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 March 31, 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 June 30, 2000, the Company had 4,570,525 shares of Common Stock issued and
outstanding..
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
CONSOLIDATED BALANCE SHEETS
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December
2000 31, 1999
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash $584 $21,809
Accounts receivable 122,606 -
Prepaid expenses 7,833 -
Inventory 8,500 -
Due from related parties - 8,119
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139,523 29,928
FURNITURE AND EQUIPMENT, net of depreciation 27,128 8,468
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$166,651 $38,396
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $33,647 $8,266
Notes payable (Note 4) 150,000 150,000
Due to related parties (Note 5) 61,177 -
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244,824 158,266
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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 4,500,000 issued and outstanding 450 450
Convertible preferred stock, $0.0001 par value,
5,000,000 shares authorized 70,525 issued and outstanding 7 3
Additional paid-in capital 145,093 72,997
Accumulated deficit (223,559) (192,962)
Accumulated other comprehensive income (loss) (164) (358)
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(78,173) (119,870)
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$ 166,651 $38,396
================================================================================
The accompanying notes are an integral part of these interim consolidated
financial statements
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months
Ended March
31, 2000
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SALES $ 221,447
COST OF SALES 133,827
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GROSS MARGIN 87,620
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GENERAL AND ADMINISTRATIVE EXPENSES
Consulting 21,844
Depreciation 1,779
Office and general 43,003
Professional fees 23,805
Salaries and benefits 27,789
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118,217
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NET LOSS FOR THE PERIOD $ (30,597)
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BASIC NET LOSS PER SHARE $ (0.01)
================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,500,000
================================================================================
The accompanying notes are an integral part of these interim consolidated
financial statements
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 25, 1999 (INCEPTION) TO MARCH 31, 2000
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Preferred Stock Common Stock other
Additional Accumulated Comprehensive
Paid In Deficit Income Total
Capital (loss)
Number of Number of
shares Amount shares Amount
------------------------------------------------------------------------------------------------------------------------------------
Common stock issued for - $- 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
Net loss for the period - - - - - (30,597) - (30,597)
Currency translation - - - - - - 194 194
adjustment
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 70,525 $7 4,500,000 $450 $145,093 $(223,559) $(164) $(78,173)
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months
Ended March
31, 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (30,597)
Adjustments to reconcile net loss to net cash
from operating activities:
- depreciation 1,776
- accounts receivable (122,606)
- prepaid expenses (7,833)
- inventory (8,500)
- accounts payable 25,381
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NET CASH USED IN OPERATING ACTIVITIES (142,379)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets (20,436)
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CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related parties 69,296
Proceeds on sale of preferred stock 72,100
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NET CASH FROM FINANCING ACTIVITIES 141,396
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 194
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DECREASE IN CASH (21,225)
CASH, BEGINNING OF PERIOD 21,809
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CASH, END OF PERIOD $ 584
================================================================================
The accompanying notes are an integral part of these interim consolidated
financial statements
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2000
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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 has filed a Form 10SB registration and amendment with the United
States Securities and Exchange Commission and intends to raise $975,000, net of
offering costs, by way of a Regulation D Offering of Preferred Shares at $2.00
per share. As at March 31, 2000 $141,050 has been raised.
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 March 31, 2000 the Company has
a working capital deficiency of $105,301. 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
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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.
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.
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
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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 picked up by or delivered
to customers and invoices have been rendered.
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 due on or before June 30,
2000. 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 the
following notes payable:
1999
----------
Luna Technologies Inc. - Non-interest bearing, due $ 90,000
June 30, 2000
Douglas Sinclair - Non-interest bearing, due November 60,000
30, 2000
----------
$ 150,000
==========
<PAGE>
NOTE 5 - RELATED PARTY TRANSACTIONS
During the period certain directors and an officer of the Company incurred
expenses totalling $20,671 on behalf of the company. In addition, net advances
of $48,625 were made to the Company by LTBC leaving $61,177 payable by the
Company at March 31, 2000. Amounts due to related parties are unsecured,
non-interest bearing and have no specific terms of repayment. (Refer to Notes 1,
3 and 4)
NOTE 6 - CAPITAL STOCK
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During the 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 respectively, 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 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.
As at March 31, 2000 no preferred share conversions have been exercised.
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 AND CONTINGENCIES
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Uncertainty Due to the Year 2000 Issue
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 issue that may affect the Company, including
those related to customers, suppliers, or other third parties, have been fully
resolved.
Commitments
The Company has entered into leases on its premises for the period from January
1, 2000 to October 31, 2001 at a total of $1,751 per month.
During March 2000, LTC entered into agreements to lease two automobiles at a
total of $692 per month for 48 months.
During February 2000, LTC entered into an agreement to lease certain office
equipment at $173 per month for 60 months.
During the period, 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATION
During the three months ended March 31, 2000 the Company's operations used
$142,379 in cash. During this same period the Company purchased $20,436 of
equipment. The Company satisfied its cash requirements during this period with
proceeds received from the private sale of its preferred stock as well as loans
from LTI and the Company's officers and directors.
The Company anticipates that its capital needs during the year ending
December 31, 2000 will be as follows:
$535,000 for corporate expenses, $145,000 for research relating to the
development of advanced strontium aluminate PL materials, $90,000 for payment
for the technology and patent rights purchased from an affiliated corporation,
LTI, $60,000 for payment for the proprietary technology and trademarks from
Douglas Sinclair, $20,000 for office equipment, office furniture and leasehold
improvements, $13,000 for warehouse equipment, and $12,000 for trade show
equipment.
The Company's research and development program consists of purchasing
luminosity testing and laboratory equipment having an estimated cost of $35,000.
The balance of $110,000 is projected to be spent on staff, independent
consultants and material costs for luminosity testing, development and testing
of PL pigments, paints, powder coatings and Underwriters Laboratory (UL)
certification.
The Company anticipates that it will add three full time employees by
December 31, 2000.
The Company has commenced its sales and marketing activities with agents
and representatives appointed in Australia, Canada and the United States.
The Company plans to attend the following trade shows this year:
o ASTM Toronto, Canada - June 2000
o American Bureau of Shipping (ABS) Halifax Nova Scotia - Summer 2000
o International Electrical Society (IES) Washington DC - August 2000
o National Safety Council Conference - Fall 2000
o Maritrends (Marine trade show) San Francisco - Fall 2000)
The Company began producing Lunaplast on a commercial basis in November
1999. Between January 1, 2000 and April 30, 2000 the Company had sales of
$221,000 As of April 30, 2000 the Company had a backlog, representing firm
orders for delivery of Lunaplast prior to June 30, 2000, of approximately
$125,000.
The Company does not have any available credit, bank financing or other
external sources of liquidity. Due to the operating losses during the Company's
initial year of operations, the Company's operations have not been a source of
liquidity. In order to obtain capital, the Company may need to sell additional
shares of its capital stock or borrow funds from private lenders. In addition,
if during the year ending December 31, 2000, the Company suffers additional
losses, the Company will need to obtain additional capital in order to continue
operations. The Company expects to satisfy its cash needs during the year ending
December 31, 2000 through the private sale of the Company's common and preferred
stock or loans from private lenders. There can be no assurance that the Company
will be successful in obtaining additional funding.
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the three months ended March 31, 2000 the Company sold 36,050
shares of its Series A Preferred Stock for $72,100 in cash. The Company relied
upon the exemption provided by Section 4 (2) of the Securities Act of 1933 in
connection with the sale of these shares. The Preferred Shares sold during the
quarter are "restricted securities" as that term is defined in Rule 144 of the
Securities and Exchange Commission.
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
March 31, 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
and Secretary
Date: July 5, 2000
