SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934, for the quarter ended September 30, 1999
Commission File No. _____
ELAST TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0380544
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2505 Rancho Bel Air, Las Vegas, Nevada 89107
(Address of registrant's principal executive offices) (Zip Code)
702.878.8310
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant (1) has filed all reports required by Section 13 or
15(d) of the Securities Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's only class of Common Stock,
$.001 par value, was 8,751,215 on March 31, 2000.
Transitional Small Business Disclosure format (check one):
Yes [ ] No [X]
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
[insert from Kelly & Co.]
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Financial Statements
(Unaudited)
As of March 31, 2000 and
For Each of the Three Month Periods Ended March 31, 2000 and 1999 and
For the Period from June 12, 1996 (Inception) to March 31, 2000
2
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Index to the Consolidated Financial Statements
(Unaudited)
As of March 31, 2000 and
For the Three Month Period Ended March 31, 2000 and 1999 and
For the Period from June 12, 1996 (Inception) to March 31, 2000
- --------------------------------------------------------------------------------
Consolidated Financial Statements (Unaudited) of Elast Technologies, Inc.:
Consolidated Balance Sheet (Unaudited), March 31, 2000...................1
Consolidated Statements of Operations (Unaudited) for Each of the
Three Month Periods Ended March 31, 2000 and 1999 and for
the Period from June 12, 1996 (Inception) to March 31, 2000 ..........2
Consolidated Statements of Shareholders' Equity (Unaudited) for
the Period from June 12, 1996 (Inception) to March 31, 2000...........3
Consolidated Statements of Cash Flows (Unaudited) for Each of
the Three Month Periods Ended March 31, 2000 and 1999 and for
the Period from June 12, 1996 Inception) to March 31, 2000 ...........5
Notes to the Consolidated Financial Statements................................9
3
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Balance Sheet
(Unaudited)
March 31, 2000
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and equivalents $ 671,053
------------
Total current assets 671,053
Property and equipment, net 10,027
License, net 200
------------
Total assets $ 681,280
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ --
Accrued payroll and payroll taxes 38,899
------------
Total current liabilities 38,899
Notes payable 450,832
------------
Total liabilities 489,731
------------
Shareholders' equity:
Common stock, $.001 par value; 25,000,000
shares authorized; 8,751,215 shares issued
and outstanding at March 31, 2000 8,751
Additional paid-in capital 2,995,701
Additional paid-in capital for warrants 205,000
Deficit accumulated during the development stage (3,017,903)
------------
Total shareholders' equity 191,549
------------
Total liabilities and shareholders' equity $ 681,280
============
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Operations
(Unaudited)
For the Period from June 12, 1996 (Inception) to March 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
For the For the June 12, 1996
Three Months Ended Three Months Ended (Inception) to
March 31, 2000 March 31, 1999 March 31, 2000
--------------- --------------- --------------
<S> <C> <C> <C>
Operating costs:
Officers compensation $ 388,810 $ 13,900 $ 937,229
Research and development 38,285 70,192 544,350
Legal and professional 89,560 1,355 727,937
Investor relations 22,375 40,400 347,216
Financing consulting fee 219,675 -- 279,675
Other operating costs and
expenses 81,285 72,544 215,198
----------- ----------- -----------
Total operating costs 839,990 198,391 3,051,605
Interest income (2,420) (1,694) (33,702)
----------- ----------- -----------
Net loss $ 837,570 $ 196,697 $ 3,017,903
=========== =========== ===========
Loss per common share -
basic and diluted $ (0.10) $ (0.03) $ (0.54)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Shareholders' Equity
For the Period from June 12, 1996 (Inception) to March 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Elast Technologies, Inc.
Elast Technologies Corporation Formerly Med Mark, Inc.)
(A Delaware Corporation) (A Nevada Corporation)
------------------------ ---------------------- Price Additional
Common Common Common Common Per Paid-in
Shares Stock Shares Stock Share Capital
------ ----- ------ ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 12, 1996 (inception) -- -- -- -- --
Shares issued for the medical device
license 3,200,000 $ 3,200 -- -- (2,400)
Shares issued for legal services 21,332 21 -- -- $ 0.31 6,698
Contribution of funds expended by
the major shareholder on the
Company's behalf -- -- -- -- 4,167
Shares issued in private placement 546,672 547 -- -- 0.38 204,453
Net loss from inception to December
31, 1996 -- -- -- -- --
--------- --------- ------ ----- -------
Balance, December 31, 1996 3,768,004 3,768 -- -- 212,918
Contribution of funds expended by
the major shareholder on the
Company's behalf -- -- -- -- 1,500
Net loss for the year
ended December 31, 1997 -- -- -- -- --
---------- --------- ------- ----- -------
Balance, December 31, 1997 3,768,004 3,768 -- -- 214,418
---------- --------- ------- ----- -------
<CAPTION>
Deficit Less:
Detachable Accumulated Common
Stock During the Stock
Purchase Development Subscription
Warrants Stage Subtotal Receivable Total
-------- ----- -------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balance, June 12, 1996 (inception) -- -- -- -- --
Shares issued for the medical device
license -- -- $ 800 -- $ 800
Shares issued for legal services -- -- 6,719 -- 6,719
Contribution of funds expended by
the major shareholder on the
Company's behalf -- -- 4,167 -- 4,167
Shares issued in private placement -- -- 205,000 $ (10,000) 195,000
Net loss from inception to December
31, 1996 -- (38,309) (38,309) -- (38,309)
--------- --------- --------- --------- -------
Balance, December 31, 1996 -- (38,309) 178,377 (10,000) 168,377
Contribution of funds expended by
the major shareholder on the
Company's behalf -- -- 1,500 -- 1,500
Net loss for the year
ended December 31, 1997 -- (62,722) (62,722) -- (62,722)
--------- --------- --------- --------- -------
Balance, December 31, 1997 -- (101,031) 117,155 (10,000) 107,155
--------- --------- --------- --------- -------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Shareholders' Equity
For the Period from June 12, 1996 (Inception) to March 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Elast Technologies, Inc.
Elast Technologies Corporation (Formerly Med Mark, Inc.)
(A Delaware Corporation) (A Nevada Corporation)
--------------------------- --------------------------- Price Additional
Common Common Common Common Per Paid-in
Shares Stock Shares Stock Share Capital
----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 3,768,004 $ 3,768 -- -- $ 214,418
Shares outstanding prior to the
reorganization -- -- 1,220,000 $ 1,220 -- 29,506
Shares issued in private placement 394,000 394 -- -- $ 0.50 196,606
Payment of receivable arising from
issuance of common stock -- -- -- -- -- --
Shares issued on the exercise of
warrants 506,640 507 -- -- 0.38 189,483
Shares issued to consultant in
connection with the reorganization 1,007,472 1,007 -- -- 0.38 376,791
Shares issued and surrendered in
the acquisition of Elast
Technologies, Inc. (a Nevada
Corporation) (reverse merger) (5,676,116) (5,676) 5,676,116 5,676 -- --
Shares issued for consulting
services, engineering services,
and employee compensation -- -- 270,000 270 1.51 407,095
Shares issued to an existing
shareholder to correct a stock
issuance error -- -- 13,332 13 -- (13)
Net loss for the year ended
December 31, 1998 -- -- -- -- -- --
----------- ----------- ----------- ----------- --------- -----------
Balance, December 31, 1998 -- -- 7,179,448 $ 7,179 $ 1,413,886
----------- ----------- ----------- ----------- --------- -----------
<CAPTION>
Deficit Less:
Detachable Accumulated Common
Stock During the Stock
Purchase Development Subscription
Warrants Stage Subtotal Receivable Total
-------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 -- $ (101,031) $ 117,155 $ (10,000) $ 107,155
Shares outstanding prior to the
reorganization -- -- 30,726 -- 30,726
Shares issued in private placement -- -- 197,000 -- 197,000
Payment of receivable arising from
issuance of common stock -- -- -- 10,000 10,000
Shares issued on the exercise of
warrants -- -- 189,990 -- 189,990
Shares issued to consultant in
connection with the reorganization -- -- 377,798 -- 377,798
Shares issued and surrendered in
the acquisition of Elast
Technologies, Inc. (a Nevada
Corporation) (reverse merger) -- -- -- -- --
Shares issued for consulting
services, engineering services,
and employee compensation -- -- 407,365 -- 407,365
Shares issued to an existing
shareholder to correct a stock
issuance error -- -- -- -- --
Net loss for the year ended
December 31, 1998 -- (1,102,374) (1,102,374) -- (1,102,374)
-------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 -- $(1,203,405) $ 217,660 $ -- $ 217,660
-------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
7
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Shareholders' Equity
For the Period from June 12, 1996 (Inception) to March 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Elast Technologies, Inc.
Elast Technologies Corporation (Formerly Med Mark, Inc.)
(A Delaware Corporation) (A Nevada Corporation)
----------------------- ------------------------- Price Additional
Common Common Common Common Per Paid-in
Shares Stock Shares Stock Share Capital
------ ----- ------ ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 -- -- 7,179,448 $ 7,179 $ 1,413,886
Shares issued in private placement -- -- 205,900 206 1.50 308,044
Shares issued in private placement -- -- 500,000 500 0.59 294,482
Shares issued for consulting services -- -- 26,133 26 1.54 40,126
Shares issued for research and
development services -- -- 50,000 50 1.48 73,950
Net loss for the year ended
December 31, 1999 -- -- -- -- -- --
----------- --------- ----------- --------- --------- -----------
Balance, December 31, 1999 -- -- 7,961,481 7,961 -- 2,130,488
----------- --------- ----------- --------- --------- -----------
Shares issued in private placement -- -- 273,334 274 1.30 356,394
Shares issued, currently in litigation -- -- 266,000 266 0.00 (266)
Shares issued as officer compensation -- -- 144,000 144 2.01 289,516
Shares issued for consulting services -- -- 50,000 50 1.77 88,400
Shares issued for consulting services -- -- 56,400 56 2.33 131,169
Net loss for the three months ended
March 31, 2000 -- -- -- -- -- --
----------- --------- ----------- --------- --------- -----------
Balance, March 31, 2000 (unaudited) -- -- 8,751,215 $ 8,751 -- $ 2,995,701
=========== ========= =========== ========= ========= ===========
<CAPTION>
Deficit Less:
Detachable Accumulated Common
Stock During the Stock
Purchase Development Subscription
Warrants Stage Subtotal Receivable Total
-------- ----- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 -- $(1,203,405) $ 217,660 -- $ 217,660
Shares issued in private placement -- -- 308,250 -- 308,250
Shares issued in private placement $ 205,000 -- 499,982 -- 499,982
Shares issued for consulting services -- -- 40,152 -- 40,152
Shares issued for research and
development services -- -- 74,000 -- 74,000
Net loss for the year ended
December 31, 1999 -- (976,928) (976,928) -- (976,928)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 205,000 (2,180,333) 163,116 -- 163,116
----------- ----------- ----------- ----------- -----------
Shares issued in private placement -- -- 356,668 -- 356,668
Shares issued, currently in litigation -- -- -- -- --
Shares issued as officer compensation -- -- 289,660 -- 289,660
Shares issued for consulting services -- -- 88,450 -- 88,450
Shares issued for consulting services -- -- 131,225 -- 131,225
Net loss for the three months ended
March 31, 2000 -- (837,570) (837,570) -- (837,570)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 2000 (unaudited) $ 205,000 $(3,017,903) $ 191,549 -- $ 191,549
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
8
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Cash Flows
(Unaudited)
For Each of the Three Month Periods Ended March 31, 2000 and 1999 and
For the Period from June 12, 1996 (Inception) to March 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
For the For the June 12, 1996
Three Months Ended Three Months Ended (Inception) to
March 31, 2000 March 31, 1999 March 31, 2000
--------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (837,570) $ (196,697) $(3,017,903)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 685 230 4,161
Issuance of stock for services 509,337 39,928 1,415,371
Loss on sale of asset -- -- 2,608
Increase (decrease) in liabilities:
Accounts payable, trade (14,614) (8,512) --
Accrued payroll taxes -- -- 38,898
----------- ----------- -----------
Cash used in operating activities (342,162) (165,051) (1,556,865)
----------- ----------- -----------
Cash flows provided by (used in) investing activities:
Purchase of equipment -- -- (21,197)
Sale of equipment -- -- 5,000
----------- ----------- -----------
Cash used in investing activities -- -- (16,197)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
9
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Cash Flows
(Unaudited)
For Each of the Three Month Periods Ended March 31, 2000 and 1999 and
For the Period from June 12, 1996 (Inception) to March 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
For the For the June 12, 1996
Three Months Ended Three Months Ended (Inception) to
March 31, 2000 March 31, 1999 March 31, 2000
--------------- -------------- --------------
<S> <C> <C> <C>
Cash flows provided by financing activities:
Acquisition of MedMark, Inc. -- -- $ 30,726
Proceeds from the exercise of
warrants -- -- 189,990
Payment of common stock
subscription receivable -- -- 10,000
Proceed from the issuance of
notes payable $ 450,832 -- 450,832
Proceeds from the issuance of
common stock 356,668 $ 208,250 1,556,900
Contribution to additional
paid-in capital -- -- 5,667
---------- ---------- ----------
Cash provided by financing
activities 807,500 208,250 2,244,115
---------- ---------- ----------
Net increase in cash 465,338 43,199 671,053
Cash at beginning of period 205,715 226,818 --
---------- ---------- ----------
Cash at end of period $ 671,053 $ 270,017 $ 671,053
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
10
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Cash Flows
(Unaudited)
For Each of the Three Month Periods Ended March 31, 2000 and 1999 and
For the Period from June 12, 1996 (Inception) to March 31, 2000
<-------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
Period from
For the For the June 12, 1996
Three Months Ended Three Months Ended (Inception) to
March 31, 2000 March 31, 1999 March 31, 2000
--------------- -------------- --------------
<S> <C> <C> <C>
Interest paid -- -- $ 1,375
Income taxes paid -- -- $ 1,973
Supplemental Schedule of Non-Cash Investing
and Financing Activities
Assets acquired in non-cash transactions:
Acquisition of medical device license -- -- $ 800
Increase in common stock subscription
receivable -- -- $ 10,000
Issuance of common stock -- -- $(10,800)
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
11
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements
(Unaudited)
For Each of the Three Month Periods Ended March 31, 2000 and 1999 and
For the Period from June 12, 1996 (Inception) to March 31, 2000
- --------------------------------------------------------------------------------
1. Basis of Presentation
In the opinion of the management of Elast Technologies, Inc. (a development
stage company) (the "Company"), the accompanying unaudited condensed
financial statements contain all adjustments, consisting of only normal
recurring adjustments necessary to present fairly its financial position as
of March 31, 2000, the results of its operations for the three months ended
March 31, 2000 and 1999 and for the period from June 12, 1996 (inception)
to March 31, 2000, and the statements of shareholders' deficit and cash
flows for the three months ended March 31, 2000 and for the period from
June 12, 1996 (inception) to March 31, 2000.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations promulgated by the Securities and Exchange Commission. The
interim unaudited consolidated financial statements should be read in
conjunction with the financial statements and footnotes included in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1999.
2. Development Stage Operations
Elast Technologies, Inc. (a development stage company) has a limited
operating history with no revenues and no products or operable technology
ready for the market. The Company is engaged in the ongoing development of
its first product, a non-invasive medical device to test for allergies with
real time, quantifiable, visually displayed results. Management's efforts
to date have focused primarily on the development of the medical device and
the raising of equity capital. As such, the Company is subject to the risks
and uncertainties associated with a new business. The success of the
Company's future operations is dependent, in part, upon the Company's
ability to successfully market its yet to be developed products and obtain
additional capital.
3. Loss Per Common Share
In the year ended March 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.
12
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements
(Unaudited)
For Each of the Three Month Periods Ended March 31, 2000 and 1999 and
For the Period from June 12, 1996 (Inception) to March 31, 2000
- --------------------------------------------------------------------------------
3. Loss Per Common Share, Continued
The computations of basic and diluted loss per common share for the periods
follows.
<TABLE>
<CAPTION>
Period from
For the For the June 12, 1996
Three Months Ended Three Months Ended (Inception) to
March 31, 2000 March 31, 1999 March 31, 2000
--------------- --------------- --------------
<S> <C> <C> <C>
Net loss available to common
stockholders $ (837,570) $ (196,697) (3,017,903)
Weighted-average shares, basic and diluted 8,249,294 7,214,106 5,630,115
----------- ----------- -------------
Loss per common share, basic and
diluted $ (0.10) $ (0.03) $ (0.54)
=========== =========== =============
4. Notes Payable
Notespayable as of March 31, 2000 are as follows:
Notes payable to two individuals, without
collateral each with an effective interest
rates of 9% per annum, maturing on
March 31, 2002. Interest only payments
are due quarterly $ 450,832
-------------
Total notes payable 450,832
Less: current maturities --
-------------
Long term portion of notes payable $ 450,832
=============
</TABLE>
13
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements
(Unaudited)
For Each of the Three Month Periods Ended March 31, 2000 and 1999 and
For the Period from June 12, 1996 (Inception) to March 31, 2000
- --------------------------------------------------------------------------------
6. Contingencies
Patent Technology
In 1996, the Company entered into a technology licensing agreement that
provided for its use of certain intellectual property described by a United
States patent. Since obtaining the license rights, the Company has expended
significant research and development efforts in conjunction with the
intellectual property that has resulted in significant modifications and
enhancements. The Company's efforts to date, plus its anticipated efforts
in the future, raise doubt that the final technology involved in the
medical device will be protected by the original patent.
Employment Taxes
The Company, in its fiduciary capacity as an employer, has the primary
responsibility for deducting and remitting both the employer and employee
portions of payroll related taxes to the appropriate governmental agencies.
Since inception, the Company paid $548,419 in compensation to three of its
officers upon which taxes were not withheld from these employees nor
remitted to the appropriate governmental authorities. If, as a result of
not withholding employment taxes, the employees incur an income tax
liability that ultimately results in a deficiency, the Company becomes
contingently responsible, if the employees cannot or do not satisfy that
liability. Since inception, the Company is contingently liable for these
taxes, penalties, and interest, which approximate $207,000. The employer
portion of the payroll related taxes has been recorded as a liability by
the Company.
5. Stock Transactions
Shares Issued for Officer Compensation
In 2000, the Company issued 144,000 shares to officers as compensation. One
officer was issued 19,000 shares for services provided and another was
issued 125,000 shares as part of a termination settlement. The shares were
valued at fair value at the time of issuance, $2.01 per share.
14
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements
(Unaudited)
For Each of the Three Month Periods Ended March 31, 2000 and 1999 and
For the Period from June 12, 1996 (Inception) to March 31, 2000
- --------------------------------------------------------------------------------
5. Stock Transactions Continued
Private Placement Offering
In 2000, the Company, in a private placement offering, sold 273,334 shares
of common stock at $1.30.
Shares Issued for Services
In 2000, the Company issued 106,400 shares for finance consulting service
as follows:
Consultants were issued 50,000 shares for their finance consulting
services. The shares were valued at their fair value at the time of
issuance, $1.77 per share.
Consultants were issued 56,400 shares for their finance consulting and
public relations services. The shares were valued at their fair value
at the time of issuance, $2.33 per share.
Shares Issued, Currently in Litigation
In December 1999, the Company entered into a Consulting Agreement
("Agreement") with Crescent Partners, L.P. ("Crescent") whereby Crescent
was to act as a finder of capital and a public relations consultant.
Pursuant to the Agreement, in February 2000 the Company issued, 800,000
shares of the Company's common stock to Crescent. In turn, Crescent was to
find investors to purchase those shares at prices approved by the Company.
Subsequently, Crescent sold a portion of the common stock without the
Company's approval and kept the proceeds. The Company filed suit against
Crescent on March 30, 2000 for breach of duty and contract. The Company
also obtained an injunction to prohibit further disposition of the shares
and recovered 534,000 of the shares. The Company is continuing to prosecute
this action against Crescent, seeking the return of the remaining shares
and additional relief. The shares not returned are reflected as issued and
recorded at par value pending the outcome of the litigation.
15
<PAGE>
Item 2. Plan of Operation
THIS REPORT SPECIFIES FORWARD-LOOKING STATEMENTS OF MANAGEMENT OF THE COMPANY
("FORWARD-LOOKING STATEMENTS") INCLUDING, WITHOUT LIMITATION, FORWARD-LOOKING
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS AND FUTURE
STRATEGIES. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE
HAPPENING OF FUTURE EVENTS AND ARE NOT BASED ON HISTORICAL
FACTS. FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-
LOOKING TERMINOLOGY, SUCH AS "COULD", "MAY", "WILL", "EXPECT", "SHALL",
"ESTIMATE", "ANTICIPATE", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", "INTEND"
OR SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE
FORWARD- LOOKING STATEMENTS SPECIFIED IN THIS REPORT HAVE BEEN COMPILED BY
MANAGEMENT OF THE COMPANY ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND
CONSIDERED BY MANAGEMENT TO BE REASONABLE. FUTURE OPERATING RESULTS OF THE
COMPANY, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR
WARRANTY IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THIS REPORT REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO UNCERTAINTY
AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER
CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA AND
OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM AND
AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE EXTENT
THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM
ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED ON
THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. IN ADDITION, THOSE
FORWARD-LOOKING STATEMENTS HAVE BEEN COMPILED AS OF THE DATE OF THIS REPORT AND
SHOULD BE EVALUATED WITH CONSIDERATION OF ANY CHANGES OCCURRING AFTER THE DATE
OF THIS REPORT. NO ASSURANCE CAN BE GIVEN THAT ANY OF THE ASSUMPTIONS RELATING
TO THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS REPORT ARE ACCURATE, AND THE
COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
Overview. The Company did not have revenue from operations in the last fiscal
year and through the first quarter of 2000. Officers' compensation, in the
aggregate, increased from $13,900 during the first quarter of 1999 to $407,254
during the first quarter of 2000. Research and development expenses decreased
from $70,192 during the three month period ended March 31, 1999 to $38,285
during the three month period ended March 31, 2000. Legal and professional fees
increased from $1,892 during the three month period ended March 31, 1999 to
$71,116 during the three month period ended March 31, 2000. Investor relations
costs also decreased from $40,400 during the three month period ended March 31,
1999 to $22,375 during the three month period ended March 31, 2000. We suffered
a net loss from operating activities of $837,570 for the three month period
ended March 31, 2000.
Total proceeds from the sale of our common stock in the three month period ended
March 31, 2000 in the amount of $356,668. We also received $450,832 in proceeds
from the issuance of notes payable. The Company had a net increase in cash from
$205,715 at the beginning of the first quarter of 2000 to $671,053 in cash at
the end of the quarter, an increase of $465,338.
Company's Plan of Operation for Next 12 Months. We are a research and
development enterprise whose primary business is the development of the
Electronic Allergo Sensitivity Test (ELAST Device(TM)). The ELAST Device(TM) is
a patented non-invasive allergy-testing device that is expected to offer
physicians accurate and immediate diagnoses of allergies and sensitivities
without the pain, expense, or time associated with current methods. The ELAST
Device(TM) is based upon the clinical observation that the normal electrical
flow of the body is interrupted when it is exposed to a substance to which it is
sensitive or allergic. The ELAST Device(TM) is being designed to use electronic
technology to measure the interruption of the body's electrical
16
<PAGE>
flow, thereby providing an accurate assessment of sensitivity. In the last two
fiscal quarters, significant developments in the ELAST Device(TM)'s capabilities
have resulted from the Company's research and development efforts. Specifically,
the Company believes its recent tests demonstrate that the ELAST Device(TM) is
capable of successfully isolating the electrical energy signal emanating from
the human body.
Our executive offices are located at 2505 Rancho Bel Air, Las Vegas, Nevada
89107. On February 1, 2000, we relocated our research and development facilities
to San Diego's Center for Applied Competitive Technologies. Our telephone number
in Las Vegas is 702.878.8310.
On April 14, 2000, we announced that we have entered into a tentative merger
agreement with Bioelectronics Corp. , a privately held research and development
company based in Maryland which also utilizes electronic technology to address
bio-electric medical needs. The potential market for our products includes
allergy sufferers and individuals with traumatic injuries.
Bioelectronics Corp. designs low cost and disposable magnetic field medical
devices to accelerate and improve the quality of tissue healing. Its first
product is a patented Portic Electronic Bandage, an inexpensive, disposable and
self-contained radio frequency emitting device which reportedly accelerates the
healing of soft and hard tissue wounds including fresh fractures. The Portic
Electronic Bandage is an adjunctive treatment which uses the body's own
electrical circuits to heal. The Portic Electronic Bandage has been tested on
over 2,000 patients. Pre-market approval has been obtained in Canada, and a 510K
application has been submitted to the FDA for pre-market approval in the United
States. The FDA has agreed to a minimal 50-person study to expedite market
approval. Bioelectronics Corp. is also launching sales and marketing for its
over-the-counter and prescription products in Canada, Mexico and other
international markets. Additionally, the technology is being applied to the
veterinary markets.
Our proposed merger with Bioelectronics Corp. will result in shared technology
and marketing expertise. Both companies are involved in similar electromedical
research and both are dedicated to the provision of convenient, reliable and
cost-effective medical care. The expanding use of Transcutaneous Nerve
Stimulation (TENS) for pain mitigation, the effective use of electricity in
non-union bone fusion, and the growing body of research establishing the body's
own use of electrical circuits have driven the advancement of electromedicine in
the fields in which both we and Bioelectronics Corp. are concentrating our
research and development activities.
To assure a smooth transition for both companies, Thomas F. Krucker, our
President and Chief Executive Officer, will serve as President and Chief
Executive Officer of the surviving corporation after the merger and Andrew J.
Whelan, the President and Chief Executive Officer of Bioelectronics Corp. will
serve as Chief Operating Officer of the surviving corporation after the merger.
In addition to the integration of the two management teams, the Board of the
combined company will consist of members of our current Board of Directors and
members of Bioelectronics Corp.'s Board of Directors, with a majority of the
directors from our Board of Directors.
The merger agreement is subject to completion and execution of final merger
documents and shareholder approval, and we will file the appropriate information
and documents with the Securities and Exchange Commission when the merger
agreement is completed and approved.
Liquidity and Available Cash for Operations. We believe our current cash
resources are sufficient to fund our research and development activities
relating to the ELAST Device(TM) over the next 6 months. Specifically, at March
31, 2000, we had cash and equivalents of 671,053, with total liabilities of
$489,731 (consisting of accrued payroll taxes of $38,899 and notes payable of
$450,832). It may be necessary to raise additional funds
17
<PAGE>
to complete prototype development and limited clinical trials of the ELAST
Device(TM). However, if the ELAST Device(TM) performs as anticipated, we believe
we will be able to raise the funds necessary to begin production of the ELAST
Device(TM) - for the North American and international clinical trials and the
Food and Drug Administration ("FDA") approval process - by the sale of our
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(TM), sufficient funds may not be available to enable the
ELAST Device(TM) to be completed and brought to market during the next 6 months.
Manufacturing and Marketing the Company's Products. The Company anticipates that
it will initially subcontract the manufacture and assembly of the ELAST
Device(TM) and does not expect to purchase a manufacturing facility or equipment
at this time. The principal components of the ELAST Device(TM) consist of
electronic parts that are readily available, eliminating supply problems, and
its operations are not effected by seasonal factors.
Employees. In the current fiscal year, the Company expects to add 2 full-time,
permanent employees to its research and development department and 2 full-time,
permanent employees to its administrative staff. During the next 12 months, if
the American clinical testing of the ELAST Device(TM) is successful, the Company
may require significant additional employees; however, the Company is not able
to provide a reasonable estimate of the number of such additional employees at
this time.
Summary of Research and Development Activities. A "medical device" is defined by
Section 201(h) of the Food, Drug and Cosmetic Act, Title 21 United States Code
Section 321 as an instrument, apparatus, or machine which is intended for use in
the diagnosis of disease or other conditions, or in the cure, mitigation,
treatment, or prevention of disease in man and other animals. Confusion
sometimes exists between unregulated consumer products and medical devices.
Products are not considered medical devices if they have general utility and are
not dedicated to medical applications. Such products are subject to the Consumer
Product Safety Act.
Human therapeutic products are subject to rigorous pre-clinical and clinical
testing and other approval procedures. The FDA and other similar government
regulatory agencies require laboratory and clinical testing and other costly and
time-consuming procedures before medical products such as the ELAST Device(TM)
can be marketed, including, but not limited to, premarket notification to the
FDA. Various federal, state and foreign statutes may also govern or affect the
manufacturing, safety, labeling, storage, and marketing of such products, as
well as record-keeping incidental to such marketing. The ELAST Device(TM) may be
subject to (i) the Medical Device Amendments of 1976 to the Federal Food, Drug
and Cosmetic Act, cited above; (ii) the Medical Device Reporting Rule
implemented by the FDA in 1984; (iii) the standards for medical device
manufacturers promulgated by the FDA; and (iv) other rules and regulations
developed, implemented and enforced by the Center for Devices and Radiological
Health, an FDA sub-agency. However, the FDA Modernization Act of 1997 ("1997
Act") exempts from premarket notification devices that do not present a
potential unreasonable risk of illness or injury. The 1997 Act also directs the
FDA to concentrate its postmarket surveillance on higher risk devices. Moreover,
the 1997 Act expanded the FDA's pilot program pursuant to which the FDA
accredits third party experts to conduct the initial review of all
low-to-intermediate risk devices. The Company believes that the ELAST Device(TM)
is such a low-to-intermediate risk device and, therefore, may be subject to the
exemptions from premarket notification specified in the 1997 Act. If such is not
the case, the ELAST Device(TM) may be subject to premarket notification and,
therefore, subject to significant delay before being offered for sale, which
would have a material adverse effect on the financial condition of the Company.
18
<PAGE>
Obtaining such approvals and maintaining ongoing compliance with these
requirements can require the expenditure of significant resources. To date, the
Company has not determined what procedures, if any, will be required in this
regard and has not begun any of these procedures. The Company is currently
investigating the possibility that the ELAST Device(TM) falls in a category for
which FDA approval has already been given. The Company anticipates that the
ELAST Device(TM) may be included in such a category, but research is currently
being conducted by the Company to determine the appropriate regulatory
requirements. In addition, regulatory testing and approval would require
significant funding. In the event that such funding exceeded the present
financial resources of the Company, the Company would have to receive additional
capital to market the ELAST Device(TM). An inability to obtain additional
financing may have a material adverse effect on the Company, including the
possibility that the Company would be forced to curtail its operations
significantly or to cease its operations altogether.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Except as specified below, there are no legal actions pending against the
Company nor are any such legal actions contemplated.
On or about December 7, 1999, the Company initiated an offering of 1,000,000
shares of its $.001 par value common stock on a best efforts basis pursuant to a
Registration Statement on Form SB-2 ("Registration Statement"). On or about
February 23, 2000, the Company was informed by the SEC that the Registration
Statement was effective. On or about March 7, 2000, the Company was informed by
the SEC that the financial statements filed with the Registration Statement were
not current, and that the Company must file a Post- Effective Amendment
containing more recent financial statements and a Consent of Auditors to use
those more recent financial statements. On March 14, 2000, the Company filed
Post-Effective Amendment No. 1 to the Registration Statement which contained
those recent financial statements and that Consent.
On or about February 25, 2000, the Company deposited 800,000 shares in CEDE &
Company through DTC. Although the Company requested that those 800,000 shares in
DTC be returned to certificate form, Crescent Partners Fund, L.P., the named
holder on that DTC account, initially refused to return those shares to
certificate form. The Company, therefore, applied for, and received, injunctive
relief from the Dallas County, Texas District Court ("Court"). The Court ordered
Crescent Partners Fund, L.P. to refrain from transferring, encumbering,
hypothecating, assigning, or otherwise alienating those shares. As a result of
that lawsuit, Crescent Partners Fund, L.P. returned to the Court a certificate
evidencing 665,000 shares of the Company's $.001 par value common stock. The
Company is continuing to prosecute this action against Crescent Partners Fund,
L.P.
Item 2. Changes in Securities
Shares Issued as Compensation for Services. In 1998, the Company issued 270,000
shares of its $.001 par value common stock as compensation for consulting and
engineering services, and employee compensation, as follows: (i) Consultants
were issued 115,000 shares of the Company's $.001 par value common stock as
additional compensation for their services to the Company. Those shares were
valued at what the Company believes was the fair market value at the time of
issuance, which was $1.50 per share. (ii) Third party engineers were issued
55,000 shares of the Company's $.001par value common stock as additional
compensation for their services to the Company. Those shares were valued at what
the Company believes was the fair market value at the time of issuance, which
was $1.54 per share. (iii) Dr. Milne, an officer, director and major shareholder
of the Company, was issued 100,000 shares of the Company's $.001 par value
common stock as additional compensation for his services to the Company;
specifically, his continuing efforts related to the development of certain
technology which will be utilized by the Company in its business operations.
Those shares were valued at what the Company believes was the fair market value
at the time of issuance, which was $1.50 per share. In 1999, the Company issued
shares of its $.001 par value common stock as compensation for services provided
to the Company, and employee compensation, as follows: 13,400 shares to Gerald
Klein; 4,700 shares to Ron Almadova; 4,700shares to William Milne; 3,333 shares
to Hope Lane; 25,000 shares to Jim Woodens; and 25,000 shares to John Martinez.
On March 13, 2000, the Company issued 6,400 shares of its common stock to
Stockgroup.com Media as a fee for Internet investment consulting. The Company
did not receive any proceeds from this transaction. Those shares were a portion
of the shares registered by the Registration Statement. On March 15, 2000, the
Company
19
<PAGE>
received $140,000 for the purchase of 100,000 shares of its common stock from
HAA, Inc. Those shares were a portion of the shares registered by the
Registration Statement and such proceeds were used for working capital. Xcell
Associates received 50,000 restricted shares of the Company's $.001 par value
common stock as a pre-paid consulting fee on March 6, 2000; therefore, these
shares were not part of the shares registered by the Registration Statement. NC
Capital Markets, Inc. ("NC Capital") received 50,000 shares of the Company's
$.001 par value common stock on March 6, 2000, which shares were a portion of
the shares registered by the Registration Statement. NC Capital is an investment
banker, and these shares were a pre-paid investment banking fee; therefore, the
Company did not receive any proceeds from this transaction. Investment banker
Ronald Ardt, individually, purchased 33,334 shares of the Company's $.001 par
value common stock and, on behalf of his company, Business Investors Service,
purchased an additional 50,000 shares of the Company's $.001 par value common
stock, which shares were a portion of the shares registered by the Registration
Statement. The funds for both purchases were received by the Company on March
22, 2000 and were used for working capital.*
*An officer and a major shareholder received 19,000 restricted shares of the
Company's $.001 par value common stock as compensation and purchased 90,000
shares of the Company's $.001 par value common stock for $100,000. The 90,000
shares were a portion of the shares registered by the Registration Statement and
the funds received were used for working capital.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
We anticipate submitting the proposed merger with Bioelectronics Corp. to a
vote of our shareholders for approval. We anticipate including all relevant
information in our proxy statement which will be filed with the Securities and
Exchange Commission prior to our annual meeting of shareholders at which such a
vote will take place.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1 Underwriting Agreement (not applicable)
2 Plan of Merger (The merger agreement with Bioelectronics Corp. will be
filed with the Securities and Exchange Commission when it has been executed
but prior to shareholder approval)
3.1 Articles of Incorporation* (Charter Document)
3.2 Certificate of Amendment to Articles of Incorporation*
(Charter Document)
20
<PAGE>
3.3 Bylaws*
10.1 Material Contracts (The merger agreement with Bioelectronics Corp. will be
filed with the Securities and Exchange Commission when it has been executed
but prior to shareholder approval)
11. Statement Re: Computation of Per Share Earnings (included in Footnote 2 of
the Financial Statements in Item 1 of this Quarterly Report on Form 10-QSB)
15. Not applicable.
18. Letter on Change in Accounting Principles (Not applicable)
19. Reports Furnished to Security Holders (Not applicable)
22. Published Report Regarding Matters Submitted to Vote (not applicable)
24. Power of Attorney is included on the Signature Page of the Registration
Statement*
27. Financial Data Schedule
99 Other (not applicable)
*Previously filed as exhibits to Amendment No. 1 to Registration Statement on
Form 10-SB filed with the SEC on August 2, 1999.
(b) Reports on Form 8-K
We filed one report on Form 8-K during the three month period ended March
31, 2000, specifically, on January 18, 2000, we filed a report on Form 8-K
regarding the removal of one director, the resignation of two directors and the
appointment of one director to our Board of Directors.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Las Vegas, State of Nevada, on May 15, 2000.
Elast Technologies, Inc.,
a Nevada corporation
By: /s/ Thomas Krucker
----------------------
Thomas Krucker
Its: President
21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 671,053
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 671,053
<PP&E> 12,896
<DEPRECIATION> 2,869
<TOTAL-ASSETS> 681,280
<CURRENT-LIABILITIES> 38,899
<BONDS> 0
0
0
<COMMON> 8,751
<OTHER-SE> 3,200,701
<TOTAL-LIABILITY-AND-EQUITY> 681,280
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 839,990
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (837,570)
<INCOME-TAX> 0
<INCOME-CONTINUING> (837,570)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (837,570)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
