UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
Commission file No. 0-29991
LUNA TECHNOLOGIES INTERNATIONAL, INC.
-------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 91-1987288
(State of incorporation) (I.R.S. Employer Identification Number)
61 B Fawcett Road
Coquitlam, British Columbia, Canada V3K 6V2 (address of
principal executive offices) (Zip Code)
(604) 526-5890
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(Registrant's telephone number, including area code)
Indicate by check mark 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 proceeding 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.
YES [X] NO [ ]
As of September 30, 2000, the Company had 4,577,578 shares of Common Stock
issued and outstanding.
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
CONSOLIDATED BALANCE SHEETS
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<PAGE>
September December
30, 2000 31, 1999
--------------------------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ - $ 21,809
Accounts receivable 3,831 -
Inventory 40,442 -
Prepaid expenses 6,612 -
Due from related parties - 8,119
--------------------------------------------------------------------------------
50,885 29,928
FURNITURE AND EQUIPMENT, net of depreciation 22,425 8,468
--------------------------------------------------------------------------------
$ 73,310 $ 38,396
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 2,319 $ -
Accounts payable and accrued liabilities 88,877 8,266
Refundable deposits 27,128
Notes payable (Note 4) 108,400 150,000
Due to related parties (Note 5) 114,448 -
--------------------------------------------------------------------------------
341,172 158,266
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COMMITMENTS AND CONTINGENCIES (Notes 1 and 8)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Capital stock
Common stock, $0.0001 par value, 30,000,000
shares authorized
4,577,578 issued and outstanding (1999 -
4,500,000 shares) 458 450
Convertible preferred stock, $0.0001 par value,
5,000,000 shares authorized
NIL issued and outstanding (1999 - 34,475 shares) - 3
Additional paid-in capital 145,092 72,997
Accumulated deficit (423,880) (192,962)
Accumulated other comprehensive income (loss) 10,468 (358)
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(267,862) (119,870)
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$ 73,310 $ 38,396
==============================================================================
The accompanying notes are an integral part of these interim
consolidated financial statements
F-2
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Nine
Months Months March 25,1999
Ended Ended (inception)to
September 30, September 30, September 30
2000 1999 2000 1999
-------------------------------------------------------------------------------
SALES $49,012 $ - $ 276,468 $ -
COST OF SALES 19,652 - 156,396 -
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GROSS MARGIN 29,360 - 120,072 -
RESEARCH INCOME, net - - 15,011 -
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29,360 - 135,083 -
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GENERAL AND ADMINISTRATIVE EXPENSES
Consulting 28,361 - 72,598 -
Depreciation 2,810 - 7,162 -
Office and general 44,375 276 120,865 331
Professional fees 15,124 1,934 63,120 2,191
Research and development 11,644 - 11,644 90,000
Salaries and benefits 31,400 - 90,612 -
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133,714 2,210 366,001 92,522
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NET LOSS FOR THE PERIOD (104,354) $(2,210) $(230,918) $(92,522)
===============================================================================
BASIC NET LOSS PER SHARE $ (0.02) $ (0.00) $ (0.05) $ (0.02)
==============================================================================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,577,578 4,500,000 4,534,479 4,500,000
==============================================================================
The accompanying notes are an integral part of these interim
consolidated financial statements
F-3
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 25, 1999 (INCEPTION) TO SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Preferred Stock Common Stock Additional other
Number of Number of Paid In Accumulated Comprehensive
shares Amount shares Amount Capital Deficit Income (Loss) Total
-----------------------------------------------------------------------------------------------------------------------------------
Common stock issued for cash - $ - 4,500,000 $ 450 $ 4,050 $ - $ - $ 4,500
cash
Preferred stock issued 34,475 3 - - 68,947 - - 68,950
for cash
Net loss for the period - - - - - (192,962) - (192,962)
Currency translation - - - - - - (358) (358)
adjustment
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 34,475 3 4,500,000 450 72,997 (192,962) (358) (119,870)
Preferred stock issued 36,050 4 - - 72,096 - - 72,100
for cash
Preferred stock converted
to Common stock (70,525) (7) 77,578 8 (1) - - -
Net loss for the period - - - - - (230,918) - (230,918)
Currency translation - - - - - - 10,826 10,826
adjustment
-----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, - $ - 4,577,578 $ 458 $145,092 $(423,880) $ 10,468 $(267,862)
2000
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these interim
consolidated financial statements
F-4
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended March 25,1999
September 30, September 30, (inception) to
2000 1999 2000 September 30, 1999
--------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $(104,354) $(2,210) $ (230,918) $ (92,522)
Adjustments to reconcile net loss
to net cash from operating
activities:
- depreciation 2,810 - 7,162 -
- research and development - - - 90,000
- accounts receivable 5,121 4,500 (3,831) -
- inventory (34,642) - (40,442) -
- prepaid expenses 3,589 - (6,612) -
- accounts payable 34,204 2,103 80,611 2,415
- refundable deposits 27,128 - 27,128 -
--------------------------------------------------------------------------------------------------
NET CASH FROM ( USED IN)
OPERATING ACTIVITIES (66,144) 4,393 (166,902) (107)
--------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets - - (21,119) -
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CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft 2,319 - 2,319 -
Proceeds from sale of common stock - - - 4,500
Proceeds from sale of preferred stock - - 72,100 -
Promissory note advances 3,400 - 63,400 -
Promissory note repayments (15,000) - (105,000) -
Advances from related parties 2,810 87 122,567 87
-------------------------------------------------------------------------------------------------
NET CASH FROM FINANCING ACTIVITIES (6,471) 87 155,386 4,587
-------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 9,737 - 10,826 -
-------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (62,878) 4,480 (21,809) 4,480
CASH, BEGINNING OF PERIOD 62,878 - 21,809 -
-------------------------------------------------------------------------------------------------
CASH, END OF PERIOD $ - $ 4,480 $ - $ 4,480
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these interim
consolidated financial statements
F-5
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
- -----------
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NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The Company was incorporated on March 25, 1999 in the state of Delaware. The
Company commenced operations April 30, 1999 and by agreement effective as of
that date, acquired proprietary technology and patent rights from Luna
Technology Inc. ("LTBC"), a private British Columbia company with certain
directors and shareholders in common with the Company. In addition, by agreement
effective November 15, 1999, the Company acquired proprietary technology and the
trademark rights to "LUNA" and "LUNAPLAST" from Douglas Sinclair, an officer and
employee of LTBC, which relate to the acquired Photoluminescent technology
(Refer to Note 3). During 1999 the Company was in the development stage however,
as of January 1, 2000, the Company has commenced commercial production as is no
longer in the development stage.
This technology is used for the development and production of photoluminescent
signage, wayfinding systems and other novelty products with applications in
marine, commuter rail, subway, building and toy markets.
The company completed a Form 10SB registration with the United States Securities
and Exchange Commission effective May 15, 2000. To March 31, 2000 $141,050 had
been raised by way of a Regulation D Offering of Preferred Shares at $2.00 per
share and as of May 31, 2000, these preferred shares were converted to common
shares. (Refer to Note 6)
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 September 30, 2000 the Company
has a working capital deficiency of $290,287 and has incurred losses since
inception. The ability of the Company and its subsidiary to continue as a going
concern is dependent on raising additional capital and on generating future
profitable operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiary Luna Technologies (Canada) Ltd. ("LTC"), a company
incorporated June 9, 1999 in the province of British Columbia. LTC was
incorporated to conduct all future business activities in Canada. All
significant intercompany balances and transactions are eliminated on
consolidation.
Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Inventory
Inventory is carried at the lower of cost and net realizable value.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed by the
straight-line method on estimated useful lives of two to five years.
Research and development costs
Ongoing product and technology research and development costs are expensed as
incurred.
Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation", foreign denominated monetary assets and liabilities are translated
to their United States dollar equivalents using foreign exchange rates which
prevailed at the balance sheet date. Revenue and expenses are translated at
average rates of exchange during the period. Related translation adjustments are
reported as a separate component of stockholders' equity, whereas gains or
losses resulting from foreign currency transactions are included in results of
operations.
Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, the Company has determined
of the estimated fair value of financial instruments using available market
information and appropriate valuation methodologies. The fair value of financial
instruments classified as current assets or liabilities including cash and cash
equivalents and notes and accounts payable approximate carrying value due to the
short-term maturity of the instruments.
Net Loss per Common Share
Basic earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Dilutive earnings per share reflects the potential
dilution of securities that could share in the earnings of the Company. Because
the Company does not have any potentially dilutive securities, the accompanying
presentation is only of basic loss per share.
Revenue recognition
The Company recognizes revenue when products have been shipped.
<PAGE>
NOTE 3 - ACQUISITION OF TECHNOLOGY RIGHTS
By agreement effective April 30, 1999, the Company acquired proprietary
technology from LTBC by way of an assignment of the patent rights to a
Photoluminescent Light Emitter with Enhanced Photometric Brightness
Characteristics. In consideration for this assignment, the Company issued a
$90,000 non-interest-bearing promissory note to LTBC which was due on or before
June 30, 2000 and was paid during the period. LTBC had originally acquired the
patent rights by agreement dated November 27, 1997 from Kimberly Landry, a
director of the Company, and Douglas Sinclair (the "Inventors"). The original
patent application was filed by the Inventors on November 17, 1997 and is
pending final approval.
In addition, by agreement effective November 15, 1999, the Company acquired from
Douglas Sinclair the proprietary technology and batching formulations for the
production and manufacturing of Photoluminescent PV Sheets, Photoluminescent
Vinyl Rolls and Photoluminescent Paints as well as the trademark rights to LUNA
and LUNAPLAST for the above mentioned products. In consideration for this
acquisition, the Company issued a $60,000 non-interest-bearing promissory note
to Doug Sinclair due on or before November 30, 2000.
For accounting purposes the Company has recorded the costs of these acquisitions
as research and development expenses based on a nil carrying value of the
technology rights of the related party vendors.
NOTE 4 - NOTES PAYABLE
Pursuant to the acquisitions as described in Note 3, the Company has a $60,000
note payable to Douglas Sinclair which is non-interest bearing, and is due
November 30, 2000.
In addition, during the period the Company borrowed to satisfy working capital
requirements and has a note payable, net of repayments, of $45,000 plus accrued
interest of $3,400 calculated at a rate of 30% per annum and is due November 22,
2000.
NOTE 5 - RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2000 certain directors and an officer
of the Company incurred expenses, accrued salaries and made net advances to the
Company totalling $93,068. In addition, net repayments of $29,499 were made to
the Company by LTBC leaving $114,448 payable by the Company at September 30,
2000. Amounts due to related parties are unsecured, non-interest bearing and
have no specific terms of repayment. (Refer to Notes 1, 3, 4 and 8).
<PAGE>
NOTE 6 - CAPITAL STOCK
During the initial period ended December 31, 1999 the company issued 4,500,000
shares of common stock at $0.0001 per share for proceeds of $4,500 pursuant to
Regulation 504 of the Securities Act of 1933.
During the periods ended December 31, 1999 and March 31, 2000 the Company issued
34,475 and 36,050 shares of preferred stock at $2.00 per share for proceeds of
$68,950 and $72,100 respectively, pursuant to Regulation 504 of the Securities
Act of 1933. Each share of preferred stock is voting, is entitled to
non-cumulative cash dividends at the rate of $0.20 per share per year, and may
be converted into 1.10 shares of common stock at any time prior to May 31, 2000.
In the period ended September 30, 2000, the 70,525 outstanding preferred shares
were converted into 77,578 common shares leaving no preferred shares
outstanding.
Refer to Note 9.
NOTE 7 - INCOME TAXES
The Company has net operating loss carryforwards for tax purposes which will
expire, if not utilized, beginning in 2006.
The Company has deferred tax assets related to the net operating loss carryovers
the realization of which appears uncertain due to the Company's limited
operating history. Accordingly, a valuation allowance has been recorded which
offsets the deferred tax assets at the end of the period.
NOTE 8 - COMMITMENTS
The Company has entered into various lease commitments which include the
Company's premises and certain automobile and office equipment for a total of
$2,716 per month with terms ranging from 16 to 66 months.
During the first quarter of 2000, one year renewable management agreements were
signed between LTC and both Doug Sinclair and Kimberly Landry for $ 3,500 per
month and $ 3,100 per month respectively.
NOTE 9 - SUBSEQUENT EVENTS
Subsequent to September 30, 2000 the Company completed a private placement of
33,333 restricted shares of Common Stock at $1.50 per share for proceeds of
$50,000.
<PAGE>
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Results of Operations.
For the nine months ended September 30, 2000 sales were $276,468. In addition,
research revenue, net of expenses amounted to $15,011. There is no comparative
sales information for the previous year as commercial production of the
Registrant's products only commenced in November 1999. Subsequent to September
30, 2000 outstanding purchase orders were approximately $265,000.
General and administrative expenses were $366,001 for the nine-month period
ended September 30, 2000 and $133,714 in the quarter. Included in general and
administrative expenses are consulting fees of $72,598 ($28,361 in the quarter),
office and general expenses of $120,865 ( $44,375 in the quarter), professional
fees of $63,120 ($15,124) in the quarter) and salaries and benefits of $90,612
($31,400 in the quarter). In addition, research and development costs were
$11,644 for the nine months ended September 30, 2000. During the comparative
quarter in 1999, research and development costs were $90,000 as the Registrant
recorded the acquisition costs of technology rights as nil.
For the nine months ended September 30, 2000 the Registrant had a net loss of
$230,918 or 5 cents per share. For the quarter ended September 30, 2000 the
Registrant had a net loss of 2 cents per share.
During the nine-month period ended September 30, 2000 the Registrant continued
research on additional photoluminescent products to complement the Registrant's
two principal products: PVC vinyl film and PVC rigid sheets. The Registrant was
successful in producing resin compounds for use in extrusion processing and
injection molding. The Registrant also successfully produced a new vinyl film.
In addition the Registrant developed software in the nine-month period for
in-house and on-site photoluminescence analysis.
Liquidity and Capital Resources.
During the nine months ended September 30, 2000 the Registrant's operations used
$166,902 in cash. During the nine-month period the Registrant paid a promissory
note of $90,000 due June 30, 2000. The note was issued in 1999 in connection
with the acquisition of technology rights. During this nine-month period, funds
of $21,119 were used to acquire capital assets.
<PAGE>
At September 30, 2000, the Registrant has a note payable, net of repayments, of
$45,000. The funds were borrowed for working capital purposes. The note, plus
accrued interest of $3,400 calculated at a rate of 30% per annum, is due
November 22, 2000. During the nine-month period proceeds of $72,100 were
received from the sale of the Registrant's preferred stock. The preferred stock
was converted to common shares as at May 31, 2000. The Registrant's officers and
directors loaned $122,567 to the Registrant during the nine-month period ended
September 30,2000.
At September 30, 2000 the Registrant had a working capital deficiency of
$290,287. The ability of the Registrant to continue as a going concern is
dependent on the Registrant raising additional capital and on generating future
successful profitable operations.
Subsequent to September 30, 2000 the Registrant completed a private placement of
33,333 restricted shares of common stock at $1.50 per share for proceeds of
$50,000.
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ending
September 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized
Luna Technologies International, Inc.
By: /s/ Robert H. Humber
-----------------------------------------
Robert H. Humber, President
By: /s/ Kimberly Landry
-------------------------------------------
Kimberly Landry, Principal Financial Officer
Date: November 14, 2000
-----------------------------------
