SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
 (Mark One)

(X)  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the Fiscal Year Ended December 31, 2000
                                       OR
( )   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                                    EXCHANGE ACT OF 1934

Commission File No. 0-25474

                      LUNA TECHNOLOGIES INTERNATIONAL, INC.
           ----------------- ---------------------------------------
                 (Name of Small Business Issuer in its charter)

                Delaware                                     91-1987288
         ------------------------                      ----------------------
         (State of incorporation)                          (IRS Employer
                                                         Identification No.)

       61B Fawcett Road
       Coquitlam, British Columbia, Canada                    V3K 6V2
    -----------------------------------------------        --------------
    (Address of Principal Executive Office)                   Zip Code

Registrant's  telephone number,  including Area Code: (604) 526-5890
Securities registered  pursuant to Section  12(b) of the Act:
None Securities registered pursuant to Section 12(g) of the Act:

                                  Common Stock
                                (Title of Class)

Check 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 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

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best  of  the  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

The Company's revenues for the most recent fiscal year were $403,580.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Company it is not know since as of April 2, 2001 the Company's  common stock was
not publicly traded.

As of April 2, 2001 the Company had 4,610,911  issued and outstanding  shares of
common stock.


<PAGE>


ITEM 1.  DESCRIPTION OF BUSINESS

     The  Company  was  incorporated  on March 25,  1999 in Delaware to develop,
manufacture    and   sell    photoluminescent    products   (High    Performance
Photoluminescent  Lighting,  "HPPL")  used for  emergency  lighting,  signs  and
markings,  wayfinding  systems and novelty products with applications in marine,
commuter,  rail, subway, building and toy markets. The Company conducts business
in Canada  through  its  wholly-owned  Canadian  subsidiary,  Luna  Technologies
(Canada) Ltd.

      The  Company's   executive  offices  are  located  at  61B  Fawcett  Road,
Coquitlam,  British Columbia,  Canada V3K 6V2. The Company's telephone number is
(604) 526-5890,  its facsimile  number is (604)  526-8995,  its email address is
luna_technologies@telus.net, and its web page address is www.lunaplast.com.

      From the date of its  incorporation  and  through  December  31,  2000 the
Company had cumulative losses of $(522,214).  There can be no assurance that the
Company will ever earn any profits.

      Phosphorescent (also referred to as photoluminescent) materials emit light
continuously  when they are excited by ultraviolet  or visible  light.  However,
unlike  fluorescent  materials,  when the  excitation  source  is  extinguished,
phosphorescent  materials  continue  to emit  light.  It is this  light  (called
afterglow) that people refer to as  "glow-in-the-dark".  The afterglow decreases
(or decays) over time after the excitation source has been extinguished.

      Although  many  people   associate  the  word   "photoluminescence"   with
"glow-in-the-dark"    toys   and   novelties,    in   the   lighting   industry,
photoluminescent  products  such as marker tapes and signs are commonly  used to
delineate  emergency  escape  routes and danger  areas,  and to mark  equipment,
pipes, tools and working and accident prevention clothing.

      Photoluminescent  signs and markers  are used in a variety of  situations,
including office buildings, industrial sites, passenger ships, offshore drilling
platforms,   underground  mines,  and  aircraft.  The  use  of  photoluminescent
materials for life safety  applications  is  recommended or mandated in numerous
building codes, fire safety codes, and transportation standards.

      Most photoluminescent products are composed of inorganic pigments that can
be  incorporated  into paint,  plastic  films,  enamels,  and flexible and rigid
molded plastics.  Typical products include adhesive vinyl tapes, rigid polyvinyl
chloride   (PVC)   marker   strips,    and   silk-screened    plastic   signage.
Photoluminescent  enamel-coated  sheet  metal  and  ceramic  products  are  also
available.

      The main pigment commonly used in photoluminescent glow-type products is a
zinc sulphide compound emitting a yellowish-green  light. This material performs
well when subjected to high ambient lighting levels but the decay rate is rather
rapid. The Company's current LUNAplast  pigment material,  Strontium  Aluminate,

<PAGE>

has a performance level 20 x that of zinc-based products. In addition, the decay
curve for  strontium-based  products  is measured in hours as opposed to minutes
for zinc-based items.

      Strontium  Aluminate  is more  expensive  than  zinc  sulphide  and  takes
slightly  longer to charge,  but can  "store"  more  light,  making it much more
suitable  for use in locations  where  ambient  light levels are low.  Strontium
Aluminate also offers much brighter and longer-lasting photoluminescence.

      Although Strontium Aluminate PL material is superior to products made with
zinc sulphide,  the process  required to manufacture  Strontium  Aluminate PL is
very complex and manufacturers were unable to cost effectively produce Strontium
Aluminate PL products in commercial quantities.

      Between  January 1995 and October 1999,  Douglas  Sinclair,  presently the
chief  executive  officer of the Company's  Canadian  subsidiary,  developed the
proprietary   technology,   formulas  and  processes   needed  to   commercially
manufacture  Strontium  Aluminate  PL products on a  cost-effective  basis.  The
resulting product,  referred to by the Company as Lunaplast, is up to 20 x times
brighter than  commercial zinc sulphide  products,  and is clearly visible after
many hours of total darkness.  During this same period of time, Mr. Sinclair and
Kimberly Landry,  an officer and director of the Company,  developed an advanced
Strontium  Aluminate  HPPL  material  which  is four  times  brighter  than  the
Company's  Lunaplast  product.  Mr.  Sinclair  and Ms.  Landry  filed  a  patent
application  pertaining  to this  invention  with the U.S.  Patent and Trademark
Office in November 1997. For a nominal consideration Mr. Sinclair and Ms. Landry
assigned  the rights in  November  1997 to the patent  application  and  related
technology to Luna Technologies Inc. ("LTI"), a corporation formed by Ms. Landry
in December 1994.

     In April  1999 the  Company  acquired  from LTI the  rights  to the  patent
application  and  related  technology  assigned to LTI by Mr.  Sinclair  and Ms.
Landry.  In  consideration  for this  assignment,  the Company agreed to pay LTI
$90,000,  without interest, on or before June 30, 2000. As of March 20, 2001 the
patent  application  assigned to the Company was pending before the U.S.  Patent
and Trademark Office.

      In November 1999, the Company  acquired from Mr.  Sinclair the proprietary
technology  required to manufacture  Lunaplast into PVC sheets,  vinyl rolls and
paints as well as the trademark rights to these products.  In consideration  for
the assignment of this technology and the trademarks,  the Company agreed to pay
Mr. Sinclair $60,000, without interest, or before November 30, 2000.

      During 2000 the Company  developed the processes  required to manufacturer
Strontium Aluminate PL products using vacuum forming,  extrusion,  and injection
molding techniques.

      Lunaplast  is  available  in  flexible  vinyl  and rigid  PVC  sheets.  In
addition, a wide range of polymer compounds for extrusions and injection molding
was added during the year. The  substantial  increase in performance  opens up a
completely  new range of  opportunities  in life safety.  Direct  replacement of
electrical  exit signs  (standards are currently  being written by  Underwriters

<PAGE>

Laboratories) is expected to be a market for  photoluminescent  materials in the
near future.

      The Company began producing  Lunaplast on a commercial basis during fiscal
2000. During the year ended December 31, 2000 the Company had sales of $403,580.
As of April 2, 2001 the  Company  had a backlog,  representing  firm  orders for
delivery of Lunaplast prior to December 31, 2001, of approximately $135,000.

      During the year ended December 31, 2000 one customer  accounted for 70% of
the  Company's  gross  revenues and another  customer  accounted  for 17% of the
Company's  gross  revenues.  The loss of either of these  customers would have a
material adverse effect on the Company.

Manufacturing

      Lunaplast is a three-part laminate, consisting of one base layer of highly
reflective white material of PVC or vinyl, one mid-layer of photoluminescent PVC
or vinyl impregnated with the Company's  proprietary Strontium Aluminate polymer
compound,  and one top  layer of clear PVC or vinyl  with UV and  fire-resistant
properties.

      All aspects of the Company's  manufacturing  process are  subcontracted to
various  third  parties  which  formulate,  mix  and  produce  Lunaplast  to the
Company's specifications.  Once the manufacturing process is complete, Lunaplast
is sold to  fabricators  which use Lunaplast in a variety of end user  products.
All subcontractors  involved in manufacturing  Lunaplast have agreed to maintain
the confidential nature of the Company's proprietary manufacturing technology.

      The Company does not have any long-term  agreements  with any of the third
parties  involved  in  manufacturing   Lunaplast.   The  Company  believes  that
alternative  manufacturers  are available which could produce Lunaplast on short
notice and without disrupting product delivery schedules.

      Management   anticipates  that  the  advanced  Strontium   Aluminate  HPPL
material, which is the subject of the Company's pending patent application, will
be the basis for the next generation of the Company's  photoluminescent products
and will be vital to the  Company's  ability to compete in the  photoluminescent
industry.  However,  and as is the case with  Lunaplast,  this new material will
require  complex  manufacturing  processes.  The Company  believes that this new
product  will not be ready for  commercial  production  until  March 2002 at the
earliest.  Specific market needs may change and further research may be required
to refine the product and process required to manufacture this new product.



<PAGE>


Sales and Marketing

      World  markets for  photoluminescent  lighting  products are in the marine
(shipping and cruise lines),  transportation and commuter  industry,  and in the
commercial,  institutional and industrial retrofit and new building construction
sector, in which the need for photoluminescent emergency lighting and wayfinding
signage  systems has risen  sharply over the last two decades.  A third  primary
marker is "glow-in-the-dark" toys and novelties.

      The  Company   believes  that  the  world  market  for  HPPL  lighting  is
underdeveloped  due largely to the low  illumination  delivered by zinc sulphide
products.  The Company plans to build interest and sales for Lunaplast  products
in established  markets around the world. The Company's  marketing plan includes
advertising in trade magazines,  exhibiting at industry tradeshows,  direct mail
campaigns,  soliciting  editorial  coverage  from naval  architecture,  building
design, architecture and lighting industry publications and distributing product
samples, videos and brochures to designers and developers. The Company's website
will also be used as a means to  distribute  product  information  to interested
parties quickly.

      The  Company  markets  its  products  through  its  officers  and  through
independent  sales  representatives.  As of April 2,  2001 the  Company  had six
independent  sales  representatives  which  were  marketing  Lunaplast  in North
America, Australia and New Zealand.

Competition

      No single company dominates the world  marketplace.  Instead,  a number of
small and medium-sized  firms are active within regional markets in Europe,  the
U.S. and elsewhere.  Some producers  include  companies such as Permalight AG of
Germany  (Europe and North America),  Safe T Glow (UK and U.S.),  Datrex (U.S.),
Jalite  (UK),  Everglow  (Europe)  and  Existalight  (Europe  and  U.S.).  It is
difficult to determine  annual  sales  volumes and revenues for these firms,  as
most are privately held.

      Although   there   are   several   manufacturers   and   distributors   of
photoluminescent  products the Company  believes it has a significant  advantage
over its competitors as a result of its proprietary  manufacturing processes and
cost  effective  approach to the  production of Strontium  Aluminate-based  HPPL
materials in commercial quantities.  The Company also plans to be competitive in
the  HPPL  industry  by  developing  advanced  Strontium  Aluminate   materials,
enhancing formulation and focusing on higher volumes with a resultant lower cost
of  production.  During the  twelve-month  period  ending  December 31, 2001 the
Company  plans to spend  $40,000 on  research  relating  to the  development  of
advanced strontium aluminate PL materials.

Office Space

      The Company  leases  approximately  2,400 square feet of executive  office
space at 61B Fawcett Road,  Coquitlam,  British  Columbia at a monthly rental of
$809. The lease on this space expires on October 31, 2001.

<PAGE>

      The Company  subleases  approximately  1,500  square feet of office  space
located at 61A Fawcett Road, Coquitlam,  British Columbia at a monthly rental of
$507. The lease on this space expires on October 31, 2001.

Employees

    As of April 2,  2001  the  Company  had six  full-time  employees  including
Douglas Sinclair and Kimberly Landry. See Item 9 of this report. As of March 20,
2001 the  Company  did not have any part  time  employees.  Contingent  upon the
Company  raising  sufficient  capital,  the  Company  plans  to hire  additional
employees as may be required by the level of the Company's operations.

    See Item 12 of this report for information concerning sales of the Company's
common stock to officers, directors, and various third parties.

ITEM  2. DESCRIPTION OF PROPERTIES See Item 1 of this report.

ITEM 3.  LEGAL PROCEEDINGS.
--------------------------

      The  Company  is not  engaged  in any  litigation,  and the  officers  and
directors  presently know of no threatened or pending  litigation in which it is
contemplated that the Company will be made a party.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
-------------------------------------------------------------

      Not Applicable

ITEM 5. MARKET PRICE OF AND  DIVIDENDS  ON THE  REGISTRANT'S  COMMON  EQUITY AND
        OTHER SHAREHOLDER MATTERS.

      As of March 20, 2001 there were 116 owners of the Company's  common stock.
The Company  expects that on April 28, 2001 its common stock will begin  trading
on the OTC Bulletin Board under the symbol LTII.

      Holders of common stock are  entitled to receive such  dividends as may be
declared by the Board of Directors out of funds legally available  therefor and,
in the  event of  liquidation,  to share  pro  rata in any  distribution  of the
Company's  assets after  payment of  liabilities.  The Board of Directors is not
obligated to declare a dividend.  The Company has not paid any dividends and the
Company does not have any current plans to pay any dividends.

      The provisions in the Company's Articles of Incorporation  relating to the
Company's preferred stock would allow the Company's directors to issue preferred
stock with rights to multiple  votes per share and dividends  rights which would
have  priority  over any  dividends  paid with respect to the  Company's  common
stock.  The issuance of preferred stock with such rights may make more difficult

<PAGE>

the removal of management even if such removal would be considered beneficial to
shareholders  generally,  and  will  have the  effect  of  limiting  shareholder
participation in certain  transactions  such as mergers or tender offers if such
transactions are not favored by incumbent management.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS/ PLAN OF OPERATIONS

Results of Operations.

      For the year ended  December  31,  2000 sales were  $403,580.  There is no
comparative sales information for the previous year as commercial  production of
the Company's products began in fiscal 2000.

Liquidity and Capital Resources.

      During the period ended December 31, 1999, the Company's  operations  used
$33,690 in cash. During this same period the Company purchased $9,474 of capital
assets and repaid $8,119  advanced to the Company by LTI. During this period the
Company  satisfied its cash  requirements with the proceeds from the sale of its
common stock and preferred stock in private offerings.

      During the year ended  December  31, 2000 the  Company's  operations  used
$160,797  in cash.  During this year the  Company  purchased  $21,720 of capital
assets and paid promissory notes totaling  $150,000 which were issued in 1999 to
acquire  technology rights from LTI and Douglas  Sinclair.  During this year the
Company  satisfied  its  cash  requirements  with a loan  from  Kimberly  Landry
($60,000),  loans from an unrelated  third party and  proceeds  from the sale of
common stock and preferred stock in private offerings.

      The  Company  anticipates  that its capital  needs  during the year ending
December 31, 2001 will be as follows:

      $450,000 for  corporate  expenses,  $40,000 for  research  relating to the
development of advanced strontium  aluminate PL materials,  and $82,600 to repay
amounts borrowed from Kimberly Landry and another third party.

      The Company does not have any available  credit,  bank  financing or other
external sources of liquidity. Due to the operating losses of the Company during
the Company's initial year of operations, the Company's operations have not been
a source of  liquidity.  At December 31, 2000 the Company had a working  capital
deficiency  of  $(228,360).  The  ability of the  Company to continue as a going
concern is dependent  on the Company  raising  additional  capital and on future
profitable  operations.  To that end the Company is seeking  financing to expand
its operations and for working capital purposes.  There can be no assurance that
the Company will be successful in obtaining additional funding.

<PAGE>


ITEM 7.  FINANCIAL STATEMENTS

      See the financial statements attached to this report.

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

      None.

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

     The  following  sets  forth  certain  information  concerning  the  present
management of the Company:

   Name                 Age       Position with Company

 Douglas Sinclair       52       Chief Executive Officer of Luna Technologies
                                 (Canada), Ltd., a wholly owned subsidiary  of
                                 the Company

 Robert H. Humber       57       President and a Director

 Kimberly Landry        35       Secretary and a Director

      Douglas  Sinclair has been the Chief  Executive  Officer of the  Company's
Canadian  subsidiary  since  January 1, 2000.  Between 1995 and October 1999 Mr.
Sinclair  provided  consulting  services  to  LTI  in  the  areas  of  research,
development  and  marketing.  Prior  to 1995  Mr.  Sinclair  was an  independent
consultant  to companies  engaged in  developing,  manufacturing  and  marketing
photoluminescent products.

      Robert Humber has been the  President of the Company and a director  since
April 1999.  Between July 1996 and November 1999 Mr. Humber was the president of
LTI.  Prior to July 1996 Mr.  Humber  worked with Douglas  Sinclair and Kimberly
Landry in developing  photoluminescent products. For the past twenty-three years
Mr. Humber has also been an  independent  investigator  and security  consultant
providing services to law enforcement agencies and private industry.

      Kimberly  Landry  has  been the  Secretary  of the  Company,  as well as a
director  since  April 1999.  Since  December  1994 Ms.  Landry has also been an
officer and director of LTI.

      Mr. Sinclair is the common law husband of Ms. Landry.



<PAGE>


ITEM 10.  EXECUTIVE COMPENSATION

         The  following  table  sets  forth in  summary  form  the  compensation
received  by the  Company's  executive  officers  during the  fiscal  year ended
December 31, 2000.

                          Annual Compensation            Long Term Compensation
                    ------------------------------------------------------------
                                                          Re-
                                             Other       stric-
                                             Annual       ted
Name and                                     Compen-     Stock        Options
Principal           Fiscal Salary   Bonus    sation      Awards       Granted
Position             Year    (1)     (2)      (3)         (4)           (5)
---------           ------ -------  -------  ------      ------       -------

Douglas Sinclair,   2000  $40,000     --       --           --            --
Robert H. Humber,   2000  $18,000                           --            --
Kimberly Landry     2000  $36,000     --       --           --            --

(1)  The dollar value of base salary (cash and non-cash) received.

(2)  The dollar value of bonus (cash and non-cash) received.
(3)  Any other annual compensation not properly  categorized as salary or bonus,
     including perquisites and other personal benefits, securities or property.

(4)  Amounts  reflect  the value of the  shares of the  Company's  common  stock
     issued as compensation for services.

      The table below shows the number of shares of the  Company's  common stock
owned by the officers listed above,  and the value of such shares as of December
31, 2000.

      Name                          Shares                 Value *
      ----                          ------                 -------
      Douglas Sinclair               1,000           $       1,500
      Robert H. Humber             800,000              $1,200,000
      Kimberly Landry            1,580,000              $2,370,000

*  The Company's  common stock was not publicly  traded as of December 31, 2000.
   For purposes of this table, the value was deemed to be $1.50 per share, which
   is the  effective  price at which the Company's  restricted  common stock was
   being sold in a private offering as of October 23, 2000.

(5)  The shares of common  stock to be received  upon the  exercise of all stock
     options  granted  during the  fiscal  years  shown in the  table.  No stock
     options have been granted to date.

<PAGE>


      The Company's Canadian subsidiary has an employment agreement with Douglas
Sinclair  whereby  the  subsidiary  has  agreed to pay Mr.  Sinclair a salary of
$3,300 per month during the twelve-month period ending December 31, 2001.

      The  Company's  Canadian  subsidiary  has  an  employment  agreement  with
Kimberly  Landry whereby the subsidiary has agreed to pay Ms. Landry a salary of
$3,000 per month during the twelve-month period ending December 31, 2001.

      The Company  has an  employment  agreement  with Robert H. Humber to pay a
salary of $2,000 per month for the nine-month period commencing April 1, 2001.

      The  following  shows  the  amount  which  the  Company  and its  Canadian
subsidiary  expect to pay to its officers during the twelve-month  period ending
December  31,  2001,  and the time which the  Company's  executive  officers and
technical advisor plan to devote to the Company's business

                                Proposed               Time to be Devoted
    Name                      Compensation            To Company's Business

    Douglas Sinclair             $40,000                      100%
    Robert H. Humber             $18,000                       80%
    Kimberly Landry              $36,000                      100%

      The Company's Board of Directors may increase the compensation paid to the
Company's   officers   depending  upon  the  results  of  the  Company's  future
operations.

Long Term Incentive Plans - Awards in Last Fiscal Year

    None.

Employee Pension, Profit Sharing or Other Retirement Plans

     Except  as  provided  in  the  Company's  employment  agreements  with  its
executive officers,  the Company does not have a defined benefit,  pension plan,
profit sharing or other retirement  plan,  although the Company may adopt one or
more of such plans in the future.

Compensation of Directors

      Standard  Arrangements.  At present the Company does not pay its directors
for attending meetings of the Board of Directors, although the Company may adopt
a director  compensation  policy in the  future.  The  Company  has no  standard
arrangement  pursuant to which  directors of the Company are compensated for any
services  provided  as a  director  or for  committee  participation  or special
assignments.

<PAGE>


      Other Arrangements. During the year ended December 31, 2000, and except as
disclosed elsewhere in this registration  statement,  no director of the Company
received any form of compensation from the Company.

Stock Option and Bonus Plans

      The Company has an Incentive  Stock Option  Plan,  a  Non-Qualified  Stock
Option Plan and a Stock Bonus Plan. A summary  description of each Plan follows.
In some cases these three Plans are collectively referred to as the "Plans".

      Incentive  Stock Option Plan. The Incentive  Stock Option Plan  authorizes
the issuance of options to purchase up to 300,000 shares of the Company's Common
Stock,  less the number of shares already  optioned under both this Plan and the
Non-Qualified  Stock  Option  Plan.  The  Incentive  Stock  Option  Plan  became
effective  on March 15,  2000 and will  remain in effect  until  March 15,  2010
unless terminated  earlier by action of the Board. Only officers,  directors and
key  employees of the Company may be granted  options  pursuant to the Incentive
Stock Option Plan.

      In order to  qualify  for  incentive  stock  option  treatment  under  the
Internal Revenue Code, the following requirements must be complied with:

      1.   Options granted pursuant to the Plan must be exercised no later than:

            (a) The  expiration  of thirty  (30) days after the date on which an
option holder's employment by the Company is terminated.

            (b) The  expiration  of one year  after  the date on which an option
holder's employment by the Company is terminated,  if such termination is due to
the Employee's disability or death.

      2. In the event of an option  holder's  death  while in the  employ of the
Company,  his  legatees or  distributees  may  exercise  (prior to the  option's
expiration) the option as to any of the shares not previously exercised.

      3. The total fair market value of the shares of Common  Stock  (determined
at the time of the grant of the  option) for which any  employee  may be granted
options  which  are  first  exercisable  in any  calendar  year  may not  exceed
$100,000.

      4.  Options  may not be  exercised  until one year  following  the date of
grant.  Options  granted to an employee  then owning more than 10% of the Common
Stock of the Company may not be  exercisable  by its terms after five years from
the date of grant.

      5. The  purchase  price  per share of Common  Stock  purchasable  under an
option is  determined  by the  Committee but cannot be less than the fair market
value of the Common Stock on the date of the grant of the option (or 110% of the
fair  market  value in the case of a person  owning the  Company's  stock  which

<PAGE>

represents  more than 10% of the total  combined  voting power of all classes of
stock).

      Non-Qualified  Stock  Option  Plan.  The  Non-Qualified  Stock Option Plan
authorizes  the  issuance  of options to  purchase  up to 400,000  shares of the
Company's  Common Stock less the number of shares  already  optioned  under both
this Plan and the Incentive  Stock Option Plan. The  Non-Qualified  Stock Option
Plan became  effective  on March 15, 2000 and will remain in effect  until March
15, 2010 unless  terminated  earlier by the Board of  Directors.  The  Company's
employees,  directors,  officers,  consultants  and  advisors are eligible to be
granted options  pursuant to the Plan,  provided however that bona fide services
must be rendered by such  consultants  or advisors and such services must not be
in  connection  with  the  offer  or sale  of  securities  in a  capital-raising
transaction. The option exercise price is determined by the Committee but cannot
be less than the  market  price of the  Company's  Common  Stock on the date the
option is granted.

      Options granted  pursuant to the Plan not previously  exercised  terminate
upon the date specified when the option was granted.

      Stock  Bonus  Plan.  Up to 300,000  shares of Common  Stock may be granted
under the Stock Bonus Plan.  Such shares may  consist,  in whole or in part,  of
authorized but unissued shares, or treasury shares.  Under the Stock Bonus Plan,
the  Company's  employees,  directors,  officers,  consultants  and advisors are
eligible to receive a grant of the Company's  shares;  provided,  however,  that
bona fide services must be rendered by consultants or advisors and such services
must  not  be  in  connection  with  the  offer  or  sale  of  securities  in  a
capital-raising transaction.

      Other  Information  Regarding the Plans. The Plans are administered by the
Company's  Board of  Directors.  The Board of  Directors  has the  authority  to
interpret the  provisions of the Plans and supervise the  administration  of the
Plans. In addition,  the Board of Directors is empowered to select those persons
to whom shares or options are to be granted,  to determine  the number of shares
subject to each grant of a stock bonus or an option and to determine  when,  and
upon what  conditions,  shares or options  granted  under the Plans will vest or
otherwise be subject to forfeiture and cancellation.

      In the discretion of the Board of Directors,  any option granted  pursuant
to the Plans may include installment exercise terms such that the option becomes
fully exercisable in a series of cumulating portions. The Board of Directors may
also  accelerate  the date upon which any option (or any part of any options) is
first  exercisable.  Any shares issued  pursuant to the Stock Bonus Plan and any
options granted pursuant to the Incentive Stock Option Plan or the Non-Qualified
Stock Option Plan will be forfeited if the "vesting" schedule established by the
Board of  Directors  at the time of the  grant  is not  met.  For this  purpose,
vesting  means the period  during which the employee  must remain an employee of
the Company or the period of time a  non-employee  must provide  services to the
Company.  At the time an employee ceases working for the Company (or at the time
a  non-employee  ceases to  perform  services  for the  Company),  any shares or
options not fully vested will be forfeited and  cancelled.  In the discretion of
the Board of Directors payment for the shares of Common Stock underlying options

<PAGE>

may be paid through the delivery of shares of the Company's  Common Stock having
an aggregate  fair market value equal to the option price,  provided such shares
have  been  owned  by the  option  holder  for at least  one year  prior to such
exercise. A combination of cash and shares of Common Stock may also be permitted
at the discretion of the Board of Directors.

      Options  are  generally  non-transferable  except upon death of the option
holder.  Shares  issued  pursuant to the Stock Bonus Plan will  generally not be
transferable  until the  person  receiving  the  shares  satisfies  the  vesting
requirements imposed by the Board of Directors when the shares were issued.

      The Board of  Directors  of the Company may at any time,  and from time to
time,  amend,  terminate,  or suspend  one or more of the Plans in any manner it
deems  appropriate,  provided  that such  amendment,  termination  or suspension
cannot  adversely affect rights or obligations with respect to shares or options
previously  granted.  The  Board  of  Directors  may  not,  without  shareholder
approval:  make any  amendment  which would  materially  modify the  eligibility
requirements  for the Plans;  increase or decrease the total number of shares of
Common  Stock which may be issued  pursuant to the Plans except in the case of a
reclassification  of the Company's capital stock or a consolidation or merger of
the Company;  reduce the minimum  option price per share;  extend the period for
granting options;  or materially increase in any other way the benefits accruing
to employees who are eligible to participate in the Plans.

      The Plans are not qualified  under Section 401(a) of the Internal  Revenue
Code, nor are they subject to any provisions of the Employee  Retirement  Income
Security Act of 1974.

      Summary. The following sets forth certain information as of April 2, 2001,
concerning  the stock  options and stock  bonuses  granted by the Company.  Each
option represents the right to purchase one share of the Company's Common Stock.

                               Total        Shares                  Remaining
                               Shares    Reserved for     Shares     Options/
                              Reserved   Outstanding   Issued As       Shares
Name of Plan                 Under Plan    Options    Stock Bonus   Under Plan
------------                 ----------  ------------ -----------   ----------

Incentive Stock Option Plan  300,000          --          N/A       300,000
Non-Qualified Stock Option
  Plan                       400,000          --          N/A       400,000
Stock Bonus Plan             300,000         N/A           --       300,000

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
-------------------------------------------------------------------------

     The following  table sets forth the number of and percentage of outstanding
shares of common  stock owned by the  Company's  officers,  directors  and those
shareholders  owning more than 5% of the  Company's  common stock as of April 2,
2001.

<PAGE>


                                     Shares of
Name and Address                    Common Stock              Percent of Class
----------------                    -------------           --------------------

Douglas Sinclair                        1,000 (1)                  (2)
1653 Plateau Crescent
Coquitlam, British Columbia
Canada V3B 3E3

Robert H. Humber                      800,000                   17.35%
130581/239th Ave., N.E
Seattle, WA  98125-4614

Kimberly Landry                     1,580,000                   34.27%
1653 Plateau Crescent
Coquitlam, British Columbia
Canada V3B 3E3

William Donovan                       438,000                    9.50%
37 Saratoga Drive
Dartmouth, Nova Scotia
Canada  B2X 5P9

Linda Scott                           400,000                     8.7%
34955 Devon Crescent
Abbotsford, British Columbia
CanadaV2S 2X5

Brian Sims                            208,693                     4.5%
#201-1575 West Georgia Street
Vancouver, British Columbia
Canada  V6G 1R

All Officers and Directors
  as a Group (3 persons)            2,381,000                     5.2%

(1)  Mr.  Sinclair is the common law  husband of Ms.  Landry.  As a result,  Mr.
     Sinclair  may be deemed the  beneficial  owner of the  shares  owned by Ms.
     Landry.  On December  15, 1999 Mr.  Sinclair  acquired  1,000 shares of the
     Company's common stock from Brian Sims.

(2)  Less than 1%

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      In  April  1999 the  Company  issued  shares  of its  common  stock to the
persons, in the amounts, and for the consideration set forth below:

<PAGE>


                                 Number
   Name                         of Shares             Consideration

Douglas Sinclair                     --                       --
Robert H. Humber                800,000                  $   800
Kimberly Landry               1,580,000                   $1,580
Other third parties           2,120,000                   $2,120

     Mr. Sinclair may be deemed the beneficial  owner of the shares owned by Ms.
Landry by virtue of his common law relationship with Ms. Landry.

      In April 1999 the Company  acquired from LTI, a corporation  formed by Ms.
Landry in December  1994,  the rights to the Company's  patent  application  and
related technology.  The patent application and related technology were assigned
to LTI by Mr. Sinclair and Ms. Landry in November 1997. In consideration for the
assignment of these rights,  the Company paid LTI $90,000  during the year ended
December 31, 2000. As of March 20, 2001 the patent  application  assigned to the
Company was pending before the U.S. Patent and Trademark Office.

      In November 1999, the Company  acquired from Mr.  Sinclair the proprietary
technology  required to manufacture  Lunaplast into PVC sheets,  vinyl rolls and
paints as well as the trademark rights to these products.  In consideration  for
the  assignment  of this  technology  and the  trademarks,  the Company paid Mr.
Sinclair $60,000 during the year ended December 31, 2000.

      In the opinion of the Company's  management,  the transactions between the
Company  and its  officers,  directors,  and  related  parties  were on terms as
favorable to the Company as those which could have been obtained from  unrelated
third parties.

      On December 15, 1999 Mr.  Sinclair  acquired 1,000 shares of the Company's
common stock from Brian Sims, a principal shareholder of the Company.

      During the year ended December 31, 2000 the Company  borrowed $60,000 from
Kimberly  Landry.  The loan is unsecured,  bears interest at 10% per year and is
payable on October 1, 2001.

      In January  2001 the  Company  acquired  from LTI  office  and  production
equipment,  as well as the rights to certain tradenames used by the Company.  In
consideration  for these assets the Company  agreed to pay LTI $41,142  prior to
June 30, 2001.

Item 13.  Exhibits and Reports on Form 8-K

Exhibit
Number         Exhibit Name                                         Page Number
-------        ------------                                         -----------

Exhibit 3      Articles of Incorporation and Bylaws                     *
                                                                      -----

<PAGE>


Exhibit 4      Instruments Defining the Rights of Security Holders

Exhibit 4.1    Incentive Stock Option Plan                              *
                                                                      -----

Exhibit 4.2    Non-Qualified Stock Option Plan                          *
                                                                      -----

Exhibit 4.3    Stock Bonus Plan                                         *
                                                                      -----

Exhibit 10     Material Contracts

Exhibit 10.1   Agreement relating to purchase of patent rights          *
                                                                      -----

Exhibit 10.2   Assignment of patent rights                              *
                                                                      -----

Exhibit 10.3   Agreement relating to purchase of proprietary
               technology and trademarks                                *
                                                                      -----

Exhibit 10.4   Assignment of trademarks                                 *
                                                                      -----

Exhibit 10.5   Non-Compete Agreement                                    *
                                                                      -----

*    Incorporated  by  reference  to the  same  exhibit  filed  as  part  of the
     Company's Registration Statement on Form 10-SB.

8-K Reports

      During the quarter  ending  December 31, 2000 the Company did not file any
reports on Form 8-K.




<PAGE>








                      LUNA TECHNOLOGIES INTERNATIONAL, INC.


                        CONSOLIDATED FINANCIAL STATEMENTS


                           DECEMBER 31, 2000 AND 1999






AUDITORS' REPORT

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




<PAGE>

                                  LABONTE & CO.
                     C H A R T E R E D A C C O U N T A N T S


1205 - 1095 West Pender Street
Vancouver, BC  Canada
V6E 2M6
Telephone (604) 682-2778
Facsimile (604) 689-2778
Email:      rjl@labonteco.com




                                AUDITORS' REPORT
--------------------------------------------------------------------------------


To the Stockholders and Board of Directors of Luna  Technologies  International,
Inc.

We  have  audited  the   consolidated   balance  sheets  of  Luna   Technologies
International,  Inc.  as at  December  31,  2000 and  1999 and the  consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year ended  December 31, 2000 and the period from March 25, 1999  (inception) to
December  31,   1999.   These   consolidated   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with Canadian and United States  generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable  assurance whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  these consolidated  financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2000
and 1999 and the  results of its  operations  and the  changes in  stockholders'
equity and cash flows for the year ended  December  31, 2000 and the period from
March 25, 1999  (inception)  to December 31, 1999 in accordance  with  generally
accepted accounting principles in the United States.


                                                             "LaBonte & Co."

                                                          CHARTERED ACCOUNTANTS

Vancouver, B.C.
March 15, 2001

COMMENTS  BY  AUDITORS  FOR  U.S.  READERS  ON  CANADA-UNITED  STATES  REPORTING
DIFFERENCES

In the United  States,  reporting  standards  for  auditors'  would  require the
addition of an explanatory  paragraph  following the opinion  paragraph when the
financial statements are affected by conditions and events that cast substantial
doubt on the  Company's  ability to continue as a going  concern,  such as those
described in Note 1. Our report to the Stockholders and Board of Directors dated
March 15, 2001 is expressed in  accordance  with  Canadian  reporting  standards
which do not permit a reference to such  conditions  and events in the auditors'
report when these are adequately disclosed in the financial statements.


                                                           "LaBonte & Co."

                                                         CHARTERED ACCOUNTANTS

Vancouver, B.C.
March 15, 2001



<PAGE>

                      LUNA TECHNOLOGIES INTERNATIONAL, INC.

                           CONSOLIDATED BALANCE SHEETS




<PAGE>


                                                    December 31,    December 31,
                                                        2000            1999
--------------------------------------------------------------------------------

                                    ASSETS
CURRENT ASSETS
  Cash                                              $  13,812       $  21,809
     Accounts receivable                                2,000               -
     Inventory                                          3,134               -
     Prepaid expenses                                   6,173               -
--------------------------------------------------------------------------------
                                                       25,119          21,809
DUE FROM RELATED PARTIES                                    -           8,119

FURNITURE AND EQUIPMENT, net of depreciation           20,639           8,468
--------------------------------------------------------------------------------
                                                    $  45,758       $  38,396
================================================================================

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable and accrued liabilities         $  102,582       $   8,266
  Refundable deposits                                  68,263               -
  Notes payable (Note 3)                                    -         150,000
  Loans payable (Note 4                                82,634               -
--------------------------------------------------------------------------------
                                                      253,479         158,266
DUE TO RELATED PARTIES (Note 5)                       115,074               -
--------------------------------------------------------------------------------
                                                      368,553         158,266
--------------------------------------------------------------------------------
CONTINGENCIES (Notes 1)

STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
  Capital stock (Note 6)
     Common stock, $0.0001 par value, 30,000,000
     shares authorized 4,610,911 (1999 - 4,500,000)
     shares issued and outstanding                        461            450
  Convertible  preferred stock, $0.0001 par
     value, 5,000,000 shares authorized
     NIL (1999 - 34,475) issued and outstanding             -              3
  Additional paid-in capital                          195,089         72,997
  Accumulated Deficit                                (522,214)      (192,962)
  Accumulated other comprehensive income (loss)         3,869           (358)
--------------------------------------------------------------------------------
                                                     (322,795)      (119,870)
--------------------------------------------------------------------------------
                                                    $  45,758      $  38,396
================================================================================


The  accompanying  notes are an integral  part of these  consolidated  financial
statements

<PAGE>



                      LUNA TECHNOLOGIES INTERNATIONAL, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                    March
                                                    Year ended     25,1999
                                                     December    (inception)
                                                     31, 2000    to December
                                                                  31, 1999
--------------------------------------------------------------------------------
SALES                                               $   403,580     $       -
COST OF SALES                                           280,985             -
------------------------------------------------------------------------------
GROSS MARGIN                                            122,595             -
------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES
  Consulting                                             94,716        13,902
  Depreciation                                            9,549         1,006
  Interest                                               11,630             -
  Management fees                                        94,000             -
  Office and general                                    110,426        12,739
  Professional fees                                      85,972        13,758
  Rent                                                   20,256         1,557
  Research and development (Note 3)                       2,076       150,000
  Wages and benefits                                     23,222             -
------------------------------------------------------------------------------
                                                        451,847       192,962
------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD                            $  (329,252)  $  (192,962)
==============================================================================

 BASIC NET LOSS PER SHARE                          $     (0.07)  $     (0.04)

 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING          4,550,509     4,500,000










The  accompanying  notes are an integral  part of these  consolidated  financial
statements




<PAGE>


                      LUNA TECHNOLOGIES INTERNATIONAL, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

       FOR THE PERIOD FROM MARCH 25, 1999 (INCEPTION) TO DECEMBER 31, 2000


<TABLE>
<S>                           <C>         <C>         <C>         <C>         <C>          <C>         <C>         <C>

                               Preferred Stock          Common Stock                               Accumulated
                                                                           Additional                 other
                                                                             Paid In   Accumulated Comprehensive
                                                                             Capital     Deficit      Income      Total
                                                                                                      (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

Conversion of preferred
stock Into common stock         (70,525)         (7)      77,578           8         (1)           -            -          -

Common  stock  issued  for           -           -        33,333           3      49,997           -            -     50,000
cash

Net loss for the period              -           -           -           -           -   (329,252)            -  (329,252)

Currency translation                 -           -           -           -           -           -        4,227      4,227
adjustment
---------------------------------------------------------------------------------------------------------------------------
                                     -      $    -   4,610,911     $   461   $ 195,089  $(522,214)    $   3,869 $ (322,795)
===========================================================================================================================

</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements




<PAGE>


                      LUNA TECHNOLOGIES INTERNATIONAL, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS


                                                                       March
                                                       Year ended     25,1999
                                                        December    (inception)
                                                        31, 2000    to December
                                                                     31, 1999
--------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss for the period                              $ (329,252)   $ (192,962)
  Adjustments  to reconcile net loss to net cash from
operating activities:
  - depreciation                                            9,549         1,006
   - accrued interest expense                               7,634             -
   - accounts receivable                                   (2,000)            -
   - inventory                                             (3,134)            -
   - prepaid expenses                                      (6,173)            -
   - accounts payable                                      94,316         8,226
   - refundable deposits                                   68,263             -
  - research and development                                    -       150,000
--------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES                    (160,797)      (33,690)
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of capital assets                              (21,720)       (9,474)
--------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                     (21,720)       (9,474)
--------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds on sale of common stock                         50,000         4,500
  Proceeds on sale of preferred stock                      72,100        68,950
    Loans payable advances                                 75,000             -
    Repayment of notes payable                           (150,000)            -
  Advances from (to) related parties                      123,193        (8,119)
--------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES                  170,293        65,331
--------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                     4,227         (358)
--------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH                                (7,997)       21,809

CASH, BEGINNING OF PERIOD                                  21,809             -
--------------------------------------------------------------------------------
CASH, END OF PERIOD                                     $  13,812     $  21,809
================================================================================

      Non-cash activities:
         During the period  ended  December  31, 1999 the Company  issued  notes
         payable of $150,000 for research and  development  costs in conjunction
         with the purchase of certain technology rights (Refer to Note 3).

         During the year ended  December  31,  2000 70,525  shares of  preferred
         stock were converted into 77,578 shares of common stock.

The  accompanying  notes are an integral  part of these  consolidated  financial
statements




<PAGE>


LUNA TECHNOLOGIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------
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 and 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 was
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.
In October 2000, a further  $50,000 was raised by way of a private  placement of
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 December 31, 2000 the Company
has a working capital  deficiency of $228,360 (1999 - $136,457) and has incurred
losses since inception raising  substantial doubt as to the Company's ability to
continue as a going  concern.  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. In addition, during the year 70% of the
Company's sales were made to a single customer.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

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.

Inventory
Inventory is carried at the lower of cost and net realizable value.

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.

Revenue recognition
The Company recognizes revenue when products have been shipped.





<PAGE>


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
--------------------------------------------------------------------------------

Research and development costs
Ongoing product and technology  research and  development  costs are expensed as
incurred. Contributions made by third parties toward research projects are shown
net of the costs incurred in connection with the research.

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 year. 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.

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.

Stock-based Compensation
The Company  accounts for  stock-based  compensation  using the intrinsic  value
based method in  accordance  with  Accounting  Principles  Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB No.25"). APB No. 25 requires that
compensation cost be recorded for the excess, if any, of the quoted market price
of the common stock over the exercise price at the date the options are granted.
In  addition,  as  required  by SFAS No. 123,  the  company  provides  pro-forma
disclosure of the impact of applying the fair value method of SFAS No. 123.

Income taxes
The Company follows the liability  method of accounting for income taxes.  Under
this method, future tax assets and liabilities are recognized for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
balances.  Future tax assets  and  liabilities  are  measured  using  enacted or
substantially  enacted tax rates  expected to apply to the taxable income in the
years in which those  differences  are expected to be recovered or settled.  The
effect  on  future  tax  assets  and  liabilities  of a change  in tax  rates is
recognized  in income in the  period  that  includes  the date of  enactment  or
substantive enactment.

Recent accounting pronouncements
On March 31, 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation  No.44,  Accounting  for  Certain  Transactions  Involving  Stock
Compensation  - An  Interpretation  of APB  Opinion  No.  25 ("FIN  44"),  which
provides  guidance  as to certain  applications  of APB 25. FIN 44 is  generally
effective  July 1, 2000 with the  exception of certain  events  occurring  after
December 15, 1998. The Company has determined  that the  implementation  of this
standard does not have a material effect on its financial statements.






<PAGE>


 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
--------------------------------------------------------------------------------

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133,  Accounting for Derivative  Instruments and Hedging  Activities  ("SFAS
133"),  which  establishes  accounting  and reporting  standards for  derivative
instruments,  including  instruments  embedded in other  contracts,  and hedging
activities.  It requires  that an entity  recognize all  derivatives;  as either
assets or liabilities and measure those  instruments at fair value.  SFAS 133 is
effective for financial  statements  for fiscal years  beginning  after June 15,
1999. As the Company does not currently use derivative instruments, the adoption
of SFAS  133 is not  expected  to have a  significant  effect  on the  Company's
results of operations or its financial position.

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 year.  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 and was paid during the
year.

For accounting  purposes the Company 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 - LOANS PAYABLE
--------------------------------------------------------------------------------

During the year the Company borrowed to satisfy working capital requirements and
has a note  payable,  net of  principal  repayments,  of  $15,000  plus  accrued
interest  of  $7,372  calculated  at a rate of 30% per  annum and is due June 1,
2001.

In  addition,  during the year a director of the Company  loaned  $60,000 to the
Company.  This amount is secured by a promissory note, bears interest at 10% and
is due October 1, 2001.  At December 31, 2000 $262 of accrued  interest has been
recorded in connection with this loan.

NOTE 5 - RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------

During the year the Company had  transactions  with  directors,  a relative of a
director,  and LTBC as follows:  expenses paid on behalf of and advances made to
the Company - $482,773 (1999 - $35,078); management fees incurred by the Company
- $94,000 (1999 - $ NIL); and payments and reimbursements  made by the Company -
$453,580  (1999 - $51,095).  In  addition,  during  1999,  the Company  acquired
certain office furniture from LTBC for $7,898.  Amounts due from related parties
are non-interest bearing and have no specific terms of repayment.

Refer to Notes 3, 4 and 8.



<PAGE>


NOTE 6 - CAPITAL STOCK
--------------------------------------------------------------------------------

In March 1999 the company issued  4,500,000 shares of common stock at $0.001 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 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  respectively,  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.
During the year these 70,525  outstanding  preferred  shares were converted into
77,578 common shares leaving no preferred shares outstanding.

Effective  October 25, 2000 the Company  completed a private placement of 33,333
restricted  shares  of  common  stock at a price of $1.50  per  share  for total
proceeds of $50,000.

Stock option plans
During the year the Company  adopted  plans  allowing  for the granting of stock
options and awarding of shares of common stock as follows:

   Incentive Stock Option Plan
   Effective  March 15, 2001 the Company  adopted an Incentive Stock Option Plan
   authorizing  the  issuance  of options to  purchase  up to 300,000  shares of
   common stock less the number of options  previously  granted  under this plan
   and the Non-Qualified Stock Option Plan. Options granted under this plan will
   have a price and term to be determined at the time of grant, but shall not be
   granted at less than the then fair market value of the Company's common stock
   and can not be exercised  until one year  following  the date of grant.  This
   plan is available to officers, directors and key employees of the Company.

   Non-Qualified Stock Option Plan
   Effective  March 15, 2001 the Company  adopted a  Non-Qualified  Stock Option
   Plan  authorizing the issuance of options to purchase up to 400,000 shares of
   common stock less the number of options  previously  granted  under this plan
   and the  Incentive  Stock Option Plan.  Options  granted under this plan will
   have a price and term to be determined at the time of grant, but shall not be
   granted at less than the then fair market value of the Company's common stock
   and can be exercised at any time  following  the date of grant.  This plan is
   available to officers, directors, employees,  consultants and advisors of the
   Company.

   Stock Bonus Plan
   Effective March 15, 2001 the Company  adopted a Stock Bonus Plan  authorizing
   the awarding of up to 400,000 shares of common stock.  This plan is available
   to officers, directors, employees, consultants and advisors of the Company.

As at December 31, 2000, no stock-based  compensation cost has been recorded for
any period and no stock  options or awards have been  issued  under any of these
plans.

NOTE 7 - INCOME TAXES
--------------------------------------------------------------------------------

There were no temporary  differences  between the  Company's  tax and  financial
bases,  except for the Company's net operating loss  carryforwards  amounting to
approximately $372,000 at December 31, 2000. These carryforwards will expire, if
not  utilized,  beginning in 2006.  The  realization  of the benefits from these
deferred tax assets  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.



<PAGE>


NOTE 8 - SUBSEQUENT EVENTS
--------------------------------------------------------------------------------

In January 2001,  the Company and its  subsidiary  acquired  certain  office and
production  equipment  from a  private  company  with  which the  Company  has a
director  in  common.  Payment  was made by way of  promissory  notes  totalling
$41,142 payable June 30, 2001 without interest.

Subsequent to year end the Company  received  clearance to have its stock quoted
on the OTC Bulletin Board.




<PAGE>


                                   SIGNATURES


    In accordance  with Section 13 or 15(a) of the Exchange Act, the  Registrant
has caused this Report to be signed on its behalf by the undersigned,  thereunto
duly authorized on the 12th day of April 2001.

                                  LUNA TECHNOLOGIES INTERNATIONAL INC.


                                  By  /s/
                                    ----------------------------------
                                        Robert H. Humber, President


                                  By /s/
                                    -----------------------------------
                                        Principal Financial Officer




         In accordance with the Exchange Act, this Report has been signed by the
following persons on behalf of the Registrant in the capacities and on the dates
indicated.

Signature                            Title                    Date


 /s/
------------------------
Robert H. Humber                    Director              April 12, 2001


 /s/
------------------------
Kimberly Landry                     Director              April 12, 2001