U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ELAST TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 3845 88-0380544
------ ---- ----------
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
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)
Thomas E. Stepp, Jr.
Stepp & Beauchamp LLP
1301 Dove Street, Suite 460
Newport Beach, California 92660
949.660.9700
Facsimile 949.660.9010
(Name, Address and Telephone Number of Agent for Service)
Approximate date of proposed sale to the public: From time to time after this
Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
|_| _______
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
|_| _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class Amount Proposed maximum Proposed maximum
of securities to be offering price aggregate Amount of
to be registered registered per share(1) offering price(1) registration fee
- ------------------------------ ---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 450,000 shares $4.00 $1,800,000.00 $475.20
- ------------------------------ ---------------- ---------------- -----------------
Common Stock, $.001 par value 625,000 shares $1.84375(1) $1,152,343.70(1) $304.22
============================== ================ ================ ================= =================
</TABLE>
(1) Selling Shareholder's stock registration fee was calculated pursuant to Rule
457(c) of Regulation C using the average of the bid and ask prices per share of
the Registrant's common stock, as reported on the OTC Bulletin Board for
December 1, 1999.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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Preliminary Prospectus
ELAST TECHNOLOGIES, INC.,
a Nevada corporation
1,075,000 Shares of $.001 Par Value Common Stock
This prospectus ("Prospectus") relates to 1,075,000 shares (the "Shares") of
common stock, $.001 par value (the "Common Stock"), of Elast Technologies, Inc.,
a Nevada corporation (the "Company"). The Company is selling 450,000 shares of
its Common Stock to three (3) accredited investors. Moreover, the Company is
registering 625,000 shares of Common Stock held by the persons named in this
Prospectus under the caption "Selling Stockholders." The Shares are outstanding
shares of Common Stock, or will be outstanding shares of Common Stock acquired
upon exercise of options, warrants or the exchange of certain securities, owned
by the Selling Stockholders.
The Selling Stockholders may from time to time sell the Shares on the OTC
Bulletin Board, on any other national securities exchange or automated quotation
system on which the Common Stock may be listed or traded, in negotiated
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices. The Shares may be sold directly or
through brokers or dealers. See "Plan of Distribution."
The Company will realize $1,800,000 from the sale of 450,000 shares of its
Common Stock, and will use those funds to pay for the costs of the offering, to
fund futher research and development activities, and for working capital. See
"Use of Proceeds." All expenses of registration incurred in connection with this
offering are being borne by the Company, but all selling and other expenses
incurred by the Selling Stockholders will be borne by the Selling Stockholders.
The Company will receive no part of the proceeds of any sales made by the
Selling Shareholders hereunder. See "Selling Stockholders."
The Selling Stockholders and any broker-dealers participating in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of the 1933 Act, and any commissions or discounts given to any such
broker-dealer may be regarded as underwriting commissions or discounts under the
1933 Act.
The Shares have not been registered for sale by the Selling Stockholders under
the securities laws of any state as of the date of this Prospectus. Brokers or
dealers effecting transactions in the Shares should confirm the registration
thereof under the securities laws of the States in which transactions occur or
the existence of any exemption from registration.
The Company participates in the OTC Bulletin Board, an electronic quotation
medium for securities traded outside the Nasdaq Stock Market. The Company's
common stock trades on the OTC Bulletin Board under the trading symbol "ESTG."
On December 1, 1999, the closing bid and asked prices of the Common Stock as
reported on the OTC Bulletin Board were $1.6875 and $2.00, respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is December 1, 1999
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Item 3. Summary Information and Risk Factors.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS, WHICH CONTAINS MORE DETAILED INFORMATION WITH RESPECT TO EACH OF THE
MATTERS SUMMARIZED IN THIS PROSPECTUS AS WELL AS OTHER MATTERS NOT COVERED IN
THE SUMMARY. ALL PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE ENTIRE
CONTENTS OF THE PROSPECTUS AND THE EXHIBITS ATTACHED HERETO, INDIVIDUALLY AND
WITH THEIR OWN TAX, LEGAL AND BUSINESS ADVISORS.
The Company: The principal business address of the Company is 2505 Rancho
Bel Air, Las Vegas, Nevada 89107; the Company's main
business telephone number is 702.878.8310.
Business of the The Company is a Nevada corporation which was originally
Company: incorporated to engage in any lawful act or activity for
which corporations may be organized under the General
Corporation Law of Nevada. The Company manufactures and
markets medical devices and is presently continuing research
and development activities relating to a patented
allergy-testing device 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 6 months. 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 6 months.
The Company is currently negotiating proposed marketing
agreements for various territories 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 present plan is to
lease or license the ELAST Device. This plan could minimize
variable costs and create an informed and updated client
base. 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.
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To further advance the research and development of the ELAST
Device, and to validate the scientific principle of
bio-voltage measurement, an extensive period of testing will
commence in conjunction with an academic facility. The
Company is having discussions with the University of
California at Irvine ("UCI") and San Diego State University.
The process of collaboration needs to be reviewed by the
Company's Board of Directors, after acceptance of a testing
program by one of the faculties of these institutions. UCI
and San Diego State University have both expressed faculty
interest in testing the ELAST Device.
Once the initial testing of the ELAST Device is completed,
the Company will manufacture, or cause to be manufactured,
about 10 units of the ELAST Device, which will be provided
to a selected group of physicians and scientists. The
Company's operating plan is to develop the ELAST Device as a
stand-alone device which is user- friendly and fully
self-contained. Once the ELAST Device gains acceptance in
the medical community, the Company anticipates that a
patient home-testing unit may be developed.
State of The Company was incorporated pursuant to the provisions of
organization of the General Corporation Law of Nevada on November 5, 1996
the Company: under the name Med Mark, Inc. Pursuant to a Plan of Merger
filed with the Delaware Secretary of State, on or about June
30, 1998, Elast Technologies Corporation, a Delaware
corporation, merged with and into Elast Merger, Inc., a
Nevada corporation, which was a wholly-owned subsidiary of
Med Mark, Inc. Shareholders who formerly held stock in Elast
Technologies Corporation received four (4) shares of Med
Mark, Inc. common stock for each share of their Elast
Technologies Corporation common stock, with the result that
the former shareholders of Elast Technologies Corporation
held a controlling interest in Med Mark, Inc. immediately
after the merger. On or about October 27, 1998, a
Certificate of Amendment to the Articles of Incorporation of
Med Mark, Inc. was filed with the Nevada Secretary of State
changing the Company's name from Med Mark, Inc. to Elast
Technologies, Inc.
Risk Factors: A purchase of the Common Stock involves various risks that
must be considered carefully by any potential purchaser.
Those risks include, but are not necessarily limited to, (i)
there can be no assurance that the products and services of
the Company will achieve a significant degree of market
acceptance, and that acceptance, if achieved, will be
sustained for any significant period or that product and
service life cycles will be sufficient (or substitute
products and services developed) to permit the Company to
recover associated costs; (ii) the Company has a limited
operating history upon which an evaluation of the Company's
prospects can be made; (iii) the officers and directors of
the Company may be subject to various conflicts of interest;
(iv) substantially all of the Company's products and
services are subject to significant regulation, and,
therefore, the Company's ability to generate significant
revenues will depend upon, among other things, the Company's
ability to comply with all such regulations, laws and
statutes, both in the United States and in other countries;
(v) the Company may be required to raise substantial funds
in order to implement its business plans and objectives;
(vi) the Company is subject to significant competition from
other medical device manufacturers, suppliers, and
distributors; (vii) the results of operations of the Company
may vary from period to period as a result of a variety of
factors; (viii) the market for the products and services of
the Company is characterized by continuous
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development and introduction of new products and services;
(ix) changing political, economic and regulatory influences
may affect the business practices and operations of the
Company; (x) the Company is dependent on its key personnel
and management; (xi) the Company does not anticipate paying
dividends on its Common Stock in the foreseeable future;
(xii) there can be no assurance that the Company's
operations will become profitable; (xiii) the Company may
fail to become compliant with Year 2000 computer programming
issues; and (xiv) the Company's communications providers,
customers, or other third parties may fail to become
compliant with Year 2000 computer programming issues. See
"RISK FACTORS".
The Shares: The Shares offered hereby are outstanding shares of Common
Stock, or will be outstanding shares of Common Stock
acquired upon exercise of options or warrants, and will be
owned by the persons named in this Prospectus under the
caption "Selling Stockholders." The Shares currently
outstanding, were acquired by the Selling Stockholders in
various transactions, all of which were exempt from the
registration provisions of the 1933 Act.
Estimated use The Company will realize $1,800,000 from the sale of 450,000
of proceeds: shares of its Common Stock, and will use those funds to pay
for the costs of the offering, to fund further research and
development activities, and for working capital. The Company
will not receive any of the proceeds from the sale of the
Shares by Selling Shareholders. See "Selling Stockholders
and "Use of Proceeds."
RISK FACTORS
In addition to the other information specified in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and its
business before purchasing any of the Shares offered hereby. A purchase of the
Shares offered hereby is speculative in nature and involves a high degree of
risk. No purchase of the Shares should be made by any person who is not in a
position to lose the entire amount of such investment.
THIS PROSPECTUS SPECIFIES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SPECIFIED IN THE FOLLOWING RISK FACTORS AND ELSEWHERE
IN THIS PROSPECTUS. PROSPECTIVE PURCHASERS OF SHARES MUST BE PREPARED FOR THE
POSSIBLE LOSS OF THEIR ENTIRE INVESTMENTS IN THE COMPANY. THE ORDER IN WHICH THE
FOLLOWING RISK FACTORS ARE PRESENTED IS ARBITRARY, AND PROSPECTIVE PURCHASERS OF
SHARES SHOULD NOT CONCLUDE, BECAUSE OF THE ORDER OF PRESENTATION OF THE
FOLLOWING RISK FACTORS, THAT ONE RISK FACTOR IS MORE SIGNIFICANT THAN THE OTHER
RISK FACTORS.
Information specified in this Prospectus contains "forward looking statements"
which can be identified by the use of forward-looking terminology such as
"believes", "could", "possibly", "probably", "anticipates", "estimates",
"projects", "expects", "may", "will", or "should" or the negative thereof or
other variations thereon or comparable
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terminology. Such statements are subject to certain risks, uncertainties and
assumptions. No assurances can be given that the future results anticipated by
the forward looking statements will be achieved. The following matters
constitute cautionary statements identifying important factors with respect to
such forward-looking statements, including certain risks and uncertainties, that
could cause actual results to vary materially from the future results covered in
such forward-looking statements. Among the key factors that have a direct
bearing on the Company's results of operations are the effects of various
governmental regulations, the fluctuation of the Company's direct costs and the
costs and effectiveness of the Company's operating strategy. Other factors could
also cause actual results to vary materially from the future results covered in
such forward-looking statements.
Limited Operating History. The Company has a very limited operating history upon
which an evaluation of the Company's prospects can be made and is currently
engaged primarily in research and development activities. The Company has not
generated any revenues and does not anticipate generating any revenues in its
current fiscal year. The Company's prospects must be considered speculative,
considering the risks, expenses, and difficulties frequently encountered in the
establishment of a new business, specifically the risks inherent in the
development of medical devices. There can be no assurance that unanticipated
technical or other problems will not occur which would result in material delays
in future product and service commercialization or that the efforts of the
Company will result in successful product and service commercialization. There
can be no assurance that the Company will be able to achieve profitable
operations.
Regulatory Approvals May Not Be Granted. 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 and are
not dedicated to 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. 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.
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. An inability to obtain additional financing may have a material
adverse effect on the Company,
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including the possibility that the Company would be forced to curtail its
operations significantly or to cease its operations altogether.
Competition. Because the ELAST Device is based on a new concept in diagnostics
and is patented, there are currently no direct competitors marketing a similar
product. However, competition in the medical products industry, generally, is
intense. The Company and its subsidiary compete directly with other companies
and businesses that have developed and are in the process of developing
technologies and products which will be competitive with the products developed
and offered by the Company and its subsidiary. There can be no assurance that
other technologies or products which are functionally equivalent or similar to
the technologies and products of the Company and its subsidiary have not been
developed or are not in development. The Company expects that companies or
businesses which may have developed or are developing such technologies and
products as well as other companies and businesses which have the expertise
which would encourage them to develop and market products directly competitive
with those developed and marketed by the Company. Many of these competitors have
greater financial and other resources, and more experience in research and
development, than the Company.
For example, according to its 1994 Annual Report, Bayer Corporation (formerly
Miles, Inc.) holds over 50% of the worldwide allergy testing market, exclusive
of in vitro testing. In 1994, Pharmacia (now Pharmacia & Upjohn, Inc.) held
approximately 73% of the worldwide market share for in vitro allergy tests. The
Company's additional competitors in this area include Sanofi, Ciba Corning and
Diagnostic Products Corporation.
There can be no assurance that competitors have not or will not succeed in
developing technologies and products that are more effective than any which have
been or are being developed by the Company or which would render the products of
the Company obsolete and noncompetitive. Most of the competitors of the Company
have substantially greater experience, financial and technical resources and
production, marketing and development capabilities than the Company. If the
Company commences commercial sales of its products, it will also be competing
with respect to manufacturing efficiency and sales and marketing capabilities.
To the extent that customers exhibit loyalty to the supplier that first supplies
them with a particular service or technology, the competitors of the Company may
have an advantage over the Company with respect to services and technologies
first developed by such competitors. As a result of their size and breadth of
their service offerings, certain of these competitors have been and will be able
to establish managed accounts by which they seek to gain a disproportionate
share of users for their services and technologies. Such managed accounts
present significant competitive barriers to the Company. There can be no
assurance that competitors have not or will not succeed in developing
technologies and services that are more effective than any which have been or
are being developed by the Company or which would render the products of the
Company obsolete and noncompetitive.
Compliance with Environmental Laws. The Company's management believes that no
toxic or hazardous materials will be byproducts of the manufacturing processes
of the ELAST Device; accordingly, management of the Company believes that the
Company will not incur unforeseen material expenditures related to the cost of
compliance with applicable environmental laws, rules or regulations. The Company
believes that it is presently in compliance with all applicable federal, state,
and local environmental laws, rules and regulations. Furthermore, in the event
the Company licenses the manufacturing rights, of the ELAST Device, to third
parties, the Company will not become subject to any such restrictions. However,
at some time in the future, the research, development, manufacturing and
production processes of the Company may involve the controlled use of hazardous
materials. The Company may be subject to various laws and regulations governing
the use, manufacture, storage, handling, and disposal of such materials and
certain waste products. The risk of accidental contamination or injury from
hazardous materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result, and any
such liability could exceed the financial resources of the Company. In addition,
there can be no assurance that in the future the Company will not be required to
incur significant costs to comply with environmental laws and regulations
relating to hazardous materials. The Company cannot estimate the potential costs
of complying with local, state, and federal environmental laws.
Uninsured Loss; Acts of God. The Company currently carries and maintains (list
types of insurance the Company has now; for example, a comprehensive general
liability insurance policy, an employer's liability policy, worker's
compensation, etc.; also is there any liability insurance required pursuant to
the commercial lease for the Company's business premises). The
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Company may also carry and maintain other business insurance of the types
customarily carried by similar businesses. However, there are certain types of
extraordinary occurrences which may be either uninsurable or not economically
insurable. For example, in the event of a major earthquake, the Company's
research and development facilities' telecommunications and computer systems
could be rendered inoperable for protracted periods of time, which would
adversely affect the Company's financial condition. In the event of a major
civil disturbance, the Company's operations could be adversely affected. Should
such an uninsured loss occur, the Company could lose significant revenues and
financial opportunities in amounts which would not be partially or fully
compensated by insurance proceeds.
The business of the Company will expose the Company to potential product
liability risks that are inherent in the testing, manufacturing and marketing of
medical products. The Company presently has no product liability insurance, and
there can be no assurance that the Company will be able to obtain or maintain
such insurance on acceptable terms or, if obtained, that such insurance will
provide adequate coverage against potential liabilities. The Company faces an
inherent business risk of exposure to product liability and other claims in the
event that the development or use of its technology or products is alleged to
have resulted in adverse effects. Such risk exists even with respect to those
products that are manufactured in licensed and regulated facilities or that
otherwise possess regulatory approval for commercial sale. There can be no
assurance that the Company will avoid significant product liability exposure.
There can be no assurance that insurance coverage will be available in the
future, on commercially reasonable terms; or that such insurance will be
adequate to cover potential product liability claims; or that a loss of
insurance coverage would not materially adversely affect the Company's business,
financial condition and results of operations. While the Company has taken, and
will continue to take, what it believes are appropriate precautions, there can
be no assurance that the Company will avoid significant liability exposure. An
inability to obtain product liability insurance at acceptable cost or to
otherwise protect against potential product liability claims could prevent or
inhibit the commercialization of products developed by the Company. A product
liability claim could have a material adverse effect on the Company's business,
financial condition and results of operations.
Market Forces. As with any relatively new business enterprise operating in a
specialized and intensely competitive market, the Company is subject to many
business risks which include, but are not limited to, unforeseen marketing and
promotional expenses, unforeseen negative publicity, competition, and lack of
operating experience. Many of the risks may be unforeseeable or beyond the
control of the Company. There can be no assurance that the Company will
successfully implement its business plan in a timely or effective manner, or
that management of the Company will be able to market its services and sell
enough products to generate sufficient revenues and continue as a going concern.
The strategy of the Company for growth is substantially dependent upon its
ability to market its products and services successfully. There can be no
assurance that the Company will be able to market its services on acceptable
terms, or at all. Failure of the Company to market its services successfully
could have a material adverse effect on the Company's business, financial
condition or results of operations.
Future Capital Needs and Uncertainty of Additional Funding. The medical products
industry is rapidly changing through the continuous development and introduction
of new products. The strategy of the Company for growth is substantially
dependent upon its ability to successfully introduce the ELAST Devices.
Accordingly, the ability of the Company to compete may be dependent upon the
ability of the Company to enhance and improve its products continually. There
can be no assurance that competitors will not develop technologies or products
that render the products of the Company obsolete or less marketable. The Company
may be required to adapt to technological changes in the industry and develop
products to satisfy evolving industry or customer requirements, any of which
could require the expenditure of significant funds. At this time, the Company
does not have a source of commitment for such funds. Continued refinement and
improvement costs are risks inherent in new product development, including
unanticipated technical or other problems which could result in material delays
in product commercialization.
During the last three quarters, the issuance of common stock resulted in net
cash flow to the Company of $558,232. Because of the significant increase in the
Company's operating costs, the Company had a net increase in cash of $332 during
the nine month period ended September 30, 1999, as compared to a net increase in
cash of $269,419 during the nine month period ended September 30, 1999. At
September 30, 1999, the Company had cash and equivalents of $227,149, and
property and equipment with a net value of $21,060, with liabilities of $4,480.
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On July 7, 1999, certain Australian investors paid $250,000 to the Company for
purchase of 500,000 shares of the Company's common stock and 500,000 detachable
warrants granting certain rights to purchase an additional 500,000 shares of the
Company's common stock. On October 15, 1999, the final payment of $250,00 was
received by the Company. The cash and equivalents constitute the Company's
present internal sources of liquidity. Because the Company is not yet generating
revenues from the sale or licensing of its products, the Company's only external
source of liquidity is the sale of its capital stock.
The Company believes its current cash resources are sufficient to complete
prototype development and limited clinical trials of the ELAST Device. 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 FDA approval process -
through the sale of equity, debt, or licensing. 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 time period currently anticipated by
the Company. Failure to complete its research and development program will have
a significant adverse affect on the business operations of the Company.
Limited Protection of Proprietary Technology. The Company will attempt to
protect its proprietary technology through the enforcement of its patent and by
applying for additional patent protection when appropriate. The Company
exclusively owns any and all software and other technology that it develops and
regards such technology as proprietary. The Company may rely on a combination of
patent, trademark and trade secret laws, as well as through contractual
restrictions on disclosure, copying and distribution (including but not limited
to confidentiality agreements with its employees and subcontractors), to attempt
to protect its intellectual property rights in its products and services. There
is a possibility that such patent, trademark and trade secret laws, as well as
such confidentiality agreements, may not be enforceable in certain
jurisdictions. It may be possible for unauthorized third parties to copy the
Company's products or to reverse engineer or obtain and use information that the
Company regards as proprietary. There can be no assurance that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technologies. In addition, because the
Company anticipates distributing its products internationally, the laws of
certain countries in which the Company's products and services are or may be
distributed or utilized may not protect the Company's products and intellectual
rights to the same extent as the laws of the United States. There can be no
assurance that third parties will not assert infringement claims against the
Company in the future or that any such assertion will not result in costly
litigation or require the Company to obtain a license to intellectual property
rights of third parties. If the Company were required to so obtain any such
licenses, there can be no assurance that such licenses will be available on
reasonable terms, or at all. Moreover, in the event the Company was forced to
sue third parties for patent infringement or unfair competition, such litigation
can be extremely costly and time consuming, and may have a significant adverse
affect on the Company's business and operations, even if the Company prevails in
such lawsuit.
Rapid Technological Change. The medical devices industry is characterized by
rapidly changing technology, resulting in short product life cycles and rapid
price declines. The Company must continuously update its existing and planned
products and services to keep them current with changing technologies and must
develop new products and services, to take advantage of new technologies that
could render the Company's existing products and services obsolete. The
Company's future prospects are highly dependent on its ability to increase the
functionality of its products and services in a timely manner and to develop new
products that address new technologies and achieve market acceptance. There can
be no assurance that the Company will be successful in these efforts. If the
Company were unable to develop and introduce such products and services in a
timely manner, due to resource constraints or technological or other reasons,
this inability could have a material adverse effect on the Company's results of
operations. In particular, the introduction of new products and services are
subject to the inherent risk of development delays and delays in obtaining
regulatory approvals, all of which are beyond the control of the Company.
Key Personnel. The future success of the Company will depend in part on the
service of its key personnel and, additionally, its ability to identify, hire
and retain additional qualified personnel. There is intense competition for
qualified personnel in the areas of the activities of the Company, and there can
be no assurance that the Company will be able to continue to attract and retain
such personnel necessary for the development of the business of the Company.
Because of the intense competition,
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<PAGE>
there can be no assurance that the Company will be successful in adding
personnel as needed to satisfy the staffing requirements of the Company. Failure
to attract and retain key personnel could have a material adverse effect on the
Company.
Conflicts of Interest. The persons serving as officers and directors of the
Company may have existing responsibilities and, in the future, may have
additional responsibilities, to provide management and services to other
entities in addition to the Company. As a result, conflicts of interest between
the Company and the other activities of those persons may occur from time to
time, in that those persons shall have conflicts of interest in allocating time,
services, and functions between the other business ventures in which those
persons may be or become involved and, also, the affairs of the Company .
Dependence on Management. The Company is dependent on the efforts and abilities
of its senior management. The loss of various members of that management could
have a material adverse effect on the business and prospects of the Company. The
members of the Board of Directors of the Company believe that all commercially
reasonable efforts have been made to minimize the risks attendant with the
departure by key personnel from the service of the Company. There is no
assurance, however, that upon the departure of key personnel from the service of
the Company that replacement personnel will cause the Company to operate
profitably.
Limitation on Liability of Officers and Directors of the Company. The Articles
of Incorporation of the Company includes a provision eliminating or limiting the
personal liability of the officers and directors of the Company to the Company
and its shareholders for damages for breach of fiduciary duty as a director or
officer. Accordingly, the officers and directors of the Company may have no
liability to the shareholders of the Company for any mistakes or errors of
judgment or for any act of omission, unless such act or omission involves
intentional misconduct, fraud, or a knowing violation of law or results in
unlawful distributions to the shareholders of the Company. DISCLOSURE OF
POSITION OF COMMISSION REGARDING INDEMNIFICATION FOR SECURITIES ACT LIABILITIES:
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY
PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE 1933 ACT AND IS, THEREFORE,
UNENFORCEABLE.
Penny Stock Regulation. The Commission has adopted rules that regulate
broker-dealer practices in connection with transactions in "penny stocks". Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the Nasdaq system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from those rules, deliver a standardized
risk disclosure document prepared by the Commission, which specifies information
about penny stocks and the nature and significance of risks of the penny stock
market. The broker-dealer also must provide the customer with bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules require that prior to a transaction in a penny stock not
otherwise exempt from those rules the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
If the Company's common stock becomes subject to the penny stock rules,
purchasers of Shares may find it more difficult to sell their Shares.
Control by Existing Stockholders; Anti-Takeover Provisions. The Company's
directors, officers and principal (greater than 5%) stockholders, taken as a
group, together with their affiliates, beneficially own, in the aggregate,
approximately 27.2% of the Company's outstanding Common Stock. Certain principal
stockholders are directors or executive officers of the Company. As a result of
such ownership, these stockholders may be able to exert significant influence,
or even control, matters requiring approval by the stockholders of the Company,
including the election of directors. In addition, certain
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<PAGE>
provisions of Nevada law and of the Company's Articles of Incorporation and
Bylaws could have the effect of making it more difficult or more expensive for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company.
Securities Market Factors. The Common Stock is quoted on the OTC Bulletin Board.
However, no assurance can be given that an active public market will develop or
be sustained. Factors such as announcements of the introduction of new or
enhanced products by the Company or its competitors and quarter-to-quarter
variations in the Company's results of operations, as well as market conditions
in the technology and emerging growth company sector, may have a significant
impact on the market price of the Company's shares. Further, the stock market
has experienced extreme volatility that has particularly affected the market
prices of equity securities of many high technology companies and that often has
been unrelated or disproportionate to the operating performance of such
companies. These market fluctuations may adversely affect the price of the
Common Stock.
No Foreseeable Dividends. The Company does not anticipate paying dividends on
the Common Stock in the foreseeable future; but, rather, the Company plans to
retain earnings, if any, for the operation and expansion of the business of the
Company.
No Assurances of Revenue or Operating Profits. There can be no assurance that
the Company will be able to develop consistent revenue sources or that is
operations will become profitable.
Federal Income Tax Consequences. The Company has obtained no ruling from the
Internal Revenue Service and no opinion of counsel with respect to the federal
income tax consequences of the purchase or sale of Common Stock by the Selling
Stockholders. Consequently, investors must evaluate for themselves the income
tax implications which attach to their purchase, and any subsequent sale, of the
Shares.
Impact of the Year 2000. 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.
In order to improve operating performance, the Company has undertaken a number
of significant systems initiatives. All hardware, software and communication
systems owned by or supplied to the Company have been analyzed by reviewing all
relevant product and service manuals, contacting vendors, and on-line research
of relevant vendor websites. The Company also conducted on-line vendor reviews
of its desktop Pentium computers and its Windows 95 and Microsoft Office
software. For other software, the Company contacted the providers, reviewed the
relevant manuals, and reviewed vendor websites to ensure Y2K compliance. The
Company also considered and reviewed Y2K compliance of its power-backup systems
suppliers.
An ancillary benefit of the Company's systems initiatives specified above is
that the resulting 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 pose significant operational problems for its computer
systems.
In a worst case scenario, the Company's suppliers and customers could be
adversely affected by the non-compliance of banks, communications providers,
utilities, common carriers, the Company's customers, potential customers and
other sources known and unknown to the Company. Widespread breakdowns in the
telecommunications industry would have an adverse affect on the Company's
operations. The ultimate impact of the Y2K issue cannot be reasonably estimated
at this time. Many
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<PAGE>
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.
Item 4. Use of Proceeds
The Company will realize $1,800,000 from the sale of 450,000 shares of its
Common Stock, and will use those funds to pay for the costs of the offering, to
fund further research and development activities, and for working capital. The
Company will not receive any of the proceeds from the sale of shares of Common
Stock by the Selling Stockolders.
Item 5. Determination of Offering Price
Price Range of Common Stock. The Company's stock is quoted on the OTC Bulletin
Board (trading symbol:ESTG). Prior to the Company's participation on the OTC
Bulletin Board, there was no public market for the Company's common stock. The
Company's common stock has closed at a low of $1.50 and a high of $2.875 for the
52-week period ended December 1, 1999. This market is extremely limited and the
prices for the Company's common stock quoted by brokers is not necessarily a
reliable indication of the value of the Company's common stock.
The offering price of the Shares being sold by the Selling Shareholders was
calculated pursuant to Rule 457(c) of Regulation C using the average of the bid
and asked price of the Company's common stock, as reported on the OTC Bulletin
Board as of a specified date within 5 business days prior to the date of the
filing of this Registration Statement, specifically, as of December 1, 1999. On
December 1, 1999, the closing bid and asked prices of the Common Stock as
reported on the OTC Bulletin Board were $1.6875 and $2.00, respectively.
Item 6. Dilution
The Company has been a reporting company since May 2, 1999, which was the
effective date of the Registration Statement on Form 10-SB which the Company
filed with the Commission on March 3, 1999. The Company is selling 450,000 of
the 1,075,000 Shares being registered hereby. The Shares are outstanding shares
of Common Stock, or will be outstanding shares of Common Stock acquired upon
exercise of options, warrants or the conversion of certain securities, owned by
the persons named in this Prospectus under the caption "Selling Stockholders."
The Selling Stockholders may from time to time sell the Shares on the OTC
Bulletin Board, on any other national securities exchange or automated quotation
system on which the Common Stock may be listed or traded, in negotiated
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices. The Shares may be sold directly or
through brokers or dealers. The purchase prices paid by officers, directors,
promoters and affiliated persons for common equity purchased by them, or which
they have rights to purchase, or which they acquired by means of related party
transactions, are specified in this Prospectus under the captions "Security
Ownership of Certain Beneficial Owners and Management", "Organization Within
Last Five Years", and "Certain Relationships and Related Transactions".
Item 7. Selling Stockholders
The following table sets forth the number of Shares which may be offered for
sale from time to time by the Selling Stockholders. None of the Selling
Stockholders has held any position or office with the Company, except as
specified in the following table. Other than the relationships described below,
none of the Selling Stockholders had or have any material relationship with the
Company.
Dr. Ronald E. Miller 200,000
Dr. Jeffrey R. Milman 125,000
Dr. David L. Wang 125,000
Riverplate Securities Pty Ltd. 375,000
Leominster Ltd. 75,000
E.L. and P.L. Hamilton(1) 100,000
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<PAGE>
Nicholas Spencer(2) 25,000
Melissa O'Sullivan 50,000
(1) Mr. Hamilton is a Senior Vice President of the Company.
(2) Mr. Spencer is a director of the Company.
Pursuant to the agreements by which certain of the Selling Stockholders acquired
their Shares, the Company agreed to use its best efforts to file a registration
statement for the resale of such Shares and to use its best efforts to cause
such registration statement to be declared effective. Pursuant to those
agreements, the Company will pay all expenses in connection with the
registration and sale of the Shares, except any selling commissions or discounts
allocable to sales of the Shares, fees and disbursements of counsel and other
representatives of the Selling Stockholders, and any stock transfer taxes
payable by reason of any such sale.
Item 8. Plan of Distribution
The Company is selling 450,000 shares of its Common Stock to three (3)
accredited investors. Moreover, the Company is registering 625,000 shares of
Common Stock held by the persons named in this Prospectus under the caption
"Selling Shareholders".
The Selling Stockholders may from time to time sell all or a portion of the
Shares in the over-the-counter market, or on any other national securities
exchange on which the Common Stock is or becomes listed or traded, in negotiated
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices. The Shares will not be sold in an
underwritten public offering. The Shares may be sold directly or through brokers
or dealers. The methods by which the Shares may be sold include: (a) a block
trade (which may involve crosses) in which the broker or dealer so engaged will
attempt to sell the securities as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a broker
or dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) privately
negotiated transactions. In effecting sales, brokers and dealers engaged by
Selling Stockholders may arrange for other brokers or dealers to participate.
Brokers or dealers may receive commissions or discounts from Selling
Stockholders (or, if any such broker-dealer acts as agent for the purchaser of
such shares, from such purchaser) in amounts to be negotiated which are not
expected to exceed those customary in the types of transactions involved.
Broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share, and, to the extent such
broker-dealer is unable to do so acting as agent for a Selling Stockholder, to
purchase as principal any unsold shares at the price required to fulfill the
broker-dealer commitment to such Selling Stockholder. Broker-dealers who acquire
shares as principal may thereafter resell such shares from time to time in
transactions (which may involve crosses and block transactions and sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market or otherwise at prices and on terms then
prevailing at the time of sale, at prices then related to the then-current
market price or in negotiated transactions and, in connection with such resales,
may pay to or receive from the purchasers of such shares commissions as
described above.
In connection with the distribution of the Shares, the Selling Stockholders may
enter into hedging transactions with broker-dealers. In connection with such
transactions, broker-dealers may engage in short sales of the Shares in the
course of hedging the positions they assume with the Selling Stockholders. The
Selling Stockholders may also sell the Shares short and redeliver the Shares to
close out the short positions. The Selling Stockholders may also enter into
option or other transactions with broker-dealers which require the delivery to
the broker-dealer of the Shares. The Selling Stockholders may also loan or
pledge the Shares to a broker-dealer and the broker-dealer may sell the Shares
so loaned or upon a default the broker-dealer may effect sales of the pledged
shares. In addition to the foregoing, the Selling Stockholders may enter into,
from time to time, other types of hedging transactions.
The Selling Stockholders and any broker-dealers participating in the
distributions of the Shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the 1933 Act and any profit on the sale of Shares by
the Selling Stockholders and any commissions or discounts given to any such
broker-dealer may be deemed to be underwriting commissions or discounts under
the 1933 Act.
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<PAGE>
The Shares may also be sold pursuant to Rule 144 under the 1933 Act beginning
two years after the Shares were issued, provided such date is at least 90 days
after the date of this Prospectus.
The Company has filed the Registration Statement, of which this Prospectus forms
a part, with respect to the sale of the Shares. There can be no assurance that
the Selling Stockholders will sell any or all of the Shares offered hereunder.
Under the Securities Exchange Act of 1934 ("Exchange Act") and the regulations
thereunder, any person engaged in a distribution of the Shares offered by this
Prospectus may not simultaneously engage in market making activities with
respect to the Common Stock of the Company during the applicable "cooling off"
periods prior to the commencement of such distribution. In addition, and without
limiting the foregoing, the Selling Stockholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rules 10b-6 and 10b-7, which provisions may limit
the timing of purchases and sales of Common Stock by the Selling Stockholders.
The Company will pay all of the expenses incident to the offering and sale of
the Shares, other than commissions, discounts and fees of underwriters, dealers
or agents.
Item 9. Legal Proceedings
There are no legal actions pending against the Company nor are any such legal
actions contemplated, except as specified below:
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 the 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 as a result of
the Plan of Merger. 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 10. Directors, Executive Officers, Promoters and Control Persons.
The directors and principal executive officers of the Company are as specified
on the following table:
================================================================================
Name Age Position
- --------------------------------------------------------------------------------
Thomas Krucker 60 President and Director
================================================================================
Robert D. Milne, M.D. 53 Chairman of the Board of Directors
================================================================================
Edward L. Hamilton 62 Senior Executive Vice President and Director
================================================================================
Nicholas Spencer 38 Director
================================================================================
Michael Davis 46 Director
================================================================================
John D. Sheppard 44 Director
================================================================================
Thomas Krucker is the President, Chief Executive Officer, and a director of the
Company. His term of office as a director expires in 1999. Mr. Krucker graduated
from the University of Arizona in 1962 and received a Juris Doctorate degree
from
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Pepperdine University in 1969. Mr. Krucker served with Toyota USA in a key
management position for approximately 20 years. Mr. Krucker was formerly the
chief operating officer of Fun City Popcorn, Inc., a Nevada corporation which
recently changed its name to Tone Products. Mr. Krucker left Tone Products to
accept the office of President of the Company.
Robert D. Milne, M.D. is the Chairman of the Board of Directors of the Company.
His term of office as a director expires in 1999. Dr. Milne is a board-certified
family practice physician with extensive experience in allergy testing and
preventative medicine. He is also the inventor of the ELAST Device. Before
starting his own practice at the Milne Medical Center in Las Vegas, Nevada, Dr.
Milne was Medical Director at the Omni Medical Center and also practiced
medicine at the Nevada Clinic after previous assignments in emergency medicine
and a family practice. Dr. Milne is the author of numerous papers in the medical
field and has authored several books, including The Definitive Guide to
Headaches and The Photon Connection Energy for the New Millennium.
Edward L. Hamilton is the Senior Executive Vice President of Corporate Affairs
and a director of the Company. During the past 5 years, Mr. Hamilton has been
involved with the United Nations Childrens' Foundation, producing a special
program to educate children worldwide called the "Magic Seven". Mr. Hamilton was
also the Chief Executive Officer of Cobba Productions, Inc., which, in
conjunction with Mr. Film of Venice and Pulse Entertainment California created
3- dimensional computer animation. He has also been a consultant for
international marketing to Klamath Falls Algae. Mr. Hamilton has an extensive
background in international business, with particular emphasis on start-up
companies, finance, management and planning corporate strategy.
Nicholas Spencer is a director of the Company. Mr. Spencer has more than 15
years experience in starting, managing, and improving business performance and
now specializes in business planning and start-up companies with a special
emphasis on marketing and development. Mr. Spencer currently serves on the Board
of Directors of Medsearch Pty. Limited, Sydney, New South Wales, and also serves
as Chairman of the Board for that company.
Michael Davis is a director of the Company. Mr. Davis holds an MBA from Harvard
School of Business and an Honors Degree in Economics and Business from Harvard
College, and he has over fifteen years of invaluable experience with emerging
public companies. Mr. Davis is the co-founder and co-owner of the highly
successful automotive and industrial chemical marketing firm Prolong
International Corp., and currently serves as International Consultant to the
firm. Mr. Davis also co-founded the biotech research and development company
Gene-Cell, Inc., and currently serves as its Treasurer. Gene- Cell, Inc.,
premiered the successful introduction of DNA into human stem cells via
microinjection.
John D. Sheppard, MD is a director of the Company. Dr. Sheppard, a Professor of
Microbiology and Immunology, Geriatrics, and Ophthalmology at Eastern Virginia
Medical School, Norfolk, Va., has extensive scientific, medical and business
experience. He received his undergraduate degree, as well as his graduate
degrees from Brown University, which he attended under full scholarship. Upon
completion of his residency training, Dr. Sheppard completed a thirty month
fellowship at the University of California San Francisco Proctor Foundation.
Thereafter, as the recipient of several research awards and fellowships, Dr.
Sheppard, furthered his study through medical research. Dr. Sheppard has
published extensively. In addition, Dr. Sheppard founded VisioNet, Inc., in
1997, and Life Professional Billing Services, Inc., in 1998. Both companies
provide a wide range of services to health care providers. In 1999, Dr. Sheppard
co-founded EyeRx Research, Corp., which is developing viable ophthalmic
medications to treat blinding diseases, as well as Perstrings, Inc., which holds
the trademark, licensing and patent rights to exclusive neutraceutically-based
wellness products.
There is no family relationship between any of the officers or directors of the
Company. There are no orders, judgments, or decrees of any governmental agency
or administrator, or of any court of competent jurisdiction, revoking or
suspending for cause any license, permit or other authority to engage in the
securities business or in the sale of a particular security or temporarily or
permanently restraining any officer or director of the Company from engaging in
or continuing any conduct, practice or employment in connection with the
purchase or sale of securities, or convicting such person of any felony or
misdemeanor involving a security, or any aspect of the securities business or of
theft or of any felony, nor are any of the officers or directors of any
corporation or entity affiliated with the Company so enjoined.
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<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance. The Company's
Registration Statement on Form 10-SB became effective on or about May 2, 1999
and cleared comments from the SEC on or about September 1, 1999 . To the
Company's knowledge, all of the officers, directors, and principal shareholders
have filed all reports required to be filed by those persons on, respectively,
Form 3 ( Initial Statement of Beneficial Ownership of Securities), a Form 4
(Statement of Changes of Beneficial Ownership of Securities), or a Form 5
(Annual Statement of Beneficial Ownership of Securities ).
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of November 30, 1999 by (i) each
person or entity known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of common stock, (ii) each of the Company's directors
and named executive officers, and (iii) all directors and executive officers of
the Company as a group. The number of shares outstanding of the issuer's only
class of Common Stock, $.001 par value, was approximately 7,550,148 on November
30, 1999.
(a) Security Ownership of Certain Beneficial Owners. Other than officers and
directors, no persons are beneficial owners of 5% or more of the Company's
issued and outstanding common stock.
(b) Security Ownership of Management. The directors and principal executive
officers of the Issuer own, in the aggregate, 2,052,140 shares of the Company's
common stock, or approximately 27.2 % of the issued and outstanding common
shares, as set forth on the following table. Associates and family members
residing with directors and principal executive officers also own shares of the
Company's common stock, as specified under the heading entitled Beneficial
Ownership immediately below the table.
<TABLE>
<CAPTION>
Title of Class Name and Address Amount and Percent of
-------------- of Owner Nature of Class
------------------- Owner ----------
----------
<S> <C> <C> <C>
$.001 par value Dr. Robert Milne 1,349,476 17.9%
Common Stock 2432 Greens Ave. Secretary and Director
Henderson, NV 89014
$.001 par value Thomas Krucker 385,332 5.1%
Common Stock 2505 Rancho Bel Air President and Director
Las Vegas, NV 89107
$.001 par value Edward L. Hamilton 100,000 1.3%
42 Bundock Street Senior Vice President
Radwick, 2031 N.S.W
Australia
Additional shares beneficially
owned by officers and
directors as a group (1) 217,332 2.9%
Total shares beneficially
owned by all officers and directors
as a group 2,052,140 27.2%
</TABLE>
(1) Beneficial Ownership. Beneficial ownership is determined in accordance with
the rules of the Commission and generally includes voting or investment power
with respect to securities. In accordance with Commission rules, shares of the
Company's common stock which may be acquired upon exercise of stock options or
warrants which are currently
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<PAGE>
exercisable or which become exercisable within 60 days of the date of the table
are deemed beneficially owned by the optionees. Subject to community property
laws, where applicable, the persons or entities named in the table above have
sole voting and investment power with respect to all shares of the Company's
common stock indicated as beneficially owned by them.
Dr. Milne's spouse, Julie Milne, and immediate family members residing with him,
Drew Milne, Meredith Milne and Brook Milne, own, in the aggregate, an additional
110,000 shares of the Company's common stock, or approximately 1.5% of the
issued and outstanding common stock of the Company. The Milne Medical Center, an
affiliate of Dr. Milne, owns 10,000 shares of the Company's common stock, or
approximately 0.14% of the issued and outstanding common stock of the Company.
Mr. Krucker's spouse, Katherine, and an immediate family member residing with
him, Kimberly Krucker, own, in the aggregate, 97,332 additional shares of the
Company's common stock, or approximately 1.3% of the issued and outstanding
common stock of the Company.
On or about October 18, 1999, Dr.Milne agreed to retire 1.5 million shares of
the Company's common stock held in his name in exchange for stock options to
purchase up to 1.5 million shares of the Company's common stock at $1.68 per
share.
Changes in Control. Management of the Company is not aware of any arrangements
which may result in "changes in control" as that term is defined by the
provisions of Item 403(c) of Regulation S-B. Pursuant to a Plan of Merger filed
with the Delaware Secretary of State, in June, 1998, Elast Technologies
Corporation, a Delaware corporation (previously defined in this Registration
Statement 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 on or about
June 30, 1998, 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. The Company changed its name from Med
Mark, Inc. to Elast Technologies, Inc. on or about October 27, 1998.
Item 12. Description of Securities
The Company is authorized to issue 10,000,000 shares of common stock, $.001 par
value, each share of common stock having equal rights and preferences, including
voting privileges. The number of shares outstanding of the issuer's only class
of Common Stock, $.001 par value, was approximately 7,550,148 on November 30,
1999.
The shares of $.001 par value common stock of the Company constitute equity
interests in the Company entitling each shareholder to a pro rata share of cash
distributions made to shareholders, including dividend payments. The Bylaws of
the Company specify how the cash available for distribution, whether occurring
from operations or sales or refinancing, is to be shared among the shareholders.
The holders of the Company's common stock are entitled to one vote for each
share of record on all matters to be voted on by shareholders. There is no
cumulative voting with respect to the election of directors of the Company or
any other matter, with the result that the holders of more than 50% of the
shares voted for the election of those directors can elect all of the Directors.
The holders of the Company's common stock are entitled to receive dividends
when, as and if declared by the Company's Board of Directors from funds legally
available therefor; provided, however, that cash dividends are at the sole
discretion of the Company's Board of Directors. In the event of liquidation,
dissolution or winding up of the Company, the holders of common stock are
entitled to share ratably in all assets remaining available for distribution to
them after payment of liabilities of the Company and after provision has been
made for each class of stock, if any, having preference in relation to the
Company's common stock. Holders of the shares of Company's common stock have no
conversion, preemptive or other subscription rights, and there are no redemption
provisions applicable to the Company's common stock. All of the outstanding
shares of Company's common stock are duly authorized, validly issued, fully paid
and non-assessable.
Dividend Policy. The Company has never declared or paid a cash dividend on its
capital stock and does not expect to pay cash dividends on its Common Stock in
the foreseeable future. The Company currently intends to retain its earnings, if
any,
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for use in its business. Any dividends declared in the future will be at the
discretion of the Board of Directors and subject to any restrictions that may be
imposed by the Company's lenders.
Item 13. Interest of Named Experts and Counsel.
No "expert", as that term is defined pursuant to Regulation Section 228.509(a)
of Regulation S-B, or the Company's "counsel", as that term is defined pursuant
to Regulation Section 228.509(b) of Regulation S-B, was hired on a contingent
basis, or will receive a direct or indirect interest in the Company, or was a
promoter, underwriter, voting trustee, director, officer, or employee of the
Company, at any time prior to the filing of this Registration Statement.
Item 14. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION FOR
LIABILITIES ARISING PURSUANT TO THE SECURITIES ACT OF 1933 IS CONTRARY TO PUBLIC
POLICY AND, THEREFORE, UNENFORCEABLE.
Item 15. Organization Within Last Five Years
Transactions with Promoters. Thomas Krucker and Dr. Milne were the promoters of
the Company. Mr. Krucker received 50,000 shares of common stock of the Company
for his management and organizational services provided to the Company. Dr.
Milne received all of his shares of common stock of the Company pursuant to the
licensing agreement for the ELAST Device.
Additional information about certain relationships and related transactions is
specified more completely under the portion of this Prospectus entitled Certain
Relationships and Related Transactions at Item 19 below.
Item 16. Description of Business.
Development of the Company. Med Mark, Inc., a Nevada corporation ("Company"),
was incorporated in the State of Nevada on November 5, 1996. On or about June
29, 1998, the Company filed a Certificate of Amendment to its Articles of
Incorporation changing the name of the Company to Elast Technologies, Inc. The
executive offices of the Company are located at 2505 Rancho Bel Air, Las Vegas,
Nevada 89107. The Company's telephone number is (702)878-8310.
Business of the Company. The Company was organized to engage in the business of
manufacturing and marketing medical equipment and supplies, as well as health
related products, including vitamins and nutritional supplements. The Company
plans to develop its own products and may also obtain marketing and distribution
rights to existing products or products currently in development by others.
On or about June 30, 1998, the Company acquired all of the issued and
outstanding capital stock of Elast Technologies Corporation, a Delaware
corporation ("Elast Delaware"), and, as specified above, changed the Company's
name from Med Mark, Inc. to Elast Technologies, Inc. The Company entered into a
licensing agreement with Dr. Robert D. Milne and acquired the rights to develop,
test, manufacture, and market Dr. Milne's patented allergy-testing device
("ELAST Device", U.S. Patent No. 5413113, issued on or about May 9, 1995). Dr.
Milne is a board-certified family practice physician with extensive experience
in allergy testing and preventative medicine. The Company has spent significant
amounts of time during its last two fiscal years on research and development
activities relating to the ELAST Device.
The licensing agreements relating to the ELAST Device are specified more
completely herein at Item 7, under the subsection entitled Licensing Agreements
Were Not the Result of Arms-Length Negotiations,
The ELAST Device is based on the clinical observation that the human body loses
energy (that is, the body's normal electrical flow is interrupted) when exposed
to a substance to which that body is sensitive or allergic. The energy loss is
rapid and is
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measured in micro-voltage. The ELAST Device measures the body's energy loss and
documents it graphically, providing the treating physician with an accurate
assessment of a patient's sensitivity. The Company intends to clinically test
the device under the direction of Dr. Milne. After clinical testing, the ELAST
Device will be submitted to the United States Food and Drug Administration
("FDA") for approval.
Human therapeutic products are subject to rigorous pre-clinical and clinical
testing and other approval procedures. The FDA and comparable foreign 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. Various federal, state and foreign statutes also govern or affect
the manufacturing, safety, labeling, storage, and marketing of such products, as
well as record-keeping incidental to such marketing. 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 under 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 done by the Company to determine
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 raise
additional capital to market the ELAST Device.
In the event the FDA or other domestic or foreign regulatory agency requires
approval and testing of the ELAST Device, prior to its commercial exploitation,
the Company cannot provide any assurances that testing procedures will be
successfully completed, or if completed, demonstrate that the ELAST Device is
safe and efficacious. Further, there can be no assurances that any required
government approvals will be obtained. Accordingly, there can be no assurance
that the Company will be able to market the ELAST Device in the United States or
any foreign country. Any failure by the Company, its subsidiary, collaborators
or licensees to obtain any required regulatory approvals or licenses would
adversely affect the ability of the Company to market its products and would
have a significant adverse affect on the Company's revenues.
Employees. The Company currently has 3 employees. Management of the Company
anticipates using consultants for business, accounting, engineering, and legal
services on an as-needed basis. Because the Company anticipates entering into
licensing and manufacturing agreements with third parties, the Company
anticipates that it will require few additional employees during the next fiscal
year.
Competition. Because the ELAST Device is based on a new concept in diagnostics
and is patented, there are currently no direct competitors with a similar
product in the marketplace. Once the ELAST Device gains product acceptance in
the medical community, the Company anticipates physicians could prescribe
home-testing.
However, competition in the medical products industry, generally, is intense.
The Company and its subsidiary compete directly with other companies and
businesses that have developed and are in the process of developing technologies
and products which will be competitive with the products developed and offered
by the Company and its subsidiary. There can be no assurance that other
technologies or products which are functionally equivalent or similar to the
technologies and products of the Company and its subsidiary have not been
developed or are not in development. The Company expects that companies or
businesses which may have developed or are developing such technologies and
products as well as other companies and businesses which have the expertise
which would encourage them to develop and market products directly competitive
with those developed and marketed by the Company. Many of these competitors have
greater financial and other resources, and more experience in research and
development, than the Company.
For example, according to its 1994 Annual Report, Bayer Corporation (formerly
Miles, Inc.) holds over 50% of the worldwide allergy testing market, exclusive
of in vitro testing. In 1994, Pharmacia (now Pharmacia & Upjohn, Inc.) held
approximately 73% of the worldwide market share for in vitro allergy tests. The
Company's additional competitors in this area include Sanofi, Ciba Corning and
Diagnostic Products Corporation.
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There can be no assurance that competitors have not or will not succeed in
developing technologies and products that are more effective than any which have
been or are being developed by the Company or which would render the products of
the Company obsolete and noncompetitive. Many of the competitors of the Company
have substantially greater experience, financial and technical resources and
production, marketing and development capabilities than the Company. If the
Company commences commercial sales of its products, it will also be competing
with respect to manufacturing efficiency and sales and marketing capabilities.
Compliance with Environmental Laws. The Company's management believes that no
toxic or hazardous materials will be byproducts of the manufacturing processes
of the ELAST Device; accordingly, management of the Company believes that the
Company will not incur unforeseen material expenditures related to the cost of
compliance with applicable environmental laws, rules or regulations. The Company
believes that it is presently in compliance with all applicable federal, state,
and local environmental laws, rules and regulations. Furthermore, in the event
the Company licenses the manufacturing rights, of the ELAST Device, to third
parties, the Company will not become subject to any such restrictions. However,
at some time in the future, the research, development, manufacturing and
production processes of the Company may involve the controlled use of hazardous
materials. The Company may be subject to various laws and regulations governing
the use, manufacture, storage, handling, and disposal of such materials and
certain waste products. The risk of accidental contamination or injury from
hazardous materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
such liability could exceed the financial resources of the Company. In addition,
there can be no assurance that in the future the Company will not be required to
incur significant costs to comply with environmental laws and regulations
relating to hazardous materials. The Company cannot estimate the potential costs
of complying with local, state, and federal environmental laws.
Item 17. Management's Discussion and Analysis of Financial Condition and Results
of Operations
THIS REPORT SPECIFIES FORWARD-LOOKING STATEMENTS OF MANAGEMENT OF THE COMPANY
("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
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ACCURATE, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH
FORWARD-LOOKING STATEMENTS.
General. The Company manufactures and markets medical devices. The Company is
currently negotiating a proposed marketing agreement for the territories of
Australia and New Zealand and plans to negotiate and enter into additional
marketing agreements with appropriate distributors and marketing agents. Other
than the ELAST Device discussed in Item 1 above, 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.
The business of the Company will expose the Company to potential product
liability risks that are inherent in the testing, manufacturing and marketing of
medical products. The Company presently has no product liability insurance, and
there can be no assurance that the Company will be able to obtain or maintain
such insurance on acceptable terms or, if obtained, that such insurance will
provide adequate coverage against potential liabilities. The Company faces an
inherent business risk of exposure to product liability and other claims in the
event that the development or use of its technology or products is alleged to
have resulted in adverse effects. Such risk exists even with respect to those
products that are manufactured in licensed and regulated facilities or that
otherwise possess regulatory approval for commercial sale. There can be no
assurance that the Company will avoid significant product liability exposure.
There can be no assurance that insurance coverage will be available in the
future, on commercially reasonable terms; or that such insurance will be
adequate to cover potential product liability claims; or that a loss of
insurance coverage would not materially adversely affect the Company's business,
financial condition and results of operations. While the Company has taken, and
will continue to take, what it believes are appropriate precautions, there can
be no assurance that the Company will avoid significant liability exposure. An
inability to obtain product liability insurance at acceptable cost or to
otherwise protect against potential product liability claims could prevent or
inhibit the commercialization of products developed by the Company. A product
liability claim could have a material adverse effect on the Company's business,
financial condition and results of operations.
The strategy of the Company for growth is substantially dependent upon its
ability to market and distribute products successfully. Other companies,
including those with substantially greater financial, marketing and sales
resources, compete with the Company, and have the advantage of marketing
existing products with existing production and distribution facilities. There
can be no assurance that the Company will be able to market and distribute
products on acceptable terms, or at all. Failure of the Company to market its
products successfully could have a material adverse effect on the Company's
business, financial condition or results of operations.
The medical products industry has been under increasing scrutiny by various
state and federal regulatory agencies. While the Company does not presently
require any government approval to create, develop or manufacture the ELAST
Device; the Company may be subject to various forms of government regulations,
including consumer safety laws and environmental safety laws. Any future
violation of, or the cost of compliance with, these laws and regulations could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The medical products industry is rapidly changing through the continuous
development and introduction of new products. The strategy of the Company for
growth is substantially dependent upon its ability to successfully introduce the
ELAST Devices. Accordingly, the ability of the Company to compete may be
dependent upon the ability of the Company to enhance and improve its products
continually. There can be no assurance that competitors will not develop
technologies or products that render the products of the Company obsolete or
less marketable. The Company may be required to adapt to technological changes
in the industry and develop products to satisfy evolving industry or customer
requirements, any of which could require the expenditure of significant funds.
At this time, the Company does not have a source of commitment for such funds.
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Continued refinement and improvement costs are risks inherent in new product
development, including unanticipated technical or other problems which could
result in material delays in product commercialization.
Liquidity and Capital Resources. During the year ended December 31, 1998, and
the three month period ended March 31, 1999, the Company received $397,000 and
$208,250, respectively, from the sale of common stock, issuance of common stock
as a result of the exercise of warrants, and the payment of a stock subscription
receivable. After payment of development and operating expenses, the Company had
cash resources of $270,017 at March 31, 1999. On July 7, 1999, a group of
Australian investors deposited $250,000 with the Company in anticipation of
purchasing up to 1,075,000 shares of the Company's common stock and up to
1,075,000 non-detachable warrants granting certain rights to purchase an
additional 1,075,000 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 monies to the Company.
The cash and equivalents constitute the Company's present internal sources of
liquidity. Because neither the Company nor its subsidiary 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.
Sales of common stock and exercise of warrants pursuant to an offering of
unregistered securities by Elast Delaware resulted in cash receipts of $197,000
and $189,990, respectively, in the year to date ended December 31, 1998.
Collection of an outstanding receivable relating to the sale of common stock
resulted in an additional $10,000 of cash receipts to the Company. During the
three month period ended March 31, 1999, the Company received $208,250 from the
sale of common stock.
The Company believes these cash resources are sufficient to complete prototype
development and limited clinical trials of the ELAST Device. 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 FDA approval process -
through the sale of equity, debt, or licensing. 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 time period currently anticipated by
the Company.
Manufacturing and Marketing the Company's Products. The Company does not
anticipate any supply problems. As this time, the Company does not require
manufacturing facilities. As the principal components of the ELAST Device
consist of electronic parts that are readily available, the Company does not
anticipate that its manufacturer will have any supply problems. The Company's
operations are not effected by any seasonal factors.
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 to test 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.
Impact of the Year 2000. 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
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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
pose significant operational problems for its computer systems. However,
although the Company believes its own 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 would not have an adverse effect on the Company's computer system.
In a worst case scenario, 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.
Item 18. Description of Property
Property held by the Company. The consolidated financial statements filed as
exhibits to this Registration Statement include the accounts of the Company and
its wholly-owned subsidiary, Elast Technologies Corporation, a Delaware
corporation (previously defined in this Registration Statement as "Elast
Delaware"). All significant intercompany transactions have been eliminated. As
of the dates specified in the following table, the Company held the following
property:
================================================================================
Property Dec. 31, 1998 Dec. 31,1997
-------- ------------- ------------
- --------------------------------------------------------------------------------
Cash and equivalents $226,818.00 $108,280.00
- --------------------------------------------------------------------------------
License to use Patent No. 5413113 $ 800.00 $ 800.00
- --------------------------------------------------------------------------------
The Company defines cash equivalents as all highly liquid investments with a
maturity of 3 months or less when purchased. The Company does not presently own
any interests in real estate. The Company does not presently own any inventory
or equipment.
Item 19. Certain Relationships and Related Transactions
Compensation to Officers and Directors of the Company. As of June 30, 1998,
compensation of $152,804 in the form of common stock has been paid or accrued to
the officers or directors of the Company. No such compensation to the officers
or directors of the Company was outstanding or paid as of June 30, 1997.
Related Party Transactions. Dr. Milne, the Chairman of the Board of the Company,
provides office space and services to the Company, at no cost to the Company. At
such time as the Company begins receiving revenue from operations, management of
the Company anticipates that the Company will begin paying rent for 800 square
feet of this office space, at a rate of $1,200 per month.
Licensing Agreement Was Not the Result of Arms-Length Negotiations. As set forth
above, on or about June 12, 1996, Elast Delaware acquired a license from Robert
D. Milne, M.D., who was, at that time, Chairman of the Board of Directors and a
major shareholder of Elast Delaware, whereby Elast Delaware acquired the
exclusive right to develop, manufacture
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and market the ELAST Device. Elast Delaware issued to Dr. Milne 800,000 shares
of its common stock to acquire the licensing rights. The Company believes that
the fair market value of 800,000 shares of Elast Delaware's common stock at the
time of the transaction was $800.00. Kelly & Company, Elast Delaware's
independent certified public accountants, determined that 800,000 shares of
Elast Delaware's common stock was fair consideration for the license agreement
with Dr. Milne. Because modifications may be made during the development and
testing of the ELAST Device, it is not certain that the final technology
developed by Elast Delaware will be protected by the original patent.
Item 20. Market for Common Equity and Related Stockholder Matters
Reports to Security Holders. The Company is a reporting company with the
Securities and Exchange Commission ("SEC"). The public may read and copy any
materials filed with the SEC at the SEC's Public Reference Room at 450 Fifth
Street N.W., Washington, D.C. 20549. The public may also obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The address of that site is http://www.sec.gov. The Company
currently maintains its own Internet address at www.elast.com.
The Company participates in the OTC Bulletin Board, an electronic quotation
medium for securities traded outside the Nasdaq Stock Market. The Company's
common stock trades on the OTC Bulletin Board under the trading symbol "ESTG".
This market is extremely limited and the prices for the Company's common stock
quoted by brokers is not necessarily a reliable indication of the value of the
Company's common stock. The Company was listed with Standard & Poor's
Corporation Records by publication on or about December 3, 1998.
There have been no cash dividends declared on the Company's common stock since
the Company's inception. Dividends will be declared at the sole discretion of
the Company's Board of Directors.
The Company's Board of Directors has approved and adopted a stock option plan
("Stock Option Plan"), pursuant to which 5,000,000 shares of the Company's $.001
par value common stock will be reserved for issuance to satisfy the exercise of
options. The Stock Option Plan will be designed to retain qualified and
competent officers, employees, and directors of the Company. The Company's Board
of Directors, or a committee thereof, shall administer the Stock Option Plan and
will be authorized, in its sole and absolute discretion, to grant options
thereunder to all eligible employees of the Company, including officers, and to
the Company's directors, whether or not those directors are also employees of
the Company. Options will be granted pursuant to the provisions of the Stock
Option Plan on such terms, subject to such conditions and at such exercise
prices as shall be determined by the Company's Board of Directors. Options
granted pursuant to the Stock Option Plan shall not be exercisable after the
expiration of ten years from the date of grant.
Item 21. Executive Compensation - Remuneration of Directors and Officers.
Any compensation received by officers, directors, and management personnel of
the Company will be determined from time to time by the Board of Directors of
the Company. Officers, directors, and management personnel of the Company will
be reimbursed for any out-of-pocket expenses incurred on behalf of the Company.
Officers' compensation, in the aggregate, increased from $40,083 during the nine
month period ended September 30, 1998 to $106,496 during the nine month period
ended September 30, 1999. The Company does not anticipate paying compensation of
$50,000 or more to any executive officer during the current fiscal year.
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Compensation of Directors. The Board of Directors of the Company has approved a
stock option and compensation plan for non-executive directors (that is,
directors who do not also serve as executive officers of the Company).
Shares Issued as Compensation for Services. In 1998, the Company issued 270,000
shares of its $.001 par value common stock as compensation for consulting and
engineering services, and employee compensation, as follows:
(i) Consultants were issued 115,000 shares of the Company's $.001 par value
common stock as additional compensation for their services to the Company. Those
shares were valued at what the Company believes was the fair market value at the
time of issuance, which was $1.50 per share.
(ii) Third party engineers were issued 55,000 shares of the Company's $.001
par value common stock as additional compensation for their services to the
Company. Those shares were valued at what the Company believes was the fair
market value at the time of issuance, which was $1.54 per share.
(iii) Dr. Milne, and officer, director and major shareholder of the
Company, was issued 100,000 shares of the Company's $.001 par value common stock
as additional compensation for his services to the Company; specifically, his
continuing efforts related to the development of certain technology which will
be utilized by the Company in its business operations. Those shares were valued
at what the Company believes was the fair market value at the time of issuance,
whcih was $1.50 per share.
Item 22. Financial Statements
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Financial Statements
(Unaudited)
As of September 30, 1999, and for the Nine-Month and Three-Month
Periods Ended September 30, 1999 and 1998, and for the
Period from June 12, 1996 (Inception) to September 30, 1999
Elast Technologies, Inc.
(A Development Stage Company)
Index to the Consolidated Financial Statements (Unaudited)
As of September 30, 1999, and for the Nine-Month and Three-Month
Periods Ended September 30, 1999 and 1998, and for the
Period from June 12, 1996 (Inception) to September 30, 1999
- --------------------------------------------------------------------------------
Accountants' Disclaimer Report................................................ 1
Consolidated financial statements for Elast Technologies, Inc. (Unaudited):
Balance Sheet, September 30, 1999........................................ 2
Consolidated Statements of Operations For the Nine-Month Periods Ended
September 30, 1999 and 1998, and For the Period from June 12, 1996
(Inception) to September 30, 1999...................................... 3
Consolidated Statements of Operations For the Three-Month Periods Ended
September 30, 1999 and 1998............................................ 4
Consolidated Statement of Shareholders' Equity For the Nine-Month Period
Ended September 30, 1999............................................... 5
Consolidated Statements of Cash Flows For the Nine-Month Periods Ended
September 30, 1999 and 1998, and For the Period from June 12, 1996
(Inception) to September 30, 1999...................................... 6
Notes to the Consolidated Financial Statements (Unaudited).................... 8
<PAGE>
Accountants' Disclaimer Report
To the Board of Directors
Elast Technologies, Inc.
We have compiled the accompanying balance sheet of Elast Technologies, Inc.
("Elast") as of September 30, 1999 and the related statements of operations for
the nine-month and three-month periods ended September 30, 1999 and 1998, and
for the period from June 12, 1996 (inception) to September 30, 1999, the related
0.statement of shareholders' equity for the nine-month period ended September
30, 1999, and the related statements of cash flows for the nine-month periods
ended September 30, 1999 and 1998, and for the periods from June 12, 1996
(inception) to September 30, 1999, in accordance with Statements on Standards
for Accounting and Review Service issued by the American Institute of Certified
Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
Kelly & Company
Kelly & Company
Newport Beach, California
November 30, 1999
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Balance Sheet
September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and equivalents $ 227,149
License, net 280
-----------
Total current assets 227,429
Property and equipment, net 21,060
-----------
Total assets $ 248,489
===========
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; 7,975,148 shares issued
and outstanding 7,975
Additional paid-in capital 2,286,100
Detachable stock purchase warrants 100,000
Deficit accumulated during development stage (1,900,066)
Receivable on common stock (250,000)
-----------
Total shareholders' equity 244,009
-----------
Total liabilities and shareholders' equity $ 248,489
===========
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 Nine-Month Periods Ended September 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
Nine-Month Nine-Month June 12, 1996
Period Ended Period Ended (Inception) to
September 30, 1999 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenue -- -- --
Cost of sales -- -- --
----------- ----------- -----------
Gross profit -- -- --
Merger consulting fees -- $ 377,798 $ 377,798
Officers' compensation $ 106,496 40,083 310,178
Research and development 181,777 19,206 358,158
Legal and professional 69,481 37,745 218,248
Investor relations 76,896 40,000 315,654
Consulting 133,393 -- 133,394
Meals and entertainment 59,128 8,660 87,665
Other 76,633 20,871 127,167
----------- ----------- -----------
Total operating costs (703,804) (544,363) (1,928,262)
Interest income in excess of interest expense 7,143 13,446 28,196
----------- ----------- -----------
Net loss ($ 696,661) ($ 530,917) ($1,900,066)
=========== =========== ===========
Loss per common share - basic and diluted ($ .09) ($ .10) ($ .35)
=========== =========== ===========
</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 September 30, 1999 and 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three-Month Three-Month
Period Ended Period Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenue -- --
Cost of sales -- --
Gross profit -- --
Merger consulting fees -- --
Officers compensation $ 69,696 $ 13,660
Research and development 110,792 3,000
Legal and professional 40,715 21,731
Investor relations 20,836 15,000
Consulting 16,625 --
Meals and entertainment 32,908 8,031
Other operating costs and expenses 47,971 11,201
--------- ---------
Total operating costs (339,543) (72,623)
Interest income in excess of interest expense 3,168 5,779
--------- ---------
Net loss ($336,375) ($ 66,844)
========= =========
Loss per common share - basic and diluted $ (.04) $ (.01)
========= =========
</TABLE>
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 Shareholders' Equity
For the Nine-Month Period Ended September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Detachable Accumulated Less:
Additional Stock Price During Common
Common Common Paid-In Purchase Per Development Stock
Shares Stock Capital Warrants Share Stage Subtotal Receivable Total
--------- ------ ---------- -------- ----- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 7,179,448 $7,179 $1,413,886 ($1,203,405) $ 217,660 -- $ 217,660
Shares issued in private placement 122,000 122 182,878 $1.50 -- 183,000 -- 183,000
Shares issued in
private placements 83,900 84 125,166 1.49 -- 125,250 -- 125,250
Shares issued for services 24,800 25 39,903 1.61 -- 39,928 -- 39,928
Common stock and
detachable stock
purchase warrants issued
for cash and a note receivable 500,000 500 399,482 $100,000 1.00 -- 499,982 ($250,000) 249,982
Shares issued for services 15,000 15 22,335 1.49 -- 22,350 -- 22,350
Shares issued for
engineering consulting services 50,000 50 102,450 -- 2.05 -- 102,500 -- 102,500
Net loss -- -- -- -- (696,661) (696,661) -- (696,661)
--------- ------ ---------- -------- ----------- --------- --------- ---------
Balance, September 30, 1999 7,975,148 $7,975 $2,286,100 $100,000 ($1,900,066) $ 494,009 ($250,000) $ 244,009
========= ====== ========== ======== =========== ========= ========= =========
</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 Cash Flows
For the Nine-Month Periods Ended September 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
Nine-Month Nine-Month June 12, 1996
Period Ended Period Ended (Inception) to
September 30, 1999 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net cash flows used in operating activities ($ 537,808) ($ 154,493) ($ 936,369)
--------------- --------------- ---------------
Cash flows used in investing activities:
Purchase of property and equipment (20,092) (3,804) (23,896)
--------------- --------------- ---------------
Cash used in investing activities (20,092) (3,804) (23,896)
--------------- --------------- ---------------
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 and stock purchase warrants 558,232 197,000 951,032
Contribution to additional paid in capital -- -- 5,667
--------------- --------------- ---------------
Cash provided by financing activities 558,232 427,716 1,187,415
--------------- --------------- ---------------
Net increase (decrease) in cash 332 269,419 227,150
Cash at beginning of period 226,818 108,280 --
--------------- --------------- ---------------
Cash at end of period $ 227,150 $ 377,699 $ 227,150
=============== =============== ===============
</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)
Consolidated Statements of Cash Flows
For the Nine-Month Periods Ended September 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
Period from
Nine-Month Nine-Month June 12, 1996
Period Ended Period Ended (Inception) to
September 30, 1999 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------
<S> <C> <C> <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
Receivable on common stock $ 250,000 -- $ 250,000
Issuance of common stock (250,000) -- ($ 258,800)
Research and development expense 164,778 -- 164,778
Issuance of stock for services (164,778) -- (164,778)
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
See accountants' disclaimer report.
7
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Nine-Month and Three-Month Periods Ended September 30, 1999 and 1998,
and For the Period from June 12, 1996 (Inception) to September 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.
2. Basis of Presentation
The consolidated financial statements have been prepared by the Company
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.
8
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Nine-Month and Three-Month Periods Ended September 30, 1999 and 1998,
and For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
3. Property and Equipment
Property and equipment consist of the following:
Vehicles $ 11,000
Computers 12,896
--------
23,896
Less: accumulated depreciation (2,836)
--------
$ 21,060
========
Depreciation expense for the nine months ended September 30, 1999 was
$2,467.
4. Loss Per Common Share
In the year ended December 31, 1997, the Company adopted SFAS No. 128,
"Earnings per Share". Loss per common share has been calculated in
accordance with this statement.
Basic and diluted loss per common share has been computed by dividing the
loss available to common shareholders by the weighted-average number of
common shares for the period.
The computations of net loss per common share for the nine month and
three-month periods ended September 30, 1999 and 1998, and for the period
from June 12, 1996 (inception) to September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Period from
Nine-Month Nine-Month June 12, 1996
Period Ended Period Ended (Inception) to
September 30, 1999 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net loss available to common
stockholders ($ 696,661) ($ 530,917) ($1,900,066)
Weighted-average shares,
basic and diluted 7,690,164 5,392,119 5,433,079
----------- ----------- -----------
Loss per common share,
basic and diluted ($ .09) ($ .10) $ (.35)
=========== =========== ===========
</TABLE>
See accountants' disclaimer report.
9
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Nine-Month and Three-Month Periods Ended September 30, 1999 and 1998,
and For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
4. Loss Per Common Share, Continued
Three-Month Three-Month
Period Ended Period Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Net loss available to common
Stockholders ($ 336,375) ($ 66,844)
Weighted-average shares,
basic and diluted 7,927,648 6,896,116
----------- -----------
Loss per common share,
basic and diluted ($ .04) ($ .01)
=========== ===========
The effect of the potentially dilutive securities consisting of warrants to
purchase 500,000 shares of common stock were not included in the
computation of diluted loss per share because to do so would have been
antidilutive for the periods presented.
5. Stock Transactions
Private Placements
In March 1999, the Company issued 120,000 and 2,000 shares of common stock
in two separate private placement offerings at $1.50 per share.
In March and April 1999, the Company sold 16,900 and 67,000 shares of
common stock, respectively, in two separate private placement offerings at
$1.49 per share.
In July 1999, the Company, in a private placement offering, sold units
consisting of 500,000 shares of common stock and 500,000 detachable
five-year warrants to purchase common stock at an exercise price of $2.40
per share. The Company received $250,000 in July 1999 and recorded a common
stock receivable of $250,000. The common stock receivable was collected in
October 1999.
See accountants' disclaimer report.
10
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Nine-Month and Three-Month Periods Ended September 30, 1999 and 1998,
and For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
5. Stock Transactions, Continued
Shares Issued for Services
In March 1999, the Company issued 24,800 shares of common stock for
consulting services.
In April 1999, the Company issued 15,000 shares of common stock for
consulting services.
In July 1999, the Company issued 50,000 shares of common stock for
engineering consulting services.
6. 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. It is anticipated this portion of management's plan will be
completed in approximately twelve to 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. To achieve its plan,
management is also aware that it must secure additional investment capital.
See accountants' disclaimer report.
11
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Nine-Month and Three-Month Periods Ended September 30, 1999 and 1998,
and For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
7. 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.
12
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Index to the Consolidated Financial Statements
As of December 31, 1998 and 1997 and for the
Years Ended December 31, 1998 and 1997 and for the
Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
Report of Independent Auditors ............................................ 1
Consolidated Financial Statements of Elast Technologies, Inc.:
Consolidated Balance Sheets,
December 31, 1998 and 1997 ....................................... 2
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997 and for the period from
June 12, 1996 (inception) to December 31, 1998 ................... 3
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998 and 1997 and for the period from
June 12, 1996 (inception) to December 31, 1998 ................... 4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 and for the period from
June 12, 1996 (inception) to December 31, 1998 ................... 6
Notes to the Consolidated Financial Statements ............................ 8
<PAGE>
[LETTERHEAD OF KELLY & COMPANY]
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of Elast
Technologies, Inc. (a development stage company) as of December 31, 1998 and
1997, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the years ended December 31, 1998 and 1997 and for
the period from June 12, 1996 (inception) to December 31, 1998. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, revised
as described in Note 6 present fairly, in all material respects, the
consolidated financial position of Elast Technologies, Inc. (a development stage
company) as of December 31, 1998 and 1997, and the consolidated results of
operations and cash flows for the years ended December 31, 1998 and 1997 and for
the period from June 12, 1996 (inception) to December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ KELLY & COMPANY
Kelly & Company
Newport Beach, California
April 29, 1999, except as to Note 6,
to which the date is
July 24, 1999
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
ASSETS
1998 1997
----------- -----------
Current assets:
Cash and equivalents $ 226,818 $ 108,280
License, net 400 800
----------- -----------
Total current assets 227,218 109,080
Property and equipment, net 3,434 --
----------- -----------
Total assets $ 230,652 $ 109,080
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 12,992 --
Accounts payable, officer -- $ 1,925
----------- -----------
Total liabilities 12,992 1,925
----------- -----------
Shareholders' equity:
Common stock, $.001 par value; 25,000,000
shares authorized; 7,179,448 and 3,768,004
shares issued and outstanding at December 31,
1998 and 1997, respectively. 7,179 3,768
Additional paid-in capital 1,413,886 214,418
Deficit accumulated during development stage (1,203,405) (101,031)
----------- -----------
217,660 117,155
Less: common stock subscription receivable -- (10,000)
----------- -----------
Total shareholders' equity 217,660 107,155
----------- -----------
Total liabilities and shareholders' equity $ 230,652 $ 109,080
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
June 12, 1996
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1998 1997 1998
----------- ----------- --------------
<S> <C> <C> <C>
Revenue -- -- --
Cost of sales -- -- --
----------- ----------- -----------
Gross profit -- -- --
Officers compensation $ 203,682 -- $ 203,682
Research and development 108,161 $ 46,520 176,381
Legal and professional 502,231 18,719 526,565
Investor relations 238,759 -- 238,759
Other operating costs and expenses 63,107 3,613 79,071
----------- ----------- -----------
Total operating costs (1,115,940) (68,852) (1,224,458)
Interest income in excess of interest expense 13,566 6,130 21,053
----------- ----------- -----------
Net loss $(1,102,374) $ (62,722) $(1,203,405)
=========== =========== ===========
Loss per common share - basic and diluted $ (0.19) $ (0.02) $ (0.26)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Elast Technologies, Inc.
Elast Technologies Corporation (Formerly Med Mark, Inc.)
(An Delaware Corporation) (A Nevada Corporation) Price
------------------------- ----------------------
Common Common Common Common Per
Shares Stock Shares Stock Share
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, June 12, 1996 (inception) -- -- -- -- --
Shares issued for the medical device license 3,200,000 $ 3,200 -- -- --
Shares issued for legal services 21,332 21 -- -- $ 0.31
Contribution of funds expended by the major
shareholder on the Company's behalf -- -- -- --
Shares issued in private placement 546,672 547 -- -- 0.38
Net loss from inception to December 31, 1996 -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1996 3,768,004 3,768 -- --
Contribution of funds expended by the major
shareholder on the Company's behalf -- -- -- --
Net loss for the year ended December 31, 1997 -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1997 3,768,004 3,768 -- --
----------- ----------- ----------- -----------
<CAPTION>
Deficit Less:
Accumulated Common
Additional During the Stock
Paid-in Development Subscription
Capital Stage Subtotal Receivable Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, June 12, 1996 (inception) -- -- -- -- --
Shares issued for the medical device license $ (2,400) -- $ 800 -- $ 800
Shares issued for legal services 6,698 -- 6,719 -- 6,719
Contribution of funds expended by the major
shareholder on the Company's behalf 4,167 -- 4,167 -- 4,167
Shares issued in private placement 204,453 -- 205,000 $ (10,000) 195,000
Net loss from inception to December 31, 1996 -- $ (38,309) (38,309) -- (38,309)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 212,918 (38,309) 178,377 (10,000) 168,377
Contribution of funds expended by the major
shareholder on the Company's behalf 1,500 -- 1,500 -- 1,500
Net loss for the year ended December 31, 1997 -- (62,722) (62,722) -- (62,722)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 214,418 (101,031) 117,155 (10,000) 107,155
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Elast Technologies, Inc.
Elast Technologies Corporation (Formerly Med Mark, Inc.)
(An Delaware Corporation) (A Nevada Corporation) Price
------------------------- ----------------------
Common Common Common Common Per
Shares Stock Shares Stock Share
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 3,768,004 $ 3,768 -- -- --
Shares outstanding prior to the reorganization -- -- 1,220,000 $ 1,220 --
Shares issued in private placement 394,000 394 -- -- $ 0.50
Payment of receivable arising from issuance
of common stock -- -- -- --
Shares issued on the exercise of warrants 506,640 507 -- -- 0.38
Shares issued to consultant in connection
with the reorganization 1,007,472 1,007 -- -- 0.38
Shares issued and surrendered in the
acquisition of Elast Technologies, Inc. (a
Nevada Corporation) (reverse merger) (5,676,116) (5,676) 5,676,116 5,676 --
Shares issued for consulting services,
engineering services, and employee
compensation -- -- 270,000 270 1.51
Shares issued to an existing shareholder to
correct a stock issuance error -- -- 13,332 13 --
Net loss for the year ended December 31, 1998 -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1998 -- $ -- 7,179,448 $ 7,179
=========== =========== =========== ===========
<CAPTION>
Deficit Less:
Accumulated Common
Additional During the Stock
Paid-in Development Subscription
Capital Stage Subtotal Receivable Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 214,418 $ (101,031) $ 117,155 $ (10,000) $ 107,155
Shares outstanding prior to the reorganization 29,506 -- 30,726 -- 30,726
Shares issued in private placement 196,606 -- 197,000 -- 197,000
Payment of receivable arising from issuance
of common stock -- -- -- 10,000 10,000
Shares issued on the exercise of warrants 189,483 -- 189,990 -- 189,990
Shares issued to consultant in connection
with the reorganization 376,791 -- 377,798 -- 377,798
Shares issued and surrendered in the
acquisition of Elast Technologies, Inc. (a
Nevada Corporation) (reverse merger) -- -- -- -- --
Shares issued for consulting services,
engineering services, and employee
compensation 407,095 -- 407,365 -- 407,365
Shares issued to an existing shareholder to
correct a stock issuance error (13) -- -- -- --
Net loss for the year ended December 31, 1998 -- (1,102,374) (1,102,374) -- (1,102,374)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 $ 1,413,886 $(1,203,405) $ 217,660 $ -- $ 217,660
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
June 12, 1996
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1998 1997 1998
----------- ----------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,102,374) $ (62,722) $(1,203,405)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 770 -- 770
Issuance of stock for services 785,163 -- 791,882
Increase (decrease) in liabilities:
Accounts payable, trade 12,992 -- 12,992
Accounts payable, officer (1,925) 1,925 --
Note payable, officer -- (9,236) --
----------- ----------- -----------
Cash used in operating activities (305,374) (70,033) (397,761)
----------- ----------- -----------
Cash flows used in investing activities:
Purchase of property and equipment (3,804) -- (3,804)
----------- ----------- -----------
Cash used in investing activities (3,804) -- (3,804)
----------- ----------- -----------
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 197,000 -- 392,000
Contribution to additional paid in capital -- 1,500 5,667
----------- ----------- -----------
Cash provided by financing activities 427,716 1,500 628,383
----------- ----------- -----------
Net increase (decrease) in cash 118,538 (68,533) 226,818
Cash at beginning of period 108,280 176,813 --
----------- ----------- -----------
Cash at end of period $ 226,818 $ 108,280 $ 226,818
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Supplemental Disclosure of Cash Flow Information
Period from
June 12, 1996
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1998 1997 1998
----------- ----------- --------------
<S> <C> <C> <C>
Interest paid -- $ 1,375 $ 1,375
Income taxes paid $ 1,403 400 1,803
<CAPTION>
Supplemental Schedule of Non-Cash Investing and Financing Activities
<S> <C> <C> <C>
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.
7
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
1. Development Stage Operations
Elast Technologies, Inc. (a development stage company) (the "Company") was
incorporated in the state of Nevada on November 5, 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. Management's plans are discussed further in Note 10.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Elast Technologies, Inc. (a Nevada corporation) (the "Company") and its
subsidiary, Elast Technologies Corporation (a Delaware corporation) ("Elast
Delaware"). All significant intercompany transactions have been eliminated.
Prior to June 10, 1998, the Company was named Med Mark, Inc. ("Med Mark").
The name change was in conjunction with the reverse merger acquisition
(Note 9).
Revenue Recognition
Revenue will be recognized when the Company's goods are shipped.
Cash and Equivalents
The Company invests portions of its excess cash in highly liquid
investments. Cash and equivalents include time deposits and commercial
paper with original maturities of three months or less. In addition, the
Company has no compensating balance requirements. The Company maintains its
cash in bank accounts, which exceeded federally insured limits by $ 131,886
and $8,280 at December 31, 1998 and 1997, respectively. The Company has not
experienced any losses in such accounts. The Company believes it is not
exposed to any significant credit risk on cash.
8
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies, Continued
Property and Equipment
The Company records property and equipment at cost. Significant
improvements, which extend the life of the underlying asset, are
capitalized, and expenditures for normal maintenance and repairs are
charged to operations. Depreciation is provided for property and equipment
using the straight-line method over the expected useful lives. The
Company's property and equipment consists of computers with an expected
useful life of 5 years.
Intangible Asset
The intangible asset is the cost of the license agreement to patented
technology and is amortized on a straight-line method over the shorter of
its estimated useful life or the license term. As of December 31, 1998
accumulated amortization was $400.
Research and Development Costs
Research and development expenditures are charged to operations as they are
incurred.
Impairment of Long-Lived Assets
The Company annually evaluates its long-lived assets, including the
intangible asset, described as a license to patented technology, for
potential impairment. When circumstances indicate that the carrying amount
of the asset is not recoverable, as demonstrated by the projected
undiscounted cash flows, an impairment loss will be recognized. The
Company's management has determined that there was no such impairment
present at December 31, 1998 and 1997.
Income Taxes
The Company accounts for deferred income taxes using the liability method.
Deferred income taxes will be computed based on the tax liability or
benefit in future years of the reversal of temporary differences in the
recognition of income or deduction of expenses between financial and tax
reporting purposes. The net difference between tax expense and taxes
currently payable will be reflected in the financial statements as deferred
taxes.
9
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies, Continued
Income Taxes, Continued
Deferred tax assets and/or liabilities will be classified as current and
noncurrent based on the classification of the related asset or liability
for financial reporting purposes, or based on the expected reversal date
for deferred taxes that are not related to an asset or liability.
Disclosures about Fair Value of Financial Instruments
The Company accounts for the value of financial instruments using the fair
value method.
Stock Based Compensation
Statement of Financial Account Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure
requirements using a fair value based method of accounting for stock-based
employee compensation plans.
As permitted by SFAS No. 123, the Company continues to account for
stock-based compensation using the intrinsic value method as prescribed in
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees". Compensation cost from stock options, if any, is
measured as the excess of the quoted market price of the Company's stock at
the date of grant over the amount an employee must pay to acquire the
stock. Compensation cost is amortized over the requisite vesting periods.
Common Shares and Per Share Amounts
All common shares and per share amounts have been adjusted to give
retroactive effect, where applicable to the one for four reverse stock
split.
Earnings per Common Share
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". This pronouncement replaced the previously reported
primary and fully diluted earnings per share with basic and diluted
earnings per share ("EPS"), respectively. Losses for the years ended
December 31, 1998 and 1997 have been calculated in accordance with this
pronouncement.
10
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies, Continued
Earnings per Common Share, Continued
Basic EPS is computed by dividing income or loss available to common
shareholders by the weighted average number of common shares outstanding
for the year. Diluted EPS is similar to Basic EPS except that the weighted
average of common shares outstanding is increased to include the number of
additional common shares that would have been outstanding if potentially
dilutive common shares had been issued.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassification
Certain reclassifications have been made to the 1997 financial statements
in order to conform to the 1998 financial statement presentation.
3. Property and Equipment
Property and equipment consist of the following:
1998 1997
------- -------
Computers $ 3,804 --
Less: accumulated depreciation (370) --
------- -------
Total property and equipment, net $ 3,434 --
======= =======
Depreciation expense for the year ended December 31, 1998 was $370.
11
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
4. Deferred Income Taxes
The components of the provision for income taxes are as follows:
1998 1997
------- -------
Current tax expense:
Federal -- --
State -- --
------- -------
-- --
------- -------
Deferred tax expense:
Federal -- --
State -- --
------- -------
-- --
------- -------
Total provision - -
======= =======
Significant components of the Company's deferred income tax assets and
liabilities at December 31, 1998 and 1997 are as follows:
1998 1997
---------- --------
Deferred income tax asset:
Capitalized start-up expenses $ 399,012 $ 32,685
Other 15,716 4,900
---------- --------
Total deferred income tax asset 414,728 37,585
Valuation allowance (414,728) (37,585)
---------- --------
Net deferred income tax liability $ -- $ --
========== ========
Reconciliation of the effective tax rate to the U.S. statutory rate is as
follows:
1998 1997
---------- --------
Tax expense at U.S. statutory rate 34.0% 34.0%
Change in the valuation allowance (34.2) (33.4)
Other (0.2) (0.6)
---------- --------
Effective income tax rate (0.4% --%
========== ========
As of December 31, 1998, the Company has a federal research and
experimentation credit carryover of $15,716. The credits will begin to
expire in 2011.
12
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
5. Related Party Transactions
Expenses Incurred on Behalf of the Company
An officer who is a major shareholder of the Company provides office space
and clerical services to the Company, which has an annual cost of $6,000,
based on the current activity level. The expense sharing was calculated
based on the related entities' estimated usage of office space and support
staff.
Licensing Agreement
In 1996 the Company entered into a licensing agreement with an individual
who is an officer and major shareholder whereby the Company received the
exclusive right to develop, manufacture, and market an allergy detection,
non-invasive, medical device (Electronic Allergo-Sensitivity Test Device,
U.S. Patent No. 5413113). The Company issued 3,200,000 shares of Company
common stock for $800 at the time of the transaction to acquire the
licensing agreement rights. Continuing modifications and enhancements to
the technology described by the licensing agreement have been and may
continue to be made during the development and testing of the medical
device. It is not certain that the final technology involved in the medical
device will be protected by the original patent. The licensing agreement
does not require any royalty payments. The licensing agreement is for a
term of five years, with options to extend the agreement for two additional
five-year terms at no additional cost.
6. Stock Based Compensation
The options granted to purchase common stock shown below were originally
indicated as options to purchase common stock of the Company and also
reflected a four-for-one forward stock split effectuated by the Company
after the date these options were granted. However, subsequent to year end,
the Company determined that the minutes granting these options, while
indicated as minutes of the Company, were actually those of Elast
Technologies Corporation, a Delaware corporation ("Elast Delaware") and not
those of Elast Technologies, Inc., a Nevada corporation (the "Company").
Further, it was determined that the four-for-one forward stock split had
not occurred, but rather, when Elast Delaware merged with a wholly owned
subsidiary of the Company on June 30, 1998, each of the issued and
outstanding shares of Elast Delaware were converted to four shares of the
Company's common stock. Accordingly, the information presented below has
been revised to reflect options of Elast Delaware as originally granted by
its Board of Directors.
13
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
6. Stock Based Compensation, Continued
On February 13, 1998, the Board of Directors of Elast Delaware granted
100,000 options to purchase common stock to three members of the Board of
Directors of Elast Delaware in recognition of their service to it.
Accordingly, 300,000 options with a three year term were issued to the
Directors at an exercise price of $2.00 per share. Two of the Directors are
employees of Elast Delaware, and their options were accounted for under APB
No. 25. The options were granted at prices which equaled or exceeded the
fair value of Elast Delaware's common stock at the date of grant.
Consequently, no expense was recognized in connection with the issuance of
these 200,000 options. The 100,000 options issued to the nonemployee
director were valued in accordance with the provision of SFAS No. 123 and
determined to have no value, therefore no expense was recognized.
The following summarizes information about stock options of Elast
Delaware granted and outstanding at December 31, 1998 and 1997, and
changes during the years then ended:
1998 1997
----------------- -----------------
Exercise Exercise
Options Price Options Price
------- ------- ------- -------
Outstanding at beginning
of year -- -- -- --
Granted 300,000 $ 2.00 -- --
------- ------- ------- -------
Outstanding at end of year 300,000 $ 2.00 -- --
======= ======= ======= =======
The Company continues to account for stock-based compensation to employees
using the intrinsic value method as prescribed in APB No. 25 under which no
compensation cost for options is recognized for options granted at or above
fair market value of the Company's common stock at the date of grant. Had
consideration been given to compensation expense for options calculated
based upon fair values at the grant dates in accordance with SFAS No. 123,
there would be no effect on the Company's pro forma net loss and net loss
per share.
The fair value of each option granted was estimated at the date of grant
using the Black-Scholes Option Pricing Model (the "BSOPM"). The weighted
average assumptions used to calculate the minimum values of the stock
options granted in 1998 are a dividend yield of 0%, risk-free interest rate
at 5.00%, an expected stock price volatility of zero, and an expected
contractual life of 3 years, which resulted in no value ascribed to the
options granted during 1998.
14
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
6. Stock Based Compensation, Continued
The BSOPM was developed for use in estimating the fair value of traded
options. The Company's employee stock options have characteristics
significantly different from those of traded options, such as vesting
restriction and extremely limited transferability. In addition, the
assumptions used in option valuation models are highly subjective,
particularly the expected stock price volatility of the underlying stock.
Because changes in these subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not provide a reliable single measure of the fair value of its employee
stock options.
7. Stock Purchase Warrants
The Company's private placement offering of stock in 1996 was accomplished
with the sale of 136,668 units comprised of four shares of common stock and
four stock purchase warrants. The stock purchase warrants were immediately
exercisable upon issuance and all but 40,032 have been exercised. The stock
purchase warrants provide for an exercise price of $0.38 and they expire on
September 30, 1999.
8. 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 basic and diluted loss per common share for the years
ended December 31, 1998 and 1997 are as follows:
Period from
June 12, 1996
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1998 1997 1998
----------- ----------- -------------
Net loss available to common
stockholders $(1,102,374) $ (62,722) (1,203,405)
Weighted-average shares,
basic and diluted 5,798,194 3,768,004 4,579,954
----------- ----------- -----------
Loss per common share,
basic and diluted $ (0.19) $ (0.02) $ (0.26)
=========== =========== ===========
15
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
8. Loss Per Common Share, Continued
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.
Period from
June 12, 1996
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1998 1997 1998
----------- ----------- -------------
Shares of common stock issuable under:
Stock options of subsidiary 300,000 -- 300,000
Stock purchase warrants 40,032 40,032 40,032
----------- ----------- -------------
340,032 40,032 340,032
=========== =========== =============
9. Stock Transactions
Shares Issued to Acquire a License Agreement
In 1996, the Company issued 3,200,000 shares of its stock for $800 to
obtain a licensing agreement from an individual, who is an officer of the
Company (Note 5).
Shares Issued for Services
In 1996, the Company issued 21,332 shares for legal services related to
corporate formation and preparation of the Company's private placement
memorandum. The shares of Company stock were issued for legal services
valued at $6,719.
In 1998 the Company issued 270,000 shares for consulting and engineering
services and employee compensation as follows:
Consultants were issued 115,000 shares as additional recognition of
their services to the Company. The shares were valued at their fair
value at the time of issuance, $1.50 per share.
Outside engineers were issued 55,000 shares as additional recognition
of their services to the Company. The shares were valued at fair value
at the date of their issuance, $1.54 per share.
An officer and major shareholder was issued 100,000 shares as
additional recognition of his continuing efforts related to the
development of the technology. The shares were valued at their fair
value at the date of issuance, $1.50 per share.
16
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
9. Stock Transactions, Continued
Private Placement Offerings
In 1996, the Company, in a private placement offering, sold 546,672 units
consisting of one share of common stock and one stock purchase warrant
("warrants") at an exercise price of $0.38 per share. The warrants were
redeemable at $0.38 per warrant immediately upon issuance, and they will
expire on September 30, 1999.
In 1998, the Company, in a private placement offering, sold 394,000 shares
of common stock at $0.50 per share.
Common Shares Issued for Warrants Exercised
During 1997, 506,640 warrants were exercised resulting in the issuance of
506,640 shares of common stock.
Shares Issued for Raising Capital
In 1998, the Company issued 1,007,472 shares of stock for consulting
services related to the acquisition of Med Mark, Inc. (a reverse merger).
The shares were valued at $0.38 per share.
Acquisition of Med Mark, Inc. (Reverse Merger)
On June 10, 1998, the Company acquired all of the outstanding common stock
of Elast Delaware in a business combination accounted for as a purchase.
For accounting purposes, the acquisition has been treated as the
acquisition of the Company by Elast Delaware with Elast Delaware as the
acquiror (reverse acquisition). The effective purchase price was 1,220,000
shares of the Company's common stock. The Company, formerly known as Med
Mark, had no operations as of the acquisition date. No goodwill has been
recorded as a result of this transaction. As this transaction is treated as
a reverse merger acquisition, the historical financial statements prior to
June 10, 1998 are those of Elast Delaware.
Stock Issued to Correct a Stock Issuance Error
In 1998, the Company issued 13,332 shares to correct an error on a previous
stock issuance.
17
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
10. Management's Plan, (Unaudited)
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, and
allergy specialists, naturopaths, chemical ecologists, and chiropractors.
Upon completing of this test, the device will be marketed to all physicians
and hospitals to test for prescription drug 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.
11. Year 2000 Disclosure (Unaudited)
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.
18
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
12. Subsequent Event
On March 3, 1999, the Company filed Form 10-SB with the Securities and
Exchange Commission. The Company, by meeting the definition of a "small
business issuer", was able to utilize Form 10-SB for registration of its
securities under the Securities Exchange Act of 1934.
19
<PAGE>
Item 23. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in or disagreements with the Company's accountants
since the formation of the Company required to be disclosed pursuant to Item 304
of Regulation S-B.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby has
been passed upon for the Company by Stepp & Beauchamp LLP, located in Newport
Beach, California.
EXPERTS
The financial statements of the Company at December 31, 1998, and 1997, and for
the years then ended, and for the period from incorporation to December 31,
1998, and the unaudited interim financial statements through September 30, 1999,
appearing in this Prospectus and Registration Statement have been audited by
Kelly & Company, Certified Public Accountants, and are included in reliance upon
such reports given upon the authority of Kelly & Company as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 with the Commission
pursuant to the 1933 Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement on Form SB-2 and the exhibits and schedules to the Registration
Statement on Form SB-2. For further information with respect to the Company and
the Common Stock offered hereby, reference is made to the Registration Statement
on Form SB-2 and the exhibits and schedules filed as a part of the Registration
Statement on Form SB-2. Statements contained in this Prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete, and reference is made in each instance to the copy of such contract or
document filed as an exhibit to the Registration Statement on Form SB-2. Each
such statement is qualified in all respects by such reference to such exhibit.
On March 3, 1999, the Company filed a Registration Statement on Form 10-SB,
which cleared comments with the Commission on or about September 1, 1999. The
Company is now a reporting company with the Commission, and will provide an
annual report to its security holders, which will include audited financial
statements. The public may read and copy any materials filed with the
Commission, including the Company's Registration Statement on Form SB-2 and the
Registration Statement on Form 10-SB, and all exhibits and schedules thereto, at
the Commission's Public Reference Room at 450 Fifth Street N.W., Washington,
D.C. 20549. Copies of all or any part thereof may be obtained from such office
after payment of fees prescribed by the Securities and Exchange Commission. The
public may also obtain information on the operation of the Public Reference Room
by calling the Commission at 1-800-SEC-0330. The Commission maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the Commission. The
address of that site is http://www.sec.gov.
27
<PAGE>
TABLE OF CONTENTS
Item Number Caption Page
- ----------- ------- ----
3. Summary Information...............................................4
Risk Factors......................................................6
Limited Operating History................................6
Regulatory Approvals May Not Be Granted..................6
Competition .............................................7
Compliance with Environmental Laws.......................7
Uninsured Losses; Acts of God............................7
Market Forces............................................8
Future Capital Needs and Uncertainty of Additional
Funding................................................8
Limited Protection of Proprietary Technology.............9
Rapid Technological Change...............................9
Key Personnel...........................................10
Conflicts of Interest...................................10
Dependence on Management................................10
Limitation of Liability of Officers and Directors.......10
Penny Stock Regulation..................................11
Control by Existing Shareholders; Anti-Takeover
Provisions............................................11
Securities Market Factors...............................11
No Foreseeable Dividends................................11
No Assurances of Revenue or Operating Profits...........11
Federal Income Tax Consequences.........................11
Impact of the Year 2000 (Y2K Issues)....................12
4. Use of Proceeds................................................. 13
5. Determination of Offering Price..................................13
6. Dilution.........................................................13
7. Selling Security Holders.........................................13
8. Plan of Distribution.............................................14
9. Legal Proceedings................................................15
10. Directors, Executive Officers, Promoters and Control Persons.....15
11. Security Ownership of Certain Beneficial Owners and Management...17
12. Description of Securities........................................18
13. Interest of Named Experts and Counsel............................19
14. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities......................................19
15. Organization Within Last Five Years..............................19
16. Description of Business..........................................19
17. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................21
18. Description of Property..........................................25
19. Certain Relationships and Related Transactions ............25
20. Market for Common Equity and Related Stockholder Matters.........25
21. Executive Compensation...........................................26
22. Financial Statements.............................................27
23. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.........................................35
Legal Matters....................................................35
Experts..........................................................35
Additional Information...........................................35
28
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Article Twelfth of the Company's Articles of Incorporation provides that no
director or officer of the Company shall be personally liable to the Company or
any of its stockholders for damages for breach of fiduciary duty as a director
or officer involving any act or omission of any such director or officer;
provided, however, that the foregoing provision does not eliminate or limit the
liability of a director or officer for acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or the payment of
dividends in violation of Section 78.300 of the Nevada Revised Statutes.
The Company will enter into indemnification agreements with each of its
executive officers pursuant to which the Company agrees to indemnify each such
person for all expenses and liabilities, including criminal monetary judgments,
penalties and fines, incurred by such person in connection with any criminal or
civil action brought or threatened against such person by reason of such person
being or having been an officer or director or employee of the Company. In order
to be entitled to indemnification by the Company, such person must have acted in
good faith and in a manner such person believed to be in the best interests of
the Company and, with respect to criminal actions, such person must have had no
reasonable cause to believe his or her conduct was unlawful.
Item 25. Other Expenses of Issuance and Distribution
The Company will pay all expenses in connection with the registration and sale
of the Shares, except any selling commissions or discounts allocable to sales of
the Shares, fees and disbursements of counsel and other representatives of the
Selling Stockholders, and any stock transfer taxes payable by reason of any such
sale. The estimated expenses of issuance and distribution are set forth below.
Registration Fees Approximately $551.00
Transfer Agent Fees Approximately $200.00
Costs of Printing and Engraving Approximately $300.00
Legal Fees Approximately $10,000.00
Accounting Fees Approximately $7,500.00
Item 26. Recent Sales of Unregistered Securities
There have been no sales of unregistered securities within the last three (3)
years which would be required to be disclosed pursuant to Item 701 of Regulation
S-B, except for the following:
On or about December 9, 1996, Elast Delaware sold 136,668 units, at $1.50 per
unit, in a private placement offering in reliance upon the exemptions from
registration provided in Sections 4(2), 4(6) and 3(b) of the Securities Act of
1933, as amended, and Regulation D promulgated by the Securities and Exchange
Commission. Specifically, the offer was made to "accredited investors", as that
term is defined under applicable federal and state securities laws, and no more
than 35 non-accredited investors. Each unit was comprised of one share of Elast
Delaware's unregistered and restricted one mill ($.001) par value common stock
and one warrant to purchase an additional unregistered and restricted share of
Elast Delaware's common stock at a price of $1.50 per share. The offering price
for the units was arbitrarily set by Elast Delaware and had no relationship to
assets, book value, revenues or other established criteria of value. The
warrants and the shares of common stock issuable upon its exercise were
non-transferrable and were restricted securities as defined by Rule 144 of the
Securities Act of 1933. The proceeds of the offering were used to pay for past
expenses incurred in designing the ELAST Device and for costs incurred to
refine, engineer and test the ELAST Device and to produce and market a limited
initial production run of the Device, and also to pay Elast Delaware's start-up
costs, including legal fees and equipment and office expenses. There were
136,668 warrants issued as a result of the 1996 private placement offering which
expire on September 30, 1999. As of June 30, 1998, 126,668 of the warrants have
been exercised at $1.50. There were no commissions paid on the sale of units.
29
<PAGE>
On July 7, 1999, the Company, in a private placement offering to certain
Australian investors, sold units of ownership interest in the Company consisting
of an aggregate 500,000 shares of the Company's $.001 par value common stock and
500,000 detachable five-year warrants to purchase an additional 500,000 shares
of the Company's common stock at an exercise price of $2.40 per share. In July,
1999, the Company received payment of $250,000 and recorded a common stock
receivable of $250,000. The common stock receivable was collected on or about
October 15, 1999. The shares were issued in reliance upon the exemption from the
registration requirements of the Securities Act of 1933 set forth in Regulation
S promulgated by the Securities and Exchange Commission. Specifically, the offer
was made to "non U.S. persons outside the United States of America", as that
term is defined under applicable federal and state securities laws. The offering
price for the shares was arbitrarily set by the Company and had no relationship
to assets, book value, revenues or other established criteria of value.
In November, 1999, the Company, in a private placement offering to certain
accredited investors, sold an aggregate of 625,000 shares of the Company's $.001
par value common stock at $1.00 per share.
Item 27. Exhibits.
Copies of the following documents are filed with this Registration
Statement, Form SB-2, as exhibits:
Exhibit No.
1 Underwriting Agreement (not applicable)
2 Plan of Merger*
3.1 Articles of Incorporation* (Charter Document)
3.2 Certificate of Amendment to Articles of Incorporation* (Charter
Document)
3.3 Bylaws*
5. Opinion Re: Legality*
8. Opinion Re: Tax Matters (not applicable)
9. Voting Trust Agreement (not applicable)
11 Computation of Per Share Earnings**
10.1 Agreement with RiverPlate Securities Pty Ltd.*** (material contract)
11. Statement Re: Computation of Per Share Earnings**
15. Letter on Unaudited Interim Financial Information**
21. Subsidiaries of the Registrant**
23.1 Consent of Auditors*
30
<PAGE>
23.2 Consent of Counsel*
24. Power of Attorney
27. Financial Data Schedule*
*Previously filed as exhibits to Amendment No. 1 to Registration Statement on
Form 10-SB filed with the Commission on August 2, 1999.
**Included in financial statements
***Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB on November 12, 1999.
31
<PAGE>
Item 28. Undertakings.
A. Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
B. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the 1933 Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (Section 230.424(b) of
Regulation S-B) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any additional or changed material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the 1933 Act,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
SIGNATURES
In accordance with the requirements of the 1933 Act, as amended, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, in the City of Newport Beach,
California, on December 1, 1999.
Elast Technologies, Inc.,
a Nevada corporation
By:
-------------------------
Thomas Krucker
Its: President and Secretary
32
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and hereby
authorizes Thomas Krucker (Ted Hamilton?) with the full power of substitution,
as attorney-in-fact, to sign in such person's behalf, individually and in each
capacity stated below, and to file any amendments, including post-effective
amendments to this Registration Statement.
In accordance with the requirements of the 1933 Act, this Registration Statement
was signed by the following persons in the capacities and on the dates stated.
ELAST TECHNOLOGIES, INC.
Thomas Krucker
- ---------------------------- December 1, 1999
President and Director
Robert Milne
- ----------------------------
Director
33
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