U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 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
LUNA MEDICAL TECHNOLOGIES, INC.,
a Nevada corporation
(Exact name of registrant as specified in its charter)
NEVADA 98-0207745
- ------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1820-1095 West Pender Street, Vancouver, British Columbia, Canada V6E 2M6
- --------------------------------------------------------------------------------
(Address of registrant's principal executive offices) (Zip Code)
604.687.0719
------------
(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 Preferred Stock, Par Value $.001
----------------------------- --------------------------------
(Title of Class) (Title of Class)
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 1 of 12
Exhibit Index is specified on Page 11
<PAGE>
Luna Medical Technologies, Inc.
a Nevada corporation
Index to Amendment No. 2 to Form 10-SB Registration Statement
Item Number and Caption Page
- ----------------------- ----
1. Description of Business................................................3
Development of the Company.........................................3
Business of the Company............................................3
Government Approval................................................4
Patents............................................................4
The Company's Subsidiary ..........................................5
Marketing and Sales Strategy.......................................5
Competition........................................................6
Personal Fertility Technologies, Inc. ("PFT")......................6
Med-Direct Products Inc. ("MDP")...................................6
Natural Family Planning Using the Luna Fertility Indicator.........7
Basic Fertility Awareness..........................................7
Other Methods of Natural Family Planning...........................7
Employees..........................................................7
Reports to Security Holders........................................8
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................8
Revenue............................................................8
Costs and Expenses.................................................8
Liquidity and Capital Resources....................................8
Results of Operations.............................................10
Year 2000 Compliance..............................................10
3. Description of Property...............................................10
Property Held by the Company .........................................10
11. Description of Securities.............................................10
15b. Exhibits..............................................................11
Signatures ..............................................................12
2
<PAGE>
Item 1. Description of Business.
Development of the Company. Luna Medical Technologies, Inc., a Nevada
corporation ("Company"), formerly entitled Luna Technologies, Inc., was
incorporated in the State of Nevada on January 19, 1999. On or about May 31,
1999, the Company changed its name to Luna Medical Technologies, Inc. The
executive offices of the Company are located at 1820-1095 West Pender Street,
Vancouver, British Columbia, Canada V6E 2M6. The Company's telephone number is
604.687.0719.
Business of the Company. On or about January 31, 1999, the Company entered into
an exclusive worldwide license agreement ("Agreement") with Luna Products, Inc.,
a Canadian corporation ("LPI"), to distribute the Luna Fertility Indicator
("Indicator"), a lightweight, re-usable home fertility test. As a point of
clarification, as used in this Amendment No. 2 to the Company's Registration
Statement on Form 10-SB the term "US$" means and refers to the currency of the
United States of America, unless otherwise stated. As used in this Amendment No.
2 to the Company's Registration Statement on Form 10-SB the term "CDN$" means
the currency of Canada, in Canadian Dollars, unless otherwise stated. The
Agreement also grants the Company the right to distribute fertility charts with
every purchase of the Indicator (described in more detail below). In exchange
for the grant of the worldwide license ("License"), the Company agreed to lend
LPI US$40,000, interest free ("Loan"), and spend a minimum of US$20,000 on
marketing the Indicator. The Agreement provides that LPI shall repay the Loan by
paying to the Company a fee of CDN$1.00 for each Indicator sold for the first
30,000 Indicators sold, then CDN$.50 per Indicator sold in perpetuity. LPI is
not required to repay the Loan within any specified period of time. The term of
the Loan will be dependent on the number of Indicators sold by the Company. The
Company was also given the option of converting the Loan to a 50% equity
interest in LPI, in which case LPI would have no obligation to repay the Loan or
any royalties. The Company also agreed to pay LPI a 5% royalty on the total
gross sales of the Indicator during the term of the License. Moreover, the
Company agreed to pay directly to Jim Emmerson, a director of LPI, a royalty of
CDN$1.00 per Indicator sold in perpetuity. The license granted under the
Agreement expires upon repayment of the Loan. However, the Company and LPI have
orally agreed that the relationship between the Company and LPI will continue
beyond the term of the License. The Company anticipates that the specific terms
and conditions of any continuing relationship will be substantially similar to
those contained in the Agreement. However, the Company and LPI have not yet
finalized the specific terms and conditions of their continuing relationship.
Except for their relationship regarding the Indicator, the Company and LPI have
no other affiliation.
On or about May 6, 1999, the Company and LPI agreed to amend the Agreement
("Amendment"). Among other things, the Company agreed not to exercise its right
to convert the Loan to a 50% equity interest in LPI. LPI agreed that the
Indicator would be sold to the Company for CDN$12.50, if the Company sold the
Indicator to wholesalers and distributors, and CDN$16.50 if the Company sold the
Indicator directly to consumers. The Company also agreed to increase
expenditures for marketing the Indicator to CDN$250,000 or more, to be expended
on or before May 31, 2000. The exclusive marketing rights and royalty payments
provided for under the Agreement and those terms and conditions contained in the
Amendment, apply to the Indicator and any modified version of the Indicator but
do not apply to other products that may be developed by LPI.
The concept behind the Indicator has been used in Europe for some time. Although
no product exactly like the Indicator is being sold in Europe, the Company
believes that the medical principles behind the Indicator involving the analysis
of a woman's saliva to determine fertility have been the subject of clinical
tests to verify the safety of that concept. However, the Company has not
conducted its own testing regarding the accuracy of the Indicator and cannot
attest to the extent, nature, accuracy or validity of any third party tests.
Quite simply, a woman's body fluids indicate the changes in hormones during
different phases of her fertility cycle. When the dried fluids are viewed
through a powerful magnifier, patterns in the crystallized fluids indicate the
stage of her fertility cycle. The Indicator relies on the medical fact that
saliva crystallizes in the same special way as uterine cervical mucus, due to
the action of the estrogens, presenting the appearance of fern-type branches. In
1948, Dr. Ridborg first discovered physiological variations in the crystallized
arrangement of saliva (or cervical uterine mucus) related to ovulation. Later,
Doctors Evelyn L. and John J. Billings identified this scientific discovery as
an indicator of female fertility.
3
<PAGE>
The Company cannot attest to the accuracy, extent, nature or validity of those
tests conducted by Evelyn and John Billings.
In 1969, at the Royal Academy of Medicine in Barcelona, Spain, Dr. Biel
documented his investigations evidencing the relationship between hormonal
changes during the menstrual cycle and crystallization of female saliva during
ovulation, which followed an identical pattern in uterine cervical mucus.
Specifically, a woman's saliva and uterine cervical mucus only crystallize
during a period of from 6 to 8 days, during the fertile stage of the menstrual
and ovulation cycle. It is important to note that individual advances and delays
in ovulation do not affect this method's precision, as the method relies on
ovulation itself rather than a projected cycle date. The Company cannot attest
to the accuracy, extent, nature or validity of those tests conducted by Dr.
Biel.
The secretion of estrogen and progesterone changes daily during a woman's
menstrual cycle, influencing the characteristics, which can be observed in the
dried body fluids, in particular, saliva and cervical fluid. These observable
characteristics include an increase in filaceousness (that is, the appearance of
thread-type anatomical structures) and specific changes in the crystalline
patterns during the days preceding ovulation. The increase of estrogen during
the whole of the first stage of the menstrual cycle produces changes in the
consistency and crystallization of saliva, in the same way as in uterine
cervical mucus. The estrogens only produce crystallization of these fluids when
they reach a certain concentration. This concentration is reached 3 to 4 days
prior to ovulation.
The simple procedure to produce and examine these crystalline patterns is by
placing a saliva (or cervical mucus fluid) sample on a slide to evaporate and
view through a small, powerful, hand-held microscope. By repeated in-home
testing, a woman can track her complete ovulation cycle without the nuisance of
urine tests, temperature tests and monthly calendar tracking, or costly visits
to a fertility or health care service. It is totally private, non-invasive, and
chemical free method of testing for fertility.
The Indicator takes up slightly more space than a lipstick and can be used any
private place with access to natural or clear light. A woman simply places a
sample of her saliva on the clean slide, allows the saliva to dry, then holds
the slide up to a 40-watt or greater light source and looks at the saliva
pattern through the eyepiece. The woman then compares her saliva patterns
indicated in the book of charts provided free of charge with the Indicator.
Comparing the saliva patterns will indicate her state of fertility. The charts
are easy to use, consisting mainly of the woman noting on the chart whether she
is fertile or infertile based on the saliva patterns, thus providing a quick and
easy reference indicating her monthly fertility cycle. If the woman is in the
biologically active, fertile phase, her saliva will crystallize and fibrous
"fern-type" patterns will be clearly viewed in the small Indicator in-home small
microscope. Then she can rinse off the slide and put it away until the next use.
The Company anticipates that the Indicator will be used as a guide to determine
the different phases of the fertility cycle and as an aid to encourage
conception. The Company does not intend for this device to be used or considered
as a contraceptive or method of birth control. The distinction lies in the
difference between anti-procreative sex (contraception) and non-procreative sex
(natural family planning). Please refer to the section entitled "Natural Family
Planning using the Luna Fertility Indicator" on page 6.
Government Approval. In order to sell the Company's product in Canada, the
Company was required to obtain a Drug Identification Number ("DIN"). The Company
has applied for and received DIN186759.
In order to sell the Company's products in the United States, the Company is
currently preparing the requisite filing documents for application with the Food
and Drug Administration ("FDA"). The Company expects that the initial FDA filing
will occur within the next 60 days. The Company anticipates that because the
Indicator is non-invasive, the FDA application process will take approximately
six (6) months to complete. The Company anticipates that it will market the
Indicator to various countries and will at that time make the proper application
for any required governmental approvals. At this time, the Company has not
applied for any additional governmental approvals.
Patents. LPI has applied for and received a Canadian design patent for the
manufacture of the Indicator. The Company has not been assigned any ownership
rights in that Canadian patent. Neither LPI nor the Company have
4
<PAGE>
either applied for or obtained a United States patent covering the Indicator.
The Company regards certain aspects of the Indicator as proprietary and will
attempt to protect such proprietary information through contractual restrictions
on disclosure, copying and distribution. The Company itself does not hold any
patents. Except as protected by the Canadian patent held by LPI, there can be no
assurance that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's or
LPI's technologies. While the Company believes that its rights in the Indicator
do not and will not infringe or violate proprietary rights of others, it is
possible that infringement of proprietary rights of others may occur. Any such
claims, with or without merit, can be time consuming and difficult to defend
and, if successful, could have a material adverse effect on the Company.
The Company's Subsidiary. On or about May 11, 1999, the Company caused to be
incorporated, in British Columbia, Luna Fertility Indicator, Inc. Luna Fertility
Indicator, Inc., is currently a wholly-owned subsidiary of the Company. The
Company anticipates that the primary business of Luna Fertility Indicator, Inc.,
will be marketing and distributing the Indicator.
Marketing and Sales Strategy. The Company has hired, on an as needed basis,
Melissa Gervais to act as an in-house marketing and public relations consultant
to co-ordinate an advertising campaign in targeted media such as medical
journals, women's magazines, religious publications and other selected media.
From January 19, 1999 (inception) through June 30, 1999, the Company has paid
Ms. Gervais a total of US$16,830 in consulting fees. The Company hopes that Ms.
Gervais' efforts will help generate immediate awareness of the Indicator. The
Company will attempt to market the Indicator in major chain drug stores using
selected regional distributors.
The Company has agreed in principal on a distribution contract with Bathurst
Sales ("Bathurst") of Downsview, Ontario, Canada's leading distributor of
cosmetics and personal care products, whose customers include London Drugs,
Shoppers Drug Mart, Pharma Plus Drugmarts, Lawton's Drug Stores and Uniprix.
Bathurst distributes products such as Revlon, John Frieda, Elizabeth Arden,
Rubbermaid, AM Cosmetics and Vogue International, and its current clients are
those that the Company desires will market and promote the Indicator. Bathurst
will be informed of the dates of the Company's advertising programs to
co-ordinate any co-operative advertising plans that its clients may have for the
period. Bathurst has orally agreed to distribute the Indicator and negotiations
are ongoing to reduce the terms, conditions and covenants to writing. The
Company anticipates that the written agreement between the Company and Bathurst
will provide for the shipment, FOB Vancouver, on a CDN$22.00 per unit basis.
The Company is in the process of developing new and attractive ways to market
the Indicator. During the last several months, the Company has designed new
packaging and marketing materials which the Company believes will enhance the
appeal of the Indicator. The Indicator is now being represented in Canada by two
distributors. The first distributor, Bathurst, sells various products to
traditional drug stores. The second distributor, Inno-Vite, sells various
products to health food stores such as Caper's, Vitamin House, Choices,
Nutrition House, GNC and Noah's Natural Foods. The Company continues to
negotiate with the companies interested in the Company's Indicator in other
markets throughout the world. The Company anticipates that distribution
arrangements will be finalized within six (6) months of securing the necessary
governmental approvals in those foreign markets.
The Company is also involved in the advertising and promotion of the Indicator
on the Internet. The Company's Internet website is www.lunafert.com. The
Company's website contains general information on (i) how the Indicator works;
(ii) frequently asked questions; (iii) the chart (more particularly described on
page 4, Item 1); (iv) where to purchase the Indicator (such information lists
locations in only those jurisdictions where the Indicator may be sold); (v) the
Company. The Company does not anticipate that it will engage in e-commerce in
the near future. However, should the Company decide to sell the Indicator via
its website, it plans to take all of the necessary precautions to ensure secure
transmission of confidential information, including, but not necessarily limited
to, the reliance on encryption and authentication technology. Currently, the
Company's website is for informational purposes only. Moreover, the content is
limited and no products are sold via the Company's website. The
5
<PAGE>
costs associated with developing and maintaining the Company's website have been
minimal. The Company does not anticipate any material expenditures within the
next 12-months associated with its website. Any costs associated with the
Company's website will be minimal and the Company believes it has sufficient
funds to maintain its website. The Company does not currently have link
arrangements with any other websites nor does it have any tie-ins with any other
websites nor does it have any tie-ins with any search engines.
The Company has commenced sales of the Indicator in Canada. The Company has
focused its initial sales efforts in Canada because it has received government
approval to distribute the Indicator. The Company anticipates that it will
initiate a mail order campaign and advertising in selected publications. The
Company has begun discussing with potential distributors in Taiwan, South Africa
and Turkey the potential foreign markets for the Indicator. The Company hopes to
expand marketing and distribution into Spain, Turkey and the United States.
However, since all discussions with such distributors are merely preliminary,
the Company cannot predict when, or even if, it will penetrate such markets. The
Company also anticipates providing distributors with rebates for co-operative
advertising and freight and discount allowances. At this time, the Company's
only business is the marketing and distribution of the Indicator. The Company is
generating revenue from the sale of the Indicator in Canada (more particularly
described in Item 2 of this Amendment No. 1 to the Company's Registration
Statement on Form 10-SB). The Company has a very limited operating history and
has not realized significant revenues from its operations.
The Indicator will be targeted toward: (i) chain drug stores and pharmacy
retailers, (ii) distributors selling to health food chains, and (iii) natural or
homeopathic medical clinics.
Competition. The Company has identified two significant competitors, Personal
Fertility Technologies, Inc. and Med-Direct Products, Inc.
Personal Fertility Technologies, Inc. ("PFT"). Headquartered in Gold River,
California, PFT has designed a product called the PFT 1-2-3TM , which uses
colored slides to incorporate a technique similar to the staining method used in
medical test laboratories. PFT has distributors in Mexico, Germany, Hong Kong
and Canada. The retail price of the PFT 1-2-3 ranges from anywhere from US$89.95
to US$129.95. To the best of the Company's knowledge, this product has not been
approved by the United States Food and Drug Administration, but is currently
being re-tested for distribution in the United States.
Med-Direct Products Inc. ("MDP"). Headquartered in Australia, MDP distributes
(i) the Lady Fertility Tester, a saliva-based fertility test; (ii) the Bioself
Fertility Indicator, a temperature and calendar-based fertility test; (iii) the
Lady Ovulation Tester, a urine-based fertility test; and (iv) the Lady Pregnancy
Tester, also a urine-based fertility test. The Lady Fertility Tester is not for
sale in either Canada or the United States. In Australia, the Lady Fertility
Tester retails for 55 Australian Dollars or approximately US$35.00
The Indicator retails for approximately CDN$40.00, providing the Company with a
competitive pricing advantage. The Indicator also requires the purchase of a
CDN$3.00 book of charts per year. The charts accompanying the Indicator are
provided free of charge with the purchase of an Indicator. The Company also
believes that it will have a significant advantage over the Australian product
because of the North American Free Trade Agreement and monetary exchange rates
favorable for the export of Canadian products. The Company may reduce its
introductory price to attract distributors.
The Company believes that the Indicator occupies a unique position in the market
for natural family planning methods. The Company believes that the unique
features of the Indicator will allow it to compete with, and in some
circumstances, surpass its competition. However, the Company will compete
directly with other companies and businesses that will have developed or are in
the process of developing products that will be competitive with products
marketed by the Company. There can be no assurance that other products that are
functionally equivalent or similar to the Indicator have not been developed or
are not in development. The Company believes that there are companies and
businesses that exist and may have developed or are developing such products as
well as other companies and businesses that have the expertise that would
encourage them to develop and market products directly competitive with those
marketed by the Company. Many of these competitors have greater financial and
other resources, and more experience in research and development, than the
Company or its subsidiary. There can be no assurance that the competitors of the
Company have not or will not succeed in developing products that are more
effective than the Indicator, or which would render the Indicator obsolete and
non-competitive. Many of the
6
<PAGE>
competitors of the Company have substantially greater experience, technical and
financial resources in production, marketing and development capabilities than
the Company.
Natural Family Planning Using the Luna Fertility Indicator. The health problems
and abortifacient properties associated with pills, IUDs, and Norplant have been
documented but seldom disseminated to patients. The Company believes that
third-party tests indicate the Indicator has no side effects that can reduce
fertility in the long-term, and that natural family planning using the Indicator
is a safe natural family planning device. However, the Company cannot attest to
the accuracy, extent, nature or validity of those third-party tests. The Company
believes that the use of the Indicator is a helpful and useful way to plan
pregnancy. The Company believes that approximately 20% of couples experience
problems achieving pregnancy when they want to. The Company believes that the
Indicator is particularly useful to those women suffering from either reduced or
marginal fertility. The fertility awareness provided by the Indicator allows the
couple to take advantage of those times when the woman is most fertile. The
Company believes that the Indicator is based on sound scientific knowledge,
helpful in assisting couples in understanding mutual fertility, morally
acceptable and easy to learn. The Company believes that the use of the Indicator
and the accompanying charts will encourage and facilitate couples to (i) follow
each cycle as it unfolds;(ii) understand certain psychological reactions; (iii)
discern the period of ovulation; (iv) recognize possible signs of infertility;
(v) predict menstruation; (vi) detect the re-establishment of ovulatory cycles
after taking contraceptive pills or after pregnancy; (vii) promote conscious
procreation; (viii) assist them in the choice, use and means of contraception
regulation; and (ix) recognize the approach of menopause. The Indicator allows
for a couple to track the woman's fertility without chemicals, mechanical or
surgical means.
Basic Fertility Awareness. In a typical menstrual cycle, a woman has several
days of bleeding, usually followed by a few infertile days, then several days
during which fertile cervical fluid is produced, then ovulation. About 2 weeks
after ovulation the cycle ends and the bleeding of the next cycle begins. The
different parts of this cycle can be identified by changes in body temperature
and production of cervical fluid. In the usual cycle, cervical fluid increases,
ovulation occurs, then the cervical fluid dries and basal body temperature
increases. An increase in basal body temperature of approximately half a degree
Fahrenheit is a reliable indicator that ovulation has occurred. This increase in
basal body temperature remains for approximately 2 weeks (called the "luteal
phase"), then usually decreases just before menses starts again.
Other Methods of Natural Family Planning. The now almost obsolete Calendar
Rhythm method used each woman's past menstrual cycle history to predict future
cycles. Its method effectiveness, up to 87%, was similar to that of its
competitors in the 1930's and 1940's. The Ovulation Method ("OM"), also known as
the Billings method, depended on observation of menstrual bleeding and the
production of cervical fluid. Such observations were subject to
misinterpretation. Also, in a very short menstrual cycle, fertile cervical fluid
may begin to be produced before menstruation has finished, and it may be
difficult to observe in the presence of bleeding.
Using cervical fluid observations such as the OM but cross-checking those
observations by temperature is called the Sympto-Thermal Method ("STM"). STM
requires daily temperature measurements, taken upon waking in the morning at the
same time every day. It also relies on symptoms of fertility, most commonly the
presence of fertile cervical fluid, and the position of the cervix. Around the
fertile time, the cervix withdraws further into the body and the opening of the
cervix increases. At the time of ovulation, temperature starts to increase about
half a degree Fahrenheit. Cross-checked with the other symptoms, this provides
confirmation that ovulation is occurring and then determines the infertile time
following ovulation.
Recently, researchers have defined what they call the Lactation Amenorrhea
Method ("LAM"). After giving birth, a woman normally experiences a time of
infertility until her body is ready for another pregnancy. If a woman doesn't
breastfeed, this period of infertility is usually quite short. If a woman
exclusively breastfeeds, without pacifiers, bottles or schedules, the average
length of infertility is 14 months, but can vary from a few months to several
years.
Employees. The Company does not currently have any employees. The Company
currently uses the services of three consultants at its corporate office in
Vancouver, British Columbia. Campbell Capital Advisory, Inc., provides the
services of Gordon McDougall, President and Chief Executive Officer of the
Company, for management and
7
<PAGE>
administrative services to the Company. Melissa Gervais provides in-house
marketing and sales services to the Company. Glen Wallace supplies accounting
and financial consulting services on a month-to-month, as needed basis.
Reports to Security Holders. The Company intends to provide an annual report to
its security holders, which will include audited financial statements. The
Company will become a reporting company with the Securities and Exchange
Commission ("SEC") upon the effective date of this Registration Statement on
Form 10-SB, at which time the public may read and copy any materials filed with
the SEC at the SEC's Public Reference Room at 450 Fifth Street N.W., Washington,
D.C. 20549. The public may also obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. The address
of that site is http://www.sec.gov.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Revenue. The Company's year end is March 31 and its first year end was March 31,
1999. For the first fiscal year, which covered the period from the date of
incorporation on January 19, 1999 to March 31, 1999, the Company generated gross
revenue of US$1,020 from sales of the Indicator, and an operating loss of
approximately US$29,100. For the first fiscal quarter, which covered the period
from April 1, 1999 to June 30, 1999, the Company generated revenue of US$15,547
from sales of the Indicator. For that same period, the Company experienced an
operating loss of approximately US$70,200. The following chart represents
historical sales of the Indicator.
Schedule of Sales
January 19, 1999 to June 30, 1999
================================================================================
Month Sales Units Sold
================================================================================
January 1999 US$0 0
- --------------------------------------------------------------------------------
February 1999 US$0 0
- --------------------------------------------------------------------------------
March 1999 US$1,020 75
- --------------------------------------------------------------------------------
April 1999 US$1,061 77
- --------------------------------------------------------------------------------
May 1999 US$13,187 798
- --------------------------------------------------------------------------------
June 1999 US$1,299 32
================================================================================
Costs and Expenses. Cost of sales for the fiscal year ended March 31, 1999,
represented 81.1% of revenues. For the first fiscal quarter ended June 30, 1999,
these costs represented 59.7% of that period's comparatively higher revenues.
The Company believes the higher proportion of cost of sales for the fiscal year
ended March 31, 1999, was the result of the commencement of initial sales of the
Indicator, and the lower proportion during the first fiscal quarter ended June
30, 1999, is more indicative of the anticipated revenue to cost ratio.
Consulting fees of US$13,163 represented the largest single expense for the
fiscal year ended March 31, 1999 and consisted of US$8,163 for in-house
marketing services and US$5,000 for management fees paid to Campbell Capital
Advisory, Inc. (see Item 7). For the first fiscal quarter ended June 30, 1999,
consulting fees totaled US$11,437 which was the direct result of increased
marketing activity related to the Indicator. Management fees of US$15,000
accrued to Campbell Capital Advisory, Inc., were disclosed separately in the
first fiscal quarter's financial statements.
Marketing expenses totaled US$5,907 for the fiscal year ended March 31, 1999 and
US$24,787 for the first fiscal quarter ended June 30, 1999, which resulted from
increased marketing activity relating to the Indicator.
Liquidity and Capital Resources. Net cash used for operating activities was
US$27,071 for the fiscal year ended March 31, 1999, and US$32,038 for the first
fiscal quarter ended June 30, 1999. The net cash used for operating
8
<PAGE>
activities during fiscal year ended March 31, 1999, consisted primarily of the
net loss of US$29,097 during the development stage and increases in prepaid
expenses, accounts payable and accrued liabilities. Net cash used by operations
during the first fiscal quarter ended June 30, 1999 consisted primarily of the
net loss of US$70,232 and was offset to an extent by an increase in accounts
payable and accrued liabilities of US$37,278.
Net cash used by investing activities was US$40,001 for the fiscal year ended
March 31, 1999. During this period, the Company advanced a loan of US$40,000 to
Luna Products, Inc., pursuant to the agreement to acquire the worldwide license
to distribute the Luna Fertility Indicator, as described in Item 1. During the
first fiscal quarter ended June 30, 1999, net cash used by investing activities
totaled US$710.
Net cash provided by financing activities totaled US$76,969 for fiscal year
ended March 31, 1999, of which US$72,500 came from the sale of 7,310,660 shares
of the Company's common stock. A further US$20,469 came from short-term loans
from Campbell Capital Advisory, Inc., the sole shareholder of which is Mr.
Gordon McDougall, President, Chief Executive Officer and director of the Company
(see Item 7). During the period, US$16,000 of these short-term loans were
repaid. During the first fiscal quarter ended June 30, 1999, net cash provided
by financing activities totaled US$27,337. Of this total, additional loans
totaling US$5,398 were advanced by Campbell Capital Advisory, Inc., and the
Company received short term loans totaling US$16,939 from Javelin Enterprises.
None of the officers or directors of the Company are affiliated with Javelin
Enterprises; as such, the loan to the Company was at arm's-length. The loan from
Campbell Capital Advisory, Inc., is unsecured, bears no interest and has no
fixed terms of repayment, and is to be repaid as funds become available. The
loan from Javelin Enterprises bears interest at ten percent (10%) per annum and
is due and payable on or before June 2, 2000. The Company has the option to
repay the loan to Javelin Enterprises prior to June 2, 2000, without penalty.
As at March 31, 1999 and June 30, 1999, the Company had cash resources of
US$9,897 and US$4,486, respectively, the latter of which constitutes the
Company's present internal sources of liquidity. Because the Company is
generating only limited revenues from the sale of the Indicator product, the
Company's main external source of liquidity is the sale of its capital stock.
The Company, being a developmental stage enterprise, is currently focusing its
efforts on the marketing and sale of the Indicator which will, if successful,
mitigate the net loss experienced by the Company. The Company is reviewing its
options to raise substantial equity capital. Management has proceeded as planned
in the ongoing development, marketing and sale of the Indicator. In order to
satisfy its requisite budget, management has held and continues to conduct
negotiations with potential investors. The Company hopes that these negotiations
will result in significant investment in the Company. To achieve and maintain
its competitiveness of the Indicator and to conduct costly and time-consuming
marketing and promotional activities, the Company may be required to raise
additional funds in addition to the funds already raised through the issuance of
the Company's shares and through the realization of limited revenue from sales
of the Indicator. 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 promote, market and
distribute the Indicator. Such additional capital may be raised through public
or private financings as well as other borrowings and other resources.
The Company believes that its current cash resources, coupled with projected
revenue from sales of the Indicator and capital received from additional public
or private financings, as well as borrowings and other resources, will be
sufficient to support its operations during the next 12-months. However, the
Company cannot guarantee that any one source of capital, by itself, or all
projected sources combined, will be sufficient to support its operations over
the next 12-months. Moreover, there can be no assurances 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 by entering into arrangements with collaborative partners or may
require the Company to relinquish rights to the Indicator that the Company would
not otherwise relinquish. However, the Company believes its is poised to
maintain both its short-term and its long-term liquidity. The Company believes
that it can continue to successfully market and sell the Indicator.
9
<PAGE>
Results of Operations. The Company did not realize significant revenue from
sales of the Indicator from January 19, 1999 (inception) to March 31, 1999. The
Company did realize gross revenue of US$1,020 for that period, and US$15,547 for
the first fiscal quarter ended June 30, 1999 from sales of the Indicator.
However, the Company was incorporated on January 19, 1999, and as such has no
significant operating history upon which an estimate of future earnings can be
based.
Year 2000 Compliance. Historically, certain computer programs were written using
two digits rather than four to define the applicable year. Accordingly, the
Company's software could recognize the date using "00" as 1900 rather than the
Year 2000, which could result in major systems failures or miscalculations
commonly referred to as the Year 2000 issue. The Company has performed an
assessment of its information technology systems of the Company and expects that
all necessary modifications and necessary replacements will be completed in a
timely manner to ensure the systems are Year 2000 compliant. The Company
currently utilizes only two personal computers. Based upon the Company's
estimates, the cost of addressing the Year 2000 issue as it relates to the
Company's computers are not expected to have a material adverse effect on the
Company's financial situation, results of operations or cash flows. The
potential impact of the Year 2000 issue on significant customers, vendors or
suppliers of the Company cannot be reasonably estimated at this time. The
Company is not yet certain as to the extent to which the computer software and
business systems of its customers and suppliers are Year 2000 compliant. If
systems of third parties with which the Company does significant business are
not timely converted or, if the Company fails to timely complete the necessary
modifications to its own systems, the Year 2000 issue could have a material
adverse effect on the Company's business, financial conditions, results of
operations and cash flows. The Company's contingency plan is to routinely back
up its computer information off of the two computers the Company utilizes in
order to ensure that the information is not lost should the Year 2000 issue have
a material effect on the Company's computer system. The cost incurred by the
Company to address the Year 2000 issue has been de-minimus.
Item 3. Description of Property
Property held by the Company. The Company does not own any significant property.
The Company's Facilities. The Company occupies facilities consisting of 600
square feet of commercial office space located at 1820-1095 West Pender Street,
Vancouver, British Columbia, V6E 2M6. The office space is furnished by Campbell
Capital Advisory, Inc., located in premises rented to Campbell Capital Advisory,
Inc., by International Parkside on a month-to-month basis. From January 19, 1999
(inception) through the period ending March 31, 1999, the Company had paid to
International Parkside a total of US$1,700 rent. During the three-month period
ended June 30, 1999, the Company paid to International Parkside a total of
US$1400 rent.
The Company also rents, on an as-needed basis, storage and work space from
Melissa Gervais for US$400 a month. From January 19, 1999 (inception), to June
30, 1999, the Company had paid US$1600 to Ms. Gervais.
Item 11. Description of Securities
The Company is authorized to issue 50,000,000 shares of common stock, US$.001
par value, each share of common stock having equal rights and preferences,
including voting privileges; and 5,000,000 shares of preferred stock, US$.001
par value. As of June 30, 1999, there were 7,310,660 shares of the Company's
common stock were issued and outstanding, and no shares of the Company's US$.001
par value preferred stock issued and outstanding. As of March 31, 1999, the
Company had received a total of US$72,500 as proceeds from the sale of its
common stock pursuant to the offerings described in Item 10 of this Amendment
No. 1 to the Company's 10-SB. On or about April 15, 1999, the Company received
US$5,000 as money owed on the sale of its common stock pursuant to the
above-referenced offerings. The receipt of this sum is reflected in the attached
financial statements for the period ended June 30, 1999, as "Receipt of stock
subscriptions receivable".
The shares of US$.001 par value common stock of the Company constitute equity
interests in the Company entitling each shareholder to a pro rata share of cash
distributions made to shareholders, including dividend payments. The
10
<PAGE>
Bylaws of the Company specify how the cash available for distribution, whether
occurring from operations or sales or refinancing, is to be shared among the
shareholders. The holders of the Company's common stock are entitled to one vote
for each share of record on all matters to be voted on by shareholders. There is
no cumulative voting with respect to the election of directors of the Company or
any other matter, with the result that the holders of more than fifty percent
(50%) of the shares voted for the election of those directors can elect all of
the directors. The holders of the Company's common stock are entitled to receive
dividends when, as and if declared by the Company's Board of Directors from
funds legally available therefore; provided, however, that cash dividends are at
the sole discretion of the Company's Board of Directors. In the event of
liquidation, dissolution or winding up of the Company, the holders of common
stock are entitled to share ratably in all assets remaining available for
distribution to them after payment of liabilities of the Company and after
provision has been made for each class of stock, if any, having preference in
relation to the Company's US$.001 par value common stock. Holders of the shares
of Company's common stock have no conversion, preemptive or other subscription
rights, and there are no redemption provisions applicable to the Company's
common stock.
Item 15. Financial Statements and Exhibits
(b) Index to Exhibits Page
- --------------------- ----
Specimen Stock Certificate E-1 through E-2
11
<PAGE>
SIGNATURES
In accordance with the provisions of Section 12 of the Securities Exchange Act
of 1934, Luna Medical Technologies, Inc. has duly caused this Amendment No. 2 to
the Registration Statement on Form 10-SB to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of , on November
22, 1999.
Luna Medical Technologies, Inc.,
a Nevada corporation
By: /s/ Gordon McDougall
----------------------------------
Gordon McDougall
Its: President
12
COMMON STOCK COMMON STOCK
- ---------------- ----------------
LUNA TECHNOLOGIES INC.
- ---------------- ----------------
SPECIMEN
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR
THE STATE OF NEVADA CERTAIN DEFINITIONS
CUSIP 55036M 10 3
================================================================================
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
================================================================================
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF
LUNA TECHNOLOGIES INC.
transferable on the books of the corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the corporation and the facsimile signature
of its duly authorized officers.
CERTIFICATE OF STOCK
Dated:
/s/ G. McDougall [CORPORATE SEAL] /s/ G. McDougall
Luna Technologies, Inc.
SECRETARY 1999 PRESIDENT
NEVADA
*
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
BY
-----------------------------------
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the [illegible]
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - _____________ Custodian ___________
([illegible]) (author)
under Uniform Gifts to Minors
Act________________________________
(State)
UNIF GIFT MIN ACT - _____________ Custodian (until age _______)
([illegible])
_______________ under Uniform Transfers
(minor)
to Minors Act.., _____________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------
of the common stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated ____________________________
X
---------------------------------------
X
---------------------------------------
NOTICE: THE SIGNATURES TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By _____________________________________
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE [ILLEGIBLE] PROGRAM, PURSUANT
TO [ILLEGIBLE] RULE 17 ACT 15.
