U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
LUNA TECHNOLOGIES INTERNATIONAL, INC.
------------ ---------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 91-1987288
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
61 B Fawcett Road
Coquitlam, British Columbia, Canada V3K 6V2
(Address of principal executive offices)
(Zip Code)
(604) 526-5890
------------------------
(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
Securities to be registered under Section 12(g) of the Act:
Common Stock
---------------------
(Title of Class)
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company was incorporated on March 25, 1999 in Delaware to develop,
manufacture and sell photoluminescent (or PL) products used for emergency
lighting, signs and markings, wayfinding systems and novelty products with
applications in marine, commuter, rail, subway, building and toy markets. The
Company conducts business in Canada through its wholly owned Canadian
subsidiary, Luna Technologies (Canada) Ltd.
The Company's executive offices are located at 61 B Fawcett Road,
Coquitlam, British Columbia, Canada V3K 6V2. The Company's telephone number is
(604) 526-5890 and its facsimile number is (604) 526-8995.
From the date of its incorporation and through March 31, 2000 the Company
had cumulative losses of $(233,559). There can be no assurance that the Company
will ever earn any profits.
There are two types of photoluminescence: fluorescence and
phosphorescence. Fluorescent materials, such as that used in fluorescent lamps,
require a continuous source of energy. Phosphorescent materials also emit light
continuously when they are excited by ultraviolet or visible light. However
unlike fluorescent materials, when the excitation source is extinguished,
phosphorescent materials continue to emit light. It is this light (called
afterglow) that people refer to as "glow-in-the-dark". The afterglow decreases
(or decays) over time after the excitation source has been extinguished.
Although many people associate the word "photoluminescence" with
"glow-in-the-dark" toys and novelties, in the lighting industry,
photoluminescent products such as marker tapes and signs are commonly used to
delineate emergency escape routes and danger areas, and to mark equipment,
pipes, tools and working and accident prevention clothing.
Photoluminescent signs and markers are used in a variety of situations,
including office buildings, industrial sites, passenger ships, offshore drilling
platforms, underground mines, and aircraft. The use of photoluminescent
materials for life safety applications is recommended or mandated in numerous
building codes, fire safety codes, and transportation standards.
Photoluminescent systems are often selected when cost is the primary factor
since they are more affordable than electrical systems and requires minimal
installation time.
Most photoluminescent products are composed of inorganic pigments that can
be incorporated into paint, plastic films, enamels, and flexible and rigid
molded plastics. Typical products include adhesive vinyl tapes, rigid polyvinyl
chloride (PVC) marker strips, and silk-screened plastic signage.
Photoluminescent enamel-coated sheet metal and ceramic products are also
available.
<PAGE>
The main pigment presently used in photoluminescent materials is zinc
sulphide, which typically emits a yellow-green light. While zinc sulphide
performs well where ambient light levels are high, such as restaurants and
cafeterias, zinc sulphide does not perform well where ambient light levels are
low, such as in crew areas on board ship or interior corridors. However, the
recent introduction of strontium aluminate as a pigment has provided a much
higher level of performance.
Strontium aluminate is more expensive than zinc sulphide and takes
slightly longer to charge, but can `store' more light, making it much more
suitable for use in locations where ambient light levels are low.
Strontium-aluminate, also offers much brighter and longer-lasting
photoluminescence, and can be formulated (unlike zinc sulphide compounds) to
produce a range of colors. By way of example, a four-inch square strontium
aluminate material held a few inches away from a magazine page can provide
enough light to read at least for the first minute.
Although strontium aluminate PL material is superior to products made with
zinc sulphide, the process required to manufacture strontium aluminate PL is
very complex and manufacturers were unable to cost effectively produce strontium
aluminate PL products in commercial quantities.
Between January 1995 and October 1999, Douglas Sinclair, presently the
chief executive officer of the Company's Canadian subsidiary, developed the
proprietary technology, formulas and processes needed to commercially
manufacture strontium aluminate PL products on a cost-effective basis. The
resulting product, referred to by the Company as Lunaplast, is up to fifteen
times brighter than commercial zinc sulphide products, and is clearly visible
after many hours of total darkness. During this same period of time, Mr.
Sinclair and Kimberly Landry, an officer and director of the Company, developed
an advanced strontium aluminate PL material which is four times brighter than
the Company's Lunaplast product. Mr. Sinclair and Ms. Landry filed a patent
application pertaining to this invention with the U.S. Patent and Trademark
Office in November 1997. In November 1997 Mr. Sinclair and Ms. Landry assigned
the rights to the patent application and related technology to Luna Technologies
Inc. ("LTI"), a corporation formed by Ms. Landry in December 1994, for a nominal
consideration.
In April 1999 the Company acquired from LTI the rights to the patent
application and related technology which had been assigned to LTI by Mr.
Sinclair and Ms. Landry. In consideration for this assignment, the Company
agreed to pay LTI $90,000, without-interest, on or before June 30, 2000. As of
April 30, 2000 the patent application assigned to the Company was pending before
the U.S. Patent and Trademark Office.
In November 1999, the Company acquired from Mr. Sinclair the proprietary
technology required to manufacture Lunaplast into PVC sheets, vinyl rolls and
paints as well as the trademark rights to these products. In consideration for
the assignment of this technology and the trademarks, the Company agreed to pay
Mr. Sinclair $60,000, without interest, or before November 30, 2000.
<PAGE>
Lunaplast is available in flexible vinyl and rigid PVC sheets, and can be
substituted wherever commercial zinc sulphide products are used for life safety
applications.
The Company began producing Lunaplast on a commercial basis in November
1999. Between January 1, 2000 and April 30, 2000 the Company had sales of
$221,000. As of April 2000 the Company had a backlog, representing firm orders
for delivery of Lunaplast prior to June 30, 2000, of approximately $125,000.
Manufacturing
Lunaplast is composed of a two-or three-part laminate, consisting of one
base layer of highly reflective white material of PVC or vinyl, one mid-layer of
photoluminescent PVC or vinyl impregnated with the Company's proprietary
strontium aluminate polymer compound, and one top layer of clear PVC or vinyl
with UV-and fire-resistant properties. A two-part laminate is formed when these
last two steps are combined.
The materials incorporated into Lunaplast are available from a variety of
competitive industrial sources. The Company has a long-term contract for the
supply of strontium aluminate from a leading supplier in Japan, although
alternative sources do exist.
All aspects of the Company's manufacturing process are subcontracted to
various third parties which formulate, mix and produce Lunaplast in either PVC
sheets or vinyl plastic rolls. The PVC sheets are 3' X 6' long and weigh
approximately seven pounds. Generally each vinyl roll is 3' X 150', and weighs
approximately 125 to 150 pounds. Once the manufacturing process is complete,
Lunaplast is sold to fabricators which use Lunaplast for making emergency
markers, signs and tapes. All subcontractors involved in manufacturing Lunaplast
have agreed to maintain the confidential nature of the Company's proprietary
manufacturing technology.
The Company does not have any long term agreements with any of the third
parties involved in manufacturing Lunaplast. Due to the complexity in the
manufacturing process, the refusal or inability of any subcontractor to continue
to manufacture Lunaplast will require the Company to seek alternative
manufacturers. Although the Company believes that alternative manufacturers are
available, the loss of any subcontractor presently involved in the manufacture
of Lunaplast could disrupt the Company's ability to manufacture Lunaplast for at
least two months.
Management anticipates that the advanced strontium aluminate PL material
which is the subject of the Company's pending patent application will be the
basis for the next generation of the Company's photoluminescent products and
will be vital to the Company's ability to maintain a competitive lead in the
photoluminescent industry. However, and as is the case with Lunaplast, this new
material will be difficult to manufacture in commercial quantities. The Company
is presently working with manufacturers to refine the manufacturing formulas and
products which will be required to produce this new product in a cost-effective
manner. The Company believes that this new product will not be ready for
commercial production until December 2000 at the earliest. There can be no
assurance however that the Company will be successful in developing the
technology needed to manufacture this new product in a cost-effective manner on
a commercial basis.
<PAGE>
Sales and Marketing
The primary world markets for photoluminescent lighting (PL) products are
in the marine (shipping and cruise lines), transportation and commuter industry,
and in the commercial, institutional and industrial retrofit and new building
construction sector, in which the need for photoluminescent emergency lighting
and wayfinding signage systems has risen sharply over the last two decades. A
third primary marker is "glow-in-the-dark" toys and novelties.
The Company believes that the world market for PL lighting is
underdeveloped due largely to the low illumination delivered by zinc sulphide
products. The Company plans to build interest and sales for Lunaplast products
in established markets around the world. The Company's marketing plan includes
advertising in trade magazines, exhibiting at industry tradeshows, direct mail
campaigns, soliciting editorial coverage from naval architecture, building
design, architecture and lighting industry publications and distributing product
samples, videos and brochures to designers and developers. The Company's website
will also be used as a means to distribute product information to interested
parties quickly.
The Company markets its products through its officers and through
independent sales representatives. As of April 30, 2000 the Company had four
independent sales representatives which were marketing Lunaplast.
Competition
No single company dominates the world marketplace. Instead, a number of
small and medium-sized firms lead regional markets in Europe, the U.S. and
elsewhere. Some of the industry leaders include companies such as Permalight AG
of Germany (Europe and North America), Safe T Glow (UK and USA), Datrex (USA)
Jalite (UK), Hanovia (USA) and Existalight (Europe and USA). It is difficult to
determine annual sales volumes and revenues for these firms, as most are
privately held. In addition, their PL lighting products may comprise just one
small aspect of the company's overall annual sales. The Company is also aware of
several suppliers of strontium aluminate PL products. However, the Company is of
the opinion that the strontium aluminate material available from these suppliers
is inferior in terms of luminescence quality and price when compared to
Lunaplast.
Although there are numerous manufacturers and distributors of
photoluminescent products the Company believes it has a significant advantage
over its competitors as a result of its proprietary manufacturing processes for
the production of strontium aluminate-based PL materials in commercial
quantities. Given the complex process required to manufacture strontium
aluminate PL products cost-effectively in commercial batches, the Company
believes it holds an eighteen to twenty-four month lead on its competitors. The
Company plans to be competitive in the PL industry by developing advanced
strontium aluminate PL materials. In this regard, during the twelve-month period
ending December 31, 2000 the Company plans to spend $145,000 on research
relating to the development of advanced strontium aluminate PL materials.
<PAGE>
Office Space
The Company leases approximately 2,400 square feet of executive office
space at 61B Fawcett Road, Coquitlam, British Columbia at a monthly rental of
$809. The lease on this space expires on October 31,2001.
The Company subleases approximately 1,500 square feet of office space
located at 61A Fawcett Road, Coquitlam, British Columbia at a monthly rental of
$507. The lease on this space expires on October 31, 2001.
Employees
As April 30, 2000 the Company had four full-time employees including
Douglas Sinclair and Kimberly Landry. See "Management". As of April 30, 2000 the
Company did not have any part time employees. Contingent upon the Company
raising sufficient capital, the Company plans to hire additional employees as
may be required by the level of the Company's operations.
See Part II, Item 4 of this registration statement for information
concerning sales of the Company's common stock to officers, directors, and
various third parties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATION
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During the period ended December 31, 1999 the Company's operations used
$33,690 in cash. During this same period the Company purchased $9,474 of
equipment and repaid $8,119 which was advanced to the Company by LTI. The
Company satisfied its cash requirements during this period with the proceeds
from the sale of its common stock and preferred stock in private offerings.
During the three months ended March 31, 2000 the Company's operations used
$142,379 in cash. During this same period the Company purchased $20,436 of
equipment. The Company satisfied its cash requirements during this period with
proceeds received from the private sale of its preferred stock as well as loans
from LTI and the Company's officers and directors.
The Company anticipates that its capital needs during the year ending
December 31, 2000 will be as follows:
$535,000 for corporate expenses, $145,000 for research relating to the
development of advanced strontium aluminate PL materials, $90,000 for payment
for the technology and patent rights purchased from an affiliated corporation,
LTI, $60,000 for payment for the proprietary technology and trademarks from
Douglas Sinclair, $20,000 for office equipment, office furniture and leasehold
improvements, $13,000 for warehouse equipment, and $12,000 for trade show
equipment.
The Company's research and development program consists of purchasing
luminosity testing and laboratory equipment having an estimated cost of $35,000.
<PAGE>
The balance of $110,000 is projected to be spent on staff, independent
consultants and material costs for luminosity testing, development and testing
of PL pigments, paints, powder coatings and Underwriters Laboratory (UL)
certification.
The Company anticipates that it will add three full time employees by
December 31, 2000.
The Company has commenced its sales and marketing activities with agents
and representatives appointed in Australia, Canada and the United States.
The Company plans to attend the following trade shows this year:
ASTM Toronto, Canada - June 2000
American Bureau of Shipping (ABS) Halifax Nova Scotia - Summer 2000
International Electrical Society (IES) Washington DC - August 2000
National Safety Council Conference - Fall 2000
Maritrends (Marine trade show) San Francisco - Fall 2000
The Company began producing Lunaplast on a commercial basis in November
1999. Between January 1, 2000 and April 30, 2000 the Company had sales of
$221,000. As of April 30, 2000 the Company had a backlog, representing firm
orders for delivery of Lunaplast prior to June 30, 2000, of approximately
$125,000.
The Company does not have any available credit, bank financing or other
external sources of liquidity. Due to the operating losses during the Company's
initial year of operations, the Company's operations have not been a source of
liquidity. In addition, if during the year ending December 31, 2000, the Company
suffers additional losses, the Company will need to obtain additional capital in
order to continue operations. The Company expects to satisfy its cash needs
during the year ending December 31, 2000 through the private sale of the
Company's common and preferred stock or loans from private lenders. There can be
no assurance that the Company will be successful in obtaining additional
funding.
ITEM 3. PROPERTIES
See Item 1 of this report.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of and percentage of outstanding
shares of common stock owned by the Company's officers, directors and those
shareholders owning more than 5% of the Company's common stock as of April 30,
2000.
<PAGE>
Shares of
Name and Address Common Stock Percent of Class
---------------- ------------- --------------------
Douglas Sinclair 1,000 (1) --
1653 Plateau Crescent
Coquitlam, British Columbia
Canada V3B 3E3
Robert H. Humber 800,000 17.8%
300 - 4714 Ballard Ave., N.W.
Seattle, WA 98107-4850
Kimberly Landry 1,580,000 (1) 35.1%
1653 Plateau Crescent
Coquitlam, British Columbia
Canada V3B 3E3
William Donovan 435,000 9.7%
37 Saratoga Drive
Dartmouth, Nova Scotia
Canada B2X 5P9
Linda Scott 400,000 8.9%
34955 Devon Crescent
Abbotsford, British Columbia
CanadaV2S 2X5
Brian Sims 323,875 6.4%
#201-1575 West Georgia Street
Vancouver, British Columbia
Canada V6G 1R
All Officers and Directors
as a Group (3 persons) 2,381,000 52.9%
(1) Mr. Sinclair is the common law husband of Ms. Landry. As a result, Mr.
Sinclair may be deemed the beneficial owner of the shares owned by Ms.
Landry. On December 15, 1999 Mr. Sinclair acquired 1,000 shares of the
Company's common stock from Brian Sims.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following sets forth certain information concerning the present
management of the Company:
<PAGE>
Name Age Position with Company
Douglas Sinclair 50 Chief Executive Officer of Luna
Technologies (Canada), Ltd., a
wholly owned subsidiary of
the Company
Robert H. Humber 56 President and a Director
Kimberly Landry 34 Secretary and a Director
Douglas Sinclair has been the Chief Executive Officer of the Company's
Canadian subsidiary since January 1, 2000. Between 1995 and October 1999 Mr.
Sinclair provided consulting services to Luna Technologies Inc. in the areas of
research, development and marketing. Prior to 1995 Mr. Sinclair was an
independent consultant to companies engaged in developing, manufacturing and
marketing photoluminescent products.
Robert Humber has been the President of the Company and a director since
April 1999. Between July 1996 and November 1999 Mr. Humber was the president of
Luna Technologies Inc. Prior to July 1996 Mr. Humber worked with Douglas
Sinclair and Kimberly Landry in developing photoluminescent products. For the
past twenty-three years Mr. Humber has also been an independent investigator and
security consultant providing services to law enforcement agencies and private
industry.
Kimberly Landry has been the Secretay of the Company, as well as a
director since April 1999. Since December 1994 Ms. Landry has also been an
officer and director of Luna Technologies Inc.
Mr. Sinclair is the common law husband of Ms. Landry.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation
received by the Company's executive officers during the fiscal year ended
December 31, 1999.
Annual Compensation Long Term Compensation
Re-
Other stric-
Annual ted
Name and Compen- Stock Options
Principal Fiscal Salary Bonus sation Awards Granted
Position Year (1) (2) (3) (4) (5)
Douglas Sinclair,1999 -- -- -- -- --
Robert H. Humber,1999 -- -- -- -- --
Kimberly Landry 1999 -- -- -- -- --
<PAGE>
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary or bonus,
including perquisites and other personal benefits, securities or property.
(4) Amounts reflect the value of the shares of the Company's common stock
issued as compensation for services.
The table below shows the number of shares of the Company's common stock
owned by the officers listed above, and the value of such shares as of December
31, 1999.
Name Shares Value *
---- ------ -------
Douglas Sinclair 1,000 $1,820
Robert H. Humber 800,000 $1,456,000
Kimberly Landry 1,580,000 $2,875,600
* The Company's common stock is not publicly traded. For purposes of this
table, the value was deemed to be $1.82 per share, which is the effective
price at which the Company's common stock was being sold in a private
offering as of December 31, 1999.
Douglas Sinclair may be deemed the beneficial owner of the shares owned by
Ms. Landry pursuant to his common law relationship with Ms. Landry.
(5) The shares of Common Stock to be received upon the exercise of all stock
options granted during the fiscal years shown in the table. No stock
options have been granted to date.
The Company's Canadian subsidiary has an employment agreement with Douglas
Sinclair whereby the subsidiary has agreed to pay Mr. Sinclair a salary of
$3,500 per month during the twelve month period ending December 31, 2000.
The Company's Canadian subsidiary has an employment agreement with
Kimberly Landry whereby the subsidiary has agreed to pay Ms. Landry a salary of
$3,150 per month during the twelve month period ending December 31, 2000.
The following shows the amount which the Company and its Canadian
subsidiary expect to pay to its officers during the twelve month period ending
December 31, 2000, and the time which the Company's executive officers and
technical advisor plan to devote to the Company's business. The Company does not
have employment agreements with any of its officers.
<PAGE>
Proposed Time to be Devoted
Name Compensation To Company's Business
Douglas Sinclair $42,000 100%
Robert H. Humber $24,000 95%
Kimberly Landry $37,800 100%
The Company's Board of Directors may increase the compensation paid to the
Company's officers depending upon the results of the Company's future
operations.
Long Term Incentive Plans - Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
Except as provided in the Company's employment agreements with its
executive officers, the Company does not have a defined benefit, pension plan,
profit sharing or other retirement plan, although the Company may adopt one or
more of such plans in the future.
Compensation of Directors
Standard Arrangements. At present the Company does not pay its directors
for attending meetings of the Board of Directors, although the Company may adopt
a director compensation policy in the future. The Company has no standard
arrangement pursuant to which directors of the Company are compensated for any
services provided as a director or for committee participation or special
assignments.
Other Arrangements. During the year ended December 31, 1999, and except as
disclosed elsewhere in this registration statement, no director of the Company
received any form of compensation from the Company.
Stock Option and Bonus Plans
The Company has an Incentive Stock Option Plan, a Non-Qualified Stock
Option Plan and a Stock Bonus Plan. A summary description of each Plan follows.
In some cases these three Plans are collectively referred to as the "Plans".
Incentive Stock Option Plan. The Incentive Stock Option Plan authorizes
the issuance of options to purchase up to 300,000 shares of the Company's Common
Stock, less the number of shares already optioned under both this Plan and the
Non-Qualified Stock Option Plan. The Incentive Stock Option Plan became
effective on March 15, 2000 and will remain in effect until March 15, 2010
unless terminated earlier by action of the Board. Only officers, directors and
key employees of the Company may be granted options pursuant to the Incentive
Stock Option Plan.
<PAGE>
In order to qualify for incentive stock option treatment under the
Internal Revenue Code, the following requirements must be complied with:
1. Options granted pursuant to the Plan must be exercised no later than:
(a) The expiration of thirty (30) days after the date on which an
option holder's employment by the Company is terminated.
(b) The expiration of one year after the date on which an option
holder's employment by the Company is terminated, if such termination is due to
the Employee's disability or death.
2. In the event of an option holder's death while in the employ of the
Company, his legatees or distributees may exercise (prior to the option's
expiration) the option as to any of the shares not previously exercised.
3. The total fair market value of the shares of Common Stock (determined
at the time of the grant of the option) for which any employee may be granted
options which are first exercisable in any calendar year may not exceed
$100,000.
4. Options may not be exercised until one year following the date of
grant. Options granted to an employee then owning more than 10% of the Common
Stock of the Company may not be exercisable by its terms after five years from
the date of grant.
5. The purchase price per share of Common Stock purchasable under an
option is determined by the Committee but cannot be less than the fair market
value of the Common Stock on the date of the grant of the option (or 110% of the
fair market value in the case of a person owning the Company's stock which
represents more than 10% of the total combined voting power of all classes of
stock).
Non-Qualified Stock Option Plan. The Non-Qualified Stock Option Plan
authorizes the issuance of options to purchase up to 400,000 shares of the
Company's Common Stock less the number of shares already optioned under both
this Plan and the Incentive Stock Option Plan. The Non-Qualified Stock Option
Plan became effective on March 15, 2000 and will remain in effect until March
15, 2010 unless terminated earlier by the Board of Directors. The Company's
employees, directors, officers, consultants and advisors are eligible to be
granted options pursuant to the Plan, provided however that bona fide services
must be rendered by such consultants or advisors and such services must not be
in connection with the offer or sale of securities in a capital-raising
transaction. The option exercise price is determined by the Committee but cannot
be less than the market price of the Company's Common Stock on the date the
option is granted.
Options granted pursuant to the Plan not previously exercised terminate
upon the date specified when the option was granted.
<PAGE>
Stock Bonus Plan. Up to 300,000 shares of Common Stock may be granted
under the Stock Bonus Plan. Such shares may consist, in whole or in part, of
authorized but unissued shares, or treasury shares. Under the Stock Bonus Plan,
the Company's employees, directors, officers, consultants and advisors are
eligible to receive a grant of the Company's shares; provided, however, that
bona fide services must be rendered by consultants or advisors and such services
must not be in connection with the offer or sale of securities in a
capital-raising transaction.
Other Information Regarding the Plans. The Plans are administered by the
Company's Board of Directors. The Board of Directors has the authority to
interpret the provisions of the Plans and supervise the administration of the
Plans. In addition, the Board of Directors is empowered to select those persons
to whom shares or options are to be granted, to determine the number of shares
subject to each grant of a stock bonus or an option and to determine when, and
upon what conditions, shares or options granted under the Plans will vest or
otherwise be subject to forfeiture and cancellation.
In the discretion of the Board of Directors, any option granted pursuant
to the Plans may include installment exercise terms such that the option becomes
fully exercisable in a series of cumulating portions. The Board of Directors may
also accelerate the date upon which any option (or any part of any options) is
first exercisable. Any shares issued pursuant to the Stock Bonus Plan and any
options granted pursuant to the Incentive Stock Option Plan or the Non-Qualified
Stock Option Plan will be forfeited if the "vesting" schedule established by the
Board of Directors at the time of the grant is not met. For this purpose,
vesting means the period during which the employee must remain an employee of
the Company or the period of time a non-employee must provide services to the
Company. At the time an employee ceases working for the Company (or at the time
a non-employee ceases to perform services for the Company), any shares or
options not fully vested will be forfeited and cancelled. In the discretion of
the Board of Directors payment for the shares of Common Stock underlying options
may be paid through the delivery of shares of the Company's Common Stock having
an aggregate fair market value equal to the option price, provided such shares
have been owned by the option holder for at least one year prior to such
exercise. A combination of cash and shares of Common Stock may also be permitted
at the discretion of the Board of Directors.
Options are generally non-transferable except upon death of the option
holder. Shares issued pursuant to the Stock Bonus Plan will generally not be
transferable until the person receiving the shares satisfies the vesting
requirements imposed by the Board of Directors when the shares were issued.
The Board of Directors of the Company may at any time, and from time to
time, amend, terminate, or suspend one or more of the Plans in any manner it
deems appropriate, provided that such amendment, termination or suspension
cannot adversely affect rights or obligations with respect to shares or options
previously granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the eligibility
requirements for the Plans; increase or decrease the total number of shares of
Common Stock
<PAGE>
which may be issued pursuant to the Plans except in the case of a
reclassification of the Company's capital stock or a consolidation or merger of
the Company; reduce the minimum option price per share; extend the period for
granting options; or materially increase in any other way the benefits accruing
to employees who are eligible to participate in the Plans.
The Plans are not qualified under Section 401(a) of the Internal Revenue
Code, nor are they subject to any provisions of the Employee Retirement Income
Security Act of 1974.
Summary. The following sets forth certain information as of March 15,
2000, concerning the stock options and stock bonuses granted by the Company.
Each option represents the right to purchase one share of the Company's Common
Stock.
Total Shares Remaining
Shares Reserved for Shares Options/
Reserved Outstanding Issued As Shares
Name of Plan Under Plan Options Stock Bonus Under Plan
------------ ---------- ------------ ----------- ----------
Incentive Stock Option Plan 300,000 -- N/A 300,000
Non-Qualified Stock Option
Plan 400,000 -- N/A 400,000
Stock Bonus Plan 300,000 N/A -- 300,000
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1999 the Company issued shares of its common stock to the persons,
in the amounts, and for the consideration set forth below:
Number
Name of Shares Consideration
Douglas Sinclair -- --
Robert H. Humber 800,000 $ 800
Kimberly Landry 1,580,000 $1,580
Other third parties 2,120,000 $2,120
Mr. Sinclair may be deemed the beneficial owner of the shares owned by Ms.
Landry by virtue of his common law relationship with Ms. Landry.
In April 1999 the Company acquired from Luna Technologies Inc. ("LTI"), a
corporation formed by Ms. Landry in December 1994, the rights to the Company's
patent application and related technology. The patent application and related
technology were assigned to LTI by Mr. Sinclair and Ms. Landry in November 1997.
In consideration for the assignment of these rights, the Company agreed to pay
LTI $90,000, without interest, on or before June 30, 2000. As of February 29,
2000 the patent application assigned to the Company was pending before the U.S.
Patent and Trademark Office.
<PAGE>
In November 1999, the Company acquired from Mr. Sinclair the proprietary
technology required to manufacture Lunaplast into PVC sheets, vinyl rolls and
paints as well as the trademark rights to these products. In consideration for
the assignment of this technology and the trademarks, the Company agreed to pay
Mr. Sinclair $60,000, without interest, or before November 30, 2000.
In the opinion of the Company's management, the transactions between the
Company and its officers, directors, and related parties were on terms as
favorable to the Company as those which could have been obtained from unrelated
third parties.
On December 15, 1999 Mr. Sinclair acquired 1,000 shares of the Company's
common stock from Brian Sims, a principal shareholder of the Company.
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 30,000,000 shares of common stock. As
of March 15, 2000 the Company had 4,500,000 shares of common stock issued and
outstanding Holders of common stock are each entitled to cast one vote for each
share held of record on all matters presented to shareholders. Cumulative voting
is not allowed; hence, the holders of a majority of the outstanding common stock
can elect all directors.
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefore and,
in the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment of liabilities. The Board of Directors is not
obligated to declare a dividend and it is not anticipated that dividends will be
paid until the Company is in profit.
Holders of common stock do not have preemptive rights to subscribe to
additional shares if issued by the Company. There are no conversion, redemption,
sinking fund or similar provisions regarding the common stock.
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of preferred
stock. The Company's Articles of Incorporation provide that the Board of
Directors has the authority to divide the preferred stock into series and,
within the limitations provided by Delaware statute, to fix by resolution the
voting power, designations, preferences, and relative participation, special
rights, and the qualifications, limitations or restrictions of the shares of any
series so established. As the Board of Directors has authority to establish the
terms of, and to issue, the preferred stock without shareholder approval, the
preferred stock could be issued to defend against any attempted takeover of the
Company.
<PAGE>
Series A Preferred Stock
In July 1999, the Company's directors established the Company's Series A
Preferred Stock and authorized the issuance of up to 500,000 shares of Series A
Preferred Stock as part of this series. Each share of Series A Preferred Stock
is entitled to a dividend at the rate of $0.20 per share when, as and if
declared by the Board of Directors out of funds legally available for the
payment of dividends. Dividends not declared by the Board of Directors do not
cumulate. Upon any liquidation or dissolution of the Company, each outstanding
share of the Series A Preferred Stock is entitled to distribution of $2.00 per
share prior to any distribution to the holders of the Company's common stock.
The holders of the Series A Preferred Stock are not entitled to any voting
rights. Each share of the Series A Preferred Stock is convertible into 1.1
shares of the Company's common stock at any time prior to May 31, 2000.
Between July 30, 1999 and April 30, 2000 the Company sold 70,525 shares of
its Series A Preferred Stock to six persons at a price of $2.00 per share.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
As of April 30, 2000 there were 66 owners of the Company's common stock
and six owners of the Company's Series A Preferred Stock. At the present time,
there is no public market for the Company's preferred or common stock.
The shares of the Company's common stock were sold pursuant to Rule 504 of
the Securities and Exchange Commission and are freely tradeable if and when a
market ever develops for the Company's common stock. The shares of the Company's
preferred stock are "restricted securities" as that term is defined in Rule 144
of the Securities and Exchange Commission.
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefor and,
in the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment of liabilities. The Board of Directors is not
obligated to declare a dividend. The Company has not paid any dividends and the
Company does not have any current plans to pay any dividends.
The provisions in the Company's Articles of Incorporation relating to the
Company's preferred stock would allow the Company's directors to issue preferred
stock with rights to multiple votes per share and dividends rights which would
have priority over any dividends paid with respect to the Company's common
stock. The issuance of preferred stock with such rights may make more difficult
the removal of management even if such removal would be considered beneficial to
shareholders generally, and will have the effect of limiting shareholder
participation in certain transactions such as mergers or tender offers if such
transactions are not favored by incumbent management.
<PAGE>
ITEM 2. LEGAL PROCEEDINGS.
-----------------
The Company is not engaged in any litigation, and the officers and
directors presently know of no threatened or pending litigation in which it is
contemplated that the Company will be made a party.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
---------------------------------------------
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth certain information concerning all securities
issued by the Company which have not been registered under the Securities Act of
1933.
In April 1999 the Company sold 4,500,000 shares of its common stock to 54
persons for $4,500 in cash. Robert H. Humber, the Company's President and a
director, purchased 800,000 of these shares for $800. Kimberly Landry, the
Company`s secretary and a director, purchased 1,580,000 of these shares for
$1,580. See Part I, Item 7 of this Registration Statement.
Between July 30, 1999 and April 30, 2000 the Company sold 70,525 shares of
its Series A Preferred Stock to six persons at a price of $2.00 per share.
The sales of the common and preferred shares were exempt from registration
pursuant to Rule 504 of the Securities and Exchange Commission. No underwriters
were involved with the sale of these securities and no commissions or other
forms of remuneration were paid to any person in connection with such sales.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
-----------------------------------------
The Company's Bylaws authorize indemnification of a director, officer,
employee or agent of the Company against expenses incurred by him in connection
with any action, suit, or proceeding to which he is named a party by reason of
his having acted or served in such capacity, except for liabilities arising from
his own misconduct or negligence in performance of his duty. In addition, even a
director, officer, employee, or agent of the Company who was found liable for
misconduct or negligence in the performance of his duty may obtain such
indemnification if, in view of all the circumstances in the case, a court of
competent jurisdiction determines such person is fairly and reasonably entitled
to indemnification. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 or the Securities Exchange Act of 1934 may be permitted
to directors, officers, or persons controlling the Company pursuant to the
foregoing provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
<PAGE>
PART III
EXHIBITS
Exhibit
Number Exhibit Name Page Number
-------- ------------ -----------
Exhibit 2 Articles of Incorporation and Bylaws *
-----
Exhibit 3 Instruments Defining the Rights of Security Holders
Exhibit 3.1 Incentive Stock Option Plan *
-----
Exhibit 3.2 Non-Qualified Stock Option Plan *
-----
Exhibit 3.3 Stock Bonus Plan *
-----
Exhibit 5 Voting Trust Agreement None
Exhibit 6 Material Contracts
Exhibit 6.1 Agreement relating to purchase of patent rights *
-----
Exhibit 6.2 Assignment of patent rights *
-----
Exhibit 6.3 Agreement relating to purchase of proprietary
technology and trademarks *
-----
Exhibit 6.4 Assignment of trademarks *
-----
Exhibit 6.5 Non-Compete Agreement *
-----
Exhibit 6.6 Employment Agreement with Douglas Sinclair *
-----
Exhibit 6.7 Employment Agreement with Kimberly Landry *
-----
Exhibit 27 Financial Data Schedules *
-----
* Previously filed.
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
AUDITORS' REPORT
CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENT OF OPERATIONS
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
LABONTE & CO.
--------------------------------------------------------------------------------
C H A R T E R E D A C C O U N T A N T S
--------------------------------------------------------------------------------
1205 - 1095 West Pender Street
Vancouver, BC Canada
V6E 2M6
Telephone (604) 682-2778
Facsimile (604) 689-2778
Email [email protected]
AUDITORS' REPORT
--------------------------------------------------------------------------------
To the Board of Directors of Luna Technologies International, Inc.
We have audited the consolidated balance sheet of Luna Technologies
International, Inc. (A Development Stage Company) as at December 31, 1999 and
the consolidated statements of operations, changes in stockholders' equity and
cash flows for the period from March 25, 1999 (inception) to December 31, 1999.
These consolidated 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. 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1999
and the results of its operations and the changes in stockholders' equity and
cash flows for the period from March 25, 1999 (inception) to December 31, 1999
in accordance with generally accepted accounting principles in the United
States.
"LaBonte & Co."
CHARTERED ACCOUNTANTS
January 31, 2000, except as to Note 9 which is as of March 1, 2000
Vancouver, B.C.
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-UNITED STATES REPORTING
DIFFERENCES
--------------------------------------------------------------------------------
In the United States, reporting standards for auditors' would require the
addition of an explanatory paragraph following the opinion paragraph when the
financial statements are affected by a significant uncertainty such as referred
to in Note 1 regarding the Company's ability to continue as a going concern. Our
report to the directors dated January 31, 2000 is expressed in accordance with
Canadian reporting standards which do not permit a reference to such
uncertainties in the auditors' report when the uncertainties are adequately
disclosed in the financial statements.
"LaBonte & Co."
CHARTERED ACCOUNTANTS
January 31, 2000
Vancouver, B.C.
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
December 31,
1999
--------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 21,809
Due from related parties (Note 5) 8,119
--------------------------------------------------------------------------------
29,928
FURNITURE AND EQUIPMENT, net of depreciation 8,468
--------------------------------------------------------------------------------
$ 38,396
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 8,266
Notes payable (Note 4) 150,000
--------------------------------------------------------------------------------
158,266
--------------------------------------------------------------------------------
CONTINGENCIES (Notes 1 and 8)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Capital stock
Common stock, $0.0001 par value, 30,000,000
shares authorized 4,500,000 issued and
outstanding 450
Convertible preferred stock, $0.0001 par value, 5,000,000
shares authorized 34,475 issued and outstanding 3
Additional paid-in capital 72,997
Deficit accumulated during development stage (192,962)
Accumulated other comprehensive income (loss) (358)
--------------------------------------------------------------------------------
(119,870)
--------------------------------------------------------------------------------
$ 38,396
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
March
25,1999
(inception)
to December
31, 1999
--------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES
Consulting $ 13,902
Depreciation 1,006
Office and general 14,296
Professional fees 13,758
Research and development (Note 3) 150,000
--------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ 192,962
================================================================================
BASIC NET LOSS PER SHARE $ 0.04
================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,500,000
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 25, 1999 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deficit
Preferred Stock Common Stock Accumulated Accumulated
Additional During other
Paid In Development Comprehensive
Capital Stage Income Total
(loss)
Number of Number of
shares Amount shares Amount
------------------------------------------------------------------------------------------------------------------------------------
Common stock issued for
cash March 31, 1999 - $ - 4,500,000 $450 $4,050 $ - $- $4,500
Preferred stock issued
for cash July 30, 1999 12,500 1 - - 24,999 - - 25,000
November 18, 1999 11,775 1 - - 23,549 - - 23,550
December 29, 1999 10,200 1 - - 20,399 - - 20,400
Net loss for the period - - - - - (192,962) - (192,962)
Currency translation - - - - - - (358) (358)
adjustment
------------------------------------------------------------------------------------------------------------------------------------
Balance, December
31, 1999 34,475 $3 4,500,000 $450 $72,997 $(192,962) $(358) $(119,870)
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
March 25,
1999
(inception)
to December
31, 1999
--------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (192,962)
Adjustments to reconcile net loss to net cash from operating
activities:
- depreciation 1,006
- accounts payable 8,266
- research and development 150,000
--------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (33,690)
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets (9,474)
--------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (9,474)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances to related parties (8,119)
Proceeds on sale of preferred stock 68,950
Proceeds on sale of common stock 4,500
--------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 65,331
--------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (358)
--------------------------------------------------------------------------------
INCREASE IN CASH 21,809
CASH, BEGINNING OF PERIOD -
--------------------------------------------------------------------------------
CASH, END OF PERIOD $ 21,809
================================================================================
Non-cash activities:
During the period ended December 31, 1999 the Company issued notes payable of
$150,000 for research and development costs in conjunction with the purchase of
certain technology rights (Refer to Note 3).
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The Company was incorporated on March 25, 1999 in the state of Delaware. By
agreement effective April 30, 1999, the Company acquired proprietary technology
and patent rights from Luna Technology Inc. ("LTBC"), a private British Columbia
company with certain directors and shareholders in common with the Company. In
addition, by agreement effective November 15, 1999, the Company acquired
proprietary technology and the trademark rights to "LUNA" and "LUNAPLAST" from
Douglas Sinclair, an officer and employee of LTBC, which relate to the acquired
Photoluminescent technology. (Refer to Note 3)
This technology is used for the development and production of photoluminescent
signage, wayfinding systems and other novelty products with applications in
marine, commuter rail, subway, building and toy markets.
The company is currently undertaking a Form 10SB registration with the United
States Securities and Exchange Commission ("SEC") and intends to raise $975,000,
net of offering costs, by way of a Regulation D Offering of Preferred Shares at
$2.00 per share. As at December 31, 1999 $68,970 has been raised.
The consolidated financial statements have been prepared on the basis of a going
concern which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. At December 31, 1999 the Company
has a working capital deficiency of $128,338. The ability of the Company and its
subsidiary to continue as a going concern is dependent on raising additional
capital and on generating future profitable operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiary 586941 B.C. Ltd. ("586941"), a company incorporated June
9, 1999 in the province of British Columbia. 586941 was incorporated to conduct
all future business activities in Canada. All significant intercompany balances
and transactions are eliminated on consolidation.
Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed by the
straight-line method on estimated useful lives of three to five years.
Research and development costs
Ongoing product and technology research and development costs are expensed as
incurred.
Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation", foreign denominated monetary assets and liabilities are translated
to their United States dollar equivalents using foreign exchange rates which
prevailed at the balance sheet date. Revenue and expenses are translated at
average rates of exchange during the year. Related translation adjustments are
reported as a separate component of stockholders' equity, whereas gains or
losses resulting from foreign currency transactions are included in results of
operations.
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
--------------------------------------------------------------------------------
Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, the Company has determined
of the estimated fair value of financial instruments using available market
information and appropriate valuation methodologies. The fair value of financial
instruments classified as current assets or liabilities including cash and cash
equivalents and notes and accounts payable approximate carrying value due to the
short-term maturity of the instruments.
Net Loss per Common Share
Basic earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Dilutive earnings per share reflects the potential
dilution of securities that could share in the earnings of the Company. Because
the Company does not have any potentially dilutive securities, the accompanying
presentation is only of basic loss per share.
NOTE 3 - ACQUISITION OF TECHNOLOGY RIGHTS
--------------------------------------------------------------------------------
By agreement effective April 30, 1999, the Company acquired proprietary
technology from LTBC by way of an assignment of the patent rights to a
Photoluminescent Light Emitter with Enhanced Photometric Brightness
Characteristics. In consideration for this assignment, the Company issued a
$90,000 non-interest-bearing promissory note to LTBC due on or before June 30,
2000. LTBC had originally acquired the patent rights by agreement dated November
27, 1997 from Kimberly Landry, a director of the Company, and Douglas Sinclair
(the "Inventors"). The original patent application was filed by the Inventors on
November 17, 1997 and is pending final approval.
In addition, by agreement effective November 15, 1999, the Company acquired from
Douglas Sinclair the proprietary technology and batching formulations for the
production and manufacturing of Photoluminescent PV Sheets, Photoluminescent
Vinyl Rolls and Photoluminescent Paints as well as the trademark rights to LUNA
and LUNAPLAST for the above mentioned products. In consideration for this
acquisition, the Company issued a $60,000 non-interest-bearing promissory note
to Doug Sinclair due on or before November 30, 2000.
For accounting purposes the Company has recorded the costs of these acquisitions
as research and development expenses based on a nil carrying value of the
technology rights of the related party vendors.
NOTE 4 - NOTES PAYABLE
--------------------------------------------------------------------------------
Pursuant to the acquisitions as described in Note 3, the Company has the
following notes payable:
1999
----------
Luna Technologies Inc. - Non-interest bearing, due $ 90,000
June 30, 2000
Douglas Sinclair - Non-interest bearing, due November 60,000
30, 2000
----------
$ 150,000
==========
<PAGE>
NOTE 5 - RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------
During the period the Company made net advances of $51,095 to LTBC and had
$35,078 of expenses paid by LTBC and certain directors of the Company. In
addition, the Company purchased $7,898 of furniture and equipment from LTBC.
Amounts due from related parties are non-interest bearing and have no specific
terms of repayment.
Refer to Notes 1, 3 and 4.
NOTE 6 - CAPITAL STOCK
--------------------------------------------------------------------------------
During the initial period the company issued 4,500,000 shares of common stock at
$0.0001 per share for proceeds of $4,500 pursuant to Regulation 504 of the
Securities Act of 1933.
The Company also issued 34,475 shares of preferred stock at $2.00 per share for
proceeds of $68,950 pursuant to Regulation 504 of the Securities Act of 1933.
Each share of preferred stock is voting, is entitled to non-cumulative cash
dividends at the rate of $0.20 per share per year, and may be converted into
1.10 shares of common stock at any time prior to May 31, 2000. As at December
31, 1999 no preferred share conversions have been exercised.
Refer to Note 9.
NOTE 7 - INCOME TAXES
There were no temporary differences between the Company's tax and financial
bases, except for the Company's net operating loss carryforwards amounting to
approximately $43,000 at December 31, 1999. These carryforwards will expire, if
not utilized, beginning in 2006.
The Company has deferred tax assets amounting to approximately $8,600 at
December 31, 1999 related to the net operating loss carryovers. The realization
of the benefits from these deferred tax assets appears uncertain due to the
Company's limited operating history. Accordingly, a valuation allowance has been
recorded which offsets the deferred tax assets at the end of the period.
NOTE 8 - UNCERTAINTY DUE TO YEAR 2000 ISSUE
--------------------------------------------------------------------------------
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
impact the Company's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 issue affecting the
Company will be fully resolved.
NOTE 9 - SUBSEQUENT EVENTS
--------------------------------------------------------------------------------
Subsequent to year end the Company's wholly owned subsidiary, 586941 B.C. Ltd.,
changed its name to Luna Technologies (Canada) Inc.
The Company issued 36,050 shares of preferred stock at $2.00 per share for net
proceeds of $72,100.
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
CONSOLIDATED BALANCE SHEETS
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December
2000 31, 1999
--------------------------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $584 $21,809
Accounts receivable 122,606 -
Prepaid expenses 7,833 -
Inventory 8,500 -
Due from related parties - 8,119
--------------------------------------------------------------------------------
139,523 29,928
FURNITURE AND EQUIPMENT, net of depreciation 27,128 8,468
--------------------------------------------------------------------------------
$166,651 $38,396
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $33,647 $8,266
Notes payable (Note 4) 150,000 150,000
Due to related parties (Note 5) 61,177 -
--------------------------------------------------------------------------------
244,824 158,266
--------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 8)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Capital stock
Common stock, $0.0001 par value, 30,000,000
shares authorized 4,500,000 issued and outstanding 450 450
Convertible preferred stock, $0.0001 par value,
5,000,000 shares authorized 70,525 issued and outstanding 7 3
Additional paid-in capital 145,093 72,997
Accumulated deficit (223,559) (192,962)
Accumulated other comprehensive income (loss) (164) (358)
--------------------------------------------------------------------------------
(78,173) (119,870)
--------------------------------------------------------------------------------
$ 166,651 $38,396
================================================================================
The accompanying notes are an integral part of these interim consolidated
financial statements
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months
Ended March
31, 2000
--------------------------------------------------------------------------------
SALES $ 221,447
COST OF SALES 133,827
--------------------------------------------------------------------------------
GROSS MARGIN 87,620
--------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES
Consulting 21,844
Depreciation 1,779
Office and general 43,003
Professional fees 23,805
Salaries and benefits 27,789
--------------------------------------------------------------------------------
118,217
--------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (30,597)
================================================================================
BASIC NET LOSS PER SHARE $ (0.01)
================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,500,000
================================================================================
The accompanying notes are an integral part of these interim consolidated
financial statements
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 25, 1999 (INCEPTION) TO MARCH 31, 2000
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Preferred Stock Common Stock other
Additional Accumulated Comprehensive
Paid In Deficit Income Total
Capital (loss)
Number of Number of
shares Amount shares Amount
------------------------------------------------------------------------------------------------------------------------------------
Common stock issued for - $- 4,500,000 $450 $4,050 $- $- $4,500
cash
Preferred stock issued 34,475 3 - - 68,947 - - 68,950
for cash
Net loss for the period - - - - - (192,962) - (192,962)
Currency translation - - - - - - (358) (358)
adjustment
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 34,475 3 4,500,000 450 72,997 (192,962) (358) (119,870)
Preferred stock issued 36,050 4 - - 72,096 - - 72,100
for cash
Net loss for the period - - - - - (30,597) - (30,597)
Currency translation - - - - - - 194 194
adjustment
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 70,525 $7 4,500,000 $450 $145,093 $(223,559) $(164) $(78,173)
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months
Ended March
31, 2000
--------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (30,597)
Adjustments to reconcile net loss to net cash
from operating activities:
- depreciation 1,776
- accounts receivable (122,606)
- prepaid expenses (7,833)
- inventory (8,500)
- accounts payable 25,381
--------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (142,379)
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets (20,436)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related parties 69,296
Proceeds on sale of preferred stock 72,100
--------------------------------------------------------------------------------
NET CASH FROM FINANCING ACTIVITIES 141,396
--------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 194
--------------------------------------------------------------------------------
DECREASE IN CASH (21,225)
CASH, BEGINNING OF PERIOD 21,809
--------------------------------------------------------------------------------
CASH, END OF PERIOD $ 584
================================================================================
The accompanying notes are an integral part of these interim consolidated
financial statements
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2000
--------------------------------------------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The Company was incorporated on March 25, 1999 in the state of Delaware. The
Company commenced operations April 30, 1999 and by agreement effective as of
that date, acquired proprietary technology and patent rights from Luna
Technology Inc. ("LTBC"), a private British Columbia company with certain
directors and shareholders in common with the Company. In addition, by agreement
effective November 15, 1999, the Company acquired proprietary technology and the
trademark rights to "LUNA" and "LUNAPLAST" from Douglas Sinclair, an officer and
employee of LTBC, which relate to the acquired Photoluminescent technology
(Refer to Note 3). During 1999 the Company was in the Development Stage however,
as of January 1, 2000, the Company has commenced commercial production as is no
longer in the Development Stage.
This technology is used for the development and production of photoluminescent
signage, wayfinding systems and other novelty products with applications in
marine, commuter rail, subway, building and toy markets.
The company has filed a Form 10SB registration and amendment with the United
States Securities and Exchange Commission and intends to raise $975,000, net of
offering costs, by way of a Regulation D Offering of Preferred Shares at $2.00
per share. As at March 31, 2000 $141,050 has been raised.
The consolidated financial statements have been prepared on the basis of a going
concern which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. At March 31, 2000 the Company has
a working capital deficiency of $105,301. The ability of the Company and its
subsidiary to continue as a going concern is dependent on raising additional
capital and on generating future profitable operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiary Luna Technologies (Canada) Ltd. ("LTC"), a company
incorporated June 9, 1999 in the province of British Columbia. LTC was
incorporated to conduct all future business activities in Canada. All
significant intercompany balances and transactions are eliminated on
consolidation.
Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed by the
straight-line method on estimated useful lives of two to five years.
Research and development costs
Ongoing product and technology research and development costs are expensed as
incurred.
Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation", foreign denominated monetary assets and liabilities are translated
to their United States dollar equivalents using foreign exchange rates which
prevailed at the balance sheet date. Revenue and expenses are translated at
average rates of exchange during the period. Related translation adjustments are
reported as a separate component of stockholders' equity, whereas gains or
losses resulting from foreign currency transactions are included in results of
operations.
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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
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Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, the Company has determined
of the estimated fair value of financial instruments using available market
information and appropriate valuation methodologies. The fair value of financial
instruments classified as current assets or liabilities including cash and cash
equivalents and notes and accounts payable approximate carrying value due to the
short-term maturity of the instruments.
Net Loss per Common Share
Basic earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Dilutive earnings per share reflects the potential
dilution of securities that could share in the earnings of the Company. Because
the Company does not have any potentially dilutive securities, the accompanying
presentation is only of basic loss per share.
Revenue recognition
The Company recognizes revenue when products have been picked up by or delivered
to customers and invoices have been rendered.
NOTE 3 - ACQUISITION OF TECHNOLOGY RIGHTS
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By agreement effective April 30, 1999, the Company acquired proprietary
technology from LTBC by way of an assignment of the patent rights to a
Photoluminescent Light Emitter with Enhanced Photometric Brightness
Characteristics. In consideration for this assignment, the Company issued a
$90,000 non-interest-bearing promissory note to LTBC due on or before June 30,
2000. LTBC had originally acquired the patent rights by agreement dated November
27, 1997 from Kimberly Landry, a director of the Company, and Douglas Sinclair
(the "Inventors"). The original patent application was filed by the Inventors on
November 17, 1997 and is pending final approval.
In addition, by agreement effective November 15, 1999, the Company acquired from
Douglas Sinclair the proprietary technology and batching formulations for the
production and manufacturing of Photoluminescent PV Sheets, Photoluminescent
Vinyl Rolls and Photoluminescent Paints as well as the trademark rights to LUNA
and LUNAPLAST for the above mentioned products. In consideration for this
acquisition, the Company issued a $60,000 non-interest-bearing promissory note
to Doug Sinclair due on or before November 30, 2000.
For accounting purposes the Company has recorded the costs of these acquisitions
as research and development expenses based on a nil carrying value of the
technology rights of the related party vendors.
NOTE 4 - NOTES PAYABLE
Pursuant to the acquisitions as described in Note 3, the Company has the
following notes payable:
1999
----------
Luna Technologies Inc. - Non-interest bearing, due $ 90,000
June 30, 2000
Douglas Sinclair - Non-interest bearing, due November 60,000
30, 2000
----------
$ 150,000
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NOTE 5 - RELATED PARTY TRANSACTIONS
During the period certain directors and an officer of the Company incurred
expenses totalling $20,671 on behalf of the company. In addition, net advances
of $48,625 were made to the Company by LTBC leaving $61,177 payable by the
Company at March 31, 2000. Amounts due to related parties are unsecured,
non-interest bearing and have no specific terms of repayment. (Refer to Notes 1,
3 and 4)
NOTE 6 - CAPITAL STOCK
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During the period ended December 31, 1999 the company issued 4,500,000 shares of
common stock at $0.0001 per share for proceeds of $4,500 pursuant to Regulation
504 of the Securities Act of 1933.
During the periods ended December 31, 1999 and March 31, 2000 respectively, the
Company issued 34,475 and 36,050 shares of preferred stock at $2.00 per share
for proceeds of $68,950 and $72,100 pursuant to Regulation 504 of the Securities
Act of 1933. Each share of preferred stock is voting, is entitled to
non-cumulative cash dividends at the rate of $0.20 per share per year, and may
be converted into 1.10 shares of common stock at any time prior to May 31, 2000.
As at March 31, 2000 no preferred share conversions have been exercised.
NOTE 7 - INCOME TAXES
The Company has net operating loss carryforwards for tax purposes which will
expire, if not utilized, beginning in 2006.
The Company has deferred tax assets related to the net operating loss carryovers
the realization of which appears uncertain due to the Company's limited
operating history. Accordingly, a valuation allowance has been recorded which
offsets the deferred tax assets at the end of the period.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
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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. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 issue that may affect the Company, including
those related to customers, suppliers, or other third parties, have been fully
resolved.
Commitments
The Company has entered into leases on its premises for the period from January
1, 2000 to October 31, 2001 at a total of $1,751 per month.
During March 2000, LTC entered into agreements to lease two automobiles at a
total of $692 per month for 48 months.
During February 2000, LTC entered into an agreement to lease certain office
equipment at $173 per month for 60 months.
During the period, one year renewable management agreements were signed between
LTC and both Doug Sinclair and Kimberly Landry for $ 3,500 per month and $ 3,100
per month respectively.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized
Luna Technologies International, Inc.
By: /s/ Robert H. Humber
Robert H. Humber, President
Date: June 19, 2000
