SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, for the quarter ended September 30, 1999
Commission File No. _____
ELAST TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0380544
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2505 Rancho Bel Air, Las Vegas, Nevada 89107
(Address of registrant's principal executive offices) (Zip Code)
702.878.8310
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant (1) has filed all reports required by Section 13 or
15(d) of the Securities Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's only class of Common Stock,
$.001 par value, was 7,975,148 on September 30, 1999.
Transitional Small Business Disclosure format (check one):
Yes [ ] No [X]
PART I. FINANCIAL INFORMATION
Item 1. 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
<PAGE>
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>
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
Item 2. Plan of Operation
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
<PAGE>
FACTS. FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-
LOOKING TERMINOLOGY, SUCH AS "COULD", "MAY", "WILL", "EXPECT", "SHALL",
"ESTIMATE", "ANTICIPATE", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", "INTEND"
OR SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE
FORWARD- LOOKING STATEMENTS SPECIFIED IN THIS REPORT HAVE BEEN COMPILED BY
MANAGEMENT OF THE COMPANY ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND
CONSIDERED BY MANAGEMENT TO BE REASONABLE. FUTURE OPERATING RESULTS OF THE
COMPANY, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR
WARRANTY IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THIS REPORT REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO UNCERTAINTY
AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER
CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA AND
OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM AND
AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE EXTENT
THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM
ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED ON
THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. IN ADDITION, THOSE
FORWARD-LOOKING STATEMENTS HAVE BEEN COMPILED AS OF THE DATE OF THIS REPORT AND
SHOULD BE EVALUATED WITH CONSIDERATION OF ANY CHANGES OCCURRING AFTER THE DATE
OF THIS REPORT. NO ASSURANCE CAN BE GIVEN THAT ANY OF THE ASSUMPTIONS RELATING
TO THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS REPORT ARE ACCURATE, AND THE
COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
Overview. The Company has not had revenues from operations in the last fiscal
year and through the third quarter of 1999. 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.
Research and development expenses increased significantly from $19,206 during
the nine month period ended September 30, 1998 to $181,777 during the nine month
period ended September 30, 1999. Legal and professional fees increased from
$37,745 during the nine month period ended September 30, 1998 to $69,481 during
the nine month period ended September 30, 1999. Investor relations costs also
increased significantly, from $40,000 during the nine month period ended
September 30, 1998, to $76,896 during the nine month period ended September 30,
1999, due primarily to the significant increase in the number of shareholders in
the Company. Owing to increased research and development, consulting expenses
increased $133,393 in the nine month period ended September 30, 1999. There were
additional travel, accommodation and entertainment expenses of $59,128 for the
period ended September 30, 1999. Other operating costs and expenses also
increased, from $20,871 during the nine month period ended September 30, 1998,
to $76,333 during the nine month period September 30, 1999.
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.
2
<PAGE>
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 $250,000 was
received by the Company on that date. 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
is presently negotiating a secondary private financing which it anticipates will
close by December 31, 1999.
Company's Plan of Operation for Next 12 Months. The Company manufactures and
markets medical devices and is presently continuing research and development
activities relating to a patented allergy-testing device (previously defined as
the "ELAST Device", U.S. Patent No. 5413113, issued on or about May 9, 1995)
which the Company owns the rights to develop, test, manufacture and market.
The Company believes its current cash resources are sufficient to fund its
research and development activities relating to the ELAST Device over the next 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. However, as mentioned
above, additional financing is expected to be obtained by the Company by the end
of this fiscal quarter.
The Company is currently negotiating proposed marketing agreements for the
territories of Australia, New Zealand and Japan; and plans to negotiate and
enter into additional marketing agreements with appropriate distributors and
marketing agents. Other than the ELAST Device, the Company does not currently
have any plans to develop other products. The Company may acquire the right to
sell or distribute existing products, or obtain licensing, marketing,
distribution or other rights to compatible products. Therefore, other than costs
related to the continued development of the ELAST Device, the Company does not
anticipate significant expenditures on acquisition or development of other
products during the current fiscal year.
The Company will focus its initial marketing and distribution efforts on
development and commercial exploitation of the ELAST Device. The present plan is
to lease or license the ELAST Device. This plan could minimize variable costs
and create an informed and updated client base.
Manufacturing and Marketing the Company's Products. The Company anticipates that
it will initially subcontract the manufacture and assembly of ELAST Devices and
does not expect to purchase a manufacturing facility or equipment at this time.
The principal components of the ELAST Device consist of electronic parts that
are readily available, eliminating supply problems, and its operations are not
effected by seasonal factors.
Employees. In the current fiscal year, the Company expects to add 2 full-time,
permanent employees to its research and development department and 2 full-time,
permanent employees to its administrative staff. During the next 12 months, if
the American clinical testing of the ELAST Device is successful, the Company may
require significant additional employees; however, the Company is not able to
provide a reasonable estimate of the number of such additional employees at this
time.
3
<PAGE>
Summary of Research and Development Activities. A "medical device" is defined by
Section 201(h) of the Food, Drug and Cosmetic Act, Title 21 United States Code
Section 321 as an instrument, apparatus, or machine which is intended for use in
the diagnosis of disease or other conditions, or in the cure, mitigation,
treatment, or prevention of disease in man and other animals. Confusion
sometimes exists between unregulated consumer products and medical devices.
Products are not considered medical devices if they have general utility 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, including the possibility that the Company would
be forced to curtail its operations significantly or to cease its operations
altogether.
In the last six months, significant developments in the ELAST Device's
capabilities have resulted from the Company's research and development efforts.
Specifically, the Company believes its recent tests demonstrate that the ELAST
Device is capable of successfully isolating the electrical energy signal
emanating from the human body.
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
4
<PAGE>
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.
Year 2000 Compliance. The Year 2000 (commonly referred to as "Y2K") issue
results from the fact that many computer programs were written using two, rather
than four, digits to identify the applicable year. As a result, computer
programs with time-sensitive software may recognize a two digit code for any
year in the next century as related to this century. For example, "00", entered
in a date-field for the year 2000, may be interpreted as the year 1900,
resulting in system failures or miscalculations and disruptions of operations,
including, among other things, a temporary inability to process transactions or
engage in other normal business activities.
To improve operating performance, the Company has undertaken a number of
significant systems initiatives, including a comprehensive review of the
hardware, software and communication systems owned by or supplied to the
Company. These have been analyzed by reviewing all relevant product and service
manuals, contacting vendors, and on-line research of relevant vendor websites.
The Company believes that all of its computer systems are Year 2000 compliant.
The Company (i) has completed an assessment of each of its operations and their
Year 2000 readiness, (ii) has determined that appropriate actions have been and
are being taken, and (iii) believes that it has completed its overall Year 2000
remediation prior to any anticipated impact on its operations. The Company has
determined that the Year 2000 issue will not cause significant operational
problems for its computer systems, and the costs of required modifications to
its computer systems will not be material to the Company's financial position,
cash flows or results of operations. However, although the Company believes its
computer systems are compliant, the Company has been unable to determine the
extent to which the Company's computer systems are vulnerable to the failure of
third parties to remediate their own Year 2000 issues. There is no guarantee
that the computer systems of other companies on which the Company's computer
system relies or interfaces will be converted and will not have an adverse
effect on the Company's computer system.
In a worst case situation, the Company's business operations could be adversely
affected by the non-compliance of banks, communications providers, utilities,
common carriers, the Company's customers, potential customers, suppliers, and
other sources known and unknown to the Company. Widespread breakdowns in the
telecommunications, banking, and computer industries would have an adverse
effect on business operations globally, including the Company's operations. The
ultimate impact of the Y2K issue cannot be reasonably estimated as of the date
of this Registration Statement. Many Y2K problems might not be readily apparent
when they first occur, but instead could imperceptibly degrade technology
systems and corrupt information stored in computerized databases, in some cases
before January 1, 2000.
5
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Except as specified below, there are no legal actions pending against the
Company nor are any such legal actions contemplated.
Pursuant to a Plan of Merger filed with the Delaware Secretary of State ("Plan
of Merger"), on or about June 30, 1998, Elast Technologies Corporation, a
Delaware corporation previously defined herein as "Elast Delaware", merged with
and into Elast Merger, Inc., a Nevada corporation, which was a wholly-owned
subsidiary of the Company. Shareholders who formerly held stock in Elast
Delaware received 4 shares of the Company's common stock for each share of their
Elast Delaware stock, with the result that the former shareholders of Elast
Delaware now hold a controlling interest in the Company, and Elast Delaware is
now a wholly-owed subsidiary of the Company.
There is presently a dispute regarding the validity of certain stock options
relating to the purchase of certain shares of Elast Delaware's common stock. On
or about May 14, 1999, Dr. Gary Marrone, the former Secretary of Elast Delaware
and a former Director of Elast Delaware, notified the Company that he believed
that, as a result of the Plan of Merger, certain unexercised Elast Delaware
stock options held by each Director of Elast Delaware had been converted into
options to purchase up to 400,000 shares of the Company's common stock at a
significantly reduced exercise price. The Company believes that Dr. Marrone's
claim is without merit. The Company further believes that Dr. Marrone may take
legal action with regard to this matter. The Company intends to vigorously
oppose any such action.
Item 2. Changes in Securities
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 in October,
1999. The Company anticipates filing a registration statement registering the
shares and the warrants with the SEC.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
6
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Material Contracts (not applicable)
11. Statement Re: Computation of Per Share Earnings **
15. Letter on Unaudited Interim Financial Information
18. Letter on Change in Accounting Principles (Not applicable)
19. Reports Furnished to Security Holders (Not applicable)
22. Published Report Regarding Matters Submitted to Vote (not applicable)
23.1 Consent of Auditors*
23.2 Consent of Counsel*
24. Power of Attorney is included on the Signature Page of the
Registration Statement*
27. Financial Data Schedule
99 Other (not applicable)
*Previously filed as Exhibits to Amendment No. 1 to Registration Statement on
Form 10-SB on August 2, 1999.
** See Financial Statements
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the nine month
period ended September 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Newport Beach, State of California, on November 11,
1999.
Elast Technologies, Inc.,
a Nevada corporation
By: /s/
----------------------------
Ted Hamilton
Its: Sr. Executive Vice-President
and Secretary
7
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
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 period from June 12, 1996 (inception)
to September 30, 1999, in accordance with Statements on Standards for Accounting
and Review Services 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__, 1999
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