U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 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 16
Exhibit Index is specified on Page 15
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Luna Medical Technologies, Inc.
a Nevada corporation
Index to Amendment No. 1 to Form 10-SB Registration Statement
Item Number and Caption Page
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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...........6
Basic Fertility Awareness............................................7
Other Methods of Natural Family Planning.............................7
Employees............................................................7
Reports to Security Holders..........................................7
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................7
Revenue..............................................................7
Costs and Expenses...................................................8
Liquidity and Capital Resources......................................8
Results of Operations................................................9
Year 2000 Compliance.................................................9
3. Description of Property................................................10
Property Held by the Company ..........................................10
4. Security Ownership of Certain Beneficial Owners........................10
(a) Security Ownership of Certain Beneficial Owners....................10
(b) Security Ownership of Management...................................10
Changes in Control.....................................................10
5. Directors, Executive Officers, Promoters and Control Persons...........10
6. Executive Compensation - Remuneration of Directors and Officers........11
7. Certain Relationships and Related Transactions.........................12
Compensation to Officers and Directors of the Company..............12
Related Party Transactions.........................................12
Transactions with Promoters........................................12
8. Legal Proceedings......................................................12
9. Market for Common Equity and Related Stockholder Matters...............12
10. Recent Sales of Unregistered Securities................................12
11. Description of Securities..............................................13
12. Indemnification of Directors and Officers..............................13
13. Financial Statements...................................................14
14. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................................14
15. Financial Statements and Exhibits......................................14
Signatures ..............................................................16
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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, highly accurate and re-usable home fertility test.
As a point of clarification, as used in this Amendment No. 1 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. 1 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 Agreement does
contemplate a continuing relationship between LPI and the Company beyond the
repayment of the Loan. 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 and accuracy of that concept. However, the Company
cannot attest to the extent, nature, accuracy or validity of those 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.
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
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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 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 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 their Company'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
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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 plans to establish the Indicator as an
effective and easy method of in-home fertility testing. 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 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 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 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.
5
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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 1-2-3(TM) , 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 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 the
Indicator has no side effects that can reduce fertility in the long-term. The
Company believes that natural family planning using the Indicator is a safe and
effective natural family planning device. 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
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means of contraception regulation; and (ix) recognize the approach of menopause.
The Indicator allows for a couple to track the woman's fertility very
effectively 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 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. The Company does currently maintain its own
Internet address at www.lunafert.com.
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
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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 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
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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.
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 its
long-term liquidity. The Company believes that it can continue to successfully
market and sell the Indicator.
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
9
<PAGE>
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. Those facilities are provided to the
Company by Campbell Capital Advisory, Inc. on a month-to-month basis. The
Company has no financial obligation for or relating to those facilities.
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 4. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners. Other than officers
and directors, there are no persons who are beneficial owners of 5% or more of
the Company's issued and outstanding common stock.
(b) Security Ownership of Management. The directors and principal executive
officers of the Company beneficially own, in the aggregate, 6,000,000 shares of
the Company's $.001 par value common stock, or approximately 82.1% of the issued
and outstanding shares of such common stock, as set forth on the following
table:
<TABLE>
<CAPTION>
Title of Class Name and Address of Beneficial Owner Amount and Nature of Beneficial Owner Percent of Class
- -------------------- -------------------------------------- ---------------------------------------- ---------------------
<S> <C> <C> <C>
Common Stock Campbell Capital Advisory, Inc. 6,000,000 82.1%
10832 Magnolia Court An entity wholly-owned by Gordon
Delta, British Columbia, McDougall, President and the sole
Canada V4K 2L3 director of the Company
All officers and directors as a group 6,000,000 82.1%
</TABLE>
Gordon McDougall, President and sole director of the Company, is the President
and sole shareholder of Campbell Capital Advisory, Inc.
Changes in Control. Management of the Company is not aware of any arrangements
which may result in "changes in control" as that term is defined by the
provisions of Item 403(c) of Regulation S-B.
Item 5. Directors, Executive Officers, Promoters and Control Persons
The directors and principal executive officers of the Company are as specified
on the following table:
================================================================================
Name Age Position
- --------------------------------------------------------------------------------
Gordon McDougall 43 President and Director
================================================================================
10
<PAGE>
Gordon McDougall, age 43, is a member of the Board of Directors of the Company.
Mr. McDougall currently holds the offices of Chairman of the Board of Directors
and President, Chief Executive Officer, Secretary, and Chief Financial Officer
of the Company.
Mr. McDougall has 17 years experience in general management, venture capital,
and financing, primarily with emerging companies. Mr. McDougall's business
experience includes general management, venture capital and the financing of
emerging companies. From 1994 to January 1996 he was chief executive officer for
Sierra Capital Corporation. Previously, Mr. McDougall was a registered
representative with Nesbitt, Thomson, Bongard, Inc; Corporate Development
Consultant; SOLUS Technology Corporation (building automation systems) and
president of LMB Holdings Ltd. (consulting and franchising). From April 1986 to
June 1987, Mr. McDougall was vice-president of Orcatron Communications, Inc.
Since September 1987, Mr. McDougall has been president of LMB Holdings Ltd. Mr.
McDougall was also president of Campbell Technologies Inc. and president, chief
financial officer and secretary of C-2 Technologies, Inc. Mr. McDougall is the
current president and chief executive officer of Campbell Capital Advisory, Inc.
Mr. McDougall's experience as a director includes directorships with Orcatron
Communications Ltd. (manufacturer of wireless communication equipment for
underwater use by commercial, military and recreational divers); Shelter Island
Venture Capital (VCC) Corp. (founding shareholder); Raider Reach Manufacturing
Ltd (construction equipment); BCS Technology Inc.; Sierra Capital Corp.;
Campbell Technologies, Inc.; and C-2 Technologies, Inc. Mr. McDougall is
currently on the Board of Directors of SOLUS Venture Capital (VCC) Corp.;
Shelter Island Venture Capital (VCC) Corporation; LMB Holdings Ltd.; Campbell
Capital Advisory, Inc.; and the Company.
All directors of the Company hold office until the next annual meeting of the
shareholders and the election and qualification of their successors. The
Officers of the Company are elected annually by the Board of Directors and serve
at the discretion of the Board of Directors.
There are no significant employees expected by the Company to make a significant
contribution to the business of the Company.
There are no orders, judgments, or decrees of any governmental agency or
administrator, or of any court of competent jurisdiction, revoking or suspending
for cause any license, permit or other authority to engage in the securities
business or in the sale of a particular security or temporarily or permanently
restraining Mr. McDougall from engaging in or continuing any conduct, practice
or employment in connection with the purchase or sale of securities, or
convicting such person of any felony or misdemeanor involving a security, or any
aspect of the securities business or of theft or of any felony, nor is Mr.
McDougall the officer or director of any corporation or entity so enjoined.
Item 6. Executive Compensation - Remuneration of Directors and Officers.
Specified below, in tabular form, is the aggregate annual remuneration of the
Company's Chief Executive Officer and the four (4) most highly compensated
executive officers other than the Chief Executive Officer who were serving as
executive officers at the end of the Company's last completed fiscal year.
================================================================================
Name of individual or Capacities in which Aggregate
Identity of Group remuneration was received remuneration
- --------------------------------------------------------------------------------
None(1) None None
================================================================================
- --------
(1) The officers and directors of the Company received no direct compensation
from the Company during the Company's most recent fiscal year. The officers and
directors of the Company are reimbursed for expenses incurred on behalf of the
Company.
11
<PAGE>
There was no compensation paid to any executive officer of the Company at any
time from its formation through June 30, 1999.
Item 7. Certain Relationships and Related Transactions
Compensation to Officers and Directors of the Company. As of June 30, 1999, no
compensation has been paid or accrued to any of the officers or directors of the
Company.
Related Party Transactions. Gordon McDougall is the President, Chief Executive
Officer, Secretary, Chief Financial Officer and a director of the Company. He is
also the President and sole shareholder of Campbell Capital Advisory, Inc.
("Campbell"). During the fiscal year ended March 31, 1999, Campbell advanced
US$20,469 to the Company to fund the Company's initial operations. From January
19, 1999 (inception) through the period ending June 30, 1999, the Company had
repaid US$16,000. During the fiscal quarter ended June 30, 1999, Campbell
advanced a further US$5,398 to the Company. The loan is unsecured and bears no
interest. The Company is not required to repay the loan within any specified
period of time.
The Company occupies office space furnished by Campbell Capital Advisory, Inc.,
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 and Campbell have a verbal agreement whereby the Company pays
Campbell consulting fees for the services of Gordon McDougall of approximately
US$5,000 per month. Mr. McDougall is the President and the sole shareholder of
Campbell, as well as the President, Chief Executive Officer, Secretary and Chief
Financial Officer of the Company. Through the period ending March 31, 1999, the
Company had paid US$5,000 in consulting fees to Campbell. During the three-month
period ended June 30, 1999, the Company accrued US$15,000 in consulting fees.
Transactions with Promoters. Gordon McDougall was the promoter of the Company,
but did not receive compensation for those services.
Item 8. Legal Proceedings
There are no legal actions pending against the Company nor are any such legal
actions contemplated.
Item 9. Market For Common Equity and Related Stockholder Matters
There is currently no market for the Company's common stock, although the
Company anticipates applying to participate in the OTC Bulletin Board electronic
quotation system maintained by the National Association of Securities Dealers,
Inc.
As of June 30, 1999, there were approximately 18 holders of the Company's
US$.001 par value common stock. There have been no cash dividends declared on
the Company's common stock in the last two fiscal years. Dividends are declared
at the sole discretion of the Company's Board of Directors.
Item 10. Recent Sales of Unregistered Securities
There have not been sales of unregistered securities within the last three (3)
years which would be required to be disclosed pursuant to Item 701 of Regulation
S-B, except for the following:
On or about January 19, 1999, the Company commenced an offering of shares of its
US$.001 par value common stock for US$.001 per share. Those shares were issued
in reliance on an exemption from the registration requirements of the Securities
Act of 1933 ("Act") specified by the provisions of Section 3(b) of the Act and
Rule
12
<PAGE>
504 of Regulation D promulgated by the Securities and Exchange Commission
pursuant to that Section 3(b). Through June 30, 1999, the Company had sold a
total of 7,170,000 shares of its US$.001 par value common stock pursuant to that
offering. The shares were sold to non-U.S. citizens as that term is defined in
the relevant securities law. The gross proceeds from that offering amounted to
US$7,170, all of which was allocated to working capital.
In or about March of 1999, the Company commenced an offering of shares of its
US$.001 par value common stock for US$.50 per share. The shares were issued in
reliance on an exemption from the registration requirements of the Act specified
by the provisions of Section 3(b) of the Act and Rule 504 of Regulation D
promulgated by the Securities and Exchange Commission pursuant to Section 3(b).
Through June 30, 1999, the Company had sold a total of 140,660 shares of its
common stock pursuant to that offering. The shares were sold to non-U.S.
citizens and accredited investors as those terms are defined in the relevant
securities law. The gross proceeds to the Company amounted to US$70,330, all of
which was allocated to working capital.
Item 11. Description of Securities
The Company is authorized to issue 50,000,000 shares of common stock, US$.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 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. All of the outstanding shares of Company's common stock are duly
authorized, validly issued, fully paid and non-assessable.
Item 12. Indemnification of Directors and Officers
Article Twelve of the Company's Articles of Incorporation provides that no
director or officer of the Company shall be personally liable to the Company or
any of its stockholders for damages for breach of fiduciary duty as a director
or officer involving any act or omission of any such director or officer;
provided, however, that the foregoing provision does not eliminate or limit the
liability of a director or officer for acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or the payment of
dividends in violation of Section 78.300 of the Nevada Revised Statutes.
The Company anticipates that it will enter into indemnification agreements with
each of its directors and executive officers pursuant to which the Company
agrees to indemnify each such director and executive officer for all
13
<PAGE>
expenses and liabilities, including criminal monetary judgments, penalties and
fines, incurred by such director and officer in connection with any criminal or
civil action brought or threatened against such director or officer by reason of
such person being or having been an officer or director of the Company. In order
to be entitled to indemnification by the Company, such person must have acted in
good faith and in a manner such officer or director believed to be in the best
interests of the Company and, with respect to criminal actions, the officer or
director must have had no reasonable cause to believe his or her conduct was
unlawful.
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION FOR
LIABILITIES ARISING PURSUANT TO THE SECURITIES ACT OF 1933 IS CONTRARY TO PUBLIC
POLICY AND, THEREFORE, UNENFORCEABLE.
Item 13. Financial Statements.
Copies of the financial statements specified in Regulation 228.310 (Item
310) are filed with this Amendment No. 1 to Registration Statement, Form 10-SB
(see Item 15 below).
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in or disagreements with the Company's
accountants since the formation of the Company required to be disclosed pursuant
to Item 304 of Regulation S-B.
Item 15. Financial Statements and Exhibits
(a) Index to Financial Statements
Independent Auditor's Report F-1
Audited Balance Sheet
as at March 31, 1999 F-2
Audited Statement of Operations and
Accumulated Deficit for the Period from
January 19, 1999 (inception) to March 31, 1999 F-3
Audited Statement of Stockholders' Equity
for the Period from January 19, 1999 (inception)
to March 31, 1999 F-4
Audited Statement of Cash Flows for the Period From
January 19, 1999 (inception) to March 31, 1999 F-5
Notes to Financial Statements as at
March 31, 1999 F-6 through F-9
Unaudited Consolidated Balance Sheet
as at June 30, 1999 F-10
Unaudited Consolidated Statement of Loss
for the Period Ended June 30, 1999 F-11
Unaudited Consolidated Statement of Stockholders' Equity
for the Period Ended June 30, 1999 F-12
14
<PAGE>
Unaudited Consolidated Statement of Cash Flows
for the Period Ended June 30, 1999 F-13
Notes to the Consolidated Financial Statements
as at June 30, 1999 F-14 through F-15
(b) Index to Exhibits
Copies of the following documents are filed with this Registration Statement,
Amendment No. 1 to Form 10-SB as exhibits:
Index to Exhibits
Financial Data Schedule
for the Period from January 19, 1999 (inception)
through the Period Ended March 31, 1999 E-1
Financial Data Schedule
for the Period from April, 1999 through
the Period Ended June 30, 1999 E-2
15
<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. 1 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 September
___, 1999.
Luna Medical Technologies, Inc.,
a Nevada corporation
By: /s/ Gordon McDougall
---------------------------
Gordon McDougall
Its: President
16
<PAGE>
Board of Directors
Luna Medical Technologies, Inc.
1820 - 1095 West Pender Street
Vancouver, BC V6E 2M6
Independent Auditor's Report
We have audited the accompanying balance sheet of Luna Medical Technologies,
Inc., formerly Luna Technologies, Inc., (a development stage enterprise), as of
March 31, 1999 and the related statements of operations and accumulated deficit,
stockholders' equity and cash flows for the period from January 19, 1999
(inception) to March 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Luna Medical Technologies,
Inc., formerly Luna Technologies, Inc. as of March 31, 1999, and the results of
its operations and its cash flows for the period from January 19, 1999
(inception) to March 31, 1999, in conformity with generally accepted accounting
principles.
Williams & Webster, P.S.
Spokane, Washington
May 31, 1999 (Except for Note 8, as to which the date is September 17, 1999)
F-1
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Formerly Luna Technologies, Inc.
(A DEVELOPMENT STAGE ENTERPISE)
Balance Sheet
March 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash on hand and in banks $ 9,897
Accounts receivable 1,091
Loan receivable 40,000
GST receivable 920
Prepaid marketing expense 16,453
Prepaid expenses 5,637
Inventory 1,012
--------
TOTAL CURRENT ASSETS 75,010
OTHER ASSETS
Licensing agreement 1
--------
TOTAL OTHER ASSETS 1
--------
TOTAL ASSETS $ 75,011
========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,556
Accrued marketing costs 16,453
Royalties payable 130
Short terms loans - CCA 4,469
--------
TOTAL CURRENT LIABILITIES 31,608
COMMITMENTS AND CONTINGENCIES --
--------
TOTAL LIABILITIES 31,608
--------
STOCKHOLDERS' EQUITY
Preferred stock, 5,000,000 shares authorized, $.001 par value;
no shares issued and outstanding --
Common stock, 50,000,000 shares authorized, $.001 par value;
7,310,660 shares issued and outstanding 7,311
Additional paid-in-capital 70,189
Stock subscriptions receivable (5,000)
Accumulated deficit during developmental stage (29,097)
--------
TOTAL STOCKHOLDERS' EQUITY 43,403
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 75,011
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Formerly Luna Technologies, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
For the Period From January 19, 1999 (inception) to March 31, 1999
REVENUES $ 1,020
COST OF GOODS SOLD (827)
-----------
GROSS MARGIN ON SALES 193
EXPENSES
Consulting 13,163
Legal 2,506
Marketing expense 5,907
Office Expense 673
Rent 1,700
Transfer agent 2,798
Travel Expense 1,199
Stock issuance costs 1,344
-----------
TOTAL EXPENSES 29,290
-----------
NET LOSS FROM OPERATIONS (29,097)
ACCUMULATED DEFICIT, BEGINNING BALANCE --
-----------
ACCUMULATED DEFICIT, ENDING BALANCE $ (29,097)
===========
NET LOSS PER COMMON SHARE $ (0.01)
===========
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING 5,154,552
===========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Formerly Luna Technologies, Inc.
(A DEVELOPMENT STAGE ENTERPISE)
Statement of Stockholders' Equity
For the Period From January 19, 1999 (inception) to March 31, 1999
<TABLE>
<CAPTION>
Common Stock
------------------------ Additional Stock Total
Number Paid-In Accumulated Subscriptions Stockholders'
of Shares Amount Capital Deficit Receivable Equity
---------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock
through March 1999:
for cash at $.001 per share 7,170,000 $ 7,170 $ -- $ -- $ $ 7,170
Issuance of common stock
through March 1999:
for cash at $.50 per share 140,660 141 70,189 -- (5,000) 65,330
Loss for period ending,
March 31, 1999 (29,097) (29,097)
---------- ---------- ---------- ---------- ---------- ----------
Balance
March 31, 1999 7,310,660 $ 7,311 $ 70,189 $ (29,097) $ (5,000) $ 43,403
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Formerly Luna Technologies, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Statement of Cash Flows
For the Period From January 19, 1999 (inception) to March 31, 1999
Cash flows from operating activities:
Net loss $(29,097)
Adjustments to reconcile net loss
to net cash used by operating activities:
Increase (decrease) in:
Accounts receivable (2,011)
Prepaid expenses (22,090)
Inventory (1,012)
(Increase) decrease in:
Accounts payable 10,556
Accrued liabilities 16,583
--------
Net cash (used) in operating activities (27,071)
--------
Cash flows from investing activities:
Loan to licensor pursuant to licensing agreement (40,000)
Acquisition cost of license (1)
--------
Net cash (used) by investing activities (40,001)
--------
Cash flows from financing activities:
Proceeds from Sale of Common Stock 72,500
Proceeds from short-term loan payable 20,469
Repayment of short-term loan payable (16,000)
--------
Net cash provided by financing activities 76,969
--------
Change in cash 9,897
Cash, beginning of period --
--------
Cash, end of period $ 9,897
========
Supplemental disclosures:
Interest paid $ --
Income taxes paid $ --
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Formerly Luna Technologies, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Luna Medical Technologies, Inc., formerly Luna Technologies, Inc., (hereinafter
"the Company"), was incorporated January 19, 1999 under the laws of the State of
Nevada for the purpose of engaging in any lawful activity. The Company has
entered into an exclusive worldwide license agreement with Luna Products, Inc.,
the manufacturer of the Luna Fertility Indicator, to distribute the Indicator,
and is in the process of developing marketing plans for the products acquired.
The Company maintains an office in Vancouver, British Columbia.
On May 31, 1999 the Company amended its articles of incorporation to reflect the
name change to Luna Medical Technologies, Inc.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Luna Medical Technologies,
Inc. is presented to assist in understanding the Company's financial statements.
The financial statements and notes are representations of the Company's
management which is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Development Stage Activities
The Company has been in the development stage since its formation in January,
1999 and has not yet realized any significant revenues from its planned
operations. It is primarily engaged in the distribution of the Luna Fertility
Indicator, and is in the process of developing marketing plans for the products
acquired.
Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting.
Loss Per share
Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the period. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding.
F-6
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Formerly Luna Technologies, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Provision for Taxes
At March 31, 1999, the Company had net operating loss of approximately $29,100.
No provision for taxes or tax benefit has been reported in the financial
statements, as there is not a measurable means of assessing future profits or
losses.
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
Translation of Foreign Currency
The Company has adopted Financial Accounting Standard No. 52. The Canadian
foreign exchange rate has remained approximately the same since inception
therefore, there are no material exchange rate transaction gains or losses. In
the future, the Company will record such transactions in the Statement of
Stockholders' Equity.
NOTE 3 - DETAILS OF SHORT-TERM DEBT
Short-term loan payable consists of the following at March 31, 1999:
Campbell Capital Advisory, Inc. (CCA) $4,469
During this period CCA advanced $20,469, of which $16,000 has been repaid. The
loan payable is unsecured and bears no interest. The Company intends to pay the
balance when funds become available. It is payable to a related company under
the control of the Company's president (see Note 5).
F-7
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Formerly Luna Technologies, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE 4 - COMMON STOCK
Upon incorporation, 7,310,660 shares of common stock were sold, 7,170,000 at
$.001 per share, and 140,660 at $.50 per share, under Regulation D, Rule 504.
No shares of preferred stock were issued during the period ending March 31,
1999.
NOTE 5 - RELATED PARTIES
The President and Chief Executive Officer of the Company, Gordon C. McDougall,
is also the president and stockholder of Campbell Capital Advisory, Inc., which
has advanced funds to the Company to begin operations and to retain the services
of an attorney. The Company occupies office space contracted by Campbell Capital
Advisory, Inc. The rental agreement is a monthly agreement with International
Parkside, for which the Company paid one month's rent during the reporting
period.
During the period ended March 31, 1999, Campbell Capital Advisory, Inc. was paid
$5,000 in consulting fees for the services of Mr. McDougall.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
On January 31, 1999, Luna Medical Technologies, Inc. entered into a licensing
agreement with Luna Products, Inc. (LPI). This arrangement is recorded as a loan
receivable of $40,000 and as deferred and accrued marketing expenses, originally
in the sum of $20,000. The value ascribed by the agreement to the license is $1.
The Agreement calls for the loan to be paid by a CDN $1 fee per unit for the
first 30,000 units sold, and then a CDN$.50 fee per unit sold in perpetuity.
Until May 31, 1999, the agreement can be modified and the loan converted into
50% of the common stock of Luna Products, Inc. The loan does not have a stated
rate of interest and management believes that sales should result in a complete
repayment of this loan within one year. Furthermore, the Licensing Agreement
calls for continuing royalties of 5% of Luna Medical Technologies' gross sales
to Luna Products, Inc. and CDN $1 to Jim Emmerson, a director of LPI, for each
unit sold, in perpetuity. Each of these royalties will be paid one month in
arrears.
On May 6, 1999, the Company and LPI agreed to certain modifications to the
Licensing agreement. The Company agreed not to exercise its right to acquire a
50% equity interest in LPI. The companies agreed to certain pricing and
purchasing structures and increased the required total marketing obligation to
CDN $250,000, to be expended by May 31, 2000.
F-8
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Formerly Luna Technologies, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE 7 - YEAR 2000 ISSUES
Historically, certain computer programs were written using two digits rather
than four to define the applicable year. Therefore, like other companies, Luna
Medical Technologies, Inc. could be adversely affected if the computer systems
the Company, its suppliers or customers use do not properly process and
calculate date-related information and data from the period surrounding and
including January 1, 2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could impact non-computer systems and devices such as
production equipment and elevators, etc. At this time, because of the
complexities involved in the issue, management cannot provide assurance that the
Year 2000 issue will not have an impact on the Company's operations.
The Company has performed an assessment of the major information technology
systems of the Company and expects that all necessary modifications and
replacements will be completed in a timely manner to ensure that the systems are
Year 2000 compliant. However, the Company cannot reasonably determine the extent
to which systems of significant customers vendors or suppliers are Year 2000
compliant, and therefore cannot determine what effect, if any, the Year 2000
issue could have on the Company. The costs incurred by the Company to address
the Year 2000 issue have been de-minimus, and expensed as incurred.
NOTE 8 - SUPPLEMENTAL DISCLOSURES
In compliance with Securities and Exchange Commission comment letter dated
August 6, 1999, certain information was changed in Notes 1, 6 and 7. These
changes were for disclosure purposes only, and did not affect the financial
statements.
F-9
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Balance Sheet
(Unaudited - Prepared by Management)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS June 30 March 31
1999 1999
<S> <C> <C>
CURRENT ASSETS
Cash $ 4,486 $ 9,897
Accounts receivable 3,312 1,091
Loan receivable 40,000 40,000
Goods and Services Tax recoverable 3,391 920
Inventory 1,041 1,012
Prepaid marketing expense -- 16,453
Prepaid expenses -- 5,637
-------- --------
52,230 75,010
-------- --------
OTHER ASSETS
Marketing licence 1 1
Trademark 710 --
-------- --------
711 1
-------- --------
$ 52,941 $ 75,011
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 47,964 $ 10,686
Accrued marketing costs -- 16,453
Short term loans payable 26,806 4,469
-------- --------
74,770 31,608
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, 5,000,000 shares authorized, $.001 par value
no shares issued and outstanding -- --
Common stock, 50,000,000 shares authorized, $.001 par value
7,310,660 shares issued and outstanding 7,311 7,311
Additional paid-in capital 70,189 70,189
Stock subscriptions receivable -- (5,000)
Deficit (99,329) (29,097)
-------- --------
(21,829) 43,403
-------- --------
$ 52,941 $ 75,011
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
F-10
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Statement of Loss
(Unaudited - Prepared by Management)
For the three month period ended June 30, 1999
- --------------------------------------------------------------------------------
SALES $ 15,547
COST OF SALES 9,282
GROSS PROFIT 6,265
EXPENSES
Audit and accounting 7,017
Bank charges and interest 733
Consulting 11,437
Legal 5,498
Management fees 15,000
Marketing 24,787
Office and telephone 7,098
Rent 3,000
Transfer agent 1,334
Travel 593
-----------
76,497
-----------
NET LOSS $ (70,232)
===========
NET LOSS PER COMMON SHARE $ (0.01)
===========
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING 7,310,660
===========
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
F-11
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Statement of Stockholders' Equity
(Unaudited - Prepared by Management)
For the three month period ended June 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCK
Balance, beginning and end of period $ 7,311
--------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning and end of period 70,189
--------
DEFICIT
Balance, beginning of period (29,097)
Net loss (70,232)
--------
Balance, end of period (99,329)
--------
TOTAL STOCKHOLDERS' EQUITY $(21,829)
========
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
F-12
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Statement of Cash Flows
(Unaudited - Prepared by Management)
For the three month period ended June 30, 1999
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(70,232)
Changes in non-cash working capital
Accounts receivable (2,221)
Goods and Services Tax recoverable (2,471)
Inventory (29)
Prepaid marketing expense 16,453
Prepaid expenses 5,637
Accounts payable and accrued liabilities 37,278
Accrued marketing costs (16,453)
--------
(32,038)
--------
CASH FLOWS FROM INVESTING ACTIVITIES
Trademark registration costs (710)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short term loans payable 22,337
Receipt of stock subscriptions receivable 5,000
--------
27,337
--------
CHANGE IN CASH (5,411)
CASH, beginning of period 9,897
--------
CASH, end of period $ 4,486
========
Supplemental disclosures:
Interest paid $ 10
Income taxes paid $ --
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
F-13
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited - Prepared by Management)
June 30, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Luna Medical Technologies, Inc. and its wholly-owned subsidiary, Luna
Fertility Indicator, Inc. were incorporated, respectively, January 19, 1999
under the laws of the State of Nevada and May 11, 1999 under the laws of
the Province of British Columbia, Canada for the purpose of engaging in any
lawful activity. The company has entered into an exclusive worldwide
licence agreement with Luna Products Inc. to distribute the Luna Fertility
Indicator, and is in the process of developing and implementing marketing
plans for the products acquired. The company and its subsidiary maintain
offices in Vancouver, British Columbia, Canada.
On May 31, 1999, the company amended its articles of incorporation to
reflect the change of its name from Luna Technologies, Inc. to Luna Medical
Technologies, Inc.
2. SHORT TERM LOANS PAYABLE
Short term loans payable consist of the following:
Loan payable to Campbell Capital Advisory, Inc. - an $ 9,867 $ 4,469
unsecured loan bearing no interest and with no
fixed terms of repayment. Campbell Capital
Advisory, Inc. is a private corporation controlled
by the President of the company
Loan payable to Javelin Enterprises - an unsecured 16,939 --
loan bearing interest at 10% per annum
Repayable without notice or penalty. Due
June 2, 2000
------- -------
Total $26,806 $ 4,469
======= =======
3. RELATED PARTY TRANSACTIONS
During the period, the company entered into transactions with related
parties as follows:
Management fees paid to a company of the President $15,000
Marketing expenses reimbursed to a company of the President 7,500
Office expenses reimbursed to a company of the President 2,700
F-14
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited - Prepared by Management)
June 30, 1999
- --------------------------------------------------------------------------------
4. COMMITMENTS AND CONTINGENCIES
On January 31, 1999, the company entered into a licencing agreement with
Luna Products Inc. (LPI). This arrangement is recorded as a loan receivable
of US$40,000 and a marketing licence of US$1. The agreement calls for the
loan to be paid by a CDN$1 fee per unit for the first 30,000 units sold,
and then a CDN$0.50 fee per unit sold in perpetuity. The loan does not have
a stated rate of interest and management believes that sales should result
in a complete repayment of this loan within one year. Furthermore, the
licencing agreement calls for continuing royalties of 5% of Luna Medical
Technologies' gross sales to Luna Products Inc. and CDN$1 to Jim Emmerson,
a director of LPI, for each unit sold in perpetuity. Each of these
royalties will be paid one month in arrears.
On May 6, 1999, the company and LPI agreed to certain modifications to the
licence agreement as to certain pricing and purchasing structures, and the
company agreed to incur marketing expenses totalling not less than
CDN$250,000 by May 31, 2000.
F-15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
Balance Sheet as at March 31, 1999 and the audited Statement of Operations and
Accumulated Deficit for the period from January 19, 1999 (inception) to March
31, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 9897
<SECURITIES> 0
<RECEIVABLES> 42011
<ALLOWANCES> 0
<INVENTORY> 1012
<CURRENT-ASSETS> 75010
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 75011
<CURRENT-LIABILITIES> 31608
<BONDS> 0
0
0
<COMMON> 7311
<OTHER-SE> 36092
<TOTAL-LIABILITY-AND-EQUITY> 75011
<SALES> 1020
<TOTAL-REVENUES> 1020
<CGS> 827
<TOTAL-COSTS> 827
<OTHER-EXPENSES> 29290
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (29097)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29097)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29027)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Consolidated Balance Sheet as at June 30, 1999 and the unaudited
Consolidated Statement of Loss for the three month period ended June 30, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 4486
<SECURITIES> 0
<RECEIVABLES> 46703
<ALLOWANCES> 0
<INVENTORY> 1041
<CURRENT-ASSETS> 52230
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 52941
<CURRENT-LIABILITIES> 74770
<BONDS> 0
0
0
<COMMON> 7311
<OTHER-SE> (29140)
<TOTAL-LIABILITY-AND-EQUITY> 52941
<SALES> 15547
<TOTAL-REVENUES> 15547
<CGS> 9282
<TOTAL-COSTS> 9282
<OTHER-EXPENSES> 76487
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> (70232)
<INCOME-TAX> 0
<INCOME-CONTINUING> (70232)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70232)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
