SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
ELAST TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
________________________________________________________________________________
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
[_] Fee paid previously with preliminary materials:
________________________________________________________________________________
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
ELAST TECHNOLOGIES, INC.
2505 Rancho Bel Air
Las Vegas, Nevada 89107
May 25, 2000
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Elast Technologies, Inc., a Nevada corporation ("Company"), which will be held
at 10:00 a.m., Pacific Standard Time, on July 10, 2000, at the Howard Hughes
located at 3800 Howard Hughes Parkway, Las Vegas, Nevada 89135 ("Annual
Meeting"). All holders of the Company's outstanding common stock as of May 6,
2000, are entitled to vote at the Annual Meeting.
Enclosed is a copy of the Notice of Annual Meeting of Stockholders, Proxy
Statement, and Proxy Card. A current report regarding the business operations of
the Company will be presented at the Annual Meeting and stockholders will have
an opportunity to ask questions.
We hope you will be able to attend the Annual Meeting. Whether or not you
expect to attend, it is important you complete, sign, date, and return the proxy
card in the enclosed envelope in order to make certain that your shares will be
represented at the Annual Meeting.
Sincerely,
/s/ Thomas Krucker
------------------------------------
Thomas Krucker
President and Secretary
<PAGE>
ELAST TECHNOLOGIES, INC.
2505 Rancho Bel Air
Las Vegas, Nevada 89107
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on July 6, 2000
NOTICE IS HEREBY given that the Annual Meeting of Stockholders of Elast
Technologies, Inc., a Nevada corporation ("Company"), will be held at 10:00
a.m., Pacific Standard Time, on July 6, 2000, at the Howard Hughes located at
3800 Howard Hughes Parkway, Las Vegas, Nevada 89135 ("Annual Meeting") for the
following purposes:
1. To elect five (5) members to the Board of Directors of the Company;
2. To approve and adopt the Company's Stock Option Plan;
3. To approve, adopt and ratify the actions taken by the Company's officers
and directors during the last fiscal year;
4. To approve the merger between the Company and Bioelectronics Corp., a
privately owned research and development company in Maryland;
5. To approve the Company entering into Indemnification Agreements with its
executive officers and directors;
6. To approve the Company's reimbursement of business-related expenses to the
Company's President, Thomas Krucker, in the amount of $113,854.00.
7. To approve the selection of Kelly & Company to audit the financial
statements of the Company for the fiscal year ended December 31, 2000; and
8. To transact such other business as may properly come before the Annual
Meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on May 6, 2000, as
the record date for the determination of stockholders entitled to notice of and
to vote at the Annual Meeting and all adjourned meetings thereof.
<PAGE>
By Order of the Board of Directors
/s/ Thomas Krucker
------------------------------------
Thomas Krucker,
President and Secretary
Dated: May 25, 2000
PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE RETURN ENVELOPE
FURNISHED FOR THAT PURPOSE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE ANNUAL MEETING. IF YOU LATER DESIRE TO REVOKE YOUR PROXY FOR ANY
REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT.
<PAGE>
ELAST TECHNOLOGIES, INC.
2505 Rancho Bel Air
Las Vegas, Nevada 89107
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held July 10, 2000
VOTING AND PROXY
This Proxy Statement is being furnished in connection with the solicitation of
proxies by the Board of Directors of Elast Technologies, Inc., a Delaware
corporation ("Company"), for use at the annual meeting of stockholders of the
Company to be held at 10:00 a.m., Pacific Standard Time, on July 10, 2000, at
the Howard Hughes located at 3800 Howard Hughes Parkway, Las Vegas, Nevada
89135("Annual Meeting"), and at any adjournments thereof. When a Proxy is
properly executed and returned, the shares of the Company's $.001 par value
common stock that such Proxy represents will be voted in accordance with any
directions specified therein. If no specification is indicated, those shares
will be voted "FOR" (i) the election as directors of the Company of the five (5)
nominees named herein; (ii) approval and adoption of the Company's Stock Option
Plan (attached hereto as "Exhibit One"); (iii) the approval, adoption and
ratification of the actions taken by the Company's officers and directors during
the most recent fiscal year; (iv) the approval of the merger between the Company
and Bioelectronics Corp., a privately owned research and development company in
Maryland; (v) the approval of the Company with its executive officers and
directors, entering into Indemnification Agreements; (vi) the approval of the
Company's reimbursement of business-related expenses to the Company's President,
Thomas Krucker, in the amount of $113,854.00; and (vii) the approval and
ratification of the selection and appointment of Kelly & Company as independent
certified public accountants of the Company to audit the financial statements of
the Company for the fiscal year ended December 31, 2000.
Any stockholder giving a Proxy has the power to revoke that Proxy at any time
before that Proxy is voted by (i) giving to the Secretary of the Company written
notice of such revocation, (ii) issuance of a subsequent Proxy, or (iii) voting
in person at the Annual Meeting. The affirmative vote of the holders of not less
than two-thirds (2/3) of the issued and outstanding shares of the Company's
$.001 par value common stock will be required for the approval of such proposal.
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At the close of business on May 6, 2000, the record date for determining
stockholders entitled to notice of and to vote at the Annual Meeting, the
Company had issued and outstanding 8,751,215 shares of its $.001 par value
common stock ("Common Stock"). Each share of Common Stock entitles the holder of
record thereof to one vote on any matter coming before the Annual Meeting. Only
stockholders of record at the close of business on May 6, 2000, are entitled to
notice of and to vote at the Annual Meeting or at any adjournments thereof.
The Company will pay the expenses of soliciting proxies for the Annual Meeting,
including the cost of preparing, assembling and mailing the proxy solicitation
materials. Proxies may be solicited personally, or by mail or by telephone, by
directors, officers and regular employees of the Company who will not be
additionally compensated therefor. It is anticipated that this Proxy Statement
and accompanying Proxy will be mailed to all stockholders entitled to vote at
the Annual Meeting on or about June 19, 2000.
The matters to be considered and acted upon at the Annual Meeting are referred
to in the preceding notice and are specified more completely below.
ELECTION OF DIRECTORS
(Proposal 1)
Directors of the Company are elected annually and hold office until the next
annual meeting of stockholders of the Company or until their respective
successors are elected and qualified. It is intended that the Proxies solicited
by the Board of Directors of the Company will be voted for election of the five
(5) nominees specified below, unless a contrary instruction is made on the
Proxy. If, for any reason, one or more of these nominees should be unavailable
as a candidate for director of the Company, an event which is not anticipated,
the persons specified in the accompanying Proxy will vote for another candidate
or candidates nominated by the Board of Directors. To be elected to the Board of
Directors of the Company, a nominee must receive the affirmative vote of the
holders of a majority of the total issued and outstanding Common Stock.
Cumulative voting for nominees is not permitted.
Three (3) of the nominees for directors, Thomas Krucker, Robert Milne and
Eduardo Jimenez, are, at present, directors of the Company.
The following table sets forth certain information with respect to (i) each
nominee for director of the Company, and (ii) all director nominees and
executive officers of the Company as a group at May 1, 2000, including the
number of shares of Common Stock
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beneficially owned by each of them. Percentages are based on the number of
shares of the Company's outstanding Common Stock on a fully diluted basis as of
May 1, 2000.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Owner Percent of Class
-------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
$.001 par value Dr. Robert Milne(1) 4,029,976 50.6%
Common Stock 2432 Greens Ave. Secretary and Director
Henderson, NV 89014
$.001 par value Thomas Krucker(2) 390,332 4.9%
Common Stock 2505 Rancho Bel Air President and Director
Las Vegas, NV 89107
$.001 par value Nicholas Spencer 25,000 0.3%
Common Stock 13 Edinburgh Road Director
N.S.W., Australia
Total shares 4,445,308 55.8%
beneficially owned by
all officers and
directors as a group
</TABLE>
(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; (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.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("Commission") and generally includes voting
or investment power with respect to securities. In accordance with Commission
rules, shares of 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 this Proxy Statement are deemed beneficially owned by the
optionees.
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Nominees for Directors
Thomas Krucker (60) 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 was purchased and is a wholly owned subsidiary of Tone
Products, Inc. Mr. Krucker left Tone Products to accept the office of President
of the Company.
Robert D. Milne, M.D. (53) 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.
Dr. Eduardo Daniel Jimenez Gonzalez (58) 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.
Andrew J. Whelan (57) is the President and Chief Executive Officer of
Bioelectronics Corp., a privately held corporation in Maryland. Bioelectronics
Corp. is more particularly described in Proposal 4 of this Proxy Statement. Mr.
Whelan is a seasoned business
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executive with a strong financial, consulting and management background. He was
a founder, Chairman and President of Physician's Pharmaceutical Services, Inc.,
a public company and a charter member of the Maryland Chapter of "Inc's Fastest
Growing Companies in America." Mr. Whelan was also founder, President and Chief
Executive Officer of Drug Counters; a chain of managed care retail pharmacies,
which was sold to Diagnostek, Inc. Mr. Whelan subsequently provided management
services to Diagnostek's HPI division, which supports multi-million dollar
pharmaceutical accounts for hospitals and HMOs. Mr. Whelan has extensive
experience and knowledge of the pharmaceutical industry and health care
management services. Since 1981, he has been self employed and involved in
several personal businesses and start-ups. From 1979 to 1981, he was Senior Vice
President of Finance and Chief Financial Officer for Brock Hotel Corporation, a
company trading on the New York Stock Exchange and the largest franchisee of
Holiday Inns. In addition, he was a founder and director of Show-Biz Pizza
Place, where he was responsible for finance and development. Mr. Whelan held a
variety of positions with the Marriott Corporation form 1973 to 1979, including,
Vice President of Finance and Administration for its Architectural and
Construction Division, one of the nation's largest contractors.
Lee T. Feldman (52) is a director of Bioelectronics Corp., a privately held
company in Maryland (more particularly described in Proposal 4 of this Proxy
Statement) Mr. Feldman has been in senior management positions for several major
technology, information services and development companies. He is
internationally recognized for his expertise in the management, design,
implementation and study of sophisticated computer informational systems. He is
particularly noted for his contribution to the United States government as Chief
Scientist and Technical Director on classified projects for the military,
planning and intelligence missions, several of which were established by
Presidential Directive. Mr. Feldman has been an advisor to the United States
government, several foreign governments, research institutes and major
corporations.
Board of Directors Meetings During Last Fiscal Year
The Board of Directors consisted of four directors, Thomas Krucker, Nicholas
Spencer, Dr. Robert Milne and Edward L. Hamilton who was recently removed and
replaced by Dr. Eduardo Daniel Jimenez Gonzalez, during the Company's most
recent fiscal year and all corporate action was taken by written consent in lieu
of holding Board of Directors' meetings. The Company contemplates that the
directors elected at the Annual Meeting will form a Compensation Committee
consisting of two directors, at least one of whom shall be an independent
director, and shall make recommendations concerning salaries and incentive
compensation for employees (including officers and management personnel) of the
Company. The Company also contemplates the formation of an Audit Committee
consisting of two (2) directors, at least one of whom shall be an independent
director, which shall
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review the results and scope of the audits and other services provided by the
Company's independent auditors.
All directors of the Company hold office until the next annual meeting of
stockholders of the Company and the election and qualification of their
successors. Officers of the Company are appointed annually by, and serve at the
discretion of, the Board of Directors.
Principal Stockholders. Other than officers and directors, no persons are
beneficial owners of more than 5% of the Company's Common Stock.
Executive Compensation. Any compensation received by officers and management
personnel of the Company will be determined from time to time by the Board of
Directors of the Company (specifically the Compensation Committee). Officers,
directors and management personnel of the Company will be reimbursed for any
out-of-pocket expenses incurred on behalf of the Company.
Summary Compensation Table. The table set forth below summarizes the annual and
long-term compensation for services in all capacities to the Company payable to
the Chief Executive Officer of the Company and the other executive officers of
the Company whose total annual salary and bonus is anticipated to exceed $50,000
during the calendar year ended December 31, 2000.
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SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Cash Meals & Total
Compensation Auto Expense Insurance Entertainment Travel Housing Compensation
----------- ------------ --------- ------------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
T. Krucker $66,040 $16,269 $8,397 $69,004 $20,184 $ -- $179,894
E. Hamilton $110,894 $8,470 $1,701 -- -- $15,000 $136,065
Dr. Milne $28,778 -- -- -- -- -- $28,778
----------------------------------------------------------------------------------------------------------------------------
Totals $205,712 $24,739 $10,098 $69.004 $20,184 $15,000 $344,737
</TABLE>
Compensation of Directors. During 1999, the Company also granted options to
purchase up to 150,000 shares of the Company's common stock to two members of
the Board of Directors; however, because the exercise price of the options
equaled or exceeded the fair value of the Company's common stock at the date of
grant, no compensation expense was recognized in connection with the issuance of
these options. In 1999 the Company paid $11,000 to an officer and major
shareholder for rental and purchase of a vehicle. Of the amount paid, $2,700
represented automobile rental and $8,300 represented the purchase price. The
automobile was used for business purposes and subsequently sold to an
independent party for $5,000. The Company recognized a $2,608 loss from the sale
of the asset. Other expenditures for travel, entertainment, insurance, car
leases, and miscellaneous expenses were also categorized as compensation to
officers during fiscal 1999.
To be elected to the Board of Directors of the Company, a nominee must receive
the affirmative vote of the holders of a majority of the total issued and
outstanding Common Stock. Cumulative voting for nominees is not permitted.
APPROVAL OF STOCK OPTION PLAN
(Proposal 2)
Management of the Company believes that it is in the best interests of the
Company to reserve certain authorized shares of Common Stock pursuant to the
terms and subject to the conditions specified in the Company's Stock Option
Plan, which was approved and adopted by the Company's Board of Directors on
October 11, 1999, and which is attached hereto as Exhibit A. The stock options
so specified are intended to serve as an incentive to, and to encourage stock
ownership by, certain directors, officers, employees and certain persons
rendering service to the Company so that they may acquire or increase their
proprietary interest in the success of the Company, and to encourage them to
remain in the Company's
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service.
Approval of the proposal to approve and adopt the Company's Stock Option Plan
requires the affirmative vote of the holders of a majority of the total issued
and outstanding Common Stock.
RATIFICATION OF ACTIONS BY OFFICERS AND DIRECTORS
DURING THE COMPANY'S LAST FISCAL YEAR
(Proposal 3)
Management of the Company will report to the Company's shareholders regarding
the actions taken by the Company's officers and directors during the last fiscal
year, including, but not limited to, material contracts entered into by the
Company. Management of the Company believes that these actions taken by the
Company's officers and directors and the material contracts entered into by the
Company have been in the best interests of the Company and its shareholders,
and, therefore, will request that holders of the issued and outstanding Common
Stock vote to approve, consent to, adopt and ratify each of those actions and
material contracts.
Approval of the proposal to approve, adopt and ratify the actions taken by the
Company's officers and sole director during the Company's most recent fiscal
year requires the affirmative vote of the holders of a majority of the issued
and outstanding Common Stock.
APPROVAL OF MERGER
(Proposal 4)
Management of the Company believes that it is in the best interests of the
Company to enter into a merger agreement with Bioelectronics Corp., a privately
held research and development company based in Maryland ("Bioelectronics").
Bioelectronics designs low cost and disposable magnetic field medical devices to
accelerate and improve the quality of tissue healing. Bioelectronics' product is
its patented Portic Electronic Bandage ("PEB"), an inexpensive, disposable and
self-contained radio frequency emitting device that hastens the healing of soft
and hard tissue wounds, including fresh fractures. The PEB is an adjunctive
treatment which uses the bodies own electrical circuits to heal. The PEB 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 Food and Drug
Administration ("FDA") for pre-market approval in the United States. The FDA has
agreed to a minimal 50-person study to expedite market approval.
To assure a smooth transition for both companies, Thomas F. Krucker, the
Company's President and Chief Executive Officer, will serve as President and
Chief Executive Officer
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of the surviving entity and Andrew J. Whelan, President and Chief Executive
Officer of Bioelectronics, will serve as Chief Operating Officer of the
surviving entity. In addition to the integration of the two management teams,
the surviving entities' Board of Directors will consist of a representative of
both the Company and Bioelectronics, with a majority of the Board of Directors
consisting of members of the Company's current Board of Directors. The merger
agreement is subject to completion and execution of final merger documents.
Approval of the proposal to approve the Company's merger with Bioelectronics
requires the affirmative vote of the holders of a majority of the total issued
and outstanding Common Stock.
APPROVAL OF THE INDEMNIFICATION AGREEMENTS
TO BE ENTERED INTO BETWEEN THE COMPANY
AND ITS OFFICERS AND DIRECTORS
(Proposal 5)
The Company anticipates that within the next 6 months, it will enter into
Indemnification Agreements with each of its executive officers and directors
pursuant to which the Company shall indemnify each such director and officer for
all expenses and liabilities, including criminal monetary judgments, penalties
and fines, incurred by each such director and officer in connection with any
criminal or civil action brought or threatened against such director and officer
because of such director and officer being or having been an executive officer
or director of the Company. 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 director and officer must have had no reasonable cause to believe
his or her conduct was unlawful.
Approval of the proposal to enter into Indemnification Agreements with the
Company's executive officers and directors requires the affirmative vote of the
holders of a majority of the total issued and outstanding Common Stock.
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TO APPROVE THE COMPANY'S REIMBURSEMENT
OF BUSINESS-RELATED EXPENSES TO THE COMPANY'S
PRESIDENT, THOMAS KRUCKER
(Proposal 6)
During the year ended December 31, 1999, the Company reimbursed the Company's
President, Thomas Krucker, for business-related expenses amounting to
$113,854.00. Such expenses included (i) $16,269.00 for automobile expense; (ii)
$8,397.00 for insurance expense; (iii) $69,004.00 for meals and entertainment;
and (iv) $20,184.00 for travel expenses. The Company has determined that such
expenses were reasonable and accrued by Mr. Krucker in the ordinary course of
business.
Approval of the reimbursement of expenses by the Company to the Company's
President, Thomas Krucker, requires the affirmative vote of the holders of a
majority of the issued and outstanding Common Stock.
INDEPENDENT AUDITORS - KELLY & COMPANY
(Proposal 7)
Management of the Company has selected the certified public accounting firm of
Kelly & Company to audit and comment on the Company's financial statements for
the Company's fiscal year ended December 31, 2000, and to conduct whatever audit
functions are deemed necessary pursuant thereto. Kelly & Company was responsible
for the audit of the Company's financial statements for the fiscal year ended
December 31, 1999, for inclusion in the Company's 1999 Annual Report on Form
10-KSB which was filed with the Commission on March 30, 2000.
Approval of the selection of Kelly & Company to audit the financial statements
of the Company for the fiscal year ended December 31, 2000, requires the
affirmative vote of the holders of a majority of the issued and outstanding
Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Milne, the Chairman of the Board of the Company, provides office space and
services to the Company, at no cost to the Company. At such time as the Company
begins receiving revenue from operations, management of the Company anticipates
that the Company will begin paying rent for 800 square feet of this office
space, at a rate of $1,200 per month.
Also in 1999, Edward L. Hamilton, who was, at the time, an officer and director
of the
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Company, was provided housing in a residence owned by Thomas Krucker. The
Company paid Mr. Krucker $15,000 for the housing and that cost was included in
Mr. Hamilton's compensation for 1999.
In 1999, the Company paid to Thomas Krucker, an officer and major shareholder of
the Company, $11,000 for the rental and purchase of an automobile. Of the amount
paid, $2,700 represented automobile rental and $8,300 represented the purchase
price. The automobile was used for business purposes and who subsequently sold
to an independent party for $5,000. The Company recognized $2,608 loss from the
sale of the asset.
Licensing Agreement Was Not the Result of Arms-Length Negotiations. As set forth
above, on or about June 12, 1996, Elast Technologies, Inc., a Delaware
corporation ("Elast Delaware") acquired a license from Robert D. Milne, M.D.,
who was, at that time, Chairman of the Board of Directors and a major
shareholder of Elast Delaware, whereby Elast Delaware acquired the exclusive
right to develop, manufacture and market the ELAST Device. Elast Delaware issued
to Dr. Milne 3,200,000 shares of its common stock to acquire the licensing
rights. The Company believes that the fair market value of 3,200,000 shares of
Elast Delaware's common stock at the time of the transaction was $800.00, and,
therefore, the Company determined that 3,200,000 shares of Elast Delaware's
common stock was fair consideration for the license agreement with Dr. Milne.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters to be brought
before the Annual Meeting. If, however, other matters should come before the
Annual Meeting, it is the intention of each person specified in the Proxy to
vote such Proxy in accordance with his or her judgment on such matters.
ANNUAL REPORT ON FORM 10-KSB
A copy of the Company's Annual Report on Form 10-KSB filed with the Commission
on March 30, 2000, is available without charge to stockholders and may be
obtained by writing to the Company at 2505 Rancho Bel Air, Las Vegas, Nevada
89107, Attention: Information Agent. A summary of the Company's most recent
Annual Report is attached to this Proxy Statement as Appendix A.
On or about May 2, 1999, the Company became a reporting company with the
Commission, and is now obligated to file quarterly and annual reports, which
include financial statements. The public may read and copy any materials filed
with the Commission, including the Registration Statement on Form 10-SB filed by
the Company on March 3, 1999; the
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amendment thereto filed on August 2, 1999; the Registration Statement on Form
SB-2 filed by the Company on December 7, 1999; and the Company's Annual Report
on Form 10-KSB filed on March 30, 2000, at the Commission's Public Reference
Room at 450 Fifth Street N.W., Washington, D.C. 20549, or by accessing the
Commission's website at http://www.sec.gov. A summary of the Company's Annual
Report on Form 10-KSB filed with the SEC on October 8, 1999, is attached hereto
as Appendix A.
STOCKHOLDER PROPOSALS
Any proposals of security holders which are intended to be presented at next
year's annual meeting must be received by the Company at its principal executive
offices on or before March 1, 2000, in order to be considered for inclusion in
the Company's Proxy materials relating to that annual meeting.
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EXHIBIT ONE
Stock Option Plan
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STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN
Article
I. Purposes of the Plan
II. Amount of Stock Subject to Plan
III. Effective Date and Term of the Plan
IV. Administration
V. Eligibility
VI. Limitation on Exercise of Incentive Options
VII. Options: Price and Payment
VIII. Use of Proceeds
IX. Term of Options and Limitations on the Right of Exercise
X. Exercise of Options
XI. Stock Appreciation Rights
XII. Nontransferability of Options and Stock Appreciation Rights
XIII. Termination of directorship or Employment
XIV. Adjustment of Shares; Effect of Certain Transactions
XV. Right to Terminate Employment
XVI. Purchase for Investment
XVII. Issuance of Certificates; Legends; Payment of Expenses
XVIII. Withholding Taxes
XIX. Listing of Shares and Related Matters
XX. Amendment of the Plan
XXI. Termination or Suspension of the Plan
XXII. Governing Law
XXIII. Partial Invalidity
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ELAST TECHNOLOGIES, INC. 1999 STOCK OPTION
AND STOCK APPRECIATION RIGHTS PLAN
I. PURPOSES OF THE PLAN
1.01 Elast Technologies, Inc., a Nevada corporation ("Company"), desires to
provide to certain of its directors and key employees and the directors and key
employees of any subsidiary corporation or parent corporation of the Company who
are responsible for the continued growth of the Company an opportunity to
acquire a proprietary interest in the Company, and, therefore, to create in such
directors and key employees an increased interest in and a greater concern for
the welfare of the Company.
The Company, by means of this 1999 Stock Option and Stock Appreciation
Right Plan (the "Plan"), seeks to retain the services of persons now serving in
certain capacities and to secure the services of persons capable of serving in
similar capacities.
1.02 The stock options ("Options") and stock appreciation rights ("Rights")
offered pursuant to the Plan are a matter of separate inducement and are not in
lieu of any salary or other compensation for the services of any director or key
employee.
1.02 The Options granted pursuant to the Plan are intended to be either
incentive stock options ("Incentive Options") within the meaning of Section 422A
of the Internal Revenue Code of 1986, as amended (the "Code"), or options that
do not satisfy the requirements for Incentive Options ("Non-Qualified Options"),
but the Company makes no warranty as to the qualification of any Option as an
Incentive Option.
II. AMOUNT OF STOCK SUBJECT TO THE PLAN
2.01 The total number of shares of common stock of the Company which either
may be purchased pursuant to the exercise of options granted pursuant to the
Plan or acquired pursuant to the exercise of Rights granted pursuant to the Plan
shall not exceed, in the aggregate, five million (5,000,000) shares of the
authorized common stock, $.001 par value per share, of the Company (the
"Shares"). Shares which are subject to Rights and related options shall be
counted only once in determining whether the maximum number of Shares which may
be purchased or acquired pursuant to the Plan has been exceeded.
2.02 Shares which may be acquired pursuant to the Plan may be either
authorized but unissued Shares, Shares of issued stock held in the Company's
treasury, or both, at the discretion of the Company. If and to the extent that
Options or Rights granted pursuant to the Plan expire or terminate without
having been exercised, new options or Rights may be granted with respect to the
Shares subject to by such expired or terminated Options or Rights; provided,
however, that the grant and the terms of such new Options or Rights shall in all
respects comply with the provisions of the Plan.
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III. EFFECTIVE DATE AND TERM OF THE PLAN
3.01 The Plan shall become effective on the date (the "Effective Date") on
which it is adopted by the Board of Directors of the Company (the "Board of
Directors"); provided, however, that if the Plan is not approved by a vote of
the shareholders of the Company within twelve (12) months before or after the
Effective Date, the Plan and any Options and Rights granted pursuant thereto
shall terminate.
3.02 The Company may, from time to time during the period beginning on the
Effective Date and ending on December 31, 2008 ("Termination Date"), grant to
persons eligible to participate in the Plan Options, Rights or both Options and
Rights, pursuant to the terms of the Plan. Options and Rights granted prior to
the Termination Date may extend beyond that date, in accordance with the terms
thereof.
Provisions of the Plan which pertain to Options or Rights shall apply to
Options, Rights or a combination thereof.
3.03 As used in the Plan, the terms "subsidiary corporation" and "parent
corporation" shall have the meanings ascribed to such terms, respectively, in
Sections 425(f) and 425(e) of the Code.
3.04 An employee or director to whom Options or Rights are granted pursuant
to the Plan may be referred to herein as a "Participant."
IV. ADMINISTRATION
4.01 The Board of Directors shall designate an option committee (the
"Committee") which shall consist of no fewer than three (3) directors, each of
whom shall be a "disinterested person" within the meaning of Rule 16b-3 (or any
successor rule or regulation) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), to administer the Plan. A majority of the
members of the Committee shall constitute a quorum, and the act of a majority of
the members of the Committee shall be the act of the Committee. Any member of
the Committee may be removed at any time either with or without cause by
resolution adopted by the Board of Directors, and any vacancy on the Committee
may at any time be filled by resolution adopted by the Board of Directors.
4.02 Any or all powers and functions of the Committee may at any time and
from time to time be exercised by the Board of Directors; provided, however,
that, with respect to the participation in the Plan by members of the Board of
Directors, such powers and functions of the Committee may be exercised by the
Board of Directors only if, at the time of such exercise, a majority of the
members of the Board of Directors, as the case may be, and a majority of the
directors acting in the particular matter, are "disinterested persons" within
the meaning of Rule 16b-3 (or any successor rule or regulation) promulgated
pursuant to the Exchange Act. Any reference in the Plan to the Committee shall
be deemed also to refer to the Board of Directors, to the extent that the Board
of Directors is
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exercising any of the powers and functions of the Committee.
4.03 Subject to the express provisions of the Plan, the Committee shall
have the authority, in its discretion,
(i) to determine the directors and employees to whom Options or Rights
shall be granted, the time when such Options or Rights shall be
granted, the number of Shares which shall be subject to each Option or
Right, the purchase price or exercise price of each Share which shall
be subject to each option or Right, the period(s) during which such
Options or Rights shall be exercisable (whether in whole or in part),
and the other terms and provisions of the respective options (which
need not be identical) and Rights (which need not be identical);
(ii) to construe the Plan and Options and Rights granted pursuant thereto;
(iii) to prescribe, amend and rescind rules and regulations relating to the
Plan; and
(iv) to make all other determinations necessary or advisable for
administering the Plan.
4.04 Without limiting the generality of the foregoing, the Committee also
shall have the authority to require, in its discretion, as a condition of the
granting of any Option or Right, that the Participant agree (i) not to sell or
otherwise dispose of Shares acquired pursuant to the Option or Right for a
period of twelve (12) months following the date of acquisition of such Shares
and (ii) that in the event of termination of directorship or employment of such
Participant, other than as a result of dismissal without cause, such Participant
will not, for a period to be fixed at the time of the grant of the Option or
Right, enter into any employment or participate directly or indirectly in any
business or enterprise which is competitive with the business of the Company or
any subsidiary corporation or parent corporation of the Company, or enter into
any employment in which such employee will be called upon to utilize special
knowledge obtained through directorship or employment with the Company or any
subsidiary corporation or parent corporation thereof.
The determination of the Committee on matters referred to in this Article
IV shall be conclusive.
4.05 The Committee may employ such legal counsel, consultants and agents as
it may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. Expenses incurred by the Committee
in the engagement of such counsel, consultant or agent shall be paid by the
Company. No member or former member of the Committee or of the Board of
Directors shall be liable for any action or determination made in good faith
with respect to the Plan or any Option or Right.
V. ELIGIBILITY
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5.01 Non-Qualified Options and Rights may be granted only to directors,
officers and other salaried key employees of the Company, or of any subsidiary
corporation or parent corporation of the Company now existing or hereafter
formed or acquired, except as hereinafter provided. Any person who shall have
retired from active employment by the Company, although such person shall have
entered into a consulting contract with the Company, shall not be eligible to
receive an Option or a Right.
An Incentive Option may be granted only to salaried key employees of the
Company or any subsidiary corporation or parent corporation of the Company now
existing or hereafter formed or acquired, and not to any director or officer who
is not also an employee.
VI. LIMITATION ON EXERCISE OF INCENTIVE OPTIONS
6.01 Except as otherwise provided pursuant to the Code, to the extent that
the aggregate fair market value of Shares with respect to which Incentive
Options are exercisable for the first time by an employee during any calendar
year (pursuant to all stock options plans of the Company and any parent
corporation or subsidiary corporation of the Company) exceeds One Hundred
Thousand Dollars ($100,000), such Options shall be treated as Non-Qualified
Options. For purposes of this limitation, (i) the fair market value of Shares is
determined as of the time the Option is granted, and (ii) the limitation will be
applied by taking into account Options in the order in which they were granted.
VII. OPTIONS: PRICE AND PAYMENT
7.01 The purchase price for each Share purchasable under any Non-Qualified
Option granted pursuant to the Plan shall be such amount as the Committee shall
deem appropriate.
7.02 The purchase price for each Share purchasable pursuant to any
Incentive Option granted pursuant to the Plan shall be such amount as the
Committee shall, in its best judgment, determine to be not less than one hundred
percent (100%) of the fair market value per Share on the date the option is
granted; provided, however, that in the case of an Incentive Option granted to a
Participant who, at the time such Incentive option is granted, owns stock of the
Company or any subsidiary corporation or parent corporation of the Company
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of any subsidiary corporation or parent
corporation of the Company, the purchase price for each Share shall be such
amount as the Committee shall, in its best judgment, determine to be not less
than one hundred ten percent (110%) of the fair market value per Share at the
date such Option is granted.
7.03 If the Shares are listed on a national securities exchange in the
United States on any date on which the fair market value per Share is to be
determined, the fair market value per Share shall be deemed to be the average of
the high and low quotations at which such Shares are sold on such national
securities exchange on such date. If the Shares are listed on a national
securities exchange in
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the United States of America on such date but the Shares are not traded on such
date, or such national securities exchange is not open for business on such
date, the fair market value per Share shall be determined as of the closest
preceding date on which such exchange shall have been open for business and the
Shares were traded. If the Shares are listed on more than one national
securities exchange in the United States of America on the date any such Option
is granted, the Committee shall determine which national securities exchange
shall be used for the purpose of determining the fair market value per Share.
7.04 If a public market exists for the Shares on any date on which the fair
market value per Share is to be determined, but the Shares are not listed on a
national securities exchange in the United States of America, the fair market
value per Share shall be deemed to be the mean between the closing bid and asked
quotations in the over-the-counter market for the Shares on such date. If there
are no bid and asked quotations for the Shares on such date, the fair market
value per Share shall be deemed to be the mean between the closing bid and asked
quotations in the over-the-counter market for the Shares on the closest date
preceding such date for which such quotations are available.
7.05 If no public market exists for the Shares on any date on which the
fair market value per Share is to be determined, the Committee shall, in its
sole discretion and best judgment, determine the fair market value of a Share.
For purposes of the Plan, the determination by the Committee of the fair
market value of a Share shall be conclusive.
7.06 Upon the exercise of an Option, the Company shall cause the purchased
Shares to be issued only when it shall have received the full and complete
purchase price for the Shares in cash or by certified check; provided, however,
that in lieu of cash or certified check, the Participant may, if and to the
extent the terms of the option so provide and to the extent permitted by
applicable law, exercise an option in whole or in part, by delivering to the
Company shares of common stock of the Company (in proper form for transfer and
accompanied by all requisite stock transfer tax stamps or cash in lieu thereof)
owned by such Participant having a fair market value equal to the purchase price
of the Shares as to which the Option is being exercised. The fair market value
of the stock so delivered shall be determined as of the date immediately
preceding the date on which the Option is exercised, or as may be required in
order to comply with or to conform to the requirements of any applicable laws or
regulations.
VIII. USE OF PROCEEDS
8.01 The cash proceeds of the sale of Shares subject to Options are to be
added to the general funds of the Company and used for its general corporate
purposes as the Board of Directors shall determine.
IX. TERM OF OPTIONS AND LIMITATIONS ON THE RIGHT OF EXERCISE
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9.01 Any Option shall be exercisable at such times, in such amounts and
during such period or periods as the Committee shall determine at the date of
the grant of such Option; provided, however, that an Incentive option shall not
be exercisable after the expiration of ten (10) years from the date such Option
is granted; and provided, further, that, in the event that an Incentive Option
granted to a Participant who, at the time such Option is granted, owns stock of
the Company or any subsidiary corporation or parent corporation of the Company
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of any subsidiary corporation or parent
corporation of the Company, such Option shall not be exercisable after the
expiration of five (5) years from the date such option is granted.
9.02 Subject to the provisions of Article XX of the Plan, the Committee
shall have the right to accelerate, in whole or in part, from time to time,
conditionally or unconditionally, rights to exercise any option.
9.03 To the extent that an Option is not exercised within the period of
exerciseability specified therein, it shall expire as to the then unexercised
part.
In no event shall an option granted pursuant to the Plan be exercisable for
a fraction of a Share.
X. EXERCISE OF OPTIONS
10.01 Any Option shall be exercised by the Participant holding such option
as to all or part of the Shares contemplated by such Option by giving written
notice of such exercise to the Secretary of the Company at the principal
business office of the Company, specifying the number of Shares to be purchased
and specifying a business day not more than fifteen (15) days from the date such
notice is given, for the payment of the purchase price against delivery of the
Shares being purchased. Subject to the terms of Articles XVI, XVIII and XIX of
the Plan, the Company shall cause certificates for the Shares so purchased to be
delivered to the Participant at the principal business office of the Company, in
exchange for by payment of the full and complete purchase price, on the date
specified in the notice of exercise.
XI. STOCK APPRECIATION RIGHTS
11.01 In the discretion of the Committee, a Right may be granted (i) alone,
(ii) simultaneously with the grant of an Option (either Incentive or
Non-Qualified) and in conjunction therewith or in the alternative thereto or
(iii) subsequent to the grant of a Non-Qualified option and in conjunction
therewith or in the alternative thereto.
11.02 The exercise price of a Right granted alone shall be determined by
the Committee, but shall not be less than one hundred percent (100%) of the fair
market value of one Share on the date of grant of such Right. A Right granted
simultaneously with or subsequent to the grant of an option and in conjunction
therewith or in the alternative thereto shall have the same exercise price as
the related
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option, shall be transferable only upon the same terms and conditions as the
related Option, and shall be exercisable only to the same extent as the related
Option; provided, however, that a Right, by its terms, shall be exercisable only
when the fair market value per Share subject to the Right and related Option
exceeds the exercise price per Share thereof.
11.03 Upon any exercise of a Right, the number of Shares for which any
related Option shall be exercisable shall be reduced by the number of Shares for
which the Right shall have been exercised. The number of Shares for which a
Right shall be exercisable shall be reduced upon any exercise of any related
Option by the number of Shares for which such option shall have been exercised.
Any Right shall be exercisable upon such additional terms and conditions as
may from time to time be prescribed by the Committee.
11.04 A Right shall entitle the Participant upon exercise thereof to
receive from the Company, upon a written request filed with the Secretary of the
Company at its principal offices (the "Request"), a number of Shares (with or
without restrictions as to substantial risk of forfeiture and transferability,
as determined by the Committee in its sole discretion), an amount of cash, or
any combination of Shares and cash, as specified in the Request (but subject to
the approval of the Committee, in its sole discretion, at any time up to and
including the time of payment, as to the making of any cash payment), having an
aggregate fair market value equal to the product of (i) the excess of the fair
market value, on the date of such Request, of one Share over the exercise price
per Share specified in such Right or its related Option, multiplied by (ii) the
number of Shares for which such Right shall be exercised.
11.05 Any election by a Participant to receive cash in full or partial
settlement of a Right, and any exercise of such Right for cash, may be made only
by a Request filed with the Corporate Secretary of the Company during the period
beginning on the third business day following the date of release for
publication by the Company of quarterly or annual summary statements of earnings
and ending on the twelfth (12th) business day following such date. Within thirty
(30) days of the receipt by the Company of a Request to receive cash in full or
partial settlement of a Right or to exercise such Right for cash, the Committee
shall, in its sole discretion, either consent to or disapprove, in whole or in
part, such Request. A Request to receive cash in full or partial settlement of a
Right or to exercise a Right for cash may provide that, in the event the
Committee shall disapprove such Request, such Request shall be deemed to be an
exercise of such Right for Shares.
11.06 If the Committee disapproves in whole or in part any election by a
Participant to receive cash in full or partial settlement of a Right or to
exercise such Right for cash, such disapproval shall not affect such
Participant's right to exercise such Right at a later date, to the extent that
such Right shall be otherwise exercisable, or to elect the form of payment at a
later date, provided that an election to receive cash upon such later exercise
shall be subject to the approval of the Committee. Additionally, such
disapproval shall not affect such Participant's right to exercise any related
Option.
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11.07 A Participant shall not be entitled to request or receive cash in
full or partial payment of a Right, if such Right or any related Option shall
have been exercised during the first six (6) months of its respective term;
provided, however, that such prohibition shall not apply if the Participant dies
or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior
to the expiration of such six (6) month period, or if such Participant is not a
director or officer of the Company or a beneficial owner of the Company who is
described in Section 16(a) of the Exchange Act.
11.08 A Right shall be deemed exercised on the last day of its term, if not
otherwise exercised by the holder thereof, provided that the fair market value
of the Shares subject to the Right exceeds the exercise price thereof on such
date.
For all purposes of this Article XI of the Plan, the fair market value of
Shares shall be determined in accordance with the principles set forth in
Article VII of the Plan.
XII. NONTRANSFERABILITY OF OPTIONS
AND STOCK APPRECIATION RIGHTS
12.01 No Option or Right shall be transferable, whether by operation of law
or otherwise, other than by will or the laws of descent and distribution, and
any Option or Right shall be exercisable, during the lifetime of the
Participant, only by such Participant.
XIII. TERMINATION OF DIRECTORSHIP OR EMPLOYMENT
13.01 Upon termination of the directorship or employment of any Participant
with the Company and all subsidiary corporations and parent corporations of the
Company, any Option or Right previously granted to the Participant, unless
otherwise specified by the Committee in the option or Right, shall, to the
extent not theretofore exercised, terminate and become null and void, provided
that:
(a) if the Participant shall die while serving as a director or while in
the employ of such corporation or during either the three (3) month or
one (1) year period, whichever is applicable, specified in clause (b)
below and at a time when such Participant was entitled to exercise an
option or Rights as provided in the Plan, the legal representative of
such Participant, or such person who acquired such Option or Right by
bequest or inheritance or by reason of the death of the Participant,
may, not later than one (1) year from the date of death, exercise such
Option or Right, to the extent not theretofore exercised, in respect
of any or all of such number of Shares as specified by the Committee
in such Option or Right; and
(b) if the directorship or employment of any Participant to whom such
option or Right shall have been granted shall terminate by reason of
the Participant's retirement (at such age or upon such conditions as
shall be specified by the Committee), disability (as described in
Section 22(e)(3) of the Code) or dismissal by the employer other than
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for cause (as defined below), and while such Participant is entitled
to exercise such option or Right as herein provided, such Participant
shall have the right to exercise such option or Right, to the extent
not theretofore exercised, in respect of any or all of such number of
Shares as specified by the Committee in such Option or Right, at any
time up to and including (i) three (3) months after the date of such
termination of directorship or employment in the case of termination
by reason of retirement or dismissal other than for cause and (ii) one
(1) year after the date of termination of directorship or employment
in the case of termination by reason of disability.
In no event, however, shall any person be entitled to exercise any option
or Right after the expiration of the period of exerciseability of such option or
Right as specified therein.
13.02 If a Participant voluntarily terminates his directorship or
employment, or is discharged for cause, any Option or Right granted pursuant to
his Plan shall, unless otherwise specified by the Committee in the Option or
Right, forthwith terminate with respect to any unexercised portion thereof.
13.03 If an Option or Right shall be exercised by the legal representative
of a deceased Participant, or by a person who acquired an Option or Right by
bequest or inheritance or by reason of the death of any Participant, written
notice of such exercise shall be accompanied by a certified copy of letter
testamentary or equivalent proof of the right of such legal representative or
other person to exercise such Option or Right.
13.04 For the purposes of the Plan, the term "for cause" shall mean (i)
with respect to an employee who is a party to a written agreement with, or,
alternatively, participates in a compensation or benefit plan of the Company or
a subsidiary corporation or parent corporation of the Company, which agreement
or plan contains a definition of "for cause" or "cause" (or words of similar
import) for purposes of termination of employment pursuant thereto by the
Company or such subsidiary corporation or parent corporation of the Company,
"for cause" or "cause" as defined in the most recent of such agreements or
plans, or (ii) in all other cases, as determined by the Board of Directors, in
its sole discretion, (a) the willful commission by an employee of a criminal or
other act that causes or probably will cause substantial economic damage to the
Company or a subsidiary corporation or parent corporation of the Company or
substantial injury to the business reputation of the Company or a subsidiary
corporation or parent corporation of the Company; (b) the commission by an
employee of an act of fraud in the performance of such employee's duties on
behalf of the Company or a subsidiary corporation or parent corporation of the
Company; (c) the continuing willful failure of an employee to perform the duties
of such employee to the Company or a subsidiary corporation or parent
corporation of the Company (other than such failure resulting from the
employee's incapacity due to physical or mental illness) after written notice
thereof (specifying the particulars thereof in reasonable detail) and a
reasonable opportunity to be heard and cure such failure are given to the
employee by the Board of Directors; or (d) the order of a court of competent
jurisdiction requiring the termination of the employee's employment. For
purposes of the Plan, no act, or failure to act, on the employee's part shall be
considered "willful" unless done or omitted to be done by the employee not in
good faith and
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without reasonable belief that the employee's action or omission was in the best
interest of the Company or a subsidiary corporation or parent corporation of the
Company.
13.05 For the purposes of the Plan, an employment relationship shall be
deemed to exist between a person and a corporation if, at the time of the
determination, the individual was an "employee" of such corporation for purposes
of Section 422A(a) of the Code. If a person is on maternity, military, or sick
leave or other bona fide leave of absence, such person shall be considered an
"employee" for purposes of the exercise of an option or Right and shall be
entitled to exercise such option or Right during such leave if the period of
such leave does not exceed ninety (90) days, or, if longer, so long as such
person's right to reemployment with his employer is guaranteed either by statute
or by contract. If the period of leave exceeds ninety (90) days, the employment
relationship shall be deemed to have terminated on the ninety-first (91) day of
such leave, unless such person's right to reemployment is guaranteed by statute
or contract.
13.06 A termination of employment shall not be deemed to occur by reason of
(i) the transfer of a Participant from employment by the Company to employment
by a subsidiary corporation or a parent corporation of the Company or (ii) the
transfer of a Participant from employment by a subsidiary corporation or a
parent corporation of the Company to employment by the Company or by another
subsidiary corporation or parent corporation of the Company.
XIV. ADJUSTMENT OF SHARES; EFFECT OF CERTAIN TRANSACTIONS
14.01 In the event of any change in the outstanding Shares as a result of
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, split-up, split-off, spin-off, combination or exchange of shares, or
other similar change in capital structure of the Company, an adjustment shall be
made to each outstanding Option and Right such that each such Option and Right
shall thereafter be exercisable for such securities, cash or other property as
would have been received in respect of the Shares subject to such option or
Right had such Option or Right been exercised in full immediately prior to such
change, and such an adjustment shall be made successively each time any such
change shall occur. The term "Shares" after any such change shall refer to the
securities, cash or property then receivable upon exercise of an Option or
Right. In addition, in the event of any such change, the Committee shall make
any additional adjustment as may be appropriate to the maximum number of Shares
subject to the Plan, the maximum number of Shares, if any, for which options or
Rights may be granted to any one employee, and the number of Shares and price
per Share subject to outstanding Options or Rights as shall be equitable to
prevent dilution or enlargement of rights under such Options or Rights, and the
determination of the Committee as to these matters shall be conclusive.
Notwithstanding the foregoing, (i) each such adjustment with respect to an
Incentive Option and any related Right shall comply with the rules of Section
425(a) of the Code, and (ii) in no event shall any adjustment be made which
would render any Incentive Option granted hereunder other than an "incentive
stock option" for purposes of Section 422A of the Code.
14.01 For purposes of the Plan, a "change in control" of the Company occurs
if: (a) any "person" (defined as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act, as
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amended) other than the current owner is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing ten percent
(10%) or more of the combined voting power of the Company's outstanding
securities then entitled to vote for the election of directors; or (b) during
any period of two consecutive years, persons who at the beginning of such period
constitute the Board of Directors cease for any reason to constitute at least a
majority thereof; or (c) the Board of Directors shall approve the sale of all or
substantially all of the assets of the Company or any merger, consolidation,
issuance of securities or purchase of assets, the result of which would be the
occurrence of any event described in clause (a) or (b) above.
14.02 In the event of a change in control of the Company (defined above),
the Committee, in its discretion, may determine that, upon the occurrence of a
transaction described in the preceding paragraph, each Option or Right
outstanding pursuant to the Plan shall terminate within a specified number of
days after notice to the holder, and such holder shall receive, with respect to
each Share subject to such Option or Right, an amount of cash equal to the
excess of the fair market value of such Share immediately prior to the
occurrence of such transaction increases the exercise price per Share of such
Option or Right. The provisions specified in the preceding sentence shall be
inapplicable to an Option or Right granted within six (6) months before the
occurrence of a transaction described above if the holder of such Option or
Right is a director or officer of the Company or a beneficial owner of the
Company who is described in Section 16(a) of the Exchange Act, unless such
holder dies or becomes disabled (within the meaning of Section 22(e)(3) of the
Code) prior to the expiration of such six-month period.
Alternatively, the Committee may determine, in its discretion, that all
then outstanding Options and Rights shall immediately become exercisable upon a
change of control of the Company.
XV. RIGHT TO TERMINATE EMPLOYMENT
15.01 The Plan shall not impose any obligation on the Company or on any
subsidiary corporation or parent corporation thereof to continue the employment
of any Participant; and it shall not impose any obligation on the part of any
Participant to remain in the employ of the Company or of any subsidiary
corporation or parent corporation thereof.
XVI. PURCHASE FOR INVESTMENT
16.01 Except as provided otherwise in the Plan, a Participant shall, upon
any exercise of an Option or Right, execute and deliver to the Company a written
statement, in form satisfactory to the Company, in which such Participant
represents and warrants that such Participant is purchasing or acquiring the
Shares acquired pursuant thereto for such Participant's own account, for
investment only and not with an intention of the resale or distribution thereof,
and agrees that any subsequent offer for sale or sale or distribution of any of
such Shares shall be made only pursuant to either (a) a
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Registration Statement on an appropriate form pursuant to the Securities Act of
1933, as amended (the "Securities Act"), which Registration Statement has become
effective and is current with regard to the Shares being offered or sold, or (b)
a specific exemption from the registration requirements of the Securities Act,
but in claiming such exemption the holder shall, if so requested by the Company,
prior to any offer for sale or sale of such Shares, obtain a prior favorable
written opinion, in form and substance satisfactory to the Company, from counsel
for or approved by the Company, as to the applicability of such exemption
thereto. The foregoing restriction shall not apply to (i) issuances by the
Company so long as the Shares being issued are registered pursuant to the
Securities Act and a prospectus in respect thereof is current or (ii)
reofferings of Shares by affiliates of the Company (as defined in Rule 405 or
any successor rule or regulation promulgated pursuant to the Securities Act) if
the Shares being reoffered are registered pursuant to the Securities Act and a
prospectus in respect thereof is current.
XVII. ISSUANCE OF CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES
17.01 Upon any exercise of an Option or Right and, in the case of an
Option, payment of the purchase price, a certificate or certificates for the
Shares as to which the Option or Right has been exercised shall be issued by the
Company in the name of the person exercising the Option or Right and shall be
delivered to or upon the order of such person or persons.
17.02 The Company may endorse such legend or legends upon the certificates
for Shares issued upon exercise of an Option or Right granted pursuant to the
Plan and may issue such "stop transfer" instructions to its transfer agent in
respect of such Shares as, in its discretion, it determines to be necessary or
appropriate to (i) prevent a violation of, or to perfect an exemption from, the
registration requirements of the Securities Act, (ii) implement the provisions
of the Plan and any agreement between the Company and the optionee with respect
to such Shares, or (iii) permit the Company to determine the occurrence of a
disqualifying disposition, within the meaning of Section 421(b) of the Code, of
Shares transferred upon exercise of an Incentive Option granted pursuant to the
Plan.
17.03 The Company shall pay all issue or transfer taxes with respect to the
issuance or transfer of Shares, as well as all fees and expenses incurred by the
Company in connection with such issuance or transfer.
All Shares issued as provided in the Plan shall be fully paid and
non-assessable to the extent permitted by law.
XVIII. WITHHOLDING TAXES
18.01 The Company may require an employee exercising a Right or a
Non-Qualified Option granted pursuant to the Plan or disposing of Shares
acquired pursuant to the exercise of an Incentive Option in a disqualifying
disposition (within the meaning of Section 421(b) of the Code), to
13
<PAGE>
reimburse the corporation that employs such employee for any taxes required by
any government to be withheld or otherwise deducted and paid by such corporation
in respect of the issuance or disposition of such Shares. In lieu thereof, the
employer corporation shall have the right to withhold the amount of such taxes
from any other amounts due or to become due from such corporation to the
employee upon such terms and conditions as the Committee shall prescribe. The
employer corporation may, in its discretion, hold the stock certificate to which
such employee is entitled upon the exercise of an Option or Right as security
for the payment of such withholding tax liability, until cash sufficient to pay
that liability has been accumulated.
XIX. LISTING OF SHARES AND RELATED MATTERS
19.01 If at any time the Board of Directors shall determine in its
discretion that the listing, registration or qualification of the Shares subject
to the Plan upon any national securities exchange or pursuant to any state or
federal law, or the consent or approval of any governmental regulatory agency,
is necessary or desirable as a condition of, or in connection with, the sale or
purchase of Shares pursuant to the Plan, no Shares shall be issued unless and
until such listing, registration, qualification, consent or approval shall have
been effected or obtained, or otherwise provided for, free of any conditions not
acceptable to the Board of Directors.
XX. AMENDMENT OF THE PLAN
20.01 The Board of Directors or the Committee may, from time to time, amend
the Plan, provided that, notwithstanding anything to the contrary in the Plan,
no amendment shall be made, without the approval of the shareholders of the
Company, that will (i) increase the total number of Shares reserved for Options
pursuant to the Plan (other than an increase resulting from an adjustment
provided for in Article XIII), (ii) reduce the exercise price of any Incentive
Option granted pursuant to the Plan to an amount less than the price required by
Article VI, (iii) modify the provisions of the Plan relating to eligibility, or
(iv) materially increase the benefits accruing to participants pursuant to the
Plan. The Board of Directors or the Committee shall be authorized to amend the
Plan and the Options granted thereunder to permit the Incentive Options granted
thereunder to qualify as "incentive stock options" within the meaning of Section
422A of the Code. The rights and obligations pursuant to any Option or Right
granted before amendment of the Plan or any unexercised portion of such Option
or Right shall not be adversely affected by amendment of the Plan or the Option
or Right without the consent of the holder of the Option or Right.
XXI. TERMINATION OR SUSPENSION OF THE PLAN
21.01 The Board of Directors or the Committee may at any time and for any
or no reason suspend or terminate the Plan. The Plan, unless sooner terminated
pursuant to Article III of the Plan or by action of the Board of Directors,
shall terminate at the close of business on the Termination Date. An Option or
Right may not be granted while the Plan is suspended or after it is terminated.
Options and Rights granted while the Plan is in effect shall not be altered or
impaired by suspension or termination of the Plan, except upon the consent of
the person to whom the option or Right was
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<PAGE>
granted. The power of the Committee pursuant to Article IV of the Plan to
construe and administer any Options or Rights granted prior to the termination
or suspension of the Plan shall continue after such termination or during such
suspension.
XXII. GOVERNING LAW
22.01 The Plan, such Options and Rights as may be granted pursuant thereto
and all related matters shall be governed by, and construed and enforced in
accordance with, the laws of the State of Nevada, as from time to time amended.
XXIII. PARTIAL INVALIDITY
23.01 The invalidity or illegality of any provision of the Plan shall not
be deemed to affect the validity of any other provision of the Plan.
15
<PAGE>
Appendix A
To our Stockholders:
The following is a summary of the Company's Annual Report on Form 10-KSB
filed with the Securities & Exchange Commission ("SEC") on March 30, 2000. A
complete copy of the Annual Report is available without charge to our
stockholders and may be obtained by writing to the Company at 2505 Rancho Bel
Air, Las Vegas, Nevada 89107, Attention: Information Agent. In addition, the
Company's Annual Report may be viewed at the SEC's Public Reference Room at 450
Fifth Street N.W., Washington, D.C. 20549, or by accessing the SEC's website at
http://www.sec.gov.
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. On February 1, 2000, we relocated our research and development
facilities to San Diego's Center for Applied Competitive Technologies. The
Company's telephone number in Las Vegas is 702.878.8310.
Business of the Company.The Company was organized to engage in the business of
manufacturing and marketing medical equipment and supplies, as well as health
related products, including vitamins and nutritional supplements. The Company
plans to develop its own products and may also obtain marketing and distribution
rights to existing products or products currently in development by others. The
Company currently spends a significant portion of its time and funds in research
and development activities, and has done so for the last two fiscal years, as
specified below
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
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ELAST Device.
The licensing agreements relating to the ELAST Device are specified more
completely herein 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
2
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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.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
We intend to manufacture and market medical devices. We are currently
negotiating proposed marketing agreements and plans to negotiate and enter into
marketing agreements with appropriate distributors and marketing agents. Other
than the ELAST Device, we do not currently have any plans to develop other
products. We may, however, acquire the right to sell or distribute existing
products, or obtain licensing, marketing, distribution or other rights to
compatible products. Therefore, other than costs related to the continued
development of the ELAST Device, we do not anticipate significant expenditures
on acquisition or development of other products during the current fiscal year.
On February 1, 2000, we relocated our 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 transition 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
3
<PAGE>
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.
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
4
<PAGE>
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.
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.
Liquidity and Capital Resources. During the year ended December 31, 1999, the
Company received approximately $808,250 from the sale of common stock. At
December 31, 1999, the Company had cash resources of $205,715. The cash and
equivalents constitute our present internal sources of liquidity. Because we are
not generating any revenues from the sale or licensing of our products, our only
external source of liquidity is the sale of our capital stock. The Company
registered 1,000,000 shares of its common stock for sale on a "best efforts"
basis and believes it will sell some or all of this stock during the next 12
months.
The Company believes its current cash resources coupled with those funds the
Company expects to raise pursuant to the sale of the 1,000,000 shares of its
common stock that the Company recently registered, 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.
Results of Operations. The Company's available cash and equivalents decreased
from $226,818 at December 31, 1998 to $205,715 at December 31, 1999. The
Company's accounts payable increased from $8,617 to $14,613 and accrued payroll
taxes increased from $4,375 to $38,898 because of an increase in executive
compensation due to the addition of one executive and increased research and
development activities. The Company's net property and equipment increased from
$3,434 to $10,672 due primarily to the purchase of additional computer
equipment. The Company's property and equipment consists of computers with an
expected useful life of 5 years. Depreciation expense for the years ended
December 31, 1999 and 1998 were $2,546 and $370, respectively.
5
<PAGE>
Officers' compensation increased from $203,682 for the year ended December 31,
1998 to $344,737 for the year ended December 31, 1999 due primarily to the
addition of one corporate executive. Research and development expenses increased
from $108,161 to $329,684, due to increased research and development activities
and the hiring of two outside consultants. For the year ended December 31, 1999,
the Company expended $60,000 on consulting fees in an attempt to obtain
institutional financing. The Company did not secure the financing and the
consulting fee was expensed. Legal and professional costs decreased from
$502,231 to $111,812 during the same periods. The Company's cash flows used in
operating activities were $305,374 for the year ended December 31, 1998 and
$816,942 for the year ended December 31, 1999. The increase in funds expended
was primarily the result of ongoing research and development necessary to
effectuate the Company's business plan. Cash provided by financing activities
increased from $427,716 for the year ended December 31, 1998 to $808,232 for the
year ended December 31, 1999 due to an influx of $380,516 resulting from a
private placement of the Company's common stock.
Legal Proceedings. 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 100,000 unexpired 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
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determines that the terms and conditions of such a settlement are in the best
interests of the Company.
Certain disputes have developed between David Phillips, a former consultant to
the Company, on the one hand, and the Company, on the other hand, regarding the
Company's research and development activities. Specifically, Mr. Phillips'
consulting services initially focused on the measurement of electrical
resistance by 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. Before providing the Company with consulting services, Mr. Phillips had
developed a means to measure electrical potential, as opposed to electrical
resistance. In or about April, 1999, Mr. Phillips' consulting services to the
Company were terminated. By that time, however, he had, while working as a
consultant to the Company, developed a prototype diagnostic machine which
incorporated technology to detect variances in electrical potential. The Company
anticipates seeking further patent protection for a diagnostic machine which,
among other things, detects variances in electrical potential; however, the
Company is continuing to develop its own technology and processes and has
already replaced the analog system favored by Mr. Phillips with a digital
system. The Company is informed and, therefore, believes that Mr. Phillips may
claim that the Company's patent application infringes on existing patents or, in
the alternative, may claim to have certain rights to the use or ownership of the
technology on which the Company's patent application is based.
Patent infringement occurs when a person or business "makes, uses, or sells" a
patented invention. The language specifying particular patent rights, typically
referred to as the "patent claims", allows a patent owner to prohibit any
unauthorized manufacture, use or sale of products which utilize the patent
owner's patented technology.
When two or more persons work together to make an invention, they are joint
inventors and a patent will be issued to them jointly on the basis of a proper
patent application. If, on the other hand, one of these persons has provided all
of the ideas of the invention, and the other person has only followed
instructions in making that invention, the person who contributed the ideas is
the sole inventor and the patent application and patent shall be in his or her
name alone. Moreover, if one person furnishes all of the ideas to make an
invention and another person employs him or her or furnishes the money for
building and testing the invention, the patent application must be signed by the
true inventor, and filed in the Patent and Trademark Office, in the inventor's
name. This is the person who furnishes the ideas, not the employer or the person
who furnishes the money.
At this time, Mr. Phillips' potential claim against the Company is that he is a
joint inventor (or even the "true" or sole inventor) of the Elast Device, as
presently constructed. Mr.
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Phillips has indicated that he would contest any patent applications, by the
Company, relating to diagnostic machines based on technology which detects
variances in electrical potential. If Mr. Phillips claims that the Company's
patent application infringed on any patent or technology in which he had an
ownership interest, he could sue for relief in the appropriate federal court. He
could ask the court for an injunction to prevent the continuation of that
infringement and could also ask the court for an award of damages because of
that infringement. In the event he prevailed, Mr. Phillips could force the
Company to pay him a royalty for making, using or selling the Elast Device, or
could prevent the Company from making, using or selling the Elast Device.
Because the right conveyed by a patent is the right to prohibit a certain action
related to the patented invention, most patent infringement claims must be
settled by filing a suit against the party who is violating a patent holder's
rights. Mr. Phillips' potential claim is not a claim that the Company is
infringing on a patent which he holds; rather, as specified above, he has
indicated that he would challenge the Company's patent application itself and
seek to prevent the issuance of a patent to the Company because he is a
co-inventor (or sole inventor) of the Elast Device. The Company believes that
Mr. Phillips' potential claim is without merit because (i) the Elast Device was
patented long before Mr. Phillips became a consultant to the Company, (ii) the
Company's research and development activities have resulted in the development
of new technology significantly different from the technology claimed by Mr.
Phillips; and (iii) the general concept of measuring electrical potential is
not, in and of itself, patentable. Challenges to patent applications occur
frequently as part of the patent application process and, as the Company is
continuing to refine its technology, it is too early to determine the validity
of any such potential challenge. The Company intends to pursue patent protection
for its technology vigorously and will respond in an appropriate manner to any
challenges by any party, including, but not limited to, Mr. Phillips, to any
patent applications filed by the Company relating to the Elast Device or its
derivatives.
Subsequent to year end, the Company initiated an offering of 1,000,000 shares of
its $.001 par value common stock on a best efforts basis pursuant to a
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission. On or about February 23, 2000, the Company was informed by the
Securities and Exchange Commission that its Registration Statement on Form SB-2
was effective and placed 800,000 of those shares in CEDE & Company through DTC,
one of the world's largest securities depository and a national clearinghouse
for the settlement of trades in corporate and municipal securities. DTC is a
limited purpose trust company under New York Banking Law, a member of the
Federal Reserve System, and a registered clearing agency with the Securities and
Exchange Commission. Those shares were to be for the account of Crescent Fund
Partners LP. Additionally, the Company placed (i) 50,000 of those shares with
Xcell Associates, a market maker; (ii) 50,000 of those shares with NC Capital, a
market maker; and (iii) 33,334 of those
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shares with Ardt, an investment banker. On or about March 7, 2000, the Company
was informed by the Securities and Exchange Commission that the financial
statements filed with the Company's Registration Statement on Form SB-2 were not
current, and that the Company must file a Post-Effective Amendment containing
more recent financial statements and a Consent of Auditors to use those more
recent financial statements. The Company directed that the 800,000 shares in DTC
be returned to certificate form and none of those shares were delivered to any
prospective purchaser. As of March 13, 2000, the shares placed with Xcell
Associates, NC Capital and Ardt had not been sold or distributed to any person.
On March 14, 2000, the Company filed Post-Effective Amendment No. 1 to the
Registration Statement on Form SB-2 with current financial statements. The
Company has demanded that Crescent Fund Partners LP return the 800,000 shares
placed through the DTC, but Crescent Fund Partners LP has only returned
approximately 534,000 of those shares to date. The Company believes Crescent
Fund Partners LP may be selling or otherwise disposing of those shares without
the permission of the Company and may seek court intervention if this matter
cannot be resolved.
II. Financial Statements
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Balance Sheets
December 31, 1999 and 1998
--------------------------------------------------------------------------------
ASSETS
1999 1998
----------- -----------
Current assets:
Cash and equivalents $ 205,715 $ 226,818
----------- -----------
Total current assets 205,715 226,818
Property and equipment, net 10,672 3,434
License, net 240 400
----------- -----------
Total assets $ 216,627 $ 230,652
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 14,613 $ 8,617
Accrued payroll and payroll taxes 38,898 4,375
----------- -----------
Total liabilities 53,511 12,992
----------- -----------
Shareholders' equity:
Common stock, $.001 par value;
25,000,000 shares authorized;
7,961,481 and 7,179,448 shares
issued and outstanding at December
31, 1999 and 1998, respectively 7,961 7,179
Additional paid-in capital 2,130,488 1,413,886
Additional paid-in capital for warrants 205,000 --
Deficit accumulated during the
development stage (2,180,333) (1,203,405)
----------- -----------
Total shareholders' equity 163,116 217,660
----------- -----------
Total liabilities and shareholders' equity $ 216,627 $ 230,652
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
2
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Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Operations
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
For the For the June 12, 1996
Year Ended Year Ended (Inception) to
December 31, 1999 December 31, 1998 December 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Operating costs:
Officers compensation $ 344,737 $ 203,682 $ 548,419
Research and development 329,684 108,161 506,065
Legal and professional 111,812 502,231 638,377
Investor relations 86,082 238,759 324,841
Financing consulting fee 60,000 -- 60,000
Other operating costs and expenses 54,842 63,107 133,913
----------- ----------- -----------
Total operating costs (987,157) (1,115,940) (2,211,615)
----------- ----------- -----------
Interest income 10,229 13,566 31,282
----------- ----------- -----------
Net loss $ (976,928) $(1,102,374) $(2,185,333)
=========== =========== ===========
Loss per common share - basic and diluted $ (0.13) $ (0.19) $ (0.40)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
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Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Shareholders' Equity
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Elast
Technologies, Inc.
Elast Technologies (Formerly
Corporation Med Mark, Inc.)
(A Delaware (A Nevada Deficit
Corporation) Corporation) Detachable Accumulated
-------------------- ---------------- Price Additional Stock During the
Common Common Common Common Per Paid-in Purchase Development
Shares Stock Shares Stock Share Capital Warrants Stage
------ ----- ------ ----- ----- ------- -------- -----
<S> <C> <C> <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 -- (38,309)
Contribution of funds
expended by the major
shareholder on the
Company's behalf -- -- -- -- -- 1,500 -- --
Net loss for the year ended
December 31, 1997 -- -- -- -- -- -- -- --
(62,722)
--------- ------ ---- ---- ----- -------- ---- --------
Balance, December 31, 1997 3,768,004 3,768 -- -- -- 214,418 -- (101,031)
--------- ------ ---- ---- ----- -------- ---- --------
<CAPTION>
Less:
Common
Stock
Subscription
Subtotal Receivable Total
-------- ---------- -----
<S> <C> <C> <C>
Balance, June 12, 1996
(inception) -- -- --
Shares issued for the
medical device license $ 800 -- $ 800
Shares issued for legal
services 6,719 -- 6,719
Contribution of funds
expended by the major
shareholder on the
Company's behalf 4,167 -- 4,167
Shares issued in private
placement 205,000 $(10,000) 195,000
Net loss from inception to
December 31, 1996 (38,309) (38,309) --
--------- -------- --------
Balance, December 31, 1996 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 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 Company in the Development Stage)
Consolidated Statements of Shareholders' Equity
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Elast
Technologies, Inc.
Elast Technologies (Formerly
Corporation Med Mark, Inc.)
(A Delaware (A Nevada Deficit
Corporation) Corporation) Detachable Accumulated
-------------------- ---------------- Price Additional Stock During the
Common Common Common Common Per Paid-in Purchase Development
Shares Stock Shares Stock Share Capital Warrants Stage
------ ----- ------ ----- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 3,768,004 $3,768 -- -- -- $ 214,418 -- $(101,031)
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 -- -- -- -- -- -- -- (1,102,374)
--------- ------ --------- ---- ----- ---------- ---- -----------
Balance, December 31, 1998 -- -- 7,179,448 $7,179 -- $1,413,886 -- $(1,203,405)
--------- ------ --------- ---- ----- ---------- ---- -----------
<CAPTION>
Less:
Common
Stock
Subscription
Subtotal Receivable Total
-------- ---------- -----
<S> <C> <C> <C>
Balance, December 31, 1997 $ 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)
---------- -------- ----------
Balance, December 31, 1998 $ 217,660 -- $ 217,660
---------- -------- ----------
</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 Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Elast
Technologies, Inc.
Elast Technologies (Formerly
Corporation Med Mark, Inc.)
(A Delaware (A Nevada Deficit
Corporation) Corporation) Detachable Accumulated
-------------------- ---------------- Price Additional Stock During the
Common Common Common Common Per Paid-in Purchase Development
Shares Stock Shares Stock Share Capital Warrants Stage
------ ----- ------ ----- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 -- -- 7,179,448 $7,179 -- $1,413,886 -- $(1,203,405)
Shares issued in private placement -- -- 205,900 $ 206 $1.50 308,044 -- --
Shares issued in private placement -- -- 500,000 500 0.59 294,482 $205,000 --
Shares issued for consulting services -- -- 26,133 26 1.54 40,126 -- --
Shares issued for research and
development services -- -- 50,000 50 1.48 73,950 -- --
Net loss for the year ended
December 31, 1999 -- -- -- -- -- -- (976,928) --
----- ----- --------- ------ ----- ---------- -------- -----------
Balance, December 31, 1999 -- -- 7,961,481 $7,961 -- $2,130,488 $205,000 $(2,180,333)
===== ===== ========= ====== ===== ========== ======== ===========
<CAPTION>
Less:
Common
Stock
Subscription
Subtotal Receivable Total
-------- ---------- -----
<S> <C> <C> <C>
Balance, December 31, 1998 $ 217,660 -- $ 217,660
Shares issued in private placement 308,250 -- 308,250
Shares issued in private placement 499,982 -- 499,982
Shares issued for consulting services 40,152 -- 40,152
Shares issued for research and
development services 74,000 -- 74,000
Net loss for the year ended
December 31, 1999 (976,928) (976,928) --
---------- -------- ----------
Balance, December 31, 1999 $ 163,116 -- $ 163,116
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Cash Flows
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
For the For the June 12, 1996
Year Ended Year Ended (Inception) to
December 31, 1999 December 31, 1998 December 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(976,928) $(1,102,374) $(2,180,333)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 2,706 770 3,476
Issuance of stock for services 114,152 785,163 906,034
Loss on sale of asset 2,608 -- 2,608
Increase (decrease) in liabilities:
Accounts payable, trade 5,997 8,617 14,614
Accounts payable, officer -- (1,925) --
Accrued payroll taxes 34,523 4,375 38,898
--------- ----------- -----------
Cash used in operating activities (816,942) (305,374) (1,214,703)
--------- ----------- -----------
Cash flows used in investing activities:
Purchase of equipment (17,393) (3,804) (21,197)
Sale of equipment 5,000 -- 5,000
--------- ----------- -----------
Cash used in investing activities (12,393) (3,804) (16,197)
--------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
7
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Cash Flows
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
For the For the June 12, 1996
Year Ended Year Ended (Inception) to
December 31, 1999 December 31, 1998 December 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows provided by financing activities:
Acquisition of MedMark, Inc. -- $ 30,726 $ 30,726
Proceeds from the exercise of warrants -- 189,990 189,990
Payment of common stock subscription receivable -- 10,000 10,000
Proceeds from the issuance of common stock $808,232 197,000 1,200,232
Contribution to additional paid-in capital -- -- 5,667
Cash provided by financing activities 808,232 427,716 1,436,615
-------- -------- ----------
Net increase (decrease) in cash (21,103) 118,538 205,715
Cash at beginning of period 226,818 108,280 --
-------- -------- ----------
Cash at end of period $205,715 $226,818 $205,715
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
8
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Consolidated Statements of Cash Flows
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Supplemental Disclosure of Cash Flow Information
Period from
For the For the June 12, 1996
Year Ended Year Ended (Inception) to
December 31, 1999 December 31, 1998 December 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Interest paid -- -- $ 1,375
Income taxes paid $170 $1,403 $ 1,973
Supplemental Schedule of Non-Cash Investing and Financing Activities
Assets acquired in non-cash transactions:
Acquisition of medical device license -- -- $ 800
Increase in common stock subscription receivable -- -- $ 10,000
Issuance of common stock -- -- $(10,800)
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
9
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
1. Development Stage Operations
Elast Technologies, Inc. (a company in the development stage) has a limited
operating history with no revenues and no products or operable technology
ready for the market. The Company is engaged in the ongoing development of
its first product, a non-invasive medical device to test for allergies with
real time, quantifiable, visually displayed results. Management's efforts
to date have focused primarily on the development of the medical device and
the raising of equity capital. As such, the Company is subject to the risks
and uncertainties associated with a new business. The success of the
Company's future operations is dependent, in part, upon the Company's
ability to successfully market its yet to be developed products and obtain
additional capital. Management's plans are discussed further in Note 11.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Elast Technologies, Inc. (a Nevada corporation) (the "Company") and its
subsidiary, Elast Technologies Corporation (a Delaware corporation) ("Elast
Delaware"). All significant intercompany transactions have been eliminated.
Prior to June 10, 1998, the Company was named Med Mark, Inc. ("Med Mark").
The name change was in conjunction with the reverse merger acquisition
(Note 10).
Revenue Recognition
Revenue will be recognized when the Company's goods are shipped.
Cash and Equivalents
The Company invests portions of its excess cash in highly liquid
investments. Cash and equivalents include time deposits and commercial
paper with original maturities of three months or less. In addition, the
Company has no compensating balance requirements. The Company maintains its
cash in bank accounts, which exceeded federally insured limits by $104,334
and $131,886 at December 31, 1999 and 1998, respectively. The Company has
not experienced any losses in such accounts. The Company believes it is not
exposed to any significant credit risk on cash.
10
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies, Continued
Property and Equipment
The Company records property and equipment at cost. Significant
improvements, which extend the life of the underlying asset, are
capitalized, and expenditures for normal maintenance and repairs are
charged to operations. Depreciation is provided for property and equipment
using the straight-line method over the expected useful lives. The
Company's property and equipment consists of computers with an expected
useful life of 5 years.
Intangible Asset
The Company recorded its intangible asset at cost. The intangible asset is
amortized on a straight-line method over the shorter of its estimated
useful live or its contractual term, whichever is shorter.
Research and Development Costs
Research and development expenditures are charged to operations as they are
incurred.
Impairment of Long-Lived Assets
The Company annually evaluates its long-lived assets, including its
intangible asset, described as a license to patented technology, for
potential impairment. When circumstances indicate that the carrying amount
of the asset is not recoverable, as demonstrated by the projected
undiscounted cash flows, an impairment loss will be recognized. The
Company's management has determined that there was no such impairment
present at December 31, 1999 and 1998.
Income Taxes
The Company accounts for income taxes using the liability method. Under the
liability method, deferred income taxes are determined based on differences
between the financial reporting and tax bases of assets and liabilities.
They are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. The Company is
required to adjust its deferred tax liabilities in the period when tax
rates or the provisions of the income tax laws change. Valuation allowances
are established to reduce deferred tax assets to the amounts expected to be
realized.
11
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies, Continued
Disclosures about Fair Value of Financial Instruments
The Company accounts for the value of financial instruments using the fair
value method.
Stock Based Compensation
Statement of Financial Account Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"), established accounting and
disclosure requirements using a fair value based method of accounting for
stock-based employee compensation plans. As permitted by SFAS No. 123, the
Company will continue to account for stock-based compensation using the
intrinsic value method as prescribed in Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees ("APB No. 25").
Compensation cost from stock options, if any, is measured as the excess of
the quoted market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock. Compensation cost is
amortized over the requisite vesting periods.
Common Shares and Per Share Amounts
All common shares and per share amounts have been adjusted to give
retroactive effect, where applicable to the one for four reverse stock
split.
Earnings per Common Share
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share. This pronouncement replaced the previously reported
primary and fully diluted earnings per share with basic and diluted
earnings per share ("EPS"), respectively. Loss per share for the years
ended December 31, 1999 and 1998, and for the period from June 12, 1996
(Inception) to December 31, 1999 have been calculated in accordance with
this pronouncement.
Basic EPS is computed by dividing income or loss available to common
shareholders by the weighted average number of common shares outstanding
for the year. Diluted EPS is similar to basic EPS except that the weighted
average of common shares outstanding is increased to include the number of
additional common shares that would have been outstanding if potentially
dilutive common shares had been issued.
12
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies, Continued
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassification
Certain reclassifications have been made to the 1998 financial statements
in order to conform to the 1999 financial statement presentation.
3. Property and Equipment
Property and equipment at December 31, 1999 and 1998 consist of the
following:
1999 1998
-------- --------
Computers $ 12,896 $ 3,804
Less: accumulated depreciation (2,224) (370)
-------- --------
Total property and equipment, net $ 10,672 $ 3,434
======== ========
Depreciation expense for the years ended December 31, 1999 and 1998 were
$2,546 and $370, respectively.
13
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
4. Income Taxes
At December 31, 1999 and 1998, the components of the provision for income
taxes are as follows:
1999 1998
-------- --------
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, 1999 and 1998 are as follows:
1999 1998
--------- ---------
Deferred income tax asset:
Capitalized expenses $ 719,707 $ 399,012
Tax credits 48,684 15,716
--------- ---------
Total deferred income tax asset 768,391 414,728
Valuation allowance (768,391) (414,728)
--------- ---------
Net deferred income tax liability -- --
========= =========
The Company, based upon its history of losses during its development stage
and management's assessment of when operations are anticipated to generate
taxable income, has concluded that it is more likely than not that none of
the net deferred income tax assets will be realized through future taxable
earnings and has established a valuation allowance for them.
14
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
4. Income Taxes, Continued
Reconciliation of the effective income tax rate to the U.S. statutory rate
is as follows:
1999 1998
------ ------
Tax expense at the U.S. statutory income tax rate 34.0% 34.0%
Increase in the valuation allowance (36.2) (34.2)
Other 2.2 (0.2)
------ ------
Effective income tax rate -- (0.4)%
====== ======
As of December 31, 1999, the Company has a federal research and
experimentation credit carryover of $48,684. The credits will begin to
expire in 2011.
5. Related Party Transactions
Licensing Agreement
In 1996 the Company entered into a licensing agreement with an individual
who is an officer and major shareholder whereby the Company received the
exclusive right to develop, manufacture, and market an allergy detection,
non-invasive, medical device (Electronic Allergo-Sensitivity Test Device,
U.S. Patent No. 5413113). The Company issued 3,200,000 shares of Company
common stock with a value of $800. The licensing agreement does not require
any royalty payments. The licensing agreement is for a term of five years,
with the Company holding options to extend the agreement for two additional
five-year terms at no additional cost.
Vehicle Acquisition
In 1999 the Company paid $11,000 to an officer and major shareholder for
rental and purchase of a vehicle. Of the amount paid, $2,700 represented
automobile rental and $8,300 represented the purchase price. The automobile
was used for business purposes and subsequently sold to an independent
party for $5,000. The Company recognized a $2,608 loss from the sale of the
asset.
15
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
5. Related Party Transactions, Continued
Housing Expenses
In 1999, an officer was provided housing in a residence owned by a
different officer who is a major shareholder. The Company paid $15,000 for
the housing and the cost was included in lessee officer's compensation.
6. Commitments and Contingencies
Patent Technology
In 1996, the Company entered into a technology licensing agreement that
provided for its use of certain intellectual property described by a United
States patent. Since obtaining the license rights, the Company has expended
significant research and development efforts in conjunction with the
intellectual property that has resulted in significant modifications and
enhancements. The Company's efforts to date, plus its anticipated efforts
in the future, raise doubt that the final technology involved in the
medical device will be protected by the original patent.
Stock Options Dispute
A dispute between the Company and a former director exists relating to
options to purchase common stock granted by Elast Delaware, prior to its
merger with the Company. The former director claims the 100,000 options
granted to him by Elast Delaware are options to purchase shares of the
Company. The Company has reviewed this matter and the relevant
documentation and believes the former director's claim is without merit,
and plans to vigorously defend itself in the event legal action is
commenced.
Employment Taxes
The Company, in its fiduciary capacity as an employer, has the primary
responsibility for deducting and remitting both the employer and employee
portions of payroll related taxes to the appropriate governmental agencies.
Since inception, the Company paid $548,419 in compensation to three of its
officers upon which taxes were not withheld from these employees nor
remitted to the appropriate governmental authorities. If, as a result of
not withholding employment taxes, the employees incur an income tax
liability that ultimately
16
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
6. Commitments and Contingencies, Continued
Employment Taxes, Continued
results in a deficiency, the Company becomes contingently responsible, if
the employees cannot or do not satisfy that liability. Since inception, the
Company is contingently liable for these taxes, penalties, and interest,
which approximate $207,000. The employer portion of the payroll related
taxes has been recorded as a liability by the Company.
Termination Dispute
A dispute exists between the Company and another former officer and
director of the Company. In December 1999, this former officer and director
was removed from the Board of Directors and terminated as an officer. The
Company anticipates legal action may result from this matter. The Company
intends to vigorously oppose any such action. The Company is engaged in
discussions with this individual and may consider settlement of this matter
provided the terms of such settlement are reasonable and in the best
interests of the Company. However, an estimate of any settlement or amount
of loss, if any, from an unfavorable outcome from litigation cannot be made
at this time.
Operating Leases
The Company leases an automobile under an operating lease with a fixed term
through June 2002. Future minimum lease payments at December 31, 1999 are
as follows:
2000 $ 8,396
2001 8,396
2002 4,198
-------
Total minimum lease payments $20,990
=======
7. Stock Based Compensation
During 1999, the Company's Board of Directors granted options to purchase
150,000 shares of the Company's common stock to two members of the Board of
Directors. The options
17
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
7. Stock Based Compensation, Continued
were issued with an exercise price of $1.50 with 100,000 expiring in March
2003 and 50,000 expiring in July 2002. As the directors are employees of
the Company, the options were accounted for under APB No. 25. The exercise
price of the options equaled or exceeded the fair value of the Company's
common stock at the date of grant. Consequently, no compensation expense
was recognized in connection with the issuance of these options.
On February 13, 1998, the Board of Directors of Elast Delaware granted
100,000 options to purchase common stock to each of the three members of
the Board of Directors of Elast Delaware in recognition of their service to
it. The 300,000 options have a three year term are exercisable at $2.00 per
share. Two of the Directors were employees of Elast Delaware, and their
options were accounted for under APB No. 25. The options were granted at
prices which equaled or exceeded the fair value of Elast Delaware's common
stock at the date of grant. Consequently, no compensation expense was
recognized in connection with the issuance of these 200,000 options. The
100,000 options issued to the nonemployee director were valued in
accordance with the provision of SFAS No. 123 and determined to have no
value, therefore no compensation expense was recognized.
The following summarizes information about stock options of the Company
granted and outstanding at December 31, 1999 and 1998, and changes during
the years then ended:
<TABLE>
<CAPTION>
1999 1998
---------------------- ---------------------
Exercise Exercise
Options Price Options Price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year -- -- -- --
Granted 150,000 $1.50 -- --
Exercised -- -- -- --
Forfeited -- -- -- --
------- ----- ----- -----
Outstanding at end of year 150,000 $1.50 -- --
======= ===== ===== =====
</TABLE>
18
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
7. Stock Based Compensation, Continued
The following summarizes information about the stock options of Elast
Delaware granted and outstanding at December 31, 1999 and 1998, and changes
during the years then ended:
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
Exercise Exercise
Options Price Options Price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 300,000 $ 2.00 -- --
Granted -- -- 300,000 $ 2.00
Exercised -- -- -- --
Forfeited -- -- -- --
------- ------- ------- -------
Outstanding at end of year 300,000 $ 2.00 300,000 $ 2.00
======= ======= ======= =======
</TABLE>
The Company continues to account for stock-based compensation to employees
using the intrinsic value method as prescribed in APB No. 25 under which no
compensation cost for options is recognized for options granted at or above
fair market value of the Company's common stock at the date of grant. Had
the compensation expense for options awards been determined based upon fair
values at the grant dates in accordance with SFAS No. 123, the Company's
pro forma net loss and net loss per share for the year ended December 31,
1999 would have been the amount indicated in the following schedule. There
was no effect on the Company's pro forma net loss and net loss per share
for the year ended December 31, 1998.
The Black-Scholes Option Pricing Model was developed for use in estimating
the fair value of traded options. The Company's employee stock options have
characteristics significantly different from those of traded options, such
as vesting restriction and extremely limited transferability. In addition,
the assumptions used in option valuation models are highly subjective,
particularly the expected stock price volatility of the underlying stock.
Because changes in these subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not provide a reliable single measure of the fair value of its employee
stock options.
19
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
7. Stock Based Compensation, Continued
The pro forma effect on net loss for the year ended December 31, 1999 may
not be representative of the actual results had the Company accounted for
the stock options using the fair value method.
Net loss, as reported $ (976,928)
Pro forma net loss $ (1,134,928)
Basic loss per share $ (0.13)
Pro forma net loss per share $ (0.15)
For purposes of the above pro forma calculation, the fair value of options
granted in 1999 and 1998 is estimated using the BSOPM with the weighted
average assumptions listed below.
1999 1998
-------- --------
Risk-free interest rate 4.850% 5.000%
Expected stock dividend yield -- --
Expected stock price volatility 0.834 0.834 --
Expected life in years 1.000 3.000
Summary information about the Company's options outstanding at October 31,
1999:
<TABLE>
<CAPTION>
The Subsidiary
Company (Elast Delaware)
------- ----------------
<S> <C> <C>
Exercise price $ 1.50 $ 2.00
Options outstanding, December 31, 1999 150,000 300,000
Weighted average remaining contractual life 1.1 years 1.1 years
Weighted average exercise price $ 1.50 $ 2.00
Options exercisable, December 31, 1999 150,000 300,000
Weighted average exercise price $ 1.50 $ 2.00
</TABLE>
20
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
8. Stock Purchase Warrants
The Company's private placement offering of stock in 1999 was accomplished
with the sale of 500,000 units comprised of one share of common stock and
one stock purchase warrants The stock purchase warrants were immediately
exercisable upon issuance. The stock purchase warrants provide for an
exercise price of $2.40 and expire in July 2004. To date, none of the stock
purchase warrants have been exercised.
At December 31, 1999 and 1998, the Company had outstanding warrants to
purchase 500,000 and 40,032 shares of the Company's common stock, at prices
of $2.40 and $.38 per share, respectively. Warrants to purchase 40,032
shares expired on September 30, 1999. At December 31, 1999 and 1998,
500,000 and 40,032 shares of common stock, respectively, were reserved for
this purpose.
9. Loss Per Common Share
In the year ended December 31, 1997, the Company adopted SFAS No. 128,
Earnings per Share. Loss per common share has been calculated in accordance
with this statement.
Basic and diluted loss per common share have been computed by dividing the
loss available to common shareholders by the weighted-average number of
common shares for the period.
The computations of basic and diluted loss per common share for the years
ended December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Period from
For the For the June 12, 1996
Year Ended Year Ended (Inception) to
December 31, 1999 December 31, 1998 December 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net loss available to common stockholders $ (976,928) $ (1,102,374) $ (2,185,333)
Weighted-average shares, basic and diluted 7,711,880 5,798,194 5,446,490
--------------- --------------- ---------------
Loss per common share, basic and diluted $ (0.13) $ (0.19) $ (0.40)
=============== =============== ===============
</TABLE>
21
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
9. Loss Per Common Share, Continued
The effect of the potentially dilutive securities listed below was not
included in the computation of diluted loss per share because to do so
would have been antidilutive for the periods presented.
<TABLE>
<CAPTION>
Period from
For the For the June 12, 1996
Year Ended Year Ended (Inception) to
December 31, 1999 December 31, 1998 December 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Shares of common stock issuable under:
Stock options of the Company 150,000 -- 150,000
Stock options of consolidated subsidiary 300,000 300,000 300,000
Stock purchase warrants of the Company 500,000 40,032 500,000
------- ------- -------
950,000 340,032 950,000
======= ======= =======
</TABLE>
10. Stock Transactions
Shares Issued to Acquire a License Agreement
In 1996, the Company issued 3,200,000 shares of its stock for $800 to
obtain a licensing agreement from an individual, who is an officer of the
Company (Note 5).
Shares Issued for Services
In 1996, the Company issued 21,332 shares for legal services related to
corporate formation and preparation of the Company's private placement
memorandum. The shares of Company stock were issued for legal services
valued at $6,719. In 1998 the Company issued 270,000 shares for consulting
and engineering services and employee compensation as follows:
Consultants were issued 115,000 shares as additional recognition of
their services to the Company. The shares were valued at their fair
value at the time of issuance, $1.50 per share.
22
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
10. Stock Transactions, Continued
Shares Issued for Services, Continued
An outside engineer was issued 55,000 shares as additional recognition
of his services to the Company. The shares were valued at fair value
at the date of their issuance, $1.54 per share.
An officer and major shareholder was issued 100,000 shares as
additional recognition of his continuing efforts related to the
development of the technology. The shares were valued at their fair
value at the date of issuance, $1.50 per share.
In 1999 the Company issued 76,133 shares for consulting and research and
development services as follows:
Consultants were issued 26,133 shares as additional recognition of
their services to the Company. The shares were valued at their fair
value at the time of issuance, $1.54 per share.
Research and development engineers were issued 50,000 shares as
additional recognition of their services to the Company. The shares
were valued at fair value at the time of issuance, $1.48 per share.
Private Placement Offerings
In 1996, the Company, in a private placement offering, sold 546,672 units
consisting of one share of common stock and one stock purchase warrant (the
"warrants") at an exercise price of $0.38 per share. The warrants were
redeemable at $0.38 per warrant immediately upon issuance, and expired on
September 30, 1999.
In 1998, the Company, in a private placement offering, sold 394,000 shares
of common stock at $0.50 per share.
23
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
10. Stock Transactions, Continued
Private Placement Offerings, Continued
In 1999, the Company, in a private placement offering, sold 500,000 units
at $1.00 per unit consisting of one share of common stock and one stock
purchase warrant ("warrants") at an exercise price of $2.40 per share. The
warrants are exercisable immediately and they will expire in July 2004. The
proceeds of from the sale of the units were allocated between the common
stock and warrants based on their relative market values.
In 1999, the Company, in a private placement offering, sold 205,900 shares
of common stock at $1.50 per share.
Common Shares Issued for Warrants Exercised
During 1997, 506,640 warrants were exercised resulting in the issuance of
506,640 shares of common stock.
Shares Issued for Raising Capital
In 1998, the Company issued 1,007,472 shares of stock for consulting
services related to the acquisition of Med Mark, Inc. (a reverse merger).
One of the individuals who received 200,000 shares for the
acquisition-related consulting services is an officer of the Company. The
shares were valued at $0.38 per share.
Acquisition of Med Mark, Inc. (Reverse Merger)
On June 10, 1998, the Company acquired all of the outstanding common stock
of Elast Delaware in a business combination accounted for as a purchase.
For accounting purposes, the acquisition has been treated as the
acquisition of the Company by Elast Delaware with Elast Delaware as the
acquiror (reverse acquisition). The effective purchase price was 1,220,000
shares of the Company's common stock. The Company, formerly known as Med
Mark, had no operations as of the acquisition date. No goodwill has been
recorded as a result of this transaction. As this transaction is treated as
a reverse merger acquisition, the historical financial statements prior to
June 10, 1998 are those of Elast Delaware.
24
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
10. Stock Transactions, Continued
Stock Issued to Correct a Stock Issuance Error
In 1998, the Company issued 13,332 shares to correct an error on a previous
stock issuance.
11. Management's Plan, (Unaudited)
The Company is presently continuing research and development activities
relating to a non-invasive, patented allergy-testing device (the "device"),
which the Company owns the rights to develop, test, manufacture and market.
To further advance the research and development of the device, and to
validate the scientific principle of bio-voltage measurement, an extensive
period of testing will commence in conjunction with the University of
California at San Diego.
Once the initial testing of the device is completed, the Company intends to
have approximately 10 units of the device manufactured, which will be
provided to a selected group of physicians and scientists. The operating
plan is to develop the device on a stand-alone basis, which is
user-friendly and fully self-contained. Once the device gains acceptance in
the medical community, the Company anticipates that a patient home-testing
unit may be developed.
The Company plans to negotiate and enter into marketing agreements with
appropriate distributors and marketing agents. In addition, it may acquire
the right to sell or distribute existing products, or obtain licensing,
marketing, distribution or other rights to compatible products. However,
other than costs related to the continued development of the device, the
Company does no anticipate significant expenditures on acquisition or
development of other products during the next year. The Company will focus
its initial marketing and distribution efforts on development and
commercial exploitation of the device. The present plan is to lease or
license the device to minimize costs and create an informed and updated
client base.
It may be necessary to raise additional funds to complete prototype
development and limited clinical trials of the device. However, if the
device performs as anticipated, the Company's management believes that they
will be able to raise the funds necessary to begin production of the
devices for clinical trials and the Food and Drug Administration approval
process by the sale of the Company's capital stock, debt, and/or licensing
certain proprietary rights.
25
<PAGE>
Elast Technologies, Inc.
(A Company in the Development Stage)
Notes to Consolidated Financial Statements, Continued
For Each of the Two Years in the Period Ended December 31, 1999
And for the Period from June 12, 1996 (Inception) to December 31, 1999
--------------------------------------------------------------------------------
11. Management's Plan, (Unaudited), Continued
Should the development of the prototype or clinical testing of the
prototype take more time than anticipated, or if the results of testing
require significant modifications to the device, sufficient funds may not
be available to enable the device to be completed and brought to market.
12. Subsequent Events (Unaudited)
Subsequent to year end, the Company initiated a public offering of
1,000,000 shares of its common stock on a best efforts basis. As of
February 25, 2000, the Company believes that approximately 575,000 shares
had been sold and that approximately $850,000 had been raised from this
offering.
9
<PAGE>
ELAST TECHNOLOGIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ELAST
TECHNOLOGIES, INC., A NEVADA CORPORATION ("COMPANY").
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE PROPOSALS INDICATED, AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY
HOLDER REGARDING ANY OTHER BUSINESS. ALL OTHER PROXIES HERETOFORE GIVEN BY THE
UNDERSIGNED IN CONNECTION WITH THE ACTIONS PROPOSED HEREIN ARE HEREBY EXPRESSLY
REVOKED. THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY WRITTEN
NOTICE TO THE SECRETARY OF THE COMPANY, BY ISSUANCE OF A SUBSEQUENT PROXY OR BY
VOTING AT THE ANNUAL MEETING IN PERSON.
INSTRUCTIONS. Except with respect to the election of directors, to vote in favor
of a proposal, circle the phrase "FOR approval". To vote against a proposal,
circle the phrase "AGAINST approval". To abstain from voting on a proposal,
circle the phrase "ABSTAIN".
The undersigned stockholder of Elast Technologies, Inc., (the "Company"), hereby
constitutes and appoints Thomas Krucker, with the power to appoint his
substitute, as attorney and proxy, to appear, attend and vote all of the shares
of common stock of the Company standing in the name of the undersigned on the
record date at the Annual Meeting of Stockholders of the Company to be held at
10:00 a.m. Pacific Standard Time, on July 10, 2000, at the Howard Hughes located
at 3800 Howard Hughes Parkway, Las Vegas, Nevada, and at any adjournment
thereof, upon the following:
1. To elect five (5) directors as follows:
FOR all nominees listed below, except WITHHOLD AUTHORITY
as marked to the contrary below to vote for all nominees
listed below
Additional Instructions: To withhold authority to vote for any individual
nominee, strike a line through that nominee's name specified below.
Thomas Krucker Robert Milne Eduardo Jimenez
Andrew Whelan Lee Feldman
2. To approve and adopt the Company's Stock Option Plan;
FOR approval AGAINST approval ABSTAIN
3. To approve, adopt and ratify the actions taken by the Company's officers
and directors during the most recent fiscal year;
1
<PAGE>
FOR approval AGAINST approval ABSTAIN
4. To approve the merger between the Company and Bioelectronics Corp., a
privately owned research and development company in Maryland;
FOR approval AGAINST approval ABSTAIN
5. To approve the Company entering into Indemnification Agreements with its
executive officers and directors;
FOR approval AGAINST approval ABSTAIN
6. To approve the Company's reimbursement of business-related expenses to the
Company's President, Thomas Krucker, in the amount of $113,854.00;
FOR approval AGAINST approval ABSTAIN
7. To approve the selection of Kelly & Company to audit the financial
statements of the Company for the fiscal year ended December 31, 2000;
FOR approval AGAINST approval ABSTAIN
8. To vote in his or her discretion on such other business as may properly
come before the meeting, or any adjournment thereof.
Please mark, date, sign and return this proxy promptly in the enclosed envelope.
When shares of the Company's $.001 par value common stock are held by joint
tenants, both joint tenants should sign this proxy. When signing as attorney,
executor, administrator, trustee, or guardian, please specify your complete
title as such. If shares of the Company's $.001 par value common stock are held
by a corporation, please sign in full that corporation's name and execute this
proxy by the President or other authorized officer of that corporation. If
shares of the Company's $.001 par value common stock are held by a partnership,
please execute this proxy in that partnership's name by an authorized general
partner or other authorized representative of that partnership.
Dated:________________ ----------------------------------
(Signature of Shareholder)
----------------------------------
(Printed Name of Shareholder)
___ PLEASE CHECK IF YOU ARE PLANNING TO ATTEND THE MEETING.
2
