed a patent application on a
retractable syringe. Operations effectively commenced on June 1, 1997.
1. Significant accounting policies:
a) Going concern
These financial statements have been prepared on the going concern
basis, which assumes the realization of assets and liquidation of
liabilities in the normal course of business. As shown in the
consolidated financial statements, to date, the Company has
accumulated a deficit since inception of $1,157,566. This factor,
among others raises substantial doubt about the Company's ability to
continue as a going concern. The Company's ability to continue as a
going concern is dependent on its ability to generate future
profitable operations and receive continued financial support from its
stockholders and other investors.
Management's plans with respect to generating future profitable
operations include future sales of the retractable syringe as well as
additional funding from stockholders in the form of additional share
subscriptions.
b) Basis of presentation and consolidation
The consolidated financial statements include the accounts of the
Company and its 96% owned subsidiary, L.O.M. Laboratories Inc.
c) Translation of financial statements
The Company's subsidiary, L.O.M. Laboratories Inc. operates in Canada
and its operations are conducted in Canadian currency.
The method of translation applied is as follows:
i) Monetary assets and liabilities are translated at the rate of
exchange in effect at the balance sheet date, being US $1.00 per
Cdn $1.4605 (1998 - $1.4365).
ii) Non-monetary assets and liabilities are translated at the rate of
exchange in effect at the transaction date.
iii) Revenues and expenses are translated at the exchange rate in
effect at the transaction date.
iv) The net adjustment arising from the translation is included in
accumulated other comprehensive income.
d) Product rights and patent costs
Product rights and patent costs relate to amounts paid to acquire the
rights to produce and distribute products as well as the costs
associated with patent applications. These costs are being amortized
on a straight-line basis over five years.
15
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 3
$ United States
Year ended May 31, 1999
================================================================================
1. Significant accounting policies (continued):
d) Product rights and patent costs (continued):
Management periodically reviews the carrying values of the product
rights and patent costs and based upon several factors, including the
current assessment of the viability of the product, determines whether
the carrying value exceeds the net realizable value for such costs. If
it is determined that the carrying value cannot be supported, the
related costs are charged against operations in the year of
determination of the impairment in value.
e) Capital assets
Capital assets are recorded at cost. Amortization is provided using
the following methods and annual rates which are intended to amortize
the cost of the assets over their estimated useful life:
================================================================================
Asset Method Rate
--------------------------------------------------------------------------------
Leasehold improvements Straight-line 20%
Computer software Straight-line 100%
Equipment Declining balance 30%
Furniture and fixtures Declining balance 20%
--------------------------------------------------------------------------------
f) Income taxes
The Company accounts for income taxes by the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to operating losses and differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
g) Management estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures 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.
16
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 4
$ United States
Year ended May 31, 1999
================================================================================
1. Significant accounting policies (continued):
h) Financial instruments
The fair values of the Company's cash, accounts receivable and
accounts payable and accrued liabilities approximate their carrying
values due to the relatively short periods to maturity of the
instruments. It is not possible to arrive at a fair value for
redeemable preferred shares as a maturity date is not determinable.
The maximum credit risk exposure for all financial assets is the
carrying amount of those assets.
i) Loss per share
Loss per share has been calculated using the weighted average number
of common shares outstanding during the period.
j) Accounting standards change
In June 1998, the Financial Accounting Standards Board issued SFAS no.
133, "Accounting for Derivative Instruments and Hedging Activities."
Adoption of this statement is not expected to have a significant
impact on the Company's results of operations or financial position.
2. Business combination:
Effective January 13, 1998, the Company acquired 96% of the outstanding
Class A common voting shares of L.O.M. Laboratories Inc. Prior to and
immediately after the acquisition, L.O.M. Laboratories Inc. was controlled
by a related party, the president and controlling shareholder of the
Company. Accordingly, this transaction has been measured at the carrying
amount of the assets and liabilities of L.O.M. Laboratories Inc. with the
comparative figures presented on the balance sheet and the statements of
loss and cash flows being restated to reflect the results of both companies
from inception.
3. Product rights and patent costs:
--------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------
Product rights $ 68 $ 380,885
Patent costs 16,672 22,451
--------------------------------------------------------------------------------
$ 16,740 $ 403,336
================================================================================
17
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 5
$ United States
Year ended May 31, 1999
================================================================================
Product rights represent certain rights to manufacture and market a contact
lens inserter and storage system ("Lens-o-matic") developed by the
president of the Company.
At the time of the acquisition of the product rights from the president of
the Company, the value attributed to the product rights, $380,885, was
agreed to by the Company's Board of Directors. During the year ended May
31, 1999, the investment was written down to a nominal amount, due to its
speculative nature.
Patent costs relate to the costs incurred for patent application for a
retractable syringe developed by the Company.
4. Capital assets:
<TABLE>
<CAPTION>
===============================================================================================================
1999 1998
---------------------------------------------------------------------------------------------------------------
Accumulated Net book Net book
Cost amortization value value
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leasehold improvements $ 27,919 $ 5,584 $ 22,335 $ --
Computer software 520 390 130 267
Equipment 20,948 10,122 10,826 10,257
Furniture and fixtures 20,746 4,168 16,578 136
---------------------------------------------------------------------------------------------------------------
$ 70,133 $ 20,264 $ 49,869 $ 10,660
===============================================================================================================
</TABLE>
5. Redeemable preferred shares:
The Company's subsidiary has redeemable preferred shares outstanding as
follows:
<TABLE>
<CAPTION>
===============================================================================================================
1999 1998
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Issued:
4,000 Class C preferred shares with a par value of $100 Cdn redeemable
at $110.16 Cdn per share at the option of the holder. Each share is
entitled to a fixed non-cumulative dividend at the rate of 9% per
annum payable at such times as determined by the Directors. 301,727 309,677
===============================================================================================================
</TABLE>
6. Capital stock:
a) Authorized:
50,000,000 Common shares with a par value of $.001 each
5,000,000 Preferred shares with a par value of $.001 each
b) Share subscriptions:
Subsequent to May 31, 1999, the Company issued 19,302 common shares at
$3.25 per share for net proceeds of $62,731 which were received prior
to May 31, 1999.
c) Stock option plan:
18
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
$ United States
Year ended May 31, 1999
================================================================================
1,000,000 common shares of the Company are reserved for issuance upon
exercise of stock options. As at May 31, 1999, no stock options have
been granted.
7. Related party transactions:
The Company entered into the following transactions with related parties:
<TABLE>
<CAPTION>
=========================================================================================
1999 1998
-----------------------------------------------------------------------------------------
<S> <C> <C>
Accounting fees paid to a director $ 7,307 $ 6,091
Management fees paid to president 70,654 102,140
Office and administration fees paid to president's spouse 36,325 --
Office and administration fees paid to an individual
related to the president 17,557 15,391
Rent paid to a company controlled by the president 18,420 12,496
Inventory purchased from president 55,834 --
Leasehold improvements on premises rented from a company
controlled by the president 27,919 --
Purchase of product rights from president -- 380,885
=========================================================================================
</TABLE>
These transactions are in the normal course of operations and are measured
at the exchange amount of consideration established and agreed to by the
related parties.
8. Write down of inventory:
The Company purchased $55,834 of inventory from the president during the
year. Due to valuation uncertainties, the inventory has been written down
to a nominal amount.
9. Income taxes:
At May 31, 1999, the Company had a net operating loss carryforward for
United States income tax purposes of approximately $1,000,000. The net
operating loss expires in increments beginning in 2008. No amount has been
reflected on the balance sheet for future income taxes as any future income
tax asset has been fully offset by a valuation allowance.
10. Commitments:
The Company is obligated to make future lease payments for it's offices as
follows:
2000 $ 36,913
2001 $ 19,453
2002 $ 19,453
2003 $ 19,453
19
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 7
$ United States
Year ended May 31, 1999
================================================================================
11. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using Year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
20
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Consolidated Balance Sheet
$ United States
February 29, 2000 and May 31, 1999
(Unaudited - Prepared by Management)
<TABLE>
<CAPTION>
=================================================================================================
2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash $ 417,951 $ 346,646
Accounts receivable 29,337 26,442
Prepaid expenses 1,467 3,453
-------------------------------------------------------------------------------------------------
448,755 376,541
Product rights and patent costs (note 3) 13,546 16,740
Capital assets (note 4) 41,009 49,869
-------------------------------------------------------------------------------------------------
$ 503,310 $ 443,150
=================================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 19,363 $ 36,404
Redeemable preferred shares (note 5) 301,727 301,727
Share subscriptions (note 6 b)) 172,919 62,731
Stockholders' equity
Capital stock (note 6) 5,634 5,519
Additional paid in capital 1,456,021 1,171,009
Deficit accumulated during the development stage (1,475,750) (1,157,566)
Accumulated other comprehensive income 23,396 23,326
-------------------------------------------------------------------------------------------------
9,301 42,288
-------------------------------------------------------------------------------------------------
$ 503,310 $ 443,150
=================================================================================================
</TABLE>
See accompanying notes to financial statements
On behalf of the Board:
_____________________ Director
_____________________ Director
21
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Consolidated Statement of Loss
$ United States
For the nine months ended February 29, 2000 and 1999
(Unaudited - Prepared by Management)
<TABLE>
<CAPTION>
=====================================================================================================
From Inception
(March 17, 1997) 2000 1999
to February 29, 2000
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expenses
Advertising $ 13,556 $ 1,438 $ 3,547
Amortization 41,089 12,520 13,246
Automotive 40,676 13,749 11,899
Consulting fees 107,756 39,970 15,667
Design plans 10,911 -- --
Director's fees 19,394 3,970 5,178
Foreign exchange (gain) loss (1,107) (3,737) 4,640
Insurance 5,063 1,639 282
Interest and bank charges 7,088 3,801 776
Legal and accounting 135,776 46,267 31,931
Licences, fees and dues 4,341 3,476 431
Management fees 260,242 45,729 52,991
Office and administration 134,368 26,668 47,813
Product development 8,799 -- --
Promotion and entertainment 14,837 2,009 3,199
Rent 106,705 27,013 25,313
Repairs and maintenance 2,316 -- 133
Salaries 78,624 78,624 --
Telephone and utilities 35,809 8,609 10,280
Travel 48,453 15,109 3,594
Video production 23,895 3,855 7,436
Write down of inventory 55,734 -- --
Write down of product rights and
patent costs 374,128 -- --
-----------------------------------------------------------------------------------------------------
1,528,453 330,709 238,356
-----------------------------------------------------------------------------------------------------
Loss from operations (1,528,453) (330,709) (238,356)
Other income
Interest income 52,703 12,525 16,211
-----------------------------------------------------------------------------------------------------
(1,475,750) (318,184) (222,145)
-----------------------------------------------------------------------------------------------------
Net loss $(1,475,750) $ (318,184) $ (222,145)
-----------------------------------------------------------------------------------------------------
Loss per share $ (0.06) $ (0.04)
-----------------------------------------------------------------------------------------------------
Weighted average shares used 5,550,663 5,512,383
=====================================================================================================
</TABLE>
See accompanying notes to financial statements
22
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Consolidated Statement of Loss
$ United States
For the three months ended February 29, 2000 and 1999
(Unaudited - Prepared by Management)
================================================================================
2000 1999
--------------------------------------------------------------------------------
Expenses
Advertising $ 1,433 $ 1,182
Amortization 4,273 4,415
Automotive 5,562 3,966
Consulting fees 18,989 5,222
Director's fees 2,253 1,726
Foreign exchange (gain) loss (2,016) 1,546
Insurance 1,639 94
Interest and bank charges 1,512 259
Legal and accounting 17,936 10,643
Licences, fees and dues 3,291 143
Management fees 481 17,664
Office and administration 6,100 15,938
Promotion and entertainment 527 1,066
Rent 9,296 8,437
Repairs and maintenance -- 49
Salaries 47,034 --
Telephone and utilities 2,297 3,427
Travel 4,859 1,198
Video production 926 2,478
--------------------------------------------------------------------------------
126,392 79,453
--------------------------------------------------------------------------------
Loss from operations (126,392) (79,453)
Other income
Interest income 6,037 5,405
--------------------------------------------------------------------------------
Net loss $ (120,355) $ (74,048)
================================================================================
Loss per share $ (0.02) $ (0.01)
Weighted average shares used 5,610,099 5,519,547
================================================================================
See accompanying notes to financial statements
23
<PAGE>
l.o.m. medical international inc.
(A Development Stage Enterprise)
Consolidated Statement of Cash Flows
$ United States
For the nine months ended February 29, 2000 and 1999
(Unaudited - Prepared by Management)
<TABLE>
<CAPTION>
========================================================================================================
From inception
(March 17, 1997) 2000 1999
to February 29, 2000
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net loss $(1,475,750) $ (318,184) $ (222,145)
Items not involving cash
Amortization 41,089 12,520 13,246
Gain on sale of capital assets (2,659) -- --
Write down of inventory 55,734 -- --
Write down of product rights 377,322 3,194 --
Changes in non-cash working capital
Accounts receivable (29,337) (2,895) (9,269)
Prepaid expenses (1,467) 1,886 (543)
Accounts payable and accrued liabilities 19,363 (17,041) (16,847)
Inventory purchases (55,734) 100 --
--------------------------------------------------------------------------------------------------------
(1,071,439) (320,420) (235,558)
Financing
Issuance of capital stock 793,924 222,396 80,377
Proceeds on disposition of capital asset 840,650 172,919 --
--------------------------------------------------------------------------------------------------------
1,634,574 395,315 80,377
Investing
Acquisition of capital assets (84,192) (3,660) (37,742)
Acquisition of product rights (90,577) -- --
Proceeds on disposition of capital asset 6,189 -- --
--------------------------------------------------------------------------------------------------------
(168,580) (3,660) (37,742)
Foreign currency translation adjustment 23,396 70 --
--------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 417,951 71,305 (192,923)
Cash, beginning of period -- 346,646 548,197
--------------------------------------------------------------------------------------------------------
Cash, end of period $ 417,951 $ 417,951 $ 355,274
========================================================================================================
Supplementary information:
Interest paid $ -- $ -- $ --
Income taxes paid -- -- --
Non-cash financing and investing activities:
Issuance of redeemable preferred shares
for product rights 309,677 -- --
Common shares issued for conversion of
share subscriptions $ 62,731 $ 62,731 $ --
========================================================================================================
</TABLE>
See accompanying notes to financial statements
24
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Equity and Comprehensive Income
$ United States
For the nine months ended February 29, 2000 and 1999
(Unaudited - Prepared by Management)
<TABLE>
<CAPTION>
===================================================================================================================================
Deficit
Capital Stock Accumulated Accumulated
---------------------- Additional During the Other Total
Number Paid in Development Comprehensive Stockholders'
of Shares Amount Capital Stage Income Equity
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1999 5,519,547 $ 5,519 $ 1,171,009 $(1,157,566) $ 23,326 $ 42,288
Common shares issued
net of share issue costs 71,250 96 222,300 -- -- 222,396
Common shares issued for
conversion of share
subscriptions 19,302 19 62,712 -- -- 62,731
Comprehensive income:
Loss -- -- -- (318,184) -- (318,184)
Foreign currency translation -- -- -- -- 70 70
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) -- -- -- (318,184) 70 (318,114)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, February 29, 2000 5,610,099 $ 5,634 $ 1,456,021 $(1,475,750) $ 23,396 $ 9,301
===================================================================================================================================
</TABLE>
25
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
$ United States
(Unaudited - Prepared by Management)
================================================================================
L.O.M. Medical International Inc. was incorporated on March 17, 1997 under the
General Corporation Laws of Delaware. It conducts research and development on
new products in the medical field and has filed a patent application on a
retractable syringe. Operations effectively commenced on June 1, 1997.
1. Significant accounting policies:
a) Going concern
These financial statements have been prepared on the going concern
basis, which assumes the realization of assets and liquidation of
liabilities in the normal course of business. As shown in the
consolidated financial statements, to date, the Company has generated
no revenues and has accumulated a deficit since inception of
$1,475,750. This factor, among others raises substantial doubt about
the Company's ability to continue as a going concern. The Company's
ability to continue as a going concern is dependent on its ability to
generate future profitable operations and receive continued financial
support from its stockholders and other investors.
Management's plans with respect to generating future profitable
operations include future sales of the retractable syringe as well as
additional funding from stockholders in the form of additional share
subscriptions.
b) Translation of financial statements
The Company's subsidiary, L.O.M. Laboratories Inc. operates in Canada
and its operations are conducted in Canadian currency.
The method of translation applied is as follows:
i) Monetary assets and liabilities are translated at the rate of
exchange in effect at the balance sheet date, being US $1.00 per
Cdn $1.44
ii) Non-monetary assets and liabilities are translated at the rate in
effect at the transaction date.
iii) Revenues and expenses are translated at the exchange rate in
effect at the transaction date.
iv) The net adjustment arising from the translation is included in
accumulated other comprehensive income.
c) Basis of presentation and consolidation
The consolidated financial statements include the accounts of the
Company and its 96% owned subsidiary, L.O.M. Laboratories Inc.
26
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 3
$ United States
(Unaudited - Prepared by Management)
================================================================================
1. Significant accounting policies (continued):
d) Product rights and patent costs
Product rights and patent costs relate to amounts paid to acquire the
rights to produce and distribute products as well as the costs
associated with patent applications. These costs are being amortized
on a straight-line basis over five years.
Management periodically reviews the carrying values of the product
rights and patent costs and based upon several factors, including the
current assessment of the viability of the product, determines whether
the carrying value exceeds the net realizable value for such costs. If
it is determined that the carrying value cannot be supported, the
related costs are changed against operations in the year of
determination of the impairment in value.
e) Capital assets
Capital assets are recorded at cost. Amortization is provided using
the following methods and annual rates which are intended to amortize
the cost of the assets over their estimated useful life:
================================================================================
Asset Method Rate
--------------------------------------------------------------------------------
Leasehold improvements Straight-line 20%
Computer software Straight-line 100%
Equipment Declining balance 30%
Furniture and fixtures Declining balance 20%
--------------------------------------------------------------------------------
f) Management estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures 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.
g) Financial instruments
The fair values of the Company's cash, accounts receivable and accounts
payable and accrued liabilities approximate their carrying values due
to the relatively short periods to maturity of the instruments. It is
not possible to arrive at a fair value for redeemable preferred shares
as a public market for this stock does not exist. The maximum credit
risk exposure for all financial assets is the carrying amount of those
assets.
27
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 4
$ United States
(Unaudited - Prepared by Management)
================================================================================
1. Significant accounting policies (continued):
h) Loss per share
Loss per share has been calculated using the weighted average number
of common shares outstanding during the period.
i) Accounting standards change
In June 1998, the Financial Accounting Standards Board issued SFAS no.
133, "Accounting for Derivative Instruments and Hedging Activities."
Adoption of this statement is not expected to have a significant
impact on the Company's results of operations or financial position.
j) Income taxes
The Company accounts for income taxes by the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
2. Business combination:
Effective January 13, 1998, the Company acquired 96% of the outstanding
Class A common voting shares of L.O.M. Laboratories Inc. Prior to and
immediately after the acquisition, L.O.M. Laboratories Inc. was controlled
by a related party, the president and controlling shareholder of the
Company. Accordingly, this transaction has been measured at the carrying
amount of the assets and liabilities of L.O.M. Laboratories Inc. with the
comparative figures presented on the balance sheet and the statements of
loss and cash flows being restated to reflect the results of both companies
from inception.
3. Product rights and patent costs:
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
Product rights $ -- $ 68
Patent costs 13,546 16,672
--------------------------------------------------------------------------------
$ 13,546 $ 16,740
--------------------------------------------------------------------------------
Product rights represent certain rights to manufacture and market a contact
lens inserter and storage system ("Lens-o-matic") developed by the
president of the Company.
28
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 5
$ United States
(Unaudited - Prepared by Management)
================================================================================
3. Product rights and patent costs (continued):
At the time of the acquisition of the product rights from the president of
the Company, the value attributed to the product rights, $380,885, was
agreed to by the Company's Board of Directors. During the year ended May
31, 1999, the investment was written down to a nominal amount, due to its
speculative nature.
Patent costs relate to the costs incurred for patent application for a
retractable syringe developed by the Company.
4. Capital assets:
<TABLE>
<CAPTION>
===============================================================================================
2000 1999
-----------------------------------------------------------------------------------------------
Accumulated Net book Net book
Cost amortization value value
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leasehold improvements 27,919 9,772 18,147 $22,335
Computer software 520 488 32 130
Equipment 20,948 12,558 8,390 10,826
Furniture and fixtures 21,113 6,673 14,440 16,578
-----------------------------------------------------------------------------------------------
$70,500 $29,491 $41,009 $49,869
===============================================================================================
</TABLE>
5. Redeemable preferred shares:
The Company's subsidiary has redeemable preferred shares outstanding as
follows:
<TABLE>
<CAPTION>
===============================================================================================
2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Issued:
4,000 Class C preferred shares with a par
value of $100 Cdn redeemable at $110.16 Cdn per share
at the option of the holder. Each share is entitled to a
fixed non-cumulative dividend at the rate of 9% per annum
payable at such times as determined by the Directors. 301,727 301,727
===============================================================================================
</TABLE>
29
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
$ United States
(Unaudited - Prepared by Management)
================================================================================
6. Capital stock:
a) Authorized:
50,000,000 Common shares with a par value of $.001 each
5,000,000 Preferred shares with a par value of $.001 each
b) Share subscriptions:
Subsequent to February 29, 2000, the Company issued 53,206 common
shares at $3.25 per share for net proceeds of $172,919, which were
received prior to February 29, 2000.
c) Stock option plan:
1,000,000 common shares of the Company are reserved for issuance upon
exercise of stock options. As at February 29, 2000, no stock options
have been granted.
7. Related party transactions:
During the period the Company entered into the following transactions with
related parties:
<TABLE>
<CAPTION>
=============================================================================================
2000 1999
---------------------------------------------------------------------------------------------
<S> <C> <C>
Legal and accounting fees paid to a director $ 10,425 $ 8,500
Management fees paid to president 45,729 52,991
Office and administration fees paid to president's spouse 26,668 47,813
Rent paid to a company controlled by the president 14,779 14,779
Office and administrative fees paid to an individual related
to the president 13,168 13,168
Inventory purchased from president -- 55,834
Leasehold improvements on premises controlled by the president -- 27,919
=============================================================================================
</TABLE>
These transactions are in the normal course of operations and are measured
at the exchange amount of consideration established and agreed to by the
related parties.
8. Income taxes:
At May 31, 1999, the Company had a net operating loss carryforward for
United States income tax purposes of approximately $1,000,000. The net
operating loss expire in increments beginning in 2008. No amount has been
reflected on the balance sheet for future income taxes as any future income
tax asset has been fully offset by a valuation allowance.
30
<PAGE>
L.O.M. MEDICAL INTERNATIONAL INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 7
$ United States
(Unaudited - Prepared by Management)
================================================================================
9. Commitments:
The Company is obligated to make future lease payments for its offices as
follows:
2000 $ 9,900
2001 $ 19,453
2002 $ 19,453
2003 $ 19,453
2004 $ 19,453
10. Subsequent Events:
At the Feb 28, 2000 board meeting, the board of directors approved, subject
to legal review, the issuance of one warrant for every two shares held on
March 15, 2000. The entitlement for each warrant has not yet been
determined. The board also approved an option plan for the board members
which would allow board members to purchase 5,000 shares annually at a
market based price once a year.
31
