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 June 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
--------- ----------------
(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 4,577,578 shares of Common Stock issued and
outstanding.
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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
June 30, December
2000 31, 1999
--------------------------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 62,878 $ 21,809
Accounts receivable 8,952 -
Inventory 5,800 -
Prepaid expenses 10,201 -
Due from related parties - 8,119
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87,831 29,928
FURNITURE AND EQUIPMENT, net of depreciation 25,235 8,468
--------------------------------------------------------------------------------
$113,066 $38,396
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 54,673 $ 8,266
Notes payable (Note 4) 120,000 150,000
Due to related parties (Note 5) 111,638 -
--------------------------------------------------------------------------------
286,311 158,266
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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 (319,526) (192,962)
Accumulated other comprehensive income (loss) 731 (358)
--------------------------------------------------------------------------------
(173,245) (119,870)
--------------------------------------------------------------------------------
$ 113,066 $ 38,396
================================================================================
The accompanying notes are an integral part of these interim consolidated
financial statements
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months March
June 30, 25,1999
Ended June (inception)
2000 1999 30, 2000 to June
30, 1999
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SALES $6,009 $ - $ 227,456 $ -
COST OF SALES 2,917 - 136,744 -
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GROSS MARGIN 3,092 - 90,712 -
RESEARCH INCOME 15,011 - 15,011 -
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18,103 - 105,723 -
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GENERAL AND ADMINISTRATIVE EXPENSES
Consulting 22,393 - 44,237 -
Depreciation 2,576 - 4,352 -
Office and general 33,487 55 76,490 55
Professional fees 24,191 257 47,996 257
Research and development
(Note 3) - 90,000 - 90,000
Salaries and benefits 31,423 - 59,212 -
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114,070 90,312 232,287 90,312
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NET LOSS FOR THE PERIOD $(95,967) $(90,312) $(126,564) $(90,312)
================================================================================
BASIC NET LOSS PER SHARE $(0.02) $(0.02) $(0.03) $(0.02)
================================================================================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,525,859 4,500,000 4,512,930 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 JUNE 30, 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 $ - $ - $
cash 4,500
===========================
===========================
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 - - - - - (126,564) - (126,564)
===========================
===========================
Currency translation - - - - - - 1,089 1,089
adjustment
------------------------------------------------------------------------------------------------------------------------------------
===========================
Balance, June 30, 2000 - $ - 4,577,578 $ 458 $ 145,092 $(319,526) $ 731 $(173,245)
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements
<PAGE>
LUNA TECHNOLOGIES INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
June 30, Six Months March
25,1999
Ended June (inception)
2000 1999 30, 2000 to June
30, 1999
--------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss for the period $ (95,967) $ (90,312) $(126,564) $(90,312)
Adjustments to reconcile
net loss to net cash from
operating activities:
- depreciation 2,576 - 4,352 -
- research and development - 90,000 - 90,000
- accounts receivable 113,654 - (8,952) (4,500)
- inventory 2,700 - (5,800) -
- prepaid expenses (2,368) - (10,201) -
- accounts payable 21,026 312 46,407 312
--------------------------------------------------------------------------------
NET CASH FROM ( USED IN)
OPERATING ACTIVITIES 41,621 - (100,758) (4,500)
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of capital assets (683) - (21,119) -
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from sale of
common stock - - - 4,500
Proceeds from sale of
preferred stock - - 72,100 -
Promissory note advances 60,000 - 60,000 -
Promissory note repayments (90,000) - (90,000) -
Advances from related parties 50,461 - 119,757 -
--------------------------------------------------------------------------------
NET CASH FROM FINANCING
ACTIVITIES 20,461 - 161,857 4,500
--------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 895 - 1,089 -
--------------------------------------------------------------------------------
INCREASE IN CASH 62,294 - 41,069 -
CASH, BEGINNING OF PERIOD 584 - 21,809 -
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CASH, END OF PERIOD $ 62,878 $ - $ 62,878 $ -
================================================================================
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)
JUNE 30, 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 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 June 30, 2000 the Company has a
working capital deficiency of $198,480. 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
Basis of Presentation
In the opinion of management, the accompanying interim consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the Company's financial position as of
June 30, 2000, and its results of operations for the six-month period ending
June 30, 2000 and its cash flows for the six-month period ending June 30, 2000.
The results of operations for the interim periods are not necessarily indicative
of the results to be expected for the fiscal year.
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)
--------------------------------------------------------------------------------
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.
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 of $60,000 which bears interest at 30% per
annum and is due August 15, 2000.
<PAGE>
NOTE 5 - RELATED PARTY TRANSACTIONS
During the six months ended June 30, 2000 certain directors and an officer of
the Company incurred expenses, accrued salaries and made net advances to the
Company totalling $90,258. In addition, net repayments of $29,499 were made to
the Company by LTBC leaving $111,638 payable by the Company at June 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)
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 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 June 30, 2000, the 70,525 previously outstanding preferred shares were
converted into 77,578 common shares leaving no preferred shares outstanding at
June 30, 2000.
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, 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
Results of Operations
For the six months ended June 30, 2000 sales were $227,456 and research income,
net of expenses amounted to $15,011. There is no comparative sales information
for the previous year as commercial production of the Company's products only
commenced in November 1999. Subsequent to June 30, 2000 sales and outstanding
purchase orders were in excess of $150,000.
General and Administrative expenses were $232,287 for the six month period June
30, 2000 and $114,070 in the quarter. Included in general and administrative
expenses are consulting fees of $44,237 ($22,393 in the quarter), office and
general expenses of $76,490 ( $33,487 in the quarter), professional fees of
$47,996 ($24,191 in the quarter) and salaries and benefits of $59,212 ($31,423
in the quarter). During the comparative quarter in 1999, research and
development costs were $90,000 as the Company recorded the acquisition costs of
technology rights as nil.
For the quarter ended June 30, 2000 the Company had a net loss of $95,967 and
$126,564 for the six months ended June 30, 2000 or 2 cents and 3 cents per share
respectively.
During the quarter the Company considered it appropriate to complete research on
additional products to complement the Company's current products. The Company
was successful in producing resin compounds for use in extrusion processing and
injection molding. The Company also produced a new film and is in the process of
testing the film for smoke and flame-spread ratings. The Company developed
software in the quarter for in-house and on-site photoluminescence analysis
Liquidity and Capital Resources
During the six months ended June 30, 2000 the Company's operations used $100,758
in cash. During the quarter the Company paid a promissory note of $90,000 which
was due June 30, 2000. The note was issued in 1999 in connection with the
acquisition of technology rights. During this six month period $22,119 was spent
to acquire capital assets.
During the quarter the Company borrowed funds for working capital purposes. At
June 30, 2000 an amount of $60,000 was outstanding in respect of these
borrowings. During the six-month period proceeds of $72,100 were received from
the sale of preferred stock. The preferred stock was converted into common
shares during the quarter ending June 30, 2000. The Company's officers and
directors loaned $119,757 to the Company during the six months ended June 30,
2000.
At June 30, 2000 the Company had a working capital deficiency of $(194,480). The
ability of the Company to continue as a going concern is dependent on the
Company raising additional capital and on generating revenues which will exceed
the Company's expenses.
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the six months ended June 30, 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.
During the three months ended June 30, 2000 the Company issued 77,578
shares of its common stock upon the conversion of all outstanding shares of the
Company's Series A Preferred stock. The Company relied upon the exemption
provided by Section 3(a)9 of the Securities Act of 1933 in connection with the
issuance of these shares.
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
June 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
Kimberly Landry, President
By: /s/ Kimberly Landry
Kimberly Landry, Principal Financial Officer
Date: August 9, 2000
