U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
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 jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
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)
Sean P. Flanagan, Esq.
Chapman & Flanagan, Ltd.
2080 E. Flamingo Rd., Suite 112
Las Vegas, NV 89119
(702) 650-5660
Facsimile: (702) 650-5667
(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 of 1933,
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 of 1933, check the following box and
list the Securities Act of 1933registration 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 of 1933, 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>
<S> <C> <C> <C> <C> <C>
===================================================================================================
Title of each class Amount Proposed maximum Proposed maximum
of securities to be offering price aggregate Amount of
to be registered registered per share offering price registration fee
---------------------------------------------------------------------------------------------------
Common Stock,
$.001 par value 5,000,000 shares $2.00 $10,000,000.00 $2,640.00
===================================================================================================
</TABLE>
Total Registration Fees: $2,640.00
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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.
1
Preliminary Prospectus
ELAST TECHNOLOGIES, INC.,
a Nevada corporation
5,000,000 Shares of $.001 Par Value Common Stock
This prospectus ("Prospectus") relates to 5,000,000 shares (the
"Shares") of $.001 par value common stock of Elast Technologies,
Inc., a Nevada corporation (the "Company"). We are registering
5,000,000 Shares to be offered by the Company on a "best efforts"
basis.
We will receive proceeds from the sale of the 5,000,000
Shares we are registering by this Registration Statement and those
proceeds will be used for our working capital and to fund our
continuing research and development activities; provided, however,
that there can be no assurance that we will sell all or any portion of
those 5,000,000 Shares. All expenses of registration incurred in
connection with this offering will be paid by the Company.
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 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 service for securities not traded on an established
securities exchange. Our common stock trades on the OTC Bulletin
Board under the trading symbol ESTG. On July 13, 2000, the closing
price of our common stock as reported on the OTC Bulletin Board was
$1.4375.
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 July 13, 2000
2
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: Our principal business address is 2505 Rancho Bel Air,
Las Vegas, Nevada 89107; our main business telephone number is
702.878.8310.
Business of the Company. 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. We intend to manufacture and market
medical devices, and we are 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. We believe our current cash resources are
sufficient to fund our 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, we believe that we 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 the
Company's 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. We have
negotiated marketing agreements for the territories of Australia, New
Zealand and Japan; and we plan to negotiate and enter into additional
marketing agreements with appropriate distributors and marketing
agents. We 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, we do not
anticipate significant expenditures on acquisition or development of
other products during the current fiscal year. We will focus our
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 our research and development efforts.
Specifically, we believe our 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. We are conducting discussions with the University
of California at Irvine ("UCI") and San Diego State University. The
3
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, we 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. Our 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, we
anticipate 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 our products and services will achieve significant
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 us to recover associated costs; (ii) the Company
has a limited operating history upon which an evaluation of our
prospects can be made; (iii) the officers and directors of the
Company may be subject to various conflicts of interest; (iv)
substantially all of our products and services are subject to
significant regulation, and, therefore, our ability to generate
significant revenues will depend upon, among other things, our
ability to comply with all such regulations, laws and statutes, both
in the United States and in other countries; (v) we may be required
to raise substantial funds in order to implement our business plans
and objectives; (vi) we have significant competition from other
medical device manufacturers, suppliers, and distributors; (vii) our
results of operations may vary from period to period as a result of a
variety of factors; (viii) the market for our products and services
is characterized by continuous development and introduction of new
products and services; (ix) changing political, economic and
regulatory influences may affect our business practices and
operations; (x) we are dependent on our key personnel and management;
(xi) we do not anticipate paying dividends on our Common Stock in the
foreseeable future; and (xii) there can be no assurance that our
operations will become profitable. See "RISK FACTORS".
4
The Shares: We are filing this registration statement to register
5,000,000 shares of our common stock with the Securities and Exchange
Commission to be offered on a "best efforts" basis. There can be no
assurance that we will sell any or all of the Shares we desire to
sell.
Estimated use of We will receive as much as $10,000,000 if all of the
proceeds: 5,000,000 Shares offered by us on a "best efforts" basis at
$2.00 per Share are purchased, and we intend to use any proceeds from
such sale for working capital and to fund our continuing research and
development activities.
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 our business before purchasing any of the Shares.
A purchase of the Shares is speculative in nature and involves
numerous risks. No purchase of the Shares should be made by any
person who cannot afford to lose the entire amount of such investment.
THIS PROSPECTUS SPECIFIES FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. OUR 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.
We Have a Limited Operating History. We have a very limited
operating history upon which an evaluation of our prospects can be
made. We are currently engaged primarily in research and development
activities. We have has not generated any revenues and do not
anticipate generating any revenues in our current fiscal year. Our
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 our efforts will result in successful
product and service commercialization. There can be no assurance
that we 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. We have not yet determined what procedures, if any, will
be required in this regard and we have not begun any of these
procedures. We are currently investigating the possibility that
the ELAST Device falls in a category for which FDA approval has
already been given. We anticipate that the ELAST Device may be
included in such a category, but we are still researching the
appropriate regulatory requirements. In addition, regulatory
testing and approval would require significant funding. In the
event that such funding exceeded our present financial
resources, we 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 we would be forced to curtail our operations significantly or to
cease our operations altogether.
6
We Are in a Very Competitive Industry. 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. We 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 our products. There can be no assurance that other
technologies or products which are functionally equivalent or similar
to our technologies and products have not been developed or are not in
development. We expect 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 & Up john, 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 our products obsolete and
noncompetitive. Most of our competitors have substantially greater
experience, financial and technical resources and production,
marketing and development capabilities than we do. If we begin
commercial sales of our products, we 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, our competitors may have an advantage over us 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 us or
which would render our products obsolete and noncompetitive.
We Must Comply with Environmental Laws. Our management believes that
no toxic or hazardous materials will be byproducts of the
manufacturing processes of the ELAST Device; accordingly, we believe
that the Company will not incur unforeseen material expenditures
related to the cost of compliance with applicable environmental
laws, rules or regulations. We believe that we are presently in
compliance with all applicable federal, state, and local
environmental laws, rules and regulations. Furthermore, in the
event we license the manufacturing rights of the ELAST Device to
third parties, we will not become subject to any such restrictions.
However, at some time in the future, our research,
development, manufacturing and production processes may involve the
controlled use of hazardous materials. We 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, we could be held liable for any damages that
result, and any such liability could exceed our financial resources.
In addition, there can be no assurance that in the future we will
not be required to incur significant costs to comply with
environmental laws and regulations relating to hazardous materials.
We cannot estimate the potential costs of complying with local,
state, and federal environmental laws.
We Have No Product Liability Insurance. Our business will expose us to
potential product liability risks that are inherent in the testing,
manufacturing and marketing of medical products. We do not have
product liability insurance, and there can be no assurance that we
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. We face an inherent business
risk of exposure to product liability and other claims in the
event that the development or use of our 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;
7
or that a loss of insurance coverage would not materially adversely
affect our business, financial condition and results of operations.
While we have taken, and will continue to take, what we believe are
appropriate precautions, there can be no assurance that we 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 we develop. A product
liability claim could have a material adverse effect on our business,
financial condition and 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. Our strategy for growth
is substantially dependent upon our ability to successfully
introduce the ELAST Devices. Accordingly, our ability to compete may
be dependent upon our ability to enhance our products continually.
There can be no assurance that competitors will not develop
technologies or products that render our products obsolete or
less marketable. We 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, we do 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 year ended December 31, 1999, the Company received
approximately $808,250 from the sale of common stock. At December
31, 1999, the Company had cash resources of $205,715. The cash and
equivalents constitute our present internal sources of liquidity.
Because we are not generating any revenues from the sale or licensing
of our products, our only external source of liquidity is the sale of
our capital stock. We believe our current cash resources are
sufficient to complete prototype development and limited clinical
trials of the ELAST Device. If the ELAST Device performs as
anticipated, we believe that we 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 our research and development
program will have a significant adverse affect on our business
operations.
There is a contingent liability that some of our stock will not be
recovered from Crescent Fund Partners, L.P. and we may be obligated
to make a rescission offer if some of that stock was sold to third
persons. We have a contingent liability equal to the value of
131,000 shares of our common stock as a result of our depositing
those shares in to CEDE & Company for the benefit of Crescent Fund
Partner, L.P. under circumstances that may have violated the
registration requirements of the Securities Act. On March 7, 2000, we
directed DTC to return those shares to certificate form and not
to deliver them to any purchaser. Unfortunately, Crescent Fund
Partners L.P., and its principal, Jeffrey Stone, accessed those
shares and tried to sell them, against our instructions. We were
forced to sue Crescent Fund Partners L.P. in Dallas County Texas
District Court for, among other things, a rescission order. We
obtained a restraining order freezing 669,000 of those shares. We do
not know where the remaining shares are, nor whether Crescent Fund
Partners L.P. sold those shares to third parties. We later learned
that Jeffrey Stone is a felon convicted of wire fraud and
commercial bribery in United States District Court in New
York. We are continuing to prosecute this case and we have been
informed that Mr. Stone has been returned to prison, as his conduct
with our shares violated his probation.
In the event our shares were sold to third persons, we intend to
make a rescission offer to all those persons pursuant to a
registration statement filed under the Securities Act and pursuant to
Texas securities law, or the securities laws of any other state in
which our securities were sold by Crescent Fund Partners L.P. In
the rescission offer, we will offer to repurchase from those
persons all shares transferred or sold to those persons by
Crescent Fund Partners L.P. for an amount equal to the purchase price
paid for those shares plus interest at the rate of 10% per year
from the date of transfer until the rescission offer expires. The
rescission offer will expire approximately 30 days after the
effectiveness of the rescission offer registration statement. Because
we do not know if any of those shares were sold, we do not know the
sales price, if any. However, based upon the current trading price of
our common stock, the out-of-pocket cost to us would be
approximately $100,000, plus interest, if we were required to
repurchase all 131,000 shares.
As of the date of this prospectus, we are not aware of any claims for
rescission against us. If we are required to repurchase all of the
shares subject to the rescission offer, our operating results and
liquidity during the period in which the repurchase occurs could be
adversely affected.
The cash and equivalents constitute our present internal sources of
liquidity. Because we are not generating any revenues from the
sale or licensing of our products, our only external source of
liquidity is the sale of our capital stock. We believe our
current cash resources are sufficient to complete prototype
development and limited clinical trials of the ELAST Device. If the
ELAST Device performs as anticipated, we believe that we 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 our
research and development program will have a significant adverse
affect on our business operations.
Limited Protection of Proprietary Technology. We will attempt to
protect our proprietary technology through the enforcement of our
patent and by applying for additional patent protection when
appropriate. We exclusively own any and all software and other
technology that we develop and we regard such technology as
proprietary. We may rely on a combination of patent, trademark and
trade secret laws, as well as contractual restrictions on
disclosure, copying and distribution (including but not limited to
confidentiality agreements with our employees and subcontractors),
to attempt to protect our intellectual property rights in our
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 our products or to
reverse engineer or obtain and use information that we regard as
proprietary. There can be no assurance that our competitors will not
independently develop technologies that are substantially equivalent
or superior to our technologies. In addition, because we anticipate
distributing our products internationally, the laws of certain
countries in which our products and services are or may be
distributed or utilized may not protect our 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 us in the future or that any such
assertion will not result in costly litigation or require
8
us to obtain a license to intellectual property rights of third
parties. If we are required to obtain such licenses, there can
be no assurance that such licenses will be available on reasonable
terms, or at all. Moreover, in the event we were 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 our business and operations, even if
we prevail in such lawsuit.
We Must Adapt to Rapid Technological Change. The medical devices
industry is characterized by rapidly changing technology, resulting
in short product life cycles and rapid price declines. We must
continuously update our 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 our existing products and services
obsolete. Our future prospects are highly dependent on our
ability to increase the functionality of our 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 we will be successful in these efforts. If we 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 our 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
our control.
We Rely on Our Key Personnel. Our future success will depend on the
service of our key personnel and, additionally, our ability to
identify, hire and retain additional qualified personnel. There is
intense competition for qualified personnel in the medical
products field, and there can be no assurance that we will be able to
continue to attract and retain such personnel necessary for the
development of our business. Because of the intense competition, there
can be no assurance that we will be successful in adding personnel
as needed to satisfy our staffing requirements. Failure to attract
and retain key personnel could have a material adverse effect on the
Company.
Conflicts of Interest. The persons serving as our officers and
directors 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.
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 Securities and Exchange 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 Securities and Exchange
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
9
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 our 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. Our
directors, officers and principal (greater than 5%)
stockholders, taken as a group, together with their affiliates,
beneficially own, in the aggregate, approximately 50.9% 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 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. Our 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 our common stock. 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 our common
stock.
Legal Proceedings. In February, 2000 we registered 1,000,000
shares of our common stock for sale on a "best efforts" basis. We
deposited 800,000 of those shares into DTC, one of the world's
largest security depositories and a national clearinghouse for the
settlement of trades in corporate and municipal securities. On
March 7, 2000, we were informed by the Securities and Exchange
Commission that our financial statements on file were not
current, so we directed that the 800,000 shares be returned to
certificate form and not delivered to any purchaser. Unfortunately,
Crescent Partners L.P., and its principal, Jeffrey Stone, accessed
those shares and tried to sell them, against our orders. We were
forced to sue Crescent Partners L.P. in Dallas County, Texas District
Court and we obtained a restraining order freezing 669,000 of those
shares. We later learned that Jeffrey Stone is a felon convicted of
wire fraud and commercial bribery in United States District Court
in New York. We are continuing to prosecute this case and we believe
Mr. Stone has been returned to prison, as his conduct with our shares
violated his probation. There is a risk that we will not be able to
recover all the shares, which could affect the market and value
of our common stock.
No Foreseeable Dividends. We do not anticipate paying dividends on
our common stock in the foreseeable future; but, rather, we plan to
retain earnings, if any, for the operation and expansion of our
business.
No Assurances of Revenue or Operating Profits. There can be no
assurance that we will be able to develop consistent revenue sources
or that our operations will become profitable.
Federal Income Tax Consequences. We have 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
Shares 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 resulted from the fact that many computer programs
were written using two, rather than four, digits to identify the
applicable year. As a result, many people were concerned that
computer programs with time-sensitive software might 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, might 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. While
companies and governments in the United States spent an estimated
$150 billion to $225 billion repairing the problem, countries like
Russia and China, which spent relatively minor amounts, seemed to
clear the New Year's Day hurdle with equal success. Major news media
in the United States are reporting that, after years of work and
billions of dollars spent repairing the Year 2000 computer
glitch, the technological tranquility of New Year's Day has raised
a new concern that the United States overreacted to this problem.
While it is still too soon to state positively that the Y2K
transition has passed without mishap, we believe that Y2K issues will
not have a material adverse affect on our business.
10
Item 4. Use of Proceeds
We will receive up to $10,000,000 if all of the 5,000,000 Shares
offered by us on a "best efforts" basis at $2.00 per share are
purchased, and we intend to use any proceeds from such sale for
working capital and to fund our continuing research and development
activities.
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 $0.75 and a high of $3.125 for the 52-week period ended
July 13, 2000. 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 5,000,000 Shares being offered on a "best
efforts" basis has been determined primarily by the capital
requirements of the Company and has no relationship to any established
criteria of value, such as book value or earnings per share.
Additionally, because we have no significant operating history and
have not generated any revenues to date, the price of the Shares is
not based on past earnings, nor is the price of the Shares indicative
of current market value for the assets owned by the Company. No
valuation or appraisal has been prepared for the business and
potential business expansion of the Company.
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.
We are offering for sale 5,000,000 Shares on a "best efforts"
basis at a price significantly higher than the current bid and
asked prices for our common stock as quoted on the OTC Bulletin
Board. The following table sets forth the difference between the
offering price of the Shares being offered by the Company, the net
tangible book value per share, and the net tangible book value per
share after giving effect to the offering by the Company, assuming
that all of the Shares offered by the Company are sold. Net tangible
book value per share represents the amount of total tangible
assets less total liabilities divided by the number of shares
outstanding as of March 31, 2000.
Offering Price $2.00 per share
Net tangible book value at 3/31/2000 $0.21 per share
Net tangible book value after giving effect to the offering
$0.74 per share Per Share Dilution to New Investors
$1.26 per share Percent Dilution to New Investors
63%
11
Item 7. Selling Stockholders
There are no selling shareholders.
Item 8. Plan of Distribution
We are registering 5,000,000 Shares in contemplation of a "best
efforts" offering of our common stock. We do not currently have an
agreement with any person for the purchase of any portion of those
5,000,000 Shares, nor have we commenced any communication with
any person regarding the purchase of those 5,000,000 Shares. There
can be no assurance that we will sell all or any portion of those
5,000,000 Shares.
We may sell the Shares 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 may arrange for other brokers or dealers to
participate. Brokers or dealers may receive commissions or discounts
(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 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 our
agent, to purchase as principal any unsold shares at the price
required to fulfill the broker-dealer commitment. Broker-dealers who
acquire shares as principal may thereafter resell such shares from
time to time in transactions (which may involve crosses and block
12
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.
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 and
any commissions or discounts given to any such broker-dealer may be
deemed to be underwriting commissions or discounts under the 1933 Act.
We have 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 we will sell any of the Shares we desire to sell.
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. We 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.
We will advise any broker-dealers that, during such time as they may
be engaged in a distribution of any of the Shares we are registering
by this Registration Statement, they are required to comply with
Regulation M promulgated under the Securities Exchange Act of 1934.
In general, Regulation M precludes affiliated purchasers and any
broker-dealer or other person who participates in such
distribution from bidding for or purchasing, or attempting to induce
any person to bid for or purchase, any security which is the subject
of the distribution until the entire distribution is complete.
Regulation M defines a "distribution" as an offering of securities
that is distinguished from ordinary trading activities by the
magnitude of the offering and the presence of special selling efforts
and selling methods. Regulation M also defines a
"distribution participant" as an underwriter, prospective
underwriter, broker, dealer, or other person who has agreed to
participate or who is participating in a distribution.
Regulation M prohibits any bids or purchases made in order to
stabilize the price of a security in connection with the distribution
of that security, except as specifically permitted by Rule 104 of
Regulation M. These stabilizing transactions may cause the price
of the common stock to be higher than it would otherwise be in the
absence of these transactions. Stabilizing transactions permitted
by Regulation M allow bids to purchase our common stock so long as the
stabilizing bids do not exceed a specified maximum, and
Regulation M specifically prohibits stabilizing that is the
result of fraudulent, manipulative, or deceptive practices.
Distribution participants will be required to consult with their own
legal counsel to ensure compliance with Regulation M.
13
Item 9. Legal Proceedings
Legal Proceedings. In February, 2000 we registered 1,000,000
shares of our common stock for sale on a "best efforts" basis. We
deposited 800,000 of those shares into DTC, one of the world's
largest security depositories and a national clearinghouse for the
settlement of trades in corporate and municipal securities.
Certain disputes have arisen between and among the present
management of the Company, on the one hand, and Edward L. Hamilton, a
former officer and director of the Company, on the other hand.
Although management of the Company believed those disputes had been
resolved, disputes over the performance of the settlement
agreement have now arisen. The Company anticipates that Mr. Hamilton
may take legal action with regard to this matter. The Company intends
to oppose vigorously any action by Mr. Hamilton in regard to this
matter, but will also consider a reasonable settlement if the
Company's Board of Directors determines that the terms and conditions
of such a settlement are in the best interests of the Company.
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:
<TABLE>
<S> <C> <C>
================================================================================
Name Age Position
--------------------------------------------------------------------------------
Thomas Krucker 60 President and Director
--------------------------------------------------------------------------------
Robert D. Milne, M.D. 53 Chairman of the Board of
Directors
================================================================================
Nicholas Spencer 38 Director
================================================================================
Dr. Eduardo Daniel Jimenez 58 Director
Gonzalez
================================================================================
</TABLE>
Thomas Krucker is the President, Chief Executive Officer, and a
director of the Company. Mr. Krucker graduated from the
University of Arizona in 1962 and received a Juris Doctorate
degree from Pepperdine University in 1969. Mr. Krucker served
with Toyota USA 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. 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
14
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.
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.
Dr. Eduardo Daniel Jimenez Gonzalez is an international banker
and Mexican attorney who specializes in immigration, civil, and
criminal matters in the Republic of Mexico and who provides
international consulting services regarding finance, credit,
commerce, industrial and tourist development, import and export
matters, and administrative management. Dr. Gonzalez is a Fullbright
Scholar who received a Master of Arts Degree from John Hopkins
University, School of Advanced International Studies, in
Washington, D.C. and who has studied International Economics at
Harvard University and American Civilization at Georgetown
University. Dr. Gonzalez has served as a counselor at the Mexican
Embassy in Washington, D.C., as a Mexican Minister in Bonn, as
Ambassador at Large for Mexico in Oslo, Norway and Islandia, and as
private secretary for a former President of Mexico. He has
served as Managing Director for Latin American Investment Banking
for First Chicago Bank in Panama, Colombia, Venezuela, Ecuador
and Peru, as as First Chicago Bank's Vice-President for the Western
Hemisphere. He is an international lecturer on economic development
and an International Law Professor at the University of Mexico.
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.
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 Securities and
Exchange Commission 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 March 31,
2000, 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
8,751,215 on March 31, 2000.
(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 Company directly or beneficially own,
in the aggregate, 4,445,308 shares of the Company's common stock,
or approximately 51% of the issued and outstanding common
shares, as set forth on the following table (percentages are
rounded off to the nearest one-tenth of
15
one percent). 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>
<S> <C> <C>
<C>
Name and Address Amount and
Percent of
Title of Class of Owner Nature of
Class (approx.)
-------------- -------- ---------
---------------
Owner
$.001 par value Dr. Robert Milne(1) 4,029,976
46.1%
Common Stock 2432 Greens Ave. Secretary and
Director
Henderson, NV 89014
$.001 par value Thomas Krucker(2) 390,332
4.5%
Common Stock 2505 Rancho Bel Air President and
Director
Las Vegas, NV 89107
$.001 par value Nicholas Spencer 25,000
0.3%
Common Stock 13 Edinburgh Road Director
N.S.W., Australia
Total shares beneficially
owned by all officers and directors
as a group 4,445,308
50.9%
</table
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 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.
(1) Shares of the Company's common stock are held by (i) Dr. Milne;
(ii) Dr. Milne's spouse, Julie Milne; (iii) immediate family members
Drew Milne, Meredith Milne and Brook Milne, who reside with Dr. Milne;
(iv) a Milne family trust; and (v) the Milne Medical Center, an
affiliate of Dr. Milne.
(2) Shares of the Company's common stock are held by (i) Mr.
Krucker; (ii) a trust in the name of Mr. Krucker's spouse,
Katherine; and (iii) Katherine Krucker as custodian for his
daughter, Kimberly, who resides with him.
On or about October 18, 1999, the Company issued a press release which
specified that Dr. Milne had 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. Subsequent to that press release,
the Company's Board of Directors determined that Dr. Milne had not
received consideration for the retirement of those shares;
therefore, those shares were not retired, and the stock options were
never issued.
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. Our management is currently considering
entering into a merger agreement with Bioelectronics Corp., a
privately held research and development company based in Maryland
which designs low cost and disposable magnetic field medical devices
to accelerate and improve the quality of tissue healing. However,
after extensive negotiations, the final terms of that proposed merger
have not been determined. Although we filed a proxy statement
requesting approval of the proposed merger from our shareholders,
that request may be withdrawn.
16
Item 12. Description of Securities
The Company is authorized to issue 25,000,000 shares of common stock,
$.001 par value, each share of common stock having equal rights and
preferences, including voting privileges. 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, 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; provided, however, that in 1998 Thomas E. Stepp, Jr.,
received 15,000 shares of the Company's common stock as compensation
for legal services performed for the benefit of the Company.
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 his original
issue of 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.
17
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 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.
18
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.
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 PROSPECTUS SPECIFIES FORWARD-LOOKING STATEMENTS OF
MANAGEMENT OF THE COMPANY ("FORWARD-LOOKING STATEMENTS")
INCLUDING, WITHOUT LIMITATION, FORWARD-LOOKING STATEMENTS
REGARDING OUR EXPECTATIONS, BELIEFS, INTENTIONS AND FUTURE
STRATEGIES.
19
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 PROSPECTUS 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
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. NO
ASSURANCE CAN BE GIVEN THAT ANY OF THE ASSUMPTIONS RELATING TO
THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS REPORT ARE ACCURATE,
AND WE ASSUME NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING
STATEMENTS.
General. The Company intends to manufacture and market medical
devices. We are currently negotiating proposed marketing agreements
and plans to negotiate and enter into marketing agreements with
appropriate distributors and marketing agents. Other than the
ELAST Device, we do not currently have any plans to develop other
products. We may, however, 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, we do not
anticipate significant expenditures on acquisition or development of
other products during the current fiscal year.
On February 1, 2000, the Company relocated its research and
development facilities to San Diego's Center for Applied Competitive
Technologies ("CACT"). Established in 1990, CACT is one of
twelve advanced technology centers designated by the State of
California to serve firms in the manufacture of biomedical and
bio-technical products and to assist such companies in
transitioning from research and development activities to
manufacturing their products. CACT is a member of the National
Coalition of Advanced Technology Centers and has served since
1992 as a regional affiliate of the National Institute for
Standards and Technology's Manufacturing Extension Centers. Since
1997, CACT has been a Regional Affiliate of the National Aeronautics
and Space Administration's Far West Regional Technology Transfer
Center.
In June, 2000 we announced that we were negotiating with a
Japanese medical device firm which wanted to acquire the licensing
rights to the ELAST Device. We are hoping to come to an agreement by
autumn of this year with delivery of some test units by the end of
this year. This agreement would complement our agreement with
the Australian firm, River Plate Pty., Ltd., which has the
distribution rights to the ELAST Device in Australia and New
Zealand. These international marketing agreements would allow for
marketing the ELAST Device prior to approval by the Food and Drug
Administration.
We think the potential market for the ELAST Device in Japan is
very large. Approximately 130 million Radio Allergo Sorben
Tests, called RASTs, are conducted in Japan each year. Unlike the
ELAST Device, the RAST requires the drawing and testing of
blood samples, which is painful, poses a risk of infection,
takes more time, and costs more than using the ELAST Device for
allergy testing.
We will focus our initial marketing and distribution efforts on
development and commercial exploitation of the ELAST Device. Our
present plan is to lease or license the ELAST Device. We believe that
such a plan minimizes variable costs and creates an informed and
updated client base.
Our business will expose us to potential product liability
risks that are inherent in the testing, manufacturing and marketing
of medical products. We do not have product liability insurance, and
there can be no assurance that we 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. We face an inherent business risk of exposure to product
liability and other claims in the event that the development or use
of our 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 we 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
20
materially adversely affect our business, financial condition and
results of operations. While we have taken, and will continue to
take, what we believe are appropriate precautions, there can be
no assurance that we 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 our business, financial condition and
results of operations.
Our strategy for growth is substantially dependent upon our 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 we will be
able to market and distribute products on acceptable terms, or at
all. Our failure to market our products successfully could have a
material adverse effect on our business, financial condition or
results of operations.
The medical products industry has been under increasing scrutiny
by various state and federal regulatory agencies. While we do not
presently require any government approval to create, develop or
manufacture the ELAST Device, we 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 our business, financial condition and results of
operations.
The medical products industry is rapidly changing through the
continuous development and introduction of new products. Our
strategy for growth is substantially dependent upon our ability to
successfully introduce the ELAST Device. Accordingly, our ability to
compete may be dependent upon our ability to enhance and improve our
products continually. There can be no assurance that competitors
will not develop technologies or products that render our products
obsolete or less marketable. We 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,
we do 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.
Liquidity and Capital Resources. During the year ended December 31,
1999, the Company received approximately $808,250 from the sale of
common stock. At December 31, 1999, the Company had cash
resources of $205,715. The cash and equivalents constitute our
present internal sources of liquidity. Because we are not generating
any revenues from the sale or licensing of our products, our only
external source of liquidity is the sale of our capital 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.
21
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 10
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.
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:
</TABLE>
<TABLE>
<S> <C> <C>
======================================================================
==========
Property Dec. 31, 1998 Dec. 31,
1999
----------------------------------------------------------------------
----------
Cash and equivalents $226,818.00
$205,715.00
----------------------------------------------------------------------
----------
License to use Patent No. 5413113 $400.00
$240.00
----------------------------------------------------------------------
----------
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
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.
Also in 1999, Edward L. Hamilton, who was, at the time, an officer
and director of the Company, was provided housing in a residence owned
by Thomas Krucker. The Company paid Mr. Krucker $15,000 for the
housing and that cost was included in Mr. Hamilton's compensation for
1999.
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 and market the ELAST Device. Elast Delaware
issued to Dr. Milne 3,200,000 shares of its common stock to acquire
the licensing rights. The Company believes that the fair market
value of 3,200,000 shares of Elast Delaware's common stock at the
time of the transaction was $800.00, and, therefore, the Company
determined that 3,200,000 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.
22
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 $203,682 during the
year ended 1998 to $344,737 during the year ended 1999.
Compensation to the Company's officers is specified on the following
chart:
Cash Auto Meals & Total
Compensati Expense Insurance Entertainm Travel Housing Compensa
on ent tion
---------- ------- -------- ---------- ------ ------- ------
-- - ---
T. $ 66,040 $ $8,397 $ 69,004 $ $--
Krucker 16,269 20,184 $179,894
T. 110,894 8,470 1,701 -- -- 15,000 136,065
Hamilton
Dr. Milne 28,778 -- -- -- -- -- 28,778
Totals $205,712 $ $ 10,098 $ 69,004 $ 15,000 $344,737
24,739 20,184
During 1999, the Company also granted options to purchase up to
150,000 shares of the Company's common stock to two members of the
Board of Directors; however, because the exercise price of the options
equaled or exceeded the fair value of the Company's common stock at
the date of grant, no compensation expense was recognized in
connection with the issuance of these options. In 1999 the Company
paid $11,000 to an officer and major shareholder for rental and
purchase of a vehicle. Of the amount paid, $2,700 represented
automobile rental and $8,300 represented the purchase price. The
automobile was used for business purposes and subsequently sold to an
independent party for $5,000. The Company recognized a $2,608 loss
from the sale of the asset. Other expenditures for travel,
entertainment, insurance, car leases, and miscellaneous expenses
were also categorized as compensation to officers during fiscal 1999.
23
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, an 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.
In 1999, the Company issued shares of its $.001 par value common
stock as compensation for services provided to the Company, and
employee compensation, as follows: 13,400 shares to Gerald Klein;
4,700 shares to Ron Almadova; 4,700 shares to William Milne;
3,333 shares to Hope Lane; 25,000 shares to Jim Woodens; and
25,000 shares to John Martinez.
Item 22. Financial Statements
24
Elast Technologies, Inc.
(A Company in the Development Stage )
Consolidated Financial Statements
As of December 31, 1999 and 1998 and
For Each of the Two Years in the Period Ended December 31, 1999
and
For the Period from June 12, 1996 (Inception) to December 31,
1999
Elast Technologies, Inc.
(A Company in the Development Stage)
Index to the Consolidated Financial Statements
As of December 31, 1999 and 1998 and
For Each of the Two Years in the Period Ended December 31, 1999
and
For the Period from June 12, 1996 (Inception) to December 31,
1999
----------------------------------------------------------------------
----------
Report of Independent Auditors
1
Consolidated Financial Statements of Elast Technologies, Inc.:
Consolidated Balance Sheets, December 31, 1999 and 1998
2
Consolidated Statements of Operations for Each of the Two Years
in
the Period ended December 31, 1999 and for the Period from
June 12, 1996 (Inception) to December 31, 1999
3
Consolidated Statements of Shareholders' Equity for Each of the
Two
Years in the Period ended December 31, 1999 and for the
Period from June 12, 1996 (Inception) to December 31, 1999
4
Consolidated Statements of Cash Flows for Each of the Two Years
in
the Period ended December 31, 1999 and for the Period from
June 12, 1996 Inception) to December 31, 1999
7
Notes to the Consolidated Financial Statements
10
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Elast Technologies, Inc.
We have audited the accompanying consolidated balance sheets
of Elast Technologies, Inc. (a company in the development stage) as
of December 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 1999 and for
the period from June 12, 1996 (inception) to December 31, 1999. These
consolidated financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our 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 present fairly, in all material respects, the consolidated
financial position of Elast Technologies, Inc. (a development stage
company) as of December 31, 1999 and 1998, and the consolidated
results of operations and cash flows for the years ended December
31, 1999 and 1998 and for the period from June 12, 1996
(inception) to December 31, 1999, in conformity with generally
accepted accounting principles. Kelly & Company
/s/ Kelly & Company
Kelly & Company
Newport Beach, California
March 1, 2000
1
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Balance Sheets
December 31, 1999 and 1998
----------------------------------------------------------------------
----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
ASSETS
1999
1998
----------- -----------
Current assets:
Cash and equivalents $ 205,715 $ 226,818
----------- -----------
Total current assets 205,715 226,818
Property and equipment, net 10,672 3,434
License, net 240 400
----------- -----------
Total assets $ 216,627 $ 230,652
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 14,613 $ 8,617
Accrued payroll and payroll taxes 38,898 4,375
----------- -----------
Total liabilities 53,511
12,992
----------- -----------
Shareholders' equity:
Common stock, $.001 par value;
25,000,000 shares authorized;
7,961,481 and 7,179,448 shares
issued and outstanding at December
31, 1999 and 1998, respectively 7,961 7,179
Additional paid-in capital 2,130,488 1,413,886
Additional paid-in capital for warrants 205,000 --
Deficit accumulated during the
development stage (2,180,333) (1,203,405)
----------- -----------
Total shareholders' equity 163,116
217,660
----------- -----------
Total liabilities and shareholders' equity $ 216,627 $ 230,652
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
2
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Operations
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Period from
For the For the June 12, 1996
Year Ended Year Ended (Inception) to
December 31, 1999 December 31, 1998 December 31, 1999
----------------- ----------------- -----------------
Operating costs:
Officers compensation $ 344,737 $ 203,682 $ 548,419
Research and development 329,684 108,161 506,065
Legal and professional 111,812 502,231 638,377
Investor relations 86,082 238,759 324,841
Financing consulting fee 60,000 -- 60,000
Other operating costs and expenses 54,842 63,107 133,913
----------- --------- -------------
Total operating costs (987,157) (1,115,940) (2,211,615)
----------- ----------- -----------
Interest income 10,229 13,566 31,282
----------- ----------- -----------
Net loss $ (976,928) $(1,102,374) $(2,185,333)
=========== =========== ===========
Loss per common share - basic and diluted $ (0.13) $ (0.19) $ (0.40)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Shareholders' Equity
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Elast Technologies Elast Technologies, Inc.
Corporation (Formerly Med Mark, Inc.) Detachable
(A Delaware Corporation) (A Nevada Corporation) Price Additional Stock
Common Common Common Common Per Paid-in Purchase
Shares Stock Shares Stock Share Capital Warrants Total
Balance, June 12, 1996 - - - - -
(inception)
Shares issued for the medical
device license 3,200,000 $ 3,200 - - $(2,400) -
Shares issued for legal 21,332 21 - - $ 0.31 6,698 -
services
Contribution of funds expended
by the major shareholder
on the Company's behalf - - - - 4,167 -
Shares issued in private 546,672 547 - - 0.38 204,453 -
placement
Net loss from inception to
December 31, 1996 - - - - - -
Balance, December 31, 1996 3,768,004 3,768 - - 212,918 -
Contribution of funds expended
by the major shareholder on
the Company's behalf - - - - 1,500 -
Net loss for the year ended
December 31, 1997 - - - - - -
Balance, December 31, 1997 3,768,004 3,768 - - $214,418 -
</TABLE>
Continued
<TABLE>
<S> <C> <C> <C> <C>
Deficit Less:
Accumulated Common
During the Stock
Development Subscription
Stage Subtotal Receivable Total
Balance, June 12, 1996 - - - -
(inception)
Shares issued for the medical
device license - $ 800 - $ 800
Shares issued for legal - 6,719 - 6,719
services
Contribution of funds expended
by the major shareholder
on the Company's behalf - 4,167 - 4,167
Shares issued in private - 205,000 $ (10,000) 195,000
placement
Net loss from inception to
December 31, 1996 $ (38,309) (38,309) - (38,309)
Balance, December 31, 1996 (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
Net loss for the year ended
December 31, 1997 (62,722) (62,722) - (62,722)
Balance, December 31, 1997 $ (101,031) $ 117,155 $ (10,000) $ 107,155
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Shareholders' Equity
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Elast Technologies Elast Technologies, Inc.
Corporation (Formerly Med Mark, Inc.) Detachable
(A Delaware Corporation) (A Nevada Corporation) Price Additional Stock
Common Common Common Common Per Paid-in Purchase
Shares Stock Shares Stock Share Capital Warrants
Balance, December 31, 1997 3,768,004 $ 3,768 - - $ 214,418 -
Shares outstanding prior
to the reorganization - - 1,220,000 $ 1,220 29,506 -
Shares issued in private
placement 394,000 394 - - $ 0.50 196,606 -
Payment of receivable
arising
from issuance of common - - - - - - -
stock
Shares issued on the
exercise
of warrants 506,640 507 - - 0.38 189,483 -
Shares issued to consultant
in connection with the
reorganization 1,007,472 1,007 - - 0.38 376,791 -
Shares issued and
surrendered
in the acquisition of Elast
Technologies, Inc. (a
Nevada
Corporation) (reverse (5,676,116) (5,676) 5,676,116 5,676 - -
merger)
Shares issued for consulting
services, engineering
services,
and employee compensation - - 270,000 270 1.51 407,095 -
Shares issued to an existing
shareholder to correct a
stock
issuance error - - 13,332 13 (13) -
Net loss for the year ended
December 31, 1998 - - - - - -
Balance, December 31, 1998 - - 7,179,448 $ 7,179 $ -
1,413,886
</TABLE>
continued
<TABLE>
<S> <C> <C> <C> <C>
Deficit Less:
Accumulated Common
During the Stock
Development Subscription
Stage Subtotal Receivable Total
Balance, December 31, 1997 $ (101,031) $ 117,155 $ (10,000) $ 107,155
Shares outstanding prior
to the reorganization - 30,726 - 30,726
Shares issued in private
placement - 197,000 - 197,000
Payment of receivable arising
from issuance of common stock - 10,000 10,000
Shares issued on the exercise
of warrants - 189,990 - 189,990
Shares issued to consultant
in connection with the
reorganization - 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 - 407,365 - 407,365
Shares issued to an existing
shareholder to correct a
stock
issuance error - - - -
Net loss for the year ended
December 31, 1998 (1,102,374) (1,102,374) - (1,102,374)
Balance, December 31, 1998 $ (1,203,405) $ 217,660 - $ 217,660
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Shareholders' Equity
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Elast Technologies Elast Technologies, Inc.
Corporation (Formerly Med Mark, Detachable
Inc.)
(A Delaware Corporation) (A Nevada Corporation) Price Additional Stock
Common Common Common Common Per Paid-in Purchase
Shares Stock Shares Stock Share Capital Warrants
Balance, December 31, 1998 - - 7,179,448 $ 7,179 $ 1,413,886 -
Shares issued in private
placement - - 205,900 206 $ 1.50 308,044 -
Shares issued in private
placement - - 500,000 500 0.59 294,482 $ 205,000
Shares issued for
consulting
services - - 26,133 26 1.54 40,126 -
Shares issued for research
and development services - - 50,000 50 1.48 73,950 -
Net loss for the year
ended
December 31, 1999 - - - - - -
Balance, December 31, 1999 - - 7,961,481 7,961 2,130,488 205,000
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Deficit Less:
Accumulated Common
During the Stock
Development Subscription
Stage Subtotal Receivable Total
Balance, December 31, 1998 $ $ 217,660 - $ 217,660
(1,203,405)
Shares issued in private
placement - 308,250 - 308,250
Shares issued in private
placement - 499,982 - 499,982
Shares issued for
consulting
services - 40,152 - 40,152
Shares issued for research
and development services - 74,000 - 74,000
Net loss for the year
ended
December 31, 1999 (976,928) (976,928) - (976,928)
Balance, December 31, 1999 (2,180,333) 163,116 - 163,116
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Cash Flows
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Period from
For the For the June 12, 1996
Year Ended Year Ended (Inception) to
December 31, 1999 December 31, 1998 December 31, 1999
----------------- ----------------- -----------------
Cash flows from operating activities:
Net loss $(976,928) $(1,102,374) $(2,180,333)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 2,706 770 3,476
Issuance of stock for services 114,152 785,163 906,034
Loss on sale of asset 2,608 -- 2,608
Increase (decrease) in liabilities:
Accounts payable, trade 5,997 8,617 14,614
Accounts payable, officer -- (1,925) --
Accrued payroll taxes 34,523 4,375 38,898
--------- ----------- -----------
Cash used in operating activities (816,942) (305,374) (1,214,703)
--------- ----------- -----------
Cash flows used in investing activities:
Purchase of equipment (17,393) (3,804) (21,197)
Sale of equipment 5,000 -- 5,000
--------- ----------- -----------
Cash used in investing activities (12,393) (3,804) (16,197)
--------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
7
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Cash Flows
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Period from
For the For the June 12, 1996
Year Ended Year Ended (Inception) to
December 31, 1999 December 31, 1998 December 31, 1999
----------------- ----------------- -----------------
Cash flows provided by financing activities:
Acquisition of MedMark, Inc. -- $ 30,726 $ 30,726
Proceeds from the exercise of warrants -- 189,990 189,990
Payment of common stock subscription receivable -- 10,000 10,000
Proceeds from the issuance of common stock $808,232 197,000 1,200,232
Contribution to additional paid-in capital -- -- 5,667
Cash provided by financing activities 808,232 427,716 1,436,615
-------- -------- ----------
Net increase (decrease) in cash (21,103) 118,538 205,715
Cash at beginning of period 226,818 108,280 --
-------- -------- ----------
Cash at end of period $205,715 $226,818 $205,715
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
8
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Cash Flows
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
<TABLE>
<S> <C> <C> <C>
Period from
For the For the June 12, 1996
Year Ended Year Ended (Inception) to
December 31, 1999 December 31, 1998 December 31, 1999
----------------- ----------------- -----------------
Interest paid -- -- $ 1,375
Income taxes paid $170 $1,403 $ 1,973
Supplemental Schedule of Non-Cash Investing and Financing Activities
Assets acquired in non-cash transactions:
Acquisition of medical device license -- -- $ 800
Increase in common stock subscription receivable -- -- $ 10,000
Issuance of common stock -- -- $(10,800)
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
9
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements
For Each of the Two Years in the Period Ended December 31,
1999
And for the Period from June 12, 1996 (Inception) to December 31,
1999
----------------------------------------------------------------------
----------
1. Development Stage Operations
Elast Technologies, Inc. (a company in the development stage) has
a limited
operating history with no revenues and no products or operable
technology
ready for the market. The Company is engaged in the ongoing
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 of the medical
device and
the raising of equity 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 11.
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 10).
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 $104,334
and $131,886 at December 31, 1999 and 1998, 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.
10
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31,
1999
And for the Period from June 12, 1996 (Inception) to December 31,
1999
----------------------------------------------------------------------
----------
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 Company recorded its intangible asset at cost. The intangible
asset is
amortized on a straight-line method over the shorter of its
estimated
useful live or its contractual term, whichever is shorter.
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 its
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, 1999 and 1998.
Income Taxes
The Company accounts for income taxes using the liability method.
Under the
liability method, deferred income taxes are determined based on
differences
between the financial reporting and tax bases of assets and
liabilities.
They are measured using the enacted tax rates and laws that
will be in
effect when the differences are expected to reverse. The
Company is
required to adjust its deferred tax liabilities in the period
when tax
rates or the provisions of the income tax laws change. Valuation
allowances
are established to reduce deferred tax assets to the amounts
expected to be
realized.
11
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31,
1999
And for the Period from June 12, 1996 (Inception) to December 31,
1999
----------------------------------------------------------------------
----------
2. Summary of Significant Accounting Policies, Continued
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 ("SFAS No. 123"), 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 will continue 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 ("APB
No. 25").
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. Loss per share for
the years
ended December 31, 1999 and 1998, and for the period from June
12, 1996
(Inception) to December 31, 1999 have been calculated in
accordance with
this pronouncement.
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.
12
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31,
1999
----------------------------------------------------------------------
----------
2. Summary of Significant Accounting Policies, Continued
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 1998 financial
statements
in order to conform to the 1999 financial statement presentation.
3. Property and Equipment
Property and equipment at December 31, 1999 and 1998 consist
of the
following:
<TABLE>
<S> <C> <C>
1999 1998
-------- --------
Computers $ 12,896 $ 3,804
Less: accumulated depreciation (2,224) (370)
-------- --------
Total property and equipment, net $ 10,672 $ 3,434
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1999 and
1998 were
$2,546 and $370, respectively.
13
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31,
1999
And for the Period from June 12, 1996 (Inception) to December 31,
1999
----------------------------------------------------------------------
----------
4. Income Taxes
At December 31, 1999 and 1998, the components of the provision
for income
taxes are as follows:
<TABLE>
<S> <C> <C>
1999 1998
-------- --------
Current tax expense:
Federal -- --
State -- --
-------- --------
-- --
-------- --------
Deferred tax expense:
Federal -- --
State -- --
-------- --------
-- --
-------- --------
Total provision -- --
======== ========
</TABLE>
Significant components of the Company's deferred income tax
assets and
liabilities at December 31, 1999 and 1998 are as follows:
<TABLE>
<S> <C> <C>
1999 1998
--------- ---------
Deferred income tax asset:
Capitalized expenses $ 719,707 $399,012
Tax credits 48,684
15,716
--------- ---------
Total deferred income tax asset 768,391 414,728
Valuation allowance (768,391) (414,728)
--------- ---------
Net deferred income tax liability -- --
========= =========
</TABLE>
The Company, based upon its history of losses during its
development stage
and management's assessment of when operations are anticipated to
generate
taxable income, has concluded that it is more likely than not that
none of
the net deferred income tax assets will be realized through future
taxable
earnings and has established a valuation allowance for them.
14
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31,
1999
And for the Period from June 12, 1996 (Inception) to December 31,
1999
----------------------------------------------------------------------
----------
4. Income Taxes, Continued
Reconciliation of the effective income tax rate to the U.S.
statutory rate
is as follows:
<TABLE>
<S> <C> <C>
1999 1998
------ ------
Tax expense at the U.S. statutory income tax rate 34.0% 34.0%
Increase in the valuation allowance (36.2) (34.2)
Other 2.2 (0.2)
------ ------
Effective income tax rate -- (0.4)%
====== ======
</TABLE>
As of December 31, 1999, the Company has a federal
research and
experimentation credit carryover of $48,684. The credits will
begin to
expire in 2011.
5. Related Party Transactions
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 with a value of $800. The licensing agreement does not
require
any royalty payments. The licensing agreement is for a term of
five years,
with the Company holding options to extend the agreement for two
additional
five-year terms at no additional cost.
Vehicle Acquisition
In 1999 the Company paid $11,000 to an officer and major
shareholder for
rental and purchase of a vehicle. Of the amount paid, $2,700
represented
automobile rental and $8,300 represented the purchase price. The
automobile
was used for business purposes and subsequently sold to an
independent
party for $5,000. The Company recognized a $2,608 loss from the
sale of the
asset.
15
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31,
1999
And for the Period from June 12, 1996 (Inception) to December 31,
1999
----------------------------------------------------------------------
----------
5. Related Party Transactions, Continued
Housing Expenses
In 1999, an officer was provided housing in a residence
owned by a
different officer who is a major shareholder. The Company paid
$15,000 for
the housing and the cost was included in lessee officer's
compensation.
6. Commitments and Contingencies
Patent Technology
In 1996, the Company entered into a technology licensing
agreement that
provided for its use of certain intellectual property described by
a United
States patent. Since obtaining the license rights, the Company has
expended
significant research and development efforts in conjunction
with the
intellectual property that has resulted in significant
modifications and
enhancements. The Company's efforts to date, plus its anticipated
efforts
in the future, raise doubt that the final technology involved
in the
medical device will be protected by the original patent.
Stock Options Dispute
A dispute between the Company and a former director exists
relating to
options to purchase common stock granted by Elast Delaware,
prior to its
merger with the Company. The former director claims the 100,000
options
granted to him by Elast Delaware are options to purchase
shares of the
Company. The Company has reviewed this matter and the
relevant
documentation and believes the former director's claim is
without merit,
and plans to vigorously defend itself in the event legal
action is
commenced.
Employment Taxes
The Company, in its fiduciary capacity as an employer, has the
primary
responsibility for deducting and remitting both the employer and
employee
portions of payroll related taxes to the appropriate governmental
agencies.
Since inception, the Company paid $548,419 in compensation to
three of its
officers upon which taxes were not withheld from these
employees nor
remitted to the appropriate governmental authorities. If, as a
result of
not withholding employment taxes, the employees incur an
income tax
liability that ultimately
16
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31,
1999
And for the Period from June 12, 1996 (Inception) to December 31,
1999
----------------------------------------------------------------------
----------
6. Commitments and Contingencies, Continued
Employment Taxes, Continued
results in a deficiency, the Company becomes contingently
responsible, if
the employees cannot or do not satisfy that liability. Since
inception, the
Company is contingently liable for these taxes, penalties, and
interest,
which approximate $207,000. The employer portion of the payroll
related
taxes has been recorded as a liability by the Company.
Termination Dispute
A dispute exists between the Company and another former
officer and
director of the Company. In December 1999, this former officer and
director
was removed from the Board of Directors and terminated as an
officer. The
Company anticipates legal action may result from this matter. The
Company
intends to vigorously oppose any such action. The Company is
engaged in
discussions with this individual and may consider settlement of
this matter
provided the terms of such settlement are reasonable and in
the best
interests of the Company. However, an estimate of any settlement
or amount
of loss, if any, from an unfavorable outcome from litigation cannot
be made
at this time.
Operating Leases
The Company leases an automobile under an operating lease with a
fixed term
through June 2002. Future minimum lease payments at December 31,
1999 are
as follows:
2000 $ 8,396
2001 8,396
2002 4,198
-------
Total minimum lease payments $20,990
=======
7. Stock Based Compensation
During 1999, the Company's Board of Directors granted options to
purchase
150,000 shares of the Company's common stock to two members of the
Board of
Directors. The options
17
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31,
1999
----------------------------------------------------------------------
----------
7. Stock Based Compensation, Continued
were issued with an exercise price of $1.50 with 100,000 expiring
in March
2003 and 50,000 expiring in July 2002. As the directors are
employees of
the Company, the options were accounted for under APB No. 25. The
exercise
price of the options equaled or exceeded the fair value of the
Company's
common stock at the date of grant. Consequently, no compensation
expense
was recognized in connection with the issuance of these options.
On February 13, 1998, the Board of Directors of Elast Delaware
granted
100,000 options to purchase common stock to each of the three
members of
the Board of Directors of Elast Delaware in recognition of their
service to
it. The 300,000 options have a three year term are exercisable at
$2.00 per
share. Two of the Directors were 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 compensation
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 compensation expense was recognized.
The following summarizes information about stock options of the
Company
granted and outstanding at December 31, 1999 and 1998, and
changes during
the years then ended:
<TABLE>
<S> <C> <C> <C> <C>
1999
1998
---------------------- ---------------------
Exercise Exercise
Options Price Options Price
------- -------- ------- --------
Outstanding at beginning
of year -- -- -- --
Granted 150,000 $1.50 -- --
Exercised -- -- -- --
Forfeited -- -- -- --
------- ----- ----- -----
Outstanding at end of year 150,000 $1.50 -- --
======= ===== ===== =====
</TABLE>
18
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
7. Stock Based Compensation, Continued
The following summarizes information about the stock options of Elast
Delaware granted and outstanding at December 31, 1999 and 1998, and changes
during the years then ended:
<TABLE>
<S> <C> <C> <C> <C>
1999
1998
------------------------ ------------------------
Exercise Exercise
Options Price Options Price
------- -------- ------- --------
Outstanding at beginning
of year 300,000 $ 2.00 -- --
Granted -- -- 300,000 $ 2.00
Exercised -- -- -- --
Forfeited -- -- -- --
------- ------- ------- -------
Outstanding at end of year 300,000 $ 2.00 300,000 $ 2.00
======= ======= ======= =======
</TABLE>
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
the compensation expense for options awards been determined based upon fair
values at the grant dates in accordance with SFAS No. 123, the Company's
pro forma net loss and net loss per share for the year ended December 31,
1999 would have been the amount indicated in the following schedule. There
was no effect on the Company's pro forma net loss and net loss per share
for the year ended December 31, 1998.
The Black-Scholes Option Pricing Model 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.
19
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
7. Stock Based Compensation, Continued
The pro forma effect on net loss for the year ended December 31, 1999 may
not be representative of the actual results had the Company accounted for
the stock options using the fair value method.
Net loss, as reported $ (976,928)
Pro forma net loss $ (1,134,928)
Basic loss per share $ (0.13)
Pro forma net loss per share $ (0.15)
For purposes of the above pro forma calculation, the fair value of options
granted in 1999 and 1998 is estimated using the BSOPM with the weighted
average assumptions listed below.
<TABLE>
<S> <C> <C>
1999 1998
-------- --------
Risk-free interest rate 4.850% 5.000%
Expected stock dividend yield -- --
Expected stock price volatility 0.834 0.834 0.834
Expected life in years 1.000 3.000
</TABLE>
Summary information about the Company's options outstanding at October 31,
1999:
<TABLE>
<S> <C> <C>
The Subsidiary
Company (Elast Delaware)
------------ ----------
Exercise price $ 1.50 $ 2.00
Options outstanding, December 31, 1999 150,000 300,000
Weighted average remaining contractual life 1.1 years 1.1 years
Weighted average exercise price $ 1.50 $ 2.00
Options exercisable, December 31, 1999 150,000 300,000
Weighted average exercise price $ 1.50 $ 2.00
</TABLE>
20
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
8. Stock Purchase Warrants
The Company's private placement offering of stock in 1999 was accomplished
with the sale of 500,000 units comprised of one share of common stock and
one stock purchase warrants. The stock purchase warrants were immediately
exercisable upon issuance. The stock purchase warrants provide for an
exercise price of $2.40 and expire in July 2004. To date, none of the stock
purchase warrants have been exercised.
At December 31, 1999 and 1998, the Company had outstanding warrants to
purchase 500,000 and 40,032 shares of the Company's common stock, at prices
of $2.40 and $.38 per share, respectively. Warrants to purchase 40,032
shares expired on September 30, 1999. At December 31, 1999 and 1998,
500,000 and 40,032 shares of common stock, respectively, were reserved for
this purpose.
9. 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, 1999 and 1998 are as follows:
<TABLE>
<S> <C> <C> <C>
Period from
For the For the June 12, 1996
Year Ended Year Ended (Inception) to
December 31, 1999 December 31, 1998 December 31, 1999
----------------- ----------------- -----------------
Net loss available to common stockholders $ (976,928) $ (1,102,374) $ (2,180,333)
Weighted-average shares, basic and diluted 7,711,880 5,798,194 5,446,490
--------------- --------------- ---------------
Loss per common share, basic and diluted $ (0.13) $ (0.19) $ (0.40)
=============== =============== ===============
</TABLE>
21
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
9. 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.
<TABLE>
<S> <C> <C> <C>
Period from
For the For the June 12, 1996
Year Ended Year Ended (Inception) to
December 31, 1999 December 31, 1998 December 31, 1999
----------------- ----------------- -----------------
Shares of common stock issuable under:
Stock options of the Company 150,000 -- 150,000
Stock options of consolidated subsidiary 300,000 300,000 300,000
Stock purchase warrants of the Company 500,000 40,032 500,000
------- ------- -------
950,000 340,032 950,000
======= ======= =======
</TABLE>
10. 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.
22
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements,
Continued
For Each of the Two Years in the Period Ended December
31, 1999
And for the Period from June 12, 1996 (Inception) to
December 31, 1999
-----------------------------------------------------------------
---------------
10. Stock Transactions, Continued
Shares Issued for Services, Continued
An outside engineer was issued 55,000 shares as additional
recognition
of his 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.
In 1999 the Company issued 76,133 shares for consulting and
research and
development services as follows:
Consultants were issued 26,133 shares as additional
recognition of
their services to the Company. The shares were valued at
their fair
value at the time of issuance, $1.54 per share.
Research and development engineers were issued 50,000
shares as
additional recognition of their services to the Company.
The shares
were valued at fair value at the time of issuance, $1.48 per
share.
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 (the
"warrants") at an exercise price of $0.38 per share. The
warrants were
redeemable at $0.38 per warrant immediately upon issuance,
and expired 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.
23
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements,
Continued
For Each of the Two Years in the Period Ended December
31, 1999
And for the Period from June 12, 1996 (Inception) to
December 31, 1999
-----------------------------------------------------------------
---------------
10. Stock Transactions, Continued
Private Placement Offerings, Continued
In 1999, the Company, in a private placement offering, sold
500,000 units
at $1.00 per unit consisting of one share of common stock
and one stock
purchase warrant ("warrants") at an exercise price of $2.40
per share. The
warrants are exercisable immediately and they will expire in
July 2004. The
proceeds of from the sale of the units were allocated
between the common
stock and warrants based on their relative market values.
In 1999, the Company, in a private placement offering, sold
205,900 shares
of common stock at $1.50 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).
One of the individuals who received 200,000
shares for the
acquisition-related consulting services is an officer of the
Company. 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.
24
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements,
Continued
For Each of the Two Years in the Period Ended December
31, 1999
And for the Period from June 12, 1996 (Inception) to
December 31, 1999
-----------------------------------------------------------------
---------------
10. Stock Transactions, Continued
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.
11. Management's Plan, (Unaudited)
The Company is presently continuing research and
development activities
relating to a non-invasive, patented allergy-testing device
(the "device"),
which the Company owns the rights to develop, test,
manufacture and market.
To further advance the research and development of the
device, and to
validate the scientific principle of bio-voltage measurement,
an extensive
period of testing will commence in conjunction with the
University of
California at San Diego.
Once the initial testing of the device is completed, the
Company intends to
have approximately 10 units of the device manufactured,
which will be
provided to a selected group of physicians and scientists.
The operating
plan is to develop the device on a stand-alone
basis, which is
user-friendly and fully self-contained. Once the device gains
acceptance in
the medical community, the Company anticipates that a patient
home-testing
unit may be developed.
The Company plans to negotiate and enter into marketing
agreements with
appropriate distributors and marketing agents. In addition,
it may acquire
the right to sell or distribute existing products, or
obtain licensing,
marketing, distribution or other rights to compatible
products. However,
other than costs related to the continued development of the
device, the
Company does no anticipate significant expenditures on
acquisition or
development of other products during the next year. The
Company will focus
its initial marketing and distribution efforts on
development and
commercial exploitation of the device. The present plan
is to lease or
license the device to minimize costs and create an informed
and updated
client base.
It may be necessary to raise additional funds to
complete prototype
development and limited clinical trials of the device.
However, if the
device performs as anticipated, the Company's management
believes that they
will be able to raise the funds necessary to begin
production of the
devices for clinical trials and the Food and Drug
Administration approval
process by the sale of the Company's capital stock, debt,
and/or licensing
certain proprietary rights.
25
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements,
Continued
For Each of the Two Years in the Period Ended December
31, 1999
And for the Period from June 12, 1996 (Inception) to
December 31, 1999
-----------------------------------------------------------------
---------------
11. Management's Plan, (Unaudited), Continued
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 device, sufficient
funds may not
be available to enable the device to be completed and brought
to market.
12. Subsequent Events (Unaudited)
Subsequent to year end, the Company initiated an offering
of 1,000,000
shares of its $.001 par value common stock on a best efforts
basis pursuant
to a Registration Statement on Form SB-2 filed with the
Securities and
Exchange Commission. On or about February 23, 2000, the
Company was
informed by the Securities and Exchange Commission that its
Registration
Statement on Form SB-2 was effective and placed 800,000 of
those shares in
CEDE & Company through DTC, one of the world's
largest securities
depository and a national clearinghouse for the settlement
of trades in
corporate and municipal securities. DTC is a limited purpose
trust company
under New York Banking Law, a member of the Federal Reserve
System, and a
registered clearing agency with the Securities and Exchange
Commission.
Additionally, the Company placed (i) 50,000 of those
shares with Xcell
Associates, a market maker; (ii) 50,000 of those shares with
NC Capital, a
market maker; and (iii) 33,334 of those shares with ARDT,
an investment
banker. On or about March 7, 2000, the Company was
informed by the
Securities and Exchange Commission that the financial
statements filed with
the Company's Registration Statement on Form SB-2 were not
current, and
that the Company must file a Post-Effective Amendment
containing more
recent financial statements and a Consent of Auditors to
use those more
recent financial statements. The Company directed that the
800,000 shares
in DTC be returned to certificate form and none of those
shares were
delivered to any prospective purchaser. As of March 13,
2000, the shares
placed with Xcell Associates, NC Capital and ARDT had not
been sold or
distributed to any person.
Elast Technologies, Inc.
(A Company in the Development Stage)
Index to the Consolidated Financial Statements
(Unaudited)
As of June 30, 2000 and
For Each of the Three and Six Month Periods Ended June 30, 2000
and 1999 and
For the Period from June 12, 1996 (Inception) to June 30, 2000
Consolidated Financial Statements (Unaudited) of Elast
Technologies, Inc.:
<TABLE>
<S> <C>
Consolidated Balance Sheet
(Unaudited), June 30, 2000 1
Consolidated Statements of
Operations (Unaudited) for Each
of the Three and Six Month
Periods Ended June 30, 2000 and
1999 and for the Period from
June 12, 1996 (Inception) to
June 30, 2000 2
Consolidated Statements of
Shareholders' Deficit
(Unaudited) for the Period from
June 12, 1996 (Inception) to
June 30, 2000 3
Consolidated Statements of Cash
Flows (Unaudited) for Each of
the Six Month Periods Ended
June 30, 2000 and 1999 and for
the Period from June 12, 1996
(Inception) to June 30, 2000 6
Notes to the Consolidated
Financial Statements
(Unaudited) 8
</TABLE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Balance Sheets
(Unaudited)
June 30, 2000
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and equivalents $258,524
Advances to officer 40,677
Deposit 18,000
Total current assets 317,201
Property and equipment, net 26,111
License, net 160
Total assets $343,472
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable, trade $ 5,543
Accrued payroll taxes 46,007
Accrued interest 12,266
Total current liabilities 63,816
Notes payable 450,832
Total liabilities 514,648
Shareholders' deficit:
Common stock, $.001 par value;
25,000,000 shares authorized;
8,791,215 shares issued and
outstanding at June 30, 2000 8,791
Additional paid-in capital 3,024,061
Additional paid-in capital
for warrants 205,000
Deficit accumulated during
the development stage (3,409,028)
Total shareholders' deficit (171,176)
Total liabilities and shareholders' deficit $343,472
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Operations
(Unaudited)
For Each of the Three and Six Month Periods Ended June 30, 2000 and 1999 and
For the Period from June 12, 1996 (Inception) to June 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C>
Period from
June 12, 1996
For the Three Months Ended June 30, For the Six Months Ended June 30, (Inception) to
2000 1999 2000 1999 June 30, 2000
Operating costs:
Officers compensation $ 16,632 $13,400 $397,974 $ 27,300 $ 946,393
Research and development 103,459 793 141,744 70,985 647,809
Legal and professional 98,282 27,411 187,842 28,766 826,219
Investor relations 30,521 15,660 70,663 56,060 395,504
Financing consulting fee - - 219,675 - 279,675
Other operating costs and
expenses 128,625 106,485 219,296 179,029 353,209
Total operating costs 377,519 163,749 1,237,194 362,140 3,448,809
Interest expense 12,295 - - - 12,295
Interest income (6,079) (2,281) (8,499) (3,975) (39,781)
Net loss $383,735 $161,468 $1,228,695 $358,165 $3,409,028
Loss per common
share - basic
and diluted $ 0.04 $ 0.02 $ 0.14 $ 0.05 $ 0.59
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Shareholders' Deficit
(Unaudited)
For the Period from June 12, 1996 (Inception) to June 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Elast Technologies Elast Technologies, Inc.
Corporation (Formerly Med Mark, Inc.) Detachable
(A Delaware Corporation) (A Nevada Corporation) Price Additional Stock
Common Common Common Common Per Paid-in Purchase
Shares Stock Shares Stock Share Capital Warrants
Balance, June 12, 1996 - - - - -
(inception)
Shares issued for the medical
device license 3,200,000 $ 3,200 - - $(2,400) -
Shares issued for legal 21,332 21 - - $ 0.31 6,698 -
services
Contribution of funds expended
by the major shareholder
on the Company's behalf - - - - 4,167 -
Shares issued in private 546,672 547 - - 0.38 204,453 -
placement
Net loss from inception to
December 31, 1996 - - - - - -
Balance, December 31, 1996 3,768,004 3,768 - - 212,918 -
Contribution of funds expended
by the major shareholder on
the Company's behalf - - - - 1,500 -
Net loss for the year ended
December 31, 1997 - - - - - -
Balance, December 31, 1997 3,768,004 3,768 - - $214,418 -
</TABLE>
Continued
<TABLE>
<S> <C> <C> <C> <C>
Deficit Less:
Accumulated Common
During the Stock
Development Subscription
Stage Subtotal Receivable Total
Balance, June 12, 1996 - - - -
(inception)
Shares issued for the medical
device license - $ 800 - $ 800
Shares issued for legal - 6,719 - 6,719
services
Contribution of funds expended
by the major shareholder
on the Company's behalf - 4,167 - 4,167
Shares issued in private - 205,000 $ (10,000) 195,000
placement
Net loss from inception to
December 31, 1996 $ (38,309) (38,309) - (38,309)
Balance, December 31, 1996 (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
Net loss for the year ended
December 31, 1997 (62,722) (62,722) - (62,722)
Balance, December 31, 1997 $ (101,031) $ 117,155 $ (10,000) $ 107,155
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Elast Technologies Elast Technologies,
Inc.
Corporation (Formerly Med Mark, Detachable
Inc.)
(A Delaware Corporation) (A Nevada Corporation) Price Additional Stock
Common Common Common Common Per Paid-in Purchase
Shares Stock Shares Stock Share Capital Warrants
Balance, December 31, 1997 3,768,004 $ 3,768 - - $ 214,418 -
Shares outstanding prior
to the reorganization - - 1,220,000 $ 1,220 29,506 -
Shares issued in private
placement 394,000 394 - - $ 0.50 196,606 -
Payment of receivable
arising
from issuance of common - - - - - - -
stock
Shares issued on the
exercise
of warrants 506,640 507 - - 0.38 189,483 -
Shares issued to consultant
in connection with the
reorganization 1,007,472 1,007 - - 0.38 376,791 -
Shares issued and
surrendered
in the acquisition of Elast
Technologies, Inc. (a
Nevada
Corporation) (reverse (5,676,116) (5,676) 5,676,116 5,676 - -
merger)
Shares issued for consulting
services, engineering
services,
and employee compensation - - 270,000 270 1.51 407,095 -
Shares issued to an existing
shareholder to correct a
stock
issuance error - - 13,332 13 (13) -
Net loss for the year ended
December 31, 1998 - - - - - -
Balance, December 31, 1998 - - 7,179,448 $ 7,179 $ -
1,413,886
</TABLE>
continued
<TABLE>
<S> <C> <C> <C> <C>
Deficit Less:
Accumulated Common
During the Stock
Development Subscription
Stage Subtotal Receivable Total
Balance, December 31, 1997 $ (101,031) $ 117,155 $ (10,000) $ 107,155
Shares outstanding prior
to the reorganization - 30,726 - 30,726
Shares issued in private
placement - 197,000 - 197,000
Payment of receivable arising
from issuance of common stock - 10,000 10,000
Shares issued on the exercise
of warrants - 189,990 - 189,990
Shares issued to consultant
in connection with the
reorganization - 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 - 407,365 - 407,365
Shares issued to an existing
shareholder to correct a
stock
issuance error - - - -
Net loss for the year ended
December 31, 1998 (1,102,374) (1,102,374) - (1,102,374)
Balance, December 31, 1998 $ (1,203,405) $ 217,660 - $ 217,660
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Elast Technologies Elast Technologies, Inc.
Corporation (Formerly Med Mark, Detachable
Inc.)
(A Delaware Corporation) (A Nevada Corporation) Price Additional Stock
Common Common Common Common Per Paid-in Purchase
Shares Stock Shares Stock Share Capital Warrants
Balance, December 31, 1998 - - 7,179,448 $ 7,179 $ 1,413,886 -
Shares issued in private
placement - - 205,900 206 $ 1.50 308,044 -
Shares issued in private
placement - - 500,000 500 0.59 294,482 $ 205,000
Shares issued for
consulting
services - - 26,133 26 1.54 40,126 -
Shares issued for research
and development services - - 50,000 50 1.48 73,950 -
Net loss for the year
ended
December 31, 1999 - - - - - -
Balance, December 31, 1999 - - 7,961,481 7,961 2,130,488 205,000
Shares issued in private
placement - - 273,334 274 1.30 356,394 -
Shares issued, currently
in
litigation - - 266,000 266 0.00 (266) -
Shares issued as officer
compensation - - 144,000 144 2.01 289,516 -
Shares issued for
consulting
services - - 50,000 50 1.77 88,400 -
Shares issued for
consulting
services - - 56,400 56 2.33 131,169 -
Shares issued in
settlement
of litigation - - 40,000 40 0.71 28,360 -
Net loss for the six
months
ended June 30, 2000 - - - - - -
Balance, June 30, 2000
(unaudited) - - 8,791,215 $ 8,791 $ 3,024,061 $ 205,000
</TABLE>
Continued
<TABLE>
<S> <C> <C> <C> <C>
Deficit Less:
Accumulated Common
During the Stock
Development Subscription
Stage Subtotal Receivable Total
Balance, December 31, 1998 $(1,203,405) $ 217,660 - $ 217,660
Shares issued in private
placement - 308,250 - 308,250
Shares issued in private
placement - 499,982 - 499,982
Shares issued for
consulting
services - 40,152 - 40,152
Shares issued for research
and development services - 74,000 - 74,000
Net loss for the year
ended
December 31, 1999 (976,928) (976,928) - (976,928)
Balance, December 31, 1999 (2,180,333) 163,116 - 163,116
Shares issued in private
placement - 356,668 - 356,668
Shares issued, currently
in
litigation - - - -
Shares issued as officer
compensation - 289,660 - 289,660
Shares issued for
consulting
services - 88,450 - 88,450
Shares issued for
consulting
services - 131,225 - 131,225
Shares issued in
settlement
of litigation - 28,400 - 28,400
Net loss for the six
months
ended June 30, 2000 (1,228,695) (1,228,695) - (1,228,695)
Balance, June 30, 2000
(unaudited) $(3,409,028) $ (171,176) - $(171,176)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Cash Flows
(Unaudited)
For Each of the Six Month Periods Ended June 30, 2000 and 1999 and
For the Period from June 12, 1996 (Inception) to June 30, 2000
<TABLE>
<S> <C> <C> <C>
Period From
For the For the June 12, 1996
Six Months Ended Six Months Ended (Inception) to
June 30, 2000 June 30, 1999 June 30, 2000
Cash flows from operating activities:
Net loss $ (1,228,695) $ (358,165) $(3,409,028)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Depreciation and amortization 2,401 998 5,877
Issuance of stock for services 537,735 62,278 1,443,769
Loss on sale of asset - - 2,608
Increase (decrease) in liabilities:
Advances to officer (40,677) - (40,677)
Deposit (18,000) - (18,000)
Accounts payable, trade (9,070) (8,512) 5,544
Accrued payroll taxes 7,109 - 46,007
Accrued interest 12,266 - 12,266
Cash used in operating
activities (736,931) (303,401) (1,951,634)
Cash flows provided by (used in) investing activities:
Purchase of equipment (17,760) (17,717) (38,957)
Sale of equipment - - 5,000
Cash used in investing activities (17,760) (17,717) (33,957)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Cash Flows
(Unaudited)
For Each of the Six Month Periods Ended June 30, 2000 and 1999 and
For the Period from June 12, 1996 (Inception) to June 30, 2000
<TABLE>
<S> <C> <C> <C>
Period from
For the For the June 12, 1996
Six Months Ended Six Months Ended (Inception) to
June 30, 2000 June 30, 1999 June 30, 2000
Cash flows provided by financing activities:
Acquisition of MedMark, Inc. - - $ 30,726
Proceeds from the exercise of warrants - - 189,990
Payment of common stock
subscription receivable - - 10,000
Proceed from the issuance of notes payable $ 450,832 - 450,832
Proceeds from the issuance of common stock356,668 $ 308,250 1,556,900
Contribution to additional paid-in capital - - 5,667
Cash provided by financing activities 807,500 308,250 2,244,115
Net increase (decrease) in cash 52,809 (12,868) 258,524
Cash at beginning of period 205,715 226,818 -
Cash at end of period $ 258,524 $ 213,950 $ 258,524
Supplemental Disclosure of Cash Flow Information
Period from
For the For the June 12, 1996
Six Months Ended Six Months Ended (Inception) to
June 30, 2000 June 30, 1999 June 30, 2000
Interest paid - - $ 1,375
Income taxes paid - - $ 1,973
Supplemental Schedule of Non-Cash Investing and Financing Activities
Assets acquired in non-cash transactions:
Acquisition of medical device license - - $ 800
Increase in common stock subscription receivable - - $
10,000
Issuance of common stock - - $ (10,800)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements
(Unaudited)
For Each of the Three and Six Month Periods Ended June 30, 2000
and 1999 and
For the Period from June 12, 1996 (Inception) to June 30, 2000
1. Basis of Presentation
In the opinion the management of Elast Technologies, Inc. (a
development stage company) (the "Company"), the accompanying
unaudited condensed financial statements contain all
adjustments, consisting of only normal recurring adjustments
necessary to present fairly its financial position as of June
30, 2000, the results of its operations for the three and six
months ended June 30, 2000 and 1999 and for the period from
June 12, 1996 (inception) to June 30, 2000, and the statements
of shareholders' deficit and cash flows for the six month
period ended June 30, 2000 and for the period from June 12,
1996 (inception) to June 30, 2000.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations promulgated by the
Securities and Exchange Commission. The interim unaudited
consolidated financial statements should be read in
conjunction with the financial statements and footnotes
included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999.
2. Development Stage Operations
Elast Technologies, Inc. (a development stage company) has a
limited operating history with no revenues and no products or
operable technology ready for the market. The Company is
engaged in the ongoing 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 of
the medical device and the raising of equity 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.
3. Loss Per Common Share
In the year ended June 30, 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.
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements
(Unaudited)
For Each of the Three and Six Month Periods Ended June 30, 2000 and 1999 and
For the Period from June 12, 1996 (Inception) to June 30, 2000
3. Loss Per Common Share, Continued
The computations of basic and diluted loss per common share for the periods
follows.
<TABLE>
<S> <C> <C>
For the For the
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
Net loss available to common stockholders $ 383,735 $
161,468
Weighted-average shares, basic and diluted8,764,402
7,274,406
Loss per common share, basic and diluted $ 0.04 $
0.02
</TABLE>
<TABLE>
<S> <C> <C> <C>
Period
from
For the For the June
12, 1996
Six Months Ended Six Months Ended
(Inception) to
June 30, 2000 June 30, 1999 June
30, 2000
Net loss available to common
stockholders $ 1,228,695 $ 358,165 $ 3,409,028
Weighted-average shares, basic
and diluted 8,506,848 7,308,527 5,822,831
Loss per common share, basic
and diluted $ 0.14 $ 0.05 $ 0.59
</TABLE>
4. Notes Payable
Uncollateralized
2000
Notes payable to two individuals, each
with an effective interest rates of
9% per annum, maturing on June 30, 2002.
Interest payments are due quarterly. $450,832
Total notes payable 450,832
Less: current maturities -
Long term portion of notes payable $ 450,832
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements
(Unaudited)
For Each of the Three and Six Month Periods Ended June 30, 2000 and
1999 and
For the Period from June 12, 1996 (Inception) to June 30, 2000
5. Stock Transactions
Shares Issued for Officer Compensation
In 2000, the Company issued 144,000 shares to officers as
compensation. One officer was issued 19,000 shares for services
provided and another was issued 125,000 shares as part of a
termination settlement. The shares were valued at fair value at
the time of issuance, $2.01 per share.
Private Placement Offering
In 2000, the Company, in a private placement offering, sold 273,334
shares of common stock at $1.30.
Shares Issued for Services
In 2000, the Company issued 106,400 shares for finance consulting
service as follows:
Consultants were issued 50,000 shares for their finance
consulting services. The shares were valued at their fair value
at the time of issuance, $1.77 per share.
Consultants were issued 56,400 shares for their finance
consulting and public relations services. The shares were
valued at their fair value at the time of issuance, $2.33 per
share.
Shares Issued, Currently in Litigation
In December 1999, the Company entered into a Consulting Agreement
("Agreement") with Crescent Partners, L.P. ("Crescent") whereby
Crescent was to act as a finder of capital and a public relations
consultant. Pursuant to the Agreement, the Company issued, in
February 2000, 800,000 shares of the Company's common stock to
Crescent. In turn, Crescent was to find investors to purchase
those shares at prices approved by the Company. Subsequently,
Crescent sold a portion of the common stock without the Company's
approval and diverted the proceeds from the Company. The Company
filed suit against Crescent on March 30, 2000 for breach of duty
and contract. The Company also filed an injunction to recover the
800,000 shares and through that injunction recovered 665,000 of the
shares. The remaining shares are recorded at par value given the
outcome of the litigation is uncertain.
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements
(Unaudited)
For Each of the Three and Six Month Periods Ended June 30, 2000 and
1999 and
For the Period from June 12, 1996 (Inception) to June 30, 2000
5. Stock Transactions, Continued
Shares Issued as Settlement of Termination Dispute
A dispute arose between the Company and a former officer and
director of the Company. In December 1999, this former officer and
director was removed from the Board of Directors and terminated as
an officer. The Company engaged in discussions with this individual
seeking a settlement of this matter provided the terms of such
settlement were reasonable and in the best interests of the
Company. In this connection, the Company entered into an agreement
in which the Company issued 125,000 shares of the Company's common
stock as settlement of the termination dispute between the Company
and a former officer and director of the Company regarding his
removal from the Board of Directors and termination as an officer.
The Company recognized compensation expense of $265,625 in the
first quarter of 2000 based on the fair value of the shares at the
time of issuance. Subsequently, the Company believes the former
officer breached the settlement agreement and, in August 2000,
filed suit against him.
Shares Issued as Settlement of Stock Option Dispute
A dispute between the Company and a former director arose relating
to options to purchase common stock granted by Elast Delaware,
prior to its merger with the Company. The former director claimed
the 100,000 options granted to him by Elast Delaware were options
to purchase shares of the Company. The Company reviewed this matter
and the relevant documentation and believed the former director's
claim is without merit. To resolve this matter, the Company issued
40,000 shares of the Company's common stock in settlement of this
dispute. The Company recognized a settlement expense of $28,400
based on the fair value of the shares at the time of issuance.
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 shares of the Company's common
stock offered hereby has been passed upon for the Company by Stepp &
Beauchamp LLP, located in Newport Beach, California.
EXPERTS
The consolidated balance sheets of Elast Technologies, Inc. as of
December 31, 1999 and 1998 and the consolidated statements of
operations, shareholders' equity and cash flows for each of the two
years in the period ended December 31, 1999 and for the period June
12, 1996 (inception) through December 31, 1999 included herein and
elsewhere in this registration statement have been audited by Kelly
& Company, independent public accountants, for the periods and to
the extent set forth in their report appearing herein and
elsewhere in this registration statement. Such financial
statements have been so included in reliance upon such report 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 its
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.
25
<TABLE> TABLE OF CONTENTS
<S> <C> <C>
Item Number Caption
Page
----------- -------
3. Summary Information.....................................................................3
Risk Factors.............................................................................5
We Have a Limited Operating History.............................................6
Regulatory Approvals May Not Be Granted.........................................6
We Are in a Very Competitive Industry...........................................7
We Must Comply with Environmental Laws..........................................7
We Have No Product Liability Insurance..........................................7
Future Capital Needs and Uncertainty of Additional Funding......................8
Limited Protection of Proprietary Technology....................................8
We Must Adapt to Rapid Technological Change.................................... 9
We Rely on Our Key Personnel................................................... 9
Conflicts of Interest.......................................................... 9
Limitation of Liability of Officers and Directors.............................. 9
Penny Stock Regulation......................................................... 9
Control by Existing Shareholders; Anti-Takeover Provisions......................10
Securities Market Factors.......................................................10
No Foreseeable Dividends........................................................10
No Assurances of Revenue or Operating Profits...................................10
Federal Income Tax Consequences.................................................10
Impact of the Year 2000 (Y2K Issues)............................................10
4. Use of Proceeds......................................................................... 11
5. Determination of Offering Price..........................................................11
6. Dilution............................................................................................11
7. Selling Stockholders.....................................................................12
8. Plan of Distribution................................................................... .12
9. Legal Proceedings........................................................................14
10. Directors, Executive Officers, Promoters and Control Persons.............................14
11. Security Ownership of Certain Beneficial Owners and Management...........................16
12. Description of Securities................................................................17
13. Interest of Named Experts and Counsel....................................................17
14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities......17
15. Organization Within Last Five Years......................................................18
16. Description of Business..................................................................18
17. Management's Discussion and Analysis of Financial Condition and Results of Operations....20
18. Description of Property..................................................................22
19. Certain Relationships and Related Transactions...........................................23
20. Market for Common Equity and Related Stockholder Matters.................................23
21. Executive Compensation...................................................................24
22. Financial Statements.....................................................................24
23. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....53
Legal Matters............................................................................53
Experts....................................................................................................53
Additional Information...................................................................53
</TABLE>
26
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. The estimated expenses of issuance and
distribution are set forth below.
Registration Fees Approximately
$2,640.00
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
$1.50 per unit, in a private placement transaction in reliance upon
the exemptions from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended, which
exemptions are specified in Section 4(2) of the Securities Act of
1933, as amended, and Rule 506 of Regulation D promulgated by the
Securities and Exchange Commission. Specifically, the offer was
made to "accredited investors", as that term is defined under
applicable federal and state securities laws, and no more than 35 non-
accredited investors. Each unit was comprised of one share of Elast
Delaware's unregistered and restricted one mill ($.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 the units.
27
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 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 or will be 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.
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)
15. Letter on Unaudited Interim Financial
Information**
21. Subsidiaries of the Registrant**
23.1 Consent of Auditors
23.2 Consent of Counsel*
24. Power of Attorney****
27. Financial Data Schedule****
28
* Previously filed as exhibits to Amendment No. 1 to Registration
Statement
on Form 10-SB filed with the SEC 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.
**** Previously filed as an exhibit to the Company's Form SB-2 filed
with the
SEC on December 7, 1999.
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 theRegistrationStatement (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 maximumaggregateoffering 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.
29
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 this Registration
Statement 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 July 14, 2000.
Elast Technologies, Inc.,
a Nevada corporation
By: /s/ Thomas Krucker
-----------------------
--
Thomas Krucker
Its: President and
Secretary
In accordance with the requirements of the Securities Act of
1933, this registration statement was signed by the following persons
in the capacities and on the dates stated.
ELAST TECHNOLOGIES, INC.
Thomas Krucker September 26, 2000
-------------------------------
Director
Robert D. Milne September 26, 2000
-------------------------------
Director
Eduardo Daniel Jimenez Gonzalez September 26, 2000
-------------------------------
Director
30
