SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
 (Mark One)

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

For the Fiscal Year Ended December 31, 2004
                                       OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

Commission File No. 0-25474

                      LUNA TECHNOLOGIES INTERNATIONAL, INC.
           ----------------- ---------------------------------------
                 (Name of Small Business Issuer in its charter)

                Delaware                                     91-1987288
         ------------------------                      ----------------------
         (State of incorporation)                          (IRS Employer
                                                         Identification No.)
       61A Fawcett Road
       Coquitlam, British Columbia, Canada                    V3K 6V2
     -------------------------------------                   ---------
    (Address of Principal Executive Office)                   Zip Code

Registrant's telephone number, including Area Code: (888) 955-8883 Securities
registered pursuant to Section 12(b) of the Act: None Securities registered
pursuant to Section 12(g) of the Act:

                                  Common Stock
                                (Title of Class)

Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
                                      X
                                     YES            NO

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best  of  the  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

The Company's revenues for the most recent fiscal year were $657,165.

The aggregate market value of the voting stock held by non-affiliates of the
Company as of April 15, 2005 was approximately $1,392,044.

As of April 15, 2005 the Company had 10,009,648 issued and outstanding shares of
common stock.

<PAGE>


ITEM 1.  DESCRIPTION OF BUSINESS

      The Company was incorporated on March 25, 1999 in Delaware to develop,
manufacture and sell photoluminescent products (High Performance
Photoluminescent Lighting, "HPPL") used for emergency lighting, signs and
markings, wayfinding systems and novelty products with applications in marine,
commuter, rail, subway, building and toy markets. The Company conducts business
in Canada through its wholly-owned Canadian subsidiary, Luna Technologies
(Canada) Ltd.

      The Company's executive offices are located at 61B Fawcett Road,
Coquitlam, British Columbia, Canada V3K 6V2. The Company's telephone number is
(604) 526-5890, its facsimile number is (604) 526-8995, its email address is
info@lunaplast.com, and its web site is www.lunaplast.com.

      From the date of its incorporation and through December 31, 2004 the
Company had cumulative losses of $(2,406,065). There can be no assurance that
the Company will ever earn any profits.

      Phosphorescent (also referred to as photoluminescent) materials emit light
continuously when they are excited by ultraviolet or visible light. However,
unlike fluorescent materials, when the excitation source is extinguished,
phosphorescent materials continue to emit light. It is this light (called
afterglow) that people refer to as "glow-in-the-dark". The afterglow decreases
(or decays) over time after the excitation source has been extinguished.

      Although many people associate the word "photoluminescence" with
"glow-in-the-dark" toys and novelties, in the lighting industry,
photoluminescent products such as marker tapes and signs are commonly used to
delineate emergency escape routes and danger areas, and to mark equipment,
pipes, tools and working and accident prevention clothing.

      Photoluminescent signs and markers are used in a variety of situations,
including office buildings, industrial sites, passenger ships, offshore drilling
platforms, underground mines, and aircraft. The use of photoluminescent
materials for life safety applications is recommended or mandated in numerous
building codes, fire safety codes, and transportation standards.

      Most photoluminescent products are composed of inorganic pigments that can
be incorporated into paint, plastic films, enamels, and flexible and rigid
molded plastics. Typical products include adhesive vinyl tapes, rigid polyvinyl
chloride (PVC) marker strips, and silk-screened plastic signage.
Photoluminescent enamel-coated sheet metal and ceramic products are also
available.

      The main pigment commonly used in photoluminescent glow-type products is a
zinc sulphide compound emitting a yellowish-green light. This material performs
well when subjected to high ambient lighting levels but the decay rate is rather
rapid. The Company's current LUNAplast pigment material, Strontium Aluminate,
has a performance level 20 x that of zinc-based products. In addition, the decay
curve for strontium-based products is measured in hours as opposed to minutes
for zinc-based items.


                                       2
<PAGE>

      Strontium Aluminate is more expensive than zinc sulphide and takes
slightly longer to charge, but can "store" more light, making it much more
suitable for use in locations where ambient light levels are low. Strontium
Aluminate also offers much brighter and longer-lasting photoluminescence.

      Although Strontium Aluminate PL material is superior to products made with
zinc sulphide, the process required to manufacture Strontium Aluminate PL is
very complex and manufacturers were unable to cost effectively produce Strontium
Aluminate PL products in commercial quantities.

      Between January 1995 and October 1999, Douglas Sinclair, presently the
chief executive officer of the Company's Canadian subsidiary, developed the
proprietary technology, formulas and processes needed to commercially
manufacture Strontium Aluminate PL products on a cost-effective basis. The
resulting product, referred to by the Company as Lunaplast, is up to 20 x times
brighter than commercial zinc sulphide products, and is clearly visible after
many hours of total darkness. During this same period of time, Mr. Sinclair and
Kimberly Landry, an officer and director of the Company, developed an advanced
Strontium Aluminate HPPL material which is four times brighter than the
Company's Lunaplast product. Mr. Sinclair and Ms. Landry filed a patent
application pertaining to this invention with the U.S. Patent and Trademark
Office in November 1997. For a nominal consideration Mr. Sinclair and Ms. Landry
assigned the rights in November 1997 to the patent application and related
technology to Luna Technologies Inc. ("LTI"), a corporation formed by Ms. Landry
in December 1994.

      In April 1999 the Company acquired from LTI the rights to the patent
application and related technology assigned to LTI by Mr. Sinclair and Ms.
Landry. In consideration for this assignment, the Company agreed to pay LTI
$90,000, without interest, on or before June 30, 2000. Subsequent to June 30,
2000, the Company paid this debt in full. As of March 30, 2004 the patent
application had been placed in abeyance.

      In November 1999, the Company acquired from Mr. Sinclair the proprietary
technology required to manufacture Lunaplast into PVC sheets, vinyl rolls and
paints as well as the trademark rights to these products. In consideration for
the assignment of this technology and the trademarks, the Company paid Mr.
Sinclair $60,000.

      During 2000 the Company developed the processes required to manufacturer
Strontium Aluminate PL products using vacuum forming, extrusion, and injection
molding techniques.

      Lunaplast is available in flexible vinyl and rigid PVC sheets. In
addition, a wide range of polymer compounds for extrusions and injection molding
was added during the year. The substantial increase in performance opens up a
completely new range of opportunities in life safety. Direct replacement of
electrical exit signs (Underwriters Laboratories UL 924) is expected to be a
market for photoluminescent materials in the near future.

      The Company began producing Lunaplast on a commercial basis during fiscal
2000.

      During the year ended December 31, 2004 one customer accounted for 43% of
the Company's gross revenues. The Company is of the opinion that the loss of
this customer would not have a material adverse effect on the Company.


                                       3
<PAGE>

Manufacturing

      Lunaplast is a three-part laminate, consisting of one base layer of highly
reflective white material of PVC or vinyl, one mid-layer of photoluminescent PVC
or vinyl impregnated with the Company's proprietary Strontium Aluminate polymer
compound, and one top layer of clear PVC or vinyl with UV and fire-resistant
properties.

      All aspects of the Company's manufacturing process are subcontracted to
various third parties which formulate, mix and produce Lunaplast to the
Company's specifications. Once the manufacturing process is complete, Lunaplast
is sold to fabricators which use Lunaplast in a variety of end user products.
All subcontractors involved in manufacturing Lunaplast have agreed to maintain
the confidential nature of the Company's proprietary manufacturing technology.

      The Company does not have any long-term agreements with any of the third
parties involved in manufacturing Lunaplast. The Company believes that
alternative manufacturers are available which could produce Lunaplast on short
notice and without disrupting product delivery schedules.

Sales and Marketing

      World markets for photoluminescent lighting products are in the marine
(shipping and cruise lines), transportation and commuter industry, and in the
commercial, institutional and industrial retrofit and new building construction
sector, in which the need for photoluminescent emergency lighting and wayfinding
signage systems has risen sharply over the last two decades. A third primary
marker is "glow-in-the-dark" toys and novelties.

      The Company believes that the world market for HPPL lighting is
underdeveloped due largely to the low illumination delivered by zinc sulphide
products. The Company plans to build interest and sales for Lunaplast products
in established markets around the world. The Company's marketing plan includes
advertising in trade magazines, exhibiting at industry tradeshows, direct mail
campaigns, soliciting editorial coverage from naval architecture, building
design, architecture and lighting industry publications and distributing product
samples, videos and brochures to designers and developers. The Company's website
will also be used as a means to distribute product information to interested
parties quickly.

      The Company markets its products through its officers and through
independent sales representatives. As of April 15, 2005 the Company had
independent sales representatives marketing Lunaplast in North America, Latin
America, Korea and Australia.

Competition

      No single company dominates the world marketplace. Instead, a number of
small and medium-sized firms are active within regional markets in Europe, the
U.S. and elsewhere. Some producers include companies such as Permalight AG of
Germany (Europe and North America), Safe T Glow (UK and U.S.), Datrex (U.S.),
Jalite (UK), Everglow (Europe) and Existalight (Europe and U.S.). It is


                                       4
<PAGE>

difficult to determine annual sales volumes and revenues for these firms, as
most are privately held.

      Although there are several manufacturers and distributors of
photoluminescent products the Company believes it has a significant advantage
over its competitors as a result of its proprietary manufacturing processes and
cost effective approach to the production of Strontium Aluminate-based HPPL
materials in commercial quantities. The Company also plans to be competitive in
the HPPL industry by developing advanced Strontium Aluminate materials,
enhancing formulation and focusing on higher volumes with a resultant lower cost
of production. During the twelve-month period ending December 31, 2005 the
Company plans to spend approximately $100,000 on research relating to the
development of advanced strontium aluminate PL materials.

Office Space

      The Company rents on a month to month basis approximately 4,800 square
feet of executive office space at 61A and 16.B Fawcett Road, Coquitlam, British
Columbia at a monthly rental of CDN$3,490.

Employees

      As of April 15, 2005 the Company had ten full-time employees. See Item 9
of this report. As of April 15, 2005 the Company did not have any part time
employees. Contingent upon the Company raising sufficient capital, the Company
plans to hire additional employees as may be required by the level of the
Company's operations.

ITEM 2.  DESCRIPTION OF PROPERTIES

      See Item 1 of this report.

ITEM 3.  LEGAL PROCEEDINGS.
--------------------------

      The Company is not engaged in any litigation, and the officers and
directors presently know of no threatened or pending litigation in which it is
contemplated that the Company will be made a party.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      Not Applicable

ITEM 5.  MARKET FOR COMMON EQUITY AND OTHER RELATED  STOCK- HOLDER MATTERS.

      The Company's common stock is quoted on the Over the Counter Bulletin
Board under the symbol "LTII". The following table presents the high and low
closing prices for the common stock as reported by the NASD for each quarter
beginning in April 2001 when the Company's stock was first quoted. The prices
reflect inter-dealer quotations without adjustments for retail mark-up, markdown
or commissions, and do not necessarily represent actual transactions.

                                       5
<PAGE>

      Quarter Ending                      High          Low

        3/31/02                           $0.71         $0.41
        6/30/02                           $1.10         $0.75
        9/30/02                           $0.87         $0.35
       12/31/02                           $0.48         $0.25

        3/31/03                           $0.51         $0.30
        6/30/03                           $0.55         $0.40
        9/30/03                           $0.76         $0.35
       12/31/03                           $0.76         $0.55

        3/31/04                           $1.15         $0.43
        6/30/04                           $1.00         $0.25
        9/30/04                           $0.40         $0.19
       12/31/04                           $0.40         $0.19


      As of April 15, 2005 there were 94 record owners of the Company's common
stock.

      Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefore and,
in the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment of liabilities. The Board of Directors is not
obligated to declare a dividend. The Company has not paid any dividends and the
Company does not have any current plans to pay any dividends.

      The provisions in the Company's Articles of Incorporation relating to the
Company's preferred stock would allow the Company's directors to issue preferred
stock with rights to multiple votes per share and dividends rights which would
have priority over any dividends paid with respect to the Company's common
stock. The issuance of preferred stock with such rights may make more difficult
the removal of management even if such removal would be considered beneficial to
shareholders generally, and will have the effect of limiting shareholder
participation in certain transactions such as mergers or tender offers if such
transactions are not favored by incumbent management.

During the year ended December 31, 2004 the Company:

1.     Sold 100,000 units to one private investor at a price of $0.65 per unit.
       Each unit consisted of one common share and one warrant. Each warrant
       entitles the holder to purchase one additional common share of the
       Company at a price of $1.00 per share until February 26, 2006.

2.     Sold 35,000 units to one private investor at a price of $1.00 per unit.
       Each unit consisted of one common share and one warrant. Each warrant
       entitles the holder to purchase one additional common share of the
       Company at a price of $1.00 per share until March 31, 2006.


                                       6
<PAGE>

3.     Sold 1,250,000 units to one private investor at a price of $0.20 per
       unit. Each unit consisted of one common share and one warrant. Each
       warrant entitles the holder to purchase one additional common share of
       the Company at a price of $0.30 per share until September 3, 2006.

4.     Issued 954,000 shares of its common stock upon the exercise of options
       granted in accordance with the Company's Non-Qualified Stock Option Plan.

5.     Issued 597,812 shares of its common stock in accordance with the
       Company's Stock Bonus Plan.

      The Company relied upon the exemption provided by Section 4(2) of the
Securities Act of 1933 with respect to the issuance of shares referred to in
subparts 1 through 3.

      The shares referred to in subparts 4 and 5 were registered by means of a
registration statement on Form S-8.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS/ PLAN OF OPERATIONS

      Sales during the year ended December 31, 2004 were $537,165, an increase
of $155,444 or 41% from the previous year. Gross margin increased 11% to 50%
over the same period in 2003 due to the Company's improvement in productivity
and cost controls. Two customers amounted to 84% of total sales in 2003 and 60%
of total sales during 2004.

      During the year ended December 31, 2004 the Company received payments
totaling $120,000 from customers in connection with pricing agreements.

      General and administrative expenses for the year ended December 31, 2004
increased with the addition of management, staff and overhead needed to
facilitate the Company's growth and ongoing product development. During the year
ended December 31, 2004, stock-based compensation of $154,600 was expensed as
consulting fees representing the fair value of stock options granted and
$124,868 was expensed as consulting fees representing the fair value of 597,812
common shares issued pursuant to the Company's stock bonus plan.

      During the year ended December 31, 2004, the Company's operations used
$314,683 in cash and the Company purchased $5,912 of equipment. During this
period the Company satisfied its cash requirements through sales of common stock
in private placements of $357,000 and advances from related parties of $49,509.
The Company made $39,996 in convertible debenture repayments, $8,338 in notes
payable repayments and decreased the bank overdraft by $11,068.

      Between December 2002 and January 2003 the Company borrowed $120,000 from
a third party. Loan proceeds of $60,000 were received in December 2002 and the
remaining $60,000 was received in January 2003. The loan is secured by all of
the Company's assets and bears interest at a rate of 8% per year. The loan is to
be repaid in 30 monthly principal payments of $3,333, commencing June 21, 2003,
with a final principal payment of $20,010 due on December 21, 2005. Interest on


                                       7
<PAGE>

the outstanding principal balance is payable monthly commencing June 21, 2003.
The unpaid balance of the loan and interest may be converted at any time into
restricted shares of the Company's common stock at a price of $1.20 per share
during 2005.

      The Company anticipates that its capital needs during the year ending
December 31, 2005 will be as follows:

      $600,000 for corporate expenses, $100,000 for research relating to the
development of advanced strontium aluminate PL materials, $360,000 for current
liabilities and $56,797 for convertible debenture payments.

      The Company does not have any available credit, bank financing or other
external sources of liquidity. Due to the operating losses of the Company during
the Company's initial year of operations, the Company's operations have not been
a source of liquidity. At December 31, 2004 the Company had a working capital
deficiency of approximately $254,000. The ability of the Company to continue as
a going concern is dependent on the Company raising additional capital and on
future profitable operations. To that end the Company is seeking financing to
expand its operations and for working capital purposes. There can be no
assurance that the Company will be successful in obtaining additional funding.

Critical Accounting Policies And Estimates

Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to revenue recognition, intangible assets, financing operations, and
contingencies and litigation. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. These accounting policies
are described in the notes to the consolidated financial statements for the
fiscal year ended December 31, 2004 which are included as part of this report.

ITEM 7.     FINANCIAL STATEMENTS

      See the financial statements attached to this report.

ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

      None.


                                       8
<PAGE>

ITEM 8A.    CONTROLS AND PROCEDURES

      Kim Landry, the Company's Chief Executive and Principal Financial Officer
has evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date") and in her opinion the Company's disclosure
controls and procedures ensure that material information relating to the
Company, including the Company's consolidated subsidiaries, is made known to her
by others within those entities, particularly during the period in which this
report is being prepared, so as to allow timely decisions regarding required
disclosure. To the knowledge of Ms. Landry there have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect the Company's internal controls subsequent to the
Evaluation Date. As a result, no corrective actions with regard to significant
deficiencies or material weakness in the Company's internal controls were
required.

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

      The following sets forth certain information concerning the present
management of the Company:

   Name               Age  Position with Company

   Scott Bullis       42   President
   Kimberly Landry    39   Chief Executive Officer, Principal Financial
                           Officer, Chief Accounting Officer, Secretary
                           and a Director
   Robert H. Humber   60   Director


     Kimberly Landry was the Company's  President  between September 1, 2001 and
August 31, 2004. On August 31, 2004 Ms. Landry resigned as the Company President
and was  appointed  the  Company's  Chief  Executive  Officer.  Ms.  Landry  was
appointed the Company's  Principal  Financial  and Chief  Accounting  Officer on
April 5, 2005.  Ms. Landry has been the  Secretary of the Company,  as well as a
director  since  April 1999.  Since  December  1994 Ms.  Landry has also been an
officer and director of LTI.

      Scott Bullis has the Company Presidents since August 31, 2004. Between
September 2000 and October 2003 Mr. Bullis was the Chief Executive Officer of
One5 Corporation, a business which provided technology to wireless
telecommunications companies. Between June 1999 and June 2000 Mr. Bullis was
Vice President of Marketing for iEngineer.com, Inc.

      Robert Humber was the President of the Company between September 1, 2001
and April 1999. Mr. Humber has been a director of the Company since April 1999.
Between July 1996 and November 1999 Mr. Humber was the president of LTI. Prior
to July 1996 Mr. Humber worked with Douglas Sinclair and Kimberly Landry in
developing photoluminescent products. For the past twenty-three years Mr. Humber
has also been an independent investigator and security consultant providing
services to law enforcement agencies and private industry.


                                       9
<PAGE>


      The Company does not have a compensation committee. The Company's Board of
Directors serves as the Company's Audit Committee. None of the Company's
directors qualifies as a financial expert.

      The Company has adopted a Code of Ethics which is applicable to the
Company's principal executive, financial, and accounting officers and persons
performing similar functions. The Code of Ethics is available on the Company's
website located at www.lunaplast.com.

Management Changes

      Effective August 31, 2004:

          o    Douglas Sinclair  resigned as an officer of the Company and as an
               officer of the Company's subsidiaries.
          o    To  satisfy  amounts  owed by the  Company  to Mr.  Sinclair  for
               management   fees  the  Company   agreed  to  pay  Mr.   Sinclair
               CDN$187,000 in a series of installments with the last installment
               due January 15, 2007.
          o    Mr.  Sinclair agreed to maintain the  confidential  nature of the
               Company's trade secrets and proprietary technology.
          o    Mr.  Sinclair  agreed that he would not compete  with the Company
               until July, 2006.
          o    Kimberly  Landry was  appointed  the  Company's  Chief  Executive
               Officer.
          o    Scott Bullis was appointed the Company's President.

      Brian Fiddler resigned as the Company's Principal Financial and Accounting
Officer, and as a director of the Company on April 4, 2005. On that same date,
Ms. Landry was appointed the Company's Principal Financial and Chief Accounting
Officer.

ITEM 10.    EXECUTIVE COMPENSATION

      The following table sets forth in summary form the compensation received
by the Company's executive officers during the fiscal years ended December 31,
2002, 2003, and 2004.

                           Annual Compensation         Long Term Compensation
                      -------------------------------  ----------------------
                                                Other    Re-
                                               Annual  stricted
Name and                                       Compen-  Stock     Options
Principal             Fiscal Salary   Bonus    sation   Awards    Granted
Position               Year    (1)      (2)      (3)     (4)        (5)
---------             ------ -------  -------  ------  --------   --------

Kimberly Landry,       2004  $55,705                    $46,750    500,000
President between      2003  $45,120     --       --         --         --
September 1, 2001      2002  $20,000     --       --         --         --
and August 31, 2004,
and Chief Executive
Officer since August
31, 2004


                                       10
<PAGE>

Scott Bullis,          2004  $22,016     --       --         --    659,200
President since
August 31, 2004

(1)  The dollar value of base salary (cash and non-cash) received. (2) The
     dollar value of bonus (cash and non-cash) received.
(3)  Any other annual compensation not properly categorized as salary or bonus,
     including perquisites and other personal benefits, securities or property.
(4)  Amounts reflect the value of the shares of the Company's common stock
     issued as compensation for services.

      The table below shows the number of shares of the Company's common stock
owned by the officers listed above, and the value of such shares as of December
31, 2004.

      Name                          Shares                  Value
      ----                          ------                  ------

      Kimberly Landry            2,025,000                $790,000
      Scott Bullis                      --                      --

(5)  The shares of common stock to be received upon the exercise of all stock
     options granted during the fiscal years shown in the table.

      The Company's Canadian subsidiary had an employment agreement with
Kimberly Landry whereby the subsidiary has agreed to pay Ms. Landry a salary of
CDN$7,500 per month.

      Mr. Bullis has an Employment Agreement with the Company which provides
that the Company will pay Mr. Bullis CDN$7,500 per month. The monthly salary
payable to Mr. Bullis will be renegotiated at the request of either Mr. Bullis
or the Company during the term of the Employment Agreement. In the event that
the Company and Mr. Bullis cannot agree on any increase in salary, the monthly
salary payable to Mr. Bullis will be increased on an annual basis by the greater
of (i) 15% or (ii) the percentage which is the average percentage increase of
all compensation paid to the Company's officers during the previous twelve
months. The Employment Agreement with Mr. Bullis may be terminated by either the
Company or Mr. Bullis on thirty days notice.

      In addition to his compensation Mr. Bullis was granted options in
accordance with the following terms:

           Shares Issuable Upon        Option Exercise       Expiration
            Exercise of Option            Price (1)              Date

                52,800                    US  $0.35         August 26, 2007
                 6,400                    US  $0.75         August 26, 2007
               400,000 (1)                US  $0.35         August 26, 2007
               200,000 (1)                US  $0.50         August 26, 2007


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<PAGE>

(1)  Options will vest in equal monthly portions over a period of twenty-four
     months beginning on July 26, 2004.

      Mr. Bullis is also entitled to participate in any medical or other benefit
plans that are offered to the Company's employees generally.

      The Company's Board of Directors may increase the compensation paid to the
Company's officers depending upon the results of the Company's future
operations.

Long Term Incentive Plans - Awards in Last Fiscal Year
------------------------------------------------------

      None.

Employee Pension, Profit Sharing or Other Retirement Plans
----------------------------------------------------------

      Except as provided in the Company's employment agreements with its
executive officers, the Company does not have a defined benefit, pension plan,
profit sharing or other retirement plan, although the Company may adopt one or
more of such plans in the future.

Compensation of Directors
-------------------------

      Standard Arrangements. At present the Company does not pay its directors
for attending meetings of the Board of Directors, although the Company may adopt
a director compensation policy in the future. The Company has no standard
arrangement pursuant to which directors of the Company are compensated for any
services provided as a director or for committee participation or special
assignments.

      Other Arrangements. During the year ended December 31, 2004, and except as
disclosed elsewhere in this report, no director of the Company received any form
of compensation from the Company.

Stock Option and Bonus Plans
----------------------------

      The Company has an Incentive Stock Option Plan, a Non-Qualified Stock
Option Plan and a Stock Bonus Plan. A summary description of each Plan follows.
In some cases these three Plans are collectively referred to as the "Plans".
None of the plans have been approved by the Company's shareholders.

      Incentive Stock Option Plan. The Incentive Stock Option Plan authorizes
the issuance of shares of the Company's common stock to persons that exercise
options granted pursuant to the Plan. Only officers, directors and key employees
of the Company may be granted options pursuant to the Incentive Stock Option
Plan.

      In order to qualify for incentive stock option treatment under the
Internal Revenue Code, the following requirements must be complied with:

      1. Options granted pursuant to the Plan must be exercised no later than:


                                       12
<PAGE>

            (a) The expiration of thirty (30) days after the date on which an
option holder's employment by the Company is terminated.

            (b) The expiration of one year after the date on which an option
holder's employment by the Company is terminated, if such termination is due to
the Employee's disability or death.

      2. In the event of an option holder's death while in the employ of the
Company, his legatees or distributees may exercise (prior to the option's
expiration) the option as to any of the shares not previously exercised.

      3. The total fair market value of the shares of Common Stock (determined
at the time of the grant of the option) for which any employee may be granted
options which are first exercisable in any calendar year may not exceed
$100,000.

      4. Options may not be exercised until one year following the date of
grant. Options granted to an employee then owning more than 10% of the Common
Stock of the Company may not be exercisable by its terms after five years from
the date of grant.

      5. The purchase price per share of Common Stock purchasable under an
option is determined by the Committee but cannot be less than the fair market
value of the Common Stock on the date of the grant of the option (or 110% of the
fair market value in the case of a person owning the Company's stock which
represents more than 10% of the total combined voting power of all classes of
stock).

      Non-Qualified Stock Option Plan. The Non-Qualified Stock Option Plan
authorizes the issuance of shares of the Company's common stock to persons that
exercise options granted pursuant to the Plan. The Company's employees,
directors, officers, consultants and advisors are eligible to be granted options
pursuant to the Plan, provided however that bona fide services must be rendered
by such consultants or advisors and such services must not be in connection with
the offer or sale of securities in a capital-raising transaction. The option
exercise price is determined by the Committee but cannot be less than the par
value of the Company's Common Stock on the date the option is granted.

      Options granted pursuant to the Plan not previously exercised terminate
upon the date specified when the option was granted.

      Stock Bonus Plan. The Company's Stock Bonus Plan allows for the issuance
of shares of common stock to the Company's employees, directors, officers,
consultants and advisors; provided, however, that bona fide services must be
rendered by consultants or advisors and such services must not be provided in
connection with promoting the Company's common stock or a capital-raising
transaction.

      Other Information Regarding the Plans. The Plans are administered by the
Company's Board of Directors. The Board of Directors has the authority to
interpret the provisions of the Plans and supervise the administration of the
Plans. In addition, the Board of Directors is empowered to select those persons
to whom shares or options are to be granted, to determine the number of shares
subject to each grant of a stock bonus or an option and to determine when, and


                                       13
<PAGE>

upon what conditions, shares or options granted under the Plans will vest or
otherwise be subject to forfeiture and cancellation.

      In the discretion of the Board of Directors, any option granted pursuant
to the Plans may include installment exercise terms such that the option becomes
fully exercisable in a series of cumulating portions. The Board of Directors may
also accelerate the date upon which any option (or any part of any options) is
first exercisable. Any shares issued pursuant to the Stock Bonus Plan and any
options granted pursuant to the Incentive Stock Option Plan or the Non-Qualified
Stock Option Plan will be forfeited if the "vesting" schedule established by the
Board of Directors at the time of the grant is not met. For this purpose,
vesting means the period during which the employee must remain an employee of
the Company or the period of time a non-employee must provide services to the
Company. At the time an employee ceases working for the Company (or at the time
a non-employee ceases to perform services for the Company), any shares or
options not fully vested will be forfeited and cancelled. In the discretion of
the Board of Directors payment for the shares of Common Stock underlying options
may be paid through the delivery of shares of the Company's Common Stock having
an aggregate fair market value equal to the option price, provided such shares
have been owned by the option holder for at least one year prior to such
exercise. A combination of cash and shares of Common Stock may also be permitted
at the discretion of the Board of Directors.

      Options are generally non-transferable except upon death of the option
holder. Shares issued pursuant to the Stock Bonus Plan will generally not be
transferable until the person receiving the shares satisfies the vesting
requirements imposed by the Board of Directors when the shares were issued.

      The Board of Directors of the Company may at any time, and from time to
time, amend, terminate, or suspend one or more of the Plans in any manner it
deems appropriate, provided that such amendment, termination or suspension
cannot adversely affect rights or obligations with respect to shares or options
previously granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the eligibility
requirements for the Plans; increase or decrease the total number of shares of
Common Stock which may be issued pursuant to the Plans except in the case of a
reclassification of the Company's capital stock or a consolidation or merger of
the Company; reduce the minimum option price per share; extend the period for
granting options; or materially increase in any other way the benefits accruing
to employees who are eligible to participate in the Plans.

      The Plans are not qualified under Section 401(a) of the Internal Revenue
Code, nor are they subject to any provisions of the Employee Retirement Income
Security Act of 1974.

Summary.

      The following tables present certain information as of April 15, 2005
concerning the stock options and stock bonuses granted by the Company. Each
option represents the right to purchase one share of the Company's common stock.


                                       14
<PAGE>

<TABLE>
<S>                                     <C>         <C>           <C>            <C>
                                       Total       Shares                     Remaining
                                       Shares    Reserved for               Shares Options/
                                      Reserved   Outstanding    Issued As       Shares
Name of Plan                         Under Plan    Options     Stock Bonus    Under Plan
------------                         ----------  ------------  -----------  ---------------

Incentive Stock Option Plan            750,000            --         N/A        445,000
Non-Qualified Stock Option Plan      4,000,000 (1)   770,200         N/A      2,193,130
Stock Bonus Plan                     1,250,000 (1)       N/A     777,812        472,188

</TABLE>

(1)  Reflects amendment to Plan in February 2005 which increased number of
     shares issuable upon exercise of options granted pursuant to the Plan.

      The persons listed below have received options or shares of the Company's
common stock as a stock bonus:

Incentive Stock Options
                        Shares                      Expiration  Options Expired/
                        Subject   Exercise  Date of   Date of   Exercised as of
Option Holder          To Option   Price     Grant    Option     April 15, 2005
-------------          ---------  --------  ------- ----------  ----------------

Employee               5,000      $0.50  03/04/03      03/04/04       5,000
Consultant           300,000      $0.23   10/7/04      10/7/06      300,000
                     -------
                     305,000

Non-Qualified Stock Options

                        Shares                      Expiration  Options Expired/
                        Subject   Exercise  Date of   Date of   Exercised as of
Option Holder          To Option   Price     Grant    Option     April 15, 2005
-------------          ---------  --------  ------- ----------  ----------------

Brian Fiddler          40,000     $0.10   08/15/03    08/30/08          40,000
Brian Fiddler          40,000     $0.18   08/15/03    08/30/08          20,000
Brian Fiddler          20,000     $0.50   08/15/03    08/30/08
Brian Fiddler          20,000     $0.25   08/15/03    08/30/08
Brian Fiddler          20,000     $0.40   08/15/03    08/30/08
Brian Fiddler          20,000     $0.60   08/15/03    08/30/08
Scott Bullis           52,800     $0.35   07/26/04    08/26/07
Scott Bullis            6,400     $0.75   07/26/04    08/26/07
Scott Bullis          400,000     $0.35   07/26/04    08/26/07
Scott Bullis          200,000     $0.50   07/26/04    08/26/07
Kimberly Landry       359,000     $0.04   10/06/04    11/04/04         359,000
KimberlyLandry        130,000     $0.04   10/06/04    11/18/04         130,000
Kimberly Landry        11,000     $0.04   10/06/04    10/06/14
Other employees and
    consultants       572,670    $0.05/$0.50     *           *         572,670
                   ----------                                       ----------
                    1,891,870                                        1,121,670
                    =========                                        =========

*     Various dates


                                       15
<PAGE>

Stock Bonuses
                                     Shares Issued
Name                                 as Stock Bonus        Date Issued
----                                 --------------        -----------

Brian Fiddler                             18,000              8/15/03
Kimberly Landry                          205,000             10/04/04
Brian Fiddler                             30,000             10/04/04
Robert Humber                            100,000             10/04/04
Douglas Sinclair                         175,000             10/04/04
Kimberly Landry                           20,000             12/31/04
Brian Fiddler                             20,000             12/31/04
Kimberly Landry                           10,000             01/25/05
Brian Fiddler                             10,000             01/25/05
Other employees and consultants          189,812          Various dates
                                        --------
                                         777,812
                                        ========

                 Options Granted and Exercised During Year Ended
                  December 31, 2004 and Year-End Option Values

      The tables below present information concerning the options granted and
exercised during the year ended December 31, 2004 to the persons named below and
the fiscal year-end value of all unexercised options (regardless of when
granted) held by these persons. The options shown below were all Non-Qualified
Stock Options.

                                    % of Total
                                     Options
                                    Granted to    Exercise
                       Options     Employees in   Price Per    Expiration
 Name                Granted (#)    Fiscal Year     Share         Date
------               -----------   ------------   ------------ ------------

Kimberly Landry       489,000          42%          $0.04       11/04
Kimberly Landry        11,000           1%          $0.04       10/14
Scott Bullis          659,000          57%        Various        8/07
Brian Fiddler (5)          --          --              --          --
Robert H. Humber           --          --              --          --

                                                              Value (in $) of
                                                                 Unexercised
                                                Number of       In-the-Money
                                               Unexercised   Options at Fiscal
                         Shares                Options (3)      Year-End (4)
                     Acquired On    Value      Exercisable/     Exercisable/
Name                 Exercise (1) Realized (2) Unexercisable   Unexercisable
----                 ------------ ------------ -------------   ---------------

Kimberly Landry      489,000     $148,990       11,000/--       $ 4,290/--
Scott Bullis              --           --              --               --
Brian Fiddler (5)         --           --              --               --
Robert H. Humber          --           --              --               --


                                       16
<PAGE>

(1)  The number of shares received upon exercise of options during the year
     ended December 31, 2004.

(2)  With respect to options exercised during the Company's year ended December
     31, 2004, the dollar value of the difference between the option exercise
     price and the market value of the option shares purchased on the date of
     the exercise of the options.

(3)  The total number of unexercised options held as of December 31, 2004,
     separated between those options that were exercisable and those options
     that were not exercisable.

(4)  For all unexercised options held as of December 31, 2004, the market value
     of the stock underlying those options as of December 31, 2004.

(5)  Brian Fiddler resigned as an officer and director of the Company on April
     4, 2005.

      The table below shows the weighted average exercise price of the
outstanding options granted pursuant to the Company's Incentive and
Non-Qualified Stock Option Plans as of December 31, 2004. The Company's
Incentive and Non-Qualified Stock Option Plans were not approved by the
Company's shareholders.

                                                           Number of Securities
                                                           Remaining Available
                            Number                         For Future Issuance
                         of Securities                         Under Equity
                         to be Issued   Weighted-Average   Compensation Plans
                         Upon Exercise  Exercise Price of  (Excluding Securities
                         of Outstanding  of Outstanding         Reflected in
Plan Category              Options  [a]      Options              Column (a))
-------------            -------------- -----------------  ---------------------

Incentive Stock                 --             --                445,000
   Option Plan

Non-Qualified Stock        770,200             $0.39           2,193,130
  Option Plan

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      The following table sets forth the number of and percentage of outstanding
shares of common stock owned by the Company's officers, directors and those
shareholders owning more than 5% of the Company's common stock as of April 15,
2005.

                                    Shares of
Name and Address                    Common Stock (1)          Percent of Class
----------------                    -----------------       --------------------

Kimberly Landry                        2,025,000                   21%
1653 Plateau Crescent
Coquitlam, British Columbia
Canada V3B 3E3


                                       17
<PAGE>

                                    Shares of
Name and Address                    Common Stock (1)          Percent of Class
----------------                    -----------------       --------------------

Scott Bullis                                --                      --
1204 - 939 Beatty St.
Vancouver, British Columbia
Canada, V6C 3Z1

Robert H. Humber                         100,000                    1%
13058 1/2 39th Ave., N.E
Seattle, WA  98125-4614

Douglas Sinclair                       1,584,000                   16%
1653 Plateau Crescent
Coquitlam, British Columbia
Canada V3B 3E3

Robert Young                           1,250,000                 12.9%
6687 Nelson St.
West Vancouver, British Columbia
Canada V7W 2A5

All Officers and Directors
  as a Group (3 persons)               2,125,000                   22%


*   Less than 1%

(1) Excludes shares issuable upon the exercise of options or warrants held by
   the following persons:
                                                Shares Issuable Upon Exercise of
            Name                                Options or Warrants Exercisable

         Kimberly Landry                                   11,000
         Scott Bullis                                     659,000
         Robert H. Humber                                      --

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      In April 1999 the Company issued shares of its common stock to the
persons, in the amounts, and for the consideration set forth below:

                                 Number
   Name                         of Shares             Consideration

Robert H. Humber                  800,000                $   800
Kimberly Landry                 1,580,000                 $1,580
Other third parties             2,120,000                 $2,120


                                       18
<PAGE>

      In April 1999 the Company acquired from LTI, a corporation formed by
Kimberly Landry in December 1994, the rights to the Company's patent application
and related technology. The patent application and related technology were
assigned to LTI by Ms. Landry and Douglas Sinclair in November 1997. In
consideration for the assignment of these rights, the Company paid LTI $90,000
during the year ended December 31, 2000. As of April 14, 2005 the patent
application assigned to the Company was pending.

      Ms. Landry is an officer and director of the Company. Mr. Sinclair was an
officer of the Company prior to August 31, 2004. See "Management Changes" in
Item 9 of this report for information concerning the resignation of Mr.
Sinclair.

      In November 1999, the Company acquired from Mr. Sinclair the proprietary
technology required to manufacture Lunaplast into PVC sheets, vinyl rolls and
paints as well as the trademark rights to these products. In consideration for
the assignment of this technology and the trademarks, the Company paid Mr.
Sinclair $60,000 during the year ended December 31, 2000.

      During the year ended December 31, 2000 the Company borrowed $60,000 from
Ms. Landry. During the year ended December 31, 2003 the Company issued 225,000
shares of its common stock to Ms. Landry in payment of this debt.

      In January 2001 the Company acquired from LTI office and production
equipment, as well as the rights to certain tradenames used by the Company. In
consideration for these assets the Company agreed to pay LTI $41,142 prior to
January 1, 2006.

ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K

Exhibit
 Number       Exhibit Name                                           Page Number
-------       ------------                                           -----------

Exhibit 3     Articles of Incorporation and Bylaws                        *
                                                                        -----

Exhibit 4     Instruments Defining the Rights of Security Holders

Exhibit 4.1   Incentive Stock Option Plan                                 **
                                                                       ------

Exhibit 4.2   Non-Qualified Stock Option Plan                             **
                                                                        ------

Exhibit 4.3   Stock Bonus Plan                                            **
                                                                        ------

Exhibit 10    Material Contracts

Exhibit 10.1  Agreement relating to purchase of patent rights             *
                                                                        -----

Exhibit 10.2  Assignment of patent rights                                 *
                                                                        -----


                                       19
<PAGE>

Exhibit 10.3  Agreement relating to purchase of proprietary
              technology and trademarks                                   *
                                                                        -----

Exhibit 10.4  Assignment of trademarks                                    *
                                                                        -----

Exhibit 10.5  Non-Compete Agreement                                       *
                                                                        -----

Exhibit 23    Accountants' Consent
                                                                        -----

Exhibit 31    Rule 13a-14(a)/15d-14(a) certifications
                                                                        -----

Exhibit 32    Section 1350 certifications
                                                                        -----

*    Incorporated by reference to the same exhibit filed as part of the
     Company's Registration Statement on Form 10-SB.
**   Incorporated by reference to the same exhibit filed as part of the
     Company's Registration Statement on Form S-8 (Commission File #
     333-112647).

8-K Reports

      During the quarter ending December 31, 2004 the Company did not file any
reports on Form 8-K.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Labonte & Co. served as the Company's independent public accountants during
the fiscal year ended December 31, 2003.  Effective  January 1, 2004,  LaBonte &
Co. merged with Dale Matheson Carr-Hilton Chartered  Accountants.  Dale Matheson
Carr-Hilton  LaBonte  served as the  Company's  independent  public  accountants
during the fiscal year ended December 31, 2004.

      The following table sets forth the aggregate fees billed to the Company
for the years ended December 31, 2003 and 2004 by LaBonte & Co. and by Dale
Matheson Carr-Hilton LaBonte.

                                     2003         2004

Audit Fees                        $17,600      $18,297
Audit-Related Fees                     --           --
Financial Information Systems          --           --
Design and Implementation Fees         --           --
Tax Fees                               --           --
All Other Fees                         --           --

    Audit fees represent amounts billed for professional services rendered for
the audit of the Company's annual financial statements and the reviews of the
financial statements included in the Company's Forms 10-Q for the fiscal year.
Before LaBonte & Co. or Dale Matheson Carr-Hilton LaBonte was engaged by the
Company to render audit services, the engagement was approved by the Company's
Board of Directors.

                                       20
<PAGE>






                      LUNA TECHNOLOGIES INTERNATIONAL, INC.

                              FINANCIAL STATEMENTS

                                DECEMBER 31, 2004







<PAGE>

                      LUNA TECHNOLOGIES INTERNATIONAL, INC.

                           CONSOLIDATED BALANCE SHEETS
                                                           December    December
                                                           31, 2004    31, 2003
--------------------------------------------------------------------------------

                                        ASSETS

CURRENT ASSETS
  Accounts receivable                                     $  81,357   $  49,127
  Prepaid expenses                                            6,027       3,960
  Inventory                                                  75,437      88,247
--------------------------------------------------------------------------------

                                                            162,821     141,334

FURNITURE  AND  EQUIPMENT,  net of  depreciation
of  $81,424 (2003 - $70,340)                                 15,605      20,777
--------------------------------------------------------------------------------

                                                          $ 178,426   $ 162,111
================================================================================

               LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)

CURRENT LIABILITIES
  Bank overdraft                                          $     184   $  11,252
   Accounts payable and accrued liabilities                 265,505     229,738
   Current portion of convertible debenture (Note 4)         56,797      39,996
  Due to related parties (Note 3)                            16,160     167,506
  Current portion of notes payable (Note 3)                  78,168      40,730
--------------------------------------------------------------------------------
                                                            416,814     489,222
CONVERTIBLE DEBENTURE (Note 4)                                    -      56,885
NOTE PAYABLE (Note 3)                                       101,497           -
--------------------------------------------------------------------------------
                                                            518,311     546,107
--------------------------------------------------------------------------------

GOING CONCERN CONTINGENCY (Note 1)

STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
  Capital stock  (Note 5)
    Common stock, $0.0001 par value, 30,000,000 shares
authorized
         9,664,648 (2003 - 6,727,836) shares issued and         966         673
outstanding
    Convertible preferred stock, $0.0001 par value,
5,000,000 shares authorized
         NIL issued and outstanding                               -           -
  Additional paid-in capital                              2,032,988   1,342,003
  Warrants                                                  124,000      74,000
  Deficit                                                (2,406,065) (1,735,410)
   Accumulated other comprehensive loss                     (91,774)    (65,262)
--------------------------------------------------------------------------------
                                                           (339,885)   (383,996)
--------------------------------------------------------------------------------
                                                         $  178,426  $  162,111
================================================================================



The  accompanying  notes are an integral  part of these  consolidated  financial
statements


<PAGE>


                      LUNA TECHNOLOGIES INTERNATIONAL, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                                         Year Ended December 31,
                                                            2004         2003
--------------------------------------------------------------------------------

SALES                                                  $   537,165  $   381,721
COST OF SALES                                              269,395      232,759
--------------------------------------------------------------------------------

GROSS PROFIT                                               267,770      148,962
OTHER INCOME                                               120,000      100,000
--------------------------------------------------------------------------------

                                                           387,770      248,962
--------------------------------------------------------------------------------

GENERAL AND ADMINISTRATIVE EXPENSES
  Consulting                                                85,519       86,958
  Consulting - stock based (Note 5)                        279,468      193,500
  Depreciation                                              11,084       19,686
  Interest and bank charges                                 12,745       49,542
  Interest on convertible debenture                          6,197        8,990
  Management fees                                          187,174      145,558
  Office and general                                       166,584      127,336
  Professional fees                                        101,987       54,718
  Rent                                                      33,716       27,303
  Research and development, net of recoveries               55,097       46,925
  Wages and benefits                                       172,219       99,958
  Gain on write-off of accounts payable (Note 6)           (53,365)           -
--------------------------------------------------------------------------------

                                                         1,058,425      860,474
--------------------------------------------------------------------------------

NET LOSS FOR THE YEAR                                  $  (670,655) $  (611,512)
================================================================================

BASIC NET LOSS PER SHARE                               $     (0.09) $     (0.10)
================================================================================


WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING     7,615,138    6,067,002
================================================================================



The  accompanying  notes are an integral  part of these  consolidated  financial
statements



<PAGE>


                      LUNA TECHNOLOGIES INTERNATIONAL, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


<TABLE>
<S>                                        <C>         <C>        <C>         <C>       <C>          <C>           <C>

                                                                                                Accumulated
                                            Common Stock     Additional    Share                   Other
                                        Number of               Paid      Purchase             Comprehensive
                                          Shares      Amount   Capital    Warrants   Deficit    Income (loss)    Total
-------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2002             5,415,166   $    542 $  605,150    $     -  $(1,123,898)  $  (2,970)   $ (521,176)


Issued for cash at - $0.50 per share     200,000         20     79,980     20,000            -                 100,000
             - $0.60 per share           250,000         25    119,975     30,000            -                 150,000
             - $0.80 per share           150,000         15     95,985     24,000            -                 120,000

Issued for consulting services             6,000          1      2,999          -            -           -       3,000

Issued for debt settlement               225,000         23     86,877          -            -           -      86,900

Issued on exercise of options -           25,000          3      1,247          -            -           -       1,250
$0.05 per share
                    - $0.10 per share     50,000          5      4,995          -            -           -       5,000
                    - $0.18 per share     20,000          2      3,598          -            -           -       3,600
                    - $0.38 per share     34,000          3     12,917          -            -           -      12,920
                    - $0.40 per share    205,000         20     81,980          -            -           -      82,000
                    - $0.50 per share     23,670          2     11,812          -            -           -      11,814

Issued pursuant to stock bonus plan      124,000         12     62,088          -            -           -      62,100

Beneficial conversion feature of               -          -     41,000          -            -           -      41,000
conversion option

Stock-based compensation                       -          -    131,400          -            -           -      131,400

Net loss for the year                          -          -          -          -     (611,512)                (611,512)

Currency translation adjustment                -          -          -          -            -    (62,292)     (62,292)
-----------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2003             6,727,836   $    673 $1,342,003  $  74,000  $(1,735,410)  $(65,262)  $ (383,996)

</TABLE>




The  accompanying  notes are an integral  part of these  consolidated  financial
statements



<PAGE>


                      LUNA TECHNOLOGIES INTERNATIONAL, INC.

                       CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                       FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<S>                                       <C>         <C>        <C>         <C>       <C>          <C>           <C>

                                                                                                Accumulated
                                            Common Stock     Additional    Share                   Other
                                        Number of               Paid      Purchase             Comprehensive
                                          Shares      Amount   Capital    Warrants   Deficit    Income (loss)    Total
-------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2003             6,727,836   $    673 $1,342,003  $  74,000  $(1,735,410)  $ (65,262)   $ (383,996)


Issued for cash at - $0.20 per share   1,250,000        125    199,875     50,000            -           -     250,000
            - $0.65 per share            100,000         10     51,990     13,000            -           -      65,000
            - $1.00 per share             35,000          4     27,996      7,000            -           -      35,000


Issued on exercise of options -          489,000         49     19,511          -            -           -      19,560
$0.04 per share
                    - $0.10 per share    160,000         16     15,984          -            -           -      16,000
                    - $0.23 per share    300,000         30     68,220          -            -           -      68,250
                    - $0.40 per share      5,000          -      2,000          -            -           -       2,000


Issued pursuant to stock bonus plan      597,812         59    130,809          -            -           -     130,868

Stock-based compensation                       -          -    154,600          -            -           -     154,600

Share purchase warrants expired                -          -     20,000   (20,000)            -           -           -

Net loss for the year                          -          -          -          -     (670,655)                (670,655)

Currency translation adjustment                -          -                     -            -    (26,512)     (26,512)
-----------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2004             9,664,648   $    966 $2,032,988 $  124,000  $(2,406,065) $ (91,774)  $ (339,885)
=======================================================================================================================

</TABLE>





The  accompanying  notes are an integral  part of these  consolidated  financial
statements



<PAGE>


                      LUNA TECHNOLOGIES INTERNATIONAL, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS



                                                       Year Ended December 31,
                                                         2004         2003
--------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss for the year                            $  (670,655)    $  (611,512)
  Adjustments to reconcile net loss to net cash
   from operating activities:
  - depreciation                                        11,084          19,686
  - stock-based compensation                           279,468         193,500
  - beneficial conversion feature                            -          41,000
  - non-cash gain on write-off of accounts payable     (53,365)              -
  - accrued interest expense                               (88)          1,957
  - accounts receivable                                (32,230)         (6,434)
  - inventory                                           12,810         (67,189)
  - prepaid expenses                                    (2,067)         (1,763)
  - accounts payable and accrued liabilities           140,360          (4,033)
--------------------------------------------------------------------------------

NET CASH USED IN OPERATING ACTIVITIES                 (314,683)       (434,788)
--------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of fixed assets                              (5,912)         (6,473)
--------------------------------------------------------------------------------

NET CASH USED IN INVESTING ACTIVITIES                   (5,912)         (6,473)
--------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Bank overdraft                                       (11,068)          8,913
  Loan repayment                                             -          (4,500)
  Issuance of common shares                            357,000         486,584
  Convertible debenture proceeds (repayments)          (39,996)         36,669
  Loan from (repayments to) related parties             49,509         (24,113)
  Payment on notes payable                              (8,338)              -
--------------------------------------------------------------------------------

NET CASH FLOWS FROM FINANCING ACTIVITIES               347,107         503,553
--------------------------------------------------------------------------------

EFFECT OF EXCHANGE RATE CHANGES                        (26,512)        (62,292)
--------------------------------------------------------------------------------

INCREASE (DECREASE) IN CASH                                  -               -

CASH, BEGINNING OF YEAR                                      -               -
--------------------------------------------------------------------------------

CASH, END OF YEAR                                    $       -       $       -
================================================================================


SUPPLEMENTAL CASH FLOW INFORMATION

                   Interest paid                     $   6,285       $   8,883
                ================================================================

                    Taxes paid                       $     Nil       $     Nil
                ================================================================


 Non-cash activities:

  Refer to Notes 3, 5 and 6.




The  accompanying  notes are an integral  part of these  consolidated  financial
statements



<PAGE>


                      LUNA TECHNOLOGIES INTERNATIONAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2004
--------------------------------------------------------------------------------

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
--------------------------------------------------------------------------------

The Company was incorporated on March 25, 1999 in the state of Delaware. The
Company commenced operations April 30, 1999 and by agreement effective as of
that date, acquired proprietary technology and patent rights from Luna
Technology Inc. ("LTBC"), a private British Columbia company with certain
directors and shareholders in common with the Company. In addition, by agreement
effective November 15, 1999, the Company acquired proprietary technology and the
trademark rights to "LUNA" and "LUNAPLAST" from Douglas Sinclair, an officer and
employee of LTBC, which relate to the acquired Photoluminescent technology. This
technology is used for the development and production of photoluminescent
signage, wayfinding systems and other novelty products with applications in
marine, commuter rail, subway, building and toy markets.

The consolidated financial statements have been prepared on the basis of a going
concern which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. At December 31, 2004 the Company
has a working capital deficiency of $253,993 (2003 - $347,888) and has incurred
losses since inception raising substantial doubt as to the Company's ability to
continue as a going concern. The ability of the Company and its subsidiary to
continue as a going concern is dependent on raising additional capital and on
generating future profitable operations. In addition, during 2004, 60% of the
Company's total sales was derived from two customers, one customer of which also
provided financing to the Company in connection with the Convertible Debenture
as described in Note 4 accounted for 43%.

The Company anticipates meeting its working capital requirement for the next
year through the sale of shares of common stock or through loans and advances
from related parties as may be required.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiary Luna Technologies (Canada) Ltd. ("LTC"), a company
incorporated June 9, 1999 in the province of British Columbia. LTC was
incorporated to conduct all future business activities in Canada. All
significant intercompany balances and transactions are eliminated on
consolidation.

Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity with United
States generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates. The areas
requiring significant estimates and assumptions are determining the useful lives
of furniture and equipment and the fair value of stock-based compensation.

Inventory
Inventory is carried at the lower of cost and net realizable value.

Furniture and Equipment
Furniture and equipment are recorded at cost. Depreciation is computed by the
straight-line method on estimated useful lives of two to five years.

Revenue Recognition
The Company recognizes revenue when products have been shipped and collection is
reasonably assured. The Company also generates other income from one-time fees
charged in connection with territorial Supply Agreements. As the Company has no
future obligations in connection with these agreements, these fees are
recognized as other income upon execution of the agreements and when collection
is reasonably assured.

Research and Development Costs
Ongoing new product and technology research and development costs are expensed
as incurred net of contributions made by third parties toward research projects.

<PAGE>


LUNA TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
--------------------------------------------------------------------------------

Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign
Currency Translation", foreign denominated monetary assets and liabilities are
translated to their United States dollar equivalents using foreign exchange
rates which prevailed at the balance sheet date. Revenue and expenses are
translated at average rates of exchange during the year. Related translation
adjustments are reported as a separate component of stockholders' equity,
whereas gains or losses resulting from foreign currency transactions are
included in results of operations.

Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, management has determined
the estimated fair value of financial instruments using available market
information and appropriate valuation methodologies. The fair value of financial
instruments classified as current assets or liabilities including bank overdraft
and notes and accounts payable approximate carrying value due to the short-term
maturity of the instruments. Management has also determined that the fair value
of the convertible debenture approximates its carrying value as at December 31,
2004 and 2003.

Risk Management
Currency risk. The majority of the Company's sales and cost of sales are made in
U.S. currency while a significant amount of its general and administrative
expenses are made in Canadian currency. The Company does not currently hedge its
foreign currency exposure and accordingly is at risk for foreign currency
exchange fluctuations.

Credit risk. Management does not believe the Company is exposed to significant
credit risk and accordingly does not manage credit risk directly.

Net Loss per Common Share
Basic loss per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Dilutive earnings per share reflects the potential
dilution of securities that could share in the earnings of the Company. Share
purchase warrants and stock options were not included in the calculation of
weighted average number of shares outstanding because the effect would be
anti-dilutive.

Stock-Based Compensation
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard No. 148, "Accounting for Stock-Based Compensation
- Transition and Disclosure" ("SFAS No. 148"), an amendment of Financial
Accounting Standard No. 123 "Accounting for Stock-Based Compensation" ("SFAS No.
123"). The purpose of SFAS No. 148 is to: (1) provide alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation, (2) amend the disclosure
provisions to require prominent disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
employee compensation, and (3) to require disclosure of those effects in interim
financial information. The disclosure provisions of SFAS No. 148 were effective
for the Company commencing for the year ended December 31, 2002 and the required
disclosures have been made below.

The Company has elected to continue to account for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees",
("APB No. 25") and comply with the disclosure provisions of SFAS No. 123 as
amended by SFAS No. 148 as described above. In addition, in accordance with SFAS
No. 123 the Company applies the fair value method using the Black-Scholes
option-pricing model in accounting for options granted to consultants. Under APB
No. 25, compensation expense is recognized based on the difference, if any, on
the date of grant between the estimated fair value of the Company's stock and
the amount an employee must pay to acquire the stock. Compensation expense is
recognized immediately for past services and pro-rata for future services over
the option-vesting period.


<PAGE>


LUNA TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
--------------------------------------------------------------------------------

Stock-Based Compensation (cont'd)
The following table illustrates the pro forma effect on net income (loss) and
net income (loss) per share as if the Company had accounted for its stock-based
employee compensation using the fair value provisions of SFAS No. 123 using the
assumptions as described in Note 5:

                                                 For the year ended December 31,
                                                      2004            2003
                                                 -------------------------------

Net loss for the year               As reported  $ (670,655)       $ (611,512)
SFAS 123 compensation expense         Pro-forma     (63,050)          (18,700)
                                                 -------------------------------

Net loss for the year                 Pro-forma  $ (733,705)       $ (630,212)
                                                 ===============================

Pro-forma basic net loss per share    Pro-forma  $    (0.10)       $   (0.10)
                                                 ===============================

The Company accounts for equity instruments issued in exchange for the receipt
of goods or services from other than employees in accordance with SFAS No. 123
and the conclusions reached by the Emerging Issues Task Force ("EITF") in Issue
No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring or in Conjunction with Selling Goods or Services" ("EITF
96-18"). Costs are measured at the estimated fair market value of the
consideration received or the estimated fair value of the equity instruments
issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the
earlier of a performance commitment or completion of performance by the provider
of goods or services as defined by EITF 96-18.

The Company has also adopted the provisions of the Financial Accounting
Standards Board Interpretation No.44, "Accounting for Certain Transactions
Involving Stock Compensation - An Interpretation of APB Opinion No. 25" ("FIN
44"), which provides guidance as to certain applications of APB No. 25.

Income Taxes
The Company follows the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
balances. Deferred tax assets and liabilities are measured using enacted or
substantially enacted tax rates expected to apply to the taxable income in the
years in which those differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the date of enactment or
substantive enactment.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary
Assets, an amendment of APB Opinion No. 29, Accounting for Non-monetary
Transactions ("SFAS 153") SFAS 153 requires that exchanges of non-monetary
assets are to be measured based on fair value and eliminates the exception for
exchanges of non-monetary, similar productive assets, and adds an exemption for
non-monetary exchanges that do not have commercial substance. SFAS 153 will be
effective for fiscal periods beginning after June 15, 2005. Management does not
believe that the adoption of this standard will have a material impact on the
Company's financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment, which
establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. A key provision of this
statement is the requirement of a public entity to measure the cost of employee
services received in exchange for an award of equity instruments (including
stock options) based on the grant date fair value of the award. That cost will
be recognized over the period during which an employee is required to provide
service in exchange for the award (i.e., the requisite service period or vesting
period). This standard becomes effective for the Company for its first annual or
interim period ended on or after December 15, 2005. The Company will adopt SFAS
123R no later than the beginning of the Company's fourth quarter ending December
31, 2005. Management is currently evaluating the potential impact that the
adoption of SFAS 123R will have on the Company's financial position and results
of operations.

<PAGE>

LUNA TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
--------------------------------------------------------------------------------
NOTE 3 - RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------

The Company pays the CEO, President, and Chief Financial Officer, CDN$7,500,
CDN$5,000 and CDN$4,000 per month respectively. These obligations are on a month
by month basis.

During 2003 LTC and the Company executed a guarantee of certain unpaid
management fees owing to the CEO of LTC (Doug Sinclair) totalling $123,750
(CAN$165,000). In connection with this guarantee, the CEO was granted the right
to convert any or all of the unpaid amount into restricted shares of the
Company's common stock at a price of $0.30 per share. During 2003 the Company
recorded a $41,000 non-cash interest expense representing the beneficial
conversion feature embedded in this conversion option. This beneficial
conversion feature was valued using the intrinsic value method. Effective August
31, 2004, the CEO of LTC resigned and entered into an agreement with the Company
for the payment of these guaranteed amounts an additional fees owing. Effective
August 3, 2004, the Company has guaranteed, by a non-interest bearing promissory
note, outstanding management fees due to the former CEO of LTC totalling
CAN$187,000 payable as follows: CDN$20,000 upon acceptance, CDN$ 20,000 on
January 15, 2005, CDN$25,000 on June 15, 2005, CDN$30,000 on January 15, 2006,
CDN$40,000 on June 15, 2006 and CDN$52,000 on January 15, 2007. In addition, the
Company has agreed to a severance payment of CDN$43,200 to be paid in twelve
equal monthly installments of CDN$3,600. To December 31, 2004 CDN$41,600 has
been paid in connection with the above agreements leaving CDN$188,600
(US$156,905) owing of which $138,935 has been reclassified to notes payable and
$17,970 has been reclassified to accounts payable The Company did not pay the
CDN $20,000 installment due January 15, 2005.

During 2004 the Company had transactions with directors, officers, a relative of
a director, and LTBC as follows: expenses paid on behalf of and advances made to
the Company - $96,655 (2003 - $44,332); management fees incurred by the Company
- $187,174 (2003 - $145,558); and payments and reimbursements made by the
Company - $234,320 (2003 - $180,959). Also during 2004 $19,560 owing to a
director of the Company was assigned to the Company as consideration for the
issuance of 489,000 shares of the Company's common stock on the exercise of
stock options at a price of $0.04 per share. In addition, amounts owing to the
former CEO of LTC totalling $181,295 were reclassified during the year to Notes
payable leaving $16,160 owing as at December 31, 2004 (2003 - $167,506).

During 2003 related party debts totalling $86,900 were settled by way of offset
against the proceeds receivable on the exercise of options by assignment of
these debts to an unrelated third party.

The Company and LTC have non-interest-bearing promissory notes totalling $40,730
to LTBC originally due on or before June 30, 2001. The due dates on these notes
have been extended to January 1, 2006.

Unless otherwise noted, all amounts due to related parties are unsecured,
non-interest bearing and with no specific terms of repayment.

Effective June 26, 2003 the Company entered into two agreements to acquire
certain proprietary technology and patent application rights from Inject A Light
Corporation Inc. ("Inject A Light"), a private Delaware corporation controlled
by a director and officer of the Company and the former CEO of LTC. This
proprietary technology and these patent application rights were originally
acquired by Inject A Light from these two individuals. Under the terms of the
agreements, the Company was required to pay consideration of a total of
1,250,000 restricted shares of the Company's common stock. Prior to the closing
of the agreement the parties re-evaluated the terms and ultimate completion of
this potential acquisition. Effective December 29, 2004, as a result of
re-evaluating this acquisition, the parties entered into an Amending Agreement
and Release whereby these parties agreed to transfer the Inject A Light
proprietary technology at no cost to the Company. The parties determined that
further significant development costs must be incurred to this technology and
accordingly the parties were not able to determine an appropriate fair value.


<PAGE>


LUNA TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
--------------------------------------------------------------------------------
NOTE 4 - CONVERTIBLE DEBENTURE
--------------------------------------------------------------------------------

Effective December 21, 2002 the Company issued a $120,000 Secured Convertible
Debenture (the "Debenture"). The Debenture is secured by a first floating charge
on all of the property, assets and undertakings of the Company and bears
interest at a rate of 8% per annum. The Company is required to make fixed
monthly principal payments of $3,333 for a period of 30 months commencing June
21, 2003 and a final principal payment of $20,010 due December 21, 2005.
Interest is calculated on the outstanding principal balance and is payable
monthly commencing June 21, 2003. During 2004 the Company made principal and
interest payments totalling $46,281 and as at December 31, 2004 a further $124
of interest has been accrued. This Debenture was issued to the Company's major
customer as described in Note 1.

The total unpaid balance of principal and interest may be converted at any time
into restricted shares of the Company's common stock at a price of $0.90 per
share during 2004 and $1.20 per share during 2005.


NOTE 5 - CAPITAL STOCK
--------------------------------------------------------------------------------

During 2003 the Company issued 200,000 units at a price of $0.50 per unit for
proceeds of $100,000. Each unit consists of one common share and one share
purchase warrant entitling the holder to purchase one additional common share of
the Company at a price of $0.75 per share until December 15, 2004. The estimated
fair value of the warrants of $20,000 has been recorded as a separate component
of stockholders' equity.

During 2003 the Company issued 250,000 units at a price of $0.60 per unit for
proceeds of $150,000. Each unit consists of one common share and one share
purchase warrant entitling the holder to purchase one additional common share of
the Company at a price of $0.75 per share until August 15, 2005. The estimated
fair value of the warrants of $30,000 has been recorded as a separate component
of stockholders' equity.

During 2003 the Company issued 150,000 units at a price of $0.80 per unit for
proceeds of $120,000. Each unit consists of one common share and one share
purchase warrant entitling the holder to purchase one additional common share of
the Company at a price of $1.00 per share until June 30, 2006. The estimated
fair value of the warrants of $24,000 has been recorded as a separate component
of stockholders' equity.

During 2003 the Company issued 6,000 shares of common stock at $0.50 per share
in settlement of $3,000 of accounts payable and 225,000 shares of common stock
in settlement of a total of $86,900 of loans payable and other amounts
previously owing to related parties which were assigned to a third party during
2003.

During 2003 the Company issued 357,670 shares of common stock on exercise of
stock options for total consideration of $116,584.

During 2004 the Company issued 100,000 units at a price of $0.65 per unit for
proceeds of $65,000. Each unit consists of one common share and one share
purchase warrant entitling the holder to purchase one additional common share of
the Company at a price of $1.00 per share until February 28, 2006. The estimated
fair value of the warrants of $13,000 has been recorded as a separate component
of stockholders' equity.

During 2004 the Company issued 35,000 units at a price of $1.00 per unit for
proceeds of $35,000. Each unit consists of one common share and one share
purchase warrant entitling the holder to purchase one additional common share of
the Company at a price of $1.00 per share until March 31, 2006. The estimated
fair value of the warrants of $7,000 has been recorded as a separate component
of stockholders' equity.

During 2004 the Company issued 1,250,000 units at a price of $0.20 per unit for
proceeds of $250,000. Each unit consists of one common share and one share
purchase warrant entitling the holder to purchase one additional common share of
the Company at a price of $0.30 per share until September 3, 2005. The estimated
fair value of the warrants of $50,000 has been recorded as a separate component
of stockholders' equity.

During 2004 the Company issued 954,000 shares of common stock on exercise of
various stock options for total consideration of $105,810 of which $7,000 was
received in cash, $79,250 by offset of accounts payable and $19,560 by offset of
amounts due to a director of the Company.

<PAGE>

LUNA TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
--------------------------------------------------------------------------------
NOTE 5 - CAPITAL STOCK (cont'd)
--------------------------------------------------------------------------------

Stock option plans
As approved by the directors effective January 26, 2004, the Company has adopted
plans allowing for the granting of stock options and awarding of shares of
common stock as follows:

   Incentive Stock Option Plan
   The Company adopted an Incentive Stock Option Plan authorizing the issuance
   of options to purchase up to 750,000 shares of common stock of the Company.
   Options granted under this plan will have a price and term to be determined
   at the time of grant, but shall not be granted at less than the then fair
   market value of the Company's common stock and can not be exercised until one
   year following the date of grant. This plan is available to officers,
   directors and key employees of the Company.

   Non-Qualified Stock Option Plan
   The Company adopted a Non-Qualified Stock Option Plan authorizing the
   issuance of options to purchase up to 1,350,000 shares of common of the
   Company. Options granted under this plan will have a price and term to be
   determined at the time of grant, but shall not be granted at less than the
   then par value of the Company's common stock and can be exercised at any time
   following the date of grant. This plan is available to officers, directors,
   employees, consultants and advisors of the Company.

   Stock Bonus Plan
   The Company adopted a Stock Bonus Plan authorizing the awarding of up to
   1,000,000 shares of common stock of the Company solely at the discretion of
   the board of directors. This plan is available to officers, directors,
   employees, consultants and advisors of the Company.

Effective February 10, 2004 the Company filed a Form S-8 Registration Statement
for 3,000,000 shares authorized under the Incentive Stock Option Plan, the
Non-Qualified Stock Option Plan and the Stock Bonus Plan.

During 2003 the Company awarded 124,000 shares of common stock under the Stock
Bonus Plan with a fair value of $62,100.

During 2004 the Company issued 12,000 shares of common stock under the Company's
Stock Bonus Plan at $0.50 per share in settlement of $6,000 of accounts payable
and awarded a further 585,812 shares under the Stock Bonus Plan with a fair
value of $124,868. As at December 31, 2004 202,188 shares remain available for
awards under the Stock Bonus Plan.

During 2003 the Company granted 382,670 stock options to consultants at prices
ranging from $0.05 per share to $0.50 per share. The fair value of these options
was recorded as consulting fees of $84,400. The fair value of these options was
estimated using the Black-Scholes option pricing model assuming expected lives
ranging from 0.7 years to 1.6 years, a risk-free interest rate of 3% and
expected volatilities ranging from 67% to 82%.

During 2003 the Company granted 160,000 stock options to a director at prices
ranging from $0.10 per share to $0.60 per share. Of these options, 120,000
vested in 2003 and the remaining 40,000 options vested between March 1, 2004 and
June 1, 2004. During 2003 the Company recorded a consulting expense of $47,000
representing the intrinsic value of the vested options. Also in connection with
the vested options, pro-forma disclosures were provided in Note 2 to reflect the
fair value of these options of $18,700 as calculated using the Black-Scholes
option pricing model assuming expected lives of 5 years, a risk-free interest
rate of 3% and an expected volatility of 112%. During 2004, upon vesting of the
remaining options, the Company recorded an additional consulting expense of
$4,400 representing the intrinsic value of the options and disclosed additional
pro-forma fair value of the options totalling $15,700 as calculated using the
Black-Scholes option pricing model assuming expected lives of 5 years, a
risk-free interest rate of 3% and an expected volatility of 112%.

During 2004 the Company granted 460,000 stock options to consultants at prices
ranging from $0.10 per share to $0.23 per share. The fair value of these options
was recorded as consulting fees of $71,600. The fair value of these stock
options was estimated using the Black-Scholes option pricing model assuming
expected lives ranging from one year to five years, risk-free interest rates
ranging from 2% to 3% and expected volatilities ranging from 77% to 103%.

<PAGE>


LUNA TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
--------------------------------------------------------------------------------
NOTE 5 - CAPITAL STOCK (cont'd)
--------------------------------------------------------------------------------

During 2004 the Company granted a total of 659,200 stock options to the
Company's new president at exercise prices ranging from $0.35 per share to $0.75
per share, exercisable for a term of three years. The fair value of these stock
options was estimated using the Black-Scholes option pricing model assuming an
expected life of three years, a risk-free interest rate of 3% and an expected
volatility of 102% resulting in a pro forma expense of $142,200 to be disclosed
in Note 2 upon vesting of the options. Of these options, 59,200 vested
immediately and the remaining 600,000 vest at a rate of 16,667 per month for a
period of three years. During year ended December 31, 2004 $30,850 of the pro
forma expense has been disclosed and the remaining $111,350 will be disclosed
upon vesting of the options.

During 2004 the Company granted a total of 505,000 stock options to an employee
and a director of the Company at exercise prices ranging from $0.04 per share to
$0.30 per share, exercisable for terms ranging from one year to ten years. As
the exercise price of certain of these options was less than the market price of
the Company's common stock as at the date of grant, the Company has recorded an
intrinsic value stock based compensation expense of $78,600. In addition the
Company has disclosed a pro-forma expense of $16,500 relating to the additional
fair value of these options as estimated using the Black-Scholes option pricing
model assuming an expected life of ten years, a risk-free interest rate of 3%
and an expected volatility of 103%.

As at December 31, 2004, 305,000 shares have been granted and no stock options
were outstanding under the Incentive Stock Option Plan and 770,200 stock options
were outstanding under the Non-Qualified Stock Option Plan.

The Company's stock option activity is as follows:

                                          Number of    Weighted       Weighted
                                           options      Average       Average
                                                      Exercise    Remaining Life
                                                        Price
                                         ---------------------------------------

      Balance, December 31, 2002                  -      $      -        -
      Granted during the year               542,670          0.33
      Expired during the year                     -             -
      Exercised during the year            (357,670)         0.33
                                         ---------------------------------------

      Balance, December 31, 2003            185,000           0.32   2.98 years
      Granted during the year             1,624,200           0.23
      Expired during the year               (85,000)          0.25
      Exercised during the year            (954,000)          0.11
                                         ---------------------------------------

      Balance, December 31, 2004            770,200     $    0.39    2.81 years
                                         =======================================


Share Purchase Warrants
The Company's share purchase warrant activity is as follows:

                                         Number of     Weighted       Weighted
                                          warrants      Average       Average
                                                      Exercise    Remaining Life
                                                         Price
                                        ----------------------------------------

        Balance, December 31, 2002                -       $     -        -
        Issued during the year              914,255          0.97
        Expired during the year            (75,000)          1.25
        Exercised during the year                 -             -
                                        ----------------------------------------

        Balance, December 31, 2003          839,255          0.94    1.21 years
        Issued during the year            1,385,000          0.37
        Expired during the year           (439,255)          0.89
        Exercised during the year                 -             -
                                        ----------------------------------------

        Balance, December 31, 2004        1,785,000      $   0.51    0.77 years
                                        ========================================

<PAGE>

LUNA TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
--------------------------------------------------------------------------------
NOTE 6 - OTHER GAIN
--------------------------------------------------------------------------------

During 2002 a creditor of the Company seized inventory from the Company in an
attempt to secure payment of certain amounts owing by the Company in excess of
the carrying value of the inventory. As at December 31, 2003 the creditor was
still in possession of the inventory and had not initiated any action in an
attempt to receive payment. During 2004 management determined that any
obligation relating to this dispute was unlikely and accordingly wrote-off
previously accrued amounts resulting in a gain of $53,365.


NOTE 7 - INCOME TAXES
--------------------------------------------------------------------------------

There were no significant temporary differences between the Company's tax and
financial bases, except for the Company's net operating loss carryforwards
amounting to approximately $1,790,000 at December 31, 2004 (2003 - $1,400,000).
These carryforwards will expire, if not utilized, beginning in 2006. The
realization of the benefits from these deferred tax assets appears uncertain due
to the Company's limited operating history. Accordingly, a valuation allowance
has been recorded which offsets the deferred tax assets at the end of the year.


NOTE 8 - SUBSEQUENT EVENTS
--------------------------------------------------------------------------------

Subsequent to December 31, 2004, the Company issued 20,000 common shares under
the Stock Bonus Plan and completed a private placement of 325,000 units at a
price of $0.20 per unit for proceeds of $65,000. Each unit consist of one common
share and one share purchase warrant entitling the holder to purchase one
additional common share of the Company at prices ranging from $0.35 - $0.55 per
share until March 11, 2007.






<PAGE>



                                   SIGNATURES

      In accordance with Section 13 or 15(a) of the Exchange Act, the Registrant
has caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized on the 15th day of April 2005.

                                  LUNA TECHNOLOGIES INTERNATIONAL INC.


                                  By  /s/ Kimberly Landry
                                      ----------------------------------------
                                      Kimberly Landry, President, Principal
                                      Financial Officer and Principal Accounting
                                      Officer

         In accordance with the Exchange Act, this Report has been signed by the
following persons on behalf of the Registrant in the capacities and on the dates
indicated.

Signature                            Title                    Date


/s/ Kimberly Landry                 Director              April 15, 2005
-------------------------
Kimberly Landry


/s/ Robert H. Humber                Director              April 15, 2005
-------------------------
Robert H. Humber










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                      LUNA TECHNOLOGIES INTERNATIONAL INC.

                                   FORM 10-KSB

                                    EXHIBITS