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 DECEMBER 31, 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 (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
Suite 400, 900 West Hastings Street,
Vancouver, British Columbia, Canada V6C 1E5
(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.
[ ] 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 December 31, 1999, there were
7,720,660 shares of the issuer's $.001 par value common stock issued and
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Balance Sheet
(Unaudited - Prepared by Management)
December 31, 1999
<TABLE>
<CAPTION>
ASSETS December 31 March 31
1999 1999
CURRENT ASSETS
<S> <C> <C>
Cash $ 69,680 $ 9,897
Accounts receivable 18,570 1,091
Loan receivable 40,000 40,000
Goods and Services Tax recoverable 5,196 920
Inventory 3,500 1,012
Prepaid marketing expense 21,429 16,453
Prepaid expenses -- 5,637
----------------------
158,375 75,010
--------- ---------
OTHER ASSETS
Marketing licence 1 1
Trademark 2,552 --
----------------------
2,553 1
----------------------
$ 160,928 $ 75,011
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 80,720 $ 10,686
Accrued marketing costs -- 16,453
Investor deposits 30,000 --
Short term loans payable 18,054 4,469
----------------------
128,774 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
7,720,660 shares issued and outstanding 7,721 7,311
Additional paid-in capital 274,779 70,189
Stock subscriptions receivable -- (5,000)
Deficit (250,346) (29,097)
--------- ---------
32,154 43,403
--------- ---------
$ 160,928 $ 75,011
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
2
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Statement of Loss
(Unaudited - Prepared by Management)
For the nine month period ended December 31, 1999
SALES $ 103,401
COST OF SALES 68,524
-----------
GROSS PROFIT 34,877
-----------
EXPENSES
Audit and accounting 11,977
Bank charges and interest 5,599
Consulting 66,775
Legal 31,180
Management fees 45,000
Marketing 59,468
Office and telephone 23,217
Rent 4,200
Transfer agent 4,466
Travel 4,244
-----------
256,126
-----------
NET LOSS $ (221,249)
===========
NET LOSS PER COMMON SHARE $ (0.03)
===========
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING 7,356,215
===========
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
3
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Statement of Stockholders' Equity
(Unaudited - Prepared by Management)
For the nine month period ended December 31, 1999
COMMON STOCK
Balance, beginning of period $ 7,311
Sale of common stock at $0.50 per share 410
---------
Balance, end of period 7,721
---------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period 70,189
Sale of common stock at $0.50 per share 204,590
---------
Balance, end of period 274,779
---------
DEFICIT
Balance, beginning of period (29,097)
Net loss (221,249)
---------
Balance, end of period (250,346)
---------
TOTAL STOCKHOLDERS' EQUITY $ 32,154
=========
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
4
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Consolidated Statement of Cash Flows
(Unaudited - Prepared by Management)
For the nine month period ended December 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(221,249)
Changes in non-cash working capital
Accounts receivable (17,479)
Goods and Services Tax recoverable (4,276)
Inventory (2,488)
Prepaid marketing expense (4,976)
Prepaid expenses 5,637
Accounts payable and accrued liabilities 70,034
Accrued marketing costs (16,453)
---------
(191,250)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Trademark registration costs (2,552)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Investor deposits 30,000
Proceeds from short term loans payable 13,585
Proceeds from sale of common stock 205,000
Receipt of stock subscriptions receivable 5,000
---------
253,585
---------
CHANGE IN CASH 59,783
CASH, beginning of period 9,897
---------
CASH, end of period $ 69,680
=========
Supplemental disclosures:
Interest paid $ 3,533
Income taxes paid $ --
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
5
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited - Prepared by Management)
December 31, 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. INVESTOR DEPOSITS
Investor deposits represent amounts received from potential investors
before the common stock offer had closed and the subscriptions had been
accepted. Subsequent to the period end the stock offering closed and 60,000
shares were issued at a price of $0.50 per share.
3. SHORT TERM LOANS PAYABLE
Short term loans payable consist of the following:
Loan payable to Campbell Capital Advisory, Inc. - an $ 6,415 $ 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 1,939 --
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 $18,054 $ 4,469
======= =======
6
<PAGE>
LUNA MEDICAL TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited - Prepared by Management)
December 31, 1999
4. STOCK PURCHASE WARRANTS
The company has issued warrants that entitle the holders to purchase up to
410,000 shares of the capital stock of the company at a price of $1.00 per
such share at any time prior to December 1, 2000.
5. 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 $67,500
Marketing expenses reimbursed to a company of the President 33,750
Office expenses reimbursed to a company of the President 17,550
6. COMMITMENTS AND CONTINGENCIES
Licensing Agreement
On January 31, 1999, the company entered into a licensing 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. Furthermore, the licensing 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.
Marketing and Management Agreement
The company's wholly-owned subsidiary, Luna Fertility Indicator, Inc. (the
"subsidiary") has entered into an agreement with Melissa Gervais, Inc.
("Gervais") whereby the subsidiary has engaged Gervais to provide marketing
and management services for a period of 10 years for a fee of CDN$5,000 per
month, premises rental of CDN$600 per month and an option to purchase a
7.2% interest in the subsidiary for a nominal price. Should the
subsidiary's net revenue (as defined by the agreement) exceed CDN$7,500 per
month for four consecutive months, the monthly fee shall increase to
CDN$6,250. Furthermore, the subsidiary will pay Gervais a performance bonus
of 5% of net operating profits of the subsidiary.
Item 2. Management's Discussion and Analysis or Plan of Operation
Business of the Registrant. Medical Technologies, Inc., a Nevada corporation
("Registrant"), formerly entitled Luna Technologies, Inc., was incorporated in
the State of Nevada on January 19, 1999. On or about May 31, 1999, the
Registrant changed its name to Luna Medical Technologies, Inc. The executive
offices of the Registrant are located at Suite 400, 900 West Hastings Street,
Vancouver, British Columbia, Canada V6C IE5. The Registrant's telephone number
is 604.687.0719.
On or about January 31, 1999, the Registrant entered into an exclusive worldwide
license agreement ("Agreement") with Luna Products, Inc., a Canadian corporation
("LPI"), to distribute the Luna Fertility Indicator ("Indicator"), a
7
<PAGE>
lightweight, re-usable home fertility test. As a point of clarification, as used
in this Quarterly Report on Form 10-QSB the term "US$" 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's subsidiary, Luna Fertility
Indicator, Inc., has entered into a management services contract with Melissa
Gervais, Inc. ("Gervais, Inc.") (more particularly described in Note 6 of the
financial statements included within Item 1 of this Form 10-QSB). For an initial
term of 10 years, Gervais, Inc. will provide in-house marketing and public
relations services and will co-ordinate an advertising campaign in targeted
media such as medical journals, women's magazines, religious publications and
other selected media. 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 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.
8
<PAGE>
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 (more particularly described in Item 2 of this Amendment No.
1 to the Registrant's Registration Statement on Form 10-SB). 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 December 31, 1999, the Registrant has realized
US$103,401 in revenues from sales of the Indicator. The cost of those sales
amounted to US$68,524, resulting in a gross profit of US$34,877. The
Consolidated Statement of Loss for the nine-month period ended December 31, 1999
indicates a net loss of US$221,126. At December 31, 1999, the Registrant had
current assets of US$158,375. The majority of which is represented by US$69,680
in cash; US$40,000 in a loan receivable; US$21,429 in prepaid marketing
expenses; and US$18,570 in accounts receivable. At December 31, 1999, the
Registrant had current liabilities of US$128,774. At December 31, 1999, current
assets exceeded current liabilities by US$29,601. 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$18,054, however, those notes are unsecured. The US$6,415 loan payable to
Campbell Capital Advisory, Inc., a private Canadian corporation controlled by
the Registrant's President, Gordon McDougall, bears no interest and has no fixed
repayment terms. The US$1,939 loan payable to Javelin Enterprises and the
US$9,700 loan payable to Phoenix Titanium Recovery Corp. bear interest at 10%
per annum and are repayable without notice or penalty on or before June 2, 2000
and September 24, 2000, respectively.
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.
The following chart represents the sales of the Indicator from January 19, 1999
(inception) to December 31, 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
------------------------------------------------------------
October 1999 US$37,773 2,579
------------------------------------------------------------
November 1999 US$1,324 80
------------------------------------------------------------
December 1999 US$15,060 1,044
------------------------------------------------------------
9
<PAGE>
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 private or public 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.
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
10
<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: February 14, 2000 LUNA MEDICAL TECHNOLOGIES, INC.
By: /s/ GORDON MCDOUGALL
-----------------------------------
Gordon McDougall
Its: President
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Consolidated Balance Sheet as at December 31, 1999 and the unaudited
Consolidated Statement of Loss for the nine month period ended December 31, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 69680
<SECURITIES> 0
<RECEIVABLES> 63766
<ALLOWANCES> 0
<INVENTORY> 3500
<CURRENT-ASSETS> 158375
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 160928
<CURRENT-LIABILITIES> 128774
<BONDS> 0
0
0
<COMMON> 7721
<OTHER-SE> 24433
<TOTAL-LIABILITY-AND-EQUITY> 160928
<SALES> 103401
<TOTAL-REVENUES> 103401
<CGS> 68524
<TOTAL-COSTS> 68524
<OTHER-EXPENSES> 252593
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3533
<INCOME-PRETAX> (221249)
<INCOME-TAX> 0
<INCOME-CONTINUING> (221249)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (221249)
<EPS-BASIC> (0.030)
<EPS-DILUTED> (0.027)
</TABLE>
