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, 2000
[ ] 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 (Primary Standard Industrial I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation
or organization)
201-2001 McCallum Road, Abbotsford, British Columbia, Canada V2S 3N4
(Address of principal executive offices) (Zip Code)
604.807.9948
(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 September 30, 2000, there were
8,118,338 shares of the issuer's $.001 par value common stock issued and
outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ACCOUNTANT'S REVIEW REPORT
The Board of Directors
Luna Medical Technologies, Inc.
Vancouver, BC Canada
We have reviewed the accompanying consolidated balance sheet of Luna Medical
Technologies, Inc. as of September 30, 2000 and the related statements of
operations and comprehensive income, stockholders' equity (deficit), and cash
flows for the six months ended September 30, 2000 and 1999. All information
included in these financial statements is the representation of the management
of Luna Medical Technologies, Inc.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The financial statements for the year ended March 31, 2000 were audited by us
and we expressed an unqualified opinion on it in our report dated July 12, 2000.
We have not performed any auditing procedures since that date.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has an accumulated deficit and negative
working capital. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The success of the Company is dependent
on successfully marketing its licensed product. Management's plans regarding
those issues are discussed in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
December 18, 2000
LUNA MEDICAL TECHNOLOGIES, INC.
(Formerly Luna Technologies, Inc.)
CONSOLIDATED BALANCE SHEETS
September 30, March 31,
2000 2000
(Unaudited)
----------- ---------
ASSETS
CURRENT ASSETS
Cash $ 2,395 $ 63,403
Accounts receivable, net of allowance 11,612 706
GST receivable 7,597 10,476
Prepaid expenses 1,451 9,421
Inventory -- 223
--------- ---------
Total Current Assets 23,055 84,229
--------- ---------
PROPERTY, PLANT AND EQUIPMENT
Office equipment 2,543 6,045
Less depreciation (632) (504)
--------- ---------
Total Property, Plant and Equipment 1,911 5,541
--------- ---------
OTHER ASSETS
Licensing agreement 1 1
Trademark, net of amortization 2,390 2,500
--------- ---------
Total Other Assets 2,391 2,501
--------- ---------
TOTAL ASSETS $ 27,357 $ 92,271
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 132,840 $ 26,307
Accounts payable - related parties 24,768 59,169
Accrued expenses 101,938 3,339
Short-term loans 54,991 --
Short-term loans - related parties 48,814 2,083
--------- ---------
Total Current Liabilities 363,351 90,898
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
TOTAL LIABILITIES 363,351 90,898
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
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;
8,155,660 and 8,040,660 shares issued and outstanding,
respectively 8,156 8,041
Additional paid-in-capital 464,399 434,459
Accumulated deficit (821,050) (448,379)
Accumulated other comprehensive income 12,501 7,252
--------- ---------
Total Stockholders' Equity (Deficit) (335,994) 1,373
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 27,357 $ 92,271
========= =========
See accompanying notes and accountant's review report.
2
LUNA MEDICAL TECHNOLOGIES, INC.
(Formerly Luna Technologies, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE PACKAGE
Six Months Ended September 30,
------------------------------
2000 1999
(Unaudited) (Unaudited)
----------- -----------
REVENUE $ 36,883 $ 49,242
COST OF GOODS SOLD 24,676 31,282
----------- -----------
GROSS PROFIT 12,207 17,960
----------- -----------
EXPENSES
Depreciation and amortization 502 --
Consulting 228,703 35,277
Professional fees 64,006 52,414
Marketing expense 38,049 46,361
General and administrative expense 33,979 19,952
Rent 10,396 4,200
Travel expense 4,161 4,201
Stock issuance costs 5,260 --
----------- -----------
Total Expenses 385,056 162,405
----------- -----------
LOSS FROM OPERATIONS (372,849) (144,445)
----------- -----------
OTHER INCOME AND EXPENSES
Gain on disposal of assets 287 --
Interest expense (109) --
----------- -----------
Total Other Income and Expenses 178 --
----------- -----------
LOSS BEFORE INCOME TAXES (372,671) (144,445)
INCOME TAXES -- --
----------- -----------
NET LOSS (372,671) (144,445)
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain 5,249 --
----------- -----------
COMPREHENSIVE LOSS $ (367,422) $ (144,445)
=========== ===========
NET LOSS PER COMMON SHARE $ (0.05) $ (0.02)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
BASIC AND DILUTED COMMON
STOCK SHARES OUTSTANDING 8,118,338 7,310,660
=========== ===========
See accompanying notes and accountant's review report.
3
LUNA MEDICAL TECHNOLOGIES, INC.
(Formerly Luna Technologies, Inc.)
CONSOLIDATED STATEMENTS STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
------------------- Additional Stock Total
Number Paid-In Subscriptions Comprehensive Accumulated Stockholders'
of Shares Amount Capital Receivable Income Deficit Equity
--------- ------ --------- ------------ ------------ ----------- -------------
Balance, March 31, 1999 7,310,660 7,311 70,189 (5,000) -- (29,097) 43,403
Subscription received -- -- -- 5,000 -- -- 5,000
Issuance of common stock for
cash at $0.50 per share 630,000 630 314,370 -- -- -- 315,000
Issuance of common stock in
exchange for debt at $0.50
per share 100,000 100 49,900 -- -- -- 50,000
Net loss for year ending
March 31, 2000 -- -- -- -- 7,252 (419,282) (412,030)
--------- ------ -------- ------- ------ --------- ---------
Balance, March 31, 2000 8,040,660 8,041 434,459 -- 7,252 (448,379) 1,373
--------- ------ -------- ------- ------ --------- ---------
Issuance of common stock for
subscription at $.001 per share 55,000 55 -- (55) -- -- --
Issuance of common stock for
cash at $0.50 per share 60,000 60 29,940 -- -- -- --
Subscription received -- -- -- 55 -- -- 55
Foreign currency translation adjustment -- -- -- -- 5,249 -- 5,249
Net loss for the six months ended
September 30, 2000 -- -- -- -- -- (372,671) (367,422)
--------- ------ -------- ------- ------ --------- ---------
Balance, September 30, 2000
(Unaudited) 8,155,660 $8,156 $464,399 $ -- $12,501 $(821,050) $(365,994)
========= ====== ======== ======= ======= ========= =========
See accompanying notes and accountant's review report.
4
LUNA MEDICAL TECHNOLOGIES, INC.
(Formerly Luna Technologies, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months
Ended September 30,
------------------------
2000 1999
(Unaudited) (Unaudited)
----------- -----------
Cash flows from operating activities:
Net loss $(372,671) $(144,445)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 502 --
Non-cash transactions 3,502 --
Gain on disposition of assets (287) --
Changes in assets and liabilities:
Accounts receivable (10,906) (24,966)
GST receivable 2,879 (4,432)
Prepaid expenses 7,970 22,090
Inventory 223 (713)
Accounts payable 72,132 88,786
Accrued liabilities 98,599 (16,453)
--------- ---------
Net cash used in operating activities (198,057) (80,133)
--------- ---------
Cash flows from investing activities:
Investment in intangibles -- (710)
--------- ---------
Net cash used by investing activities -- (710)
--------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock 30,000 --
Proceeds from stock subscriptions receivable 55 5,000
Proceeds from short-term loan payable 101,722 67,053
--------- ---------
Net cash provided by financing activities 131,777 72,053
--------- ---------
Change in cash (66,280) (8,790)
Foreign currency translation gain 5,272 --
Cash, beginning of period 63,403 9,897
--------- ---------
Cash, end of period $ 2,395 $ 1,107
========= =========
Supplemental disclosures:
Interest paid $ 109 $ 1,203
Income taxes paid $ -- $ --
Non-cash activities:
Exchanged office equipment for
release from payable $ 3,502 $ --
Issued stock for subscription receivable $ 55 $ --
See accompanying notes and accountant's review report.
5
LUNA MEDICAL TECHNOLOGIES, INC.
(Formerly Luna Technologies, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Luna Medical Technologies, Inc., formerly Luna Technologies, Inc., (hereinafter
"the Company") was incorporated January 19, 1999 under the laws of the State of
Nevada for the purpose of engaging in any lawful activity. The financial
statements include all activity of the Company and its wholly owned subsidiary,
Luna Fertility Indicator, Inc. The Company has entered into an exclusive
worldwide license agreement with Luna Products, Inc., the manufacturer of the
Luna Fertility Indicator, to distribute the Indicator. The Company sells its
product across Canada, at retail, wholesale and to distributorships, with 90% of
the sales being to distributors. Subsequent to the date of these financial
statements, the Company changed its focus. See Note 15. The Company maintains an
office in Vancouver, British Columbia. The Company has elected a fiscal year-end
of March 31.
On May 31, 1999, the Company amended its articles of incorporation to reflect
the name change to Luna Medical Technologies, Inc.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Luna Medical Technologies,
Inc. is presented to assist in understanding the Company's financial statements.
The financial statements and notes are representations of the Company's
management, which is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
The Company was formed on January 19, 1999 and was in the development stage
through March 31, 1999. The year ending March 31, 2000 is the first year during
which it is considered an operating company.
Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting.
Consolidation Policy
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. Inter-company transactions and balances
have been eliminated in the consolidation.
Loss Per Share
Basic loss per share was computed by dividing the net loss by the weighted
average number of shares outstanding during the period. The weighted average
number of shares was calculated by taking the number of shares outstanding and
weighting them by the amount of time that they were outstanding. Diluted loss
per share is the same as basic loss per share, as the inclusion of common stock
equivalents would be anti-dilutive.
6
LUNA MEDICAL TECHNOLOGIES, INC.
(Formerly Luna Technologies, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Provision for Taxes
At September 30, 2000, the Company had net operating losses of approximately
$821,000 that may be offset against operating income through 2015. No provision
for taxes or tax benefit has been reported in the financial statements, as there
is not a measurable means of assessing future profits or losses.
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
Allowance for Doubtful Accounts
The Company maintains an adequate allowance for doubtful accounts to cover
anticipated bad debts. Accounts receivable are charged against the allowance
when it is determined by the Company that payment will not be received.
Inventory
Inventory consists of the Luna Fertility Indicator, and is stated at cost,
determined by the first-in first-out method. The Company maintains a minimal
supply of inventory, as it has a short turnaround time with its supplier.
Advertising
Advertising costs are charged to operations in the year incurred.
Impairment of Long-lived Assets
The Company evaluates the recoverability of long-lived assets when events and
circumstances indicate that such assets might be impaired. The Company
determines impairment by comparing the undiscounted future cash flows estimated
to be generated by these assets to their respective carrying amounts. At
September 30, 2000, no impairment to assets was deemed to have occurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of acquisition to be cash equivalents.
Revenue Recognition
Revenues and cost of revenues are recognized when title to the product passes.
Title passes when the product leaves the Company's location in Vancouver,
British Columbia.
7
LUNA MEDICAL TECHNOLOGIES, INC.
(Formerly Luna Technologies, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This new standard establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
consolidated balance sheet and measure those instruments at fair value.
At September 30, 2000, the Company has not engaged in any transactions that
would be considered derivative instruments or hedging activities.
Compensated Absences
The Company has no employees. At such time as the Company hires personnel, its
employees will be entitled to paid vacation, paid sick days and personal days
off depending on job classification, length of service, and other factors. The
Company's policy will be to recognize the cost of compensated absences when
actually paid to employees.
Reclassifications
Certain amounts from prior periods have been reclassified to conform with the
current period presentation. This reclassification has resulted in no changes to
the Company's accumulated deficit previously reported.
Translation of Foreign Currency
The Company has adopted Financial Accounting Standard No. 52. Foreign currency
translation resulted in an aggregate exchange gain of $12,928 as of September
30, 2000. The Company recorded this transaction in the Statement of
Stockholders' Equity as other comprehensive income.
Interim Financial Statements
The interim financial statements as of and for the quarter ended September 30,
2000, included herein, have been prepared for the Company without audit. These
statements reflect all adjustments, which are, in the opinion of management,
necessary to present fairly the results of operations for these periods. All
such adjustments are normal recurring adjustments. The results of operations for
the periods presented are not necessarily indicative of the results to be
expected for the full fiscal year.
8
LUNA MEDICAL TECHNOLOGIES, INC.
(Formerly Luna Technologies, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying financial
statements, the Company incurred a net loss of $372,671 and has negative working
capital for the six-month period ended September 30, 2000. The Company is
currently marketing its licensed product which will, if successful, mitigate
these factors which raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be necessary
in the event the Company cannot continue in existence. Management intends to
seek additional capital from new equity issuances that will provide funds needed
to increase liquidity, fund internal growth and fully implement its business
plan.
Segment Information
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which requires disclosures about products
and services, geographic areas and major customers. The adoption of SFAS No. 131
did not affect the Company's results of operations or financial position, but
did affect the disclosure of segment information as illustrated in Note 12.
Fair Value of Financial Instruments
The carrying amounts for cash, receivables, payables, and accrued expenses
approximate their fair value.
NOTE 3 - SUBSIDIARIES
Formation of Luna Fertility Indicator, Inc.
On May 10, 1999, the Company incorporated a wholly owned subsidiary, Luna
Fertility Indicator, Inc., a British Columbia Corporation, to market and
distribute the licensed product.
NOTE 4 - CONCENTRATIONS
Credit Risk For Cash Held At Banks
The Company maintains cash accounts at two banks in Vancouver, British Columbia,
Canada. The Canadian dollar accounts are insured up to a maximum of $60,000 per
account. However, the United States dollar account is not insured.
Supplier
Luna Products, Inc. ("LPI") is the sole supplier of the Company's product. This
firm is not a related party.
9
LUNA MEDICAL TECHNOLOGIES, INC.
(Formerly Luna Technologies, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 5 - FIXED ASSETS
Office equipment is stated at cost. Depreciation expense is computed using the
straight-line method over the useful life of the asset, and amounted to $416 for
the six-month period ended September 30, 2000. Accumulated depreciation differs
from depreciation expense due to foreign currency translation (Note 2).
NOTE 6 - INTANGIBLE ASSETS
License Agreement
On February 1, 2000, the Company's subsidiary signed a fifteen-year license
agreement with Luna Products, Inc. (LPI), providing the Company with an
exclusive world-wide right to distribute the Luna Fertility Indicator. This
agreement replaced all previous agreements, and sets the cost, minimum annual
purchase requirements, minimum marketing expense requirements and inventor
royalty fee of $1 per unit sold of the Luna Fertility Indicator. The license
agreement with LPI was stated at a value of $1.
Trademark
The Company capitalized the expenses of acquiring the Luna trademark and will
amortize the expenses over a fifteen-year period, which represents its estimated
useful life, using the straight-line method. Amortization expense for the
six-month period ended September 30, 2000 amounted to $86. Accumulated
amortization differs from amortization expense due to foreign currency
translation (Note 2).
NOTE 7 - SHORT-TERM LOANS
Short-term loans - related parties consist of the following at September 30,
2000 and March 31, 2000:
September 30, March 31,
2000 2000
------- ------
Campbell Capital Advisory, Inc. (CCA) $46,875 $ 84
Javelin Enterprises 1,939 1,999
------- ------
Total $48,814 $2,083
======= ======
The CCA loan payable is unsecured, has no stated maturity and bears no interest.
The Company intends to pay the balance when funds become available. CCA is a
related company under the control of the Company's president (see Note 10).
10
LUNA MEDICAL TECHNOLOGIES, INC.
(Formerly Luna Technologies, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 7 - SHORT-TERM LOANS (Continued)
The Javelin note payable is unsecured, has no stated maturity and bears 10 %
interest per annum. Total interest accrued during the six-month period ending
September 30, 2000 amounted to $98. During December 1999, the Company issued
80,000 shares of common stock as partial satisfaction of the note. Javelin
Enterprises is a stockholder of the Company (see Note 10).
NOTE 8 - COMMON STOCK
The Company is authorized to issued up to 50,000,000 shares of $0.001 par value
common stock. The voting rights of the common stock is noncumulative.
Upon incorporation, 7,310,660 shares of common stock were sold, 7,170,000 at
$0.001 per share, and 140,660 at $0.50 per share, under Regulation D, Rule 504.
During the year ended March 31, 2000 the Company issued 630,000 shares of common
stock for cash at $0.50 per share. The Company also issued 100,000 shares of
common stock in settlement of outstanding debt at $0.50 per share.
During the six months ended September 30, 2000, the Company issued 55,000 shares
at $.001 per share for a subscription receivable. The Company issued an
additional 60,000 shares of common stock at a cash price of $0.50 per share.
During the quarter ended June 30, 2000, the Company reached an agreement to
issue 200,000 shares of stock in payment of consulting fees amounting to
$100,000. These fees are currently recorded in the financial statements as
accrued expenses. The Company plans to issue these shares subsequent to
September 30, 2000.
NOTE 9 - WARRANTS AND OPTIONS
The Company issued one warrant with each share of common stock subscribed for
during a subscription period in autumn of 1999. The warrants have an exercise
price of $1.00 per share and expire December 1, 2000. As of September 30, 2000,
no warrants had been exercised and there are 410,000 warrants issued and
outstanding.
The Company does not have a formal stock option plan. However, the Company
issued options to two consultants during the year ended March 31, 2000. The
options had no value due to the fact that the exercise price was in excess of
the fair market value at the grant date. On May 8, 2000, the Company cancelled
this agreement with required 30 day notice, and the consultants relinquished
their claim to these options.
11
LUNA MEDICAL TECHNOLOGIES, INC.
(Formerly Luna Technologies, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 10 - PREFERRED STOCK
The Company is authorized to issue up to 50,000,000 share of $0.001 par value
preferred stock. The stock does not carry any pre-emptive or preferential rights
to subscribe to any unissued stock or any other securities which the Company may
be authorized to issued and does not carry voting rights.
No shares of preferred stock were issued as of September 30, 2000.
NOTE 11 - RELATED PARTIES
The former president and chief executive officer of the Company, Gordon C.
McDougall, is also the president and stockholder of Campbell Capital Advisory,
Inc. (CCA), which had advanced funds to the Company to begin operations and to
retain the services of an attorney. As of September 30, 2000, the Company owes
CCA $46,875. In addition, CCA provides management services for a quarterly fee
of $15,000 plus $12,000 for reimbursed expenses. For the six-month period ended
September 30, 2000, the Company incurred a total of $38,049 in management fees
and $4,161 in reimbursed expenses. As of September 30, 2000 there is an
outstanding accounts payable of $22,002 to CCA.
The Company executed a promissory note in favor of a stockholder, for funds
loaned to the Company. As partial satisfaction of the note, 80,000 shares of
common stock were issued. As of March 31, 2000, the balance owing on the note is
$1,960, plus interest of $2,107.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Foreign Operations
The accompanying balance sheet includes $27,357 relating to the Company's assets
in Canada. Although this country is considered politically and economically
stable, it is always possible that unanticipated events in foreign countries
could disrupt the Company's operations.
Rent
The Company rents office space on a month-to-month basis.
License Agreement
There is a royalty agreement in effect with Luna Products, Inc. This agreement
calls for the payment of $1 per unit sold of the Luna Fertility Indicator. See
Note 6.
Management Service Agreement
The Company's subsidiary signed a two-year agreement for management services.
The agreement expires August 31, 2001 at which time it may continue on a
year-to-year basis for ten years. The agreement requires a base monthly fee of
$5,000 CND, plus a 5 % bonus of the Company's subsidiary's operating profits.
12
LUNA MEDICAL TECHNOLOGIES, INC.
(Formerly Luna Technologies, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 13 - SEGMENT INFORMATION
As described in Note 2, the Company adopted SFAS No. 131 in its fiscal year
2000. The Company's operations are classified into two principal reporting
segments that provide different products or services. Separate management of
each section is required because each business unit is subject to different
marketing, and production strategies.
The table below presents information about the Company's reportable segments:
Six-months ended September 30, 2000
----------------------------------------------------------
Luna Medical Luna Fertility
Technologies, Inc. Indicator, Inc. Consolidated
------------------ --------------- ---------------
External Revenue $ -- $ 36,883 $ 36,883
Operating loss $ 324,385 $ 48,286 $ 372,671
Interest income $ -- $ -- $ --
Depreciation and amortization $ 416 $ 86 $ 502
Interest expense $ 109 $ -- $ 109
Total assets $ 13,092 $ 14,265 $ 27,357
The first segment, Luna Medical Technologies, Inc. is a holding company for the
second segment and does not rely on direct revenues. The second segment, Luna
Fertility Indicator, Inc., an operating company, derives revenues from the
marketing and distribution of the licensed product.
The accounting policies for the two reportable segments are the same as those
described in the summary of significant accounting policies. The Company
allocates resources to its operating segment, and evaluates performance of this
segment based on operating income.
NOTE 14 - YEAR 2000 ISSUES
Like other companies, Luna Medical Technologies, Inc. could be adversely
affected if the computer systems it, or its suppliers or customers, uses do not
properly process and calculate date-related information and data from the period
surrounding and including January 1, 2000. This is commonly known as the "Year
2000" issue. Additionally, this issue could impact non-computer systems and
devices such as production equipment, elevators, etc. The costs related to Year
2000 compliance are expensed as incurred. At this time, there have been no known
effects to the Company in regards to the Year 2000 issue.
13
LUNA MEDICAL TECHNOLOGIES, INC.
(Formerly Luna Technologies, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE 15 - SUBSEQUENT EVENTS
The Company has signed and completed the agreement to acquire all issued and
outstanding shares of Menathen Services, Inc.o/a Women's Health Center
subsequent to the date of these financial statements. Under the terms and
conditions of the acquisition, two officers of the Company will each be entitled
to 200,000 shares of the Company's common stock and will also be allowed to
acquire and additional 100,000 shares of the Company's common stock for each
Woman's Health Center opened.
In October 2000, Stuart McNeill resigned as president of the Company and Dr.
James Swanney accepted the position. The focus of the business changed at this
time, and will now concentrate on the development of women's health centers.
After December 1, 2000, the Company will no longer receive any revenue from
sales of the Luna Fertility Indicator.
14
Item 2. Management's Discussion and Analysis or Plan of Operation
Business of the Company. Luna Medical Technologies, Inc., a Nevada corporation,
formerly named Luna Technologies, Inc., was incorporated in the State of Nevada
on January 19, 1999. In May, 1999, the Company changed its name to Luna Medical
Technologies, Inc. Our executive offices have been relocated, effective on or
about October 16, 2000, to 201-2001 McCallum Road, Abbotsford, British Columbia
V2S 3N4, and our telephone number has been changed, effective on the same date,
to 604.807.9948.
On or about May 11, 1999, we incorporated a wholly-owned subsidiary in British
Columbia named Luna Fertility Indicator, Inc., which was intended to market and
distribute the Luna Fertility Indicator, a home fertility test. On or about
December 1, 2000, we sold all of our the rights to the Luna Fertility Indicator
to Melissa Gervais, Inc., who was originally going to provide in-house marketing
and public relations services to us to promote and market the Luna Fertility
Indicator.
We have had significant changes in our management and our business plan. Our
management has been entirely replaced during this fiscal quarter. Gordon
McDougall resigned as a member of our board of directors effective September 20,
2000. Stuart McNeill was our president and a director from September 12, 2000,
to November 6, 2000. Dr. James Swanney became our president and a director on
October 17, 2000. Elizabeth Findlay became a director on October 17, 2000.
Earlier this year, on or about May 9, 2000, we accepted the resignation of Brad
Desaulniers as our president and chief operating officer and as a director.
Gordon McDougall was appointed to replace Mr. Desaulniers as president, and was
our sole director until the appointment of Mr. McNeill. These repeated
management turnovers have resulted in the company's focus and business plan
shifting several times in the past fiscal year. New management believes that our
new business plan, which will concentrate on the development of Women's Health
Centers, will enable us to provide professional, multi-service facilities
specializing in women's health issues.
We believe our new management has the medical background and business experience
we need to effectuate our new business plan. Dr. Swanney received a medical
degree from Glasgow Scotland in 1969 and was an industrial medical director for
Rolls Royce in 1971 prior to joining Placer Development in 1973. He joined
Pfizer Canada in 1979 and acquired experience in the pharmaceutical and
corporate medical industry. He left Pfizer Canada to return to British Columbia
and set up a private medical practice. Dr. Swanney was a founding partner of the
Family Medicine Research Centre, conducting medical research for both government
and private industry. He has developed drug and alcohol treatment programs and
served as prsident of MSA General Hospital overseeing a large medical staff.
Elizabeth A. Findlay holds a Masters Degree in Education and a Bachelor of
Nursing Science. She has significant experience as a nurse and with women's
health issues and services.
We acquired Menathen Services in October, 2000. On or about October 10, 2000, we
entered into an agreement to acquire all of the issued and outstanding common
stock of Menathen Services, Inc., a British Columbia corporation doing business
as Women's Health Center. Our business plan contemplates opening a string of
these health centers, which will provide medical facilities geared specifically
toward women's health issues.
We have signed a letter of intent to acquire Willow Medical Systems, Inc. On
September 8, 2000, we signed a letter of intent to acquire Willow Medical
Systems, Inc., a Vancouver-based British Columbia corporation which has created
an Internet practice and medical records system. This system allows medical
professionals access to patient records, on-line subscriptions, medical
information, referrals, dictionairies, research databases, billing and
accounting systems, scheduling software, Internet bulk supply purchasing and
other practice management tools. It also allows patients to fill prescriptions,
schedule medical appointments and receive medical information and test results
on-line.
Although the concept of electronic transmission of and access to medical records
over the Internet is not new, many medical professionals resisted the
implementation of this type of technology due to the high costs of hardware and
software, and concerns over patient privacy and the confidentiality of medical
records. Now that most medical practices already have computer systems for
billing and scheduling, and reliable software and systems exist to maintain the
confidentiality of medical files, applications for medical software are now more
readily accepted by the medical profession.
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Liquidity. The Company has been in the development stage since January 19, 1999
(inception). We incurred a net loss of $372,671 and has negative working capital
for the six-month period ended September 30, 2000. This has raised concerns that
we may not be able to continue to operate.
Our cash has decreased from $63,403 at March 31, 2000, to $2,395 at September
30, 2000. Our inventory has also declined from inventory valued at $223 to
inventory valued at $0 at September 30, 2000. Our accounts receivable have
increased from $706 at March 31, 2000, to $11,612 at September 30, 2000. During
the same six month period, our accounts payable have increased from $26,307 to
$132,840. We have taken out short term loans from related parties, specifically,
during the six-month period ended September 30, 2000 we increased our debt to
Campbell Capital Advisory, Inc., which is controlled by our former president and
director, Gordon McDougall, from $84 to $46,875. We also carried a short term
loan for $1,939 at September 30, 2000 from one of our shareholders, Javelin
Enterprises. Both of these loans are unsecured and have no stated maturity. The
loan from Campbell Capital Advisory, Inc. bears no interest, while the loan from
Javelin Enterprises bears interest at 10% per annum.
Results of Operations. For the six-month period ended September 30, 1999, we had
$49,242 in revenue from sales of the Fertility Indicator, with $31,282 in cost
of goods sold. During the same period in the year 2000, we had revenues of
$36,883, with $24,676 in cost of goods sold. Our gross profit for the six-month
period ended September 30, 1999 was $17,960, as compared to a gross profit for
the six-month period ended September 30, 2000 of $12,207. Our expenses increased
significantly in 2000 as compared to 1999. For the six-month period ended
September 30, 1999 we paid a total of $35,277 in consulting fees; however,
during the same six-month period in 2000, we paid a total of $228,703 in
consulting fees. Our professional fees incurred increased from $52,414 in the
six-month period ended September 30, 1999 to $64,006 during the same period in
2000. Our general and administrative expenses increased from $19,952 for the
six-month period ended September 30, 1999 to $33,979 during the same period in
2000. Our rent also increased from $4,200 for the six-month period ended
September 30, 1999 to $10,396 during the same period in 2000.
At September 30, 2000, we had total current liabilities of $363,351, a
significant increase from the $90,898 in liabilities at September 30, 1999. At
September 30, 2000, we had total assets of $27,357, down from $92,271 at
September 30, 1999.
Currently, our only source of liquidity is the sale of our common stock. After
December 1, 2000, we will no longer receive any revenue from sales of the
Fertility Indicator. We will require additional capital to fund our operations
and develop our women's health centers over the next 12 months. Such additional
capital may be received from private or public financings, as well as borrowings
and other resources. If adequate cash is not available, we may be required to
curtail our operations significantly or to obtain funds by entering into
arrangements with collaborative partners or others that may require us to
relinquish rights that we would not otherwise relinquish. No assurance can be
given, however, that we will have access to additional cash in the future, or
that funds will be available on acceptable terms to satisfy the cash
requirements of our company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
During the year ended March 31, 2000, we issued 630,000 shares of our common
stock for cash at $0.50 per share. We also issued 100,000 shares of our common
stock in settlement of outstanding debt; this stock was also valued at $0.50 per
share.
During the six months ended September 30, 2000, we issued 55,000 shares of our
common stock at par value, $.001 per share, for a subscription receivable. We
also issued an additional 60,000 shares of our common stock for cash at $0.50
per share.
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On October 16, 2000, we entered into employment agreements with Dr. James
Swanney and Elizabeth Findlay which provided, among other things, that we would
issued 500,000 shares of our common stock to Dr. Swanney and 200,000 shares of
our common stock to Elizabeth Findlay as incentive compensation. We filed a
Registration Statement on Form S-8 with the SEC on November 20, 2000 to register
Dr. Swanney's shares.
On October 16, 2000, we entered into a consulting agreement with Cameron King
which provided that we would issue 100,000 shares of our common stock as
compensation for consulting services.
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
(a) Exhibits Required by Item 601 of Regulation S-B:
2. Plan of Acquisition - Acquisition Agreement with Menathen Services, Inc.
3. Articles of Incorporation and Bylaws - filed as exhibits to Form 10-SB
filed with the SEC on March 17, 2000 and incorporated herein by this
reference
4. Instruments defining the rights of holders - not applicable
10. Material contracts
10.1 Employment agreement with Dr. James Swann filed as exhibit to
Registration Statement on Form S-8 filed with the SEC on November 20, 2000 and
incorporated herein by this reference
10.2 Employment agreement with Dr. Elizabeth Findlay
10.3 Consulting Agreement with Cameron King
11. Statement re: computation of per share earnings are included in Note 2 to
financial statements
15. Letter on unaudited interim financial information is included in financial
statements
18. Letter on change in accounting principles - not applicable
19. Reports furnished to security holders - none
22. Published report regarding matters submitted to vote - not applicable
24. Power of attorney - not applicable
27. Financial data schedule
(b) Reports on Form 8-K. On September 21, 2000, we filed a report on Form 8-K
with the Commission announcing that we had accepted the resignation of Gordon
McDougall as our president effective September 7, 2000 and that Mr. McDougall
remained as a director. We also announced that we had approved the appointment
of Stuart McNeill as our president effective September 7, 2000 and that we had
approved the appointment of Mr. McNeill as a director on September 11, 2000.
On November 13, 2000, we filed a report on Form 8-K with the Commission
announcing that, effective October 16, 2000, our board of directors accepted the
resignation of Stuart McNeill as president and the appointment of Dr. James
Swanney as president and a director. That report on Form 8-K also reported that
Elizabeth A. Findlay had been appointed as a director effective October 16, 2000
and that on September 20, 2000, we had accepted the resignation of Gordon
McDougall as a director.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: December 20, 2000 LUNA MEDICAL TECHNOLOGIES, INC.
By: /s/ Dr. James Swanney
--------------------------
Dr. James Swanney
Its: President and Chief
Financial Officer
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