U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ELAST TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 3845 88-0380544
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification
No.)
2505 Rancho Bel Air, Las Vegas, Nevada 89107
(Address of registrant's principal executive offices) (Zip Code)
702.878.8310
(Registrant's Telephone Number, Including Area Code)
Thomas E. Stepp, Jr.
Stepp & Beauchamp LLP
1301 Dove Street, Suite 460
Newport Beach, California 92660
949.660.9700
Facsimile 949.660.9010
(Name, Address and Telephone Number of Agent for Service)
Approximate date of proposed sale to the public: From time to time after this
Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act 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>
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================================== ======================== ========================= ======================== ===================
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
- ---------------------------------- ------------------------ ------------------------- ------------------------ -------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 1,000,000 shares $4.00 $4,000,000.00 $1,056.00
Common Stock, $.001 par value 640,000 shares $1.9375(1) $1,240,000.00(1) $327.36
================================== ======================== ========================= ======================== ===================
Total Registration Fees: $1,383.36
---------
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(1) Selling Shareholders' stock registration fee was calculated pursuant to Rule
457(c) of Regulation C using the average of the bid and ask prices per share of
the Registrant's common stock, as reported on the OTC Bulletin Board for
February 4, 2000.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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Preliminary Prospectus
ELAST TECHNOLOGIES, INC.,
a Nevada corporation
1,640,000 Shares of $.001 Par Value Common Stock
This prospectus ("Prospectus") relates to 1,640,000 shares (the "Shares") of
common stock, $.001 par value (the "Common Stock"), of Elast Technologies, Inc.,
a Nevada corporation (the "Company"). 640,000 of the Shares are issued and
outstanding shares of Common Stock owned by the persons specified in this
Prospectus under the caption "Selling Stockholders." Those Shares were acquired
by the Selling Stockholders in private placement transactions which were exempt
from the registration and prospectus delivery requirements of the Securities Act
of 1933, as amended (the "1933 Act"). Additionally, we are registering 1,000,000
Shares to be offered on a "best efforts" basis to a limited number of persons
who have expressed an interest in purchasing unrestricted shares of our Common
Stock.
The Selling Stockholders may from time to time sell the Shares on the OTC
Bulletin Board, on any other national securities exchange or automated quotation
system on which the Common Stock may be listed or traded, in negotiated
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices. The Shares may be sold directly or
through brokers or dealers. See "Plan of Distribution."
We will receive no part of the proceeds from any sale of the 640,000 Shares
owned by the Selling Stockholders. We will receive proceeds from the sale of the
remaining 1,000,000 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. See "Use of Proceeds." All expenses of
registration incurred in connection with this offering will be paid by the
Company, but all selling and other expenses incurred by the Selling Stockholders
will be paid by the Selling Stockholders. See "Selling Stockholders."
The Selling Stockholders and any broker-dealers participating in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of the 1933 Act, and any commissions or discounts given to any such
broker-dealer may be regarded as underwriting commissions or discounts under the
1933 Act.
The Shares have not been registered for sale by the Selling Stockholders under
the securities laws of any state as of the date of this Prospectus. Brokers or
dealers effecting transactions in the Shares should confirm the registration
thereof under the securities laws of the states in which transactions occur or
the existence of any exemption from registration.
The Company participates in the OTC Bulletin Board, an electronic quotation
service for securities not traded on an established securities exchange. The
Common Stock trades on the OTC Bulletin Board under the trading symbol ESTG. On
February 4, 2000, the closing bid and asked prices of the Common Stock as
reported on the OTC Bulletin Board were $1.75 and $2.125, respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is February 5, 2000
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Item 3. Summary Information and Risk Factors.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS, WHICH CONTAINS MORE DETAILED INFORMATION WITH RESPECT TO EACH OF THE
MATTERS SUMMARIZED IN THIS PROSPECTUS AS WELL AS OTHER MATTERS NOT COVERED IN
THE SUMMARY. ALL PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE ENTIRE
CONTENTS OF THE PROSPECTUS AND THE EXHIBITS ATTACHED HERETO, INDIVIDUALLY AND
WITH THEIR OWN TAX, LEGAL AND BUSINESS ADVISORS.
The Company: 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 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 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
are currently negotiating proposed 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.
Other than the ELAST Device, we do not currently have any
plans to develop other products. 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
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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 the
organization General Corporation Law of Nevada on November 5, 1996 under
of the the name Med Mark, Inc. Pursuant to a Plan of Merger filed
Company: 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".
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The Shares: 640,000 of the Shares offered hereby are issued and
outstanding shares of Common Stock and are now owned by the
persons specified in this Prospectus under the caption
"Selling Stockholders." The Shares were acquired by the
Selling Stockholders in various transactions, all of which
were exempt from the registration provisions of the 1933 Act.
Specifically, on July 7, 1999, the Company, in a limited
offering to non-U.S. persons outside the United States of
America pursuant to the provisions of Regulation S promulgated
by the Securities and Exchange Commission, 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 to certain Australian investors. In July,
1999, the Company received payment of $250,000 and recorded a
common stock receivable of $250,000. The common stock
receivable was collected in October, 1999. In November, 1999,
the Company, in private placement transactions with certain
accredited investors, sold an aggregate of 125,000 shares of
the Company's $.001 par value common stock at $1.00 per share.
On or about November 9, 1998, the Company issued 15,000 shares
of the Company's common stock to Thomas E. Stepp, Jr. as
compensation for legal services performed for the Company.
We are filing this registration statement to register those
shares of our common stock with the Securities and Exchange
Commission. Additionally, we are registering 1,000,000 Shares
to be offered on a "best efforts" basis to a limited number of
potential investors who have expressed an interest in
purchasing unrestricted shares of our Common Stock.
Estimated use of We will receive as much as $4,000,000 if all of the 1,000,000
proceeds: Shares offered by us on a "best efforts" basis at $4.00 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. We will not receive any
of the proceeds from the sale of the Shares offered by the
Selling Stockholders. See "Selling Stockholders."
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.
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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 & 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 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; or that a loss of insurance coverage would
not materially adversely affect our business, financial condition and results of
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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, 1998, and the three month period ended March
31, 1999, the Company received $397,000 and $208,250, respectively, from the
sale of common stock, issuance of common stock as a result of the exercise of
warrants, and the payment of a stock subscription receivable. After payment of
development and operating expenses, the Company had cash resources of $270,017
at March 31, 1999. On July 7, 1999, the Company, in a private placement
transaction with 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 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 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
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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 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
9
<PAGE>
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 27.2% of the Company's outstanding Common Stock. Certain principal
stockholders are directors or executive officers of the Company. As a result of
such ownership, these stockholders may be able to exert significant influence,
or even control, matters requiring approval by the stockholders of the Company,
including the election of directors. In addition, certain provisions of Nevada
law and of the Company's Articles of Incorporation and Bylaws could have the
effect of making it more difficult or more expensive for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company.
Securities Market Factors. The Common Stock is quoted on the OTC Bulletin Board.
However, no assurance can be given that an active public market will develop or
be sustained. Factors such as announcements of the introduction of new or
enhanced products by the Company or its competitors and quarter-to-quarter
variations in the Company's results of operations, as well as market conditions
in the technology and emerging growth company sector, may have a significant
impact on the market price of the Company's shares. Further, the stock market
has experienced extreme volatility that has particularly affected the market
prices of equity securities of many high technology companies and that often has
been unrelated or disproportionate to the operating performance of such
companies. These market fluctuations may adversely affect the price of the
Common Stock.
No Foreseeable Dividends. The Company does not anticipate paying dividends on
the Common Stock in the foreseeable future; but, rather, the Company plans to
retain earnings, if any, for the operation and expansion of the business of the
Company.
No Assurances of Revenue or Operating Profits. There can be no assurance that
the Company will be able to develop consistent revenue sources or that is
operations will become profitable.
Federal Income Tax Consequences. The Company has obtained no ruling from the
Internal Revenue Service and no opinion of counsel with respect to the federal
income tax consequences of the purchase or sale of Common Stock by the Selling
Stockholders. Consequently, investors must evaluate for themselves the income
tax implications which attach to their purchase, and any subsequent sale, of the
Shares.
Impact of the Year 2000. The Year 2000 (commonly referred to as "Y2K") issue
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.
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Item 4. Use of Proceeds
We will not receive any proceeds from the sale of Shares offered by the Selling
Stockholders. We will receive up to $4,000,000 if all of the 1,000,000 Shares
offered by us on a "best efforts" basis at $4.00 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 $2.875 for the
52-week period ended February 4, 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 Selling Stockholders' Shares was calculated pursuant
to Rule 457(c) of Regulation C using the average of the bid and asked price of
the Company's common stock, as reported on the OTC Bulletin Board as of a
specified date within 5 business days prior to the date of the filing of this
Registration Statement, specifically, as of February 4, 2000. On February 4,
2000, the closing bid and asked prices of the Common Stock as reported on the
OTC Bulletin Board were $1.75 and $2.125, respectively.
The offering price of the 1,000,000 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 1,000,000
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 September 30, 1999.
Offering Price $4.00 per share
Net tangible book value at 9/30/99 $0.03 per share
Net tangible book value after giving
effect to the offering $0.37 per share
Per Share Dilution to New Investors $3.63 per share
Percent Dilution to New Investors 91%
The 640,000 Shares being offered for sale by the Selling Stockholders are
outstanding shares of Common Stock and, therefore, do not contribute to
dilution.
Item 7. Selling Stockholders
The following table sets forth the number of Shares which may be offered for
sale from time to time by the Selling Stockholders. The Shares offered for sale
constitute all of the Shares known to the Company to be beneficially owned by
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<PAGE>
the Selling Stockholders. None of the Selling Stockholders has held any position
or office with the Company, except as specified in the following table. Other
than the relationships described below, none of the Selling Stockholders had or
have any material relationship with the Company.
Riverplate Securities Pty Ltd. 375,000
Leominster Ltd. 75,000
Edward L. Hamilton and his spouse, P.L. Hamilton(1) 75,000
Edward L. Hamilton(1) 25,000
Nicholas Spencer(2) 25,000
Melissa O'Sullivan(3) 50,000
Thomas E. Stepp, Jr. (4) 15,000
(1) Mr. Hamilton was formerly a Senior Vice President and a director of the
Company.
(2) Mr. Spencer is a director of the Company and an affiliate of Riverplate
Securities Pty Ltd.
(3) Ms. O'Sullivan is Mr. Hamilton's daughter.
(4) Mr. Stepp is a partner in Stepp & Beauchamp LLP, counsel to the Company.
Pursuant to the agreements by which certain of the Selling Stockholders acquired
their Shares, the Company agreed to use its best efforts to file a registration
statement for the resale of such Shares and to use its best efforts to cause
such registration statement to be declared effective. Pursuant to those
agreements, the Company will pay all expenses in connection with the
registration and sale of the Shares, except any selling commissions or discounts
allocable to sales of the Shares, fees and disbursements of counsel and other
representatives of the Selling Stockholders, and any stock transfer taxes
payable by reason of any such sale.
Item 8. Plan of Distribution
Certain persons have indicated an interest in purchasing unrestricted shares of
our Common Stock, and we are registering 1,000,000 shares of our Common Stock in
contemplation of a "best efforts" offering of unrestricted common stock to those
persons. We do not currently have an agreement with those persons for the
purchase of any portion of those 1,000,000 shares.
The Selling Stockholders may from time to time sell all or a portion of their
shares of Common Stock in the over-the-counter market, or on any other national
securities exchange on which the Common Stock is or becomes listed or traded, in
negotiated transactions or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices. The Shares will not be
sold in an underwritten public offering. The Shares may be sold directly or
through brokers or dealers. The methods by which the Shares may be sold include:
(a) a block trade (which may involve crosses) in which the broker or dealer so
engaged will attempt to sell the securities as agent but may position and resell
a portion of the block as principal to facilitate the transaction; (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) privately
negotiated transactions. In effecting sales, brokers and dealers engaged by
Selling Stockholders may arrange for other brokers or dealers to participate.
Brokers or dealers may receive commissions or discounts from Selling
Stockholders (or, if any such broker-dealer acts as agent for the purchaser of
such shares, from such purchaser) in amounts to be negotiated which are not
expected to exceed those customary in the types of transactions involved.
Broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share, and, to the extent such
broker-dealer is unable to do so acting as agent for a Selling Stockholder, to
purchase as principal any unsold shares at the price required to fulfill the
broker-dealer commitment to such Selling Stockholder. Broker-dealers who acquire
shares as principal may thereafter resell such shares from time to time in
transactions (which may involve crosses and block transactions and sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market or otherwise at prices and on terms then
prevailing at the time of sale, at prices then related to the then-current
market price or in negotiated transactions and, in connection with such resales,
may pay to or receive from the purchasers of such shares commissions as
described above.
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In connection with the distribution of the Shares, the Selling Stockholders may
enter into hedging transactions with broker-dealers. In connection with such
transactions, broker-dealers may engage in short sales of the Shares in the
course of hedging the positions they assume with the Selling Stockholders. The
Selling Stockholders may also sell the Shares short and redeliver the Shares to
close out the short positions. The Selling Stockholders may also enter into
option or other transactions with broker-dealers which require the delivery to
the broker-dealer of the Shares. The Selling Stockholders may also loan or
pledge the Shares to a broker-dealer and the broker-dealer may sell the Shares
so loaned or upon a default the broker-dealer may effect sales of the pledged
shares. In addition to the foregoing, the Selling Stockholders may enter into,
from time to time, other types of hedging transactions.
The Selling Stockholders and any broker-dealers participating in the
distributions of the Shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the 1933 Act and any profit on the sale of Shares by
the Selling Stockholders and any commissions or discounts given to any such
broker-dealer may be deemed to be underwriting commissions or discounts under
the 1933 Act. The Shares may also be sold pursuant to Rule 144 under the 1933
Act beginning two years after the Shares were issued, provided such date is at
least 90 days after the date of this Prospectus.
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 the
Selling Stockholders will sell any or all of the Shares they desire to sell, or
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. In addition, and without
limiting the foregoing, the Selling Stockholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rules 10b-6 and 10b-7, which provisions may limit
the timing of purchases and sales of Common Stock by the Selling Stockholders.
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 have advised the Selling Stockholders 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 any Selling Stockholder, any 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. We have advised the Selling
Stockholders that 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 that Regulation M specifically prohibits stabilizing that
is the result of fraudulent, manipulative, or deceptive practices. Selling
stockholders and distribution participants will be required to consult with
their own legal counsel to ensure compliance with Regulation M.
Item 9. Legal Proceedings
There are no legal actions pending against the Company nor are any such legal
actions contemplated, except as specified below:
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There is presently a dispute regarding the validity of certain stock options
relating to the purchase of certain shares of common stock of Elast Technologies
Corporation, a Delaware corporation ("Elast Delaware"), a subsidiary of the
Company. On or about May 14, 1999, Dr. Gary Marrone, the former Secretary of
Elast Delaware and a former Director of Elast Delaware, notified the Company
that he believed that the unexercised Elast Delaware stock options held by each
Director of Elast Delaware had been converted into options to purchase as many
as 400,000 shares of the Company's common stock at a significantly reduced price
as a result of the Plan of Merger. The Company believes that Dr. Marrone's claim
is without merit. The Company further believes that Dr. Marrone may take legal
action with regard to this matter. The Company intends to vigorously oppose any
such action.
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.
The Company anticipates that Mr. Hamilton may take legal action with regard to
this matter. The Company is currently engaging in settlement discussions with
Mr. Hamilton. 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:
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
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 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.
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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 November 30, 1999, by (i) each
person or entity known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of common stock, (ii) each of the Company's directors
and named executive officers, and (iii) all directors and executive officers of
the Company as a group. The number of shares outstanding of the issuer's only
class of Common Stock, $.001 par value, was approximately 7,500,000 on November
30, 1999.
(a) Security Ownership of Certain Beneficial Owners. Other than officers and
directors, no persons are beneficial owners of 5% or more of the Company's
issued and outstanding common stock.
(b) Security Ownership of Management. The directors and principal executive
officers of the Company directly or beneficially own, in the aggregate,
2,901,308 shares of the Company's common stock, or approximately 38.9 % of the
issued and outstanding common shares, as set forth on the following table
(percentages are rounded off to the nearest one-tenth of 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.
15
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<TABLE>
<CAPTION>
Amount and
Name and Address Nature of Percent of
Title of Class of Owner Owner Class (approx.)
- -------------- -------- ----- ---------------
<S> <C> <C> <C>
$.001 par value Dr. Robert Milne(1) 2,510,976 33.7%
Common Stock 2432 Greens Ave. Secretary and Director
Henderson, NV 89014
$.001 par value Thomas Krucker(2) 390,332 5.2%
Common Stock 2505 Rancho Bel Air President and Director
Las Vegas, NV 89107
Total shares beneficially
owned by all officers and directors
as a group 2,901,308 38.9%
</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, and 1,481,000
of those shares were reissued to Dr. Milne, an adjustment having been made for
the value of those shares at the time or re-issuance.
Changes in Control. Management of the Company is not aware of any arrangements
which may result in "changes in control" as that term is defined by the
provisions of Item 403(c) of Regulation S-B. Pursuant to a Plan of Merger filed
with the Delaware Secretary of State, in June, 1998, Elast Technologies
Corporation, a Delaware corporation (previously defined in this Registration
Statement as "Elast Delaware"), merged with and into Elast Merger, Inc., a
Nevada corporation, which was a wholly-owned subsidiary of the Company.
Shareholders who formerly held stock in Elast Delaware received 4 shares of the
Company's common stock for each share of their Elast Delaware stock on or about
June 30, 1998, with the result that the former shareholders of Elast Delaware
now hold a controlling interest in the Company, and Elast Delaware is now a
wholly-owed subsidiary of the Company. The Company changed its name from Med
Mark, Inc. to Elast Technologies, Inc. on or about October 27, 1998.
Item 12. Description of Securities
The Company is authorized to issue 10,000,000 shares of common stock, $.001 par
value, each share of common stock having equal rights and preferences, including
voting privileges. The 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.
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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 all of his shares of common stock of the Company pursuant to the
licensing agreement for the ELAST Device.
Additional information about certain relationships and related transactions is
specified more completely under the portion of this Prospectus entitled Certain
Relationships and Related Transactions at Item 19 below.
Item 16. Description of Business.
Development of the Company. Med Mark, Inc., a Nevada corporation ("Company"),
was incorporated in the State of Nevada on November 5, 1996. On or about June
29, 1998, the Company filed a Certificate of Amendment to its Articles of
Incorporation changing the name of the Company to Elast Technologies, Inc. The
executive offices of the Company are located at 2505 Rancho Bel Air, Las Vegas,
Nevada 89107. The Company's telephone number is 702.878.8310.
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<PAGE>
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.
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.
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<PAGE>
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. 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.
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<PAGE>
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 manufactures and markets 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.
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 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.
20
<PAGE>
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, 1998, and
the three month period ended March 31, 1999, the Company received $397,000 and
$208,250, respectively, from the sale of common stock, issuance of common stock
as a result of the exercise of warrants, and the payment of a stock subscription
receivable. After payment of development and operating expenses, the Company had
cash resources of $270,017 at March 31, 1999. On July 7, 1999, certain
Australian investors deposited $250,000 with the Company in anticipation of
purchasing as many as 500,000 shares of the Company's common stock and five-year
warrants granting certain rights to purchase an additional 500,000 shares of the
Company's common stock. That purchase was consummated in October, 1999 by the
payment, to the Company, of an additional $250,000. The cash and equivalents
constitute the Company's present internal sources of liquidity. Because neither
the Company nor its subsidiary is generating any revenues from the sale or
licensing of their products, the Company's only external source of liquidity is
the sale of its capital stock.
Sales of common stock and exercise of warrants pursuant to an offering of
unregistered securities by Elast Delaware resulted in cash receipts of $197,000
and $189,990, respectively, in the year to date ended December 31, 1998.
Collection of an outstanding receivable relating to the sale of common stock
resulted in an additional $10,000 of cash receipts to the Company. During the
three month period ended March 31, 1999, the Company received $208,250 from the
sale of common stock.
The Company believes these cash resources are sufficient to complete prototype
development and limited clinical trials of the ELAST Device. If the ELAST Device
performs as anticipated, the Company believes that it will be able to raise the
funds necessary to begin production of the ELAST Devices - for the North
American and international clinical trials and the FDA approval process -
through the sale of equity, debt, or licensing. Should the development of the
prototype or clinical testing of the prototype take more time than anticipated,
or if the results of testing require significant modifications to the ELAST
Device, sufficient funds may not be available to enable the ELAST Device to be
completed and brought to market during the time period currently anticipated by
the Company.
Manufacturing and Marketing the Company's Products. The Company does not
anticipate any supply problems. As this time, the Company does not require
manufacturing facilities. As the principal components of the ELAST Device
consist of electronic parts that are readily available, the Company does not
anticipate that its manufacturer will have any supply problems. The Company's
operations are not effected by any seasonal factors.
Once the initial testing of the ELAST Device is completed, the Company will
manufacture, or cause to be manufactured, about 200 units of the ELAST Device,
which will be provided to a selected group of physicians, including eye, ear,
nose and throat specialists, chemical ecologists, and allergy specialist
doctors, naturopaths, and chiropractors. Thereafter, the ELAST Device will be
marketed to physicians and hospitals to test patients for prescription drug
compatibility, to avoid drug-related illnesses. The Company's operating plan is
to market the ELAST Device as a stand-alone device that can be attached to
"medical environment" computers. Once the ELAST Device gains acceptance in the
medical community, the Company anticipates that a patient home-testing unit may
be developed.
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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, computer
programs with time-sensitive software might recognize a two digit code for any
year in the 21st century as related to the 20th century. For example, "00",
entered in a date-field for the year 2000, may be interpreted as the year 1900,
resulting in system failures or miscalculations and disruptions of operations,
including, among other things, a temporary inability to process transactions or
engage in other normal business activities. 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.
Item 18. Description of Property
Property held by the Company. The consolidated financial statements filed as
exhibits to this Registration Statement include the accounts of the Company and
its wholly-owned subsidiary, Elast Technologies Corporation, a Delaware
corporation (previously defined in this Registration Statement as "Elast
Delaware"). All significant intercompany transactions have been eliminated. As
of the dates specified in the following table, the Company held the following
property:
Property Dec. 31, 1998 Dec. 31,1997
-------- ------------- ------------
Cash and equivalents $226,818.00 $108,280.00
License to use Patent No. 5413113 $800.00 $800.00
The Company defines cash equivalents as all highly liquid investments with a
maturity of 3 months or less when purchased. The Company does not presently own
any interests in real estate. The Company does not presently own any inventory
or equipment.
Item 19. Certain Relationships and Related Transactions
Related Party Transactions. Dr. Milne, the Chairman of the Board of the Company,
provides office space and services to the Company, at no cost to the Company. At
such time as the Company begins receiving revenue from operations, management of
the Company anticipates that the Company will begin paying rent for 800 square
feet of this office space, at a rate of $1,200 per month.
Licensing Agreement Was Not the Result of Arms-Length Negotiations. As set forth
above, on or about June 12, 1996, Elast Delaware acquired a license from Robert
D. Milne, M.D., who was, at that time, Chairman of the Board of Directors and a
major shareholder of Elast Delaware, whereby Elast Delaware acquired the
exclusive right to develop, manufacture and market the ELAST Device. Elast
Delaware issued to Dr. Milne 800,000 shares of its common stock to acquire the
licensing rights. The Company believes that the fair market value of 800,000
shares of Elast Delaware's common stock at the time of the transaction was
$800.00. Kelly & Company, Elast Delaware's independent certified public
accountants, determined that 800,000 shares of Elast Delaware's common stock was
fair consideration for the license agreement with Dr. Milne. Because
modifications may be made during the development and testing of the ELAST
Device, it is not certain that the final technology developed by Elast Delaware
will be protected by the original patent.
Item 20. Market for Common Equity and Related Stockholder Matters
Reports to Security Holders. The Company is a reporting company with the
Securities and Exchange Commission ("SEC"). The public may read and copy any
materials filed with the SEC at the SEC's Public Reference Room at 450 Fifth
Street N.W., Washington, D.C. 20549. The public may also obtain information on
the operation of the Public Reference Room by calling
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the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC. The address of that site is
http://www.sec.gov. The Company currently maintains its own Internet address at
www.elast.com.
The Company participates in the OTC Bulletin Board, an electronic quotation
medium for securities traded outside the Nasdaq Stock Market. The Company's
common stock trades on the OTC Bulletin Board under the trading symbol "ESTG".
This market is extremely limited and the prices for the Company's common stock
quoted by brokers is not necessarily a reliable indication of the value of the
Company's common stock. The Company was listed with Standard & Poor's
Corporation Records by publication on or about December 3, 1998.
There have been no cash dividends declared on the Company's common stock since
the Company's inception. Dividends will be declared at the sole discretion of
the Company's Board of Directors.
The Company's Board of Directors has approved and adopted a stock option plan
("Stock Option Plan"), pursuant to which 5,000,000 shares of the Company's $.001
par value common stock will be reserved for issuance to satisfy the exercise of
options. The Stock Option Plan will be designed to retain qualified and
competent officers, employees, and directors of the Company. The Company's Board
of Directors, or a committee thereof, shall administer the Stock Option Plan and
will be authorized, in its sole and absolute discretion, to grant options
thereunder to all eligible employees of the Company, including officers, and to
the Company's directors, whether or not those directors are also employees of
the Company. Options will be granted pursuant to the provisions of the Stock
Option Plan on such terms, subject to such conditions and at such exercise
prices as shall be determined by the Company's Board of Directors. Options
granted pursuant to the Stock Option Plan shall not be exercisable after the
expiration of ten years from the date of grant.
Item 21. Executive Compensation - Remuneration of Directors and Officers.
Any compensation received by officers, directors, and management personnel of
the Company will be determined from time to time by the Board of Directors of
the Company. Officers, directors, and management personnel of the Company will
be reimbursed for any out-of-pocket expenses incurred on behalf of the Company.
Officers' compensation, in the aggregate, increased from $40,083 during the nine
month period ended September 30, 1998 to $106,496 during the nine month period
ended September 30, 1999. Thomas Krucker, the Chief Executive Officer of the
Company, received approximately $61,040 in compensation during fiscal 1999.
Edward L. Hamilton, the former Vice President of the Company, received
approximately $63,419 as compensation during fiscal 1999 and also received a
total of 100,000 shares of the Company's common stock during fiscal 1999, of
which 75,000 shares were for compensation for services performed for the
Company. No other executive officers received a total annual salary and bonus
which exceeded $50,000 during the year ended December 31, 1999; provided,
however, that certain officers and directors of the Company may have received
stock or stock options during fiscal 1999 which may ultimately have a value
greater than $50,000 .
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
23
<PAGE>
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; 2,000 shares to Mark Miller; 15,000 shares to Cade
Gaspar; 3,333 shares to Hope Lane; 2,000 shares to Bruce Corsini; 25,000 shares
to Melissa O'Sullivan; 25,000 shares to Jim Woodens; 25,000 shares to John
Martinez; and 75,000 shares to Edward L. Hamilton.
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Item 22. Financial Statements
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Financial Statements
(Unaudited)
As of September 30, 1999, and for the Nine-Month and Three-Month
Periods Ended September 30, 1999 and 1998, and for the
Period from June 12, 1996 (Inception) to September 30, 1999
Elast Technologies, Inc.
(A Development Stage Company)
Index to the Consolidated Financial Statements (Unaudited)
As of September 30, 1999, and for the Nine-Month and Three-Month
Periods Ended September 30, 1999 and 1998, and for the
Period from June 12, 1996 (Inception) to September 30, 1999
- --------------------------------------------------------------------------------
Accountants' Disclaimer Report................................................ 1
Consolidated financial statements for Elast Technologies, Inc. (Unaudited):
Balance Sheet, September 30, 1999........................................ 2
Consolidated Statements of Operations For the Nine-Month Periods Ended
September 30, 1999 and 1998, and For the Period from June 12, 1996
(Inception) to September 30, 1999...................................... 3
Consolidated Statements of Operations For the Three-Month Periods Ended
September 30, 1999 and 1998............................................ 4
Consolidated Statement of Shareholders' Equity For the Nine-Month Period
Ended September 30, 1999............................................... 5
Consolidated Statements of Cash Flows For the Nine-Month Periods Ended
September 30, 1999 and 1998, and For the Period from June 12, 1996
(Inception) to September 30, 1999...................................... 6
Notes to the Consolidated Financial Statements (Unaudited).................... 8
<PAGE>
Accountants' Disclaimer Report
To the Board of Directors
Elast Technologies, Inc.
We have compiled the accompanying balance sheet of Elast Technologies, Inc.
("Elast") as of September 30, 1999 and the related statements of operations for
the nine-month and three-month periods ended September 30, 1999 and 1998, and
for the period from June 12, 1996 (inception) to September 30, 1999, the related
0.statement of shareholders' equity for the nine-month period ended September
30, 1999, and the related statements of cash flows for the nine-month periods
ended September 30, 1999 and 1998, and for the periods from June 12, 1996
(inception) to September 30, 1999, in accordance with Statements on Standards
for Accounting and Review Service issued by the American Institute of Certified
Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
Kelly & Company
Kelly & Company
Newport Beach, California
November 30, 1999
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Balance Sheet
September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and equivalents $ 227,149
License, net 280
-----------
Total current assets 227,429
Property and equipment, net 21,060
-----------
Total assets $ 248,489
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 4,480
-----------
Total liabilities 4,480
-----------
Shareholders' equity:
Common stock, $.001 par value; 25,000,000
shares authorized; 7,975,148 shares issued
and outstanding 7,975
Additional paid-in capital 2,286,100
Detachable stock purchase warrants 100,000
Deficit accumulated during development stage (1,900,066)
Receivable on common stock (250,000)
-----------
Total shareholders' equity 244,009
-----------
Total liabilities and shareholders' equity $ 248,489
===========
The accompanying notes are an integral part of the consolidated
financial statements.
See accountants' disclaimer report.
2
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
For the Nine-Month Periods Ended September 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
Nine-Month Nine-Month June 12, 1996
Period Ended Period Ended (Inception) to
September 30, 1999 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenue -- -- --
Cost of sales -- -- --
----------- ----------- -----------
Gross profit -- -- --
Merger consulting fees -- $ 377,798 $ 377,798
Officers' compensation $ 106,496 40,083 310,178
Research and development 181,777 19,206 358,158
Legal and professional 69,481 37,745 218,248
Investor relations 76,896 40,000 315,654
Consulting 133,393 -- 133,394
Meals and entertainment 59,128 8,660 87,665
Other 76,633 20,871 127,167
----------- ----------- -----------
Total operating costs (703,804) (544,363) (1,928,262)
Interest income in excess of interest expense 7,143 13,446 28,196
----------- ----------- -----------
Net loss ($ 696,661) ($ 530,917) ($1,900,066)
=========== =========== ===========
Loss per common share - basic and diluted ($ .09) ($ .10) ($ .35)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
See accountants' disclaimer report.
3
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
For the Three-Month Periods Ended September 30, 1999 and 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three-Month Three-Month
Period Ended Period Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenue -- --
Cost of sales -- --
Gross profit -- --
Merger consulting fees -- --
Officers compensation $ 69,696 $ 13,660
Research and development 110,792 3,000
Legal and professional 40,715 21,731
Investor relations 20,836 15,000
Consulting 16,625 --
Meals and entertainment 32,908 8,031
Other operating costs and expenses 47,971 11,201
--------- ---------
Total operating costs (339,543) (72,623)
Interest income in excess of interest expense 3,168 5,779
--------- ---------
Net loss ($336,375) ($ 66,844)
========= =========
Loss per common share - basic and diluted $ (.04) $ (.01)
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
See accountants' disclaimer report.
4
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity
For the Nine-Month Period Ended September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Detachable Accumulated Less:
Additional Stock Price During Common
Common Common Paid-In Purchase Per Development Stock
Shares Stock Capital Warrants Share Stage Subtotal Receivable Total
--------- ------ ---------- -------- ----- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 7,179,448 $7,179 $1,413,886 ($1,203,405) $ 217,660 -- $ 217,660
Shares issued in private placement 122,000 122 182,878 $1.50 -- 183,000 -- 183,000
Shares issued in
private placements 83,900 84 125,166 1.49 -- 125,250 -- 125,250
Shares issued for services 24,800 25 39,903 1.61 -- 39,928 -- 39,928
Common stock and
detachable stock
purchase warrants issued
for cash and a note receivable 500,000 500 399,482 $100,000 1.00 -- 499,982 ($250,000) 249,982
Shares issued for services 15,000 15 22,335 1.49 -- 22,350 -- 22,350
Shares issued for
engineering consulting services 50,000 50 102,450 -- 2.05 -- 102,500 -- 102,500
Net loss -- -- -- -- (696,661) (696,661) -- (696,661)
--------- ------ ---------- -------- ----------- --------- --------- ---------
Balance, September 30, 1999 7,975,148 $7,975 $2,286,100 $100,000 ($1,900,066) $ 494,009 ($250,000) $ 244,009
========= ====== ========== ======== =========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
See accountants' disclaimer report.
5
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Nine-Month Periods Ended September 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
Nine-Month Nine-Month June 12, 1996
Period Ended Period Ended (Inception) to
September 30, 1999 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net cash flows used in operating activities ($ 537,808) ($ 154,493) ($ 936,369)
--------------- --------------- ---------------
Cash flows used in investing activities:
Purchase of property and equipment (20,092) (3,804) (23,896)
--------------- --------------- ---------------
Cash used in investing activities (20,092) (3,804) (23,896)
--------------- --------------- ---------------
Cash flows provided by financing activities:
Acquisition of MedMark, Inc. -- 30,726 30,726
Exercise of warrants -- 189,990 189,990
Payment of notes receivable for common stock -- 10,000 10,000
Issuance of common stock and stock purchase warrants 558,232 197,000 951,032
Contribution to additional paid in capital -- -- 5,667
--------------- --------------- ---------------
Cash provided by financing activities 558,232 427,716 1,187,415
--------------- --------------- ---------------
Net increase (decrease) in cash 332 269,419 227,150
Cash at beginning of period 226,818 108,280 --
--------------- --------------- ---------------
Cash at end of period $ 227,150 $ 377,699 $ 227,150
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
See accountants' disclaimer report.
6
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Nine-Month Periods Ended September 30, 1999 and 1998, and
For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
Period from
Nine-Month Nine-Month June 12, 1996
Period Ended Period Ended (Inception) to
September 30, 1999 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Interest paid -- -- $ 1,375
Income taxes paid -- $ 1,357 $ 1,803
Supplemental Schedule of Non-Cash Investing and Financing Activities
Assets acquired in non-cash transactions:
Acquisition of medical device license -- -- $ 800
Increase in common stock subscription
receivable -- -- $ 10,000
Receivable on common stock $ 250,000 -- $ 250,000
Issuance of common stock (250,000) -- ($ 258,800)
Research and development expense 164,778 -- 164,778
Issuance of stock for services (164,778) -- (164,778)
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
See accountants' disclaimer report.
7
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Nine-Month and Three-Month Periods Ended September 30, 1999 and 1998,
and For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
1. Development Stage Operations
Elast Technologies, Inc. (a development stage company) (the "Company") was
incorporated in the state of Nevada on June 12, 1996 and has a limited
operating history with no revenues and no products or technology ready for
the market. The Company is engaged in the development of its first product,
a non-invasive medical device to test for allergies with real time,
quantifiable, visually displayed results. Management's efforts to date have
focused primarily on the development and testing of the medical device and
the raising of capital. As such, the Company is subject to the risks and
uncertainties associated with a new business. The success of the Company's
future operations is dependent, in part, upon the Company's ability to
successfully market its yet to be developed products and obtain additional
capital.
2. Basis of Presentation
The consolidated financial statements have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. The Company believes that the disclosures are
adequate to make the information presented not misleading when read in
conjunction with the Company's consolidated financial statements for the
year ended December 31, 1998. The financial information presented reflects
all adjustments, which are, in the opinion of management, necessary for a
fair statement of the results for the interim periods presented.
See accountants' disclaimer report.
8
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Nine-Month and Three-Month Periods Ended September 30, 1999 and 1998,
and For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
3. Property and Equipment
Property and equipment consist of the following:
Vehicles $ 11,000
Computers 12,896
--------
23,896
Less: accumulated depreciation (2,836)
--------
$ 21,060
========
Depreciation expense for the nine months ended September 30, 1999 was
$2,467.
4. Loss Per Common Share
In the year ended December 31, 1997, the Company adopted SFAS No. 128,
"Earnings per Share". Loss per common share has been calculated in
accordance with this statement.
Basic and diluted loss per common share has been computed by dividing the
loss available to common shareholders by the weighted-average number of
common shares for the period.
The computations of net loss per common share for the nine month and
three-month periods ended September 30, 1999 and 1998, and for the period
from June 12, 1996 (inception) to September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Period from
Nine-Month Nine-Month June 12, 1996
Period Ended Period Ended (Inception) to
September 30, 1999 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net loss available to common
stockholders ($ 696,661) ($ 530,917) ($1,900,066)
Weighted-average shares,
basic and diluted 7,690,164 5,392,119 5,433,079
----------- ----------- -----------
Loss per common share,
basic and diluted ($ .09) ($ .10) $ (.35)
=========== =========== ===========
</TABLE>
See accountants' disclaimer report.
9
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Nine-Month and Three-Month Periods Ended September 30, 1999 and 1998,
and For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
4. Loss Per Common Share, Continued
Three-Month Three-Month
Period Ended Period Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Net loss available to common
Stockholders ($ 336,375) ($ 66,844)
Weighted-average shares,
basic and diluted 7,927,648 6,896,116
----------- -----------
Loss per common share,
basic and diluted ($ .04) ($ .01)
=========== ===========
The effect of the potentially dilutive securities consisting of warrants to
purchase 500,000 shares of common stock were not included in the
computation of diluted loss per share because to do so would have been
antidilutive for the periods presented.
5. Stock Transactions
Private Placements
In March 1999, the Company issued 120,000 and 2,000 shares of common stock
in two separate private placement offerings at $1.50 per share.
In March and April 1999, the Company sold 16,900 and 67,000 shares of
common stock, respectively, in two separate private placement offerings at
$1.49 per share.
In July 1999, the Company, in a private placement offering, sold units
consisting of 500,000 shares of common stock and 500,000 detachable
five-year warrants to purchase common stock at an exercise price of $2.40
per share. The Company received $250,000 in July 1999 and recorded a common
stock receivable of $250,000. The common stock receivable was collected in
October 1999.
See accountants' disclaimer report.
10
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Nine-Month and Three-Month Periods Ended September 30, 1999 and 1998,
and For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
5. Stock Transactions, Continued
Shares Issued for Services
In March 1999, the Company issued 24,800 shares of common stock for
consulting services.
In April 1999, the Company issued 15,000 shares of common stock for
consulting services.
In July 1999, the Company issued 50,000 shares of common stock for
engineering consulting services.
6. Management's Plan
At the balance sheet date:
o The Company is a non-operating development stage company.
o It had sufficient cash to cover its obligations.
Management has been devoting substantially all of its efforts to the
development and testing of the allergy detection, non-invasive, medical
device. It is anticipated this portion of management's plan will be
completed in approximately twelve to twenty-four months. The Company's
overall operating plan is to market the initial product as a stand-alone
device that can be attached to personal computers. To achieve its plan,
management is also aware that it must secure additional investment capital.
See accountants' disclaimer report.
11
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Nine-Month and Three-Month Periods Ended September 30, 1999 and 1998,
and For the Period from June 12, 1996 (Inception) to September 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
7. Year 2000 Disclosure
The Company has conducted a comprehensive review of its computer operations
to identify the systems that could have been adversely affected by the Year
2000 Issue and has developed and implemented a plan that it believes has
resolved the issue. The Year 2000 Issue is the result of computer programs
being written using two digits rather than four to define the applicable
year. Any of the Company's programs that have time-sensitive software might
have recognized a date using "00" as the year 1900 rather than the year
2000. This could have resulted in a system failure or miscalculations. The
Company presently believes that, with its existing software and conversions
to new software, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems as converted.
See accountants' disclaimer report.
12
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Index to the Consolidated Financial Statements
As of December 31, 1998 and 1997 and for the
Years Ended December 31, 1998 and 1997 and for the
Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
Report of Independent Auditors ............................................ 1
Consolidated Financial Statements of Elast Technologies, Inc.:
Consolidated Balance Sheets,
December 31, 1998 and 1997 ....................................... 2
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997 and for the period from
June 12, 1996 (inception) to December 31, 1998 ................... 3
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998 and 1997 and for the period from
June 12, 1996 (inception) to December 31, 1998 ................... 4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 and for the period from
June 12, 1996 (inception) to December 31, 1998 ................... 6
Notes to the Consolidated Financial Statements ............................ 8
<PAGE>
[LETTERHEAD OF KELLY & COMPANY]
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of Elast
Technologies, Inc. (a development stage company) as of December 31, 1998 and
1997, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the years ended December 31, 1998 and 1997 and for
the period from June 12, 1996 (inception) to December 31, 1998. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, revised
as described in Note 6 present fairly, in all material respects, the
consolidated financial position of Elast Technologies, Inc. (a development stage
company) as of December 31, 1998 and 1997, and the consolidated results of
operations and cash flows for the years ended December 31, 1998 and 1997 and for
the period from June 12, 1996 (inception) to December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ KELLY & COMPANY
Kelly & Company
Newport Beach, California
April 29, 1999, except as to Note 6,
to which the date is
July 24, 1999
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
ASSETS
1998 1997
----------- -----------
Current assets:
Cash and equivalents $ 226,818 $ 108,280
License, net 400 800
----------- -----------
Total current assets 227,218 109,080
Property and equipment, net 3,434 --
----------- -----------
Total assets $ 230,652 $ 109,080
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 12,992 --
Accounts payable, officer -- $ 1,925
----------- -----------
Total liabilities 12,992 1,925
----------- -----------
Shareholders' equity:
Common stock, $.001 par value; 25,000,000
shares authorized; 7,179,448 and 3,768,004
shares issued and outstanding at December 31,
1998 and 1997, respectively. 7,179 3,768
Additional paid-in capital 1,413,886 214,418
Deficit accumulated during development stage (1,203,405) (101,031)
----------- -----------
217,660 117,155
Less: common stock subscription receivable -- (10,000)
----------- -----------
Total shareholders' equity 217,660 107,155
----------- -----------
Total liabilities and shareholders' equity $ 230,652 $ 109,080
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
June 12, 1996
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1998 1997 1998
----------- ----------- --------------
<S> <C> <C> <C>
Revenue -- -- --
Cost of sales -- -- --
----------- ----------- -----------
Gross profit -- -- --
Officers compensation $ 203,682 -- $ 203,682
Research and development 108,161 $ 46,520 176,381
Legal and professional 502,231 18,719 526,565
Investor relations 238,759 -- 238,759
Other operating costs and expenses 63,107 3,613 79,071
----------- ----------- -----------
Total operating costs (1,115,940) (68,852) (1,224,458)
Interest income in excess of interest expense 13,566 6,130 21,053
----------- ----------- -----------
Net loss $(1,102,374) $ (62,722) $(1,203,405)
=========== =========== ===========
Loss per common share - basic and diluted $ (0.19) $ (0.02) $ (0.26)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Elast Technologies, Inc.
Elast Technologies Corporation (Formerly Med Mark, Inc.)
(An Delaware Corporation) (A Nevada Corporation) Price
------------------------- ----------------------
Common Common Common Common Per
Shares Stock Shares Stock Share
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, June 12, 1996 (inception) -- -- -- -- --
Shares issued for the medical device license 3,200,000 $ 3,200 -- -- --
Shares issued for legal services 21,332 21 -- -- $ 0.31
Contribution of funds expended by the major
shareholder on the Company's behalf -- -- -- --
Shares issued in private placement 546,672 547 -- -- 0.38
Net loss from inception to December 31, 1996 -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1996 3,768,004 3,768 -- --
Contribution of funds expended by the major
shareholder on the Company's behalf -- -- -- --
Net loss for the year ended December 31, 1997 -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1997 3,768,004 3,768 -- --
----------- ----------- ----------- -----------
<CAPTION>
Deficit Less:
Accumulated Common
Additional During the Stock
Paid-in Development Subscription
Capital Stage Subtotal Receivable Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, June 12, 1996 (inception) -- -- -- -- --
Shares issued for the medical device license $ (2,400) -- $ 800 -- $ 800
Shares issued for legal services 6,698 -- 6,719 -- 6,719
Contribution of funds expended by the major
shareholder on the Company's behalf 4,167 -- 4,167 -- 4,167
Shares issued in private placement 204,453 -- 205,000 $ (10,000) 195,000
Net loss from inception to December 31, 1996 -- $ (38,309) (38,309) -- (38,309)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 212,918 (38,309) 178,377 (10,000) 168,377
Contribution of funds expended by the major
shareholder on the Company's behalf 1,500 -- 1,500 -- 1,500
Net loss for the year ended December 31, 1997 -- (62,722) (62,722) -- (62,722)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 214,418 (101,031) 117,155 (10,000) 107,155
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Elast Technologies, Inc.
Elast Technologies Corporation (Formerly Med Mark, Inc.)
(An Delaware Corporation) (A Nevada Corporation) Price
------------------------- ----------------------
Common Common Common Common Per
Shares Stock Shares Stock Share
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 3,768,004 $ 3,768 -- -- --
Shares outstanding prior to the reorganization -- -- 1,220,000 $ 1,220 --
Shares issued in private placement 394,000 394 -- -- $ 0.50
Payment of receivable arising from issuance
of common stock -- -- -- --
Shares issued on the exercise of warrants 506,640 507 -- -- 0.38
Shares issued to consultant in connection
with the reorganization 1,007,472 1,007 -- -- 0.38
Shares issued and surrendered in the
acquisition of Elast Technologies, Inc. (a
Nevada Corporation) (reverse merger) (5,676,116) (5,676) 5,676,116 5,676 --
Shares issued for consulting services,
engineering services, and employee
compensation -- -- 270,000 270 1.51
Shares issued to an existing shareholder to
correct a stock issuance error -- -- 13,332 13 --
Net loss for the year ended December 31, 1998 -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1998 -- $ -- 7,179,448 $ 7,179
=========== =========== =========== ===========
<CAPTION>
Deficit Less:
Accumulated Common
Additional During the Stock
Paid-in Development Subscription
Capital Stage Subtotal Receivable Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 214,418 $ (101,031) $ 117,155 $ (10,000) $ 107,155
Shares outstanding prior to the reorganization 29,506 -- 30,726 -- 30,726
Shares issued in private placement 196,606 -- 197,000 -- 197,000
Payment of receivable arising from issuance
of common stock -- -- -- 10,000 10,000
Shares issued on the exercise of warrants 189,483 -- 189,990 -- 189,990
Shares issued to consultant in connection
with the reorganization 376,791 -- 377,798 -- 377,798
Shares issued and surrendered in the
acquisition of Elast Technologies, Inc. (a
Nevada Corporation) (reverse merger) -- -- -- -- --
Shares issued for consulting services,
engineering services, and employee
compensation 407,095 -- 407,365 -- 407,365
Shares issued to an existing shareholder to
correct a stock issuance error (13) -- -- -- --
Net loss for the year ended December 31, 1998 -- (1,102,374) (1,102,374) -- (1,102,374)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 $ 1,413,886 $(1,203,405) $ 217,660 $ -- $ 217,660
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
June 12, 1996
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1998 1997 1998
----------- ----------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,102,374) $ (62,722) $(1,203,405)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 770 -- 770
Issuance of stock for services 785,163 -- 791,882
Increase (decrease) in liabilities:
Accounts payable, trade 12,992 -- 12,992
Accounts payable, officer (1,925) 1,925 --
Note payable, officer -- (9,236) --
----------- ----------- -----------
Cash used in operating activities (305,374) (70,033) (397,761)
----------- ----------- -----------
Cash flows used in investing activities:
Purchase of property and equipment (3,804) -- (3,804)
----------- ----------- -----------
Cash used in investing activities (3,804) -- (3,804)
----------- ----------- -----------
Cash flows provided by financing activities:
Acquisition of MedMark, Inc. 30,726 -- 30,726
Exercise of warrants 189,990 -- 189,990
Payment of notes receivable for common stock 10,000 -- 10,000
Issuance of common stock 197,000 -- 392,000
Contribution to additional paid in capital -- 1,500 5,667
----------- ----------- -----------
Cash provided by financing activities 427,716 1,500 628,383
----------- ----------- -----------
Net increase (decrease) in cash 118,538 (68,533) 226,818
Cash at beginning of period 108,280 176,813 --
----------- ----------- -----------
Cash at end of period $ 226,818 $ 108,280 $ 226,818
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Supplemental Disclosure of Cash Flow Information
Period from
June 12, 1996
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1998 1997 1998
----------- ----------- --------------
<S> <C> <C> <C>
Interest paid -- $ 1,375 $ 1,375
Income taxes paid $ 1,403 400 1,803
<CAPTION>
Supplemental Schedule of Non-Cash Investing and Financing Activities
<S> <C> <C> <C>
Assets acquired in non-cash transactions:
Acquisition of medical device license -- -- $ 800
Increase in common stock subscription
receivable -- -- 10,000
Issuance of common stock -- -- (10,800)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
1. Development Stage Operations
Elast Technologies, Inc. (a development stage company) (the "Company") was
incorporated in the state of Nevada on November 5, 1996 and has a limited
operating history with no revenues and no products or technology ready for
the market. The Company is engaged in the development of its first product,
a non-invasive medical device to test for allergies with real time,
quantifiable, visually displayed results. Management's efforts to date have
focused primarily on the development and testing of the medical device and
the raising of capital. As such, the Company is subject to the risks and
uncertainties associated with a new business. The success of the Company's
future operations is dependent, in part, upon the Company's ability to
successfully market its yet to be developed products and obtain additional
capital. Management's plans are discussed further in Note 10.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Elast Technologies, Inc. (a Nevada corporation) (the "Company") and its
subsidiary, Elast Technologies Corporation (a Delaware corporation) ("Elast
Delaware"). All significant intercompany transactions have been eliminated.
Prior to June 10, 1998, the Company was named Med Mark, Inc. ("Med Mark").
The name change was in conjunction with the reverse merger acquisition
(Note 9).
Revenue Recognition
Revenue will be recognized when the Company's goods are shipped.
Cash and Equivalents
The Company invests portions of its excess cash in highly liquid
investments. Cash and equivalents include time deposits and commercial
paper with original maturities of three months or less. In addition, the
Company has no compensating balance requirements. The Company maintains its
cash in bank accounts, which exceeded federally insured limits by $ 131,886
and $8,280 at December 31, 1998 and 1997, respectively. The Company has not
experienced any losses in such accounts. The Company believes it is not
exposed to any significant credit risk on cash.
8
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies, Continued
Property and Equipment
The Company records property and equipment at cost. Significant
improvements, which extend the life of the underlying asset, are
capitalized, and expenditures for normal maintenance and repairs are
charged to operations. Depreciation is provided for property and equipment
using the straight-line method over the expected useful lives. The
Company's property and equipment consists of computers with an expected
useful life of 5 years.
Intangible Asset
The intangible asset is the cost of the license agreement to patented
technology and is amortized on a straight-line method over the shorter of
its estimated useful life or the license term. As of December 31, 1998
accumulated amortization was $400.
Research and Development Costs
Research and development expenditures are charged to operations as they are
incurred.
Impairment of Long-Lived Assets
The Company annually evaluates its long-lived assets, including the
intangible asset, described as a license to patented technology, for
potential impairment. When circumstances indicate that the carrying amount
of the asset is not recoverable, as demonstrated by the projected
undiscounted cash flows, an impairment loss will be recognized. The
Company's management has determined that there was no such impairment
present at December 31, 1998 and 1997.
Income Taxes
The Company accounts for deferred income taxes using the liability method.
Deferred income taxes will be computed based on the tax liability or
benefit in future years of the reversal of temporary differences in the
recognition of income or deduction of expenses between financial and tax
reporting purposes. The net difference between tax expense and taxes
currently payable will be reflected in the financial statements as deferred
taxes.
9
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies, Continued
Income Taxes, Continued
Deferred tax assets and/or liabilities will be classified as current and
noncurrent based on the classification of the related asset or liability
for financial reporting purposes, or based on the expected reversal date
for deferred taxes that are not related to an asset or liability.
Disclosures about Fair Value of Financial Instruments
The Company accounts for the value of financial instruments using the fair
value method.
Stock Based Compensation
Statement of Financial Account Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure
requirements using a fair value based method of accounting for stock-based
employee compensation plans.
As permitted by SFAS No. 123, the Company continues to account for
stock-based compensation using the intrinsic value method as prescribed in
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees". Compensation cost from stock options, if any, is
measured as the excess of the quoted market price of the Company's stock at
the date of grant over the amount an employee must pay to acquire the
stock. Compensation cost is amortized over the requisite vesting periods.
Common Shares and Per Share Amounts
All common shares and per share amounts have been adjusted to give
retroactive effect, where applicable to the one for four reverse stock
split.
Earnings per Common Share
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". This pronouncement replaced the previously reported
primary and fully diluted earnings per share with basic and diluted
earnings per share ("EPS"), respectively. Losses for the years ended
December 31, 1998 and 1997 have been calculated in accordance with this
pronouncement.
10
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies, Continued
Earnings per Common Share, Continued
Basic EPS is computed by dividing income or loss available to common
shareholders by the weighted average number of common shares outstanding
for the year. Diluted EPS is similar to Basic EPS except that the weighted
average of common shares outstanding is increased to include the number of
additional common shares that would have been outstanding if potentially
dilutive common shares had been issued.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassification
Certain reclassifications have been made to the 1997 financial statements
in order to conform to the 1998 financial statement presentation.
3. Property and Equipment
Property and equipment consist of the following:
1998 1997
------- -------
Computers $ 3,804 --
Less: accumulated depreciation (370) --
------- -------
Total property and equipment, net $ 3,434 --
======= =======
Depreciation expense for the year ended December 31, 1998 was $370.
11
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
4. Deferred Income Taxes
The components of the provision for income taxes are as follows:
1998 1997
------- -------
Current tax expense:
Federal -- --
State -- --
------- -------
-- --
------- -------
Deferred tax expense:
Federal -- --
State -- --
------- -------
-- --
------- -------
Total provision - -
======= =======
Significant components of the Company's deferred income tax assets and
liabilities at December 31, 1998 and 1997 are as follows:
1998 1997
---------- --------
Deferred income tax asset:
Capitalized start-up expenses $ 399,012 $ 32,685
Other 15,716 4,900
---------- --------
Total deferred income tax asset 414,728 37,585
Valuation allowance (414,728) (37,585)
---------- --------
Net deferred income tax liability $ -- $ --
========== ========
Reconciliation of the effective tax rate to the U.S. statutory rate is as
follows:
1998 1997
---------- --------
Tax expense at U.S. statutory rate 34.0% 34.0%
Change in the valuation allowance (34.2) (33.4)
Other (0.2) (0.6)
---------- --------
Effective income tax rate (0.4% --%
========== ========
As of December 31, 1998, the Company has a federal research and
experimentation credit carryover of $15,716. The credits will begin to
expire in 2011.
12
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
5. Related Party Transactions
Expenses Incurred on Behalf of the Company
An officer who is a major shareholder of the Company provides office space
and clerical services to the Company, which has an annual cost of $6,000,
based on the current activity level. The expense sharing was calculated
based on the related entities' estimated usage of office space and support
staff.
Licensing Agreement
In 1996 the Company entered into a licensing agreement with an individual
who is an officer and major shareholder whereby the Company received the
exclusive right to develop, manufacture, and market an allergy detection,
non-invasive, medical device (Electronic Allergo-Sensitivity Test Device,
U.S. Patent No. 5413113). The Company issued 3,200,000 shares of Company
common stock for $800 at the time of the transaction to acquire the
licensing agreement rights. Continuing modifications and enhancements to
the technology described by the licensing agreement have been and may
continue to be made during the development and testing of the medical
device. It is not certain that the final technology involved in the medical
device will be protected by the original patent. The licensing agreement
does not require any royalty payments. The licensing agreement is for a
term of five years, with options to extend the agreement for two additional
five-year terms at no additional cost.
6. Stock Based Compensation
The options granted to purchase common stock shown below were originally
indicated as options to purchase common stock of the Company and also
reflected a four-for-one forward stock split effectuated by the Company
after the date these options were granted. However, subsequent to year end,
the Company determined that the minutes granting these options, while
indicated as minutes of the Company, were actually those of Elast
Technologies Corporation, a Delaware corporation ("Elast Delaware") and not
those of Elast Technologies, Inc., a Nevada corporation (the "Company").
Further, it was determined that the four-for-one forward stock split had
not occurred, but rather, when Elast Delaware merged with a wholly owned
subsidiary of the Company on June 30, 1998, each of the issued and
outstanding shares of Elast Delaware were converted to four shares of the
Company's common stock. Accordingly, the information presented below has
been revised to reflect options of Elast Delaware as originally granted by
its Board of Directors.
13
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
6. Stock Based Compensation, Continued
On February 13, 1998, the Board of Directors of Elast Delaware granted
100,000 options to purchase common stock to three members of the Board of
Directors of Elast Delaware in recognition of their service to it.
Accordingly, 300,000 options with a three year term were issued to the
Directors at an exercise price of $2.00 per share. Two of the Directors are
employees of Elast Delaware, and their options were accounted for under APB
No. 25. The options were granted at prices which equaled or exceeded the
fair value of Elast Delaware's common stock at the date of grant.
Consequently, no expense was recognized in connection with the issuance of
these 200,000 options. The 100,000 options issued to the nonemployee
director were valued in accordance with the provision of SFAS No. 123 and
determined to have no value, therefore no expense was recognized.
The following summarizes information about stock options of Elast
Delaware granted and outstanding at December 31, 1998 and 1997, and
changes during the years then ended:
1998 1997
----------------- -----------------
Exercise Exercise
Options Price Options Price
------- ------- ------- -------
Outstanding at beginning
of year -- -- -- --
Granted 300,000 $ 2.00 -- --
------- ------- ------- -------
Outstanding at end of year 300,000 $ 2.00 -- --
======= ======= ======= =======
The Company continues to account for stock-based compensation to employees
using the intrinsic value method as prescribed in APB No. 25 under which no
compensation cost for options is recognized for options granted at or above
fair market value of the Company's common stock at the date of grant. Had
consideration been given to compensation expense for options calculated
based upon fair values at the grant dates in accordance with SFAS No. 123,
there would be no effect on the Company's pro forma net loss and net loss
per share.
The fair value of each option granted was estimated at the date of grant
using the Black-Scholes Option Pricing Model (the "BSOPM"). The weighted
average assumptions used to calculate the minimum values of the stock
options granted in 1998 are a dividend yield of 0%, risk-free interest rate
at 5.00%, an expected stock price volatility of zero, and an expected
contractual life of 3 years, which resulted in no value ascribed to the
options granted during 1998.
14
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
6. Stock Based Compensation, Continued
The BSOPM was developed for use in estimating the fair value of traded
options. The Company's employee stock options have characteristics
significantly different from those of traded options, such as vesting
restriction and extremely limited transferability. In addition, the
assumptions used in option valuation models are highly subjective,
particularly the expected stock price volatility of the underlying stock.
Because changes in these subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not provide a reliable single measure of the fair value of its employee
stock options.
7. Stock Purchase Warrants
The Company's private placement offering of stock in 1996 was accomplished
with the sale of 136,668 units comprised of four shares of common stock and
four stock purchase warrants. The stock purchase warrants were immediately
exercisable upon issuance and all but 40,032 have been exercised. The stock
purchase warrants provide for an exercise price of $0.38 and they expire on
September 30, 1999.
8. Loss Per Common Share
In the year ended December 31, 1997, the Company adopted SFAS No. 128,
"Earnings per Share". Loss per common share has been calculated in
accordance with this statement.
Basic and diluted loss per common share have been computed by dividing the
loss available to common shareholders by the weighted-average number of
common shares for the period.
The computations of basic and diluted loss per common share for the years
ended December 31, 1998 and 1997 are as follows:
Period from
June 12, 1996
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1998 1997 1998
----------- ----------- -------------
Net loss available to common
stockholders $(1,102,374) $ (62,722) (1,203,405)
Weighted-average shares,
basic and diluted 5,798,194 3,768,004 4,579,954
----------- ----------- -----------
Loss per common share,
basic and diluted $ (0.19) $ (0.02) $ (0.26)
=========== =========== ===========
15
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
8. Loss Per Common Share, Continued
The effect of the potentially dilutive securities listed below was not
included in the computation of diluted loss per share because to do so
would have been antidilutive for the periods presented.
Period from
June 12, 1996
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
1998 1997 1998
----------- ----------- -------------
Shares of common stock issuable under:
Stock options of subsidiary 300,000 -- 300,000
Stock purchase warrants 40,032 40,032 40,032
----------- ----------- -------------
340,032 40,032 340,032
=========== =========== =============
9. Stock Transactions
Shares Issued to Acquire a License Agreement
In 1996, the Company issued 3,200,000 shares of its stock for $800 to
obtain a licensing agreement from an individual, who is an officer of the
Company (Note 5).
Shares Issued for Services
In 1996, the Company issued 21,332 shares for legal services related to
corporate formation and preparation of the Company's private placement
memorandum. The shares of Company stock were issued for legal services
valued at $6,719.
In 1998 the Company issued 270,000 shares for consulting and engineering
services and employee compensation as follows:
Consultants were issued 115,000 shares as additional recognition of
their services to the Company. The shares were valued at their fair
value at the time of issuance, $1.50 per share.
Outside engineers were issued 55,000 shares as additional recognition
of their services to the Company. The shares were valued at fair value
at the date of their issuance, $1.54 per share.
An officer and major shareholder was issued 100,000 shares as
additional recognition of his continuing efforts related to the
development of the technology. The shares were valued at their fair
value at the date of issuance, $1.50 per share.
16
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
9. Stock Transactions, Continued
Private Placement Offerings
In 1996, the Company, in a private placement offering, sold 546,672 units
consisting of one share of common stock and one stock purchase warrant
("warrants") at an exercise price of $0.38 per share. The warrants were
redeemable at $0.38 per warrant immediately upon issuance, and they will
expire on September 30, 1999.
In 1998, the Company, in a private placement offering, sold 394,000 shares
of common stock at $0.50 per share.
Common Shares Issued for Warrants Exercised
During 1997, 506,640 warrants were exercised resulting in the issuance of
506,640 shares of common stock.
Shares Issued for Raising Capital
In 1998, the Company issued 1,007,472 shares of stock for consulting
services related to the acquisition of Med Mark, Inc. (a reverse merger).
The shares were valued at $0.38 per share.
Acquisition of Med Mark, Inc. (Reverse Merger)
On June 10, 1998, the Company acquired all of the outstanding common stock
of Elast Delaware in a business combination accounted for as a purchase.
For accounting purposes, the acquisition has been treated as the
acquisition of the Company by Elast Delaware with Elast Delaware as the
acquiror (reverse acquisition). The effective purchase price was 1,220,000
shares of the Company's common stock. The Company, formerly known as Med
Mark, had no operations as of the acquisition date. No goodwill has been
recorded as a result of this transaction. As this transaction is treated as
a reverse merger acquisition, the historical financial statements prior to
June 10, 1998 are those of Elast Delaware.
Stock Issued to Correct a Stock Issuance Error
In 1998, the Company issued 13,332 shares to correct an error on a previous
stock issuance.
17
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
10. Management's Plan, (Unaudited)
At the balance sheet date:
o The Company is a non-operating development stage company.
o It had sufficient cash to cover its obligations.
Management has been devoting substantially all of its efforts to the
development and testing of the allergy detection, non-invasive, medical
device. Once testing is completed and FDA approval is received, the Company
will manufacture about 200 units. These initial units have been identified
for a select target group of physicians for a Beta test. The group will
include eye, ear, nose, throat specialists, clinical ecologists, and
allergy specialists, naturopaths, chemical ecologists, and chiropractors.
Upon completing of this test, the device will be marketed to all physicians
and hospitals to test for prescription drug compatibility with patients to
avoid Iatrogenic (drug related) illness. It is anticipated this portion of
management's plan will be completed in approximately twenty-four months.
The Company's overall operating plan is to market the initial product as a
stand-alone device that can be attached to personal computers. Once the
product gains acceptance in the medical community, a patient home testing
version of the unit will be developed. To achieve its plan, management is
also aware that it must secure additional investment capital.
11. Year 2000 Disclosure (Unaudited)
The Company has conducted a comprehensive review of its computer operations
to identify the systems that could have been adversely affected by the Year
2000 Issue and has developed and implemented a plan that it believes has
resolved the issue. The Year 2000 Issue is the result of computer programs
being written using two digits rather than four to define the applicable
year. Any of the Company's programs that have time-sensitive software might
have recognized a date using "00" as the year 1900 rather than the year
2000. This could have resulted in a system failure or miscalculations. The
Company presently believes that, with its existing software and conversions
to new software, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems as converted.
18
<PAGE>
Elast Technologies, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements, Continued
For the Years Ended December 31, 1998 and 1997
And for the Period from June 12, 1996 (Inception) to December 31, 1998
- --------------------------------------------------------------------------------
12. Subsequent Event
On March 3, 1999, the Company filed Form 10-SB with the Securities and
Exchange Commission. The Company, by meeting the definition of a "small
business issuer", was able to utilize Form 10-SB for registration of its
securities under the Securities Exchange Act of 1934.
19
<PAGE>
Item 23. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in or disagreements with the Company's accountants
since the formation of the Company required to be disclosed pursuant to Item 304
of Regulation S-B.
LEGAL MATTERS
The validity of the issuance of 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 financial statements of the Company at December 31, 1998, and 1997, and for
the years then ended, and for the period from incorporation to December 31,
1998, and the unaudited interim financial statements through September 30, 1999,
appearing in this Prospectus and Registration Statement have been audited by
Kelly & Company, Certified Public Accountants, and are included in reliance upon
such reports given upon the authority of Kelly & Company as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 with the Commission
pursuant to the 1933 Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement on Form SB-2 and the exhibits and schedules to the Registration
Statement on Form SB-2. For further information with respect to the Company and
the Common Stock offered hereby, reference is made to the Registration Statement
on Form SB-2 and the exhibits and schedules filed as a part of the Registration
Statement on Form SB-2. Statements contained in this Prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete, and reference is made in each instance to the copy of such contract or
document filed as an exhibit to the Registration Statement on Form SB-2. Each
such statement is qualified in all respects by such reference to such exhibit.
On March 3, 1999, the Company filed a Registration Statement on Form 10-SB,
which cleared comments with the Commission on or about September 1, 1999. The
Company is now a reporting company with the Commission, and will provide an
annual report to its security holders, which will include audited financial
statements. The public may read and copy any materials filed with the
Commission, including the Company's Registration Statement on Form SB-2 and the
Registration Statement on Form 10-SB, and all exhibits and schedules thereto, at
the Commission's Public Reference Room at 450 Fifth Street N.W., Washington,
D.C. 20549. Copies of all or any part thereof may be obtained from such office
after payment of fees prescribed by the Securities and Exchange Commission. The
public may also obtain information on the operation of the Public Reference Room
by calling the Commission at 1-800-SEC-0330. The Commission maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the Commission. The
address of that site is http://www.sec.gov.
25
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Number Caption Page
- ----------- ------- ----
<S> <C> <C>
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...............................................................................................13
10. Directors, Executive Officers, Promoters and Control Persons....................................................14
11. Security Ownership of Certain Beneficial Owners and Management..................................................15
12. Description of Securities.......................................................................................16
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.............................................................................17
16. Description of Business.........................................................................................17
17. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................................................19
18. Description of Property.........................................................................................22
19. Certain Relationships and Related Transactions ...........................................................22
20. Market for Common Equity and Related Stockholder Matters........................................................22
21. Executive Compensation..........................................................................................23
22. Financial Statements............................................................................................26
23. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................................................................53
Legal Matters...................................................................................................53
Experts.........................................................................................................53
Additional Information..........................................................................................53
</TABLE>
26
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Article Twelfth of the Company's Articles of Incorporation provides that no
director or officer of the Company shall be personally liable to the Company or
any of its stockholders for damages for breach of fiduciary duty as a director
or officer involving any act or omission of any such director or officer;
provided, however, that the foregoing provision does not eliminate or limit the
liability of a director or officer for acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or the payment of
dividends in violation of Section 78.300 of the Nevada Revised Statutes.
The Company will enter into indemnification agreements with each of its
executive officers pursuant to which the Company agrees to indemnify each such
person for all expenses and liabilities, including criminal monetary judgments,
penalties and fines, incurred by such person in connection with any criminal or
civil action brought or threatened against such person by reason of such person
being or having been an officer or director or employee of the Company. In order
to be entitled to indemnification by the Company, such person must have acted in
good faith and in a manner such person believed to be in the best interests of
the Company and, with respect to criminal actions, such person must have had no
reasonable cause to believe his or her conduct was unlawful.
Item 25. Other Expenses of Issuance and Distribution
The Company will pay all expenses in connection with the registration and sale
of the Shares, except any selling commissions or discounts allocable to sales of
the Shares, fees and disbursements of counsel and other representatives of the
Selling Stockholders, and any stock transfer taxes payable by reason of any such
sale. The estimated expenses of issuance and distribution are set forth below.
Registration Fees Approximately $759.81
Transfer Agent Fees Approximately $200.00
Costs of Printing and Engraving Approximately $300.00
Legal Fees Approximately $12,000.00
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.
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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 Amendment No. 1 to
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****
*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.
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<PAGE>
Item 28. Undertakings.
A. Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
B. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the 1933 Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (Section 230.424(b) of
Regulation S-B) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any additional or changed material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the 1933 Act,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
29
<PAGE>
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 Amendment No. 1 to 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 February 5, 2000.
Elast Technologies, Inc.,
a Nevada corporation
By:
---------------------------
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.
- ---------------------------- February 5, 2000
Director
- ---------------------------- February 5, 2000
Director
- ---------------------------- February 5, 2000
Director
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