U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
LUNA MEDICAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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NEVADA 3841 98-0207745
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer Identification No.)
of incorporation or organization) Classification Code Number)
Suite 400, 900 West Hastings Street, Vancouver, British Columbia, Canada V6C 1E5
(Address of registrant's principal executive offices) (Zip Code)
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604.687.0719
(Registrant's Telephone Number, Including Area Code)
Thomas E. Stepp, Jr.
Stepp & Beauchamp LLP
1301 Dove Street, Suite 460
Newport Beach, California 92660
Telephone: 949.660.9700
Facsimile: 949.660.9010
(Name, Address and Telephone Number of Agent for Service)
Approximate date of proposed sale to the public: From time to time after this
Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
of 1933registration statement number of the earlier effective registration
statement for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Title of each class Amount Proposed maximum Proposed maximum
of securities to be offering price aggregate Amount of
to be registered registered per share offering price registration fee
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Common Stock, $.001 par value 8,095,660 shares $1.25 $10,119,575 $2,671.57
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Common Stock, $.001 par value 410,000 (1) $1.00 (2) $410,000 $108.24
======================================================================================================================
Total Registration Fees: $2,779.81
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(1) Represents 410,000 outstanding and unexercised warrants issued in reliance
on an exemption from the registration requirements of the Securities Act of
1933 specified by the provisions of Section 4(2) of the Act and Rule 506 of
Regulation D. Each warrant expires by its own terms on December 1, 2000.
(2) Represents the exercise price of the outstanding warrants.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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Preliminary Prospectus
LUNA MEDICAL TECHNOLOGIES, INC.,
a Nevada corporation
8,505,660 Shares of $.001 Par Value Common Stock
This prospectus ("Prospectus") relates to 8,505,660 shares (the "Shares") of
common stock, $.001 par value (the "Common Stock"), of Luna Medical
Technologies, Inc., a Nevada corporation (the "Company"). 8,095,660 of the
Shares are issued and outstanding shares of Common Stock, owned by the persons
named in this Prospectus under the caption "Selling Stockholders." Those Shares
were acquired by the Selling Stockholders in private placement transactions
which were exempt from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (the "1933 Act"). Additionally, we are
registering 410,000 shares to be issued upon the exercise of outstanding
warrants. Each outstanding warrant allows the holder of such warrant to purchase
one share of our $.001 par value Common Stock for $1.00 per share. Each warrant
expires by its own terms on December 1, 2000.
The Selling Stockholders may from time to time sell the Shares on the OTC
Bulletin Board, on any other national securities exchange or automated quotation
system on which the Common Stock may be listed or traded, in negotiated
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices. The Shares may be sold directly or
through brokers or dealers. See "Plan of Distribution."
We will receive no part of the proceeds of the 8,095,660 Shares owned by the
Selling Stockholders. We will receive proceeds upon the exercise of the 410,000
outstanding warrants. We will use those proceeds primarily for working capital.
See "Use of Proceeds." All expenses of registration incurred in connection with
this offering will be paid by the Company, but all selling and other expenses
incurred by the Selling Stockholders will be paid by the Selling Stockholders.
See "Selling Stockholders."
The Selling Stockholders and any broker-dealers participating in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of the 1933 Act, and any commissions or discounts given to any such
broker-dealer may be regarded as underwriting commissions or discounts under the
1933 Act.
The Shares have not been registered for sale by the Selling Stockholders under
the securities laws of any state as of the date of this Prospectus. Brokers or
dealers effecting transactions in the Shares should confirm the registration
thereof under the securities laws of the states in which transactions occur or
the existence of any exemption from registration.
The Company has applied to participate on the Over-the-Counter Bulletin Board
Electronic Quotation Service ("Bulletin Board") maintained by the National
Association of Securities Dealers, Inc. ("NASD"). In this regard, we have filed
a Registration Statement on Form 10-SB ("10-SB") with the Securities and
Exchange Commission ("Commission"). We have cleared comments with the Commission
and are in what we believe to be the final stages of responding to NASD
comments. Because the 10-SB is "effective", we are now considered a reporting
issuer. As such, we are subject to the reporting requirements established by the
Commission, including, but not limited to, the filing of quarterly reports on
Form 10-Q and the filing of annual reports on Form 10-K. Upon clearance by the
NASD, we will have met all requirements to participate on the Bulletin Board.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is April 27, 2000
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TABLE OF CONTENTS
Item Number Caption Page
3. Summary Information ............................................. 4
Risk Factors .................................................... 5
We Have a Limited Operating History .......................... 5
New Products ................................................. 5
Limitation of Liability of Officers and Directors ............ 6
Speculative Investment ....................................... 6
Penny Stock Regulation ....................................... 6
We Rely on Our Key Personnel ................................. 7
No Foreseeable Dividends ..................................... 7
Control by Existing Shareholders ............................. 7
Our Ability to Implement Our Business Strategy ............... 7
Securities Market Factors .................................... 7
We Have No Product Liability Insurance ....................... 7
Risk of Product Recall, Product Returns ...................... 7
Lack of Commercial Products .................................. 8
Regulatory Approval May Not Be Granted ....................... 9
We Are in a Very Competitive Industry ........................ 10
Dependence on Third-Party Production ......................... 10
We Must Comply with Governmental and
Environmental Regulations .................................. 10
No Assurances of Revenue or Operating Profits ................ 10
Federal Income Tax Consequences .............................. 10
4. Use of Proceeds ................................................. 11
5. Determination of Offering Price ................................. 11
6. Dilution ........................................................ 11
7. Selling Stockholders ............................................ 11
8. Plan of Distribution ............................................ 12
9. Legal Proceedings ............................................... 14
10. Directors, Executive Officers, Promoters and Control Persons .... 14
11. Security Ownership of Certain Beneficial Owners and Management .. 15
12. Description of Securities ....................................... 16
13. Interest of Named Experts and Counsel ........................... 16
14. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities ................................... 16
15. Organization Within Last Five Years ............................. 16
16. Description of Business ......................................... 16
17. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 19
18. Description of Property ......................................... 21
19. Certain Relationships and Related Transactions .................. 22
20. Market for Common Equity and Related Stockholder Matters ........ 22
21. Executive Compensation .......................................... 22
22. Financial Statements ............................................ 23
23. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ...................................... 26
Legal Matters ................................................... 26
Experts ......................................................... 26
Additional Information .......................................... 26
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Item 3. Summary Information and Risk Factors.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS, WHICH CONTAINS MORE DETAILED INFORMATION WITH RESPECT TO EACH OF THE
MATTERS SUMMARIZED IN THIS PROSPECTUS AS WELL AS OTHER MATTERS NOT COVERED IN
THE SUMMARY. ALL PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE ENTIRE
CONTENTS OF THE PROSPECTUS AND THE EXHIBITS ATTACHED HERETO, INDIVIDUALLY AND
WITH THEIR OWN TAX, LEGAL AND BUSINESS ADVISORS.
The Company: Our principal business address is Suite 400, 900 West
Hastings Street, Vancouver, British Columbia, Canada V6C
1E5; our main business telephone number is (604) 687-0719.
Business of the
Company: We hold the exclusive worldwide license to distribute and
market a lightweight, re-usable home fertility test ("Luna
Fertility Indicator"). On or about January 31, 1999, we
entered into an exclusive worldwide license agreement
("Agreement") with Luna Products, Inc. a Canadian
corporation ("LPI"), to distribute the Luna Fertility
Indicator. Accordingly, we have begun to distribute and
market the Luna Fertility Indicator in Canada and recently
in New Zealand and South Africa. Foreign market development
has begun and discussions with potential distributors in
Taiwan, Singapore, Japan and Turkey are being conducted. We
hope to expand marketing and distribution worldwide. Our
wholly-owned subsidiary, Luna Fertility Indicator, Inc., a
British Columbia corporation, markets and distributes the
Luna Fertility Indicator.
State of Luna Medical Technologies, Inc., formerly entitled Luna
organization of Technologies, Inc., was incorporated pursuant to the laws of
the Company: the State of Nevada on January 19, 1999 ("Company"). In May,
1999, the Company changed its name to Luna Medical
Technologies, Inc.
Risk Factors: A purchase of the Common Stock involves various risks that
must be considered carefully by any potential purchaser.
Those risks include, but are not necessarily limited to, (i)
there can be no assurance that our products will achieve
significant market acceptance, and that acceptance, if
achieved, will be sustained for any significant period or
that product and service life cycles will be sufficient (or
substitute products and services developed) to permit us to
recover associated costs; (ii) the Company has a limited
operating history upon which an evaluation of our prospects
can be made; (iii) the officers and directors of the Company
may be subject to various conflicts of interest; (iv)
substantially all of our products and services are subject
to significant regulation, and, therefore, our ability to
generate significant revenues will depend upon, among other
things, our ability to comply with all such regulations,
laws and statutes, worldwide; (v) we may be required to
raise substantial funds in order to implement our business
plans and objectives; (vi) we have competition from other
medical device manufacturers, suppliers, and distributors;
(vii) our results of operations may vary from period to
period as a result of a variety of factors; (viii) the
market for our products and services is characterized by
continuous development and introduction of new products and
services; (ix) changing political, economic and regulatory
influences may affect our business practices and operations;
(x) we are dependent on our key personnel and management;
(xi) we do not anticipate paying dividends on our Common
Stock in the foreseeable future; and, (xii) there can be no
assurance that our operations will become profitable. See
"RISK FACTORS".
The Shares: 8,095,660 of the Shares offered hereby are issued and
outstanding shares of Common Stock and are now owned by the
persons named in this Prospectus under the caption
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"Selling Stockholders." The Shares were acquired by the
Selling Stockholders in various transactions, all of which
were exempt from the registration provisions of the 1933
Act. Additionally, we are registering 410,000 Shares to be
reserved for issuance upon the exercise of warrants
exercisable at $1.00 per share.
Estimated use of We will receive $410,000.00 if all of our issued and
proceeds: outstanding warrants are exercised. We intend to use any and
all proceeds from such exercise for working capital. See
"Use of Proceeds." We will not receive any of the proceeds
from the sale of the Shares offered by the Selling
Stockholders. See "Selling Stockholders."
RISK FACTORS
In addition to the other information specified in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and our
business before purchasing any of the Shares. A purchase of the Shares is
speculative in nature and involves numerous risks. No purchase of the Shares
should be made by any person who cannot afford to lose the entire amount of such
investment.
THIS PROSPECTUS SPECIFIES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SPECIFIED IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS. PROSPECTIVE PURCHASERS OF SHARES MUST BE PREPARED FOR THE POSSIBLE
LOSS OF THEIR ENTIRE INVESTMENTS IN THE COMPANY. THE ORDER IN WHICH THE
FOLLOWING RISK FACTORS ARE PRESENTED IS ARBITRARY, AND PROSPECTIVE PURCHASERS OF
SHARES SHOULD NOT CONCLUDE, BECAUSE OF THE ORDER OF PRESENTATION OF THE
FOLLOWING RISK FACTORS, THAT ONE RISK FACTOR IS MORE SIGNIFICANT THAN THE OTHER
RISK FACTORS.
Information specified in this Prospectus contains "forward looking statements"
which can be identified by the use of forward-looking terminology such as
"believes", "could", "possibly", "probably", "anticipates", "estimates",
"projects", "expects", "may", "will" or "should" or the negative thereof or
other variations thereon or comparable terminology. Such statements are subject
to certain risks, uncertainties and assumptions. No assurances can be given that
the future results anticipated by the forward-looking statements will be
achieved. The following matters constitute cautionary statements identifying
important factors with respect to such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to vary
materially from the future results covered in such forward-looking statements.
Among the key factors that have a direct bearing on the Company's results of
operations are the effects of various governmental regulations, the fluctuation
of the Company's direct costs and the costs and effectiveness of the Company's
operating strategy. Other factors could also cause actual results to vary
materially from the future results covered in such forward-looking statements.
We Have Limited Operating History. At this time, we distribute and market the
Luna Fertility Indicator. The Company is an entity formed to carry out the
activities described in this Prospectus and does not have a significant
operating history. Our prospects must be considered keeping in mind the risks,
expenses, and difficulties frequently encountered in the development of a
business in an ever-changing industry. There can be no assurance that
unanticipated problems will not occur which would result in material delays in
product commercialization or that our efforts will result in successful product
distribution. There can be no assurance that we will be able to achieve
profitable operations. Our development involves significant risks, which a
combination of experience, knowledge and careful evaluation may not be able to
overcome.
New Products. We believe our ability to grow in existing markets occupied by us
is partially dependent upon our ability to introduce new and innovative products
into such markets. The success of any new products distributed by us will be
subject to a number of conditions, including, but not limited to, developing
products that will appeal to customers and obtaining necessary regulatory
approval for those products. There can be no assurance that any new or proposed
product will attain market
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acceptance. Our failure to successfully design, develop, test, market and
introduce new and innovative products, or the failure of the Luna Fertility
Indicator to achieve market acceptance could have a material adverse effect upon
our business, operating results and financial condition.
There can be no assurance that we will not experience difficulties that could
delay or prevent the successful development, introduction or marketing of new or
innovative products, or that any new products introduced by us will adequately
meet the requirements of prospective customers and achieve significant market
acceptance. Due to certain market characteristics, including technologic change,
changing customer needs, frequent new product introductions and evolving
industry standards, timeliness of introduction of these new products and
services is critical. Delays in the introduction of new products may result in
customer dissatisfaction and may delay or cause loss of revenue. There can be no
assurance that the we will be successful in developing new products or improving
existing products that respond to technological changes or evolving industry
standards, that we will not experience difficulties that could delay or prevent
the successful development, introduction and marketing of new or improved
products, or that any new products will adequately satisfy the requirements of
prospective customers and achieve market acceptance. If we are unable to develop
and introduce new or improved products in a timely manner in response to
changing market conditions or customer tastes or requirements, our business,
operating results and financial condition will be materially adversely affected.
Limitation on Liability of Officers and Directors of the Company. Article Twelve
or the Articles of Incorporation of the Company includes a provision eliminating
or limiting the personal liability of the officers and directors of the Company
to the Company and its shareholders for damages for breach of fiduciary duty as
a director or officer. Accordingly, the officers and directors of the Company
may have no liability to the shareholders of the Company for any mistakes or
errors of judgment or for any act of omission, unless such act or omission
involves intentional misconduct, fraud, or a knowing violation of law or results
in unlawful distributions to the shareholders of the Company.
DISCLOSURE OF OPINION OF SECURITIES AND EXCHANGE COMMISSION REGARDING
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES:
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING PURSUANT TO THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT OF
1933 AND IS, THEREFORE, UNENFORCEABLE.
Speculative Investment. Our business objectives must be considered speculative,
and there is no assurance that we will satisfy those objectives. No assurance
can be given that the shareholders of the Company will realize a substantial
return on their purchase of the Shares, or any return whatsoever, or the
shareholders of the Company will not lose their investments in the Company
completely. For this reason, each prospective purchaser should read this
Prospectus and all exhibits to this Prospectus carefully and should consult with
that purchaser's attorney, business advisor, or investment advisor.
Penny Stock Regulation. The Securities and Exchange Commission ("Commission")
has adopted rules that regulate broker-dealer practices in connection with
transactions in "penny stocks". Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the NASDAQ system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock rules require
a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from those rules, deliver a standardized risk disclosure document prepared by
the Commission, which specifies information about penny stocks and the nature
and significance of risks of the penny stock market. The broker-dealer also must
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements indicating the market value of each penny stock held
in the customer's account. In addition, the penny stock rules require that,
prior to a transaction in a penny stock not otherwise exempt from those rules,
the broker-dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the trading activity in the secondary market for a stock that
becomes subject to the penny stock rules. If any of the Company's common stock
becomes subject to the penny stock rules, holders of that common stock may have
difficulty selling that common stock.
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We Rely on Our Key Personnel. Our future success will depend in part on the
service of our key personnel and, additionally, our ability to identify, hire
and retain additional qualified personnel. There is significant competition for
qualified personnel in the areas of our activities, and there can be no
assurance that we will be able to continue to attract and retain such personnel
necessary for the development of our business. Because of the intense
competition, there can be no assurance that we will be successful in adding
personnel as needed to satisfy the staffing requirements of the Company. Failure
to attract and retain key personnel could have a material adverse effect on the
Company. We do not maintain key person life insurance on any of our key
personnel.
No Foreseeable Dividends. We do not anticipate paying dividends on its common
stock in the foreseeable future; but, rather, we plan to retain earnings, if
any, for the operation and expansion of the business of the Company.
Control by Existing Stockholders. Our directors, officers and principal (greater
than 5%) stockholders, taken as a group, together with their affiliates,
beneficially own, in the aggregate, a majority of the Company's outstanding
common stock. Certain principal stockholders are directors or executive officers
of the Company. As a result of such ownership, these stockholders may be able to
exert significant influence, or even control, matters requiring approval by the
stockholders of the Company, including the election of directors. In addition,
certain provisions of Nevada law and of the Company's Articles of Incorporation
and Bylaws could have the effect of making it more difficult or more expensive
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of the Company.
Our Ability to Implement our Business Strategy. Although we intend to pursue a
strategy of aggressive product marketing and distribution, implementation of
this strategy will depend in large part on our ability to (i) establish a
significant customer base and maintain favorable relationships with those
customers; (ii) effectively introduce acceptable products to our customers;
(iii) obtain adequate financing on favorable terms to fund our business
strategy; (iv) maintain appropriate procedures, policies, and systems; (v) hire,
train, and retain skilled employees; and (vi) continue to operate in the face of
increasing competition. Our inability to obtain or maintain any or all of these
factors could impair our ability to successfully implement our business
strategy, which could have a material adverse effect on our results of
operations and financial condition.
Securities Market Factors. There is currently no public market for the Company's
common stock. Should there develop a market for the Company's common stock, the
market price for the Company's common stock may be significantly affected by
such factors as the Company's financial results and introduction of new products
and technologies. Additionally, in recent years, the stock market has
experienced a high level of price and volume volatility and market prices for
many companies, particularly small and emerging growth companies have
experienced wide price fluctuations not necessarily related to the operating
performance of such companies. The market price for the Company's common stock
may be affected by general stock market volatility.
We Do Not Have Product Liability Insurance. Our business may expose us to
potential product liability risks that are inherent in the marketing of health
care related products. We do not currently have product liability insurance.
There can be no assurance that we will be able to obtain or maintain such
insurance on acceptable terms or, if obtained, that such insurance will provide
adequate coverage against potential liabilities. We face a business risk of
exposure to product liability and other claims in the event that the use of any
of our products is alleged to have resulted in adverse effects. Such risk exists
even with respect to those products that are manufactured in licensed and
regulated facilities or that otherwise possess regulatory approval for
commercial sale. There can be no assurance that we will avoid significant
product liability exposure. While we have taken, and will continue to take, what
we believe are appropriate precautions, there can be no assurance that we will
avoid significant liability exposure. An inability to obtain product liability
insurance at acceptable cost or to otherwise protect against potential product
liability claims could prevent or inhibit the marketing and distribution of our
products. A product liability claim could have a material adverse effect on our
business, financial condition and results of operations.
Risk of Product Recall, Product Returns. Product recalls may be issued at either
our discretion or that of government agencies having regulatory authority for
product sales, and may occur due to disputed labeling claims, manufacturing
issues, quality defects or other reasons. No assurance can be given that product
recalls will not occur in the future. Any product recall could materially
adversely affect our business, financial condition or results of operations.
There can be no assurance that future recalls or returns would not have a
material adverse effect upon our business, financial condition and results of
operations.
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Lack of Commercial Products. Our only product at this time is the Luna Fertility
Indicator. We anticipate that we will seek regulatory approval of the Luna
Fertility Indicator worldwide and obtain additional investment prior to
commercialization of the Luna Fertility Indicator, either independently or by
others through collaborative arrangements. Products that appear to be promising
at early stages of development of distribution may be shown to be ineffective,
fail to receive necessary regulatory approvals, be difficult or uneconomical to
market and distribute, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of others. There can be no assurance
that the Luna Fertility Indicator will satisfy applicable regulatory standards,
be capable of being produced in commercial quantities at acceptable costs or
achieve commercial acceptance.
The Luna Fertility Indicator will need to gain clearance from various regulatory
agencies in those countries where it will be marketed and distributed. Though we
have focused our initial distribution efforts primarily in Canada and have
successfully secured approval from the Canadian government to distribute the
Luna Fertility Indicator, and, accordingly, have commenced our distribution
efforts in Canada, we need to acquire approval from other countries in which we
hope to distribute the Luna Fertility Indicator, including the United States,
Taiwan, Singapore, Japan and Spain. We have also recently commenced sales in
South Africa and New Zealand. The Luna Fertility Indicator may require extensive
evaluation and pre-marketing clearance by the United States Food and Drug
Administration ("FDA") and comparable agencies in other countries prior to
commercial sale. For convenience, the FDA and those comparable agencies shall be
referred to in this Prospectus collectively as the "Regulatory Agencies." The
failure to introduce the Luna Fertility Indicator into other markets on a timely
basis could have a material adverse effect on our business, financial conditions
or results of operation.
Regulatory Approvals May Not Be Granted. The testing, manufacture, promotion,
and sale of the Luna Fertility Indicator is subject to extensive regulation by
numerous governmental authorities and Regulatory Agencies worldwide prior to the
introduction of the product into the respective country. We have received
approval from Health and Welfare Canada for the Luna Fertility Indicator. Such
approval notwithstanding, no assurance or guarantee that such approval will
continue or that there will not occur any event which would cause such approval
to be revoked. Various statutes and regulations govern or influence the testing,
manufacture, safety, effectiveness, labeling, storage, record keeping, approval,
advertising, distribution and promotion of certain products developed and
contemplated for development. Noncompliance with applicable requirements can
result in, among other things, fines, injunctions, seizure of products,
suspensions of regulatory approvals, product recalls, operating restrictions,
re-labeling costs, delays in sales, cessation of manufacture of products, the
imposition of civil or criminal sanctions, total or partial suspension of
product marketing, failure of one or more of the Regulatory Agencies to grant
pre-market approval, withdrawal of marketing approvals and criminal prosecution.
The requirements of the Regulatory Agencies include lengthy and detailed
laboratory and clinical testing procedures and other costly and time-consuming
procedures. In particular, products similar to the Luna Fertility Indicator are
subject to rigorous pre-clinical and clinical testing and other approval
requirements by appropriate Regulatory Agencies. Although the time required for
completing such testing and obtaining such approvals is uncertain, satisfaction
of these requirements typically takes a number of years and varies substantially
based on the type, complexity and novelty of the product. We cannot accurately
predict when product applications or submissions for regulatory review may be
submitted. The lengthy process of obtaining regulatory approval and ensuring
compliance with appropriate statutes and regulations requires the expenditure of
substantial resources. Any delays or failure on our part to obtain regulatory
approval and ensure compliance with appropriate standards could adversely affect
the commercialization of such products, our ability to earn product revenue, and
our results of operations, liquidity and capital resources.
Various testing procedures and the marketing and manufacturing of products are
subject to the rigorous testing and approval processes of the Regulatory
Agencies. The process of obtaining required regulatory approvals may be lengthy
and expensive depending on the jurisdiction. There can be no assurance that we
will be able to obtain the necessary approvals to conduct clinical trials for
the manufacturing and marketing of products, that all necessary clearances will
be granted to the us or our licensors for future products on a timely basis, or
at all, or that review or other actions by the Regulatory Agencies will not
involve delays adversely affecting the marketing and sale of our products. In
addition, the testing and approval process with respect to certain products
which we may develop or seek to introduce may take a substantial number of years
and involve the expenditure of substantial resources. There can be no assurance
that the Luna Fertility Indicator will be cleared for marketing by the
Regulatory Agencies of the countries in which we seek to gain distribution
rights. Failure to obtain any necessary approvals or failure to comply with
applicable regulatory requirements could have a material adverse effect on our
business, financial condition or results of operations. Further, future
government regulation could prevent or delay regulatory approval of our
products.
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There can be no assurance as to the length of the testing procedure that the
Regulatory Agencies will require to establish the safety of our products. We may
encounter significant delays or excessive costs in our efforts to secure
necessary approvals, as regulatory requirements are evolving and uncertain.
Future Canadian or foreign legislative or administrative acts could also prevent
or delay regulatory approval of our products. If commercial regulatory approvals
are obtained, they may include significant limitations on the indicated uses for
which a product may be marketed. In addition, a marketed product may be subject
to continual review by one or more Regulatory Agencies. Later discovery of
previously unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or of the
product from the market, as well as possible civil or criminal sanctions. Our
failure to obtain marketing approval for any of our products under development
on a timely basis, or withdrawal by one or more Regulatory Agencies of marketing
approval once obtained, could have a material adverse effect on our business,
financial condition and results of operations.
There can be no assurance that any approval will be granted on a timely basis,
or at all; that one or more Regulatory Agencies will not require post-marketing
testing and surveillance to monitor the product and continued compliance with
regulatory requirements; that one or more Regulatory Agencies will not require
the submission of any lot of any product for inspection and will not restrict
the release of any lot that does not comply; that one or more Regulatory
Agencies will not otherwise order the suspension of manufacturing, recall or
seizure of products; or that one or more Regulatory Agencies will not withdraw
marketing clearance of any product, if compliance with regulatory standards is
not maintained or if problems concerning safety of efficacy of the product are
discovered following approval.
From time to time, the Regulatory Agencies has issued correspondence to
companies alleging that their advertising or promotional practices are false,
misleading or deceptive. There can be no assurance that we will not receive such
correspondence from the Regulatory Agencies in the future, or that if such
notices are received, they will not result in substantial cost, disruption or
expense (including fines and penalties) in material changes to the manner in
which we promote our products, in loss of sales of our products or have other
material adverse effects on our business, financial condition or results of
operations.
Approval by any Regulatory Agency of our products may entail limitations on the
indicated uses for which such products may be marketed. Approved products may be
subject to additional testing and surveillance programs as required by
regulatory agencies. In addition, product approvals may be withdrawn or limited
for noncompliance with regulatory standards or the occurrence of unforeseen
problems following initial marketing.
The effect of regulation may be to delay the marketing of new products for a
considerable period of time, to impose costly requirements on our activities or
to provide a competitive advantage to other companies that compete with us.
There can be no assurance that regulatory approval for any of our products,
specifically, the Luna Fertility Indicator, will be granted on a timely basis,
if at all, or, if granted, that compliance with regulatory standards will be
maintained. A delay in obtaining, or failure to obtain, regulatory approvals
could preclude or adversely affect the marketing of the product and our
liquidity and capital resources. The extent of potentially adverse governmental
regulation that might result from future legislation or administrative action
cannot be predicted.
There can be no assurance that any Regulatory Agency will not change its
position with regard to the safety or effectiveness of our products or that any
Regulatory Agency will agree with our position regarding the regulation and
status of our products. In the event that any Regulatory Agency takes a contrary
position regarding any of our products, we may be required to change our
labeling or packaging or possibly cease marketing and distribution of such
products. In addition, even prior to any formal regulatory action, we could
decide voluntarily to cease distribution and sale, or to recall the product if
concern about the safety or efficacy of any of our products were to develop. Any
such action could have a material adverse effect on our business, financial
condition or results of operations.
We anticipate that eventually we will be subject to Regulatory Agencies of
different countries governing product testing and sales. Approval of a product
by the Regulatory Agencies of different countries must be obtained prior to the
commencement of marketing our products in those countries. The approval process
varies from country to country. The various regulatory approval processes
include all of the risks set forth above, and approval by one Regulatory Agency
does not ensure approval by other Regulatory Agencies. There can be no assurance
that any Regulatory Agency will approve any product we submit for review.
9
<PAGE>
We are also subject to various other laws, regulations and recommendations
relating to safe working conditions, marketing and advertising practices and
packaging guidelines. The extent and character of governmental regulation that
might result from future legislation or administrative action cannot be
accurately predicted.
We Are In A Very Competitive Industry. The medical devices industry continues to
undergo rapid change and competition is intense and is expected to increase.
There can be no assurance that competitors have not or will not succeed in
developing technologies and products that are more accurate and/or easy to use
than the Luna Fertility Indicator's saliva crystallization method and would,
accordingly, render the Luna Fertility Indicator obsolete and noncompetitive.
Many of our competitors have substantially greater experience, financial and
technical resources and production, marketing and development capabilities.
Accordingly, certain of those competitors may succeed in obtaining regulatory
approval for products more rapidly or effectively than us. We will also be
competing with respect to sales and marketing capabilities, areas in which we
currently have little experience.
Dependence on Third-Party Production. We do not manufacture the Luna Fertility
Indicator, though we have acquired an exclusive worldwide license from Luna
Products, Inc., a Canadian corporation, for all distribution rights to the Luna
Fertility Indicator. Accordingly, we depend solely on the ability of Luna
Products, Inc., to manufacture the product in commercial quantities. No
assurance can be given that Luna Products, Inc., will be able to produce the
volume of commercial manufacturing that we may require to sustain demand for the
Luna Fertility Indicator.
The manufacture of the product by Luna Products, Inc. involves a number of steps
and requires compliance with stringent quality control specifications imposed by
various regulators. We may not be able to meet the market demand for
distribution of the Luna Fertility Indicator, on a timely basis, if a halt of
production were to take place and Luna Products, Inc., were unable to use its
manufacturing facilities as a result of a fire, natural disaster (including an
earthquake), equipment failure or other difficulty, or if such facilities are
deemed not in compliance with the various regulators' requirements and the
non-compliance could not be rapidly rectified. The inability or reduced capacity
of Luna Products, Inc., to manufacture the product would have a material adverse
effect on our business and results of operations.
To meet market demands, Luna Products, Inc., may enter into arrangements with
contract manufacturing companies to expand its production capacities in order to
satisfy requirements for the Luna Fertility Indicator, or to attempt to improve
manufacturing efficiency. If Luna Products, Inc., chooses to contract for
manufacturing services and encounters delays or difficulties in establishing
relationships with manufacturers to manufacture the Luna Fertility Indicator, we
would be adversely affected. Furthermore, as contract manufacturers must also
operate in compliance with the various regulators' requirements, failure to do
so could result in, among other things, the disruption of product supplies.
We Must Comply With Governmental and Environmental Regulations. We are subject
to various forms of government regulations, including environmental and safety
laws and regulations and laws governing use and storage of hazardous materials.
Any future violation of, and the cost of compliance with, these laws and
regulations could have a material adverse effect on our business, financial
condition and results of operations. Although we believe that our operations are
in material compliance with all applicable government and environmental laws,
rules, regulations, and policies, there can be no assurance that our business,
financial condition and results of operations will not be materially adversely
affected by current or future environmental laws, rules, regulations, and
policies or by liability arising out of any past or future releases or
discharges of materials that could be hazardous.
No Assurances of Revenue or Operating Profits. There can be no assurance that we
will be able to develop or maintain consistent revenue sources or that our
operations will become profitable.
Federal Income Tax Consequences. We have obtained no ruling from the Internal
Revenue Service and no opinion of counsel with respect to the federal income tax
consequences of the purchase or sale of Common Stock by the Selling
Stockholders. Consequently, investors must evaluate for themselves the income
tax implications which attach to their purchase, and any subsequent sale, of the
Shares.
10
<PAGE>
Item 4. Use of Proceeds
We will not receive any proceeds from the sale of Shares offered by the Selling
Stockholders. We will receive up to $410,000.00 if all of the issued and
outstanding warrants are exercised, and we intend to use any and all proceeds
from such exercise for working capital.
Item 5. Determination of Offering Price
Factors Used to Determine Share Price. Our common stock is not yet quoted on the
OTC Bulletin Board and as such does not currently have an average bid or ask
price for the Company's common stock. However, the Company is in the final
stages of responding to NASD comments. The Company believes that it will clear
comments with the NASD. Upon clearance by the NASD, the Company will be quoted
on the OTC Bulletin Board. The offering price of the Selling Stockholders'
Shares was determined by us and had no relationship to any established criteria
of value, such as book value or earnings per share. Additionally, because we
have no significant operating history and have not generated any significant
revenues to date, the offering price of the Shares was not based on past
earnings, nor is the offering price of the Shares indicative of current market
value for the assets owned by the Company.
The offering price of the 410,000 Shares being registered and reserved for
issuance upon the exercise of warrants was determined with reference to the
exercise price of $1.00 per share.
Item 6. Dilution
The 8,095,660 Shares being offered for sale by the Selling Stockholders are
outstanding shares of Common Stock and, therefore, do not contribute to
dilution. Additionally, the 410,000 warrants have already been issued and are
currently outstanding and, therefore, do not contribute to dilution.
Item 7. Selling Stockholders
The following table sets forth the number of Shares which may be offered for
sale from time to time by the Selling Stockholders. The Shares offered for sale
constitute all of the Shares known to the Company to be beneficially owned by
the Selling Stockholders. None of the Selling Stockholders have held any
position or office with the Company, except as specified in the following table.
Other than the relationships described below, none of the Selling Stockholders
had or have any material relationship with the Company.
================================================================================
Campbell Capital Advisory, Inc.(1) 6,000,000
- --------------------------------------------------------------------------------
Zoner Enterprises Ltd. (2) 25,000
- --------------------------------------------------------------------------------
Javelin Enterprises 151,660
and 80,000 warrants
- --------------------------------------------------------------------------------
Frank Maratea 60,000
and 20,000 warrants
- --------------------------------------------------------------------------------
Dan & Ines Inc. 30,000
and 10,000 warrants
- --------------------------------------------------------------------------------
J.E. Liss & Company, Inc. 300,000
and 300,000 warrants
- --------------------------------------------------------------------------------
Shawn Lytton 20,000
- --------------------------------------------------------------------------------
Seymour Wayne Lytton 20,000
- --------------------------------------------------------------------------------
Nelson Wong, Kelly Wong & Grant Meyer 20,000
- --------------------------------------------------------------------------------
Catherine R. Fairlie 20,000
================================================================================
11
<PAGE>
================================================================================
Dan Shepansky Sales Ltd. 20,000
- --------------------------------------------------------------------------------
Dr. Jason K. Rivers Inc. 10,000
- --------------------------------------------------------------------------------
Paul R. Sim 10,000
- --------------------------------------------------------------------------------
Tom Fitzmaurice 10,000
- --------------------------------------------------------------------------------
Avtar Dhillon 20,000
- --------------------------------------------------------------------------------
Donald Henry & Darlene Henry (3) 20,000
- --------------------------------------------------------------------------------
Michael Fitzmaurice 30,000
- --------------------------------------------------------------------------------
Alain Laprise 10,000
- --------------------------------------------------------------------------------
David G. M. Smith 20,000
- --------------------------------------------------------------------------------
Daniel Michael Zabinsky 30,000
- --------------------------------------------------------------------------------
Michael Dodds 10,000
- --------------------------------------------------------------------------------
In-Touch Communications, Inc. 10,000
- --------------------------------------------------------------------------------
Phoenix Titanium Recovery Corp. 20,000
- --------------------------------------------------------------------------------
Richard H. Seow 20,000
- --------------------------------------------------------------------------------
The Wallace Family Trust(4) 30,000
- --------------------------------------------------------------------------------
Discus Enterprises 228,000
- --------------------------------------------------------------------------------
International Corporate Management Services, 300,000
Ltd.
- --------------------------------------------------------------------------------
Suncrest Capital Corp. 280,000
- --------------------------------------------------------------------------------
470721 B.C. Ltd. 50,000
- --------------------------------------------------------------------------------
Dwayne Rudolph 3,000
- --------------------------------------------------------------------------------
Brian Smith 3,000
- --------------------------------------------------------------------------------
Wasdave Gill 1,500
- --------------------------------------------------------------------------------
Sucha Gill 3,000
- --------------------------------------------------------------------------------
Tej Gill 1,500
- --------------------------------------------------------------------------------
Serop Chorbajian 20,000
================================================================================
12
<PAGE>
================================================================================
Bill Davidson 10,000
- --------------------------------------------------------------------------------
Georgette Beaulieu 10,000
- --------------------------------------------------------------------------------
Clive Boulton 8,000
- --------------------------------------------------------------------------------
Peter Muerrens 45,000
- --------------------------------------------------------------------------------
Copper Capital Corp. 40,000
- --------------------------------------------------------------------------------
Monica Gervais 1,000
- --------------------------------------------------------------------------------
Derek Ashurst 5,000
- --------------------------------------------------------------------------------
Marcie Birnie 1,000
- --------------------------------------------------------------------------------
C. Patrick Dayman 25,000
- --------------------------------------------------------------------------------
Laura Fewtrell 5,000
- --------------------------------------------------------------------------------
Oree Gianacopoulos 4,000
- --------------------------------------------------------------------------------
Dee Lennon 1,000
- --------------------------------------------------------------------------------
Ken Haley 2,000
- --------------------------------------------------------------------------------
Bent Larson 1,000
- --------------------------------------------------------------------------------
Peter Maddocks 1,000
- --------------------------------------------------------------------------------
Karen McMillan 6,000
- --------------------------------------------------------------------------------
Ralph Muldur 10,000
- --------------------------------------------------------------------------------
Nev Munro 1,000
- --------------------------------------------------------------------------------
Alvin Nirenberg 10,000
- --------------------------------------------------------------------------------
Wendy Price 2,000
- --------------------------------------------------------------------------------
Samantha Ip 2,000
- --------------------------------------------------------------------------------
Monique Van Den Boomen 1,000
- --------------------------------------------------------------------------------
Cornelius Neufeld 15,000
- --------------------------------------------------------------------------------
Julianna Pasko 14,000
- --------------------------------------------------------------------------------
Alexandra Rind 10,000
- --------------------------------------------------------------------------------
Robert Salmond 7,000
================================================================================
13
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Gordon Skeene 1,000
- --------------------------------------------------------------------------------
David Welters 1,000
- --------------------------------------------------------------------------------
Justin Chorbajian 20,000
- --------------------------------------------------------------------------------
Andrew Kallquist 30,000
================================================================================
- ----------
(1) The President and sole shareholder of Campbell Capital Advisory, Inc., is
Gordon McDougall, the Chief Executive Officer, Secretary, Chief Financial
Officer, Treasurer and director of the Company. Mr. McDougall is also the
Secretary and a director of the Company's subsidiary, Luna Fertility
Indicator, Inc.
(2) Brad Desaulniers, the President, Chief Operating Officer and a director of
the Company, controls Zoner Enterprises Ltd.
(3) Donald Henry is the Chief Marketing Officer of the Company. 508115 BC Ltd.,
a company controlled by Donald Henry, provides marketing services to the
Company.
(4) Glen Wallace, the Trustee and a Beneficiary of The Wallace Family Trust,
provides administrative and accounting services to the Company.
Item 8. Plan of Distribution
The Selling Stockholders may from time to time sell all or a portion of their
shares of Common Stock in the over-the-counter market, or on any other national
securities exchange on which the Common Stock is or becomes listed or traded, in
negotiated transactions or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices. The Shares will not be
sold in an underwritten public offering. The Shares may be sold directly or
through brokers or dealers. The methods by which the Shares may be sold include:
(a) a block trade (which may involve crosses) in which the broker or dealer so
engaged will attempt to sell the securities as agent but may position and resell
a portion of the block as principal to facilitate the transaction; (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) privately
negotiated transactions. In effecting sales, brokers and dealers engaged by
Selling Stockholders may arrange for other brokers or dealers to participate.
Brokers or dealers may receive commissions or discounts from Selling
Stockholders (or, if any such broker-dealer acts as agent for the purchaser of
such shares, from such purchaser) in amounts to be negotiated which are not
expected to exceed those customary in the types of transactions involved.
Broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share, and, to the extent such
broker-dealer is unable to do so acting as agent for a Selling Stockholder, to
purchase as principal any unsold shares at the price required to fulfill the
broker-dealer commitment to such Selling Stockholder. Broker-dealers who acquire
shares as principal may thereafter resell such shares from time to time in
transactions (which may involve crosses and block transactions and sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market or otherwise at prices and on terms then
prevailing at the time of sale, at prices then related to the then-current
market price or in negotiated transactions and, in connection with such resales,
may pay to or receive from the purchasers of such shares commissions as
described above.
In connection with the distribution of the Shares, the Selling Stockholders may
enter into hedging transactions with broker-dealers. In connection with such
transactions, broker-dealers may engage in short sales of the Shares in the
course of hedging the positions they assume with the Selling Stockholders. The
Selling Stockholders may also sell the Shares short and redeliver the Shares to
close out the short positions. The Selling Stockholders may also enter into
option or other transactions with broker-dealers which require the delivery to
the broker-dealer of the Shares. The Selling Stockholders may also loan
14
<PAGE>
or pledge the Shares to a broker-dealer and the broker-dealer may sell the
Shares so loaned or upon a default the broker-dealer may affect sales of the
pledged shares. In addition to the foregoing, the Selling Stockholders may enter
into, from time to time, other types of hedging transactions.
The Selling Stockholders and any broker-dealers participating in the
distributions of the Shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the 1933 Act and any profit on the sale of Shares by
the Selling Stockholders and any commissions or discounts given to any such
broker-dealer may be deemed to be underwriting commissions or discounts under
the 1933 Act.
The Shares may also be sold pursuant to Rule 144 under the 1933 Act beginning
two years after the Shares were issued, provided such date is at least 90 days
after the date of this Prospectus.
The Company has filed the Registration Statement, of which this Prospectus forms
a part, with respect to the sale of the Shares. There can be no assurance that
the Selling Stockholders will sell any or all of the Shares offered hereunder.
Under the Securities Exchange Act of 1934 ("Exchange Act") and the regulations
thereunder, any person engaged in a distribution of the Shares offered by this
Prospectus may not simultaneously engage in market making activities with
respect to the Common Stock of the Company during the applicable "cooling off"
periods prior to the commencement of such distribution. In addition, and without
limiting the foregoing, the Selling Stockholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rules 10b-6 and 10b-7, provisions of which may
limit the timing of purchases and sales of Common Stock by the Selling
Stockholders.
We have advised the Selling Stockholders that, during such time as they may be
engaged in a distribution of any of the Shares we are registering by this
Registration Statement, they are required to comply with Regulation M
promulgated under the Securities Exchange Act of 1934. In general, Regulation M
precludes any Selling Stockholder, any affiliated purchasers and any
broker-dealer or other person who participates in such distribution from bidding
for or purchasing, or attempting to induce any person to bid for or purchase,
any security which is the subject of the distribution until the entire
distribution is complete. Regulation M defines a "distribution" as an offering
of securities that is distinguished from ordinary trading activities by the
magnitude of the offering and the presence of special selling efforts and
selling methods. Regulation M also defines a "distribution participant" as an
underwriter, prospective underwriter, broker, dealer, or other person who has
agreed to participate or who is participating in a distribution.
Regulation M prohibits any bids or purchases made in order to stabilize the
price of a security in connection with the distribution of that security, except
as specifically permitted by Rule 104 of Regulation M. These stabilizing
transactions may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. We have advised the Selling
Stockholders that stabilizing transactions permitted by Regulation M allow bids
to purchase our common stock so long as the stabilizing bids do not exceed a
specified maximum, and that Regulation M specifically prohibits stabilizing that
is the result of fraudulent, manipulative, or deceptive practices. Selling
stockholders and distribution participants will be required to consult with
their own legal counsel to ensure compliance with Regulation M.
Item 9. Legal Proceedings
There are no legal actions pending against the Company nor are any such legal
actions contemplated. From time to time, the Company may be party to various
legal actions and complaints arising in the ordinary course of business.
Item 10. Directors, Executive Officers, Promoters and Control Persons.
The directors and principal executive officers of the Company are as specified
on the following table:
<TABLE>
<CAPTION>
================================================================================================================
Name Age Position
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gordon McDougall 44 Chief Executive Officer, Secretary, Chief Financial Officer, Treasurer, Director
and Chairman of the Company. Secretary and Director of Luna Fertility
Indicator, Inc.
================================================================================================================
</TABLE>
15
<PAGE>
<TABLE>
================================================================================================================
<S> <C> <C>
Brad Desaulniers 37 President, Chief Operating Officer, and Director
================================================================================================================
</TABLE>
Gordon McDougall, age 44, is a member of the Board of Directors of the Company.
Mr. McDougall is the Chairman of the Board of Directors and Chief Executive
Officer, Secretary, Chief Financial Officer and Treasurer of the Company. Mr.
McDougall has 17 years experience in general management, venture capital and
financing, primarily with 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. From September 1987 to May 1998, Mr. McDougall was
President of LMB Holdings Ltd. Mr. McDougall was also President of Campbell
Technologies Inc. (an OTCBB company specializing in the acquisition, funding and
management of emerging technology-based companies), 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.
Brad Desaulniers, age 37, is President, Chief Operating Officer and a Director
of the Company. Mr. Desaulniers has spent the last several years providing
consulting services to a variety of organizations on consolidating industries
and/or offering franchises. He has structured and financed software development,
computer training and Internet Gaming businesses. He attended Harvard University
from 1980-1984 majoring in Economics and Psychology. His working career spans 16
years of sales and management positions culminating in the last two years with
several senior-consulting engagements with companies in various stages of
development. His role in these organizations has primarily been to restructure
senior management, develop and write business plans and arrange venture capital
financings in a pre public environment. In 1995, Mr. Desaulniers founded CMTC
Client Management Training Centers ("CMTC") and performed the duties of
President, CEO and director until August of 1998. CMTC is a reseller of Sales
Force Automation software and a training facility. CMTC was formed to franchise
the concept originated by Falcon Communications of Vancouver, Canada. In
September of 1998, Mr. Desaulniers left CMTC and joined Knowledge Alliance as a
branch manager and as acting director of marketing. Knowledge Alliance is a
Greenwich, Connecticut consolidator of high-end computer training facilities
with core business in Microsoft Certified Training. Mr. Desaulniers'
responsibilities included opening of the local branch office, guiding senior
management through the selection of a sales force and overseeing development of
marketing plans in the early stage prior to hiring a chief marketing officer. In
June 1999, Mr. Desaulniers joined Cambridge Solutions Inc, a Vancouver based
author of document management software as a senior management consultant. In
this role, he was required to restructure management and ownership, implement
sophisticated management reporting, acquire rights to additional software and
assist in financing the company through its venture capital stage. In January
2000, Mr. Desaulniers joined the Company as Chief Operating Officer. He accepted
the position as President and director of the Company in March 2000.
Section 16(a) Beneficial Ownership Reporting Compliance. The Company's
Registration Statement on Form 10-SB became effective approximately May 1999 and
cleared comments from the SEC on or about November 24, 1999. The Company does
not have knowledge at this time as to whether all of the officers, directors,
and principal shareholders have filed all required reports, specifically, Form 3
( Initial Statement of Beneficial Ownership of Securities), a Form 4 (Statement
of Changes of Beneficial Ownership of Securities), or a Form 5 (Annual Statement
of Beneficial Ownership of Securities ).
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of March 31, 2000 by each person or
entity known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of common stock, each of the Company's directors and named
executive officers, and all directors and executive officers of the Company as a
group. The number of shares outstanding of the issuer's only class of Common
Stock, $.001 par value, was approximately 8,095,660 on March 31, 2000.
16
<PAGE>
(a) Security Ownership of Certain Beneficial Owners. Other than officers and
directors, no persons are beneficial owners of 5% or more of the Company's
issued and outstanding common stock.
(b) Security Ownership by Management. The following table specifies the amount
of our $.001 par value common stock that each executive officer and director
hold:
<TABLE>
<CAPTION>
============================================================================================================================
Title of Class Name of Beneficial Owner Amount of Beneficial Owner Percent of Class
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Campbell Capital Advisory, Inc. 6,000,000(1) 74.1%
10832 Magnolia Court
Delta, British Columbia,
Canada V4K 2L3
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock Zoner Enterprises Ltd. 25,000(2) 0.30%
193-1140 Castle Crescent
Port Coquitlam, British Columbia
Canada V3C 5R5
============================================================================================================================
</TABLE>
- ----------
(1) Gordon McDougall, the Company's Chief Executive Officer, Secretary, Chief
Financial Officer, Treasurer and director, is the President and sole
shareholder of Campbell Capital Advisory, Inc.
(2) Brad Desaulniers, the Company's President, Chief Operating Officer and
director, controls Zoner Enterprises Ltd.
Beneficial Ownership. Beneficial ownership is determined in accordance with the
rules of the Commission and generally includes voting or investment power with
respect to securities. In accordance with Commission rules, shares of the
Company's common stock which may be acquired upon exercise of stock options or
warrants which are currently exercisable or which become exercisable within 60
days of the date of the table are deemed beneficially owned by the optionees.
Subject to community property laws, where applicable, the persons or entities
named in the table above have sole voting and investment power with respect to
all shares of the Company's common stock indicated as beneficially owned by
them.
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 12. Description of Securities
The Company is authorized to issue 50,000,000 shares of common stock, $.001 par
value, each share of common stock having equal rights and preferences, including
voting privileges; and 5,000,000 shares of the preferred stock, $.001 par value.
The shares of $.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 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 therefor; 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 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.
17
<PAGE>
Dividend Policy. Any payment of dividends will be at the sole and absolute
discretion of the Company's Board of Directors and will depend upon earnings,
financial condition, capital requirements, amount of indebtedness, contractual
restrictions with respect to payment of dividends, and other factors. Any such
dividends may be paid in cash, property or shares of the Company's capital
stock. The Company has not paid any dividends since its formation, and it is not
probable that any dividends on the Company's $.001 par value common stock will
be declared at any time in the foreseeable future. Any future dividends will be
subject to the discretion of the Company's Board of Directors, and will depend
upon, among other things, the operating and financial condition of the Company,
the Company's capital requirements and general business conditions. Therefore,
there can be no assurance that any dividends on the Company's $.001 par value
common stock will be paid in the future.
Item 13. Interest of Named Experts and Counsel.
No "expert", as that term is defined pursuant to Regulation Section 228.509(a)
of Regulation S-B, or the Company's "counsel", as that term is defined pursuant
to Regulation Section 228.509(b) of Regulation S-B, was hired on a contingent
basis, or will receive a direct or indirect interest in the Company, or was a
promoter, underwriter, voting trustee, director, officer or employee of the
Company, at any time prior to the filing of this Registration Statement.
Item 14. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities
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 15. Organization Within Last Five Years
Transactions with Promoters. Gordon McDougall, Chief Executive Officer and a
director of the Company, was the promoter of the Company but did not receive any
compensation for those services.
Additional information about certain relationships and related transactions is
specified more completely under the portion of this Prospectus entitled Certain
Relationships and Related Transactions at Item 19 below.
Item 16. Description of Business.
Development of the Company. Luna Medical Technologies, Inc., a Nevada
corporation, formerly entitled Luna Technologies, Inc., was incorporated in the
State of Nevada on January 19, 1999. In May, 1999, the Company changed its name
to Luna Medical Technologies, Inc. Our executive offices are located at Suite
400, 900 West Hastings Street, Vancouver, British Columbia, Canada V6C 1E5. Our
telephone number is (604) 687-0719. Our facsimile number is (604) 622-5575. In
May, 1999, the Company caused to be incorporated in British Columbia, Luna
Fertility Indicator, Inc., a wholly-owned subsidiary of this Company. The
primary business of Luna Fertility Indicator, Inc., is marketing and
distributing our products.
For purposes of clarification, anytime the symbol "US" is used within the
Prospectus, it refers to the currency of the United States. Anytime the symbol
"CDN" is used, it refers to the currency of Canada.
Business of the Company. On or about January 31, 1999, we entered into an
exclusive worldwide license agreement ("Agreement") with Luna Products, Inc., a
Canadian corporation ("LPI"), to distribute the Luna Fertility Indicator
("Fertility Indicator"), a lightweight, re-usable home fertility test. In
exchange for the grant of the worldwide license ("License"), we agreed to lend
LPI US$40,000, interest free ("Loan"), and spend a minimum of US$20,000 on
marketing the Fertility Indicator. The Agreement provides that LPI shall repay
the Loan by paying to the Company a fee of CDN$1.00 for each Fertility Indicator
sold for the first 30,000 Fertility Indicators sold, then CDN$.50 per Fertility
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 Fertility Indicators sold by us. We were 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. We also agreed to pay LPI a 5%
royalty on the total gross sales of the Fertility Indicator during the term of
the License. Moreover, we agreed to pay directly to Jim Emmerson, a director of
LPI, a royalty of CDN$1.00 per Fertility Indicator sold in perpetuity. The
license granted under the Agreement expires upon repayment
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of the Loan. However, LPI had orally agreed that the relationship between the
Company and LPI will continue beyond the term of the License.
On or about May 6, 1999, we agreed with LPI to amend the Agreement
("Amendment"). Among other things, we agreed not to exercise our right to
convert the Loan to a 50% equity interest in LPI. LPI agreed that the Fertility
Indicator would be sold to the Company for CDN$12.50, if we sold the Fertility
Indicator to wholesalers and distributors, and CDN$16.50 if we sold the
Fertility Indicator directly to consumers. We also agreed to increase
expenditures for marketing the Fertility 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 Fertility Indicator and any modified
version of the Fertility Indicator but do not apply to other products that may
be developed by LPI.
On or about February 1, 2000, our subsidiary Luna Fertility Indicator, Inc.,
renegotiated the original agreement with LPI and A. James Emmerson with the
intent of replacing the Agreement and the Amendment (discussed in detail in the
preceding paragraphs). Luna Fertility Indicator, Inc., was granted the worldwide
right to market the Fertility Indicator. Within this agreement, Luna Fertility
Indicator, Inc., agreed, among other things, (i) to pay the cost of any
government approval it sought in connection with the Fertility Indicator; (ii)
expend direct marketing and promotional costs of not less than CDN$250,000.00
which sum includes the US$40,000.00 loaned to LPI by the Company. Luna Fertility
Indicator, Inc., also agreed to pay Mr. Emmerson CDN$1.00 for every Fertility
Indicator sold. The initial term of the agreement is for 15 years from February
1, 2000. In addition, the agreement provides for two renewal terms of 5 years on
the same terms and conditions governing the initial 15-year term.
The concept behind the Fertility Indicator has been used in Europe for some
time. Although no product exactly like the Fertility Indicator is being sold in
Europe, we believe that the medical principles behind the Fertility 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, we have
not conducted our own testing regarding the accuracy of the Fertility Indicator
and we 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 Fertility 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. We 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. We 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.
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The Fertility 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 a book of charts provided free of charge with the Fertility
Indicator. Comparing the saliva patterns will indicate her state of fertility.
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.
We anticipate 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.
We do 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).
Government Approval. In order to sell the Fertility Indicator in Canada, we were
required to obtain a Drug Identification Number ("DIN"). We applied for and
received DIN186759.
In order to sell the Fertility Indicator in the United States, we have filed the
requisite documents for application with the Food and Drug Administration
("FDA"). We anticipate that because the Fertility Indicator is non-invasive, the
FDA application process will be complete by June 2000. We anticipate that we
will market the Fertility Indicator to various countries and will at that time
make the proper application for any required governmental approvals. At this
time, we have not applied for any additional governmental approvals.
Patents. LPI has applied for and received a Canadian design patent for the
manufacture of the Fertility Indicator. We have 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 Fertility Indicator. We do
regard certain aspects of the Fertility Indicator as proprietary and will
attempt to protect such proprietary information through contractual restrictions
on disclosure, copying and distribution. We do not hold any patents. Except as
protected by the Canadian patent held by LPI, there can be no assurance that our
competitors will not independently develop technologies that are substantially
equivalent or superior to ours or LPI's technologies. While we believe that our
rights in the Fertility 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.
Competition. Competition in the field of diagnostic home fertility tests is
intense. We compete directly with other companies and businesses that have
developed and are in the process of developing products which will be
competitive with the Fertility Indicator. There can be no assurance that other
technologies or products which are functionally equivalent or similar to the
Fertility Indicator have not been developed or are not in development. Many of
these competitors have greater financial and other resources, and more
experience in distribution and marketing of fertility indication products, than
we do.
The medical devices industry continues to undergo rapid change and competition
is intense and is expected to increase. There can be no assurance that
competitors have not or will not succeed in developing technologies and products
that are more accurate and/or simple than the Fertility Indicator's saliva
crystallization method and would, accordingly, render the Fertility Indicator
obsolete and noncompetitive. Many of our competitors have substantially greater
experience, financial and technical resources and production, marketing and
development capabilities than we possess. Accordingly, certain of those
competitors may succeed in obtaining regulatory approval for products more
rapidly or effectively we may be capable of. If we commence commercial sales of
our products, we will also be competing with respect to manufacturing efficiency
and sales and marketing capabilities, areas in which we currently has no
experience.
The demand for diagnostic, at-home fertility level indicators is ever
increasing. There are currently numerous devices on the market to aid in
predicting the time of ovulation including such products that utilize urine or
blood samples to detect the level of the Luteinising Hormone (LH) in the sample.
Other such similar products utilize a microprocessor to optimize the basal body
temperature and calendar method of ovulation prediction. However, direct
competition with the Fertility Indicator is far less severe as there are only a
few products available that utilize saliva tests in predicting the time of
ovulation.
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We have identified two significant competitors, Personal Fertility Technologies,
Inc. and Med-Direct Products, Inc. Personal Fertility Technologies, Inc. ("PFT")
is 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. To the best of our knowledge, this
product has not been approved by the United States Food and Drug Administration.
Med-Direct Products Inc. ("MDP") is 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 CDN$60.00. The Luna
Fertility Indicator retails for approximately CDN$65.00. We also believe that we
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.
Employees. We do not currently have any employees. We utilize the services of
six consultants. Campbell Capital Advisory, Inc., provides the services of
Gordon McDougall, Chief Executive Officer and Chairman of the Board of Directors
of the Company, for management and administration of the Company. Zoner
Enterprises Ltd. provides the services of Brad Desaulniers, President and Chief
Operating Officer of the Company, for management of the Company. Melissa
Gervais, Inc., provides the services of Melissa Gervais for marketing,
management and administration for the Company's wholly-owned subsidiary. 508115
BC Ltd. provides the marketing services of Donald Henry to the Company and Luna
Fertility Indicator, Inc., its wholly-owned subsidiary. Verve Communications,
Inc., provides the public relations and marketing services of Laura Werschler to
the Company's wholly-owned subsidiary, Luna Fertility Indicator, Inc. Glen
Wallace, CGA, Inc., supplies accounting and financial consulting services to the
Company on a month-to-month, as needed basis.
Item 17. Management's Discussion and Analysis of Financial Condition and Results
of Operations
THIS PROSPECTUS SPECIFIES FORWARD-LOOKING STATEMENTS OF MANAGEMENT OF THE
COMPANY ("FORWARD-LOOKING STATEMENTS") INCLUDING, WITHOUT LIMITATION,
FORWARD-LOOKING STATEMENTS REGARDING OUR EXPECTATIONS, BELIEFS, INTENTIONS AND
FUTURE STRATEGIES. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE
HAPPENING OF FUTURE EVENTS AND ARE NOT BASED ON HISTORICAL FACTS.
FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY, SUCH AS "COULD", "MAY", "WILL", "EXPECT", "SHALL", "ESTIMATE",
"ANTICIPATE", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", "INTEND" OR SIMILAR
TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE
FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS PROSPECTUS HAVE BEEN COMPILED BY
MANAGEMENT OF THE COMPANY ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND
CONSIDERED BY MANAGEMENT TO BE REASONABLE. FUTURE OPERATING RESULTS OF THE
COMPANY, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR
WARRANTY IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS REPRESENT
ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO UNCERTAINTY AS TO POSSIBLE CHANGES
IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER CIRCUMSTANCES. AS A RESULT, THE
IDENTIFICATION AND INTERPRETATION OF DATA AND OTHER INFORMATION AND THEIR USE IN
DEVELOPING AND SELECTING ASSUMPTIONS FROM AND AMONG REASONABLE ALTERNATIVES
REQUIRE THE EXERCISE OF JUDGMENT. TO THE EXTENT THAT THE ASSUMED EVENTS DO NOT
OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM ANTICIPATED OR PROJECTED RESULTS,
AND, ACCORDINGLY, NO OPINION IS EXPRESSED ON THE ACHIEVABILITY OF THOSE
FORWARD-LOOKING STATEMENTS.
NO ASSURANCE CAN BE GIVEN THAT ANY OF THE ASSUMPTIONS RELATING TO THE
FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS REPORT ARE ACCURATE, AND WE ASSUME
NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
21
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General. We hold the exclusive worldwide license to distribute and market the
Luna Fertility Indicator--a lightweight, easy-to-use, reusable home fertility
test. We have recently developed new and attractive ways to market the Luna
Fertility Indicator and have sought and procured distribution from one of
Canada's leading distributors of cosmetics and personal care products as well as
from a health product distributor. Other than the Luna Fertility Indicator, we
are not currently in the process of developing, licensing, marketing or
distributing other products. We may, however, acquire the right to sell or
distribute and market compatible products or other medical technologies in the
future. Therefore, other than the costs related to the continued distribution
and marketing of the Luna Fertility Indicator, we do not anticipate significant
expenditures on acquisition or development of other products during the current
fiscal year. We will focus our initial marketing and distributing the Luna
Fertility Indicator.
Our business may expose us to potential product liability risks that are
inherent in the marketing of health care related products. We do not currently
have product liability insurance. There can be no assurance that we will be able
to obtain or maintain such insurance on acceptable terms or, if obtained, that
such insurance will provide adequate coverage against potential liabilities. We
face a business risk of exposure to product liability and other claims in the
event that the use of any of our products is alleged to have resulted in adverse
effects. Such risk exists even with respect to those products that are
manufactured in licensed and regulated facilities or that otherwise possess
regulatory approval for commercial sale. There can be no assurance that we will
avoid significant product liability exposure. While we have taken, and will
continue to take, what we believe are appropriate precautions, there can be no
assurance that we will avoid significant liability exposure. An inability to
obtain product liability insurance at acceptable cost or to otherwise protect
against potential product liability claims could prevent or inhibit the
marketing and distribution of our products. A product liability claim could have
a material adverse effect on our business, financial condition and results of
operations.
Our strategy for growth is substantially dependent upon our ability to market
and distribute the Luna Fertility Indicator successfully. Other companies,
including those with substantially greater financial, marketing and sales
resources, compete with the Company, and have the advantage of marketing
existing products with existing production and distribution facilities. There
can be no assurance that we will be able to market and distribute products on
acceptable terms, or at all. Our failure to market our products successfully
could have a material adverse effect on our business, financial condition or
results of operations.
The medical products industry has been under increasing scrutiny by various
regulatory agencies. We may be subject to various forms of government
regulations, including consumer safety laws and environmental safety laws in all
countries in which the Luna Fertility Indicator is marketed and distributed. Any
future violation of, or the cost of compliance with, these laws and regulations
could have a material adverse effect on our business, financial condition and
results of operations.
The medical products industry is rapidly changing through the continuous
development and introduction of new products. Our ability to compete may be
dependent upon our ability to enhance and improve our products continually.
There can be no assurance that competitors will not develop technologies or
products that render our products obsolete or less marketable. We may be
required to adapt to technological changes in the industry and develop products
to satisfy evolving industry or customer requirements, any of which could
require the expenditure of significant funds. At this time, we do not have a
source of commitment for such funds. Continued refinement and improvement costs
are risks inherent in marketing and distribution development, including
unanticipated technical or other problems which could result in material delays
in product distribution.
Liquidity and Capital Resources. From the date of commencement of sales on March
1, 1999, through December 31, 2000, we generated US$103,401.00 through the sales
of the Luna Fertility Indicator. Our only other source of liquidity is through
the sale of our capital stock.
Marketing and Channels of Distribution. Our subsidiary, Luna Fertility
Indicator, Inc., has entered into a management services contract with Melissa
Gervais, Inc. ("Gervais, Inc."). For an initial term of 10 years, Gervais, Inc.
will provide in-house marketing and public relations services and will
co-ordinate an advertising campaign in targeted media such as medical journals,
women's magazines, religious publications and other selected media. We will
attempt to market the Luna Fertility Indicator in major chain drug stores using
selected regional distributors. We have also entered into a management services
contract with Verve Communications, Inc., which provides the public relations
and marketing services of Ms. Laura Werschler. Ms. Werschler is head of public
relations for Luna Fertility Indicator, Inc. Ms. Werschler is the current
President of the Planned Parenthood Federation of Canada ("Planned Parenthood").
She also has over 25 years of voluntary service and public speaking
22
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experience internationally within Planned Parenthood and the broader sector of
women's ovulatory health.
Bathurst Sales ("Bathurst") of Downsview, Ontario, Canada's leading distributor
of cosmetics and personal care products, has been distributing the Luna
Fertility Indicator to its customers including London Drugs, Shoppers Drug Mart,
Pharma Plus Drugmarts, Lawton's Drug Stores and Uniprix since November 1999.
Bathurst distributes products such as Revlon, John Frieda, Elizabeth Arden,
Rubbermaid, AM Cosmetics and Vogue International, and its current clients are
those to whom we will market and promote the Luna Fertility Indicator. Bathurst
is informed of the dates of our 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 Luna Fertility Indicator and
negotiations are ongoing to reduce the terms, conditions and covenants to
writing. Luna Fertility Indicator, Inc., has also entered into distribution
arrangements with companies in New Zealand and South Africa. However, the
specific terms and conditions of such distribution arrangements are the subject
of ongoing negotiations.
We have developed new and attractive ways to market the Luna Fertility
Indicator, including new packaging and marketing materials which will enhance
the appeal of the Luna Fertility Indicator. The Luna Fertility Indicator is now
being represented in Canada by two distributors. The first distributor,
Bathurst, as mentioned in the preceding paragraph, 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. We continue to negotiate with the
companies interested in our Luna Fertility Indicator in other markets throughout
the world. We anticipate that distribution arrangements will be finalized within
six (6) months of securing the necessary governmental approvals in those foreign
markets.
We are also involved in the advertising and promotion of the Luna Fertility
Indicator on the Internet. Our Internet website is www.lunafert.com. Our website
contains general information on how the Luna Fertility Indicator works,
frequently asked questions, the chart, where to purchase the Luna Fertility
Indicator (such information lists locations in only those jurisdictions where
the Luna Fertility Indicator may be sold) and the Company. In March 2000, we
launched our e-commerce website where we will sell the Luna Fertility Indicator.
We plan 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.
Item 18. 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
approximately 600 square feet of rented commercial office space located at 400 -
900 West Hastings Street, Vancouver, British Columbia, V6C 1E5. The office space
is furnished by Regions Group Executives Officers on a month-to-month basis at a
rate of CDN $1,800.00 per month. The Company's wholly-owned subsidiary also
rents storage and work space from Melissa Gervais for CDN$600.00 per month.
Item 19. Certain Relationships and Related Transactions
Conflicts Related to Other Business Activities. Gordon McDougall is the 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"). From the date of incorparation to December 31,
1999, Campbell advanced US$66,682.00 to the Company to fund the Company's
initial operations. To date, the Company has repaid US$60,267.00 leaving an
unpaid balance of US$6,415.00 The Company is not required to repay the loan
within any specified period of time.
Brad Desaulniers is the President, Chief Operating Officer and a director of the
Company. He also controls Zoner Enterprises Ltd. ("Zoner"). The Company has
entered into an agreement with Zoner whereby Zoner will provide the management
services of Brad Desaulniers for a period of two months commencing February,
2000 for a monthly fee of CDN$8,000 plus the issuance of shares and grant of
stock options. It is the intention of the parties to renegotiate this contract
and extend its term for a period of two years.
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 Chief Executive Officer, Secretary, Chief Financial
Officer and a director of the Company. Through the period ending December 31,
1999, the Company had paid or accrued US$67,500.00 in consulting fees to
Campbell.
The persons serving as officers and directors of the Company have existing
responsibilities and, in the future, may have
23
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additional responsibilities, to provide management and services to other
entities in addition to the Company. As a result, conflicts of interest between
the Company and the other activities of those persons may occur from time to
time. We will attempt to resolve any such conflicts of interest in favor of the
Company. The officers and directors of the Company are accountable to the
Company and its shareholders as fiduciaries, which requires that such officers
and directors exercise good faith and integrity in handling our affairs. A
shareholder may be able to institute legal action on behalf of the Company or on
behalf of that shareholder and all other similarly situated shareholders, to
recover damages or for other relief in cases of the resolution of conflicts in
any manner prejudicial to the Company.
Non-Arm's Length Agreements. Certain contemplated agreements and arrangements,
including those relating to indemnification compensation and payments between
the Company and the officers and directors of the Company, will not be the
result of arm's length negotiations.
Item 20. Market for Common Equity and Related Stockholder Matters
Reports to Security Holders. The Company is now a reporting company with the
Commission, and will provide an annual report to its security holders, which
will include audited financial statements. The public may read and copy any
materials filed with the Commission, including the Company's Registration
Statement on Form SB-2 and the Registration Statement on Form 10-SB, and all
exhibits and schedules thereto, at the Commission's Public Reference Room at 450
Fifth Street N.W., Washington, D.C. 20549. Copies of all or any part thereof may
be obtained from such office after payment of fees prescribed by the Securities
and Exchange Commission. The public may also obtain information on the operation
of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The
Commission maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Commission. The address of that site is
http://www.sec.gov.
Item 21. Executive Compensation - Remuneration of Directors and Officers.
Any compensation received by officers, directors, and management personnel of
the Company will be determined from time to time by the Board of Directors of
the Company. Officers, directors and management personnel of the Company will be
reimbursed for any and all out-of-pocket expenses incurred on behalf of the
Company.
Summary Compensation Table. The table set forth below summarizes the annual and
long-term compensation for services in all capacities to the Company for the
year ended payable to the President of the Company and the other executive
officers of the Company whose total annual salary and bonus is anticipated to
exceed $50,000 during the year ending March 31, 2001.
<TABLE>
<CAPTION>
====================================================================================
Name and Principal Position Year Salary ($) Bonus ($) Other Compensation
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
None(1) 2000 None None None
====================================================================================
</TABLE>
- ----------
(1) However, as disclosed within Item 19 of this Registration Statement on Form
SB-2, Brad Desaulniers is the President, Chief Operating Officer and a
director of the Company. He also controls Zoner Enterprises Ltd. ("Zoner").
The Company has entered into an agreement with Zoner whereby Zoner will
provide the management services of Brad Desaulniers for a period of two
months commencing February, 2000 for a monthly fee of CDN$8,000 plus the
issuance of shares and grant of stock options. It is the intention of the
parties to renegotiate this contract and extend its term for a period of
two years. Moreover, the Company and Campbell Capital Advisory, Inc.
("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 Chief Executive Officer, Secretary, Chief
Financial Officer and a director of the Company. Through the period ending
December 31, 1999, the Company had paid or accrued US$67,500.00 in
consulting fees to Campbell.
Compensation of Directors. Directors who are also employees of the Company
receive no extra compensation for their service on the Board of Directors of the
Company.
Employment Contracts. Brad Desaulniers is the President, Chief Operating Officer
and a director of the Company. He also controls Zoner Enterprises Ltd.
("Zoner"). The Company has entered into an agreement with Zoner whereby Zoner
will provide
24
<PAGE>
the management services of Brad Desaulniers for a period of two months
commencing February, 2000 for a monthly fee of CDN$8,000 plus the issuance of
25,000 shares issued in the name of Zoner. The Company valued those shares at
US$0.50 per share at the time of issuance. The Company also agreed to grant
stock options to Mr. Desaulniers. See "Stock Option Plan" below. It is the
intention of the parties to renegotiate this contract and extend its term for a
period of two years.
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 Chief Executive Officer, Secretary, Chief Financial
Officer and a director of the Company. Through the period ending December 31,
1999, the Company had paid or accrued US$67,500.00 in consulting fees to
Campbell.
Our wholly-owned subsidiary, Luna Fertility Indicator, Inc. (the "subsidiary")
has entered into an agreement with Melissa Gervais, Inc. ("Gervais") whereby the
subsidiary has engaged Gervais to provide marketing and management services for
a period of 10 years for a fee of CDN$5,000.00 per month, premises rental of
CDN$600.00 per month and an option to purchase a 7.2% interest in the subsidiary
for a nominal price. Should the subsidiary's net revenue (as defined by the
agreement) exceed CDN$7,500.00 per month for four consecutive months, the
monthly fee shall increase to CDN$6,250.00. Furthermore, the subsidiary will pay
Gervais a performance bonus of 5% of net operating profits of the subsidiary.
We have entered into an employment contract with 508115 BC Ltd., a company
controlled by the Company's Chief Marketing Officer, Donald Henry. Under the
contract, Donald Henry will receive US$5,000.00 per month in addition to 50,000
options to purchase shares of the Company's $.001 par value common stock at
US$2.00 per share. The term of the agreement is 3 months beginning on March 1,
2000, and ending on June 1, 2000.
Luna Fertility Indicator, Inc., our wholly-owned subsidiary, has entered into an
agreement with Verve Communications, Inc. ("Verve"), whereby Verve has agreed to
provide the public relation services of Laura Werschler. The term of the
agreement is 1 year beginning on April 1, 2000, and ending on March 31, 2001.
Under the agreement, Ms. Werschler will be paid CDN $6,000.00 per month. In
addition, Ms. Werschler will be eligible to earn the following bonuses under the
following conditions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
If Gross Sales of
Dates The Luna Fertility Indicator Exceed Bonus Earned
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
April 1, 2000 to October 1, 2000 US$482,000.00 CDN$3,000.00
- --------------------------------------------------------------------------------------------------------------
OR
- --------------------------------------------------------------------------------------------------------------
April 1, 2000 to October 1, 2000 US$573,000.00 CDN$4,000.00
- --------------------------------------------------------------------------------------------------------------
OR
- --------------------------------------------------------------------------------------------------------------
April 1, 2000 to October 1, 2000 US$669,000.00 CDN$6,000.00
- --------------------------------------------------------------------------------------------------------------
AND
- --------------------------------------------------------------------------------------------------------------
April 1, 2000 to March 31, 2001 US$2,300,000.00 and pretax profits CDN$4,000.00
are at least US$230,000.00
- --------------------------------------------------------------------------------------------------------------
OR
- --------------------------------------------------------------------------------------------------------------
April 1, 2000 to March 31, 2001 US$2,750,000.00 and pretax profits CDN$6,000.00
are at least US$270,000.00
- --------------------------------------------------------------------------------------------------------------
OR
- --------------------------------------------------------------------------------------------------------------
April 1, 2000 to March 31, 2001 US$3,200,000.00 and pretax profits CDN$8,000.00
are at least US$320,000.00
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Stock Option Plans. The Board of Directors of the Company intends to adopt a
stock option plan ("Stock Option Plan"). The Stock Option Plan will be designed
to retain qualified and competent officers, employees and directors of the
Company. The Company's Board of Directors, or a committee thereof, shall
administer the Stock Option Plan and will be authorized, in its sole and
absolute discretion, to grant options thereunder to all eligible employees of
the Company, including officers and directors (whether or not employees) of the
Company. Options will be granted pursuant to the provisions of the Stock Option
Plan on such terms and at such prices as determined by the Company's Board of
Directors. Options granted pursuant to the Stock Option Plan will be exercisable
after the period specified in the option agreement. Options granted under the
Stock Option Plan
25
<PAGE>
will not be exercisable after the expiration of ten (10) years from the date of
grant. The Stock Option Plan will also authorize the Company to make loans to
optionees to enable them to exercise their options. Contingent on the
establishment of the Stock Option Plan, the Company has entered into an
agreement with Zoner Enterprises Ltd. ("Zoner") wherein we have agreed to grant
Zoner options to purchase 100,000 shares of the Company's $.001 par value common
stock at a purchase price of $1.75 per share. We have also agreed to grant
508115 BC Ltd. options to purchase 50,000 shares of the Company's $.001 par
value common stock at a purchase price of $2.00 per share in exchange for
services provided. J.E. Liss & Company, Inc., has been granted a three-year
option to purchase 300,000 shares of the Company's $.001 par value common stock
at a purchase price of $1.00 per share.
Item 22. Financial Statements
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Balance Sheet
(Unaudited - Prepared by Management)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS December 31 March 31
1999 1999
<S> <C> <C>
CURRENT ASSETS
Cash $ 69,680 $ 9,897
Accounts receivable 18,570 1,091
Loan receivable 40,000 40,000
Goods and Services Tax recoverable 5,196 920
Inventory 3,500 1,012
Prepaid marketing expense 21,429 16,453
Prepaid expenses -- 5,637
--------- ---------
158,375 75,010
--------- ---------
OTHER ASSETS
Marketing licence 1 1
Trademark 2,552 --
--------- ---------
2,553 1
--------- ---------
$ 160,928 $ 75,011
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 80,720 $ 10,686
Accrued marketing costs -- 16,453
Investor deposits 30,000 --
Short term loans payable 18,054 4,469
--------- ---------
128,774 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
7,720,660 shares issued and outstanding 7,721 7,311
Additional paid-in capital 274,779 70,189
Stock subscriptions receivable -- (5,000)
Deficit (250,346) (29,097)
--------- ---------
32,154 43,403
--------- ---------
$ 160,928 $ 75,011
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Statement of Loss
(Unaudited - Prepared by Management)
For the nine month period ended December 31, 1999
- --------------------------------------------------------------------------------
SALES $ 103,401
COST OF SALES 68,524
-----------
GROSS PROFIT 34,877
-----------
EXPENSES
Audit and accounting 11,977
Bank charges and interest 5,599
Consulting 66,775
Legal 31,180
Management fees 45,000
Marketing 59,468
Office and telephone 23,217
Rent 4,200
Transfer agent 4,466
Travel 4,244
-----------
256,126
NET LOSS $ (221,249)
===========
NET LOSS PER COMMON SHARE $ (0.03)
===========
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING 7,356,215
===========
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Statement of Stockholders' Equity
(Unaudited - Prepared by Management)
For the nine month period ended December 31, 1999
- --------------------------------------------------------------------------------
COMMON STOCK
Balance, beginning of period $ 7,311
Sale of common stock at $0.50 per share 410
---------
Balance, end of period 7,721
---------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period 70,189
Sale of common stock at $0.50 per share 204,590
---------
Balance, end of period 274,779
---------
DEFICIT
Balance, beginning of period (29,097)
Net loss (221,249)
---------
Balance, end of period (250,346)
---------
TOTAL STOCKHOLDERS' EQUITY $ 32,154
=========
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Statement of Cash Flows
(Unaudited - Prepared by Management)
For the nine month period ended December 31, 1999
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(221,249)
Changes in non-cash working capital
Accounts receivable (17,479)
Goods and Services Tax recoverable (4,276)
Inventory (2,488)
Prepaid marketing expense (4,976)
Prepaid expenses 5,637
Accounts payable and accrued liabilities 70,034
Accrued marketing costs (16,453)
---------
(191,250)
CASH FLOWS FROM INVESTING ACTIVITIES
Trademark registration costs (2,552)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Investor deposits 30,000
Proceeds from short term loans payable 13,585
Proceeds from sale of common stock 205,000
Receipt of stock subscriptions receivable 5,000
---------
253,585
CHANGE IN CASH 59,783
CASH, beginning of period 9,897
---------
CASH, end of period $ 69,680
=========
Supplemental disclosures:
Interest paid $ 3,533
Income taxes paid $ --
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited - Prepared by Management)
December 31, 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. INVESTOR DEPOSITS
Investor deposits represent amounts received from potential investors
before the common stock offer had closed and the subscriptions had been
accepted. Subsequent to the period end the stock offering closed and 60,000
shares were issued at a price of $0.50 per share.
3. SHORT TERM LOANS PAYABLE
Short term loans payable consist of the following:
Loan payable to Campbell Capital Advisory, Inc. - an $ 6,415 $ 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 1,939 --
loan bearing interest at 10% per annum
Repayable without notice or penalty. Due
June 2, 2000
Loan payable to Phoenix Titanium Recovery Corp. - 9,700 --
an unsecured loan bearing interest at 10% per
annum. Repayable without notice or penalty
Due September 24, 2000 ------- -------
Total $18,054 $ 4,469
======= =======
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited - Prepared by Management)
December 31, 1999
- --------------------------------------------------------------------------------
4. STOCK PURCHASE WARRANTS
The company has issued warrants that entitle the holders to purchase up to
410,000 shares of the capital stock of the company at a price of $1.00 per
such share at any time prior to December 1, 2000.
5. 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 $67,500
Marketing expenses reimbursed to a company of the President 33,750
Office expenses reimbursed to a company of the President 17,550
6. COMMITMENTS AND CONTINGENCIES
Licencing Agreement
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. 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.
Marketing and Management Agreement
The company's wholly-owned subsidiary, Luna Fertility Indicator, Inc. (the
"subsidiary") has entered into an agreement with Melissa Gervais, Inc.
("Gervais") whereby the subsidiary has engaged Gervais to provide marketing
and management services for a period of 10 years for a fee of CDN$5,000 per
month, premises rental of CDN$600 per month and an option to purchase a
7.2% interest in the subsidiary for a nominal price. Should the
subsidiary's net revenue (as defined by the agreement) exceed CDN$7,500 per
month for four consecutive months, the monthly fee shall increase to
CDN$6,250. Furthermore, the subsidiary will pay Gervais a performance bonus
of 5% of net operating profits of the subsidiary.
<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
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
BALANCE SHEET
For the period
Ended
3/31/99
------
ASSETS
CURRENT ASSETS
Cash 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
========
The accompanying notes are an integral part of these financial statements.
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Formerly Luna Technologies, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
For the period
Ended
3/31/99
-------
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Accounts payable 10,556
Accrued marketing costs 16,453
Royalties payable 130
Short term 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,
$0.00l par value; no shares issued an --
Common stock, 50,000,000 shares authorized,
$0.001 par value; 7,310,660 shares issued 7,311
Additional paid-in capital 70,189
Stock subscriptions receivable (5,000)
Accumulated deficit during developmental (29,097)
--------
TOTAL STOCKHOLDERS' EQUITY 43,043
--------
TOTAL LIABILITIES AND STOCKHOLDERS $ 75,011
========
<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 PROM 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.
3
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Formerly Luna Technologies, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
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> <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.
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.
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. to manufacture and distribute the Luna
Fertility 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 manufacture and
distributions 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.
Cash and Cash Equivalents
For purposes of the Statement of Cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or
less to be cash equivalents.
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 ACCOUNTANTS 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).
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 $.00l 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 Mr. McDougall. 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 340,000 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 $1 fee per unit for the first 30,000 units sold, and then a $.50
fee per unit in perpetuity, continuing after the loan is paid in full as a
licensing cost. 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 tuna Products, Inc. and $1 for
each unit sold to Jim Emmerson, a director of LPI. Each of these royalties
will be paid monthly and include all units sold, in perpetuity.
On May 6, 1999, the Company and LPI agreed to certain modifications to the
Licensing agreement. The Company arced 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 $250,000 to be expended by May 31, 2000.
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
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.
9
<PAGE>
Item 23. 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 as required to be disclosed pursuant to Item
304 of Regulation S-B.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby has
been passed upon for the Company by Stepp & Beauchamp LLP, located in Newport
Beach, California.
EXPERTS
The financial statements of the Company for the period from incorporation to
March 31, 1999 appearing in this Prospectus and Registration Statement have been
audited by Williams & Webster, P.S., Certified Public Accountants, and are
included in reliance upon such reports given upon the authority of Williams &
Webster, P.S. as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form 10-SB with the Commission
pursuant to the 1934 Act. This Prospectus does not contain all of the
information set forth in the Registration Statement on Form 10-SB and the
exhibits, schedules and amendments to the Registration Statement on Form 10-SB.
For further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement on Form 10-SB and the
exhibits, schedules and amendments filed as a part of the Registration Statement
on Form 10-SB. Statements contained in this Prospectus concerning the contents
of any contract or any other document referred to are not necessarily complete,
and reference is made in each instance to the copy of such contract or document
filed as an exhibit to the Registration Statement on Form 10-SB or any
amendments thereto. Each such statement is qualified in all respects by such
reference to such exhibits.
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Article Twelve of the Company's Articles of Incorporation limits the liability
of the Company's directors. Directors will not be liable to the Company for
monetary damages occurring because of a breach of their fiduciary duty as
directors in certain circumstances. Such limitation will not affect liability
for any breach of a director's duty to the Company or the Company's
shareholders: with respect to approval by the director of any transaction from
which he or she derives an improper personal benefit; with respect to acts or
omissions involving an absence of good faith, that he or she believes to be
contrary to the best interests of the Company or the Company's shareholders,
that involve intentional misconduct or a knowing and culpable violation of law,
that constitute an unexcused pattern of inattention that amounts to an
abdication of his or her duty to the Company or our shareholders, or that
indicate a reckless disregard for his or her duty to the Company or the
Company's shareholders in circumstances in which he or she was or should have
been aware, in the ordinary course of performing his or her duties, of a risk of
serious injury to the Company or the Company's shareholders; or, based on
transactions between the
26
<PAGE>
Company and the Company's directors or another corporation with interrelated
directors or on improper distributions, loans or guaranties pursuant to
applicable sections of the Nevada General Corporation Law. Such limitation of
liability will not affect the availability of equitable remedies such as
injunctive relief or rescission. The Company's Articles of Incorporation
provides that the Company will indemnify the Company's directors to the extent
permitted by law, including circumstances in which indemnification is otherwise
discretionary under the Nevada General Corporation Law.
Indemnification Agreements. We anticipate entering into indemnification
agreements with each of the Company's directors and executive officers pursuant
to which we shall indemnify each such director and officer for all expenses and
liabilities, including criminal monetary judgments, penalties and fines,
incurred by each such director and officer in connection with any criminal or
civil action brought or threatened against such director and officer because of
such director and officer being or having been an executive officer or director
of the Company. To be entitled to indemnification by the Company, such person
must have acted in good faith and in a manner such person believed to be in the
best interests of the Company and, with respect to criminal actions, such
director and officer must have had no reasonable cause to believe his or her
conduct was unlawful.
Item 25. Other Expenses of Issuance and Distribution
The Company will pay all expenses in connection with the registration of the
Shares only. The estimated expenses of issuance and distribution are set forth
below.
Registration Fees Approximately US$2,779.81
Legal Fees Approximately US$20,000.00
Accounting Fees Approximately US$500.00
Item 26. Recent Sales of Unregistered Securities
There have not been sales of unregistered securities within the last three (3)
years which would be required to be disclosed pursuant to Item 701 of Regulation
S-B, except for the following:
On or about January 19, 1999, the Company commenced an offering of shares of its
US$.001 par value common stock for US$.001 per share. Those shares were issued
in reliance on an exemption from the registration requirements of the Securities
Act of 1933 ("Act") specified by the provisions of Section 3(b) of the Act and
Rule 504 of Regulation D promulgated by the Securities and Exchange Commission
pursuant to that Section 3(b). The Company sold a total of 7,170,000 shares of
its US$.001 par value common stock pursuant to that offering. 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).
The Company sold a total of 140,660 shares of its common stock pursuant to that
offering. The gross proceeds to the Company amounted to US$70,330, all of which
was allocated to working capital.
In or about January of 2000, the Company completed an offering of units
consisting of one share of its US$.001 par value common stock and one warrant to
purchase one share of the Company's US$.001 par value common stock for US$1.00.
The units were sold for US$.50 per unit. The units were issued in reliance on an
exemption from the registration requirements of the Act specified by the
provisions of Section 4(2) of the Act and Rule 506 of Regulation D promulgated
by the Securities and Exchange Commission pursuant to Section 4(2). The Company
sold a total of 410,000 units pursuant to that offering. The gross proceeds to
the Company amounted to US$205,000.00, of which US$145,000.00 was used for
working capital and US$20,000.00 of which was used to reduce a loan balance to
Campbell Capital Advisory Inc., a company controlled by Gordon McDougall, the
Company's Chief Executive Officer, Secretary, Chief Financial Officer and
Treasurer. In addition, US$40,000.00 of such proceeds were used to reduce a loan
balance to Javelin Enterprises Ltd.
In or around March of 2000, the Company completed an offering of shares of its
US$.001 par value common stock for US$0.50 per share. The shares were issued in
reliance on an exemption from the registration requirements of the Act specified
by the provisions of Regulation S promulgated by the Securities and Exchange
Commission pursuant to Regulation S.
27
<PAGE>
Such shares were sold to "non-U.S. citizens" as that term is defined in relevant
securities law. The Company sold a total of 375,000 shares of its common stock
pursuant to that offering. The gross proceeds to the Company were
$US$160,055.00. US$150,055.00 of such proceeds were used for working capital and
US$10,000.00 of such proceeds were used to repay a loan to Phoenix Titanium..
Item 27. Exhibits.
Copies of the following documents are filed with this Registration Statement,
Form SB-2, as exhibits:
Exhibit No.
1 Underwriting Agreement (Not Applicable)
2 Plan of Merger (Not Applicable)
3.1 Articles of Incorporation* (Charter Document)
3.2 Certificate of Amendment to Articles of Incorporation* (Charter
Document)
3.3 Bylaws*
8. Opinion Re: Tax Matters (Not Applicable)
9. Voting Trust Agreement (Not Applicable)
11 Computation of Per Share Earnings**
10.1 Agreement with Luna Products Inc. (Material Contract)
15. Letter on Unaudited Interim Financial Information (Not Applicable)
21. Subsidiaries of the Registrant***
23.1 Consent of Auditors
23.2 Consent of Counsel (Not Applicable)
24. Power of Attorney (Not Applicable)
27. Financial Data Schedule*
* Previously filed as Exhibits to the Company's Registration Statement on
Form 10-SB and all amendments therto.
** Included within the attached Audited Financial Statements.
*** Included within the attached unaudited management Prepared Financial
Statements.
Item 28. Undertakings.
A. Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
28
<PAGE>
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
B. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the 1933
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) (Section 230.424(b) of Regulation S-B) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any additional or changed material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the 1933 Act,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
29
<PAGE>
SIGNATURES
In accordance with the requirements of the 1933 Act, as amended, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing this Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, in the City of Vancouver, the
Province of British Columbia, Canada, on April 28, 2000.
Luna Medical Technologies, Inc.,
a Nevada corporation
By:/s/ GORDON MCDOUGALL
------------------------------------
Gordon McDougall
Its: CEO, Secretary, CFO and Treasurer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
LUNA MEDICAL TECHNOLOGIES, INC.
/s/ GORDON MCDOUGALL April 28, 2000
- ------------------------------------
Director
/s/ BRAD DESAULNIERS April 28, 2000
- ------------------------------------
Director
EXCLUSIVE LICENSE AGREEMENT
MEMORANDUM OF AGREEMENT made and dated for effect February 1, 2000.
BETWEEN:
LUNA PRODUCTS, INC., a limited company incorporated under the Laws of
British Columbia, having its principal office at Suite 107, 329 7th
Street, New Westminster, BC V3M 3K9
(the "Licensor")
AND:
A. JAMES EMMERSON, Businessman of Suite 107, 329 7th Street, New
Westminster, BC V3M 3K9
(the "Investor")
AND:
LUNA FERTILITY INDICATOR, INC., a limited company incorporated under
the laws of British Columbia, having its principal office at 1411
Wellington Cresent, Richmond, BC V7B 1G5
(the "Licensee")
RECITALS:
A. The Inventor has developed a fertility tester/indicator (the "Product") and
he has obtained registration of two intellectual property interests in
respect of the Product, particulars of which are set out and described in
Schedule "A".
B. The Inventor has assigned the world wide rights to market the Product to
the Licensor;
C. The Licensor manufactures the Product and it is contemplated that it will
continue to do so;
D. Luna Technologies Inc., a company related to the Licensee has entered into
a letter agreement ("Letter Agreement") with the Licensor dated January 27,
1999 under which Luna Technologies Inc. had agreed with the Licensor to
market the Product on a world wide basis;
E. The Licencee represents that it has the necessary resources and expertise
to market the Product on a world wide basis; and
<PAGE>
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F. The parties wish to replace the arrangement contemplated by the Letter
Agreement with a new arrangement on the terms and conditions hereafter set
out.
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements contained herein, the sufficiency of which is acknowledged by each
party to this Agreement, the parties agree as follows.
1. DEFINITIONS
1.1 Wherever used in this Agreement, unless clearly indicated to the contrary by
the context, the following words will have the meanings ascribed to them in this
paragraph:
(a) "Agreement" means this agreement made between the Licensor, the
Inventor and the Licensee.
(b) "Affiliate" as used herein means any enterprise, company a person, or
group of persons, whether incorporated or not - entitled to carry on
business in any country, which now or hereafter directly or indirectly
controls, is controlled by or is under common control with, a party
hereto; "Control" requires the right to exercise the votes attaching
to at least 10% of the issued voting stock of a corporation or at
least 10% ownership interest in any other Person.
(c) "Fertility Indicator Invention" means the invention which the issued
and pending applications for industrial designs, copyrights,
trademarks, and trade names, described in Schedule A and any
subsequent applications for same, and the Technical Information as
defined in this Agreement, all in relation to a method for determining
the fertility status of a female person.
(d) "Licensee" means Luna Fertility Indicator, Inc., being one of the
parties to this Agreement.
(e) "Licensed Applications" means all applications for industrial designs,
copyrights, trademarks, and trade names, submitted to any Canadian
Intellectual Property offices with respect to the Fertility Indicator
Invention, including any divisions thereof and any supplementary
disclosures added thereto.
(f) "Licensed Rights" means the Licensed Applications and any subsequently
issued industrial designs, copyrights, trademarks, and trade names
with respect to the Fertility Indicator Invention.
<PAGE>
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(g) "License Year" means the period beginning June 1 of any calendar year
and ending on May 31 of the subsequent calendar year except that the
first License Year will be from the date of this Agreement to the
following May 31.
(h) "Licensor" means Luna Products, Inc., being one of the parties to this
Agreement.
(i) "Person" means a corporation, an association, a joint venture, a
partnership, a trust, a business, or an individual.
(j) "Product" means the product covered by the Fertility Indicator
Invention, and includes all improvements and modifications thereto,
and includes all related or derivative products developed therefrom
that involve a measurement of female fertility status.
(k) "Technical Information" means any trade secrets, research or
development data and know-how relating to the Fertility Indicator
Invention, whether or not patentable, and shall include engineering or
scientific information, processes and formulae, manufacturing data and
procedures, machinery, plant, apparatus and equipment design, reports,
drawings, specifications and blueprints relating to any method,
product, apparatus or article used in producing the Fertility
Indicator Invention.
2. GRANT OF EXCLUSIVE WORLDWIDE LICENSE AND RIGHTS
2.1 Grant of Licence. The Licensor grants to the Licensee the following
worldwide exclusive rights:
(a) to put into use the Licensed Rights;
(b) to purchase all of the Product manufactured by or for the Licensor or
pursuant by or for under license or contract from the Licensor;
(c) to market, sell and distribute the Product.
2.2 Government Approvals. The Parties agree that except for the Licensors
application for approval under the US Food and Drug Act, matters involving any
licensing or approval, that may be required by any government agency whatsoever
in connection with the marketing, distribution, or sale of the Product,
including any studies, testing or reports that may be required by such agencies,
shall in all respects be the joint concern and involvement of the Licensor and
the Licensee. However the Licensee and Licensor agree that the party initiating
the licensing approval will be responsible for all costs relating to the
application. The applicant will also keep the other party advised as to the
progress of any application.
<PAGE>
-4-
2.3 Disclosure of Technical Information. If necessary in order to perform this
Agreement, the Licensor agrees to disclose to the principal executive officers
of the Licensee such Technical Information as may be necessary in order for the
Licensee to perform this Agreement. Such disclosure shall only be made upon
request in writing by the Licensee set out the reasons why such Technical
Information is required and shall not be released to any person who has not
executed the Licensors Confidentiality Agreement.
2.4 Confidentiality. The Licensee acknowledges the proprietary right of the
Licensor and the Inventor to the Fertility Indicator Invention, and to the
Product, and to the Technical Information disclosed to it pursuant to this
Agreement, and the Licensee covenants with the Licensor to keep confidential and
secret all business information, including Technical Information, disclosed to
it pursuant to this Agreement and will not use such information for its own use
or the use of Persons who do not deal with the Licensee on an arms length basis.
The covenant of the Licensee in this paragraph shall survive the termination of
this Agreement and shall endure in respect of and as long as such information
shall not be generally known to one skilled in the art.
2.5 Restrictive Covenant - Competing Products. The Licensee covenants that
neither it nor any person who deals directly or indirectly with the Licensee on
an arms length basis will manufacture, have manufactured for it, or sell any
product which is copied from the Product or which competes with the Product so
long as this Agreement remains in force and for a period of two years
thereafter.
2.6 Consultation on Manufacturers and Distributors. The Licensor and Licensee
agree that the Licensor is solely responsible for manufacturing the Product and
the Licensee is solely responsible for marketing, selling and distributing the
Product. However the parties also agree that the activities of the other will
have a material effect on the success of both of them. As a result the Licensor
agrees to consult from time to time with the Licensee in respect of the
selection of manufacturers for the Product and the Licensee agrees to consult
from time to time with the Licensor on the selection of distributors and
marketing plans. It is understood and agreed that notwithstanding such
consultation each party is entitled to carry out the activities for which it is
responsible in such a manner as it considers appropriate and any final decision
with respect to matters which are the responsibility of such party shall be made
by such party.
2.7 Inventory Level. The Licensor agrees to maintain a level of inventory which
in its opinion, acting reasonably, will permit it to supply the Licensee's
orders on a timely basis.
The parties will consult from time to time on the level of inventory that
the Licensor should maintain in order to supply the Licensees orders on a timely
basis.
If the Licensee does not agree with the level of inventory that the
Licensor has elected to maintain, the Licensee may demand that the Licensor
establish an increased level of inventory. If such demand is made, the Licensor
will arrange for the manufacture of such additional Products as is necessary to
maintain the increased level provided that the Licensee provides the funds as
and
<PAGE>
-5-
when required to maintain such increased level of inventory. The Licensor agrees
to pay interest on all amounts advanced by the Licensee under this paragraph at
a rate per annum that is equal to 1/2 of the Royal Bank of Canada prime rate (as
defined in Section 7.1(f)). Such interest payments for each Licence Year quarter
will be made within 25 days of the end of such quarter.
The Licensor will not be required to maintain any level of inventory and
can refuse to supply inventory to the Licensee if the Licensee is then in
default of any payment obligation under this section or any other provision of
this Agreement, whether or not a notice of default has been issued.
3. OBLIGATIONS OF THE LICENSEE FOR THE LICENSE AND RIGHTS GRANTED
3.1 Marketing Expenses. In consideration of the exclusive worldwide license and
rights granted to the Licensee in paragraph 2.1 hereof, the Licensee shall
throughout the term of this Agreement use its best efforts to promote the
Product and shall have during the period February 1, 1999 and September 30, 2000
incurred direct marketing and promotional costs of not less than $250,000.00.
Costs incurred by Luna Technologies Inc. prior to the date of this Agreement
shall be included in this calculation. The marketing costs will include the
advances of $40,000 USD made by the Licensee or Luna Technologies Inc. to the
Licensor for its own use and business purposes, and shall include the costs
incurred in connection with altering the colour and the design of the container
of the Product, as first agreed by the Licensor and the Licensee. The Licensee
confirms that the Licensor's obligation to reimburse the Licensee or Luna
Technologies Inc. for the aforesaid advance of $40,000 USD is hereby cancelled.
Licensee will provide details and amounts of the direct marketing and
promotional costs for the period prior to September 30, 1999. Such information
will be included with the quarterly reports contemplated by section 3.2 and a
separate report for September 2000 will be provided by October 25, 2000.
3.2 Quarterly Marketing Reports. Licensee agrees to provide a written report
within 25 days of the end of each Licence Year quarter detailing its marketing
activities in such quarter and detailing its business plan for marketing
activities for the forthcoming quarter. For those Licence Years prior to the
Licence Year in which the Licensee is required the purchase of a minimum annual
quantity pursuant to Section 4.6 such reports shall be provided on a monthly
rather than a quarterly basis and will be provided within 15 days after the end
of each month.
Such reports shall include the following information:
(a) a summary of marketing activities on a country by country basis for
the immediately preceding quarter which identifies:
(i) sales of units during such quarter;
(ii) marketing activities undertaken by Licensee or representatives
during such quarter;
<PAGE>
-6-
(iii) average selling price per unit payable to Licensee;
(b) a summary of marketing activities on a country by country basis for
the current quarter which includes:
(i) estimates of sales of units for such quarter (or such longer
period as the Licensee considers appropriate) and estimate of
selling price per unit;
(ii) intended marketing activities planned for such quarter (or such
longer period as Licensee considers appropriate).
(c) such additional information relating to the Product and the marketing
of same as the Licensee in as discretion considers appropriate.
3.3 Termination of Letter Agreement. The Licensee will on execution of this
Agreement deliver to the Licensor a release by Luna Technologies Inc. of all of
its interest as Licensee under the Letter Agreement dated January 27, 1999 and
all claims it may have against the Licensor, its servants and agents. The
Licensor confirms that on delivery of such release it will release Luna
Technologies Inc. of all claims it may have against Luna Technologies Inc., its
servants and agents.
4. PRODUCT PRICING RULES AND PAYMENT
4.1 Selling Price to Third Parties. The Licensee shall have the sole right to
determine and set or adjust, from time to time, the price at which the Product
shall be sold to third parties, and the Licensor acknowledges that it
understands that there may be varying prices for the different third party
markets.
4.2 Purchase from Licensor. The Licensee shall purchase the Product only from
the Licensor and such purchases will only be for re-sale to third parry
wholesalers, distributors, or retail consumers.
4.3 Purchase Price. The Licensee shall pay the Licensor the following amounts
(the "purchase price") for the Product:
(a) for the first 35,000 units of Product during the Licence Year
commencing June 1, 1999 the sum of $12.50 per unit which price
includes the cost of packaging (i.e. new packaging which the parties
have approved prior to the date of this Agreement) and delivery to the
Licensee's premises at Richmond, B.C. If the Licensee determines at
any time that the manufacturer's existing packaging is not suitable,
the cost to replace existing packaging shall be bourne by the
Licensee.
<PAGE>
-7-
(b) for the first 35,000 units during each subsequent Licence Year the
price of $12.50 per unit will be increased or decreased by a
percentage equal to the percentage increase or decrease in the
consumer price index (all items - British Columbia) between March of
the immediately preceding Licence Year and March, 1999;
(c) for Product in excess of 35,000 units in any Licence Year the sum of
(i) the Licensors cost of manufacturing such Product calculated in
accordance with generally accepted accounting principles
including a reasonable allocation forte costs of the Licensor
attributable to Licencing, transportation and packaging;
(ii) a royalty equal to 10% of the selling price of the Product by the
Licensee;
4.4 Payment Date. Until such time as the purchaser has placed and paid for three
orders of 1000 units or more, the purchase price for the Product shall be paid
by the Licensee on delivery from Licensor of its order to purchase Product. If
payment is not paid on delivery, then the Licensor shall be entitled to refuse
to deliver Product. Thereafter, the Licensor agrees that the purchase price
shall be payable 30 days after delivery. In the event there is a default at any
time in payment of the purchase price, the full amount of the purchase price on
all subsequent orders will, unless the Licensor otherwise agrees in writing, be
due on delivery.
4.5 Definition of Unit. The Licensor and the Licensee agree that a unit of the
Product is one Fertility Indicator. A unit also includes the box and explanatory
insert.
4.6 Minimum Annual Purchase. There shall be no minimum purchase obligation until
the first Licence Year commencing after the licencing of the Product under the
US Food and Drug Act. The minimum purchase obligation shall thereafter be:
(a) 30,000 units in the first Licence Year following approval:
(b) 50,000 units in each subsequent Licence Year.
4.7 Failure to Purchase Minimum Annual Quantity. If the Licensee fails to
purchase the minimum annual quantity in any Licence Year, the Licensor shall
subject to the remedial right of the Licensee as provided in this Section 4.7,
be entitled for a period of 180 days from the end of such Licence Year to either
terminate this Licence Agreement or terminate the exclusivity of the Licensee's
rights under Section 2.1.
Licensee shall have the right, to be exercised within 30 days of the end of
a Licence Year in which a default has occurred to purchase a quantity equal to
the shortfall. Such payment shall be made as follows:
<PAGE>
-8-
(a) an amount per unit equal to the amount set out in section 4.3(a) or
(b) for the Licence Year in which the shortfall occurred, less the
average cost of manufacture for such year which payment shall be made
at the time such right is exercised;
(b) the prevailing price at the time the Licencee takes delivery of such
Product is delivered less the amount previously paid under Section
4.7(a) which payment shall be made within 30 days of delivery.
The Licensee shall be able to take delivery of the shortfall in any
subsequent License Year following purchase of the minimum annual quantity for
such License Year.
4.8 Royalty Non-Arms Length Sales. Sales or transfers of Product between the
Licensee and persons who do not deal with the Licensee on an arms length basis
shall not be deemed to be a sale for the purposes of calculating the royalty in
section 4.3(c). Instead the Purchase Price on the first subsequent sale made on
an arms length basis shall be used for the purposes of the royalty calculations.
4.9 Samples. The Licensor shall provide the Licensee with such number of samples
of the Product as the Licensee may reasonably require. The price for such
samples shall be the Licensor's cost of manufacturing calculated pursuant to
section 4.3(c)(i). Such purchases way only be used for promotional distribution
without charge. Licensor shall be entitled to mark the samples of Product and
packaging to identify that they are being supplied as samples and are not for
resale.
4.10 Returned Goods. The Licensor agrees to provide replacements free of charge
for all units of Product returned by the Licensee to the Licensor because of
defects in manufacture or packaging of the Product.
5. ROYALTY - INVENTOR
5.1 Amount. In addition to the amount to be paid by the Licensee pursuant to
Section 4.3 of this Agreement, the Licensee shall pay a royalty of $1.00 to the
Inventor for each unit of Product sold. The Inventor agrees to waive his royalty
in respect to units supplied as samples under Section 4.9 if such units are
distributed without charge for promotional purposes.
5.2 Payment Date. Payment of such royalty shall be made on the same terms as are
applicable to payment of the purchase price as set out in Section 4.4 unLess the
Inventor and Licensee agree in writing to an alternate payment arrangement.
5.3 Returned Goods. No royalty will be payable on a unit of Product which
delivered to the Licensee by the Licensor as a replacement pursuant to Section
4.10.
<PAGE>
-9-
6. PRIVATE LABELLING
6.1 Conditions for Private Labeling. The Licensee shall have the right to
purchase from the Licensor if it receives an order from an arms length
distributor who wishes to market and sell the Product under a different name
provided that:
(a) the Licensor's name and Product logo and identification are
significantly maintained on the packaging of the Product;
(b) the main components and description of the Product are maintained on
the packaging of the Product;
(c) the Licensee endeavours to obtain the consent of the distributor that
it will identify the Product logo and identification in its
advertising; and
(d) the Licensee reimburses the Licensor for the additional labelling
costs at the time of delivery if the Licensor is required to pay any
costs related to the private labelling.
6.2 Notice. The Licensee shall provide the Licensor with as much advance notice
of such private labeling as possible so that the Licensor can make the necessary
changes to the label and packaging for the Product. The Licensor will not be
held responsible for delay if it has not confirmed the delivery date prior to
receipt of the purchase order.
6.3 Special Circumstances. It is understood and agreed by the parties that
proposals from persons requesting private packaging will frequently involve
requests for other special terms and conditions. The parties agree to treat such
transactions on a case by case basis and work together in good faith with the
view of negotiating a mutually acceptable agreement with such persons. Neither
party will, however, be required to enter into an arrangement which contains
terms and conditions which are different from this Agreement if it does not wish
to do so.
7. RECORDS AND REPORTING OBLIGATIONS OF THE LICENSEE
7.1 Records, Reports and Inspections. In order that the payments for Product
pursuant to Section 4 of this Agreement may be verified by the Licensor, the
Licensee agrees that it will cause itself and persons who do not deal with the
Licensee on an arms length basis who have purchased the Product:
(a) to keep and maintain clear and accurate books and records of their
resales of the Product to every purchaser, including the full name,
address and telephone number and the category of the purchaser and the
resales in the case of non-arms length purchasers (provided that any
information relating to non-commercial purchasers is
<PAGE>
-10-
confidential and cannot be disclosed by the Licensor without the
consent in writing of the Licensee);
(b) to provide to the Licensor, on or before the fifteenth day of each of
September, December, March, and June, in respect of the immediately
preceding Licence Year quarter, a written statement (the "Sales
Report"), signed by a duly authorized officer of the Licensee, showing
the detail described in the immediately preceding sub-clause;
(c) to permit the Licensor, not more than once during each License Year,
or its authorized representative, to have access, during ordinary
business hours, to examine such books and records presented by the
Licensee and persons who do not deal with the Licensee on an arms
length basis to verify the Sales Report;
(d) the Licensor shall have the right for a period of three (3) years
after receiving a Sales Report to inspect the said books and records
of the Licensee and the persons who it does not deal with, on an arms
length basis for the three (3) year period prior to such Sales Report.
The failure of the Licensor to request an examination of any Sales
Report will be deemed to be acceptance of the accuracy of such Sales
Report, and the Licensee shall have no obligation to maintain any
records pertaining to any Sales Report beyond a three (3) year period.
(e) the costs of any examination referred to above shall be borne by the
Licensor unless the report of its representative shows that the Sales
Report has understated the total selling price of the Product by more
than five percent (5%), in which case the costs of the examination
shall be paid by the Licensee.
(f) in the event the said examination reveals any underpayment of
royalties or other amount due to the Licensor or the Inventor, the
Licensee will promptly pay to the Licensor and/or the Inventor the
full amount of that underpayment together with interest thereon at
rate per annum which is five percent (5%) per annum above the interest
rate designed by the Royal Bank of Canada as its prime rate on
Canadian dollar loans calculated from the time the underpayment should
have been paid to the date of payment.
8. ASSIGNMENT OF AGREEMENT
8.1 Effect of Assignment. When assigned in accordance with this section this
Agreement, and all rights, obligations and duties hereunder will enure to the
benefit of and will be binding on the assignees or successors in interest of the
parties.
<PAGE>
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8.2 Restriction on Assignment. The Licensor and the Licensee each have the right
to assign its rights, obligations and duties under this Agreement provided that
it has first obtained approval from the other, it being agreed that such consent
by the other shall not be unreasonably withheld. The assignor shall continue to
be responsible to the other for any obligations and duties under this Agreement
9. SUB-LICENSES AND SUB-CONTRACTS
9.1 Prohibition on Sublicensing. The rights and license granted to this licensee
do not confer to the Licensee the right to grant to others the right or license
to use or sell Product. It is understood and agreed, however, that purchasers
from the Licensee of Product may use, or re-sell for use by others, such
Product. It is further agreed that the Licensee shall have the right to enter
into written sub-contracts with third Persons pursuant to which one or more
sub-contractors may be authorized to re-sell the Product.
10. TERM AND RIGHT TO EXTEND
10.1 Term. The term of this Agreement shall be 15 years, commencing as of the
date first set forth above and, unless earlier terminated as provided herein, it
shall continue to have effect until May 31st, 2014, unless extended pursuant to
clause 10.2 of this Agreement.
10.2 Extension. Provided that it is not in default, the Licensee shall have the
right and option to extend the Term of this Agreement for two (2) individual
consecutive additional terms of five (5) years each, on the same terms and
conditions as are contained in this Agreement, and each commencing on the day
immediately succeeding the expiration of the term of this Agreement then in
effect and shall end at midnight of the day immediately preceding the fifth
(5th) anniversary of the first (lst) day of such term.
10.3 Date to Exercise Extension. The right to extend the term shall be exercised
by written notice to the Licensor not less than six (6) months prior to the
expiration of the term of this Agreement then in effect. The giving of such
notice to the Licensor shall automatically extend this Agreement for the
extended term, and no instrument of extension need be signed by the parties.
10.4 Failure to Exercise Extension. In the event that the Licensee fails to give
such notice to the Licensor to extend the term, this Agreement shall
automatically terminate at the end of the term then in effect, and the Licensee
shall have no further right to extend this Agreement.
<PAGE>
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11. EARLY TERMINATION
11.1 Breach of Financial Obligation. If the Licensee, at any time, fails to make
any payments hereunder when due, or fails to provide to the Licensor a Sales
Report required under this Agreement when due and the Licensee fails to remedy
such default within 10 days after receipt of written notice thereof from the
Licensor, the Licensor may, at its sole option, terminate this Agreement. If a
default arises from failure to make a payment when due then such fault shall not
be considered to have been cured unless such payment includes interest from the
due date to the date of payment at a rate per annum equal to Royal Bank of
Canada prime rate (as defined in Section 7.1(f)) plus 5% included with such
payment. Such termination is without prejudice to other remedies which the
Licensor may have.
11.2 Breach of Other Obligations. If either party is in default of any other
obligation under this Agreement other than a breach under Section 11.1 and the
defaulting party fails to correct such default within 30 days of receipt of
written notice from the other, the injured party may at its sole option
terminate this Agreement. Such termination is without prejudice to other
remedies which the injured party may have.
11.3 Insolvency. In the event that the Licensee shall be liquidated, or become
insolvent, or shall make an assignment for the benefit of its creditors, or that
a receiver or receiver-manager shall be appointed for it or its assets, or that
a petition in bankruptcy shall be filed by or against it, the Licensor may, at
its sole option at any time thereafter, forthwith Terminate this Agreement upon
written notice to the Licensee.
11.4 Prohibition of Sales. Upon the early termination of this Agreement, the
Licensee agrees to cease all sales of Product.
11.5 Effect on Existing Liabilities. Termination of this Agreement for any cause
shall not relieve the Licensee or Licensor of its obligations and liabilities
existing at or accruing to the time of termination.
12. MODIFICATION AND WAIVER
12.1 Requirements. No cancellation, modification, amendment, deletion, addition,
or other change in this Agreement or any provision hereof, or wavier of any
right or remedy herein provided, shall be effective for any purpose unless
specifically set forth in writing signed by the party to be bound thereby. No
waiver of any right or remedy in respect of any occurence or event on one
occasion shall be deemed a waiver of such right or remedy in respect of such
occurrence or event on any other occasion.
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13. REPRESENTATION AND WARRANTIES
13.1 Limitation. Nothing in this Agreement shall be construed as:
(a) a warranty or representation by the Licensor as to the validity or
scope of the Canadian Intellectual Property Interests registrations;
and
(b) a warranty or representation that anything made, used or sold or
otherwise disposed of under this Agreement is or will be free from
infringement of patents owned by third parties.
13.2 Representations by Licensor. The Licensor warrants and represents to the
Licensee as follows:
(a) no person, firm or corporation, other than the Licensor and Licensee,
has any agreement or option or a right capable of becoming an
agreement for the purchase or licensing of the Product or the Licensed
Rights;
(b) the Licensor holds a licence, irrevocable during the term of this
Agreement and any extensions thereto, from the inventor of the
Fertility Indicator Invention, being Alfred James Emmerson of New
Westminster, BC, of all requisite rights, present and future, to the
intellectual property interests that involve the Fertility Indicator
Invention, and has the right to enter into this Agreement.
(c) the Licensor has good and marketable title to all of the Product which
it sells to the Licensee hereunder;
(d) so long as this Agreement remains in force, the Licensor will not sell
its Product to any Person except the Licensee.
14. AGENCY
14.1 No Agency. The Licensor and Licensee recognize and agree that each is
operating as an independent contractor and not as an agent of the other. This
Agreement will not constitute a partnership or joint venture and no party can be
bound by the other to any contract, arrangement or understanding except as
specifically stated herein.
<PAGE>
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15. PUBLICITY
15.1 Restriction on Publicity. Subject to each party's prior right to approve
the correctness of the content of any public announcement, such approval not to
be unduly delayed, the Licensor and the Licensee shall have the right to
announce to the public the existence of this Agreement, including the identity
of the other party to it and its general terms, but both the Licensor and
Licensee agree that all Financial Information shall remain confidential and
shall not be disclosed by either party, its officers or employees before or
after expiry of this Agreement except as required by law or as required in order
to obtain advice from its professional advisors provided such advisors are
required by law or agreement to keep such information confidential.
16. NOTICES AND PAYMENTS
16.1 Procedure. All communications among the parties with respect to any of the
provisions of this Agreement shall be in writing. Such communications and all
payments payable under this Agreement shall be sent by either registered mail,
courier, personal delivery or facsimile transmission to the addresses set out in
this Agreement or to any other address as may be specified, in writing, by the
party who changes its address. All written communications shall be deemed to be
received by the addressee on the following dates
(a) if by registered mail: five (5) business days after dispatch by the
notifying party;
(b) if by courier or personal delivery: on the day following the date of
delivery upon the party to receive such notice;
(c) if by facsimile transmission: on the day following the date of
transmission to the party to receive such notice.
16.2 Notice to Lawyers. If either party elects to send a notice of default or
notice of termination to the other party pursuant to any provision of this
Agreement, a copy of such notice will be delivered pursuant to the procedure in
Section 16.1 to such other party's lawyer as designated from time to time. Prior
to such designation the Licensor's lawyers will be Davis & Company (Douglas C.
Morley) and the Licencee's lawyers will be Mitchell Welters Law Corporation
(Mitch Welters).
17. JOINT PREPARATION
17.1 No Contra Preferendum. This Agreement shall be deemed to be jointly
prepared by the parties, and any ambiguity herein shall not be construed for or
against any party.
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18. GOVERNING LAW AND CURRENCY
18.1 Applicable Law. This Agreement shall be construed and interpreted in
accordance with the laws of the Province of British Columbia and the laws of
Canada applicable therein. Each of the parties agree to attorn to the
jurisdiction at any Court within the Province of British Columbia having
jurisdiction over this Agreement.
18.2 Applicable Currency. All sums or funds referred to in this Agreement shall
be in Canadian dollars
19. HEADINGS
19.1 Interpretation. No account of the headings to the paragraphs of this
Agreement will be taken when interpreting the meaning thereof.
20. MULTIPLE COPIES
20.1 Counterparts. This Agreement may be signed in any number of counterparts,
each of which shall be deemed to be an original, but together shall constitute
but one instrument.
21. AUTHORITY TO ENTER INTO AGREEMENT
21.1 Authorized Signatories. The undersigned signatories represent that they are
authorized to sign this Agreement on behalf of the respective parties hereto.
Each party has relied upon that representation in entering into this Agreement.
22. TIME
22.1 Time of Essence. Where expressed in this Agreement, time shall be of the
essence.
23. ENUREMENT
23.1 Enurement. This Agreement and each and every one of its provisions shall
extend to and be binding upon the respective administrators, successors and
assigns of the parties hereto.
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24. ENTIRETY OF AGREEMENT
24.1 Entire Agreement. This Agreement constitutes the entire agreement among the
parties hereto respecting the subject matter hereof and supersedes all prior or
contemporaneous negotiations, agreements and understandings whether written or
oral. It is understood and agreed that the Letter Agreement dated January 27,
1999 and all amendments is terminated as of the date hereof.
25. INVENTORS RIGHTS AND OBLIGATIONS
25.1 Representations by Inventor. By execution of this Agreement, the Inventor
represents that:
(a) he has irrevocably granted the Licenser with a Licence to market the
Product.
(b) the said invention is properly described and identified in this
Agreement.
(c) the said Licence will permit the Licensor to grant the Licensee the
licence provided for by this Agreement.
(d) Luna Products Inc. holds the rights and entitlement to the said
invention for at least the term of this Agreement, including any
extension of time.
(e) he acknowledges that the Licensee is relying on the representations in
entering into this Agreement with the Licensor.
25.2 Representations by Licensee. Licensee represents to the Inventor that:
(a) it will pay the Inventor the royalty of $1.00 per unit purchased from
the Licensor at the times provided by this Agreement.
(b) it is understood that the Inventor is relying on the representations
of the Licensee in entering into this Agreement
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26. SEVERABILITY
26.1 Effect of Invalid Provision. All terms and conditions hereof are severable
and the invalidity, illegality or unenforceability of any term or condition
shall not affect the validity, legality or enforceability of the remaining terms
and conditions.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first above written.
EXECUTED at Vancouver, BC, the 11th day of February, 2000.
LUNA FERTILITY INDICATOR, INC. LUNA PRODUCTS, INC.
Per: /s/ [ILLEGIBLE] Per: /s/ A. James Emmerson
- -------------------------------- ----------------------------------
Authorized Signatory Authorized Signatory
/s/ A. James Emmerson
----------------------------------
A. James Emmerson
<PAGE>
SCHEDULE "A"
to the Exclusive Licensing Agreement
between
Luna Products, Inc. (Licensor) and
Luna Fertility Indicator. Inc. (Licensee)
Description of Intellectual Property Interests,
Copyrights, Trademarks, Trade names, Industrial Designs
Registered: Trademark No. TMA 519,478, dated November l7th, 1999 for LUNA &
DESIGN File No. 880669
Design Patent: Industrial Design Patent for "Mini-Microscope Fertility Indicator
- Portable" No. 88002 dated October 29, 1999
[LETTERHEAD OF WILLIAMS & WEBSTER, P.S.]
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Luna Medical Technologies, Inc.
Vancouver, British Columbia, Canada
We consent to the use of our audit report dated May 31, 1999 (Except for Note 8,
as to which the date is September 17, 1999), on the financial statements of Luna
Medical Technologies, Inc. as of March 31, 1999, for the filing with and
attachment to the Form SB-2, filed in April 2000.
/s/ Williams & Webster, P.S.
- ----------------------------
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
April 27, 2000
