SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, for the quarter ended June 30, 2000
Commission File No. _____
ELAST TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0380544
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2505 Rancho Bel Air, Las Vegas, Nevada 89107
(Address of registrant's principal executive offices) (Zip Code)
702.878.8310
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant (1) has filed all reports required by Section 13 or
15(d) of the Securities Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's only class of Common Stock,
$.001 par value, was 8,791,215 at June 30, 2000.
Transitional Small Business Disclosure format (check one):
Yes [ ] No [X ]
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
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
<PAGE>
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.:
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
<PAGE>
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
--------------------------------------------------------------------------------
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
===========
The accompanying notes are an integral part of the
consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
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
------------------------------------------------------------------------------------------------------------------------------------
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
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
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
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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
Elast Technologies, Inc.
Elast Technologies Corporation (Formerly Med Mark, Inc.)
(A Delaware Corporation) (A Nevada Corporation) Price Additional
---------------------- --------------------
Common Common Common Common Per Paid-in
Shares Stock Shares Stock Share Capital
------ ----- ------ ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 12, 1996 (inception) -- -- -- -- -- --
Shares issued for the medical device
license 3,200,000 $ 3,200 -- -- -- $ (2,400)
Shares issued for legal services 21,332 21 -- -- $ 0.31 6,698
Contribution of funds expended by the
major shareholder on the Company's behalf -- -- -- -- -- 4,167
Shares issued in private placement 546,672 547 -- -- 0.38 204,453
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
<CAPTION>
Deficit Less:
Detachable Accumulated Common
Stock During the Stock
Purchase Development Subscription
Warrants Stage Subtotal Receivable Total
-------- ----- -------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balance, June 12, 1996 (inception) -- -- -- -- --
Shares issued for the medical device
license -- -- $ 800 -- $ 800
Shares issued for legal services -- -- 6,719 -- 6,719
Contribution of funds expended by the
major shareholder on the Company's behalf -- -- 4,167 -- 4,167
Shares issued in private placement -- -- 205,000 $ (10,000) 195,000
Net loss from inception to December 31, 1996 -- -- $ (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) --
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.
3
<PAGE>
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>
<CAPTION>
Elast Technologies, Inc.
Elast Technologies Corporation (Formerly Med Mark, Inc.)
(A Delaware Corporation) (A Nevada Corporation) Price Additional
---------------------- --------------------
Common Common Common Common Per Paid-in
Shares Stock Shares Stock Share Capital
------ ----- ------ ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
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 merger) (5,676,116) (5,676) 5,676,116 5,676 -- --
Shares issued for consulting
services, engineering services, and
employee compensation -- -- 270,000 270 1.51 407,095
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
<CAPTION>
Deficit Less:
Detachable Accumulated Common
Stock During the Stock
Purchase Development Subscription
Warrants Stage Subtotal Receivable Total
-------- ----- -------- ---------- -----
<S> <C> <C> <C> <C> <C>
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.
4
<PAGE>
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>
<CAPTION>
Elast Technologies, Inc.
Elast Technologies Corporation(Formerly Med Mark, Inc.)
(A Delaware Corporation) (A Nevada Corporation) Price Additional
----------------------- ------------------------------
Common Common Common Common Per Paid-in
Shares Stock Shares Stock Share Capital
------ ----- ------ ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
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
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
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
<CAPTION>
Deficit Less:
Detachable Accumulated Common
Stock During the Stock
Purchase Development Subscription
Warrants Stage Subtotal Receivable Total
-------- ----- -------- ---------- -----
<S> <C> <C> <C> <C> <C>
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 $ 205,000 -- 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 205,000 (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) -- --
Balance, June 30, 2000 (unaudited) $ 205,000 $(3,409,028) $(171,176) -- $(171,176)
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
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>
<CAPTION>
For the For the June 12, 1996
Six Months Ended Six Months Ended (Inception) to
June 30, 2000 June 30, 1999 June 30, 2000
---------------- ---------------- -------------
<S> <C> <C> <C>
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.
6
<PAGE>
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>
<CAPTION>
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
----------- ----------- -----------
<S> <C> <C> <C>
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 stock 356,668 $ 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
<CAPTION>
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
----------- ----------- -----------
<S> <C> <C> <C>
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.
7
<PAGE>
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.
8
<PAGE>
3. Loss Per Common Share, Continued
The computations of basic and diluted loss per common share for the periods
follows.
<TABLE>
<CAPTION>
For the For the
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Net loss available to common stockholders $ 383,735 $ 161,468
Weighted-average shares, basic and diluted 8,764,402 7,274,406
Loss per common share, basic and diluted . $ 0.04 $ 0.02
<CAPTION>
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
------------- ------------- -------------
<S> <C> <C> <C>
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
<TABLE>
<CAPTION>
2000
<S> <C>
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
========
</TABLE>
9
<PAGE>
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.
10
<PAGE>
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 the dispute. The Company recognized a settlement expense of
$28,400 based on the fair value of the shares at the time of issuance.
11
<PAGE>
Item 2. Plan of Operation
THIS REPORT SPECIFIES FORWARD-LOOKING STATEMENTS OF MANAGEMENT OF THE COMPANY
("FORWARD-LOOKING STATEMENTS") INCLUDING, WITHOUT LIMITATION, FORWARD-LOOKING
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS AND FUTURE
STRATEGIES. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE
HAPPENING OF FUTURE EVENTS AND ARE NOT BASED ON HISTORICAL
1
<PAGE>
FACTS. FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-
LOOKING TERMINOLOGY, SUCH AS "COULD", "MAY", "WILL", "EXPECT", "SHALL",
"ESTIMATE", "ANTICIPATE", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", "INTEND"
OR SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE
FORWARD- LOOKING STATEMENTS SPECIFIED IN THIS REPORT HAVE BEEN COMPILED BY
MANAGEMENT OF THE COMPANY ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND
CONSIDERED BY MANAGEMENT TO BE REASONABLE. FUTURE OPERATING RESULTS OF THE
COMPANY, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR
WARRANTY IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THIS REPORT REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO UNCERTAINTY
AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER
CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA AND
OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM AND
AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE EXTENT
THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM
ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED ON
THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. IN ADDITION, THOSE
FORWARD-LOOKING STATEMENTS HAVE BEEN COMPILED AS OF THE DATE OF THIS REPORT AND
SHOULD BE EVALUATED WITH CONSIDERATION OF ANY CHANGES OCCURRING AFTER THE DATE
OF THIS REPORT. NO ASSURANCE CAN BE GIVEN THAT ANY OF THE ASSUMPTIONS RELATING
TO THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS REPORT ARE ACCURATE, AND THE
COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
Overview. We did not have revenue from operations in the last fiscal year and
through the second quarter of 2000. Officers' compensation, in the aggregate,
increased from $13,400 during the second quarter of 1999 to $16,632 during the
second quarter of 2000. Through the first two quarters of fiscal 2000, we issued
144,000 shares of our common stock to officers as compensation. One officer was
issued 19,000 shares of our common stock for services provided and another was
issued 125,000 shares of our common stock as part of a termination settlement.
The shares were valued at the fair value at the time of issuance, which was
$2.01 per share.
Research and development expenses increased from $793 during the three month
period ended June 30, 1999 to $103,459 during the three month period ended June
30, 2000. Legal and professional fees increased from $27,411 during the three
month period ended June 30, 1999 to $98,282 during the three month period ended
June 30, 2000. Investor relations costs also increased from $15,660 during the
three month period ended June 30, 1999 to $30,521 during the three month period
ended June 30, 2000. Through the first two quarters of fiscal 2000, we issued
106,400 shares of our common stock for finance consulting services.
We suffered a net loss from operating activities of $383,735 for the three month
period ended June 30, 2000, as compared to a net loss of $161,468 for the three
month period ended June 30, 1999.
For the three months ended June 30, 2000, our net loss available to common
stockholders was $383,735, as compared to a net loss of $161,468 for the three
months ended June 30, 1999. The loss per common share, basic and diluted, for
the three months ended June 30, 2000 was $0.04 per share, as compared to a loss
per common share of $0.02 per share for the three months ended June 30, 1999.
The loss per common share for the six months ended June 30, 2000, was $0.14 per
share, as compared to a loss per common share of $0.05 per share
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for the six months ended June 30, 1999. The loss per common share for the period
from June 12, 1996, our date of inception, to June 30, 2000, was $0.59 per
share.
Our Plan of Operation for Next 12 Months. We are a research and development
enterprise whose primary business is the development of the Electronic Allergo
Sensitivity Test (ELAST Device(TM)). The ELAST Device(TM) is a patented
non-invasive allergy-testing device that is expected to offer physicians
accurate and immediate diagnoses of allergies and sensitivities without the
pain, expense, or time associated with current methods. The ELAST Device(TM) is
based upon the clinical observation that the normal electrical flow of the body
is interrupted when it is exposed to a substance to which it is sensitive or
allergic. The ELAST Device(TM) is being designed to use electronic technology to
measure the interruption of the body's electrical flow, thereby providing an
accurate assessment of sensitivity. In the last two fiscal quarters, significant
developments in the ELAST Device(TM)'s capabilities have resulted from the
Company's research and development efforts. Specifically, the Company believes
its tests demonstrate that the ELAST Device(TM) is capable of successfully
isolating the electrical energy signal emanating from the human body.
Our executive offices are located at 2505 Rancho Bel Air, Las Vegas, Nevada
89107. On February 1, 2000, we relocated our research and development facilities
to San Diego's Center for Applied Competitive Technologies. Our telephone number
in Las Vegas is 702.878.8310.
On April 14, 2000, we announced that we had entered into a tentative merger
agreement with Bioelectronics Corp. , a privately held research and development
company based in Maryland which also utilizes electronic technology to address
bio-electric medical needs. The merger agreement was subject to completion and
execution of final merger documents, and also subject to shareholder approval.
In contemplation that the merger would be consummated, Andrew Whelan, the Chief
Executive Officer of Bioelectronics Corp., began serving as our chief operating
officer, and began using our research and development facilities to further
development of products derived from Bioelectronics Corp.'s patented Portic
Electronic Bandage. Mr. Whelan recently informed us that Biolectronics Corp. may
no longer desire to consummate the merger or, in the alternative, may desire to
modify the tentative merger agreement. We are continuing to negotiate with Mr.
Whelan and Bioelectronics Corp. regarding the proposed merger, because we
believe our proposed merger with Bioelectronics Corp. would result in shared
technology and marketing expertise. Both companies are involved in similar
electromedical research and both are dedicated to the provision of convenient,
reliable and cost- effective medical care. The expanding use of Transcutaneous
Nerve Stimulation (TENS) for pain mitigation, the effective use of electricity
in non-union bone fusion, and the growing body of research establishing the
body's own use of electrical circuits have driven the advancement of
electromedicine in the fields in which both we and Bioelectronics Corp. are
concentrating our research and development activities.
Liquidity and Available Cash for Operations. We believe our current cash
resources are sufficient to fund our research and development activities
relating to the ELAST Device(TM) over the next 3 months, but we may require
additional capital as early as the fourth quarter of fiscal 2000 if our current
spending on research and development continues at its present rate.
Specifically, in the first six months of fiscal 2000, we spent cash in the
amount of $754,691.00, which is approximately $126,000.00 per month. However, at
June 30, 2000, our cash and equivalents totaled $258,524, with liabilities of
$514,648. Those liabilities included accounts payable of $5,543, accrued payroll
taxes of $46,007, and accrued interest expense of $12,266. At June 30, 2000, we
had outstanding notes payable totaling $450,832. Those notes are payable to two
individuals, and each note has an effective interest rate of 9% per annum,
maturing on June 30, 2002. Interest payments are due quarterly. The notes also
may be converted into shares of our common stock.
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Manufacturing and Marketing Our Products. We anticipate subcontracting the
manufacture and assembly of the ELAST Device(TM) and do not expect to purchase a
manufacturing facility or equipment at this time. The principal components of
the ELAST Device(TM) consist of electronic parts that are readily available,
eliminating supply problems. Our operations are not effected by seasonal
factors.
Employees. We are currently using researchers and consultants to staff our
research facilities. We may add additional researchers and consultants, or may
hire our existing researchers and consultants as employees if the American
clinical testing of the ELAST Device(TM) is successful. We are not able to
provide a reasonable estimate of the number of any additional researchers,
consultants or employees which may be needed at this time.
Summary of Research and Development Activities. A "medical device" is defined by
Section 201(h) of the Food, Drug and Cosmetic Act, Title 21 United States Code
Section 321 as an instrument, apparatus, or machine which is intended for use in
the diagnosis of disease or other conditions, or in the cure, mitigation,
treatment, or prevention of disease in man and other animals. Confusion
sometimes exists between unregulated consumer products and medical devices.
Products are not considered medical devices if they have general utility 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(TM)
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(TM) 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(TM)
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(TM) may be subject to premarket notification and,
therefore, subject to significant delay before being offered for sale, which
would have a material adverse effect on the financial condition of the Company.
Obtaining such approvals and maintaining ongoing compliance with these
requirements can require the expenditure of significant resources. To date, the
Company has not determined what procedures, if any, will be required in this
regard and has not begun any of these procedures. The Company is currently
investigating the possibility that the ELAST Device(TM) falls in a category for
which FDA approval has already been given. The Company anticipates that the
ELAST Device(TM) may be included in such a category, but research is currently
being conducted by the Company to determine the appropriate regulatory
requirements. In addition, regulatory testing and approval would require
significant funding. In the event that such funding exceeded the present
financial resources of the Company, the Company would have to receive additional
capital to market the ELAST Device(TM). An inability to obtain additional
financing may have a material adverse effect on the Company, including the
possibility that the Company would be forced to curtail its operations
significantly or to cease its operations altogether.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Except as specified below, there are no legal actions pending against the
Company nor are any such legal actions contemplated.
Pursuant to a Plan of Merger filed with the Delaware Secretary of State ("Plan
of Merger"), on or about June 30, 1998, Elast Technologies Corporation, a
Delaware corporation previously defined herein as "Elast Delaware", merged with
and into Elast Merger, Inc., a Nevada corporation, which was a wholly-owned
subsidiary of the Company. Shareholders who formerly held stock in Elast
Delaware received 4 shares of the Company's common stock for each share of their
Elast Delaware stock, with the result that the former shareholders of Elast
Delaware now hold a controlling interest in the Company, and Elast Delaware is
now a wholly-owed subsidiary of the Company.
There was a dispute regarding the validity of certain stock options relating to
the purchase of certain shares of Elast Delaware's common stock. On or about May
14, 1999, Dr. Gary Marrone, the former Secretary of Elast Delaware and a former
Director of Elast Delaware, notified the Company that he believed that, as a
result of the Plan of Merger, certain unexercised Elast Delaware stock options
held by each Director of Elast Delaware had been converted into options to
purchase up to 400,000 shares of the Company's common stock at a significantly
reduced exercise price. We settled this dispute with Dr. Marrone during the
three month period ended June 30, 2000, by issuing 40,000 shares of our common
stock to Dr. Marrone. We recognized a settlement expense of $28,400 based on the
fair value of the shares at the time of issuance.
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. Specifically, on or about December 30, 1999,
the holders of at least two-thirds (2/3) of the Company's issued and outstanding
shares of $.001 par value common stock provided the Company's Secretary with
written consents approving the removal of Edward L. Hamilton as a member of the
Company's Board of Directors. The Company's Board of Directors also terminated
Mr. Hamilton's employment as an officer of the Company on or about the same
date.
We attempted to settle our disputes with Mr. Hamilton by entering into a
settlement agreement which provided, among other things, that we would issue
125,000 shares of our common stock to Mr. Hamilton and his designee. Those
shares were valued at fair value at the time of issuance, $2.13 per share.
However, we believe Mr. Hamilton breached the settlement agreement and, on
August 2, 2000, we filed a lawsuit against him in Orange County Superior Court
alleging that he breached the settlement agreement.
On or about December 7, 1999, 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 ("Registration Statement"). On or about
February 25, 2000, the Company deposited 800,000 shares in CEDE & Company
through DTC. Although the Company requested that those 800,000 shares in DTC be
returned to certificate form, Crescent Partners Fund, L.P., the named holder on
that DTC account, initially refused to return those shares to certificate form.
The Company, therefore, applied for, and received, injunctive relief from the
Dallas County, Texas District Court ("Court"). The Court ordered Crescent
Partners Fund, L.P. to refrain from transferring, encumbering, hypothecating,
assigning, or otherwise alienating those shares. As a result of that lawsuit,
Crescent Partners Fund, L.P. returned to the Company a certificate evidencing
approximately 665,000 shares of the Company's $.001 par value common stock. The
Company is continuing to prosecute this action against Crescent Partners Fund,
L.P. seeking the return of the remaining shares and additional relief.
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Item 2. Changes in Securities
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 $.001par 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, which 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; 4,700shares to William Milne; 3,333 shares
to Hope Lane; 25,000 shares to Jim Woodens; and 25,000 shares to John Martinez.
On March 13, 2000, the Company issued 6,400 shares of its common stock to
Stockgroup.com Media as a fee for Internet investment consulting. The Company
did not receive any proceeds from this transaction. Those shares were a portion
of the shares registered by the Registration Statement. On March 15, 2000, the
Company received $140,000 for the purchase of 100,000 shares of its common stock
from HAA, Inc. Those shares were a portion of the shares registered by the
Registration Statement and such proceeds were used for working capital. Xcell
Associates received 50,000 restricted shares of the Company's $.001 par value
common stock as a pre-paid consulting fee on March 6, 2000; therefore, these
shares were not part of the shares registered by the Registration Statement. NC
Capital Markets, Inc. ("NC Capital") received 50,000 shares of the Company's
$.001 par value common stock on March 6, 2000, which shares were a portion of
the shares registered by the Registration Statement. NC Capital is an investment
banker, and these shares were a pre-paid investment banking fee; therefore, the
Company did not receive any proceeds from this transaction. Investment banker
Ronald Ardt, individually, purchased 33,334 shares of the Company's $.001 par
value common stock and, on behalf of his company, Business Investors Service,
purchased an additional 50,000 shares of the Company's $.001 par value common
stock, which shares were a portion of the shares registered by the Registration
Statement. The funds for both purchases were received by the Company on March
22, 2000 and were used for working capital.
During the six month period ended June 30, 2000, we issued 106,400 shares for
finance consulting. 50,000 of those shares were valued at $1.77, and 56,400 of
those shares were valued at $2.33, which was their fair value at the time of the
respective issuances. We also issued 144,000 shares to officers as compensation.
One officer was issued 19,000 shares for services provided and another officer,
E.L. Hamilton, was issued 125,000 shares as part of the settlement which we now
claim was breached, resulting in the lawsuit specified above. Those shares were
valued at $2.01 per share, the fair value at the time of issuance.
Item 3. Defaults Upon Senior Securities
None
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Item 4. Submission of Matters to a Vote of Security Holders
We anticipate submitting the proposed merger with Bioelectronics Corp. to a
vote of our shareholders for approval if a final merger agreement is negotiated
and executed by the parties. We will amend the proxy statement filed with the
Securities and Exchange Commission to include all material information regarding
the merger agreement, if completed, prior to our annual meeting of shareholders
at which such a vote will take place.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1 Underwriting Agreement (not applicable)
2 Plan of Merger (If a final merger agreement with Bioelectronics Corp. is
executed, it will be filed with the Securities and Exchange Commission when
it has been executed but prior to shareholder approval)
3.1 Articles of Incorporation* (Charter Document)
3.2 Certificate of Amendment to Articles of Incorporation* (Charter Document)
3.3 Bylaws*
10.1 Material Contracts (not applicable)
11. Statement Re: Computation of Per Share Earnings (included in Footnote 3 of
the Financial Statements in Item 1 of this Quarterly Report on Form 10-QSB)
15. Letter on Unaudited Interim Financial Information(included in Financial
Statements in Item 1 of this Quarterly Report on Form 10-QSB)
18. Letter on Change in Accounting Principles (Not applicable)
19. Reports Furnished to Security Holders (Not applicable)
22. Published Report Regarding Matters Submitted to Vote (not applicable)
24. Power of Attorney (Not applicable)
27. Financial Data Schedule
99 Other (not applicable)
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*Previously filed as exhibits to Amendment No. 1 to Registration Statement on
Form 10-SB filed with the SEC on August 2, 1999.
(b) Reports on Form 8-K
We have not filed any reports on Form 8-K during the three month period
ended June 30, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Las Vegas, State of Nevada, on August 18, 2000.
Elast Technologies, Inc.,
a Nevada corporation
By:
-------------------------------
Thomas Krucker
Its: President
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