SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, for the quarter ended June 30, 1999
Commission File No. _____
ELAST TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 8-0380544
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2505 Rancho Bel Air, Las Vegas, Nevada 89107
(Address of registrant's principal executive offices) (Zip Code)
702.878.8310
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant (1) has filed all reports required by Section 13 or
15(d) of the Securities Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's only class of Common Stock,
$.001 par value, was approximately 7,990,148 on July 1, 1999.
Transitional Small Business Disclosure format (check one):
Yes [ ] No [X]
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Basis of Presentation
The consolidated financial statements have been prepared by Elast Technologies,
Inc. without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures are adequate to make the
information presented not misleading when read in conjunction with the Company's
consolidated financial statements for the year ended December 31, 1998. The
financial information presented reflects all adjustments, which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods presented. See accountants' disclaimer report.
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Financial Statements
(Unaudited)
As of June 30, 1999, for the Six Month and Three Month
Periods Ended June 30, 1999 and 1998, and for the
Period from June 12, 1996 (Inception) to June 30, 1999
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Index to the Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Accountants' Disclaimer Report.................................................1
Consolidated financial statements for Elast Technologies, Inc. (Unaudited):
Balance Sheet, June 30, 1999................................................2
Consolidated Statements of Operations For the Six Month
Periods Ended June 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to June 30, 1999...........3
Consolidated Statements of Operations For the Three Month
Periods Ended June 30, 1999 and 1998.....................................4
Consolidated Statements of Cash Flows For the Six Month
Periods Ended June 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to June 30, 1999...........5
Notes to the Consolidated Financial Statements (Unaudited).....................7
<PAGE>
Accountants' Disclaimer Report
To the Board of Directors
Elast Technologies, Inc.
The accompanying balance sheet of Elast Technologies, Inc. ("Elast") as of June
30, 1999 and the related statements of operations and cash flows for the six
month and three month periods ended June 30, 1999 and 1998, were not audited by
us and, accordingly, we do not express an opinion on them.
/s/ Kelly & Company
Kelly & Company
Newport Beach, California
August 6, 1999
1
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Balance Sheet
June 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and equivalents $213,950
License, net 320
-----------
Total current assets 214,270
Property and equipment, net 20,233
-----------
Total assets $234,503
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $4,480
-----------
Total liabilities 4,480
-----------
Shareholders' equity:
Common stock, $.001 par value; 25,000,000
shares authorized; 7,425,148 shares issued
and outstanding 7,425
Additional paid-in capital 1,784,168
Deficit accumulated during development stage (1,561,570)
-----------
Total shareholders' equity 230,023
-----------
Total liabilities and shareholders' equity $234,503
===========
The accompanying notes are an integral part of the
consolidated financial statements.
See accountants' disclaimer report.
2
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
For the Six Month Periods Ended June 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to June 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
Six Month Six Month June 12, 1996
Period Ended Period Ended (Inception) to
June 30, 1999 June 30, 1998 June 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Revenue -- --
Cost of sales -- -- --
Gross profit -- -- --
Merger consulting fees -- $377,798 $377,798
Officers' compensation $27,300 26,423 230,982
Research and development 70,985 16,206 247,366
Legal and professional 28,766 16,014 177,533
Investor relations 56,060 25,000 294,819
Other operating costs and expenses 179,029 10,298 258,100
----------- ----------- -----------
Total operating costs (362,140) (471,739) (1,586,598)
Interest income in excess of interest expense 3,975 7,667 25,028
----------- ----------- -----------
Net loss ($358,165) ($464,072) ($1,561,570)
=========== =========== ===========
Loss per common share - basic and diluted ($.05) ($.10) ($.31)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
See accountants' disclaimer report.
3
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
For the Three Month Periods Ended June 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to June 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
Three Month Three Month
Period Ended Period Ended
June 30, 1999 June 30, 1998
------------- -------------
Revenue -- --
Cost of sales -- --
Gross profit -- --
Merger consulting fees -- $377,798
Officers compensation $13,400 15,121
Research and development 793 6,305
Legal and professional 27,411 10,799
Investor relations 15,660 15,000
Other operating costs and expenses 106,485 8,557
--------- ---------
Total operating costs (163,749) (433,580)
Interest income in excess of interest expense 2,281 6,562
--------- ---------
Net loss ($161,468) ($427,018)
========= =========
Loss per common share - basic and diluted $(.02) $(.10)
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
See accountants' disclaimer report.
4
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Six Month Periods Ended June 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to June 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
Six Month Six Month June 12, 1996
Period Ended Period Ended (Inception) to
June 30, 1999 June 30, 1998 June 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Net cash flows used in operating activities ($303,401) ($87,834) ($701,162)
Cash flows used in investing activities:
Purchase of property and equipment (17,717) (1,050) (21,521)
--------- --------- ---------
Cash used in investing activities (17,717) (1,050) (21,521)
--------- --------- ---------
Cash flows provided by financing activities:
Acquisition of MedMark, Inc. -- 30,726 30,726
Exercise of warrants -- 189,990 189,990
Payment of notes receivable for common stock -- 10,000 10,000
Issuance of common stock 308,250 197,000 700,250
Contribution to additional paid in capital -- -- 5,667
Cash provided by financing activities 308,250 427,716 936,633
--------- --------- ---------
Net increase (decrease) in cash (12,868) 338,832 213,950
Cash at beginning of period 226,818 108,280 --
--------- --------- ---------
Cash at end of period $213,950 $447,112 $213,950
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
See accountants' disclaimer report.
5
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
For the Three Month Periods Ended June 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to June 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Supplemental Disclosure of Cash Flow Information
Period from
Six Month Six Month June 12, 1996
Period Ended Period Ended (Inception) to
June 30, 1999 June 30, 1998 June 30, 1999
------------- ------------- -------------
<S> <C>
Interest paid -- -- $1,375
Income taxes paid -- $1,357 $1,803
Supplemental Schedule of Non-Cash Investing and Financing Activities
Assets acquired in non-cash transactions:
Acquisition of medical device license -- -- $800
Increase in common stock subscription
receivable -- -- $10,000
Issuance of common stock -- -- ($10,800)
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
See accountants' disclaimer report.
6
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Six Month and Three Month Periods Ended June 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to June 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
1. Development Stage Operations
Elast Technologies, Inc. (a development stage company) (the "Company") was
incorporated in the state of Nevada on June 12, 1996 and has a limited
operating history with no revenues and no products or technology ready for
the market. The Company is engaged in the development of its first product,
a non-invasive medical device to test for allergies with real time,
quantifiable, visually displayed results. Management's efforts to date have
focused primarily on the development and testing of the medical device and
the raising of capital. As such, the Company is subject to the risks and
uncertainties associated with a new business. The success of the Company's
future operations is dependent, in part, upon the Company's ability to
successfully market its yet to be developed products and obtain additional
capital.
7
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Six Month and Three Month Periods Ended June 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to June 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
2. Property and Equipment
Property and equipment consist of the following:
Vehicles $11,000
Computers 10,521
--------
21,521
Less: accumulated depreciation (1,288)
--------
$20,233
========
Depreciation expense for the six months ended June 30, 1999 was $918.
3. Loss Per Common Share
In the year ended December 31, 1997, the Company adopted SFAS No. 128,
"Earnings per Share". Loss per common share has been calculated in
accordance with this statement.
Basic and diluted loss per common share have been computed by dividing the
loss available to common shareholders by the weighted-average number of
common shares for the period.
The computations of net loss per common share for the six month and three
month periods ended June 30, 1999 and 1998, and for the period from June
12, 1996 (inception) to June 30, 1999 are as follows:
See accountants' disclaimer report.
8
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Six Month and Three Month Periods Ended June 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to June 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
3. Loss Per Common Share, Continued
Period from
Six Month Six Month June 12, 1996
Period Ended Period Ended (Inception) to
June 30, 1999 June 30, 1998 June 30, 1999
------------- ------------- -------------
Net loss available to common
stockholders ($358,165) ($464,072) ($1,561,570)
Weighted-average shares,
basic and diluted 7,308,527 4,624,600 5,035,906
----------- ----------- -----------
Loss per common share,
basic and diluted ($.05) ($.10) $(.31)
=========== =========== ===========
Three Month Three Month
Period Ended Period Ended
June 30, 1999 June 30, 1998
------------- -------------
Net loss available to common
Stockholders ($161,468) ($427,018)
Weighted-average shares,
basic and diluted 7,274,406 4,167,084
Loss per common share,
----------- -----------
basic and diluted ($.02) ($.10)
=========== ===========
The effect of the potentially dilutive securities listed below was not
included in the computation of diluted loss per share because to do so
would have been antidilutive for the periods presented.
4. Stock Transactions
Shares Issued for Services
In April 1999, the Company issued 15,000 shares for consulting services.
The shares were valued at $1.49 per share.
See accountants' disclaimer report.
9
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Six Month and Three Month Periods Ended June 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to June 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
4. Stock Transactions, Continued
Private Placement Offerings
In April 1999, the Company, in a private placement offering, sold 67,000
shares of common stock at $1.49 per share.
5. Management's Plan
At the balance sheet date:
o The Company is a non-operating development stage company.
o It had sufficient cash to cover its obligations.
Management has been devoting substantially all of its efforts to the
development and testing of the allergy detection, non-invasive, medical
device. Once testing is completed and FDA approval is received, the Company
will manufacture about 200 units. These initial units have been identified
for a select target group of physicians for a Beta test. The group will
include eye, ear, nose, throat specialists, clinical ecologists, allergy
specialists, naturopaths, chemical ecologists, and chiropractors. Upon
completion of this test, the device will be marketed to all physicians and
hospitals to test for prescription drub compatibility with patients to
avoid iatrogenic (drug related) illness. It is anticipated this portion of
management's plan will be completed in approximately twenty-four months.
The Company's overall operating plan is to market the initial product as a
stand-alone device that can be attached to personal computers. Once the
product gains acceptance in the medical community, a patient home testing
version of the unit will be developed. To achieve its plan, management is
also aware that it must secure additional investment capital.
See accountants' disclaimer report.
10
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Six Month and Three Month Periods Ended June 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to June 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
6. Year 2000 Disclosure
The Company has conducted a comprehensive review of its computer operations
to identify the systems that could have been adversely affected by the Year
2000 Issue and has developed and implemented a plan that it believes has
resolved the issue. The Year 2000 Issue is the result of computer programs
being written using two digits rather than four to define the applicable
year. Any of the Company's programs that have time-sensitive software might
have recognized a date using "00" as the year 1900 rather than the year
2000. This could have resulted in a system failure or miscalculations. The
Company presently believes that, with its existing software and conversions
to new software, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems as converted.
See accountants' disclaimer report.
11
<PAGE>
Item 2. Plan of Operation
THIS REPORT SPECIFIES FORWARD-LOOKING STATEMENTS OF MANAGEMENT OF THE COMPANY
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934 ("FORWARD-LOOKING STATEMENTS") INCLUDING,
WITHOUT LIMITATION, FORWARD-LOOKING STATEMENTS REGARDING THE COMPANY'S
EXPECTATIONS, BELIEFS, INTENTIONS AND FUTURE STRATEGIES. FORWARD-LOOKING
STATEMENTS ARE STATEMENTS THAT ESTIMATE THE HAPPENING OF FUTURE EVENTS AND ARE
NOT BASED ON HISTORICAL FACTS. FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY
THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS "COULD", "MAY", "WILL",
"EXPECT", "SHALL", "ESTIMATE", "ANTICIPATE", "PROBABLE", "POSSIBLE", "SHOULD",
"CONTINUE", "INTEND" OR SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE
OF THOSE TERMS. THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS REPORT HAVE
BEEN COMPILED BY MANAGEMENT OF THE COMPANY ON THE BASIS OF ASSUMPTIONS MADE BY
MANAGEMENT AND CONSIDERED BY MANAGEMENT TO BE REASONABLE. FUTURE OPERATING
RESULTS OF THE COMPANY, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO
REPRESENTATION, GUARANTY, OR WARRANTY IS TO BE INFERRED FROM THOSE
FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THIS REPORT REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO UNCERTAINTY
AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER
CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA AND
OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM AND
AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE EXTENT
THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM
ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED ON
THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. IN ADDITION, THOSE
FORWARD-LOOKING STATEMENTS HAVE BEEN COMPILED AS OF THE DATE OF THIS REPORT AND
SHOULD BE EVALUATED WITH CONSIDERATION OF ANY CHANGES OCCURRING AFTER THE DATE
OF THIS REPORT. NO ASSURANCE CAN BE GIVEN THAT ANY OF THE ASSUMPTIONS RELATING
TO THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS REPORT ARE ACCURATE, AND THE
COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
Overview. The Company has not had revenues from operations in the last fiscal
year and through the second quarter of 1999. Officers' compensation, in the
aggregate, increased from $26,423 during the six month period ended June 30,
1998 to $27,300 during the six month period ended June 30, 1999. Research and
development expenses increased significantly from $16,206 during the six month
period ended June 30, 1998 to $70,985 during the six month period ended June 30,
1999. Legal and professional fees increased from $16,014 during the six month
period ended June 30, 1998 to $28,766 during the six month period ended June 30,
1999. Investor relations costs also increased significantly, from $25,000 during
the six month period ended June 30, 1998, to $56,060 during the six month period
ended June 30, 1999, due primarily to the significant increase in the number of
shareholders in the Company. Other operating costs and expenses also increased
significantly, from $10,298 during the six month period ended June 30, 1998, to
$179,029 during the six month period ended June 30, 1999, due to increased
research and development and marketing activities undertaken by the Company to
develop a patented allergy-testing device ("ELAST Device") which the Company
owns the rights to develop, test, manufacture and market.
During the six month period ended June 30, 1999, the issuance of common stock
resulted in net cash flow to the Company of $308,250, as compared to cash flow
of $197,000 from the issuance of common stock during the six month period ended
June 30, 1998. Because of the significant increase in the Company's operating
costs, the Company had a net decrease in cash of $12,868 during the six month
period ended June 30, 1999, as opposed to a net increase in cash of $338,832
during the six month period ended June 30, 1998. The Company had $226,818 in
cash at the beginning of the six month period ended June 30, 1999 and $213,950
in cash at the end of the six month period ended June 30, 1999.
2
<PAGE>
On July 7, 1999, certain Australian investors deposited $250,000 with the
Company in anticipation of purchasing as many as 500,000 shares of the Company's
common stock and up to 500,000 non-detachable warrants granting certain rights
to purchase an additional 500,000 shares of the Company's common stock; however,
the purchase has not yet been consummated and is subject to certain conditions
precedent, including, but not limited to, the payment of additional funds to the
Company by those investors. The cash and equivalents constitute the Company's
present internal sources of liquidity. Because neither the Company nor its
subsidiary, Elast Technologies Corporation, a Delaware corporation ("Elast
Delaware"), is generating any revenues from the sale or licensing of their
products, the Company's only external source of liquidity is the sale of its
capital stock.
Company's Plan of Operation for Next 12 Months. The Company manufactures and
markets medical devices and is presently continuing research and development
activities relating to a patented allergy-testing device (previously defined as
the "ELAST Device", U.S. Patent No. 5413113, issued on or about May 9, 1995)
which the Company owns the rights to develop, test, manufacture and market.
The Company believes its current cash resources are sufficient to fund its
research and development activities relating to the ELAST Device over the next
12 months. The Company believes that it may be necessary to raise additional
funds to complete prototype development and limited clinical trials of the ELAST
Device. However, if the ELAST Device performs as anticipated, the Company
believes that it will be able to raise the funds necessary to begin production
of the ELAST Devices - for the North American and international clinical trials
and the Food and Drug Administration ("FDA") approval process - by the sale of
its capital stock, debt, or licensing certain proprietary rights. Should the
development of the prototype or clinical testing of the prototype take more time
than anticipated, or if the results of testing require significant modifications
to the ELAST Device, sufficient funds may not be available to enable the ELAST
Device to be completed and brought to market during the next 12 months.
The Company is currently negotiating a proposed marketing agreement for the
territories of Australia, New Zealand and Japan and plans to negotiate and enter
into additional marketing agreements with appropriate distributors and marketing
agents. Other than the ELAST Device, the Company does not currently have any
plans to develop other products. The Company may acquire the right to sell or
distribute existing products, or obtain licensing, marketing, distribution or
other rights to compatible products. Therefore, other than costs related to the
continued development of the ELAST Device, the Company does not anticipate
significant expenditures on acquisition or development of other products during
the current fiscal year.
The Company will focus its initial marketing and distribution efforts on
development and commercial exploitation of the ELAST Device. The Company's
present plan is to lease or license the ELAST Device. The Company believes that
such a plan minimizes variable costs and creates an informed and updated client
base.
Manufacturing and Marketing the Company's Products. The Company anticipates that
it will initially subcontract the manufacture and assembly of ELAST Devices and,
therefore, the Company does not expect to purchase a manufacturing facility or
any equipment appurtenant thereto. As the principal components of the ELAST
Device consist of electronic parts that are readily available, the Company does
not anticipate that the manufacturer of the ELAST Device will have any supply
problems. The Company believes that its operations are not effected by any
seasonal factors.
Employees. In the current fiscal year, the Company expects to add 2 full-time,
permanent employees to its research and development department and 2 full-time,
permanent employees to its administrative staff. During the next 12 months, if
the American clinical testing of the ELAST Device is successful, the Company
3
<PAGE>
may require significant additional employees; however, the Company is not able
to provide a reasonable estimate of the number of such additional employees
which may be required at this time.
Summary of Research and Development Activities. A "medical device" is defined by
Section 201(h) of the Food, Drug and Cosmetic Act, Title 21 United States Code
Section 321 as an instrument, apparatus, or machine which is intended for use in
the diagnosis of disease or other conditions, or in the cure, mitigation,
treatment, or prevention of disease in man and other animals. Confusion
sometimes exists between unregulated consumer products and medical devices.
Products are not considered medical devices if they have general utility but are
neither dedicated to, nor intended or promoted for, medical applications. Such
products are subject to the Consumer Product Safety Act.
Human therapeutic products are subject to rigorous pre-clinical and clinical
testing and other approval procedures. The FDA and other similar government
regulatory agencies require laboratory and clinical testing and other costly and
time-consuming procedures before medical products such as the ELAST Device can
be marketed, including, but not limited to, premarket notification to the FDA.
Various federal, state and foreign statutes may also govern or affect the
manufacturing, safety, labeling, storage, and marketing of such products, as
well as record-keeping incidental to such marketing. The ELAST Device may be
subject to (i) the Medical Device Amendments of 1976 to the Federal Food, Drug
and Cosmetic Act, cited above; (ii) the Medical Device Reporting Rule
implemented by the FDA in 1984; (iii) the standards for medical device
manufacturers promulgated by the FDA; and (iv) other rules and regulations
developed, implemented and enforced by the Center for Devices and Radiological
Health, an FDA sub-agency. However, the FDA Modernization Act of 1997 ("1997
Act") exempts from premarket notification devices that do not present a
potential unreasonable risk of illness or injury. The 1997 Act also directs the
FDA to concentrate its postmarket surveillance on higher risk devices. Moreover,
the 1997 Act expanded the FDA's pilot program pursuant to which the FDA
accredits third party experts to conduct the initial review of all
low-to-intermediate risk devices. The Company believes that the ELAST Device is
such a low-to-intermediate risk device and, therefore, may be subject to the
exemptions from premarket notification specified in the 1997 Act; provided,
however, such may not be the case. If such is not the case, the ELAST Device may
be subject to premarket notification and, therefore, subject to significant
delay before being offered for sale, which would have a material adverse effect
on the financial condition of the Company.
Obtaining such approvals and maintaining ongoing compliance with these
requirements can require the expenditure of significant resources. To date, the
Company has not determined what procedures, if any, will be required in this
regard and has not begun any of these procedures. The Company is currently
investigating the possibility that the ELAST Device falls in a category for
which FDA approval has already been given. The Company anticipates that the
ELAST Device may be included in such a category, but research is currently being
conducted by the Company to determine the appropriate regulatory requirements.
In addition, regulatory testing and approval would require significant funding
and, in the event that such funding exceeded the present financial resources of
the Company, the Company would have to receive additional capital to market the
ELAST Device. The Company has no current arrangements with respect to additional
financing and an inability to obtain additional financing may have a material
adverse effect on the Company, including the possibility that the Company would
be forced to curtail its operations significantly or to cease its operations
altogether.
In the last six months, significant developments in the ELAST Device's
capabilities have resulted from the Company's research and development efforts.
Specifically, the Company believes its recent tests demonstrate that the ELAST
Device is capable of successfully isolating the electrical energy signal
emanating from the human body.
4
<PAGE>
Once the initial testing of the ELAST Device is completed, the Company will
manufacture, or cause to be manufactured, about 200 units of the ELAST Device,
which will be provided to a selected group of physicians, including eye, ear,
nose and throat specialists, chemical ecologists, and allergy specialist
doctors, naturopaths, and chiropractors. Thereafter, the ELAST Device will be
marketed to physicians and hospitals for testing of patients for prescription
drug compatibility, to avoid drug-related illnesses. The Company's operating
plan is to market the ELAST Device as a stand-alone device that can be attached
to "medical environment" computers. Once the ELAST Device gains acceptance in
the medical community, the Company anticipates that a patient home-testing unit
may be developed.
Year 2000 Compliance. The Year 2000 (commonly referred to as "Y2K") issue
results from the fact that many computer programs were written using two, rather
than four, digits to identify the applicable year. As a result, computer
programs with time-sensitive software may recognize a two digit code for any
year in the next century as related to this century. For example, "00", entered
in a date-field for the year 2000, may be interpreted as the year 1900,
resulting in system failures or miscalculations and disruptions of operations,
including, among other things, a temporary inability to process transactions or
engage in other normal business activities.
To improve operating performance, the Company has undertaken a number of
significant systems initiatives, including a comprehensive review of the
hardware, software and communication systems owned by or supplied to the
Company. These have been analyzed by reviewing all relevant product and service
manuals, contacting vendors, and on-line research of relevant vendor websites.
The Company believes that all of its computer systems are Year 2000 compliant.
The Company (i) has completed an assessment of each of its operations and their
Year 2000 readiness, (ii) has determined that appropriate actions have been and
are being taken, and (iii) believes that it has completed its overall Year 2000
remediation prior to any anticipated impact on its operations. The Company has
determined that the Year 2000 issue will not cause significant operational
problems for its computer systems, and the costs of required modifications to
its computer systems will not be material to the Company's financial position,
cash flows or results of operations. However, although the Company believes its
computer systems are compliant, the Company has been unable to determine the
extent to which the Company's computer systems are vulnerable to the failure of
third parties to remediate their own Year 2000 issues. There is no guarantee
that the computer systems of other companies on which the Company's computer
system relies or interfaces will be converted and will not have an adverse
effect on the Company's computer system.
In a worst case situation, the Company's business operations could be adversely
affected by the non-compliance of banks, communications providers, utilities,
common carriers, the Company's customers, potential customers, suppliers, and
other sources known and unknown to the Company. Widespread breakdowns in the
telecommunications, banking, and computer industries would have an adverse
effect on business operations globally, including the Company's operations. The
ultimate impact of the Y2K issue cannot be reasonably estimated as of the date
of this Registration Statement. Many Y2K problems might not be readily apparent
when they first occur, but instead could imperceptibly degrade technology
systems and corrupt information stored in computerized databases, in some cases
before January 1, 2000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Except as specified below, there are no legal actions pending against the
Company nor are any such legal actions contemplated.
5
<PAGE>
Pursuant to a Plan of Merger filed with the Delaware Secretary of State ("Plan
of Merger"), on or about June 30, 1998, Elast Technologies Corporation, a
Delaware corporation previously defined herein as "Elast Delaware", merged with
and into Elast Merger, Inc., a Nevada corporation, which was a wholly-owned
subsidiary of the Company. Shareholders who formerly held stock in Elast
Delaware received 4 shares of the Company's common stock for each share of their
Elast Delaware stock, with the result that the former shareholders of Elast
Delaware now hold a controlling interest in the Company, and Elast Delaware is
now a wholly-owed subsidiary of the Company.
There is presently a dispute regarding the validity of certain stock options
relating to the purchase of certain shares of Elast Delaware's common stock. On
or about May 14, 1999, Dr. Gary Marrone, the former Secretary of Elast Delaware
and a former Director of Elast Delaware, notified the Company that he believed
that, as a result of the Plan of Merger, certain unexercised Elast Delaware
stock options held by each Director of Elast Delaware had been converted into
options to purchase up to 400,000 shares of the Company's common stock at a
significantly reduced exercise price. The Company believes that Dr. Marrone's
claim is without merit. The Company further believes that Dr. Marrone may take
legal action with regard to this matter. The Company intends to vigorously
oppose any such action.
Item 2. Changes in Securities
In April, 1999, the Company sold 67,000 shares of its $.001 par value common
stock at $1.49 per share for a total of $99,830 to a non-affiliate in a
transaction that satisfied the exemption from the registration and prospectus
delivery requirements of the Securities Act of 1933 specified by the provisions
of Section 4(2) of that Act and Rule 506 of Regulation D promulgated pursuant
thereto.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2 Plan of Merger Between Elast
Technologies Corporation and
Elast Merger, Inc. (Material Contract)*
10.1 License to use Patent No. 5413113
dated April 30, 1999 (Material Contract)*
6
<PAGE>
10.2 Research Agreement Between Elast
Technologies Corporation and The Charles
Stark Draper Laboratory, Inc.
(Material Contract)*
10.3 Modification 02 to the
Research Agreement Between Elast
Technologies Corporation and The Charles
Stark Draper Laboratory, Inc.
(Material Contract)*
10.4 Modification 03 to the
Research Agreement Between Elast
Technologies Corporation and The Charles
Stark Draper Laboratory, Inc.
(Material Contract)*
27 Financial Data Schedule
99 Patent No. 5413113*
*Previously filed as Exhibits to Amendment No. 1 to Registration Statement on
Form 10-SB on August 2, 1999. (b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the six month
period ended June 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Las Vegas, State of Nevada, on August 12, 1999.
Elast Technologies, Inc.,
a Nevada corporation
By: /s/ Thomas Krucker
-----------------------
Thomas Krucker
Its: President
7
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