U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER:
LUNA MEDICAL TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 98-0207745
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1820-1095 West Pender Street, Vancouver, British Columbia, Canada V6E 2M6
(Address of principal executive offices) (Zip Code)
(604) 687-0719
(Issuer's Telephone Number, including Area Code)
Thomas E. Stepp, Jr.
Stepp & Beauchamp LLP
1301 Dove Street, Suite 460
Newport Beach, California 92660
Telephone: 949.660.9700
Facsimile: 949.660.9010
(Name, Address and Telephone Number of Agent for Service)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date. As of September 30, 1999, there were
7,310,660 shares of the issuer's $.001 par value common stock issued and
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
Business of the Registrant. Luna Medical Technologies, Inc., a Nevada
corporation ("Registrant"), formerly entitled Luna Technologies, Inc., was
incorporated in the State of Nevada on January 19, 1999. On or about May 31,
1999, the Registrant changed its name to Luna Medical Technologies, Inc. The
executive offices of the Registrant are located at 1820-1095 West Pender Street,
Vancouver, British Columbia, Canada V6E 2M6. The Registrant's telephone number
is 604.687.0719.
On or about January 31, 1999, the Registrant entered into an exclusive worldwide
license agreement ("Agreement") with Luna Products, Inc., a Canadian corporation
("LPI"), to distribute the Luna Fertility Indicator ("Indicator"), a
lightweight, re-usable home fertility test. As a point of clarification, as used
in this Quarterly Report on Form 10-QSB the term "US$" means and refers to the
currency of the United States of America, unless otherwise stated. As used in
this Quarterly Report on Form 10-QSB the term "CDN$" means the currency of
Canada, in Canadian Dollars, unless otherwise stated. The Agreement also grants
the Registrant the right to distribute fertility charts with every purchase of
the Indicator (described in more detail below). The license granted under the
Agreement expires upon repayment of the Loan. However, the Registrant and LPI
have orally agreed that the relationship between the Registrant and LPI will
continue beyond the term of the License. Except for their relationship regarding
the Indicator, the Registrant and LPI have no other affiliation.
The Indicator is a simple to use device whereby a woman can track her stages of
fertility. The Indicator takes up slightly more space than a lipstick and can be
used any private place with access to natural or clear light. A woman simply
places a sample of her saliva on the clean slide, allows the saliva to dry, then
holds the slide up to a 40-watt or greater light source and looks at the saliva
pattern through the eyepiece. The woman then compares her saliva patterns
indicated in the book of charts provided free of charge with the Indicator.
Comparing the saliva patterns will indicate her state of fertility. The charts
are easy to use, consisting mainly of the woman noting on the chart whether she
is fertile or infertile based on the saliva patterns, thus providing a quick and
easy reference indicating her monthly fertility cycle. If the woman is in the
biologically active, fertile phase, her saliva will crystallize and fibrous
"fern-type" patterns will be clearly viewed in the small Indicator in-home small
microscope. Then she can rinse off the slide and put it away until the next use.
The Registrant anticipates that the Indicator will be used as a guide to
determine the different phases of the fertility cycle and as an aid to encourage
conception. The Registrant does not intend for this device to be used or
considered as a contraceptive or method of birth control.
The Registrant's Subsidiary. On or about May 11, 1999, the Registrant caused to
be incorporated, in British Columbia, Luna Fertility Indicator, Inc. Luna
Fertility Indicator, Inc., is currently a wholly-owned subsidiary of the
Registrant. The Registrant anticipates that the primary business of Luna
Fertility Indicator, Inc., will be marketing and distributing the Indicator.
Marketing and Sales Strategy. The Registrant has hired, on an as needed basis,
Melissa Gervais to act as an in-house marketing and public relations consultant
to co-ordinate an advertising campaign in targeted media such as medical
journals, women's magazines, religious publications and other selected media.
The Registrant hopes that Ms. Gervais' efforts will help generate immediate
awareness of the Indicator. The Registrant will attempt to market the Indicator
in major chain drug stores using selected regional distributors.
The Registrant has agreed in principal on a distribution contract with Bathurst
Sales ("Bathurst") of Downsview, Ontario, Canada's leading distributor of
cosmetics and personal care products, whose customers include London Drugs,
Shoppers Drug Mart, Pharma Plus Drugmarts, Lawton's Drug Stores and Uniprix.
Bathurst distributes products such as Revlon, John Frieda, Elizabeth Arden,
Rubbermaid, AM Cosmetics and Vogue International, and its current clients are
those that the Registrant desires will market and promote the Indicator.
Bathurst will be informed of the dates of
2
<PAGE>
the Registrant's advertising programs to co-ordinate any co-operative
advertising plans that its clients may have for the period. Bathurst has orally
agreed to distribute the Indicator and negotiations are ongoing to reduce the
terms, conditions and covenants to writing. The Registrant anticipates that the
written agreement between the Registrant and Bathurst will provide for the
shipment, FOB Vancouver, on a CDN$22.00 per unit basis.
The Registrant is in the process of developing new and attractive ways to market
the Indicator. During the last several months, the Registrant has designed new
packaging and marketing materials which the Registrant believes will enhance the
appeal of the Indicator. The Indicator is now being represented in Canada by two
distributors. The first distributor, Bathurst, sells various products to
traditional drug stores. The second distributor, Inno-Vite, sells various
products to health food stores such as Caper's, Vitamin House, Choices,
Nutrition House, GNC and Noah's Natural Foods. The Registrant continues to
negotiate with the companies interested in the Registrant's Indicator in other
markets throughout the world. The Registrant anticipates that distribution
arrangements will be finalized within six (6) months of securing the necessary
governmental approvals in those foreign markets.
The Registrant has commenced sales of the Indicator in Canada. The Registrant
has focused its initial sales efforts in Canada because it has received
government approval to distribute the Indicator. The Registrant anticipates that
it will initiate a mail order campaign and advertising in selected publications.
The Registrant has begun discussing with potential distributors in Taiwan, South
Africa and Turkey the potential foreign markets for the Indicator. The
Registrant hopes to expand marketing and distribution into Spain, Turkey and the
United States. However, since all discussions with such distributors are merely
preliminary, the Registrant cannot predict when, or even if, it will penetrate
such markets. The Registrant also anticipates providing distributors with
rebates for co-operative advertising and freight and discount allowances. At
this time, the Registrant's only business is the marketing and distribution of
the Indicator. The Registrant is generating revenue from the sale of the
Indicator in Canada. The Registrant has a very limited operating history and has
not realized significant revenues from its operations.
The Indicator will be targeted toward: (i) chain drug stores and pharmacy
retailers, (ii) distributors selling to health food chains, and (iii) natural or
homeopathic medical clinics.
Liquidity. The Registrant has been in the development stage since January 19,
1999 (inception). As of September 30, 1999, Registrant has realized US$49,242 in
revenues from sales of the Indicator. The cost of those sales amounted to
US$31,282, resulting in a gross profit of US$17,960. The Consolidated Statement
of Loss for the six month period ended September 30, 1999 indicates a net loss
of US$144,445. At September 30, 1999, the Registrant had current assets of
US$74,241. The majority of which is represented by US$40,000 in a loan
receivable; and US$26,057 in accounts receivable. At September 30, 1999, the
Registrant had current liabilities of US$170,994. At September 30, 1999, current
assets exceeded current liabilities by US$96,753. The Registrant is not aware of
any trends, demands, commitments or uncertainties that will result in the
Registrant's liquidity decreasing or increasing in a material way. The
Registrant does currently hold short-term notes payable in the amount of
US$71,522, however, those notes are unsecured. The US$19,883 loan payable to
Campbell Capital Advisory, Inc., a private Canadian corporation controlled by
Registrant's President, Gordon McDougall, bears no interest and has no fixed
repayment terms. The US$41,939 loan payable to Javelin Enterprises bears
interest at 10% per annum and is repayable without notice or penalty on or
before June 2, 2000. The US$9,700 loan payable to Phoenix Titanium Recovery
Corp. bears interest at 10% per annum and is repayable without notice or penalty
on or before September 24, 2000.
Currently, the Registrant's source of liquidity is through the sale of its
common stock, through loans and through revenue raised by sales of the
Indicator. The Registrant believes, however, that the revenue stream produced
through sales of the Indicator is increasing and will provide sufficient
resources to meet its financial obligations for the next 12 month period.
3
<PAGE>
The following chart represents the sales of the Indicator from January 19, 1999
(inception) to September 30, 1999:
- --------------------------------------------------------------------------------
Month Sales Units Sold
- --------------------------------------------------------------------------------
January 1999 US $0 0
- --------------------------------------------------------------------------------
February 1999 US $0 0
- --------------------------------------------------------------------------------
March 1999 US $1,020 75
- --------------------------------------------------------------------------------
April 1999 US $1,061 77
- --------------------------------------------------------------------------------
May 1999 US $13,187 798
- --------------------------------------------------------------------------------
June 1999 US $1,299 32
- --------------------------------------------------------------------------------
July 1999 US $1,120 41
- --------------------------------------------------------------------------------
August 1999 US $9,162 599
- --------------------------------------------------------------------------------
September 1999 US $23,413 1,508
- --------------------------------------------------------------------------------
The Registrant believes that between its revenue stream and its current cash
resources it will be able to maintain its current operations. However, should
these resources prove to be insufficient, the Registrant may be required to
raise additional funds or arrange for additional financing over the next 12
months to adhere to its development schedule. Such additional capital may be
received from additional public or private financings, as well as borrowings and
other resources. If adequate cash is not available, the Registrant may be
required to curtail its operations significantly or to obtain funds by entering
into arrangements with collaborative partners or others that may require the
Registrant to relinquish rights that the Registrant would not otherwise
relinquish. No assurance can be given, however, that the Registrant will have
access to additional cash in the future, or that funds will be available on
acceptable terms to satisfy the cash requirements of the Registrant.
Impact of the Year 2000 Issue. The Registrant anticipates that the Year 2000
("Y2K") could impact the business of the Registrant. Many business software
applications use only the last two digits to indicate the applicable year.
Unless these programs are modified, computers running time-sensitive software
may be unable to distinguish between the year 1900 and the year 2000, resulting
in system failures or miscalculations and disruptions of operations, including,
among other things, a temporary inability to process transactions or engage in
other normal business activities. Many Y2K problems might not be readily
apparent when they first occur, but instead could imperceptibly degrade
technology systems and corrupt information stored in computerized databases, in
some cases before January 1, 2000.
At this time, none of Registrant's technology systems are computer controlled.
However, there is no guarantee that the systems of other companies on which the
Registrant's systems rely will be timely converted and will not have a material
adverse effect on the Registrant's systems.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 15, 1999 LUNA MEDICAL TECHNOLOGIES, INC.
By: /s/ Gordon McDougall
----------------------------
Gordon McDougall
Its: President
5
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Balance Sheet
(Unaudited - Prepared by Management)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS September 30 March 31
1999 1999
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,107 $ 9,897
Accounts receivable 26,057 1,091
Loan receivable 40,000 40,000
Goods and Services Tax recoverable 5,352 920
Inventory 1,725 1,012
Prepaid marketing expense -- 16,453
Prepaid expenses -- 5,637
--------- ---------
74,241 75,010
--------- ---------
OTHER ASSETS
Marketing licence 1 1
Trademark 710 --
--------- ---------
711 1
--------- ---------
$ 74,952 $ 75,011
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 99,472 $ 10,686
Accrued marketing costs -- 16,453
Short term loans payable 71,522 4,469
--------- ---------
170,994 31,608
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, 5,000,000 shares authorized, $.001 par value
no shares issued and outstanding -- --
Common stock, 50,000,000 shares authorized, $.001 par value
7,310,660 shares issued and outstanding 7,311 7,311
Additional paid-in capital 70,189 70,189
Stock subscriptions receivable -- (5,000)
Deficit (173,542) (29,097)
--------- ---------
(96,042) 43,403
--------- ---------
$ 74,952 $ 75,011
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Statement of Loss
(Unaudited - Prepared by Management)
For the six month period ended September 30, 1999
- --------------------------------------------------------------------------------
SALES $ 49,242
COST OF SALES 31,282
-----------
GROSS PROFIT 17,960
-----------
EXPENSES
Audit and accounting 8,457
Bank charges and interest 2,567
Consulting 35,277
Legal 13,957
Management fees 30,000
Marketing 46,361
Office and telephone 15,527
Rent 4,200
Transfer agent 1,858
Travel 4,201
-----------
162,405
-----------
NET LOSS $ (144,445)
===========
NET LOSS PER COMMON SHARE $ (0.02)
===========
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING 7,310,660
===========
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Statement of Stockholders' Equity
(Unaudited - Prepared by Management)
For the six month period ended September 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCK
Balance, beginning and end of period $ 7,311
---------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning and end of period 70,189
---------
DEFICIT
Balance, beginning of period (29,097)
Net loss (144,445)
---------
Balance, end of period (173,542)
---------
TOTAL STOCKHOLDERS' EQUITY $ (96,042)
=========
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Statement of Cash Flows
(Unaudited - Prepared by Management)
For the six month period ended September 30, 1999
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(144,445)
Changes in non-cash working capital
Accounts receivable (24,966)
Goods and Services Tax recoverable (4,432)
Inventory (713)
Prepaid marketing expense 16,453
Prepaid expenses 5,637
Accounts payable and accrued liabilities 88,786
Accrued marketing costs (16,453)
---------
(80,133)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Trademark registration costs (710)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short term loans payable 67,053
Receipt of stock subscriptions receivable 5,000
---------
72,053
---------
CHANGE IN CASH (8,790)
CASH, beginning of period 9,897
---------
CASH, end of period $ 1,107
=========
Supplemental disclosures:
Interest paid $ 1,203
Income taxes paid $ --
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited - Prepared by Management)
September 30, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Luna Medical Technologies, Inc. and its wholly-owned subsidiary, Luna
Fertility Indicator, Inc. were incorporated, respectively, January 19, 1999
under the laws of the State of Nevada and May 11, 1999 under the laws of
the Province of British Columbia, Canada for the purpose of engaging in any
lawful activity. The company has entered into an exclusive worldwide
licence agreement with Luna Products Inc. to distribute the Luna Fertility
Indicator, and is in the process of developing and implementing marketing
plans for the products acquired. The company and its subsidiary maintain
offices in Vancouver, British Columbia, Canada.
On May 31, 1999, the company amended its articles of incorporation to
reflect the change of its name from Luna Technologies, Inc. to Luna Medical
Technologies, Inc.
2. SHORT TERM LOANS PAYABLE
Short term loans payable consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Loan payable to Campbell Capital Advisory, Inc. - an $19,883 $4,469
unsecured loan bearing no interest and with no
fixed terms of repayment. Campbell Capital
Advisory, Inc. is a private corporation controlled
by the President of the company
Loan payable to Javelin Enterprises - an unsecured 41,939 --
loan bearing interest at 10% per annum
Repayable without notice or penalty. Due
June 2, 2000
Loan payable to Phoenix Titanium Recovery Corp. - 9,700 --
an unsecured loan bearing interest at 10% per
annum. Repayable without notice or penalty
Due September 24, 2000
------- -------
Total $71,522 $4,469
======= =======
</TABLE>
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited - Prepared by Management)
September 30, 1999
- --------------------------------------------------------------------------------
3. RELATED PARTY TRANSACTIONS
During the period, the company entered into transactions with related
parties as follows:
Management fees paid to a company of the President $30,000
Marketing expenses reimbursed to a company of the President 15,000
Office expenses reimbursed to a company of the President 7,200
4. COMMITMENTS AND CONTINGENCIES
On January 31, 1999, the company entered into a licencing agreement with
Luna Products Inc. (LPI). This arrangement is recorded as a loan receivable
of US$40,000 and a marketing licence of US$1. The agreement calls for the
loan to be paid by a CDN$1 fee per unit for the first 30,000 units sold,
and then a CDN$0.50 fee per unit sold in perpetuity. The loan does not have
a stated rate of interest and management believes that sales should result
in a complete repayment of this loan within one year. Furthermore, the
licencing agreement calls for continuing royalties of 5% of Luna Medical
Technologies' gross sales to Luna Products Inc. and CDN$1 to Jim Emmerson,
a director of LPI, for each unit sold in perpetuity. Each of these
royalties will be paid one month in arrears.
On May 6, 1999, the company and LPI agreed to certain modifications to the
licence agreement as to certain pricing and purchasing structures, and the
company agreed to incur marketing expenses totalling not less than
CDN$250,000 by May 31, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Consolidated Balance Sheet as at September 30, 1999 and the unaudited
Consolidated Statement of Loss for the six month period ended September 30, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1107
<SECURITIES> 0
<RECEIVABLES> 71409
<ALLOWANCES> 0
<INVENTORY> 1725
<CURRENT-ASSETS> 74241
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 74952
<CURRENT-LIABILITIES> 170994
<BONDS> 0
0
0
<COMMON> 7311
<OTHER-SE> (103353)
<TOTAL-LIABILITY-AND-EQUITY> 74952
<SALES> 49242
<TOTAL-REVENUES> 49242
<CGS> 31282
<TOTAL-COSTS> 31282
<OTHER-EXPENSES> 161202
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1203
<INCOME-PRETAX> (144445)
<INCOME-TAX> 0
<INCOME-CONTINUING> (144445)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (144445)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
