SmartSkin Inc. is a company formed to commercialize patented noise and vibration control technology developed by Quality Research Development and Consulting, Inc. ("QRDC"). QRDC, a SmartSkin affiliated company, is an engineering, research and development company that has developed and owns patents and technology promoting control of vibration and noise by causing vibration, originating with the transfer of energy from an external source, to be directed to a confined area of a structure or "skin" where it is either inconsequential regarding comfort and/or operation or may be efficiently and effectively controlled, dampened or cancelled. SmartSkin has an exclusive agreement with QRDC such that it has sole right to commercialize the technology when applied to the skin of products or surface structures.

The mission of the Company is to commercialize the Technology in a manner that maximizes value and benefit to stakeholders, including strategic partners. The Company's Technology can provide measurable benefits to strategic partners either by improving noise and vibration characteristics of their products or components affording them market differentiation or by replacing technology already in use, reducing weight, volume and/or structural requirements in industries sensitive to these issues. These latter benefits generally translate into savings in production cost for the manufacturer and possibly savings in maintenance and energy costs for the ultimate customer.

Noise and vibration are endemic in our environment. There is no escaping them as the effects of the progress civilization has made in industrialization, transportation and infrastructure continuously bombard us. While it affects all industrialized nations, specific studies have been performed in Europe. The European Union concedes that, "....around 20 percent of the [European] Union's population or close on 80 million people suffer from noise levels that scientists and health experts consider to be unacceptable, where most people become annoyed, where sleep is disturbed and where adverse health effects are to be feared. An additional 170 million citizens are living in so-called 'grey areas' where the noise levels are such to cause serious annoyance during the daytime.

"A wide variety of studies have examined the question of the external costs of noise to society especially transport noise. The estimates range from 0.2% to 2% of GDP. The Commission's Green Paper 'Fair and Efficient Pricing in Transport' used the lower estimate of 0.2% of GDP which represents an annual cost to society of over 12 billion [Euros]."¹ Issues in the U. S. are no less severe.

"There are three basic approaches to reducing environmental noise exposure:

1. Reducing noise at source - from machines, engines, tyres and surface, reducing speeds and reducing traffic volume and use of equipment.

2. Limiting the transmission of noise by placing barriers between the source and people affected.

3. Reducing noise at the reception point such as through noise insulation of buildings."²

In addition to ambient and specific noise issues vibration in industry processes, industrial products and consumer products presents its own set of issues. Vibration has the capacity to reduce productivity by creating increased maintenance needs, reducing or curtailing throughput by slowing production on an ongoing basis, increasing energy or other costs to accommodate vibration or leading to premature failure of components or systems, sometimes with catastrophic result.

SmartSkin's patented methodology can replace more traditional methods requiring treatment of the entire surface or structure for vibration and/or noise related issues and is effective in all three approaches to noise reduction suggested in the referenced Green Paper as well as other vibrational concerns listed.

Patents have been broadly approved and issued to protect the technology across industrial platforms and include any system that controls vibration by confinement. This Vibration Control by Confinement(tm) ("VCC(tm)") technology is to be commercialized exclusively by the Company under a license agreement. The License Agreement includes VCC(tm) technology as well as Active Vibration Control by Confinement(tm) ("AVCC(tm)"), Passive Vibration Control by Confinement(tm) ("PVCC(tm)"), Hybrid Vibration Control by Confinement(tm) ("HVCC(tm)"), Smart Vibration Control by Confinement(tm) ("SVCC(tm)"), Energy Based Smart Skin Structures(tm) ("EBS3" (tm)) and Energy Flow Control(tm) ("EFC(tm)") as they pertain to surfaces or skins (all, collectively, the "Technology").

SmartSkin intends to recruit strategic partner customers. The Company and its strategic partners will develop applications of the Technology to give the strategic partners an advantage in either cost of production, operating cost, ease of use or market differentiation for their product(s). Development of applications will be done under joint development agreement(s) with strategic partners. The joint development agreement(s) will be a part of a master development and licensing agreement for use of the Technology.

¹Future Noise Policy, European Union Green Paper, page i; Brussels, 1996.
²Ibid, page 6.